Sorenson v. Pyeatt
| Decision Date | 09 November 2006 |
| Docket Number | No. 77229-1.,77229-1. |
| Court | Washington Supreme Court |
| Parties | Carole SORENSON, a single person, Respondent, v. Barbara PYEATT, a married woman, Judy Hanson and John Doe Hanson, and the marital community comprised thereof; Paula Steiner and John Doe Steiner, and the marital community comprised thereof, Defendants, Household Finance Corporation III, a Washington corporation; Saxon Mortgage Incorporated, a Washington corporation, Petitioners, William F. Walker and Jane Doe Walker, and the marital community comprised thereof, Defendants, Meritech Mortgage Services, a Washington corporation; and Bankers Trust Company, a Washington corporation; and their heirs, successors, and assigns, and anyone, known or unknown, claiming any right, title or interest in certain real property, Petitioners. |
Jonathan P. Meier, Stephen J. Sirianni, Sirianni Youtz Meier & Spoonemore, Seattle, for Petitioner.
Philip E. Rosellini, Bellingham, for Respondents.
¶ 1 A group of commercial lenders (Lenders)1 seeks to overturn a decision of the Court of Appeals in which that court reversed the trial court's judgment imposing an equitable lien against real property located on Lummi Island and foreclosing upon that property after the trial court had quieted title in the name of Carole Sorenson (Sorenson). The equitable lien was imposed in partial satisfaction of a judgment the trial court granted in favor of the Lenders against Ken and Barbara Pyeatt,2 the latter of whom forged quitclaim deeds to the property and used the property as collateral to secure roughly $868,000 in loans from the Lenders. Alternatively, the Lenders assert that Sorenson should be equitably estopped from claiming unencumbered ownership of the property.
¶ 2 We hold that the Lenders are not entitled to relief, equitable or otherwise. In our view, the Court of Appeals correctly concluded that the Lenders failed to meet the criteria set forth by this court in Falconer v. Stevenson, 184 Wash. 438, 51 P.2d 618 (1935), for imposing an equitable lien. We hold, additionally, that it correctly concluded that Barbara Pyeatt had no power to give the Lenders a legally enforceable security interest in the Lummi Island property. We further conclude that equity does not call for divesting Sorenson of her full property interest to satisfy the Lenders' judgment against the Pyeatts.
¶ 3 Finally, the Lenders have failed to show that they detrimentally relied on an admission, act, or statement by Sorenson—a predicate to establishing an equitable estoppel claim. Consequently, we affirm the Court of Appeals and remand to the trial court for an order quieting title to the Lummi Island property in Sorenson free and clear of all claims by the Lenders.
¶ 4 Prior to commencement of this action in 2003, Carole Sorenson and Ken Pyeatt had been longtime friends. During the 1980s, Sorenson and Pyeatt engaged in a series of transactions in which Ken Pyeatt conveyed his interest in certain real property to Sorenson, including the Lummi Island real property at issue in this case.3 Although these transfers had the effect of making Sorenson the record owner, as a practical matter, Ken Pyeatt retained incidents of ownership.4 The trial court determined that these transactions were undertaken for the purpose of keeping title out of Ken Pyeatt's name in order that he might avoid his then-creditors and, possibly, to keep the properties out of the reach of the drug enforcement agency.5 From time to time, Sorenson conveyed the properties back to Ken Pyeatt so that he could use the property as collateral to borrow money.6 After doing so, Pyeatt would reconvey the properties back to Sorenson.
¶ 5 In late 1990, Pyeatt conveyed the Lummi Island property to Sorenson by a quitclaim deed. The deed was recorded with the Whatcom County Auditor's Office on December 4, 1990. Sorenson maintained record ownership of the property until the action leading to this appeal was commenced.
¶ 6 In 1996, Ken Pyeatt married Barbara Pyeatt. Pyeatt disclosed to Barbara Pyeatt that he owned the Lummi property, but that he was keeping it in Sorenson's name. In February 1998, Barbara Pyeatt began an extensive fraudulent borrowing and refinancing scheme. As part of this scheme, Barbara Pyeatt obtained two preprinted quitclaim deeds. Without Carole Sorenson's knowledge or consent,7 she typed in the legal description of the Lummi Island property on the deeds. She then signed Sorenson's name as grantor and made herself the grantee. After the forged documents were notarized by Barbara Pyeatt's sister, they were recorded with the Whatcom County Auditor.
¶ 7 Barbara Pyeatt and Ken Pyeatt subsequently entered into several loan transactions with various lenders, which ended with one final loan/refinance in October 2000. Barbara Pyeatt pledged the Lummi Island property as collateral for these loans. Altogether, the Pyeatts borrowed hundreds of thousands from the Lenders.8 The record shows that the Pyeatts used the fraudulently obtained loan money primarily as disposable income.
¶ 8 In 2003, Sorenson filed suit in the Whatcom County Superior Court to quiet title to the Lummi Island property in her name. Sorenson named, among others, Barbara Pyeatt and the Lenders as defendants. The Lenders answered, seeking to enforce the forged deeds of trust in their favor. At trial, the trial court declared Carole Sorenson to be the record owner of the Lummi Island property and nullified the deeds of trust in favor of the Lenders on the basis that the quitclaim deeds, purporting to vest title in Barbara Pyeatt, had been forged. It then entered judgment against the Pyeatts in the amount of $868,000, together with interest from the entry of judgment.
¶ 9 Notwithstanding the fact that it had not entered a judgment against Sorenson, the trial court imposed an equitable lien9 against the property in the amount of $532,000 in partial satisfaction of the judgment the Pyeatts' creditors, including the Lenders, had obtained against the Pyeatts. The trial court reasoned that a lien should be imposed because Sorenson was "culpable" in failing to exercise a reasonable degree of oversight over the Lummi property, thereby helping to facilitate the Pyeatts' fraudulent conduct and serving as a "cause[ ]-in-fact" of the Lenders' financial losses. Clerk's Papers (CP) at 18, 19. Based on this conclusion, the trial court decreed that the Lenders were entitled to foreclosure on Sorenson's property because a judgment for money damages against the Pyeatts would have been an "illusory remedy." Id. at 22.
¶ 10 Apparently aware that the imposition of an equitable lien might be reversed on appeal, the trial court took the unusual action of concluding, alternatively, that while Sorenson took record title to the property, Ken Pyeatt remained the actual or beneficial owner.10 Consequently, it held that, in the event its decision was overturned, the Lenders' deeds of trust could be enforced directly against Ken Pyeatt as owner and that foreclosure could occur on the property on that basis.
¶ 11 Sorenson appealed the trial court's imposition of the equitable lien. Division One of the Court of Appeals reversed the trial court's imposition of the lien, concluding that it had no authority to impose the equitable lien against Sorenson's property for the reason that the necessary elements for such a lien are not present in this case. The Lenders sought discretionary review here. We granted the petition for review. Sorenson v. Pyeatt, noted at 156 Wash.2d 1010, 132 P.3d 145 (2006).
¶ 12 This case requires us to determine both the parameters of the equitable lien doctrine and whether the Lenders are entitled to equitable relief. In matters of equity, "trial courts have broad discretionary power to fashion equitable remedies." In re Foreclosure of Liens, 123 Wash.2d 197, 204, 867 P.2d 605 (1994). The Supreme Court reviews the authority of a trial court to fashion equitable remedies under an abuse of discretion standard. Blair v. Wash. State Univ., 108 Wash.2d 558, 564, 740 P.2d 1379 (1987). However, it is a well-established rule that an equitable remedy is an extraordinary, not ordinary form of relief. Henry L. McClintock, Handbook of the Principles of Equity § 22, at 47 (2d ed.1948). A court will grant equitable relief only when there is a showing that a party is entitled to a remedy and the remedy at law is inadequate. Orwick v. City of Seattle, 103 Wash.2d 249, 252, 692 P.2d 793 (1984).
¶ 13 The Lenders acknowledge that the deeds purporting to transfer title from Sorenson to Barbara Pyeatt were forged. However, they assert that they are entitled to relief on grounds that the Court of Appeals erred in according too much weight to this court's decision in Falconer, 184 Wash. 438, 51 P.2d 618, when reversing the trial court's imposition of an equitable lien, and it further erred by failing to give proper deference to the discretion of the trial court to fashion appropriate equitable remedies. Alternatively, the Lenders argue that Sorenson is equitably estopped from claiming unfettered ownership of the Lummi property, even in the face of her having record title. More specifically, the Lenders assert that Sorenson is precluded from contesting the validity of the deeds of trust held by the Lenders due to Sorenson's allegedly culpable conduct in facilitating the Pyeatts' fraudulent conduct through her long standing cooperation with Ken Pyeatt in shielding the Lummi Island property from creditors and in her failure to properly monitor title to the property. While we fully address each of the Lenders' arguments, we conclude that although Carole Sorenson engaged in inequitable conduct, neither the equities nor the law is on the Lenders' side.
¶ 14 The principal question before us is whether the trial court erred in imposing an equitable lien against real property pledged...
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