Thomas v. Arkoosh Produce, Inc.

• Decision Date: 05 June 2002
• Docket Number: No. 27066.,27066.
• Citation: 137 Idaho 352,48 P.3d 1241
• Parties: G. Matthew THOMAS, in his capacity as Personal Representative of the Estate of Daniel A. Thomas, Plaintiff-Appellant, v. ARKOOSH PRODUCE, INC., an Idaho corporation, First Security Bank, N.A., a Federally Chartered Bank in good standing in the State of Idaho, headquartered in Salt Lake City, Utah; Life Investors Insurance Company of America, an Iowa corporation; Rain For Rent, Inc., an Arizona corporation; and John Does 1-10, Jane Does 1-10 and Corporations XXX-XYZ consisting of All Other Persons and Entities Claiming Any Right, Title or Interest In or To The Real Property which is the Subject of This Action, Defendants-Respondents. Arkoosh Produce, Inc., an Idaho corporation, Counterclaimant, v. G. Matthew Thomas, individually and in his capacity as Personal Representative of the Estate of Daniel A. Thomas, Deceased, Counterdefendant.
• Court: Idaho Supreme Court

48 P.3d 1241

137 Idaho 352

G. Matthew THOMAS, in his capacity as Personal Representative of the Estate of Daniel A. Thomas, Plaintiff-Appellant, v. ARKOOSH PRODUCE, INC., an Idaho corporation, First Security Bank, N.A., a Federally Chartered Bank in good standing in the State of Idaho, headquartered in Salt Lake City, Utah; Life Investors Insurance Company of America, an Iowa corporation; Rain For Rent, Inc., an Arizona corporation; and John Does 1-10, Jane Does 1-10 and Corporations XXX-XYZ consisting of All Other Persons and Entities Claiming Any Right, Title or Interest In or To The Real Property which is the Subject of This Action, Defendants-Respondents.

Arkoosh Produce, Inc., an Idaho corporation, Counterclaimant, v. G. Matthew Thomas, individually and in his capacity as Personal Representative of the Estate of Daniel A. Thomas, Deceased, Counterdefendant.

No. 27066.

Supreme Court of Idaho, Boise, March 2002, Term.

June 5, 2002.

Givens Pursley, LLC, Boise, for appellant. David R. Lombardi argued.

Arkoosh & James, PLLC, Gooding, for respondent Arkoosh Produce, Inc.

Stoel Rives, LLP, Boise, for respondent LIIC. Dale G. Higer argued.

TROUT, Chief Justice.

I. NATURE OF THE CASE

This is an appeal by Matthew Thomas as a personal representative of the Estate of Daniel Thomas (Estate) from a court trial in which the district judge found in favor of the Estate on a promissory note, but declined to award prejudgment interest based on equitable defenses. We reverse and remand for further proceedings.

II. FACTUAL AND PROCEDURAL HISTORY

In 1988, Greenhorn Farms, which was an entity owned by brothers Tom Arkoosh ("Tom") and Jim Arkoosh ("Jim") became involved in a dispute with J.R. Simplot Co. ("Simplot") over the amount charged by Simplot for fertilizer. Arkoosh Produce, Inc. ("API") gave Simplot a real estate mortgage on API's potato processing plant in Gooding County, Idaho for $1,078,802.09 to secure the disputed debt. Tom is also legal counsel for ("API") and Jim is API's president and general manager. Both Tom and Jim are shareholders in API as well.

On June 23, 1989, Daniel Thomas ("Thomas") loaned $112,500.00 to Greenhorn Farms, and he made a second loan to Greenhorn Farms on January 17, 1990, in the amount of $150,000. Both loans, memorialized in promissory notes, were for the purpose of constructing a french-fry plant and were guaranteed by API and Arkoosh family members.

On February 14, 1991, Greenhorn Farms sought Chapter 11 bankruptcy protection. On October 25, 1991, Thomas filed a complaint in Gooding County, Idaho, against the guarantors of his promissory notes, including API and individual members of the Arkoosh family. On December 20, 1991, Greenhorn Farms and API filed a complaint in the United States District Court for the District of Idaho against Simplot regarding the dispute over the alleged fertilizer debt, and API escrowed about $500,000 to pay the debt if necessary.

In 1992, the guarantors of the promissory notes reached a settlement agreement to resolve the debts owed Thomas for $250,000. API further agreed under the bankruptcy plan to assume the assets and the liabilities of Greenhorn Farms, including the Thomas debt. The settlement also stipulated that ninety-six monthly payments in the amount of $3,793.54 would be paid, but they were not due, and interest at a rate of ten percent per year, would not begin to accumulate until the conclusion of the pending federal Simplot litigation or December 31, 2007, whichever occurred first. The settlement debt was secured by a junior mortgage on the same property as the Simplot mortgage and other liens.

On December 22, 1994, Simplot filed a state court lawsuit to foreclose on its mortgage against the property in Gooding County, Idaho. The parties, pursuant to stipulation, dismissed the federal court litigation on March 27, 1995. API did not notify Thomas of the settlement, which triggered its duty to begin making payments to Thomas, and the accumulation of interest on the note. Thomas did not contact API either regarding the debt, but it is not clear whether Thomas was aware the federal Simplot litigation had settled. API attempted to record a release of the Simplot mortgage on March 13, 1995, but the release erroneously referred to an instrument number other than the Simplot mortgage. API did not file a release referencing the correct instrument number of the Simplot mortgage until October 21, 1998.

In the meantime, API did not make any payments on the Thomas debt, but instead used the money to make improvements on API's plant facilities and for working capital. In 1995, Thomas instructed his accountant to file an amended 1993 tax return, which included a deduction of the debt as a non-business bad debt from which Thomas received tax benefits.

In 1995, an Internal Revenue Service ("IRS") agent audited Thomas' amended 1993 tax return. The IRS agent conducted a factual investigation in which he spoke to both Jim and Tom on the telephone regarding the debt. The IRS agent eventually allowed the write-off.

On May 14, 1996, Thomas passed away and thereafter Matthew Thomas ("Matthew"), the decedent's brother, was appointed as the personal representative of Thomas' estate. Matthew decided not to list the API debt on the estate's inventory because he believed the debt was worthless, and by not claiming it the Estate's tax obligation was decreased.

In October of 1998, API contacted the Estate and asked that the mortgage securing the debt be removed from the property so API could secure a $2,000,000.00 loan from Aegon/Life Investors Insurance Company of America ("LIIC"), which sought a mortgage on the property to secure the loan and refused to close if the encumbrances were not removed.¹ API was able to obtain releases for other encumbrances, including the Simplot mortgage, but Matthew, on behalf of the Estate, refused to release the mortgage, responding through counsel that there was no evidence Thomas had released or forgiven the debt. On December 4, 1998, the Estate demanded payment of $183,000 in delinquent payments, and when that was not paid, sent a notice of acceleration demanding $343,000 in principle, interest and attorney's fees. API did not make the payment and the Estate proceeded to foreclose on the mortgage.

On March 12, 1999, the Estate filed suit in the 5th Judicial District court in Gooding County for the principal amount of $250,000.00 plus interest, under the terms of the note. API filed an answer and counterclaims for slander of title, statutory failure to release a mortgage, and quiet title. API conceded the Estate had proven a prima facie case that the debt was owing, but it asserted the equitable affirmative defense of quasi-estoppel.

Thereafter, a court trial was held and upon stipulation of the parties, API presented its evidence of quasi-estoppel at the beginning of the trial. At the conclusion of API's evidence, the Estate brought an I.R.C.P. 41(b) motion to dismiss API's counterclaims. The Estate also argued that the defense of laches barred API's claims. At that point, although not pleaded or previously asserted, API asserted that laches barred the Estate's collection of the debt. The trial judge denied the Rule 41(b) motion and the Estate presented its evidence.

At the conclusion of the trial, the trial judge entered his decision, dismissing API's counterclaims and holding that API owed the Estate the full principal amount of the note, $250,000, but denying the Estate $178,000 in prejudgment interest based on equitable defenses of quasi-estoppel and laches. Shortly thereafter, API filed bankruptcy but the bankruptcy court granted relief from the stay for the Estate to pursue this appeal. The Estate appealed to this Court the trial judge's ruling that it was not entitled to prejudgment interest. API did not file a response brief, but LIIC, which is a junior mortgage holder, did. API did submit a letter to this Court, stating that it concurred with the brief filed by LIIC.

III. STANDARD OF REVIEW

This Court exercises free review over the lower court's conclusions of law "to determine whether the court correctly stated the applicable law, and whether the conclusions are sustained by the facts found." Nampa and Meridian Irrigation Dist. v. Washington Federal Savings, 135 Idaho 518, 521, 20 P.3d 702, 705 (2001) (citation omitted). The standard of review of a trial court's findings of fact is set forth in I.R.C.P. 52(a). Williamson v. City of McCall, 135 Idaho 452, 455, 19 P.3d 766, 769 (citing I.R.C.P. 52(a)). I.R.C.P. 52(a) provides in pertinent part:

In all actions tried upon the facts without a jury ... the court shall find the facts specially and state separately its conclusions of law thereon and direct the entry of the appropriate judgment. Findings of fact shall not be set aside unless clearly erroneous. In the application of this principle regard shall be given to the special opportunity of the trial court to judge the credibility of those witnesses that appear before it.

Id. (quoting I.R.C.P. 52(a)). "In determining whether a finding is clearly erroneous this Court does not weigh the evidence as the district court did. The Court inquires whether the findings of fact are supported by substantial and competent evidence." Id. (citation omitted). "This Court will not substitute its view of the facts for the view of the district judge." Id. (citation omitted). "Evidence is regarded as substantial if a reasonable trier of fact would accept it and rely upon it in determining whether a disputed point of fact has been proven." Id.

Admission of hearsay evidence under an exception is reviewed for abuse of discretion. State v. Moore, 131 Idaho 814, 822, 965 P.2d 174, 182 (1998) (citing State v. Zimmerman, 121 Idaho 971, 829 P.2d 861 (1992)). The district court's choice of remedy is also reviewed under an abuse of discretion standard. Nelson v. Big Lost River Irrigation Dist., 133 Idaho 139, 141, 983 P.2d 212,...