Union Bank, N.A. v. Vanderhoek Assocs., LLC

• Decision Date: 15 December 2015
• Docket Number: No. 46565–5–II.,46565–5–II.
• Citation: 365 P.3d 223,191 Wash.App. 836
• Parties: UNION BANK, N.A., successor in interest to the FDIC as Receiver of Frontier Bank, Respondent, v. VANDERHOEK ASSOCIATES, LLC, a Washington limited liability company; Minne Vanderhoek and Trudy Vanderhoek, husband and wife, and the marital community composed thereof; and Richard T. Brunaugh and Amanda B. Brunaugh, husband and wife, and the marital community composed thereof, Defendants, and Donald C. Linkem and Elizabeth A. Linkem, husband and wife, and the marital community composed thereof; Paul E. Wilson and Kelly I. Wilson, husband and wife, and the marital community composed thereof; Pacific Resource Development, Inc., a Washington corporation; David A. Parker and Velma L. Parker, husband and wife, and the marital community composed thereof; Pacific Bay, Inc., a Washington corporation; Persons in Possession or Claiming a Right to Possession; All Other Persons or Parties Unknown Claiming Any Right, Title Estate, Lien, or Interest in the Real Estate Described in the Complaint Herein; and John Does I–X, Appellants.
• Court: Washington Court of Appeals

191 Wash.App. 836

365 P.3d 223

UNION BANK, N.A., successor in interest to the FDIC as Receiver of Frontier Bank, Respondent,

v.VANDERHOEK ASSOCIATES, LLC, a Washington limited liability company; Minne Vanderhoek and Trudy Vanderhoek, husband and wife, and the marital community composed thereof; and Richard T. Brunaugh and Amanda B. Brunaugh, husband and wife, and the marital community composed thereof, Defendants,andDonald C. Linkem and Elizabeth A. Linkem, husband and wife, and the marital community composed thereof; Paul E. Wilson and Kelly I. Wilson, husband and wife, and the marital community composed thereof; Pacific Resource Development, Inc., a Washington corporation; David A. Parker and Velma L. Parker, husband and wife, and the marital community composed thereof; Pacific Bay, Inc., a Washington corporation; Persons in Possession or Claiming a Right to Possession; All Other Persons or Parties Unknown Claiming Any Right, Title Estate, Lien, or Interest in the Real Estate Described in the Complaint Herein; and John Does I–X, Appellants.

No. 46565–5–II.

Court of Appeals of Washington, Division 2.

Dec. 15, 2015.

Benjamin J. Riley, Saxton Riley & Riley, PLLC, Prosser, WA, Brian Lowell Budsberg, Budsberg Law Group, PLLC, Olympia, WA, for Appellants.

Stellman Keehnel, Katherine Ann Heaton, DLA Piper LLP, Donald E. Hacker Jr., Hacker & Willig Inc. PS, Seattle, WA, Jeffrey Paul Helsdon, Oldfield & Helsdon PLLC, Tacoma, WA, for Respondent.

MELNICK, J.

¶ 1 This case arises out of a deficiency action following a trustee sale of real property. The borrower and guarantor defendants appeal the trial court's order vacating its earlier summary judgment order in their favor. We hold that the trial court had tenable bases for concluding an irregularity in obtaining the judgment existed and that a new case creating a divisional split within the Court of Appeals constituted extraordinary circumstances extraneous to the proceeding justifying relief from the judgment. Because the trial court did not abuse its discretion in vacating its earlier summary judgment order, we affirm.

FACTS

¶ 2 In November 2008, Vanderhoek Associates, LLC borrowed $1.93 million from Frontier Bank, evidenced by a promissory note (Vanderhoek Note). Vanderhoek Associates granted Frontier Bank a deed of trust over certain real property to secure the note. Numerous parties guaranteed the loan, including Minne Vanderhoek, Trudy Vanderhoek, Amanda Brunaugh, Richard Brunaugh, Kelly Wilson, Paul Wilson, Elizabeth Linkem, Donald Linkem, Pacific Resource Development, Inc., David Parker, and Velma Parker (collectively, the Vanderhoek Guarantors).

¶ 3 In March 2009, Pacific Bay, Inc. renewed a promissory note by executing a change in terms agreement regarding a $600,000 loan from Frontier Bank (Pacific Bay Note).¹ To secure the Pacific Bay Note, Vanderhoek Associates granted Frontier Bank a second-position deed of trust over the same real property used to secure the Vanderhoek Note. With the exception of Minne and Trudy Vanderhoek,² the same parties that guaranteed the Vanderhoek Associates loan, along with Pacific Bay, Inc., guaranteed the Pacific Bay loan (collectively, the Pacific Bay Guarantors).

¶ 4 On or about April 30, 2010, Union Bank became the successor in interest to the Federal Deposit Insurance Corporation (FDIC) as receiver of Frontier Bank and, in this capacity, acquired the loan documents and the entirety of the loan files for the Vanderhoek Note and Pacific Bay Note.

¶ 5 The respective borrowers and guarantors defaulted on the Vanderhoek and Pacific Bay Notes, which matured on May 30, 2009, and March 16, 2010. Following the defaults, Union Bank sued Vanderhoek Associates, Pacific Bay, Inc., and all of the guarantors of the notes. The trial court appointed a receiver over the real property secured by the notes. The trial court approved the receiver's sale of the property, which yielded approximately $1.1 million. Union Bank claimed that after it applied the sale proceeds and paid the receiver's costs, costs of sale, and other expenses, there were significant deficiencies on both notes. Union Bank filed suit to recover these deficiencies.

¶ 6 Union Bank moved for summary judgment, seeking judgments declaring that the guarantor defendants were jointly and severally liable, the guarantor defendant's received sufficient due process and opportunity to object to the receiver's sale, and the deficiency amount. On August 9, 2013, the trial court granted partial summary judgment against the guarantor defendants on the issue of liability.

¶ 7 On December 3, 2013, we issued our decision in First–Citizens Bank & Trust Co. v. Cornerstone Homes and Development, LLC, 178 Wash.App. 207, 314 P.3d 420 (2013). We held that Washington's deeds of trust act (DTA)³ prohibits a lender from obtaining a deficiency judgment against a guarantor of commercial loans whose guaranty was secured by a nonjudicially foreclosed deed of trust, notwithstanding that the nonjudicially foreclosed deed of trust was granted by the borrower and secured the borrower's promissory note. Cornerstone, 178 Wash.App. at 218, 314 P.3d 420.

¶ 8 Based on Cornerstone, Minne and Trudy Vanderhoek moved to revise the August 9 order granting partial summary judgment in favor of Union Bank and moved for summary judgment dismissing Union Bank's claims against them. They argued that they should be entitled to assert a defense to liability on their guaranty. The other guarantor defendants and borrower Pacific Bay, Inc.⁴ moved to join the Vanderhoeks' motion. Borrower Vanderhoek Associates did not join either motion.

¶ 9 On January 31, 2014, the trial court granted Minne and Trudy Vanderhoek's motion to revise the trial court's earlier order—granting partial summary judgment in favor of Union Bank, and granted summary judgment in favor of the Vanderhoeks and all of the "remaining defendants," which would include both borrowers. Clerk's Papers (CP) at 431. The trial court's order also included a provision dismissing Union Bank's remaining claims against Minne and Trudy Vanderhoek, as well as the other defendants.

¶ 10 Eighteen days later, Division One of this court issued its decision in Washington Federal v. Gentry, 179 Wash.App. 470, 319 P.3d 823 (2014), aff'd sub nom. Washington Federal v. Harvey, 182 Wash.2d 335, 340 P.3d 846 (2015). Division One expressly disagreed with Cornerstone, 178 Wash.App. 207, 314 P.3d 420, and concluded that the provision of the DTA that we relied on did not prohibit deficiency judgments against the guarantors. Gentry, 179 Wash.App. at 486, 489, 319 P.3d 823.

¶ 11 During a hearing on Minne and Trudy Vanderhoek's motion for attorney fees and costs, the trial court mentioned Gentry and indicated its willingness to reverse its January 31 order and judgment. Union Bank filed a notice of appeal from the trial court's January 31 judgment. Then, Union Bank filed a motion to vacate the trial court's January 31 summary judgment order. Union Bank argued that the January 31 judgment should be vacated under CR 60(b)(11) because Division One's decision in Gentry, effected a substantial change in the law. It also argued that CR 60(b)(1) and (5) provided an independent basis for vacating the January 31 judgment because procedural irregularities resulted in dismissal of claims against the borrowers, Vanderhoek Associates and Pacific Bay, Inc. The trial court granted Union Bank's motion to vacate subject to this court's approval pursuant to RAP 7.2(e). On October 7, we granted the trial court permission to formally enter its order vacating the January 31 summary judgment order. The trial court did so 10 days later.

¶ 12 Pacific Bay, Inc. and a group of guarantor defendants (appellants) appeal the trial court's order vacating its January 31 summary judgment order.⁵

ANALYSIS

I. STANDARD OF REVIEW

¶ 13 Generally, we review a trial court's order to grant or deny a motion to vacate under CR 60(b) for an abuse of discretion. Estate of Treadwell v. Wright, 115 Wash.App. 238, 249, 61 P.3d 1214 (2003). A trial court abuses its discretion if its decision is based on untenable grounds or is for untenable reasons. Treadwell, 115 Wash.App. at 249, 61 P.3d 1214.

II. MOTION TO VACATE —CR 60(b)

¶ 14 CR 60(b) authorizes a trial court to relieve a party from judgment in specified circumstances. These circumstances do not include a trial court committing an error of law. Shum v. Dep't of Labor & Indus., 63 Wash.App. 405, 408, 819 P.2d 399 (1991). Errors of law may not be corrected by a CR 60 motion; rather, they must be raised on appeal. Shum, 63 Wash.App. at 408, 819 P.2d 399.

¶ 15 The trial court granted the motion to vacate based on CR 60(b)(1), (5), and (11).⁶ The trial court concluded that an irregularity in obtaining the judgment existed and that the judgment was "void as in terms of Vanderhoek Associates." Report of Proceedings (RP) (July 3, 2014) at 28. Further, the trial court concluded that the judgment should be vacated because the law changed when Division One issued Gentry, 179 Wash.App. 470, 319 P.3d 823, a mere 18 days after the trial court granted summary judgment.

¶ 16 Appellants argue that the trial court erred by granting Union Bank's CR 60 motion to vacate the January 31 summary judgment order because no irregularities existed and because Gentry does not provide a basis to vacate the judgment. We disagree.

A. CR 60(b)(1) —The Borrower

¶ 17 Appellants argue that the trial court erred by vacating its judgment on the basis of CR 60(b)(1) because there was no irregularity of process or extraordinary circumstances surrounding the entry of the judgment. As it relates to Pacific Bay, Inc., the borrower that is a party to this appeal, we disagree.

¶ 18 CR 60(b)(1) provides that the trial court may relieve a party from a final judgment for "[m]istakes, inadvertence, surprise, excusable neglect or irregularity in obtaining a judgment or order."

¶ 19 The asserted irregularity here is that the trial court erroneously dismissed...