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Idaho Development, LLC, A Utah Limited Liability Company v. Teton View Golf Estates

November 3, 2011

IDAHO DEVELOPMENT, LLC, A UTAH LIMITED LIABILITY COMPANY, PLAINTIFF-APPELLANT,
v.
TETON VIEW GOLF ESTATES, LLC, A UTAH LIMITED LIABILITY COMPANY; AMERITITLE COMPANY; ZBS, LLC., AN IDAHO LIMITED LIABILITY COMPANY; DEPATCO, INC., AN IDAHO CORPORATION; SCHIESS & ASSOCIATES, P.C., AN IDAHO PROFESSIONAL CORPORATION, DEFENDANTS-RESPONDENTS, AND ROTHCHILD PROPERTIES, LLC, A UTAH LIMITED LIABILITY COMPANY; WESTERN EQUITY, LLC, A UTAH LIMITED LIABILITY COMPANY; HD SUPPLY WATERWORKS, LTD; DOES 1-3, AND ALL PERSONS IN POSSESSION OF REAL PROPERTY DESCRIBED HEREIN, DEFENDANTS.



Appeal from the Seventh Judicial District of the State of Idaho, Bonneville County. Hon. Jon J. Shindurling, District Judge.

The opinion of the court was delivered by: W. Jones, Justice

2011 Opinion No. 112

Stephen W. Kenyon, Clerk

The decision of the district court granting summary judgment is vacated and the case is remanded for further proceedings in accordance with this Opinion. The award of attorney's fees and costs is vacated.

I. NATURE OF THE CASE

Idaho Development, LLC ("Idaho Development") advanced $1,100,000.00 to Teton View Golf Estates, LLC ("Teton View"), a joint venture made up of Idaho Development as a 33.3% owner and Rothchild Properties, LLC as a 66.7% owner. Teton View granted Idaho Development a promissory note secured by a deed of trust that specified a set monthly payment and stated that the entire amount was to be paid off in ninety days. Idaho Development filed an action to foreclose on the deed of trust after Teton View failed to satisfy the promissory note. DePatco, Inc., another lienholder on the property, filed a motion for summary judgment to recharacterize Idaho Development's advance as a capital contribution, which was granted. Idaho Development appealed, arguing that there was a genuine issue of fact as to whether the entire $1,100,000 advance was intended to be a capital contribution. Idaho Development also appealed a subsequent summary judgment brought by ZBS, LLC, which relied on the recharacterization determination in holding that ZBS' lien on the property had priority over Idaho Development's lien.

II. FACTUAL AND PROCEDURAL BACKGROUND

Idaho Development, LLC ("Idaho Development") and Rothchild Properties, LLC ("Rothchild") wanted to form a Limited Liability Company known as Teton View Golf Estates, LLC ("Teton View"). On February 20, 2008, ZBS, LLC ("ZBS") transferred real property by warranty deed to Teton View with the understanding that Teton View would become operative in the upcoming weeks. One day earlier, on February 19, 2008, Teton View granted ZBS a promissory note secured by a deed of trust on the property in favor of ZBS. That deed of trust secured payment of $640,000 to ZBS, but was not immediately recorded.

On February 28, 2008, Idaho Development and Rothchild entered into a Joint Venture Agreement forming Teton View. Under the terms of the Joint Venture Agreement, Idaho Development advanced $1,100,000.00 to the joint venture, "with the understanding that upon the funding of the construction loan, Idaho Development shall be repaid the sum of Eight Hundred Thousand Dollars ($800,000)." The remaining sum of $300,000 was to be subordinated to the construction loan. Idaho Development made no other advancement to Teton View. Rothchild contributed its time, skill, technology and know-how to Teton View. In exchange for Idaho Development's advancement of $1,100,000.00, Idaho Development shared 33.3% of Teton View's profits and losses, while Rothchild shared 66.7% of the company's profits and losses.

The next day, on February 29, 2008, Idaho Development obtained a promissory note for repayment of $1,100,000.00 from Teton View, secured by a deed of trust on the same property as the ZBS deed of trust.*fn1 In an effort to compromise ZBS' and Idaho Development's conflicting interests, Idaho Development agreed to reduce the deed of trust from $1,100,000 to $850,000, but refused to subordinate its deed of trust behind ZBS. As a result, on March 7, 2008, Idaho Development's deed of trust was amended to an amount of $850,000. On March 10, 2008, both Idaho Development and ZBS recorded their deeds of trust, but Idaho Development's deed of trust bears a lower instrument number evidencing that ZBS recorded behind Idaho Development.*fn2

Idaho Development's promissory note called for six percent annual interest with monthly payments by Teton View of $5,595.06. It required the balance to be paid in full no later than ninety days from the date of the note, or in other words, by May 28, 2008. It also provided that Idaho Development was to receive 15% of the net proceeds from each lot sale. Teton View did not satisfy the terms of the promissory note. Idaho Development agreed to extend the due date on the promissory note until the end of June 2008 in exchange for a $10,000 payment. Again, Teton View failed to satisfy the note by the extended deadline, and Idaho Development filed a complaint to foreclose its deed of trust against all junior interests.

In its amended complaint, Idaho Development listed several defendants, including Teton View, Rothchild, and ZBS. It also listed Western Equity, LLC ("Western Equity"); Amerititle Company ("Amerititle"); DePatco, Inc. ("DePatco"); Schiess & Associates, P.C. ("Schiess"); and HD Supply Waterworks, Ltd. ("HD Supply") as defendants. DePatco worked on the property at issue and recorded a lien on the property on October 20, 2008, after both Idaho Development and ZBS recorded their deeds of trust. Teton View, Rothchild and Western Equity filed counter-claims against Idaho Development. Those parties stipulated to dismiss those claims on August 14, 2009. On January 5, 2010, DePatco filed a motion for partial summary judgment seeking recharacterization of Idaho Development's advancement, or alternatively, seeking equitable subordination of Idaho Development's lien to its own. In its Opinion, Decision and Order, the district court granted DePatco's motion and recharacterized the loan as a capital contribution, thereby moving Idaho Development's priority to last in line behind all other legitimate creditors, including ZBS, DePatco and Schiess.

ZBS subsequently filed a motion for summary judgment to establish ZBS' priority over Idaho Development's claims. Idaho Development opposed the motion, arguing that ZBS had agreed to subordinate its claim to Idaho Development after it amended its deed of trust from $1,100,000 to $850,000 and thus ZBS should not be given priority. Idaho Development also filed a Motion to Reconsider the first summary judgment which had recharacterized the advancement as a contribution to capital. ZBS, DePatco, and Schiess entered into an agreement to jointly foreclose their liens. Because Teton View failed to appear and answer with respect to the claims of ZBS and Schiess, the court entered default judgment against Teton View. Third- party defendants, Amerititle and Idaho Title & Trust, Inc., as trustees of the deeds of trust at issue in this case, stipulated to entry of judgment. The court entered judgment on May 11, 2010 establishing that ZBS' deed of trust, DePatco's deed of trust and Schiess' lien, were valid first liens on the property. It ordered judgment of foreclosure against Teton View and in favor of ZBS, DePatco and Schiess. The district court issued a Rule 54(b) certificate with its judgment, allowing that judgment to be appealed to this Court.

Idaho Development's Motion to Reconsider was denied on August 30, 2010. Idaho Development provided argument on appeal as to why the Motion to Reconsider was improperly denied. Although it did not appeal from that order, and the Notice of Appeal was filed almost three months before the Motion to Reconsider was denied, Idaho Appellate Rule 17 instructs that all interlocutory or final orders entered after the final judgment appealed from shall be deemed included on appeal. Nevertheless, given the outcome of this opinion, the Court finds it unnecessary to decide whether the Motion to Reconsider was improperly ...


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