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Union Bank, N.A. v. JV, LLC

Supreme Court of Idaho

January 27, 2017

UNION BANK, N.A., a national banking association, Plaintiff-Respondent,
JV L.L.C., an Idaho limited liability company, Defendant-Appellant, and PEND OREILLE BONNER DEVELOPMENT, LLC, a Nevada limited liability company, NORTH IDAHO RESORTS, an Idaho limited liability company, DAN JACOBSON, an individual, SAGE HOLDINGS LLC, an Idaho limited liability company, TIMBERLINE INVESTMENTS, LLC, an Idaho limited liability company, STEVEN G. LAZAR, an individual, AMY KORENGUT, an individual, HLT REAL ESTATE LLC, PANHANDLE STATE BANK, an Idaho corporation, R.E. LOANS, LLC, a California limited liability company, WELLS FARGO FOOTHILL, INC., a Delaware limited liability company, PEND OREILLE BONNER DEVELOPMENT HOLDINGS, INC., a Nevada corporation, PENSCO TRUST CO. custodian f/b/a Barney Ng, a California corporation, MORTGAGE FUND '08 LLC, a California limited liability company, B-K LIGHTING, INC., a California corporation, FREDERICK J. GRANT, an individual, CHRISTINE GRANT, an individual, RUSS CAPITAL GROUP, LLC, an Arizona limited liability company, JOSEPH DUSSICH, an individual, MOUNTAIN WEST BANK, an Idaho corporation, STATE OF IDAHO, DEPARTMENT OF REVENUE AND TAXATION, MONTAHENO INVESTMENTS, LLC, a Nevada limited liability company, TOYON INVESTMENTS, LLC, a Nevada limited liability company, CHARLES W. REEVES and ANNE B. REEVES, husband and wife, ACI NORTHWEST, INC., an Idaho corporation, and DOES 1 through 20, inclusive, Defendants.

         2017 Opinion No. 7

         Appeal from the District Court of the First Judicial District of the State of Idaho, Bonner County. Hon. Michael J. Griffin, District Judge.

         The judgment of the district court is affirmed.

          Finney Finney & Finney, P.A., Sandpoint, for appellant. John Finney argued.

          Stoel Rives LLP, Boise, for respondent. Christopher Pooser argued.

          HORTON, Justice.

         JV, LLC (JV) appeals from the district court's grant of summary judgment in favor of Union Bank, N.A. (Union Bank)[1] in a mortgage priority dispute. Union Bank sought to foreclose a mortgage on a property known as "Trestle Creek." JV claimed priority to the Trestle Creek property through a mortgage recorded June 19, 2006. Union Bank's mortgage was recorded March 25, 2008. Union Bank moved for summary judgment, arguing that JV had subordinated its lien to that of Union Bank. The district court agreed and granted the motion. We affirm.


         JV once owned property located above the shores of Lake Pend Oreille near Sandpoint, Idaho. That property included the Hidden Lakes Golf Course and a nearby property known as "Moose Mountain." In 1995, JV sold the properties to Richard Villelli and his related entities. JV's position was secured by a first priority mortgage on the Moose Mountain property. Villelli was the managing member of North Idaho Resorts, LLC (NIR).

          In January of 2005, NIR sold the golf course, the Moose Mountain property, and a nearby lakefront property (Trestle Creek) to Pend Oreille Bonner Investments, LLC, which then assigned the property to Pend Oreille Bonner Development, LLC (POBD). The purchase and sale agreement with NIR provided that POBD would assume responsibility for paying existing loan obligations to JV and R.E. Loans, LLC. As part of the agreement, POBD obtained the Moose Mountain property subject to JV's first priority mortgage. JV subordinated its lien on the Moose Mountain property to R.E. Loans in exchange for a first priority mortgage on the Trestle Creek property. JV's mortgage was recorded June 19, 2006.

         In October 2007, Union Bank granted POBD a $5 million revolving line of credit. In 2008, Union Bank converted the line of credit into a $5 million loan under a revolving term note. The note was secured by a mortgage on the Trestle Creek property, recorded March 25, 2008. In June 2008, JV and POBD entered into a Third Amendment to Indebtedness and to Real Estate Security, and Subordination Agreement (Amendment). The Amendment provided:

On the TRESTLE CREEK property the present first lien priority of J.V., LLC shall be subordinate and inferior to a new first lien priority of no more than $5, 000, 000.00.

         JV received $30, 000 and an increased interest rate on its loan to POBD for signing the Amendment.

         In August of 2008, JV signed a document titled "Subordination Agreement." The Subordination Agreement identified Union Bank and JV as the parties and POBD as a borrower "bound by all terms, provisions and conditions thereof." Union Bank did not sign the Subordination Agreement. The Subordination Agreement provided:

Creditor [JV] hereby subordinates the lien of Creditor's Deed of Trust, but only as said lien encumbers and pertains to the property described on Exhibit A [Trestle Creek] hereto, to the lien of the mortgage dated March 7, 2008 and recorded March 25, 2008 as Instrument No. 748379 and 748380 (the "[Union Bank] Mortgage") to secure a loan (the "[Union Bank] Loan") which [Union Bank] has heretofore made to Borrower [POBD] which [Union Bank] amount of Five Million Dollars ($5, 000, 000), the proceeds of which Borrower has used to pay off the existing indebtedness of Borrower and/or Holdings, Inc. and/or to pay for the improvement and development of property encumbered by Creditor's Deed of Trust, including the property described on Exhibit A and/or interest, fees, and charges payable to [Union Bank] on account of the [Union Bank] Loan.

(bold, underlining in original).

         POBD defaulted on the Union Bank loan. In May of 2011, Union Bank filed an action to foreclose on all title and interest in Trestle Creek. Because there were numerous liens on the property, Union Bank named all of the lienholders as defendants, including JV and NIR. JV filed an answer and counterclaim against Union Bank and a cross-claim against NIR asserting a priority interest in the Trestle Creek property. Union Bank denied that JV possessed a superior claim to Trestle Creek. After some litigation, the only remaining parties that claimed a superior interest in Trestle Creek were Union Bank, JV, and NIR.

         In March 2013, JV filed a motion for judgment on the pleadings. JV claimed that the only facts alleged in Union Bank's complaint showed that JV's mortgage, recorded June 19, 2006, was prior in time to Union Bank's mortgage, recorded March 25, 2008. The district court denied the motion, finding that based on the pleadings "there is an issue as to whether or not the plaintiff may foreclose JV's rights to the subject property."

         On July 1, 2013, Union Bank filed a motion for partial summary judgment as to defendants NIR and JV. JV opposed the motion and submitted the affidavit of James W. Berry in opposition to the motion. Berry claimed that JV never entered into a subordination agreement with Union Bank, there was no consideration given for the agreement, and JV was fraudulently induced to enter into the agreement. The district court denied the motion with respect to NIR; however, the district court granted the motion with respect to JV concluding: "There is no genuine issue of material fact that: 1) UB's mortgage was recorded after JV's mortgage; and 2) that a valid [subordination] contract was entered into, by which JV's mortgage was made inferior to UB's mortgage."

         On September 19, 2013, JV filed a motion to alter and amend the district court's order granting partial summary judgment and moved for reconsideration. JV again argued that it was fraudulently induced to enter into the subordination agreement and the agreement was invalid due to lack of consideration. As evidence, JV submitted a copy of the Amendment and three emails from POBD's attorney William Sterling. The district court denied JV's motion concluding that the Subordination Agreement was a fully integrated contract and that JV's evidence was parol evidence offered to contradict the terms of the contract. As to JV's claim of fraud, the district court concluded: "Without that parol[] evidence, there is no other credible evidence of fraud. James W. Berry's self-serving affidavit does not create a genuine issue of a material fact."

         In March 2014, JV filed a motion to compel Union Bank to produce a global settlement agreement it had reached with POBD. Union Bank moved for a protective order. The district court ordered a redacted copy of the agreement sent to both JV and NIR and granted Union Bank's motion for a protective order.

         A court trial was set for May 12, 2014. On April 29, 2014, JV filed a pre-trial memorandum and witness and exhibit lists. JV's pre-trial memorandum included the claim that the Subordination Agreement was invalid, as well as the claim that "JV holds the 1st priority Mortgage on the Trestle Creek Real Estate, ahead of [Union Bank]." On April 30, 2014, the district court sent JV a letter which stated:

Trial will begin May 12, 2014 at 9:00 am. The first issue that will be addressed is Union Bank's complaint against North Idaho Resorts. After the plaintiff's evidence North Idaho Resorts may present evidence in response to Union Bank's claims.
After the claims between Union Bank and North Idaho Resorts have been presented, then all issues between North Idaho Resorts and Sage will be tried.
None of the issues between JV, LLC and Union Bank will be re-litigated. The court's prior summary judgment disposed of all issues between JV, LLC and Union Bank. JV, LLC may be present in the courtroom as a spectator, but will not be at counsel table.
On May 9, 2014, three days before trial, JV filed an objection and a motion to reconsider.
At the commencement of the trial, the district court again stated its intention to bifurcate the trial:
THE COURT: My intention is to bifurcate the issues remaining. Today we're going to start with the Union Bank vs. North Idaho Resorts. And Mr. Finney on behalf of JV, LLC filed an answer to NIR's, North Idaho Resorts', counterclaim a week or so ago. A week ago, I guess. If that was intended to be an amended answer and counterclaim regarding Union Bank, then that would be dismissed because they didn't have permission to file it under Rule 15(c), in that, it's an answer to North Idaho Resorts' crossclaim that was filed, gosh, a long time ago, June 15th of 2012; that would be second. In other words, it's my intention to do the first part of this, and then thereafter to try the priorities between North Idaho Resorts and JV, LLC.

         Following the trial, the district court entered findings of fact and conclusions of law holding that Union Bank's mortgage was superior to any vendor's lien held by NIR and that JV's mortgage was superior to NIR's lien. On June 14, 2014, the district court entered a final judgment of foreclosure as to all parties in Union Bank's favor. On September 19, 2014, the district court entered a final judgment and Rule 54(b) certificate with respect to Union Bank's claim against JV. JV timely appealed.


         "I.R.C.P. 12(c) governs motions for judgment on the pleadings. By its terms, Rule 12(c) treats such motions similarly to motions for summary judgment. Thus, the standard of review applicable to lower courts' rulings on motions for summary judgment also applies to motions for judgment on the pleadings." Trimble v. Engelking, 130 Idaho 300, 302, 939 P.2d 1379, 1381 (1997). "Summary judgment is appropriate if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Lockheed Martin Corp. v. Idaho State Tax Comm'n, 142 Idaho 790, 793, 134 P.3d 641, 644 (2006). Furthermore, "[a]ll doubts are to be resolved against the moving party, and the motion must be denied if the evidence is such that conflicting inferences may be drawn therefrom, and if reasonable people might reach different conclusions." G & M Farms v. Funk Irr. Co., 119 Idaho 514, 516-17, 808 P.2d 851, 853-54 (1991).

         "[W]hen the district court grants summary judgment and then denies a motion for reconsideration, this Court must determine whether the evidence presented a genuine issue of material fact to defeat summary judgment. This means the Court reviews the district court's denial of a motion for reconsideration de novo." Shea v. Kevic Corp., 156 Idaho 540, 545, 328 P.3d 520, 525 (2014) (internal quotations omitted).

         "Due process issues are generally questions of law, and this Court exercises free review over questions of law." Williams v. Idaho State Bd. of Real Estate Appraisers, 157 Idaho 496, 504, 337 P.3d 655, 663 (2014) (quoting Neighbors for a Healthy Gold ...

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