WASHINGTON FEDERAL, successor by merger to South Valley Bank & Trust, Plaintiff-Appellant-Cross Respondent,
MICHAEL R. HULSEY, individually; SM COMMERCIAL PROPERTIES, LLC, an Idaho limited liability company; JOHN and JANE DOES I-X, WHITE CORPORATIONS I-X, Defendants-Respondents-Cross Appellants.
Opinion No. 107
from the District Court of the First Judicial District of the
State of Idaho, Shoshone County. Hon. Benjamin R. Simpson,
Court affirms the judgment entered on December 23,
2015, in which Washington Federal's claim for deficiency
was dismissed. The Court vacates the judgment
entered on April 21, 2016 to the extent it denies Washington
Federal's claim for attorney's fees and costs.
Davison, Copple, Copple & Copple, LLP, Boise, for
appellant. Terry C. Copple argued.
F. Magnuson, Coeur d'Alene, argued for respondents.
case arises from the foreclosure of nine commercial
condominium units owned by Michael R. Hulsey and SM
Commercial Properties, LLC. Just prior to a sheriff's
sale, SM Commercial Properties filed bankruptcy. Eventually
the bankruptcy stay was lifted and the sale took place.
Washington Federal bought the property with a credit bid and
then asserted a deficiency against Hulsey. The district court
found that Washington Federal failed to prove both the
existence of a deficiency as well as the fair market value of
the property. Washington Federal raises the following issues
on appeal: (1) whether Hulsey is precluded (collaterally
estopped) from litigating the fair market value of the
property based on the bankruptcy court proceedings; and (2)
whether the district court erred when it determined that
Washington Federal failed to prove the existence of the
deficiency and the fair market value of the property. Both
parties appealed the district court's denial of
attorney's fees, but Hulsey dismissed his cross-appeal at
the time of oral argument. We affirm the district court's
judgment dismissing Washington Federal's claim for a
deficiency, but vacate the district court's judgment
denying Washington Federal's costs and attorney's
fees incurred to enforce the judgment and decree of
AND PROCEDURAL BACKGROUND
Hulsey purchased nine commercial condominium units, which
were located on the base floor of the Morning Star Lodge
located in the Silver Mountain Resort Complex in Kellogg,
Idaho. Several of the units are used by the resort for its
operations. Hulsey purchased the units from Jeld-Wen, the
developer, for the total purchase price of $2, 378, 000. He
financed $1, 350, 000 of the purchase price through
Washington Federal's predecessor-in-interest bank. The
commercial loan was made to Hulsey individually and was
secured by a deed of trust on the units and an assignment of
rents. After the units were completed, Hulsey attempted to
sell the nine units as a single package, but he was
unsuccessful. In 2008, the real estate market's downturn
made it difficult for Hulsey to maintain tenants in some of
the units. Hulsey transferred title to the nine units to his
wholly owned limited liability company, SM Commercial
Properties. Although he transferred title to the units,
Hulsey remained liable on the loan because he was the
original borrower. During this time, the original lender
merged with Washington Federal.
the terms of the promissory note, the entire amount due and
owing matured on September 5, 2012. After the loan matured,
Washington Federal granted Hulsey time to continue to attempt
to sell the units to satisfy the loan. Hulsey continued to
make voluntary interest payments, and at the end of 2013, the
balance owed under the loan was $1, 213, 751. In August of
2013, Hulsey received an offer ("2013 Offer") to
purchase the nine units, together with an additional
commercial condominium not at issue, for a total of $2
million. The offer was subject to the buyer's ability to
simultaneously close on his purchase of the Silver Mountain
October 29, 2013, Washington Federal told Hulsey to direct
all future communications regarding the loan to Washington
Federal's counsel. Hulsey proposed to continue making
interest payments, as he had done with Washington
Federal's predecessor-in-interest and with Washington
Federal, but the bank declined Hulsey's proposal.
January 2014, Hulsey's attorney sent Washington Federal a
written, prelitigation settlement offer. The settlement offer
included a short valuation letter from Jim Koon, an
experienced commercial broker and property manager in North
Idaho. In the offer, Hulsey suggested to Washington Federal
that the property might be worth $578, 000 depending on
certain assumptions. Washington Federal did not accept the
Federal subsequently filed suit against Hulsey and SM
Commercial Properties. The parties stipulated to the entry of
an order appointing a receiver and to the entry of a Judgment
and Decree of Foreclosure in the amount of $1, 487, 517.62.
The parties requested that the district court retain
jurisdiction to handle any deficiency that might result from
the sale of the property.
October 29, 2014, SM Properties filed Chapter 11 Bankruptcy.
The Sheriff's sale that had been scheduled to take place
the next day was cancelled. Shortly thereafter, Hulsey
received another unsolicited offer for the property
("2014 Offer") for $1.5 million. Like the 2013
Offer, the 2014 Offer was subject to the buyer simultaneously
purchasing the Silver Mountain Resort.
Federal moved the bankruptcy court for relief from the
automatic stay to allow the foreclosure to proceed under the
district court's order. Hulsey objected to Washington
Federal's motion, and the matter was heard by the
bankruptcy court. The bankruptcy court granted the motion
from the bench. Subsequently, the property was sold by the
Shoshone County Sheriff pursuant to the district court's
Judgment and Decree of Foreclosure. Washington Federal
purchased the property based upon a credit bid of $765, 000.
Washington Federal sought a deficiency against Hulsey for
over $700, 000 ($1, 487, 517.62 - $780, 000 (the appraised
value advanced by Washington Federal's expert).
sole remaining issue-whether a deficiency judgment should
enter-was tried by the district court. One week before trial,
Washington Federal filed a motion in limine challenging some
of the exhibits proposed by Hulsey, including a 2005
appraisal of the property. Washington Federal argued the 2005
appraisal was irrelevant and requested that the district
court apply the bankruptcy court's ruling on the motion
for relief from stay (specifically, a finding that there was
no equity in the property) to preclude Hulsey from contesting
the fair market value of the property as of the sale date. In
its memorandum decision following the trial, the district
court rejected Washington Federal's issue preclusion
argument, finding that the bankruptcy court did not determine
the fair market value of the property. The district court
subsequently found that Washington Federal had failed to meet
its burden of proof as to the existence of a deficiency and
the fair market value of the property as of the sale date.
Both parties then moved for attorney's fees incurred
after the entry of the stipulated Judgment and Decree of
Foreclosure, which the district court denied. Washington
Federal timely appealed to this Court. Hulsey filed a
cross-appeal on the denial of the attorney's fees, but
dismissed the appeal at the time of oral argument.
PRESENTED ON APPEAL
Whether the district court erred in ruling that the
bankruptcy proceedings did not preclude Hulsey from
contesting the existence of a deficiency.
Whether the district court erred by finding that Washington
Federal failed to satisfy its burden of proving the existence
of a deficiency and the amount of the deficiency.
Whether the district court erred in denying attorney's
fees and costs incurred by Washington Federal after entry of
the stipulated Judgment and Decree of Foreclosure and before
the deficiency trial.
Whether the district court erred in striking portions of the
affidavit of Roy Cuzner submitted by Washington Federal in
support of its request for attorney's fees.
Whether either party is entitled to an award of
attorney's fees and costs on appeal.
Court's review is limited "to a determination of
whether the evidence supports the trial court's findings
of fact, and whether those findings support the conclusions
of law." Sims v. Daker, 154 Idaho 975,
977, 303 P.3d 1231, 1233 (2013). "[T]his Court is not
bound by the legal conclusions of the trial court, but may
draw its own conclusions from the facts presented."
Steuerer v. Richards, 155 Idaho 280, 283, 311 P.3d
292, 295 (2013). "Findings of fact will not be set aside
on appeal unless they are clearly erroneous."
Kennedy v. Schneider, 151 Idaho 440, 442, 259 P.3d
586, 588 (2010). But "[w]here findings of fact are
supported by substantial and competent, though conflicting,
evidence, they are not clearly erroneous and thus will not be
disturbed by this Court." Id.