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Valiant Idaho LLC v. North Idaho Resorts, LLC

Supreme Court of Idaho

October 11, 2018

VALIANT IDAHO, LLC, an Idaho limited liability company, Cross Claimant-Third Party Plaintiff-Respondent,
v.
NORTH IDAHO RESORTS, LLC, an Idaho limited liability company, Cross Defendant-Appellant.

          Appeal from the District Court of the First Judicial District, State of Idaho, Bonner County. Hon. Barbara A. Buchanan, District Judge.

         The judgment of the district court is vacated.

          James, Vernon & Weeks, P.A., Coeur d'Alene attorneys for Appellant. Susan P. Weeks argued.

          McConnell Wagner Sykes & Stacey, PLLC, Boise, attorneys for Respondent. Richard L. Stacey argued.

          BEVAN, JUSTICE

         North Idaho Resorts, LLC ("NIR") appeals an award of discretionary costs and costs as a matter of right awarded against it in Bonner County. NIR contends that the district court abused its discretion by awarding discretionary costs and that the court's award of some costs as a matter of right was also erroneous. We vacate the judgment of costs and remand.

         I. FACTS AND PROCEDURE

         This is an action arising out of a failed golf course and residential development project in Bonner County known as the "Idaho Club." On March 9, 2006, NIR entered into a Real Property Purchase and Sale Agreement with Pend Oreille Bonner Investments, LLC ("POBI") regarding the sale of a golf course, a clubhouse and parcels of real property. NIR did not record a purchase money mortgage against the real property, instead filing a memorandum of sale giving notice of its vendor's lien.

         Pend Oreille Bonner Development, LLC ("POBD"), a successor to POBI, subsequently took-out several loans on the real property, agreed to promissory notes, and mortgaged The Idaho Club real property with three different lenders: RE Loans, LLC, Pensco Trust Co., and Mortgage Fund '08 LLC (the "lenders"). POBD ultimately defaulted on its obligations on the promissory notes associated with the mortgages. In addition to defaulting on the notes, POBD failed to pay various mechanics and materialmen, one of which was Genesis Golf Builders, Inc. ("Genesis").

         Genesis brought suit against POBD on October 13, 2009, alleging breach of contract and sought to foreclose on its mechanic's lien against POBD's property interest in the Idaho Club. Genesis also named multiple additional defendants in its suit, including the lenders. Cross-claims and counterclaims were alleged by several defendants. The lenders successfully defended the priority of their respective mortgages against all of these claims and cross-claims. The district court called this part of the litigation the "Genesis Suit."

         While the Genesis suit was pending, the three lenders assigned their rights to Valiant Idaho, LLC ("Valiant"). Valiant entered the litigation by substituting itself as the real party in interest for the lenders. Valiant then amended the answers filed by the lenders previously, and filed a Counterclaim, Cross-Claim and Third-Party Complaint for Judicial Foreclosure against POBD, as well as to foreclose any interest that NIR and others held in the Idaho Club. NIR countered that it held an interest in the real property superior to Valiant's. The district court called this part of the litigation the "Valiant Foreclosure."

         Valiant moved for summary judgment seeking a ruling that the mortgages assigned to it were senior and superior to all interests claimed by any other defendant, including NIR, in the Idaho Club real property. Ultimately, the district court granted Valiant's motion for summary judgment against NIR, finding that NIR's interest in its vendor's lien was subordinated to the mortgage loans because of a 2007 subordination agreement. The court's order held that Valiant's mortgages were "senior to any right, title and interest in the Idaho Club property" by NIR. NIR filed a motion for reconsideration that was also denied by the court. NIR did not participate further in the litigation at that point.

         Two other defendants (JV, LLC ("JV") and VP, Inc. ("VP")) survived summary judgment and their claims were litigated in a four-day court trial. The district court found in Valiant's favor, and on July 20, 2016, entered a judgment awarding Valiant damages against POBD in the amount of $21, 485, 212.26 for its breach of the promissory notes underlying the mortgages. The judgment also declared that Valiant's mortgages had priority over any property interest claimed by NIR or others.

         After the trial involving VP and JV's defenses to the Valiant Foreclosure, Valiant filed a memorandum of costs and attorney fees against POBD, as well as against NIR, [1] JV, and VP (hereinafter referred to as the "three defendants"). To understand what went wrong with the cost judgment entered against NIR it is important to begin with Valiant's motion because it frames the issues presented to the district court. Valiant argued that it was entitled to attorney fees against POBD pursuant to the terms of its mortgages and Idaho Code section 12-120(3) which governs the award of attorney fees in commercial transactions. It argued that it had a right to fees against VP, JV, and NIR under Idaho Code section 12-121 because the defenses raised by the three defendants were frivolous. Valiant also sought costs against all four parties. It claimed costs as a matter of right in the amount of $13, 755.39 and discretionary costs in the amount of $30, 593.64 (total costs of $44, 349.03). Valiant requested that VP, JV, and NIR be held jointly and severally liable for the attorney's fees under Idaho Code section 12-121 and the majority of the costs.

         After Valiant filed its memorandum, NIR, VP and JV filed objections. POBD did not file an objection. The district court, after reviewing the parties' various filings, determined that Valiant was the prevailing party. No one challenged that determination on appeal.

         The district court awarded Valiant attorney's fees and costs against POBD. As noted, the district court viewed the litigation as two discrete parts - the three lenders' defense of the original mechanic's lien claim and Valiant's subsequent prosecution of a cross-claim for breach of contract and a cross-claim and thirty party claims for mortgage foreclosure. The district court awarded costs and fees against POBD in connection with both parts. For the Valiant Foreclosure (the part in which NIR, VP and JV participated), the district court made the following award against POBD:

Valiant Foreclosure

Total Attorney's Fees

$579, 460.50

Total Costs as a Matter of Right

$2, 869.34

TOTAL COSTS

$582, 329.84

         The only costs as a matter of right awarded against POBD were the service costs involved in initiating the Valiant Foreclosure against twenty-eight other defendants who held an interest in the real property at issue. The district court spared POBD from the remaining costs totaling more than $41, 000 in large part because POBD did not defend against the foreclosure or participate adversely to Valiant. The district court reasoned: "To avoid duplicate cost awards, and because POBD did not defend against the Valiant Foreclosure or participate adversely to Valiant at trial, the Court shall assess the remaining costs as a matter of right and discretionary costs incurred by Valiant in the Valiant Foreclosure against JV, VP and NIR, and not against POBD."

         The district court then apportioned the remaining costs between the three lenders, reasoning:

The Court is authorized by Idaho Rule of Civil Procedure 54 to apportion costs between the defendants. Recognizing that NIR participated in pre-and post-trial motion practice, but not in the court trial, this Court apportions the costs as follows:
1. NIR is responsible for 0.25 of $41, 479.69 = $10, 369.93
2. JV is responsible for 0.375 of $41, 479.69 = $15, 554.88
3. VP is responsible for 0.375 of $41, 479.69 = ...

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