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First Bank of Lincoln v. Land Title of Nez Perce County, Inc.

Supreme Court of Idaho

November 18, 2019

FIRST BANK OF LINCOLN, a Montana bank corporation, Plaintiff-Appellant,
v.
LAND TITLE OF NEZ PERCE COUNTY, INC., an Idaho corporation, Defendant-Respondent.

          Appeal from the District Court of the Second Judicial District, State of Idaho, Nez Perce County. Jeff M. Brudie, District Judge.

         District court grant of summary judgment, affirmed.

          Paine Hamblen, LLP, Spokane, WA, for appellant. Gregory S. Johnson argued.

          Givens Pursley, LLP, Boise, for respondent. Thomas E. Dvorak argued.

          BURDICK, CHIEF JUSTICE.

         In an appeal arising out of Nez Perce County, First Bank of Lincoln (First Bank) challenges the district court's grant of summary judgment in favor of Land Title of Nez Perce County Incorporated (Land Title). In 2011, First Bank loaned Donald Tuschoff (Tuschoff) $440, 000 to purchase the Hotel Lincoln in Lincoln, Montana. The loan was secured by a deed of trust against the hotel. As additional collateral, Tuschoff assigned First Bank his interest in a note and deed of trust on a bowling alley in Washington. Later, following a sale of the bowling alley, Land Title distributed the proceeds to Tuschoff and other interested parties rather than First Bank.

         First Bank did not learn of the bowling alley sale until it completed its annual loan review of Tuschoff's hotel loan. Subsequently, Tuschoff defaulted on the hotel loan. First Bank held a non-judicial foreclosure sale of the hotel and placed a full-credit bid of the approximately $425, 000 owed to it by Tuschoff. First Bank was able to later sell the hotel for approximately $190, 000. First Bank then initiated several lawsuits against various parties in Washington, Montana, and Idaho, seeking to recover the "deficiency" between what it was owed and for what it sold the hotel. Relevant here is First Bank's suit against Land Title in Idaho. The district court, applying Montana law, granted summary judgment in favor of Land Title. The court determined that First Bank's full credit bid extinguished Tuschoff's debt, and once that debt was extinguished, the assignment of Tuschoff's interest in the bowling alley as collateral for that debt was also extinguished. We affirm.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In July 1994, Tuschoff purchased a bowling alley located in Asotin County, Washington from Rex and Helen Humphrey (the Humphreys). Tuschoff's purchase of the bowling alley was financed with a note secured by a deed of trust (Tuschoff/Humphrey deed of trust). In October 1998, Tuschoff sold the bowling alley to an investor group, Schwab, and financed this sale with another note secured by a deed of trust (Schwab/Tuschoff deed of trust). The second note was delivered to a company which was later purchased by Land Title.

         In January 2011, Tuschoff obtained a $440, 000 loan from First Bank to purchase the Hotel Lincoln, located in Lincoln, Montana. This loan was secured by a deed of trust against the hotel as well as an assignment of Tuschoff's interest in the bowling alley note and deed of trust.

         In June 2013, Schwab sold the bowling alley to Banana Belt Gaming, LLC (Banana Belt), and executed a $1, 100, 000 note payable to Tuschoff in monthly installments. As part of the sale, Schwab also executed a deed of trust listing Tuschoff as the beneficiary. Tuschoff subsequently placed the note and deed of trust in escrow with Land Title.

         First American Title Company (First American) handled the closing of the Schwab/Banana Belt sale. An employee of First American obtained a title commitment from Land Title which listed the Tuschoff/Humphrey deed of trust, the Schwab/Tuschoff deed of trust, and the assignment to First Bank. Prior to closing, the employee at First American contacted Land Title requesting a payoff quote and confirmation that the quoted amount would pay off both deeds of trust. Land Title confirmed that both deeds of trust would be paid, and First American sent Land Title a check for the quoted payoff amount. Subsequently, Land Title distributed the money to the Humphreys and Tuschoff, but not First Bank.

         Some time later, First Bank discovered the bowling alley had been sold and the proceeds had been distributed to the Humphreys and Tuschoff. In April 2014, First Bank brought suit in Washington against Tuschoff and Banana Belt seeking a declaratory judgment as to its interest in the bowling alley (the Washington litigation). Subsequently, Tuschoff defaulted on the Hotel Lincoln loan.

         In June 2014, First Bank had the Hotel Lincoln appraised at a value of $210, 000. On August 24, 2014, First Bank held a non-judicial foreclosure sale of the Hotel Lincoln. First Bank was the only bidder and bid the entire amount due on Tuschoff's underlying note, $425, 748.50. First Bank later sold the Hotel Lincoln for approximately $193, 000.

         Meanwhile, in the Washington litigation, the trial court granted summary judgment in favor of Banana Belt, holding that Banana Belt's payment of the Schwab/Tuschoff deed of trust extinguished First Bank's interest. In April 2016, the Washington Court of Appeals reversed the trial court's ruling. First Bank of Lincoln v. Tuschoff, 375 P.3d 687, 693 (Wash.Ct.App. 2016). It held that Banana Belt purchased the bowling alley subject to First Bank's assignment and that the Hotel Lincoln note created a separate obligation against the bowling alley. Id. However, the Washington Court of Appeals remanded the case and directed Banana Belt to file suit in Montana so that a Montana court could determine if First Bank was owed a deficiency judgment. Id. Banana Belt did not re-file in Montana following the Washington Court of Appeals' decision. Instead, Banana Belt entered into a stipulated resolution with First Bank wherein both parties dismissed their claims against each other and First Bank gave up the right to restore its interest in the bowling alley.

         In November 2016, First Bank filed the current lawsuit against Land Title alleging negligence and breach of contract. It sought recovery of the $170, 000 balance on the loan to Tuschoff, plus interest. Ruling on cross motions for summary judgment, the district court determined that Montana law applied. The district court concluded that, under Montana law, a successful credit bid on a property in foreclosure is credited to the overall outstanding debt of a debtor. Thus, the district court held that when First Bank bid the full amount owed by Tuschoff on the Hotel Lincoln ($425, 748.50), it extinguished all of Tuschoff's debt. Accordingly, the district court held that there was no longer any outstanding debt between Tuschoff and First Bank, and therefore no damages to recover for any alleged negligence or breach of contract on the part of Land Title for its failure to direct the quoted payoff amount to First Bank. The court stated:

First Bank's claims against Land Title relate solely to its interest in the bowling alley property. At the acceptance of the First Bank's full credit bid, First Bank no longer held an interest in the bowling alley property. There remains no genuine issue of material fact regarding First Bank's claims against Land Title. Therefore, Land Title's motion for summary judgment is granted.

         First Bank timely appeals.

         II. ISSUES ON APPEAL

         1. Does Montana's anti-deficiency statute apply in this case?

         2. Even if section 71-1-317 is inapplicable, does First Bank's negligence claim against Land Title have merit?

         3. Is either party entitled to attorney's fees on appeal?

         III. ...


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