Opinion
No. 53014-3-I
Filed: March 21, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of King County. Docket No. 03-2-18825-5. Judgment or order under review. Date filed: 08/08/2003. Judge signing: Hon. Linda Lau.
Counsel for Appellant(s), Joseph Cox Finley, Attorney at Law, Pmb 265, 227 Bellevue Way NE, Bellevue, WA 98004-5721.
Cleveland Stockmeyer, Cleveland Stockmeyer PLLC, 102 Harvard Ave E, Seattle, WA 98102-5714.
Counsel for Respondent(s), Lance Christopher Dahl, Preston Gates Ellis LLP, 925 4th Ave Ste 2900, Seattle, WA 98104-1158.
Jeffrey Lawrence Supinger, Attorney at Law, 1100 Us Bank Bldg, 422 W Riverside Ave, Spokane, WA 99201-0369.
Alpha Imperial LLC challenges the validity of a non-judicial foreclosure sale on multiple grounds. Alpha was the holder of a third deed of trust on the building sold, and contests the location of the sale and the adequacy of the sale price. Alpha also claims that the trustee had a duty to re-open the sale, had a duty to the junior lienholder, chilled the bidding, and had a conflict of interest. We find that the location of the sale was proper, the price was adequate, bidding was not chilled, and that the trustee had no duty to re-open the sale, no duty to the junior lienholder, and no conflict of interest. We affirm.
FACTS
Mayur Sheth and another individual formed Alpha Imperial Building, LLC in 1998 for the purpose of investing in commercial real estate. In February 2000 Alpha sold the property at 1406 Fourth Avenue in Seattle (the Property) to Pioneer Northwest, LLC (Pioneer). Pioneer financed this purchase with two loans from Seattle Funding Group (Seattle Funding), totaling approximately $3.3 million. Pioneer also took a third loan from Alpha at the time of the sale for $1.3 million. This loan from Alpha was junior to the two loans from Seattle Funding.
Respondents challenge whether Alpha was an LLC in good standing at the time this lawsuit was brought. We do not reach this issue.
Pioneer defaulted and filed for bankruptcy in 2002. Prior to this, Seattle Funding had transferred its two loans and deeds of trust to Respondent Schnitzer Family Investment, LLC, II (SFI). SFI had then transferred both deeds of trust to Respondent 4th Avenue Building LLC (4th Avenue LLC), an entity controlled by the individuals heading SFI. In October 2002 Respondent Blackstone Corporation, an entity created to act as a non-judicial foreclosure trustee, issued a Trustee's Notice of Sale.
Blackstone is wholly owned by Respondent Witherspoon, Kelley, Davenport Toole (Witherspoon). Respondent Michael Currin, a shareholder at Witherspoon, was to conduct the sale on January 10, 2003. Currin and Witherspoon represented SFI and 4th Avenue LLC. Sheth received a copy of the Notice of Sale through his attorney, Richard Matthews.
On January 10, 2003, Sheth and his son Abhi arrived at the Third Avenue entrance to the King County courthouse between 9:30 and 9:45 a.m. They waited for about ten minutes. They noticed two signs posted above the Third Avenue entrance. One sign said that construction work was occurring at the courthouse and `all property auctions by the legal and banking communities will be moved to the 4th Avenue entrance of the King County Administration Building.' The other sign indicated that the Third Avenue entrance would remain open during construction. Sheth and Abhi asked a courthouse employee about the sign, and were told that all sales were conducted at the Administration Building.
Sheth and Abhi then walked to the Administration Building, and asked around about the sale of the Property. Sheth asked Dean Street, a real estate agent who frequented foreclosure sales, about the sale. Street indicated that Currin was the one holding the sale, and advised Sheth to call Currin's office in Spokane. Sheth did so, and was told that the sale was at the Third Avenue entrance. Sheth and Abhi went back to the Third Avenue entrance.
In the meantime, Currin had arrived at the Third Avenue entrance between 9:35 and 9:40 a.m. The head of SFI, Danny Schnitzer (Schnitzer), and his son were also present. Currin was surprised to notice that no other foreclosure sales were taking place, but did not ask at the information desk about it. Currin did not see the signs directing auctions to occur at the Administration Building. Currin conducted the auction, Schnitzer made the only bid, for $2.1 million, and the sale was complete. At this time, the debt owed on the first two deeds of trust totaled approximately $4.1 million. Currin then left the courthouse, but when he received a call from his assistant telling him about Sheth, he arranged to meet Sheth back at the Third Avenue entrance. When they met, Sheth told Currin that the sales were conducted at the Administration Building. Currin responded that the sale had already been conducted, and he was not required to go to the Administration Building. Currin told Sheth that the notice indicated the sale was to be at the Third Avenue entrance, and that the sale had been held at the correct location. Sheth did not ask to re-open the bidding. The accounts then vary somewhat — Sheth claimed that this was the end of the conversation between Currin and himself. Currin stated that Sheth indicated he only wanted to observe the sale anyway, and that the price was too high. The parties then went to the Administration Building, because Currin was curious to see what was going on there. Then the parties walked back to the Property.
Sheth filed the current lawsuit, with Alpha as the sole plaintiff, on February 14, 2003. The lawsuit asked for declaratory relief, restitution, and other damages. The trial court granted the Respondents' summary judgment motion on August 8, 2003. Alpha appeals.
ANALYSIS I. Standard of Review
`Summary judgment is appropriate [where] the pleadings, depositions, affidavits and admissions on file, . . . 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.' Hartley v. State, 103 Wn.2d 768, 774, 698 P.2d 77 (1985). The appellate court must review the summary judgment de novo, making the same inquiry as the trial court. Youngblood v. Schireman, 53 Wn. App. 95, 99, 765 P.2d 1312 (1988). All facts and reasonable inferences must be viewed in the light most favorable to the non-moving party. Youngblood, 53 Wn. App. at 99. Questions of law are reviewed de novo. Mains Farm Homeowners Ass'n v. Worthington, 121 Wn.2d 810, 813, 854 P.2d 1072 (1993).
Respondents claim that because Alpha's claim is primarily equitable in nature, the trial court's refusal to grant an injunction (i.e., set aside the sale) should be reviewed under an abuse of discretion standard. However, the cases Respondents cite for that proposition involve review of injunctions granted by the trial court. Since the trial court here granted no injunctions and granted Respondents' summary judgment motion, the correct standard of review is de novo.
II. Exclusion of Alpha's Reply Declarations
As an initial matter, we address Alpha's contention that the trial court erred in excluding portions of its five reply declarations. These declarations were in rebuttal of Respondents' reply to Alpha's partial summary judgment motion. The trial court did not consider portions of the declarations that raised new matters not in strict reply, finding that they could have been filed with Alpha's opening materials.
Alpha contends that the trial court incorrectly relied on KCLR 7(b)(3)(E) in excluding portions of its declarations. Alpha claims that the trial court should have relied on KCLR 56(c), the rule for summary judgment motions, and that KCLR 56(c) does not incorporate the provisions of LR 7(b)(3) requiring strict reply. We review interpretation of court rules de novo. City of College Place v. Staudenmaier, 110 Wn. App. 841, 845, 43 P.3d 43.
KCLR 56(c) requires that all papers be served and filed in accordance with the requirements of KCLR 7(b)(3). KCLR 7(b)(3)(E) requires that papers be in strict reply and notes that the trial court need not consider papers not in strict reply. As strict reply is a requirement of KCLR 7(b)(3), KCLR 56(c) incorporates that requirement, and the trial court's interpretation of the rule was correct.
Alpha also claims that the trial court erred because the declarations were in strict reply. We review a trial court's decision on the admissibility of evidence for abuse of discretion. State v. Finch, 137 Wn.2d 792, 810, 975 P.2d 967 (1999). A trial court abuses its discretion only when its decision is manifestly unreasonable or based on untenable grounds. State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971).
The trial court did not identify which portions of which affidavits it was excluding from consideration. Alpha did not request that the trial court make a record of what was not reviewed. Thus, we cannot review the exclusions for abuse of discretion. As the burden is on the appellant to present an adequate record for review, and Alpha has not done so, Alpha's challenge to the exclusion of portions of its declarations must fail.
III. Location of the Sale
Alpha argues that the sale was improper because it was at the Third Avenue entrance, not the Administration Building. Alpha points to a letter from a King County employee stating that auctions are held at the Administration Building. The letter also stated that personnel were instructed to direct bidders and trustees to that location if asked. In addition, Alpha argues that the Third Avenue entrance was not a `public' place, as required by RCW 61.24.040(5), since auction sales were forbidden there. We disagree.
Alpha has not shown that the Third Avenue entrance was an improper location. The evidence shows that the county had changed its policy as to where auctions would be held and had posted signs to that effect. However, the county did not exclude people from the Third Avenue entrance or prevent auctions from being held there. Street, who frequented sales, stated that auctions were being held in both locations. The sale was held where the Notice of Sale indicated it would be. In addition, Alpha has not introduced any evidence to show that the Third Avenue entrance was not a public place at the time of the sale. The public was free to come and go at that location, and the area was `open and available for all to use.' Alpha relies on Morton v. Resolution Trust Corp., 918 F. Supp. 985 (S.D. Miss. 1995) to support its contention that the venue of the sale was improper. In Morton, the Notice of Sale designated the front steps of the county courthouse as the place of sale. Morton, 918 F. Supp. at 999. The courthouse was closed for renovations at that time, and another facility had been designated as the temporary courthouse. Morton, 918 F. Supp. at 999. A sign had been posted on the permanent courthouse door directing people to conduct courthouse business in the temporary courthouse. Morton, 918 F. Supp. at 999. The court held that the sale at the temporary courthouse was valid. Morton, 918 F. Supp. at 999. Alpha's reliance on this case is misplaced for two reasons. First, in Morton, the permanent courthouse was closed and an official body had designated the alternate facility as the temporary courthouse, whereas the courthouse here was still open for business. Second, and more importantly, the court in Morton did not opine as to whether an auction held at the closed courthouse would have been valid, which would have mirrored the facts here. As a result, Morton is not on point.
IV. Duty to Re-Open the Sale
Alpha argues that Currin should have re-opened the sale. However, it is undisputed that Sheth did not request that Currin re-open it. The evidence indicates that Currin may have known about Sheth's interest in bidding prior to the day of the sale, due to a conversation with Sheth's attorney about Sheth's desire to protect his interest in the Property. But, this knowledge did not create in Currin any affirmative duty to offer to re-open the sale.
Respondents claim that even if Sheth had intended to bid and implied a desire to re-open the bidding, he did not bring adequate funds with him to the sale and did not have adequate funding secured to purchase the property. The deed of trust statute requires the purchaser to `forthwith pay the price bid.' RCW 61.24.040(7). Because Sheth did not have the funds to `forthwith' pay the bid price, Respondents argue, he would not have been successful at the sale. Since we hold that the sale was proper, we need not reach the issue of whether Sheth had funds to forthwith pay the bid price.
In addition, Alpha cites no Washington authority to support the contention that Currin would have been obligated to re-open the sale if Sheth had asked him to. The decision to continue a sale appears to be fully within the discretion of the trustee: `[t]he trustee may for any cause the trustee deems advantageous, continue the sale.' RCW 61.24.040(6). Alpha's citation to Peterson v. Kansas City Life Ins. Co., 339 Mo. 700, 98 S.W. 2d 770 (1936) to support its contention that Currin should have re-opened the sale is unavailing. In Peterson, the Notice of Sale indicated that the sale would be held at the `front' door of the courthouse. Peterson, 339 Mo. at 705. But, the courthouse had four doors, and the customary door for sales was the east door. Peterson, 339 Mo. at 704-05. The sheriff, acting as the trustee, conducted the sale at the east door, and then re-opened the sale at the south door, as there had been some sales at the south door. Peterson, 339 Mo. at 704-05. Alpha contends this shows that Currin should have re-opened the sale when learning of the Administration Building location, akin to what the sheriff did in Peterson. However, Peterson does not indicate that the sheriff had an affirmative duty to re-sell the property at the south door. This case is not on point.
V. Chilled Bidding
Alpha contends that Currin chilled the bidding on the Property by telling bidders that he expected a full credit sale price and by holding the sale at the courthouse. Chilled bidding can be grounds for setting aside a sale. Country Express Stores, Inc. v. Sims, 87 Wn. App. 741, 748, 943 P.2d 374 (1997). The Country Express court explained the two types of chilled bidding:
The first is intentional, occurring where there is collusion for the purpose of holding down the bids. The second consists of inadvertent and unintentional acts by the trustee that have the effect of suppressing the bidding. To establish chilled bidding, the challenger must establish the bidding was actually suppressed, which can sometimes be shown by an inadequate sales price.
Country Express, 87 Wn. App. at 749. We hold that there was no chilling. Alpha has not shown that Currin engaged in intentional chilling. There is no evidence that Currin knew about the signs indicating auctions were occurring at the Administration Building when he prepared the Notice of Sale, such that he intentionally held the sale at a location from which he knew bidders would be absent. Additionally, Currin's statement to Street that a full credit sale price was expected and that the opening bid would be $4.1 million did not constitute intentional chilling. SFI was owed $4.1 million on the Property. SFI could thus bid up to that amount at no cost to itself, as the proceeds would go back to SFI. Currin confirmed that SFI was prepared to make a full-credit bid. Street acknowledged that trustees normally disclose the full-credit bid amount to potential third party bidders, and that his investors lost interest when they learned of the amount of indebtedness on the Property. It was therefore not a misrepresentation for Currin to state $4.1 million as the opening bid, due to the indebtedness on the Property. Currin's statements had no chilling effect — they merely informed Street of the minimum amount necessary to prevail against SFI. Thus, Currin did not intentionally chill the bidding by giving Street that information.
Alpha also argues that the chilled bidding could have been unintended by Currin. We have already noted that Currin's statement as to the amount of debt on the property did not chill the bidding, as it was an accurate statement of the amount of money SFI was owed on the Property. In addition, the location of the sale did not have an unintentional chilling effect. Alpha has not shown that Street's bidding was suppressed by the choice of location, as the evidence indicates he had already decided not to bid on the Property. Sheth's bidding also was not suppressed. While the choice of location for a sale can have a chilling effect, it was not Currin's actions that prevented Sheth from bidding. A third-party action unknown to the trustee (the signs) diverted Sheth from the sale, and the consequences cannot be charged to the trustee. Currin's actions did not intentionally or unintentionally chill the bidding, and the sale will not be set aside.
VI. Adequacy of the Sale Price
Alpha claims that the sale price was `greatly inadequate' and that the sale should thus be set aside. Alpha submitted evidence that the property had an `as is' value of $4.35 million in December 2002, and an estimated 2004 value of $5.2 million. The debt owed to SFI on the property was $4.1 million. SFI bought the property for $2.1 million. These facts do not suggest that the sale must be set aside.
Washington case law suggests that the price the property is sold for must be `grossly inadequate' for a trustee's sale to be set aside on those grounds alone. In Cox v. Helenius, 103 Wn.2d 383, 387, 693 P.2d 683 (1985), the property was worth between $200,000 and $300,000, and was sold to the beneficiary for $11,873. The Court held that amount to be grossly inadequate. Cox, 103 Wn.2d at 388. In Steward v. Good, 51 Wn. App. 509, 754 P.2d 150 (1988), the property had been purchased for approximately $64,000, and then was sold to a third party at a foreclosure sale for $4,870. Steward, 51 Wn. App at 511. This court held that $4,870 was not grossly inadequate. Steward, 51 Wn. App at 513-14. In Miebach v. Colasurdo, 102 Wn.2d 170, 175, 685 P.2d 1074 (1984), the Court noted that a sale for less than two percent of the property's fair market value was grossly inadequate. The Court in Miebach also noted prior cases where the sale had been voided due to grossly inadequate purchase price; the properties in those cases had been sold for less than four percent of the value and less than three percent of the value. Miebach, 102 Wn.2d at 177-78. In addition, the Restatement indicates that gross inadequacy only exists when the sale price is less than 20 percent of the fair market value — without other defects, sale prices over 20 percent will not be set aside. Restatement (Third) of Property (Mortgages) sec. 8.3, com. b (1997). The Property was sold for between 40 and 48 percent of its value. These facts do not support a grossly inadequate purchase price.
Alpha cites Miebach for the proposition that `where the inadequacy of price is great the sale will be set aside with slight indications of fraud or unfairness,' arguing that such indications existed here. However, the cases cited by the Court in Miebach to support this proposition involved properties sold for less than three and four percent of their value. Miebach, 102 Wn.2d at 177-78. Alpha has not demonstrated the slightest indication of fraud, nor shown that a property that sold for 40 to 48 percent of its value sold for a greatly inadequate price.
VII. Duty to a Junior Lienholder
Alpha claims that Currin owed a duty to Alpha, the junior lienholder. Alpha cites no case law for this proposition, and, indeed, there is none — Division Two specifically declined to decide this issue in Country Express, 87 Wn. App. at 748. Alpha acknowledges the lack of language in RCW 61.24 (the deed of trust statute) regarding fiduciary duties of trustees to junior lienholders. But Alpha argues that since RCW 61.24 requires that the trustee follow certain procedures in conducting the sale, and allows for sales to be restrained by anyone with an interest, a substantive duty from the trustee to a junior lienholder can be inferred.
Alpha's arguments are unavailing. The procedural requirements in RCW 61.24 do not create implied substantive duties. The structure of the deed of trust sale illustrates that no duty is owed to the junior lienholder. The trustee and the junior lienholder have no relationship with each other. The sale is pursuant to a contract between the grantor, the beneficiary and the trustee. The junior lienholder is not a party to that contract. The case law indicates only that the trustee owes a fiduciary duty to the debtor and beneficiary: `a trustee of a deed of trust is a fiduciary for both the mortgagee and mortgagor and must act impartially between them.' Cox, 103 Wn.2d at 389. The fact that a sale in accordance with that contract can extinguish the junior lienholder's interest further shows that the grantor's and beneficiary's interest in the deed of trust being foreclosed is adverse to the junior lienholder. We conclude the trustee, while having duties as fiduciary for the grantor and beneficiary, does not have duties to another whose interest is adverse to the grantor or beneficiary. Thus, Alpha's claim of a special duty to a junior lienholder fails.
VIII. Conflict of Interest
Alpha also claims that Currin's role as attorney for SFI created a conflict of interest. Alpha contends that Currin represented SFI against Alpha in negotiations for sale of the Property days before the sale. Alpha also contends that a conflict existed because SFI had an interest in having no one else bid on the Property. We disagree.
Alpha claims that Currin represented SFI adverse to Alpha in negotiations; however, this claim is unsupported by the evidence. Sheth's attorney Matthews did send Sheth's offer to buy the Property to Currin on January 9, 2003, the day before the sale. Currin responded to Matthews that he forwarded the offer on to SFI, but doubted that SFI would be able to respond before the sale the next day. Currin later stated that he discussed the offer with Schnitzer before the sale on January 10, 2003, and that Schnitzer was not interested. This evidence cannot be construed as Currin acting `adverse' to Alpha or Sheth, as nothing indicates he did anything more than pass along information.
Alpha also contends that SFI's interest in acquiring the property at a low price for tax benefits gave Currin an incentive to discourage other bidders, creating an impermissible conflict. It is undisputed that the mere fact that Currin was both the trustee and the attorney for the beneficiary is insufficient to find a breach of duty. See Cox, 103 Wn.2d at 390; Cascade Manor Assoc. v. Witherspoon, Kelley, Davenport Toole, P.S., 69 Wn. App. 923, 934-35, 850 P.2d 1380 (1993). The legislature `specifically amended the law in 1975 to allow an employee, agent or subsidiary of a beneficiary to also be a trustee.' Cox, 103 Wn.2d at 390. Alpha relies on Cox and Cascade Manor for the proposition that a trustee must withdraw when there is an actual conflict of interest. However, both of these cases involved a potential conflict between the grantor and the beneficiary — no conflict was claimed between the beneficiary and a junior lienholder. A junior lienholder is not owed the same duty as the grantor and beneficiary, and, as noted above, is not owed any other special duty. We thus decline to find that Currin had a conflict of interest.
IX. Other Issues
Having concluded that the sale was properly conducted, we need not reach issues related to Alpha's standing as an LLC, denial of Alpha's motion for partial summary judgment, and Alpha's claims of unjust enrichment, waste, and Consumer Protection Act violations.
X. Attorney Fees
Alpha asserts that it is entitled to attorney fees `for rectifying the breach of fiduciary duty.' Since we hold that no fiduciary duty was owed or breached, Alpha is not entitled to attorney fees.
Respondents claim they are entitled to attorney fees for opposing a frivolous claim, pursuant to RCW 4.84.185. An appeal is frivolous `if there are no debatable issues upon which reasonable minds might differ and it is so totally devoid of merit that there was no reasonable possibility of reversal.' Fay v. N.W. Airlines, Inc., 115 Wn.2d 194, 200-01, 796 P.2d 412 (1990). Alpha has presented several issues not so clearly resolved by case law as to be frivolous, although Alpha's arguments ultimately fail. Thus, Respondents' request for attorney fees under RCW 4.84.185 is denied.
Affirmed.
GROSSE and COLEMAN, JJ., concur.