Title: Urrutia v. Harrison

State: idaho

Issuer: Idaho Supreme Court (civil)

Document:

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IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 41100 
 
LYNN URRUTIA, 
 
       Plaintiff-Respondent, 
 
v. 
 
TY (CLIFF) HARRISON and ROBERT 
SCHUTTE, 
  
       Defendants-Appellants, 
 
and  
 
JOHNNY M. URRUTIA, 
 
       Defendant. 
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Twin Falls, June 2014 Term 
 
2014 Opinion No. 69 
 
Filed: July 31, 2014 
 
Stephen W. Kenyon, Clerk 
 
Appeal from the District Court of the Fifth Judicial District of the State of Idaho, 
Twin Falls County.  Hon. Randy Stoker, District Judge. 
 
The judgment of the district court is affirmed. 
 
Rockstahl Law Office, Chtd., Twin Falls, for appellants. Joe Rockstahl argued. 
 
Law Office of Harry DeHaan, Twin Falls, for respondent. Daniel M. Plantz 
argued. 
_____________________ 
  
 
J. JONES, Justice. 
 
The district court awarded attorneys fees to Lynn Urrutia against Ty Harrison and Robert 
Schutte under Idaho Code section 12-120(3), 12-121, and 12-123, as well as sanctions against 
the Appellants’ attorney under Idaho Code section 12-123 and I.R.C.P. 11. We affirm the awards 
under Idaho Code section 12-123.  
I.  
FACTUAL AND PROCEDURAL BACKGROUND 
Lynn and Johnny Urrutia, formerly husband and wife, were divorced in 2007. At the time 
of their divorce, the Urrutias were the sole owners and members of Sundance Arena, LLC. 
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Sundance Arena possessed one asset―the arena property that was the original subject of this 
litigation. The arena property is a twenty-acre parcel consisting of pens for boarding horses and 
separate indoor and outdoor riding arenas.  
 
Sometime in 2005, Johnny entered into an oral agreement with the Appellants, Ty 
Harrison and Robert Schutte. The details of this agreement are somewhat vague but, in essence, 
Harrison and Schutte were to take control of and manage the arena property so that the property 
could eventually be sold. Harrison and Schutte were longtime friends and, conveniently, Schutte 
lived on property adjacent to the arena property.  
 
Pursuant to the 2007 divorce decree, Johnny was awarded both parties’ interests in the 
arena property, provided that he compensate Lynn $59,000 for her interest. Johnny granted Lynn 
a deed of trust on the arena property in order to secure the $59,000 obligation. This deed of trust 
was recorded on December 4, 2007, and was second in priority to a deed of trust against the 
arena property securing an indebtedness to Gary and Donna Hibbard in the approximate amount 
of $140,000.  
 
This litigation commenced on February 14, 2012, when Lynn filed a complaint against 
Johnny, seeking to foreclose the deed of trust on the arena property and collect the $59,000, plus 
interest, that she was owed. The Appellants apparently got wind of the impending foreclosure 
and filed a mechanic’s lien against the property on December 1, 2011. Their lien asserted a debt 
in the amount of $230,279.65 and a priority date of April 2005. This claim of lien (“First Lien”) 
asserted that Johnny and Sundance Arena—but not Lynn—were the owners of the arena 
property. When she filed her foreclosure action, Lynn named the Appellants as defendants and 
sought a ruling that her trust deed had priority over their First Lien.   
 
Appellants filed an answer and counterclaim (“Original Counterclaim”), contending that 
their mechanic’s lien “has priority over the Plaintiff’s claims” and requesting that the court order 
the payment of their lien out of the proceeds from the sale of the arena property. A copy of the 
First Lien was attached to the Original Counterclaim. About two months after filing their 
Original Counterclaim, the Appellants filed a second claim of lien against the arena property 
(“Second Lien”). In the Second Lien, Appellants alleged that Johnny and Lynn were the owners 
of the arena property. They claimed a priority date of March 2008 and an indebtedness of 
$220,304.  
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Lynn moved for partial summary judgment to foreclose the trust deed and for Rule 11 
sanctions against Appellants’ attorney. Lynn asserted that the First Lien was not recorded within 
90 days of the performance of any significant work and was therefore invalid under Idaho Code 
section 45-507. Lynn also noted that even if Appellants did have a valid lien, many of the 
amounts claimed—$7,677.00 for “First American,” $7,889.60 for “Property Taxes,” and 
$88,275.50 for “Payments”—could not possibly be covered by a mechanic’s lien, which can only 
cover the furnishing of labor or materials. Lynn argued that Appellants’ counsel should be 
sanctioned pursuant to I.R.C.P. 11 because “the undisputed facts so clearly do not support the 
claimed lien or any of the affirmative defenses, Mr. Rockstahl either signed the Answer and 
Counterclaim without adequately investigating the facts, or did investigate the facts, but signed a 
frivolously asserted Answer and Counterclaim anyways.”  
Appellants filed an amended counterclaim (“First Amended Counterclaim”) on August 
29, 2012. In addition to their original claim that their mechanic’s lien had priority over Lynn’s 
deed of trust, Appellants’ First Amended Counterclaim included two new claims: breach of 
contract as against Johnny, and unjust enrichment as against “Johnny and/or Lynn Urrutia.” 
Appellants did not, however, attach either the First Lien or the Second Lien to their First 
Amended Counterclaim, despite indicating that “[a] copy of the Claim of Lien for labor and 
materials is attached as Exhibit A.” Appellants amended their counterclaim a second time 
(“Second Amended Counterclaim”) on September 14, 2012, to include the Second Lien as 
Exhibit A.  
On October 15, 2012, the district court entered its order granting Lynn’s motion for 
partial summary judgment (“Order Re: Partial Summary Judgment”). The district court found 
Appellants’ First Lien to be invalid, though it did not explain that finding in its written order, nor 
did it discuss or acknowledge that a Second Lien had been filed. The district court did not 
explicitly rule on Lynn’s motion for Rule 11 sanctions, but did award attorney fees against 
Appellants to the tune of $1,500 “as a discovery sanction.” In response to a previous motion 
seeking to further amend their pleadings, the district court allowed Appellants to file a cross 
claim against Johnny for (1) breach of contract and (2) foreclosure of their Second Lien. As 
against Lynn, however, Appellants were allowed only to file a breach of contract or an unjust 
enrichment counterclaim. Any amendment relating to the foreclosure of the Second Lien as 
against Lynn was expressly disallowed. The district court determined that “as [the Second Lien] 
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asserts that it is for work only done since 2008, and Ms. Urrutia’s lien has a priority date of 
December 4, 2007, the lien asserted by Harrison and Schutte is necessarily inferior, and so the 
claim to foreclose this lien cannot be asserted against Ms. Urrutia.” Appellants subsequently 
filed another amended counterclaim (“Third Amended Counterclaim”) on October 24, 2012. 
Despite the district court’s clear admonition in its Order Re: Partial Summary Judgment that 
Appellants could not assert a claim that their Second Lien was superior to Lynn’s deed of trust, 
Appellants nonetheless did so. Their Third Amended Counterclaim appears to have appropriately 
re-characterized Appellants’ “counterclaim” against Johnny as a “cross claim” and, just like their 
Second Amended Counterclaim, included the Second Lien as Exhibit A.  
Lynn had filed a motion for a preliminary injunction on September 12, 2012, in order to 
enjoin Appellants “from removing or otherwise undoing any of the construction that has been 
done on the Arena Property.” This was in response to Appellants’ assertion that they owned 
certain personal property on the premises that they were entitled to remove. Harrison and Schutte 
filed an objection to Lynn’s motion on September 27, 2012, arguing that any materials placed by 
Appellants on the arena property were exempt from attachment. On October 22, 2012, the 
district court granted Lynn’s motion for a preliminary injunction, stating that “[a]ll parties and/or 
their agents are hereby enjoined, during the pendency of this action, from removing and/or 
deconstructing or otherwise altering the property known as Sundance Arena.”  
On October 23, 2012, Lynn moved for attorney fees pursuant to Idaho Code sections 12-
120(3), 12-123, and sanctions under Rule 11. Appellants responded with a motion for attorney 
fees and sanctions of their own. At the hearing on the matter, the district court expressed its 
discomfort with hearing attorney fee arguments before the case was over. Ultimately, the district 
court ruled from the bench that both parties’ motions for fees were denied, without prejudice, 
and that the parties would have the opportunity to make attorney fee claims at the culmination of 
the lawsuit.  
 
Around the early part of February 2013, the arena property was foreclosed upon and 
purchased by Gary Hibbard, who held the first priority lien against the arena property in the 
amount of $140,000.00. At a hearing held on February 15, 2013, the district court inquired as to 
why the lawsuit was continuing in light of the recent foreclosure sale. Appellants’ counsel then 
admitted that there was nothing left to litigate with regard to either of the Appellants’ mechanic’s 
liens. Appellants’ counsel went on to state that their unjust enrichment claim against Lynn was 
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“moot now because she did not, in fact, get the property.” After these admissions, the only 
remaining claims were Lynn’s attorney fee claims and her claim for sanctions. 
 
On March 4, 2013, Lynn filed another motion for attorney fees, this time citing Idaho 
Code section 12-121 and I.R.C.P. 54 in addition to Idaho Code sections 12-120(3) and 12-123, 
and sanctions under Rule 11 and Idaho Code section 12-123. Appellants filed their own motion 
and accompanying memorandum for attorney fees pursuant to Idaho Code sections 12-121 and 
12-123, and for Rule 11 sanctions. The district court decided the motions in favor of Lynn. Lynn 
was awarded $10,000 in attorney fees against Harrison and Schutte, jointly and severally, 
pursuant to Idaho Code sections 12-120(3), 12-121, and 12-123. The district court also awarded 
Lynn $2,500 against Appellants’ counsel, Joe Rockstahl, pursuant to Idaho Code section 12-123 
and I.R.C.P. 11.  Appellants appealed to this Court.  
II. 
ISSUES ON APPEAL 
I. 
Whether Lynn had standing to bring a foreclosure action. 
II. 
Whether the district court erred by awarding attorney fees against Appellants.  
III. Whether the district court erred in awarding sanctions against Appellants’ attorney. 
IV. Whether either party is entitled to attorney fees on appeal. 
III. 
ANALYSIS 
A. 
Standard of review. 
 
Statutory attorney fee awards, as well as an award of sanctions under Rule 11, are subject 
to an abuse of discretion standard of review. See Burns v. Baldwin, 138 Idaho 480, 486, 65 P.3d 
502, 508 (2003); Pocatello Auto Color, Inc. v. Akzo Coatings, Inc., 127 Idaho 41, 47–48, 896 
P.2d 949, 955–56 (1995). To determine whether the court abused its discretion, this Court must 
inquire: “(1) whether the trial court correctly perceived the issue as one of discretion; (2) whether 
the trial court acted within the outer boundaries of its discretion and consistently with the legal 
standards applicable to the specific choices available to it; and (3) whether the trial court reached 
its decision by an exercise of reason.” Burns, 138 Idaho at 486–87, 65 P.3d at 508–09.  
B. 
Lynn had standing to seek foreclosure of her deed of trust. 
 
Appellants claim that Lynn lacked standing to initiate this action to foreclose her deed of 
trust. They claim that “Johnny Urrutia did not have title to the [arena] property when he executed 
the deed of trust and therefore could not convey legal title to Lynn Urrutia with a deed of trust.” 
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In essence, the claim is that Lynn lacks standing to foreclose her deed of trust because it did not 
constitute a valid conveyance of an interest in the arena property. 
 
Appellants acknowledge that this Court held in Trotter v. Bank of New York Mellon, 152 
Idaho 842, 846, 275 P.3d 857, 861 (2012), that a trustee seeking to foreclose a deed of trust 
through statutory nonjudicial proceedings need not establish standing but contend that the 
situation is different in judicial foreclosure proceedings. The Appellants misunderstand the 
doctrine of standing. “When an issue of standing is raised, the focus is not on the merits of the 
issues raised, but upon the party who is seeking the relief.” Bagley v. Thomason, 149 Idaho 806, 
808, 241 P.3d 979, 981 (2010). “Indeed, a party can have standing to bring an action, but then 
lose on the merits.” Id. In Bagley, the defendants had contended that the plaintiffs, who sought to 
obtain water shares appurtenant to real property they had purchased, were without standing 
because of an alleged infirmity in their deed of conveyance. Id. at 807, 241 P.3d at 980. The 
Court indicated that the plaintiffs had satisfied the standing requirement by showing that they 
held a deed to the real property and that the water shares were appurtenant to that property. Id.  
 
Here, the record demonstrates that Lynn held a deed of trust against the arena property, 
the deed of trust was duly recorded in Twin Falls County, the obligation secured by the deed of 
trust was in default, and she sought foreclosure and a declaration of her priority as to other 
encumbrances against the arena property. To have standing, she need not prove that her deed of 
trust is valid and enforceable. The Appellants’ argument on standing is without merit.  
C. 
The district court did not err in awarding attorney fees under Idaho Code 
section 12-123.  
 
Lynn requested attorney fees against the Appellants under Idaho Code sections 12-
120(3), 12-121, and 12-123. The district court awarded $10,000 in attorney fees to Lynn, jointly 
and severally against Harrison and Schutte, under all three provisions. The Appellants do not 
contest the amount of the award but do contend that the Court erred in awarding Lynn attorney 
fees under all of the statutory provisions. We first consider the award under Idaho Code section 
12-123.  
 
Idaho Code § 12-123(2)(a) provides: 
(2)(a) In accordance with the provisions of this section, at any time prior to the 
commencement of the trial in a civil action or within twenty-one (21) days after 
the entry of judgment in a civil action, the court may award reasonable attorney’s 
fees to any party to that action adversely affected by frivolous conduct. 
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I.C. § 12-123. “Conduct” under this provision “means filing a civil action, asserting a claim, 
defense, or other position in connection with a civil action, or taking any other action in 
connection with a civil action.” I.C. § 12-123(1)(a). “Frivolous conduct” means conduct of a 
party or his attorney that either: (i) “obviously serves merely to harass or maliciously injure 
another party to the civil action;” or (ii) “is not supported in fact or warranted under existing law 
and cannot be supported by a good faith argument for an extension, modification, or reversal of 
existing law.” I.C. § 12-123(1)(b). The district court found that the second definition of frivolous 
conduct was applicable.  
 
In its consideration of Idaho Code section 12-123, the district court correctly noted that 
“this statute does not require the finding of a prevailing party. Rather, the statute is designed as a 
sanction to deter inappropriate conduct as defined in the statute.” The Appellants do not contend 
that the district court failed to observe the procedural requirements in Idaho Code section 12-
123(2)(b) or that it erred in determining the amount of the award under section 12-123. Their 
only contention is that they did not engage in frivolous conduct. The district court disagreed, 
identifying several claims of the Appellants that were not supported in fact or warranted under 
existing law.  
 
 “The most egregious conduct of defendants,” in the district court’s opinion, was the 
filing of the Third Amended Counterclaim, which “states two causes of action against Lynn: (1) 
that the second lien has priority over Lynn’s claims and (2) that Lynn as the owner of the 
property was unjustly enriched.” The judge noted that the Second Lien, with a priority date of 
2008, could not conceivably be higher in priority than Lynn’s deed of trust, which was recorded 
in 2007. He observed that the Appellants knew the $220,000 claimed in the Second Lien, like the 
First Lien, contained numerous items that did not constitute improvements to the arena property 
and were not lienable under the mechanic’s lien statutes. And, even though the Appellants knew 
that the owner of record of the arena property was Sundance Arena, LLC, they sought personal 
recovery against Lynn under an unjust enrichment theory for improvements made to the 
property, which she did not own.  
 
The Court noted further: 
Lynn sought a preliminary injunction to enjoin defendants from “deconstructing” 
the arena. Defendants took the position in challenging that application that most 
of the “improvements” were not truly improvements to the real estate or fixtures 
but rather removable personal property. That position is diametrically opposed to 
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their position regarding both mechanic’s liens and the unjust enrichment claim 
against Lynn. Simply stated, the defendants were playing both ends against the 
middle.  
The court concluded its analysis of the fee request under Idaho Code section 12-123 by stating 
that “[c]ontinuing to defend the summary judgment motion regarding the first lien, opposing the 
injunction request which asserted personal property in the face of the argument that it was an 
improvement to property pursuant to the lien statute, and filing and pursuing the counterclaim 
were frivolous acts.” The findings under this section were made with regard to both the 
Appellants and Rockstahl, their counsel of record. See I.C. § 12-123(2)(c).  
 
The district court acted well within its discretion in granting fees against Appellants and 
their attorney under Idaho Code section 12-123 and we therefore affirm the court’s judgment. 
Because we affirm the district court’s award of attorney fees under Idaho Code section 12-123, 
we need not address whether fees were also appropriate under Idaho Code section 12-120(3), 
Idaho Code section 12-121 or I.R.C.P. 11.  
D. 
Lynn is entitled to attorney fees on appeal. 
 
Appellants seek attorney fees on appeal pursuant to Idaho Code section 12-121 and “for 
the reasons stated in [their] brief.” Appellants are not the prevailing party and thus, will not be 
awarded attorney fees on appeal. 
 
Lynn seeks attorney fees on appeal pursuant to Idaho Code sections 12-120(3), 12-121, 
and 12-123 and I.R.C.P. 11. Under Idaho Code section 12-121, an award of attorney fees on 
appeal “is appropriate when this Court is left with an abiding belief that the appeal has been 
brought or defended frivolously, unreasonably, or without foundation.” Karlson v. Harris, 140 
Idaho 561, 571, 97 P.3d 428, 438 (2004). As noted above, the Appellants’ case in district court 
was both frivolous and without foundation. The appeal of a frivolous case is even more so. An 
overall view of the case establishes that the appeal was pursued unreasonably.  Thus, we award 
Lynn attorney fees on appeal pursuant to Idaho Code section 12-121. 
IV. 
CONCLUSION 
 
We affirm the judgment of the district court and award attorney fees and costs to Lynn on 
appeal.  
 
 
Chief Justice BURDICK, and Justices EISMANN and HORTON CONCUR.