Source: http://www.thecreditorsrightsblog.com/category/state-cases
Timestamp: 2017-10-24 00:36:38
Document Index: 622412155

Matched Legal Cases: ['§ 28', '§ 28', '§ 45', '§ 28', '§ 28', '§ 45', '§ 28']

State Cases | Creditors' Rights blog
Category Archives: State Cases
This entry was posted in Creditor Rights, State Cases and tagged 40.455, Branch Banking, deficiency, deficiency judgment, foreclosure, Nevada, Nevada Supreme Court, out-of-state, windhaven on September 15, 2015 by Holland & Hart.
This entry was posted in State Cases and tagged ambiguity, Bank, participation agreement, Utah court of appeals on March 4, 2014 by Holland & Hart.
Perfected Secured Creditors Square Off Against Statutory Lienholders In Idaho Supreme Court
The Idaho Supreme Court recently has been called upon to decide two cases that could have important implications for agricultural lenders. The first is already decided; the second has been briefed and will likely be decided this summer.
Cows Gobble Up Commodity Lien
In Farmer’s National Bank v. Green River Dairy, LLC, 2014 WL 268643 (Jan. 24, 2014), the Court held that an agricultural commodity lien on diary feed did not extend to the livestock that eventually consumed the feed.
In Green River, Farmer’s National Bank (“Bank”) held a properly attached and perfected security interest in the dairy cows of Green River Dairy (“Dairy”). Certain commodity sellers (“Feed Providers”) sold hay and wheat products to Dairy for use as feed. Dairy defaulted on its payments to Bank. Bank foreclosed on the cows and sold them at auction. Bank and the Feed Providers each claimed a priority interest in the proceeds of the sale.
Bank claimed priority pursuant to general U.C.C. Article 9 principles. See Idaho Code § 28-9-101, et. seq. According to such principles, conflicting security interests and liens generally rank “according to priority in time of filing or perfection,” and a prior perfected security interest has priority over a conflicting unperfected interest. See Idaho Code § 28-9-322.
The Feed Providers, on the other hand, relied on a special statutory lien enacted to protect “agricultural product” producers and dealers. See Idaho Code § 45-1802. Pursuant to that section, one who sells or delivers agricultural product holds a first priority lien in the agricultural product and the proceeds of its sale. The statute provides that “the lien created in this chapter may attach regardless of whether the purchaser uses the agricultural product purchased to increase the value of his livestock or whether he uses the agricultural product purchased to maintain the value, health or status of his livestock without actually increasing the value of his agricultural product.” Id. The district court construed this sentence to mean that the commodity lien continued in the agricultural product after it was consumed, and attached to the livestock that consumed the product.
The Supreme Court disagreed. It noted that, pursuant to the statute, the lien only applies to “agricultural products” or the proceeds of the sale of such products. Dairy cows are not included within the statutory definition of agricultural products, and are not proceeds of such products. Thus, the Supreme Court held that the Feed Providers’ lien could not attach to the livestock. Their lien was extinguished when the feed was consumed. Accordingly, Bank had priority in the proceeds of the sale of the cows.
Agisters Lien Takes Priority Over Prior Perfected Security Interest
In a related case arising from the same troubled Dairy, the Idaho Supreme Court is considering whether a statutory “agisters’ lien” takes priority over a prior perfected security interest. See J&M Cattle Co., LLC v. Farmers Nat’l Bank, Case No. CV-2012-3020 (Idaho). As described above, Bank claims first priority in the proceeds of the sale of the dairy cows, pursuant to Idaho Code § 28-9-322, which generally grants first priority to a perfected security interest, subject to exceptions.
Bank faces a competing claim from J&M Cattle Company, LLC (“J&M”), a third party dairy servicer that cared for, boarded and fed Dairy’s cattle. Companies that provide such services are often referred to as “agisters”. J&M asserts a possessory agister’s lien that, it claims, trumps Bank’s prior perfected security interest. J&M and Dairy agreed that the proceeds from the cow sale would be held in escrow while they sought a determination from the Supreme Court concerning their relative priority.
Idaho law provides a first priority lien for agisters. That lien is derived from two sections of the Idaho Code. First, Idaho Code § 28-9-333 provides that “a possessory lien on goods has priority over a security interest in the goods unless the lien is created by a statute that expressly provides otherwise.” Thus, an agister’s lien may take priority over a prior security interest if it is (1) a possessory lien in goods, and (2) the statute creating the agister’s lien does not expressly provide otherwise.
The parties in J&M Cattle appear to concede that J&M’s lien is a possessory interest in goods, satisfying the first prong. They dispute, however, whether the agister’s lien statute “expressly provides” that an agister’s lien does not have priority over a competing security interest. That is, unless the agister’s lien statute expressly provides otherwise, the agister’s lien takes priority over Bank’s perfected secured security interest.
The Court’s decision will therefore turn on its construction of the agisters’ lien statute, Idaho Code § 45-805. It consists of three subjections. Generally speaking, subsection (a) describes how one who services personal property of another, may provide prior notice to security interest holders, and if the service provider is not paid, he may sell the property and take first priority in the proceeds. Subsection (b) grants a similar right specifically to agisters – those who feed, board, or care for livestock. Unlike subsection (a), however, subsection (b) is silent regarding the priority of such a lien. Finally, subsection (c) provides, in relevant part, as follows:
The proceeds of the sale must be applied to the discharge of any prior perfected security interest, the lien created by this section and costs; the remainder, if any, must be paid over to the owner.
Subsection (c) is the key disputed provision. In short, Bank will likely prevail – and perfected security interests will trump agister’s liens under Idaho law – if the Supreme Court concludes that this clause “expressly provides” that agister’s liens do not have priority over prior security interests.
The parties, of course, disagree about the meaning of subsection (c). Bank claims it is an express subordination of agister’s liens to prior security interests, because the drafters of subsection (c) must have intended to list liens in order of priority, and prior perfected security interests are listed first. J&M argues that subsection (c) does not “expressly provide” for subordination of the agister’s lien. Instead, Bank’s interpretation relies on an inference that the liens are listed in order of priority. Thus, according to J&M, an agister’s possessory lien takes priority by default pursuant to § 28-9-333.
Secured lenders can take some comfort, based on the Green River decision, that a prior perfected security interest in dairy cows will not be impaired by another party’s provision of feed or other agricultural products to the dairy. That same security interest, however, may come under attack from an agister who cares for the dairy’s cows, depending on the outcome of the J&M Cattle case. Accordingly, secured lenders should be aware of a borrower’s practices with respect to the use of agisters, and may wish to contractually limit or prohibit such use until the law is settled.
This entry was posted in Creditor Rights, State Cases and tagged agister's lien, agricultural product lien, Idaho Supreme Court, Kirk Cheney, statutory lien on March 3, 2014 by Holland & Hart.
Utah Court of Appeals Holds that a Judgment Creditor may Execute on a Chose in Action Under Utah Rules of Civil Procedure
In its decision in Lamoreaux v. Black Diamond Holdings, LLC, 296 P.3d 780 (Utah App. 2013), the Utah
Court of Appeals addressed a judgment debtor’s argument that, through its repeal of Rule 69 of the Utah Rules of Civil Procedure, the Utah Legislature had intended to abolish the right of judgment creditors to execute against their judgment debtors choses in action. The court held that the Utah Legislature did not intend to abolish this right, and upheld the conduct by the Black Diamond Holdings in purchasing a chose in action at an execution sale for the purpose of dismissing the litigation brought against it by David Lamoreaux.
Lamoreaux brought suit against Black Diamond Holdings alleging a debt owed and seeking a judgment to collect it. Following a bench trial on the dispute, the court took the matter under advisement.
In the meantime, in a separate action, Lamoreaux suffered a judgment against him in litigation brought by Cheryl Fisher. Seeking to satisfy her judgment against Lemoreaux, Fisher obtained a writ of execution against Lamoreaux’ claim against Black Diamond and noticed a public sale.
Lamoreaux received notice of and attended the sale, but took no legal action to stop it. Black Diamond also attended the sale, and purchased Lamoreaux’s claim against. Thereafter, Black Diamond moved to substitute itself as the plaintiff in the action brought against it by Lamoreaux, which the court granted. Black Diamond, now as plaintiff, moved to dismiss the action
against itself as defendant, which the court also granted.
Lamoreaux appealed, contending that the repeal of Rule 69 by the Utah Legislature in 2004 constituted an expression of its intent to abolish the right of a judgment creditor to execute against a chose in action owned by its judgment debtor. Therefore, Lamoreaux argued, Fisher’s execution against his claim against Black Diamond was a nullity, and Black Diamond purchased nothing when it bought the claim at the execution sale. The court rejected Lamoreaux’s argument.
The court began its analysis by stating that Rule 69 governed procedures relating to writs of execution and provided that such writs were “available to a judgment creditor to satisfy a judgment or other order requiring the delivery of property or the payment of money by a judgment debtor.” The rule contained an internal definition of property subject to execution: “A writ of execution may be used to levy upon all of the judgment debtor’s personal property and real property which is not exempt from execution under state or federal law.” Subsection 69(f) expressly referred to choses in action, and expressly authorized the officer charged with the writ to collect and sell choses in action.
In 2004, the Utah Legislature repealed Rule 69 and replaced it with multiple rules, including Rules 64 and 64E. Rule 64E provides “A writ of execution is available to seize property in the possession or under the control of the defendant following entry of a final judgment or order requiring the delivery of property or the payment of money.” The term “Property” for purposes of the rule, is defined to include “the defendant’s property of any type not limited to real and personal property, tangible and intangible property, the right to property whether due or to become due, and an obligation of a third
person to perform for the defendant.”
The court acknowledged that at times removal of a term from a definition is an indication of the legislature’s intent to remove the item from the definition; however, the court concluded, based on the plain language of the statute, that its terms were very broad and that a chose in action fell within
This entry was posted in Creditor Rights, State Cases and tagged Utah on April 25, 2013 by Holland & Hart.
In its decision of first impression in In re Fontainebleau Las Vegas Holdings, LLC, 289 P.3d 1199 (Nev.
2012), the Nevada Supreme Court, in response to questions certified to it by the United States Bankruptcy Court for the Southern District of Florida, issued an important decision on the relative rights of mortgagees and mechanics lien holders. The opinion reveals the strong policies in Nevada favorable to holders of mechanics liens.
The facts involved in the case are straightforward. Fontainebleau Las Vegas Holdings, LLC ("Fontainebleau”) sought to construct a hotel and casino in Las Vegas, Nevada. It obtained a loan from Bank of America in the amount of $150 million, securing the loan with a deed of trust
against its real property. The credit agreement required the general contractor and subcontractors to subordinate their mechanics liens to the deed of trust. Construction commenced on the project.
Subsequent to commencement of construction, Bank of America agreed to loan an additional $1.85 billion, a portion of which went to pay off the original $150 million secured loan.
After construction halted, Fontainebleau filed a chapter 11 petition in the United States Bankruptcy Court for the Southern District of Florida. Wilmington Trust succeeded Bank of America as administrative agent for the lenders.
When disputes arose between Wilmington and the mechanics lienholders, Wilmington Trust filed an adversary proceeding in the bankruptcy court seeking a determination of the relative priorities of the deed of trust and mechanics liens.
The bankruptcy court certified three questions to the Nevada Supreme Court, the following two of which the court addressed in its opinion:
(1) Whether Nevada Revised Statute (Chapter 108) prohibits the use of equitable subrogation to allow a mortgage to step into the shoes of a pre-existing lien when such pre-existing lien was recorded prior to the commencement of any work or improvement giving rise to a statutory lien
under NRS (Chapter 108)?
(2) Whether subordination agreements executed by mechanics and materialman lien claimants, purporting to subordinate their liens to a new mortgage, are enforceable under Nevada law?
The Nevada Supreme Court answered both questions in the favor of holders of mechanics and materialman liens.
The court began its discussion by stating that, while it has adopted mortgage subrogation principles, it had never addressed whether equitable subrogation applies in the mechanics lien context. The court stated that NRS 108.225 is the controlling authority in Nevada regarding the priority of mechanics liens. That statute states in relevant part:
[Mechanics’] liens . . . are preferred to:
Every mortgage or encumbrance imposed upon, or conveyance made of, property affected
by [mechanics’] liens . . . after the commencement of construction of a work of improvement are subordinate and subject to the [mechanics’] liens. . .regardless of the date of recording of the notices of liens.
The court found the language to be plain and unambiguous, and that equitable principles did not justify a disregard of the clear provisions of the statute. The statute gives mechanics’ lien claimants priority over all other liens, mortgages and encumbrances that attach after the commencement of a work of improvement. The court noted that its decision did not align with the trend in other states, but determined that the clear language expressed the intent of the Nevada legislature to give priority to mechanics’ lien claimants in this circumstance, and that the lender could have protected its position by obtaining contractual subordinations at the time it extended its loan.
In response to the second question, the Nevada Supreme Court held that subordination agreements that purport to subordinate liens prospectively are unenforceable, but that non-prospective subordination agreements obtained in compliance with NRS 108.2457 are enforceable. The court noted that NRS 108.2453(1) specifically provides that a waiver or modification of a right under the state’s mechanics’ lien statute is unenforceable unless it complies with the provisions of NRS 108.221 to 108.246 inclusive. However, the court further noted that NRS 108.2457 specifically provides for circumstances under which a waiver is allowed. The parties took divergent views on their interpretation of NRS 108.2453 and 108.2457, and the court held the statutes to be ambiguous because they could be interpreted as argued by both parties. The court, therefore looked to the legislative history of the statute, which itself stated that “the purpose of this bill is to prohibit the prospective waiver of a lien claimant’s rights, and to confirm, clarify, and standardize the procedures and forms required for a waiver and release upon payment.” Based on this legislative history, the Nevada Supreme Court held that non-prospective waivers of mechanics’ liens are enforceable provided they comply with the statutory requirements, but that prospective waivers are unenforceable.
This entry was posted in Creditor Rights, State Cases and tagged Fontainebleau on February 4, 2013 by Holland & Hart.
Utah Court of Appeals Addresses Factors Required to Set Aside a Sheriff’s Judgment Execution Sale
If a sheriff’s sale is otherwise conducted properly, may a judgment debtor nevertheless obtain relief if the sales price of the property sold at execution is grossly inadequate? That is the question which was recently answered by the Utah Court of Appeals in Meguerditchian v. Smith, 2012 WL 2428535, 2012 UT App 176 (Utah App. 2012). In Meguerditchian, the judgment creditor obtained a judgment in the amount of $55,000. The judgment creditor sought to execute the judgment against various items of personal property owned by the debtor. However, after the debtor asserted an exemption in the personal property, the judgment creditor then sought to enforce the judgment against the debtor’s real property and related water rights. At the sheriff’s sale, the judgment credit bid $33,000 of its judgment against the real property. In conjunction with the debtor’s request to have the sale set aside, the trial court found that the real property had an actual value of over $500,000, and that the sales price was grossly inadequate. However, the trial court refused to set aside the sheriff’s sale because it determined there had been no irregularities in the sale.
On appeal, the Court of Appeals began its analysis by stating that a request to set aside a sheriff’s sale, or to extend the deadline for the judgment debtor’s right to redeem the sold property, involves the interplay of two factors: (1) gross inadequacy of the purchase price and (2) irregularity in the sale so as to indicate at least “slight circumstances of unfairness.” The court stated that these factors work together on a sliding scale, so that the greater the disproportionality in price, the less unfairness or fewer irregularities a party must demonstrate before a court may justifiably extend a redemption period or set aside a sheriff’s sale.
Because the trial court had found that there were no irregularities in the sale, the Court of Appeals addressed the question of whether gross inadequacy of price alone could constitute a sufficient ground to set aside a sale. The Court of Appeals noted that both it and the Utah Supreme Court had previously theorized that there may be circumstances where inadequacy of price alone could be so
great as to “shock the conscience of all fair and impartial minds” such that a court would be justified in setting aside a sale even in the absence of any irregularities in the conduct of the sale. See Pyper v. Bond (Pyper I), 2009 UT App., 331 (Utah App. 2009); see also Young v. Schroeder, 37 P. 252 (Utah 1894).
However, the Court of Appeals affirmed the trial court’s order denying the request to set aside the sale. First, the court noted that a judgment debtor’s redemption rights are generally a sufficient remedy to a grossly inadequate purchase price. After all, in the present case, the debtor had the right to redeem the $500,000 property by paying the $30,000 paid for it at the sale within the six months following the sale. Second, noting that a trial court’s decision on whether to set aside a sale is granted a “high degree of discretion,” the Court of Appeals concluded that sales price in question did not shock the court’s conscience when compared to other instances where judgment debtors had sought similar relief. In the present case, the sales price was 1/15 of the real property’s
market value. The Court of Appeals noted previous cases where the sales price was even less, including the sale in Pyper I, where the property sold for 1/228 of its market value. Consequently,
the court concluded that this case did not present that special set of shock that would allow for a properly conducted sale to be set aside on the basis of price alone.
This entry was posted in Creditor Rights, State Cases and tagged aside, gross, inadequacy, inadequate, price, sale, set, sheriff, Utah on October 12, 2012 by Holland & Hart.
Utah Supreme Court Clarifies Contractual and Statutory Right to Recover Attorneys Fees in Two New Opinions
Utah’s reciprocal attorney fees statute, 78B-5-826 provides in relevant part that “a court may award . . . attorney fees to either party that prevails in a civil action based upon any . . . written contract. . . when the provisions of the . . . contract allow at least one party to recover attorney fees.” In its 2007 opinion in Bilzanich v. Lonetti, 160 P. 3d 1041 (Utah 2007), the court held the prevailing party in an action in which a guaranty of a loan was held to be unenforceable could recover attorney fees. In that action, the guaranty contained a provision entitling the lender to its attorney fees in enforcing the guaranty. The lender sued the guarantor under a guaranty which allowed the lender to recover attorney fees but contained no similar provision for the guarantor, and judgment was entered on the guarantor’s theory that the guaranty was unenforceable. The lender asserted that, there being no enforceable contract, the guarantor could not recover attorney fees. The Utah Supreme Court disagreed, holding that had the contract been found to be enforceable the lender would have been entitled to an award of attorney fees. Therefore, the guarantor was entitled to his attorney fees in defending the action.
In two recent opinions, the Utah Supreme Court has clarified and expanded its ruling in Bilzanich. The first opinion is Bushnell v. Barker, 705 Utah Adv. Rep. 24 (Utah March 27, 2012), in which the Utah Supreme Court affirmed the opinion of the Utah Court of Appeals in Barker v. Bushnell, 222 P.3d 1188 (Utah App. 2009). In Bushnell, John Bushnell retained the accounting firm of Dale K. Barker Company to prepare tax returns for himself and his company. The contract had an attorney fee clause which provided that in the event of a breach, the “nondefaulting party shall be entitled to all costs and attorneys’ fees incurred in enforcing this Agreement.” Bushnell became dissatisfied with Barker Company’s work and terminated the relationship. At the time, Bushnell owed money to Barker Company for services, and Barker Company sued to collect. Bushnell counterclaimed against Barker Company asserting claims for breach of contract and negligence. Bushnell also filed a third party complaint against Dale Barker individually, asserting that Barker Company was his alter ego, and that he should be held liable to pay all amounts determined to be owed to Bushnell by Barker Company. The trial court granted Barker’s motion to dismiss the third party complaint, but denied his request for an award of attorney fees on the finding that Barker was not a party to the Bushnell/Barker Company contract and could not recover under the reciprocal attorney fee statute. The Court of Appeals affirmed, as did the Utah Supreme Court. The Utah Supreme Court agreed with the Court of Appeals that, had Bushnell succeeded on his alter ego claim against Barker, he would not have been entitled to an award of attorney fees. In that event, Barker would not have been a “defaulting party” under the contract, and the contract would not have entitled at least one party to recover attorney fees. Bushnell’s entitlement to attorney fees on his breach of contract claim against Barker Company would not have entitled him to recover attorney fees on his alter ego claim against Barker. In short, a party who recovers on a breach of contract claim against one defendant may not recover payment of those attorney fees from a second defendant whose liability is based solely on a theory that the first defendant is the alter ego of the second defendant.
The second opinion is Hooban v. Unicity International, Inc., 705 Utah Adv. Rep. 36 (Utah March 27, 2012). Hooban purchased all stock from the bankruptcy estate of the owners of H&H Network Services. H&H was a distributor for Unicity pursuant to a distributor agreement which contained a clause providing that “[i]n the event of a dispute, the prevailing party shall be reimbursed attorney’s fees. . . by the other party.” Hooban sued Unicity to enforce the distributor agreement after Unicity took the position that Hooban had no right to operate under the agreement as a Unicity distributor. The trial court granted Unicity’s motion for summary judgment finding that Hooban was not a party to the distributor agreement and lacked standing to enforce it. Unicity filed a motion for attorney fees under 78B-5-826. The Utah Supreme Court affirmed the decision of the Utah Court of Appeals that Unicity was entitled to recover its attorney fees from Hooban. The Court of Appeals held that a prevailing party may recover attorney fees under the statute if two requirements are satisfied: (1) the underlying litigation must be based upon a contract and (2) the contract must allow at least one party to recover its attorney fees.” The court concluded that Hooban’s action was based upon a contract, and the contract allowed at least one party to recover its attorney fees.
Hooban argued before the Utah Supreme Court that the statute should be restricted in its application to those instances where its application is necessary to “level the playing field” between parties who have disproportionate bargaining power. Because the contract in question had a bilateral attorney fee provision and because he was found not to be a party to the contract, Hooban argued that the statute could not provide a basis for an award of attorney fees in favor of Unicity. Unicity argued that the statute should be interpreted more broadly to apply if the following two conditions are met: (1) the provisions of the contract at issue must allow at least one party to recover fees if that party prevails in litigation and (2) the underlying litigation must be “based upon a contract” in the sense that a party to the litigation must “assert the writing’s enforceability as basis for recovery.” The Utah Supreme Court agreed with Unicity:
“We agree with Unicity and affirm. In so doing. . . we clarify some latent ambiguities in section 826. . . . First, we hold that the statute applies even in the face of a bilateral fee clause. . . Second. . . we clarify the meaning of the term ‘party’ as it is used in the statute, concluding that Unicity is entitled to fees because it was the prevailing party and because Hooban would have been a party to the contract if he had prevailed in this suit.”
These two opinions of the Utah Supreme Court should give creditors enforcing breach of contract claims additional insights into their rights under Utah law to an award of attorney fees in enforcing those rights in the litigation process.
This entry was posted in Creditor Rights, State Cases and tagged Bilzanich on July 3, 2012 by Holland & Hart.
Utah Court of Appeals Rules that the Duty of Good Faith and Fair Dealing Cannot be Used to Vary the Clear Terms of a Contract
In its decision in Keybank National Association v. Systems West Computer Resources, Inc., 2011 UT 324 (2011) reiterated and strengthened prior rulings from Utah’s appellate courts that evidence supporting a claim of breach of the duty of good faith and fair dealing is not admissible to vary the clear terms of a contract.
In Keybank, the bank and its borrower entered into a revolving loan agreement which contained a specific maturity date. Over the course of several years following the execution of the loan documents, the bank and the borrower entered into a series of agreements modifying the terms of the original loan agreement, with each extension also extending the maturity date of the loan by setting a new, specific maturity date. As is customary in this type of loan transaction, the loan documents required the borrower to pay the loan at maturity, and further provided that its failure to do so would constitute a default. The last such extension resulted in a maturity date of July 15, 2008. Although Keybank had agreed to numerous extensions of the maturity date, nothing in the loan documents required it to extend the maturity date if the borrower was not otherwise in default under the loan documents.
The loan matured on July 15, 2008, and Keybank demanded payment. When Systems West failed to pay, Keybank sued. Systems West filed a counterclaim alleging the bank breached its duty of good faith and fair dealing by refusing to further extend the maturity date of the loan and, in opposing Keybank’s motion for summary judgment, sought to introduce into evidence the testimony of its president and CEO to the effect that her understanding, based on her communications with Keybank representatives was that Keybank agreed that it would further extend the maturity date of the loan until both parties agreed in writing to terminate the loan.
The Utah Court of Appeals affirmed the district court’s grant of Keybank’s motion for summary judgment on Systems West’s counterclaim. The declaration of Systems West’s president to the effect that Keybank agreed to further extend the maturity date, while relevant to its claim that Keybank breached a duty of good faith and fair dealing, was inadmissible because it was at variance with the clear terms of the loan documents. The court ruled that “while a covenant of good faith and fair dealing inheres in almost every contract, . . . this covenant cannot be read to establish new, independent rights or duties to which the parties did not agree ex ante.” The court stated that the concepts and policies behind the duty of good faith and fair dealing are to be used to “protect the express covenants and promises of the contract,” and not to modify express terms of the contract.
This entry was posted in State Cases and tagged good faith on February 28, 2012 by Holland & Hart.