Court Opinion

ID: 4195884
Source: CourtListenerOpinion
Date Created: 2017-08-15 15:19:28.849083+00
Date Added: 2024-06-11T14:39:44.356189
License: Public Domain

FILED
                                                              AUGUST 15, 2017
                                                          In the Office of the Clerk of Court
                                                        WA State Court of Appeals, Division Ill

           IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                              DIVISION THREE

STEVEN F. SCHROEDER, a married man              )
dealing with his sole and separate property,    )        No. 33336-1-111
                                                )        (consolidated with
                    Appellant,                  )        No. 34551-3-111)
                                                )
      v.                                        )
                                                )
PHILLIP J. HABERTHUR, as trustee of a           )
deed of trust, EXCELSIOR MANAGEMENT             )        PUBLISHED OPINION
GROUP, LLC, an Oregon limited liability         )
company, EXCELSIOR MORTGAGE                     )
EQUITY FUND II, LLC, an Oregon limited          )
liability company, JAMES HANEY, and CLS         )
MORTGAGE, INC., a Washington                    )
corporation,                                    )
                                                )
                    Respondents.                )

      KORSMO, J. -This is the fifth appeal to reach this court resulting from a deed of

trust issued in 2009. 1 Since the trial court complied with the Washington Supreme

      1
        Excelsior Mortg. Equity Fund IL LLC v. Schroeder, 171 Wn. App. 333,287 P.3d
21 (2012), review denied, 177 Wash. 2d 1005, 300 P.3d 416 (2013); Excelsior Mortg.
Equity Fund IL LLC v. Schroeder, noted at 166 Wash. App. 1004 (2012), remanded, 308
P.3d 634 (2013); Schroeder v. Haberthur, noted at 164 Wash. App. 1012 (2011), rev 'd sub
nom. Schroeder v. Excelsior Mgmt. Grp., LLC, 177 Wash. 2d 94, 297 P.3d 677 (2013)
(Schroeder V); Schroeder v. Excelsior Mgmt. Grp., LLC, noted at 162 Wash. App. 1027
(2011), rev'd, 177 Wash. 2d 94.
No. 33336-1-111; No. 34551-3-111
Schroeder v. Haberthur

Court's directives in the most recent appeal, we trust this will be the last appeal. The

primary issue presented by this current appeal is whether the deed of trust act (DTA),

chapter 61.24 RCW, can be construed using definitions found in the Uniform

Commercial Code (UCC), Title 62A RCW. It can. Agreeing with the trial court that

growing or felling timber does not constitute farming, we affirm.

                                          FACTS

       Details of the procedural history and the underlying factual dispute are necessary

to place the trial court's ruling in context, although we will attempt to avoid unnecessary

discussion of the previous actions. The land parcel in question, a 200 acre property near

the city of Colville, was purchased by appellant Steven Schroeder's parents in 1959, and

became his property in 1987 when he purchased the land from them. Mr. Schroeder also

owns other large parcels of land immediately adjoining this parcel.

       Respondent Excelsior Mortgage Equity Fund (Excelsior) 2 loaned Mr. Schroeder

money in June 2007 and secured the loan by a deed of trust on the 200 acre parcel. An

appraisal from May 2007 described the property as 75 percent "Ag and timberland," and

       2
         During the pendency of this appeal, Excelsior Mortgage sold the parcel to
Forested Habitats, LLC, which recently was substituted as a party respondent. We refer
to the defendants/respondents by the name Excelsior in the body of this opinion for
purposes of continuity and convenience.

                                             2
No. 33336-1-111; No. 34551-3-111
Schroeder v. Haberthur

valued the land at $675,000. 3 Mr. Schroeder operated a logging business from his home

office and also used the parcel for a scrap metal operation; he stored hundreds of vehicles

on the property and stored valuable scrap materials in the buildings on the parcel. 4

       Mr. Schroeder soon defaulted on the loan from Excelsior. Schroeder V, 177
Wash. 2d at 99-100. Mr. Schroeder tried to contest the deed of trust on the basis that the

parcel was agricultural land and that foreclosure could not be accomplished nonjudicially.

Id. at 109. A new deed of trust issued and a new loan was renegotiated in early 2009 to

cure the default. In that document, the parties stated that they agreed the land was not

used for agriculture.

       Mr. Schroeder soon defaulted on the 2009 loan, and the matter was set for

nonjudicial foreclosure. Litigation ensued, but the trial court declined to block the sale.

The nonjudicial foreclosure occurred, and the trustee conveyed a deed for the parcel to

Excelsior Mortgage, a related company. Additional litigation continued as Mr. Schroeder

sought damages and other relief. The trial court dismissed the actions, finding that Mr.

Schroeder could not contest the nature of the property given the stipulation in the 2009

deed of trust.

       3
         The appraisal describes the property as "gently sloping meadows mixed with
timberland. There is an average amount of merchantable timber on the property along
with five springs and three ponds. There are four barns, three sheds, and an older vacant
farm house not valued in this appraisal." Ex. 2 at 1346.
       4
         The vehicles and other scrap were at issue in the fourth appeal, Excelsior
Mortgage Equity Fund v. Schroeder, 171 Wash. App. 133.

                                             3
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

       The Washington Supreme Court reversed, concluding that the requirements of the

statute could not be waived by the parties. Id. at 106-07, 109. Agricultural land could

not be foreclosed through the DTA's nonjudicial process. Id. at 105-07, 115. The case

was remanded, with the requirement that "the trial court must hold a hearing to determine

whether the property was primarily agricultural at relevant times." Id. at 115. The order

dismissing Schroeder's ancillary damages claims also was reversed and remanded for

discovery. Id. at 114-15.

       A lengthy nonjury trial concerning the nature of the property was held over three

days in February 2015 and resulted in a transcript of nearly 1,000 pages. The court heard

from a number of witnesses. Mr. Schroeder testified that he kept a handful of pigs on the

property and that cattle grazed among the timber on that property as well as on adjoining

lands he owned on which he grew hay or other crops. He testified that he ran his scrap

business from the property and that timber production and logging were occasional

income sources for him. A Stevens County deputy assessor testified that 180 acres of the

parcel had been classified for tax purposes as "designated forestland" since 2001. Report

of Proceedings (RP) at 691-92. The remainder of the parcel was considered "improved."

The forestland designation carried a greater tax break than property in the "farm and

agricultural" classification.

       Counsel for Mr. Schroeder argued that timber was a "crop" and that the contrary

definition found in the current UCC did not apply to the earlier-adopted DTA. The trial

                                            4
No. 33336-1-111; No. 34551-3-111
Schroeder v. Haberthur

court, however, distinguished between "crop" and "timber," and ruled that the land was

used "for timber, and ... if there's an ag use, it's offset, if you will, by the storage of the

cars and the, the scrapping business that was run here." RP at 953-54. In the course of

its ruling, the court considered the UCC definitions argued by the parties, the tax

designation, Mr. Schroeder's representation 5 on the deed of trust, and the uses Mr.

Schroeder made of the property. The trial court gave primary importance to the

classification of the land for tax purposes. RP at 945. The court entered formal findings

of fact and conclusions of law in support of its ruling in April 2015. Mr. Schroeder

appealed that ruling to this court.

       In February 2016, the trial court granted summary judgment to Excelsior on the

remainder of Schroeder's claims, but then granted reconsideration so that Schroeder

could obtain new counsel. After Schroeder responded to the motion, the court again

granted summary judgment to Excelsior on June 1, 2016, dismissing the remaining

claims. Mr. Schroeder also appealed that decision to this court.

       This court consolidated the two appeals. A panel heard the case without

argument.

       5
         The judge was convinced that Mr. Schroeder had not perjured himself in the
deed of trust when he stated the land was not agricultural. He thought that Mr.
Schroeder's characterization of the property evolved during the litigation.

                                               5
No. 33336-1-111; No. 34551-3-111
Schroeder v. Haberthur

                                        ANALYSIS

       The primary issue is whether timber is a "crop" so that the forest land should have

been considered agricultural property under the DTA. In light of our conclusion that

timber is not a "crop," the issue we first address, we summarily consider the claim of

error related to the summary judgment ruling on the damages claims.

       There are a number of general principles that have play in this action. The initial

case came to this court via appeal from a nonjury trial. We review a bench trial to

determine whether substantial evidence supports the trial court's findings of fact. In re

Tr. 's Sale of Real Prop. ofBrown, 161 Wn. App. 412,415,250 P.3d 134 (2011).

Substantial evidence is evidence sufficient to persuade a rational fair-minded person that

the premise is true. Sunnyside Valley lrrig. Dist. v. Dickie, 149 Wash. 2d 873, 879, 73 P.3d
369 (2003). Unchallenged findings of fact are also verities on appeal. In re Estate of

Jones, 152 Wash. 2d 1, 8, 93 P.3d 147 (2004). This court must then determine if those

findings support the trial court's conclusions oflaw. Dorsey v. King County, 51 Wn.

App. 664, 668-69, 754 P.2d 1255 (1988). This court reviews conclusions of law de novo.

Sunnyside, 149 Wash. 2d at 879-80.

       The other half of this case arrived following summary judgment. An appellate

court will review a summary judgment ruling de novo and consider the same evidence

heard by the trial court, viewing that evidence in a light most favorable to the party

responding to the summary judgment. Lybbert v. Grant County, 141 Wash. 2d 29, 34, 1

                                             6
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

P.3d 1124 (2000). If there is no genuine issue of material fact, summary judgment will

be granted if the moving party is entitled to judgment as a matter of law. Id. "A

defendant in a civil action is entitled to summary judgment if he can show that there is an

absence or insufficiency of evidence supporting an element that is essential to the

plaintiffs claim." Tacoma Auto Mall, Inc. v. Nissan N Am., Inc., 169 Wash. App. 111,

118, 279 P.3d 487 (2012).

      Questions of statutory interpretation are reviewed de novo. State v. Bradshaw,

152 Wn.2d 528,531, 98 P.3d 1190 (2004). A court begins by looking at the plain

meaning of the rule as expressed through the words themselves. Tesoro Ref & Mktg. Co.

v. Dep 't of Revenue, 164 Wash. 2d 310, 317, 190 P.3d 28 (2008). If the meaning is plain on

its face, the court applies the plain meaning. State v. Armendariz, 160 Wash. 2d 106, 110,

156 P .3d 201 (2007). Only if the language is ambiguous does the court look to aids of

construction. Id. at 110-11. A provision is ambiguous if it is reasonably subject to

multiple interpretations. State v. Engel, 166 Wn.2d 572,579,210 P.3d 1007 (2009).

      The primary statute at issue, as it was before the Washington Supreme Court in

Schroeder V, is RCW 61.24.030, which currently states in relevant part:

      It shall be requisite to a trustee's sale:

             (2) That the deed of trust contains a statement that the real property
      conveyed is not used principally for agricultural purposes; provided, if the
      statement is false on the date the deed of trust was granted or amended to
      include that statement, and false on the date of the trustee's sale, then the
      deed of trust must be foreclosed judicially. Real property is used for

                                               7
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

       agricultural purposes if it is used in an operation that produces crops,
       livestock, or aquatic goods.

Additionally, RCW 61.24.020 provides in part that: "A deed of trust conveying real

property that is used principally for agricultural purposes may be foreclosed as a

mortgage."

       Also at issue here is a definition from the secured transactions article of the UCC.

In part, RCW 62A.9A-102(34), provides:

       "Farm products" means goods, other than standing timber, with respect to
       which the debtor is engaged in a farming operation and which are:
             (A) Crops grown, growing, or to be grown, including:
             (i) Crops produced on trees, vines, and bushes ....

(Emphasis added.)

       Timber is not a Crop

       The issue presented by the remand order was whether the land was principally

used for agricultural purposes. To that end, the hearing, as well as the argument on

appeal, turned on whether the land was used "in an operation that produces crops." RCW

61.24.030(2). The word "crops" is not defined in the DTA and is only inferentially

defined by example in the UCC. Mr. Schroeder argues that it was error for the trial court

to consider the current UCC definition--distinguishing "timber" from "crops"--because

the definition was adopted two years after the DTA and could not have been intended by

the legislature.

                                             8
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

       Mr. Schroeder is historically correct. On adoption in 1965, the DTA required a

statement that the land subject to the deed of trust "is not used principally for agricultural

or farming purposes." LAWS OF 1965, ch. 74, § 3; former RCW 61.24.030(2) (1965).

The current version of this statute was adopted in 1998 when the "or farming" language

was dropped and the definition of "agricultural purposes" was added. LA ws OF 1998, ch.

295, § 4. Also at that time, the legislature added the provision to RCW 61.24.020

clarifying that a deed of trust for agricultural land may be foreclosed through the judicial

process. LAWS OF 1998, ch. 295, § 3.

       Current RCW 62A.9A-102(34), adopted in 2000, distinguishes standing timber

from crops. LAWS OF 2000, ch. 250, § 9A-102. In 1998, the UCC distinguished between

crops and standing timber under contract for sale. See former RCW 62A.9-105(1 )(h)

( 1998), last sentence ("'Goods' also includes standing timber which is to be cut and

removed under a conveyance or contract for sale, the unborn young of animals and

growing crops."). The distinction between standing timber and standing timber under

contract for sale leaves room for Mr. Schroeder to argue that the timber on his own land

that he was personally to harvest constituted a "crop" at the time the DTA was enacted in

1998. Such an argument presumes that the legislature wanted the UCC applied to DTA

cases. If it does apply, then Mr. Schroeder loses because the 2000 amendments were in

                                              9
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

place at the time of the 2009 deed of trust, resulting in timber not being included within

the definition of "crop. " 6

       Thus, the true issue in this case is whether the UCC definition applies to the DTA.

For two reasons, we believe that the UCC definition should apply.

       First, there is evidence that the legislature expected that the UCC would be applied

to the DTA. Telling here is an Executive Summary prepared by the working group that

drafted the 1998 amendments to the DTA. Although the Washington State Archives only

maintains an earlier draft of the summary (dated January 16, 1998) among the Senate

documents, a more complete version of the document, dated June 6, 1998 (and perhaps

used for legal education7 purposes), was presented to the trial court. An apparently

similar version was extensively relied on by Division One of this court in Gardner v.

First Heritage Bank, 175 Wash. App. 650, 664-70, 303 P.3d 1065 (2013). 8 Because our

copy lacks an original source citation, we will reference the clerk's papers designation.

       6
          It is for this reason that Rainier Nat'/ Bank v. Security State Bank, 59 Wash. App.
161, 796 P.2d 443 (1990), is inapplicable. There the court applied a dictionary definition
for the word "crops" under former RCW 62A.9-l 05(h) in the absence of a UCC
definition, and concluded that Christmas trees were "crops" for purposes adjudging
competing security interests in a Christmas tree farm. The 2000 UCC legislation has
clarified that standing timber is not a crop. This case does not require us to determine if
Christmas trees constitute standing timber or a crop.
        7
          The formatting (index, captions, and pagination) suggest that the document may
have been used in a deskbook or as a chapter of a lengthy continuing legal education
(CLE) document.
        8
          Gardner involved numerous issues relating to the DTA and nonjudicial
foreclosure of a deed of trust governing a parcel of land that had been used, in part, for

                                            10
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

       The amendments to the agricultural exception to the DTA were among the most

heavily debated changes made by the working group. Clerk's Papers (CP) at 51

(summary at 1 lA-6). The summary expressly states that the agric~ltural exception was

amended with the pending UCC amendments in mind. CP at 52 (summary at 1 lA-7).

Accordingly, this history suggests that the legislature anticipated that this section of the

DTA would be construed in accordance with the UCC. 9

       Second, it is appropriate to use the UCC definition here since the article 9

definitions often will apply to agricultural land in other secured transaction settings. For

instance, "farm products" are "goods" that can be the subject of an "agricultural lien."

RCW 62A.9A-102(5), (34), (44). It would be confusing, it not completely contradictory,

for "crops" to have one meaning under the secured transaction statutes and another

meaning under the DTA. Given the significant overlap between mortgages and deeds of

trust with the other types of secured transactions found in article 9, it is understandable

that the legislature would desire similar meanings to be applied.

agricultural purposes. The court ultimately concluded that occasional pasturing of a few
horses on the property did not constitute proof that the land was primarily used for
agricultural purposes. 175 Wash. App. at 668-73.
       9
         In addition, another section of the DTA adopted in 1998 expressly references a
UCC provision, showing legislative desire to apply the UCC to the DTA. See
RCW 61.24.020. It was not possible to use this tactic with respect to RCW 61.24.030
since the associated UCC provision had not yet been adopted.

                                             11
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

       Accordingly, we conclude that the trial court did not err in considering the current

UCC definition of "crops" when construing the meaning of that term in the DTA.

Substantial evidence supported the determination that Mr. Schroeder did not principally

use the parcel for agricultural purposes. Over 90 percent of the land was granted a tax

break due to its characterization as forest land rather than as agricultural land. Mr.

Schroeder used the remainder of the land for his scrap business; only occasionally was

the land used for grazing or other agricultural purposes. He represented to Excelsior, as

he had to the tax assessor, that the land was not agricultural. Given all of this, the trial

court understandably ruled that the property was not primarily used for agricultural

purposes.

       The vast weight of the evidence supports the trial court's ruling. It was proper to

apply the DTA to the commercial transaction between Schroeder and Excelsior.

       Summary Judgment

       The ancillary claims for damages were dismissed on summary judgment one year

after the trial on the nature of the land. Since those claims were largely resolved by the

outcome of the bench trial, the court did not err in granting summary judgment.

       The claims presented alleged violations of both the Consumer Protection Act

(CPA), chapter 19.86 RCW, and the Real Estate Settlement Procedures Act of 1974, 12

U.S.C. § 2601, as well as unconscionability and civil conspiracy. All were predicated, at

least in part, on the allegation that the land parcel was agricultural and that Excelsior

                                              12
No. 33336-1-III; No. 34551-3-III
Schroeder v. Haberthur

knew that fact when it wrongly used the DTA to close out Schroeder's interest in the

property. Since the trial court correctly determined that the property was not primarily

used for agricultural purposes, Schroeder's claims necessarily failed.

      To the extent that the CPA claim is based on any other theory of deception rather

than the land's characterization, Schroeder failed to present evidence to support the

theory. Accordingly, the trial court correctly determined that there were no material facts

in dispute and properly granted summary judgment.

      Excelsior has requested an award of attorney fees pursuant to the deed of trust

since it has prevailed in this appeal. Our commissioner will consider a timely request that

complies with RAP 18.1.

      The judgments are affirmed.

WE CONCUR:

      Pennell, J.

                                            13