Western Mortgage & Realty Company v. KeyBank National Association et al

Filing 148

MEMORANDUM DECISION AND ORDER Plaintiff's Motion for Partial Summary Judgment (Dkt. 57 ) is DENIED AS MOOT. Defendants' Motion for Summary Judgment (Dkt. 76 ) is GRANTED IN PART AND DENIED AS MOOT IN PART consistent with this Memorandum Decision and Order.Plaintiff's Motion for Partial Summary Judgment: Ownership Interest (Dkt. 75 ) is DENIED AS MOOT. Plaintiff's Motion in Limine (Dkt. 79 ) is DENIED AS MOOT. Defendants' Second Motion for Summary Judgment on Statut e of Limitations (Dkt. 140 ) is GRANTED. Defendants shall submit to the Court a proposed judgment consistent with this Memorandum Decision and Order within 10 days of the date of this Order. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

WESTERN MORTGAGE & REALTY
CO., a Washington corporation,

Case No. 1:13-cv-00216-EJL-REB

Plaintiff,

MEORANDUM DECISION
AND ORDER

v.
KEYBANK NATIONAL
ASSOCIATION, a national banking
association and KEYCORP CAPITAL,
INC., an Ohio corporation,
Defendants.

Defendants KeyBank National Association, NBA and Keycorp Capital, Inc.
(collectively “KeyBank”) sold to Plaintiff Western Mortgage & Realty Co. (“Western”) a
security interest in Nature’s Best Produce Inc.’s (“Nature’s Best”) potential recovery
from a commercial tort claim. However, KeyBank had released Nature’s Best from its
obligations prior to selling the security interest to Western. Western sued KeyBank for
breach of warranty, breach of the implied covenant of good faith and fair dealing, and
fraud. Western has moved for partial summary judgment (1) holding KeyBank liable on
the breach of warranty claim, and (2) declaring that Western owns outright two
assignments in another party’s recovery from the same commercial tort claim. KeyBank
defended against these motions and moved for summary judgment on the grounds that (1)
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Western waived the warranties that form the basis of its contract and fraud claims and (2)
that it cannot prove damages. Western also moved in limine to exclude the testimony of
KeyBank’s damages expert. KeyBank sought leave to file a second motion for summary
judgment regarding the statute of limitations on the contract claims and the Court
granted the motion.
Having fully reviewed the record, the Court finds that the facts and legal
arguments are adequately presented in the briefs and record. Accordingly, in the interest
of avoiding further delay, and because the Court conclusively finds that the decisional
process would not be significantly aided by oral argument, this matter shall be decided on
the record before this Court without oral argument.
BACKGROUND
For many years, Steve and Roy Young owned several farms and various affiliated
businesses in southeast Idaho. One of the affiliates was Nature’s Best.
Around the year 2000, the U.S. Bureau of Land Management sprayed the land it
managed with an herbal pesticide called “Oust,” which was manufactured by DuPont.
Wind caused Oust and Oust laden soil to drift from the BLM land onto, among others, the
Youngs’ farms, killing or severely damaging the Youngs’ crops. In 2003, the Youngs
and their businesses, including Nature’s Best, sued the United States, DuPont, and other
entities alleging they sustained $117 million in damages (the “Oust Litigation”).
As a result of the Oust incident, the Youngs began experiencing financial troubles.
In an effort to keep their farm and businesses afloat, the Youngs and their businesses
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borrowed money from three main banks. In 2003, the Youngs borrowed approximately
$12.3 million from North West Farm Credit Services (“NWFCS”). In 2004, the Youngs
borrowed approximately $12 million from Metropolitan Life Insurance Company
(“MetLife”). Finally, in 2004 and 2005, the Youngs took out several loans from
KeyBank with a combined face value of approximately $23.5 million (“KeyBank loans”).
As security for the KeyBank loans, the Youngs and Nature’s Best pledged any potential
recovery from the Oust Litigation (also referred to as the “Oust Proceeds”). Dkt. 75-9.
Around this time, Steve and Roy Young divided their ownership of their various
businesses. Steve Young took ownership of the farms and farming businesses (the
“Young Group”). Roy Young took Nature’s Best. As part of this process, Roy Young
began working with KeyBank to have him and Nature’s Best released from its
obligations under the KeyBank loans. On April 19, 2006, KeyBank and Roy Young
finalized the release (the “2006 Release”). Dkt. 75-13. The 2006 Release included the
security interest Nature’s Best had given KeyBank in the Oust Proceeds. On June 19,
2006, KeyBank publicly filed a UCC lien termination, terminating the earlier UCC
financing statement covering its security interest in Nature’s Best’s claim to proceeds
from the Oust Litigation.
Western was formed in 1991 by Tim Tippett and Frank Tiegs to purchase various
forms of performing and non-performing loan accounts from creditors. In early 2006,
Western began working to gain control over Steve Young’s farms via the non-performing
loans as well as acquiring the farming operations from the Young Group. Western
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ultimately purchased all of the non-performing loans held by NWFCS, MetLife, and
KeyBank and related security interests.
In 2006, Western also began negotiating directly with Steve Young to acquire the
Young Group’s assets. During those negotiations, Steve Young and his son sent Tiegs
and Tippett, officers of Western, several emails that referenced the split between Steve
and Roy Young. The first email informed Western that “Roy [was] in the process of
making a deal with KeyBank to be released from obligation personally and also to get
Natures [sic] Best Produce (Fresh Pack Shed) released from cross collateralization [sic]
also.” Dkt. 61-1 at 57. The second two emails, sent in late April 2006, made reference to
Roy’s change in status. Dkt. 61-1, at 62 (“Roy has got his paper work done so he is no
longer liable to the banks on the farm debt or involved in the ownership of the our [sic]
land.”); id. at 65 (under an agenda header entitled “Closing Land Deals” was written
“Roy Young out of everything”). Tippett and Tiegs do not dispute they received the
emails. Tippett admits he knew Roy Young had sole ownership of Nature’s Best in 2006.
Tippett Depo, Dkt. 142-1, p. 5 (93:13-18). Western was not trying to purchase the assets
of Roy Young, just the farming assets/operations of Steve Young and the Young Group.
Western was also negotiating with KeyBank to purchase the KeyBank loans and
finalized the terms of the purchase on May 10, 2007. It is unclear whether or not
KeyBank was aware of the side negotiations for the farming operations between Western
and Steve Young. The agreement between Western and KeyBank was memorialized in a
“Loan Sale Agreement” (or “LSA”) which closed on May 23, 2007. Dkt. 57-9. Among
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the assets that Western agreed to purchase was KeyBank’s security interest in the Young
Group’s and Nature’s Best’s interest in the Oust Proceeds. KeyBank warranted it had
good title to the assigned assets, and that it had not previously assigned its interests in the
assets. Id. § 4.1.3. The LSA further stated that “[t]he representations, warranties,
covenants, agreements, and indemnities of the parties . . . shall survive [c]losing.” Id.
§10.
The LSA also indicated that Western was a sophisticated buyer with respect to the
LSA and “has made such examination, review, and investigation of the facts and
circumstances necessary to evaluate the Assigned Rights and Assumed Obligations as it
has deemed necessary or appropriate.” Id. § 4.2.4. Western was provided with a listing of
all the UCC financing statements related to the security interests being purchased.
According to Tippett, Western did not verify the status of any of the UCC financing
statements it was acquiring to ensure they were valid in May 2007. Tippett Depo, Dkt.
62, p. 53 -54 (167:17-25; 168:1-5; 169: 1-13). Tippett is aware of how to verify the status
of UCC financing statements and lien terminations that are publicly filed. Id., p. 53-54,
(168:15-25; 169:1-13).
In exchange, Western agreed to pay $5.75 million at closing and an amount equal
to fifty percent of the net Oust Litigation proceeds that Western might recover in the
future. On August 3, 2010, the parties executed an Amendment to the LSA which
replaced the future recovery provision referred to as the Deferred Balance owed to
KeyBank with a fixed payment of $1.75 million by Western to KeyBank.
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Under the LSA, KeyBank was required to deliver at closing those documents that
were necessary to transfer ownership of the assets. Id. §1.2. The parties also agreed that
these documents would be “legal, valid, and binding agreements of [the parties]
enforceable against [the parties] according to their respective terms.” Id. §§ 4.1.2, 4.2.2.
As part of closing, Western and KeyBank signed a document entitled “Assignment
of Security Agreement, Control Agreement, and Assignment of Commercial Tort Claims
without Recourse and Without Warranty” (the “Oust Assignment”). Dkt. 57-10. As the
name suggested, the Oust Assignment purported to transfer ownership of KeyBank’s
security interests in the Oust Litigation. In contrast to the LSA, however, the Oust
Assignment stated that KeyBank made the assignment to Western “without warranty and
without recourse.” Id. The Oust Assignment did not affect the warranties Western had
made in the LSA. The Oust Assignment also contained a standard merger clause. Id. at
3.
In early August 2007, Western and Steve Young negotiated a “global settlement.”
Most of the terms of the settlement were detailed in a Letter of Understanding (“LOU”).
According to the LOU, Steve Young transferred title to his farms, farming equipment,
and, “by way of a Partial Assignment of Right, Title and Interest In and To “OUST”
Claim,” a fifty percent ownership interest in Steve Young’s and the Young Group’s Oust
claim. LOU, dkt. 61-2, at 48; 2d Partial Assignment, dkt. 75-16, at 2. Four months
earlier, Steve Young had executed another partial assignment that gave Western a fifty
percent ownership interest in the Oust Litigation. 1st Partial Assignment, dkt. 75-15, at
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2. In exchange, Western agreed to “fully release the associated Limited Guaranties
granted to KeyBank, the Personal Guaranty’s [sic] granted to SELCO Service
Corporation, and the Personal Guaranty’s [sic] granted to Key Equipment Finance
(“Personal Guarantees”) and personal assets of Steven D. Young and Maria Young
(“Young”).” Dkt. 61-2. Western also agreed to cease a foreclosure proceeding that
KeyBank had initiated, pay Steve Young’s income taxes that resulted from the
settlement, pay Steve Young one million dollars, and transfer back a twenty-five percent
interest in the Oust Litigation.
It is undisputed that in August of 2008, Western turned over documents to the
Department of Justice for the Oust Litigation. In the documents provided by Western,
there was a copy of the 2006 Release of Nature’s Best and Roy Young. It was Tippett’s
responsibility to compile the documents in response to the discovery request. Tippett
Depo, Dkt. 142-1, p.6, (99:16-25; 100:1 – 8).
On June 29, 2010, Western’s attorney did a UCC search and determined KeyBank
had terminated its security interest in Nature’s Best’s interest in the Oust Proceeds in
2006. This information was communicated to Tippett and Tippett testified in his
deposition that he assumed the UCC filing was in error. Tippett Depo, Dkt. 57-4, p. 7
(181:8-25; 182:1-8). There is no evidence Tippett performed any due diligence regarding
whether or not the lien termination was in error. On June 30, 2010, Tippett inquired of
Bean of KeyBank whether Nature’s Best interest in the Oust Proceeds would continue to
be included and Bean indicated that was his understanding. Tippett did not disclose to
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Bean that he had a copy of the UCC lien termination or ask Bean about the status of UCC
lien termination he was aware of. Tippett Depo, Dkt. 57-4, p.7 (181:19-24).
Tippett stated in his deposition the first time he became aware of the 2006 Release
of Nature’s Best was in meetings with Roy Young in November-December of 2011 and
was provided a copy by Roy Young in January of 2012. Tippett Depo, Dkt. 57-4, p. 4
(52:2-18).
In late 2011, the Youngs and Nature’s Best settled the Oust Litigation with
DuPont. Western received approximately $24.8 million of the Oust Proceeds. Western
also negotiated with the Youngs and Nature’s Best an agreement under which Western
took $5.5 million of a settlement in a legal malpractice suit between the Youngs’ and
Nature’s Best and their attorneys in the Oust Litigation. As a result of the 2006 Release,
however, Western alleges that Nature’s Best improperly received approximately $4.5
million.

STANDARD OF REVIEW
Summary judgment is proper if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R.
Crim. P. 56(a). “Where the moving party will have the burden of proof on an issue at
trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find
other than for the moving party.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984
(9th Cir. 2007). When the non-moving party bears the burden of proof at trial, the moving
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party may carry its initial burden by “produc[ing] evidence negating an essential element
of the nonmoving party’s case, or, after suitable discovery, . . . [by showing] that the
nonmoving party does not have enough evidence of an essential element of its claim or
defense to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins.
Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir. 2000). “Once the moving
party carries its initial burden, the adverse party may not rest upon the mere allegations or
denials of the adverse party’s pleading, but must provide affidavits or other sources of
evidence that set forth specific facts showing that there is a genuine issue for trial.”
Deveraux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc) (internal quotation
marks omitted).

On summary judgment, all disputed facts and reasonable inferences

must be construed in favor of the nonmoving party. Anderson v. Liberty Lobby, 477 U.S.
242, 255 (1986). When cross-motions for summary judgment are filed, the Court must
independently search the record for factual disputes. Fair Housing Council of Riverside
County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). The filing of crossmotions for summary judgment—where both parties essentially assert that there are no
material factual disputes—does not vitiate the Court’s responsibility to determine
whether disputes as to material fact are present. Id.

9

DISCUSSION
This case requires the Court’s consideration and interpretation of numerous
transactions between multiple entities and individuals over many years and the impact of
interests in a tort claim and a legal malpractice claim. It is a lesson in the confusion that
can result from inartful drafting of agreements by lawyers and non-lawyers, insufficient
due diligence, the failure of sophisticated parties to adequately review documents prior to
execution, and trying to interpret contracts years after the contracts were signed and other
events have unfolded. The Court will do its best to apply to the law to the undisputed
facts presented.

1.

Statute of Limitations on Contract Claims
The Court will begin with KeyBank’s Second Motion for Summary Judgment as

its resolution could impact whether other issues need to be decided by the Court.
KeyBank moves for dismissal of all the contract claims based on a statute of limitations
defense. KeyBank argues that any breach of warranties or misrepresentations in the LSA
are subject to a 5 year statute of limitation from the date the LSA was executed. Western
argues the Amendment to the LSA renewed the statute of limitation for all warranties
contained in the LSA. The Court finds the contract claims are subject to a five year
statute of limitations and are time barred.
It is undisputed that the LSA closed on May 23, 2007. Under Idaho law, a claim
for breach of contract must be filed within five years. Idaho Code § 5-216. A cause of
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action for breach of representations and warranties accrues at closing. See Ace Sec. Corp.
v. DB Structured Products, Inc., 112 A.D. 3d 522 (N.Y. 2013). Western filed its
Complaint in state court on April 9, 2013. Therefore, the Complaint was filed after the
applicable statute of limitations had run by approximately 11 months.
Western argues the Amendment of the LSA executed on August 3, 2010 renewed
and restarted the statute of limitations regarding all warranties and representations made
in the original LSA and therefore, the April 9, 2013 filing of the Complaint is timely
filed. This argument distorts the facts of this case and the law. First, the Amendment to
the LSA speaks for itself. Dkt. 146-2, Exhibit B. It is unambiguous. The purpose of the
amendment was to change Western’s obligation to pay KeyBank the Deferred Balance of
the purchase price (defined as 50% of the Oust Proceeds Western may receive the future
when the Oust Litigation was resolved) to instead pay a fixed sum certain amount of
$1.75 million and eliminate the Deferred Balance as discussed in the LSA. The
Amendment did not change any other terms of the LSA.
It is undisputed by the parties that the sum certain amount was negotiated by
parties at arm length based on their estimations of the value of the Oust Litigation. It is
also admitted by Western’s Tippett in his deposition that the only impact of the
amendment was to change the purchase price. Tippett Depo., Dkt. 57-4, p. 6 (177:20-24).
It is true that in the Recitals section of the two and half page amendment
document, it states: “[a] copy of the Loan Sale Agreement is annexed hereto and
incorporated herein for greater certainty.” Dkt. 146-2. The Court does not find that
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attaching a copy of the LSA to the amendment created an express obligation for KeyBank
to extend all warranties and representations in the original LSA to the amendment
therefore starting the five year contract statute of limitations again on the LSA. The
purpose of the amendment was to change the purchase price, not to extend the warranties
and representations of the LSA. The LSA was referenced and attached as it was the LSA
(not the amendment) that set forth the Deferred Balance term which was being modified
by the parties in the amendment. Western’s argument the amendment was a broad
renewal of all warranties and representations of the LSA is not supported by the
unambiguous language of the amendment nor the testimony of the purpose of the
amendment by Western’s Vice-President Tim Tippett.
Further, the Court finds Western’s legal analysis regarding the effect of any
acknowledgement is misplaced. The Court agrees under Idaho law (or Washington law as
Western cites), a debtor’s acknowledgement of a debt and promise to pay in writing and
signed by the party can extend the statute of limitations by creating a new promise to pay
a debt. Idaho Code § 5-238 and Mahas v. Kasiska, 276 P. 315 (Idaho 1929); Fetty v.
Wenger, 36 P.3d 1123 (Wash. App. 2001). This exception does not apply to the facts of
this case. KeyBank was not acknowledging a debt it owed to Western and agreeing to pay
it in the amendment. KeyBank’s annexation and incorporation of the LSA was for clarity
and in no way can the reference to the LSA in the recitals section of the amendment be
interpreted to mean KeyBank was expressly agreeing to extending the statute of
limitations for all warranties and representations made in the LSA.
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Even using the law regarding a debtor’s acknowledgement in writing and
agreement to pay by analogy to the amendment in this case, the facts are insufficient as a
matter of law to be a re-acknowledgement of the warranties and representations under the
LSA. “A mere reference to the debt, without an express or implied promise to pay it, is
not sufficient to prevent the running of the statute.” Mahas at 317. The Amendment to
the LSA merely referenced the LSA; it did not expressly state all obligations in the LSA
were renewed.
“The only non-statutory bar to a statute of limitations defense is the doctrine of
equitable estoppel.” J.R. Simplot Co. v. Chemetics Int’l, Inc., 887 P.2d 1039, 1041-42
(Idaho 1994) (citation omitted). The Court agrees with KeyBank that Western cannot
invoke equitable estoppel to revive an untimely claim under the facts of this case. The
elements for equitable estoppel are:
(1) a false representation or concealment of a material fact with actual or
construction knowledge of the truth;
(2) that the party asserting the estoppel did not know or could not discover
the truth;
(3) that the false representation or concealment was made with the intent
that it be relied upon; and
(4) that the person whom the representation was made, or from whom the
facts were concealed, relied and acted upon the representation or
concealment to his prejudice.

McCormack v. Everest Nat. Ins. Co., No. 1:13-CV-00318-EJL, 2015 WL 409312, at *15
(D. Idaho Jan. 29, 2015) (quoting Chemetics Int’l, Inc. at 1041-42). Here, the undisputed
facts establish that Western cannot establish the second element as Western was aware
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that Nature’s Best had been released from KeyBank’s security interest well before the
statute of limitations to file the contract claim expired. Tippett admitted in his deposition
he had been advised by Steve Young (via email or oral communications) that Roy Young
owned Nature’s Best and that KeyBank had released Roy Young and Nature’s Best from
the KeyBank security interest in 2006 or 2007, a copy of the 2006 Release was turned
over by Western to the Department of Justice investigating the Oust Litigation in 2008,
counsel for Western was aware the termination of the UCC lien in June of 2010 (before
signing the Amendment of the LSA) and Tippett learned again of the 2006 Release in
December of 2011 when negotiating with Roy Young over the Oust Proceeds. These
undisputed disclosures defeat Western’s attempt at claiming it did not know or could not
have discovered the misrepresentation and timely filed its Complaint within five years of
the closing on the LSA.
The Court also rejects Western’s argument that there was any “reconveyance” of
50% of KeyBank’s security interest in the Oust Proceeds when the LSA was executed
and the amendment was to purchase the “reconveyed” 50% interest of KeyBank to
Western. This interpretation is inconsistent with the express terms of the LSA and the
amendment. The LSA is clear that Western was purchasing 100% of KeyBank’s security
interest in the Oust Proceeds, but deferring the payment for such interest until the Oust
Proceeds were received at which point KeyBank would receive 50% of the Oust Proceeds
from Western. As discussed earlier, the amendment simply changed the purchase price
from a deferred balance owed to a lump sum payment. The amendment did not change
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the percentage of the security interest in the Oust Proceeds Western had purchased under
the LSA such that it implied a renewal of all warranties and representations in the LSA.
Tippett Depo, Dkt. 62, p.54 (170:10-18).
For all these reasons, the Court finds the contract claims relating to breach of
warranties and misrepresentations must be dismissed as a matter of law. Further, the
contract claim for breach of the implied covenant of good faith and fair dealing must also
be dismissed as it is a contractual obligation governed by the same five year statute of
limitations. Based on this ruling, the Court need not determine whether or not the
disclaimer of the warranties in Oust Assignment survives and Western’s and KeyBank’s
cross motions for partial summary judgment on this issue are denied as moot.

2. Fraud Claim
Western’s fraud claim is clearly intertwined with its breach of contract claim
regarding warranties and representations. To the extent that the fraud claim is part of the
contract claim on the LSA, such claim is dismissed. However, the Court acknowledges
that Western’s fraud claim can also be considered an independent cause of action from
the breach of warranties and misrepresentation contract claim. Therefore, the Court will
address the summary judgment motion on this claim.
The Court also finds a statute of limitations issue on part of this claim after
analyzing the statute of limitations argument on the contract claim. Because the
affirmative defense of statute of limitation was raised in KeyBank’s Answer and the
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parties have presented adequate facts in the record from the summary judgment briefing
on the fraud claim to allow the Court to address this issue, the Court makes the following
findings.
The statute of limitations for a fraud claim is three years as set forth in Idaho Code
§ 5-218(4). However, a fraud claim based on a misrepresentation in a contract does not
accrue from the date of closing on the contract. A fraud cause of action “cannot be
deemed to have accrued until the discovery, by the aggrieved party, of the facts
constituting the fraud or mistake.” Id. “However, actual knowledge of the fraud will be
inferred if the allegedly aggrieved party could have discovered it by the exercise of due
diligence.” Nancy Lee Mines, Inc. v. Harrison, 511 P.2d 828, 829 (Idaho 1973).
“Ordinarily, what constitutes reasonable diligence to discover fraud so as to affect the
time when the statute of limitations begins to run is a question of fact for the jury. Full
Circle, Inc. v. Scheiling, 701 P.2d 710, 258 (Idaho Ct. App. 1985). In this case, the parties
have elected a bench trial, so the Court will be the fact finder.
Here, since the Complaint was filed April 9, 2013, the alleged fraud of KeyBank
misrepresenting its security interest in Nature’s Best in the LSA had to have been first
discovered by the exercise of reasonable diligence by Western sometime after
April 9, 2010 for the claim to be within the statute of limitations
Tippett testified in his deposition that he was aware in 2006 or 2007 from
communications with Steve Young that Roy Young owned Nature’s Best (Steve Young
owned the farm assets) and that KeyBank had released Roy Young and Nature’s Best as
16

collateral for the security interests in the Oust Litigation. Additionally, Western had a
copy of the 2006 Release in its files in 2008 when Western turned over discovery to the
Department of Justice investigating the Oust Litigation and such discovery included
records kept in the normal course of Western’s business. Moreover, Tippett admits he
was the Western employee responsible for collecting the materials to be turned over in
2008.
While Tippett claims he was not “aware” of the actual 2006 Release document
until December 2011 or January 2012 when negotiating with Roy Young, his own
testimony and copies of emails establishes he had “knowledge of” the release of Roy
Young and Nature’s Best from KeyBank’s collateralization as early as 2006 or 2007.
Tippett, as Vice President of Western, was in charge of LSA negotiations as well as the
negotiations on the Amendment to the LSA with KeyBank and the negotiations with
Steve Young. Western was in the business of purchasing non-performing loans at a
discount from creditors and Tippett was aware of how to check the status of publicly filed
UCC documents regarding loans and security interests his company was buying. Western
employed attorneys to assist in the purchase of loans. Tippett worked closely with
Western’s counsel reviewing the LSA documents prior to executing the same, he
received the list of UCC Financing Statements being transferred to Western from
KeyBank and elected not to complete any due diligence regarding the financing
statements to determine if any of such liens had been terminated even though he testified
he knew how to search for such information and had learned of Roy Young and Nature’s
17

Best releases from Steve Young prior to closing on the LSA. Tippett specifically
admitted to receiving emails from Steve Young that should have a put sophisticated
business person on notice of the 2006 Release. Moreover, these emails were also sent to
another officer of Western, Frank Tiegs, who also declined to conduct obvious due
diligence regarding the security interest in Nature’s Best’s interests in the Oust Litigation.
Western’s explanation of the effect of the emails does little to support its argument
that the emails did not provide notice of the 2006 Release. Western argues that the emails
were irrelevant in its eyes because “Nature’s Best and Roy Young . . . were not
Borrowers under the KeyBank loans.” Dkt. 74 at 7, 8. That statement appears to be
wrong. Nature’s Best was a signatory to the 2005 Security Agreement. That document
describes a note entered into between Nature’s Best and KeyBank on April 26, 2005.
Dkt. 75-9 at 2. Furthermore, Roy Young and Nature’s Best are referenced in the 2006
Release as “Borrowers indebted to [KeyBank] in the principal amount of” $15.8 million.
Dkt. 75-13 at 2.
Western also claims it had no need to check the status of the UCC financing
statements as KeyBank warranted they were all good. This does not relieve Western of
good faith and fair dealing when it had at least some knowledge that Nature’s Best was
released from collateralization under the KeyBank loans in 2006. If anything, this excuse
appears to fly in the face of Western’s representation it had completed all necessary and
appropriate due diligence for a transaction worth millions of dollars.

18

Based on the emails and the admissions of Tiegs and Tippett in their depositions,
any fraudulent misrepresentation could or should have been discovered in the exercise of
reasonable diligence at some time prior to the closing on the LSA or at the very latest by
2008 when a copy of the 2006 Release was turned over by Western to the Department of
Justice. The emails and statements by Steve Young alone establish sufficient suspicion on
the status the security interest held by KeyBank regarding Roy Young and Nature’s Best.
The steps to check online the status of a UCC financing statement were known and not
completed by Tippett. All the information available to Western prior to April 9, 2010,
constituted sufficient circumstantial evidence from which Western knew or should have
been able to know through the exercise of reasonable diligence there was a
misrepresentation or fraudulent warranty in the LSA. See DBSI/TRI v. Bender, 948 P.2d
151, 163 (Idaho 1997). Western should not be allowed to turn a blind eye and not
complete reasonable diligence based on the facts it was aware of as early as 2006.
Therefore, any claim of fraud as to the LSA is barred by the statute of limitations.
The statute of limitations analysis is slightly different as to the alleged fraudulent
misstatement by KeyBank’s Bean in an email to Tippett on June 30, 2010 that Nature’s
Best’s interest to the Oust proceeds would be included under the Amendment. Third
Amended Complaint, Dkt. 41, ¶ 79. This statement would be within the three year statute
of limitations for fraud and the merits of the motion for summary judgment on this issue
must be addressed by the Court.

19

“The nine elements of a fraud claim are: (1) a statement or a representation of fact;
(2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity; (5) the
speaker's intent that there be reliance; (6) the hearer's ignorance of the falsity of the
statement; (7) reliance by the hearer; (8) justifiable reliance; and (9) resultant injury.”
April Beguesse, Inc. v. Rammell, 328 P.3d 480, 489 (Idaho 2014). Furthermore, “the
mere failure to perform a promise or an agreement to do something in the future” cannot
be fraud unless “the speaker made the promise without any intent to keep it,” or “the
promise was accompanied by statements of existing fact which show the promisor’s
ability to perform the promise and those statements were false.” Gillespie v. Mountain
Park Estates, LLC, 132 P.3d 428, 431 (Idaho 2006). Western’s fraud claim is based upon
the warranties that KeyBank made in the LSA and a representation made by a KeyBank
employee prior to the Amendment to the LSA being executed. It is Western’s burden to
prove all nine elements by clear and convincing evidence. Thomas v. Medical Center
Physicians, P.A., 61 P.3d 557, 564 (Idaho 2002). For purposes of summary judgment,
the Court’s inquiry is whether a reasonable factfinder could conclude the plaintiff has
shown fraud by clear and convincing evidence. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986).
It is undisputed that KeyBank mistakenly included the security interest in Nature’s
Best’s interest in the Oust Litigation in the security interests it said it was providing to
Western under the LSA. Bean knew or should have known that the security interest in
Nature’s Best had been released by KeyBank since he was the signatory on behalf of
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KeyBank for the 2006 Release, the LSA and the Amendment to the LSA. For purposes of
the motion for summary judgment, the Court will assume the misstatement was material
to the transactions.
In this case, it is disputed whether Western was ignorant of the falsity of the
statement and relied on the statement. Even assuming Western’s ignorance, the Court
finds no reasonable fact finder could find by clear and convincing evidence that Western
justifiably relied on the statement.
Fraudulent misrepresentation requires that the recipient’s reliance on the
misrepresentation be justified. Stewart Title of Idaho, Inc. v. Nampa Land Title Co., 715
P.2d 1000, 1002 (Idaho 1986). As to the Amendment to the LSA, Western did not
justifiably rely on the email statement by Bean since Western (through Tippett) was
aware the lien had been terminated as to Nature’s Best and failed to disclose this
information to Bean, so that Bean could corrected his misstatement. Instead, Western
proceeded over a month later with signing the Amendment to the LSA knowing KeyBank
did not have a security interest in Nature’s Best’s interest in the Oust Litigation.
It is undisputed by Western, that on June 29, 2010, Western’s prior counsel
downloaded a copy of the UCC lien termination covering Nature’s Best’s interests in the
Oust Litigation proceeds and provided it to Western. Before Western signed the
Amendment to the LSA in August of 2010, Tippett knew from his attorney that the
Nature’s Best UCC lien had been terminated in 2006. Therefore, there is no way for
Western to have reasonably or justifiably relied on the email statement by Bean. Western
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knew KeyBank no longer had an interest in Nature’s Best since at least June 19, 2006
when the 2006 lien termination had been publicly filed. Tippett’s testimony that he
thought the UCC lien termination was filed in error without conducting any due diligence
regarding the lien termination eliminates any reliance on the email being justified.
Additionally, the Court finds Bean’s email statement “I believe that it anticipates
all related entities and Nature’s Best would be included” was his opinion and was not
included as an additional term of the Amendment to the LSA nor was the email
incorporated by reference in the Amendment to the LSA. It is unclear if the email
comment by Bean is even related to the ultimate amendment executed over a month later
by the parties or some other alternative the parties were discussing in June. The Court
finds the misrepresentation in the email is Bean’s opinion and Western’s reliance on the
opinion without including it in the Amendment is not justified. Stewart Title at 1002
citing Restatement (Second) of Torts § 542; Nelson v. Hoff, 218 P.2d 345, 340 (Idaho
1950).
This has to be the case because the purpose of the LSA was not to change the
security interests being acquired, but was to change the Deferred Balance of the purchase
price due from a percentage of the Oust Proceeds to a sum certain. The Court finds as a
matter of law the fraud claim related to the Amendment to the LSA fails as Plaintiff
cannot prove by clear and convincing evidence that it justifiably relied on the email
statement by Bean.

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For these reasons, the Court finds any fraud claim must also be dismissed as a
matter of law on the basis of the contract claims being dismissed, the fraud claim being
outside the statute of limitations or Western’s failure to justifiably rely on the fraudulent
misrepresentations regarding Nature’s Best.

3.

Damages and Motion to Strike
Having determined the contractual claims are barred by the statute of limitations

and the fraud claims either barred by the statute of limitations or Plaintiff has failed to
establish facts that a reasonable fact finder could use to support a finding of justifiable
reliance by clear and convincing evidence, the Court need not rule on Western’s motion
for summary judgment regarding whether it held an ownership interest or a security
interest. Moreover, the Court need not rule upon the motion in limine to strike KeyBank’s
damages expert. These motions will be denied as being moot.

ORDER
1.

Plaintiff’s Motion for Partial Summary Judgment (Dkt. 57) is DENIED AS
MOOT.

2.

Defendants’ Motion for Summary Judgment (Dkt. 76) is GRANTED IN PART
AND DENIED AS MOOT IN PART consistent with this Memorandum
Decision and Order.

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3.

Plaintiff’s Motion for Partial Summary Judgment: Ownership Interest (Dkt. 75) is
DENIED AS MOOT.

4.

Plaintiff’s Motion in Limine (Dkt. 79) is DENIED AS MOOT.

5.

Defendants’ Second Motion for Summary Judgment on Statute of Limitations
(Dkt. 140) is GRANTED.

6.

Defendants shall submit to the Court a proposed judgment consistent with this
Memorandum Decision and Order within ten (10) days of the date of this Order.

DATED: September 22, 2015

_________________________
Edward J. Lodge
United States District Judge

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