Price v. US Bank, N.A.

Filing 33

ORDER denying 20 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM "Defendant's Motion to Dismiss the First Amended Complaint Pursuant to Rule 12(b)(6), Fed.R.Civ.P." filed by US Bank, N.A. and denying 18 MOTION To Excuse or Suspend Performance filed by R. Michael Price. Signed by Judge Susan P. Watters on 8/25/2017. (EMH)

FILED
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION

R. MICHAEL PRICE,

AUG 2 5 2017
Clerk, U.S. District Court
District Of Montana
Billings

Cause No. CV-17-36-BLG-SPW

Plaintiff,
OPINION AND ORDER

v.
US BANK, N.A.,
Defendant.

Before the Court is Plaintiff R. Michael's Price's motion to excuse or
suspend performance (Doc. 18) and Defendant US Bank's motion to dismiss for
failure to state a claim (Doc. 20). For the foregoing reasons, the Court DENIES
both motions.

I.

Facts alleged in amended complaint
On August 4, 2009, Price signed a Term Loan Agreement and Promissory

Note ("Term Note") with US Bank. (Doc. 3-1 at 12). The Term Note was secured
by an Arizona Deed of Trust, Security Agreement, and Assignment of Rents for
property located in Mohave County, Arizona ("Primary Collateral"). (Doc. 3 at if
10).
On April 4, 2010, US Bank filed a complaint against Price in federal court,
alleging Price had defaulted on the Term Note. (Doc. 3 at if 10). On July 26, 2010,

Price filed a complaint against US Bank in state court, alleging US Bank had
wrongfully instituted foreclosure proceedings against the Primary Collateral.
(Doc. 3 at~ 11). US Bank removed the state court action to federal court and the
cases were consolidated. (Doc. 3 at~~ 12-14). Price and US Bank entered into a
settlement agreement ("Agreement") prior to trial. (Doc. 3 at~ 15). Pursuant to
the Agreement, Price and US Bank executed a Letter Loan Agreement, a new
promissory note ("Replacement Note"), an amendment to the Arizona Deed of
Trust, and a Colorado Deed of Trust to secure the Replacement Note with
additional property located in Douglas County, Colorado ("Secondary Collateral").
(Doc. 3 at ~ 15).
The Colorado Deed of Trust provided that if the Secondary Collateral was
sold, the cash proceeds would be held as "Cash Collateral" and deposited in a
securities account as security for the Replacement Note. (Doc. 3-1 at 28). The
Colorado Deed of Trust further provided:
Upon sale and conversion to Cash Collateral, [US Bank] will, within a
reasonable time, release that amount of the Cash Collateral that
exceeds the amount required to maintain a loan-to-value ratio
(expressed as a percentage) not in excess of 70% based on the then
current principal balance of the Note and on the then current market
value of all Collateral for the Note as determined in accordance with
the Loan Agreement, including the Primary Collateral ... thereafter,
on January 1, 2012 and on January 1 of each succeeding year until the
Note is paid in full, the Bank will recalculate the value to maintain a
loan-to-value ratio (expressed as a percentage) not in excess of 70%
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based on the then current balance of the Note and will release that
amount of Cash Collateral that exceeds such recalculated value.
(Doc. 3-1 at 28). Section 7 of the Letter Loan Agreement provided:
Solely for the purposes of determining the amount of such Cash
Collateral, the Primary Collateral will initially be valued according to
the Lender's current appraisal of $1,390,000 ... until [a developed
parcel] of the Primary Collateral is sold or leased or an undeveloped
parcel of the Primary Collateral is sold ...
(Doc. 3-1 at 3-4).
In 2012, the Secondary Collateral was sold and converted to Cash Collateral
equivalent to $850,000. (Doc. 3 at if 22). Also in 2012, US Bank reappraised the
Primary Collateral and valued it at $630,000. (Doc. 3 at if 30). In January 2015,
the principal balance of the Replacement Note was $1,430,000. (Doc. 3 at if 23).
In February 2015, the value of the Cash Collateral was $933,567.75. (Doc. 3 at if
25). In 2015, 2016, and 2017, Price requested US Bank release the Cash Collateral
in excess of the 70% loan-to-value ratio. (Doc. 3 at iii! 27-29). Price maintained
there was Cash Collateral in excess of the 70% loan-to-value ratio based on the
combined value of the Cash Collateral and the value of the Primary Collateral set
out in Article 7 of the Letter Loan Agreement. (Doc. 3 at iii! 22-29).
US Bank refused to release any Cash Collateral. (Doc. 3 at if 29). US Bank
maintained there was no Cash Collateral in excess of the 70% loan-to-value ratio

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based on the combined value of the Cash Collateral and US Bank's 2012
reappraisal of the Primary Collateral. (Doc. 3 at i1i127-30).
Price filed suit against US Bank, alleging breach of contract and fraud,
among other claims. (Doc. 1 i1i138-84). Price subsequently filed a motion to
excuse his performance under the contract. (Doc. 13). US Bank filed a motion to
dismiss the complaint for failure to state a claim. (Doc. 20). The parties agree
Montana law governs the interpretation of the contracts at issue.

II.

Motion to dismiss standard
A motion to dismiss for failure to state a claim is governed by Fed. R. Civ.

P. 12(b)(6). To survive a motion to dismiss, "a complaint must contain sufficient
factual matter, accepted as true, to 'state a claim to relief that is plausible on its
face."' Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic
Corporation v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial
plausibility when the pleaded factual content allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged."
Iqbal, 556 U.S. at 678.

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III.

Discussion
A.

Price's motion to excuse or suspend performance

Price requests an order excusing or suspending his obligations under the
contract. He argues he should not have to perform because, in his view, US Bank
materially breached the contract. The Court denies Price's request because the
issue is not properly before the Court.
The general rule is that a party that commits a material breach of a contract
cannot maintain an action against the other party for a subsequent failure to
perform an obligation under the contract. Flaig v. Gramm, 983 P.2d 396, 400
(Mont. 1999) (citing Rogers v. Relyea, 601P.2d37, 41 (Mont. 1979)). Thus, US
Bank's alleged material breach is a legal defense Price may use ifhe elects to
suspend his performance and US Bank sues for breach of contract. At this
juncture, US Bank has not filed a counterclaim against Price for breach of contract
and Price has not cited any law establishing the Court's power to excuse his failure
to perform absent those circumstances or a request for a preliminary injunction.
However, Price explicitly maintains he does not seek a preliminary injunction.
(Doc. 31 at 9). Price's motion is denied.

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B.

US Bank's motion to dismiss for failure to state a claim

US Bank's motion to dismiss turns on the interpretation of the Letter Loan
Agreement and the Colorado Deed of Trust. US Bank argues the contracts entitle
it, for purposes of calculating the Cash Collateral in excess of 70% of the loan-tovalue ratio, to determine the value of the Primary Collateral based on the
property's current market value. Price argues the contracts, for purposes of
calculating the Cash Collateral in excess of 70% of the loan-to-value ratio, fix the
value of the Primary Collateral at $1,390,000 until a parcel of the Primary
Collateral is sold. The Court agrees with Price.
The interpretation and construction of a contract is a question of law.

Krajacich v. Great Falls Clinic, LLP, 276 P.3d 922, 926 (Mont. 2012). "A
contract must be so interpreted as to give effect to the mutual intention of the
parties as it existed at the time of contracting, so far as the same is ascertainable
and lawful." Krajacich, 276 P.3d at 926 (citing Mont. Code Ann.§ 28-3-303).
"The whole of a contract is to be taken together so as to give effect to every part if
reasonably practicable, each clause helping to interpret the other." Performance

Machinery Co., v. Yellowstone Mountain Club, LLC, 169 P.3d 394, 399 (Mont.
2007) (citing Mont. Code An .. § 28-3-202). "Where the language of an agreement
is clear and unambiguous and, as a result, susceptible to only one interpretation,
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the duty of the court is to apply the language as written." Performance Machinery
Co., 169 P.3d at 399 (internal quotation and citation omitted).
The Letter Loan Agreement unambiguously states the Primary Collateral,
for purposes of calculating the Cash Collateral in excess of 70% of the loan-tovalue ratio, is $1,390,000 until a parcel of the Primary Collateral is sold:
Solely for the purposes of determining the amount ofsuch Cash
Collateral, the Primary Collateral will initially be valued according to
the Lender's current appraisal of $1,390,000 ... until [a developed
parcel] of the Primary Collateral is sold or leased or an undeveloped
parcel of the Primary Collateral is sold ...
(Doc. 3-1 at 3-4) (emphasis added). The phrase "solely for the purposes of
determining the amount of such Cash Collateral" clearly limits the Letter Loan
Agreement's $1,390,000 valuation to that purpose. The term "until" clearly means
the Primary Collateral's value is $1,390,000-for purposes of calculating the Cash
Collateral in excess of 70% of the loan-to-value ratio-up to the time a parcel of
the Primary Collateral is sold. Webster's New World Dictionary 1464 (3rd ed.
1994).
The Colorado Deed of Trust does not create an ambiguity in the Letter Loan
Agreement. The Colorado Deed of Trust unambiguously states the market value of
the Primary Collateral, for purposes of calculating the Cash Collateral in excess of

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70% of the loan-to-value ratio, is determined in accordance with the Letter Loan
Agreement:
Upon sale and conversion to Cash Collateral, [US Bank] will, within a
reasonable time, release that amount of the Cash Collateral that
exceeds the amount required to maintain a loan-to-value ratio
(expressed as a percentage) not in excess of 70% based on the then
current principal balance of the Note and on the then current market
value of all Collateral for the Note as determined in accordance with
the Loan Agreement, including the Primary Collateral ...
(Doc. 3-1 at 28).

The phrase "as determined in accordance with the Loan

Agreement, including the Primary Collateral" clearly means the Letter Loan
Agreement's valuation of the Primary Collateral provides the Colorado Deed of
Trust's "then current market value" of the Primary Collateral. Although the phrase
"then current market value" contemplates a future reappraisal, the Letter Loan
Agreement similarly contemplates a future reappraisal, but not "until" a parcel of
the Primary Collateral is sold. If no parcel of the Primary Collateral is sold, the
Colorado Deed of Trust's "then current market value" of the Primary Collateral is
$1,390,000 because that is the value "as determined in accordance with the Loan
Agreement." If a parcel of the Primary Collateral is sold, and the Primary
Collateral is reappraised, the Colorado Deed of Trust's "then current market value"
of the Primary Collateral is the value determined by the reappraisal because that is
the value "as determined in accordance with the Loan Agreement." In sum, the
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Letter Loan Agreement's valuation of the Primary Collateral provides the
Colorado Deed of Trust's "then current market value" of the Primary Collateral.
Taking the well-pleaded facts in complaint as true, the complaint does not
fail to state a claim. The value of the Primary Collateral, for purposes of
calculating the Cash Collateral in excess of 70% of the loan-to-value ratio, is
$1,390,000 because a parcel of the Primary Collateral has not been sold. (Doc. 3 at

if 31). The value of the Cash Collateral is $933,567.75. (Doc. 3 at if 25). The
principal balance of the Replacement Note is $1,430,000. (Doc. 3 at if 23). The
combined value of $1,390,000 and $933,567.75 is in excess of the 70% loan-tovalue ratio. (Doc. 3 at if 26). In 2015, 2016, and 2017, Price requested US Bank
release the Cash Collateral in excess of the 70% loan-to-value ratio. (Doc. 3 at iii!
27-29). US Bank did not release the Cash Collateral in excess of the 70% loan-tovalue ratio. (Doc. 3 at iii! 27-29). The complaint does not fail to state a claim. US
Bank concedes all of Price's claims are premised on US Bank's refusal to release
the Cash Collateral. (Doc. 21 at 17).

IV.

Conclusion
Price's motion to excuse or suspend performance (Doc. 18) is DENIED and

US Bank's motion to dismiss for failure to state a claim (Doc. 20) is DENIED.

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Dated this

~

c:?S-- day of August, 2017.

~~-u~
SUSANP. WATTERS
United States District Judge

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