Federal Deposit Insurance Corporation v. JD Investment Enterprises et al
Filing
70
ORDER AND MEMORANDUM DECISION granting 52 Motion for Summary Judgment: plaintiff is directed to submit a final proposed judgment to the court. Signed by Judge Tena Campbell on 11/26/12 (alt)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
2010-1 RADC/CADC VENTURE, LLC,
Plaintiff,
vs.
JD INVESTMENT ENTERPRISES,
MATTHEW JOHNSON, JEFF DONOVAN,
SILVER LEAF COMPANIES, LLC,
NATION WEST HOME LOANS, LLC,
AMERICA TITLE INSURANCE AGENCY,
and LARRY ARMSTRONG,
ORDER
AND
MEMORANDUM DECISION
Case No. 2:09-cv-917
Judge Tena Campbell
Defendants.
I. Introduction
Plaintiff 2010-1 RADC/CADC Venture, LLC (RADC Venture) sued Defendant Silver
Leaf Companies, LLC (Silver Leaf), Defendant Mathew Johnson, and Defendant Jeff Donovan
(collectively, the Defendants). RADC Venture has filed a motion for summary judgment
(Docket No. 52), which only Silver Leaf opposed. RADC Venture contends that it has the legal
right to collect from the Defendants on some personal loan guaranties and agreements. Silver
Leaf disagrees, arguing that the original entity that had the right to collect (America West Bank)
is defunct, and the right to collect was never properly assigned to RADC Venture. For the
reasons set forth below, the court grants RADC Venture’s motion for summary judgment.
II. Summary Judgment Standard
Summary judgment is appropriate “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. Civ.
P. 56(a). The court must “examine the factual record and reasonable inferences therefrom in the
light most favorable to the party opposing the motion.” Lopez v. LeMaster, 172 F.3d 756, 759
(10th Cir. 1999).
III. Analysis1
The court must decide three questions: (A) whether RADC Venture may enforce the
various personal guaranties and agreements against the Defendants; (B) whether the foreclosure
sale was properly conducted; and (C) whether RADC Venture should be awarded attorney fees
and costs. The court answers each question in the affirmative.
A.
RADC Venture Has the Right to Collect on the Personal Loan Guaranties and
Agreements Because America West Bank Was an Intended Third-Party Beneficiary to the
Agreements, and RADC Venture Was Properly Assigned Those Rights
The parties argue over the question: Does RADC Venture have a right to enforce the
personal guaranties because it was an intended beneficiary of the Silver Leaf agreements? This
question is best addressed in two parts: (1) did Silver Leaf create third-party beneficiary rights in
America First Bank? and (2) were those third-party beneficiary rights properly assigned to
RADC Venture?
1.
America West Bank had the Right to Enforce the Personal Loan Guaranties
and Agreements
When a contract is entered into for the benefit of a third party, then the third party is
deemed a third-party beneficiary (also known as an “intended beneficiary). Tracy Collins Bank
& Trust v. Dickamore, 652 P.2d 1314, 1315 (Utah 1982). Utah courts have adopted Restatement
(Second) of Contracts § 302 as setting forth the principles governing third-party beneficiaries.
See id.; Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382, 1386 (Utah
1989). Section 302 states, in relevant part, that “a beneficiary of a promise is an intended
beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate
the intention of the parties and . . . the performance of the promise will satisfy an obligation of
the promisee to pay money to the beneficiary.” Restatement (Second) of Contracts § 302(1) &
1
There are no material facts in dispute, and the background of this case is set forth in the
parties’ pleadings. The court will not repeat any of this background except when necessary to
explain the Order and Memorandum decision.
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(1)(a) (1981). And, even when it was not a party to the original contract, a third-party
beneficiary has the right to enforce the terms of the contract. Tracy Collins Bank, 652 P.2d at
1315.
The application of § 302 is well-illustrated in Ron Case Roofing & Asphalt Paving, Inc.
v. Blomquist, 773 P.2d 1382 (Utah 1989). In that case, Brooks Construction was a general
contractor overseeing various building projects. One of its subcontractors, Ron Case Roofing,
obtained a judgment against Brooks Construction for $17,500. Another entity, Vesper Financial,
later entered into an agreement with Brooks Construction in which Vesper Financial agreed “to
pay all indebtedness which is presently outstanding or in the future may arise” related to Brooks
Construction’s various building projects. Id. at 1384–85. Ron Case Roofing was unable to
collect against Brooks Construction directly, so it instead tried to collect on the $17,500 by suing
Vesper Financial, arguing that Ron Case Roofing was an intended third-party beneficiary of the
agreement. The Utah Supreme Court agreed, citing to the principles in § 302 of the Restatement.
The Court reasoned that because Vesper Financial clearly stated in its agreement that that it
would “pay all indebtedness which is presently outstanding or in the future may arise” relating to
Brooks Construction’s building projects, it had thereby created enforceable third-party
beneficiary rights in Ron Case Roofing, even though Ron Case Roofing was never specifically
named in the agreement. See id. at 1386–87.
Similar to Vesper Financial in Ron Case, Silver Leaf has entered into an agreement
which created rights in a third party—namely America West Bank. JD Investment Enterprises
incurred a debt to America West Bank, which was personally guarantied by Mr. Johnson and Mr.
Donovan. When Silver Leaf purchased JD Investment Enterprises, it entered into two different
agreements, agreeing to assume all the obligations of JD Investment Enterprises, Mr. Johnson,
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and Mr. Donovan. (RADC Venture’s Mem. Supp. Summ. J. Ex. I, at 1, Ex. J, at 2, Docket No.
53.) The agreements specifically identified the loan from America West Bank as one of those
obligations. Judged by the standards summarized in § 302 of the Restatement, and by analogy to
Ron Case, it is plain that the agreements created third-party beneficiary rights in America West
Bank.
2.
America West Bank’s Third-Party Rights Were Properly Assigned to RADC
Venture
Contract rights may be assigned—including third-party beneficiary rights, or rights under
a guaranty contract. See Witt v. CIT Group/Consumer Fin. Inc., 2:10-cv-440, 2010 WL
4609368, at *3 (D. Utah Nov. 5, 2010); Winegar v. Froerer Corp., 813 P.2d 104, 107 (Utah
1991). Utah law favors the assignability of contract rights, and once a valid assignment is made,
the assignee stands in the shoes of the assignor. Lone Mountain Prod. Co. v. Natural Gas
Pipeline Co. of Am., 710 F. Supp. 305, 309 (D. Utah 1989). Moreover, the appointment of a
receiver acts as a valid assignment of rights. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293,
1297 n.2 (10th Cir. 1986).
Based on the undisputed facts presented to the court, it is evident that America West
Bank’s rights as a third-party beneficiary were properly assigned to RADC Venture. First, when
America West Bank was closed and went into receivership, the receiver—the FDIC—became an
assignee of America West Bank with exactly the same rights the bank had. The FDIC then
executed a deed of trust that assigned its rights to the underlying property as well as “[a]ny and
all other documents and instruments evidencing, securing, or relating to the indebtedness . . . .”
(RADC Venture’s Mem. Supp. Summ. J. Ex. K, at 2, Docket No. 53.) As a result, RADC
Venture obtained America West Bank’s right to enforce payment of the debt by foreclosing on
the property. And although not specifically mentioned in the assignment, when the FDIC
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assigned its rights to the indebtedness to RADC Venture, the right to collect on the guaranties
followed. See First Nat’l Bank of Ogden v. Taylor, 114 P. 529, 530 (Utah 1911) (stating that
“the guaranty follows the debt, and may be enforced by any one who has a legal right to enforce
the payment of the debt.”). Nothing in the loan documents, personal guaranties, or agreements
indicates that the parties intended to restrict the assignment of the right to collect. To the
contrary, there are numerous instances where the language explicitly states that the rights under
contract were intended to inure to the benefit of all successors and assigns. (E.g., RADC
Venture’s Mem. Supp. Summ. J. Ex. I, at 2, Docket No. 53 (“This Agreement is binding up and
inures to the benefit of the parties, their . . . predecessors, successors, and assigns.”).) As a
result, RADC Venture not only obtained America West Bank’s rights to foreclose on the debt
and enforce the personal guaranties against Mr. Johnson and Mr. Donovan, it also obtained
America West Bank’s rights to enforce the guaranties against Silver Leaf.
B.
The Foreclosure Sale Was Properly Conducted
The next question is whether RADC Venture properly conducted the foreclosure sale.
Because the foreclosure was judicially ordered, the controlling statutes are Utah Code Annotated
§§ 78B-6-901 to -909. Contrary to Silver Leaf’s contentions, the requirements of fair market
value under the non-judicial foreclosure statute in § 57-1-32 do not apply to judicial
foreclosures. See Jones v. Johnson, 761 P.2d 37, 41 n.2 (Utah Ct. App. 1988). Accordingly, the
foreclosure sale did not need to sell the properties at fair market value, and Silver Leaf’s
arguments are off-point.
Utah has a general policy to uphold judicial sales except when they are manifestly unfair,
such as through mistake, fraud, gross irregularities, or collusion. Beesley v. Hatch, 863 P.2d
1319, 1322 (Utah 1993). Courts hope that such a policy will encourage bidding at judicial sales.
Id. Based on the documents before the court, there are no allegations of mistake, fraud, manifest
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unfairness, gross irregularities or collusion. For that reason, the court defers to the general
policy to uphold judicial sales, and holds that the foreclosure sale was properly conducted.
C.
RADC Venture Should Be Awarded Fees and Costs Because the Agreements
Specifically Provide for Such a Result
The final question is whether the court should award attorney’s fees and legal costs to
RADC Venture. Under Utah law, if the provisions of a contract allow for the recovery of
attorneys’ fees, then “[a] court may award costs and attorney fees to either party that prevails in
a civil action” based on the contract. Utah Code Ann. § 78B-5-826; Dixie State Bank v.
Bracken, 764 P.2d 985, 988 (Utah 1988). When a court awards fees pursuant to a contract, the
court has less discretion in denying fees than it has in other contexts. Bank of the W. v.
Millennia Inv. Corp., 2:11-cv-465, 2012 WL 2256926, at *2 (D. Utah June 15, 2012).
Nevertheless, the fees must be reasonable. See Id. Utah courts consider the following factors in
determining the reasonableness of attorneys’ fees: (1) What legal work was actually done? (2)
How much of the work performed was reasonably necessary to adequately prosecute the matter?
(3) Is the attorney’s billing rate consistent with the rates customarily charged in the locality for
similar services? (4) Are there circumstances which require consideration of additional factors?
Id.
The Silver Leaf agreements specifically state that if the contract must be enforced by
court action, the prevailing party in any such action is entitled to collect reasonable attorneys’
fees and costs from the non-prevailing party. (RADC Venture’s Mem. Supp. Summ. J. Ex. I, at
4, Ex. J, at 4, Docket No. 53.) Because RADC Venture is the prevailing party and has spent
money to enforce the agreements in this court action, the court holds that RADC Venture should
be awarded reasonable attorney fees and costs.
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IV. Conclusion
As shown above, the Defendants are jointly and severally liable for any deficiencies
stemming from the personal loan guaranties and agreements, as well as reasonable fees and
costs. Accordingly, RADC Venture’s Motion for Summary Judgment (Docket No. 52) is
GRANTED.
RADC Venture is directed to submit a final proposed judgment to the court, along with
accompanying documentation demonstrating amounts for which the Defendants are jointly and
severally liable under the personal loan guaranties and agreements, as well as documentation
demonstrating reasonable attorneys’ fees and costs.
SO ORDERED this 26th day of November 2012.
BY THE COURT:
TENA CAMPBELL
U.S. District Court Judge
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