Union Bank Na v. Vanderhoek Associates , 191 Wash. App. 836 ( 2015 )

Filed
Washington State
Court of Appeals
Division Two
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
December 15, 2015
DIVISION II
UNION BANK, N.A., successor in interest to No. 46565-5-II
the FDIC as Receiver of Frontier Bank,
Respondent,
v.
VANDERHOEK ASSOCIATES, LLC, a PUBLISHED OPINION
Washington limited liability company; MINNE
VANDERHOEK and TRUDY
VANDERHOEK, husband and wife, and the
marital community composed thereof; and
RICHARD T. BRUNAUGH and AMANDA
B. BRUNAUGH, husband and wife, and the
marital community composed thereof,
Defendants,
and
DONALD C. LINKEM and ELIZABETH A.
LINKEM, husband and wife, and the marital
community composed thereof; PAUL E.
WILSON and KELLY I. WILSON, husband
and wife, and the marital community
composed thereof; PACIFIC RESOURCE
DEVELOPMENT, INC., a Washington
corporation; DAVID A. PARKER and
VELMA L. PARKER, husband and wife, and
the marital community composed thereof;
PACIFIC BAY, INC., a Washington
corporation; PERSONS IN POSSESSION OR
CLAIMING A RIGHT TO POSSESSION;
ALL OTHER PERSONS OR PARTIES
UNKNOWN CLAIMING ANY RIGHT,
TITLE ESTATE, LIEN, OR INTEREST IN
THE REAL ESTATE DESCRIBED IN THE
COMPLAINT HEREIN; and JOHN DOES I-
X,
Appellants.
46565-5-II
MELNICK, J. — This case arises out of a deficiency action following a trustee sale of real
property. The borrower and guarantor defendants appeal the trial court’s order vacating its earlier
summary judgment order in their favor. We hold that the trial court had tenable bases for
concluding an irregularity in obtaining the judgment existed and that a new case creating a
divisional split within the Court of Appeals constituted extraordinary circumstances extraneous to
the proceeding justifying relief from the judgment. Because the trial court did not abuse its
discretion in vacating its earlier summary judgment order, we affirm.
FACTS
In November 2008, Vanderhoek Associates, LLC borrowed $1.93 million from Frontier
Bank, evidenced by a promissory note (Vanderhoek Note). Vanderhoek Associates granted
Frontier Bank a deed of trust over certain real property to secure the note. Numerous parties
guaranteed the loan, including Minne Vanderhoek, Trudy Vanderhoek, Amanda Brunaugh,
Richard Brunaugh, Kelly Wilson, Paul Wilson, Elizabeth Linkem, Donald Linkem, Pacific
Resource Development, Inc., David Parker, and Velma Parker (collectively, the Vanderhoek
Guarantors).
In March 2009, Pacific Bay, Inc. renewed a promissory note by executing a change in terms
agreement regarding a $600,000 loan from Frontier Bank (Pacific Bay Note).1 To secure the
Pacific Bay Note, Vanderhoek Associates granted Frontier Bank a second-position deed of trust
over the same real property used to secure the Vanderhoek Note. With the exception of Minne
1
Pacific Bay, Inc. borrowed $300,000 from Frontier Bank in August 2005 and executed a
promissory note. It then renewed the loan, executed a promissory note, and borrowed an additional
$300,000, in January 2006. The promissory note, totaling $600,000, was renewed annually
through March 2009.
2
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and Trudy Vanderhoek,2 the same parties that guaranteed the Vanderhoek Associates loan, along
with Pacific Bay, Inc., guaranteed the Pacific Bay loan (collectively, the Pacific Bay Guarantors).
On or about April 30, 2010, Union Bank became the successor in interest to the Federal
Deposit Insurance Corporation (FDIC) as receiver of Frontier Bank and, in this capacity, acquired
the loan documents and the entirety of the loan files for the Vanderhoek Note and Pacific Bay
Note.
The respective borrowers and guarantors defaulted on the Vanderhoek and Pacific Bay
Notes, which matured on May 30, 2009, and March 16, 2010. Following the defaults, Union Bank
sued Vanderhoek Associates, Pacific Bay, Inc., and all of the guarantors of the notes. The trial
court appointed a receiver over the real property secured by the notes. The trial court approved
the receiver’s sale of the property, which yielded approximately $1.1 million. Union Bank claimed
that after it applied the sale proceeds and paid the receiver’s costs, costs of sale, and other expenses,
there were significant deficiencies on both notes. Union Bank filed suit to recover these
deficiencies.
Union Bank moved for summary judgment, seeking judgments declaring that the guarantor
defendants were jointly and severally liable, the guarantor defendant’s received sufficient due
process and opportunity to object to the receiver’s sale, and the deficiency amount. On August 9,
2013, the trial court granted partial summary judgment against the guarantor defendants on the
issue of liability.
2
The Vanderhoeks did not guarantee the Pacific Bay loan.
3
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On December 3, 2013, we issued our decision in First-Citizens Bank & Trust Co. v.
Cornerstone Homes and Development, LLC, 178 Wash. App. 207, 314 P.3d 420 (2013). We held
that Washington’s deeds of trust act (DTA)3 prohibits a lender from obtaining a deficiency
judgment against a guarantor of commercial loans whose guaranty was secured by a nonjudicially
foreclosed deed of trust, notwithstanding that the nonjudicially foreclosed deed of trust was
granted by the borrower and secured the borrower’s promissory note. Cornerstone, 178 Wash. App.
at 218.
Based on Cornerstone, Minne and Trudy Vanderhoek moved to revise the August 9 order
granting partial summary judgment in favor of Union Bank and moved for summary judgment
dismissing Union Bank’s claims against them. They argued that they should be entitled to assert
a defense to liability on their guaranty. The other guarantor defendants and borrower Pacific Bay,
Inc.4 moved to join the Vanderhoeks’ motion. Borrower Vanderhoek Associates did not join either
motion.
On January 31, 2014, the trial court granted Minne and Trudy Vanderhoek’s motion to
revise the trial court’s earlier order—granting partial summary judgment in favor of Union Bank,
and granted summary judgment in favor of the Vanderhoeks and all of the “remaining defendants,”
which would include both borrowers. Clerk’s Papers (CP) at 431. The trial court’s order also
3
Ch. 61.24 RCW.
4
The basis for Pacific Bay, Inc.’s involvement in the motion is not clear: as a borrower, it was not
aggrieved by the trial court’s earlier grant of partial summary judgment against the guarantor
defendants, and Cornerstone did not address the liability of borrowers. Pacific Bay, Inc. seems to
have been lumped in with the rest of the guarantor defendants merely because it was represented
by the same attorney as the guarantor defendants.
4
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included a provision dismissing Union Bank’s remaining claims against Minne and Trudy
Vanderhoek, as well as the other defendants.
Eighteen days later, Division One of this court issued its decision in Washington Federal
v. Gentry, 179 Wash. App. 470, 319 P.3d 823 (2014), aff'd sub nom. Washington Federal v. Harvey,
182 Wash. 2d 335, 340 P.3d 846 (2015). Division One expressly disagreed with Cornerstone, 178
Wash. App. 207, and concluded that the provision of the DTA that we relied on did not prohibit
deficiency judgments against the guarantors. Gentry, 179 Wash. App. at 486, 489.
During a hearing on Minne and Trudy Vanderhoek’s motion for attorney fees and costs,
the trial court mentioned Gentry and indicated its willingness to reverse its January 31 order and
judgment. Union Bank filed a notice of appeal from the trial court’s January 31 judgment. Then,
Union Bank filed a motion to vacate the trial court’s January 31 summary judgment order. Union
Bank argued that the January 31 judgment should be vacated under CR 60(b)(11) because Division
One’s decision in Gentry, effected a substantial change in the law. It also argued that CR 60(b)(1)
and (5) provided an independent basis for vacating the January 31 judgment because procedural
irregularities resulted in dismissal of claims against the borrowers, Vanderhoek Associates and
Pacific Bay, Inc. The trial court granted Union Bank’s motion to vacate subject to this court’s
approval pursuant to RAP 7.2(e). On October 7, we granted the trial court permission to formally
enter its order vacating the January 31 summary judgment order. The trial court did so 10 days
later.
5
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Pacific Bay, Inc. and a group of guarantor defendants (appellants) appeal the trial court’s
order vacating its January 31 summary judgment order.5
ANALYSIS
I. STANDARD OF REVIEW
Generally, we review a trial court's order to grant or deny a motion to vacate under CR
60(b) for an abuse of discretion. Estate of Treadwell v. Wright, 115 Wash. App. 238, 249, 61 P.3d
1214 (2003). A trial court abuses its discretion if its decision is based on untenable grounds or is
for untenable reasons. Treadwell, 115 Wash. App. at 249.
II. MOTION TO VACATE – CR 60(b)
CR 60(b) authorizes a trial court to relieve a party from judgment in specified
circumstances. These circumstances do not include a trial court committing an error of law. Shum
v. Dep’t of Labor & Indus., 63 Wash. App. 405, 408, 819 P.2d 399 (1991). Errors of law may not
be corrected by a CR 60 motion; rather, they must be raised on appeal. Shum, 63 Wash. App. at 408.
5
In February 2015, counsel for Minne and Trudy Vanderhoek gave notice that they were no
longer parties to the appeal because they settled all outstanding claims and they were dismissed
from the action. Appellants’ brief states that it is submitted on behalf of the Linkems, Brunaughs,
Wilsons, Pacific Resource Development, Inc., Parkers, and borrower, Pacific Bay, Inc. The
amended notice of appeal was filed on behalf of the Linkems, Wilsons, Pacific Resource
Development Inc., Parkers, and Pacific Bay Inc. The language in the caption on the amended
notice of appeal includes, “persons in possession or claiming a right to possession; all other persons
or parties unknown claiming any right, title estate, lien, or interest in the real estate described in
the complaint herein; and John Does I-X.” CP at 689.
Although there is some confusion, based on our review of the record, Vanderhoek
Associates is not a party to this appeal. Additionally, the Brunaughs do not appear to be party to
the notice of appeal from the trial court’s order granting the motion to vacate. Therefore, Richard
and Amanda Brunaugh are also not parties to this appeal. They remain parties to Union Bank’s
original appeal (case no. 46628-1-II) from the January 31 summary judgment order. That case is
stayed pending the outcome of this appeal. Because we affirm the order vacating the summary
judgment order, all parties, except Minne and Trudy Vanderhoek, are returned to the lawsuit.
6
46565-5-II
The trial court granted the motion to vacate based on CR 60(b)(1), (5), and (11).6 The trial
court concluded that an irregularity in obtaining the judgment existed and that the judgment was
“void as in terms of Vanderhoek Associates.” Report of Proceedings (RP) (July 3, 2014) at 28.
Further, the trial court concluded that the judgment should be vacated because the law changed
when Division One issued Gentry, 179 Wash. App. 470, a mere 18 days after the trial court granted
summary judgment.
Appellants argue that the trial court erred by granting Union Bank’s CR 60 motion to vacate
the January 31 summary judgment order because no irregularities existed and because Gentry does
not provide a basis to vacate the judgment. We disagree.
A. CR 60(b)(1)—The Borrower
Appellants argue that the trial court erred by vacating its judgment on the basis of CR
60(b)(1) because there was no irregularity of process or extraordinary circumstances surrounding
the entry of the judgment. As it relates to Pacific Bay, Inc., the borrower that is a party to this
appeal, we disagree.
CR 60(b)(1) provides that the trial court may relieve a party from a final judgment for
“[m]istakes, inadvertence, surprise, excusable neglect or irregularity in obtaining a judgment or
order.”
The asserted irregularity here is that the trial court erroneously dismissed the borrowers,
Vanderhoek Associates and Pacific Bay, Inc., even though Vanderhoek Associates never requested
this relief, and none of the briefing, argument, or case law presented to the trial court related to the
6
Appellants do not argue that the trial court erred in vacating the judgment on the basis of CR
60(b)(5) in their brief. Therefore, we do not address it. RAP 10.3(a)(6); Cowiche Canyon
Conservancy v. Bosley, 118 Wash. 2d 801, 809, 828 P.2d 549 (1992).
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46565-5-II
liability of the borrowers. The error resulted from an interlineation in the order, written by one of
the lawyers, stating that the court dismissed the “remaining defendants.” CP at 431.
Appellants cite Shum, 63 Wash. App. at 408, for the proposition that “only extraordinary
circumstances which relate to irregularities which are extraneous to action of court or go to
question of regularity of its proceedings are a basis for vacating an order under [CR] 60(b).”
Appellants’ Br. at 8. Appellants’ interpretation of Shum is overly broad. The limitation discussed
in Shum applies to CR 60(b)(11), which is a catchall provision intended to serve the ends of justice
in extraordinary circumstances that are not covered by other sections of CR 60(b). 63 Wash. App.
at 408; In re Detention of Ward, 125 Wash. App. 374, 379, 104 P.3d 751 (2005).
Appellants also contend that the trial court’s order dismissing all remaining defendants was
not an irregularity because the trial court fully contemplated it at the time of its entry. Appellants
contend that the trial court “later decided” it did not intend to dismiss Vanderhoek Associates.
Appellants’ Br. at 8. The record does not support this contention. The trial court expressly stated
that its “intent on January 31 was to dismiss, based on [Cornerstone], the individual guarantors.
It was not to dismiss a borrower.” RP (July 3, 2014) at 11-12 (emphasis added).
The trial court did not abuse its discretion in vacating its January 31 judgment in which it
inadvertently dismissed the borrowers, parties whose dismissal was not the subject of briefing or
argument. However, this irregularity is not a basis to vacate the summary judgment order against
the guarantor defendants. We address the guarantors below.
B. CR 60(b)(11)—The Guarantors
CR 60(b)(11) provides that the court may relieve a party from a final judgment for “[a]ny
other reason justifying relief from the operation of the judgment.” “To vacate a judgment under
CR 60(b)(11), the case must involve ‘extraordinary circumstances,’ which constitute irregularities
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extraneous to the proceeding.” Ward, 125 Wash. App. at 379 (quoting In re Marriage of Knies, 96
Wash. App. 243, 248, 979 P.2d 482 (1999)). A change in the law may constitute such extraordinary
circumstances. Treadwell, 115 Wash. App. at 249-50; Ward, 125 Wash. App. at 380; In re Marriage
of Irwin, 64 Wash. App. 38, 64, 822 P.2d 797 (1992).
In Treadwell, a professional malpractice case, the trial court granted summary judgment to
an attorney hired by an incapacitated ward’s guardian. 115 Wash. App. at 242-43. The attorney had
been hired to establish a guardianship. Treadwell, 115 Wash. App. at 241. The trial court found the
attorney had no duty to the ward because the ward was not the client. Treadwell, 115 Wash. App.
at 242-43. Approximately two months after the trial court ruled, Division Three issued In re
Guardianship of Karan, 110 Wash. App. 76, 79, 38 P.3d 396 (2002), holding that the attorney of a
guardian does owe a duty to the ward under some circumstances. The ward’s estate then moved
to vacate the summary judgment order under CR 60(b)(11) and the trial court denied the motion.
Treadwell, 115 Wash. App. at 243. By reversing and remanding for trial, the court in Treadwell held
that the trial court abused its discretion in denying the motion to vacate based on a change in the
law, i.e. Karan issued from the Court of Appeals.
In In re Marriage of Flannagan, 42 Wash. App. 214, 224-25, 709 P.2d 1247 (1985), we held
that extraordinary grounds existed under CR 60(b)(11) for reopening a divorce decree that became
final after a United States Supreme Court case forbade state courts from distributing military
retirement pay as community property, but before Congress enacted a federal statute granting trial
courts discretion to do so.
Here, the trial court concluded that Division One’s decision in Gentry, issued a mere 18
days after its summary judgment order, constituted a change in law that justified relief from the
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46565-5-II
judgment. Appellants contend that Division One’s decision in Gentry does not provide a tenable
basis to vacate the judgment. We disagree.
First, Appellants argue that Division One’s Gentry decision is not a basis for vacating the
judgment because of res judicata and principles of finality. Appellants cite four cases discussing
these principles, but none of the cases addresses a CR 60 motion.7 This distinction is significant
because the importance of finality is protected by CR 60(b)’s list of limited circumstances for
which a judgment may be vacated.
The finality of judgments is an important value of the legal system. However . . .
circumstances arise where finality must give way to the even more important value
that justice be done between the parties. CR 60 is the mechanism to guide the
balancing between finality and fairness.
Suburban Janitorial Servs. v. Clarke Am., 72 Wash. App. 302, 313, 863 P.2d 1377 (1993). Other
than pointing to the four inapposite cases, Appellants do not explain why the trial court’s decision
to prioritize correctness over finality was an abuse of discretion in this case.
Rather, the timing and attendant circumstances of Gentry constituted extraordinary
circumstances allowing the trial court to vacate its judgment. Shortly after Gentry, the parties and
trial court discussed its potential effect on this case. All discussion occurred within the period of
time the parties had to file an appeal. Therefore, the importance of finality is less compelling here.
Furthermore, Appellants could not have reasonably relied on the judgment because, prior to the
appeal deadline passing, the trial court stated that it was prepared to reverse its decision based on
Gentry.
7
See Appellants’ Br. at 8 (citing Columbia Rentals, Inc. v. State, 89 Wash. 2d 819, 823, 576 P.2d 62
(1978); Lynn v. Dep’t of Labor & Indust., 130 Wash. App. 829, 836, 125 P.3d 202 (2005); State v.
Atsbeha, 142 Wash. 2d 904, 917, 16 P.3d 626 (2001); and Martin v. Martin, 20 Wash. App. 686, 690,
581 P.2d 1085 (1978)).
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Second, Appellants seem to argue that vacating a judgment based on a change in
controlling law is limited to the circumstances in Flannagan, 42 Wash. App. 214, i.e., a legislative
enactment that specifically affects a trial court’s decisions retroactively. Appellants provide no
support for this argument and our decision in Treadwell contradicts the contention. 115 Wash. App.
at 251.
Third, Appellants argue that a trial court cannot vacate a judgment based on an error of
law. They are correct on this point. Errors of law cannot form the basis for a successful CR 60
motion; they must be raised on appeal. Shum, 63 Wash. App. at 408. Here, however, a new
pronouncement on the law constituted the trial court’s basis for vacating the judgment. A conflict
arose in the law between Cornerstone and Gentry, decisions from two different divisions of the
Court of Appeals. It must be remembered that Washington has one Court of Appeals with three
divisions. RCW 2.06.010; RCW 2.06.020; WASH. CONST., art. 4, § 30. Whether conflicting
decisions from two divisions of the Court of Appeals constitute a change in controlling law is an
issue of first impression for our appellate courts. We hold that to the extent a conflict between the
divisions emerges, there is a change in the law, but not because one division’s opinions are superior
to another’s. The three divisions of the Court of Appeals of the State of Washington are co-equal
and part of one court.
It is without question that the trial court was required to follow Cornerstone when it existed
as the only appellate court decision on point. But once Division One issued Gentry, which
expressly disagreed with our decision in Cornerstone, the trial court faced a quandary. The
appellate courts have given trial courts no guidance in how to proceed in the face of a divisional
split. See Mark DeForrest, In the Groove or in A Rut? Resolving Conflicts Between the Divisions
of the Washington State Court of Appeals at the Trial Court Level, 48 GONZ. L. REV. 455, 491-511
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(2013) (discussing possible resolutions to the dilemma faced by trial court judges). One approach
would be to mandate a trial court to follow the division in which it geographically sits. Another
approach would be to allow the trial courts to independently evaluate the conflicting precedent and
conclude how our Supreme Court would resolve the conflict. Professor DeForrest favors the latter
approach, as do we. DeForrest, 48 GONZ. L. REV. at 491-513. Here, the trial court appears to have
followed this approach and it correctly anticipated that Division One’s resolution of Gentry would
be favored by our Supreme Court.8 Given the dearth of guidance on this topic, the trial court’s
decision to vacate its January 31 judgment based on its own evaluation of the divisional split
caused by Gentry was tenable.
Accordingly, we hold that the trial court did not abuse its discretion in vacating its January
31 summary judgment order and affirm.
Melnick, J.
We concur:
Worswick, J.
Johanson, C.J.
8
The Supreme Court affirmed the Gentry decision and held that a deficiency judgment could be
brought against guarantors. Harvey, 182 Wash. 2d at 341.
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