BRUCE S. JENKINS, District Judge.
This matter came before the court for evidentiary hearing on April 25, 2014. Doyle Byers, Cory Talbot, and David Broadbent appeared on behalf of the Receiver, Gil Miller. James Gilson and Zachery Shields appeared on behalf of Intervenor Plaintiff Warner Entities. The matter was continued until May 9, 2014, and closing argument occurred May 13, 2014.
Having considered the parties' briefs, the evidence presented, the arguments of counsel, the relevant law, and the equities in this receivership, the court finds the Warner Entities have not demonstrated their ownership claim by clear and convincing evidence and their claim for a 49.5 percent tenant-in-common interest in the proceeds from the sale of Tetonian Apartments is DENIED.
This is an equitable determination as part of an equitable receivership, dictated by the circumstances of this particular tenant-in-common claim asserted by the Warner Entities. It does not limit the Warner Entities' right to assert ownership interests in other properties, if any, or the court's ability to consider them.
On February 14, 2014, John A. Beckstead,
The proposed sale of Stone Brook and Tetonian Apartments and the objections thereto came before the court on March 12, 2014. After hearing arguments from counsel, the court reserved ruling and continued the hearing until March 18, 2014.
At the April 25, 2014 evidentiary hearing, counsel for the Receiver and counsel for the Warner Entities informed the court that the parties had resolved certain of the Warner Entities' concerns and that, as such, the Warner Entities withdrew their objection to the Receiver's proposed sale.
While there is a paucity of express authority as to the quantum of proof required by one seeking recognition of an ownership interest in realty contrary to a public recorded deed, particularly in an equitable receivership with a multiplicity of competing interests, what guidance is available points to clear and convincing as the preferred standard.
For the matter before us, there are two deeds at play. The first is the deed held by the Receiver providing Tetonian Properties, LLC ("Tetonian Properties) with 100 percent title interest in Tetonian Apartments.
Warner is arguing implicitly, in a sense, that the first deed, the Receiver's deed, is not accurate because it does not describe the purported conveyance to Warner. Warner asserts implicitly that the Receiver's deed is inaccurate because it overstates the Receiver's interest. The burden is on Warner to demonstrate the validity of his 49.5 percent interest by clear and convincing evidence: "The recording of a deed raises a presumption of delivery, which presumption is entitled to great and controlling weight and which can only be overcome by clear and convincing evidence." Controlled Receivables, Inc. v. Harman, 17 Utah.2d 420, 423, 413 P.2d 807, 809 (1966); see 23 Am. Jur. 2d Deeds § 141. "The law presumes that the holder of title to property is the owner thereof; Hawe v. Hawe, 89 Idaho 367, 406 P.2d 106 (1965); Shurrum v. Watts, 80 Idaho 44, 324 P.2d 380 (1958). The effect of this presumption is that:`(O)ne who would claim the ownership of property of which the legal title stands or [sic] record in another, or that the same is held by such person in trust for the one so claiming, must establish such claim by evidence that is clear, satisfactory and convincing.' In re Capolino's Estate, 94 Cal.App.2d 574, 210 P.2d 850 (1949), at 852, quoting Redsted v. Weiss, 73 Cal.App.2d 889, 167 P.2d 735 (1946)." Russ Ballard & Family Achievement Inst. v. Lava Hot Springs Resort, Inc., 97 Idaho 572, 579, 548 P.2d 72, 79 (1976).
The original of the second deed was either retained by Tetonian Properties and never delivered, or it was lost. In either case, the burden is on Warner to demonstrate the deed's delivery and acceptance, or its equivalent. See Krebs v. Krebs, 114 Idaho 571, 574, 759 P.2d 77, 80 (Ct. App. 1988); 23 Am. Jur. 2d Deeds § 129. As indicated above and outlined in Utah Code Ann. § 57-4a-4 (West), it is a recorded deed that creates presumptions regarding title to the real property affected. There is no contention that the Receiver's deed was not recorded or that Tetonian Properties (and thus Receiver) is record title owner of Tetonian Apartments.
The Warner Entities argue that in January 2009, SLEA 423, LLC ("SLEA 423") received a valid tenant-in-common interest in 49.5 percent of the Tetonian Apartments real property from Tetonian Properties.
The evidence of a physical delivery of an original deed from Tetonian Properties to SLEA 423 is not clear and convincing. But it is possession of this deed that the Warner Entities ostensibly acquired by their acquisition of SLEA 423 from Summit Exchange Services, LLC ("Summit").
Jacobson testified that there was an original deed, but he did not know what happened to it. Hr'g 05/09/14 Tr., 18:13-23. Warner, as the successor of SLEA 423 after the requisite waiting period, never saw an original deed. Hr'g 04/25/14 Tr., 98:17-20; 138:14-24. Both Jacobson and James Warner testified that they believed Ray Beck, as manager of Summit, would see that the deed was recorded. Hr'g 05/09/14 Tr., 100:18-25; Hr'g 04/25/14 Tr., 98:21-99:14. But Beck never saw the original deed. Hr'g 04/25/14 Tr., 72:14-17. Beck testified to receiving a copy of the deed, but could not testify specifically where the copy came from. Id., at 83:1-5.
Neither Warner nor the SLEA 423 grantee recall seeing the original deed. The Purchase and Sale Agreement specifically contemplates that "Possession of the Property attributable to the Undivided Interest shall be delivered to Buyer at Closing." Ex. 19, C:5(f). In Bart Warner's deposition, this provision was identified and counsel for Receiver, Doyle Byers, asked Bart Warner whether the buyer did anything to secure possession of the property at closing:
Bart Cannon Warner Dep., (CM/ECF No. 1800-6), at 118:1-119:5.
The assumption by Warner or Jacobson that Beck would have received and recorded the original deed seems erroneous, given that Beck testified he could not recall instructing anyone to record the deed, not for the present transaction or for previous transactions involving Warner wherein BCW-SF obtained and sold its interest in Sycamore. Hr'g 04/25/14 Tr., 73:25-74:6.
Without evidence of physical delivery of the original deed, the Warner Entities rely on Jacobson's intent to effectuate delivery of the original deed—a symbolic delivery. There is some evidence to support this position. Jacobson testified that his intent in signing the deed was to convey a 49.5 percent ownership interest. Hr'g 05/09/14 Tr., 21:2-7. Additionally, Bart Warner through Summit made a down payment and construction draws to Tetonian Properties between January 22 and July 7, 2009, totaling $962,920.63.
There are also annual Form 8825 tax statements from 2009-2012 that Tetonian Properties provided Bart Warner, attributing 49.5 percent of the property income and expenses to him. See Ex. 41. However, Tetonian Properties identifies Bart Warner as the 49.5 percent owner. But it is SLEA 423, not Bart Warner, which is the purported grantee of the ownership interest. There is no evidence in the record of a real property conveyance to Warner by SLEA 423.
Troubling inconsistencies in Jacobson's behavior contrary to Jacobson's "intent" testimony are not limited to tax statements. More problematic are the representations Jacobson made to lenders after the purported transfer to Warner. Approximately April 2009, Tetonian Properties obtained a hard money loan from Northstar Funding. Hr'g 05/09/14 Tr., 13:3-15. In August 2009, it was refinanced through a $4 million loan from America First Credit Union. Id., at 13:16-14:1. That loan in turn was refinanced in January 2011 with a loan of over $6 million from Key Bank. Id., at 14:2-12. For each loan and the loan documents involved, Jacobson did not reveal to the lender the existence of a tenant-in-common interest in Tetonian Apartments, let alone an interest held by the Warner Entities. In the trust deed between borrower Tetonian Properties and lender Northstar Funding, the legal description states, "Borrower covenants that Borrower is lawfully seized of the estate hereby conveyed and has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record." Ex. 74; Hr'g 05/09/14 Tr., 74:13-75:25. In his deposition, Jacobson testified he did not think he notified Northstar Funding that he had conveyed half the property to Warner Entities, neither could he remember notifying the existing members of Tetonian Properties. Wendell A. Jacobson Dep., (CM/ECF No. 1799-2), at 136:18-137:4.
Similarly, the America First Credit Union loan, which replaced Northstar Funding, states in the Construction Loan Deed of Trust, Assignment of Rents and Leases, Security Agreement, and Fixture Filing that Tetonian Properties, the grantor, "is or is about to become the owner of fee simple title." Exhibit 31; see also, Hr'g 05/09/14 Tr., 76:13-77:22. Jacobson testified to having no recollection of ever affirmatively disclosing to America First Credit Union that Tetonian Properties was not the sole owner. Wendell A. Jacobson Dep., (CM/ECF No. 1799-2), at 214:11-19.
With the subsequent Key Bank loan, the pattern continued. Its loan documents do not reflect any ownership interest by Bart Warner or any of his companies, but reflect Tetonian Properties as owner in fee simple. Hr'g 05/09/24 Tr., 77:23-79:25.
Shortly before the Key Bank loan, Wendell Jacobson's brother, Gene Jacobson, prepared a portfolio summary for Tetonian Properties "in an effort to acquire long term financing for the newly constructed Stonebrook Apartments—Phase II and its owner, Tetonian Properties, LLC." Ex. 35. This portfolio summary makes no indication that there is any other ownership interest, other than Tetonian Properties, in Tetonian Apartments, and Jacobson testified that it was probably sent to potential lenders to obtain financing.
Jacobson suggested these representations to lenders may have been mistakes or oversights. Hr'g 05/09/14 Tr., at 75:21-25; 76:22-77:7. But Jacobson is a sophisticated businessman, a repeat player in real estate transactions.
The effect of these loan documents, and not just the statements made therein, belie an intent to convey 49.5 percent of Tetonian Apartments to the Warner Entities. These loans did not just encumber Tetonian Properties' alleged remaining 50.5 percent interest in Tetonian Apartments. They encumbered the property in its entirety, long after the purported conveyance of an interest to a Warner entity and consistent with the non-delivery of an original deed by a sophisticated businessman.
Jacobson's treatment of investors is also inconsistent with an intent to convey ownership interest to the Warner Entities. Jacobson did not just use borrowed money and Warner money for Tetonian Properties—before and after the Warner alleged purchase, Jacobson solicited approximately $5.5 million in investor funds. Hr'g 05/09/14 Tr., 56:17-57:7. These funds contributed to the acquisition and construction of the property. Id., at 57:10-11. This $5.5 million commingled investor money was funneled through Thunder Bay. Id., at 61:5-17. If Jacobson intended to symbolically deliver an ownership interest to the Warner Entities and believed he had done so, one would expect him to communicate this fact to subsequent investors in Tetonian Properties. But Jacobson testified in his deposition that he could not recall ever making such communications. CM/ECF No. 1799-2, at 139:3-15.
For the reasons outlined above, Jacobson's professed intent is conclusively contradicted by Jacobson's subsequent actions. The court finds that a delivery, whether physical or symbolic, is not demonstrated by clear and convincing evidence.
Assuming an intent to deliver, there is not clear and convincing evidence that such symbolic delivery was accepted.
Beck, the Summit SLEA 423 manager and SLEA 423's creator, testified that he at no time ever saw the original deed. Hr'g 04/25/14 Tr., 72:14-17. Having never seen it, it was impossible for him to accept it. He saw a copy. Id., at 83:1-5. He was of the understanding that someone else, a closing officer, an escrow agent with whom he had corresponded, would handle the receipt and recording of the original deed. Id., at 83:23-84:16; 86:4-16; Ray Beck Dep., (CM/ECF No. 1802-1), at 86:5-20. That did not happen. The original deed was never recorded.
And looking at the loan or loans purportedly existing at the time of transfer and the loans subsequent to the transfer, it does not appear Beck or Warner symbolically accepted delivery either.
The sales price for the property interest was $1.5 million-$366,000 in cash and $1.134 million in existing note, either to be assumed or for the interest to be subject to. Hr'g 04/25/14 Tr., 47:8-48:12.
Similarly, the Warner Entities were ignorant of the details of any existing note and did nothing in the way of putting their name on it. James Warner stated that he believed there was debt on the property at the time of the property transfer, but he did not know to whom the debt was owed. Id., at 123:8-12. Bart Warner testified in his deposition that he did not recall taking any steps to assume a portion of the loan; he did not know how the Jacobsons serviced the debt subsequent to Warner taking a property interest; and that he assumed Jacobson would take the money he invested and make payments. Bart Cannon Warner Dep., (CM/ECF No. 1800-6), at 102:16-103:13.
It is apparent that a debt existing on the property prior to the 49.5 percent ownership transfer was important for optimizing the tax benefits of a 1031 exchange. Hr'g 04/25/14 Tr., 69:6-70:23; 71:8-21; 103:19-104:7. But neither the existence of such a debt, nor Beck or the Warner's undertaking of it is clear. The absence of either is inconsistent with an acceptance of ownership interest. That part of the transaction seems incomplete.
The Warner Entities' actions, much like Jacobson's actions, are also inconsistent with acceptance and ownership. Warner knew Jacobson was obtaining loans that encumbered the entire property, including their purported interest. Hr'g 04/25/14 Tr., 118:14-20; 139:19-24. In fact, Jacobson suggested that Bart Warner himself referred Jacobson to America First Credit Union and Key Bank. Hr'g 05/09/14 Tr., 91:5-92:8. But the Warner Entities never signed their name to the underlying loan or security documents. Hr'g 05/09/14 Tr., 92:24-93:3. And the Warner Entities never signed their name to a paper authorizing Jacobson to encumber the entire property. Hr'g 04/25/14 Tr., 140:10-15. Ordinarily, when sophisticated owners of realty have accepted an interest and know that someone is going to borrow against that interest, they want to be part of that transaction where the borrowing occurs because it is their interest being pledged. Sophisticated people do not sit on their hands. They put their names on the signature line, because it is their property being encumbered.
Thus, other than in tax reports, Tetonian Properties through Jacobson, and Warner as successor to the ownership of SLEA 423, acted as if nothing of consequence had changed after the purported 49.5 percent transfer. Each persisted in treating the realty as if it continued to be wholly owned by Tetonian Properties. Warner sat by and allowed the realty to be mortgaged three separate times with neither a complaint, nor an outcry, nor a written undertaking to pay part of the mortgage with the lending institutions. Nor was there a public indication by him or by Jacobson of his asserted interest, even though it appears "investors" were being solicited by Jacobson for membership in Tetonian Properties.
Therefore, even if symbolic delivery of the deed did occur, the Warner Entities fail to show by clear and convincing evidence that acceptance also occurred.
Tetonian Apartments is DENIED.
This is an equitable proceeding. SLEA 423 or its legitimate successor is entitled to file a general claim in the proceedings, the amount of which remains for subsequent determination.