By Holly Chisa, HPC Advocacy, UTA Washington Lobbyist

The Washington State Supreme Court just ruled on a case that may lead to legislation in 2024.  The ruling, Dalton M, LLC vs North Cascade Trustee Services Inc, was distributed to United Trustee Association members in early September of 2023. 

The underlying case involves a lawsuit filed by Dalton M, LLC against US Bank and other parties to address what the property owner argued was the illegal foreclosure of their property.  Dalton M, LLC was suing for damages and attorneys’ fees as part of their lawsuit.  In the suit, the attorneys argued successfully that their parcel, here abbreviated to Parcel 0402, should not have been foreclosed on.  Reviewing the history, Parcel 0402 had previously been owned by the same family that owned the adjoining property, here abbreviated to Parcel 9008.  Parcel 0402 was sold via public tax foreclosure sale in 2011.  A quick claim deed was issued in December 2013, finalizing the transfer of property to the new owner, Dalton M.

In August, 2013, GreenPoint Mortgage filed an assignment of the Fleck (Parcel 9008) deed of trust with Spokane County, asserting GreenPoint’s security interest in both parcels.  However, because parcel 0402 had already been sold at tax sale, GreenPoint no longer had a lien on the property.

Throughout the foreclosure process of both parcels, notifications were sent to the registered property at parcel 9008, the home of the borrower.  Notifications were not sent to parcel 0402 because there was no development on the property.  Because of this, Dalton M’s attorneys argued that while he was listed on the Notice of Default and other paperwork , no notice was sent to parcel 0402 or to Dalton M specifically at his own address.  It was only sent to the borrowers’ address and posted to their home.  The trustee sale occurred on August 12, 2016.

Dalton M’s president, Mark Faulkes, did not learn of the trustee sale of his property until late 2016 or 2017.  He repeatedly attempted to work with US Bank and the trustee to resolve out the legal issues of the foreclosure on his parcel, and eventually sued US Bank in 2018.  (It is worth noting that the trustee in this case was also named in the lawsuit for violations of the CPA.  The trustee firm filed for bankruptcy unrelated to the case.  The trial court did not address the CPA claim against the trustee firm.)

While the trial court ruled in favor of Dalton M, it did not award damages on the issue of the quiet title.  It did, however, award a judgement in favor of Dalton M on the slander of title claim.  The trial court included in its decision that US Bank’s claim of ownership was made in bad faith.  This bad faith finding is one of the key issues addressed by the Washington Supreme Court.

The Court of Appeals was unable to award damages to the land owner based on slander of the title claim (which the property owner’s attorney had argued.)   It determined it COULD award damages for a finding of prelitigation bad faith because the defendant’s actions forced the lawsuit to resolve the issues.  The Court of Appeals decided to award damages on the theory that “fees can be awarded for the prelitigation bad faith of a party that entails a refusal to honor a valid claim, thereby forcing the plaintiff to file suit to rectify a problem.”

The Washington State Supreme Court ruled in a unanimous decision that the Court of Appeals could not award funds in this manner.  It ruled that the decision violated both the Rules of Appellate Procedure and the Court’s controlling precedent.  The Supreme Court also stated in its ruling that the Court of Appeals made its own findings of fact “by ‘implying’ factual findings that the trial court did not make.”  The Supreme Court ruled that this sets a precedent for the Court of Appeals and that appellate courts are not “fact-finders.”

A couple of reflections from a non-attorney Washington lobbyist about the implications for this case.

First, this is a good ruling for trustees from the Court.  There are several identified problems with findings of bad faith in the current Washington mediation system.  Findings are sometimes arbitrary and can be difficult to appeal.  UTA and other parties have raised the issues of good faith findings with stakeholders for years but to date have not been able to pass legislation to directly improve the findings of good/bad faith process.  Advocates have rigidly opposed efforts to make any changes to the process and discouraged training and other process steps to at least better educate mediators.  Additionally, the Court of Appeals’ attempt to insert findings of good faith into their own ruling gives me concern.  This wasn’t contemplated in the underlying statues and rules, and I’m glad to see the Supreme Court agrees this was an overreach.  (My wording, not theirs.)

Second, the underlying case raises issues that may be brought by plaintiff attorneys as legislation for the 2024 session.  The fact that parcel 0402 was foreclosed on but the NOD and other documentation was sent to the owner of parcel 9008 only – even though Dalton M was noted on the paperwork – will raise the ire of lawmakers.  I would certainly argue that the statute already addresses the need to mail and post to all parties involved and that what happened in this case was simply a significant error of a foreclosure – NOT systemic of the system as a whole.  The advocates may attempt to put new mailing and posting requirements on the process to remedy a perceived problem on their part.

This decision, while positive for trustees, could still have impact on policy decisions in 2024.  I know that several attorneys that worked on this case also work with stakeholders on legislation.  We’ll need to ensure that lawmakers don’t react to this court decision or to the underlying case and overcorrect in some way.  The United Trustees Association and trustees that operate in Washington State will continue to advocate for thoughtful, reasonable policy that doesn’t overcompensate in some way for a single, bad situation.