Adams Bank & Trust v. Brown

ADAMS BANK & TRUST, APPELLEE, v. CHARLES BROWN AND JUNE BROWN, APPELLANTS.

No. A-16-1065.

NEBRASKA COURT OF APPEALS

October 17, 2017

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

(Memorandum Web Opinion)

NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).

Appeal from the District Court for Lincoln County: DONALD E. ROWLANDS, Judge. Affirmed.

Robert B. Reynolds and Michael D. Samuelson, of Reynolds, Korth & Samuelson, P.C., L.L.O., for appellee.

Steve Windrum, of Malcom, Nelsen & Windrum, L.L.C, for appellants.

INBODY, PIRTLE, and RIEDMANN, Judges.

INBODY, Judge.

I. INTRODUCTION

Charles Brown and June Brown (Appellants) appeal the district court's dismissal of nine of the theories of recovery listed in Appellants' counterclaim and the district court's final judgment entered in favor of Adams Bank & Trust (Adams Bank). For the reasons set forth herein, we affirm.

II. STATEMENT OF FACTS

Adams Bank is a Nebraska banking corporation with its principal place of business located in Ogallala, Keith County, Nebraska. Appellants are husband and wife and have at all relevant times herein been residents of Nebraska.

In June 2005, Appellants executed a promissory note (Appellants' Note) with Adams Bank for $61,620.98 with a maturity date in June 2020. Under a section titled "collateral," Appellants' Note referenced a previous deed of trust stating: "I acknowledge this Note is secured by DEED OF TRUST DATED 5-6-98 AND FILED 5-15-98 IN BOOK 578 AT PAGE 722-727 IN LINCOLN COUNTY, NEBRASKA." In April 2006, Appellants' son and daughter-in-law, Travis and Tina Brown, executed a promissory note (Travis/Tina Note) with Adams Bank for $58,533.37 with a maturity date in January 2026. Under a section titled "collateral," the Travis/Tina Note referenced that it would be secured by an April 15, 2006, deed of trust.

The April 15, 2006, deed of trust (Travis/Tina Deed of Trust) was subsequently executed and recorded by Travis and Tina Brown and covered the following real estate:

Township 12 North, Range 27 West of the 6^th P.M., Lincoln County, Nebraska Section 4: That part of Lot 4 lying North of U.S. Highway #30, EXCEPT that portion thereof conveyed to the State of Nebraska by Deed recorded in Book 115, Page 451 and Except the Union Pacific Railroad Right of Way

(Hereinafter "32-acre tract.")

To further secure the Travis/Tina Note, Appellants executed and recorded a new deed of trust (Appellants' Deed of Trust) in favor of Adams Bank. Appellants' deed of trust covered both promissory notes and encompassed the following described real estate:

Lot 1, Rayburn Replat, Brady, Lincoln County, Nebraska. The real property or its address is commonly known as 316 N. Locust Street, Brady, NE 69123.

(Hereinafter "Brady property.")

Both deeds of trust contained identical language in the section titled "TAXES AND LIENS" obligating the trustor to pay any taxes on the property. Specifically, the "Payment" subsection stated, in relevant part:

Trustor shall pay when due (and in all events prior to delinquency) all taxes . . . levied against or on account of the Property[.] Trustor shall maintain the Property free of all liens having priority over or equal to the interest of Lender under this Deed of Trust, except for the lien of taxes and assessments not due and except as otherwise provided in this Deed of Trust.

Both deeds also provide Adams Bank the ability to protect its interests if the trustors failed to make their payments. The "LENDER'S EXPENDITURES" sections stated, in relevant part:

If Trustor fails (A) to keep the Property free of all taxes, liens, security interests, encumbrances, and other claims . . . then Lender may do so. If any action or proceeding is commenced that would materially affect Lender's interests in the Property, then Lender on Trustor's behalf may, but is not required to, take any action that Lender believes to be appropriate to protect Lender's interests.

Prior to 2010, Travis and Tina accumulated unpaid property tax on the 32-acre tract. Lincoln County thereafter brought the 32-acre tract to tax sale and a tax sale certificate was issued.Vandelay Investments, LLC was subsequently issued a tax deed on the 32-acre tract. In August 2012, Travis and Tina filed for a Chapter 13 bankruptcy which was converted to Chapter 7 during the proceedings. They were granted a discharge in January 2015. During the course of the bankruptcy action, an accompanying adversarial action under a second bankruptcy case number was brought concerning the 32-acre tract raising the validity of Vandelay's tax deed which had been issued in November 2013. Among the named defendants to the adversarial action were Travis and Tina Brown and Adams Bank. The United States Bankruptcy Court for the District of Nebraska ultimately found for Vandelay and quieted title in the 32-acre tract "as against all named Defendants" on January 28, 2015.

On September 12, 2014, Adams Bank sent Appellants a letter to inform them that, on March 10, 2010, the 32-acre tract went to public tax sale and a tax certificate was issued. The letter went on to inform Appellants that the Travis/Tina Note had a past due balance and set forth the total required for a complete payoff of the loan. Specifically, the letter warned:

Per the granted deed of trust, you have considerable interest and liability in this loan. Adams Bank & Trust is in process of attempting to resolve the issue [of the tax sale with the purchaser,] however, it is very important that we discuss this matter with you and make arrangements for payoff to be made by you on the past due loan.

Even after receiving this notice, neither Appellants nor any other party made payments on the Travis/Tina Note. On February 24, 2015, a notice of default was recorded with the Lincoln County Register of Deeds covering the Appellants' Brady property. Additionally, Appellants stopped making payments on their Note and Adams Bank accelerated the Appellants' loan. In June 2015, Adams Bank caused a foreclosure sale on the Brady property. Adams Bank was the highest bidder at the sale buying the Brady property for $95,000.

The following month, Adams Bank brought the instant action against Appellants seeking a monetary judgment for the difference between the amount owed on the loans and the $95,000 received from the foreclosure sale. Appellants contested Adams Bank's claim and counterclaimed alleging 11 separate theories of recovery.

Appellants' first theory of recovery asserted they had a right under the Travis/Tina Note to protect their offered security by paying any delinquent taxes or redeeming any tax sale certificates on the 32-acre tract. As such, Appellants alleged Adams Bank had a duty to take the ordinary, reasonable, and necessary action with respect to the property including paying the real estate taxes on the 32-acre tract or notifying the Appellants of the tax status of the 32-acre tract so that Appellants could protect their own interests by redeeming the tax sale certificate.

Appellants' second theory of recovery asserted Travis and/or Tina were told by Adams Bank representatives that as long as their payment was current for approximately one year after the date of initial indebtedness that Appellants would no longer be at risk of potential loss of the Brady property under their loan. Additionally, Appellants asserted Adams Bank representatives told Travis and/or Tina that the security interest of the 32-acre tract was sufficient to protect the Brady property. Appellants argued Adams Bank knew, or should have known, that Appellants' intention in securing of the Travis/Tina Note was limited to the principal of the promissory note and any interest thereon. Appellants alleged Adams Bank, even with such knowledge andrepresentations, included language in their deed of trust to extend the security to any and all of Travis and Tina's indebtedness. Therefore, Appellants claim Adams Bank's actions and omissions constituted fraud, constructive fraud, and inequitable conduct.

Among Appellants' additional theories of recovery, the third claimed unjust enrichment; the fourth claimed a fiduciary duty to protect Appellants' security property and breach thereof; the fifth claimed laches; the sixth claimed unconscionable conduct; the seventh claimed waiver; the eighth claimed failure to mitigate and avoidable consequences, and the ninth claimed failure to satisfy conditions precedent.

Appellants' tenth theory of recovery asserted Adams Bank breached the implied covenant of good faith and fair dealing in respect to the notes' contractual provisions.

Lastly, Appellants' eleventh theory of recovery asserted Adams Bank owed a duty of care to Appellants, that it breached such duty in the actions described in the first two claims, and that such breach was negligent and was a proximate and factual cause to the damages suffered by Appellants in their loss of the Brady property and remaining amount Adams Bank claimed was owed by them.

Adams Bank filed a motion to dismiss Appellants' counterclaim under Neb. Ct. R. § 6-1112(b)(6) alleging failure to state claims upon which relief could be granted. The district court determined "[Adams Bank] had the right under the Deed of Trust but not the duty, to pay the real estate taxes to redeem the tax sale certificate on the Thirty-Two (32) acre tract." Accordingly, the court partially granted Adams Bank's motion to dismiss by dismissing "[a]ny defense or counterclaim raised by [Appellants] which is premised upon that non-existent duty," namely theories of recovery one, three through nine, and eleven. Thereafter, the case proceeded to bench trial on Adams Bank's claim and Appellants' counterclaims under theories of recovery two and ten.

After the trial, the district court found "[g]enerally in favor of [Adams Bank] and against the [Appellants]." The district court found Neb. Rev. Stat. § 76-1013 (Reissue 2009) applicable and that it provides:

[A]t any

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