Gilbert v. DHC Dev., LLC

LYNN A. GILBERT,as Trustee of the Black Diamond Construction 1 Business Trustand BLACK DIAMOND CONSTRUCTION 1 BUSINESS TRUST, Plaintiffs, v. DHC DEVELOPMENT, LLC,a Nevada limited liability company,STEVEN P. DANKO, a citizen of Nevada, Defendants/Counterclaimants, v. C&A CONSTRUCTION COMPANY,INC., a Utah corporation, Counterclaim Defendant.

Civil No. 2:08-CV-258 BSJ

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

Dated: September 12, 2013

MEMORANDUM OPINION& ORDER

The Clerk of the Court docketed the court of appeals' mandate in the above-captioned proceeding on November 29, 2012,¹ vacating this court's June 2011 summary disposition of the parties' claims.² After remand, the parties filed a series of motions,³ including plaintiffs' motionfor partial summary judgment⁴ and "motion for trial date."⁵ The court calendared several of those motions for hearing on February 27, 2013, at which time the court heard argument by counsel and reserved on the matter, awaiting the submission of further briefing as to the validity of the assignment of claims to the current named plaintiffs, Black Diamond Construction 1 Business Trust and its trustee, Lynn A. Gilbert.⁶

On March 27, 2013, DHC Development, LLC ("DHC") filed its Supplemental Briefing re Legitimacy of Transfers (CM/ECF No. 344). After an extension of time,⁷ plaintiffs filed their Response to Supplemental Briefing re Legitimacy of Transfers on May 10, 2013 (CM/ECF No. 360).

On May 23, 2013, plaintiffs filed a Motion for Partial Summary Judgment (CM/ECF No. 362), again asserting plaintiffs' entitled to judgment as a matter of law on their claims that DHCis liable for breach of contract for nonpayment, providing defective plans and specifications, dealing directly with C&A Construction Company, Inc.'s ("C&A") subcontractors and hiring independent subcontractors.⁸ Defendants DHC and Danko requested and were granted an extension of time to respond to the plaintiffs' May 23rd motion until further order of the court.⁹

Having reviewed and considered the motions, memoranda and exhibits submitted by the parties, as well as the arguments of counsel at the February 27, 2013 hearing, this court now rules as follows:

PLAINTIFFS' MOTION FOR RESTORATION OF ALTERNATE SECURITY

As recounted by the plaintiffs, on or about January 28, 2009, C&A and DHC stipulated to the deposit of $1,121,931.00 by DHC as "alternate security" for C&A's mechanic's lien claims against DHC's property pursuant to Utah Code Ann. § 38-1-28.¹⁰ This escrow deposit at Zions Bank served as the inducement for C&A to "release its lien and remove its lis pendens" against DHC's real property.

The amount on deposit at Zions Bank was subsequently reduced to $529,431.00 pursuant to this court's July 2, 2009 Order & Declaratory Judgment re: Partial Summary Judgment -December 10, 2007 Unconditional Waiver and Release (CM/ECF No. 78), and that amount remained in escrow until further order of the court.

On June 7, 2011, this court issued its Memorandum Opinion & Order (CM/ECF No. 234) summarily disposing of plaintiffs' claims against DHC and DHC's counterclaim against C&A, which by then was a debtor in bankruptcy.¹¹ The court accorded C&A's claims against DHC and Danko the plaintiffs' highest asserted value ($962,000 on plaintiffs' "delay" theory), and then offset that amount against the asserted amount of DHC's counterclaim against C&A, yielding a net claim amount of $385,290 in favor of DHC as against C&A, said sum to then be incorporated in DHC's proof of claim in C&A's Chapter 7 proceeding. (Id. at 8-9.) Given the net result in favor of DHC, this court's June 7th Memorandum Opinion & Order released to DHC the remaining alternate security ($529,431) held in escrow by Zions Bank. (Id. at 9, 10.) That directive was expressly incorporated into this court's June 9, 2011 Judgment (CM/ECF No. 236) ("The remaining funds on deposit with Zions First National Bank as security fo[r] plaintiffs' mechanic's lien claim shall be released to DHC").

On July 7, 2011, the plaintiffs appealed from that Judgment.

The defendants filed a motion for an award of $337,936 in attorney's fees pursuant to the Utah Mechanic's Lien Statute, Utah Code Ann. § 38-1-18(1),¹² which was heard by this court on August 17, 2011 and granted, with minor exceptions.¹³

On July 13, 2011, the defendants also filed a Motion for Order to Show Cause re Supersedeas Bond (CM/ECF No. 244), asserting that the plaintiff Trustee "made no effort to satisfy the judgment against the Trusts before leaving the country for three years," and that "the Court should require the Trusts to post a supersedeas bond prior to pursuing any appeal of the money judgment against them," because "[o]therwise, the Court will have to oversee the appointment of a successor Trustee of the Trusts and various execution-related filings by DHC during the appeal period." (Id. at 3.)¹⁴ Plaintiffs responded that Rule 62 of the Federal Rules of Civil Procedure "allows a party who seeks appeal from a final judgment by a lower court to stay the execution of the judgment during the appeal proceedings,"¹⁵ but "a plaintiff is not required todo so."¹⁶ Moreover, plaintiffs submitted that "the Tenth Circuit exhaustively described the purpose of requiring a supersedeas bond before granting a stay in First Financial Bank v CS Assets,"¹⁷ in which the court explained that

[t]he purpose of such a bond is not only to "protect[ ] the prevailing plaintiff from the risk of a later uncollectible judgment," but also to "compensate[ ] him for delay in the entry of final judgment." Brinkman v. Department of Corrections of State of Kan., 815 F.Supp. 407, 408 (D. Kan.1993) (citations omitted); see also Poplar Grove Planting and Refining Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1190-91 (5th Cir. 1979) ("The purpose of a supersedeas bond is to preserve the status quo while protecting the non-appealing party's rights pending appeal. . . . [T]he bond secures the prevailing party against any loss sustained as a result of being forced to forgo execution on a judgment during the course of an ineffectual appeal."); United States v. Cowan, 535 F.Supp.2d 1135, 1148 (D. Haw. 2008) ("The supersedeas bond is meant to secure the appellee from any resulting loss from the stay."); Perez Rodriguez v. Rey Hernandez, 304 F. Supp. 2d 227, 229 (D.P.R.2004) (supersedeas bond requirement "compensates [appellee] for the delay in the entry of final judgment").

First Financial Bank v. CS Assets, LLC, 2010 WL 3119077, at *2 (S.D. Ala. 2010);¹⁸ see alsoEurasia Int'l, Ltd. v. Holman Shipping, Inc., 411 F.3d 578, 585 (5th Cir. 2005) ("Fed.R.Civ.P. 62(d) provides that a party is entitled to an automatic stay of proceedings to enforce a judgment upon appeal when it posts a supersedeas bond."); Frommert v. Conkright, 639 F. Supp. 2d 305, 308 (W.D.N.Y. 2009) ("the party posting the bond is entitled to a stay as of right; the court has no discretion to deny the stay itself, but only to fix the amount of (or to waive) the bond"); New Access Communications LLC v. Qwest Corp., 378 F. Supp. 2d 1135, 1138 (D. Minn. 2005) ( "An appellant may request and obtain a stay of judgment pending appeal as a matter of right upon posting a supersedeas bond.").

In the CS Assets case, the district court's judgment called for the disbursement back to First Financial Bank of $3.2 million that it had tendered into the court's registry in furtherance of its action to redeem certain real property under Alabama law. First Financial Bank v. CS Assets, LLC, 678 F. Supp. 2d 1216 (S.D. Ala. Jan 13, 2010). The bank had initially sought to redeem the property, but after the redemption price was judicially set, First Financial Bank reversed course,voluntarily dismissed its action and requested the return of the $3.2 million in registry funds. CS Assets objected to the disbursement, and the court responded: "if CS Assets desires a stay of rulings allowing First Financial to take a voluntary dismissal and to recover the $3.2 million in tendered funds, then it may obtain one as of right upon payment of adequate supersedeas bond approved by the Court." 2010 WL 3119077, at *2. CS Assets posted no supersedeas bond, the district court denied a stay of the judgment, and the registry funds were disbursed to the bank.¹⁹

Here, the plaintiffs urged denial of the defendants' motion because "Defendants can not require Plaintiffs to secure a supersedeas bond unless Plaintiffs move the court to stay the execution of a judgment"—relief which the plaintiffs did not request in initiating their appeal.²⁰

The defendants' motion was also considered at the August 17th hearing; the court denied the motion and did not require the plaintiffs to post a supersedeas bond.²¹

No supersedeas bond was posted by plaintiffs. DHC applied for issuance of a writ of execution and sought post-judgment discovery in furtherance of executing its judgment.²² Theplaintiffs and related entities sought to constrain DHC's efforts to enforce its judgment,²³ but at no time did the plaintiffs seek to delay the release and disbursement of the escrow funds held by Zions Bank.

As recounted above, this court received the court of appeals' mandate on November 29, 2012, vacating this court's June 2011 summary disposition of the parties' claims. A week later, the plaintiffs filed their Motion for Restoration of Alternate Security (CM/ECF No. 325), seeking "an order requiring Defendant DHC to place in escrow with Zions Bank (or another suitableagent) the sum of no less than $1,121,931.00," as alternate security for their mechanic's lien claims.

The plaintiffs, who had so emphatically declined to post a supersedeas bond when prompted to do so by the defendants, now argue that the court of appeals' ruling yields the same result as if they had posted such a bond—the preservation of the status quo as of the time that this court's June 9, 2011 Judgment was entered:

A "vacated judgment is of no further force or effect." United

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