Quality Loan Service Corporation of Washington and Quality Loan Service Corporation (jointly Quality) appeal from the judgment entered on a jury verdict finding Quality committed breach of contract and negligence, and violated the Consumer Protection Act (CPA). These claims were brought against Quality by Dianne Klem, the director of Puget Sound Guardians (PSG), which served as guardian for Dorothy Halstien, the deed of trust grantor.
We hold that the waiver doctrine did not apply to these circumstances. We also hold that the evidence at trial did not support the jury's verdict on the breach of contract or CPA claims, but did support the negligence verdict. We reverse the attorney's fee award, which was based on PSG prevailing on the CPA claim, and do not award fees on appeal. Because the jury found Quality and PSG equally negligent, we reverse and remand for re-entry of judgment.
In 1996, Dorothy Halstien bought a home on Whidbey Island for $147,500. She received a statutory warranty deed, which was recorded in Island County on July 9, 1996. In July 2004, she borrowed $73,000 from Washington Mutual Bank (WaMu), giving it a promissory note secured by a deed of trust on her property. Under the deed of trust, Halstien was the grantor, WaMu the beneficiary, and Stewart Title the trustee. It was recorded in Island County on July 29, 2004.
Halstien suffered from dementia, and in 2007 Department of Social and Health Services (DSHS) Adult Protective Services removed her from her home and accused her adult daughter, who had been living with her, of neglect. PSG was appointed as her guardian ad litem on January 25, 2007. Klem was PSG's executive director. PSG is a non-profit, certified professional guardianship agency for disabled, elderly, and incapacitated persons.
Klem recognized that Halstien could not make her mortgage payments and determined that PSG had to sell her home to pay off her debts. Halstien had an annual income of approximately $11,000. Her home was worth approximately $233,500 but the bank's encumbrance had increased to roughly $75,000. Halstien had medical expenses and was approved for Medicaid on February 1, 2007. The State notified PSG that it intended to file a lien on Halstien's home to recover the cost of her care. Once the home was sold, she would be ineligible for state assistance until her assets fell below $2,000.
On June 14, 2007, the guardianship court entered an order authorizing PSG to sell Halstien's home. To sell the home, PSG sought to evict Halstien's daughter and eventually succeeded. By October 2007, WaMu had appointed Quality Loan Services of Washington (QLSW) as successor trustee and declared Halstien in default as of July 2007, based on her failure to make payments from July through October of 2007. QLSW served Halstien a notice of default and posted it on her home on October 25, 2007. The notice of default informed Halstien that she could contest the alleged default "on any proper ground" under RCW 61.24.130. On November 27, QLSW sent Halstien a notice of foreclosure and notice of trustee's sale, posted these on her home, and recorded these documents in Island County. The notice of foreclosure informed Halstien that if she had any "legitimate defenses" to default, she could start a court action and obtain an injunction. The notice of trustee's sale stated:
The notice stated that Halstien's residence would be sold "at public auction to the highest and best bidder" on February 29, 2008.
In January 2008, the guardianship court entered a second order authorizing PSG to sell Halstien's home. On January 10, 2008, PSG employee David Greenfield called QLSW and spoke to employee Seth Ott. Greenfield asked Ott how to stop or delay the foreclosure sale, and Ott told him to contact WaMu, which would have to authorize a postponement. Ott said the bank would need a signed REPSA. The terms of QLSW's appointment as trustee forbade it from postponing a sale without WaMu's authorization. Greenfield did not ask Ott at this time to postpone the sale, as PSG did not yet have a buyer.
By early February 2008, PSG had finished preparing Halstien's home for sale and hired a real estate agent. By February 18, approximately 11 days before the scheduled sale, PSG entered into a REPSA to sell the home to a buyer for $235,000. The REPSA stated a closing date of on or before March 28, 2008. Greenfield called Quality on February 19 and spoke to Ott or another Quality employee.
Greenfield contacted WaMu and attempted to stop the sale. On February 27, WaMu foreclosure specialist Martavia Hicks reviewed a letter and supporting documents from Greenfield requesting a postponement. The documents included the signed REPSA and preapproved buyer's loan. Greenfield's letter stated that the sale could not be closed before February 29, the date of the foreclosure auction, and requested that WaMu delay the foreclosure until the closing date of March 28, 2008. Hicks determined that the documents did not meet WaMu's guidelines for continuing a foreclosure and denied the postponement. The record reflects approximately 20 contacts were made between Greenfield and WaMu from February 19 until February 29. There is no evidence that Quality was aware of these communications.
On February 29, the scheduled sale of Halstien's home took place. Although Greenfield was aware of the date and time of the scheduled sale, no one from PSG attended. The home was sold for $83,087.67, one dollar more than the opening bid made by Quality on WaMu's behalf.
On April 24, 2008, PSG filed suit against QLSW and WaMu, asserting the following claims against QLSW: (1) breach of fiduciary duty, (2) breach of contract, (3) negligence, and (4) violation of the Consumer Protection Act.
PSG moved for reconsideration, arguing that the trial court should limit the scope of dismissal to claims that "fit within" the waiver doctrine. The trial court granted partial reconsideration by reinstating PSG's claims for negligence, breach of contract, and Consumer Protection Act violations, while also ruling that "[b]y failing to enjoin the foreclosure sale Plaintiff waived its claim that Quality abrogated its duty as a trustee." QLSW sought clarification of the court's order, and the trial court granted this by stating that only the breach of fiduciary duty claim was waived by PSG's failure to restrain the foreclosure sale.
Halstien died on November 5, 2008. In February 2009, PSG moved to amend its complaint to: (1) substitute Klem as plaintiff, (2) add Quality Loan Services Corporation (QLSC) as a defendant, (3) clarify that the fiduciary breach claim was dismissed, and (4) acknowledge that WaMu was in receivership. QLSW objected to adding QLSC, which was a separate corporation from QLSW but had common ownership and directors. The trial court permitted the amendments. QLSC moved to dismiss for lack of jurisdiction and failure of service. The trial court denied the motion.
The trial began on January 12, 2010. Quality brought a motion in limine to prevent PSG from arguing that Quality breached any duty toward PSG or Halstien. Quality relied primarily on
The jury found by special verdict that both Quality and PSG were negligent, attributing 50 percent fault to each and finding that Halstien suffered $151,912.23 in damages.
The trial court entered judgment on the verdict for $151.912.33. It also awarded attorney's fees in the amount of $41,635.00 to PSG under the CPA, prejudgment interest of $36,633.58, and costs of $1,265.88. Quality appeals, assigning error to several rulings.
Quality argues that all of PSG's claims were waived by its failure to file a suit restraining the sale and that, in any event, PSG failed to prove its claims at trial. Quality also claims that the trial court erred in permitting QLSC to be added as a defendant. PSG cross appeals the trial court's denial of injunctive relief. We hold that (1) the trial court had jurisdiction over QLSC, (2) PSG's claims were not waived, (3) the evidence supported PSG's claims for negligence but did not support PSG's breach of contract or CPA claims, and (4) the denial of injunctive relief was not in error.
Jurisdiction over Quality Loan Service Corporation
"Questions of joinder present mixed issues of law and fact that we review for an abuse of discretion `with the caveat that any legal conclusions underlying the decision are reviewed de novo.'"
Quality argues that the trial court erred in granting PSG's motion to amend its complaint to add QLSC as a defendant. It contends there was no reasonable excuse for the delay in adding QLSC, and that there was no evidence that QLSC conducted any business in Washington or acted through a Washington agent, QLSW.
PSG argues that jurisdiction over QLSC was supported by evidence in the record.
Washington's long-arm jurisdiction statute, RCW 4.28.185, reads in pertinent part:
We agree with PSG that Washington courts had jurisdiction over QLSC because it conducted business in Washington, as shown by its advertisements and Chief Operating Officer David Owens's testimony, and evidence that it billed WaMu for the Halstien foreclosure. Furthermore, the evidence to which PSG points supports the jury's finding that QLSC acted through an agent, QLSW.
The next issue is whether PSG waived its claims by failing to bring a suit to restrain the trustee's sale. Whether a party waived its claims is a mixed question of fact and law, which we review de novo.
The Deed of Trust Act sets out the procedures that must be followed when a trustee sells a grantor's property through nonjudicial foreclosure. Because the Act dispenses with many protections commonly enjoyed by borrowers, "lenders must strictly comply with the statutes, and courts must strictly construe the statutes in the borrower's favor."
RCW 61.24.040(1)(f). A court cannot grant a "restraining order or injunction to restrain a trustee's sale" unless the party seeking the order has provided five days' notice to the trustee of the attempt to seek the order and has paid amounts due on the obligation secured by the deed of trust. RCW 61.24.130(1), (2);
Under the waiver doctrine, "[a] party waives the right to postsale remedies where the party (1) received notice of the right to enjoin the sale, (2) had actual or constructive knowledge of a defense to foreclosure prior to the sale, and (3) failed to bring an action to obtain a court order enjoining the sale."
The waiver doctrine has been applied to bar any post-sale actions arising out of the debt obligation or basis for default, regardless of whom the suit is against or the remedy sought.
The waiver doctrine has also been applied to claims of alleged defects in the foreclosure process where a party seeks to set aside the trustee sale.
However, in no case that we can identify has waiver been applied, as here, to bar a grantor's post-sale action against a trustee for damages based on allegations of how the trustee conducted the foreclosure process, up to and including the day of the sale.
Motion for Judgment Notwithstanding the Verdict
We now address Quality's challenge to the trial court's denial of its motion for judgment as a matter of law at the close of PSG's case and its motion for judgment notwithstanding the verdict. We review both motions de novo, viewing the evidence in the light most favorable to the nonmoving party and granting either motion only if there is no substantial or justifiable evidence to sustain the jury's verdict.
Quality contends the evidence did not support the jury's verdict on the breach of contract, CPA, or negligence claims. We conclude the evidence did not support the breach of contract or CPA claims, but did support the jury's verdict that Quality was negligent.
Breach of Contract
To prove that Quality committed breach of contract, PSG had to show, under the jury instruction:
The contract at issue is the deed of trust. PSG argues that the express terms of the deed of trust provide that Quality agreed to conduct the foreclosure in accordance with Washington law. PSG contends that breach of this purported agreement was proved by evidence that Quality did not comply with Washington law in conducting the foreclosure sale. It contends it showed that: (1) Quality's deference to WaMu was contrary to its obligation to be impartial; (2) Quality made no effort to avoid sacrificing Halstien's equity, and (3) Quality falsely dated the notice of sale in order to speed up the foreclosure process.
We conclude that PSG failed to prove its breach of contract claim because there was no contract term that made it a breach of the deed of trust for either party to "not follow" Washington law. The allegedly breached clause of the deed of trust states, in its entirety:
"Applicable Law" is defined elsewhere as "all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions."
This is a governing law provision, i.e., an agreement that, should the parties need to resort to the courts to enforce the contract, the law of the State of Washington shall apply. The provision cannot be construed, as PSG contends, to mean that any violation of an applicable law gives rise to a breach of contract cause of action against another party to the deed. If a Washington law was violated by either party, the remedy for that violation would be as defined by the Washington law allegedly broken. The evidence did not support breach of contract.
For the CPA claim, the jury instruction required PSG to prove:
We conclude that, for different reasons, neither claimed act supports the CPA verdict. First, PSG claimed that failing to be impartial in conducting a trustee sale is an unfair act or practice because being impartial is part of a trustee's fiduciary duty under
PSG makes the conclusory argument that an unfair or deceptive act or practice was shown through evidence that Quality acted impartially and breached a fiduciary duty, as such duty is explained in dicta in
The other basis for PSG's CPA claim is Quality's practice of predating and pre-notarizing the notice of sale. PSG argued at trial that Quality did this to minimize the time between the notice and the foreclosure sale. PSG contends that the record shows it could have taken Quality's agent a full week to get notices of sale from its San Diego office to the recording office in Island County. It contends that if Quality correctly dated and notarized the document, the notice of sale may not have been recorded until about December 3, 2007. If the notice was recorded on December 3, the foreclosure could not have been scheduled before Friday, March 7, 2008. PSG claims that had the foreclosure sale been held in March instead of February, it would have had time to close its sale.
Quality all but admits that this practice was improper.
The evidence at trial established the following. The notice of default was posted on October 25, 2007. As November 25 was a Sunday, Quality was required to wait until November 26 before it could record, transmit or serve the notice of sale. Quality sent the notice of sale to Halstien and recorded it in Island County on November 27, 2007. So although Quality predated, signed, and notarized the notice of sale in San Diego, it nonetheless abided by the statutory requirement of waiting 30 days before recording, transmitting, or serving the notice of sale. We disagree with PSG that Quality's act in mailing the notice of sale from its San Diego office to a service company in Washington constituted "transmission" under RCW 61.24.030(8).
Furthermore, PSG failed to establish that the predated notice caused Halstien's home to be sold at foreclosure before PSG closed on the home. The closing date specified in the REPSA was on or before March 28, 2008. Klem testified that the closing was to happen sometime in March. The letter from Greenfield to WaMu stated that the closing date was March 28. There was no testimony that PSG actually planned to close with the buyer earlier than March 28—for example, on March 6. The harm alleged to PSG was speculative. The predated notice issue did not support the CPA claim.
The jury instruction required that PSG prove, for its negligence claim:
At trial, PSG argued that Quality was negligent because it should have postponed the foreclosure given the sum of the circumstances present in the Halstien foreclosure, particularly because the value of the home was substantially more than the debt, a REPSA was signed before the sale, and a brief continuance would not have harmed WaMu. The evidence presented at trial, viewed in a light most favorable to PSG, permitted a rational jury to find that Quality was negligent under this theory.
First, as to the element of duty, there is no dispute that Quality, as the trustee in the deed of trust, owed a duty of care to PSG, the grantor. Quality only argues that because the fiduciary duty claim was dismissed, any duties it owed as a trustee could not have been considered to support a negligence claim. But Quality points to no authority that a trustee's duties are equivalent to—and no more than—its fiduciary duties. Nor does it point to any authority that a breach of fiduciary duty claim and a negligence claim amount to the same claim and cannot be maintained in the same lawsuit. Furthermore, the jury was not instructed that Quality had a "fiduciary duty" in the negligence instruction. We conclude that Quality owed a duty of care as a trustee to PSG.
Next, there was evidence supporting the jury's finding that Quality, as the trustee, breached its duty to PSG. Evidence at trial showed that PSG employee Greenfield told Quality that PSG wanted the sale postponed so that it could sell the home. Quality told Greenfield WaMu would need a signed REPSA. Ten days before the trustee sale, Greenfield informed Quality that PSG had a signed REPSA. Quality told Greenfield it could not postpone the sale without WaMu's approval and instructed him again to contact WaMu. Under the terms of its assignment by WaMu, Quality could not—and told PSG it could not—exercise its statutorily granted discretion to postpone the sale.
Finally, there was evidence that Quality's actions caused harmed to PSG. PSG planned to close the sale of Halstien's home on or before March 28, as indicated in the REPSA. Had Quality postponed its trustee sale long enough for the sale to be realized, and PSG sold the home for $235,000 as planned, equity for Halstien would have remained after paying the debt owed to WaMu.
Quality argues that the evidence failed to support a negligence claim because it served all required statutory notices and PSG knew or should have known of its statutory right to restrain the sale. This goes to waiver, which, as we have already noted, did not apply. Furthermore, Quality contends the evidence did not support a finding that it was negligent where PSG: made two phone calls to Quality before the foreclosure sale but did not actually send the REPSA to Quality, tell Quality about its difficulties with WaMu, or appear at the sale despite having a signed REPSA. Quality fails to explain how these facts, which go to PSG's actions, preclude its own negligence as a matter of law. Its assertions amount to an argument that because there was evidence that PSG was negligent, Quality could not be negligent. The argument is unavailing.
It is the jury's role to determine the facts and we will not disturb its findings on appeal unless they are clearly unsupported by substantial evidence.
Because we hold that the CPA verdict was not supported, we do not review the trial court's denial of PSG's request for injunctive relief under the CPA. Furthermore, we reverse the award of attorney's fees under the CPA and deny PSG's request for fees on appeal under the CPA. Where we uphold the jury's verdict only on the negligence claim, and where the jury allocated 50 percent of fault to Quality and 50 percent to PSG, we remand for re-entry of judgment.
Affirmed in part, reversed in part, and remanded for re-entry of judgment.
SCHINDLER and APPELWICK, JJ., concurs.
We rejected the Browns' argument that they did not have knowledge of their claims as required for waiver, because they knew the facts forming the basis of their claims before the sale. We also rejected the Browns' argument that waiver did not apply to their tort claim for money damages because it did not interfere with the goals of the Act by affecting the title obtained by a bona fide purchaser.