IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JOHN and DARCEE JOHNSTON,
a married couple, No. 70719-1- era
r-i
Respondents, DIVISION ONE
re
v.
•X™
PETE TORKILD, JULIA TORKILD, KG
—4 n
individually, and the marital community
composed thereof, and FIRST
CAPITAL INC., a Washington
Corporation,
Appellants,
TOP MORTGAGE CORPORATION, UNPUBLISHED OPINION
A Washington corporation and SIHA
TOP, individually, TORKILD
CORPORATION, a Washington
Corporation, MAIN STREET
MORTGAGE COMPANY INC., a
Washington Corporation, MAIN
STREET REALTY, INC., a Washington
Corporation, AVANTI INTERNATIONAL FILED: April 27, 2015
HOLDINGS, LLC, a Delaware Series
Limited Liability Company,
Defendants.
LAU, J. - The trial court found tha Peter and Julia Torkild fraudulently
promised John and Darcee Johnston tha they would help the Johnstons save their
home from imminent foreclosure. In reliance on that promise, the Johnstons took no
70719-1-/2
further steps to avoid the foreclosure. The Torkilds then arranged to purchase the
Johnstons' property, which they subdivided and sold. As a result of the Torkilds'
fraud, the Johnstons lost their home and the equity in their property. Because
substantial evidence supports the trial court's findings of fraud, and the Torkilds fail to
demonstrate any abuse of discretion in the trial court's evidentiary rulings, we affirm.
FACTS AND PROCEDURAL HISTORY
Following a two-week trial, the trial court entered 285 findings of fact. The
unchallenged findings of fact support the following factual summary.
In 1992, John and Darcee Johnston purchased a six-acre subdividable parcel
of property on Lummi Island and built a house. The Johnstons became delinquent in
their mortgage payments, and on October 23, 2003, Horizon Bank issued a notice of
foreclosure.
After receiving the foreclosure notice, the Johnstons explored options for
saving their property. Darcee1 was able to qualify for a refinancing loan through
Creative Mortgage, but decided to look for other solutions because of the loan's high
interest rate.
At around this time, Darcee saw a sign near Birch Bay. The sign displayed
Peter Torkild's name and telephone number and listed "home loans, mortgages, and
1Where necessary for clarity, we use the parties' first names.
70719-1-/3
debt consolidation."2 Darcee discussed the Johnstons' situation in detail with Peter
during numerous telephone calls. On March 3, 2004, Darcee met with Torkild at Top
Mortgage, where he was working.
Peter claimed to be an experienced real estate broker, mortgage broker, and
real estate agent. He told Darcee that he could help her and that the best way to
proceed would be to permit him, "or his compatriot,"3 to purchase the Johnstons'
property either directly or through foreclosure, lease itto the Johnstons for a period of
time, and then allow the Johnstons to repurchase the property. Peter never intended
to sell the property back to the Johnstons.
Ostensibly in support of the plan, Peter had prepared several documents for
the meeting, including a purchase and sale agreement for his purchase of the
property, a deed in lieu offoreclosure in Peter's favor, a statutory warranty deed in
his favor, and an assignment and agreement that Peter could buy the Johnstons'
promissory note from Horizon Bank. Some of the provisions in the documents were
not consistent with Peter's oral representations.
Peter also prepared an agreement providing that he would purchase the
property at the trustee sale or purchase the promissory note and conduct the trustee
sale himself for the purpose of eliminating the second mortgage on the property. The
agreement recited that the Johnstons would have the opportunity to lease the
2 Clerk's Papers (CP) at 68.
3 CP at 82.
-3-
70719-1-/4
property after the sale and that the future lease might contain an option to purchase
the property in one or two years. The document also provided that the Johnstons
agreed not to disclose the arrangement, file for bankruptcy, refinance the property, or
take any actions that would interfere with the foreclosure. The agreement included
"numerous waivers, disclaimers, and hold harmless provisions"4 that purported to
protect Peter and Julia Torkild.
Peter told Darcee to take the documents home and have John sign them.
None of the documents were ever used in the subsequent transactions. Relying on
Peter's assurances and representations, the Johnstons undertook no further actions
to avoid foreclosure.
On March 10, 2004, Peter opted not to purchase the Johnstons' property
himself. On March 18, 2004, Julia Torkild incorporated First Capital, Inc. The
Torkilds funded First Capital on March 24, 2004, with joint assets. The trial court
found that the Torkilds treated the corporation "as an alter ego in an attempt to shield
themselves."5
On March 25, 2004, First Capital purchased the Johnstons' promissory note
from Horizon Bank. On March 29, 2004, Darcee provided a letter requesting that
Peter be named as successor trustee. On March 31, 2004, First Capital appointed
4CPat71.
5 CP at 83.
70719-1-/5
Peter as the successor trustee. On April 2, 2004, Peter conducted the trustee sale.
First Capital purchased the property, thereby eliminating the second mortgage.
On April 6, 2004, the Johnstons entered into a 25-month lease with First
Capital for three acres of the six-acre property. The lease did not contain an option
to purchase. Although Peter had initially represented to the Johnstons that the
monthly rent would be about the same as the first mortgage payment, the lease
payments were nearly the same as both the first and second mortgages plus taxes.
On April 10, 2004, First Capital deeded the property to Julia Torkild for
$300,000. Julia financed the purchase with a loan from Aegis. Peter quitclaimed any
interest in the property to Julia.
On August 3, 2004, while the lease was still in place, Peter began
investigating a short plat of the remaining three acres of the property. Peter
continued to reassure the Johnstons that "We will take care of this for you."6 At a
meeting with Darcee in December 2005, Peter said that he intended to sell the
property to the Johnstons, but later indicated that he would not sell the property.
Also in December 2005, Julia, as president of First Capital, filed an unlawful detainer
action against the Johnstons. In May 2006, after the lease expired, the trial court
granted a writ of restitution.
6 CP at 77.
-5-
70719-1-/6
The Torkilds eventually subdivided the Johnstons' property into two parcels
and sold them to a third party. First Capital was dissolved in 2007, shortly after
completion of the short plat.
The Johnstons filed this action against the Torkilds and First Capital on
February 26, 2008, alleging numerous claims, including fraud, breach of contract,
conspiracy, and violations of the Credit Services Organizations Act, chapter 19.134
RCW, Consumer Protection Act (CPA), chapter 19.86 RCW, Washington Deed of
Trust Act, chapter 61.24 RCW, Washington Debt Adjusting Act, chapter 18.28 RCW,
Truth in Lending Act, and Mortgage Broker Practices Act, chapter 19.146 RCW.
Following a two-week bench trial in March 2013, the trial court found that the
Torkilds had fraudulently induced the Johnstons to allow them to take over the
foreclosure proceedings and purchase the property. Based on the Torkilds' false
promises and assurances that they would be able to repurchase the property, the
Johnstons complied with the Torkilds' demands that they not pursue available
remedies to avoid the foreclosure. The court found that as a result of the fraud, the
Johnstons lost the opportunity to preserve their home and land, resulting in the loss
of their home and their equity in the property. The court found that Peter had also
violated the Consumer Protection Act, the Deed of Trust Act, and the Mortgage
Broker Practices Act, but rejected the Johnstons' remaining claims.
The court entered a judgment in favor of the Johnstons for $551,152.05 plus
attorney fees, including damages for emotional distress, the loss of equity in the
-6-
70719-1-/7
property at the time of the foreclosure, and the loss of use and enjoyment of the
property.
ANALYSIS
The trial court found that the Johnstons had established each of the nine
elements of fraud by clear, cogent, and convincing evidence: (1) a representation of
existing fact, (2) its materiality, (3) its falsity, (4) the speaker's knowledge of its falsity,
(5) the speaker's intent that it be acted upon by the person to whom it is made, (6)
ignorance of its falsity on the part of the person to whom the representation is
addressed, (7) the latter's reliance on the truth of the representation, (8) the right to
rely upon it, and (9) consequent damage. See Eicon Constr.. Inc. v. E. Wash. Univ.,
174 Wn.2d 157, 166, 273 P.3d 965 (2012). On appeal, the Torkilds contend that the
evidence and findings failed to establish that their fraudulent representations and
actions caused the Johnstons to lose their home. They argue that the Johnstons'
inability to afford their mortgage payments was the sole cause of the foreclosure sale
and the loss of their property.
This court reviews factual findings for substantial evidence. In re Dependency
ofA.V.D., 62 Wn. App. 562, 568, 815 P.2d 277 (1991). When a challenged factual
finding must be proved at trial by clear, cogent, and convincing evidence, we
incorporate that standard into our review and determine whether there is substantial
evidence in light of the "highly probable" test. In re Sego, 82 Wn.2d 736, 739, 513
P.2d 831 (1973). We view the evidence and all reasonable inferences in the light
70719-1-/8
most favorable to the prevailing party. Woody v. Stapp, 146 Wn. App. 16, 22, 189
P.3d 807 (2008).
The trial court found that in reliance on the Torkilds' assurances, the
Johnstons undertook no further actions to preserve their property until after the
foreclosure was completed and they had been evicted from their house. The court
expressly found that the Johnstons could have sold a portion of the property or all of
the property to a willing neighbor, accepted the available loan from Creative
Mortgage, or filed for bankruptcy. The Torkilds contend that the court's determination
of causation rests solely on speculation because the evidence failed to establish that
any of the options were viable.
Charles Bailey, a neighbor, testified that he would have been willing to
negotiate a purchase of part or all ofthe Johnstons' property in 2004. He confirmed
that he had the money available and would have been willing, on short notice, to pay
for a right offirst refusal in a future sale or provide a short-term loan to give the
Johnstons time to structure the transaction in light of the impending foreclosure.
The Torkilds' claim that there was no evidence supporting the trial court's
finding that the Johnstons' property was "capable of subdivision"7 is disingenuous.
After evicting the Johnstons from the property, the Torkilds subdivided the property
and sold the two resulting parcels.
CP at 68.
-8-
70719-1-/9
The Torkilds also assert that there was no evidence that the Johnstons could
have subdivided the property and sold it within the short period of time remaining until
the foreclosure. They maintain that any attempt to sell off a portion of the property
before subdividing it would have been unlawful under Whatcom County land use
regulations.
But Bailey testified that he was sufficiently interested in buying three acres of
the Johnstons' property to provide them with sufficient time, including loaning them
money or buying a right of first refusal, to structure the transaction around the
foreclosure proceeding. Bailey's assistance did not require violation of Whatcom
County land use regulations.
The Torkilds next contend that the evidence and findings failed to establish
that the Johnstons could have obtained a loan to refinance the property. They argue
that there was no evidence establishing that "the company was real," what the
precise terms of the loan were, the "conclusiveness of the approval,"8 or whether the
offer was still available closer to the time of the foreclosure.
Darcee testified that in early 2004, Horizon Bank referred her to another lender
who approved her loan application. Darcee identified the lender as Creative
Mortgage and described the location of the office. But she then decided to look for
other options because of the high interest rate, a decision that led her to Peter
8 Br. of Appellants, at 26.
70719-1-/10
Torkild. The trial court found Darcee's testimony to be credible. Substantial
evidence supports the court's finding that refinancing was an option.
The Torkilds also contend that the evidence failed to support the trial court's
finding that bankruptcy was a viable option. They argue that the Johnstons made no
showing that could have satisfied the requirements for a bankruptcy filing or that they
ultimately would have been able to save their property through this option.
But the parties stipulated that the Johnstons could have delayed the
foreclosure sale by filing for bankruptcy, even though the ultimate success of that
option was undetermined. The possible bankruptcy filing, which Darcee
acknowledged would have been a last resort, must be viewed in conjunction with the
refinancing and sale options that the Johnstons could have pursued.
The Torkilds do not challenge the trial court's findings that they assured the
Johnstons they would help them avoid the loss of their property. In reliance on those
assurances, the Johnstons complied with the Torkilds' express demands that they
not cure the deficiency, pursue refinancing or bankruptcy, or otherwise interfere in
any manner with the foreclosure. Many of the Torkilds' allegations about the
Johnstons' ability to pursue available options and the possible outcomes involve
issues of credibility that the trial court resolved adversely to the Torkilds. This court
must defer to the trier of fact on issues of conflicting testimony, credibility of
witnesses, and persuasiveness of the evidence. State v. Myers, 133 Wn.2d 26, 38,
941 P.2d 1102(1997).
-10-
70719-1-/11
Viewed in the light most favorable to the Johnstons, substantial evidence
established viable options that they could have pursued to stop the foreclosure sale.
The Torkilds next contend the trial court erred when it failed to consider the
testimony of their handwriting expert, Hannah McFarland. McFarland testified that
John Johnston's signatures on the documents that Peter gave to Darcee at the first
meeting were not genuine. The trial court found that McFarland qualified as an
expert but declined to consider the testimony in its decision. We review the trial
court's admission or exclusion of expert testimony for an abuse of discretion.
Philippides v. Bernard. 151 Wn.2d 376, 393, 88 P.3d 939 (2004).
The Torkilds argue that McFarland's testimony undermined the Johnstons'
credibility and "proved" the Torkilds' theory that John Johnston "fabricated his trial
testimony"9 to hide the fact that Darcee never told him about Peter's representations.
They allege that "Mr. Johnston subsequently pretended to know about the alleged
representation only because Ms. Johnston commenced the lawsuit."10
The trial court concluded that the genuineness of John's signature on the
documents that McFarland examined was not relevant because "[the documents]
were not used. They were not operative documents."11 The Torkilds have not
provided any persuasive argument suggesting how McFarland's testimony about
9 Br. of Appellants, at 39.
10 Br. of Appellants, at 40.
11 CP at 72.
-11-
70719-1-/12
John's signature on the documents would have undermined the Johnstons' testimony
or credibility about the transaction. Nor have they identified any evidence in the
record supporting their conclusory allegations that John's testimony was fabricated or
that Darcee never told John about her meeting with Peter and forged his signature on
the documents. The partial verbatim report of proceedings that the Torkilds provided
this court contains none of John's trial testimony and only brief excerpts from
Darcee's testimony. Under the circumstances, the Torkilds have not demonstrated
that the trial court abused its discretion in not considering McFarland's testimony.
The Torkilds next contend that the trial court should have subtracted the
balance due on the second mortgage when calculating the Johnstons' loss of equity
and should have subtracted the Johnstons' rent payments when awarding damages
for their loss of use and enjoyment of the property. But the Torkilds have not
supported these contentions with any meaningful legal argument or citation to
relevant authority. Nor have they provided this court with a record of the arguments
they presented to the trial court on these issues. We therefore decline to consider
the alleged errors. See Anq v. Martin, 154 Wn.2d 447, 487, 114 P.3d 637 (2005)
(appellate court will not review assignments of error unsupported by argument or
citation to authority); see also RAP 10.3(a)(6).
Finally, the Torkilds contend that the trial court's decision on the Johnstons'
remaining claims, including violations of the CPA and Mortgage Broker Practices
Claim, are derivative of the fraud claim and must also be reversed. Because
-12-
70719-1-/13
substantial evidence supports the trial court's fraud determination, the Torkilds'
challenges to the remaining claims also fail.
The trial court awarded the Johnstons attorney fees under the CPA. See
RCW 19.86.060. As the prevailing party on appeal, the Johnstons are also entitled to
attorney fees on appeal, subject to compliance with RAP 18.1(d).
Affirmed.
^p 9-
WE CONCUR:
Xr\ ^>j 3 ^4^e
-13-