FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT June 11, 2015
Elisabeth A. Shumaker
Clerk of Court
WAKEFIELD KENNEDY, LLC, a
Washington limited liability company,
Plaintiff Counterclaim
Defendant - Appellant,
v. No. 14-4044
(D.C. No. 2:11-CV-00604-DN-EJF)
STATE CAPITAL HOLDINGS, LLC, (D. Utah)
a New York limited liability company,
Defendant Counterclaimant
- Appellee,
v.
METRO NATIONAL SETTLEMENT
SERVICES, LLC, a Utah limited liability
company,
Defendant Cross Claim
Defendant - Appellee,
and
D. SHANE BALDWIN, an individual,
MARK STAPLES, an individual;
SILVERLEAF FINANCIAL 9, LLC,
a Utah limited liability company;
SILVERLEAF FINANCIAL, LLC,
a Utah limited liability company,
Defendants Cross
Claim Defendants.
ORDER AND JUDGMENT*
Before BRISCOE, Chief Judge, PORFILIO and LUCERO, Circuit Judges.
This appeal concerns competing claims to a promissory note (Note) and
associated documents (together, the Woodland Mall Loan Documents or WMLD).
The district court determined that State Capital Holdings, LLC (State Capital), as
purchaser of the WMLD, held a superior claim to that of Wakefield Kennedy
(Wakefield), a secured creditor. Wakefield appeals the district court’s partial
summary judgment order subordinating Wakefield’s claim to State Capital’s and
ordering delivery of the WMLD to State Capital. We affirm.
BACKGROUND
State Capital agreed to purchase the WMLD from their holder, Silverleaf
Financial 9, LLC (Silverleaf). State Capital and Silverleaf memorialized their
purchase terms in a Loan Sale Agreement (LSA) dated December 28, 2009.
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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The Loan Sale Agreement Escrow
The LSA set a closing date of February 1, 2010. It provided that an escrow
would be opened “for the consummation of the transfer of the Assigned Rights and
Obligations to [State Capital].” Aplt. App., Vol. 2 at 555. The escrow holder was
Metro National Settlement Services, LLC (Metro).1
The LSA required Silverleaf to deposit the original Note endorsed to State
Capital, along with an assignment of the mortgage and of Silverleaf’s security
interest documents, into the escrow with Metro. If the original Note was not in
Silverleaf’s possession at closing, Silverleaf was required to “take such action as may
be required to obtain [it] or provide . . . documentation that is satisfactory to [State
Capital].” Id., Vol. 2 at 558.
Wakefield’s November 2009 Loan to Silverleaf
At the time the LSA was signed, Silverleaf did not have physical possession of
the Note. Wakefield held it and the other WMLD as security for a November 2009
loan that Wakefield had made to Silverleaf. Silverleaf planned to use proceeds from
its sale of the WMLD to State Capital to pay off the loan from Wakefield.
To facilitate the payoff of its November 2009 loan to Silverleaf and the release
of the WMLD back to Silverleaf, Wakefield sought its own escrow arrangement with
1
The LSA designated “Metro National Title Company,” an affiliated business,
as escrow holder, apparently by mistake. Metro Settlement assumed the duties
assigned to Metro Title and the distinction between the two companies is not an issue
in this appeal.
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Metro. On January 28, 2010, Wakefield’s attorney sent escrow instructions to Metro,
asking it to follow these instructions “for the benefit of [Wakefield] for releasing its
security interest in the [WMLD].” Id., Vol. 4 at 906.
In its escrow instructions, Wakefield stated it had delivered or would deliver
its original loan file, including the Note, to Metro in connection with the February 1
LSA closing. Once Silverleaf’s payoff funds were received and disbursed to
Wakefield, Metro was to “[d]eliver the [WMLD] Loan Files to [Silverleaf’s]
designee.” Id. at 907. But if the February 1 closing did not occur, Metro was to send
the loan files back to Wakefield.
Postponements of the Scheduled Closing
The closing did not occur as scheduled on February 1. On February 5, 2010,
Silverleaf and State Capital amended the LSA to reschedule the closing for March 8,
2010. The WMLD remained with Metro.
On March 8, the closing again did not occur. On March 18, Silverleaf and
State Capital again amended the LSA to reschedule the closing for May 24, 2010.
Wakefield’s attorney sent supplemental escrow instructions to Metro. These
instructions modified the payoff amount but did not change the prior instructions
regarding disposition of the WMLD and proceeds upon payoff.
Also in March 2010, Silverleaf repaid the November 2009 loan from
Wakefield. After the payoff funds were disbursed to Wakefield, Metro continued to
hold the WMLD. The parties disagree concerning the capacity in which Metro now
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held the WMLD. State Capital contends that Metro held the documents in escrow, as
contemplated by the LSA. But Wakefield argues that Metro merely had “custody” of
the WMLD for Silverleaf’s benefit, an arrangement that Wakefield argues posed no
impediment to Silverleaf’s ability to further encumber the WMLD.
On May 24, the closing was again postponed. On that date, Silverleaf and
State Capital entered into a Third Amendment to the LSA, which extended the
closing date until December 31, 2010.
The Second Wakefield Loan and Custody Agreement
On June 14, 2010, unbeknownst to State Capital, Wakefield made a new loan
to Silverleaf. Silverleaf pledged its interest in the WMLD to Wakefield as security.
Silverleaf entered into a Custody Agreement with Metro and Wakefield. State
Capital was not a party to the Custody Agreement.
The Custody Agreement acknowledged that “[t]he Pledged Note is currently
subject to” the LSA and amendments thereto, and that Metro was “acting as escrow
agent in connection with the [LSA].” Id., Vol. 2 at 449. The Custody Agreement
further stated that Metro “has possession of the Pledged Note and will continue to
hold the Pledged Note on [Wakefield’s] behalf.” Id. The parties acknowledged that
Silverleaf had “delivered the Pledged Note to [Metro] to hold until the closing of the
transaction referenced in the [LSA].” Id.
Silverleaf also signed a Note Pledge Agreement in which it agreed to pledge
its right, title and interest in the Note and its proceeds to Wakefield, including its
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rights under the LSA, “subject to the rights of [State Capital].” Id., Vol. 1 at 137.
Silverleaf purported to grant Wakefield a “first position security interest in the . . .
Note and all payments made thereunder and proceeds thereof.” Id. at 138. To reflect
this security interest, Wakefield recorded a UCC-1 filing statement with the Utah
Department of Commerce.
The December 31 Closing
On December 31, 2010, State Capital completed its payment obligations under
the LSA and amendments. Acting on instructions from Silverleaf, Metro’s employee
wired the funds State Capital had deposited with Metro to Silverleaf, apparently
without requiring evidence that Silverleaf had repaid the June 2010 loan to
Wakefield. Silverleaf, having received the funds, did not use them to repay the
Wakefield loan. Nor did Metro, notwithstanding its obligations under the LSA,
release the WMLD to State Capital as required. Instead, citing Wakefield and State
Capital’s conflicting claims to the WMLD, Metro interpleaded the WMLD to be held
and disposed of by the district court.
This left the district court to sort out the priority to the WMLD and to provide
for their disposition. After both Wakefield and State Capital moved for partial
summary judgment concerning priority to the WMLD, the district court concluded
that “Wakefield’s claim is subordinate to State Capital’s rights and State Capital is
entitled to delivery of the Woodland Mall Loan Documents.” Id., Vol. 4 at 1174.
It reached this conclusion for two reasons. First, Silverleaf’s deposit of the WMLD
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into the LSA escrow made State Capital their equitable owner and precluded
Silverleaf from granting Wakefield any interest in the WMLD superior to State
Capital’s. Second, the Uniform Commercial Code (UCC) gave State Capital priority
to the WMLD, as their purchaser, over Wakefield’s security interest. Consequently,
the district court granted State Capital’s motion for partial summary judgment,
denied Wakefield’s motion for partial summary judgment, and awarded State Capital
the right to delivery of the WMLD.
Wakefield appealed. After we issued an order to show cause concerning our
appellate jurisdiction, the district court certified its judgment as final and appealable
under Fed. R. Civ. P. 54(b). Accordingly, we have jurisdiction to consider this
appeal.
ANALYSIS
1. Standard of Review
“We review a district court’s grant of summary judgment de novo.” SEC v.
Thompson, 732 F.3d 1151, 1156 (10th Cir. 2013). Summary judgment should be
granted when “there is no genuine dispute as to any material fact and . . . the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In reaching that
determination, we “view the evidence and draw reasonable inferences therefrom in
the light most favorable to the nonmoving party.” Thompson, 732 F.3d at 1157
(alterations and internal quotation marks omitted).
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2. Choice of Law/Diversity
Federal jurisdiction in this case is based on diversity of citizenship. See
28 U.S.C. § 1332. In a diversity case, a federal court looks “to the substantive law of
the forum state, including its choice of law principles, to determine the applicable
substantive law.” Boyd Rosene & Assocs. v. Kan. Mun. Gas Agency, 174 F.3d 1115,
1118 (10th Cir. 1999).
The district court concluded that New York law applied to this dispute. Under
Utah’s choice of law rules, a contractual provision selecting a particular state’s law
will be upheld. See Jacobsen Constr. Co. v. Teton Builders, 106 P.3d 719, 723
(Utah 2005) (upholding parties’ contractual choice of law provision). Because the
parties chose New York law to govern the interpretation and the effect of the LSA,
including the effect of the escrow arrangement it created, New York law applies to
those questions. But we agree with Wakefield that to the extent the dispute turns on
perfection or priority of a security interest in the Note, Utah’s version of the UCC
applies. See Utah Code Ann. § 70A-9a-301(1) (“Except as otherwise provided in this
section, while a debtor [here, Silverleaf] is located in a jurisdiction, the local law of
that jurisdiction governs perfection, the effect of perfection or nonperfection, and the
priority of a security interest in collateral.”); id. § 301(2) (“While collateral [here, the
WMLD] is located in a jurisdiction, the local law of that jurisdiction governs
perfection, the effect of perfection or nonperfection, and the priority of a possessory
security interest in that collateral.”).
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3. Priority to the WMLD
A. Equitable Ownership Interest Created by Escrow of Documents
The district court reasoned that “[n]o later than March 2010, when the
Woodland Mall Loan Documents were in Metro’s possession in escrow and
Silverleaf’s December 2009 obligation to Wakefield was fully paid, Silverleaf lost
control over the instruments and State Capital became the equitable owner of them by
virtue of the LSA.” Aplt. App., Vol. 4 at 1174 (footnote and internal quotation marks
omitted). It further concluded that because the documents were in escrow,
“Silverleaf lost the ability to grant to a third party any rights superior to State
Capital’s [equitable ownership interest].” Id.
Wakefield does not deny that Metro obtained physical possession of the
WMLD, but it contends that the requirements for a deposit into escrow were not met.
Under New York law, “[f]or an instrument to be held in escrow, there must be
(a) an agreement regarding the subject matter and delivery of the instrument,
(b) a third-party depositary, (c) delivery of the instrument to a third party conditioned
upon the performance of some act or the occurrence of some event, and
(d) relinquishment by the grantor.” Lennar Ne. Partners Ltd. P’ship v. Gifaldi,
695 N.Y.S.2d 448, 450-51 (N.Y. App. Div. 1999). Wakefield argues that the last two
requirements (delivery with relinquishment) were not met because Silverleaf did not
relinquish its right of possession and control of the WMLD by delivering them into
escrow.
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Whether an irrevocable deposit into escrow has been made rests on the intent
of the parties. See 55 N.Y. Jur.2d Escrows § 8 (2015). Wakefield has failed to
demonstrate a genuine factual dispute concerning Silverleaf’s intent to deliver, or the
actual delivery of, the WMLD into escrow. The language of the LSA reveals
Silverleaf’s intent to deposit the WMLD with Metro to be held under its terms in
order to facilitate their sale to State Capital. There is no evidence that after
Wakefield delivered the documents to Metro and Silverleaf paid off its November
2009 loan to Wakefield, Silverleaf attempted to retrieve the documents. Instead,
Silverleaf left them with Metro, the escrow agent named in the LSA.
It is inconsequential that the LSA did not require Silverleaf to place the
WMLD into escrow at a specific date prior to closing. Nothing prohibited Silverleaf
from leaving the documents on deposit with Metro, even prior to closing. Nor would
it make sense to require Silverleaf to prove its intent to place the WMLD into the
LSA escrow by insisting that Silverleaf (1) request that Metro return the WMLD to
Silverleaf, then (2) send those same documents back to Metro with instructions to
place them into escrow for closing of the sale to State Capital.
Although Wakefield also complains that there was no “further direction from
Silverleaf for Metro to hold the Note in escrow for the benefit of State Capital,” Aplt.
Opening Br. at 25, Silverleaf had already given Metro direction in the LSA. By its
terms the LSA “constitute[d] the joint escrow instructions of [State Capital and
Silverleaf] to open escrow . . . for the consummation of the transfer of the Assigned
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Rights and Obligations to [State Capital].” Aplt. App., Vol. 2 at 555. Wakefield
fails to show that any further expression of Silverleaf’s intent was required to create
the escrow.2
Wakefield argues that the execution of the Custody Agreement shows that
neither Silverleaf nor Metro believed that Silverleaf had relinquished control of the
WMLD into escrow. But the Custody Agreement acknowledges that Metro was
acting as escrow agent in connection with the LSA and was holding the Note until the
closing of the sale to State Capital. The fact that Metro purported to take on an
additional role as custodian of the WMLD in connection with Wakefield’s June 2010
loan to Silverleaf did not vitiate Metro’s existing role as escrow holder for the sale to
State Capital. Finally, even if Silverleaf acted inconsistently with relinquishment of
control over the WMLD by pledging them to Wakefield, Silverleaf’s conduct
occurred several months after March 2010, after the documents had already been
deposited into escrow. Evidence of Silverleaf’s later conduct does not preclude a
valid, earlier deposit of the documents into escrow under the LSA. We thus
conclude, with the district court, that at the time Wakefield made the June 2010 loan,
the WMLD were held in escrow under the LSA pending the sale to State Capital.
2
The facts of this case differ significantly from the cases Wakefield cites,
Silberstein v. Murdoch, 215 N.Y.S. 657, 662 (N.Y. App. Div. 1926), in which
documents in a sealed envelope were deposited with a trust company without any
escrow agreement at all, and Menkis v. Whitestone Sav. & Loan Ass’n, 356 N.Y.S.2d
485, 487-88 (N.Y. Dist. Ct. 1974), which involved only a mortgage bond between a
mortgagor and mortgagee.
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As noted, the district court granted priority to State Capital because it found
that, having placed the WMLD documents into escrow, Silverleaf “lost the ability to
grant to a third party any rights superior to State Capital’s [equitable ownership
interest].” Id., Vol. 4 at 1174. As an alternative argument, Wakefield contends that
even if Silverleaf made an unconditional deposit into escrow, this would not have
given State Capital a superior interest, because the “principle of equitable title” does
not apply to the priority of a perfected security interest in negotiable instruments.
Instead, Wakefield contends, priority of such instruments is governed exclusively by
UCC priority principles. See Aplt. Opening Br. at 27.3 But even if we accept
Wakefield’s argument that the UCC governs the priority issue to the exclusion of
broader equitable principles, the argument fails. As the district court correctly
concluded, State Capital had priority under the UCC priority scheme and State
Capital would thus still be entitled to delivery of the WMLD.
3
Although Wakefield made arguments about UCC priority in district court, it
did not make this particular argument. For this reason, we could simply decline to
consider the argument. See DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1195
(10th Cir. 2010) (“We . . . generally will not consider new arguments on appeal . . .
even one that falls under the same general category as an argument presented [in
district court]” (internal quotation marks omitted)). But because Wakefield’s “UCC
exclusivity” argument flows into the broader UCC argument that Wakefield
preserved in district court and now presents on appeal, we will consider the
arguments together to show why both fail.
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B. Priority Under the UCC
We next consider, under Utah’s version of the UCC, whether the security
interest Silverleaf granted to Wakefield had priority over State Capital’s interest as
purchaser. Clearly, it did not.
The district court found that State Capital’s interest as purchaser had priority
under Utah Code Ann. § 70A-9a-330(4), which provides that in general, “a purchaser
of an instrument has priority over a security interest in the instrument perfected by a
method other than possession if the purchaser gives value and takes possession of the
instrument in good faith and without knowledge that the purchase violates the rights
of the secured party.” The district court determined that State Capital gave value and
took possession of the WMLD in good faith, without knowledge of Wakefield’s
alleged security interest, and therefore satisfied the requirements for priority under
this subsection.4
Wakefield makes two arguments that it has priority under the UCC. First,
Wakefield contends that to “perfect” its “security interest” under § 330(4), State
Capital was required either to file a security agreement signed by Silverleaf or to take
possession of the WMLD. Wakefield contends State Capital did neither.
4
This UCC section is designed to protect good-faith purchasers of instruments
encumbered by a prior security interest. See 4 James J. White, Robert S. Summers &
Robert A. Hillman, Uniform Commercial Code § 33-10 (6th ed. 2014). As the
district court found, at the time when the documents were escrowed for State
Capital’s benefit, Wakefield did not yet have a perfected security interest in them to
secure the June 2010 loan. Aplt. App., Vol. 4 at 1179. This makes Wakefield’s
claim to priority even less plausible.
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By contrast, Wakefield purports to be the holder of a perfected security interest in the
WMLD, which it obtained either by possessing the WMLD or by filing its UCC-1
financing statement signed by Silverleaf. Citing general principles governing
secured transactions, Wakefield thus claims priority as a secured party over State
Capital’s “unsecured” interest.
The district court aptly rejected Wakefield’s argument, reasoning as follows:
Wakefield . . . argues that § 330(4) grants a security interest and
that a party relying on § 330(4) must also abide by [other UCC
provisions] which would require a security agreement. Wakefield is
incorrect as § 330(4) does not grant an actual security interest but rather
grants a purchaser of an instrument . . . priority over a security interest
created [under the UCC.] Wakefield’s argument that State Capital did
not have a security interest is therefore irrelevant.
Aplt. App., Vol. 4 at 1180 (footnote omitted).
Granted, § 330(4) does require the purchaser to “take[] possession of the
instrument,” even if such possession is not required to create a “security interest.”
But State Capital satisfied this requirement through Metro’s possession of the
WMLD under the terms of the LSA, which occurred before the creation of
Wakefield’s purported security interest and before any possession for Wakefield’s
benefit under the Custody Agreement.5
5
Constructive possession of an instrument has been recognized in cases
involving the UCC’s related “holder in due course” principle. See Georg v. Metro
Fixtures Contractors, Inc., 178 P.3d 1209, 1214 (Colo. 2008) (collecting cases).
For similar reasons, Metro could constructively possess the WMLD on behalf of
State Capital, thus fulfilling the possession requirement of § 330(4).
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The district court also correctly rejected Wakefield’s argument that State
Capital’s interest as purchaser did not satisfy § 330(4) because Wakefield had
perfected its security interest by possession of the WMLD:
Wakefield’s argument that it has a valid possession-perfected
security interest and therefore has priority is also incorrect. . . .
Wakefield fails to acknowledge that Metro had possession of the
[WMLD] free of any claim of Wakefield from March 2010, well before
the June 2010 Custody Agreement. When the Wakefield-Silverleaf
obligation was paid off in March 2010, the [WMLD] were, as Silverleaf
promised, in escrow for State Capital’s benefit. . . . Because Silverleaf
already had relinquished possession through the escrow established in
the LSA, Wakefield could not have taken possession in any meaningful
way, regardless of its agreements with Silverleaf and Metro.
Aplt. App., Vol. 4 at 1180-81.
CONCLUSION
We agree with the district court that State Capital established its priority as
purchaser of the WMLD over Wakefield’s security interest. The judgment of the
district court is therefore affirmed.
Entered for the Court
Mary Beck Briscoe
Chief Judge
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