504 P.3d 834
Wash. Ct. App.2022Background:
- Parcel 0402 was sold at a 2011 tax foreclosure to Mark & Tracy Faulkes and later quitclaimed to Dalton M, LLC; an earlier 2006 deed of trust had originally covered Parcels 9008 and 0402.
- U.S. Bank (as successor trustee/noteholder) and its servicer Ocwen possessed title reports and assessor records by 2014–2015 showing Dalton M as owner of Parcel 0402, but the bank nevertheless proceeded with a 2016 nonjudicial foreclosure that resulted in a trustee’s deed vesting both parcels in U.S. Bank.
- Dalton M discovered the recorded trustee’s deed, repeatedly sought that U.S. Bank clear the cloud on title for ~13 months, received promises from the bank’s counsel/agents but no substantive corrective action, and then sued in 2018 for quiet title, slander of title, unjust enrichment, and CPA violations.
- The superior court quieted title to Dalton M, found U.S. Bank acted in bad faith and maliciously published ownership (slander of title), and awarded Dalton M attorney fees as the only damages on the slander claim.
- On appeal the Court of Appeals reversed the slander-of-title judgment (insufficient evidence of interference with a pending sale), but—sua sponte addressing equitable fee rules—held Dalton M nonetheless entitled to reasonable attorney fees under the equitable (bad-faith) exception to the American rule for prelitigation bad-faith refusal to honor a valid claim; remanded for calculation of a reasonable fee.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether North Cascade’s bankruptcy stayed the suit against U.S. Bank | Bankruptcy of co-defendant didn't affect claims against U.S. Bank | Bankruptcy stay should enjoin related litigation | No stay — automatic stay does not bar suits against non‑debtors absent identity/Binding effect on debtor |
| Whether Dalton M proved slander of title (pending sale element) | U.S. Bank’s purchase at the trustee’s sale satisfied the pending sale/purchase element | No evidence that any pending sale by Dalton M was thwarted by the cloud; trustee’s sale purchase does not qualify | Reversed on slander of title — insufficient evidence of a qualifying pending sale/purchase |
| Whether the trustee’s deed should be reformed to exclude Parcel 0402 | Dalton M opposed reformation; U.S. Bank argued reformation was appropriate based on pretrial stipulation and alleged mistakes | U.S. Bank: deed description was a mistake and should be reformed | Court declined relief — evidence did not show mutual mistake or scrivener’s error at time of sale |
| Whether Dalton M may recover attorney fees and costs | Fees available as damages for slander and under equitable bad‑faith exception for prelitigation refusal to honor clear claim | No statutory basis; plaintiff didn’t plead equitable fees; prelitigation fees disallowed by precedent | Fees not recoverable under slander (after reversal) or quiet title statute; but recoverable under equitable bad‑faith exception for prelitigation obstinacy — remanded to quantify reasonable fees; no appellate fees awarded |
Key Cases Cited
- Rorvig v. Douglas, 123 Wn.2d 854 (1994) (describes slander-of-title elements and recognizes attorney fees as damages for slander of title)
- Centurion Props. III, LLC v. Chicago Title Ins. Co., 186 Wn.2d 58 (2016) (discusses elements and publication requirement for slander of title)
- Maytown Sand & Gravel, LLC v. Thurston County, 191 Wn.2d 392 (2018) (limits on awarding prelitigation/administrative fees under bad‑faith equitable exception)
- Public Utils. Dist. No. 1 v. Kottsick, 86 Wn.2d 388 (1976) (catalogues equitable exceptions to the American rule, including bad faith)
- Vaughan v. Atkinson, 369 U.S. 527 (1962) (recognizes awarding fees for prelitigation bad faith where defendant’s obstinacy forced suit)
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (federal courts’ inherent power to sanction bad‑faith litigation conduct)
- Arcambel v. Wiseman, 3 U.S. 306 (1796) (source of the American rule that parties ordinarily bear their own counsel fees)
- Hensley v. Eckerhart, 461 U.S. 424 (1983) (standards for awarding reasonable attorney fees based on degree of success)
- Brand v. Dep’t of Labor & Indus., 139 Wn.2d 659 (1999) (approach to allocation of fees where claims are related or separable)
- Clarkston Cmty. Corp. v. Asotin County Port Dist., 3 Wn. App. 1 (1970) (explains requirement that slander of title must relate to an existing/pending sale or purchase)