Idaho Development, LLC v. Teton View Golf Estates, LLC, 152 Idaho 401

Idaho Development advanced $1,100,000 to Teton View Golf Estates, LLC, a joint venture with 33.3% owned by Idaho Development and 66.7% by Rothchild Properties.
Teton View granted ZBS a promissory note secured by a deed of trust on the property; separately, Idaho Development’s deed of trust was also recorded.
The JV agreement provided repayment terms; Idaho Development would be repaid $800,000 from the construction loan and $300,000 subordinated; Idaho Development’s note carried 6% interest with fixed monthly payments and a 90-day maturity.
DePatco recorded a lien on October 20, 2008, after Idaho Development and ZBS recorded their deeds; ZBS and Schiess later faced a district-court summary-judgment dispute about priority.
The district court granted DePatco’s motion to recharacterize Idaho Development’s $1,100,000 advance as a capital contribution, placing Idaho Development at the back of the line behind other creditors.
The district court later denied Idaho Development’s motion to reconsider; Idaho Development appealed and challenged both the recharacterization and the priority of liens.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether summary judgment recharacterized the advance as capital contribution correctly	Idaho Development contends a genuine issue of fact exists on whether the entire $1.1M was intended as capital contribution.	DePatco contends the advance was a capital contribution or should be equitably subordinated.	Recharacterization improper; genuine fact issue exists about the entire amount's intent.
Whether equitable subordination should be applied as an alternative basis	Idaho Development argues equitable subordination is inapplicable in Idaho and unnecessary if recharacterization is improper.	DePatco argues for equitable subordination if recharacterization is incorrect.	Equitable subordination not applied; court declines to create new Idaho law on this.
Whether ZBS has priority over Idaho Development	Idaho Development asserts priority disputes depend on remaining issues about how much was a loan.	ZBS contends priority should follow the original recharacterization and lien filings.	On remand, any portion of the advance properly characterized as a loan has priority over ZBS; entire amount not conclusively recharacterized.
Whether attorney’s fees on appeal should be awarded	Idaho Development does not seek fees on appeal.	Defendants request fees under various Idaho statutes, but relief denied if no prevailing party.	No attorney’s fees awarded on appeal.

Lettunich v. Lettunich, 141 Idaho 425 (2005) (recognizes factual inquiry into capital contribution vs. loan)
Vreeken v. Lockwood Engineering, B.V., 148 Idaho 89 (2009) (treatment of advances as capital contributions supported by substantial evidence)
Weyerhaeuser Co. v. Clark's Material Supply Co., 90 Idaho 455 (1966) (labels advances as debt or equity based on parties' intent and records)
In re Dornier Aviation, Inc., 453 F.3d 225 (4th Cir. 2006) (debt recharacterization rests on substance and intent, not labels)
Hedged-Investments Assocs., Inc. v. Hedged-Investments, Inc., 380 F.3d 1292 (10th Cir. 2004) (distinguishes equity subordination from recharacterization)
HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (equitable subordination is a bankruptcy court tool; limits its reach outside bankruptcy)