Dyles v. Cost Fund 1

• Court: Colorado Court of Appeals
• Decided: September 19, 2024
• Docket: 23CA2093
• Status: Unknown

Opinion

23CA2093 Dyles v Cost Fund 1 09-19-2024

COLORADO COURT OF APPEALS

Court of Appeals No. 23CA2093 City and County of Denver District Court No. 23CV131 Honorable Shelley I. Gilman, Judge

Kerry Dyles,

Plaintiff-Appellant,

v.

Cost Fund 1, LLC, a Colorado limited liability company,

Defendant-Appellee.

JUDGMENT AND ORDER REVERSED, AND CASE REMANDED WITH DIRECTIONS

Division VII Opinion by JUDGE GOMEZ Tow and Kuhn, JJ., concur

NOT PUBLISHED PURSUANT TO C.A.R. 35(e) Announced September 19, 2024

Springer and Steinberg, P.C., Jeffrey A. Springer, Michael P. Zwiebel, Denver, Colorado, for Plaintiff-Appellant

Burns, Wall and Mueller, P.C., Robert T. Cosgrove, Denver, Colorado, for Defendant-Appellee ¶1 In this dispute over the priority of interests in real property

located in Denver, Kerry Dyles appeals the trial court’s entry of

summary judgment and order awarding attorney fees and costs in

favor of Cost Fund 1, LLC (Cost Fund). We reverse both the

judgment and the order, and we remand the case with directions.

I. Background

A. The Competing Deeds of Trust

¶2 The property at issue was previously owned by Menucha

Enterprise LLC (Menucha). There are competing deeds of trust

relating to the property in favor of Cost Fund and Dyles.

1. The Cost Fund Deed of Trust

¶3 On March 1, 2019, Menucha granted Cost Fund a deed of

trust in the property (the Cost Fund deed of trust) to secure a

$342,500 note. That deed of trust was recorded with the Denver

County Clerk and Recorder on March 4, 2019.

¶4 In July 2019, Menucha and Cost Fund executed a First Loan

Modification Agreement (the modification agreement), which

increased the amount due under the note to $382,500. That

modification agreement was promptly recorded.

1 2. The Dyles Deed of Trust and Note

¶5 In between the recording of the Cost Fund deed of trust and

the modification agreement, another deed of trust was granted on

the same property in favor of Dyles (the Dyles deed of trust). That

deed of trust, dated March 29, 2019, secured a $42,360 note. The

deed of trust lists “Aharon Sirota of Menucha Enterprise LLC” as

the trustor and Dyles as the beneficiary and bears the signature of

“Aharon Sirota (Trustor),” as shown in the screenshot below.

¶6 The note (the Dyles note), which was dated the same day, lists

“Aharon Sirota of MENUCHA ENTERPRISE LLC” as the borrower

and Dyles as the lender. It bears the signature of “Aharon Sirota of

Menucha Enterprise[] LLC.”

¶7 The Dyles deed of trust and the Dyles note were both filed with

the Denver County Clerk and Recorder in April 2019.

B. This Lawsuit

¶8 A few years later, Menucha declared bankruptcy under

Chapter 11 of the United States Bankruptcy Code. Pursuant to its

2 reorganization plan, Menucha granted Cost Fund a deed in aid of

foreclosure, which Cost Fund used to sell the property to a third

party. During the closing process, the title company discovered the

Dyles deed of trust, considered it a cloud on the title, and required

an amount sufficient to cover it to be escrowed until the matter

could be cleared up. Cost Fund demanded that Dyles release the

Dyles deed of trust. Dyles declined.

¶9 Dyles then brought this action, asserting claims against Cost

Fund for judicial foreclosure of his deed of trust and for unjust

enrichment. Cost Fund brought counterclaims seeking a

declaratory judgment that the Dyles deed of trust is void and

seeking relief on the basis that the Dyles deed of trust is a spurious

document.1

¶ 10 Cost Fund moved for summary judgment on its counterclaims,

arguing that the Dyles deed of trust is invalid and unenforceable

because (1) it wasn’t properly recorded so as to give Cost Fund or

other interested parties notice of it, and (2) it was executed by

1 Dyles initially brought other claims against Menucha and Sirota

individually. Cost Fund also brought a cross-claim against Sirota individually. But Menucha and Sirota were later dismissed from the case, leaving only the claims between Dyles and Cost Fund.

3 Sirota in his individual capacity although he had no personal

interest in the property. To support its first argument, Cost Fund

attached an affidavit verifying the results of a search for “Menucha”

in the Denver County Clerk and Recorder’s grantor-grantee index.

The search results didn’t reveal the Dyles deed of trust but did

reveal the Dyles note. As to its second argument, Cost Fund didn’t

dispute Sirota’s authority to execute instruments conveying

property on behalf of Menucha. Instead, it argued that the Dyles

deed of trust “was signed by [Sirota] in his individual capacity, not

as a corporate representative” and “states on its face that it is by

and between Dyles and [Sirota].”

¶ 11 As part of his response, Dyles submitted documents indicating

that the county records erroneously inverted the roles of the parties

to the Dyles deed of trust, labeling “Dyles Kerry L” as the grantor

and “Aharon Sirota of Menucha Enterprise LLC” as the grantee.

This means that the deed of trust wouldn’t appear in a search of the

property records for “Menucha” as grantor. It’s unclear how the

error occurred. Dyles also submitted an affidavit verifying that the

Dyles deed of trust appeared in a search in the reception number

index using the reception number for the deed of trust.

4 ¶ 12 The trial court granted Cost Fund’s motion for summary

judgment, agreeing with both of its arguments. The parties then

stipulated to the dismissal of the only remaining claim in the

case — Dyles’s unjust enrichment claim against Cost Fund — and

the court dismissed that claim. Thereafter, the court awarded Cost

Fund $20,503.20 in attorney fees and costs under section 38-35-

204(2), C.R.S. 2024, based on its conclusion that the Dyles deed of

trust was a spurious document.

¶ 13 Dyles timely appealed both the entry of summary judgment

and the attorney fee order. On appeal, he challenges the trial

court’s conclusions that (1) the Dyles deed of trust wasn’t properly

recorded so as to give subsequent takers notice of it, and (2) the

Dyles deed of trust was executed by Sirota in an individual

capacity. We address each in turn.2

2 We conclude that, while Dyles’s appellate briefing expanded upon

the arguments and authorities it presented to the trial court, it sufficiently preserved the contentions it raises on appeal. See Freed v. Bonfire Ent. LLC, 2024 COA 65, ¶ 23 (“If a party raises an argument to such a degree that the court has the opportunity to rule on it, that argument is preserved for appeal.” (quoting Madalena v. Zurich Am. Ins. Co., 2023 COA 32, ¶ 50)).

5 II. Standard of Review

¶ 14 We review a trial court’s grant of summary judgment de novo.

S. Cross Ranches, LLC v. JBC Agric. Mgmt., LLC, 2019 COA 58, ¶ 11.

¶ 15 Summary judgment should be granted only when the

pleadings and supporting documentation show that there are no

genuine issues of material fact and that the moving party is entitled

to a judgment as a matter of law. C.R.C.P. 56(c); Ruiz v. Chappell,

2020 COA 22, ¶ 8. The moving party bears the burden of

establishing the lack of a triable factual issue, and all doubts as to

the existence of any such issue are resolved against the moving

party. Stanczyk v. Poudre Sch. Dist. R-1, 2020 COA 27M, ¶ 51,

aff’d, 2021 CO 57.

III. Notice of the Dyles Deed of Trust

¶ 16 Dyles first contends that the trial court erred by concluding

that subsequent takers didn’t have notice of the Dyles deed of trust.

We agree that this issue presents a factual question and, therefore,

that summary judgment was not appropriate.

A. Applicable Law

¶ 17 Colorado courts recognize three forms of notice of interests

affecting title to real estate: (1) actual notice, which arises when a

6 party has actual knowledge of a title defect; (2) constructive notice,

which arises when a search of the title records would’ve revealed a

defect; and (3) inquiry notice, which arises when a party becomes

aware or should’ve become aware of certain facts that, if

investigated, would reveal another’s claim. Goodman Assocs., LLC

v. Winter Quarters, LLC, 2012 COA 96, ¶ 24; see also Collins v.

Scott, 943 P.2d 20, 22 (Colo. App. 1996) (under Colorado’s race-

notice recording statute, the proper recording of documents

provides constructive notice of interests affecting title to real

property); § 38-35-109(1), C.R.S. 2024.

¶ 18 As relevant here,

[i]nquiry notice “exists when the purchaser has notice of some fact that, in accordance with human experience, is sufficiently curious or suspicious that the purchaser should be obliged to make a further inquiry into it. If a reasonable inquiry would reveal that there is another outstanding interest, then the purchaser is on inquiry notice of that interest.”

Littlefield v. Bamberger, 32 P.3d 615, 618 (Colo. App. 2001) (quoting

14 Powell on Real Property § 82.02[1][d][iv], at 82-71 (Michael Allan

Wolf ed., 2000)); accord Franklin Bank, N.A. v. Bowling, 74 P.3d

308, 313 (Colo. 2003).

7 ¶ 19 Relatedly, documents outside the chain of title provide notice

of an interest if “a possible irregularity appears in the record which

indicates the existence of some outside interest by which the title

may be affected.” Collins, 943 P.2d at 22. In such cases, a party “is

bound to investigate and is charged with knowledge of the facts to

which the investigation would have led.” Id.; see also Nile Valley

Fed. Sav. & Loan Ass’n v. Sec. Title Guarantee Corp. of Balt., 813

P.2d 849, 852 (Colo. App. 1991) (“A title searcher is not required to

examine documents outside the chain of title unless a possible

irregularity in the chain of title appears in the record.”).

¶ 20 Where the relevant facts are undisputed, the issue of whether

a party had inquiry notice of a property interest presents a question

of law. See Franklin Bank, 74 P.3d at 315; see also Collins, 943

P.2d at 23. But where it’s unclear whether further investigation

would’ve revealed a particular claim, that issue becomes a factual

question for the fact finder. See Littlefield, 32 P.3d at 618-19.

B. Analysis

¶ 21 The trial court concluded that “there was no indication in the

grantor-grantee index of any conveyance of interest by [Menucha] to

8 [Dyles], or of any irregularity that would cause a title searcher to

inquire further.”

¶ 22 We disagree with this conclusion.

¶ 23 The parties don’t dispute that the Dyles deed of trust didn’t

appear in a search for “Menucha” in the Denver County Clerk and

Recorder’s grantor-grantee index. However, the parties also don’t

dispute that such a search did reveal the Dyles note. Thus, while

Cost Fund and other interested parties may not have had actual

notice of the Dyles deed of trust, they clearly had notice of the Dyles

note as of the time of its recording in April 2019.

¶ 24 And the Dyles note signified a “possible irregularity” insofar as

it “indicate[d] the existence of some outside interest by which the

title may be affected.” Collins, 943 P.2d at 22. The note provides

the address and description of the property and indicates that the

property is securing a $42,360 loan. The note also includes four

separate references to the Dyles deed of trust and its role in

securing the note:

• The top line of the note provides, “Do not destroy this

original note, together with the DEED OF TRUST

securing same . . . .”

9 • The next line states, in a centered bold heading, “NOTE

SECURED BY DEED OF TRUST.”

• Paragraph 5 of the note provides, “The indebtedness

evidence [sic] by the Note is secured by the Property via a

Deed of Trust dated March 29, 2019, is [sic] to be

recorded by the Lender in Denver County within 24

hours of execution of this note.”

• Paragraph 8 reiterates, “This is secured by the above

described DEED of TRUST to Kerry L Dyles as trustee

and beneficiary.”

¶ 25 These provisions and repeated references to a related deed of

trust clearly indicate that there may be a recorded deed of trust

securing an interest in the property. Thus, Cost Fund, when it

obtained an additional interest in the property by entering into the

modification agreement, “[wa]s bound to investigate” the note

further and “is charged with knowledge of the facts to which [such

an] investigation would have led.” Id.; see also Franklin Bank, 74

P.3d at 313; Littlefield, 32 P.3d at 618; Nile Valley, 813 P.2d at 852.

¶ 26 But it’s not clear from the summary judgment record exactly

what an investigation into the Dyles note would have revealed. The

10 record indicates only that the Dyles deed of trust didn’t appear in a

search for “Menucha” in the grantor-grantee index but did appear

in a search using the specific reception number in the reception

number index. It’s unclear what any other property records

searches would have revealed. It’s also unclear how the title

company later found the deed of trust. And, more generally, it’s

unclear what measures Cost Fund should have taken to investigate

the Dyles note and whether those measures would’ve revealed the

associated Dyles deed of trust.

¶ 27 Consequently, the trial court shouldn’t have granted summary

judgment on this issue. Instead, a trial is necessary to determine

whether an investigation into the Dyles note would’ve revealed the

Dyles deed of trust and, thus, whether Cost Fund is charged with

knowledge of the Dyles deed of trust at the time it entered into and

recorded the modification agreement. If so, then Cost Fund’s

interest in the modification agreement is subject to the superior

Dyles deed of trust, see Collins, 943 P.2d at 22; § 38-35-109(1), so

long as the Dyles deed of trust is valid. We turn to that issue next.

11 IV. Spurious Document

¶ 28 Dyles also contends that the trial court erred by concluding

that his deed of trust was a spurious document. More specifically,

he argues that the Dyles deed of trust is not a spurious document

or, alternatively, that there is a factual dispute as to whether it is a

spurious document. Again, we agree that this issue presents a

factual question and, therefore, that summary judgment was not

appropriate.

¶ 29 Section 38-35-204 entitles a property owner to seek relief

based on the recording or filing of a spurious document. Under the

statute, a spurious document is “any document that is forged or

groundless, contains a material misstatement or false claim, or is

otherwise patently invalid.” § 38-35-201(3), C.R.S. 2024. This

includes a “wild deed,” which is created when someone with no

interest in a property attempts to convey it to another via a deed of

trust. Fiscus v. Liberty Mortg. Corp., 2014 COA 79, ¶ 52, aff’d on

other grounds, 2016 CO 31; GMAC Mortg. Corp. v. PWI Grp., 155

P.3d 556, 558 (Colo. App. 2006).

12 ¶ 30 The issue of whether a corporate officer or agent executed an

instrument in their individual capacity or in their corporate

capacity presents a factual question. See Sago v. Ashford, 358 P.2d

599, 600 (Colo. 1961); Abrams v. Colo. Seal & Stripe, Inc., 702 P.2d

765, 768 (Colo. App. 1985); St. Vrain Dev. Co. v. F. & S. Dev. Co.,

470 P.2d 49, 55 (Colo. App. 1970).

¶ 31 The interpretation of a deed of trust is an issue of law that we

review de novo. Janicek v. Obsideo, LLC, 271 P.3d 1133, 1138

(Colo. App. 2011). Courts interpret a deed of trust applying basic

contract principles, which means that they determine the parties’

intent from the language of the instrument. Id. If the deed of trust

is unambiguous, then the court must enforce it according to its

plain language. Id. But if it’s ambiguous, then the court may

consider extrinsic evidence to ascertain the parties’ intent. Id.

¶ 32 The trial court acknowledged that “Cost Fund does not dispute

that Sirota possessed the authority to execute instruments on

behalf of Menucha.” Indeed, Menucha recorded a statement of

authority indicating that Sirota is a member with authority “to

13 execute instruments conveying, encumbering, or otherwise affecting

title to real property on behalf of the entity.”

¶ 33 Nonetheless, the court concluded that “on the face of the deed,

Sirota did not indicate that he was executing [his] authority” to sign

instruments on Menucha’s behalf.

¶ 34 We agree that it’s not entirely clear whether Sirota executed

the Dyles deed of trust in his individual or his corporate capacity.

But we disagree with the trial court’s conclusion that this means

Sirota necessarily executed the document in his individual capacity.

Instead, it signifies a factual question on the issue.

¶ 35 The Dyles deed of trust defines “Aharon Sirota of Menucha

Enterprise LLC” as “Trustor”; repeatedly refers to “Trustor” for the

remainder of the document; and bears a signature by “Aharon

Sirota (Trustor).” While Menucha is identified in the deed of trust,

Menucha isn’t itself defined as the trustor; instead, the trustor is

Sirota “of” Menucha. Nor does the document bear a corporate seal

or an identification of Sirota’s title with Menucha, either of which

might have more clearly signified that Sirota executed the document

in his corporate capacity. See St. Vrain Dev. Co., 470 P.2d at 55

(the presence of a corporate seal and the two signers’ corporate

14 titles supported a trial court’s finding that the signers executed a

note in their corporate capacities).3

¶ 36 Accordingly, we conclude that the Dyles deed of trust is

ambiguous as to whether Sirota executed it in his individual or

corporate capacity.4 Thus, the trial court should have denied Cost

Fund’s motion for summary judgment and allowed the parties to

present extrinsic evidence regarding the intent of the parties to the

Dyles deed of trust. See Ruiz, ¶ 8; Janicek, 271 P.3d at 1138.

¶ 37 We therefore reverse the entry of summary judgment, as well

as the order awarding attorney fees and costs under the spurious

document statute, and we remand the case for further proceedings.

3 The Dyles note reveals the same lack of clarity, as it similarly lists

the borrower as Sirota “of” Menucha. This contrasts with the Cost Fund deed of trust, which lists “Menucha Enterprise, LLC” as the grantor; bears Sirota’s signature along with his title as “Member”; and shows the signature line directly under a line reading “Menucha Enterprise, LLC, a Colorado limited liability company.” 4 We decline Cost Fund’s invitation to apply a Uniform Commercial

Code provision regarding the signature of a representative on a negotiable instrument. That provision relates to a representative’s liability on a negotiable instrument vis-a-vis a holder in due course who takes an interest without notice — a scenario entirely different from that we’re presented with here. See § 4-3-402(b)(2), C.R.S. 2024; see also § 4-3-102(a), C.R.S. 2024.

15 V. Appellate Costs and Attorney Fees

¶ 38 Cost Fund seeks appellate costs and attorney fees based on its

spurious lien claim. See § 38-35-204(2). Because we are reversing

the judgment and remanding for further proceedings, Dyles (not

Cost Fund) is entitled to recover his appellate costs, and any award

of attorney fees would be premature. On remand, Dyles may seek

recovery of his costs from this appeal. And the trial court may

consider any requests by either party for recovery of attorney fees

for the entire proceeding, including this appeal, when it has reached

a final resolution on the merits.

VI. Disposition

¶ 39 The judgment and the attorney fee order are reversed, and the

case is remanded for further proceedings consistent with this

opinion.

JUDGE TOW and JUDGE KUHN concur.