Tomar Development, Inc., a Kansas corporation, Plaintiff-Appellant and Cross-Appellee,
Roy A. Friend; Janet C. Friend; Norma Jean Friend; Friend Family LLLP, a Colorado limited liability partnership; Danny Damyanovich; and Karen Damyanovich, Defendants-Appellants, and First Citizens Bank & Trust Company, Defendant-Appellant and Cross-Appellant.
Court of Appeals No. 14CA0519 Chaffee County District Court No. 10CV157 Honorable Charles M. Barton, Judge
San Luis Valley Law Firm, Matthew K. Hobbs, Monte Vista, Colorado, for Plaintiff-Appellant and Cross-Appellee
Law Office of William F. Smith, P.C., William F. Smith, Salida, Colorado, for Defendants-Appellants Roy A. Friend, Janet C. Friend, Norma Jean Friend, and Friend Family LLLP
Flanders, Elsberg, Herber & Dunn, LLC, Scott W. Dunn, Crystal M. Mitchell, Longmont, Colorado, for Defendants-Appellants Danny Damyanovich and Karen Damyanovich
Stinson Leonard Street LLP, Daniel C. Wennogle, Perry L. Glantz, Greenwood Village, Colorado, for Defendant-Appellant and Cross-Appellant First Citizens Bank & Trust Company
JUDGE NEY [*]
¶ 1 Lienholders Tomar Development, Inc. (Tomar); Roy A. Friend, Janet C. Friend, Norma Jean Friend, and Friend Family, LLLP (the Friend Family); and Karen and Danny Damyanovich (the Damyanoviches) appeal from the trial court's dismissal of their claims for declaratory judgments of their lien priorities, under C.R.C.P. 12(b)(5). We affirm the trial court's orders.
¶ 2 In dismissing those claims, the court adopted a partial subordination approach to interpreting subordination agreements. Whether to apply a complete or a partial subordination approach presents an issue of first impression in Colorado. In determining the seniority of lien priorities, various jurisdictions have applied one of these two approaches. The majority of jurisdictions have applied the partial subordination approach. As will be explained in more detail below, under this approach, the subordinating party contracts with a more junior lienholder to subordinate its interest to that junior lienholder. Thus, the junior lienholder becomes senior to all others, but only to the extent of the subordinating party's interest, leaving any intermediary lienholders unaffected.
¶ 3 A minority of jurisdictions have adopted a complete subordination approach. Under this approach, when the subordinating party contracts with a more junior lienholder to subordinate its interest to that junior lienholder, all of the parties simply move up in priority order. So, for example, whoever held the interest that had second priority would now hold the most senior priority position.
¶ 4 First Citizens Bank and Trust Company (First Citizens Bank) cross appeals, asserting that the trial court should not have reached the partial versus complete subordination issue.
¶ 5 We hold that a partial subordination approach better reflects the law in Colorado. Applying that approach to the facts of this case, we conclude that the trial court properly dismissed the claims under C.R.C.P. 12(b)(5).
¶ 6 In 2007, the Friend Family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. FRIG also purchased adjoining properties for the development project, including property owned by the Damyanoviches. FRIG gave both the Friend Family and the Damyanoviches notes secured by deeds of trust for their respective conveyances. To finance the purchases, FRIG obtained a loan from CCB that ultimately amounted to $11, 000, 000. The loan was secured by a deed of trust (CCB's senior lien). The Friend Family and the Damyanoviches expressly agreed in writing that their respective lien interests in the property would be junior and subordinate to CCB's senior lien.
¶ 7 In 2009, FRIG borrowed $2, 200, 000 from Tomar, which was secured by a deed of trust that was ...