 IN THE COURT OF APPEALS OF THE STATE OF WASMtftGlW
                                                                20|6 I!'-: -G £;; 9:
U.S. BANK NATIONAL ASSOCIATION,
as Trustee for Structured Asset                 No. 74843-2-1
Mortgage Investments II Inc. Bear
Stearns ALT-A Trust, Mortgage                   DIVISION ONE
Pass-Through Certificates, Series
2006-3,                                         UNPUBLISHED OPINION

                    Appellant,



NORTH AMERICAN TITLE COMPANY,

                    Defendant,

CV JOINT VENTURES, LLC,

                    Respondent,

STEVEN SHELLEY AND JANE DOE
SHELLEY; THE UNITED STATES OF
AMERICA; AND JOHN AND JANE
DOES, I THROUGH V, OCCUPANTS
OF THE SUBJECT REAL PROPERTY,
AND ALL OTHER PERSONS OR
PARTIES UNKNOWN, CLAIMING ANY
RIGHT, TITLE, INTEREST, LIEN OR
ESTATE IN THE PROPERTY HEREIN
DESCRIBED,
                                                FILED: June 6, 2016
                    Defendants.


       Trickey, J. — U.S. Bank appeals the trial court's dismissal of its action to

quiet title to land that CV Joint Ventures, LLC holds pursuant to a tax deed.
Because the payment of taxes may be shown to defeat a tax deed, and because
it is conceivable that U.S. Bank and its predecessors paid taxes on a portion of the

land in dispute, the trial court erred when it dismissed U.S. Bank's claims under
CR 12(b)(6). We reverse and remand.
No. 74843-2-1 / 2


                                     FACTS

       U.S. Bank's complaint establishes the substantive facts. This case involves

two of three adjacent parcels located in Edgewood, Washington. Steven Shelley

originally owned all three parcels, which are identified by Pierce County Auditor's

parcel numbers as follows: 0420232039 (Parcel A), 0420242069 (Parcel B), and

0420232068 (Parcel C).

       In January 2006, Shelley borrowed $910,000 from Stonecreek Funding

Corporation. As collateral for the loan, Shelley executed a deed of trust. It was

the intent of the originating lender and Shelley that the deed of trust encumber

Shelley's primary residence (the Shelley house). Because the Shelley house is

located on both Parcels B and C, the parties intended that the deed of trust

encumber both Parcels B and C. However, the deed of trust only encumbered

Parcel B.

       North American Title Company served as the escrow company and escrow

agent that closed the loan transaction. The originating lender instructed North

American Title Company to obtain a lender's title policy of insurance on all three

parcels. It also instructed North American Title Company to ensure that the deed

of trust encumbered, at a minimum, Parcels B and C.

       On December 4, 2009, Pierce County foreclosed on Parcel C and sold it to

CV Joint Ventures at a tax foreclosure sale for $15,100. The assessed value for

Parcel C at the time of the tax foreclosure was $53,500. Because the deed of trust

did not encumber Parcel C, as the parties intended, U.S. Bank was not notified of

the tax foreclosure.
No. 74843-2-1 / 3


      The following year, in August 2010, Shelley defaulted on the loan and U.S.

Bank commenced nonjudicial foreclosure proceedings on the deed of trust. U.S.

Bank successfully bid at the trustee's sale and obtained a trustee's deed for Parcel

B.


      At all relevant times, Parcel C has been taxed as unimproved, vacant land.

Parcel B, at all relevant times, has been taxed as improved land—including both

the land and the Shelley house.

       On or about April 24, 2012, the attorney-in-fact for U.S. Bank was notified

that the Shelley house is actually located on both Parcels B and C.

       On April 21, 2015, U.S. Bank commenced this action against North

American Title Company, CV Joint Ventures, Shelley, and others. Against CV

Joint Ventures, U.S. Bank sought to quiet title to Parcel C by reformation of the

deed of trust and the trustee's deed based on mutual mistake or scrivener's error.

       CV Joint Ventures moved under CR 12(b)(6) to dismiss the action against

it. After hearing argument on the matter, the trial court granted this motion. U.S.

Bank subsequently moved for reconsideration, which the trial court denied.

       Thereafter, CV Joint Ventures moved the trial court to release the lis

pendens that U.S. Bank had filed with its suit. CV Joint Ventures also moved for
attorney fees and costs. The trial court granted these motions.

       This appeal followed.

                                    ANALYSIS

       U.S. Bankargues that the trial court improperly dismissed itsclaims for quiet

title and reformation. It asserts that it properly pleaded these claims to property
No. 74843-2-1 / 4


that the relevant parties intended to be encumbered by the deed of trust and for

which taxes have been paid. We agree.

       "Under CR 12(b)(6), dismissal is appropriate only if 'it appears beyond doubt

that the plaintiff cannot prove any set of facts which would justify recovery.'" Burton

v. Lehman, 153 Wn.2d 416, 422, 103 P.3d 1230 (2005) (internal quotation marks

omitted) (quoting Tenore v. AT&T Wireless Servs., 136 Wn.2d 322, 330, 962 P.2d

104 (1998)).    "In undertaking such an analysis, 'a plaintiff's allegations are

presumed to be true and a court may consider hypothetical facts not included in

the record.'" Burton, 153 Wn.2d at 422 (quoting Tenore, 136 Wn.2d at 330).

       A CR 12(b)(6) motion "should be granted 'sparingly and with care,' and only

in the unusual case in which the plaintiff's allegations show on the face of the

complaint an insuperable bar to relief." San Juan County v. No New Gas Tax. 160

Wn.2d 141, 164, 157 P.3d 831 (2007) (quoting Tenore, 136 Wn.2d at 330). "The

purpose of CR 12(b)(6) is to weed out complaints where, even if that which the

plaintiff alleges is true, the law does not provide a remedy." Alexander v. Sanford,

181 Wn. App. 135, 142, 325 P.3d 341, review granted, 339 P.3d 634 (2014).

       Whether dismissal was appropriate under CR 12(b)(6) is a question of law

this court reviews de novo. San Juan County, 160 Wn.2d at 164.

       "[A]n action to quiet title is an equitable proceeding that is 'designed to

resolve competing claims of ownership' to property." Bavand v. OneWest Bank,

FSB, 176 Wn. App. 475, 502, 309 P.3d 636 (2013) (internal quotation marks

omitted) (quoting Walker v. Quality Loan Serv. Corp., 176 Wn. App. 294, 322, 308

P.3d 716 (2013)). "The plaintiff in [a quiet title action] shall set forth in his or her
No. 74843-2-1 / 5


complaint the nature of his or her estate, claim, or title to the property, and the

defendant may set up a legal or equitable defense to plaintiff's claims; and the

superior title, whether legal or equitable, shall prevail." RCW 7.28.120.

       "Reformation by a court is an equitable remedy that brings a writing that is

materially different from the parties' agreement into conformity with that

agreement." Glepco. LLC v. Reinstra, 175 Wn. App. 545, 560, 307 P.3d 744

(2013). A party seeking reformation must prove by clear, cogent, and convincing

evidence that: (1) both parties to the instrument had an identical intention as to the

terms to be embodied in a proposed written document, (2) the writing that was

executed is materially at variance with that identical intention, and (3) innocent

third parties will not be unfairly affected by reformation of the writing to express

that identical intention. Leonard v. Wash. Emp., Inc., 77 Wn.2d 271, 279,461 P.2d

538(1969).

       Here, U.S. Bank seeks to quiet title to the disputed land through reformation

of the deed of trust and the trustee's deed.      U.S. Bank acknowledges that its

claims, in effect, reform or set aside CV Joint Ventures' tax deed. U.S. Bank

contends that this is proper when taxes on the disputed property have actually

been paid. CV Joint Ventures disagrees. It asserts that U.S. Bank has no interest

in the disputed property because the tax sale destroyed all prior interests.

       In general, "the tax lien is paramount to all other liens or claims. When

foreclosure of such lien is made and real estate is sold thereunder, the fee passes

to the purchaser, and all grants made by the owner of the fee must, of course, fall
with the foreclosure." Hanson v. Carr, 66 Wash. 81, 83, 118 P. 927(1911).
No. 74843-2-1 / 6


        However, RCW 84.64.180 provides two exceptions to the finality of a tax

deed:


        And any judgment for the deed to real property sold for delinquent
        taxes rendered after January 9, 1926, except as otherwise provided
        in this section, shall estop all parties from raising any objections
        thereto, or to a tax title based thereon, which existed at or before the
        rendition of such judgment, and could have been presented as a
        defense to the application for such judgment in the court wherein the
        same was rendered, and as to all such questions the judgment itself
        shall be conclusive evidence of its regularity and validity in all
        collateral proceedings, except in cases where the tax has been paid,
        or the real property was not liable to the tax.

(Emphasis added.)

        Under the first exception, the payment of taxes may be shown to defeat a

tax deed. Solberg v. Baldwin, 46 Wash. 196, 200, 89 P. 561 (1907). The prima

facie presumption that taxes or assessments were not paid at the time of the

deed's issuance can be overcome if proof of actual payment exists. Port of Port

Angeles v. Davis, 21 Wn.2d 660, 666, 152 P.2d 614 (1944). "It is the fact of

payment of the taxes on the land occupied, not the description used in the tax

receipt, that is determinative." Berry v. Pond, 33 Wn.2d 560, 565, 206 P.2d 506

(1949).

        Smith v. Henley, 53 Wn.2d 71, 330 P.2d 712 (1958) is instructive. There,

the plaintiff purchased the western oftwo adjacent parcels at a tax sale. 53Wn.2d
at 72. The defendants and their predecessors owned the eastern parcel, which

they believed included a house, and had been paying taxes on the eastern parcel
and on the house, which was listed as an improvement to the eastern parcel. 53

Wn.2d at 72. After the tax sale, the plaintiff had the land surveyed and discovered

that the house was actually situated on the western parcel. He brought an
No. 74843-2-1 / 7


ejectment action to quiet title to the portion of the western parcel that included the

house. 53Wn.2dat73.


       The Supreme Court affirmed the judgment in favor of the defendants. It

concluded that the plaintiff did not acquire title to the house by the tax deed,

because the defendants had paid the taxes on the house. It reasoned:

              By the express reservation contained in RCW 84.64.180, it
       was made manifest that it was not the intent of the legislature to
       subject land on which taxes have been paid to foreclosure, or to
       deprive one in possession of the right to set up his payment as a
       defense to an action to oust him. . . .

               It is true that the mistake was that of the defendants and their
       predecessors as well as the assessors, but it was an honest mistake,
       based upon a reasonable assumption, and as we stated in Pierce
       County v. NewbeginL 27 Wn.2d 451, 454, 178 P.2d 742 (1947),] "[i]t
       is not the policy of the law that the owner should lose his land through
       excusable mistake."


Smith, 53 Wn.2d at 75 (internal quotation marks omitted).

       As these authorities indicate, if U.S. Bank and its predecessors paid taxes

on a portion of Parcel C, U.S. Bank has a valid challenge to the tax foreclosure as

to that portion of the property.

       In its complaint, U.S. Bank alleged that "[a]t all relevant times, Parcel C has

been taxed as unimproved, vacant land by the Pierce CountyAssessor's Office."1

It also alleged that "[a]t all relevant times, Parcel B has been taxed as improved

land (the land and the dwelling/residence)."2 In its briefing on appeal, U.S. Bank

asserts that it paid the taxes "on the entire house as assessed by the assessor"3




1 Clerk's Papers (CP) at 6.
2 CP at 6.
3 Reply Br. of Appellant at 9.
No. 74843-2-1 / 8


and that "the taxes on Parcel B have been paid at all relevant times."4 It is

undisputed that most of the house is situated on Parcel C.

       Based on these allegations, it is conceivable that U.S. Bank and its

predecessors paid taxes on the portion of Parcel C that the Shelley house

occupies. This is especially true given that, under RCW 84.04.090, "[t]he term 'real

property' for the purposes of taxation shall be held and construed to mean and

include the land itself. . . and all buildings, structures or improvements or other

fixtures of whatsoever kind thereon." Under these hypothetical facts, U.S. Bank

may have a valid challenge to the tax deed and viable claims for quiet title and

reformation. Dismissal of these claims under CR 12(b)(6) was improper.

       CV Joint Ventures argues that U.S. Bank cannot bring this action because

it does not have a valid subsisting interest in the disputed property.5 On this limited

record, we cannot agree.       U.S. Bank alleged that it purchased the disputed

property in a trustee's sale and that the relevant parties intended the deed of trust

to encumber the disputed property. U.S. Bank's quiet title action is concurrent with

its effort to seek reformation of the trustee's deed. Such circumstances may give

rise to a valid interest in the disputed property. See Glepco. 175 Wn. App. 555.

Moreover, U.S. Bank also alleged that taxes were paid on a portion of the disputed

property, and thus, the tax sale was invalid as to that land.            Under these

circumstances, we cannot conclude that U.S. Bank has no valid subsisting interest

in at least a portion of the disputed property.




4 Br. of Appellant at 29 n.2
5 Br. of Resp'tat9-18.
                                           8
No. 74843-2-1 / 9


      CV Joint Ventures contends this case is more analogous to Label v.

Cleasbv, 13 Wn. App. 789, 793, 537 P.2d 859 (1975), than to Smith. In Cleasbv,

the taxpayer erroneously believed that he was paying taxes on the disputed land,

but in fact, the taxes on the disputed property had not been paid by anyone. 13

Wn. App. at 793. On that basis, this court distinguished Smith and concluded that

the taxpayer could not defeat the tax deed. 13 Wn. App. at 793. Here, as we

explained earlier in this opinion, it is conceivable that the taxes on the disputed

property were actually paid by U.S. Bank and its predecessors. This is sufficient

to allow U.S. Bank's claim to proceed. The ultimate success of this claim under

Smith and Cleasbv can be determined once the record is further developed.

       CV Joint Ventures asserts that the three-year statute of limitations in RCW

4.16.090 bars this action, because the tax deed was issued in December 2009 and

U.S. Bank did not bring this action until April 2015. But the statute of limitations

does not apply to an action to set aside a tax deed when taxes have actually been
paid and a tax deed issued because of the alleged delinquent taxes. Davis, 21
Wn.2d at 666.

       Finally, CV Joint Ventures argues that tax deeds are not subject to

reformation. But this argument is premature. We leave the extent of the remedy,

if any, to the trial court on remand.

                                    Attorney Fees

                                        Trial Court

       The trial court awarded attorney fees to CV Joint Ventures under RCW

4.28.328. In relevant part, that statute provides:
No. 74843-2-1/10


               (3) Unless the claimant establishes a substantial justification
      for filing the lis pendens, a claimant is liable to an aggrieved party
      who prevails in defense of the action in which the lis pendens was
      filed for actual damages caused by filing the lis pendens, and in the
      court's discretion, reasonable attorneys' fees and costs incurred in
      defending the action.

In awarding attorney fees under this statute, the trial court concluded that U.S.

Bank's case was advanced without substantial justification. For reasons we have

explained, U.S. Bank may have a viable claim to the disputed property. Thus, the

trial court's conclusion and its award of attorney fees were erroneous.

                                     On Appeal

       CV Joint Ventures requests attorney fees in this appeal.       Because U.S.

Bank may have a viable claim to the disputed property, and because this appeal

is not frivolous, we deny this request.

       We reverse and remand for further proceedings, with instructions to the trial

court to vacate the order awarding attorney fees.




                                                        \f\sMe^i               /l^-i
WE CONCUR:




yo^p.jar                                             ^*c^                 r-




                                          10
