Trustees of the Washington-Idaho-Montana Carpenters-Employers Retirement Trust Fund v. Galleria Partnership

Galleria Associates, managed by Dan Cook, owned a warehouse that leased space to business tenants. To obtain Galleria Associate’s construction loan, Cook formed Galleria Partnership (defendant) because Cook was not eligible to borrow money. Cook recruited 16 investors to join Galleria Partnership so he could obtain the construction loan. The property was appraised for $1,950,000 at the time of the loan, and Cook told the investors that the loan was nonrecourse and that in the event of a default, the investors would not be personally liable for a deficiency judgment. The investors believed Cook, signed a promissory note in their individual capacities, and delivered a deed of trust to Safeco Title Insurance Company that secured the loan with the warehouse property. The deed of trust named Trustees of the Washington-Idaho-Montana Carpenters-Employers Retirement Trust Fund (Trustees) (plaintiffs) as trustees. Although some of the investors were lawyers, the investors did not read the loan documents and did not realize that the loan allowed personal liability in the event of a default. The warehouse tenants turned out to be businesses run by Cook, and when those businesses failed, Galleria Partnership defaulted on the loan. The Trustees filed an action to foreclose on the property, and the district court directed a sheriff to sell the property at a public auction. Although the property had recently been appraised for $1,100,000, the Trustees purchased the property for $565,000, and a deficiency judgment for the unpaid loan was issued against Galleria Partnership and its investors. Galleria Partnership and the individual investors appealed the district court’s judgment against them, and the Montana Supreme Court granted a request to decide the appeal.