First Bank did not learn of the bowling alley sale until it completed its annual loan review of Mr. Tuschoff's hotel loan. Thereafter, Mr. Tuschoff defaulted on the hotel loan.

First Bank held a non-judicial foreclosure sale of the hotel and placed a full credit bid of the approximately $425,000 owed to it by Mr. Tuschoff.

First Bank later was able to sell the hotel for approximately $190,000.

First Bank subsequently sued Land Title in Idaho, seeking to recover the "deficiency" between what it was owed and the amount it had received when it sold the hotel.

The trial court, applying Montana law, granted summary judgment in favor of Land Title. The trial court determined that First Bank's full credit bid extinguished Mr. Tuschoff's debt and that, once that debt was extinguished, the assignment of Mr. Tuschoff's interest in the bowling alley as collateral for that debt also was extinguished.

The dispute reached the Supreme Court of Idaho.

The Idaho Supreme Court's Decision

The court affirmed, holding that the "plain language" of Montana' anti-deficiency statute applied and, as a result, First Bank could not bring a deficiency action against Mr. Tuschoff, which meant that there were no damages associated with Land Title's alleged negligence or breach of contract.

In its decision, the court found "no reason" to decline to apply Montana law. It noted that the Hotel Lincoln was located in Montana and that the documents governing the underlying debt each contained choice-of-law clauses that selected Montana law to govern the debt.

The court then ruled that, under Montana's anti-deficiency statute, because the deed of trust on the Hotel Lincoln was foreclosed non-judicially (given that it was "foreclosed by advertisement and sale"), First Bank could not take any further action against Mr. Tuschoff.

The court reasoned that if no deficiency existed against Mr. Tuschoff, then First Bank subsequently had no action against Land Title because its action against Land Title existed solely based on the deficiency it claimed against Mr. Tuschoff.

The court acknowledged that the Montana Supreme Court had indicated that the anti-deficiency statute did not apply to commercial transactions, but it distinguished those decision as all addressing judicial as opposed to non-judicial foreclosures and concluded that First Bank could not assert a deficiency action against Mr. Tuschoff – and subsequently against Land Title – under the "plain language" of the statute.

Finally, the court ruled that even if the Montana statute did not apply, First Bank's negligence claim against Land Title under Idaho law was "without merit."

According to the court, First Bank's negligence claim failed because of the "general rule" prohibiting the recovery of purely economic losses in negligence actions. The court reasoned that Land Title's holding of the escrow account was a contractual relationship between Land Title and Mr. Tuschoff that did not extend to First Bank. The court concluded that First Bank's economic loss was "not recoverable in tort."

The case is First Bank of Lincoln v. Land Title of Nez Perce County, Inc., No. 46000 (Idaho Nov. 18, 2019). Attorneys involved include: Paine Hamblen, LLP, Spokane, WA, for appellant. Gregory S. Johnson argued. Givens Pursley, LLP, Boise, for respondent. Thomas E. Dvorak argued.