Court of Appeals of Arizona, First Division, Department B
CSA 13-101 Loop, LLC, an Oklahoma limited liability company, Plaintiff/Appellant,
Loop 101, LLC, an Arizona limited liability company; PAUL S. ANTON and VALERIE J. CHRISTIE, husband and wife; OSCAR E. SWANKY and HELEN L. SWANKY, as Co-Trustees of the Oscar E. Swanky and Helen L. Swanky Revocable Family Trust, Created July 19, 1997, as Amended, Defendants/Appellees.
Appeal from the Superior Court in Maricopa County Cause No. CV2009-034774 The Honorable J. Kenneth Mangum, Retired Judge The Honorable John A. Buttrick, Retired Judge
Bryan Cave LLP by Sean K. McElenney J. Alex Grimsley Gregory B. Iannelli Attorneys for Plaintiff/Appellant
Fennemore Craig, PC by Timothy Berg Louis D. Lopez Attorneys for Defendants/Appellees
RANDALL M. HOWE, Judge
¶1 This case requires this Court to decide, among other questions, whether a borrower or guarantor can contractually waive its right to a determination of fair market value in a deficiency action. Because we agree with the trial court that this right cannot be waived, and reject the other claims raised on appeal, we affirm the trial court's granting of summary judgment.
FACTS AND PROCEDURAL HISTORY
¶2 Loop 101, LLC ("Loop 101") borrowed $15, 600, 000 from MidFirst Bank in February 2007 to build a commercial office building on its property adjacent to State Highway 101. Loop 101 gave MidFirst a promissory note secured by a deed of trust encumbering the property. Paul S. Anton and his wife, Valerie J. Christie, and Oscar Swanky and his wife, Helen Swanky (collectively, "the Guarantors") guaranteed the loan.
¶3 The promissory note and guaranty expressly stated that the Guarantors waived "the benefits of any statutory provision limiting the right of [Holder\Lender] to recover a deficiency judgment . . . after any foreclosure or trustee's sale of any security . . . including without limitation the benefits, if any, . . . of A.R.S. Section 33-814 [(West 2013)] ." Section 33-814 provides that the borrower in a deficiency action is entitled, upon request, to a hearing on the fair market value of the trust property at the date of the trustee's sale, and then to have that value deducted from the amount owed in determining the amount of the deficiency judgment. The deed of trust contained a similar albeit more specific provision that stated that the sales price at the trustee's sale was "conclusively deemed to constitute the fair market value" of the property, and that Loop 101 "hereby waive[ed] and relinquishe[d] any right to have the fair market value of the [property] determined by a judge . . . in any action seeking a deficiency judgment including, without limitation, a hearing to determine fair market value" under A.R.S. § 33-814.
¶4 Loop 101 defaulted on the loan in June 2009, and MidFirst initiated non-judicial foreclosure proceedings under the deed of trust. On October 16, 2009, MidFirst assigned all of its rights under the loan, including the deed of trust, to CSA 13-101 Loop, LLC ("CSA") in an "intercompany loan transfer agreement." Later that day, CSA bought the office building at a trustee's sale for a credit bid of $6, 150, 000. At the time, $11, 195, 981.84 remained on the loan. CSA sued Loop 101 and the Guarantors for breach of the promissory note and guaranty and sought a deficiency judgment of $5, 066, 567.87 plus interest.
¶5 Loop 101 and the Guarantors counterclaimed against CSA and filed third-party claims against MidFirst for breach of the implied covenant of good faith and fair dealing by rejecting a proposed tenant and setting an "unreasonabl[y] low credit bid at the trustee's sale." CSA and MidFirst moved to dismiss these claims, interpreting them as claims that the property's price at the trustee's sale was below fair market value. They argued that a fair market value determination was not available because Loop 101 had not made a written application for one pursuant to § 33-814(A) . They also argued that pursuant to the guaranty the Guarantors had waived any rights under this statute. They further argued that the claims against MidFirst were barred because the deed of trust waived all liability against MidFirst short of "gross negligence or willful misconduct." The Guarantors responded that the guaranty did not show a clear intent to waive a fair market value determination.
¶6 The trial court denied CSA and MidFirst's motion to dismiss, ruling that "[t]he parties cannot waive the rights protected by statute. The fair market value hearing will determine the value at the time of the sale." Loop 101 and the Guarantors then applied for a determination of the property's fair market value pursuant to § 33-814(A). The trial court held an evidentiary hearing and found that the property's fair market value was $12, 500, 000.
¶7 CSA nevertheless moved for summary judgment on its claims for breaches of the contract and the guaranty. CSA argued that Loop 101 and the Guarantors had--through express language in the deed of trust and guaranty-"unequivocally waived their right[s] to have the [c]ourt's fair market value determination govern the amount of the loan deficiency." CSA and MidFirst also moved for summary judgment on Loop 101 and the Guarantor's counterclaims.
¶8 Loop 101 and the Guarantors responded that the summary judgment motion was an untimely motion for reconsideration of the trial court's prior ruling that statutory rights to a fair market value determination could not be waived. Loop 101 and the Guarantors also argued that they did not contractually waive their right to a fair market value determination because (1) the determination was a statutory right that could not be waived; (2) the loan agreement and promissory note did not contain a waiver clause against Loop 101; and (3) any such waiver was unconscionable. Loop 101 and the Guarantors further cross-moved for summary judgment, arguing that a deficiency did not exist because the office building's fair market value exceeded the amount of debt.
¶9 In May 2011, the trial judge recused himself from the case, and the case was re-assigned to a second judge. CSA moved to vacate all prior orders because the recusal created an "appearance of impropriety." The second judge denied the motion to vacate, finding that "nothing in the record suggests any impropriety, " and that "[t]he temporal proximity between the announcement of [the judge's] retirement and his recusal strongly ...