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Deutsche Bank National Trust Co. v. Pheasant Grove LLC

Court of Appeals of Arizona, First Division

August 23, 2018

DEUTSCHE BANK NATIONAL TRUST COMPANY, Plaintiff/Appellant,
v.
PHEASANT GROVE LLC, Defendant/Appellee.

          Appeal from the Superior Court in Maricopa County No. CV2015-005125 The Honorable Douglas Gerlach, Judge

          Gust Rosenfeld PLC, Phoenix By Scott A. Malm, Charles W. Wirken Counsel for Plaintiff/Appellant

          Robert Stewart & Associates PC, Phoenix By Robert L. Stewart, Jr., Sid A. Horwitz Counsel for Defendant/Appellee

          Judge Randall M. Howe delivered the opinion of the Court, in which Presiding Judge James P. Beene and Judge Kent E. Cattani joined.

          OPINION

          HOWE, JUDGE

         ¶1 Deutsche Bank National Trust Company (the "Bank") sued Pheasant Grove LLC seeking a reformation of a deed of trust ("DOT") secured by Pheasant Grove's property and a declaratory judgment that it holds a superior interest in the property. The trial court granted Pheasant Grove summary judgment, ruling that the Bank had filed its suit outside the applicable statute of limitations' time period.

         ¶2 The Bank has appealed that ruling, raising several claims of error. Its primary argument, however, is that although its reformation claim may be barred by the applicable statute of limitations, its declaratory judgment claim-that the Bank's interest in the property was superior to Pheasant Grove's interest under a constructive notice or replacement mortgage theory-was within the statute of limitations applicable to an action to collect a debt. We reject all of the Bank's claims of error, and we specifically hold that when a claim for reformation is time-barred, a request for declaratory judgment seeking substantively the same relief as the reformation claim is also time-barred.

         FACTS AND PROCEDURAL HISTORY

         ¶3 This action involves the real property known as 40660 N. 109th Place, Scottsdale, Arizona (the "Property"). The Property includes a residence built across two adjoining parcels, described as Lots 8 and 9, Desert Mountain Phase II Unit Six. Lot 8 is assigned Maricopa County Assessor's Parcel Number ("APN") 219-56-205 and Lot 9 is assigned APN 219-56-206.

         ¶4 Brian Pellowski and Debra Peterson (collectively, the "Homeowners") bought the Property in 2000 and obtained a $1.26 million loan secured by a recorded DOT in favor of Washington Mutual Bank, FA that encumbered Lots 8 and 9. The Homeowners refinanced the loan in 2001 and 2002. Both times the Homeowners recorded a new DOT in Washington Mutual's favor, encumbering Lots 8 and 9; both times Washington Mutual released the prior DOT.

         ¶5 The Homeowners refinanced the loan again in 2003. They recorded a DOT in Washington Mutual's favor (the "2003 DOT"), and Washington Mutual released the prior DOT. Although the 2003 DOT referenced the address of 40660 N. 109th Place, Scottsdale, Arizona, the 2003 DOT legally described the collateral as only "Lot 8, DESERT MOUNTAIN PHASE II, UNIT SIX." JP Morgan Chase Bank NA ("Chase") acquired the beneficial interest in the 2003 DOT from Washington Mutual. Chase assigned its beneficial interest in the 2003 DOT to the Bank in November 2012; the assignment described the collateral as "LOT 8, DESERT MOUNTAIN PHASE II, UNIT SIX."

         ¶6 Meanwhile, the Homeowners borrowed $800, 000 from First National Bank of Omaha ("FNB") in September 2006 and secured that loan with a DOT in FNB's favor that encumbered Lots 8 and 9. The Homeowners defaulted on the loan, and FNB bought the Property in a trustee's sale in July 2010. FNB later quitclaimed the Property to Pheasant Grove in December 2011.

         ¶7 The Homeowners subsequently defaulted on the promissory note secured by the Bank's 2003 DOT, and the Bank learned that Pheasant Grove had obtained the Property without satisfying the 2003 DOT. In August 2015, the Bank filed a three-count "Verified Complaint for Quiet Title" against Pheasant Grove. Count One sought reformation of the 2003 DOT to include Lot 9 in the legal description. Count Two was denominated quiet title; it sought a determination pursuant to Arizona's quiet title statute, A.R.S. § 12-1101, that the Bank "has a superior interest in Lots 8 and 9 of the Property and that Pheasant Grove's interest in the Property is subject to [the Bank's] interest under the Deutsche Bank DoT." Count Three was denominated declaratory relief; it sought a declaration under A.R.S. § 12-1101 that "Plaintiff's interest under the Deutsche Bank DoT encumbers both Lots 8 and 9 of the Property and is superior to any other encumbrances currently existing against the property and that Pheasant Grove's interest in the Property is subject to Plaintiff's interest under the Deutsche Bank DoT."

         ¶8 Pheasant Grove moved for summary judgment, arguing that (1) the reformation claim was barred under the applicable statute of limitations and (2) the quiet title and declaratory relief claims failed as a matter of law because the Bank did not hold title to either Lot 8 or 9. In response, the Bank argued that (1) the statute of limitations did not apply to a reformation claim and (2) the declaratory relief claim sought a determination that Pheasant Grove had constructive notice of the 2003 DOT, which had priority over FNB's DOT, or alternatively, that the 2003 DOT was a replacement DOT for the 2000, 2001, and 2002 DOTs. Additionally, the Bank moved under Arizona Rules of Civil ...


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