Donges v. Usaa Federal Savings Bank

          ORDER

          Honorable Rosemary Marquez, United States District Judge.

         Pending before the Court are Plaintiffs William and Carolyn Donges' Motion for Partial Summary Judgment (Doc. 54) and Defendant USAA Federal Savings Bank's Motion for Summary Judgment (Doc. 64).^[1] The summary judgment motions are fully briefed and suitable for determination without oral argument. For the following reasons, summary judgment will be granted in favor of Defendant.

         I. Standard of Review

         Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is genuine if the evidence is such that a reasonable trier of fact could resolve the dispute in favor of the nonmoving party. Id. In evaluating a motion for summary judgment, the court must “draw all reasonable inferences from the evidence” in favor of the non-movant. O'Connor v. Boeing N. Am., Inc., 311 F.3d 1139, 1150 (9th Cir. 2002). A reasonable inference is one which is supported by “significant probative evidence” rather than “threadbare conclusory statements.” Barnes v. Arden Mayfair, Inc., 759 F.2d 676, 680-81 (9th Cir. 1985) (internal quotation marks omitted). If “the evidence yields conflicting inferences [regarding material facts], summary judgment is improper, and the action must proceed to trial.” O'Connor, 311 F.3d at 1150.

         The party moving for summary judgment bears the initial burden of identifying those portions of the record, together with affidavits, if any, that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant meets this burden, the burden shifts to the nonmovant to “come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks and emphasis omitted); see also Fed. R. Civ. P. 56(c)(1).

         II. Background^[2]

         On April 9, 2004, Plaintiffs entered into a Home Equity Line of Credit (“HELOC”) with Defendant, establishing a line of credit of $50, 000. (Doc. 70, ¶ 6.) Plaintiffs subsequently entered into two more HELOC agreements, increasing their line of credit by $50, 000 and $183, 800, respectively. (Id. ¶¶ 8, 10.) All three HELOCs were consolidated and secured by deeds of trust on Plaintiffs' home in Tucson, Arizona.^[3] (Id. ¶¶ 2, 6, 8, 10.) The HELOC has a maturity date of April 9, 2024. (Id. ¶¶ 6, 8, 10.)

         Plaintiffs borrowed the full line of credit. (Doc. 72, ¶ 18.) Plaintiffs made timely minimum payments until defaulting on a monthly minimum payment due on October 19, 2009. (Doc. 70, ¶ 16.) Defendant sent Plaintiffs a letter on October 4, 2017, stating that a foreclosure would occur if Plaintiffs did not show the debt was invalid or pay the debt within 30 days. (Doc. 72, ¶ 33.) On November 27, 2017, Defendant filed a Notice of Trustee's Sale. (Doc. 72, ¶ 34.)^[4]

         III. Discussion

         A. Statute of Limitations^[5]

         Defendant contends that it is entitled to summary judgment because the statute of limitations on its right to foreclose did not begin running until it accelerated the debt in November 2017, through the initiation of foreclosure proceedings. Plaintiffs assert that Defendant's right to foreclose accrued no later than May 2011, which puts Defendant's October 2017 demand for payment outside of Arizona's six-year statute of limitations. Summary judgment will be granted in favor of Defendant.

         There is a threshold legal question on which the parties disagree: when does the statute of limitations begin running on a claim for a borrower's default on a HELOC that has a defined maturity date? Plaintiffs argue that the statute begins running on the entire outstanding debt when the borrower first fails to make a full minimum monthly payment. They rely exclusively on the Arizona Supreme Court's recent decision in Mertola, LLC v. Santos, 422 P.3d 1028 (Ariz. 2018). Defendant relies on Navy Federal Credit Union v. Jones, 930 P.2d 1007, 1008 (Ariz.Ct.App. 1996), which set forth the longstanding rule that the statute of limitations “commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause.” For the following reasons, the Navy Federal rule applies.

         In Navy Federal, the defendant's husband defaulted on a promissory note that was payable to the plaintiff over 15 years in equal monthly installments. Id. Years after the first missed payment, the plaintiff accelerated the balance on the note and then filed suit when the defendant did not pay. Id. The defendant argued that the plaintiff's claim accrued at the time of the first missed payment, thus making the plaintiff's claim untimely under the six-year limitation period. Id. The plaintiff argued that its claim did not accrue until it accelerated the balance on the note. Id. at 1008-09.

         The Arizona Court of Appeals concluded that both parties were “partly correct.” Id. at 1009. The defendant was “partially correct in contending that each time her husband defaulted on an installment payment, [the plaintiff] could have sued for the amount of that installment any time within the six-year statute of limitations.” Id. The plaintiff was “also partly correct, however, ” because “the statute of limitations runs as to future installments from the date the creditor exercises the [optional] acceleration clause.” Id. In other words, the statute of limitations does not commence on an unmatured installment unless the creditor accelerates it. See id.

         In Mertola, the Arizona Supreme Court refused to apply the Navy Federal rule to credit-card debt, holding instead that “when a credit-card contract contains an optional acceleration clause, a cause of action to collect the entire outstanding debt accrues upon default: that is, when the debtor first fails to make a full, agreed-to minimum monthly payment.” 422 P.3d at 1032. The court distinguished between closed accounts, which typically involve a fixed principal amount and defined schedule of repayment, and credit-card contracts, under which the ultimate debt, monthly payment, and final payment date vary depending on how the card is used and the current interest rate, and found that

[b]ecause a closed-end installment contract involves an exact sum that must be paid in full in equal payments by an agreed-on date, a cause of action for the entire balance owed will accrue no later than that date. After that date, the creditor may not prevent the statute of limitations from running simply by refusing to accelerate the debt.

Under credit-card contracts like the one at issue here, however, the date when the entire debt will become due is uncertain and may not occur until far in the future. To hold that a cause of action on the debt does not accrue until the creditor exercises his right to accelerate would vest the creditor with unilateral power to extend the statutory limitation period and permit interest to continue to accrue, long after it is clear that no further payments will be made, subject only to a standard of reasonableness and other equitable doctrines. This would ...