United States District Court, D. Arizona
Douglas L. Rayes United States District Judge
the Court are AZ JV XII LLC's (“AZ JV”) and
Rob Rutledge's cross motions for summary judgment, which
are fully briefed. (Docs. 24, 25, 30, 32, 33, 34.) For the
following reasons, the Court grants Mr. Rutledge's motion
and denies AZ JV's motion.
case arises from a dispute over the ownership of real
property at 11853 N. 45th Drive, Glendale, Arizona
(“the Property”). (Docs. 24 at 3, 25 at 2.)
William and Cheryl Carr (“the Carrs”) owned the
Property prior to March 24, 2006. The Carrs agreed to
transfer legal title to the Property to Town and Country
Title Services as trustee under a deed of trust dated March
24, 2006 and recorded April 4, 2006, for the benefit of their
mortgage company, Ameriquest. (Doc. 24-1 at 4-18.)
Eventually, the Carrs fell behind on their obligations to
Ameriquest. On April 20, 2009, Fidelity National Title
Insurance Company (“Fidelity”) was substituted as
trustee. (Id. at 35.) That same day, Fidelity
recorded a notice of trustee's sale of the Property.
(Id. at 23-24.) On October 8, 2009, Mr. Rutledge
purchased the Property at the trustee's sale for $65,
700. (Id. at 26-27.) On October 9, 2009, the Carrs
left the Property and Mr. Rutledge took possession and began
renting it. (Doc. 24 at 4.) Fidelity, however, failed to
record the trustee deed of sale until March 13, 2018.
a Delaware limited liability company, is in the business of
purchasing distressed properties that are in foreclosure or
delinquent on payments or taxes. (Doc. 25 at 1.) In February
of 2018, AZ JV's principal, Jeff Flores, became
interested in the Property as a potential investment after
locating a pending tax lien foreclosure action with the Carrs
listed as defendants. (Id. at 2.) Mr. Flores parsed
through the Maricopa County database and discovered that the
property tax payments on the Property were delinquent for the
years 2013 through 2017. (Doc. 25 at 2.) He additionally
reviewed records of the Maricopa County Recorder, which
indicated that the Property was subject to a deed of trust,
and that a trustee's sale had been scheduled for October
8, 2009. However, Mr. Flores' review did not turn up a
recorded trustee's deed of sale.
Flores then contacted the Carrs. (Id.) Mr. Carr
informed Mr. Flores that he believed he had lost the Property
in a foreclosure and that the Carrs no longer resided at the
Property. (Id.) Mr. Carr also notified Mr. Flores
that the City of Phoenix periodically sent letters to the
Carrs, alerting them that the Property was not being
maintained. (Id. at 3.) In response to these
letters, the Carrs would clean the Property. (Id.)
Mr. Flores eventually inspected the Property. (Id.)
Then, on March 8, 2018, the Carrs entered into an agreement
with AZ JV, in which AZ JV arranged to purchase any
interest the Carrs had in the Property for $5, 000.
(Id. at 13-15.) AZ JV delivered $5, 000 to the Carrs
on March 10, 2019, and the Carrs executed a warranty deed to
AZ JV, which was recorded on March 12, 2018. (Id. at
4, 17, 19-20.)
parties submit cross-motions for summary judgment, the Court
must consider each motion on its own merits. Fair Hous.
Council of Riverside Cty., Inc. v. Riverside Two, 249
F.3d 1132, 1136 (9th Cir. 2001). Summary judgment is
appropriate when there is no genuine dispute as to any
material fact and, viewing those facts in a light most
favorable to the nonmoving party, 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 case, and a
dispute is genuine if a reasonable jury could find for the
nonmoving party based on the competing evidence. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054,
1061 (9th Cir. 2002). Summary judgment may also be entered
“against a party who fails to make a showing sufficient
to establish the existence of an element essential to that
party's case, and on which that party will bear the
burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
party seeking summary judgment “bears the initial
responsibility of informing the district court of the basis
for its motion, and identifying those portions of [the
record] which it believes demonstrate the absence of a
genuine issue of material fact.” Id. at 323.
The burden then shifts to the non-movant to establish the
existence of a genuine and material factual dispute.
Id. at 324. The non-movant “must do more than
simply show that there is some metaphysical doubt as to the
material facts[, ]” and instead “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, 586-87 (1986) (internal quotation
and citation omitted). Even where there are some factual
issues raised, summary judgment is appropriate if the
totality of the undisputed facts is such that reasonable
minds could not differ on the resolution of the factual
question. Chesney v. United States, 632 F.Supp. 867,
869 (D. Ariz. 1985).
Arizona law, “[a]ll . . . sales and other conveyances
of whatever of lands . . . and deeds of trust and mortgages
of whatever kind shall be void as to . . . subsequent
purchasers for valuable consideration without notice, unless
they are acknowledged and recorded in the office of the
county recorder as required by law. [Likewise, u]nrecorded
instruments . . . as to all subsequent purchasers with notice
thereof . . . shall be valid and binding.” A.R.S.
§ 33-42. It is undisputed that Fidelity's trustee
deed of sale reflecting Mr. Rutledge's purchase of the
Property was unrecorded when AZ JV purchased the Carrs'
interest therein. Therefore, to determine ownership of the
Property, the finder of fact must decide whether AZ JV had
actual or constructive notice that the Property was subject
to such an adverse interest. See Neal v. Hunt, 541
P.2d 559, 563 (Ariz. 1975) (“Constructive and actual
notice have the same effect.”); Chesney, 632
F.Supp. At 869 (citation omitted) (“The Court may look
to state law to determine what constitutes constructive
notice.”). In Arizona, “[w]here one has notice of
a fact affecting property which he seeks to purchase, which
puts him upon inquiry, he is chargeable with the knowledge
which the inquiry, if made, would have revealed; and one is
put upon inquiry by notice of a claim which is inconsistent
with the title he seeks to obtain, and must exercise due
diligence to ascertain the facts upon which the claim is
based.” Neal, 541 P.2d at 563 (quoting
Luke v. Smith, 108 P. 494, 496 (Ariz. 1910)).
at the onset of their conversations, Mr. Carr informed Mr.
Flores that he believed that he and Mrs. Carr had lost the
Property in foreclosure and no longer lived there. (Doc. 25
at 2.) This information alone put AZ JV upon inquiry notice
of potentially adverse claims, which AZ JV was required to
exercise due diligence in investigating. See Neal,
541 P.2d at 311 (finding rumor that defendant had a water
right claim was sufficient to put the plaintiff on inquiry to
ascertain if any adverse rights to the property existed). In
addition, more facts put Mr. Flores on notice of the adverse
claim. Mr. Flores knew that the Property was subject to a
deed of trust, that a trustee's sale had been scheduled
for October 8, 2009, and that a tenant, not renting from the
Carrs, rented the Property.
Mr. Flores took some investigatory steps, no reasonable
finder of fact could conclude that he conducted a
sufficiently prudent inquiry. His only inquiry involved
researching the records of the Maricopa County Recorder,
which put him on notice. His research revealed that the
Property was subject to a deed of trust, and that a
trustee's sale had been scheduled for October 8, 2009,
but no recorded trustee's deed appeared on the record.
(Id.) Although several “red flags”
indicated the trustee sale had occurred but was not recorded,
Mr. Flores stopped his inquiry. He did not perform even the
simplest and most obvious of inquiries under the
circumstances. He did not contact Fidelity, ask the Carrs
whether a foreclosure sale did, in fact, take place and
apparently, did not ask the tenant about the landlord's
identity. Fidelity, the Carrs and the tenant were
all easily and readily available. An inquiry posed to any one
of the them would have revealed the Rutledge ownership
interest. Instead, AZ JV quickly entered into an agreement,
purchasing the Carrs' interest for $5, 000. See Voss v.
U.S., No. CV-06-2434-PHX-JAT, 2007 WL 2274772, at *2 (D.
Ariz. 2007) (quoting Chesney, 632 F.Supp. at 870
(“[Plaintiff] could not bury his head in the sand . . .
waiting for an adverse party to make a dramatic assertion of
a claim. It was incumbent upon [Plaintiff] to make some sort
of inquiry or take some sort of action to establish his right
to the disputed land.”)).
in this district have found less obvious intrusions on land
to create notice of an adverse interest at summary judgment.
See, e.g., Voss, 2007 WL 2274772, at *3
(federal angle irons on a parcel of land put the individual
on notice of the government's right of way). No
reasonable jury could find that Mr. Torres lacked notice or
that Mr. ...