The Weitz Company v. Nicholas Heth ( 2014 )

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
THE WEITZ COMPANY L.L.C., AN IOWA LIMITED LIABILITY COMPANY,
Plaintiff/Appellee,
v.
NICHOLAS HETH, A SINGLE MAN; BARRY SCHWARTZ, A MARRIED MAN;
JEFFREY TEMPLIN, A MARRIED MAN; KEN PERLMUTTER, A MARRIED MAN;
SHELLY MALKIN, A MARRIED WOMAN; JODY STORM GALE AND CHRISTIE
BAUER GALE, HUSBAND AND WIFE; JEFF TEMPLIN AND TERRI TEMPLIN,
HUSBAND AND WIFE; GREGG TEMPLIN AND SUZANNE W. TEMPLIN,
HUSBAND AND WIFE; MICHAEL J. HAASCH AND LAURA S. HAASCH,
HUSBAND AND WIFE; JEFFREY M. LEZAK AND CAROL E. LEZAK, HUSBAND
AND WIFE; RICHARD H. FOX, A MARRIED MAN; BRAD BLOCK, AN UNMARRIED
MAN; GREGORIO MEZA AYON, A MARRIED MAN; SIGLIFREDO LOPEZ, A
MARRIED MAN; EDWARD C. RAMOS AND TAMARA C. RAMOS, HUSBAND AND
WIFE; SCOTT ROSE AND NICOLLE ROSE, HUSBAND AND WIFE; SCOTT
MATTHEW ROSE AND NICOLLE CLAUDINE ROSE FAMILY TRUST DATED
AUGUST 28, 2008; DARRYL GOLDSTEIN, AN UNMARRIED MAN; KEN
ADELSON; CARY E. FRUMES, AN UNMARRIED MAN; ARI SILVASTI, A MARRIED
MAN; BEN YORK III, AN UNMARRIED MAN; CHICAGO SUMMIT, LLC; FRANC
W. BRODAR AND JENNIFER A. BRODAR, HUSBAND AND WIFE; ROSS
KERIEVSKY, AN UNMARRIED MAN; MICHAEL SCHWARTZ, A MARRIED MAN;
WILLIAM SCHWARTZ, A MARRIED MAN; MICHAEL CASTILLO, A MARRIED
MAN; H. DENNIS PETERSON AND CAROL A. PETERSON, TRUSTEES OF THE
PETERSON LIVING TRUST DATED MARCH 6, 2006; PATRICK ESTFAN AND
SALLY ESTFAN, HUSBAND AND WIFE; TINA ROSPOND, A SINGLE WOMAN; L.
KENNETH BROOKS, AN UNMARRIED MAN; PATRICK H. WALSH AND MELISSA
R. WALSH, HUSBAND AND WIFE; AFARIN RADJAEI-BOKHARAI, AN
UNMARRIED PERSON; MICHAEL DAVEY, A MARRIED MAN; JEFFREY A. HART,
AN UNMARRIED MAN; VINCENZO COSTA, AN UNMARRIED MAN; JOSHUA
POPE, AN UNMARRIED MAN; CARL L. FAIRCLOTH AND PATRICIA S.
FAIRCLOTH, HUSBAND AND WIFE; ART GARTENBERG, AN UNMARRIED MAN;
MARK F. RUDINSKY AND CHRISTINA J. RUDINSKY, HUSBAND AND WIFE;
PITRE PROPERTIES LIMITED PARTNERSHIP, AN ARIZONA LIMITED LIABILITY
PARTNERSHIP; ON-CALL SOLUTIONS, LLC, AN ARIZONA LIMITED LIABILITY
COMPANY; MICHAEL L. MCCARTNEY, TRUSTEE OF THE MICHAEL L.
MCCARTNEY REVOCABLE LIVING TRUST DATED DECEMBER 27, 2005; DAVID
HOCHBERG AND ELYSE HOCHBERG, HUSBAND AND WIFE; JORDAN GREEN
AND STEPHANIE GREEN, HUSBAND AND WIFE; LAWRENCE R. KUSHNER AND
EILEEN S. KUSHNER, HUSBAND AND WIFE; DEBRA J. GOODWIN, A SINGLE
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
WOMAN; LYNDA L. GIBSON, AN UNMARRIED WOMAN; TING AND LING
DEVELOPMENT GROUP, LLC, AN ARIZONA LIMITED LIABILITY COMPANY;
FIRST NATIONAL BANK OF ARIZONA, A NATIONAL BANKING ASSOCIATION;
ING BANK, FSB, A FEDERAL SAVINGS BANK; MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC., A DELAWARE CORPORATION; WASHINGTON
MUTUAL BANK, F.A., A FEDERAL SAVINGS BANK; WELLS FARGO BANK, N.A.,
A NATIONAL ASSOCIATION; COLE TAYLOR BANK, A FOREIGN CORPORATION;
BANK OF AMERICA, N.A., A NATIONAL BANKING ASSOCIATION; M&I BANK,
FSB, A FEDERAL SAVINGS BANK; NATIONAL CITY MORTGAGE, A DIVISION OF
NATIONAL CITY BANK, A NATIONAL BANKING ASSOCIATION; ABN AMRO
MORTGAGE GROUP, INC., A DELAWARE CORPORATION; HARRIS BANK, N.A.,
A NATIONAL BANKING ASSOCIATION; CITIMORTGAGE, INC., A NEW YORK
CORPORATION; PERL MORTGAGE, INC., AN ILLINOIS CORPORATION;
CHARLES SCHWAB BANK, N.A., A NATIONAL BANKING ASSOCIATION;
COUNTRYWIDE BANK, FSB, A FEDERAL SAVINGS BANK; FIRST HORIZON
HOME LOANS, A DIVISION OF FIRST TENNESSEE BANK, A NATIONAL
BANKING ASSOCIATION; PREMIER FINANCIAL SERVICES, INC., AN ARIZONA
CORPORATION,
Defendants/Appellants.
No. CV-13-0378-PR
Filed August 26, 2014
Appeal from the Superior Court in Maricopa County
The Honorable John A. Buttrick
No. CV2008-028378
REVERSED AND REMANDED
Opinion of the Court of Appeals, Division One
233 Ariz. 442, 314 P.3d 569 (App. 2013)
VACATED
COUNSEL:
Michael J. Holden (argued), Barry A. Willits, Holden Willits PLC, Phoenix;
and Jonathan Sternberg, Jonathan Sternberg, Attorney, P.C., Kansas City,
MO, for The Weitz Company, L.L.C.
Charles W. Wirken (argued), Scott A. Malm, Gust Rosenfeld P.L.C.,
Phoenix, for Nicholas Heth, et al.
2
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
Michael R. Scheurich, Dickinson Wright/Mariscal Weeks, Phoenix, for
Amicus Curiae Land Title Association of Arizona
John J. Egbert, Jennings, Strouss & Salmon, P.L.C., Phoenix, for Amici
Curiae BMO Harris Bank and Arizona Bankers Association
James L. Csontos, Jennings, Haug & Cunningham, LLP, Phoenix, for Amici
Curiae Arizona Builders’ Alliance
Gaye L. Gould, Sharon B. Shively, Matthew B. Meaker, James W.
Armstrong, Sacks Tierney P.A., for Amici Curiae American Subcontractors
Association and American Subcontractors Association of Arizona
JUSTICE TIMMER authored the opinion of the Court, in which VICE
CHIEF JUSTICE PELANDER, JUSTICE BERCH, JUSTICE BRUTINEL, and
JUDGE KELLY joined.
JUSTICE TIMMER, opinion of the Court:
¶1 Arizona Revised Statutes § 33-992(A) gives mechanics’ liens
priority over liens recorded after construction begins on real property. We
are asked to decide whether that statute precludes assignment by equitable
subrogation of a lien that attached before construction began on the project
at issue. We hold that it does not. Additionally, although a third party
generally must discharge the entire lien obligation to qualify for equitable
 Chief Justice Scott Bales has recused himself from this case. Pursuant to
Article 6, Section 3 of the Arizona Constitution, the Honorable Virginia C.
Kelly, Judge of the Court of Appeals, Division Two, was designated to sit
in this matter.
3
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
subrogation, when a single mortgage burdens multiple parcels, a third
party may be entitled to equitable subrogation when that party has paid a
pro rata amount of the obligation and obtained a full release of the parcel
at issue from the mortgage.
I. BACKGROUND
¶2 We view the evidence and its reasonable inferences in the
light most favorable to Appellants as the parties against whom partial
summary judgment was granted. See Andrews v. Blake, 205 Ariz. 236, 240
¶ 12, 69 P.3d 7, 11 (2003).
¶3 First National Bank of Arizona loaned approximately $62
million over time to The Summit at Copper Square, LLC to construct a high-
rise commercial and condominium project in Phoenix. First National
secured its initial loan of $44 million with a deed of trust against the
property in April 2005; eight months later it increased that loan by
approximately $8 million, recording a modification to its deed of trust. First
National recorded a second deed of trust in February 2007 to secure
approximately $10 million in additional loaned funds. First National
agreed with Summit to release condominium units from both deeds of trust
upon payment of release prices set forth in the parties’ loan agreements as
third parties purchased completed units. Our record does not contain the
4
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
loan agreements, and nothing reflects how the release prices would be
calculated.
¶4 The Weitz Company, L.L.C. was the general contractor for the
project and began construction in November 2005. For nearly two years,
Summit timely paid Weitz, which in turn paid its subcontractors and
suppliers. As the project neared completion, however, Summit failed to
pay Weitz approximately $4 million.
¶5 Beginning in September 2007, before the project was finished,
Summit sold ninety-one completed condominium units to buyers who
either financed their purchases or paid cash. Some of the purchase money
for these units was applied to the construction loan, resulting in First
National releasing these units from both its deeds of trust. Deeds of trust
securing the owners’ purchase money loans were then recorded against the
condominium units. The lenders required their deeds of trust to be in first-
lien position as a condition for funding. Once the units were sold, they were
treated as separate parcels of real estate. A.R.S. § 33-1204(A).
¶6 In May 2008, after Summit had sold eighty-five of the ninety-
one units at issue, Weitz recorded a mechanics’ lien against the project. Six
months later, Weitz sued to foreclose its lien against Summit, the unit
owners, and their lenders.
5
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
¶7 The owners and lenders (“Owners and Lenders”) contested
the foreclosure and moved for partial summary judgment. They asserted
that because they had paid the portions of the construction loan allocated
to their units, they were equitably subrogated to First National’s April 2005
deed of trust and therefore had priority over Weitz’s mechanics’ lien.1
Weitz filed a cross-motion for partial summary judgment, arguing that
A.R.S. § 33-992(A) precludes equitable subrogation or, alternatively, that
the Owners and Lenders were not eligible to invoke the doctrine because
they did not fully discharge Summit’s obligation to First National.
¶8 The trial court agreed with Weitz’s alternative argument. The
court then ruled that, because Weitz indisputably commenced work on the
project before any units were sold, A.R.S. § 33-992(A) gave Weitz’s
mechanics’ lien priority. The parties subsequently allocated percentages of
Weitz’s lien among the sold units, and the court entered judgment
foreclosing Weitz’s lien against those units. Additionally, because Summit
1 Weitz conceded in the trial court that First National’s April 2005
deed of trust was superior to Weitz’s mechanics’ lien. But neither Weitz
nor the Owners and Lenders addressed whether the December 2005
modification to the deed of trust had priority over Weitz’s lien, and we do
not address that issue.
6
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
failed to pay its remaining obligation, First National’s successor-in-interest
foreclosed on the unsold remainder of the project.
¶9 The court of appeals agreed that Weitz’s lien had priority, but
for a different reason. It held that § 33-992(A) precludes application of
equitable subrogation to give the Owners and Lenders lien priority over
Weitz’s lien. Weitz Co. v. Heth, 233 Ariz. 442, 446–47 ¶¶ 12–16, 314 P.3d 569,
573–74 (App. 2013).
¶10 We granted review because the interplay between § 33-992(A)
and application of the equitable subrogation doctrine presents a legal issue
of statewide importance. We have jurisdiction pursuant to Article 6,
Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.
II. DISCUSSION
A.
¶11 We review the trial court’s grant of partial summary
judgment de novo. See Andrews, 205 Ariz. at 240 ¶ 12, 69 P.3d at 11 (2003).
B.
¶12 Arizona applies “equitable subrogation” as set forth in
Restatement (Third) of Property: Mortgages § 7.6(a) (1997) (“Restatement”):
One who fully performs an obligation of another, secured by
a mortgage, becomes by subrogation the owner of the
obligation and the mortgage to the extent necessary to
7
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
prevent unjust enrichment. Even though the performance
would otherwise discharge the obligation and the mortgage,
they are preserved and the mortgage retains its priority in the
hands of the subrogee.
See Sourcecorp, Inc. v. Norcutt, 229 Ariz. 270, 273 ¶ 12, 274 P.3d 1204, 1207
(2012) (adopting the Restatement approach). Under this doctrine, for
example, a junior lienholder who fully satisfies a debt secured by a superior
mortgage on real property may be equitably subrogated to that mortgage
to the extent necessary to prevent an intervening lienholder from receiving
an unearned windfall afforded by an advancement in lien priority.2 See id.at 275–76 ¶¶ 26–27, 274 P.3d at 1209–10; Restatement § 7.6 cmt. a. If
equitable subrogation is permitted, the junior lienholder, now the subrogee,
is entitled to obtain and record a written assignment of the superior
lienholder’s rights to place others on notice of the subrogation. Restatement
§ 7.6 cmt. a.
¶13 This case presents our first opportunity to address the
interplay between equitable subrogation and the priority granted to
mechanics’ liens by § 33-992(A), which provides, in relevant part, as
follows:
2 Throughout this opinion, we use the terms “mortgage,” “deed of
trust,” and “lien” interchangeably.
8
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
The liens provided for in this article . . . are preferred to all
liens, mortgages or other encumbrances upon the property
attaching subsequent to the time the labor was commenced or
the materials were commenced to be furnished except any
mortgage or deed of trust that is given as security for a loan
made by a construction lender . . . if the mortgage or deed of
trust is recorded within ten days after labor was commenced
or the materials were commenced to be furnished.
Until this case, our court of appeals has consistently acknowledged the
viability of equitable subrogation in the mechanics’ lien context. See Cont’l
Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC, 227 Ariz. 382,
385 ¶ 9, 258 P.3d 200, 203 (App. 2011); Lamb Excavation, Inc. v. Chase
Manhattan Mortg. Corp., 208 Ariz. 478, 480 ¶ 6, 95 P.3d 542, 544 (App. 2004);
Nw. Fed. Sav. & Loan v. Tiffany Constr. Co., 158 Ariz. 100, 104–05, 761 P.2d
174, 178–79 (App. 1988); Peterman-Donnelly Eng’rs & Contractors Corp. v.
First Nat’l Bank of Ariz., 2 Ariz. App. 321, 325–26, 408 P.2d 841, 845–46 (1965).
¶14 The court of appeals in this case did not address Northwest
Federal Savings & Loan, and either distinguished its other decisions or
rejected them as contrary to § 33-992(A). Weitz, 233 Ariz. at 446–47 ¶¶ 13–
16, 314 P.3d at 573–74. Relying substantially on the Nevada Supreme
Court’s decision in Fontainebleau Las Vegas Holdings, LLC v. A1 Concrete
Cutting & Demolition, LLC, 289 P.3d 1199 (Nev. 2012), which addressed a
statute similar to § 33-992(A), the court of appeals held that the statute
9
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
precludes equitable subrogation because subrogation would grant lien
priority to an encumbrance recorded after laborers and materialmen had
begun work on the property. Weitz, 233 Ariz. at 448–49 ¶¶ 21–24, 314 P.3d
at 575–76. We disagree with this reasoning for several reasons.
¶15 First, it misapprehends how equitable subrogation operates.
When equitable subrogation occurs, the superior lien and attendant
obligation are not discharged but are instead assigned by operation of law
to the one who paid the obligation. Restatement § 7.6 cmt. a; see also United
States v. Munsey Trust Co., 332 U.S. 234, 242 (1947) (“One who rests on
subrogation stands in the place of one whose claim he has paid, as if the
payment giving rise to the subrogation had not been made.”); Sourcecorp,
229 Ariz. at 272 ¶ 5, 274 P.3d at 1206 (defining “equitable subrogation” as
“the substitution of another person in the place of a creditor, so that the
person in whose favor it is exercised succeeds to the rights of the creditor
in relation to the debt” (quoting Mosher v. Conway, 45 Ariz. 463, 468, 46 P.2d
110, 112 (1935))). The subrogee is in the same position as if the superior
lienholder had expressly assigned the superior lien to the subrogee. See
Sourcecorp, 229 Ariz. at 275 ¶ 21, 274 P.3d at 1209; Restatement § 7.6 cmt. a.
Because an equitably subrogated lien “attaches” when the superior lien was
recorded, § 33-992(A) does not require that an intervening mechanics’ lien
10
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
be given priority. Cf. Restatement § 7.6 cmt. f, illus. 30 (recognizing that one
who discharges the debt of a lienholder with priority over a mechanics’ lien
can be equitably subrogated to the superior lien even when applicable law
provides that mechanics’ liens have priority from the time work on the
contract commenced).
¶16 Second, nothing in § 33-992(A) suggests that the legislature
intended to preclude equitable subrogation in the mechanics’ lien context.
The statute’s purpose is to protect the rights of laborers and materialmen
who enhance the value of property. Collins v. Stockwell, 137 Ariz. 416, 418,
671 P.2d 394, 396 (1983). Equitable subrogation does not prejudice those
rights. When a lien that is superior to a mechanics’ lien is assigned to
another through equitable subrogation, the mechanics’ lien remains in the
same position it occupied before subrogation. See Sourcecorp, 229 Ariz. at
276 ¶ 26, 274 P.3d at 1210 (noting that intervening lienholders remain in the
same position after subrogation as before); Restatement § 7.6 cmt. e
(providing that an intervening lienholder’s priority position “is simply
unchanged” through equitable subrogation).
¶17 Third, permitting equitable subrogation of a lien that is
superior to a mechanics’ lien is consistent with the legislature’s treatment
of junior lienholders’ interests in foreclosure actions. Section 33-723
11
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
provides that a junior lienholder “shall be entitled to an assignment of all
the [superior lienholder’s] interest” by paying that person or entity the
amount secured by the superior mortgages or deeds of trust together with
interest and costs. Because the statute makes no exception for an
intervening mechanics’ lien, § 33-723 authorizes a junior lienholder to
assume a superior lien position over any mechanics’ lien by discharging the
superior lien. We have no reason to conclude that the legislature intended
to preclude assignment of a superior lien by equitable subrogation in the
mechanics’ lien context while permitting an assignment by statutory
subrogation in a foreclosure action.
¶18 We hold that § 33-992(A) does not preclude equitable
subrogation of a lien that is superior to a mechanics’ lien.
C.
¶19 Weitz alternatively argues, and the trial court agreed, that the
Owners and Lenders cannot be equitably subrogated to First National’s
April 2005 deed of trust because they did not fully discharge Summit’s
obligation to First National, and Arizona does not permit partial equitable
subrogation. The Owners and Lenders counter that because they paid
Summit’s obligation as allocated to the sold condominium units and First
National released those units from its deeds of trust, they have discharged
12
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
their portion of the lien in full, and therefore partial satisfaction of the
construction loan does not preclude equitable subrogation.
¶20 Equitable subrogation is generally permitted only when a
person fully discharges a debt secured by a mortgage. See Sourcecorp, 229
Ariz. at 272 ¶ 5, 274 P.3d at 1206. “Partial subrogation to a mortgage is not
permitted,” because it “would have the effect of dividing the security
between the original obligee and the subrogee, imposing unexpected
burdens and potential complexities of division of the security and
marshaling upon the original mortgagee.” Restatement § 7.6(a) cmt. a; see
Dietrich Indus. v. United States, 988 F.2d 568, 572 (5th Cir. 1993) (reasoning
that full discharge of debt is required to prevent prejudice to “the senior
lienholder’s attempt to collect the entire indebtedness secured by the senior
lien” (citations omitted)); Byers v. McGuire Props., Inc., 679 S.E.2d 1, 8 (Ga.
2009) (same); Providence Inst. for Sav. v. Sims, 441 S.W.2d 516, 519 (Tex. 1969)
(to same effect).
¶21 We agree with the Owners and Lenders, however, that a
prospective subrogee is required to discharge only the portion of an
obligation that is secured by the property at issue. The complexities and
equities attendant to dividing security between the original obligee and the
subrogee do not exist when the original obligee has released its lien against
13
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
the property. Cf. Dietrich Indus., 988 F.2d at 572–73 (deciding that a real
estate purchaser could be equitably subrogated to a senior lien even though
the purchaser partially paid the obligation because the senior lienholder
released its lien and therefore would not suffer prejudice from
subrogation); Byers, 679 S.E.2d at 8 (concluding that a purchase money
lender’s partial payment of a construction loan secured by a single
mortgage on multiple parcels in a housing subdivision did not preclude
equitable subrogation because the construction lender released the parcel
at issue from its lien and would not suffer prejudice from the subrogation);
73 Am. Jur. 2d Subrogation § 25 (updated May 2014) (noting that the rule
prohibiting partial subrogation “does not apply where the reason for it does
not exist as where there is no possibility that the creditor could be . . .
prejudiced”). And permitting equitable subrogation when a party
discharges only part of an obligation secured by a single mortgage on
multiple properties but obtains a release of the lien on the property at issue
coincides with the Restatement’s expansive view of equitable subrogation.
See Sourcecorp, 229 Ariz. at 273 ¶ 10, 274 P.3d at 1207. Any inequities in such
cases are appropriately considered when deciding whether equitable
subrogation is needed to prevent unjust enrichment to an intervening
lienholder.
14
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
¶22 We conclude that equitable subrogation of a mortgage is
prohibited when it would divide security between the original obligee and
a payor who discharges part of the obligation. But when the obligation is
secured by a single mortgage on multiple properties and the obligee
releases the property at issue from the mortgage lien in return for discharge
of the entire obligation allocated to that property, equitable subrogation is
permitted. Our holding is consistent with cases applying subrogation in
the guarantor/creditor context. See, e.g., W. Coach Corp. v. Rexrode, 130 Ariz.
93, 97, 634 P.2d 20, 24 (App. 1981) (concluding that the rule disallowing
subrogation of a guarantor to a creditor’s rights unless full payment of debt
is made is inapplicable to subrogation claims that would not impair the
creditor’s rights). Because First National released the sold units from its
deeds of trust and ceased looking to those properties to satisfy Summit’s
remaining obligation, equitable subrogation is available.
D.
¶23 Weitz also argues that the court should not permit equitable
subrogation because doing so would prejudice Weitz’s interests. See
Sourcecorp, 229 Ariz. at 275 ¶ 25, 274 P.3d at 1209 (holding that equitable
subrogation is permitted only if it will not materially prejudice the
intervening lienholders’ interests). Weitz contends it would be prejudiced
15
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
because it completed construction only after First National and Summit
promised payment from the condominium unit sales, and the Owners and
Lenders failed to timely assert their equitable subrogation rights, thereby
lulling Weitz into thinking it had first-lien priority while it completed
construction.
¶24 Weitz failed to preserve these arguments for our review. It
raised the former argument for the first time in its response to the Owners’
and Lenders’ second motion for reconsideration of the partial summary
judgment ruling. The trial court did not permit a reply or oral argument
before denying the motion, and the Lenders did not have an opportunity to
address this argument or the supporting evidence. See Best Choice Fund,
LLC v. Low & Childers, P.C., 228 Ariz. 502, 508 ¶ 17 n.3, 269 P.3d 678, 684 n.3
(App. 2011) (not considering an issue raised “for the first time in a motion
for reconsideration if the opposing party is deprived of an opportunity to
respond with applicable evidence and arguments.” (citation omitted)).
Weitz asserted the latter argument for the first time before this Court and
has therefore waived it for purposes of our review. See Estate of DeSela v.
Prescott Unified Sch. Dist. No. 1, 226 Ariz. 387, 389 ¶ 8, 249 P.3d 767, 769
(2011). Neither the trial court nor the court of appeals addressed these
16
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
arguments, and we decline to do so in the first instance. Weitz may present
these arguments to the trial court on remand.
E.
¶25 Finally, Weitz argues that it would not receive an unearned
windfall by having first-lien priority because it built the condominium units
and should be paid for its work. The “windfall” sought to be avoided by
equitable subrogation, however, does not relate to a lienholder’s
entitlement to payment of the outstanding debt. Rather, the “windfall”
addresses the equity of advancing a lienholder’s lien priority after a third
party pays off a superior obligation. See Restatement § 7.6 cmt. a (“If there
were no subrogation, . . . junior interests would be promoted in priority,
giving them an unwarranted and unjust windfall.”).
¶26 That Weitz is owed money for completing the condominium
units does not mean it is entitled to a promotion in lien priority. Cf.
Sourcecorp, 229 Ariz. at 275 ¶¶ 23–24, 274 P.3d at 1209 (stating that junior
lienholder would receive a windfall by being promoted in priority unless
homebuyers were equitably subrogated to the superior mortgage they paid
off). But see Ex parte Lawson, 6 So. 3d 7, 15–16 (Ala. 2008) (holding that even
if Restatement § 7.6 applies, purchase-money lenders could not subrogate
to a construction loan because the seller would reap the benefit of a
17
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
subcontractor’s work without paying for it). If Weitz’s argument were
correct, equitable subrogation would never apply as junior lienholders are
always entitled to payment. Because equitable subrogation is not
precluded in the mechanics’ lien context, we reject a bright-line rule that
homebuyers and their lenders can never be equitably subrogated to a
construction lien that occupies a superior position to a mechanics’ lien.
Instead, whether equitable subrogation is warranted should hinge on the
unique facts of each case.
III. CONCLUSION
¶27 Section 33-992(A) does not preclude equitable subrogation
that results in the subrogee, through assignment by operation of law,
obtaining lien priority over a mechanics’ lien. Accordingly, we hold that
when a single mortgage is recorded against multiple parcels, a third party
is not precluded from attaining equitable subrogation rights when it pays
the pro rata amount of the superior obligation and obtains a full release of
the parcel at issue from the mortgage lien. We therefore vacate the court of
appeals’ opinion and reverse the trial court’s partial summary judgment.
We remand to the trial court to decide whether equitable subrogation is
appropriate in this case. The court should consider, among other things,
18
THE WEITZ COMPANY v. NICHOLAS HETH et al.
OPINION OF THE COURT
whether equitable subrogation is needed to prevent Weitz from becoming
unjustly enriched by a promotion in lien priority.
19