Deutsche Bank v. Pheasant Grove ( 2018 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
DEUTSCHE BANK NATIONAL TRUST COMPANY, Plaintiff/Appellant,
v.
PHEASANT GROVE LLC, Defendant/Appellee.
No. 1 CA-CV 16-0663
FILED 8-23-2018
Appeal from the Superior Court in Maricopa County
No. CV2015-005125
The Honorable Douglas Gerlach, Judge
AFFIRMED
COUNSEL
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
OPINION
Judge Randall M. Howe delivered the opinion of the Court, in which
Presiding Judge James P. Beene and Judge Kent E. Cattani joined.
DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
H O W E, 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
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
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 Procedure 15
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
and 56(f) (2016)1 for additional time to conduct discovery and filed a
“countermotion” for leave to amend the complaint to clarify the declaratory
relief sought.
¶9 The trial court denied the Bank’s motions and granted
summary judgment in Pheasant Grove’s favor:
Almost 12 years after the fact—11 years, nine-and-a-half
months after the fact, to be precise—Deutsche Bank as a
successor wants to be relieved of what amounts to its own
mistake. The statute of limitations ran on that claim some time
ago. There’s nothing in the record that would warrant the
Court to recognize a tolling of the statute of limitations, and
otherwise if this is something that goes up on appeal, I’ll
simply adopt the other reasons set forth in the Defendant’s
motion and reply memorandum.
¶10 The trial court entered a final judgment and the Bank timely
appealed.
DISCUSSION
1. Rule 56(f) Motion
¶11 The Bank argues that the trial court erred by denying its Rule
56(f) motion. We review the denial of a Rule 56(f) request for an abuse of
discretion. Simon v. Safeway, Inc., 217 Ariz. 330, 332 ¶ 4 (App. 2007). The trial
court abuses its discretion if it makes an error of law or the record does not
substantially support its decision. MM&A Prods., LLC v. Yavapai-Apache
Nation, 234 Ariz. 60, 66 ¶ 18 (App. 2014).
¶12 A party opposing summary judgment may seek additional
discovery before responding to the motion for summary judgment. See
generally Ariz. R. Civ. P. 56(f) (2016). Rule 56(f)’s “major objective” is “to
insure that a diligent party is given a reasonable opportunity to prepare his
case.” Simon, 217 Ariz. at 333 ¶ 6 (citations omitted). Accordingly, the
motion must be accompanied by an affidavit “describing the reasons
justifying the delay,” including “the evidence outside the party’s control,
its location, what the party believes the evidence will show, the discovery
1 The Arizona Rules of Civil Procedure were revised effective January
1, 2017, to reflect comprehensive stylistic and substantive changes. To be
consistent with the record below and briefing on appeal, we cite the former
rules.
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
method the party wishes to use, and an estimate of the time required to
complete the discovery.” Id. (citation omitted).
¶13 The trial court did not abuse its discretion in denying the
motion. In the Bank’s Rule 56(f) affidavit, counsel stated that it would
require two months to complete discovery. The trial court did not rule on
the Rule 56(f) motion until two months later, effectively giving the Bank the
two months it stated that it needed, even though the court technically
denied the motion. As the trial court noted, the request was “in effect, moot
because Deutsche Bank has had the benefit of the two months that it said
were required.” In its ruling, the trial court nevertheless allowed the Bank
to file a new, comprehensive response and statement of facts, but the Bank
did not file a new statement of facts and its second response largely restated
its first. In the trial court and on appeal, the Bank has not explained why
the evidence it hoped to discover could not have been obtained during the
eight months preceding the summary judgment motion. As such, Deutsche
Bank has not presented a prima facie case that it should have been allotted
additional time for discovery. Thus, the trial court did not abuse its
discretion by denying the Rule 56(f) motion.
2. Summary Judgment: Declaratory Judgment Claim
¶14 The Bank contends that the trial court erred in granting
summary judgment against its claim that it was entitled to a declaratory
judgment stating that its interest in Lot 9 was superior to Pheasant Grove’s
interest.2 The Bank argues that Pheasant Grove had constructive notice of
its interest in Lot 9, and because the Bank was seeking to enforce the 2003
DOT against Pheasant Grove’s interest, the trial court should have applied
the six-year limitations period under A.R.S. § 12–548, which applies to
actions for debt.3
2 The Bank does not dispute the granting of summary judgment based
on the reformation or quiet title claims.
3 Although the complaint did not specifically raise constructive notice,
it alleged facts to support its contention that Pheasant Grove had
constructive notice that the 2003 DOT encumbered Lots 8 and 9; thus, the
complaint sufficiently raised this issue. See Cullen v. Auto-Owners Ins. Co.,
218 Ariz. 417, 419 ¶ 6 (2008) (citation omitted) (“Arizona follows a notice
pleading standard, the purpose of which is to give the opponent fair notice
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
¶15 A motion for summary judgment should be granted “if the
facts produced in support of the claim or defense have so little probative
value, given the quantum of evidence required, that reasonable people
could not agree with the conclusion advanced by the proponent of the claim
or defense.” Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990). We review de
novo whether any genuine issues of material fact exist and whether the trial
court properly applied the law. Parkway Bank & Trust Co. v. Zivkovic, 232
Ariz. 286, 289 ¶ 10 (App. 2013). The application of the statute of limitations,
including the question of accrual, is also reviewed de novo. Cook v. Town of
Pinetop-Lakeside, 232 Ariz. 173, 175 ¶ 10 (App. 2013).
¶16 The Bank argues that a six-year statute of limitations under
A.R.S. § 12–548(A)(1) applies to the declaratory relief claim premised on
constructive notice. Section 12–548(A)(1) provides that “[a]n action for debt
shall be commenced and prosecuted within six years after the cause of
action accrues . . . if the indebtedness is evidenced by or founded on . . . [a]
contract in writing that is executed in this state.” The Bank contends that it
filed its complaint with this claim within six years of the claim’s accrual.
The Bank believes that the claim accrued when Pheasant Grove received
title to the Property in 2011, when a proper title search would have revealed
to Pheasant Grove the Bank’s 2003 DOT. Because the Bank filed its
complaint in August 2015, it argues that it satisfied A.R.S. § 12–548(A)(1)’s
time limit.
¶17 In determining the limitations period applicable to a claim for
declaratory relief, we examine the substance of the action “to identify the
relationship out of which the claim arises and the relief sought.” Canyon del
Rio Inv’rs, L.L.C. v. City of Flagstaff, 227 Ariz. 336, 341 ¶ 21 (App. 2011)
(citation omitted). The Bank seeks a declaration that Pheasant Grove holds
title to Lot 9 subject to the Bank’s 2003 DOT, which is nothing more than an
action to reform the 2003 DOT to include Lot 9 in the legal description. See
Cosgrove v. Cade, 468 S.W.3d 32, 35 (Tex. 2015) (noting that a plaintiff’s
declaratory relief claim asking the court to recognize mineral rights
mistakenly left out of a deed was “in effect a suit to reform the deed”). The
substance of the Bank’s action arises out of Washington Mutual’s mistaken
omission of Lot 9 from the 2003 DOT. As such, the declaratory relief theory
is based on that mistaken omission, and reformation is not “merely
of the nature and basis of the claim and indicate generally the type of
litigation involved.”).
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
incidental to the ultimate relief sought.”4 See Bradbury v. Higginson, 140 P.
254, 256 (Cal. 1914). If the trial court were to grant the Bank’s request for
relief, “the legal effect would be identical to that involved in a successful
reformation.” See N. Star Reinsurance Corp. v. Super. Ct., 13 Cal. Rptr. 2d 775,
782 (App. 1992). Because the three-year statute of limitations bars the claim
for reformation, see Transam. Ins. Co. v. Trout, 145 Ariz. 355, 358 (App. 1985),
the declaratory relief claim is time-barred as well, cf. Canyon del Rio, 227
Ariz. at 341 ¶ 21 (“Declaratory judgment claims filed within the relevant
analogous limitations period are treated as timely.”).5
¶18 The Bank also argues that its declaratory judgment claim
could have been premised on the doctrine of replacement of mortgages. The
replacement doctrine “allows a senior lender that discharges its mortgage
of record and records a replacement mortgage to keep its priority as against
the holder of an intervening interest in the property.” Cont’l Lighting &
Contracting, Inc. v. Premier Grading & Utilities, LLC, 227 Ariz. 382, 387 ¶ 17
(App. 2011) (emphasis added). “Because an intervening lienholder
maintains the same position it had before the replacement lender satisfied
the pre-existing obligation, it suffers no prejudice.” Brimet II, LLC v. Destiny
Homes Mktg., LLC, 231 Ariz. 457, 459–60 ¶ 11 (App. 2013). The problem with
the doctrine’s application to this case, however, is that no “intervening
interest” exists. Washington Mutual recorded a DOT in 2002 against Lots 8
and 9, and released that lien in 2003. Washington Mutual then recorded a
DOT only against Lot 8, which the Bank acquired in 2003. FNB did not
record its DOT against Lots 8 and 9 until 2006. Thus, FNB’s DOT cannot be
an “intervening interest” between the 2002 and 2003 DOTs, and the
replacement doctrine is inapplicable as a matter of law.
4 The Bank explained during oral argument in the trial court that
“[t]he problem is that if the mistake was not made, we would have an
interest in both [Lots 8 and 9].”
5 Although not argued in its opening brief, the Bank claims in its reply
brief that, in the alternative, the declaratory relief claim’s limitations period
was four years under A.R.S. § 12–550. We generally do not consider
arguments raised for the first time in a reply brief. Tucson Estates Prop.
Owners Ass’n, Inc. v. McGovern, 239 Ariz. 52, 55 n.4 ¶ 11 (App. 2016).
Moreover, the four-year limitations period is to be used when “no
limitation is otherwise prescribed[.]” A.R.S. § 12–550. Because we find that
the three-year statute of limitations applies, this argument fails.
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DEUTSCHE BANK v. PHEASANT GROVE
Opinion of the Court
3. Motion to Amend
¶19 The Bank argues that the trial court erred by denying leave to
amend the complaint to more specifically plead the declaratory relief claim.
The denial of a motion to amend is reviewed for an abuse of discretion. Alosi
v. Hewitt, 229 Ariz. 449, 452 ¶ 13 (App. 2012). Although leave to amend is
liberally granted, MacCollum v. Perkinson, 185 Ariz. 179, 185 (App. 1996), it
may be denied if the amendment would be futile, ELM Ret. Ctr., LP v.
Callaway, 226 Ariz. 287, 292 ¶ 26 (App. 2010). As discussed above, the court
correctly ruled that the statute of limitations barred the declaratory relief
claim. Accordingly, an amendment clarifying the declaratory relief sought
would have been futile, and the court did not abuse its discretion by
denying it. See Tovrea v. Nolan, 178 Ariz. 485, 490 (App. 1993).
CONCLUSION
¶20 For the foregoing reasons, we affirm. We award costs to
Pheasant Grove upon compliance with Arizona Rule of Civil Appellate
Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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