Brentwood v. Smith ( 2015 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
BRENTWOOD SCOTTSDALE LLC, an Arizona limited liability company,
Plaintiff/Appellee,
v.
DAVID JAMES SMITH, a married person dealing with his sole and
separate property, Defendant/Appellant.
No. 1 CA-CV 14-0067
FILED 2-19-2015
Appeal from the Superior Court in Maricopa County
No. CV2012-015393
The Honorable Lisa Daniel Flores, Judge
AFFIRMED
COUNSEL
Steve Brown & Associates, LLC, Phoenix
By Steven J. Brown, Steven D. Nemecek
Counsel for Plaintiff/Appellee
Law Offices of Matthew D. Rifat, LLP, San Diego, CA
By Matthew D. Rifat
Counsel for Defendant/Appellant
BRENTWOOD v. SMITH
Decision of the Court
MEMORANDUM DECISION
Judge Patricia K. Norris delivered the decision of the Court, in which
Presiding Judge Margaret H. Downie and Judge Randall M. Howe joined.
N O R R I S, Judge:
¶1 Defendant/Appellant David James Smith appeals summary
judgment in favor of Plaintiff/Appellee Brentwood Scottsdale, LLC on its
claim for a deficiency judgment. On appeal, Smith argues the superior
court should not have granted summary judgment to Brentwood because
it failed to show it was entitled to judgment as a matter of law. Smith also
argues the court impermissibly relied on arguments and facts Brentwood
raised for the first time in its reply in support of its summary judgment
motion. We disagree with Smith’s arguments and affirm the superior
court’s judgment in favor of Brentwood.
FACTS AND PROCEDURAL BACKGROUND
¶2 In 2005, El Presidio of Scottsdale, L.L.C. borrowed $9,310,000
from Archon Financial, L.P., to purchase Scottsdale, Arizona commercial
property. To evidence and secure the loan, El Presidio executed a Note and
a Deed of Trust, Assignment of Rents, Security Agreement, and Fixture
Filing. At the same time, Smith executed a guaranty in Archon’s favor
guarantying El Presidio’s obligations under the loan documents
(“Guaranty”).
¶3 Thereafter, Archon transferred the Note and Deed of Trust to
LaSalle Bank National Association; Bank of America, N.A., successor by
merger with LaSalle, transferred the Note and Deed of Trust to GCCFC
2005-GG5 East Vista Bonita Drive, LLC; and GCCFC transferred the Note
and Deed of Trust to Brentwood.
¶4 El Presidio defaulted under the Note and Deed of Trust and
eventually filed for bankruptcy. After obtaining an order from the
bankruptcy court lifting the automatic stay, the trustee under the Deed of
Trust sold the property at a trustee’s sale. Brentwood was the successful
bidder at the trustee’s sale. Because the fair market value of the property
was less than the unpaid balance under the Note as of the date of the
trustee’s sale, Brentwood sued Smith, as El Presidio’s guarantor, to recover
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BRENTWOOD v. SMITH
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a deficiency judgment. See Ariz. Rev. Stat. (“A.R.S.”) § 33-814 (2014).1
Thereafter, the superior court granted Brentwood’s motion for summary
judgment and entered a deficiency judgment against Smith.
DISCUSSION
I. Transfer of the Guaranty
¶5 Smith first argues Brentwood failed to meet its burden of
proof on summary judgment because it “offered no competent admissible
evidence” that it was the assignee and, thus, the owner of the Guaranty.
Viewing the facts in the light most favorable to Smith, as the non-moving
party, but determining de novo whether entry of summary judgment was
proper, we disagree. See Andrews v. Blake, 205 Ariz. 236, 240, ¶¶ 12-13, 69
P.3d 7, 11 (2003).
¶6 In general, transfer of a principal obligation operates as an
assignment of a related guaranty. See Restatement (Third) of Suretyship &
Guaranty § 13(5) (1996). Subject to certain exceptions not argued here, “an
assignment by the obligee of its rights against the principal obligor arising
out of the underlying obligation operates as an assignment of the obligee’s
rights against the secondary obligor arising out of the secondary
obligation.” Id. The comment to this section explains:
A secondary obligation, like a security interest,
has value only as an adjunct to an underlying
obligation. It can usually be assumed that a
person assigning an underlying obligation
intends to assign along with it any secondary
obligation supporting it. Thus, unless there is
agreement to the contrary or assignment is
prohibited pursuant to subsection (1),
assignment of the underlying obligation also
assigns the secondary obligation.
Restatement (Third) of Suretyship & Guaranty § 13 cmt. f. Other
jurisdictions have applied this general rule of law. See, e.g., LPP Mortgage,
Ltd. v. Boutwell, 36 So. 3d 497, 501 (Ala. 2009) (“[W]e are aware of the general
1Although the Arizona Legislature amended certain statutes
cited in this decision after the date of the events giving rise to this dispute,
the revisions are immaterial to the resolution of this appeal. Thus, we cite
to the current version of these statutes.
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rule that an assignment of a debt passes to the assignee any security for the
payment thereof, and a guaranty passes with the assignment of a note.”);
Kensington Partners, LLC v. Beal Bank Nevada, 715 S.E. 2d 491, 494 (Ga. Ct.
App. 2011) (“[T]ransfer of the underlying principal obligations operates as
an assignment of the guaranty.”); Wells Fargo Bank Minnesota, N.A. v.
Rouleau, 46 A.3d 905, 909, ¶ 10 (Vt. 2012) (“Because of a guaranty’s link to
the principal obligation, it follows that an obligee’s assignment of the
principal obligation is sufficient to manifest the requisite intent to assign
the guaranty.”) Applying this rule here, the assignment of the Note
operated as an assignment of the Guaranty.
¶7 Further, the Guaranty contains language supporting
application of this general rule. As relevant, the Guaranty states:
Guarantor hereby irrevocably and
unconditionally guarantees to Lender and its
successors and assigns the payment and
performance of the Guaranteed Obligations (as
herein defined) as and when the same shall be
due and payable . . . .
....
This Guaranty may be enforced by Lender and
any subsequent holder of the Note and shall not be
discharged by the assignment or negotiation of
all or part of the Note.
....
This Guaranty shall be binding upon and inure
to the benefit of the parties hereto and their
respective successors, assigns and legal
representatives . . . .
(Emphasis added.).
¶8 Because assignment of the Note operated as an assignment of
the Guaranty, Brentwood offered competent admissible evidence it was the
assignee and owner of the Guaranty.
II. Assignment of the Note
¶9 Smith next argues Brentwood failed to meet its burden of
proof on summary judgment because it “offered no competent admissible
evidence” that it was the assignee and, thus, the owner of the Note. In
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making this argument, Smith challenges the validity of the signatures on
the documents transferring the Note. Applying the applicable standards of
review, see supra ¶ 5, we disagree.
¶10 The Note, as a negotiable instrument, see A.R.S. § 47-3104
(2005), is subject to the Arizona statute governing “proof of signature” as
applied to transfers of negotiable instruments. That statute provides in
relevant part:
In an action with respect to an instrument, the
authenticity of, and authority to make, each
signature on the instrument is admitted unless
specifically denied in the pleadings. If the
validity of a signature is denied in the
pleadings, the burden of establishing validity is
on the person claiming validity, but the signature
is presumed to be authentic and authorized unless
the action is to enforce the liability of the
purported signer and the signer is dead or
incompetent at the time of trial of the issue of
validity of the signature.
A.R.S. § 47-3308(A) (2005) (emphasis added). Title 47 further provides that
“[w]henever this title creates a ‘presumption’ with respect to a fact, or
provides that a fact is ‘presumed’, the trier of fact must find the existence of
the fact unless and until evidence is introduced that supports a finding of
its nonexistence.” A.R.S. § 47-1206 (Supp. 2014).
¶11 We have analyzed the application of A.R.S. § 47-3308(A)
before, concluding:
Under this statute, where the effectiveness of a
signature is put in issue by a specific denial, the
signature is presumed to be genuine or
authorized, and the party claiming under the
signature is not put to his proof until the party
making the denial has produced “some
evidence” that would support a finding that the
signature is forged or unauthorized. . . . Further,
demonstrating the other party’s apparent lack
of evidence does not constitute producing
“evidence” of forgery or lack of authorization
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sufficient to rebut the presumption of A.R.S. §
47–3307(A)(2) [now, § 47-3308(A)].
Valley Bank of Nevada v. JER Mgmt. Corp., 149 Ariz. 415, 418-19, 719 P.2d 301,
304-05 (App. 1986);2 see also In re Connelly, 487 B.R. 230, 241 (Bankr. D. Ariz.
2013).
¶12 Section 47-3008 is practically identical to Uniform
Commercial Code (“U.C.C.”) section 3-308. The official comment to that
section explains as follows:
“Presumed” is defined in Section 1-201 and means
that until some evidence is introduced which would
support a finding that the signature is forged or
unauthorized, the plaintiff is not required to prove
that it is valid. The presumption rests upon the
fact that in ordinary experience forged or
unauthorized signatures are very uncommon,
and normally any evidence is within the control
of, or more accessible to, the defendant. The
defendant is therefore required to make some
sufficient showing of the grounds for the denial
before the plaintiff is required to introduce
evidence. The defendant’s evidence need not be
sufficient to require a directed verdict, but it
must be enough to support the denial by
permitting a finding in the defendant’s favor.
Until introduction of such evidence the
presumption requires a finding for the plaintiff.
U.C.C. § 3-308, cmt. 1 (emphasis added); see also 2 James J. White & Robert
S. Summers, Uniform Commercial Code § 17:6 (6th ed. 2010) (“Once denied,
the party claiming validity has the burden of proof, but this will almost
always be met prima facie since there is a rebuttable presumption under 3-
308(a) that the signature is ‘authentic and authorized.’”); 6B Anderson,
2Arizona Rule of Evidence 902 provides a list of items that are
self-authenticating and “require no extrinsic evidence of authenticity.”
That list includes “commercial paper, a signature on it, and related
documents” as well as “[a] signature, document, or anything else that a
statute declares to be presumptively or prima facie genuine or authentic.”
Ariz. R. Evid. 902(9)-(10).
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Uniform Commercial Code § 3-308:1 (3d. ed. 1983) (“The defendant is
therefore required to make some sufficient showing of the grounds for the
denial before the plaintiff is required to introduce evidence.”).3
¶13 Here, in support of its motion for summary judgment,
Brentwood offered the sworn declaration of its manager. The manager
avowed to the assignments of the Note and attached copies of the
documents evidencing each of the transfers. Section 47-3308(A) established
a presumption that the signatures on those documents were authorized and
authentic.
¶14 To create an issue of fact regarding the validity of the
signatures transferring the note under the statutory presumption, Smith
needed to present “some evidence” the signatures were unauthorized. In
responding to Brentwood’s motion, however, Smith produced no evidence
the signatures on the documents were not authorized. Accordingly, the
record before the superior court failed to so show a “genuine dispute as to
any material fact,” Ariz. R. Civ. P. 56(a), regarding the validity of the
signatures on the documents transferring the Note. Thus, the superior
court properly granted summary judgment to Brentwood on this issue.
III. Brentwood’s Reply in Support of Its Motion for Summary Judgment
¶15 Finally, Smith argues the superior court impermissibly
considered new arguments and facts raised by Brentwood for the first time
in its reply in support of its motion for summary judgment. We reject this
argument.
¶16 In support of its reply, Brentwood filed a supplemental
declaration avowing to additional facts and attaching additional
3Other jurisdictions have applied the presumption set forth in
U.C.C. § 3-308 to uphold the validity of signatures affixed to a document in
a representative capacity. See In re Phillips, 491 B.R. 255, 273 (Bankr. D. Nev.
2013) (when party challenges individual’s authority to sign under power of
attorney challenging party must introduce evidence to rebut presumption
of authority); U.S. Bank Nat’l Ass’n v. Dumas, 144 So. 3d 29, 40 (La. Ct. App.
2014), cert. denied 147 So. 3d 1119 (La. 2014) (bank was not required to
present corporate resolutions to prove authority of representatives signing
promissory note); In re Bass, 738 S.E. 2d 173, 177 (N.C. 2013) (mere assertion
that signature was unauthorized insufficient to rebut presumption of
validity).
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documentary evidence. Smith filed an objection to the reply, which the
superior court overruled.
¶17 Our review of the superior court’s summary judgment ruling
reveals the court relied on only one fact contained in the manager’s
supplemental declaration —that Brentwood possessed the originals of all
documents related to the loan. Brentwood merely introduced this fact to
rebut Smith’s responding arguments. Moreover, Smith did not object to
this portion of the manager’s supplemental declaration avowing that
Brentwood was in possession of the loan documents.
¶18 Further, even assuming the superior court should not have
relied on this fact, see Wells Fargo Bank, N.A. v. Allen, 231 Ariz. 209, 214, ¶
20, n.3, 292 P.3d 195, 200, n.3 (App. 2012), Brentwood was entitled to
summary judgment without it. See supra ¶¶ 8, 14. Therefore, any alleged
error by the superior court in considering this fact was harmless.4 See State
ex rel. Willey v. Whitman, 91 Ariz. 120, 127, 370 P.2d 273, 278 (1962) (to justify
the reversal of a case, there must not only be error, but it must be prejudicial
to the substantial rights of the person assigning this error).
4No error in either the admission or the
exclusion of evidence and no error or defect in
any ruling or order or in anything done or
omitted by the court or by any of the parties is
ground for granting a new trial or for setting
aside a verdict or for vacating, modifying or
otherwise disturbing a judgment or order,
unless refusal to take such action appears to the
court inconsistent with substantial justice. The
court at every stage of the proceeding must
disregard any error or defect in the proceeding
which does not affect the substantial rights of
the parties.
Ariz. R. Civ. P. 61.
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CONCLUSION
¶19 For the foregoing reason we affirm the superior court’s
judgment awarding Brentwood a deficiency judgment against Smith.
:ama
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