First United v. Four Corners ( 2016 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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
FIRST UNITED FUNDING, LLC, a Minnesota limited liability company,
Plaintiff/Appellee,
v.
FOUR CORNERS DEVELOPMENT, LLC, a Nevada limited liability
company; JEFF A. SHUMWAY, an individual,
Defendants/Appellants.
No. 1 CA-CV 15-0377
FILED 10-18-2016
Appeal from the Superior Court in Maricopa County
No. CV2010-029732
The Honorable J. Richard Gama, Judge (Retired)
AFFIRMED
COUNSEL
Quarles & Brady, LLP, Phoenix
By Michael S. Catlett, Julia J. Koestner
Counsel for Plaintiff/Appellee
Shumway Law Offices, PLC, Scottsdale
By Jeff A. Shumway
Counsel for Defendants/Appellants
FIRST UNITED v. FOUR CORNERS et al.
Decision of the Court
MEMORANDUM DECISION
Judge Margaret H. Downie delivered the decision of the Court, in which
Presiding Judge Patricia K. Norris and Judge Samuel A. Thumma joined.
D O W N I E, Judge:
¶1 Four Corners Development, LLC (“Four Corners”) and Jeff A.
Shumway (collectively, “Appellants”) appeal from the entry of summary
judgment in favor of First United Funding, LLC on First United’s claims
and from the dismissal of Appellants’ counterclaims. For the following
reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 Four Corners borrowed $1,730,000 from First United in 2007.
The promissory note Four Corners signed was secured by a deed of trust
against real property located in Scottsdale. Shumway personally
guaranteed payment of the note. In 2008, Four Corners and First United
divided the amount owing on the 2007 loan into two promissory notes.
¶3 After Appellants defaulted, a trustee’s sale was noticed on the
2007 deed of trust and held in August 2010. First United purchased the
Property for a credit bid of $750,000. First United thereafter sued
Appellants to recover the deficiency amount owed.
¶4 First United moved for partial summary judgment on its
breach of contract and breach of guaranty claims against Four Corners and
Shumway respectively. The superior court granted the motion, concluding
Appellants “failed to pay the sums due and owing,” thereby breaching the
underlying agreements.
¶5 First United subsequently filed an amended complaint to add
a defendant and a claim for unjust enrichment against a defendant who is
not a party to this appeal. Appellants answered the amended complaint
and, for the first time, alleged that the loan documents were not
authenticated and asserted counterclaims against First United for, among
other things, wrongful foreclosure and racketeering. See Ariz. Rev. Stat.
(“A.R.S.”) § 13-2314.04.
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FIRST UNITED v. FOUR CORNERS et al.
Decision of the Court
¶6 First United filed a motion to dismiss the counterclaims,
which the superior court granted. The court entered judgment in favor of
First United pursuant to Arizona Rule of Civil Procedure 54(b). This timely
appeal followed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).
DISCUSSION
I. Motion for Partial Summary Judgment
¶7 We review a grant of partial summary judgment de novo. See
Cramer v. Starr, 240 Ariz. 4, __, ¶ 8 (2016). “We review the facts in the light
most favorable to the party against whom summary judgment was
entered” and determine “whether any genuine issues of material fact exist”
and whether the trial court correctly applied the law. Comerica Bank v.
Mahmoodi, 224 Ariz. 289, 291, ¶ 13 (App. 2010).1 We consider “only the
evidence presented to the trial court when it addressed the motion.”
Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55, ¶ 8 (App. 2007).
A. Authentication of Documents
¶8 Appellants contend First United failed to authenticate the
“purported contracts.” First United responds that Appellants have waived
this issue on appeal by failing to assert an authenticity challenge when
opposing summary judgment.
¶9 First United filed the relevant documents in connection with
its motion for partial summary judgment. Appellants did not challenge
their authenticity — either when initially responding to the motion, or later,
when they filed a supplemental response after receiving additional time to
1 Before entering the judgment at issue in this appeal, the superior court
entered partial final judgment against La Jolla Holdings Limited
Partnership (“La Jolla”) and Shumway resulting from their default on a
different promissory note. Although La Jolla and Shumway appealed that
judgment, this Court affirmed. See First United Funding, L.L.C. v. La Jolla
Holdings Ltd. P’ship (“La Jolla”), 1 CA-CV 14-0659 (Ariz. App. April 19, 2016)
(mem. decision). We consider the La Jolla decision for persuasive value, but
it does not create legal precedent. See Ariz. R. Sup. Ct. 111(c). The “law of
the case” doctrine is inapplicable because La Jolla involved a different
defendant and a different note. See Powell-Cerkoney v. TCR-Montana Ranch
Joint Venture, II, 176 Ariz. 275, 279 (App. 1993) (law of the case doctrine does
not apply “if the prior decision did not actually decide the issue in
question”).
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FIRST UNITED v. FOUR CORNERS et al.
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conduct discovery. Appellants raised the authenticity issue only after the
court granted summary judgment. By waiting until after the court granted
summary judgment, Appellants waived their objection to the authenticity
of the loan documents. See Airfreight Express Ltd. v. Evergreen Air Ctr., Inc.,
215 Ariz. 103, 112, ¶ 26 (App. 2007) (objections to declarations untimely
when made after court ruled on motion for summary judgment); Trantor v.
Fredrikson, 179 Ariz. 299, 300 (1994) (“Because a trial court and opposing
counsel should be afforded the opportunity to correct any asserted defects
before error may be raised on appeal, absent extraordinary circumstances,
errors not raised in the trial court cannot be raised on appeal.”).
B. 2008 Loan Modification
¶10 Appellants next contend the court erred by treating the 2008
transaction as a modification of the 2007 loan.
¶11 In their answer to the original complaint, Appellants
admitted that (1) Four Corners executed the 2007 promissory note, (2)
Shumway executed the guaranty, and (3) the parties modified the 2007 loan
in the 2008 transaction. Appellants themselves characterized the 2008
transaction as a “modification” no fewer than 27 times in their answer. As
an example, paragraph 35 of First United’s complaint alleged:
On or about June 11, 2008, Four Corners and FUF agreed to
modify the 2007 Four Corners Note by bifurcating the amount
due thereunder to $1,330,000.
In their answer, Appellants stated:
Regarding paragraph 35, Defendants admit that the parties
agreed to modify the 2007 loan.
Additionally, when opposing the motion for partial summary judgment,
Appellants repeatedly called the 2008 transaction a loan “modification”
— including in the declaration Shumway submitted.
¶12 “Statements in a pleading are admissible against the party
making them as proof of facts admitted therein.” Brenteson Wholesale, Inc.
v. Ariz. Pub. Serv. Co., 166 Ariz. 519, 522 (App. 1990). As this Court has
explained:
The words of a party, like the words of any other witness, are
rarely conclusive. They may be disputed as inaccurate by
either. To this there are two exceptions. When a party by
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FIRST UNITED v. FOUR CORNERS et al.
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pleading or stipulation has agreed to a certain set of facts, he
may not contradict them. This is a rule not of evidence but of
pleading. When the parties have framed the issues for
resolution, they may not change them absent an amendment
of the pleadings or trial of the issue by consent. A party so
bound is often said to have made a judicial admission.
Black v. Perkins, 163 Ariz. 292, 293 (App. 1989); see also Armer v. Armer, 105
Ariz. 284, 288 (1970) (party who admitted certain property was community
property was precluded “[b]y the pleadings alone” from later objecting to
that characterization of the property); Schwartz v. Schwerin, 85 Ariz. 242, 249
(1959) (defendants who did not wish to be bound by answer should have
requested leave to amend and, by failing to do so, were bound by answer);
Bank of Am. Nat’l Tr. & Sav. Ass’n v. Maricopa Cty., 196 Ariz. 173, 176, ¶ 11
(App. 1999) (“Judicial admissions bind a party in a case to the allegations
made in its pleading, absent an amendment to the pleading.”).
¶13 When the superior court ruled on First United’s motion for
partial summary judgment, it properly relied on the repeated admissions
in the answer that the 2008 transaction was a loan modification. Reviewing
the matters before the superior court at the time of its ruling, see Brookover,
215 Ariz. at 55, ¶ 8, the court did not err by ruling that the 2008 transaction
modified the 2007 loan.
C. Fraudulent Inducement
¶14 Appellants argue the loans are voidable based on fraud. In
2010, First United’s president and principal pled guilty to bank fraud and
tax evasion and was sentenced to six years in federal prison. See United
States v. Johnston, No. Crim. 10-221 DSD, 2013 WL 5587951, at *1 (D. Minn.
Oct. 10, 2013), aff’d (8th Cir. Dec. 11, 2013). The Minnesota Supreme Court
described the fraudulent activity as follows:
First United acted as a conduit between borrowers and
lenders by making loans to borrowers and then selling
“participation” interests in those loans to financial
institutions. Beginning in 2002, First United began selling
participation interests that exceeded the amount of the
underlying loans (“oversold participations”), or that did not
rest on any underlying loans at all (“fictitious participations”).
Finn v. All. Bank, 860 N.W.2d 638, 642 (Minn. 2015). The superior court
acknowledged First United’s fraudulent activity, but concluded Appellants
“were not the victims of this scheme.”
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¶15 A party claiming fraudulent inducement has the option of
rescinding the contract or affirming the contract and suing for damages. See
Jennings v. Lee, 105 Ariz. 167, 171 (1969). “[A] party seeking to rescind a
contract must restore or offer to restore to the other party that which he has
received under the contract.” Id.
¶16 Appellants did not seek to affirm their contract with First
United. Although they sought rescission, Appellants have not returned or
offered to return the funds received from First United. Under these
circumstances, the superior court properly rejected Appellants’ fraudulent
inducement defense.2
II. Dismissal of Counterclaims
¶17 Appellants next challenge the dismissal of their counterclaims
for wrongful foreclosure and racketeering.3 We review the superior court’s
ruling de novo and will affirm only if Appellants “would not be entitled to
relief under any interpretation of the facts susceptible of proof.” Coleman v.
City of Mesa, 230 Ariz. 352, 356, ¶ 8 (2012), quoting Fid. Sec. Life Ins. Co. v.
State Dep’t of Ins., 191 Ariz. 222, 224, ¶ 4 (1998).
A. Wrongful Foreclosure
¶18 Appellants’ “wrongful foreclosure” counterclaim alleged that
the trustee’s sale was “wrongfully conducted.” The superior court properly
relied on A.R.S. § 33-811(C) as a basis for dismissing this claim.
2 Appellants rely on the Restatement (Second) of Contracts § 7 to argue
that a “contract induced by fraud is voidable by the party who was the
victim of the fraud” and cite three Arizona cases in support of their
contention. Each case, though, involved an action for rescission. See Berry
v. Robotka, 9 Ariz. App. 461, 462 (1969) (action by sellers to rescind contract
for sale of real estate); Horne v. Timbanard, 6 Ariz. App. 518, 519 (1967)
(action by salesman against broker to rescind agreement); Miller v. Boeger, 1
Ariz. App. 554, 555 (1965) (action by buyer to rescind real estate agreement).
As explained supra, Appellants have neither returned nor offered to return
the funds received from First United and therefore cannot maintain a
rescission claim as a matter of law.
3 Appellants asserted additional counterclaims in the superior court
but challenge only the dismissal of their counterclaims for wrongful
foreclosure and racketeering.
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FIRST UNITED v. FOUR CORNERS et al.
Decision of the Court
¶19 Claims relating to a trustee’s sale are “defined by the statutes
governing deeds of trust.” BT Capital, LLC v. TD Serv. Co. of Ariz., 229 Ariz.
299, 300, ¶ 9 (2012). A.R.S. § 33-811(C) states:
The trustor, its successors or assigns, and all persons to whom
the trustee mails a notice of a sale under a trust deed pursuant
to § 33-809 shall waive all defenses and objections to the sale
not raised in an action that results in the issuance of a court
order granting relief pursuant to rule 65, Arizona rules of
civil procedure, entered before 5:00 p.m. mountain standard
time on the last business day before the scheduled date of the
sale.
(Emphasis added.)
¶20 Because Appellants failed to enjoin the trustee’s sale, they
waived “any claims that are dependent on the sale.” Morgan AZ Fin., L.L.C.
v. Gotses, 235 Ariz. 21, 23–24, ¶ 7 (App. 2014). The “wrongful foreclosure”
counterclaim is dependent on the trustee’s sale. As such, the superior court
properly dismissed that claim.
B. Racketeering
¶21 Appellants also filed a counterclaim pursuant to A.R.S.
§ 13-2314.04, Arizona’s racketeering statute. A private cause of action for
racketeering is authorized as follows:
A person who sustains reasonably foreseeable injury to his
person, business or property by a pattern of racketeering
activity, or by a violation of § 13–2312 involving a pattern of
racketeering activity, may file an action in superior court for
the recovery of up to treble damages and the costs of the suit,
including reasonable attorney fees for trial and appellate
representation.
A.R.S. § 13-2314.04(A). To state a cause of action for civil racketeering, the
plaintiff must allege damages “proximately caused by the defendant’s
violation of a predicate [racketeering] act.” Rosier v. First Fin. Capital Corp.,
181 Ariz. 218, 222 (App. 1994).
¶22 In dismissing the racketeering counterclaim, the superior
court concluded, among other things, that Appellants could not establish
the requisite causation and damages. The counterclaim alleged Appellants
suffered “loss of profit” from the sale of the Property and stated that “but
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FIRST UNITED v. FOUR CORNERS et al.
Decision of the Court
for” the conduct of First United and its receiver, “at the very least,”
Appellants would not have lost the Property through foreclosure. But well
before Appellants filed their counterclaim, the superior court had rejected
their claim of injury caused by First United. Specifically, the court had
granted partial summary judgment to First United on a more developed
record, concluding Appellants’ loss was caused by their own default on the
notes, not actionable conduct by First United. This conclusion, which we
have affirmed, was well known to the parties when the motion to dismiss
was litigated, permitting the superior court to conclude that the
racketeering counterclaim failed to state a claim upon which relief could be
granted. See Gatecliff v. Great Republic Life Ins. Co., 154 Ariz. 502, 508 (App.
1987) (Proper to grant motion to dismiss when it is “certain that” the
claimant “can prove no set of facts which will entitle them to relief upon
their stated claims.”).
CONCLUSION
¶23 We affirm the judgment of the superior court. Pursuant to
A.R.S. § 12-341.01, we award First United its reasonable attorneys’ fees
incurred on appeal, as well as its taxable costs. Both awards are contingent
on compliance with Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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