Bess v. Speno ( 2018 )


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  •                       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    UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
    CHRIS BESS, et al., Plaintiffs/Appellants,
    v.
    MARK SPENO, et al., Defendants/Appellees.
    No. 1 CA-CV 18-0009
    FILED 10-30-2018
    Appeal from the Superior Court in Maricopa County
    No. CV2013-052880
    The Honorable Susan M. Brnovich, Judge
    The Honorable Thomas L. LeClaire, Judge (Retired)
    AFFIRMED IN PART; REMANDED IN PART
    COUNSEL
    Goldman & Zwillinger PLLC, Scottsdale
    By Mark D. Goldman, Carolyn J. Goldman
    Counsel for Plaintiffs/Appellants
    Buchalter, PC, Scottsdale
    By Glenn B. Hotchkiss
    Counsel for Defendants/Appellees
    MEMORANDUM DECISION
    Judge Lawrence F. Winthrop delivered the decision of the Court, in which
    Presiding Judge Jennifer M. Perkins and Judge Jon W. Thompson joined.
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    W I N T H R O P, Judge:
    ¶1           Chris Bess, et al. (“Plaintiffs”) appeal the superior court’s
    judgment in favor of Mark Speno, et al. (“Defendants”).1 For the following
    reasons, we affirm but remand for the limited purpose of allowing the
    superior court to determine whether Defendants have paid their
    appropriate share of expenses.
    FACTS AND PROCEDURAL HISTORY
    ¶2            Plaintiffs and Defendants collectively funded eight loans
    secured by deeds of trust on commercial real property. For each loan, the
    parties entered a Beneficiary Operating Agreement, which took the same
    form for all eight loans (collectively, “the Agreements”). The Agreements
    provide that a 51% majority vote binds the group in making certain
    decisions.
    ¶3             After the borrowers defaulted on the loans, Plaintiffs and
    Defendants foreclosed and purchased eight properties (“the Properties”) at
    trustee’s sales. The deeds conveyed ownership to Plaintiffs and Defendants
    as tenants in common according to each party’s undivided interest in the
    Properties. After taking ownership, Plaintiffs, who collectively own a
    majority interest in each property, desired to hold the Properties until the
    market improved. Defendants, who own a minority interest in each
    property, wanted to sell the Properties.
    ¶4            Unable to resolve their dispute, Plaintiffs filed a complaint in
    superior court, seeking a declaration that the Agreements require
    Defendants to abide by the majority’s decision. See Ariz. Rev. Stat.
    (“A.R.S.”) § 12-1832 (authorizing individuals holding an interest in a deed
    or written contract to obtain a declaration of rights). Defendants
    counterclaimed, requesting a declaration that the Agreements are
    unenforceable and seeking partition of the Properties by sale. See A.R.S.
    § 12-1211 (authorizing a co-owner of real property to compel partition).
    ¶5            Following oral argument on the parties’ competing
    declaratory judgment claims, the superior court (the Honorable Thomas L.
    LeClaire) ruled that, although the Agreements are valid and enforceable,
    they do not address “any rights, obligations, or procedures for maintaining
    property ownership after a foreclosure.” The court concluded the law
    1     Plaintiffs are a group of thirty-five individuals and entities.
    Defendants are Mark Speno, his wife, Ronda Lalonde, and their entities.
    2
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    governing tenancy in common applied and, therefore, Defendants could
    seek partition. Thereafter, the court appointed a special real estate
    commissioner and ordered him to list the Properties for sale.
    ¶6           Plaintiffs petitioned this court for special action relief from the
    sale order. We accepted jurisdiction and granted relief, concluding the
    superior court had abused its discretion by ordering partition because “the
    matter was not tried as a partition action” and “the parties presented no
    evidence regarding partition.” See Bess, et al. v. LeClaire (Speno, et al.), 1 CA-
    SA 15-0076, at *6, ¶ 12 (Ariz. App. Aug. 4, 2015) (decision order).
    ¶7            After the parties returned to superior court, Defendants
    requested partition pursuant to A.R.S. § 12-1215. Plaintiffs did not object.
    The superior court (the Honorable Susan M. Brnovich) issued a judgment
    of partition and appointed three real estate commissioners to execute the
    partition. See A.R.S. § 12-1216 (outlining the duties of the commissioners).
    The commissioners determined the Properties could not be equitably
    divided, so the court ordered their sale. See A.R.S. § 12-1218(A) (directing
    the court to order a sale if the property cannot be partitioned). Thereafter,
    the court entered a judgment pursuant to Arizona Rule of Civil Procedure
    54(b), awarding attorneys’ fees and costs to Defendants.2
    ¶8            Plaintiffs timely appealed. We have jurisdiction pursuant to
    A.R.S. § 12-2101(A).
    ANALYSIS
    I.     The Agreements
    ¶9            Plaintiffs argue the superior court erred in concluding the
    Agreements do not apply to their decision to hold the Properties post-
    foreclosure. According to Plaintiffs, “it is abundantly clear on the face of
    the Agreements that the parties intended the Agreements to apply to their
    decisions regarding the sales of the Properties.” We review de novo issues
    of contract interpretation. Elm Ret. Ctr., LP v. Callaway, 
    226 Ariz. 287
    , 290,
    ¶ 15 (App. 2010).
    ¶10          Our role in interpreting an agreement “is to ascertain and
    enforce the parties’ intent.” 
    Id. (citing U.S.
    W. Commc’ns, Inc. v. Ariz. Corp.
    Comm’n, 
    185 Ariz. 277
    , 280 (App. 1996)). In doing so, we “look to the plain
    meaning of the words as viewed in the context of the contract as a whole.”
    2     The superior court retained continuing jurisdiction for purposes of
    overseeing the Properties’ sales and the distribution of sale proceeds.
    3
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    Earle Invs., LLC v. S. Desert Med. Ctr. Partners, 
    242 Ariz. 252
    , 255, ¶ 14 (App.
    2017) (quoting United Cal. Bank v. Prudential Ins. Co. of Am., 
    140 Ariz. 238
    ,
    259 (App. 1983)). Applying these rules of construction, we analyze the
    Agreements’ majority vote provision:
    A) 1% of the investment amount equals 1 vote.
    B) An instruction sheet signed by a simpl[e] majority 51% or
    more shall be binding on the group and may be relied on by
    anyone we do business with as a valid instruction. . . .
    C) This authorization shall be used for:
    Making decisions in any and all actions to collect money or
    other security due, including, but not limited to hiring a
    Trustee sales agent, changing Trustee sales agents, hiring
    attorneys for foreclosure or bankruptcy filings, [and] buying
    insurance to protect uninsured property owned or [on] which
    we hold liens.[3]
    Decisions to hire agents to sell property or goods owned by
    us collectively.
    The Agreements further provide, “We may use any broker to lend, buy a
    loan, sell a loan, commence a trustee sale to foreclose our security on a loan,
    sell property and hire and fire agents based on our 51% vote.”
    ¶11            The parties entered the Agreements for the stated purpose “of
    making a loan secured by real estate.” The Agreements expressly provide
    that a 51% majority vote authorizes decisions relating to: (1) collecting
    money or other security; (2) hiring a trustee sale agent; (3) hiring attorneys
    for foreclosures or bankruptcy filings; (4) buying insurance; (5) hiring
    agents to sell property; and (6) using a broker to lend, buy a loan, sell a loan,
    commence a trustee sale, sell property, and hire and fire agents. In contrast,
    the Agreements do not authorize the parties to rely on a majority vote to
    hold the Properties for an indefinite time or to maintain, lease, or improve
    the Properties during any holding period.
    3       Plaintiffs are correct that the language “including, but not limited to”
    in this paragraph is the predicate to an inclusive, rather than exclusive, list.
    However, the qualifying language before that phrase limits the
    authorization to “decisions in . . . actions to collect money or other security
    due.”
    4
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    ¶12          Moreover, the Agreements acknowledge that Plaintiffs and
    Defendants came together for the purpose of making a loan. When the
    loans were extinguished by foreclosure, the purpose of the Agreements,
    which were titled “Beneficiary Operating Agreement[s],” was fulfilled.
    (Emphasis added.) The parties were no longer beneficiaries of the deeds of
    trust. Notably, the trustee’s deeds conveyed the Properties to Plaintiffs and
    Defendants as tenants in common according to their individual percentage
    ownership.
    ¶13           Upon review of the Agreements, we conclude the 51%
    majority vote provision authorizes only those decisions specifically
    delineated in the text of the Agreements. The Agreements do not authorize
    the investors to hold the Properties for an indefinite time based on a
    majority vote.
    A.      Extrinsic Evidence
    ¶14            Plaintiffs next argue the superior court “erred in refusing to
    consider extrinsic evidence to determine the intent of the parties.” Relying
    on Taylor v. State Farm Mutual Automobile Insurance Co., 
    175 Ariz. 148
    (1993),
    they argue the superior court was required to consider extrinsic evidence
    of the parties’ intent.
    ¶15            In Taylor, our supreme court explained that Arizona follows
    the “Corbin view,” which permits the admission of extrinsic evidence to
    assist in contract interpretation. 
    Id. at 152-53.
    The court defined the word
    “interpretation” as “the process by which we determine the meaning of
    words in a contract.” 
    Id. at 152;
    see also Restatement (Second) of Contracts
    § 200 (1981). Even under the Corbin view, however, extrinsic evidence is
    not admissible to vary the terms of an agreement. See 
    Taylor, 175 Ariz. at 152-53
    ; Standage Ventures, Inc. v. State, 
    114 Ariz. 480
    , 482 (1977) (holding that
    the parol evidence rule “prohibits the use of extrinsic evidence to add to,
    subtract from, vary or contradict the terms of a complete and unambiguous
    written agreement” (citing Richards Dev. Co. v. Sligh, 
    89 Ariz. 100
    , 101
    (1961))).
    ¶16             Before considering extrinsic evidence, the superior court
    “must determine whether the agreement’s language is reasonably
    susceptible to the proposed interpretation.” See Nahom v. Blue Cross & Blue
    Shield of Ariz., Inc., 
    180 Ariz. 548
    , 552 (App. 1994) (citing 
    Taylor, 175 Ariz. at 154-55
    ). This determination is a question of law, which we review de novo.
    See In re Estate of Lamparella, 
    210 Ariz. 246
    , 250, ¶ 21 (App. 2005).
    5
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    ¶17            Plaintiffs did not request an evidentiary hearing in writing
    regarding their declaratory judgment claim. At oral argument, however,
    Plaintiffs’ counsel claimed,
    [M]y clients can testify and Mr. Speno can testify that the
    intent of the parties, when they entered into this agreement,
    was to govern all the decisions down the road that pertain to
    the investment in these loans, and clearly it applies to what
    would happen if the parties ended up taking the property
    back and becoming owners of the property.
    Even assuming Plaintiffs’ request for an evidentiary hearing was sufficient,
    the proffered testimony, if true, would vary the terms of the Agreements,
    adding additional decisions to which the majority vote provision would
    apply. Plaintiffs’ evidence does not help us interpret the meaning of the
    Agreements’ language; it adds to the terms of the Agreements. See Mining
    Inv. Grp., LLC v. Roberts, 
    217 Ariz. 635
    , 639, ¶ 16 (App. 2008) (stating that it
    is not the court’s role “to alter, revise, modify, extend, rewrite or remake an
    agreement” (quoting Goodman v. Newzona Inv. Co., 
    101 Ariz. 470
    , 472
    (1966))). Accordingly, exclusion of the proffered evidence was appropriate.
    B.     Alteration of Statutory Rights
    ¶18           Plaintiffs further argue that parties “may alter their rights
    under Arizona laws through their contracts.” They contend that Plaintiffs
    and Defendants altered their rights as tenants in common “by agreeing
    instead that their co-ownership rights in the Properties would be governed
    by the 51% majority vote provision in the Agreements.” As explained
    above, the Agreements did not authorize a majority decision to hold the
    Properties. Therefore, the Agreements did not alter Defendants’ right to
    seek partition of the Properties. See A.R.S. § 12-1211. Accordingly, we
    affirm the superior court’s decision as to this issue.
    II.     Attorneys’ Fees in the Superior Court
    ¶19            Plaintiffs also argue the superior court erred “in ruling that
    Defendants were the ‘prevailing party’ for purposes of awarding
    attorney[s’] fees and costs.”
    ¶20            The superior court may award reasonable attorneys’ fees to
    the successful party in an action arising out of contract. A.R.S. § 12-
    341.01(A). When there are multiple claims, and both parties have
    succeeded in part, a court may utilize a “percentage of success factor” or a
    “totality of the litigation” test. Schwartz v. Farmers Ins. Co. of Ariz., 
    166 Ariz. 6
                            BESS, et al. v. SPENO, et al.
    Decision of the Court
    33, 38 (App. 1990). As a general rule, we review an award of attorneys’ fees
    for an abuse of discretion. See Assyia v. State Farm Mut. Auto. Ins. Co., 
    229 Ariz. 216
    , 222, ¶ 25 (App. 2012).
    ¶21            Here, the superior court exercised its discretion to award
    Defendants their attorneys’ fees. The court acknowledged that both
    Plaintiffs and Defendants were successful in part but concluded that, under
    the “totality of the circumstances,” Defendants were the successful party.
    Finding no abuse of discretion, we affirm the awards.
    III.   Additional Issues
    ¶22           Plaintiffs next argue the superior court failed to rule on
    several issues raised by their pleadings.
    A.     Attorneys’ Fees for Foreclosure and Bankruptcy Filings
    ¶23           Plaintiffs argue the superior court did not determine whether
    Defendants were required to pay their proportionate share of attorneys’
    fees incurred to prosecute foreclosures and handle bankruptcy filings as
    well as “other matters involving the Loans and the Properties.”
    ¶24           The Agreements authorize Plaintiffs to rely on a majority vote
    to hire attorneys “for foreclosure or bankruptcy filings” and require
    Defendants to pay their share of those expenses. On remand, the superior
    court shall conduct proceedings to determine whether Defendants have
    paid these expenses and, if not, order payment of the same with applicable
    interest.
    B.     Tax Penalties and Interest
    ¶25          Plaintiffs also argue the superior court did not determine
    whether Defendants owed penalties and interest arising from Defendants’
    failure to make timely tax payments. The court did rule, however, that
    Defendants fully paid the delinquent taxes on six of the eight Properties.
    The court then ordered that, for the remaining two properties, the parties
    should pay “the taxes, interest, and penalties, imposed by the applicable
    governmental entity or entities, equally and proportionately to the
    percentage interest held by that party.” To the extent Plaintiffs seek
    enforcement of the superior court’s order, they must do so in superior court.
    7
    BESS, et al. v. SPENO, et al.
    Decision of the Court
    C.     Leases
    ¶26            Finally, Plaintiffs seek damages caused by Defendants’
    objection to grazing and cell phone leases. The superior court determined
    the Agreements did not authorize Plaintiffs to lease the Properties in
    reliance on a majority vote. We affirm that ruling. Accordingly, Plaintiffs
    are not eligible for their claimed damages.
    IV.    Attorneys’ Fees on Appeal
    ¶27           Both parties seek attorneys’ fees on appeal pursuant to A.R.S.
    § 12-341.01. In the exercise of our discretion, we deny both parties’ requests.
    We award taxable costs to Defendants upon compliance with Arizona Rule
    of Civil Appellate Procedure 21.
    CONCLUSION
    ¶28           For the foregoing reasons, we affirm the superior court’s
    judgment, but remand this matter to the superior court for the limited
    determination of whether Defendants owe their share of expenses related
    to foreclosures and bankruptcy filings.
    AMY M. WOOD • Clerk of the Court
    FILED: AA
    8