Vaughn-Leavitt v. U.S. Bank ( 2023 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
VAUGHN-LEAVITT LIMITED PARTNERSHIP,
Plaintiff/Appellant/Cross-Appellee,
v.
U.S. BANK NATIONAL ASSOCIATION,
Defendant/Appellee/Cross-Appellant.
No. 1 CA-CV 22-0040
FILED 3-7-2023
Appeal from the Superior Court in Maricopa County
No. CV2020-016171
The Honorable Bradley H. Astrowsky, Judge
AFFIRMED IN PART; REVERSED IN PART AND REMANDED
COUNSEL
Lane & Nach, P.C., Phoenix
By S. Gregory Jones
Counsel for Plaintiff/Appellant/Cross-Appellee
Fidelity National Law Group, Phoenix
By David M. LaSpaluto
Counsel for Defendant/Appellee/Cross-Appellant
VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
MEMORANDUM DECISION
Judge Daniel J. Kiley delivered the decision of the Court, in which Presiding
Judge Maria Elena Cruz and Judge James B. Morse Jr. joined.
K I L E Y, Judge:
¶1 Vaughn-Leavitt Limited Partnership (“Vaughn-Leavitt”)
appeals the superior court’s dismissal of its first amended complaint (the
“FAC”) seeking: (1) foreclosure of a deed of trust (the “2003 DOT”) against
certain real property (the “Property”) and (2) a declaration that the 2003
DOT was superior in priority to another deed of trust against the Property
in favor of U.S. Bank National Association (“U.S. Bank”).1 U.S. Bank cross-
appeals the superior court’s denial of its request for an award of attorney
fees. For the following reasons, we affirm the court’s dismissal of Vaughn-
Leavitt’s FAC but reverse and remand the court’s decision declining to
award U.S. Bank attorney fees.
FACTS AND PROCEDURAL HISTORY
¶2 We review de novo a dismissal for failure to state a claim,
accepting as true the facts alleged in the operative complaint. Shepherd v.
Costco Wholesale Corp., 250 Ariz. 511, 512, ¶ 3 n.1 (2021). As relevant to this
appeal, Vaughn-Leavitt’s FAC alleges the following:
¶3 Anthony Anderson and his spouse are co-trustees of the
AMA Trust. In late 2002, the AMA Trust entered into a revolving line of
credit agreement with Vaughn-Leavitt as lender. On February 7, 2003,
Anderson and his spouse conveyed the Property to the AMA Trust. That
same day, the AMA Trust executed a deed of trust in favor of Vaughn-
Leavitt as security for the debt incurred pursuant to the revolving line of
credit. Shortly thereafter, the February 7, 2003 deed of trust was released
and the 2003 DOT was recorded against the Property to secure the AMA
Trust’s debt to Vaughn-Leavitt.
1A related entity, 8723 E. Via de Commercio, LLC (“Commercio”), was also
a plaintiff in this case, asserting claims arising out of its purported leasehold
interest in the Property. Commercio’s claims were subsequently dismissed,
and Commercio has not appealed.
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
¶4 In 2005, Anderson sought a loan, to be secured by the
Property, from Downey Savings and Loan Association (“Downey”).
Anderson “made clear to [Downey’s] loan officer that he was only
interested in a second mortgage” that would not impact the 2003 DOT’s
first-position lien status. When the loan officer told Anderson that the 2003
DOT “would need to subordinate so the Downey Loan could take first
position,” Anderson refused. Downey then indicated it might reconsider its
position.
¶5 In mid-May 2005, a title company contacted Anderson to
schedule the closing for the Downey Loan. Under the impression that
Downey had agreed that “the Downey Loan would be a second mortgage,”
Anderson and his spouse went to the title company at the scheduled time
and met with the title officer. When the title officer presented them with a
release (the “Release”) for the 2003 DOT, Anderson replied that he was not
authorized to sign the release on behalf of Vaughn-Leavitt and, in any
event, was unwilling to release the 2003 DOT. The title officer assured
Anderson that the signing and recording of the Release “would be of no
consequence” because the Release was “defective” since Vaughn-Leavitt
had not authorized him to sign it. Anderson then signed the Release on the
understanding that it was invalid and would not affect Vaughn-Leavitt’s
first-position lien priority.
¶6 After the Downey Loan closed, the Release and a deed of trust
against the Property securing the Downey Loan (the “2005 DOT”) were
recorded.
¶7 In 2019, U.S. Bank, as Downey’s successor-in-interest,
initiated a trustee’s sale on the 2005 DOT. U.S. Bank completed the sale in
2020, obtaining a trustee’s deed to the Property.
¶8 Following U.S. Bank’s foreclosure on the 2005 DOT, Vaughn-
Leavitt filed this action to foreclose on the 2003 DOT, asserting that the
AMA Trust defaulted on its loan from Vaughn-Leavitt. Vaughn-Leavitt
contested U.S. Bank’s ownership of the Property, asserting that,
notwithstanding the recording of the Release in 2005, the 2003 DOT
remained in effect and was entitled to priority over the 2005 DOT.
¶9 U.S. Bank moved to dismiss the FAC pursuant to Arizona
Rule of Civil Procedure (“Rule”) 12(b)(6), arguing, inter alia, that Vaughn-
Leavitt’s claims were time-barred. Noting that Vaughn-Leavitt had notice
that the 2003 DOT had been released when Anderson “executed the Release
and allowed it to be recorded,” U.S. Bank asserted that Vaughn-Leavitt’s
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
cause of action “accrued” when the Release was recorded in May 2005. U.S.
Bank further maintained that Vaughn-Leavitt’s claims were governed by
the four-year limitations period prescribed in A.R.S. § 12-550. By waiting
“until late 2020” to “assert the invalidity of the Release” recorded in 2005,
the bank asserted, Vaughn-Leavitt “sat on its rights on its hidden priority
claim” for “too long.”
¶10 In response, Vaughn-Leavitt took the position that its cause of
action did not accrue when the Release was recorded because Downey, U.S.
Bank’s predecessor-in-interest, was aware of Vaughn-Leavitt’s position that
the 2003 DOT remained effective because the Release was signed by
Anderson without authorization. According to Vaughn-Leavitt, its cause of
action did not accrue until 2020, when U.S. Bank foreclosed on the Property
in disregard of Vaughn-Leavitt’s position as senior lienholder.
¶11 U.S. Bank also raised other arguments in support of its motion
to dismiss, including its contention that principles of judicial and collateral
estoppel barred Vaughn-Leavitt from asserting the continued validity of
the 2003 DOT due to statements and admissions made by Anderson in
unrelated litigation. U.S. Bank supported these arguments with exhibits
consisting of filings in unrelated court proceedings and other matters
outside the pleadings. In response, Vaughn-Leavitt asserted, inter alia, that
the superior court could not properly consider filings in other proceedings
and other matters outside the pleadings in resolving U.S. Bank’s motion to
dismiss for failure to state a claim.
¶12 The superior court granted U.S. Bank’s motion to dismiss,
holding that
Mr. Anderson, as owner of [Vaughn-Leavitt], executed
the documents that led to the deed of trust that is in
dispute in 2005. There is no dispute that Mr. Anderson,
and [Vaughn-Leavitt], [were] aware of the deed of trust
at the time. Accordingly, [any] dispute concerning [the]
same should have been filed within the applicable
statute of limitations, and not more than fifteen years
later.
The court accepted U.S. Bank’s alternative arguments as well, holding that
Vaughn-Leavitt was estopped from asserting that the 2003 DOT remained
in effect due to positions taken by Anderson in unrelated litigation.
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
¶13 U.S. Bank applied for an award of attorney fees and costs. The
superior court awarded U.S. Bank its costs under A.R.S. §§ 12-349, -341, -
1103(B), 33-420(C), and Rule 68 but declined, “in [its] discretion,” to award
any attorney fees, holding that “[s]uch fees are not mandatory in this
action.”
¶14 Vaughn-Leavitt appeals the dismissal of the FAC. U.S. Bank
cross-appeals the denial of its application for attorney fees. We have
jurisdiction. See A.R.S. §§ 12-2101(A)(1), -120.21(A)(1).
DISCUSSION
I. The Superior Court did not err by dismissing Vaughn-Leavitt’s
claims as time-barred.
¶15 Dismissal under Rule 12(b)(6) is only appropriate if, as a
matter of law, the plaintiff “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) (citation omitted). The superior court’s
determination of when a cause of action accrued is reviewed de novo if it
“hinges solely on a question of law rather than resolution of disputed facts.”
Maricopa County v. Rovey, 250 Ariz. 419, 425, ¶ 16 (App. 2020) (citation
omitted).
¶16 Because a plaintiff is not entitled to relief on a time-barred
claim, “[t]he affirmative defense of a statute of limitations may be raised in
a motion to dismiss if it appears on the face of the complaint that the claim
is barred.” France v. Ariz. Cntys. Ins. Pool, ___ Ariz. ___, ___, ¶ 6, 519 P.3d
1029, 1031 (App. 2022) (citation omitted). In that event, “the burden is on
the plaintiff to establish that the statute has been tolled.” Bailey v. Superior
Court, 143 Ariz. 494, 498 (App. 1985). Vaughn-Leavitt does not dispute that
its claims arising out of the purportedly wrongful release of the 2003 DOT
are governed by A.R.S. § 12-550’s four-year limitations period. Vaughn-
Leavitt does not deny that it was aware, in 2005, that the Release had been
recorded, nor does it contend that the “discovery rule” or equitable tolling
principles apply here to toll the accrual of its causes of action. Instead,
Vaughn-Leavitt argues that the superior court erred in dismissing the FAC
because, taken as true, the allegations in the FAC “establish that [its] causes
of action accrued in 2020, not 2005.” Vaughn-Leavitt explains that the FAC
alleges that, “from the outset,” Vaughn-Leavitt “consistently contended”
that the Release was ineffective because Anderson was not an authorized
signer, and that Downey, U.S. Bank’s predecessor-in-interest, “was aware
of [Vaughn-Leavitt’s] position at the time of closing.” Vaughn-Leavitt
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
contends that, because the FAC alleges that Downey “was aware” that
Vaughn-Leavitt “disavowed” the Release “at or near the time it was
signed,” Vaughn-Leavitt’s causes of action did not accrue until U.S. Bank
“actually challenged [Vaughn-Leavitt’s] long-held position” by instituting
proceedings to foreclose on the 2005 DOT in disregard of Vaughn-Leavitt’s
purported first-position lienholder status. “[A]t the very least,” Vaughn-
Leavitt insists, the FAC’s allegations establish “a question of fact” about
whether a dispute existed between Vaughn-Leavitt and U.S. Bank about the
validity of the Release until U.S. Bank initiated proceedings to foreclose on
the 2005 DOT in disregard of Vaughn-Leavitt’s purported first-position
lienholder status.
¶17 If a potential priority dispute between current lienholders
were the only harm caused by the wrongful recording of a lien release, then
we might find merit in Vaughn-Leavitt’s contention that its cause of action
for the wrongful recording of the Release did not accrue as long as Downey
recognized (or, at least, failed to challenge) the continued validity of the
2003 DOT. A potential priority dispute between current lienholders is not,
however, the only harm caused by the wrongful recording of a lien release.
¶18 A lien is an interest in property, Restatement (Third) of
Property: Mortgages § 1.1 (1997), and so a lienholder whose lien has been
wrongfully released has, by definition, been wrongfully deprived of a
property interest. Moreover, the purpose of recording a lien is to protect the
lienholder’s interests not only against those of property owners and other
lienholders, but against claims by as-yet-unknown third parties such as
judgment creditors, subsequent purchasers, and the like. Rowe v. Schultz,
131 Ariz. 536, 539 (App. 1982) (noting “the desirability of encouraging
recording and penalizing non-recording of property interests for the
protection of all persons involved”); see also Thomas v. Lynx United Grp., LLC,
159 P.3d 789, 793-94 (Colo. App. 2006) (“The purposes of the recording
statutes are to protect purchasers of real property against the risk of prior
secret conveyances by the seller and to permit a purchaser to rely on the
condition of title as it appears of record.”) (cleaned up). The wrongful
recording of an unauthorized lien release deprives the lienholder of the
protection the lien had provided. See In re Haas, 31 F.3d 1081, 1086 (11th Cir.
1994) (holding that bank’s lien was subordinate to tax liens that were filed
after bank’s lien “had been released by mistake” and before bank’s lien was
reinstated); Bank of N.Y. v. Langman, 986 N.E.2d 749, 753, ¶ 21 (Ill. App. Ct.
2013) (“[S]ubsequent purchasers, without notice or anything to put them on
inquiry of an adverse title or lien, may rely on the recorded release” of a
lien even if the release was “unauthorized,” and “will take priority of title
over the original lienholder.”). Because “[c]ommencement of the statute of
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
limitations will not be put off until one learns the full extent of his
damages,” Com. Union Ins. Co. v. Lewis & Roca, 183 Ariz. 250, 255 (App. 1995)
(cleaned up), accrual of a lienholder’s claim for wrongful release of its lien
is not delayed until the property is sold and the lienholder left empty-
handed. Instead, a lienholder’s cause of action for the wrongful release of
its lien accrues once the lienholder learns that it has been wrongfully
deprived of a security interest through the unauthorized release of its lien.
See Humphrey v. State, 249 Ariz. 57, 64, ¶ 23 (App. 2020) (“[A] cause of action
accrues when the plaintiff knows he or she has been injured and has a
reason to connect the injury to a particular cause . . . in such a way that a
reasonable person would be on notice to investigate whether the injury
might result from fault.”) (cleaned up).
¶19 The allegations in the FAC, taken as true, establish that
Vaughn-Leavitt knew, in May 2005, that an unauthorized release of the
2003 DOT had been recorded. Vaughn-Leavitt was not entitled to simply sit
on its hands after learning it no longer had the protection of the 2003 DOT.
Cf. Hudler v. Guerdan, 113 S.W.2d 1039, 1041 (Mo. Ct. App. 1938) (stating
that a lienholder must “act[] with promptness after discovering the
existence of the false and fraudulent release” because courts “will not grant
aid to a party who has negligently slept on his rights and allowed his
demand to become stale”). Instead, the loss of the protection of the 2003
DOT constitutes harm that triggered the accrual of Vaughn-Leavitt’s
claims, even though the Property itself was not lost to foreclosure until
2020. See CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., 198 Ariz. 173,
176, ¶ 11 (App. 2000) (“[A]ccrual requires only actual or constructive
knowledge of the fact of damage, rather than of the total extent or calculated
amount of damage.”) (emphasis added).
¶20 Because the allegations of the FAC, accepted as true, establish
that Vaughn-Leavitt knew that it had suffered the wrongful deprivation of
an interest in property when the Release was recorded in May 2005, costing
Vaughn-Leavitt the protection of its 2003 DOT, its claims arising out of the
wrongful release of the 2003 DOT accrued at that time. Section 12-550
therefore bars the claims Vaughn-Leavitt waited 15 years to assert.
¶21 Because we affirm the dismissal of Vaughn-Leavitt’s claims as
time-barred, we need not address Vaughn-Leavitt’s arguments that the
superior court erred in finding Vaughn-Leavitt’s claims barred on
alternative grounds as well.
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
II. A finding of grounds for sanctions under A.R.S. § 12-349 mandates
an award of reasonable attorney fees.
¶22 On cross-appeal, U.S. Bank argues the superior court erred by
denying its request for an award of attorney fees under A.R.S. §§ 12-349, -
1103(B), and 33-420(C).
¶23 A.R.S. § 12-349(A) provides in part that a court “shall assess
reasonable attorney fees” and “expenses” against a party or attorney who
(1) [b]rings or defends a claim without substantial
justification[,] (2) [b]rings or defends a claim solely or
primarily for delay or harassment[,] (3) [u]nreasonably
expands or delays the proceeding[,] [or] (4) [e]ngages in
abuse of discovery.
We review the superior court’s findings of fact in considering a request for
fees pursuant to A.R.S. § 12-349 under a “clearly erroneous” standard, but
a court’s application of the statute is a question of law we review de novo.
City of Casa Grande v. Ariz. Water Co., 199 Ariz. 547, 555, ¶ 27 (App. 2001).
¶24 Vaughn-Leavitt contends that the superior court could not
properly consider U.S. Bank’s application for fees and costs on the merits
because the application was served by email, an unauthorized method of
service. But Vaughn-Leavitt does not identify any prejudice it suffered as a
result of U.S. Bank’s use of email. Vaughn-Leavitt does not, for example,
deny that its counsel received and responded to U.S. Bank’s application.
Accordingly, we find that the superior court did not err in considering U.S.
Bank’s application on the merits instead of denying it on grounds of
improper service. See Kline v. Kline, 221 Ariz. 564, 570, ¶ 21 (App. 2009)
(noting that “strict technical compliance with rules governing service may
be excused when the court has already acquired jurisdiction over the
receiving party and that party receives actual, timely notice”).
¶25 U.S. Bank argues that the superior court erred by awarding
costs under A.R.S. § 12-349 but then deciding, “in [its] discretion,” not to
award attorney fees. U.S. Bank argues that the superior court’s award of
costs pursuant to § 12-349 establishes that the court found statutory
grounds for sanctions, and that such a finding required the court to award
reasonable attorney fees as well as costs.
¶26 We agree. In awarding costs to U.S. Bank as a sanction under
§ 12-349, the superior court necessarily, though implicitly, found at least
one of the four statutory grounds for sanctions. See In re CVR 1997
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
Irrevocable Tr., 202 Ariz. 174, 177, ¶ 16 (App. 2002) (in the absence of express
factual findings, “we presume that the trial court found every fact necessary
to sustain its ruling”). Having found grounds for sanctions under § 12-349,
the superior court was required to award reasonable fees as well as costs.
Democratic Party of Pima Cnty. v. Ford, 228 Ariz. 545, 548, ¶ 10 (App. 2012)
(once party seeking sanctions makes showing required by § 12-349, “the
award of attorney fees becomes mandatory”).
¶27 Vaughn-Leavitt contends that attorney fees cannot be
awarded under § 12-349 because the superior court failed to make specific
findings to support the award. Although A.R.S. § 12-350 requires a court to
set forth “specific reasons” for the imposition of sanctions under § 12-349,
the lack of such findings is not grounds for relief on appeal absent an
objection in the trial court. See Trantor v. Fredrikson, 179 Ariz. 299, 301 (1994)
(“[T]he failure of a party to object to the lack of findings of fact and
conclusions of law in making awards of attorneys’ fees under . . . § 12-349
precludes that party from raising the absence of findings as error on
appeal.”); see also Francine C. v. Dep’t of Child Safety, 249 Ariz. 289, 296, ¶ 17
(App. 2020) (“When a court fails to comply with a rule that mandates
findings, a party who does not raise the issue in an authorized post-
judgment motion may waive it on appeal.”) (emphasis omitted). Nothing
in the record indicates that Vaughn-Leavitt made any objection, by post-
judgment motion or otherwise, to the superior court’s failure to make
specific factual findings to support its award of costs as a sanction under
§ 12-349. Vaughn-Leavitt has thus waived this argument on appeal.
¶28 Because the superior court’s award of costs under § 12-349
establishes that the court impliedly found that U.S. Bank had established at
least one of the statutory grounds for sanctions, § 12-349 required the
superior court to award reasonable attorney fees to U.S. Bank as well. See
Ford, 228 Ariz. at 548, ¶ 10. We therefore reverse the court’s denial of U.S.
Bank’s fee request and remand for a determination of the amount of a
reasonable fee award under § 12-349. We find it unnecessary to address U.S.
Bank’s alternative arguments that it was entitled to an award of attorney
fees under A.R.S. §§ 12-1103(B) and 33-420 as well.
CONCLUSION
¶29 We affirm the superior court’s dismissal of Vaughn-Leavitt’s
FAC as time-barred. We reverse the court’s decision not to award attorney
fees to U.S. Bank under A.R.S. § 12-349 and remand for a determination of
the amount of a reasonable fee award. U.S. Bank is granted reasonable
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VAUGHN-LEAVITT v. U.S. BANK
Decision of the Court
attorney fees and costs on appeal and cross-appeal pursuant to A.R.S. § 12-
349, upon compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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