FILED
JUL 13 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. AZ-22-1002-LBT
ANDREA GROVES,
Debtor. Bk. No. 2:18-bk-14761-BKM
A&S LENDING, LLC, Adv. No. 2:19-ap-00183-BKM
Appellant,
v. MEMORANDUM∗
ANDREA GROVES,
Appellee.
Appeal from the United States Bankruptcy Court
for the District of Arizona
Brenda K. Martin, Bankruptcy Judge, Presiding
Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Creditor A&S Lending, LLC (“A&S”) appeals the bankruptcy court’s
declaratory judgment determining the extent of A&S’s liens on real
properties jointly owned by chapter 131 debtor Andrea Groves and her
business, A & D Property Consultants, LLC (“A & D”). The deed of trust at
∗ This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code,
11 U.S.C. §§ 101–1532. “Rule” references are the Federal Rules of
1
issue granted a security interest in an undivided one-half interest in each
parcel of real property, but A&S argued that this was an error and that the
parties intended to encumber the entirety of both properties. After a two-
day trial, the bankruptcy court found no mutual mistake warranting
reformation of the deed of trust (except for an agreed correction to the
signature block) and entered judgment in favor of Debtor.
We AFFIRM.
FACTS
A. Prepetition Events
Debtor, a licensed real estate broker, and A & D, Debtor’s wholly-
owned LLC, were in the property-flipping business, i.e., they purchased
properties, improved them, and sold them for a profit, paying off the
financing in the process. Before the transaction at issue here, they had
successfully completed seven projects using financing from A&S’s
predecessor, Merchants Funding AZ, LLC (“Merchants”). In some of those
transactions, including the seventh, Merchants had required Debtor to
pledge her personal residence (the “Residence”) as additional collateral.
For the seventh transaction—a loan for the purchase and improvement of
property on State Avenue in Phoenix (the “State Avenue Loan”)—title to
the investment property was taken by A & D only, and the deed of trust
indicated that the grantors were A & D as to parcel A-1, the investment
property, and Debtor as to parcel A-2, the Residence.
Bankruptcy Procedure.
2
In 2017, Debtor contacted Merchants about financing an eighth
project, the purchase and remodel of real property located on Rancho Drive
in Phoenix (the “Rancho Property”). Merchants agreed to loan Debtor and
A & D a total of $326,949 at 10.5% interest, due in full in twelve months
(March 31, 2018).2 Of the amount loaned, $109,244 was designated to be
deposited into an account from which Debtor could make draws to pay for
improvements. As part of the transaction, Debtor executed an agreement
granting Merchants a security interest in the improvement account.
The documentation required for the Rancho Property transaction
differed from Debtor’s previous transactions with Merchants in that the
deed granting title to the Rancho Property granted it to Debtor and A & D
jointly, and Debtor was presented at closing with a warranty deed that
transferred the Residence from Debtor individually to Debtor and A & D as
joint tenants.3 The upshot was that Debtor and A & D each ended up
holding a one-half interest in both the Rancho Property and the Residence.
The deed of trust (“DOT”), however, contained virtually identical recital
language as that shown on the deed of trust for the State Avenue Loan.
2 Merchants later agreed to an extension of the due date to June 28, 2018.
3
The bankruptcy court stated in its findings that Debtor was required to sign two
“quitclaim” deeds, one of which transferred title of the Rancho Property from A & D to
herself and A & D jointly. This was not accurate; the recorded warranty deed in the
record reflects that the deed transferring title of the Rancho Property to Debtor and
A & D jointly was executed by Olivia K. Bateman, successor trustee of the Sheila K.
Bateman Trust dated February 8, 2006, the seller of the Rancho Property.
3
Specifically, the initial paragraph of the DOT reads in pertinent part:
“THIS DEED OF TRUST is made as of April 6, 2017, between A&D
PROPERTY CONSULTANTS LLC, AN ARIZONA LIMITED LIABILITY
COMPANY (AS TO EXHIBIT A-1) AND ANDREA GROVES, AN
UNMARRIED WOMAN (AS TO EXHIBIT A-2) [defined as “Grantor”] . . .
for the benefit of MERCHANTS FUNDING AZ, LLC . . . .” Exhibit A-1 was
the legal description for the Rancho Property, and Exhibit A-2 was the legal
description for the Residence. The granting language states, in pertinent
part, “Grantor . . . hereby grants and conveys . . . the following property . . .
The real property described on Exhibit A-1 and Exhibit A-2 . . . .” The DOT
thus purported to encumber A & D’s interest in the Rancho Property and
Debtor’s interest in the Residence. As a result, under the DOT, the loan was
secured by an undivided one-half interest in each property rather than the
full interests in those properties, as had been required for the State Avenue
Loan.
Shortly after the purchase of the Rancho Property closed, the DOT
was assigned to A&S, and Merchants became the servicer on the loan.
Debtor and A & D later defaulted on the loan, and Debtor filed a chapter 13
petition in December 2018.
B. Bankruptcy Events
After A&S acquired the loan and DOT from Merchants, it discovered
what it described as errors in the loan documentation. A&S took the
position that the parties had intended for Merchants to acquire a security
4
interest in the entirety of both properties, and that the DOT erroneously
provided for the grant of only a one-half interest in each property. In
response, Debtor filed an adversary proceeding seeking a declaratory
judgment. A&S filed a counterclaim against Debtor and a crossclaim
against A & D for declaratory relief and reformation. During the litigation,
Debtor and A & D agreed that the signature block on the DOT erroneously
referred only to the Rancho Property and not to the Residence and so
agreed that reformation of the signature block was appropriate. 4
At trial, Debtor testified, among other things, that she did not recall
being informed what the specific collateral would be for the loan and that
the first time she saw the warranty deed was at closing. She testified that
she signed the deed transferring her interest in the Residence to herself and
A & D jointly because the title officer told her that it was required for
closing. The court also heard testimony from Robert “Bo” Seamands, the
loan officer at Merchants who had been involved in the loan transactions
for both the Rancho Property and the State Avenue Loan. The only specific
conversation Mr. Seamands recalled having with Debtor was the initial one
regarding the Rancho Property loan in which she stated, “let’s do it again,”
with reference to doing another loan like the State Avenue Loan.
Mr. Seamands did not recall telling Debtor what the collateral would be for
the loan, but he testified that Merchants would never have made a loan
4
The signature block designated Debtor and A & D as grantors “AS TO EXHIBIT
A-1” and contained no mention of Exhibit A-2.
5
that was secured by only a one-half interest in the collateral and that
Debtor “would have had to” agree that she would utilize the equity in both
properties to secure the loan. He also testified that he was not involved
with preparing or reviewing the documentation for the loan.
After hearing closing arguments, the bankruptcy court ruled orally
on the record, denying A&S’s request to reform the DOT, except for the
error in the signature block. The court found that the evidence did not
support a finding that all parties intended that the full value of both
properties would be collateral for the loan, thus there was no mutual
mistake as required for reformation. The court found credible Debtor’s
testimony that she did not know the specific terms of the financing until
the day she reviewed the documents and agreed to sign them. The
bankruptcy court thereafter entered judgment declaring that A&S’s lien
attached to A & D’s undivided interest in the Rancho Property and
Debtor’s undivided interest in the Residence; reforming the signature block
on the DOT as agreed by the parties; and dismissing with prejudice A&S’s
counterclaims. The bankruptcy court also declared that Debtor and A & D
were the prevailing parties and were entitled to request attorneys’ fees.5
A&S timely appealed.
5 Debtor and A & D subsequently filed fee applications. On July 1, 2022, the
bankruptcy court entered a minute order finding Debtor and A & D to be the prevailing
parties. It awarded Debtor $109,981.80 in fees and $673.20 in costs, and it awarded
A & D $5,355 in fees.
6
JURISDICTION
The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334 and
157(b)(2)(K). We have jurisdiction under
28 U.S.C. § 158.
ISSUES
Did the bankruptcy court err in granting judgment to Debtor on her
claim for declaratory relief and dismissing A&S’s counterclaim and
crossclaim with prejudice?
STANDARDS OF REVIEW
We review legal issues de novo and the bankruptcy court’s factual
findings under a clearly erroneous standard. Village Nurseries v. Gould (In re
Baldwin Builders),
232 B.R. 406, 410 (9th Cir. BAP 1999). De novo review
means that we review the matter anew, as if the bankruptcy court had not
previously decided it. Francis v. Wallace (In re Francis),
505 B.R. 914, 917 (9th
Cir. BAP 2014). A court’s factual determination is clearly erroneous if it is
illogical, implausible, or without support in the record. Retz v. Samson (In re
Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). “When factual findings are based
on determinations regarding the credibility of witnesses, we give great
deference to the bankruptcy court’s findings, because the bankruptcy court,
as the trier of fact, had the opportunity to note ‘variations in demeanor and
tone of voice that bear so heavily on the listener’s understanding of and
belief in what is said.’”
Id. (quoting Anderson v. City of Bessemer City,
470
U.S. 564, 575 (1985)).
7
DISCUSSION
A. This appeal will not be dismissed for failure to name A & D as an
appellee.
As a threshold matter, Debtor argues that this appeal is “fatally
defective” because A & D is not named as an appellee, and it is an
indispensable party. Debtor argues that an appeal that fails to name an
indispensable party must be dismissed, citing Interstate Oil Co. v. Gormley,
105 F.2d 431 (9th Cir. 1939). In that case, the court of appeals dismissed an
appeal of an order confirming a sale of property by a receiver because the
appellant failed to name the purchaser of the property as an appellee.
Id. at
434. But that case does not hold that an appeal must always be dismissed
for failure to name an appellee. Rather, the appellate court has the
discretion to grant a timely application to add an appellee if the
circumstances warrant.
Id. at 432. And more recent Ninth Circuit authority
makes clear that failure to name an appellee in a notice of appeal is not a
jurisdictional bar to an appeal. West v. United States,
853 F.3d 520, 523 (9th
Cir. 2017).
Rule 8003(a)(2) provides, “[a]n appellant’s failure to take any step
other than the timely filing of a notice of appeal does not affect the validity
of the appeal, but is ground only for the district court or BAP to act as it
considers appropriate, including dismissing the appeal.” Accordingly, we
have discretion to determine whether this appeal should be dismissed for
failure to name A & D as an appellee. We decline to do so here.
8
Here, the notice of appeal complies with Rule 8003(a)(3). Although it
does not name A & D as an appellee, it was served on Ronald Ellett, who
represented both Debtor and A & D in the adversary proceeding. Mr. Ellett
articulated no prejudice resulting from the failure to name A & D in the
notice of appeal. Accordingly, the request for dismissal on this ground is
denied. 6
B. The bankruptcy court did not err in entering judgment in favor of
Debtor and A & D and dismissing A&S’s counterclaim and
crossclaim.
A&S’s theory is that the language of the initial paragraph of the DOT
was erroneously “cut and pasted” from the deed of trust for the State
Avenue Loan. It contends that Debtor had to have known there was a
mistake in the loan documentation because, as an experienced real estate
broker and investor, she should have known that no real estate lender
would make a loan such as the one at issue here, where the collateral was
insufficient to secure at least the full loan amount.
“Reformation is an equitable remedy available to correct a deed to
reflect the parties’ intent.” In re Est. of Ganoni,
357 P.3d 828, 831 (Ariz. Ct.
App. 2015) (citing Korrick v. Tuller,
27 P.2d 529[, 530] (Ariz. 1933);
additional citation omitted). Reformation is dependent on a mutual
6
Moreover, because we are affirming on the merits, we need not require A&S to
join A & D in this appeal. See Sewell v. MGF Funding, Inc. (In re Sewell),
345 B.R. 174, 178
n.7 (9th Cir. BAP 2006) (noting that it would not require appellant to join a party as an
appellee, finding no prejudice to the omitted party because the Panel was not reversing
the bankruptcy court’s order).
9
mistake. United Bank of Ariz. v. Ashland Dev. Corp.,
792 P.2d 775, 778 (Ariz.
Ct. App. 1990). The mutual mistake must be established by “clear,
convincing and satisfactory evidence that a definite intention on which the
minds of the parties had met preexisted the written instrument and that the
mistake occurred in its execution.” City of Scottsdale v. Burke,
504 P.2d 552,
555 (Ariz. Ct. App. 1972) (citations and internal quotations omitted). A
unilateral mistake by one party where the other party has engaged in fraud
or inequitable conduct will also support reformation to avoid an
inequitable result. Jeffries v. First Fed. Sav. & Loan Ass’n of Phoenix,
489 P.2d
1209, 1212 (Ariz. Ct. App. 1971).
Based on the foregoing authorities, A&S, as the party seeking
reformation, had the burden to show by clear, convincing, and satisfactory
evidence that the language of the DOT was due to a mutual mistake or that
Debtor engaged in fraud or inequitable conduct. A&S did not allege or
provide evidence that there was any fraud or inequitable conduct on
Debtor’s part, although A&D’s counsel attempted to raise the issue in his
closing argument.
The bankruptcy court found that the evidence did not establish a
mutual mistake by clear and convincing evidence. It noted that there was
little testimony regarding the terms of the loan and that the Debtor’s
testimony, which the court found credible, established that: (1) there was
no discussion with Mr. Seamands or anyone else at Merchants about the
specifics of the deal; (2) Debtor inquired about the deeds and was told by
10
the title company that they were necessary to complete the deal; and
(3) Debtor understood that the execution of the deeds would result in
Debtor and A & D each owning a one-half interest in each property,
although she did not necessarily understand why the transaction was
structured that way. Based on these findings, the court concluded that the
evidence was not clear and convincing that Debtor had mistakenly signed
the loan documents believing she was granting a lien on the full interests in
each property.
The bankruptcy court further found that Mr. Seamands’ testimony
made clear that “he had no specific recollection of walking through the
details of the Rancho Drive loan with Groves prior to the signing.” Instead,
his responses were that he “would have” or “must have” discussed the
collateral and terms with Debtor.
The bankruptcy court also rejected A&S’s argument that the loan
documents were ambiguous. As the court noted, whether a contract is
ambiguous is a question of law, and any ambiguity is subject to a factual
determination concerning the parties’ intent to be resolved by the trier of
fact. The Hartford v. Indus. Comm’n of Ariz.,
870 P.2d 1202, 1207 (Ariz. Ct.
App. 1994). “Language in a contract is ambiguous only when it can
reasonably be construed to have more than one meaning.” In re Est. of
Lamparella,
109 P.3d 959, 963 (Ariz. Ct. App. 2005) (citation omitted). Any
ambiguity in a contract is construed against the drafter. Jones v. Bank of Am.,
N.A.,
311 F. Supp. 2d 828, 833 (D. Ariz. 2003). The bankruptcy court found
11
that the language of the DOT could be read consistently with the granting
of the interest each grantor held in each property, noting that the term
“Grantor” was defined in the introductory paragraph as A & D as to
Exhibit 1 and Debtor as to Exhibit 2. The court also stated that to the extent
there was any ambiguity, it would be construed against Merchants, which
prepared or directed the preparation of the documents.
A review of the trial transcript and exhibits, along with appropriate
deference to the bankruptcy court’s credibility finding, leads to the
conclusion that the court’s factual findings were logical, plausible, and
supported by the record. There was no evidence that Debtor believed she
was required to grant the full interests in both properties as security for the
loan and or that she knew the DOT contained erroneous language.
According to her testimony, her concern at closing was with getting the
transaction finalized, and she had no reason to question the documents
presented to her by the title company. And the bankruptcy court correctly
found that Mr. Seamands’ testimony was not sufficient to establish that
Debtor knew there was a mistake in the documentation. He simply had no
specific recollection of discussing the collateral with Debtor during the loan
approval process. 7
Notwithstanding this record, A&S argues that the bankruptcy court’s
findings were not supported by the evidence. Despite acknowledging the
7
Debtor asserts that Mr. Seamands’ testimony was not credible, but the
bankruptcy court made no credibility finding as to Mr. Seamands.
12
deference afforded to credibility findings, A&S nevertheless attacks
Debtor’s credibility, pointing to Debtor’s extensive real estate experience
and the fact that previous transactions with Merchants had required the
pledge of the full value of both the investment property and the
Residence.8 A&S contends that most of Debtor’s testimony regarding the
transaction is not believable, i.e., that she never discussed the loan terms
with Mr. Seamands and did not know what security was required. A&S
also complains that Debtor did not disclose her “hidden belief” to
Merchants before signing the closing documents and alleges that the
decision of how to take title “must have been hers.” A&S contends that Mr.
Seamand’s testimony established that Debtor agreed to secure the loan
with the full value of both properties. But the testimony A&S relies on was
Mr. Seamand’s statements that the collateral “would have been discussed,”
and Debtor “would have had to” agree to utilize all the equity in both
properties to secure the loan.
A&S fails to acknowledge that, to show mutual mistake, it had to
have shown—by clear and convincing evidence—that both parties
understood the transaction to require the pledge of the full value of each
property as collateral for the loan. But the testimony did not establish that
8 A&S argues that “[i]t is not so much a matter of witness credibility as it is
making sure that the overwhelming evidence is honored and that justice is done.” It
cites In re Est. of Gillespie,
903 P.2d 590, 592 (Ariz. 1995). But that case involved summary
judgment; there were no disputed material facts and no credibility finding was made.
13
Debtor knew this was a requirement, i.e., that she knew the DOT language
was incorrect.
A&S also argues that the bankruptcy court’s findings were not
supported by applicable law. It argues that the preamble paragraph of the
DOT cannot be considered as part of the contract between the parties and
that paragraph 1 of the DOT should control. But the DOT’s introductory
paragraph was not merely a recital. Instead, it defined the terms that were
used in the granting language. As such, those definitions were
incorporated into the operative language.
A&S further argues that the preamble of the DOT is ambiguous
because it is inconsistent with the granting paragraph, the signature block,
and other loan documents. But it supports this argument by attacking
Debtor’s credibility. It also fails to acknowledge that, to the extent there is
any ambiguity, it is construed against the drafter. Jones,
311 F. Supp. 2d at
833.
A&S has not persuaded us that the bankruptcy court erred in its
findings or conclusions.
Because we conclude that the bankruptcy court’s decision was
correct, we need not address Debtor’s additional arguments. 9
9
Debtor argues that: (1) A&S is bound by a letter agreement with Merchants to
extend the due date of the loan, which provided that the parties waived all claims,
defenses, and counterclaims relating to the note and DOT; and (2) any postpetition
reformation of the DOT would be avoidable under the trustee’s strong-arm powers. The
bankruptcy court declined to rule on either issue.
14
C. Attorneys’ Fees
Both parties to this appeal argue that they are entitled to attorneys’
fees incurred in this appeal, citing Arizona Revised Statutes § 12-341.01,
which provides, in relevant part, “[i]n any contested action arising out of a
contract, express or implied, the court may award the successful party
reasonable attorney fees.” But inserting such a request into an appellate
brief is inadequate and premature. None of the relevant issues have been
briefed, nor has any party submitted time sheets. Accordingly, we express
no opinion on the fee requests.
CONCLUSION
For the reasons explained above, the bankruptcy court did not err in
entering judgment in favor of Debtor and A & D on their claim for
declaratory relief and against A&S on its counterclaim and crossclaim.
We AFFIRM.
15
