Pi'ikea, LLC v. Williamson

IN THE
ARIZONA COURT OF APPEALS
DIVISION TWO
PI'IKEA, LLC, AN ARIZONA LIMITED LIABILITY COMPANY,
Plaintiff/Appellee,
v.
WILLIAM BENSON WILLIAMSON AND MARIANNE WILLIAMSON,
HUSBAND AND WIFE, AND AS CO-TRUSTEES OF THE WILLIAMSON
FAMILY TRUST,
Defendants/Appellants.
No. 2 CA-CV 2013-0065
Filed March 26, 2014
Appeal from the Superior Court in Pima County
No. C20124964
The Honorable Kenneth Lee, Judge
AFFIRMED
COUNSEL
Harlow Spanier and Heckele, PLLC, Tucson
By Mark W. Heckele
Counsel for Plaintiff/Appellee
Breen Olson & Trenton, LLP, Tucson
By Dennis M. Breen III
Counsel for Defendants/Appellants
PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
OPINION
Judge Espinosa authored the opinion of the Court, in which
Presiding Judge Kelly and Judge Eckerstrom concurred.
E S P I N O S A, Judge.
¶1 Appellants William and Marianne Williamson, husband
and wife and co-trustees of the Williamson Family Trust (the
Williamsons), appeal from the trial court’s grant of summary
judgment in favor of Appellee Pi’Ikea, LLC (Pi’Ikea).1 They argue
the court erred in finding Pi’Ikea was not required to mitigate its
damages after default of a note the Williamsons had guaranteed,
and assert that a genuine issue of material fact regarding mitigation
precluded summary judgment. For the following reasons, we
affirm.
Factual and Procedural Background
¶2 In reviewing a summary judgment, this court views the
evidence and all reasonable inferences from it in the light most
favorable to the party opposing the judgment. Warne Inv., Ltd. v.
Higgins, 219 Ariz. 186, ¶ 15, 195 P.3d 645, 650 (App. 2008); Angus
Med. Co. v. Digital Equip. Corp., 173 Ariz. 159, 162, 840 P.2d 1024, 1027
(App. 1992). Here, the parties largely agree on the underlying facts
but dispute their legal effect. In February 2004, TBM Equities, LLC
(TBM), gave a promissory note to Irwin Union Bank, F.S.B. (the
Bank), in the original amount of $5,922,000 (the Note) and entered
into a Construction Loan Agreement (the Loan Agreement) with the
Bank. The Note and Loan Agreement were secured by a Deed of
Trust, Assignment of Rents, Security Agreement and Financing
Statement on an apartment building in Tucson (the Property). The
1Pi’Ikea obtained an interest in the note through a chain of
assignments.
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
Williamsons executed a Continuing Guaranty of the Note and the
Trust Deed, in favor of the Bank (the Guaranty).
¶3 TBM and the Bank entered into an “Amended Note” in
March 2006 and then a “Restated Note” in February 2008, neither of
which altered the principal amount owed. In February 2011, the
Restated Note was assigned to West CRE Venture 2010-2, LLC (West
CRE), by the Federal Deposit Insurance Corporation, acting as
receiver for the Bank. In March 2012, the Restated Note was
assigned to Pi’Ikea by West CRE. Pi’Ikea is the current holder of the
Guaranty.
¶4 TBM made all payments on the Restated Note up to and
including a payment due on October 1, 2008. But it then made no
further payments and failed to make required payments due at the
note’s maturity on December 31, 2008. In August 2012, Pi’Ikea filed
suit pursuant to the Guaranty against the Williamsons and others.
Pi’Ikea subsequently filed a motion for summary judgment in its
favor in the amount of $9,170,950 plus attorney fees, taxable costs,
and interest, which the trial court granted. The Williamsons
appealed, and we have jurisdiction pursuant to A.R.S.
§§ 12-120.21(A)(1) and 12-2101(A)(1).
Standard of Review
¶5 Because our review of a trial court’s grant of summary
judgment is de novo, we independently determine whether the
court’s legal conclusions are correct. Ledvina v. Cerasani, 213 Ariz.
569, ¶ 3, 146 P.3d 70, 71 (App. 2006). Issues of contract and statutory
interpretation are questions of law also subject to de novo review.
Tenet Healthsystem TGH, Inc. v. Silver, 203 Ariz. 217, ¶ 5, 52 P.3d 786,
788 (App. 2002) (interpreting guaranty).
Discussion
¶6 The Williamsons argue the trial court erred by finding
no genuine issue of material fact as to whether Pi’Ikea had a duty to
mitigate its damages by permitting a trustee sale to occur, or taking
some other recourse, in 2008 when the Property was of sufficient
value to cover the debt in full. They point out that the Bank
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
indicated in a separate suit that the Property had been appraised in
June 2008 for $10.2 million and the amount owed on the loan at that
time was $5.9 million as set out in the Restated Note. They also
observe that after the Restated Note went into default, the Bank
initiated a trustee sale in May 2009 and thereafter continued the sale
date on a quarterly basis until August 2012 when it commenced the
lawsuit against the Williamsons.2 No payments were made during
that period, and the Bank made no demand on the Williamsons.
¶7 The Williamsons maintain that “[d]uring that time
when no action on the Trustee Sale took place[,] the property value
sank and the unpaid loan balance grew from accrued interest at the
default rate to [$]9.1 million.” Thus, they contend, the effect of the
trial court’s decision that the Bank was not required to mitigate its
damages is that “the Bank can simply let a $6 million dollar
guaranty grow into a $60 million dollar obligation that was not
contemplated by either party.” According to the Williamsons,
“[t]his unconscionable extension of the guaranty was certainly not
the intent of the guarantor.”
¶8 As the Williamsons correctly observe: “A basic
principle of the law of damages is that one who claims to have been
injured by a breach of contract must use reasonable means to avoid
or minimize the damages resulting from the breach.” West Pinal
Family Health Ctr., Inc. v. McBryde, 162 Ariz. 546, 548, 785 P.2d 66, 68
(App. 1989). Failure to mitigate damages may be asserted to negate
or reduce damages “‘where the plaintiff by his own voluntary
activity has unreasonably exposed himself to damage or increased
his injury.’” SDR Assocs. v. ARG Enters., Inc., 170 Ariz. 1, n.2, 821
P.2d 268, 271 n.2 (App. 1991), quoting McCormick on Damages, § 34 at
131 (1934). This common law defense applies to guaranties, see First
Credit Union v. Courtney, 233 Ariz. 105, ¶ 12, 309 P.3d 929, 932 (App.
2Pi’Ikea asserted in its answering brief that from the time of
default until May 2012, the Bank and TBM were attempting to reach
a settlement. The Williamsons did not contest that statement in their
reply brief and at oral argument acknowledged TBM and the Bank
had been discussing settlement but claimed it was only for “a few
months.”
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
2013), and is set forth in § 42 of the Restatement (Third) of
Suretyship and Guaranty § 14 (1996) [hereinafter Restatement] 3
which provides:
If the underlying obligation is secured by a
security interest in collateral and the
obligee impairs the value of that interest,
the secondary obligation is discharged to
the extent that such impairment would
otherwise increase the difference between
the maximum amount recoverable by the
secondary obligor pursuant to its
subrogation rights (§§ 27-31) and the value
of the secondary obligor’s interest in the
collateral.
This defense, however, whether termed mitigation of damages or
impairment of collateral, may be waived by agreement of the
parties.
¶9 It is well established in Arizona that surety rights can be
waived by contract. See Data Sales Co. v. Diamond Z Mfg., 205 Ariz.
594, ¶ 16, 74 P.3d 268, 272 (App. 2003) (citing cases); see also
McClellan Mortg. Co. v. Storey, 146 Ariz. 185, 188, 704 P.2d 826, 829
(App. 1985) (finding unambiguous waiver of suretyship defense and
noting “[i]t is well settled that most rights may be waived”); cf.
Holmes v. Graves, 83 Ariz. 174, 178, 318 P.2d 354, 357 (1957)
(“Statutory provisions enacted for the benefit of individuals may be
so far waived by those for whose benefit they were enacted that they
are estopped to insist upon their protection.”); Restatement § 6 &
cmt. b (“Each rule in this Restatement stating the effect of suretyship
status may be varied by contract between the parties subject to it.”).
As the Restatement further observes, it is “routine” in suretyship
contexts to forego defenses, including the defense of impairment of
3Arizona courts will apply the law of the Restatement absent
contrary Arizona law. Ft. Lowell-NSS Ltd. P’ship v. Kelly, 166 Ariz.
96, 102, 800 P.2d 962, 968 (Ariz. 1990).
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
collateral.4 Restatement § 48 cmt. a; see also Data Sales Co., 205 Ariz.
594, ¶ 21, 74 P.3d 268, 273 (noting Restatement provisions reflect
general policy permitting waivers); cf. A.R.S. § 47-3605 cmt. 2 (“It is
standard practice to include a waiver of suretyship defenses in notes
given to financial institutions or other commercial creditors.”). By
waiving these protections, “the secondary obligor is not discharged
as a result of loss caused by actions of the obligee to which the
secondary obligor consents.” Restatement § 48 cmt. a.
¶10 The extent of a guarantor’s liability is governed by the
terms of the guaranty agreement. Tenet Healthsystem TGH, 203 Ariz.
217, ¶ 7, 52 P.3d at 788. Surety defenses may be either expressly or
impliedly waived within the agreement, Data Sales Co., 205 Ariz. 594,
¶ 27, 74 P.3d at 274, and no fixed language or form of consent is
required for waiver, Restatement § 48 cmt. b. If the agreement is
ambiguous, we generally construe it in favor of the guarantor. First
Credit Union, 233 Ariz. 105, ¶ 9, 309 P.3d at 932. But if the language
is clear, we must give effect to the contract as written. Desarrollo
Immobiliario y Negocios Industriales De Alta Tecnologia De Hermosillo,
S.A. De C.V. v. Kader Holdings Co., 229 Ariz. 367, ¶ 24, 276 P.3d 1, 8
(App. 2012); Consol. Roofing & Supply Co. v. Grimm, 140 Ariz. 452,
455, 682 P.2d 457, 460 (App. 1984); see also Restatement § 14
(standard contract rules apply to secondary obligations). As with all
contracts, “our goal is to effectuate the parties’ intent, giving effect to
the contract in its entirety.” Tenet Healthsystem TGH, 203 Ariz. 217,
¶ 7, 52 P.3d at 788-89.
¶11 Under the Guaranty the Williamsons executed, they
agreed as follows:
2.1 Guaranty. Guarantors jointly and
severally guaranty and promise to pay the
Indebtedness to Lender or its order. This
Guaranty is irrevocable. The obligations of
4 While Arizona courts have addressed waiver of surety
defenses generally, the ability to waive the defense of impairment of
collateral has not yet been addressed in light of the 1996
Restatement.
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
Guarantors hereunder are continuing,
absolute and unconditional. The foregoing
guaranty is a guaranty of payment and not
of collectibility . . . [.] The obligations of
each Guarantor hereunder are independent
of the obligations of Borrower or any other
Guarantor . . . [.] Lender shall have no
obligation to proceed against any collateral
(including the Deed of Trust) directly or
indirectly securing any of the Indebtedness,
and no obligation to enforce any right or
remedy . . . [.]
2.2 Waivers. Each Guarantor waives
and agrees not to assert or take advantage
of (a) the provisions of Arizona Revised
Statutes § . . . 47-3605 . . . and any similar or
analogous other statutory or common law
or procedural rule of the State of
Arizona . . . (b) any right to require Lender
to proceed against Borrower or any other
person, to proceed against or exhaust any
security held by Lender at any time to
directly or indirectly secure the
Indebtedness, or to pursue any other
remedy in Lender’s power before
proceeding against such Guarantor . . . .
¶12 As Pi’Ikea points out, the Williamsons expressly waived
their protections under A.R.S. § 47-3605, which include a defense for
parties liable in connection with a secured obligation if the party
entitled to enforce the instrument “impairs the value of the interest
in collateral,” § 47-3605(E).5 But this section is derived from Article 3
5In full, A.R.S. § 47-3605(E) states:
If the obligation of a party to pay an instrument is
secured by an interest in collateral and a person entitled
to enforce the instrument impairs the value of the
interest in collateral, the obligation of an indorser or
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
of the Uniform Commercial Code (U.C.C.) and is applicable to
negotiable instruments, but not to the Guaranty because it is a
separate document from the promissory note. See Restatement § 4
cmt. a (“When the underlying obligation is represented by a note of
which the principal obligor is the maker, but the secondary obligor
is not a party to the note, Article 3 is inapplicable to the suretyship
relationship.”); see also Grimm, 140 Ariz. at 457, 682 P.2d at 461
(Arizona Commercial Code not applicable to continuing guaranties).
Had the Williamsons signed the note itself, § 47-3605(E) would have
applied to the Williamsons’ obligation absent the express waiver in
the Guaranty. See Restatement § 4 cmt. a, illus. 1-2.
¶13 The Williamsons, however, waived not only § 47-3605,
but “any similar or analogous other statutory or common law or
procedural rule of the State of Arizona.” And although § 47-3605(E)
accommodation party having a right of recourse against
the obligor is discharged to the extent of the
impairment. The value of an interest in collateral is
impaired to the extent the value of the interest is
reduced to an amount less than the amount of the right
of recourse of the party asserting discharge or the
reduction in value of the interest causes an increase in
the amount by which the amount of the right of
recourse exceeds the value of the interest. The burden
of proving impairment is on the party asserting
discharge.
An “accommodation party” as used in this section is defined
by A.R.S. § 47-3419(A), which states:
If an instrument is issued for value given for the
benefit of a party to the instrument (“accommodated
party”) and another party to the instrument
(“accommodation party”) signs the instrument for the
purpose of incurring liability on the instrument without
being a direct beneficiary of the value given for the
instrument, the instrument is signed by the
accommodation party “for accommodation.”
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
is inapplicable to the Guaranty, similar protections are found in the
common law, which supplements the U.C.C. See Koss Corp. v. Am.
Exp. Co., 233 Ariz. 74, ¶ 17, 309 P.3d 898, 904 (App. 2013) (principles
of common law supplement but do not supplant U.C.C.). The
U.C.C. and common law protections in this area are “essentially
parallel.” U.C.C. § 3-605 cmt. 1 (2002) (noting U.C.C. rules
concerning discharge of secondary obligors “essentially parallel
modern interpretations of the law of suretyship and guaranty that
apply when a secondary obligor is not a party to an instrument”); see
also First Credit Union, 233 Ariz. 105, ¶ 12, 309 P.3d at 932
(“suretyship defenses” available at common law); 6A Lary
Lawrence, Lawrence’s Anderson on the Uniform Commercial Code,
§ 3-606:3 (3d. ed. 2002) (U.C.C. codifies common law principle of
impairment of collateral). Thus, common law protections applicable
to guaranties are similar to § 47-3605(E) and therefore waived by the
clear language of section 2.2(a) of the Guaranty.
¶14 The Williamsons acknowledge that Pi’Ikea and its
predecessors in interest had “multiple avenues available for
recovery under the guaranty” but assert “the bank had the duty to
elect some remedy concurrently or consecutively from the time of
the default.” Thus, while conceding the Bank had its choice of
remedies, they maintain it nevertheless had to elect a remedy in a
timely manner given its knowledge of the property devaluation. But
the Williamsons provide no legal support for this premise, and
indeed, authority is to the contrary.6 See, e.g., Austad v. United States,
386 F.2d 147, 150-51 (9th Cir. 1967) (claim of delay in foreclosure
causing diminishment of collateral value waived by contract
language permitting creditor to “forbear from realizing [on the
collateral] all as the [creditor] in its uncontrolled discretion may
deem proper”); Cisson Const., Inc. v. Reynolds & Assocs., Inc., 429
S.E.2d 847, 850 (S.C. Ct. App. 1993) (“any alleged delay by the bank
in the exercise of its rights . . . [is] not subject to being tested for
6In their briefs, the Williamsons cited authority for the general
proposition that parties injured by a contract breach must take
reasonable steps to mitigate the injury; they acknowledged at oral
argument, however, that none of the cases relied on involved an
express waiver of mitigation of damages.
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
reasonableness . . . [as that would be] tantamount to prescribing its
remedy under the note and guaranty”); Fed. Deposit Ins. Corp. v.
Coleman, 795 S.W.2d 706, 710 (Tex. 1990) (where guarantor waives
requirement to proceed against collateral the “right to decide
whether to liquidate the collateral necessarily included the right to
decide when to do it”). Accordingly, we find the language of section
2.2(a) constitutes an explicit waiver of the mitigation defense the
Williamsons relied on in opposition to summary judgment.
¶15 Further, as the trial court observed, in the Guaranty the
Williamsons agreed, inter alia, that the lender had no obligation to
proceed against any collateral directly or indirectly and no
obligation to enforce any right or remedy, and waived any right to
require the lender to proceed against or exhaust any security held by
the lender at any time to directly or indirectly secure the
indebtedness. Although such clauses could be reasonably read as
impliedly waiving the defense of mitigation of damages, see Data
Sales Co., 205 Ariz. 594, ¶ 27, 74 P.3d at 274 (surety defenses can be
impliedly waived within guaranty), having already found express
waiver, we need not reach that issue.7
¶16 And because the Williamsons expressly waived their
defense of mitigation of damages, we need not address our 1980
decision, Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 619
P.2d 485 (App. 1980), cited by Pi’Ikea for the proposition that the
principle of mitigation of damages is not applicable when there is an
absolute promise to pay. Further, in view of the Williamsons’
waiver, and our conclusion the trial court ruled correctly, albeit on
other grounds, we need not reach the Williamsons’ additional
argument regarding the sufficiency of the evidence demonstrating
7 The trial court based its summary judgment ruling on the
more general provisions of sections 2.1 and 2.2(b) of the Guaranty,
apparently because Pi’Ikea did not bring to the court’s attention the
Williamsons’ express waiver of their protections in subsection 2.2(a).
However, we may affirm a trial court’s grant of summary judgment
if it is correct for any reason. See City of Tempe v. Outdoor Sys., Inc.,
201 Ariz. 106, ¶ 14, 32 P.3d 31, 36 (App. 2001).
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PI’IKEA, LLC v. WILLIAMSON
Opinion of the Court
lack of mitigation nor Pi’Ikea’s argument concerning the
Williamsons’ alleged failure to dispute damages.
Attorney Fees and Costs
¶17 Both the Williamsons and Pi’Ikea have requested
attorney fees on appeal. Pi’Ikea bases its request on section 3.4 of
the Guaranty which provides, inter alia, that if a judicial proceeding
is brought by the “Lender to enforce this Guaranty, Guarantors
jointly and severally promise to pay Lender’s reasonable attorneys’
fees and court costs incurred therein.” Contractual provisions for
attorney fees are enforced according to the terms of the contract. See
First Fed. Sav. & Loan Ass’n of Phoenix v. Ram, 135 Ariz. 178, 181, 659
P.2d 1323, 1326 (App. 1982). Because Pi’Ikea has prevailed on
appeal, we grant its request and award its reasonable attorney fees
and costs on appeal upon its compliance with Ariz. R. Civ.
App. P. 21.
Disposition
¶18 For the foregoing reasons, the trial court’s grant of
summary judgment in favor of Pi’Ikea is affirmed.
11