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Kellin v. Banner Bank

ARIZONA COURT OF APPEALS DIVISION ONE
Mar 26, 2019
No. 1 CA-CV 18-0356 (Ariz. Ct. App. Mar. 26, 2019)

Opinion

No. 1 CA-CV 18-0356

03-26-2019

SANDY G. KELLIN, et al., Plaintiffs/Appellants, v. BANNER BANK, Defendant/Appellee.

COUNSEL Clark Hill PLC, Scottsdale By Ryan J. Lorenz Counsel for Plaintiffs/Appellants Snell & Wilmer L.L.P., Phoenix By Steven D. Jerome, Benjamin W. Reeves, and James G. Florentine Counsel for Defendant/Appellee


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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2017-055728
The Honorable John R. Hannah, Judge

AFFIRMED

COUNSEL Clark Hill PLC, Scottsdale
By Ryan J. Lorenz
Counsel for Plaintiffs/Appellants Snell & Wilmer L.L.P., Phoenix
By Steven D. Jerome, Benjamin W. Reeves, and James G. Florentine
Counsel for Defendant/Appellee

MEMORANDUM DECISION

Presiding Judge Paul J. McMurdie delivered the decision of the Court, in which Judge Randall M. Howe and Judge Jennifer B. Campbell joined. McMURDIE, Judge:

¶1 Sandy G. Kellin appeals from the superior court's order in Maricopa County cause number CV2014-095947 ("the Domestication Action") denying Kellin's motion to quash a writ of execution against a home in Carefree ("Carefree Property") to satisfy a deficiency judgment issued in Utah and domesticated in Arizona. In the same case, Kellin also appeals the superior court's order granting Banner Bank ("Banner"), the successor-in-interest of American West Bank ("American West"), a charging order against the membership interests of Kellin and his wife, Robyn Kellin ("Wife"), in SRK, LLC ("SRK"), a Wisconsin limited liability company owned by Kellin and Wife, to satisfy that same deficiency judgment. Kellin also appeals from the superior court's judgment in the Kellins' declaratory judgment action, Maricopa County cause number CV2017-055728 ("the Declaratory Judgment Action"), granting Banner's cross-motion for summary judgment, dismissing the case with prejudice, and awarding Banner attorney's fees of $53,818.88. For the following reasons, we affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 In October and November 2007, Kellin executed two promissory notes with Far West Bank, a division of American West, for the principal sums of $1,120,000 and $958,000, respectively. As collateral for the notes, Kellin executed deeds of trust on real property located in Utah. Wife did not sign either promissory note. Kellin defaulted under the notes.

¶3 American West foreclosed on the Utah real property subject to the deeds of trust, then obtained a deficiency judgment against Kellin for $1,285,777.89, plus post-judgment interest. In 2013, while the Utah proceedings were pending, SRK transferred ownership of the Carefree Property to the Kellins via warranty deed. The Kellins then executed a promissory note with a different lending company for $600,000, which was secured by a deed of trust on the Carefree Property. That same day, the Kellins transferred ownership of the Carefree Property back to SRK via a quitclaim deed.

The Domestication Action

¶4 In September 2014, Banner domesticated the deficiency judgment against Kellin in Arizona. After attempting to complete a judgment-debtor's exam of Kellin, Wife, and SRK, Banner petitioned the superior court to issue a writ of special execution to foreclose on the Carefree Property. Banner argued that: (1) it had a valid unsatisfied judgment against Kellin; (2) Banner was entitled under Arizona Revised Statutes ("A.R.S.") section 12-1551 to have the writ of execution issued against the Carefree Property; and (3) the transfers of the Carefree Property between Kellin, Wife, and SRK were fraudulent under A.R.S. §§ 44-1004(A)(1), (2), and -1005.

¶5 Kellin and Wife, but not SRK, responded to the motion. Kellin argued Banner could not reach the Carefree Property to satisfy the deficiency judgment because it was community property and the out-of-state debt would not have been a community debt if it had been incurred in Arizona. See A.R.S. § 25-215(C). Kellin asserted the debt would not have been a community debt in Arizona because: (1) the debt was incurred as part of a transaction "for the acquisition, disposition or encumbrance of an interest in real property," A.R.S. § 25-214(C)(1); and (2) Wife never joined in the execution of the promissory notes as required by A.R.S. § 25-214(C).

¶6 In December 2017, the superior court ruled Kellin was subject to a valid judgment. The court issued a writ of special execution against SRK and ordered the judgment lien against the Carefree Property to be foreclosed and the property sold. The court also ruled that the transfers of the Carefree Property between Kellin, Wife, and SRK were fraudulent under A.R.S. §§ 44-1004(A)(1), (2), and -1005, and Banner was entitled to avoid the transfers under A.R.S. §§ 44-1007 and 12-1635. Kellin timely appealed that order.

¶7 On appeal, Kellin argued that because Wife did not sign the promissory notes, Banner was barred under A.R.S. § 25-214(C)(1) from satisfying its deficiency judgment against Kellin with community assets, including the Carefree Property. Kellin also argued the superior court violated his due-process rights by concluding the transfers of the Carefree Property were fraudulent without giving him an opportunity to be heard on the issue. This court affirmed the writ of special execution against the Carefree Property. Am. W. Bank v. Kellin ("Kellin I"), 1 CA-CV 18-0060, 2018 WL 6787394 (Ariz. App. Nov. 27, 2018) (mem. decision).

¶8 In Kellin I, we held that because the promissory notes "did not constitute a transaction for the acquisition, disposition or encumbrance of an interest in real property . . . the protections of A.R.S. § 25-214(C) do not apply here." 2018 WL 6787394 at *2, ¶ 12. Therefore, "the debt incurred by Kellin when he signed the promissory notes is enforceable against the community." Id. We also held that because Kellin had notice and an opportunity to be heard, but "chose not to respond to the specific allegation of fraudulent transfers," the superior court did not violate Kellin's due-process rights by ruling the transfers fraudulent. Id. at *3, ¶¶ 14-16.

¶9 Before this court issued its decision in Kellin I, Banner requested the superior court enter a charging order under A.R.S. § 29-655 against Kellin's and Wife's membership interests in SRK. Kellin responded to the motion and moved to quash the writ of execution against the Carefree Property, raising the same arguments he initially raised against the writ of execution. In a signed minute entry and separate order, the superior court denied the motion to quash the writ of execution and issued a charging order against Kellin's and Wife's membership interests in SRK. Kellin timely appealed each order, and we have jurisdiction over both orders under A.R.S. § 12-2101(A)(2). See McKinney v. Aldrich, 123 Ariz. 488, 490 (App. 1979) (denial of a motion to quash a writ of execution appealable as special order after final judgment).

The Declaratory Judgment Action

¶10 In October 2017, well before any decision had been issued in the Domestication Action, the Kellins filed a separate action in the superior court seeking a declaratory judgment that all community property owned by the Kellins, including the Carefree Property, was not "subject to the execution of the Utah Judgment." As relief, the Kellins requested a permanent injunction "forbidding the Bank . . . from commencing or continuing any collection and enforcement activities against the Kellins' community property located within the State of Arizona." The Kellins also sought a preliminary injunction enjoining Banner from any collection activities on the Kellins' community assets. Banner moved to dismiss the action, arguing that it was an impermissible effort to have a superior court judge enjoin and review the actions of another superior court judge. The day after Banner moved to dismiss, the Kellins moved for summary judgment. The Kellins raised the same arguments Kellin had raised during the Domestication Action. Banner requested that the Kellins stipulate to delaying its response to the summary judgment motion until the court ruled on Banner's motion to dismiss. The Kellins refused Banner's request.

¶11 After the superior court in the Domestication Action granted Banner's motion to issue a writ of special execution against the Carefree Property, Banner responded to the Kellins' motion for summary judgment and cross-moved for summary judgment. In its cross-motion for summary judgment, Banner argued the Declaratory Judgment Action was now an impermissible attempt to obtain a horizontal appeal of the December 2017 order, and the court was barred from reconsidering the December order by the horizontal appeal doctrine.

¶12 The Kellins failed to respond to Banner's cross-motion for summary judgment. The court granted the motion "on the ground that the application for injunctive relief was an impermissible effort to enjoin another Superior Court action on the question of Mrs. Kellin's liability for the debt at issue or to obtain a 'horizontal appeal' from the ruling on that issue." Banner requested attorney's fees, citing the attorney's fees provisions of the promissory notes. The court agreed that the fee provisions governed, awarded Banner $53,818.88 in attorney's fees, and dismissed the Kellins' case with prejudice. The Kellins timely appealed, and we have jurisdiction over this appeal under A.R.S. § 12-2101(A)(1).

DISCUSSION

AMERICAN WEST BANK, et al. v. KELLIN, No. 1 CA-CV 18-0481

A. This Court's Decision in Kellin I Is the Law of the Case Regarding the Enforceability of the Debt Against the Community.

¶13 Kellin asserts the superior court erred by (1) denying his second motion to quash the writ of execution against the Carefree property, and (2) by issuing a charging order against Kellin's and Wife's membership interests in SRK. Kellin raises substantively the same argument he made before this court in Kellin I; he contends A.R.S. § 25-214(C) bars Banner from seeking to enforce its deficiency judgment against community property, including the Carefree Property, and Kellin's and Wife's membership interests in SRK. But because Kellin I already decided this issue, we must consider whether Kellin is precluded from attempting to relitigate it in this appeal.

¶14 The "law of the case" doctrine "describes the judicial policy of refusing to reopen questions previously decided in the same case by the same court or a higher appellate court." Powell-Cerkoney v. TCR-Montana Ranch Joint Venture, II, 176 Ariz. 275, 278 (App. 1993). The doctrine applies to several distinct sets of problems. Id. In the context of this case, it refers to the general principle that an appellate court's ruling on a legal question is "the law of that case . . . throughout all subsequent proceedings in both the trial and appellate courts, provided the facts, issues and evidence are substantially the same as those upon which the first decision rested." Dancing Sunshines Lounge v. Indus. Comm'n, 149 Ariz. 480, 482 (1986); see also Kadish v. Ariz. State Land Dep't, 177 Ariz. 322, 327-28 (App. 1993). "Because of the potential harshness of this doctrine," however, our supreme court has held the law of the case doctrine should not be applied when:

1) there has been a change in the essential facts or issues; 2) there has been a substantial change of evidence; 3) there has been an error in the first appellate decision so as to render it manifestly erroneous or unjust; 4) there has been a change in the applicable law; 5) the issue was not actually decided in the first decision or the decision is ambiguous; and 6) . . . if the prior appellate decision was not on the merits.
Dancing Sunshines Lounge, 149 Ariz. at 482-83.

¶15 None of the exceptions apply here. There has been no change of the evidence, facts, issues, or applicable law since Kellin I was decided. The fact that part of this appeal concerns Banner's attempts to enforce the deficiency judgment against a new community asset, Kellin's and Wife's membership interests in SRK, is of no consequence. Kellin concedes that the questions of law at issue in Kellin I and this case "are essentially the same." Indeed, the central legal issue Kellin raises—whether A.R.S. § 25-214(C) bars Banner from satisfying its deficiency judgment against Kellin with the Kellins' community property—was explicitly resolved in Kellin I. See 2018 WL 6787394 at *2, ¶ 12 ("Therefore, we conclude the debt incurred by Kellin when he signed the promissory notes is enforceable against the community."). And we find no error in the previous decision that might render it "manifestly erroneous or unjust." Dancing Sunshines Lounge, 149 Ariz. at 483.

¶16 Accordingly, we conclude the decision in Kellin I is the law of the case and hold the superior court did not err by: (1) denying Kellin's motion to quash the writ of special execution; or (2) issuing the charging order against Kellin's and Wife's membership interests in SRK.

Kellin also contends the superior court improperly found the transfers of the Carefree Property between Kellin, Wife, and SRK were fraudulent in the order granting the writ of special execution. But Kellin did not raise this argument in either his motion to quash the writ or his response to Banner's application for the charging order. We therefore decline to consider this argument on appeal. See Lemons v. Showcase Motors, Inc., 207 Ariz. 537, 541, ¶ 17, n.1 (App. 2004) (arguments not presented to the superior court are waived). Moreover, our decision with respect to the law of the case doctrine applies to all aspects of the Kellin I decision, including its conclusion that the court did not err by finding the transfers of the Carefree Property fraudulent.

KELLIN, et al. v. BANNER BANK, No. 1 CA-CV 18-0356

A. The Superior Court did not Err by Dismissing the Declaratory Judgment Action with Prejudice.

¶17 The Kellins assert the superior court erred by dismissing the Declaratory Judgment Action "with prejudice." The Kellins argue that because the court granted Banner's cross-motion for summary judgment on the procedural ground that the Declaratory Judgment Action was an improper horizontal appeal of the Domestication Action, dismissing the case with prejudice was improper. We disagree.

¶18 At the outset, we note the Kellins neither responded to Banner's cross-motion for summary judgment nor argue on appeal that the court improperly granted summary judgment. Any issues the Kellins might have raised concerning the court's decision to grant summary judgment in Banner's favor are therefore waived, and we consider only whether the resulting judgment should have been entered with prejudice. See ARCAP 13(a); Childress Buick Co. v. O'Connell, 198 Ariz. 454, 459, ¶ 29 (App. 2000) ("Our policy, and the policy of most appellate courts, is that issues not clearly raised in appellate briefs are deemed waived."); see also Sereno v. Lumbermens Mut. Cas. Co., 132 Ariz. 546, 549 (1982) ("The trial judge must be given a chance to rule on [objections to a motion for summary judgment] before those issues are raised on appeal as grounds for reversal of the decision of the trial judge.").

¶19 The court correctly dismissed the Kellins' action with prejudice. "A judgment of dismissal 'with prejudice' is the same as a judgment for defendant upon the merits, and, of course, is res judicata as to every matter litigated." Roden v. Roden, 29 Ariz. 549, 553 (1926). "The granting of a motion for summary judgment is a judgment on the merits and a bar to a later suit on the same cause of action when the requirements of the rule have been satisfied." Union Interchange, Inc. v. Van Aalsburg, 102 Ariz. 461, 464 (1967). Therefore, once the court grants a defendant's motion for summary judgment, a judgment dismissing the case "with prejudice" is proper if summary judgment itself is appropriate. See id. And because the Kellins have waived any argument that summary judgment was improper here, they cannot argue the court erred by dismissing the action with prejudice once it granted Banner's cross-motion for summary judgment.

¶20 The court also correctly dismissed the Kellins' action with prejudice because the Declaratory Judgment Action was an impermissible horizontal appeal, and thus the dismissal operated as an adjudication on the merits in this case. An "adjudication on the merits" "encompasses the entry of a judgment that determines claims in a case . . . if it finally resolves an action in a manner that precludes later relitigation of the claims involved." 4501 Northpoint LP v. Maricopa County, 212 Ariz. 98, 101, ¶¶ 15-16 (2006). So long as a judgment meets these requirements, it may operate as an adjudication on the merits even though no "actual trial on the substantive issues" has occurred. Id. at ¶ 16 (citing Restatement (Second) of Judgments § 19 cmt. a (1982)); see also In re Forfeiture of $3,000.00 U.S. Currency, 164 Ariz. 120, 121 (App. 1990) (order of dismissal for failure to sign a petition for remission of forfeiture of property was a final judgment on merits because "it found no cause of action for a defect that was uncorrectable").

¶21 Here, the court found the Kellins had impermissibly sought to "obtain a 'horizontal appeal' from the ruling" of the superior court judge in the Domestication Action on the issue of the enforceability of the debt against the Kellins' community assets. The court properly recognized that this action was little more than a collateral attack on the proceedings of the Domestication Action. See Fraternal Order of Police, Lodge 2 v. Superior Court, 122 Ariz. 563, 566 (1979). Once the superior court judge in the Domestication Action granted the writ of special execution against the Carefree Property, the court had "no jurisdiction to review or change the judgment of [the other] superior court judge," Davis v. Davis, 195 Ariz. 158, 161, ¶ 11 (App. 1999). Thus, any ruling on the issues raised in the Kellins' complaint would constitute an impermissible horizontal appeal of the writ. See Dunn ex rel. Dunn v. Superior Court, 160 Ariz. 311, 315 (App. 1989) (presiding judge did not have authority to "exercise a 'horizontal appeal' and overrule a fellow judge on decisions of substance such as the timeliness of a change of judge"); see also $3,000.00 U.S. Currency, 164 Ariz. at 121 ("Were we to allow a new action to be filed . . . we would be allowing a horizontal appeal to another judge . . . ."). And an order of dismissal on this ground operates as an adjudication on the merits because it necessarily precludes later litigation of the claims involved. The defect here was uncorrectable; no other superior court judge has the authority to review, alter, or change the writ of special execution issued by the superior court judge in the Domestication Action. See Fraternal Order of Police, Lodge 2, 122 Ariz. at 566; Bogard v. Cannon & Wendt Elec. Co., 221 Ariz. 325, 333, ¶ 26 (App. 2009); $3,000.00 U.S. Currency, 164 Ariz. at 121.

B. The Superior Court Properly Awarded Attorney's Fees to Banner Under the Terms of the Promissory Notes.

¶22 The Kellins contend the superior court lacked the authority to award Banner attorney's fees because Banner merely "won a dismissal" as part of a "short skirmish in the larger war over [the] applicability of A.R.S. § 25-214(C)." Thus, the Kellins assert, Banner was not a "successful party" under A.R.S. § 12-341.01(A), and the court should not have awarded Banner attorney's fees. We review the court's authority to grant or deny attorney's fees de novo. Thompson v. Corry, 231 Ariz. 161, 163, ¶ 4 (App. 2012).

¶23 The Kellins' argument ignores that the superior court based its authority to award Banner attorney's fees on the terms of the two promissory notes Kellin executed; the superior court found that "[b]y the terms of the two promissory notes, [Banner] is entitled to an award of reasonable attorneys' fees." The provision for attorney's fees in both promissory notes stated:

Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including without limitation all reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals.
It is well settled that "[c]ontracts for payment of attorneys' fees are enforced in accordance with the terms of the contract." McDowell Mountain Ranch Cmty. Ass'n v. Simons, 216 Ariz. 266, 269, ¶ 14 (App. 2007) (alteration in original) (quoting Heritage Heights Home Owners Ass'n v. Esser, 115 Ariz. 330, 333 (App. 1977)). "Unlike fees awarded under A.R.S. § 12-341.01(A), the court lacks discretion to refuse to award fees under [a] contractual provision." Chase Bank v. Acosta, 179 Ariz. 563, 575 (App. 1994) (contractual provision of a promissory note providing that borrower agreed to "pay all costs of collection when incurred, including reasonable attorneys' fees" entitled the bank to an award of attorney's fees against a husband and wife who contested the bank's efforts to collect against community assets).

¶24 In this case, the Kellins' sought to prevent Banner from "commencing or continuing any collection and enforcement activities against the Kellins' community property located within the State of Arizona." Banner's successful efforts to contest and defeat this action were necessary to collect the amount owed under the notes. Thus, Banner's actions here fall within the promissory notes' fee provisions, and the superior court had both the authority and obligation to award Banner its reasonable attorney's fees. C. The Superior Court Did Not Abuse Its Discretion by Awarding Banner Attorney's Fees of $53,818.88.

¶25 The Kellins contend the amount of fees awarded to Banner was "grossly excessive," and argue that Banner's counsel invested an unreasonable amount of time litigating essentially "three motions against the Kellins." The Kellins also assert the superior court's decision to reduce Banner's requested fees by twenty-five percent, $71,758.50 to $53,818.88, "demonstrates that the Bank's fee application suffers from serious flaws." We disagree.

¶26 We review the amount of an award of attorney's fees for an abuse of discretion. RS Indus., Inc. v. Candrian, 240 Ariz. 132, 138, ¶ 21 (App. 2016). An award of attorney's fees is within the sound discretion of the superior court, and we will not disturb the award "if there is any reasonable basis for it." Hale v. Amphitheater Sch. Dist. No. 10, 192 Ariz. 111, 117, ¶ 20 (App. 1998). "Appellate courts are hesitant to second-guess the trial court on awards of attorneys' fees 'in view of the [trial court's] superior understanding of the litigation and the desirability of avoiding frequent appellate review of what essentially are factual matters.'" Acosta, 179 Ariz. at 574 (alteration in original) (quoting Associated Indem. Corp. v. Warner, 143 Ariz. 567, 671 (1985)). To determine whether the hours claimed by a party are justified, "the fee application must be in sufficient detail to enable the court to assess the reasonableness of the time incurred." Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 188 (App. 1983). The fee application "should indicate the type of legal services provided, the date the service was provided, the attorney providing the service . . ., and the time spent in providing the service." Id.

¶27 Here, the court found Banner's fee request for $71,758.50 was reasonable but reduced its award by twenty-five percent because the time records submitted by Banner's counsel for this action included some time spent on the Domestication Action. The court did not find that the fee request was excessive. Although the court acknowledged the award was "considerably higher than what a creditor would ordinarily incur in a collection action," it found the amount reasonable in this case because the Kellins "chose to multiply the proceedings by filing a separate lawsuit and asking for equitable relief."

¶28 We find no error in these findings or the fee award generally. Banner's fee application and accompanying affidavits were sufficiently detailed to allow the court to assess the reasonableness of the hours claimed. The Kellins contested the Bank's attempts to end this improper action at every turn. And it was the Kellins, not Banner, who drew out the litigation in this case by: (1) filing their motion for summary judgment before the court could rule on Banner's motion to dismiss; and (2) refusing to stipulate to an extension on Banner's response to their motion for summary judgment until the court could rule on the motion to dismiss.

¶29 Accordingly, we conclude the superior court had a reasonable basis to award Banner attorney's fees of $53,818.88. "And, because a reasonable basis exists for the award, we may not substitute our discretion for that of the trial court." Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, 266, ¶ 21 (App 2004).

The Kellins also argue this court should vacate the court's judgment in this action if they succeed in reversing the court's judgment in the Domestication Action. Because Kellin failed in Kellin I and because the Kellins have not succeeded here, this argument is moot, and we do not address it further. --------

ATTORNEY'S FEES AND COSTS ON APPEAL

¶30 Both Banner and Kellin request an award of attorney's fees and costs on appeal in the Domestication Action under A.R.S. §§ 12-341.01, -349, and -350. Because Banner has prevailed in this appeal, we award Banner its reasonable attorney's fees and costs under A.R.S. § 12-341.01(A), subject to compliance with ARCAP 21. Kellin's requests for fees and costs are denied.

¶31 Banner and Kellin also request an award of attorney's fees and costs on appeal in the Declaratory Judgment Action. Banner seeks fees under the terms of the promissory notes and A.R.S. §§ 12-341.01, -349, and -350. The Kellins request fees under A.R.S. § 12-341.01. Under the terms of the promissory notes, we award Banner its reasonable attorney's fees and costs, subject to compliance with ARCAP 21. Because the Kellins have not prevailed in this appeal, their request for fees and costs is denied.

CONCLUSION

¶32 For foregoing reasons, we affirm the superior court's orders in the Domestication Action. We also affirm the superior court's judgment in the Declaratory Judgment Action.


Summaries of

Kellin v. Banner Bank

ARIZONA COURT OF APPEALS DIVISION ONE
Mar 26, 2019
No. 1 CA-CV 18-0356 (Ariz. Ct. App. Mar. 26, 2019)
Case details for

Kellin v. Banner Bank

Case Details

Full title:SANDY G. KELLIN, et al., Plaintiffs/Appellants, v. BANNER BANK…

Court:ARIZONA COURT OF APPEALS DIVISION ONE

Date published: Mar 26, 2019

Citations

No. 1 CA-CV 18-0356 (Ariz. Ct. App. Mar. 26, 2019)

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