Opinion
No. 1 CA-CV 14-0339 No. 1 CA-CV 14-0443
06-30-2015
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, Plaintiff/Appellee, v. SUPERSTITION COMMERCE PARK, L.L.C., an Arizona limited liability company; TERRENCE R. WALL and HELEN WALL, husband and wife; THE TERRENCE R. WALL REVOCABLE TRUST U/A/D OCTOBER 27, 1992; and THE ARIZONA REAL ESTATE FUND, L.L.C., a Delaware limited liability company, Defendants/Appellants.
COUNSEL Quarles & Brady, LLP, Phoenix By William Scott Jenkins, Jr., Alissa Brice Ryley Carlock & Applewhite, PA, Phoenix By Andrea H. Landeen, Elizabeth C. Heims, Fredric D. Bellamy Counsel for Plaintiff/Appellee Polsinelli, PC, Phoenix By Leon B. Silver, Andrew S. Jacob, Jennifer J. Axel Counsel for Defendants/Appellants
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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. CV2011-004432
The Honorable Michael J. Herrod, Judge
AFFIRMED
COUNSEL Quarles & Brady, LLP, Phoenix
By William Scott Jenkins, Jr., Alissa Brice
Ryley Carlock & Applewhite, PA, Phoenix
By Andrea H. Landeen, Elizabeth C. Heims, Fredric D. Bellamy
Counsel for Plaintiff/Appellee
Polsinelli, PC, Phoenix
By Leon B. Silver, Andrew S. Jacob, Jennifer J. Axel
Counsel for Defendants/Appellants
MEMORANDUM DECISION
Judge Patricia A. Orozco delivered the decision of the Court, in which Presiding Judge Patricia K. Norris and Judge Kent E. Cattani joined. OROZCO, Judge:
¶1 Superstition Commerce Park, L.L.C. (Superstition) and the other named defendants (collectively Appellants) appeal a bench trial verdict finding them liable for breaching a loan agreement with plaintiff Wells Fargo Bank (Wells Fargo). Because we conclude Appellants did not perform a contractually-imposed duty of tendering a re-margin payment, we affirm the trial court's verdict.
FACTS AND PROCEDURAL HISTORY
¶2 Superstition and Wells Fargo entered into a loan agreement in 2008 for a maximum principal amount of $12,550,000. The loan was to allow Superstition to construct office buildings and make improvements on real property in Mesa. Appellants Terrence R. Wall and the Terrence R. Wall Revocable Trust U/A/D/ October 27, 1992 each signed separate repayment guaranties. In addition to minimum equity requirements, Wells Fargo required Superstition to deposit $1 million in a pledged account "to be used to cover cost overruns including interest or to reduce the loan amount at maturity, if needed."
¶3 Section 2.9 of the loan agreement expressly provided for "Re-Margin Rights," which required Superstition to meet defined rent thresholds within twelve months and twenty-four months of executing the agreement. If Superstition failed to meet these thresholds, the agreement provided in relevant part:
[Wells Fargo] may require a new appraisal and a principal pay-down in an amount sufficient to . . . achieve a seventy-five percent (75%) loan-to-value ratio based upon the stabilized value estimate of the Property and Improvements contained in the new appraisal . . . [Appellants] shall make such pay-down within thirty (30) days of written demand from [Wells Fargo]. [Appellants] shall pay all related expenses, including but not limited to the new appraisal.Section 2.9 also provided:
The monies secured as the 'Pledged Account' (as defined in the Cash Security Agreement) by that certain Security Agreement by and between [Wells Fargo] and [Appellants] and executed on or about the date hereof (the "Cash Security: Agreement") may be used to reduce the Loan Commitment Amount for the purpose of the calculations in this Section. 2.9.
¶4 After twelve months, Superstition had not met the loan agreement's rent thresholds. Pursuant to the agreement, Wells Fargo obtained updated property appraisals that concluded the property's value was $11,710,000. Anticipating that Wells Fargo would exercise its right to demand a re-margin payment, Appellant Wall sent Wells Fargo a letter that, among other things, proposed a loan modification with a $1.65 million "pay down" in the hopes of avoiding a re-margin demand. Two weeks later, Wells Fargo formally demanded a re-margin payment of $3,767,500 to "achieve a seventy-five percent (75%) loan-to-value ratio, based upon the [new appraisal's] stabilized value." Wells Fargo calculated this demand amount by taking the loan commitment amount of $12,550,000 and subtracting $8,782,500, which was seventy-five percent of "as if stabilized" value established by the new appraisal. When Wells Fargo made the demand, the loan's outstanding principal balance was approximately $9.27 million.
¶5 Superstition did not tender the demanded re-margin payment and the parties entered into unsuccessful negotiations to execute a loan modification. Wells Fargo then made a second demand for the re-margin payment. Approximately two weeks later, Wells Fargo informed Superstition that it would apply the $1 million in Superstition's pledged account to the loan principal. Wells Fargo also informed Superstition that it planned to initiate a trustee's sale, which it did approximately two weeks after sending the notice. Thereafter, Superstition ceased making monthly payments under the loan agreement.
¶6 Several months later, a trustee's sale took place and the property was purchased by Wells Fargo for a $6.47 million credit bid, leaving a loan deficiency of $2,075,370.08. Wells Fargo sued Appellants for the deficiency.
¶7 After a bench trial, the trial court concluded that section 2.9 of the loan agreement was ambiguous because it did not define how the "loan" portion of the loan-to-value ratio would be calculated in determining any re-margin payment. The trial court concluded that although Wells Fargo was entitled to demand a re-margin payment, it had breached the loan agreement because the amount demanded was excessive. The trial court nevertheless found that Superstition had also breached the agreement "by not tendering what it believed was the correct [r]e-[m]argin amount." Accordingly, the court concluded that because Superstition did not establish it "could perform" by tendering what it believed was a proper re-margin payment, Appellants were liable for the deficiency despite Wells Fargo's anticipatory repudiation. The trial court thus granted judgment in favor of Wells Fargo.
¶8 After Appellants' motion for a new trial was denied, this timely appeal followed. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-120.21.A.1, -2101.A.1 and -2101.A.5 (West 2015).
We cite the current version of applicable statutes when no revisions material to this decision have since occurred.
DISCUSSION
¶9 Appellants contend the trial court erred in concluding Superstition breached the loan agreement. The interpretation of a contract is a question of law we review de novo. Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12 (App. 2006). In examining the trial court's ruling, "we may affirm the trial court if it is correct for any reason supported by the record." KCI Rest. Mgmt. LLC v. Holm Wright Hyde & Hays PLC, 236 Ariz. 485, 488 n.2, ¶ 12 (App. 2014).
Although Appellants filed a notice of appeal following the denial of their motion for new trial and before entry of final judgment, they make no argument on appeal that the trial court erred in denying the new trial motion. Accordingly, we decline to address the merits of Appellants' motion for new trial. See Vortex Corp. v. Denkewicz, 235 Ariz. 551, 556, ¶ 16 (App. 2014) (declining to address an issue not argued in appellate briefing). --------
¶10 Appellants first argue that because Wells Fargo's demand for a re-margin payment was "excessive," their duty under the loan agreement to tender a re-margin payment was not triggered. Appellants assert that their "only duty was to make a re-margin payment if Wells Fargo made a demand . . . that complied with the terms of the agreement." Appellants thus conclude that "Wells Fargo breached the loan agreement by making a re-margin demand that far exceeded what was allowed[.]" This aligns with their argument to the trial court that Wells Fargo's demand was an anticipatory repudiation of the loan agreement.
¶11 Whether Appellants' duty was triggered by Wells Fargo's demand is ultimately connected to whether the demand was an anticipatory repudiation of the loan agreement. An anticipatory repudiation is a "species of breach" in which a party "[t]hreatening an act that would breach contract obligations" may, in effect, actually breach the contract. Snow v. W. Sav. & Loan Ass'n., 152 Ariz. 27, 32 (1986). "In order to find a[n] [anticipatory] breach of contract, there must be a positive and unequivocal manifestation on the part of the repudiating party that he will not render the required performance when it is due." McMahon v. Fiberglass Fabricators, Inc., 17 Ariz. App. 190, 192 (App. 1972). "An anticipatory repudiation is a breach of contract giving rise to a claim for damages and also excusing the necessity for the non-breaching party to tender performance." United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 283 (App. 1983). However, "a mere disagreement over the terms of a contract is not itself an anticipatory repudiation, nor is a mere offer to perform on terms other than those contained in the agreement, at least if the offer is made in good faith." Id. at 279.
¶12 Here, no evidence establishes any disagreement by the parties over the terms of Wells Fargo's re-margin demand until litigation was well underway. And although the trial court ultimately concluded section 2.9 of the loan agreement was ambiguous about what constituted the "loan" in the loan-to-value ratio, our supreme court has noted that "[w]here the two contracting parties differ as to the interpretation of the contract or as to its legal effects, an offer to perform in accordance with [a party's] own interpretation . . . is not in itself an anticipatory breach." Snow, 152 Ariz. at 32 (citing 4 A. Corbin, Corbin on Contracts § 973 (1951)). In this case, Wells Fargo's re-margin payment demand in accordance with its own interpretation of the contract was not an anticipatory repudiation because, even assuming the trial court correctly concluded the re-margin demand was excessive, Wells Fargo made no "positive and unequivocal manifestation" that it would not accept performance by Appellants under any other circumstance.
¶13 Appellants argue that tendering a re-margin payment amount lower than what Wells Fargo demanded was unnecessary because it was a "futile act" that "Wells Fargo clearly stated it would not accept." Appellants rely on Wells Fargo's rejection of Appellant Wall's pre-demand proposal for a $1.65 million pay down of the loan principal as Wells Fargo's clear statement it would not accept any tender of a re-margin payment lower than what was ultimately demanded. But this conclusion can be drawn only by taking an incomplete view of the record. Not only did Wall propose the $1.65 million loan pay down before Wells Fargo supposedly breached the agreement in making their re-margin demand, but Appellants failed to make a $500,000 payment they agreed to produce as part of the ultimately unsuccessful loan modification negotiations the parties entered into after Wells Fargo's first re-margin demand.
¶14 These facts show that Wells Fargo was willing to consider alternatives apart from its re-margin demand to keep the loan agreement in effect. The record does not support Appellants' argument that tendering a re-margin payment was "futile," and accordingly, the loan agreement required Appellants to tender a re-margin payment. See Ceizyk v. Goar Serv. & Supply, Inc., 21 Ariz. App. 119, 122 (App. 1973) (concluding there was "insufficient evidence to find actual tender a futile act thereby relieving" a party of performance under a contract).
¶15 We thus conclude that Wells Fargo's re-margin demand was not an anticipatory repudiation of the loan agreement. Appellants' duty to tender a re-margin payment was triggered by the demand, even if only for the amount Appellants believed appropriate. Had Appellants tendered what they believed was a correct re-margin payment, and Wells Fargo then refused to accept any terms other than their interpretation of the re-margin provision, Appellants would have established an anticipatory repudiation in light of section 2.9's ambiguity about the meaning of "loan" in the loan-to-value calculation formula. But because, as the trial court noted, Appellants "[laid] in the weeds" and did nothing, Wells Fargo's action based on its interpretation of the loan agreement, by itself, is not enough to establish Wells Fargo breached the agreement. See Snow, 152 Ariz. at 32. Appellants' failure to tender a re-margin payment therefore breached the loan agreement.
¶16 Appellants nevertheless assert that the trial court incorrectly applied the Arizona Supreme Court's decision in Thomas v. Montelucia Villas, LLC, 232 Ariz. 92 (2013), which noted in relevant part that when a party commits an anticipatory repudiation of a contract, "a repudiating party's duty to pay damages is discharged if the injured party would have failed to perform." Id. at 95, ¶ 11 (internal punctuation and citation omitted). Because we conclude that Wells Fargo did not anticipatorily repudiate the loan agreement, we need not address this issue.
¶17 Appellants raise additional issues concerning the guarantors' liability and the equity of the trial court's judgment. However, arguments concerning these issues are predicated on the conclusion that Appellants did not breach the loan agreement. Because we conclude Appellants breached the loan agreement, these issues are moot.
CONCLUSION
¶18 We affirm judgment in favor of Wells Fargo. As the prevailing party, Wells Fargo is entitled to its reasonable fees and costs pursuant to A.R.S. §§ 12-341 and -341.01.A and upon compliance with Arizona Rule of Civil Appellate Procedure 21.