Opinion
No. 1 CA-CV 13-0325
02-09-2016
NEW YORK COMMUNITY BANK, organized under the law of the State of New York, Plaintiff/Counterdefendant/Appellee, v. DAVE R. WEBBER, a married man, dealing with his sole and separate property, Defendant/Counterclaimant/Appellant.
COUNSEL Reynolds Law PC, Phoenix By K. Scott Reynolds Counsel for Plaintiff/Counterdefendant/Appellee Francis J. Slavin PC, Phoenix By Francis J. Slavin, Ellen B. Davis Counsel for Defendant/Counterclaimant/Appellant
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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. CV2009-037615
The Honorable Douglas Reyes, Judge, Retired
REVERSED AND REMANDED
COUNSEL Reynolds Law PC, Phoenix
By K. Scott Reynolds
Counsel for Plaintiff/Counterdefendant/Appellee
Francis J. Slavin PC, Phoenix
By Francis J. Slavin, Ellen B. Davis
Counsel for Defendant/Counterclaimant/Appellant
MEMORANDUM DECISION
Judge Donn Kessler delivered the decision of the Court, in which Presiding Judge Kenton D. Jones and Judge Margaret H. Downie joined. KESSLER, Judge:
¶1 David R. Webber ("Webber") appeals from the superior court's summary judgment in favor of New York Community Bank (the "Bank") on his claim for breach of the implied covenant of good faith and fair dealing. Because a genuine dispute of material fact exists which precludes summary judgment, we reverse and remand for further proceedings consistent with this decision.
FACTUAL AND PROCEDURAL HISTORY
On appeal from a grant of summary judgment, we examine the evidence in the light most favorable to the losing party, giving that party the benefit of all reasonable inferences from the evidence. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 474, 482, ¶ 13 (2002).
¶2 Webber is a former licensed mortgage banker. Bank's predecessor, Desert Hills Bank ("Desert Hills"), and Webber signed a loan agreement providing $350,000 to Webber, and Webber executed a promissory note secured by deeds of trust on two lots owned by Webber (the "Properties").
¶3 Prior to executing the agreement, Desert Hills obtained appraisals valuing the Properties at $260,000 each, as of June 2008. This amount is $170,000 greater than the loan amount. At that time, Desert Hills and Webber intended to rely on the sale of the collateral in the event of default.
¶4 Webber defaulted on the note, and Desert Hills commenced a non-judicial foreclosure (trustee's sale) of the Properties in June and August 2009, pursuant to Arizona Revised Statutes ("A.R.S.") sections 33-801 to - 821 (2014 & Supp. 2015). It recorded notices of trustee's sales scheduling auctions for September 11, 2009 and November 16, 2009. Desert Hills postponed the sales by one month, scheduling new sale dates for November 16, 2009 and December 16, 2009. Without any explanation in the record, Desert Hills ultimately postponed the trustee's sales seventeen times before cancelling the sales in December 2011. Appraisals of the Properties from the time of the initial notice of trustee's sales to July 2011, showed that the value of the Properties decreased to $348,000 as of June 2009, to $305,000 in September 2009, and to $2,000 by July 2011. Evidence discovered by Webber from bank files showed that as of the first notice of trustee's sales in 2009, Desert Hills considered the Properties worthless. Other evidence showed that as of 2009 the Bank considered a liquidation unfeasible because of the market decline and the lack of certificates of occupancy for the properties and the development.
We cite the current version of applicable statutes when no revisions material to this decision have occurred.
This last appraisal was based in part on an alleged need for $40,000 in re-engineering per lot and the lack of a certificate of occupancy. Webber also claimed that the final decrease in value was a result of vandalism at the Properties in 2010.
¶5 While the trustee's sales were pending, Desert Hills sued Webber for breach of contract. After the FDIC became the receiver for Desert Hills and sold its assets to the Bank, the Bank moved for summary judgment. The court denied the Bank summary judgment and permitted Webber to file an amended answer and counterclaim. In his counterclaim, Webber alleged the Bank breached the implied covenant of good faith and fair dealing ("good faith covenant") because, "[b]y scheduling [the Properties'] trustee's sale . . . and thereafter continually postponing the trustee's sale" while the fair market value substantially declined, the Bank "prevented Webber from selling said residence and applying the sales proceeds to pay down the indebtedness owing under the Promissory Note." Webber later argued that, having filed the initial trustee sale notices, the Bank "was required to complete the noticed trustee's sales, and to credit him for the greater of the fair market value of the property or the sales prices."
¶6 The Bank denied liability for breach of the good faith covenant and moved for summary judgment on the claim and counterclaim. Webber did not contest that he had breached the agreement by not paying the loan, but argued that issues of fact precluded summary judgment on his counterclaim. The superior court granted the Bank summary judgment on its breach of contract claim. On the counterclaim, the court agreed that the covenant of good faith "applies to the exercise of remedies after default and that a creditor may not exercise all of its remedies in a manner whatsoever to the detriment of the borrower." However, the court granted summary judgment to the Bank on the counterclaim, concluding Webber had failed to show he "has been damaged by Plaintiff's conduct in this case."
¶7 The superior court entered a signed judgment in favor of the Bank. Webber filed a timely appeal. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) (Supp. 2015).
DISCUSSION
I. Issues and Standard of Review
¶8 Webber appeals only from the summary judgment for the Bank on his counterclaim. Summary judgment is warranted when "the facts produced in support of the claim . . . have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim . . . ." Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990). We review the entry of summary judgment de novo. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003).
¶9 Webber argues that the superior court erred in granting summary judgment on his counterclaim because there were disputed facts about whether the Bank's conduct proximately caused him damages. The Bank argues that Webber failed to demonstrate any evidence of damages and alternatively that it was entitled to summary judgment because: (1) Webber's breach of the agreement excused the Bank from any obligations under the covenant of good faith and fair dealing; (2) A.R.S. § 33-810(B) (2014) does not prohibit or limit postponements; and (3) there could not be a breach of the good faith covenant because the notices of trustee's sales did not prevent Webber from selling the properties. Because we can affirm the superior court on any ground supported by the record, Leflet v. Redwood Fire & Cas. Ins. Co., 226 Ariz. 297, 300, ¶ 12 (App. 2011), we will first address the Bank's arguments that either there was no breach of the good faith covenant or that any alleged breach was excused. We will then turn to the issue of proximately caused damages. II. Webber Created an Issue of Fact as to a Violation of the Good Faith Covenant.
¶10 The Bank's primary argument is that its decision to continue the sales for almost two years cannot be a breach of the good faith covenant because A.R.S. § 33-810(B) authorizes a beneficiary to postpone trustee sales. As such, the Bank is contending that the statute provides a per se rule that a trust beneficiary can never be liable under the good faith covenant regardless of the reasons for the postponements.
¶11 We disagree with the Bank. Section 33-810(B) provides that:
The person conducting the sale may postpone or continue the sale from time to time or change the place of the sale to any other location . . . by public declaration at the time and place last appointed for the sale. Any new sale date shall be a fixed date within ninety calendar days of the date of the declaration.Nothing in the statute precludes an assertion of a breach of the good faith covenant. See Pleak v. Entrada Prop. Owners' Ass'n, 207 Ariz. 418, 422, ¶ 12 (2004) ("Absent a clear manifestation of legislative intent to abrogate the common law, we interpret statutes with 'every intendment in favor of consistency with the common law.'" (citation omitted)).
¶12 "A party may breach the implied covenant even in the absence of a breach of an express provision of the contract by denying the other party the reasonably expected benefits of the agreement." Nolan v. Starlight Pines Homeowners Ass'n, 216 Ariz. 482, 489, ¶ 27 (App. 2007). Put another way, a party breaches the good faith covenant "acting in ways not expressly excluded by the contract's terms but which nevertheless bear adversely on the party's reasonably expected benefits of the bargain." Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 424, ¶ 14 (App. 2002).
¶13 The covenant is designed to ensure that parties receive the benefits of the contract. By entering into deed of trust contracts, parties opt for an efficient and speedy method of selling the collateral. See Andreola v. Ariz. Bank, 26 Ariz. App. 556, 559 (1976) ("A major purpose of the Deed of Trust Act was to provide relatively inexpensive and speedy foreclosure proceedings."); see also Patton v. First Fed. Savs. & Loan Ass'n of Phx., 118 Ariz. 473, 477 (1978) (explaining that "[c]ompared to mortgage requirements, the Deed of Trust procedures authorized by statute make it far easier for lenders to forfeit the borrower's interest in the real estate securing a loan . . . .").
¶14 For purposes of summary judgment, it was undisputed that at the time of the loan, both Desert Hills and Webber intended to rely on the sale of the collateral in the event of default. Supra ¶ 3. It is up to a jury to determine whether the Bank's decision to delay the sales for over two years while their values were declining and then seek to collect the full deficiency against Webber amounted to a breach of the good faith covenant. We do not opine on the merits of the claim, but only hold that the superior court correctly denied summary judgment given this record.
We understand Webber's argument to be that given the appraised values of the Properties exceeded the loan amount at the time of the agreement and were approximately the value of the loan at the time of the default and that both Desert Hills and Webber intended to rely upon the sale of the collateral in the event of default, a borrower might have reasonably expected the Bank to proceed apace with the noticed non-judicial foreclosure to preserve the collateral's value to the greatest extent possible toward satisfaction of the outstanding indebtedness. In the event a deficiency was thereafter determined to exist, the Bank could have pursued a fair market value hearing. Webber allegedly relied upon the June 2008 pre-loan appraisals pegging the Properties' value at $520,000. Webber also cited: (1) a reference in a bank loan report to a June 2009 appraisal valuing the Properties at $348,000; (2) evidence that Webber's appraiser, Michael Huscroft, retroactively valued the Properties at $305,000 as of September 11, 2009 and November 16, 2009, respectively; and (3) the belief of Webber and three appraisers "that the value of the collateral was more than, roughly equal to, and then slightly less than the debt."
¶15 The Bank argues that it would have been illogical for it to purposefully delay "satisfy[ing] the debt obligation by [not] selling the Properties at the first noticed trustee sales." However, the Bank never offered any facts to show why it postponed the sales for over two years other than to argue that the law allowed it to postpone the sales. There was evidence in the bank records that at the time of the default, it considered any trustee sales to be ill-advised because of the Great Recession and the fact the entire subdivision was declining in value. There is evidence in the record that as of June 2009, the Bank considered that a trustee's sale was not feasible, in part, because of the market conditions. Thus, a jury might conclude that the Bank, faced with collateral that was in free fall, decided not to foreclose on the Properties because it would then be carrying assets with declining property values on its books and that in so acting, it had breached the good faith covenant by delaying the sales. Indeed, that is exactly what Webber argued on the motion for summary judgment, indicating that he had not yet had the chance to depose Bank officials. III. Webber's Breach of the Loan Agreement Did Not Excuse the Bank's Later Alleged Breaches of the Good Faith Covenant.
As the Bank states on appeal "No lender is going to forego its collateral if that collateral has enough value to satisfy the debt obligation."
While there was evidence the Properties' values at the time of the default were approximately the amount due on the loan, supra ¶ 4, there was also evidence that the Properties were lacking any real value because at that time the housing market was in a free fall, the entire subdivision was empty, and the government refused to issue any occupancy permits without substantial expenditure of funds to improve the Properties and the entire subdivision.
¶16 The Bank argues that because Webber breached the agreement, the Bank had no further duty to act in good faith. The Bank relies solely upon Frank Lloyd Wright Foundation v. Kroeter, 697 F. Supp. 2d 1118 (D. Ariz. 2010), as support for its argument.
¶17 We disagree with the Bank. The general rule is that even if a party has breached an agreement, that does not excuse the other party from acting in good faith in exercising its remedies. Restatement (Second) of Contracts § 205 cmt. e (1981) (providing that a party can violate the obligation of good faith and fair dealing by willfully failing to mitigate damages). While Kroeter did state that when one party breaches a contract, the other party cannot then claim a breach of the good faith covenant, it did so in the context of whether the non-defaulting party had to exercise good faith in performing under the contract. Kroeter, 697 F. Supp. 2d at 1135. This case does not involve further performance under the agreement, but whether the Bank breached its implied duties of good faith in pursuing remedies for Webber's breach of the loan agreement. IV. An Issue of Fact Exists Whether the Notices of Sale Prevented Webber from Selling the Properties.
¶18 The Bank argues that no actionable breach of the good faith covenant occurred because its notices of sale did not prevent Webber from selling the Properties. The Bank's argument ignores that Webber testified in a deposition that he could not market the Properties once the trustee's sales were noticed because it made it very difficult for him to sell the Properties. Similarly, Webber filed an affidavit that if the Bank had not recorded the notices of the sales and had told him it was not going to conduct the sales, he would have marketed the Properties in 2009 and sold them for "whatever the market would then bear," but he did not do so because the pending sale notices made it uneconomical to sell the Properties to satisfy all or substantially all of the loan debt. While the Bank can argue at trial that Webber's decision was a failure on his part to mitigate damages and the notices of sale did not preclude him from trying to sell the Properties, a question of fact still exists whether the Bank's notice of the sale and seventeen postponements over two years allegedly without any intent to conduct the sales breached the covenant.
¶19 Whether the Bank's conduct amounted to a breach of the good faith covenant is a disputed issue of material fact which has to be resolved by a factfinder. See Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 474, 493, ¶¶ 69-70 (2002). We render no opinion on the merits of the counterclaim, but only hold that the Bank was not entitled to summary judgment on the counterclaim for breach of the good faith covenant. III. A Material Issue of Fact Exists Concerning Proximate Damages.
¶20 The superior court granted the Bank's summary judgment motion based upon the absence of a genuine and material dispute concerning damages proximately caused by the putative breach of the good faith covenant. A party moving for summary judgment must "demonstrat[e] both the absence of any factual conflict and his or her right to judgment." United Bank of Ariz. v. Allyn, 167 Ariz. 191, 195 (App. 1990). Because Bank did not bear the burden of proof at trial, it could meet its burden of production on damages by "'point[ing] out by specific reference to the relevant discovery that no evidence exist[s] to support an essential element of the [non-moving party's] claim' or defense." Nat'l Bank of Ariz. v. Thruston, 218 Ariz. 112, 117, ¶ 22 (App. 2008) (alteration in original) (quoting Orme Sch., 166 Ariz. at 310).
¶21 In the trial court, the Bank argued:
Webber admits that he never even attempted to sell the Properties because (1) the Properties would decline in value upon the initiation of the trustee sale . . . ; (2) he would be required to infuse additional capital into the Properties to bring them into regulatory compliance; and (3) as a result, he would not be able to pay the full amount of the Note. In other words, the postponements had absolutely no impact or bearing on whether Mr. Webber could have taken steps to sell the Properties . . . .It thus made "specific reference to the relevant discovery" to demonstrate the absence of evidence to support Webber's claims against Bank. Id.
¶22 The burden then shifted to Webber to present evidence sufficient to show the existence of a genuine issue of material fact. See id. at 119, ¶ 26. See generally Orme Sch., 166 Ariz. at 310 ("If the party with the burden of proof on the claim or defense cannot respond to the motion by showing that there is evidence creating a genuine issue of fact on the element in question, then the motion for summary judgment should be granted."); Ariz. R. Civ. P. 56(e)(4) (stating an adverse party's affidavit must "set forth specific facts showing a genuine issue for trial."). In light of Webber's deposition testimony and other appraisals in the record, we hold that he discharged this burden and thus summary judgment was inappropriate.
¶23 In his response to the summary judgment motion, Webber cited the Bank's loan report referring to its own appraisals in June and August 2009 and asserted: "If New York Community Bank had foreclosed in September 2009 as scheduled, and made credit bids based upon its then current appraisals [of $348,000], the debt would have been paid off." This value, while evidencing a decline from the pre-loan appraisal of $520,000, still approximated the collateral's value prior to service of the initial trustee's sale notices.
¶24 Similarly, Webber's own retroactive valuations of the Properties in September 11, 2009 and November 16, 2009, when the first trustee's sales were scheduled, reflect a total value of $305,000. By June 7, 2011, while the notices of trustee's sales remained pending, the Bank's expert Troy Glover determined the Properties were each worth $1,000, even without allowing for any "mortgage."
¶25 Webber, a former licensed mortgage banker, attributed the Properties' decline in value to the Bank's notices of the trustee's sales:
Q. Why can't you market a property that's currently under a trustee's sale?This testimony, which we view in the light most favorable to Webber, provides a link between the decline in the Properties' value and the trustee's sale notices, and creates a material issue concerning the fact of damages which a factfinder must resolve after an evidentiary hearing.
A. Because they're going to try to pound you and get the lowest value that they can get it for. That's what a buyer's going to attempt to do.
* * *
Q. Okay. How does it prevent you from selling the property? The fact that you may get less for the property, right? That's what you mean by pounded?
A. Yeah, yeah, substantial reduction.
Q. So how did that prevent you from selling the property? Just because you're going to get less?
A. Substantially less. Buyers are going to take advantage of that. Brokers are going to take advantage of it. They see that there's a trustee's sale pending, they're going to try to steal the property.
¶26 We note that at oral argument on the motion for summary judgment, the court focused on the lack of any appraisals for the Properties in light of the noticed foreclosure sales. The court emphasized that it would need the value of the Properties in light of those notices from the first notice to the final notice, to show that the properties had declined in value. At oral argument, Webber's counsel admitted that Webber had no evidence of the fair market values reflecting the decreased and decreasing values of the homes in light of the trustee's sale notices. On review, however, this Court considers the entire record, including Webber's deposition. See Choisser v. State ex rel. Herman, 12 Ariz. App. 259, 261 (1970) (considering the entire record on appeal, and viewing it in the light most favorable to the appellant). As Webber explained in his affidavit, at the time of the first notice of foreclosure,
The loan report and retroactive appraisals upon which Webber's counsel relied valued the Properties as though the deed of trust process had not yet commenced.
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[i]f the Bank had not recorded the notices of trustee sales on the Properties, and if the Bank had informed me that the properties would never be sold at trustee sales, and that the sales prices would not be credited against the loan balance, I would have marketed the properties and could have sold them in 2009 for whatever the market would then bear. In my experience, and as indicated by the Bank's June 2008 appraisal, an unfinished home without a certificate of occupancy can be sold at a discount.And, as he stated in his deposition, it was uneconomical for him to try and sell the Properties in light of the notices of sale because any buyer would pay substantially less given the pending trustee's sales. See Town of Paradise Valley v. Laughlin, 174 Ariz. 484, 486 (App. 1992) (stating a property owner can always testify about the value of his property even if he is not qualified as an expert).
¶27 Ultimately, there is no dispute that the values of the Properties declined from the time of the first trustee's sale notices until the Bank cancelled the sales. Assuming a breach of the good faith covenant, Webber presented sufficient evidence to defeat summary judgment on the basis of proximately caused damages. Whether the decrease in value was a result of the continued postponement of the sales and that such postponements were a breach of the good faith covenant, or that the decreased value was caused by other reasons and Webber had a duty to mitigate damages by trying to sell the Properties while the sales were noticed must await an evidentiary hearing. We offer no opinion on those issues except to hold that summary judgment was inappropriate because of the presence of a genuine issue of disputed fact.
CONCLUSION
¶28 We reverse the grant of summary judgment and remand for further proceedings consistent with this decision. Our holding obviates the need to address Webber's conditional Rule 56(f) motion. In addition, we deny both parties' requests for attorneys' fees on appeal. We will award Webber taxable costs on appeal upon timely compliance with Arizona Rule of Civil Appellate Procedure 21.