Aerial Funding v. Van Sickle ( 2020 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
AERIAL FUNDING LLC, Plaintiff/Appellee,
v.
MICHAEL A. VAN SICKLE, Defendant/Appellant.
No. 1 CA-CV 19-0543
FILED 10-20-2020
Appeal from the Superior Court in Maricopa County
No. CV2016-011531
The Honorable Christopher T. Whitten, Judge
AFFIRMED IN PART, VACATED IN PART AND REMANDED
COUNSEL
Davis Miles McGuire Gardner, PLLC, Tempe
By Pernell W. McGuire, Corey Torgesen
Counsel for Plaintiff/Appellee
Ahwatukee Legal Office, PC, Phoenix
By David L. Abney
Counsel for Defendant/Appellant
AERIAL FUNDING v. VAN SICKLE
Decision of the Court
MEMORANDUM DECISION
Judge David D. Weinzweig delivered the decision of the Court, in which
Presiding Judge Michael J. Brown and Judge D. Steven Williams joined.
W E I N Z W E I G, Judge:
¶1 Michael Van Sickle appeals from a deficiency judgment
entered in favor of Aerial Funding, LLC (“Aerial”). For the following
reasons, we vacate the deficiency judgment, remand for a valuation hearing
and otherwise affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 In 2007, Van Sickle borrowed more than $200,000 on a line of
credit from National City Bank. The line was secured by a second-position
deed of trust on real property (“Property”). Van Sickle drew more than
$200,000 on the line of credit and defaulted.
¶3 Aerial later acquired the loan and security interest from
National City Bank, discovered Van Sickle had defaulted and noticed a
trustee’s sale for March 2015. Van Sickle obtained an injunction to stop the
sale and filed for bankruptcy. Aerial opposed Van Sickle’s efforts to avoid
Aerial’s lien in the bankruptcy proceeding.
¶4 Van Sickle and Aerial settled their dispute in August 2016,
after nearly two years of litigation. Under the settlement agreement
(“Agreement”), Aerial agreed not to pursue a deficiency judgment against
Van Sickle and consented to Van Sickle’s voluntary dismissal of the
bankruptcy proceeding in exchange for Van Sickle’s agreement to vacate
the Property before the trustee’s sale and promise to provide documentary
proof that Van Sickle’s first-position mortgage was current and would
remain current. If Van Sickle did not perform, however, the parties agreed
that Aerial could bring a deficiency judgment action against Van Sickle and
Van Sickle would not defend except to provide proof of his performance.
¶5 The trustee’s sale was held in September 2016. The balance
on the line of credit was $284,906.59. Aerial was the highest bidder and
acquired the Property with a credit bid of $56,000. Aerial soon learned Van
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Decision of the Court
Sickle was not current on his first-position mortgage payments and sued
Van Sickle for breaching the Agreement.
¶6 Both parties moved for summary judgment. Van Sickle
admitted he “failed to make some payments due on the Agreement” and
“was not current on the [first-position] loan,” but explained that he had
“honestly believed he was [current] at the time.” The superior court found
no genuine issue of material fact and granted summary judgment to Aerial,
authorizing Aerial to pursue a deficiency judgment.
¶7 Van Sickle unsuccessfully moved the superior court to
reconsider, arguing for the first time that the Agreement was contrary to
Arizona law and public policy, unconscionable, and unenforceable because
it permitted Aerial to proceed with a deficiency judgment following a
nonjudicial foreclosure on a single-family residence of fewer than 2.5 acres
and precluded Van Sickle from mounting a defense. The court denied the
motion, finding that although “the result in this case is harsh, its harshness
was invited by [Van Sickle] in entering into the Settlement Agreement.”
The court added “[Van Sickle] agreed to tie his own hands if he breached
the Settlement Agreement[,] . . . precluding [him] from offering evidence or
argument” but not from appearing or “challenging [Aerial’s] evidence by
objection or by cross-examination.”
¶8 The court set a deficiency hearing. Van Sickle filed a written
request for a fair market value determination, but the court held no separate
valuation hearing. Van Sickle appeared at the December 2018 deficiency
hearing, challenging the deficiency amount through witness examination.
Neither party presented evidence of the property’s fair market value.
¶9 The court ultimately awarded Aerial a deficiency judgment
for $228,906.59 (the difference of the credit line’s $284,906.59 outstanding
balance and Aerial’s $56,000 credit bid) plus interest, and attorney fees and
costs to be determined. Van Sickle timely appealed and we have
jurisdiction. A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).
DISCUSSION
I. Contractual Waiver of Anti-Deficiency Statutory Protections Does
Not Offend Public Policy.
¶10 Van Sickle argues Arizona’s “anti-deficiency statute” covers
the Property and provides absolute and unwaivable protection against a
deficiency judgment. The statute provides:
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If trust property of two and one-half acres or less which is
limited to and utilized for either a single one-family or a single
two-family dwelling is sold pursuant to the trustee’s power
of sale, no action may be maintained to recover any difference
between the amount obtained by sale and the amount of the
indebtedness and any interest, costs and expenses.
A.R.S. § 33-814(G).
¶11 We review questions involving the interpretation and
application of statutes de novo. Ramsey v. Ariz. Registrar of Contractors, 241
Ariz. 102, 105, ¶ 6 (App. 2016) (citing First Fin. Bank, N.A. v. Claassen, 238
Ariz. 160, 162, ¶ 8 (App. 2015)).
¶12 Contracts are generally enforceable, but public policy may
impliedly invalidate terms that waive statutory rights. CSA 13-101 Loop,
LLC v. Loop 101, LLC, 236 Ariz. 410, 411-12, ¶¶ 6-7 (2014). To determine
whether public policy invalidates the voluntary waiver of a statutory right,
we consider “whether an identifiable public policy clearly outweighs the
interest in enforcing [the negotiated agreement].” Id. at 412, ¶ 7 (citing 1800
Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz. 200, 202, ¶ 8 (2008); Restatement
(Second) of Contracts § 178 (1981)).
¶13 The anti-deficiency statute was “intended to ‘protect
consumers from financial ruin’ and ‘eliminate hardships resulting to
consumers who, when purchasing a home, fail to realize the extent to which
they are subjecting their assets besides the home to legal process.’” Parkway
Bank and Tr. Co. v. Zivkovic, 232 Ariz. at 290, ¶ 16 (quoting Helvetica Servicing,
Inc. v. Pasquan, 229 Ariz. 493, 496, ¶ 9 (App. 2012)). To that end, the statute
allocates the risk of inadequate security and economic downturn to lenders.
See Parkway, 232 Ariz. at 290, ¶ 16 (quoting Helvetica, 229 Ariz. at 500-01, ¶
30).
¶14 Arizona courts have held that pre-default waiver of
anti-deficiency protection offends public policy by shifting the
unpredictable risks of possible default from lender to borrower. Parkway,
232 Ariz. at 290, ¶ 17. But, a post-default contractual waiver does not raise
the same concerns because it involves predictable risks and an actual
default. See, e.g., CSA 13-101, 236 Ariz. at 415, ¶ 24 (“Though some statutory
rights may not be waived prospectively, a party may still forego enforcing
them in litigation.”) (citing Forbach v. Steinfeld, 34 Ariz. 519, 527 (1928)).
Aided by counsel, Van Sickle negotiated and voluntarily entered into the
settlement agreement after defaulting. The contract controls. See Ariz. Bank
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& Tr. v. James R. Barrons Tr., 237 Ariz. 401, 406, ¶ 20 (App. 2015) (concluding
a guarantor could waive anti-deficiency protections in A.R.S. § 33-814(G)
after finding no “compelling public policy reason that outweighs the
parties’ interest in enforcing an express contractual provision”); 1800
Ocotillo, 219 Ariz. at 202, ¶ 8 (highlighting the societal value in enforcing
“bargains struck between competent parties”) (citing Restatement (Second)
of Contracts § 178 cmt. b).
II. Contractual Waiver of the Anti-Deficiency Statutory Protections
Is Not Unconscionable.
¶15 Van Sickle next argues his contractual waiver is substantively
unconscionable and unenforceable.1 Whether a contract is unconscionable
presents a question of law reviewed de novo. See Maxwell v. Fid. Fin. Servs.,
Inc., 184 Ariz. 82, 88 (1995) (quoting Seekings v. Jimmy GMC of Tucson, Inc.,
130 Ariz. 596, 602 (1981)).
¶16 “A bargain is unconscionable if it is such as no man in his
senses and not under delusion would make on the one hand, and as no
honest and fair man would accept on the other.” Phx. Baptist Hosp. & Med.
Ctr., Inc. v. Aiken, 179 Ariz. 289, 293 (App. 1994) (quotation omitted); accord
Restatement (Second) Contracts § 208, cmt. b. “Substantive
unconscionability occurs where a contract has ‘terms so one-sided as to
oppress or unfairly surprise an innocent party, an overall imbalance in the
obligations and rights imposed by the bargain, and significant cost-price
disparity.’” Rizzio v. Surpass Senior Living LLC, 248 Ariz. 266, 271-72, ¶ 21
(App. 2020) (quoting Maxwell, 184 Ariz. at 89, and citing Clark v. Renaissance
W., LLC, 232 Ariz. 510, 512, ¶ 8 (App. 2013)). Whether a contract is
substantively unconscionable depends on “the actual terms of the
contract,” Maxwell, 184 Ariz. at 89, and terms may be unconscionable if they
are “monstrously harsh” or “shocking to the conscience.” Ariz. Coffee Shops,
Inc. v. Phx. Downtown Parking Ass’n, 95 Ariz. 98, 101 (1963) (quoting Domus
Realty Corp. v. 3440 Realty Co., 40 N.Y.S.2d 69, 73-74 (Special Term 1943)).
¶17 The record does not support this argument. Aerial promised
to forego a deficiency judgment as long as Van Sickle performed under the
settlement agreement. Moreover, Van Sickle has not shown the agreement
resulted from Aerial’s bad faith, fraud or willful or wanton conduct, and
1 Van Sickle’s unconscionability argument relies in large part upon his
contention that he had an absolute right to protection from an
anti-deficiency action. We rejected this argument above.
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none is apparent from the record. Thus, we cannot say the relevant term
was “monstrously harsh” or “shocking to the conscience.” See Ciavarelli v.
Zimmerman, 122 Ariz. 143, 145 (App. 1979) (concluding lender’s “insistence”
upon compliance with the contract was not “harsh, oppressive, or
inequitable,” especially because the lender had given the borrower a
“second chance,” and the borrower knew of the lender’s expectations). The
superior court did not err.
III. Van Sickle Did Not Waive the Fair Market Value Protections of
A.R.S. § 33-814(A).
¶18 Finally, Van Sickle argues the superior court erred when it
interpreted the Agreement to waive the anti-deficiency statute’s fair market
value protections of A.R.S. § 33-814(A), which ensure that “the deficiency
judgment shall be for an amount equal to the sum of the total amount owed
the beneficiary as of the date of the sale, as determined by the court less the
fair market value of the trust property on the date of the sale as determined
by the court or the sale price at the trustee’s sale, whichever is higher.”
A.R.S. § 33-814(A).
¶19 Van Sickle never waived his procedural right to a fair market
valuation hearing. See Barrons Tr., 237 Ariz. at 406, ¶ 22 (defining waiver as
“the express, voluntary, intentional relinquishment of a known right”)
(quoting Am. Cont’l Life Ins. v. Ranier Constr. Co., 125 Ariz. 53, 55 (1980))
(emphasis added). The Agreement permitted Aerial to “initiate and
consummate a deficiency on the subject property subject to applicable law.
¶20 A fair market value determination is not a defense for
purposes of the Agreement; it has no bearing on the validity of a claim.
Rather than halt a deficiency judgment, a fair market value determination
provides procedural protection so that a lender obtains a judgment for no
more than is necessary to compensate for actual losses. Barrons Tr., 237
Ariz. at 405-06, ¶ 17; accord CSA 13-101, 236 Ariz. at 412-14, ¶¶ 9-13, 17.
Therefore, the superior court erroneously skipped the valuation hearing
here after Van Sickle requested it.
CONCLUSION
¶21 We affirm the superior court’s decisions on whether the
contractual waiver is valid and enforceable, but vacate the deficiency
judgment and remand this matter for a hearing to determine the Property’s
fair market value in accordance with A.R.S. § 33-814(A).
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AERIAL FUNDING v. VAN SICKLE
Decision of the Court
¶22 Both parties request an award of attorney fees and costs.
Upon compliance with ARCAP 21(b), Van Sickle is awarded his reasonable
attorney fees and costs incurred on appeal under the Agreement. A.R.S. §§
12-341 and -341.01. Aerial’s request is denied.
AMY M. WOOD • Clerk of the Court
FILED: AA
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