National Tax v. Rivers ( 2019 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
NATIONAL TAX LIEN REDEMPTION SERVICES L.L.C., et al.,
Plaintiffs/Appellees,
v.
JAMES M. RIVERS, et al.,
Defendants/Appellants.
No. 1 CA-CV 17-0765
FILED 1-8-2019
Appeal from the Superior Court in Maricopa County
No. CV2012-092032
The Honorable David M. Talamante, Judge
AFFIRMED IN PART; REVERSED IN PART; VACATED IN PART;
REMANDED
COUNSEL
The Hendrix Law Office, Gilbert
By Heather M. Hendrix
Counsel for Plaintiff/Appellee National Tax Lien Redemption Services L.L.C.
Lake & Cobb, P.L.C., Tempe
By Richard L. Cobb, Hank E. Pearson
Counsel for Plaintiff/Appellee Premier Equity Solutions, L.L.C.
Gust Rosenfield, P.L.C., Phoenix
By Scott A. Malm, Mina O’Boyle
Co-Counsel for Plaintiffs/Appellees Geared Equity, L.L.C. and 50780, L.L.C.
Kevin T. Ahern, P.C., Phoenix
By Kevin T. Ahern
Co-Counsel for Plaintiffs/Appellees Geared Equity, L.L.C. and 50780, L.L.C.
Cochran Law Firm, P.C., Phoenix
By Jerry L. Cochran
Co-Counsel for Defendants/Appellants
Treon & Aguirre, P.L.L.C., Phoenix
By Richard T. Treon
Co-Counsel for Defendants/Appellants
MEMORANDUM DECISION
Presiding Judge Kenton D. Jones delivered the decision of the Court, in
which Vice Chief Judge Peter B. Swann and Judge David D. Weinzweig
joined.
J O N E S, Judge:
¶1 James Rivers and Richard Treon (collectively, Rivers/Treon)
appeal the trial court’s orders denying partial summary judgment in their
favor and later granting summary judgment in favor of National Tax Lien
Redemption Services L.L.C. (National Tax); Premier Equity Solutions,
L.L.C. (Premier); and Geared Equity, L.L.C. and 50780, L.L.C. (collectively
the Lenders). At issue is whether Rivers/Treon have standing to redeem
tax liens filed against a parcel of real property in Phoenix (the Property)
arising from an interest Rivers/Treon claim to possess in the Property. For
the following reasons, we hold that Rivers/Treon presented sufficient
evidence of their alleged interest in the Property to create a genuine issue
of material fact that precluded entry of summary judgment in Appellees’
favor. Accordingly, we affirm in part, reverse in part, vacate the award of
attorneys’ fees, and remand for further proceedings.
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Decision of the Court
FACTS AND PROCEDURAL HISTORY
¶2 This is a highly unusual tax lien foreclosure/quiet title case
that raises procedural, ethical, and public policy concerns.1 Nonetheless,
this Court is limited to reviewing the posture of the case presented by the
parties. See Young v. Bishop, 88 Ariz. 140, 147 (1960). “On appeal from a
grant of summary judgment, we view all facts and reasonable inferences
therefrom in the light most favorable to the party against whom judgment
was entered.” City of Tempe v. State, 237 Ariz. 360, 362, ¶ 1 n.3 (App. 2015)
(quoting Bothell v. Two Point Acres, Inc., 192 Ariz. 313, 315, ¶ 2 (App. 1998)).
A. The Sweeneys/Rivers/Treon Interests
¶3 In 1983, Diane Sweeney and her husband, Tom, purchased the
Property as a residence for Tom’s mother.2 Three years later, the Sweeneys
borrowed $120,000 from Rivers. Treon wore several hats in the transaction,
including attorney for both parties, personal guarantor of repayment, and
ultimately a lender to the Sweeneys. He drafted the written promissory
note (the 1986 Note), the recorded deed of trust securing the note, and his
personal guaranty.
¶4 The relevant documents have been lost, including the original
and all copies of the 1986 Note and Treon’s personal guaranty. According
to Treon and the Sweeneys, however, the 1986 Note required the Sweeneys
to pay taxes on the Property, make monthly interest payments, and repay
the underlying indebtedness within 120 days of written demand.
¶5 In 1987, the Sweeneys were unable to make monthly interest
payments on the 1986 Note, so Treon began making them pursuant to the
guaranty. Treon then paid off the principal in its entirety and obtained a
written assignment (the 1988 Assignment) of Rivers’ rights under the 1986
Note and Deed of Trust. The 1988 Assignment was not recorded and has
likewise been lost.
1 Additional procedural issues are detailed in a related and
contemporaneously filed decision, Nat’l Tax Lien Redemption Servs. L.L.C. v.
Sweeney, 1 CA-CV 17-0611 (Ariz. App. Jan. 8, 2019) (mem. decision).
2 Tom quitclaimed his interest in the Property to Diane in 2007 but
retained responsibility to pay the property taxes and insurance.
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¶6 Shortly thereafter, Treon and the Sweeneys orally agreed to
change the terms of the original loan. Treon described the new terms as
follows:
I agreed to forebear enforcing the 120-day payment demand
provision of the note; the Sweeneys agreed they would pay
the note off when they were able plus all accrued interest . . .
Thomas Sweeney’s mother . . . could continue to live in the
house and the interest owed on the $120,000 note would
simply accumulate pending one of three possible events.
First, Thomas and Diane Sweeney would pay off all of the
accrued interest and the principal; second if [Tom’s mother]
moved, or third, died, Thomas and Diane Sweeney and I
would then implement our oral partnership agreement that
provided that the property would then either be sold, or if
market circumstances were favorable, we would engage in a
joint venture to develop the property. If the property was
sold, I would receive the $120,000 plus all accrued interest . . .
and the Sweeneys and I would then split the net dollars left
out of the sale price, if any. Or, we would jointly develop the
property and I would subordinate the Rivers’ Deed of Trust
for financing in order to build a house, and the payment
would be the same: I would receive the first $120,000 plus all
accrued interest and we would divide the net profits equally.
B. Appellees’ Interests
¶7 After Tom failed to pay the taxes on the Property, the
Maricopa County Treasurer sold the resulting tax liens to National Tax. In
March 2012, National Tax filed a tax lien foreclosure action against Diane
as the property owner and Rivers as a “beneficiary.” Seven months later,
National Tax obtained judgment against Diane — the effect of which was
to foreclose her right to redeem the tax liens — and received a treasurer’s
deed to the Property. In May 2013, National Tax sold the Property to
Premier, which later intervened in the lawsuit.
¶8 National Tax had neglected to serve Rivers with the
foreclosure complaint, however, until around eighteen months after
securing a judgment and obtaining title to the Property.3 Premier sought
3 It is unclear from the record exactly why National Tax waited to
serve Rivers until after it had already obtained the treasurer’s deed and sold
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summary judgment on the grounds that Rivers had been served by
publication. The trial court found National Tax had failed to properly serve
Rivers, and thus, the 2012 foreclosure judgment did “not operate to
foreclose [Rivers/Treon’s] redemption rights.”
¶9 The parties then moved into the quiet title phase of litigation.
Premier amended the complaint to include a quiet title action in February
2016.4 Premier asserted that Rivers/Treon never had a valid interest in the
Property, and therefore never had any right to redeem the tax liens.
¶10 Rivers/Treon and Premier filed cross-motions for summary
judgment in September 2016. In support of its motion, Rivers/Treon
submitted: (1) declarations from the Sweeneys and Treon describing the
terms of the oral 1988 Agreement and (2) a 2015 agreement between Treon
and a special conservator appointed to protect the now-mentally
incapacitated Rivers, which said that “Treon entered into a separate
agreement [in 1988] with the Sweeneys” that contained different terms than
those in the 1986 Note.
¶11 In March and May 2017, the trial court denied Rivers/Treon’s
motion and entered summary judgment in Premier’s favor. After moving
unsuccessfully for a new trial, Rivers/Treon timely appealed, and we have
jurisdiction over both orders pursuant to A.R.S. §§ 12-120.21(A)(1)5
and -2101(A)(1). See Bothell, 192 Ariz. at 316, ¶ 7 (holding that although an
order denying summary judgment is generally not appealable, the court
may review the order along with one granting summary judgment “to
avoid piecemeal litigation”) (citing Mealey v. Orlich, 120 Ariz. 321, 322
the Property to Premier. Correspondence in January 2014 between
Premier’s attorney and its title agency suggests Premier had demanded that
National Tax “fix the mess,” and thus National Tax’s intention was to serve
Rivers and attempt to obtain default judgment against his potential interest
in the Property.
4 In June 2015, eight months before filing the quite title action, Premier
sent Rivers/Treon a demand for their execution of a quitclaim deed along
with five dollars as required by Arizona Revised Statutes (A.R.S.) § 12-
1103(B). Rivers/Treon rejected the demand.
5 Absent material changes from the relevant date, we cite a statute’s
current version.
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(1978), and State Farm Mut. Auto. Ins. v. Peaton, 168 Ariz. 184, 194 (App.
1990)).
DISCUSSION
¶12 We review a trial court’s disposition on summary judgment
de novo. Salib v. City of Mesa, 212 Ariz. 446, 450, ¶ 4 (App. 2006) (citing
Romley v. Arpaio, 202 Ariz. 47, 51, ¶ 12 (App. 2002)). Summary judgment is
appropriate if no genuine issues of material fact exist and the moving party
is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a); Orme Sch.
v. Reeves, 166 Ariz. 301, 305 (1990).
I. Premier’s Motion for Summary Judgment
¶13 Premier moved for summary judgment on the grounds that:
(1) Rivers/Treon were required to show documentary evidence that the
1986 Note existed; (2) even assuming the 1988 Agreement existed, it
extinguished the 1986 Deed of Trust; (3) the statute of frauds barred
Rivers/Treon’s rights to redeem the tax liens; (4) the statute of limitations
barred Rivers/Treon’s rights; (5) Premier and the Lenders were bona fide
purchasers, and thus, protected from Treon’s unrecorded 1988 interest; and
(6) no reasonable jury would believe the unrecorded 1986 Note or 1988
Agreement existed. We discuss each argument in turn.
A. Rivers/Treon Were Not Required to Provide the Original or
Copy of the 1986 Note.
¶14 Appellees rely upon A.R.S. § 47-3309 (governing the
enforcement of a lost, destroyed, or stolen instrument) to argue
Rivers/Treon have no interest in the Property because it cannot prove the
1986 Note ever existed. However, A.R.S. § 47-3309 is contained within
Arizona’s version of the Uniform Commercial Code (UCC), and “the UCC
does not govern liens on real property.” Steinberger v. McVey, 234 Ariz. 125,
136, ¶ 43 n.14 (App. 2014). Additionally, this Court has held that, where
documents tracing a beneficial interest are not available, “affidavits or
deposition testimony from persons involved in the transfers may suffice as
evidence of the chain of title.” Id. at ¶ 43.
¶15 Here, Rivers/Treon provided evidence of the existence and
terms of the 1986 Note in the form of: (1) the 1986 Deed of Trust, which
references a “Promissory Note dated July 17, 1986” in the amount of
$120,000; (2) Treon’s declaration and deposition testimony, (3) the
Sweeneys’ declarations and deposition testimony; and (4) the declaration
of Rivers’ mother. Viewing that evidence in the light most favorable to the
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non-prevailing party, we find Rivers/Treon presented sufficient evidence
of the 1986 Note’s existence to create a genuine issue of material fact
requiring resolution by a jury.
B. Competing Arguments Regarding Novation and
Subrogation Are Dependent Upon Genuine Issues of
Material Fact.
¶16 Assuming the 1986 Note existed, Appellees argue
Rivers/Treon have no interest in the Property because the 1986 Deed of
Trust was extinguished either when (1) Treon paid off the Sweeneys’
$120,000 loan, or (2) Treon and the Sweeneys entered the 1988 Agreement
to change the loan’s terms, constituting a novation of the 1986 Note.
Rivers/Treon counter that Treon stepped into the shoes of Rivers via the
doctrine of subrogation when he paid the loan off and his interest remained
secured by the 1986 Deed of Trust.
¶17 Here, the parties dispute the very existence of the 1986 Note,
Treon’s payment to Rivers, the 1988 Assignment, and the 1988 Agreement.
And without conceding their existence, Appellees contest the specific terms
of the purported agreements as well as the Sweeneys’ and Rivers/Treon’s
intent to extinguish the 1986 Deed of Trust. Thus, before the trial court can
rule upon the novation or subrogation arguments, a jury must resolve
factual disputes regarding the existence, terms, and intent of the
agreements. See Taser Int’l, Inc. v. Ward, 224 Ariz. 389, 393, ¶ 12 (App. 2010)
(“Summary judgment is not intended to resolve factual disputes and is
inappropriate if the court must determine the credibility of witnesses,
weigh the quality of evidence, or choose among competing inferences.”)
(citing Orme Sch., 166 Ariz. at 308-09, and State Comp. Fund v. Yellow Cab Co.
of Phx., 197 Ariz. 120, 123, ¶ 11 (App. 1999)). As such, summary judgment
is not appropriate for the resolution of these issues.
C. The Statute of Frauds and Statute of Limitations Are
Inapplicable.
¶18 Appellees next argue Rivers/Treon have no enforceable
interest in the Property because enforcement of the 1988 Agreement is
barred by the statute of frauds and statute of limitations. Not so. Appellees’
statute of frauds defense fails because they have no interest in the oral
agreement between the Sweeneys and Treon. See Restatement (Second) of
Contracts § 144 & cmt. d (1981) (“Only parties to a contract and their
transferees and successors can take advantage of the Statute of Frauds. As
against others the unenforceable contract creates the same rights, powers,
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privileges and immunities as if it were enforceable.”); see also In re Circle K
Corp., 127 F.3d 904, 908 (9th Cir. 1997) (same) (citations omitted).
¶19 For the same reason, Appellees’ reliance upon the statute of
limitations fails; the defense is only available to the borrower or one in
privity, not a third-party tax lien purchaser, grantee of the treasurer’s deed,
or subsequent lienholders. See Acad. Life Ins. v. Odiorne, 165 Ariz. 188, 190
(App. 1990) (“The defense of the statute of limitations is a personal privilege
that a debtor or one in privity may elect to urge or waive. Because this
defense is personal, . . . a general creditor may not plead the statute of
limitations on its debtor’s behalf.”) (citing Trujillo v. Trujillo, 75 Ariz. 146,
148 (1953)); see also Provident Mut. Bldg.-Loan Ass’n v. Schwertner, 15 Ariz.
517, 518 (1914) (“[The statute of limitations defense] prevents a recovery
when properly invoked by the debtor. It is a shield and not a sword. It can
be used for defense, but not for assault.”).
D. Appellees Are Not Bona Fide Purchasers.
¶20 Finally, Appellees argue Rivers/Treon have no interest in the
Property because the 1988 Agreement was not, by its reported terms,
secured by the 1986 Deed of Trust. To the extent this argument is
conditioned upon a finding that the 1988 Agreement extinguished the 1986
Deed of Trust through novation, it is premature. See supra Part I(B).
¶21 A person’s interest in the property need not be publicly
recorded to trigger a right of redemption. Rather, a real property tax lien
may be redeemed “at any time before judgment is entered,” A.R.S. § 42-
18206, by “[a]ny person who has a legal or equitable claim in the property,”
A.R.S. § 42-18151(A)(4), without regard to the interest’s recordation. See
Delo v. GMAC Mortg., L.L.C., 232 Ariz. 133, 135-38, ¶¶ 7-17 (App. 2013)
(acknowledging a right to redeem a tax lien based upon an unrecorded
interest); Roberts v. Robert, 215 Ariz. 176, 180, ¶¶ 16-17 (App. 2007) (same).
The 1988 Agreement, as described by the Sweeneys and Treon, created an
interest in the Property triggering Rivers/Treon’s rights to redeem. See
supra ¶ 6. The lack of recordation, like the lack of writing, however
imprudent, does not subject Appellees’ claims to resolution on summary
judgment unless National Tax was a bona fide purchaser. See Delo, 232
Ariz. at 138, ¶ 18.
¶22 “A bona fide purchaser is one who purchases property for
value and without actual or constructive notice of a prior unrecorded
interest.” Id. (citing First Am. Title Co. v. Action Acquisitions, L.L.C., 218 Ariz.
394, 398, ¶ 12 (2008), and Davis v. Kleindienst, 64 Ariz. 251, 258 (1946)). A
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purchaser is on constructive notice of recorded documents and “of the facts
a reasonably diligent inquiry would disclose.” Hall v. World Sav. & Loan
Ass’n, 189 Ariz. 495, 500 (App. 1997) (quoting Maricopa Utils. Co. v. Cline, 60
Ariz. 209, 214 (1943)). Significantly, if a purchaser relies upon a title
company to investigate prior claims upon a property, the purchaser “is
bound by whatever notice the title company had while acting within the
scope of its authority.” Id. at 501 (citations omitted). This is particularly
true in the context of a tax lien foreclosure where “the onus is on the
purchaser to protect its own interests.” PLM Tax Certificate Program 1991-
92, L.P. v. Schweikert, 216 Ariz. 47, 51, ¶ 23 (App. 2007) (citing Suzico, Inc. v.
Maricopa Cty., 187 Ariz. 269, 272 (App. 1996)). Indeed, “[e]quity favors the
right to redeem [a real property tax lien] and will not deny the right except
upon strict compliance with the steps necessary to divest it.” Delo, 232 Ariz.
at 137, ¶ 12 (quoting Harbel Oil Co. v. Steele, 83 Ariz. 181, 185 (1957)).
¶23 Although National Tax knew or should have known of the
interests in the Property reflected within the recorded 1986 Deed of Trust,
National Tax failed to properly serve Rivers/Treon. The record further
reflects that Premier’s agents, Title Resources Guaranty, L.L.C. and First AZ
Title Company, knew about the 1986 Deed of Trust and the Rivers/Treon
connection before Premier purchased the Property, and that Premier had
actual knowledge of the 1986 Deed of Trust prior to borrowing nearly a
million dollars from the Lenders. Yet, no effort was made to investigate the
Rivers/Treon claims or provide them proper notice of the proceedings, and
Premier continued to develop the Property in the face of potential adverse
interests. Appellees’ failure to comply with basic service requirements or
investigate the recorded deed of trust precludes them from claiming the
protections of a bona fide purchaser.
Rivers/Treon’s Motion for Partial Summary Judgment
¶24 Rivers/Treon argue the trial court erred by denying the
competing motion for summary judgment. In that motion, Rivers/Treon
argued there were “no material fact issues as to the terms and conditions of
the [1988 Agreement]” because the Sweeneys and Treon agreed upon the
contents of the 1986 Note and the 1988 Agreement, and therefore, “there
[was] nothing to present to the jury.” Our de novo review of the record,
however, reveals that although Rivers/Treon characterized the testimony
as “uncontroverted,” Premier strenuously argued the testimony was
unsupported by documentary evidence and the credibility of the parties
was highly questionable — concerns we find to have considerable merit.
Because “[c]redibility determinations, the weighing of the evidence, and the
drawing of legitimate inferences from the facts are jury functions,” see Orme
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Sch., 166 Ariz. at 309 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986)), the trial court correctly denied Rivers/Treon’s motion.
III. Attorneys’ Fees
¶25 In two separate orders, the trial court awarded Premier a total
of $258,930.00 in attorneys’ fees pursuant to A.R.S. § 12-1103(B). That
statute provides:
If a party, twenty days prior to bringing the action to quiet
title to real property, requests the person, other than the state,
holding an apparent adverse interest or right therein to
execute a quit claim deed thereto, and also tenders to him five
dollars for execution and delivery of the deed, and if such
person refuses or neglects to comply, the filing of a disclaimer
of interest or right shall not avoid the costs and the court may
allow plaintiff, in addition to the ordinary costs, an attorney’s
fee to be fixed by the court.
A.R.S. § 12-1103(B). Because we reverse the order granting summary
judgment, Appellees can no longer be deemed the successful parties and
the fee awards are vacated.
CONCLUSION
¶26 In sum, the record contains sufficient evidence to create
genuine issues of material fact regarding the existence and terms of the 1986
Note, the 1988 Assignment, and the 1988 Agreement. Additionally, none
of the legal theories identified by Appellees provide grounds for granting
summary judgment as a matter of law. Accordingly, we reverse the trial
court’s order granting Appellee’s motion for summary judgment, affirm the
order denying Rivers/Treon’s motion, and vacate the award of attorneys’
fees. As the successful parties on appeal, Rivers/Treon are entitled to
reasonable costs upon compliance with ARCAP 21(b).
¶27 We stress that nothing within this decision should be
construed as an opinion upon the ultimate merits of the claims.
Additionally, as we noted at the beginning of this case, the circumstances
implicate significant ethical and public policy concerns. Because those
issues were not raised or argued before us, we leave for another day the
question of whether the alleged agreements might be unenforceable as a
matter of public policy. Cf. Levine v. Haralson, Miller, Pitt, Feldman &
McAnally, P.L.C., 244 Ariz. 234, 239, ¶ 19 (App. 2018) (barring the recovery
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of attorneys’ fees in quantum meruit where the contract for legal services was
found void as against public policy).
AMY M. WOOD • Clerk of the Court
FILED: AA
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