WELLS FARGO v. RIGGIO

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE WELLS FARGO BANK, N.A., ) ) Plaintiff/Appellee, ) ) v. ) ) DIANA RIGGIO and TINO RIGGIO, ) ) Defendants/Appellants. ) ________________________________) DIVISION ONE FILED: 6/4/2013 RUTH A. WILLINGHAM, CLERK BY: mjt No. 1 CA-CV 12-0430 DEPARTMENT E MEMORANDUM DECISION Not for Publication (Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2011-011057 The Honorable Katherine M. Cooper, Judge AFFIRMED Ryan Rapp & Underwood, PLC By Michael B. Brewer Malcolm T. Sloan Attorneys for Plaintiff/Appellee Phoenix Berens, Kozub, Kloberdanz & Blonstein, PLC By Richard W. Hundley Daniel L. Kloberdanz Attorneys for Defendants/Appellants Phoenix G E M M I L L, Judge ¶1 Defendants/Appellants Diana Riggio and Tino Riggio ( Riggios ) appeal the superior court s judgment in favor of Plantiff/Appellee Wells Fargo Bank, N.A. For the reasons that follow, we affirm. FACTS AND PROCEDURAL HISTORY ¶2 In December 2005, Wells Fargo extended a $410,000 loan ( Senior Loan ) to the Riggios. Wells Fargo extended an additional loan to the Riggios in April 2006 with a principal sum of $350,000 credit. ( Junior Loan ), as a home equity line of The loan agreements were secured by a first and a second deed of trust, respectively, which were both recorded against the Riggios residence at 8106 11th North Street ( Property ). ¶3 After asserting the Riggios were in default on the Senior Loan, Property. appeal Wells Fargo initiated a trustee s sale of the The sale was held in October 2009, and the record on indicates that the Property was bought by U.S. Bank National Association, as a trustee for CLMTI 2006-WF1, for a bid of $416,474.57. On appeal, however, Wells Fargo acknowledges that it (Wells Fargo) was the purchaser. ¶4 In July 2011, following the Riggios default on the Junior Loan and the trustee s sale of the Property, Wells Fargo filed suit against the Riggios to recover the principal balance of the Junior Loan, $350,000, plus interest. Wells Fargo moved for summary judgment as a matter of law because there was no dispute that the Riggios breached the Junior Loan agreement by failing to make payments, nor was there a dispute as to the 2 amount owed. ¶5 The Riggios filed a cross-motion for summary judgment, claiming Wells Fargo s attempt to collect on the Junior Loan obligation rights was a doctrine obligations. deficiency applied The to Riggios action the because Senior contended, the Loan and therefore, merger of Junior Loan that Wells Fargo s claim was barred because of its failure to satisfy the 90-day limitations period applicable to this deficiency claim under Arizona 2012). Revised The Statutes Riggios ( A.R.S. ) additionally § 33-814(A) argued, (Supp. assuming the limitations period was satisfied, that the amount owed to Wells Fargo must be reduced by the fair market value of the Property at the time of the sale. In support of the fair market value argument, the Riggios presented a statement from Tino Riggio explaining the Property s value exceeded the amount received at the trustee sale and was worth $700,000 or more. ¶6 Fargo s In April motion for 2012, summary the superior judgment and court denied granted the Wells Riggios cross-motion, awarding Wells Fargo $350,000 plus interest, fees, and costs. The Riggios timely appeal, and we have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) (2003), -2101(A)(1) (Supp. 2012). ANALYSIS ¶7 Summary judgment is appropriate 3 when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a). Summary judgment should be granted if the facts produced in support of the claim or defense 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 or defense. Armenta v. City of Casa Grande, 205 Ariz. 367, 369, ¶ 5, 71 P.3d 359, 361 (App. 2003) (quoting Orme School v. Reeves, (1990)). 166 Ariz. 301, 309, 802 P.2d 1000, 1008 In reviewing a summary judgment, we determine de novo whether any genuine issues of material fact exist and whether the trial court incorrectly applied the law. L. Harvey Concrete, Inc. v. Agro Constr. & Supply Co., 189 Ariz. 178, 180, 939 P.2d 811, 813 (App. 1997). We view the facts in the light most favorable to the party against whom summary judgment was entered and give that party the benefit inferences fairly arising from the evidence. ¶8 The issue in this case is of all favorable Id. whether the Riggios obligations to pay the Senior Loan and Junior Loan merged, as provided in Mid Kansas Federal Savings & Loan Association of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 804 P.2d 1310 (1991), when Wells Fargo, as the holder of both loans, foreclosed on the Senior Loan. The Riggios contend that because Wells Fargo was the holder of both the Senior Loan and the 4 Junior Loan, separately Wells bring Fargo an is unjustly enriched on Junior action foreclosure of the Senior Loan. the if allowed to after the Loan The Riggios explain, therefore, that Wells Fargo s right to collect on the Junior Loan is a deficiency action related to the foreclosure of the Senior Loan, and the Riggios are entitled to the protections of A.R.S. § 33814(A). ¶9 Under A.R.S. § 33-814(A), a debtor is provided with the following protection: Except as provided in subsections F and G of this section, within ninety days after the date of sale of trust property under a trust deed pursuant to Section 33-807, an action may be maintained to recover a deficiency judgment against any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security including any guarantor of or surety for the contract and any partner of a trustor or other obligor which is a partnership. In any such action against such a person, 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. (Emphasis added.) deficiency claim market value of The based the on Riggios the Property contend that Wells Junior Loan to determined. be requires Fargo s the fair Also, the Riggios argue that even if Wells Fargo is allowed to bring a 5 deficiency claim by attempting to collect on the Junior Loan obligation, this claim is barred limitation for deficiency action. by the statute s 90-day We conclude, however, that Wells Fargo s action on the Junior Loan does not constitute a deficiency action and A.R.S. § 33-814(A) does not apply. ¶10 The deficiency action contemplated under A.R.S. § 33- 814(A) is limited to a contract for which the trust deed was given as security. Here, the trustee sale was conducted as a foreclosure on the Senior Loan only. statutory protections of § In order to apply the 33-814(A) to the Junior Loan obligation, the Junior Loan must have been foreclosed upon or an exception must be provided. The Riggios rely on the reasoning in Mid Kansas as applicable authority. ¶11 same In Mid Kansas, the holder of two deeds of trust on the parcel of property purchased the secured trustee s sale on a junior deed of trust. 804 P.2d at 1312-13. property at a 167 Ariz. at 124-25, Afterward, the same holder waived the security interest in the property and sued directly on the note for the balance due on a senior loan obligation. Id. The Court found, based on the doctrine of merger, that the foreclosure of the junior senior debt. ¶12 lien extinguished the debtor s obligation on the Id. at 132, 804 P.2d at 1320. The Riggios contend that Mid Kansas provides that a primary and a secondary loan obligation held by the same party 6 merges when lender. enforcing the debts would unjustly enrich the In support, the Riggios cite the following paragraph: Where the same mortgagee holds both a first and second mortgage on the mortgagor's land, and becomes the purchaser at the foreclosure sale of one of the mortgages, the question of merger of rights often called extinguishment arises. The merger of rights doctrine addresses the narrow question of whether the mortgagor's personal liability on the senior debt has been discharged. Wright v. Anderson, 62 S.D. 444, 253 N.W. 484, 487 (1934). The primary issue in the doctrine of merger of rights is whether the lender would be unjustly enriched if he were permitted to enforce the debt. See generally Burkhart, Freeing Mortgages of Merger, 40 VAND.L.REV. 283, 382 (1987). Id. at 130, 804 P.2d at 1318. ¶13 Comparing the facts of the instant case with the facts of Mid Kansas, it is the differences that are most important. Similar to the facts in Mid Kansas, Wells Fargo held both the Senior Loan and Junior Loan deeds of trust on the Property, and Wells Fargo agrees trustee s sale. that it purchased the Property at the Unlike the facts in Mid Kansas, however, Wells Fargo initiated the trustee s sale on the Senior Loan not the Junior Loan. purchaser The foreclosure of the Senior Loan allowed the to take the Property free of junior encumbrances, including Wells Fargo s security interest in the Property based upon the Junior Loan. The Arizona Supreme Court specifically noted in this distinction the 7 application of the merger of rights doctrine purchase of mortgage will mortgage, the foreclosed. with the the when stating, property not [a]lthough at the foreclosure extinguish the debt reverse is true where the court that the mortgagee s of secured Id. at 130, 804 P.2d at 1318. superior the the by junior a senior junior mortgage is We therefore agree application of the merger doctrine in Mid Kansas does not apply to these facts. ¶14 Further, in Southwest Savings v. Ludi, the Arizona Supreme Court rejected an analogous merger argument arising in the context of potential application of Arizona s other antideficiency statute, A.R.S. § 33-729(A) (2007). 122 Ariz. 226, 228, the holder the same 594 P.2d promissory 92, notes 94 (1979). secured by In Ludi, mortgages on of two property foreclosed on the senior loan and then sued to collect on the junior loan. Id. at 227, 594 P.2d at 93. The Court held that the claim arising from the junior loan, although secured by the same property, was not a deficiency of the foreclosed senior loan; a separate action was appropriate. 228. Id. at 94, 594 P.2d at The Court explained that the lender could foreclose on the first mortgage and still sue at law on the second note without violating the statute. The second action would not be an action seeking a deficiency judgment based on the first mortgage but rather an independent action on the second note. Id. ¶15 apply Because the merger doctrine 8 does not to the Senior and Junior Loan obligations at issue, the protections specified for a deficiency proceeding under A.R.S. § 33-814(A) are inapplicable. Therefore, we need not decide the Riggios additional arguments on appeal based upon a deficiency claim. The Riggios obligation under the Junior Loan is a separate obligation from the Senior Loan, and Wells Fargo, by law, may sue directly on the note. 106, 770 P.2d 766, 774 See Baker v. Gardner, 160 Ariz. 98, (1988) (recognizing a deed of trust creditor may elect to forego foreclosure and sue directly on the note). ¶16 Finally, at oral argument before this court, the Riggios proposed that Mid Kansas established the doctrine of unjust enrichment, apart from merger, as a stand-alone bar to Wells Fargo s action to collect on the Junior Loan. We have reviewed the Arizona Supreme Court s reasoning and analysis in Mid Kansas, application and of we are unjust holding of the opinion. not persuaded enrichment is that such within the a sweeping spirit and See Mid Kansas, 167 Ariz. at 129 n.7, 804 P.2d at 1317 n.7 (explaining the issue before the Court was more properly characterized as merger and extinguishment rather than unjust enrichment and election of remedies). CONCLUSION ¶17 grant For the foregoing reasons, we affirm the trial court s of summary judgment. The 9 Riggios request costs and attorneys fees on appeal. We deny this request because they are not the successful parties. /s/ _________________________________ JOHN C. GEMMILL, Judge CONCURRING: /s/ ___________________________________ PATRICIA K. NORRIS, Presiding Judge /s/ ___________________________________ MICHAEL J. BROWN, Judge 10

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