Biel v. Crg

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

BIEL PROPERTIES, LLC, an Arizona limited liability company;
JONATHA A. BROWN, LLC, an Arizona limited liability company;
BUNNY MONEY, LLC, an Arizona limited liability company; CATHY
DANIELS, Trustee of THE LUTHER JAY DANIELS AND CATHY ANN
DANIELS REVOCABLE TRUST DATED AUGUST 28, 1996, a trust;
ENTRUST FBO TIM KOLACNY IRA # 11384; JOHN HICKS and TROY
STINE, individuals; DIANA ROBERTS KAY, Trustee of the NICHOLAS L.
KAY TRUST DATED AUGUST 14, 1996, a trust; PENSCO TRUST
COMPANY CUSTODIAN FBO KAREN L. WENGER IRA 'PENSCO
ACCOUNT # WEIEG'; CONSTANCE M. QUICKLE, Trustee of THE
QUICKLE FAMILY TRUST, a Trust; SCHRIER INVESTMENTS, LLC, an
Arizona limited liability company; RICHARD and CINDI SCHUSTER,
husband and wife; MAUREEN SEIFERT, an individual; SUZIE L.
STRADER, an individual; SWEET RETIREMENT FUND, LLC, an Arizona
limited liability company; THE FAST TRACK VENTURE, LLC, an
Arizona limited liability company; and ROBERT A. VIDEAN FAMILY
REVOCABLE TRUST, a trust, Plaintiffs/Appellants,

v.

CRG PARTNERS, II, LLC, an Arizona limited liability company; MONTE
VISTA PARTNERS, LLC fka CRG PARTNERS III, LLC, an Arizona
limited liability company; RDP INVESTMENT GROUP, LLC, a Nevada
limited liability company; and KELLY FREEMAN, an individual,
Defendants/Appellees.

No. 1 CA-CV 14-0186
FILED 4-9-2015

Appeal from the Superior Court in Maricopa County
No. CV2010-081179, CV2012-017698
(Consolidated)
The Honorable David M. Talamante, Judge

AFFIRMED
 COUNSEL

Stratman Law Firm, PLC, Phoenix
By Troy B. Stratman, Emily H. Mann
Counsel for Plaintiffs/Appellants

Wilenchik & Bartness PC, Phoenix
By Dennis I. Wilenchik, Brian Hembd
Counsel for Defendants/Appellees

MEMORANDUM DECISION

Judge Kenton D. Jones delivered the decision of the Court, in which
Presiding Judge John C. Gemmill and Judge Donn Kessler joined.

J O N E S, Judge:

¶1 Appellants (Biel) appeal the dismissal of their complaint,
which sought to quiet title to a parcel of real property located in Maricopa
County, Arizona (the Property). For the following reasons, we affirm.

FACTS1 AND PROCEDURAL HISTORY

¶2 In September 2007, RDP Investment Group, L.L.C. (RDP)
entered into a Loan Agreement with Foundations Commercial, L.L.C.
(Foundations), whereby Foundations agreed to provide RDP with a term
loan of an amount up to $3 million, with an option for an additional $7
million, for the purpose of establishing a commercial sand and gravel
operation. The loan was to be secured by a Deed of Trust on the Property
that named Foundations as the beneficiary. The Deed of Trust was not to

1 In reviewing a motion to dismiss, we assume the truth of the well-
pleaded facts of the complaint, and view them in the light most favorable
to Biel. See Mintz v. Bell Atl. Sys. Leasing Int’l, Inc., 183 Ariz. 550, 552, 905
P.2d 559, 561 (App. 1995) (citing Mack v. McDonnell Douglas Helicopter Co.,
179 Ariz. 627, 628, 880 P.2d 1173, 1174 (App. 1994)). We may also consider
matters of public record. See Strategic Dev. & Constr., Inc. v. 7th & Roosevelt
Partners, L.L.C., 224 Ariz. 60, 64, ¶ 13, 226 P.3d 1046, 1050 (App. 2010).

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become effective, however, until “after [RDP]’s receipt of 2.5 million
dollars” from Foundations.

¶3 Thereafter, in January 2008, in a separate but related
transaction, Biel loaned Foundations $1.75 million to fund a portion of its
loan to RDP. As part of the lending agreement with Biel, Foundations
assigned to Biel a portion of its “rights to repayment” of the principal and
interest due to Foundations under the Loan Agreement with RDP, its
“rights of recourse against [RDP],” and its “rights to any collateral under
the Loan Agreement” between Foundations and RDP. No document
memorializing this arrangement was ever recorded.

¶4 In April 2009, Foundations recorded the Deed of Trust, listing
itself as both the trustee and beneficiary. When RDP ultimately defaulted
on the loan, Foundations effectuated an uncontested trustee’s sale, and
receiving no objection and no outside bids, obtained a Trustee’s Deed that
indicated it was the owner of the Property. The remaining Appellees claim
an interest in title to the Property pursuant to deeds recorded between
August 2009 and February 2011.

¶5 In November 2010, RDP filed suit against Foundations,
alleging Foundations never provided the $2.5 million required to trigger
the attachment of the security interest in the Property, and thereby
challenged the validity of the Deed of Trust and subsequent trustee’s sale.
Foundations failed to appear and defend the action, and the trial court
ultimately entered a default judgment in favor of RDP and against
Foundations, expressly finding Foundations “never held a valid deed of
trust or other security interest in the Property,” and both the Deed of Trust
and Trustee’s Deed were “void and create[d] no valid interest in the
Property.”2

2 Biel argues we should disregard the judgment declaring the Deed of
Trust and subsequent Trustee’s Deed void, and instead accept as true the
allegations of its complaint that Foundations foreclosed on the Property
and became the record owner. We need not reach this issue however,
because even assuming Foundations acquired a valid security interest in
the Property, we reject the assertion that the assignment to Biel of some
portion of Foundations’ rights as beneficiary under a Deed of Trust
conferred to Biel an interest in title to the Property.

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Decision of the Court

¶6 In December 2012, Biel filed a separate suit against
Appellees,3 alleging Biel had become a beneficiary under the Deed of Trust
through the assignment of the right to repayment from Foundations, and
sought (1) a judicial declaration of ownership of the Property, and (2) quiet
title to the Property.4 Appellees immediately filed a motion to dismiss Biel’s
complaint, arguing Biel lacked standing because it failed to establish an
interest in title to the Property. The trial court agreed and granted the
motion to dismiss Biel’s complaint against Appellees in a signed Rule 54(b)
judgment on January 21, 2014. Biel timely appealed. We have jurisdiction
pursuant to A.R.S. §§ 12-120.21(A)(1)5 and -2101(A)(1).

DISCUSSION

¶7 We review the dismissal of a complaint for failure to state a
claim de novo. Blankenbaker v. Marks, 231 Ariz. 575, 577, ¶ 6, 299 P.3d 747,
749 (App. 2013). To maintain a quiet title action, a plaintiff must necessarily
establish the nature and extent of his estate or interest in the subject
property. A.R.S. § 12-1101(A) (“An action to determine and quiet title to
real property may be brought by anyone having or claiming an interest
therein . . . .”); Saxman v. Christmann, 52 Ariz. 149, 154, 79 P.2d 520, 522 (1938)
(“The subject matter of an action to quiet title is the title and not the land.
The interest to be quieted is in the title. One having no title or claiming no
title to or in the property cannot bring the action.”), criticized on other grounds
by Rundle v. Republic Cement Corp., 86 Ariz. 96, 101, 341 P.2d 226, 229 (1959).
A mere avowal of title is insufficient to sustain a claim to title, and a
complaint which sets forth facts that fail to establish the plaintiff’s right to
title fails to state a claim. Verde Water & Power Co. v. Salt River Valley Water
Users’ Ass’n, 22 Ariz. 305, 307, 197 P. 227, 228 (1921).

¶8 Biel claims its interest in title arose through the assignment
from Foundations of a portion of its security interest in the Property. We

3 The two cases were consolidated in May 2013.

4 Biel also brought claims against Foundations for negligence,
misrepresentation, breach of fiduciary duty, and unjust enrichment, which
are not at issue in this appeal.

5 Absent material revisions from the relevant date, we cite a statute’s
current version.

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disagree that the facts, as alleged by Biel, confer standing to assert a claim
to quiet title.

¶9 A deed of trust conveys legal title in real property to a third
party — the trustee — to secure the performance of a contract. A.R.S. §§ 33-
801(8), -805; Snyder v. HSBC Bank, USA, N.A., 873 F. Supp. 2d 1139, 1153 (D.
Ariz. 2012). The trustee holds legal title until the loan balance is paid or the
security reclaimed. See A.R.S. § 33–801(8), (10); Hatch Cos. Contracting, Inc.
v. Ariz. Bank, 170 Ariz. 553, 556, 826 P.2d 1179, 1182 (App. 1991) (explaining
“deed of trust ‘conveys’ the trust property to a trustee who holds the
property for the benefit of the beneficiary designated in the deed of trust”).
In the interim, the trustee holds only “bare legal title — sufficient only to
permit him to convey the property at the out of court sale.” Eardley v.
Greenberg, 164 Ariz. 261, 264, 792 P.2d 724, 727 (1990) (quoting Brant v.
Hargrove, 129 Ariz. 475, 480 n.6, 632 P.2d 978, 983 n.6 (App. 1981) (internal
quotations omitted). A deed of trust is therefore “‘[i]n practical effect . . .
little more than a mortgage with a power to convey upon default,’” id.
(quoting In re Bisbee, 157 Ariz. 31, 34, 754 P.2d 1135, 1138 (1988)), and the
two are treated similarly. See Brant, 129 Ariz. at 480, 632 P.2d at 983
(agreeing with reasoning in Hamel v. Gootkin, 20 Cal. Rptr. 372, 374 (App.
1962), that it would be unrealistic to treat deeds of trust differently from
mortgages, in determining whether a deed of trust defeated a joint tenancy,
where the two “perform the same basic function”).

¶10 Although the beneficiary under a deed of trust, like a
mortgagee, may have an interest in the property itself, the fact remains he
has no interest in the title. See Saxman, 52 Ariz. at 154, 79 P.2d at 522. “Such
encumbrancers cannot maintain an action to quiet title, for they have no
title.” Id.; see also Berryhill v. Moore, 180 Ariz. 77, 88, 881 P.2d 1182, 1193
(App. 1994) (“[A] mortgagee’s interest does not attach to the title. Rather,
it attaches to the land. Thus, under Arizona law, a mortgagee cannot bring
an action to quiet title because the mortgagee has no title.”) (internal
citations omitted).

¶11 Moreover, even had Foundations rightfully acquired title to
the Property as the beneficiary of the Deed of Trust, this still would not have
transferred to Biel any interest in the title. Rather, when the assignor of an
interest in a deed of trust later acquires title through a foreclosure action,
he does so for the benefit of the assignee, and only to the extent necessary
to protect the assignment. Metcalf v. Phx. Title & Trust Co., 33 Ariz. 13, 21,
261 P. 633, 636 (1927); cf. Read v. Ariz. Dep’t of Rev., 166 Ariz. 533, 537-38, 803
P.2d 944, 948-49 (Tax Ct. 1991) (recognizing initiation of foreclosure
proceedings did not change nature of lienholder’s contingent ownership

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interest), superseded by statute on other grounds as stated in Hing v. Maricopa
Cnty., 224 Ariz. 421, 423, 231 P.3d 953, 955 (Tax Ct. 2010). The taking “for
the benefit of” the assignee does not equate to the transfer of title to the
assignee. See Metcalf, 33 Ariz. at 21, 261 P. at 636; cf. A.R.S. § 33-703(B)
(noting mortgagor who acquires title subsequent to execution of mortgage
retains title for the benefit of mortgagee). Instead, it subjects the property
to a lien, in favor of the assignee, in the amount of the note secured by the
deed of trust. Metcalf, 33 Ariz. at 21, 261 P. at 636. Therefore, Biel, at most,
had a right to claim a lien against the Property in the amount of the
outstanding balance owed to Biel by Foundations. These facts do not,
however, state a claim to title.

¶12 Biel argues, however, that it is an innocent victim entitled to
relief as an “equitable beneficiary” under the Deed of Trust. Because Biel
does not support this argument with citation to any relevant legal authority,
and our research has uncovered none, we decline to address it. See ARCAP
13(a)(7)(A) (requiring brief of appellant contain “citations of legal
authorities” in support of each issue presented for review); Ritchie v.
Krasner, 221 Ariz. 288, 305, ¶ 62, 211 P.3d 1272, 1289 (App. 2009) (deeming
waived issue not supported by authority in opening brief).

¶13 Biel also contends the trial court erred by failing to provide it
opportunity to further amend its pleadings against Appellees before
granting the motion to dismiss. Although Biel “reserved its right” to file an
amended complaint at some unspecified future date, subject to compliance
with Arizona Rule of Civil Procedure 15(a), within its reply to its objection
to Appellees’ motion for attorneys’ fees and costs, it never sought leave to
do so. While motions seeking leave to amend should be liberally granted,
Ariz. R. Civ. P. 15(a)(1); Dube v. Likins, 216 Ariz. 406, 415, ¶ 24, 167 P.3d 93,
102 (App. 2007), the motion to amend must be filed before the court can
entertain it, which never occurred here.

¶14 The remainder of Biel’s argument focuses upon the propriety
of Appellees’ claimed interests in the title to the Property. However,
because Biel does not have an interest in title to the Property, Biel lacks
standing to challenge the interests of others. Indeed, the proponent of a
claim to quiet title can only proceed “on the strength of his own title rather
than the weakness of his adversary’s.” Allison v. State, 101 Ariz. 418, 421,
420 P.2d 289, 292 (1966) (citations omitted). We therefore reject these
contentions.

¶15 Finally, although Biel did not separately brief the merits of its
claim for declaratory relief on appeal, we note that any request for a

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declaration of Biel’s ownership interest in the Property has been addressed
through the determination that it has no claim to title to the Property.
Therefore, even assuming the plea for declaratory relief could be
considered separate from its claim for quiet title, Biel’s rights and status
relative to Appellees has been addressed and the claim properly
extinguished. See Land Dep’t v. O’Toole, 154 Ariz. 43, 47, 739 P.2d 1360, 1364
(App. 1987) (“The declaratory judgment procedure is not designed to
furnish an additional remedy where an adequate one exists.”) (citations
omitted).

CONCLUSION

¶16 Because Biel cannot, upon the facts alleged, illustrate any
valid interest in title to the Property, it cannot, as a matter of law, maintain
an action for quiet title or for the declaratory relief, and the trial court
properly dismissed its complaint against Appellees.

¶17 Biel requests its attorneys’ fees on appeal pursuant to A.R.S.
§ 12-1103(B). Biel is not the prevailing party, and we decline this request.

¶18 Appellees request their attorneys’ fees on appeal pursuant to
A.R.S. §§ 12-341.01(A) and -349(A). The prerequisites to an award of fees
under A.R.S. § 12-349 are not present, and A.R.S. § 12-341.01 does not apply
in a quiet title action. Lewis v. Pleasant Country, Ltd., 173 Ariz. 186, 195, 840
P.2d 1051, 1060 (App. 1992) (“The exclusive basis for attorneys’ fees for
quiet title actions lies in A.R.S. § 12-1103.”) (citing Lange v. Lotzer, 151 Ariz.
260, 261, 727 P.2d 38, 39 (App. 1986)). However, as the prevailing party,
Appellees may recover their costs upon compliance with ARCAP 21.

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