Compass v. Bennett

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

COMPASS BANK, an Alabama corporation,
Plaintiff/Appellee,

v.

ROBERT HAMILTON BENNETT, SR. and MARILYN JO BENNETT,
husband and wife; ROBERT HAMILTON BENNETT AND MARILYN JO
BENNETT FAMILY TRUST,
Defendants/Appellants.

No. 1 CA-CV 14-0850
FILED 4-7-2016

Appeal from the Superior Court in Maricopa County
No. CV2011-012854
The Honorable J. Richard Gama, Judge

AFFIRMED

COUNSEL

Berens, Kozub, Kloberdanz & Blonstein, PLC, Scottsdale
By Daniel L. Kloberdanz, William A. Kozub
Counsel for Defendants/Appellants

Engelman Berger, P.C., Phoenix
By Scott B. Cohen, Bradley D. Pack
Counsel for Plaintiff/Appellee
 COMPASS v. BENNETT
Decision of the Court

MEMORANDUM DECISION

Judge Samuel A. Thumma delivered the decision of the Court, in which
Presiding Judge Kent E. Cattani and Judge Randall M. Howe joined.

T H U M M A, Judge:

¶1 Robert Hamilton and Marilyn Jo Bennett, husband and wife,
(the Bennetts) and the Robert Hamilton Bennett and Marilyn Jo Bennett
Family Trust (the Bennett Trust) appeal from the grant of summary
judgment in favor of plaintiff Compass Bank. The Bennetts and the Bennett
Trust (collectively Defendants) claim Compass was precluded from suing
to collect on its note without first taking action to waive its security interest
(a deed of trust) against a house. Because the superior court did not err, the
judgment is affirmed.

FACTS1 AND PROCEDURAL HISTORY

¶2 In 2007, the Bennett Trust purchased a house in Paradise
Valley for $3.15 million. To fund the purchase, the Bennett Trust made a
down payment of $850,000 and borrowed $1.9 million from Bank of
America, while the sellers provided a $400,000 carryback loan. The house
was the Bennetts’ primary residence.

¶3 In 2009, the Bennetts repaid the $400,000 carryback loan. Later
in 2009, the Defendants then obtained a second-position $1 million home
equity loan from Compass. The home equity loan transaction included a
security agreement and a second-position deed of trust against the house,
both of which were signed by Defendants. No portion of the home equity
loan was used to build any structure or improvement on the property or to
repay the $400,000 carryback loan.

¶4 Defendants subsequently defaulted on their loan repayment
obligations. Compass then accelerated the amount due under the $1 million
home equity loan, which remained unpaid.

1 Although the superior court resolved cross-motions for summary
judgment based largely on stipulated facts, this court “view[s] the evidence
and reasonable inferences in the light most favorable to” Defendants.
Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003).

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¶5 At some point before Compass filed this lawsuit, Bank of
America noticed a non-judicial trustee’s sale on the first-position $1.9
million loan. In early June 2011, after receiving notice of the trustee’s sale
but before the actual trustee’s sale, Compass filed this lawsuit against
Defendants, seeking to enforce the security agreement for the second-
position $1 million home equity loan. Compass did not expressly waive its
rights under the second-position deed of trust that secured the $1 million
home equity loan at any time before the trustee’s sale on the first-position
Bank of America loan.

¶6 At the trustee’s sale on the first-position loan held in late June
2011, the house sold to Bank of America for its credit bid. The trustee’s sale
extinguished Compass’ second-position deed of trust that secured the $1
million home equity loan, and several weeks later, Compass served
Defendants in this case to collect on its loan.

¶7 Following discovery, Defendants moved for summary
judgment, arguing Compass had an obligation to expressly waive its rights
under the second-position deed of trust before suing on the security
agreement and that the failure to do so barred this lawsuit. Compass argued
it was not required to expressly waive its rights under the second-position
deed of trust before suing on the security agreement and cross-moved for
summary judgment based on Defendants’ admitted failure to repay the $1
million home equity loan.

¶8 After briefing and oral argument, the superior court denied
Defendants’ motion for summary judgment and granted Compass’ cross-
motion for summary judgment. Although noting “[a] lender must ‘forego’
enforcement of the rights it possesses to foreclose on its deed of trust” when
it sues on its non-purchase-money note, the court concluded “[t]he
predicate act [for such a waiver] is simply failing to exercise these rights.”
Because Compass had failed to exercise its rights under the second-position
deed of trust, and because the trustee’s sale on the first-position loan had
extinguished those rights, the court entered judgment in favor of Compass
and against Defendants on the $1 million home equity loan. The court also
awarded Compass interest, taxable costs and attorneys’ fees.

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¶9 This court has jurisdiction over Defendants’ timely appeal
pursuant to Arizona Revised Statutes (A.R.S.) sections 12-120.21(A)(4) and
-2101(A)(1) (2016).2

DISCUSSION

¶10 Summary judgment is proper “if the moving party shows that
there is no genuine dispute as to any material fact and the moving party is
entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a). This court
reviews the entry of summary judgment de novo, to determine “whether
any genuine issues of material fact exist,” Brookover v. Roberts Enter., Inc.,
215 Ariz. 52, 55 ¶ 8 (App. 2007), and will affirm the entry of summary
judgment if it is correct for any reason, Hawkins v. State, 183 Ariz. 100, 103
(App. 1995).

I. The Waiver Argument Is Not Supported By Arizona Law.

¶11 Defendants’ argument turns on the applicability and meaning
of the following sentence: “[w]here the creditor can obtain a deficiency
judgment he can also elect to waive the security under A.R.S. § 33-722
[under a deed of trust] and sue on the note.” Baker v. Gardner, 160 Ariz. 98,
107 (1988) (supplemental opinion). Generally, “[w]aiver is either the
express, voluntary, intentional relinquishment of a known right or such
conduct as warrants an inference of such an intentional relinquishment.”
Russo v. Barger, 239 Ariz. 100, 103 ¶ 12 (App. 2016) (citing Am. Cont’l Life Ins.
Co. v. Ranier Constr. Co. Inc., 125 Ariz. 53, 55 (1980)). Baker did not specify or
discuss what was required to “elect to waive the security” in this context.

¶12 Baker consists of an opinion and a supplemental opinion. The
Baker opinion held that, for a purchase-money mortgage on a single-family
home secured by a note and a deed of trust (called the “security device”),
“the holder of the note and security device may not, by waiving the security
and bringing an action on the note, hold the maker liable for the entire
unpaid balance.” 160 Ariz. at 104. In granting reconsideration, the Baker
supplemental opinion sought “to clarify and, hopefully, obviate any
confusion” about the scope of the original opinion. Id. at 106. In doing so,
the supplemental opinion concluded with the following three sentences:

[1] Where the creditor chooses non-
judicial foreclosure, he cannot obtain a
deficiency judgment if the collateral is within

2Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.

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Decision of the Court

the class protected by the deed of trust anti-
deficiency statute. [2] Where, however, the
creditor chooses judicial foreclosure, he can
obtain a deficiency judgment in all cases except
those involving purchase money loans on the
type of real property that the mortgage
foreclosure statute describes. [3] Therefore,
where the creditor can obtain a deficiency
judgment he can also elect to waive the security
under A.R.S. § 33-722 and sue on the note.

160 Ariz. at 107. Here, the first sentence does not apply because the parties
agree the anti-deficiency statute does not apply. Similarly, the second
sentence does not apply because Compass did not seek judicial foreclosure
and the home equity loan was not a purchase-money loan. The third
sentence, however, describes the facts of this case.3

¶13 Construing the third sentence, Defendants cite dictionary
definitions and federal cases interpreting of the terms “sale,” “waive” and
“elect” in different contexts that they argue support their position. But
suggesting possible meanings of these terms in other contexts does not
resolve how Baker used them in this sentence. And Defendants cite no
Arizona case construing this third sentence in a way that supports their
position. Nor have Defendants shown that Compass was required to do
something other than what it did in suing on the note. Nothing in the record
suggests that Compass was involved in any way with the trustee’s sale on
the first-position loan. Moreover, Compass’ rights in the second-position
deed of trust were extinguished by the trustee’s sale on the first-position
loan, which occurred before Defendants were served in this lawsuit.

¶14 Defendants argue that Compass was required to do
something affirmative and permanent to properly waive its security (like
recording a signed release of its deed of trust). But Defendants conceded at
oral argument before this court that, had Compass waited to sue on the note
until the day after the trustee’s sale on the first-position deed of trust, such
a delay would have constituted a proper waiver. In essence, Defendants

3 Compass repeatedly refers to this third sentence as dicta. As noted more
than 20 years ago, the supplemental opinion in Baker “was obviously
intended to be a guide for future conduct. Therefore, this court must follow
the direction given by the supreme court.” Resolution Tr. Co. v. Segel, 173
Ariz. 42, 44 (App. 1992). Accordingly, this court assumes without deciding
that the third sentence applies in this case.

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argue that Compass sued a few weeks too early but, had it waited to sue
until after the trustee’s sale on the first position, there would have been no
issue. Defendants, however, provide no authority for this dichotomy. On
this record, Defendants have not shown the superior court erred in
concluding that Compass’ conduct constituted a waiver of its rights under
the deed of trust. See Russo, 239 Ariz. at 103 ¶ 12.

II. Arizona Case Law Cited By The Parties Support The Entry Of
Summary Judgment In Favor Of Compass.

¶15 The Bennetts argue Baker, Resolution Trust Co. v. Segel, 173
Ariz. 42 (App. 1992) and Wells Fargo Credit Corp. v. Tolliver, 183 Ariz. 343
(App. 1995) require a creditor to do something affirmative and final -- such
as recording an express release of the deed of trust -- to waive the security
interest and then sue on the note. These cases, however, show the contrary.

¶16 In Baker, the homeowners of a single-family home defaulted
on their senior and junior purchase-money loans. 160 Ariz. at 99. The senior
lender noticed a trustee’s sale; “[b]efore the sale, the [junior lenders]
brought this action to recover the unpaid balance of the promissory note.
They did not exercise their rights under the second trust deed.” Id. Baker
characterized this conduct by the junior lenders –- identical in relevant part
to Compass’ conduct here -- as a waiver. Indeed, although addressing the
scope of the anti-deficiency statute that has no application here, Baker stated
that the junior lenders, as “holder of the note and security device[,] may
not, by waiving the security and bringing an action on the note,” then seek
to evade the force of the anti-deficiency statute. Id. at 104. Applying this
Baker analysis here, by suing on the note and not exercising rights under the
second-position deed of trust, Compass waived the security in the deed of
trust.

¶17 In Segel, the homeowners defaulted on their senior and junior
loans. 173 Ariz. at 43. A senior lender noticed trustee’s sales; before the sale,
the junior lender sued the homeowner to recover the unpaid balance of the
promissory note. 173 Ariz. at 43. The homeowner argued that “because the
senior lender[] had noticed trustee’s sales, and [the junior lender] had notice
of the proceedings and an opportunity to join the proceedings, [the junior
lender] should be prohibited under [the anti-deficiency statute] from
bringing an action on the notes.” Id. at 45. Segel rejected that argument,
holding the junior lender’s election of remedies was not affected by the
actions of the senior lender, specifically noting that “the trustee’s sales
noticed by the senior lender did not constitute a choice by [the junior
lender] to exercise its non-judicial foreclosure rights.” Id. at 46. Applying

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the Segel analysis here, Bank of America’s action in noticing and concluding
the trustee’s sale on the first-position loan, without Compass‘ participation
and at a time when Compass was suing on the second-position note, did
not constitute an exercise of Compass’ right to a trustee’s sale or a waiver
of Compass’ right to sue on the second-position note. See id.

¶18 Tolliver involved the non-judicial foreclosure of an apartment
complex. 183 Ariz. at 345. The primary focus of Tolliver interprets A.R.S. §
12-1566(F), which does not apply here.4 Accordingly, Tolliver does not
address the issue to be resolved in this case. Other aspects of Tolliver,
however, are instructive. In that case, the junior lender sued on the note
after the completion of the senior lender’s trustee’s sale and without the
junior lender releasing its lien before the trustee’s sale by the senior lender.
Id. at 344-45. Tolliver held that the completed trustee’s sale by the senior
lender, without the junior lender releasing its lien, did not constitute an
election of remedies, meaning the junior lender was still able to sue on the
note. Id. at 348-49. The junior lender in Tolliver did not have to do anything
affirmative to make the election, and in fact was able to wait and see
whether the trustee’s sale would produce enough money to satisfy the lien.
Id. Applying Tolliver here, even if Compass had waited to sue on the second-
position note until after the completion of the trustee’s sale on the first-
position loan, it would not have waived its rights under the note. Moreover,
Compass sued Defendants before the completion of the trustee’s sale,
meaning it clearly was not precluded from suing on the note.

¶19 Because Arizona law does not require Compass to
affirmatively and expressly release its deed of trust to “elect to waive the
security” as a prerequisite to suing on the note, summary judgment in favor
of Compass was proper.5

4 Both parties concede that A.R.S. § 12-1566, addressing execution on
judgments for debts secured by real property, does not apply to this case,
where the issue is how a creditor may enforce a repayment obligation in
seeking to a judgment. Indeed, Tolliver interpreted A.R.S. § 12-1566 to apply
“only when a deed of trust has been foreclosed and the creditor has obtained
or can obtain a deficiency judgment.” 183 Ariz. at 346.

5 Given this conclusion, this court need not address the parties’ other
arguments presented on appeal, including Compass’ argument that A.R.S.
§ 33-722 requires only an election of remedies when both actions are
pending simultaneously.

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III. Attorneys’ Fees And Costs On Appeal.

¶20 Both parties request attorneys’ fees and costs incurred on
appeal. Because Defendants are not the successful parties, their request is
denied. Compass requests fees based on the language of the security
agreement and A.R.S. § 12-341.01. Because Compass is the successful party
on appeal, it is awarded reasonable attorneys’ fees on appeal pursuant to
the security agreement, and awarded its taxable costs on appeal, contingent
upon compliance with Arizona Rule of Civil Appellate Procedure 21. See
Chase Bank of Ariz. v. Acosta, 179 Ariz. 563, 575 (App. 1994).

CONCLUSION

¶21 The judgment in favor of Compass is affirmed.

:ama

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