Armed Forces Bank, N.A. v. Hicks

• Decision Date: 05 June 2014
• Citation: Armed Forces Bank, N.A. v. Hicks, 365 P.3d 378 (Colo. App. 2014)
• Docket Number: 13CA0875
• Parties: ARMED FORCES BANK, N.A., as successor to Bank Midwest, N.A., Plaintiff–Appellee, v. David W. HICKS and Connie F. Hicks, Defendants–Appellants.
• Court: Colorado Court of Appeals

365 P.3d 378

ARMED FORCES BANK, N.A., as successor to Bank Midwest, N.A., Plaintiff–Appellee,

v.David W. HICKS and Connie F. Hicks, Defendants–Appellants.

Court of Appeals No. 13CA0875

Colorado Court of Appeals, Div. VI.

Announced June 5, 2014

Markus Williams Young & Zimmermann LLC, Steven R. Rider, Thomas J. Bissell, Devi C. Yorty, Denver, Colorado, for Plaintiff–Appellee

Bieging Shapiro & Barber LLP, Duncan E. Barber, Steven T. Mulligan, Denver, Colorado, for Defendants–Appellants

Opinion by JUDGE RICHMAN

¶ 1 Defendants, David W. Hicks and Connie F. Hicks, appeal the summary judgment granted in favor of plaintiff, Armed Forces Bank, and the denial of their motions to amend their answer and to compel production of documents. We affirm.

I. Background

¶ 2 In December 2006, Glenwood Commercial, LLC, borrowed $6 million from Bank Midwest to build a condominium complex in Glenwood Springs. The loan was secured by a deed of trust on the property where the complex was to be built. The Hickses, who were principals of Glenwood Commercial, provided separate but identical personal guaranties for the loan. Bank Midwest assigned the loan and guaranties to Armed Forces Bank (Bank Midwest and Armed Forced Bank are hereafter referred to collectively as "the bank").

¶ 3 Pursuant to two loan modification agreements, the principal amount of the loan was increased and the maturity date was set for June 2009. When the loan matured, the Hickses and Glenwood Commercial entered into a forbearance agreement with the bank, pursuant to which the bank agreed to refrain from exercising its then-existing default remedies until October 2009.

¶ 4 Before then, the loan was modified again. The third modification agreement reaffirmed the continuing validity of the guaranties, and the third modification of the promissory note extended the maturity date of the loan to December 21, 2009, with the possibility of further extensions; specified the balance due on the loan was $7, 552, 500; and contained a clause stating that the borrower would be in default if it failed:

to have finally approved by the City of Glenwood Springs or Garfield [ ] County, Colorado, as necessary, and filed of record no later than January 1, 2010, a condominium plat and related condominium declaration for the four commercial properties known as "Glenwood Commercial," Glenwood Springs, Colorado, on the real property described in the Construction Deed of Trust recorded at Reception No. 713718 of the records of Garfield County, Colorado.

¶ 5 The loan was still unpaid on December 21, 2009, and the condominium plat had not been approved by the bank or filed with the County by January 1, 2010.

¶ 6 In June 2010, the bank filed suit against Glenwood Commercial and the Hickses, seeking appointment of a receiver, money damages against Glenwood Commercial for breach of the note, and performance by the Hickses under their guaranty agreements. A receiver was appointed, but in July 2010, Glenwood Commercial filed for bankruptcy, resulting in a stay of those proceedings. The Hickses filed their answer to the complaint in December 2010, denying liability and asserting as affirmative defenses estoppel, waiver, and failure to mitigate.

In August 2011, the bank moved in the bankruptcy proceeding to lift the stay to allow it to pursue foreclosure of the property. The bankruptcy court granted the motion and thereafter dismissed the bankruptcy proceeding. Subsequently, Glenwood Commercial was dismissed from this action.

¶ 8 The bank proceeded with the foreclosure and the civil action against the Hickses. A foreclosure sale was set for March 2012, and the case was set for trial in August 2012. However, in January 2012, the bank moved for summary judgment, arguing that the Hickses were liable for the entire unpaid balance under their unconditional guaranties of the loan.

¶ 9 The Hickses admitted that they had guaranteed the note and that the note was in default, but they argued that the bank was estopped from claiming a default because the bank could have lessened or eliminated the Hickses' liability. They argued that even though the January 1, 2010, filing deadline had passed, the bank could have approved the condominium plat on a later date, allowing it to be filed with the county thereafter, and thus permitting the property to be leased. Leasing the property, they argued, would have raised its value, leading to either a reduction or the elimination of any deficiency for which they were responsible under the guaranties. The Hickses also argued that the bank was estopped from claiming a default because it had violated the covenant of good faith and fair dealing when it had refused to approve the plat. In addition, the Hickses argued that the bank failed to mitigate its damages by refusing to approve the plat.

¶ 10 Along with their opposition to the summary judgment motion, the Hickses filed a motion to amend their answer to assert a counterclaim for the bank's alleged breach of the duty of good faith and fair dealing by not approving the plat, even after the January 1, 2010, deadline had passed, which in turn reduced the value of the property.

¶ 11 The bank responded that the refusal to approve the plat after January 1, 2010, could not amount to a breach of the duty of good faith because, by that time, Glenwood Commercial had already defaulted on the third loan modification agreement by failing to submit payment by December 21, 2009, and by failing to submit the plat for filing with the county or for the bank's approval by January 1, 2010, and the civil suit had already been filed. The bank also argued that the Hickses had waived all of their other defenses, aside from payment and performance, in their guaranty agreements.

¶ 12 In March 2012, the bank submitted a successful bid of $3,705,000 for the property at the foreclosure sale. Defendants later claimed this bid was unreasonable because it was nearly $1 million less than an appraised value of the property made on a "leased fee basis." At the time of the sale, the accrued interest, attorney fees, and other expenses totaled approximately $9.8 million. After the sale of the property, the deficiency for which the Hickses were liable was approximately $6.1 million.

¶ 13 Following the sale, the Hickses supplemented their opposition to the summary judgment motion, arguing that in violation of section 38–38–106(6), C.R.S.2013, the bank bid less than its good faith estimate of the property's fair market value at the foreclosure. The statute sets forth procedures for conducting foreclosure sales and provides, in pertinent part:

The holder of the evidence of debt or the attorney for the holder shall bid at least the holder's good faith estimate of the fair market value of the property being sold.... The failure of the holder to bid the amount required by this subsection (6) shall not affect the validity of the sale but may be raised as a defense by any person sued on a deficiency.

The Hickses argued that (1) compliance with this provision was mandatory; (2) the protections of this statute could not be contractually waived in advance; and (3) public policy precluded waiver of this defense in their guaranties.

¶ 14 The bank objected to the supplement, contending that it had bid its good faith estimate of the fair market value of the property. The bank also argued that any good faith defense provided by section 38–38–106(6) had been waived by the language in the Hickses' guaranties, which states: "Guarantor also waives ... any rights and defenses arising by reason of (A) ... ‘anti-deficiency law’ ... or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness." These documents also declare: "Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both." The bank further contended that no public policy exists to prevent waiver of the provisions in section 38–38–106(6).

¶ 15 In July 2012, the Hickses moved under C.R.C.P. 37 to compel the production of documents relating to efforts to lease the property, arguing that under C.R.C.P. 26, such documents should have been disclosed by the bank. The district court denied the motion on the grounds that the Hickses never served a request for the documents under C.R.C.P. 34 and the documents were not subject to disclosure under C.R.C.P. 26(a)(1)(B).

¶ 16 On August 2, 2012, the district court granted the bank's motion for summary judgment, finding that the Hickses had not raised any genuine issue of material fact because (1) the defense in section 38–38–106(6) was waivable; (2) the Hickses had waived it in their guarantees; and (3) no public policy barred waiver of the defense.¹ The district court rejected the other arguments made by the Hickses.

¶ 17 The district court also denied the Hickses' motion to amend their answer to assert a counterclaim, reasoning that the motion was futile because the bank was not required to approve the plat after the contractual deadline for approving it had passed.

¶ 18 The Hickses appeal all three rulings.

II. Discussion

A. Summary Judgment

¶ 19 The Hickses contend that the district court erred as a matter of law because the bank's statutory obligations under section 38–38–106(6) could not be waived, and that, in any event, the Hickses' guaranty documents do not contain a waiver of the bank's statutory obligations under section 38–38–106(6). We reject both propositions.

1. Standard of Review

¶ 20 We review de novo a district court's grant of summary judgment because it is a question of law. Ryder v. Mitchell, 54 P.3d 885 (Colo.2002). Summary judgment is appropriate when the pleadings and supporting documents demonstrate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a...