Equity Income Partners LP v. Chi. Title Ins. Co.
| Decision Date | 10 December 2013 |
| Docket Number | No. CV-11-1614-PHX-SMM,CV-11-1614-PHX-SMM |
| Parties | Equity Income Partners LP et al., Plaintiffs, v. Chicago Title Insurance Company, Defendant. |
| Court | U.S. District Court — District of Arizona |
Pending before the Court are Defendant Chicago Title Insurance Company's Motion for Partial Summary Judgment, (Doc. 100), and Plaintiffs' Motion for Partial Summary Judgment Re: Undisputed Damages, (Doc. 112).
In May 2006, Equity Income Partners ("EIP") loaned Keith Vertes and Scott Mead (collectively the "Owners") each $1,200,000 in connection with the purchase of two 13.3 acre parcels of land (the "Properties"). (Doc. 22-1.) The loans were secured by separate deeds of trust (the "Deeds of Trust") on the Owners' respective parcels. (Doc. 22-3.) The Deeds of Trust were recorded along with two assignments granting Galileo Capital Partners ("GCP") an 80% beneficial interest in each security agreement. (Doc. 22 ¶ 8.)
As part of the transaction, the Owners purchased title insurance from Transnation Title Insurance Company ("Transnation"), (Doc. 26-1 at 1-16), while EIP and GCP (collectively "Plaintiffs") purchased lender's title insurance from Ticor Title Insurance Company ("Ticor"), (Doc. 22-7). At the time, Ticor was a subsidiary of Chicago TitleInsurance Company ("CTIC"), but later merged into their parent company. (Doc. 7 ¶ 4.)
Plaintiffs' lender's title insurance policies (the "Policies") insured their secured interests against loss for up to $2,400,000 incurred "by reason of: . . . [u]nmarketability of title; [or] [l]ack of a right of access to and from the land." (Doc. 22-5 at 8, 20.) The Policies further provide, in relevant part:
In September 2006, the Owners learned that they were not able to legally access the Properties, and in January 2007, Plaintiffs submitted a claim to Ticor for lack of access under the Policies. (See Doc. 22-13.) The following month, Ticor denied the claim because Plaintiffs had not provided proof of loss. (Id. at 6-7.) Within a few months of discovering the title defect, the Owners stopped making loan payments and were in default. (Doc. 22 ¶ 19; Doc. 26 ¶ 20.) Plaintiffs forewent their immediate foreclosure remedy based on Transnation's promise to make interest payments while it attempted to cure the title defects in an action brought in Maricopa County Superior Court. (Doc. 22 ¶ 21; Doc. 26 ¶ 23.)
After three years of litigation, the interest payments ceased because summary judgment was entered against Transnation. (Doc. 22 ¶ 25.) Plaintiffs contacted CTIC on October 26, 2010, again seeking compensation under the Policies for their insured losses. (Doc 114 ¶ 45.) Thereafter, Plaintiffs exercised their right of foreclosure, and purchased the properties at a Trustees sale on January 28, 2011, by making full-credit bids. (Doc. 26 ¶ 26.)
Plaintiffs commenced the instant action on July 21, 2011, by filing a Complaint in state court; Defendant removed to this Court on the basis of diversity. (Doc. 1.) On September 23, 2011, CTIC tendered to Plaintiffs a payment in the amount of $343,000, which was CTIC's calculation of Plaintiff's compensable loss. (Doc. 102 ¶ 22; Doc. 113 at 12.) In an Order denying Plaintiffs' Motion for Partial Summary Judgment, Judge Snow found that, under the Policies, the appropriate date for calculating the diminution of value to the Properties was the date the loans were made.1 (Doc. 46 at 11.)
Currently before the Court are the parties' fully briefed cross-motions for partial summary judgment. (Docs. 100, 112, 115, 118, 119, 121.) Defendant requests the Court rule as a matter of law: (1) that Plaintiffs' credit bids at the Trustee's sales constitute actual payments against the principal; (2) that such credit bids in excess of the Properties' fair market value impaired Defendant's contractual subrogation rights; (3) that Plaintiffs' modification of the terms of indebtedness constituted novation; and (4) that Defendant's conduct has not been in bad faith. (Doc. 100 at 1-2.) Plaintiffs requests the Court to find as a matter of law that Plaintiffs are entitled to a final, executable judgment in the amount of $1,003,000 against Defendant.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "If the court does not grant all the relief requested by the motion, it may enter an order stating any material fact--including an item of damages or other relief--that is not genuinely in dispute and treating the fact as established in the case." Fed. R. Civ. P. 56(g). "The substantive law determines which facts are material; only disputes over facts that might affect the outcome of the suit under the governing law properly precludethe entry of summary judgment." Nat'l Ass'n of Optometrists & Opticians v. Harris, 682 F.3d 1144, 1147 (9th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A material fact is subject to "genuine dispute" when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. Thus, a party opposing summary judgment is merely required to adduce "sufficient evidence supporting the claimed factual dispute . . . to require a jury or judge to resolve the parties' differing versions of the truth at trial." Id. at 249 (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).
To adduce sufficient evidence, a party proposing or opposing summary judgment must either cite "to particular parts of materials in the record," or show "that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1). However, if the proponent's motion is properly supported, the opponent "must introduce some significant probative evidence" beyond a "mere scintilla of evidence," or evidence that is "merely colorable." Bahrampour v. Lampert, 356 F.3d 969, 974 (9th Cir. 2004) (quoting Summers v. A. Teichert & Son, Inc., 127 F.3d 1150, 1152 (9th Cir. 1997)).
A federal court sitting in diversity applies the choice-of-law rules of the forum state in which it sits. Mortensen v. Bresnan Commc'ns, LLC, 722 F.3d 1151, 1161 (9th Cir. 2013).
Absent an express choice of law provision, Arizona follows the Restatement (Second) of Conflicts of Laws (1971), "to determine which state's law applies in a contract action." Cardon v. Cotton, Lane Holdings, Inc., 173 Ariz. 203,207, 841 P.2d 198, 202 (1992). The Restatement specifies that rights created pursuant to an insurance contract "are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy." Restatement (Second) of Conflict of Laws § 193; see Beckler v. State Farm Mut. Auto. Ins. Co., 195 Ariz. 282, 286, 987 P.2d 768, 772 (App. 1999) (quoting Restatement (Second) of Conflict of Laws § 193).
Interpretation of an insurance contract is a question of law, provided "the terms of the agreement are plain and unambiguous." Smith v. Melson, Inc., 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983); accord Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 534 647 P.2d 1127, 1132 (1982). A clause is ambiguous if it is susceptible of more than one interpretation, and thus creates a question of fact concerning the intent of the parties. Miner Contracting, Inc. v. Toho-Tolani County Imp. Dist., No. 1 CA-CV 10-0665, 2013 WL 5275926, ¶ 31 (Ariz. Ct. App. Sept. 19, 2013). A clause is not ambiguous merely because the parties disagree about its meaning; rather, no ambiguity exists if the parties' intent is clear from the clause's language in light of "all the circumstances." Smith, 135 Ariz. at 121, 659 P.2d at 1266.
" 'Credit bid' means a bid made by the beneficiary in full or partial satisfaction of the contract or contracts which are secured by the trust deed." Ariz. Rev. Stat. ("A.R.S.") § 33-801(5). "In other words, the lender may 'bid' the money it already lent," and in Arizona, includes interest and the cost of trustee's sale. M&I Bank, FSB v. Coughlin, 805 F. Supp. 2d 858, 865 (D. Ariz. 2011) (opinion by Wake, J.) (citing A.R.S. § 33-801(5)). A "full credit bid" occurs when the lender bids "the entire amount of unpaid principal, interest, and trustee's sale expenses." Id.
Full-credit bids trigger some important collateral consequences, viz., the underlying secured obligation is deemed to have been fully satisfied. By way of analogy, if a full-credit bid results in the acquisition of the property, then the lender effectively pays to itself the outstanding balance of the debt, as well as...
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