Fifty Associates v. Prudential Insurance Co. of Amer.

• Decision Date: 27 December 1971
• Docket Number: No. 71-2358.,71-2358.
• Citation: 450 F.2d 1007
• Parties: FIFTY ASSOCIATES, Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

450 F.2d 1007 (1971)

FIFTY ASSOCIATES, Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Appellee.

No. 71-2358.

United States Court of Appeals, Ninth Circuit.

November 4, 1971.

Rehearing Denied December 27, 1971.

James Powers, of Powers, Boutell, Fannin & Ridge, Phoenix, Ariz., for appellant.

Daniel T. Bergin, Robert H. Carlyn, Robert P. Robinson, of Fennemore, Craig, von Ammon & Udall, Phoenix, Ariz., for appellee.

Before MERRILL and KOELSCH, Circuit Judges, and BYRNE,^* District Judge.

WILLIAM M. BYRNE, District Judge:

This appeal could be dubbed Phase Two of our efforts to effectuate a final resolution of this legal dispute. Originally, we vacated the foreclosure judgment entered in favor of Prudential (the district court having granted its motion for summary judgment) on the grounds that Prudential's allegations were insufficient to establish diversity jurisdiction and that its inclusion of the State of Arizona (Arizona State Tax Commission) as a defendant precluded the possibility of establishing such jurisdiction. Fifty Associates v. Prudential Insurance Company of America, 446 F.2d 1187 (9th Cir. 1970). In remanding to the district court, we stated that Prudential could renew its motion for summary judgment if (1) diversity jurisdiction could be established by amendments to the complaint which were consistent with our expressed views and (2) it could be demonstrated that the Tax Commission was not an indispensable party to the action and was dismissed from the case.

On remand, Prudential established diversity jurisdiction by properly amending its complaint to comply with the requirements of Title 28 U.S.C. § 1332. Additionally, it was able to demonstrate that the Tax Commission was indeed not an indispensable party to the action and it was eliminated as a party. (Arizona's tax lien had been discharged). After the jurisdictional impediments had been cleared away, the district court granted a new motion for summary judgment and entered a judgment of foreclosure in favor of Prudential. Fifty has appealed.

As part of a lease agreement executed in 1959 in which Fifty let certain real property located in Phoenix, Arizona, to Mayer-Central Building Company (Mayer) for a term of ninety-nine years, Fifty was required to subject its fee interest to a loan of $2,500,000 for construction of an eight story office building on the leased premises. In 1960, Mayer, in return for its promissory note, obtained the required loan of $2,500,000 from Prudential. Pursuant to the terms of the lease agreement, Fifty's fee interest was subjected to a mortgage executed by Fifty and Mayer for $2,500,000. Thereafter, the office building was erected.

Another feature of this lease agreement required Fifty to subject its fee interest to a subsequent mortgage if the mortgage loan did not exceed seventy percent (70%) of the appraised value of the property and improvements.

In early 1962, Mayer applied to Prudential for a loan of $5,400,000 on the property. Of this total, $3,400,000 was to be secured by Fifty's fee interest in the property.¹ Pursuant to this application, Prudential conducted a so-called "three draw" appraisal: (1) appraisal of the existing property; (2) appraisal of the property upon completion of a portion of proposed improvements; and (3) appraisal of the entire complex as proposed including adjoining property owned by Mayer.

Following its appraisal of the property, Prudential notified Mayer that its loan application had been approved. Thereafter, Mayer presented the new mortgage to Fifty which balked at signing unless it was first provided with an independent written appraisal of the property.

In response to Fifty's recalcitrance, Mayer solicited A. G. Oaks', Prudential's officer in charge of this loan, to issue a statement that the loan ratio was less than 70% of the property's appraised value. Acting thereupon, Oaks wrote two letters to Mayer who forwarded copies thereof as well as the mortgage documents to Fifty. Oaks' second letter contained the following statement: "It is not possible for us to disclose a precise valuation of a property. We can state that upon the disbursement of $3,000,000 now and $400,000 later, the loan amount will be approximately 70% of valuation." Following its receipt of these copies, Fifty executed the mortgage.

Beginning with the installment due February, 1965, and continuing thereafter, Mayer defaulted on its payments. Although it avoided a specific reference to Mayer's nonpayment, Fifty, in June, 1965, requested that Prudential notify it of any default prior to acceleration of the loan or commencement of any foreclosure action. On July 9, 1965, Prudential complied with this request by notifying Fifty that Mayer was in default and that Prudential was accelerating the debt and that its intention was to foreclose the mortgage after expiration of a ten day period during which Fifty could reinstate the loan.

On July 15, 1965, Mayer filed a petition for reorganization under Chapter X of the Bankruptcy Act. The district court entered a stay order prohibiting any interference with the possession or control of the property. Almost two years later, May 24, 1967, Fifty notified Prudential by letter that it did "not recognize the validity of that mortgage as against our interest in the property." The next day, May 25, 1967, but prior to its receipt of Fifty's letter of May 24, Prudential wrote to Fifty and reiterated its intention to institute a foreclosure action unless the default was cured within ten days after receipt of the letter. On May 29, 1967, two events occurred: (1) the Bankruptcy Court entered an order terminating Fifty's lease with Mayer and directing that the property be returned to Fifty subject to the rights of Prudential; (2) following receipt of Fifty's letter repudiating the mortgage, Prudential commenced the foreclosure action which has become the subject of this appeal.

We first address ourselves to Fifty's assertion that the district court acted without propriety when it granted Prudential's motion for summary judgment. In essence, Fifty maintains that Prudential's denials of the allegations² that it misrepresented the property's value to Fifty and that Fifty relied upon this misrepresentation have raised the spectre of genuine questions of fact.

With this conclusion we cannot agree, for in reality Fifty has wrongly assumed that denying an allegation, ipso facto, creates a genuine issue of fact. Such an assumption is clearly contrary to the law. Minnesota Mining & Manufacturing Co. v. United States Rubber Co., 279 F.2d 409 (4th Cir. 1960); Piantadosi v. Loew's, Inc., 137 F.2d 534 (9th Cir. 1943). Fifty's misplaced assumption avoids the thrust of Prudential's denials, i. e., the nature of the "representation" was such as to deny Fifty a defense to the foreclosure action as well as to an independent cause of action. In short, Prudential's denials have placed in dispute the legal consequences of its "representation" and not the factual matters relating to accurate statements of value or to actual reliance upon said statements. Under these circumstances, we are satisfied that there is no merit to the contention that a motion for summary judgment was improper. Greyhound Corp. v. Excess Insurance Company of America, 233 F.2d 630 (5th Cir. 1956); General Accident Fire and Life Assurance Co. v. Prosser, 239 F.Supp. 735 (D.Alaska, 1965).

As already indicated, the Prudential officer in charge of the...