Financial v. Homes
| Decision Date | 28 October 2010 |
| Docket Number | No. 1 CA-CV 09-0711,1 CA-CV 09-0711 |
| Parties | COBIZ FINANCIAL, a Colorado corporation, d/b/a ARIZONA BUSINESS BANK, Plaintiff/Counterdefendant/ Appellee, v. CF HOMES, L.L.C., an Arizona limited liability company; WALTER L. CAMPING and JUDY L. CAMPING, husband and wife; individually and as trustees of the CAMPING FAMILY TRUST, Defendants/Counterclaimants/ Appellants. |
| Court | Arizona Court of Appeals |
See Ariz. R. Supreme Court 111(c); ARCAP 28(c);
(Not for Publication-Rule 28, Arizona Rules of Civil Appellate Procedure)
The Honorable Robert Oberbillig, Judge
Quarles & Brady, LLP Phoenix By James A. Ryan
C. Bradley Vynalek
David E. Funkhouser, III Attorneys for Appellee
Walker & Peskind, PLLC Scottsdale By Richard K. Walker
and Gregg Clarke Gibbons, PC Scottsdale
By Gregg Clarke Gibbons Attorneys for Appellants
¶1 CF Homes, L.L.C., and Walter and Judy Camping, individually and as trustees of the Camping Family Trust (together, "Defendants"), appeal from the superior court's grant of summary judgment in favor of CoBiz Financial, d/b/a Arizona Business Bank ("ABB"), denial of Defendants' motion for summary judgment and grant of ABB's motion to strike Defendants' counterclaims. For the reasons set forth below, we affirm in part, reverse in part and remand.
¶2 CF Homes, a real estate development company, borrowed $1,690,000 from ABB to develop some unimproved land. The loan was secured by a deed of trust on the land and guaranteed by the Campings, individually and as trustees. After CF Homes defaulted and the guarantors failed to pay the amount due, ABB filed suit, alleging breach of contract. On September 11, 2008, three months after filing its complaint, ABB took title to the property at a trustee's sale. Not long thereafter, ABB filed a motion for summary judgment, seeking entry of judgment for the amount of the deficiency. Defendants filed a response pursuantto Arizona Rule of Civil Procedure 56(f), seeking additional discovery, and the court did not rule on ABB's motion.
¶3 At some point thereafter, ABB issued a federal tax Form 1099-C that indicated that in 2008 it had cancelled the debt remaining after the trustee's sale. It sent copies of the form to the Internal Revenue Service ("IRS") and to CF Homes. On May 4, 2009, Defendants moved for summary judgment. The motion argued the Form 1099-C proved ABB had discharged CF Homes' liability on the debt. Defendants further argued ABB's cancellation of the debt necessarily discharged the guarantors from liability.
¶4 One week after Defendants filed their motion, ABB issued a corrected Form 1099-C that stated no debt had been cancelled. It mailed copies to CF Homes and the IRS. In its response to Defendants' motion for summary judgment, ABB argued it had issued the original Form 1099-C by mistake. The superior court denied Defendants' motion for summary judgment and then granted ABB's motion for summary judgment on ABB's claim for breach of contract.
¶5 Prior to the ruling on their motion for summary judgment, Defendants filed an amended answer and counterclaim. ABB moved to strike the counterclaim or for a more definite statement, pursuant to Arizona Rules of Civil Procedure 12(e) and (f). The court granted ABB's motion for a more definitestatement. After Defendants filed a statement, the court granted ABB's request to strike the counterclaim.
¶6 Defendants timely appealed. We have jurisdiction under Article 6, Section 9, of the Arizona Constitution and pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(B) (2003).
¶7 Summary judgment is proper when "the pleadings, deposition, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Ariz. R. Civ. P. 56(c). We review a grant of summary judgment de novo. Wilson v. U.S. Elevator Corp., 193 Ariz. 251, 253, 1 5, 972 P.2d 235, 237 (App. 1998). We view the facts and the inferences drawn from those facts in the light most favorable to the party against which judgment was entered, considering only the evidence before the trial court when it addressed the motion. Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55, 1 8, 156 P.3d 1157, 1160 (App. 2007).
¶8 Federal law requires lenders that discharge a debt to report the discharge to the IRS by filing a Form 1099-C. 26 U.S.C. § 6050P(a) (2006); 26 C.F.R. § 1.6050P-1(a)(1) (2008). A lender that files a Form 1099-C with the IRS also must furnish the same information to the borrower. 26 U.S.C. 6050P(d)(1)-(2) (2006). The issuance of a 1099-C may have tax implications for the lender and the borrower. See 26 U.S.C. § 165(a) (2006); 26 U.S.C. § 61(a)(12) (2006). The lender may take a loss, thereby reducing its gross income and tax liability, while the borrower must include cancelled debt in its gross income, thereby increasing its tax liability. See 26 U.S.C. § 165(a); 26 U.S.C. § 61(a)(12).
¶9 A lender that acquires an interest in a secured property through foreclosure but does not cancel the borrower's remaining deficiency must file a different tax form, a Form 1099-A. See 26 U.S.C. § 6050J(a)(1), (c)(1) (2006); 26 C.F.R. § 301.6721-1(g)(3)(v) (2008). The lender also is required to provide a copy of Form 1099-A to the borrower. See 26 U.S.C. § 6050J(e). If one transaction triggers both a foreclosure and a discharge of indebtedness within a calendar year, the lender need only file a Form 1099-C and not a Form 1099-A. 26 C.F.R. § 1.6050P-1(e)(3).
¶10 In Arizona, whether a lender has discharged a debt is governed by A.R.S. § 47-3604 (2005), which reads in relevant part:
A.R.S. § 47-3604(A)(1)-(2) (2005).
¶11 The initial Form 1099-C that ABB sent to CF Homes and filed with the IRS was labeled "Cancellation of Debt" and stated that the "[a]mount of debt canceled" was $584,172. The stated date of the debt cancellation was September 29, 2008. Under Arizona law, that Form 1099-C was prima facie evidence that ABB had discharged the stated amount of CF Homes' debt. See Amtrust Bank v. Fossett, 223 Ariz. 438, 439-40, 11 8, 12, 224 P.3d 935, 936-37 (App. 2009).
¶12 Although a lender may show it did not intend to forgive an obligation by issuing a Form 1099-C, a mere assertionthat it issued the Form 1099-C in error is insufficient by itself to overcome the presumption of a discharge of indebtedness. Id. at 440-41, 11 12-14, 224 P.3d at 937-38. In Amtrust, the lender created a genuine issue of material fact sufficient to preclude summary judgment against it by offering a bank officer's affidavit stating that it had not intended to cancel the debt when it issued a Form 1099-C. Id. at 440, 11 9, 12, 224 P.3d at 937. The affidavit contained specific facts showing how and why the lender issued the form. Id. 1 Despite the lender's explanation, however, this court concluded the evidence was insufficient to support entry of summary judgment in favor of the lender. Id. at 1 13.
¶ 13 In response to Defendants' motion for summary judgment, ABB relied on the declarations of Troy Dumlao, its chief accounting officer, and Kevin Kosan, its real estate group manager, to show it did not intend to cancel CF Homes' debt when it issued the initial Form 1099.
¶14 Dumlao's declaration stated, without explanation, that ABB had "mistakenly prepared" and issued the Form 1099-C. According to Dumlao, at some unspecified time, ABB also prepared "[a]n appropriate Form 1099-A" and sent it to the IRS but didnot send it to CF Homes. Dumlao declared that after ABB "realiz[ed] that the Form 1099-C had been mistakenly completed and sent to the IRS, ABB corrected the Form 1099-C, as it is allowed to do, to indicate that no debt was canceled...." The declaration stated, "ABB did not and has not canceled any of Borrower's remaining debt in this matter, nor otherwise discharged the Guarantors' obligations herein."
¶15 Kosan's declaration likewise offered no explanation for ABB's issuance of the initial Form 1099-C. Indeed, the Kosan declaration did not mention the Form 1099-C issued with respect to the CF Homes debt. The declaration stated in general fashion that in late 2008, Kosan prepared "several Form 1099-As" and that the "forms were then provided" to ABB's Loan Operations Center in Denver. It concluded, "ABB did not and has not canceled any of [CF Homes'] remaining debt in this matter, nor otherwise discharged the respective guarantors' obligations herein."
¶16 Neither declaration identified who at ABB decides whether to cancel debt, what criteria the company uses to make that decision or whether CF Homes' debt would qualify for cancellation under ABB's policies. Nor did either declaration explain how or why the initial Form 1099-C was issued with respect to the CF Homes debt. Although Dumlao's declaration asserted that ABB "corrected the Form 1099-C," it did notexplain how the corrected form proves that ABB did not intend to cancel CF Homes' debt at the time it issued the...
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