Guanranty Bank v. Rancho Tuscana, LLC
| Decision Date | 31 March 2015 |
| Docket Number | No. 1 CA-CV 13-0303,1 CA-CV 13-0303 |
| Parties | GUANRANTY BANK AND TRUST COMPANY, a Colorado state chartered banking corporation, Plaintiff/Appellee/Cross-Appellant, v. RANCHO TUSCANA, LLC, an Arizona limited liability company; DAVID L. EWELL and DIANE R. EWELL, husband and wife; STEWART GRAF and SUSAN M. GRAF, husband and wife, Defendants/Appellants/Cross-Appellees. |
| Court | Arizona Court of Appeals |
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Appeal from the Superior Court in Maricopa County
The Honorable Arthur T. Anderson, Judge
AFFIRMED IN PART, REVERSED IN PART, REMANDED
Stoops, Denious, Wilson & Murray, P.L.C., Phoenix
By Frank L. Murray, Stephanie M. Wilson
Presiding Judge Jon W. Thompson delivered the decision of the Court, in which Judge Donn Kessler and Judge Kent E. Cattani joined.
¶1 Rancho Tuscana, LLC (Rancho), David L. Ewell and his wife, Diane R. Ewell, and Steward Graf and his wife, Susan M. Graf (collectively, the Guarantors) appeal from the court's judgment in favor of Guaranty Bank and Trust Company (Guaranty). Rancho argues that the court erred in (1) ordering that the fair market value credit did not apply to the junior loan; (2) granting judgment as a matter of law to Guaranty on the fraud counterclaim; and (3) granting judgment nothwithstanding the verdict to Guaranty on the breach of the implied covenant of good faith and fair dealing counterclaim. Guaranty cross-appeals 1) the court's fair market value determination; (2) the court's denial of Guaranty's motion for judgment as a matter of law on Rancho's second counterclaim of breach of the implied covenant of good faith and fair dealing; and 3) the court's spoliation instruction against Guaranty.1 For the following reasons, we affirm in part, reverse in part, and remand to the trial court for further proceedings.
¶2 In January 2007, Guaranty loaned Rancho $8,500,000 (senior loan) for the infrastructure development of forty-six condominium lots in a residential subdivision owned by Rancho in Cave Creek, Arizona (Maricopa property).2 Rancho agreed to repay the loan, includingoutstanding principal and accrued unpaid interest, by July 10, 2008, with an optional one-time 180 day extension of the maturity date. The loan was evidenced by a promissory note (first note), which was secured by two deeds of trust, the Maricopa deed of trust (encumbering the Maricopa property), and the Navajo deed of trust (encumbering vacant land in Pinetop, Arizona, the "Navajo property").
¶3 Guaranty then extended a new loan to Rancho for up to $10,000,000 (junior loan) to finance the construction of dwelling units, with the proceeds to be disbursed based on draw requests submitted by Rancho. Rancho agreed to repay the junior loan by October 30, 2010, and agreed that a default under the terms of the senior loan constituted a default of the junior loan. As additional security, the Guarantors executed separate unconditional guaranties for the repayment of the senior loan and the junior loan. The junior loan was also evidenced by a promissory note (second note), which was secured by a "master deed of trust" relating to the Maricopa property. Additionally, the junior loan agreement contained a cross collateral provision, which provided that:
The Additional Obligations[3] are cross collateralized such that any and all of the collateral securing the [junior loan] are deemed to secure the [junior loan] and all of the other Additional Obligations and such that any and all of the collateral securing any of the Additional Obligations are deemed to secure the [junior loan] and the other Additional Obligations. Any of the collateral for the [junior loan] or for any of the Additional Obligations can, therefore, be utilized . . . to satisfy, in full or in part, the [junior loan], or the Additional Obligations, or any of them (including without limitation the [senior loan]), as Lender in its sole discretion deems appropriate."
¶4 In January 2009, following the contractual six month extension of the senior loan's maturity date, the parties began negotiationsfor a long-term extension and modification of the senior loan. Guaranty extended the maturity date of the senior loan to June 10, 2009 and commissioned C.B. Richard Ellis (CBRE) to conduct an updated appraisal of the Maricopa and Navajo properties. The CBRE appraisal valued the Maricopa property at $7,340,000 and the Navajo property at $3,000,000. Rancho disputed the CBRE appraisals, claiming the value should be higher as evidenced by a different appraisal Rancho had obtained on the properties. After months of negotiation, the parties could not reach an agreement on the terms of the refinancing. Guaranty sent a notice of default to Rancho demanding payment of all amounts due under the first note by October 29, 2009. Although the parties continued to negotiate and Guaranty proposed alternative options to refinancing, the parties failed to finalize an agreement.4 Guaranty thereafter delivered a second notice of default on January 19, 2010.
¶5 Guaranty initiated non-judicial foreclosure proceedings under the Maricopa deed of trust, Navajo deed of trust and master deed of trust. Although Rancho received a notice of trustee sale for each of the three deeds of trust, a trustee sale was not conducted on the master deed of trust. As of the date of the trustee sale on the first note, the amount due on the senior loan, which included principal and interest, was $7,111,034.09 (first indebtedness), and the amount due on the junior loan was $3,086,885.25 (second indebtedness). Guaranty purchased the Maricopa property at the trustee sale for a bid of $5,490,000 and the Navajo property for $2,160,000.
¶6 Guaranty filed a complaint against Rancho and the Guarantors for breach of the notes and guaranties. At Rancho's request, the court held an evidentiary hearing pursuant to Arizona Revised Statutes (A.R.S.) § 33-814(A) (2010) to determine the fair market value of the Maricopa property. During the hearing, Rancho and Guaranty each introduced appraisal reports and testimony from certified real estate appraisers. The superior court learned that the Maricopa property consisted of forty-six lots with a completed infrastructure that includedstreets, sidewalks, and a community swimming pool. Four of those lots had completed dwelling units. The court found that the fair market value of the Maricopa property was $10,794,000 as asserted by the appraiser for Rancho, and not $4,100,000 as the appraiser for Guaranty had claimed. The court thereafter entered an order crediting the fair market value determination from both properties, in the amount of $12,954,000, to only the first indebtedness.5 The court denied Rancho's motion for reconsideration of this order, and granted summary judgment to Guaranty on its breach of contract claim on the second note.
¶7 Prior to the fair market value hearing, Rancho filed a counterclaim against Guaranty for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and fraud. Guaranty filed a motion for summary judgment on the counterclaims of breach of contract, breach of fiduciary duty, and fraud. The court thereafter granted Guaranty summary judgment on the breach of fiduciary duty counterclaim, but denied summary judgment on the breach of contract and fraud counterclaims.
¶8 A jury trial commenced October 15, 2012. At the close of Appellant's case in chief, Guaranty moved for judgment as a matter of law on the remaining counterclaims. The court denied Rancho's motion on the breach of contract counterclaim, but granted judgment as a matter of law in favor of Guaranty on the fraud counterclaim after finding that Rancho presented no evidence to substantiate the claim. The court also denied Rancho's motion for judgment as a matter of law on the breach of the implied covenant of good faith and fair dealing counterclaim. However, the court clarified that the implied covenant only existed throughout the operative time of the contract, which expired upon Guaranty's October 29, 2009 deadline imposed in the first notice of default (first implied covenant counterclaim). Accordingly, the court limited the first implied covenant counterclaim to breaches of the implied covenant that occurred prior to October 29, 2009.
¶9 During the trial, Rancho argued that a part of its counterclaim for breach of the implied covenant good faith and fair dealing pertained to its reasonable expectation that the Maricopa and Navajo properties provided sufficient collateral for both the first and second notes, and that a benefit of the junior loan agreement and "additional obligation" provisionin the modified senior loan agreement was that Guaranty would apply the fair market value credit of the secured properties to both the first and second note. Rancho asserted that this second bad faith claim could not be realized until after Guaranty elected to apply the fair market value credit to only the first note and sue on the second note. The court allowed Rancho to amend its counterclaim to create a separate second counterclaim for breach of the implied covenant of good faith and fair dealing (second implied covenant counterclaim) that specifically pertained to Guaranty's election to sue on the second note. The court delayed closing arguments and jury deliberation on the second bad faith counterclaim until after the verdicts on Rancho's breach of contract and first implied covenant counterclaim.
¶10 The jury returned a verdict in favor of Guaranty on the breach of contract counterclaim; found in favor of...
To continue reading
Request your trial