Pi'Ikea, LLC v. Williamson

• Decision Date: 26 March 2014
• Docket Number: No. 2 CA–CV 2013–0065.,2 CA–CV 2013–0065.
• Citation: Pi'Ikea, LLC v. Williamson, 234 Ariz. 284, 321 P.3d 449, 683 Ariz. Adv. Rep. 32 (Ariz. App. 2014)
• Parties: Pi'IKEA, LLC, An Arizona Limited Liability Company, Plaintiff/Appellee, v. William Benson WILLIAMSON and Marianne Williamson, Husband and Wife, and as Co-Trustees of the Williamson Family Trust, Defendants/Appellants.
• Court: Arizona Court of Appeals

234 Ariz. 284

321 P.3d 449

683 Ariz. Adv. Rep. 32

Pi'IKEA, LLC, An Arizona Limited Liability Company, Plaintiff/Appellee,

v.William Benson WILLIAMSON and Marianne Williamson, Husband and Wife, and as Co-Trustees of the Williamson Family Trust, Defendants/Appellants.

No. 2 CA–CV 2013–0065.

Court of Appeals of Arizona, Division 2.

March 26, 2014.

Harlow Spanier and Heckele, PLLC By Mark W. Heckele, Tucson, Counsel for Plaintiff/Appellee.

Breen Olson & Trenton, LLP By Dennis M. Breen III, Tucson, Counsel for Defendants/Appellants.

OPINION

ESPINOSA, Judge.

¶ 1Appellants William and Marianne Williamson, husband and wife and co-trustees of the Williamson Family Trust (the Williamsons), appeal from the trial court's grant of summary judgment in favor of AppelleePi'Ikea, LLC(Pi'Ikea).¹They argue the court erred in finding Pi'Ikea was not required to mitigate its damages after default of a note the Williamsons had guaranteed, and assert that a genuine issue of material fact regarding mitigation precluded summary judgment.For the following reasons, we affirm.

Factual and Procedural Background

¶ 2 In reviewing a summary judgment, this court views the evidence and all reasonable inferences from it in the light most favorable to the party opposing the judgment.Warne Inv., Ltd. v. Higgins,219 Ariz. 186, ¶ 15, 195 P.3d 645, 650(App.2008);Angus Med. Co. v. Digital Equip. Corp.,173 Ariz. 159, 162, 840 P.2d 1024, 1027(App.1992).Here, the parties largely agree on the underlying facts but dispute their legal effect.In February 2004, TBM Equities, LLC(TBM), gave a promissory note to Irwin Union Bank, F.S.B.(the Bank), in the original amount of $5,922,000 (the Note) and entered into a Construction Loan Agreement (the Loan Agreement) with the Bank.The Note and Loan Agreement were secured by a Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement on an apartment building in Tucson (the Property).The Williamsons executed a Continuing Guaranty of the Note and the Trust Deed, in favor of the Bank (the Guaranty).

¶ 3 TBM and the Bank entered into an “Amended Note” in March 2006 and then a “Restated Note” in February 2008, neither of which altered the principal amount owed.In February 2011, the Restated Note was assigned to West CRE Venture 2010–2, LLC (West CRE), by the Federal Deposit Insurance Corporation, acting as receiver for the Bank.In March 2012, the Restated Note was assigned to Pi'Ikea by West CRE.Pi'Ikea is the current holder of the Guaranty.

¶ 4 TBM made all payments on the Restated Note up to and including a payment due on October 1, 2008.But it then made no further payments and failed to make required payments due at the note's maturity on December 31, 2008.In August 2012, Pi'Ikea filed suit pursuant to the Guaranty against the Williamsons and others.Pi'Ikea subsequently filed a motion for summary judgment in its favor in the amount of $9,170,950 plus attorney fees, taxable costs, and interest, which the trial court granted.The Williamsons appealed, and we have jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(1)and12–2101(A)(1).

Standard of Review

¶ 5 Because our review of a trial court's grant of summary judgment is de novo,we independently determine whether the court's legal conclusions are correct.Ledvina v. Cerasani,213 Ariz. 569, ¶ 3, 146 P.3d 70, 71(App.2006).Issues of contract and statutory interpretation are questions of law also subject to de novo review.Tenet Healthsystem TGH, Inc. v. Silver,203 Ariz. 217, ¶ 5, 52 P.3d 786, 788(App.2002)(interpreting guaranty).

Discussion

¶ 6 The Williamsons argue the trial court erred by finding no genuine issue of material fact as to whether Pi'Ikea had a duty to mitigate its damages by permitting a trustee sale to occur, or taking some other recourse, in 2008 when the Property was of sufficient value to cover the debt in full.They point out that the Bank indicated in a separate suit that the Property had been appraised in June 2008 for $10.2 million and the amount owed on the loan at that time was $5.9 million as set out in the Restated Note.They also observe that after the Restated Note went into default, the Bank initiated a trustee sale in May 2009 and thereafter continued the sale date on a quarterly basis until August 2012 when it commenced the lawsuit against the Williamsons.²No payments were made during that period, and the Bank made no demand on the Williamsons.

¶ 7 The Williamsons maintain that “[d]uring that time when no action on the Trustee Sale took place[,] the property value sank and the unpaid loan balance grew from accrued interest at the default rate to [$]9.1 million.”Thus, they contend, the effect of the trial court's decision that the Bank was not required to mitigate its damages is that “the Bank can simply let a $6 million dollar guaranty grow into a $60 million dollar obligation that was not contemplated by either party.”According to the Williamsons, “[t]his unconscionable extension of the guaranty was certainly not the intent of the guarantor.”

¶ 8 As the Williamsons correctly observe: “A basic principle of the law of damages is that one who claims to have been injured by a breach of contract must use reasonable means to avoid or minimize the damages resulting from the breach.”West Pinal Family Health Ctr., Inc. v. McBryde,162 Ariz. 546, 548, 785 P.2d 66, 68(App.1989).Failure to mitigate damages may be asserted to negate or reduce damages “ ‘where the plaintiff by his own voluntary activity has unreasonably exposed himself to damage or increased his injury.’ ”SDR Assocs. v. ARG Enters., Inc.,170 Ariz. 1, n. 2, 821 P.2d 268, 271 n. 2(App.1991), quotingMcCormick on Damages,§ 34 at 131(1934).This common law defense applies to guaranties, seeFirst Credit Union v. Courtney,233 Ariz. 105, ¶ 12, 309 P.3d 929, 932(App.2013), and is set forth in § 42 of the Restatement (Third) of Suretyship and Guaranty§ 14(1996)[hereinafter Restatement]³ which provides:

If the underlying obligation is secured by a security interest in collateral and the obligee impairs the value of that interest, the secondary obligation is discharged to the extent that such impairment would otherwise increase the difference between the maximum amount recoverable by the secondary obligor pursuant to its subrogation rights (§§ 27–31) and the value of the secondary obligor's interest in the collateral.

This defense, however, whether termed mitigation of damages or impairment of collateral, may be waived by agreement of the parties.

¶ 9 It is well established in Arizona that surety rights can be waived by contract.SeeData Sales Co. v. Diamond Z Mfg.,205 Ariz. 594, ¶ 16, 74 P.3d 268, 272(App.2003)(citing cases);see alsoMcClellan Mortg. Co. v. Storey,146 Ariz. 185, 188, 704 P.2d 826, 829(App.1985)(finding unambiguous waiver of suretyship defense and noting “[i]t is well settled that most rights may be waived”);cf.Holmes v. Graves,83 Ariz. 174, 178, 318 P.2d 354, 357(1957)(“Statutory provisions enacted for the benefit of individuals may be so far waived by those for whose benefit they were enacted that they are estopped to insist upon their protection.”);Restatement§ 6 & cmt. b (“Each rule in this Restatement stating the effect of suretyship status may be varied by contract between the parties subject to it.”).As the Restatement further observes, it is “routine” in suretyship contexts to forego defenses, including the defense of impairment of collateral.⁴RESTATEMENT § 48 CMT.A; see also data sales co.,205 ariZ. 594, ¶ 21, 74 P.3d 268, 273(noting Restatement provisions reflect general policy permitting waivers);cf.A.R.S. § 47–3605 cmt.2 (“It is standard practice to include a waiver of suretyship defenses in notes given to financial institutions or other commercial creditors.”).By waiving these protections, “the secondary obligor is not discharged as a result of loss caused by actions of the obligee to which the secondary obligor consents.”Restatement§ 48 cmt. a.

¶ 10 The extent of a guarantor's liability is governed by the terms of the guaranty agreement.Tenet Healthsystem TGH,203 Ariz. 217, ¶ 7, 52 P.3d at 788.Surety defenses may be either expressly or impliedly waived within the agreement, Data Sales Co.,205 Ariz. 594, ¶ 27, 74 P.3d at 274, and no fixed language or form of consent is required for waiver, Restatement§ 48 cmt. b. If the agreement is ambiguous, we generally construe it in favor of the guarantor.First Credit Union,233 Ariz. 105, ¶ 9, 309 P.3d at 932.But if the language is clear, we must give effect to the contract as written.Desarrollo Immobiliario y Negocios Industriales De Alta Tecnologia De Hermosillo, S.A. De C.V. v. Kader Holdings Co.,229 Ariz. 367, ¶ 24, 276 P.3d 1, 8(App.2012);Consol. Roofing & Supply Co. v. Grimm,140 Ariz. 452, 455, 682 P.2d 457, 460(App.1984);see alsoRestatement§ 14(standard contract rules apply to secondary obligations).As with all contracts, “our goal is to effectuate the parties' intent, giving effect to the contract in its entirety.”Tenet Healthsystem TGH,203 Ariz. 217, ¶ 7, 52 P.3d at 788–89.

¶ 11 Under the Guaranty the Williamsons executed, they agreed as follows:

2.1 Guaranty.Guarantors jointly and severally guaranty and promise to pay the Indebtedness to Lender or its order.This Guaranty is irrevocable.The obligations of Guarantors hereunder are continuing, absolute and unconditional.The foregoing guaranty is a guaranty of payment and not of collectibility ... [.]The obligations of each Guarantor hereunder are independent of the obligations of Borrower or any other Guarantor ... [.]Lender shall have no obligation to proceed against any collateral (including the Deed of Trust) directly or indirectly securing any of the Indebtedness, and no obligation to enforce any right or remedy ... [.]

2.2 Waivers.Each Guarantor waives and agrees not to assert or take advantage of (a) the provisions of Arizona...