REPUBLIC NAT. BANK OF NY v. Pima County

• Citation: 200 Ariz. 199,25 P.3d 1
• Decision Date: 03 April 2001
• Docket Number: No. 2 CA-CV 00-0183.,2 CA-CV 00-0183.
• Parties: REPUBLIC NATIONAL BANK OF NEW YORK, Plaintiff/Appellant, v. PIMA COUNTY, a body politic; Stewart Title and Trust of Tucson Under Trust No. 1095; Cimarron Properties Corporation, an Arizona corporation, and its successor by merger, Lynch Properties Corporation, a New Mexico corporation, and its successor by merger, Lynch Investment Company, a Texas corporation; Harry H. Lynch and Christina Lynch, husband and wife; William W. Lynch, Jr., and Sandra Lynch, husband and wife; William W. Lynch, Sr., deceased, and Martha Lynch, his widow; Jack Maddox, deceased, and Mabel Maddox, deceased, husband and wife, Defendants/Appellees.
• Court: Court of Appeals of Arizona

25 P.3d 1

200 Ariz. 199

REPUBLIC NATIONAL BANK OF NEW YORK, Plaintiff/Appellant, v. PIMA COUNTY, a body politic; Stewart Title and Trust of Tucson Under Trust No. 1095; Cimarron Properties Corporation, an Arizona corporation, and its successor by merger, Lynch Properties Corporation, a New Mexico corporation, and its successor by merger, Lynch Investment Company, a Texas corporation; Harry H. Lynch and Christina Lynch, husband and wife; William W. Lynch, Jr., and Sandra Lynch, husband and wife; William W. Lynch, Sr., deceased, and Martha Lynch, his widow; Jack Maddox, deceased, and Mabel Maddox, deceased, husband and wife, Defendants/Appellees.

No. -0183.

Court of Appeals of Arizona, Division 2, Department B.

April 3, 2001.

Leonard Felker Altfeld Greenberg & Battaile, P.C., by John F. Battaile III, Tucson, Attorneys for Plaintiff/Appellant.

Barbara LaWall, Pima County Attorney, by Katharina Richter and Christopher Straub, Tucson, Attorneys for Defendant/Appellee Pima County.

Goodwin Raup, P.C., by Marty Harper and Kelly J. Flood, Phoenix, Attorneys for Defendants/Appellees Lynch Group.

OPINION

HOWARD, Presiding Judge.

¶ 1 Appellant Republic National Bank of New York, a lienholder on real property, sued appellees the Lynch Group¹ and Pima County for damages to the real property, allegedly sustained because appellees had negligently developed or allowed the development of the subdivision in which the real property is located and had negligently maintained roadway improvements in the subdivision. Appellees moved to dismiss the complaint, claiming they owed no duty to Republic and statutes of limitations barred the action. The trial court agreed that appellees owed no duty to Republic and dismissed the complaint. We affirm in part and reverse in part.

BACKGROUND

¶ 2 In reviewing a trial court's ruling on a motion to dismiss for failure to state a claim, we will assume all the facts alleged in the complaint are true. Fidelity Sec. Life Ins. Co. v. State Dep't of Ins., 191 Ariz. 222, ¶ 4, 954 P.2d 580, ¶ 4 (1998). In 1972, the Lynch Group began developing Cimarron Foothills Estates, which included a single-family homesite known as lot 260, the real property at issue here, knowing that it would ultimately sell the developed property and that mortgage lenders would finance those sales. In the process of that development, the Lynch Group improperly designed and constructed the Placita Aurelia roadway by building the roadway embankment two feet higher than planned and by using undersized drainage culverts, thereby altering the natural drainage of the Craycroft Wash. Additionally, when it platted the subdivision, the Lynch Group failed to take account of those roadway improvements and, therefore, inaccurately designated the one-hundred-year floodplain boundary of the Craycroft Wash.

¶ 3 Pima County approved the allegedly defective roadway designs and plat map. The County thereafter took title to the Placita Aurelia roadway and inadequately maintained the defective conditions that had altered the natural drainage of the Craycroft Wash.

¶ 4 As a result of the Lynch Group's platting errors and the County's plat approval, the plat map incorrectly showed lot 260 as located outside the Craycroft Wash one-hundred-year floodplain boundary. But the Lynch Group's improper design and construction of the Placita Aurelia roadway improvements had altered the natural drainage of the Craycroft Wash so that most of lot 260 was, in fact, within the one-hundred-year floodplain boundary. And the roadway improvements combined with Pima County's inadequate maintenance of the drainage culverts had made lot 260 vulnerable to flooding. Thus, when a single-family residence was constructed on lot 260, the property had a latent defect undiscoverable by subsequent lienholders.

¶ 5 In 1984, Republic's predecessor in interest lent Paul and Kathleen Askren the purchase money for lot 260 and secured the loan with a deed of trust on the property. Thereafter, Republic acquired the beneficial interest in the deed of trust.² And, in September 1996, the latent defect and negligent acts twice caused flood waters to invade lot 260, causing substantial damage.

¶ 6 In October 1999, Republic filed this action against appellees. Republic claimed that both the Lynch Group and Pima County had negligently damaged lot 260, were strictly liable for altering the natural drainage of the Craycroft Wash, and had committed waste under A.R.S. § 33-806(B). Additionally, Republic asserted claims solely against Pima County for inverse condemnation, trespass, and nuisance and sought injunctive relief.

¶ 7 The Lynch Group moved to dismiss Republic's negligence, strict liability, and waste claims pursuant to Rule 12(b)(6), Ariz. R. Civ. P., 16 A.R.S., for failure to state a claim for which relief can be granted, arguing "[t]here is no common law or statutory tort duty owed by a subdivision developer to any future mortgage company." It also contended that Republic's complaint failed to set forth the necessary elements of waste. Finally, the Lynch Group contended that, because the flooding occurred in September 1996 and Republic had not filed its complaint until October 1999, the statute of limitations had expired. Pima County joined in the Lynch Group's motion and also asked the trial court to dismiss Republic's claims for inverse condemnation and trespass.

¶ 8 Republic opposed the motion by asserting that the common law and Pima County Ordinance No. 1974-86 established a duty of care supporting the negligence claims, its strict liability claim required no showing of duty, and § 33-806(B) permitted Republic to sue for waste. Additionally, Republic argued that its claim for waste under § 33-806(B) was broader than a common law waste action and included claims for damage to lot 260 and impairment of its security interest. Republic also asserted the motion to dismiss could not be granted on statute of limitations grounds because "the complaint contains no allegation whatever from which the court could conclude ... that Republic ... knew or should have known on the date of the flood about the Lynch [Group's] conduct, and how and why that conduct damaged its loan collateral."

¶ 9 The trial court granted appellees' motion to dismiss and sua sponte dismissed Republic's count for nuisance, stating:

THE COURT FINDS THAT these Defendants owe no statutory or common law duty to [Republic] for any of the claims made in the Complaint. Unless there is a duty either [at] common law or created by statute, no cause of action can lie against the Defendants.

The court further found Republic had not stated a claim for waste but did not rule on the statute of limitations defense. This appeal followed.

STANDARD OF REVIEW

¶ 10 "In reviewing a trial court's decision to dismiss a complaint for failure to state a claim, we ... will not affirm the dismissal unless satisfied as a matter of law that plaintiffs would not be entitled to relief under any interpretation of the facts susceptible of proof." Fidelity Sec. Life Ins. Co., 191 Ariz. 222, ¶ 4, 954 P.2d 580, ¶ 4. And, to the extent the trial court's decision involves interpretation of a statute, we review that issue de novo. Bills v. Arizona Property & Cas. Ins. Guar. Fund, 194 Ariz. 488, ¶ 6, 984 P.2d 574, ¶ 6 (App.1999).

DUTY

¶ 11 Republic argues that, because both § 33-806(B) and the common law establish a duty in favor of Republic, the trial court erred by concluding that Pima County and the Lynch Group owed no such duty.³ The existence of duty is a threshold issue that is usually decided by the trial court as a matter of law, subject to our de novo review. Knauss v. DND Neffson Co., 192 Ariz. 192, 195, 963 P.2d 271, 274 (App.1997).

¶ 12 Duty is a "`question of whether the defendant is under any obligation for the benefit of a particular plaintiff.'" Ontiveros v. Borak, 136 Ariz. 500, 508, 667 P.2d 200, 208 (1983),quoting William L. Prosser, Handbook of the Law of Torts § 53, at 324 (4th ed.1971). "[A] negligence action may be maintained only if there is a duty or obligation, recognized by law, which requires the defendant to conform to a particular standard of conduct in order to protect others against unreasonable risks of harm." Markowitz v. Arizona Parks Bd., 146 Ariz. 352, 354, 706 P.2d 364, 366 (1985). Section 33-806(B) recognizes that injury to trust property or security can harm the interest of the trust beneficiary and that third parties have certain obligations to the trust beneficiary:

The trustee or beneficiary shall have a right to maintain an action against any person, including the trustor, for a claim for relief where damage or injury occurs or may occur to the trust property or interests therein, including but not limited to actions for damages or to prevent:

1. Physical abuse to or destruction of the trust property, or any portion thereof.

2. Waste.

3. Impairment of the security provided by the trust deed. In any such action the trustee or beneficiary, or both, shall also be entitled to recover costs and reasonable attorney's fees and shall be entitled to all remedies available. Recovery of damages under this section shall be limited to damages or injuries incurred during the time the trustor is in possession or control of the trust property....

The legislature has determined that, at a minimum, if someone physically abuses or destroys the property, commits waste, or impairs the security, the trust deed beneficiary has a cause of action against that person. Thus, the legislature has recognized that third parties have a duty to trust deed trustees and beneficiaries.

¶ 13 Furthermore, this result is in keeping with the rule at common law that "an action may be maintained by a mortgagee against a third person who impairs his or her security by damaging the mortgaged property." 54A Am.Jur.2d Mortgages § 286 (1996). See also 59 C.J.S. Mortgages § 323 (1998); U.S. Financial v. Sullivan, 37 Cal. App.3d 5, 112...