Wells Fargo Credit Corp. v. Smith

• Decision Date: 20 March 1990
• Docket Number: No. 1,CA-CIV,1
• Citation: 166 Ariz. 489,803 P.2d 900
• Parties: WELLS FARGO CREDIT CORPORATION, an Arizona Corporation, Justice Mortgage Company, Inc., an Arizona Corporation, Plaintiffs, Counter-defendants, Third Party Defendants-Appellees, v. Harold N. and Barbara Elaine SMITH, husband and wife, Defendants, Counter-claimants, Third Party Plaintiffs-Appellants, and Michael Simonson and Jeffrey Arbetman, dba Simonson and Arbetman, Appellants. 88-335.
• Court: Arizona Court of Appeals

Page 900

803 P.2d 900

166 Ariz. 489

WELLS FARGO CREDIT CORPORATION, an Arizona Corporation, Justice Mortgage Company, Inc., an Arizona Corporation, Plaintiffs, Counter-defendants, Third Party Defendants-Appellees, v. Harold N. and Barbara Elaine SMITH, husband and wife, Defendants, Counter-claimants, Third Party Plaintiffs-Appellants and Michael Simonson and Jeffrey Arbetman, dba Simonson and Arbetman, Appellants.

No. 1 CA-CIV 88-335.

Court of Appeals of Arizona Division 1, Department C.

March 20, 1990.

[166 Ariz. 491] Squire, Sanders & Dempsey by Dennis I. Wilenchik and Judith M. Prakel, Phoenix, for appellees.

Brunn W. Roysden, Jr., Phoenix, for appellants.

OPINION

GERBER, Judge.

This appeal arises from an action based upon a loan contract between appellants Harold and Barbara Smith (Smiths) and appellee Justice Mortgage Co., Inc. (Justice Mortgage). Appellee Wells Fargo Credit Corporation (Wells Fargo) became a party to the contract as assignee of Justice Mortgage.

FACTS

In April 1985 the Smiths approached Justice Mortgage for a mortgage loan. Through a contractual arrangement with Justice Mortgage, Wells Fargo processed and approved the loan. Justice Mortgage and the Smiths formally entered into a loan agreement on June 13, 1985 which provided that the Smiths would borrow $54,000 at 13.35% interest and repay that sum over 15 years. The contract stated that the monthly payments were to be $347.85, exactly half the amount necessary to fully repay the loan agreement. This figure is at the heart of this litigation.

Justice Mortgage assigned the loan in writing to Wells Fargo. The error in the repayment amount was later realized and Wells Fargo attempted to have the Smiths execute an amended agreement. When they refused, Wells Fargo brought suit for a declaratory judgment to establish that the Smiths correctly owed $695.70 a month under the mortgage loan contract. Wells Fargo also sought to have the contract reformed to show this amount. The Smiths denied Wells Fargo's contentions, counterclaimed and brought Justice Mortgage into the suit. The Smiths alleged fraudulent misrepresentation and negli gence on the part of both Wells Fargo and Justice Mortgage and statutory violations by both companies. In particular, the Smiths contended that Justice Mortgage violated A.R.S. §§ 6-901 and 907 and that both entities violated the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1639, and 1640, Ch. 41 (1982). The Smiths sought fees based on the contract from both Justice Mortgage and Wells Fargo and also sought indemnification from Justice Mortgage.

In the trial court, Wells Fargo moved for summary judgment contending there was no issue of material fact because the Smiths either knew or easily could discover the correct monthly payment amount from documents given them. The Smiths countered the motion with affidavits asserting that the amount of monthly payments was the critical consideration in obtaining the loan, that the amount disclosed in the loan agreement was consistent with the amount discussed in the April 1985 meeting, and that they would not have taken out the loan had they known the rate of repayment would be twice as great as listed on the loan agreement.

On February 11, 1988, the trial court granted Wells Fargo's motion for summary judgment. It also reformed the promissory note to reflect $695.70 as the correct monthly amount owed. The trial court then dismissed all the Smiths' counterclaims. The court also ordered the Smiths to pay attorney's fees incurred by Wells Fargo and Justice Mortgage and also imposed attorney's fees upon the Smiths' law firm.

The Smiths and their attorneys appealed these judgments on April 20, 1988. Prior to appeal, however, the Smiths notified Wells Fargo and Justice Mortgage that they were rescinding the loan agreement pursuant to 15 U.S.C. § 1635 (1982). Wells Fargo then filed a supplemental complaint with the trial court on March 31, 1988. On April 29, 1988, the Smiths removed the case to the U.S. District Court for the State of Arizona.

On removal, the federal district court summarily held that the Smiths had a right under 15 U.S.C. § 1635(a) to rescind the agreement. Smith v. Wells Fargo Credit Corp., 713 F.Supp. 354 (D.Ariz.1989). The district court declined to determine whether the Smiths were bound to pay damages and attorney's fees. 713 F.Supp. at 359.

Though rescission of the mortgage loan agreement arguably makes the reformation issue moot, we must review the underlying summary judgment in order to review collateral elements of the judgment not mooted by the rescission.

SUMMARY JUDGMENT

The trial court granted reformation of the mortgage loan through summary judgment entered in favor of Wells Fargo. Wells Fargo and Justice Mortgage produced affidavits from employees describing the loan processing procedure and argued that an error had been made and that the Smiths had been told the correct amount of the loan. The Smiths countered with affidavits stating that they believed in good faith that their monthly payments would be $347.85 and that they had never been told they would owe twice that amount.

The material facts are thus controverted. Wells Fargo contends the Smiths were told the correct amount they would owe; the Smiths contend they were never told they would owe $695.70 and they never would have entered into the agreement had they known they would have owed this much. ¹ Because of these disputed facts, summary judgment was improper and is hereby set aside.

We next consider other aspects of the case linked to this improper ruling.

MOTION TO COMPEL DISCOVERY

The Smiths argue on appeal that the trial court erred in failing to rule on their discovery request and the subsequent motion to compel.

The Smiths originally made discovery requests in March 1987 in the form of interrogatories and production requests asking for names, documents and procedure manuals from both lenders. Wells Fargo and Justice Mortgage moved for a protective order, alleging that the requests were unduly burdensome and that they exceeded the information necessary to address the motion for summary judgment. The Smiths then filed a motion to compel.

Following numerous continuances, the motions for protective order, to compel and for summary judgment were finally heard on August 6, 1987. The hearing, however, was recessed to give the parties an opportunity to negotiate a settlement. When settlement became impossible, the hearing resumed October 30, 1987. Only the October portion of this hearing was transcribed.

While discussing the motion for summary judgment at the October hearing, counsel for the Smiths raised the issue of discovery. He complained that the Smiths could not contest all elements of the motion for summary judgment because they could not get the necessary discovery to raise a factual issue. The court responded:

THE COURT: I will tell you right now that this motion to compel has been pending as long as the motion for summary judgment. It has been continued, I can't tell you how many times, and you all went ahead with a motion for summary judgment this morning without first arguing the motion to compel and getting it. No request for a further continuance, and I will rule on the motion for summary judgment....

You had the opportunity to get those documents by expedited hearing on the motion to compel....

Rule 56(f) of the Arizona Rules of Civil Procedure provides that summary judgment may be stayed where the party opposing the motion is prevented from discovering sufficient evidence to challenge the motion:

Should it appear from the affidavits of a party opposing the motion [for summary judgment] that he cannot for reasons stated present by affidavit facts essential to justify his opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.

Rule 56(f), Arizona Rules of Civil Procedure (amended 1987).

The purpose of requiring an affidavit under Rule 56(f) is to avoid addressing a motion for summary judgment until each party has had a full opportunity to ascertain the true facts. Bobo v. John W. Lattimore, Contractor, 12 Ariz.App. 137, 141, 468 P.2d 404, 408 (1970). Rule 56(f) requires that parties who cannot adequately respond request a continuance on the motion for summary judgment or file an affidavit giving reasons for their inability to counter the opposing evidence. Absent a motion to continue or an affidavit, a trial court does not err in proceeding to rule on a motion for summary judgment. Phil W. Morris Co. v. Schwartz, 138 Ariz. 90, 94, 673 P.2d 28, 32 (App.1983). Where parties have had an ample opportunity to request a continuance until discovery is completed but fail to make such a request, summary judgment will not be reversed on the grounds that it was granted prematurely. Abernethy v. Smith, 17 Ariz.App. 363, 498 P.2d 175 (1972).

In the present case, the Smiths' previous attorney ² filed an affidavit with the response to the motion for protective order and motion to compel merely stating that the discovery dispute could not be resolved. The affidavit states nothing about any inability to respond to the motion for summary judgment. The response to the motion for summary judgment does complain that Wells Fargo and Justice Mortgage refused to comply with discovery requests but does not identify the discovery needed to meet that motion.

Counsel for the Smiths did not file an affidavit in accordance with Rule 56(f) identifying the discovery needed or giving reasons why such evidence could not be presented. He did not request a ruling on the motion to compel discovery for four months prior to the hearing on the motion for summary judgment. Given this scenario, the trial court did not abuse its discretion by denying the motion to compel.

COUNTERCLAIMS

In their amended counterclaim, the...