Rogone v. Sasser (CA1 9/25/14)

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In the context of a nasty family feud the court mentions a couple of things worth pointing out about judgments and homesteads.

This was an action to enforce a California judgment. It is one part of a dispute about trust assets the details of which are fortunately unimportant since no one involved, including the legal types, comes out looking very good. (The problems begin with the caption, which tells us that the lead plaintiff is “John Rogone, aka Johnny Rogone, now Bingo Bada Bing.” In other words, it appears that the gentleman had changed his name to an alliterative phrase, which his lawyers then masked by reversing the normal “aka” sequence – legal name first – so as not to compromise their client’s gravitas. Not too serious, perhaps – but that’s apparently not the only document somebody played games with.)

The defendants reacted to the California judgment with some real-property transactions that the Arizona court, after trial with an advisory jury, deemed fraudulent as to creditors and set aside. After signing a form of judgment the court had to “clarify” it with an amended judgment. One of the defendants then moved onto one of the properties and claimed a homestead exemption (the trial court eventually denied it on equitable grounds), which resulted in motions culminating in a second amended judgment. Then (apparently; the sequence isn’t entirely clear) the court set aside the second amended judgment. Both sides took the case up and it bounced around the appellate system awhile, eventually going back to the trial court for the entry of a third amended judgment. (Of this and other things the Court of Appeals spares us details; this is wise and merciful since the factual and legal records are likely of the read-it-and-weep variety). Then both sides appealed again.

The plaintiffs argued that the trial court shouldn’t have set aside the second amended judgment. They made some procedural arguments; those are stupid desperate unenlightening, so we will skip them. Substantively, the question was whether the court had discretion to set aside under 60(c)(6). The Court of Appeals holds that it did.

The problem with the second amended judgment was that someone had slipped into it “multiple, material and surreptitiously added provisions not authorized by any prior court ruling.” For example, it included a slanted factual description of the California lawsuit. The Court of Appeals notes that “[e]ven if this were a fair characterization of the evidence (a question we do not decide), a judgment should not recite details of the proceedings.” The language was “superfluous to the required description of the court’s decision.”

The judgment also included rulings not made and relief not prayed for. The court concludes summarily that this justifies relief, which is fine since that should go without saying.

(Who slipped the junk into the judgment? Why did it get past the other side? The opinion needn’t and doesn’t – and we’re glad of it – give quite enough background to clarify some of those things, though the reader can draw conclusions. So this is mostly a monument to our oft-repeated proposition that judges will sign anything. That the judge will remember the case, read the document, comprehend the document, or even know how such documents should be drafted is, on one or more of those points, expecting too much. It is apparently the courts’ official position that judges are free to sign anything if no objection is filed. Some of us remember stricter days but of course things are much better now in this, the best of all possible worlds.)

The defendants argued that the trial court erred by denying the homestead exemption. The Court of Appeals agrees. “’The Arizona homestead statute is not ambiguous.’ Nowhere does the statute [33-1101] require a person to satisfy notions of equity to qualify for the exemption.” The plaintiffs relied on a bankruptcy case and a 1928 case that arguably applied equity; the court distinguishes them because they concerned “a conveyance or wrongdoing involving the homestead property itself.” Although the defendants did commit a fraudulent conveyance, the plaintiffs “did not seek damages arising out of that conduct. Instead, they sought to collect on a judgment that was based on mishandling of unrelated trust assets.”

(There were also arguments – variously fact-specific or silly – about fee awards. The court affirms them.)

(link to opinion)

The Weitz Company v. Heth (8/26/14)

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This case came out last week but our eyes glazed over reading about whether equitable subrogation can give priority over a materialman’s lien. We were reminded of it today, took it out of the slush pile, and it turns out to be not entirely uninteresting. We sympathize with these defendants, who got sued for a debt they didn’t incur on property they’d already paid for. Apparently the Supreme Court did, too.

The case concerns the financing of The Summit at Copper Square, the high-rise condominium complex between Chase Field and the U. S. Airways Center. First National Bank loaned Summit LLC the money to build it, secured by deeds of trust. The Weitz Company was the general contractor. Summit sold most of the condos before construction was finished; as a condo was sold Summit applied some of the money to FNB’s loan and the unit was released from FNB’s deed of trust (to make room for the deeds of trust securing the buyers’ lenders). Near the end of construction Summit failed to make a $4 million dollar payment to Weitz, which recorded a mechanics lien in May 2008 and later sued Summit. It also sued the individual condo owners and their lenders because under the statute (33-992A) its mechanics lien has priority over all liens that attach after construction begins (and presumably also because Summit was teetering on the edge of the bankruptcy it later fell into; these urban hipster heavens hit a hard patch when the economy slowed).

The owners and lenders moved for summary judgment, arguing that they were equitably subrogated to FNB’s original deed of trust (given before construction). The trial court and the Court of Appeals disagreed with them, though for different reasons. But the Supreme Court reverses and remands.

Arizona recognizes the doctrine of equitable subrogation, which in this context means, basically, that if you pay off someone else’s obligation then you can step into the shoes of the obligee. So the owners and lenders contended that because the purchase price of a condo had been used to pay down the deed of trust their position was the same as FNB’s – that of a pre-construction lienholder.

The Court of Appeals decided, based on a Nevada case, that equitable subrogation couldn’t apply because the statute, by giving the mechanics lien priority over liens occurring after the commencement of construction, prohibited it. The Supreme Court is quite critical of the appellate court’s analysis and says that it “misapprehends how equitable subrogation operates.”  Equitable subrogation is the equivalent of assignment and does not change the time when the assigned rights attached.

Perhaps realizing that this doesn’t quite explain why the express language of the statute has no effect on courts’ ideas of equity, the court goes on to tell us that the legislature didn’t intend to preclude equitable subrogation. That’s so because mechanics liens protect laborers and materialmen, whose rights are not prejudiced when a superior lien is assigned from one party to another. Right or wrong, this is just a restatement of the first argument, dressed up as statutory analysis.

The court also says that its solution is “consistent with the legislature’s treatment of junior lienholders’ interests in foreclosure actions.” In those cases, under 33-723, a junior lienholder can get an assignment of a senior lienholder’s rights by paying off the senior lien. Since this statute makes no exception for mechanics liens it allows, the court says, a junior to vault over a mechanics lien. “We have no reason to conclude that the legislature intended to preclude assignment of a superior lien by equitable subrogation in the mechanics’ lien context while permitting an assignment by statutory subrogation in a foreclosure action.”  Maybe this sentence was intended to compare mortgages with deeds of trust and got fouled up somewhere along the way, since as written it doesn’t mean much. In any event, the court does not explain why 723, by saying nothing about 992A, automatically overrides it. Wouldn’t this normally be considered a statutory conflict? And isn’t the fact that the deed of trust statutes don’t include a close analogy to the mortgage statute, 723, a “reason to conclude” that the legislature may have meant to treat them differently? We frankly don’t know why the legislature would do such a thing but the court’s approach is slight of hand, not analysis.

The trial court had decided that equitable subrogation couldn’t apply because the owners and their lenders didn’t fully discharge Summit’s debt. The doctrine normally requires that. But the court decides that “a prospective subrogee is required to discharge only the portion of an obligation that is secured by the property at issue.”  Subrogation is prohibited only where it would “divide security between the original obligee and a payor who discharges part of the obligation.” The court considers that security was not divided here because FNB had released the condos sold from Summit’s security obligation.

(link to opinion)

Boyle v. Ford (CA2 8/29/14)

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One of the reasons for publishing an opinion is to remind people of the law; that was presumably the thinking here so we’ll blog it for the same reason.

The Boyles sued Ford when their truck burned up in their driveway. Ford made an Offer of Judgment; the Boyles did not respond to it and then lost at trial. When Ford moved for Rule 68 sanctions the Boyle’s objected. The trial court awarded sanctions, ruling that the Boyle’s objection was hyper-technical and that they had waived it. It surely was the former; the latter is the basis of this opinion affirming the award.

Rule 68(d) now requires (and has since 2007, though since many lawyers haven’t read rules since they left law school that is recently enough to catch a fair number off guard) that objections to an OJ be filed within ten days on pain of waiver. The Boyles argued that objections must be filed when there are mistakes in the OJ but not when there is some basic defect in it that renders it invalid. But they were apparently making that up almost entirely out of whole cloth without authority; the rule makes no such distinctions. The court holds that the offeree must inform the offeror of “any” objections to the OJ.

(link to opinion)