Opinion
2 CA-CV 2023-0001
07-05-2023
MOONBEAM ESTATES LLC, A NORTH DAKOTA LIMITED LIABILITY COMPANY, Plaintiff/Appellant, v. FIRST INTERNATIONAL BANK & TRUST, A NORTH DAKOTA CORPORATION, Defendant/Appellee.
Sacks Tierney P.A., Scottsdale By Michael L. Kitchen and Messerli & Kramer P.A., Minneapolis, MN By Kevin D. Hofman and Jacob W. Elrich Counsel for Plaintiff/Appellant Dorsey & Whitney LLP, Phoenix By W. Scott Jenkins Jr., Brittany Gilbertson, and Julie P. Ibrahim Counsel for Defendant/Appellee First International Bank & Trust
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Pinal County No. S1100CV202200170 The Honorable Christopher J. O'Neil, Judge
Sacks Tierney P.A., Scottsdale By Michael L. Kitchen and Messerli & Kramer P.A., Minneapolis, MN By Kevin D. Hofman and Jacob W. Elrich Counsel for Plaintiff/Appellant
Dorsey & Whitney LLP, Phoenix By W. Scott Jenkins Jr., Brittany Gilbertson, and Julie P. Ibrahim Counsel for Defendant/Appellee First International Bank & Trust
Judge Kelly authored the decision of the Court, in which Presiding Judge Brearcliffe and Judge Eckerstrom concurred.
MEMORANDUM DECISION
KELLY, JUDGE
¶1 Moonbeam Estates LLC ("Moonbeam") appeals from the trial court's order dismissing, in part, its complaint to set aside the sale of real property based on its allegation that the sale price was "grossly inadequate." Moonbeam argues the court erred by strictly applying the grossly inadequate sale price standard set forth by the Arizona Supreme Court in In re Krohn, 203 Ariz. 205 (2002), while failing to consider other alleged inequities. For the following reasons, we affirm.
Factual and Procedural Background
¶2 When reviewing a trial court's grant of a motion to dismiss for failure to state a claim, we assume the truth of facts alleged in the complaint. Logan v. Forever Living Prods. Int'l, Inc., 203 Ariz. 191, ¶ 2 (2002). In its complaint, Moonbeam alleged that it had obtained a loan from First International to purchase certain real property located in Maricopa, Arizona. The loan was secured by a deed of trust executed in favor of First International. The parties do not dispute that Moonbeam defaulted, after which First International substituted Anderson Clarkson Johnson Brown PLLC ("Anderson Clarkson") as trustee. Anderson Clarkson initiated a trustee's sale of the property, and a third-party, Superstition Investments #23 LLC ("Superstition Investments"), purchased the property at the trustee's sale for $1,091,000.
¶3 Subsequently, Moonbeam filed its complaint against First International, Anderson Clarkson, and Superstition Investments, asking the trial court to set aside the sale based on improper notice, breach of fiduciary duty, and a grossly inadequate sale price. It also sought damages from First International and Anderson Clarkson for breach of fiduciary duty. Moonbeam alleged the sale price was grossly inadequate when compared to the property's fair market value, which Moonbeam claimed exceeded $2,200,000. First International moved to dismiss the complaint pursuant to Rule 12(b)(6), Ariz. R. Crim. P., arguing Moonbeam had not stated a claim upon which relief could be granted. The trial court dismissed Moonbeam's request to set aside the sale and its breach of fiduciary duty claim as to First International. It entered judgment pursuant to Rule 54(b), Ariz. R. Civ. P., "as to th[o]se claims only."
¶4 This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).
Discussion
¶5 On appeal, Moonbeam asserts only that the trial court erred in dismissing its claim to set aside the sale because the sale price was grossly inadequate. We review de novo the court's dismissal of a complaint for failure to state a claim upon which relief can be granted. Conklin v. Medtronic, Inc., 245 Ariz. 501, ¶ 7 (2018).
All other claims Moonbeam raised below are therefore waived on appeal. See Howland v. State, 169 Ariz. 293, 295 (App. 1991).
¶6 Arizona statutes provide the trial court with no authority to set aside the sale of real property based upon sale price alone. See A.R.S. §§ 33-801 to 33-821; see also Krohn, 203 Ariz. 205, ¶ 13. Instead, the court's sole authority comes from our supreme court's decision in Krohn, 203 Ariz. 205. Therein, the court recognized that under Arizona law mere inadequacy of sale price is an insufficient ground to set aside a trustee sale unless it is coupled with "proof of some element of fraud, unfairness, or oppression." Id. ¶ 29 (emphasis omitted) (quoting Sec. Sav. & Loan Ass'n v. Fenton, 167 Ariz. 268, 270 (App. 1990)). However, the court, adopting policy from Restatement (Third) of Property (Mortgages) § 8.3 (1997), determined that "gross inadequacy" of price can be, in itself, proof of unfairness. Id. The Krohn court incorporated the Restatement's characterization of gross inadequacy by stating, "Generally . . . a court is warranted in invalidating a sale where the price is less than 20 percent of fair market value and, absent other foreclosure defects, is usually not warranted in invalidating a sale that yields in excess of that amount." Id. (emphasis omitted) (quoting Restatement § 8.3 cmt. b).
¶7 Moonbeam argues here, as below, that the property's sale price of $1,091,000 was grossly inadequate given its alleged value of $2,200,000. It asserts the trial court erred by "strictly applying the twenty percent guideline" from Krohn while ignoring the "overall loss" and "other inequities" surrounding the sale-namely, that Moonbeam "did not receive notice of the trustee's sale." We disagree.
¶8 The sale price obtained for the property was equal to nearly fifty percent of its purported value-well above the twenty percent threshold adopted by Krohn-and was therefore not grossly inadequate on its face. Providing no authority for its position, Moonbeam nevertheless maintains that we should instead evaluate the adequacy of the sale price by measuring the "total loss faced by a party" rather than "in terms of percentages alone." Its argument follows that, irrespective of any percentage loss in value, a property that sells for $1,000,000 less than its fair market value would require the court to analyze the sale under a different legal framework than it would the sale of a property realizing a net loss of $10,000. Had our supreme court intended for this result, it would have said so in Krohn. Instead, the court chose unambiguously to adopt the Restatement and its objective measure of sale price as a percentage of fair market value to determine gross inadequacy. Moonbeam is correct that "parties are free to argue under the facts of a particular sale that a different percentage is or is not grossly inadequate." Id. ¶ 34. However, the record before us demonstrates nothing particular about this sale that warrants deviation from the twenty percent threshold.
¶9 Moonbeam additionally argues it did not receive proper notice of the trustee sale, thereby preventing it from bidding on the property itself. It also urges us to consider this lack of notice in our gross inadequacy analysis. However, A.R.S. § 33-809(C) requires a trustee to send notice of the sale only "to the mailing address specified in the trust deed." Although Moonbeam asserts Anderson Clarkson did not send notice to its "correct address," it does not dispute that Anderson Clarkson sent notice to the address specified in the trust deed. We therefore agree with the trial court that "Moonbeam has alleged nothing more than inadequacy of price and a notice that complied with statutory requirements." Thus, the court properly granted the motion to dismiss for failure to state a claim as to Moonbeam's request to set aside the sale.
¶10 Furthermore, public policy supports applying Krohn to disfavor setting aside a trustee's sale. As the Krohn court explained, "[a]bsent special circumstances, sales to bona fide purchasers are not upset by the courts." 203 Ariz. 205, ¶ 24. And nothing in the record before us suggests that Superstition Investments was not a bona fide purchaser for value. Arizona's trustee sale framework is predicated on the expediency and finality of the non-judicial sale of property. See Hogan v. Wash. Mut. Bank, N.A., 230 Ariz. 584, ¶ 12 (2012) (such sales "are meant to operate quickly and efficiently, 'outside of the judicial process'" (quoting In re Vasquez, 228 Ariz. 357, n.1 (2011))); see also Zubia v. Shapiro, 243 Ariz. 412, ¶ 18 (2018) (denying result that "undercut[] the finality the legislature intended for trustee sales"). Accordingly, and for the reasons stated above, we will not expand the inadequacy standard set forth in Krohn to invalidate this particular sale.
Attorney Fees
¶11 Both parties request an award of attorney fees. Because Moonbeam is not the prevailing party, we deny its request. In our discretion, we award First International its reasonable attorney fees on appeal, pursuant to A.R.S. § 12-341.01(A). See Ader v. Est. of Felger, 240 Ariz. 32, ¶ 48 (App. 2016). First International is also entitled to its costs on appeal upon compliance with Rule 21, Ariz. R. Civ. App. P. See A.R.S. § 12-342(A).
Disposition
¶12 We affirm the trial court's order dismissing the complaint in part for failure to state a claim.