FL Receivables Trust 2002-A
v.
Ariz. Mills, L.L.C.

ARIZONA COURT OF APPEALS DIVISION ONEFeb 20, 2014
No. 1 CA-CV 12-0321 (Ariz. Ct. App. Feb. 20, 2014)

No. 1 CA-CV 12-0321

02-20-2014

FL RECEIVABLES TRUST 2002-A, a Delaware statutory trust, Plaintiff/Counterdefendant/Appellant, v. ARIZONA MILLS, L.L.C., a Delaware limited liability company, Defendant/Counterclaimant/Appellee.

Padish & Wells, PLLC, Scottsdale By James E. Padish and Dentons US LLP, New York By Patrick E. Fitzmaurice, pro hac vice Counsel for Plaintiff/Counterdefendant/Appellant Fennemore Craig, P.C., Phoenix By Andrew M. Federhar, Theresa Dwyer-Federhar, Meredith K. Marder Counsel for Defendant/Counterclaimant/Appellee


NOTICE: NOT FOR PUBLICATION.

UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT

AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.


Appeal from the Superior Court in Maricopa County

Nos. CV2003-017936 and CV2005-019324 (Consolidated)

The Honorable Sally Schneider Duncan, Judge


AFFIRMED


COUNSEL

Padish & Wells, PLLC, Scottsdale
By James E. Padish
and
Dentons US LLP, New York
By Patrick E. Fitzmaurice, pro hac vice
Counsel for Plaintiff/Counterdefendant/Appellant

Fennemore Craig, P.C., Phoenix
By Andrew M. Federhar, Theresa Dwyer-Federhar, Meredith K. Marder
Counsel for Defendant/Counterclaimant/Appellee


MEMORANDUM DECISION

Presiding Judge Maurice Portley delivered the decision of the Court, in which Judge John C. Gemmill and Judge Kent E. Cattani joined. PORTLEY, Judge:

¶1 We are asked to consider whether the superior court erred by determining that FL Receivables Trust 2002-A ("Trust") lost its security interest in the building and fixtures of a former Bennigan's restaurant ("Collateral") because it did not act in a commercially reasonable manner. Finding no error, we affirm.

FACTS

¶2 The Trust and Arizona Mills, L.L.C. ("Arizona Mills") have been engaged in litigation over the Collateral since 2003 when the restaurant closed before the expiration of the original fifteen-year lease. The litigation began when the Trust sued Arizona Mills, claiming that its security interest in the Collateral had priority. The superior court ruled in favor of Arizona Mills. On appeal, this court reversed the judgment because Arizona Mills, as the landlord, had signed a consent and waiver that subordinated all its interest, except to the land, to the Trust as successor lender. FL Receivables Trust 2002-A v. Ariz. Mills, L.L.C. ("Mills I"), 1 CA-CV 04-0229, at *2, *6-7, *11-12, ¶¶ 2, 15, 21 (Ariz. App. May 12, 2005) (mem. decision).

¶3 On remand, and after the property was marketed, the superior court held a bench trial to address various issues, including the Trust's claims that Arizona Mills had interfered with its use of the Collateral and that Arizona Mills had breached its duty of good faith and fair dealing. Following the entry of judgment, both parties appealed. On appeal, this court affirmed: the denial of the Trust's bad faith claim; the determination that Mills had not interfered with the Trust's efforts to seek a new tenant; the finding that the revised Article 9 of the Uniform Commercial Code applied to preclude Mills' counterclaims for trespass and unjust enrichment; and remanded the case for further proceedings. See FL Receivables Trust 2002-A v. Ariz. Mills, L.L.C. ("Mills II"), 230 Ariz. 160, 281 P.3d 1028 (App. 2012) (review denied June 17, 2013).

¶4 The superior court, however, had retained jurisdiction to resolve disposition of the Collateral during the pendency of the appeal. After briefing, the court found the Trust did not make a good faith effort to work with Arizona Mills, and the tenant the Trust had proposed was a commercially unreasonable choice that would have been rejected given the nature of the other tenants of the mall. The court entered judgment on March 9, 2012, and we have jurisdiction over this appeal pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1) (West 2014).

Arizona Mills argues that we do not have jurisdiction over the appeal because the Trust should have sought relief pursuant to Arizona Rule of Civil Procedure 60(c). Mills II, however, affirmed the 2010 judgment after the bench trial and remanded the case to resolve the disposition of the Collateral. Consequently, there is no impediment to the exercise of our appellate jurisdiction.

DISCUSSION

¶5 The Trust raises two arguments on appeal. First, the Trust contends that the challenged judgment is contrary to the rulings in Mills II. The Trust also contends that the superior court considered an improper factor in finding that the Trust did not act in a "commercially reasonable" manner under A.R.S. § 47-9610 (West 2014).

¶6 We review questions of law de novo. Wilmot v. Wilmot, 203 Ariz. 565, 569, ¶ 10, 58 P.3d 507, 511 (2002). When reviewing the judgment, we consider the evidence in the light most favorable to sustaining the judgment and will affirm for any reason supported by the record. Ariz. Water Co. v. Ariz. Dep't of Water Res., 208 Ariz. 147, 152 n.10, ¶ 18, 91 P.3d 990, 995 n.10 (2004); Mills II, 230 Ariz. at 166, ¶ 24, 281 P.3d at 1034. We will not disturb the findings of fact unless clearly erroneous. Castro v. Ballesteros-Suarez, 222 Ariz. 48, 51-52, ¶ 11, 213 P.3d 197, 200-01 (App. 2009). "A finding of fact is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists." Id. (quoting Kocher v. Dep't of Revenue of Ariz., 206 Ariz. 480, 482, ¶ 9, 80 P.3d 287, 289 (App. 2003)). The evidence is substantial if a reasonable person could reach the trial court's determination. Id. at 52, ¶ 11, 213 P.3d at 201. Furthermore, "[w]e will not reweigh the evidence or substitute our evaluation of the facts." Id.

I. Judgment Contrary to Mills II ¶7 The Trust argues that the judgment was contrary to Mills II. Specifically, the Trust contends that the superior court (1) improperly applied a "reasonable time" limitation to terminate its security interest in the Collateral; and (2) failed to follow the 2012 opinion by setting a fixed date for its security interest to expire.

¶8 The Trust correctly argues that Mills II stated that its security interest was not subject to the "reasonable time" limitation of A.R.S. § 47-9334 (West 2014). In Mills II, we stated that the Trust's security interest in the Collateral was not subject to the "reasonable time" limitation in § 47-9334(G) because the Trust's security interest arose "under both [§ 47-9334] subsections (F)(1) and (F)(2) . . . [and the] limitation does not apply because it does not apply to subsection (F)(1)." Mills II, 230 Ariz. at 172, ¶ 64, 281 P.3d at 1040. Because Arizona Mills consented to the Trust's "superior security interest" pursuant to § 47-9334(F)(1), we "decline[d] to find as a matter of law that the Trust's priority security interest ha[d] expired." Id.

Section 47-9334 states in pertinent part:

F. A security interest . . . has priority over a conflicting interest of an . . . owner of the real property if:
1. The . . . owner has consented . . . to the security interest . . . ; or
2. The debtor has a right to remove the goods as against the . . . owner.
G.
The priority of the security interest under subsection F, paragraph 2 of this section continues for a reasonable time if the debtor's right to remove the goods as against . . . owner terminates.


¶9
The Trust, however, argues that the superior court considered the reasonable time standard in § 47-9334 to reach its final ruling because the court determined that the Trust's "security interest [would] expire after a reasonable time ha[d] elapsed." Although the superior court stated in its May 2011 ruling that the security interest would expire on January 31, 2012, the court subsequently clarified the ruling and stated that the Trust, which had been trying to protect its security interest since 2003, had until January 2012 "to enter into a lease, or exercise its rights as first priority security interest lienholder." It also recognized that the Trust could enter into a lease beyond January 31, 2012. Consequently, the clarified ruling did not run afoul of Mills II.

In making its ruling, the superior court relied, in part, on language in Mills I, 1 CA-CV 04-0229, slip op. at *11-12, ¶ 21.

¶10 Moreover, in reaching its final conclusion, it is clear that the superior court did not merely rely on whether a reasonable time had elapsed. The court also focused on other factors, including efforts the Trust made to work with Arizona Mills to secure a tenant, the fact that the tenant the Trust proposed was not readily suitable for the mall, the failure of the Trust to work with Arizona Mills to answer questions concerning the tenant, and that § 47-9610 does not force a tenant on an unwilling property owner. Because we presume that the court knows the law and applied it correctly in making its decision, In re William L., 211 Ariz. 236, 238, ¶ 7, 119 P.3d 1039, 1041 (App. 2005), we will not presume that the court ignored the plain reading of § 47-9334(G). In fact, during the litigation the court stated on multiple occasions that its judgment was based on § 47-9610, not § 47-9334. Based on the record, we find no support for the argument that the court transposed the commercially reasonable provision in § 47-9610 with the reasonable time provision in § 47-9334(G). Consequently, the judgment is not contrary to Mills II.

¶11 The Trust also contends that the judgment violates Mills II because the court ruled that the Trust's security interest expired on an artificially fixed date that was contrary to the commercially reasonable standard required by § 47-9610. Mills II, 230 Ariz. at 173, ¶ 67, 281 P.3d at 1041 ("[A] set date does not comply with the commercially reasonable standard."). We disagree.

¶12 First, as noted above, the date set by the court in May 2011 was clarified and was not a fixed date. See supra ¶ 8. Moreover, in Mills II, we found that § 47-9610 imposed an obligation that "[e]very aspect of a disposition of collateral, including the method, manner, time, place and other terms must be commercially reasonable." Mills II, 230 Ariz. at 172, ¶ 65, 281 P.3d at 1040 (citing A.R.S. § 47-9610(B)). In fact, we noted that the determination of whether the Trust had acted in a commercially reasonable manner included examining the "steps the Trust [took] to lease the property, what rate [was] sought and methods used and whether they [were] consistent with the market, and whether any offers [were] received and if rejected, why." Id. at 173, ¶ 67, 281 P.3d at 1041.

¶13 Here, the court did not use an artificial date to terminate the Trust's interest. Instead, the date was set to allow the court to evaluate whether the Trust had acted in a commercially reasonable manner. In the September 2011 ruling that clarified the earlier ruling, the court stated that the Trust had until January 2012 to either "enter into a lease, or exercise its rights as first priority security lienholder." The ruling also noted that if the Trust found a tenant, it could enter into a lease beyond January 2012 and it would collect rent-income until 2028, the termination date for the original lease. Given the history of the case since the inception of the litigation in 2003, the clarification ruling did not set an artificial date violative of Mills II. As a result, we find no error.

II. Duration between Possession and Disposition of Collateral

¶14 The Trust argues that the court improperly considered the length of time that the Trust had possession of the collateral without disposing of it as a factor in determining whether the Trust acted in a commercially reasonable manner pursuant to § 47-9610. The Trust contends that because the Uniform Commercial Code ("U.C.C.") "does not specify a period within which a secured party must dispose of its collateral," the court erred by considering the length of time factor.

¶15 We disagree. In Mills II, we stated that "whether the Trust has acted in a commercially reasonable manner . . . depends on various factors." Mills II, 230 Ariz. at 173, ¶ 67, 281 P.3d at 1041. The factors listed were non-exclusive, and the court was free to consider others. Id. In fact, in Gulf Homes, Inc. v. Goubeaux, our supreme court stated that "[s]ince there is no statutory definition of the specific requirement necessary for a disposition to be commercially reasonable, the determination of whether a particular sale is commercially reasonable depends upon the circumstances, and the decision is considered one of fact rather than law." 124 Ariz. 142, 144, 602 P.2d 810, 812 (1979) (internal quotation marks omitted). As a result, Gulf Homes informs the holding in Mills II that a trial court should consider all relevant factors to determine whether a disposition was commercially reasonable. See id.

¶16 No Arizona case has discussed whether the length of time between possession and disposition of collateral can be a factor when determining commercial reasonableness pursuant to § 47-9610. The U.C.C. notes, however, that a secured party who without a good reason, "holds collateral for a long period of time without disposing of it" may be determined to have acted in a commercially unreasonable manner. U.C.C. § 9-610 cmt. 3; see also Black, Robertshaw, Frederick, Copple & Wright, P.C. v. United States, 130 Ariz. 110, 112, 634 P.2d 398, 400 (App. 1981) (noting that Arizona adopted the U.C.C. in 1967). Moreover, other jurisdictions have considered the duration between possession of collateral and disposition of collateral to determine commercial reasonableness. See Westgate State Bank v. Clark, 642 P.2d 961, 971 (Kan. 1982) (stating that one factor in determining commercial reasonableness is the "[l]ength of time collateral [was] held prior to sale" and that "holding the collateral for an extended period of time may be considered undue delay"); see also Mack Fin. Corp. v. Scott, 606 P.2d 993, 997 (Idaho 1980) (affirming the trial court's finding that a party's unexcused delay of almost two years between repossession of collateral and disposition was commercially unreasonable); see also 4 Am. Jur. 2d Proof of Facts § 6 (2013) ("[T]he exercise of commercial reasonableness might comprehend a sale with reasonable promptness after default.").

Similar to Arizona, Idaho, Kansas, and New Jersey have adopted the U.C.C. Article 9. See A.R.S. § 47-9610; Idaho Code Ann. § 28-9-610 (West 2014); Kan. Stat. Ann. § 84-9-610 (West 2014); N.J. Stat. Ann. § 12a:9-610 (West 2014).
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¶17 In fact, in Jefferson Loan Co. v. Session, the New Jersey plaintiff claimed that as a matter of law there was no rule that stated that a secured party's failure to hold a sale was commercially unreasonable. 938 A.2d 169, 183 (N.J. Super. Ct. App. Div. 2008). The appellate court disagreed and included the "length of time between repossession and resale" as a factor in determining a commercially reasonable disposition of collateral. Id. The court thus affirmed the trial court's finding that possessing the collateral for nearly four years was commercially unreasonable. Id.

¶18 Although the Trust contends, like the plaintiff in Jefferson Loan Co., that the time duration should not be a factor, there was nothing to preclude the superior court from considering it, along with other factors, in reaching its conclusion that the Trust did not act in a commercially reasonable matter pursuant to § 47-9610.

¶19 Moreover, the record supports the superior court's determination that the search for a tenant could not go on for an "interminable timeframe." The Trust failed to "enter into a lease, or exercise its rights as first priority security interest lienholder" since Mills I. The Trust presented the most recent potential tenant who produced a letter of intent to lease the Collateral. The prospective agreement collapsed, however, because the Trust failed to respond to Arizona Mills's concerns about the tenant and the lease terms and there was a question whether the potential tenant would fit into the family-friendly theme of the mall. As a result, the court found that the Trust had not made "a good faith effort to work with [Arizona Mills] [to] secur[e] a tenant for the building." We find no legal error.

III. Attorneys' Fees and Costs

¶20 Finally, both parties request attorneys' fees and costs on appeal. Because the Trust was not successful, we deny its request. Because Arizona Mills prevailed on appeal, we will award it reasonable attorneys' fees and costs on appeal pursuant to A.R.S. §§ 12-341, -341.01, upon compliance with ARCAP 21.

CONCLUSION

¶21 Based on the foregoing reasons, we affirm the judgment.