Diaz v. BBVA USA

252 Ariz. 436

504 P.3d 945

Pedro U. DIAZ and Noemi C. Diaz, Husband and Wife, Plaintiffs/Appellants,

v.BBVA USA, fka Compass Bank, a corporation, Defendant/Appellee.

No. 2 CA-CV 2021-0046

Court of Appeals of Arizona, Division 2.

Filed January 7, 2022

Denny & Boulton P.C., Phoenix, By G. Michael Denny, Counsel for Plaintiffs/Appellants

Akerman LLP, By Erin E. Edwards, Chicago, Illinois, Counsel for Defendant/Appellee

Judge Brearcliffe authored the opinion of the Court, in which Presiding Judge Eppich and Chief Judge Vásquez concurred.

BREARCLIFFE, Judge:

¶1 Pedro and Noemi Diaz appeal from the trial court's dismissal of their action to quiet title. The Diazes contend the court erred by concluding that the six-year statute of limitations to enforce the subject deed of trust would not begin to run until the earlier of its maturity date or the creditor's acceleration of the underlying debt. The Diazes contend that the limitations period began, at the latest, when their debt was discharged in bankruptcy. For the following reasons, we affirm.

Factual and Procedural Background

¶2 The Diazes’ complaint to quiet title to their home was dismissed by the trial court under Rule 12(b)(6), Ariz. R. Civ. P., for failure to state a claim. "When a motion to dismiss for failure to state a claim is granted, review on appeal necessarily assumes the truth of facts alleged in the complaint." Airfreight Express Ltd. v. Evergreen Air Ctr., Inc. , 215 Ariz. 103, ¶ 2, 158 P.3d 232 (App. 2007) (quoting Logan v. Forever Living Prods. Int'l, Inc. , 203 Ariz. 191, ¶ 2, 52 P.3d 760 (2002) ). Documents attached to, or incorporated by reference in a complaint, are similarly considered. See Belen Loan Invs., LLC v. Bradley , 231 Ariz. 448, n.8, 296 P.3d 984 (App. 2012) (citing Strategic Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC , 224 Ariz. 60, ¶¶ 10, 14, 226 P.3d 1046 (App. 2010) (documents referenced but not attached are considered when they are central to complaint)). The facts below are drawn from both the Diazes’ complaint and the deed of trust cited in, and central to, the complaint.

¶3 In April 2005, the Diazes executed a note for a home equity line-of-credit ("HELOC") with Compass Bank, now BBVA, for the principal amount of $145,000. The Diazes secured the note with a deed of trust on their home, for the benefit of BBVA. As described in the deed of trust, the credit agreement was a revolving line of credit, allowing the Diazes to borrow funds at their discretion, repeatedly, up to a limit of $145,000 while they made monthly payments. Each payment on the balance would replenish the amount available to the Diazes. The deed of trust's maturity date is April 9, 2040.

¶4 The Diazes’ last payment to BBVA under the note was made before March 2012 and they have made no payments since then. In March 2012, the Diazes filed for bankruptcy relief, under chapter 7 of the bankruptcy code, and were granted a discharge of debts in August 2012.¹ The Diazes’ then-existing debt to BBVA under the note was included in the bankruptcy discharge. BBVA and the Diazes did not enter a reaffirmation agreement.² We assume for the purposes of this decision that the entirety of the outstanding debt to BBVA was discharged in the bankruptcy action.

¶5 Under the deed of trust, the Diazes’ failure to "meet the repayment terms" of the HELOC after March 2012 was an event of default. Upon an event of default, BBVA could elect "one or more" of identified remedies, including acceleration (as lender, by declaring "the entire indebtedness immediately due and payable") and foreclosure (as trustee, "by notice and sale," or as lender, "by judicial foreclosure"). The Diazes agreed in the deed of trust that BBVA does "not give up any of [its] rights under [the] Deed of Trust unless [it] does so in writing," and that "[t]he fact that [BBVA] delays or omits to exercise any right will not mean that [BBVA] has given up that right." They further agreed that the deed of trust would secure any obligation to BBVA "whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable." It is undisputed that BBVA had not, as of the date of the complaint, exercised or attempted to exercise either acceleration or foreclosure under the deed of trust.

¶6 Eight years after receiving the bankruptcy discharge, in August 2020, the Diazes filed this quiet title action to preemptively bar BBVA "from having or claiming any right or title" to their home adverse to theirs, and a "[j]udgment extinguishing" the deed of trust. They asserted that more than six years had passed since both their first uncured, missed payment in March 2012, and the date of their "last payment owed," which is, effectively, the date of the bankruptcy discharge in August 2012. Consequently, they argued, because BBVA had failed to enforce the deed of trust within Arizona's six-year limitations period, it was forever barred from doing so. A.R.S. § 12-548(A)(1) ; see A.R.S. § 33-816 (statute of limitations for contract applies to deed of trust securing contract). BBVA filed a motion to dismiss, arguing the statute of limitations had not run, and would not begin to run until either April 2040—the maturity date of the deed of trust—or its election to accelerate the underlying debt. The trial court granted BBVA's motion, dismissing the complaint with prejudice, and this appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).

Analysis

¶7 In granting BBVA's Rule 12(b)(6) motion to dismiss, the trial court determined that BBVA was not barred by the statute of limitations and that the Diazes had therefore failed to state a claim upon which the relief they sought could be granted. On appeal, the Diazes argue that the trial court erred by: (1) applying precedent that requires a creditor to accelerate a debt to commence the six-year statute of limitations and (2) "applying legal precedent without regard to the legal significance of [their] bankruptcy discharge." We review the dismissal of a complaint under Rule 12(b)(6), de novo. Coleman v. City of Mesa , 230 Ariz. 352, ¶ 7, 284 P.3d 863 (2012). Dismissal is only appropriate under Rule 12(b)(6) if "as a matter of law ... plaintiffs would not be entitled to relief under any interpretation of the facts susceptible of proof." Id. ¶ 8 (quoting Fid. Sec. Life Ins. Co. v. State Dep't of Ins. , 191 Ariz. 222, ¶ 4, 954 P.2d 580 (1998) ). "The accrual of the cause of action and the interpretation of a statute of limitations are legal questions, which we review de novo." Mertola, LLC v. Santos , 244 Ariz. 488, ¶ 8, 422 P.3d 1028 (2018).

Navy Federal, Webster and Miller versus Mertola

¶8 In support of their claim that the trial court erroneously dismissed their complaint, the Diazes cite to Mertola, 244 Ariz. 488, 422 P.3d 1028. In Mertola , a couple entered into a consumer credit card agreement with a bank and the agreement contained an optional acceleration clause upon default. Id. ¶ 2. The borrowers defaulted for the first time in 2008 and the creditor did not sue for the unpaid balance of the credit card debt until 2014. Id. ¶¶ 3-4. The court concluded that, when a credit card agreement contains an optional acceleration clause, the statute of limitations for a creditor to collect the entire outstanding debt begins to accrue upon the first defaulted payment. Id. ¶ 21. Consequently, the creditor's claim for the unpaid debt was barred by the six-year statute of limitations of A.R.S. § 12-548(A)(2). Id. ¶¶ 1, 21-22.

¶9 The Diazes similarly assert that BBVA was obliged to foreclose on the home either within six years of the first missed payment, or, at the latest, within six years of the last payment due just before their bankruptcy discharge. BBVA argues in response, as it did below, that it was entitled to wait to foreclose (or exercise any other available remedy under the deed of trust) until the April 2040 maturity date of the deed of trust. Any applicable statute of limitations, it argues, does not begin to run any sooner than that maturity date unless it affirmatively takes some earlier remedial action such as acceleration. It argues, also as it did below, that—as we held recently in Webster Bank N.A. v. Mutka , 250 Ariz. 498, ¶ 12, 481 P.3d 1173 (App. 2021) — Mertola applies only to unsecured credit card debt, not secured debt such as that involved here.

¶10 In Webster , the debtor, Mutka, entered a thirty-year HELOC, with a borrowing limit of $73,000, secured by a deed of trust on his home. Id . ¶ 2. During the first fifteen years of the loan, Mutka was required to make monthly interest payments, but was not obligated to make principal payments until the second fifteen years. Id . Four years after taking out the loan, Mutka failed to make a monthly interest payment, and, thereafter, made no further payments under the loan. Id . ¶ 3. Six and a half years after that default, the lender bank accelerated the debt under the optional acceleration clause in the loan agreement, and sued to collect the balance. Id . In response to the suit, Mutka moved for summary judgment, arguing that the six-year statute of limitations barred the bank's suit. Id. ¶ 4. The trial court denied the motion and, after a trial, the bank secured judgment against Mutka. Id . ¶11 On appeal, this court recited the rule that "[w]hen a fixed debt is payable in installments, the statute of limitations ‘commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause.’ " Id . ¶ 7 (quoting Navy Fed. Credit Union v. Jones , 187 Ariz. 493, 494, 930 P.2d 1007, 1008 (App. 1996) ). Mutka had argued that, because his debt was akin to credit card debt, Mertola applied, not Navy Federal , and that the "cause of action to collect the entire outstanding [credit card] debt accrues upon default: that is, when the debtor first fails to make a full,...