Faber v. Althoff

Page 1031

812 P.2d 1031

168 Ariz. 213

Elmer L. FABER, Trustee of Faber Brothers Construction Company, Inc., Defined Benefit Pension Plan, Plaintiff-Appellant, v. David ALTHOFF and Phillis J. Althoff, husband and wife; Rod Collins and Vicki K. Collins, husband and wife; Charles Riley, bankruptcy trustee for the estate of Robert Eve; John C. Leeper and Patricia A. Leeper, husband and wife; Kent H. Mulkey and Lorna D. Mulkey, husband and wife; Jesus Ortiz and Diedre Ortiz, husband and wife; Alvin S. Witt and Sophie T. Witt, husband and wife; Robert Dossey and Jane Doe Dossey, husband and wife, Defendants-Appellees.

No. 1 CA-CV 88-360.

Court of Appeals of Arizona Division 1, Department B.

Nov. 27, 1990.

Reconsideration Denied July 19, 1991.

[168 Ariz. 214] Broening Oberg & Woods by Brian Holohan, Phoenix, and Udall, Shumway, Blackhurst, Allen, Lyons & Davis, P.C. by David R. Schwartz, Mesa, for plaintiff-appellant.

Bonnett, Fairbourn & Friedman, P.C. by Andrew S. Friedman, and H. Sullivan Bunch, Phoenix, for defendants-appellees Althoff, Collins, Leeper, Mulkey, Ortiz, and Witt.

Ayers & Graham by Gregory A. Larson, Phoenix, for defendants-appellees Dossey.

OPINION

JACOBSON, Presiding Judge.

This appeal presents the issue whether the failure to include in a foreclosure judgment against a partnership the right of the creditor to obtain a deficiency judgment precludes additional relief against the individual partners of the partnership.

Elmer Faber (plaintiff) appeals from the trial court's dismissal of his suit to collect from the individual partners (defendants) a deficiency remaining after plaintiff foreclosed his deed of trust against a partnership in a prior action. The trial court granted summary judgment in favor of defendants because the prior foreclosure judgment against the partnership did not contingently provide for recovery of any deficiency remaining after sale of the foreclosed property. The trial court concluded that such silence in the prior judgment must be construed as a determination that plaintiff was not entitled to recover any deficiency, relying on Greater Arizona Savings & Loan Association v. Gleeson, 5 Ariz.App. 577, 429 P.2d 464 (1967), and that plaintiff was thus collaterally estopped from proceeding in a second action against the partners.

We are thus required to reexamine the Gleeson decision, and to construe and harmonize principles of statutory foreclosure law, partnership liability, and the doctrines of res judicata and collateral estoppel. We conclude that, under the circumstances of this case, plaintiff is not precluded from proceeding in a separate action to recover the deficiency from the individual partners who were not named or served in the prior foreclosure action.

FACTS AND PROCEDURAL HISTORY

Plaintiff is a trustee for a defined benefit pension plan, which was the assigned beneficiary of a promissory note for a debt incurred in 1984 by Alma Gardens, a general partnership. The promissory note was secured by a deed of trust on land in Mesa, Arizona. The defendants in the present action are the individual general partners of Alma Gardens.

In April 1985, the partnership defaulted on its payments on the note. Plaintiff brought a foreclosure suit against the partnership, naming only the partnership, Alma Gardens; the individual partners were neither named nor served as defendants. ¹ The complaint requested a judgment in the principal amount of $99,088.76, costs, attorneys' fees, a determination of the priority of plaintiff's interest, a writ of execution to the county sheriff requiring that the property be sold and the proceeds distributed, and also requested that "[i]n the event there is any deficiency, the defendant, ALMA GARDENS, remain liable to the plaintiff to the extent of any deficiency suffered by plaintiff."

In January 1986, the court issued a minute entry granting plaintiff summary judgment in the foreclosure action, "as prayed for in Plaintiff's complaint." Plaintiff's former attorney submitted a proposed form of judgment, which the trial court signed on February 28, 1986. That judgment granted the following relief: judgment in the principal sum of $99,088.76, plus interest of $44.79 a day from July 25, 1985, until paid in full; plaintiff's title search fees and court costs in the amount of $262.00; interest on costs and fees of ten percent per annum from the date of judgment; a writ of execution to foreclose the deed of trust and sell the property through the Maricopa County Sheriff for distribution of funds; and an adjudication that plaintiff's lien is superior to defendant's claim to the property. The court also awarded plaintiff attorneys' fees pursuant to A.R.S. § 12-341.01. The judgment, however, was silent as to plaintiff's right to recover any deficiency remaining on the principal amount after the sale of the foreclosed property. This judgment became final.

The property was sold at a sheriff's sale for $50,000.00. Thereafter, plaintiff filed the complaint in the present case, naming as defendants the individual partners of Alma Gardens, to recover the deficiency between the amount of the prior judgment and the sale proceeds--$64,952.95. Plaintiff alleged that defendants were liable for the resulting deficiency owing on the prior judgment because they were jointly and severally liable for partnership debts, including the 1985 promissory note.

Defendants Althoff, Leeper, Collins, Mulkey, and Witt (collectively, the Althoff defendants) filed a motion to dismiss for failure to state a claim, pursuant to Rule 12(b)(6), Arizona Rules of Civil Procedure. They argued that plaintiff's failure to provide for a deficiency in the prior judgment against the partnership barred any claim that was based on the joint and several liability of the partners, citing Gleeson. Defendant Eve later joined in the Althoff defendants' motion and defendant Ortiz filed a similar motion, making the same arguments and requesting either dismissal under Rule 12(b)(6) or a grant of summary judgment. Plaintiff responded to both motions, arguing that he was not precluded by Gleeson from suing the individual partners on the deficiency.

On January 5, 1988, the trial court signed a formal order granting summary judgment on the Ortiz motion, finding Gleeson dispositive and ruling:

Gleeson stands for the proposition that Plaintiff herein has had his day in court as to his entitlement to a deficiency judgment. That fact has been decided adversely against Plaintiff in its suit against Alma Gardens. Although the present Defendants were not parties to the lawsuit against Alma Gardens, this Court finds Plaintiff is estopped under the doctrine of collateral estoppel from pursuing a deficiency judgment against the Defendants in this suit.

The judgment dismissed the complaint as to Ortiz, and awarded attorneys' fees.

On May 9, 1988, the trial court signed a similar judgment dismissing plaintiff's complaint "as to all Defendants" and awarding attorneys' fees to Ortiz, Eve, and the Althoff defendants. ² Plaintiff timely appealed.

DISCUSSION

1. Foreclosure Law and the Gleeson Decision

As a preliminary matter, we note that the parties dispute whether the 1986 amended version of A.R.S. § 33-725 applies to this case. Plaintiff argues that the statute in effect at the time the judgment was entered in the foreclosure suit should apply, while defendants argue that the amended statute in effect at the time the present action was filed should apply. ³ However, Arizona law has long held that the law in effect at the time of the execution of the mortgage applies to any foreclosure proceeding upon the mortgage. See Kresos v. White, 47 Ariz. 175, 54 P.2d 800 (1936) (law entitling plaintiff to a deficiency judgment in foreclosure proceeding at time mortgage was executed applied; rights conferred by that law became a vested right under the contract). We therefore apply the law in effect in 1984 when the deed of trust was executed, which is substantially the same as the statutory provision construed in the Gleeson decision. ⁴ That statute provides:

A. When a mortgage or deed of trust is foreclosed, the court shall give judgment for the entire amount determined due, and shall direct the mortgaged property, or as much thereof as is necessary to satisfy the judgment, to be sold.

B. Judgments for the foreclosure of mortgages and other liens shall provide that the plaintiff recover his debt, damages and costs, with a foreclosure of the plaintiff's lien on the property subject to the lien, and, except in judgments against executors, administrators and guardians, that a special execution issue to the sheriff or any constable of the county where the property is located, directing him to seize and sell the property as under execution, in satisfaction of the judgment. If the property cannot be found, or if the proceeds of the sale are insufficient to satisfy the judgment, then to make the money or any balance thereof remaining unpaid out of any other property of the defendant except as provided in §§ 33-729 and 33-730.

A.R.S. § 33-725 (emphasis added). Additionally, A.R.S. § 33-727(A) provides:

Except as provided [in the anti-deficiency statutes, not at issue in this case], if the mortgaged property does not sell for an amount sufficient to satisfy the judgment, an execution may be issued for the balance against the mortgagor where there has been personal service, or the defendant has appeared in the action.

In Gleeson, this court construed these two provisions to conclude: first, that a foreclosure judgment must specifically provide for the contingency of a deficiency, and that, in the absence of that provision, a deficiency judgment will not be read into the judgment; and second, if the complaint requests such a deficiency provision and the judgment fails to include it, then the matter is in effect litigated and decided adversely to the plaintiff whether or not the record supports such a ruling.

In...