Jeffrey C. Stone, Inc. v. Central & Monroe, L.L.C. (In Re Mortgages Ltd.)
459 B.R. 739
| Bankr. D. Ariz. | 2011Background
- Hotel Monroe remodeling project; owner Central and Monroe, LLC financed by multiple prior deeds of trust beginning 2002.
- First Commonwealth Mortgage Trust deed of trust recorded May 2002; refinanced July 2005 by Mortgages Ltd. with an $8.5M loan and release of the 2002 lien.
- December 2006: Choice Bank loan for $9.3M; most proceeds used to satisfy Mortgages Ltd. and release the 2005 lien.
- November 15, 2006: KGM (general contractor) begins demolition work before the December 2006 Choice Bank deed; Summit later comes in as another general contractor.
- May 16, 2007: Mortgages Ltd. records a second lien for $75.6M; over $8.9M used to satisfy the Choice Bank debt and release its 2006 lien.
- January 1, 2008: Summit Builders commences work; Summit records its lien in July 2008 alleging work on the same project as KGM.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mortgages Ltd. is equitably subrogated to prior liens | Mortgages argues it is entitled to priority of prior deeds under equitable subrogation. | Summit argues no subrogation or priority retroactivity; there was no express/implied agreement to subrogate; prejudice to Summit. | Summary judgment denied; issues of agreement and prejudice to other lienors remain for trial. |
| Whether Summit’s lien priority relates back to KGM’s demolition work | Mortgages contends Summit is subject to the same relation-back as KGM because of the project-wide improvement. | Summit argues the relation-back depends on whether work was under the same or different contracts; separate contract scenarios may differ. | Mortgages' priority theory rejected for Summit; issues of project vs separate-contract priority unresolved. |
| Effect of A.R.S. § 33-992(A) and (E) on priority dating | Mortgages relies on the single project rule and § 33-992(A) to assert back-dating the lien to the commencement of labor. | Summit relies on § 33-992(E) for improvements not governed by construction contracts, potentially aligning Summit with KGM. | § 33-992(A) favors a single priority date; § 33-992(E) may apply to non-construction improvements; result: denies summary judgment for both KGM and Summit. |
Key Cases Cited
- Lamb Excavation Inc. v. Chase Manhattan Mortgage Corp., 208 Ariz. 478, 95 P.3d 542 (2004) (escrow instruction evidence can support implied subrogation)
- Peterman-Donnelly Eng'rs and Contractors Corp. v. First Nat'l Bank of Ariz., 2 Ariz.App. 321, 408 P.2d 841 (1965) (subrogation requires express or implied agreement)
- Wylie v. Douglas Lumber Co., 39 Ariz. 511, 8 P.2d 256 (1932) (priority among liens under a general contract; single project rule)
- Wahl v. Southwest Sav. & L. Ass'n, 106 Ariz. 381, 476 P.2d 836 (1970) (relation back and priority discussed with earlier authorities)
- Wooldridge Const. Co. v. First Nat. Bank of Ariz., 130 Ariz. 86, 634 P.2d 13 (1981) (A.R.S. § 33-992 priority for all liens from labor commenced)
- S.K. Drywall, Inc. v. Developers Fin. Group, Inc., 169 Ariz. 345, 819 P.2d 931 (1991) (liens and perfection timing; project-wide interpretation)
- Cont'l Lighting & Contracting, Inc. v. Premier Grading & Utils. LLC, 227 Ariz. 382, 258 P.3d 200 (2011) (updates on priority and subrogation considerations)
- Sourcecorp, Inc. v. Norcutt, 227 Ariz. 463, 258 P.3d 281 (2011) (priority and subrogation principles in mechanics liens)
- Land Title Ins. Corp. v. Ameriquest Mortgage Co., 207 P.3d 141 (Colo. 2009) (public notice and subrogation emergence considerations)