National Bank v. Schwartz
230 Ariz. 310
| Ariz. Ct. App. | 2012Background
- February 2007 Bank loaned $1,360,000 to homeowners secured by deed of trust in Scottsdale; note contains arbitration provision.
- Homeowners allegedly defaulted; Bank foreclosed non-judicially; Bank credit bid $675,000, leaving a deficiency of $764,680.31 plus interest.
- Within 90 days after trustee’s sale, Bank filed a deficiency action; homeowners notified intent to arbitrate; homeowners moved to dismiss or compel arbitration.
- Bank opposed arbitration, calling the deficiency action ancillary to foreclosure; Bank sought stay/refiling under savings statute if arbitrable.
- Trial court denied motion to compel arbitration; homeowners appealed; court has jurisdiction to review the arbitration issue; issue is whether arbitration applies to the deficiency action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether deficiency action is subject to arbitration | Schwartz: debt arises from note; arbitration clause applies | Bank: deficiency action ancillary to foreclosure; not subject | Yes; deficiency action subject to arbitration |
| Whether the deficiency action is ancillary to foreclosure | Arbitration clause should govern all disputes from note | Foreclosure-related action is ancillary; not precluded from arbitration | Not controlling; debt arises from note; arbitration applies to deficiency |
| Standard of review and contract interpretation | Clause is mandatory; should compel arbitration | Arbitration issue is limited to contract existence | De novo review; contract interpreted to compel arbitration |
| Remedy on finding arbitration applies | Court should stay and order arbitration | Proceedings should continue if arbitration not ordered | Remand with order to arbitrate and stay pending arbitration |
Key Cases Cited
- Bank of Douglas v. Neel, 30 Ariz. 375 (1926) (debt primary; foreclosure ancillary; historical view of deficiency)
- Ins. Co. of N. Am. v. Superior Court, 166 Ariz. 82 (1990) (arbitration clause interpretation; mandatory scope)
- Tanque Verde Anesthesiologists L.T.D. Profit Sharing Plan v. Proffer Group, Inc., 172 Ariz. 311 (1992) (election of remedies and contract interpretation)
- City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172 (App.2008) (statutory construction; de novo review for arbitration)
- Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588 (App.2009) (contract interpretation; arbitration scope)