SWC Baseline & Crimson Investors, LLC v. Augusta Ranch Limited Partnership – 11/22/2011

December 6, 2011

Arizona Court of Appeals Division One Holds, inter alia,That (1) a Party Who Lacks Title When Allegedly Groundless Documents Are Recorded Cannot Assert a Claim as the Owner or Beneficial Title Holder Under A.R.S. § 33-420; and (2) a Party that Records a Quitclaim Deed That Asserts No Particular Interest in the Property and Contains No False Statements May Not Be Held Liable Under A.R.S. § 33-420(C) if the Chain of Title is Sufficiently Confusing Such that the Party Does Not Know Its Claim in the Property is Frivolous or Groundless.

Plaintiff SWC brought a claim against Augusta Ranch to quiet title in a corner of property at Baseline and Crimson Roads in Mesa.  The property had been acquired by a general partnership in the late 1980s.  In 1992, a warranty deed conveyed the property to one of the general partners, Taiyo Development U.S.A., Inc.  The legal description attached to the warranty deed excluded a corner parcel of the property.  Taiyo Development subsequently conveyed the property to Augusta Ranch Limited Partnership through a warranty deed with an attached legal description that similarly excluded the corner parcel of the property.   In 1997, Augusta Ranch sold the property to A.R. Development L.L.C.  The legal description attached to the purchase and sale agreement also excluded the corner parcel of the property.

 In 2002, A.R. Development tried to acquire the excluded corner from the City of Mesa.  Although the record title was in the name of the general partnership that originally bought the property in the 1980s, the City conveyed the corner to A.R. Development through a special warranty deed. 

In 2003, the mistake was discovered through a title report obtained after A.R. Development contracted to sell the property to A & C Development.  A.R. Development, believing that the corner property had been mistakenly omitted from the 1997 sale, unsuccessfully attempted to resolve the issue with Augusta Ranch. (Although the successor to Taiyo Development issued “corrective” deeds that amended the legal description of the original warranty deeds to include the corner parcel of the property, Augusta Ranch did not execute a similar corrective deed with respect to A.R. Development.)  A.R. Development proceeded with the sale of the property and delivered a quitclaim deed to A & C Properties who in turn assigned rights to SWC Baseline & Crimson Investors.   SWC entered into a lease for a shopping center, which was to be built on the property.  In connection with the lease, California Bank and Trust recorded a deed of trust against the property and W.M. Grace Construction began the construction of the shopping center.

SWC filed a quiet title action against Augusta Ranch and Augusta Ranch counterclaimed, seeking quiet title and filing counterclaims and cross-claims asserting wrongful recording pursuant to A.R.S. § 33-420(A) and (C), slander of title, trespass, and conversion. 

The trial court granted summary judgment in favor of Augusta Ranch on the quiet-title claim and summary judgment in favor of the counter defendants on the slander-of-title claims.  Augusta Ranch’s wrongful recording, trespass, and conversion claims proceeded to trial.  The jury found in favor of Augusta Ranch on the wrongful-recording claims.  On the claims under A.R.S. § 33-420(A), the jury awarded Augusta Ranch $20,686 against SWC, $2,500 against Cal Bank, and $30,000 against A.R. Development.  On the claims under A.R.S. § 33-420(C), the jury awarded Augusta Ranch $25,000 against SWC, $15,000 against California Bank and Trust, and $12,000 against A.R. Development.  The trial court also awarded Augusta Ranch attorney’s fees of $229,313.69 against SWC on the quiet-title action, $229,313,69 against SWC and California Bank and Trust jointly on the wrongful recording claim, and $229,313.69 against A.R. Development on the wrongful recording claim.  All parties filed timely notices of appeal or cross-appeal.

The Court of Appeals first affirmed the summary judgment on the quiet-title claim in favor of Augusta Ranch.  The Court rejected the argument that the parties were mutually mistaken and that the corner parcel would have been conveyed to A.R. Development in 1997 if the parties had known Augusta Ranch owned that property.  The record established that both parties knew the corner parcel was not conveyed in the 1997 transaction and that the written contract reflected this understanding.  The Court held that summary judgment was properly granted in favor of Augusta Ranch on the quiet-title claim.

The Court then addressed the wrongful recording verdicts.  The Court quickly disposed of the claims under A.R.S. § 33-420(A) and reversed the judgment against the county defendants.  Section 33-420(A) gives an “owner” or “beneficial titleholder” a claim against one who records a document “asserting” a “claim [of] interest in” real property, “knowing or having reason to know” the document is “forged, groundless, contains a material misstatement or false claim or is otherwise invalid.”   Because Augusta Ranch did not have legal title to the corner before August 2003, the Court held that Augusta Ranch was not an “owner” or “beneficial titleholder” at the time of the recording and thus could not assert a claim under A.R.S. § 33-420(A). 

With respect to the claims under A.R.S. § 33-420(C) the Court reversed the judgment against SWC but found the evidence was sufficient to support the judgment against California Bank and Trust and A.R. Development.  Section 33-420(C) imposes liability on one who refuses a request by the “owner or beneficial title holder” to release or correct a recorded document “which purports to create an interest” in real property, “who knows that the document is forced, groundless, contains a material misstatement or false claim or is otherwise invalid.”   SWC argued that as a matter of law a quitclaim deed could not constitute a claim of interest in real property.  The Court, “[w]ithout deciding whether a quitclaim deed may ever give rise to liability under A.R.S. § 33-420,” noted that “by its nature, SWC’s quitclaim deed did not contain a ‘false claim’ or ‘material misstatement’ within the meaning of the statute.”  Moreover, a party must know the recorded documents is frivolous is frivolous or groundless.  In this case, the “manifest widespread confusion over title to the Corner and the intent of the parties with respect to the Corner precluded judgment against SWC on Augusta Ranch’s claim under A.R.S. § 33-420(C).”

 The Court affirmed the claim under A.R.S. § 33-420(C) against California Bank and Trust and A.R. Development.  The claim against California Bank and Trust was based on the Bank’s recording of a deed of trust in connection with the construction loan.  Because the deed of trust granted the Bank the power to sell the “estate” upon default, the recording constituted a claim of interest in the real property.  Moreover, the Bank had constructive knowledge that the title of the property was not held by SWC.  Sufficient evidence also supported the conclusion that A.R. Development violated A.R.S. § 33-420(C) by not withdrawing easements and rights-of-way over the property after discovering who held legal title to the property.  This evidence was sufficient to support the jury’s findings against A.R. Development and   California Bank and Trust on the A.R.S. § 33-420(C) claims. 

The Court, however, vacated the damage awards under the wrongful recording statute and directed entry of judgment against California Bank and Trust and A.R. Development in the amount of $1000 each.   Subpart (C) of § 33-420 provides for liability “to the owner or title holder for the sum of not less than one thousand dollars, or for treble actual damages, whichever is greater.” Augusta Ranch had not disclosed during discovery its damage theory, computation of actual damages, or evidence supporting its conclusions.  The Court thus vacated the award and directed entry of judgment in the statutory amount. 

The Court affirmed the entry of summary judgment against Augusta Ranch on its slander-of-title claims based on the recording of the warranty deed and the quitclaim deed but reversed and remanded for further proceedings on the slander-of title claim against A.R. Development relating to easement dedications.  The Court also reversed a directed verdict entered against Augusta Ranch on its claims for trespass and conversion.  Because uncontradicted evidence supported the elements of trespass against SWC and W.M. Grace, the Court directed the superior court to enter judgment for Augusta Ranch and award nominal damages on the claims.

The Court affirmed the trial court’s orders denying Augusta Ranch’s motion to amend pursuant to Arizona Rule of Civil Procedure 15(b) and precluding evidence on Augusta Ranch’s claims for wrongful recording, trespass and conversion.   
Finally, the Court vacated the award of attorney’s fees.  Augusta Ranch sought a total of $999,956.35 in attorney’s fees from the City, SWC, A.R. Development, and Cal Bank.  The trial court granted the fee request in full.  SWC and Cal Bank together had incurred $138,000 in attorney’s fees and A.R. Development incurred $135,000 in fees.  Combined they incurred “just 40 percent of the fees Augusta Ranch asserted it incurred litigation against them.”  The Court concluded that “Augusta Ranch’s attorney’s fees were substantially disproportionate to the fees incurred by its adversaries.”  The Court quoted an affidavit by former superior court judge Colin Campbell opining that “[i]n thirty years of practice as a lawyer and as a judge, I have not seen such a vase disproportionality of hours worked, dollars billed and staffing between lawyers in one case.”  The Court rejected Augusta Ranch’s claim that the fees were appropriate punishment for the “scorched earth” tactics of SWC and A.R. Development, noting that the record contained no evidence of such tactics.  Remanding for reconsideration of the attorney’s fees, the Court directed the trial court to consider “Augusta Ranch’s limited success on its false-recording claims and the facts regarding the parties’ various attempts at settlement.” 

Judge Johnsen authored the opinion; Judges Brown and Gemmill concurred.