BT Capital, LLC v. TD Service Company of Arizona (5/4/2012)

May 7, 2012

Arizona Supreme Court Holds That Appellant’s Failure to Enjoin Trustee’s Sale Conducted After Filing of Notice of Appeal Renders Moot Appellant’s Case Seeking Title to Property.

Trustee conducted a trustee’s sale of commercial property subject to a deed of trust.  The beneficiary of the deed of trust (“Beneficiary”) authorized Trustee to make credit bids on its behalf up to $25 million if competing bids were placed.  Trustee started with an opening bid on Beneficiary’s behalf of $1 million.  A competing bidder raised the bid by $1 and Trustee mistakenly failed to make another bid on behalf of the Beneficiary and instead announced the competing bidder (“BT”) as the winning bidder.  When BT tendered the balance of the bid price the next day, however, Trustee rejected the payment, contending that the auction was void because of a mistake in communicating correct bid instructions.

BT filed suit against Trustee and Beneficiary, seeking title to the property and damages from the failure to complete the sale.  Trustee noticed another trustee’s sale, which the trial court preliminary enjoined.   The trial court subsequently entered summary judgment in favor of Beneficiary and Trustee, later clarifying by a further order that the summary judgment ruling terminated the preliminary injunction.

BT filed a notice of appeal.  It also filed with the court of appeals an “Emergency Motion to Reinstate Preliminary Injunction.”  The Court of Appeals denied the motion, noting that BT could apply to the trial court for an order staying its ruling and setting the amount of a supersedeas bond.  BT did not file such an application.  While the “Emergency Motion” was pending, in 2010, Trustee noticed and conducted another trustee’s sale, through which Beneficiary acquired title to the property.  BT received notice of and attended, the trustee’s sale.

The Court of Appeals rejected arguments that the subsequent trustee’s sale had mooted BT’s appeal.  It then reversed the trial court’s entry of summary judgment and remanded for further proceedings.  The Arizona Supreme Court, however, granted review and held that the case was rendered moot by the subsequent trustee’s sale in 2010.

A.R.S. § 33-811 governs objections to a trustee’s sale.  The statute provides that any person receiving formal notice of a trustee’s sale “shall waive all defenses and objections to the sale not raised in an action that results” in a timely injunction of the sale.  § 33-811(C).  Where, as here, a trustee’s sale is completed, a person subject to A.R.S. § 33-811(C) cannot later challenge the sale based on pre-sale defenses or objections. 

Because BT did not seek a stay of the 2010 trustee’s sale in the trial court, it waived all defenses and objections to the sale.  BT’s filing of a lis pendens prior to the trustee’s sale was of no consequence.  The filing provided constructive notice of the lawsuit but did not establish the validity of BT’s claim or give it priority over the pre-existing deed of trust.  Because BT did not appeal the trial court’s dismissal of its tort claims and identified no other basis for a damages claim, the 2010 trustee’s sale rendered the case moot by establishing that BT has no claim to title to the property.

The Arizona Supreme Court, therefore, vacated the Court of Appeals’ opinion, affirmed the trial court’s entry of summary judgment, and granted the Beneficiary’s request for an award of attorneys’ fees.

Justice Bales authored the opinion for the unanimous Court.