Pi’Ikea, LLC v. William Benson Williamson et al – 3/26/2014
Arizona Court of Appeals Division Two Holds Noteholder Has No Duty To Mitigate Damages When Pursuing Personal Guaranty That Expressly Waives Common Law Duty To Mitigate.
In 2004, TBM Equities (“TBM”) gave an approximately $6 million promissory note to a bank for the loan of money to construct an apartment building in Tucson. William and Marianne Williamson executed a continuing guaranty of the note. Through a series of receiverships and assignments, Pi’Ikea, LLC became the holder of the note and the Williamsons’ guaranty. TBM failed to make any payments on the note after October 2008. Around the time of default, the property securing the note was valued at $10.2 million and the amount owed on the note was $5.9 million. Pi’Ikea made some attempts to settle with TBM, but ultimately sued the Williamsons on the personal guaranty for approximately $9 million.
The trial court granted summary judgment in favor of TBM over the Williamsons’ objection that Pi’Ikea had a duty to mitigate its damages by holding a trustee sale or taking some other recourse in 2008 when the property securing the note was of sufficient value to cover the entire debt. The trial court agreed that the common law duty to mitigate applies to guarantees, but held that the Williamsons had waived that defense through general waivers in the guaranty. The trial court relied on the following language in the personal guaranty: 1) “Lender shall have no obligations to proceed against any collateral (including the Deed of Trust) directly or indirectly securing any of the Indebtedness, and no obligations to enforce any right or remedy. . .”; and 2) “Each Guarantor waives . . . any right to require Lender to proceed against Borrower or any other person, to proceed against or exhaust any security held by Lender at any time to directly or indirectly secure the Indebtedness, or to pursue any other remedy in Lender’s power before proceeding against [a] Guarantor.” The Williamsons appealed.
The Arizona Court of Appeals affirmed the summary judgment on different grounds. The court held that there was an express waiver of the duty to mitigate in a different section of the personal guaranty, which waived the provisions of A.R.S. § 47-3605 and any similar statutory, common law, or procedural rule in Arizona. The court noted that § 47-3605, which is derived from the Uniform Commercial Code, prohibits impairment of collateral by the noteholder. The similar common law provisions of mitigation of damages were expressly waived in the guaranty, and therefore the Williamsons could not raise this as a defense to Pi’Ikea’s suit.
The court of appeals awarded Pi’Ikea its attorneys’ fees and costs on appeal pursuant to the attorneys’ fee provision in the guaranty.
Judge Espinosa authored the opinion, and Presiding Judge Kelly and Judge Eckerstrom concurred.