Stauffer v. Premier Service Mortgage – 9/20/2016

October 5, 2016

The Arizona Court of Appeals Division One holds that a misstatement in a recorded document under A.R.S. § 33-420 is “material” if a reasonable person would attach importance to its existence or nonexistence in determining a choice of action in the transaction in question.

Borrowers executed a promissory note secured by a deed of trust on their residential property.  The lender endorsed the note to a bank.  Borrowers defaulted on the note and a title company recorded three documents:  a notice of trustee sale, a notice of substitution of trustee, and an assignment of deed of trust.

Borrowers sued the title company, lender, and bank.  Borrowers alleged that the recorded documents contained false statements in violation of A.R.S. § 33-420 and sought an order quieting title on the residential property.  The bank and lender moved to dismiss on the grounds that the allegedly false statements in the recorded documents were not “material misstatements” under § 33-420.  The trial court granted the motion to dismiss.

The court of appeals affirmed.  A material misstatement under A.R.S. § 33-420 is one to which a reasonable person would attach importance in determining a choice of action in the transaction in question.  In this case, the court noted that the ‘falsities’ alleged in the borrowers’ complaint were relatively minor inconsistencies in identifying assignment dates and the assignor’s identity.  The court of appeals held that the inconsistencies in the recorded documents were not material because they did not affect the borrowers’ obligations or choices of action.  Regardless of the misstatements, the court explained, the borrowers’ options remained the same:  pay the monthly installments, renegotiate the terms of the note, or otherwise face foreclosure.

Borrowers also argued that the defendants’ materiality argument was procedurally improper under Arizona Rule of Civil Procedure 12(g) and the law of the case doctrine.  The court rejected both arguments.  First, defendants’ materiality argument was not barred under Rule 12(g) because defendants were not required to raise materiality in their first motion to dismiss.  Second, the law of the case doctrine did not preclude defendants from raising the materiality issue in a second motion to dismiss because the materiality of the statements had not been previously decided.

Judge Winthrop authored the opinion; Judges Swann and Kessler joined.

Related blog posts:

Previous appeal, in this case, is summarized here.

Sitton, the nearly identical case the court heavily relied on, is summarized here.