FL Receivables Trust 2002-A v. Arizona Mills, L.L.C.

281 P.3d 1028, 230 Ariz. 160
CourtCourt of Appeals of Arizona
DecidedJune 21, 2012
DocketNo. 1 CA-CV 10-0803
StatusPublished
Cited by22 cases

This text of 281 P.3d 1028 (FL Receivables Trust 2002-A v. Arizona Mills, L.L.C.) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
FL Receivables Trust 2002-A v. Arizona Mills, L.L.C., 281 P.3d 1028, 230 Ariz. 160 (Ark. Ct. App. 2012).

Opinion

OPINION

THOMPSON, Judge.

¶ 1 FL Receivables Trust 2002-A (the Trust) and Arizona Mills, L.L.C. (Mills) have competing interests in the same building and fixtures located on land owned by Mills. After this court declared the Trust’s security interest superior to any interest held by Mills, the superior court held a bench trial on the Trust’s claims for supplemental relief and for breach of the implied covenant of good faith and fair dealing. The court found in favor of Mills; the Trust has appealed from that ruling. Mills appeals from various other rulings entered by the court. For the following reasons, we remand to the superior court for further proceedings involving the disposition of the collateral, but otherwise affirm.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 Mills is the owner and landlord of the Arizona Mills Mall, in Tempe, Arizona. On November 5, 1998, Mills entered into a fifteen-year ground lease with CTM Restaurants, LLC, for Lot 4, a then-undeveloped outlying mall pad. Pursuant to the lease, CTM constructed a building (the Building) on Lot 4 for operation as a Bennigan’s restaurant. In March 2000, CTM and Mills entered into an amendment to the lease to allow CTM to obtain additional financing. Under the amendment, Mills agreed to subordinate to the lender its lien rights to the improvements under the lease; the amendment expressly stated that Mills did not subordinate its right with respect to the land underlying the improvements. CTM assigned its interest under the lease and the amendment to ESAD, LLC, which entered into financing agreements with Captec Financial Group, Inc., by which Captec obtained a first priority security interest in the buildings, structures, and all improvements on the property.

[163]*163¶ 3 As part of the financing, Captec and Mills entered into a landlord’s consent and waiver (the Consent), by which Mills agreed to subordinate “each and every right” it had with respect to the improvements and equipment. Mills did not subordinate its interest in the underlying land. Under the Consent, Mills agreed that the lender could enter the premises “for the purpose of repossessing, removing or otherwise dealing with” the equipment and leasehold improvements upon prior written notice and for no longer than thirty days, during which time the lender was required to pay rent and other charges. The Consent further provided that upon a default, the lender had “the right, but not the obligation, to cure the default within the cure periods” of the lease. The lender could also take possession under the lease and assign the tenant’s interest to a third party. The Consent also permitted the lender to enter into a new lease with Mills upon payment of all fees and charges due by the tenant within thirty days after termination of the lease for an incurable default.

¶ 4 ESAD defaulted on its obligations to Captec in July 2002, and on its obligations to Mills in April 2003. On April 16, 2003, Mills notified ESAD and Captec of the default, and after the thirty-day cure period under the lease had expired, Mills declared the lease terminated. Mills locked ESAD out on May 5, 2003. Mills notified Captec of the lockout and the commencement of the lender’s cure period under the Consent. Mills later learned that Captec had assigned its interest to the Trust.

¶ 5 Representatives of Mills and the Trust engaged in four telephone conversations, during the last of which the Trust requested access to the Building and the property to market them to find a replacement tenant as soon as possible. Mills declined the request because the Trust had not cured ESAD’s default under the lease. The Trust was given access to the property on three occasions to deal with the collateral, but not for marketing purposes.

¶ 6 On June 6, 2003, Mills sent notice of the termination of the lease to ESAD, Cap-tee, and the Trust. The Trust did not arrange for payment of the outstanding rent to Mills or enter into a new lease with Mills within the thirty days after Mills terminated the lease.

¶ 7 During the summer of 2003, the Trust negotiated with at least four prospective replacement tenants. Two were out-of-state Bennigan’s franchisees and the other two— Ray O’Sullivan and Tim Cosearelli — proposed operating different restaurants in the Building. O’Sullivan expressed an interest in leasing the property, but asked that the loans be reduced. Cosearelli was interested only if the notes were forgiven and the rent lowered. No deal was reached with any prospective tenant.

¶ 8 A dispute arose between Mills and the Trust as to their respective rights in the Building and the other improvements. The Trust asserted it had a security interest senior to Mills’s interest; Mills argued that any interest held by the Trust terminated or was waived by the Trust’s refusal to cure ESAD’s default and refusal to enter into a new lease under the Consent.

¶ 9 On September 19, 2003, the Trust filed suit against Mills. In its amended complaint, the Trust sought a declaration that Mills had subordinated its rights to the Trust and that the Trust’s rights had not expired. The amended complaint also asserted a claim for breach of the duty of good faith and fair dealing. The Trust claimed that Mills consistently refused to cooperate to obtain a new tenant and directly interfered with the Trust’s business relationship with potential tenant Ray O’Sullivan.

¶ 10 Mills answered and asserted counterclaims. Among the counterclaims were claims for breach of contract, breach of the duty of good faith and fair dealing, trespass, and unjust enrichment. Mills asserted that the Trust breached the Consent by continuing to make claims to the improvements despite having failed to make any required payments or exercise any of its rights under the Consent. Mills claimed the Trust breached the duty of good faith and fair dealing by asserting unjustified rights under the Consent, including that the Trust had no obligation to comply with the terms of the Consent, the ground lease or the amendment [164]*164to the lease, that the Trust could continue to assert rights in the equipment with no obligation to remove the equipment or make payments to Mills, and that the Trust could continue to claim ownership of or control over the Building and “cast a cloud upon Arizona Mills’ title to the land without payments of any kind.” Mills also asserted claims for trespass, based on the Trust’s failure to remove the equipment from the property, and unjust enrichment, on the theory that, by refusing to remove the equipment making up the collateral, the Trust was benefitting by storing its collateral at Mills’s expense.

¶ 11 At the request of the parties, on October 30, 2003, the court held an evidentiary hearing on the Trust’s claims for declaratory relief. The court ruled in .favor of Mills, finding that Mills acquired fee simple title to the improvements upon termination of the ground lease and that the Trust’s interests in the premises had terminated. The Trust appealed, and this court reversed the superi- or court decision and remanded the matter for further proceedings. FL Receivables Trust 2002-A v. Arizona Mills, L.L.C., 1 CA-CV 04-0229, slip op. at *12, ¶ 23 (Ariz. App. May 12, 2005, as amended Aug. 26, 2005) (mem. decision). This court held that, under the Uniform Commercial Code (U.C.C.), the Trust’s security interest was superior to any ownership interest held by Mills because Mills had consented to the suboi’dination and because the debtor had had the right to remove the property. See Ariz. Rev. Stat. (A.R.S.) § 47-9334(F) (2005).

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Cite This Page — Counsel Stack

Bluebook (online)
281 P.3d 1028, 230 Ariz. 160, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fl-receivables-trust-2002-a-v-arizona-mills-llc-arizctapp-2012.