Scottsdale Memorial Health Systems, Inc. v. Clark

759 P.2d 607, 157 Ariz. 461, 8 Ariz. Adv. Rep. 5, 1988 Ariz. LEXIS 58
CourtArizona Supreme Court
DecidedMay 10, 1988
DocketCV-87-0217-PR
StatusPublished
Cited by18 cases

This text of 759 P.2d 607 (Scottsdale Memorial Health Systems, Inc. v. Clark) is published on Counsel Stack Legal Research, covering Arizona Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Scottsdale Memorial Health Systems, Inc. v. Clark, 759 P.2d 607, 157 Ariz. 461, 8 Ariz. Adv. Rep. 5, 1988 Ariz. LEXIS 58 (Ark. 1988).

Opinion

FELDMAN, Vice Chief Justice.

Scottsdale Memorial Health Systems, Inc. (Scottsdale) petitions us to review an opinion of the court of appeals. We are asked to determine whether a party whose title is derived from a nonjudicial foreclosure of a deed of trust is bound by a judgment taken against the original owner by the holder of a mechanic’s lien. The lien foreclosure judgment was obtained in a case in which Scottsdale, the purchaser at the foreclosure sale, was not a party. This being a question of first impression, we granted review. See Rule 23(c), Ariz.R.Civ. App.P., 17A A.R.S. We have jurisdiction under Ariz. Const, art. 6, § 5(3) and A.R.S. § 12-120.24.

I. FACTS

This case has been in litigation for over ten years. The procedural history is somewhat confusing. Simplifying as much as possible, the facts are as follows:

A. The Property

In 1976 North Scottsdale Associates No. 3 Limited Partnership (NSA) owned a tract of land at Shea Boulevard and Pima Road in northern Scottsdale. NSA contracted with Lawrence G. Clark, doing business as Larry G. Clark Construction Company (Clark), to build a medical office building on the property for $871,000. On November 8, 1976, before Clark’s construction work had begun, NSA arranged construction financing with Western American Mortgage Company (WAMCO). Clark began construction on November 12, 1976. The WAMCO loan on NSA’s property was secured by a deed of trust which apparently was first recorded about eighteen months after Clark’s work commenced.

NSA became disenchanted with Clark’s performance and stopped payments on the construction contract. On January 27, 1978, NSA sued Clark for fraud and breach of contract. On February 7, 1978, shortly after WAMCO recorded its deed of trust on the property, Clark recorded a notice of mechanic’s lien in compliance with A.R.S. § 33-993. Under A.R.S. § 33-992, priority between Clark’s mechanic’s lien and WAM-CO’s deed of trust was determined by the date on which Clark commenced work, rather than the date on which the lien was recorded. The lienor has priority over all encumbrances of which he has neither actual nor constructive notice at the time his work begins. A.R.S. § 33-992. Thus, Clark’s mechanic’s lien was prior in time to the lien of WAMCO’s deed of trust.

Clark filed a counterclaim against NSA, seeking, inter alia, foreclosure of the mechanic’s lien. The counterclaim for foreclosure against NSA was filed within the six-month limitation period mandated by A.R.S. § 33-998 for foreclosure of mechanic’s liens after recording. Clark neither joined WAMCO as a counter-defendant nor filed a separate foreclosure action against WAMCO or other parties asserting an interest in the property. Moreover, Clark did not file a lis pendens. A.R.S. § 12-1191.

The scene now shifts. On November 22, 1978, while Clark’s lien foreclosure claim was pending against NSA, WAMCO assigned its deed of trust to Smith. NSA failed to pay the sums due on the WAMCO construction loan and Smith exercised his rights as beneficiary of the deed of trust. He gave notice to NSA under AJt.S. § 33-808 and -809 and accelerated the balance due. Pursuant to A.R.S. § 33-810, the trustee held a nonjudicial foreclosure sale of the property on July 10,1979. Contrary to the requirement of statute, notice of this trustee’s sale was not sent to Clark, despite his previously recorded mechanic’s lien. See A.R.S. § 33-809(B)(2). Smith was the successful bidder at the sale, acquiring fee title to the property and thus apparently terminating NSA’s ownership interest. See A.R.S. § 33-811(B). On August 26, 1981, Smith conveyed its entire interest in the property, whatever it might have been, to Scottsdale.

*464 B. The Prior Judgment

Meanwhile, the litigation between Clark and NSA had continued. After the case had been pending almost four years and NSA’s interest in the real property had been foreclosed at Smith’s trustee’s sale, NSA and Clark entered into a settlement agreement which, on March 4, 1982, resulted in a consent judgment. Clark agreed to release NSA from any monetary claims arising from the original construction contract and NSA agreed that Clark could take judgment foreclosing its lien in the amount of $181,736.17. Clark agreed that it would not attempt to recover any deficiency from NSA on the lien foreclosure sale. NSA and Clark further agreed that any profit resulting from Clark’s acquisition of title to the property in the lien foreclosure proceeding would be divided equally between NSA and Clark.

C. This Case: Trial Court Proceedings

On April 18, 1982, Clark noticed a sheriff’s sale under the foreclosure judgment. Scottsdale brought this action the next day to enjoin the sheriff’s sale and quiet title to the property. Clark counterclaimed, seeking a declaratory judgment establishing the priority of its lien over Scottsdale’s claim of title. The trial court enjoined the sale to unravel the complex situation. Scottsdale then moved for summary judgment, claiming that it was not bound by Clark’s judgment against NSA and that the six-month mechanic’s lien statute of limitations barred Clark from attempting to foreclose its lien against Scottsdale. The trial court denied the motion.

Before the bench trial began in March of 1985, the trial court took “judicial notice” of the 1982 foreclosure judgment and held that it “prima facie” established Clark’s lien rights to the property. However, the court granted Scottsdale an opportunity to dispute and relitigate the amount, priority and validity of Clark’s “in rem judgment lien.”

At trial, the parties vigorously disputed all aspects of the lien and the foreclosure judgment. Both Clark and his construction superintendent testified about the original project work and expenditures. Architects and accountants carefully reconstructed and categorized the expenses constituting the lien. The court heard testimony suggesting that there may have been embezzlement, fraud and collusion connected both with the construction project and with the consent judgment. The parties introduced scores of documents bearing upon the amount and validity of the Clark lien.

At the end of the bench trial, the trial judge prepared a lengthy minute entry explaining his ruling in favor of Clark. Several months later, he made detailed findings of fact and conclusions of law.

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Cite This Page — Counsel Stack

Bluebook (online)
759 P.2d 607, 157 Ariz. 461, 8 Ariz. Adv. Rep. 5, 1988 Ariz. LEXIS 58, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scottsdale-memorial-health-systems-inc-v-clark-ariz-1988.