Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-00075/USCOURTS-azd-2_14-cv-00075-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:2201 Declaratory Judgment

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Ken Cheatham, Jane Doe Cheatham,

Plaintiff/Counterdefendants, 

v. 

Darren C. Martin, Kristine M. Martin, 

Defendants/Counterclaimants.

No. CV-14-00075-PHX-GMS

ORDER 

 Pending before the Court is Plaintiff Ken Cheatham’s Motion for Summary 

Judgment on Complaint and Counterclaim. (Doc. 56.) For the following reasons, the 

Motion is denied. Further, the Parties to this suit are ordered to show cause why Bank of 

America and/or the servicer to the Martins’ loan should not be joined to this suit as 

necessary parties. 

BACKGROUND 

 In early 2010, the Martins, Defendants to this case, failed to make the monthly 

mortgage payments on their home. In April 2010, they asked Cheatham to purchase the 

home through a short sale and allow them to reside in the home after the sale. Cheatham 

stated that he would contribute up to $100,000 toward the short sale price, but the 

Martins would need to pay anything over that amount. The Parties also agreed that the 

Martins would pay Cheatham a monthly payment, reside in the home after the sale, and 

have the opportunity to purchase the home back from Cheatham in the future. 

 The short sale was approved for the price of $130,000. The Parties now raise 

disputes about the amount of information that each disclosed to the mortgagee, Bank of 

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America, and to the servicer of the loan to obtain approval. Cheatham claims that the 

Martins failed to disclose to Bank of America and to the servicer that they were 

supplying $30,000 of the purchase price for the short sale, that they had other assets, and 

that they would be renting the home from Cheatham after the sale. The Martins concede 

this but claim that they did disclose to the servicer that they would be renting the home 

after the sale. The Martins also provide evidence that Cheatham failed to disclose to Bank 

of America that he was not paying the entire purchase price. 

 After the sale, the Martins and Cheatham entered into two separate agreements: 

(1) an Arizona Residential Lease Agreement and (the “Lease Agreement”) (2) a Terms of 

House Purchase and Sale Agreement (the “Sale Agreement”). (Doc. 57, Exs. 2, 3.) Under 

the Lease Agreement, the Martins agreed to pay Cheatham $1250 per month, and under 

the Sale Agreement, these $1250 monthly payments would apply to the price that the 

Martins would pay to Cheatham to re-purchase the home. (Id.) The Sale Agreement also 

stated that the Martins would have the option to purchase the home within five years of 

the short sale and provided a specific sale price for the home. (Id., Ex. 3.) Although a 

Contract for Deed is mentioned in the Sale Agreement, neither Party has provided 

evidence of any other contract being made. (Id.) In 2013, Cheatham learned from several 

sources that selling the home back to the Martins could constitute mortgage fraud and 

stopped accepting monthly payments from them. 

 On January 15, 2014, Cheatham brought the current suit seeking declaratory 

judgment that the Agreements were void as against public policy. (Doc. 1.) The Martins 

counterclaimed that the Sale Agreement was actually a Contract for Deed and that 

Cheatham breached this contract by refusing to accept payments. (Doc. 19.) Cheatham 

now moves for summary judgment on the grounds that the Agreements are void. (Doc. 

56.) 

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DISCUSSION 

I. Summary Judgment 

 Summary judgment is appropriate if the evidence, viewed in the light most 

favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to 

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 

P. 56(a). Substantive law determines which facts are material, and “[o]nly disputes over 

facts that might affect the outcome of the suit under the governing law will properly 

preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 

248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could 

return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 

1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving 

party must show that the genuine factual issues “‘can be resolved only by a finder of fact 

because they may reasonably be resolved in favor of either party.’” Cal. Architectural 

Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) 

(original emphasis omitted) (quoting Anderson, 477 U.S. at 250). 

 Under Arizona law, “parties have the legal right to make such contracts as they 

desire to make, provided only that the contract shall not be for illegal purposes or against 

public policy.” H. Kress & Co. v. Evans, 21 Ariz. 442, 449, 189 P. 625, 627 (1920). 

“Thus if the acts to be performed under the contract are themselves illegal or contrary to 

public policy, or if the legislature has clearly demonstrated its intent to prohibit 

maintenance of a cause of action, then recovery should be denied.” Mountain States Bolt, 

Nut & Screw Co. v. Best-Way Transp., 116 Ariz. 123, 124, 568 P.2d 430, 431 (Ct. App. 

1977). 

In the present case, the Sale and Lease Agreements were created after the Martins 

and possibly Cheatham concealed information from Bank of America and/or the servicer 

or the Martins’ loan during the short sale transaction. Any ruling on whether either 

Cheatham’s or the Martins’ actions during the creation of these Agreements were illegal 

or otherwise against public policy necessarily implicates the short sale. And any 

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determination of the validity of the Sale and Lease Contracts cannot be made in a suit that 

does not involve the parties to the short sale. See Lomayaktewa v. Hathaway, 520 F.2d 

1324, 1325 (9th Cir. 1975) (“No procedural principle is more deeply imbedded in the 

common law than that, in an action to set aside a lease or a contract, all parties who may 

be affected by the determination of the action are indispensable.”). Thus, Cheatham is not 

entitled to judgment as a matter of law that the Agreements were void as against public 

policy. Further, it is likely that Bank of America and the servicer to the loan are necessary 

parties to this case under Federal Rule of Civil Procedure 19(a), requiring their joinder. 

 There are two avenues for determining whether a party is “necessary” under Rule 

19(a). Confederated Tribes of Chehalis Indian Reservation v. Lujan, 928 F.2d 1496, 1498 

(9th Cir. 1991). First, if complete relief cannot be afforded without the missing party, 

then the party is necessary. Id.; Fed.R.Civ.P. 19(a)(1)(A). Second, if the absent party has 

a “legally protected interest” in the subject of the action and if the party’s absence will 

“impair or impede” its ability to protect that interest or will leave an existing party 

subject to multiple, inconsistent legal obligations with respect to that interest, then the 

party is necessary. Id. The inquiry under Rule 19(a) “is a practical one and fact specific.” 

Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir.1990) (citing Provident 

Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118–19 (1968)). 

 “The absence of ‘necessary’ parties may be raised by reviewing courts sua 

sponte.” CP Nat. Corp. v. Bonneville Power Admin., 928 F.2d 905, 911 (9th Cir. 1991) 

(citing McCowen v. Jamieson, 724 F.2d 1421, 1424 (9th Cir. 1984); McShan v. Sherrill, 

283 F.2d 462, 464 (9th Cir. 1960)). However, this issue has not been completely 

developed in the Parties’ briefings. Thus, the Parties are ordered to show cause why Bank 

of America and/or the servicer of the Martins’ loan should not be joined to this suit as 

necessary parties under Rule 19(a). 

IT IS THEREFORE ORDERED that Plaintiff Ken Cheatham’s Motion for 

Summary Judgment on Complaint and Counterclaim (Doc. 56) is DENIED. 

/ / / 

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 IT IS FURTHER ORDERED that within fourteen (14) days of the date of this 

Order, the current Parties to this suit are directed to file briefs not to exceed ten (10) 

pages showing cause why Bank of America and/or the servicer to the Martins’ loan 

should not be joined to this suit as necessary parties under Federal Rule of Civil 

Procedure 19(a). 

IT IS FURTHER ORDERED that the Parties are to appear and present their 

positions at a Show Cause Hearing set for March 27, 2015 at 11:00 a.m. in Courtroom 

602, Sandra Day O’Connor U.S. Federal Courthouse, 401 W. Washington St., Phoenix, 

Arizona 85003-2151. 

 Dated this 26th day of February, 2015. 

Honorable G. Murray Snow

United States District Judge

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