Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-01249/USCOURTS-azd-2_12-cv-01249-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Mark A. Finney, et al., 

Plaintiffs, 

v. 

First Tennessee Bank, et al., 

Defendants.

No. CV-12-01249-PHX-JAT

ORDER 

 Pending before the Court is Defendants’ Motion for Summary Judgment (Doc. 

37). The Court now rules on the motion. 

I. Background

 Plaintiff Mark A. Finney (“Finney”) is the president and principal shareholder of 

The Conlon Group, Inc., which in turn is the parent company of Plaintiff The Conlon 

Group Arizona LLC (“Conlon”). Conlon owns three units of the Arizona Biltmore Hotel 

Villas and Condominiums (the “Units”). Conlon refinanced the Units as rental properties 

through First Horizon Loan Corporation (“First Horizon”). As part of the refinancing 

process, First Horizon, who knew that the Units were to be used as rental properties and 

not owner-occupied homes, required Conlon to deed the Units to Finney. Finney then 

executed three separate notes secured by three deeds of trust (the “Deeds of Trust”). The 

Deeds of Trust each contained the following paragraph (“Paragraph 12”), which is at the 

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core of this lawsuit: 

12. Borrower Not Released; Forbearance by Lender Not a Waiver. Extension of the time for payment or modification of amortization of the sums secured by this Security Instrument granted by Lender to Borrower or any Successor in Interest of Borrower shall not operate to release the liability of Borrower or any Successors in Interest of Borrower. Lender shall not be 

required to commence proceedings against any Successor in Interest of Borrower or to refuse to extend time for payment or otherwise modify amortization of the sums secured by this 

Security Instrument by reason of any demand made by the original Borrower or any Successors in Interest of Borrower. 

Any forbearance by Lender in exercising any right or remedy including, without limitation, Lender’s acceptance of payments from third persons, entities or Successors in Interest 

of Borrower or in accounts less than the amount then due, 

shall not be a waiver of or preclude the exercise of any right or remedy. 

(Doc. 37-2 at 46). 

 After executing the deeds of trust, Finney then deeded the Units back to Conlon. 

First Horizon securitized Finney’s loans and transferred them to “The Bank of New York 

Mellon as Trustee for the holder of the Certificates, First Horizon Mortgage PassThrough Certificates Series FHAMS 2007-FA4” (“FHAMS 2007-FA4”). (Doc. 37-1 ¶ 8). 

First Horizon’s successor-in-interest, First Tennessee Bank (“First Tennessee”) acted as 

the servicer on Finney’s loans for a number of years; Nationstar Mortgage LLC 

(“Nationstar”) became the servicer beginning in 2011. 

Eventually, the Arizona Biltmore Hotel filed for bankruptcy, adversely impacting 

the rental of the Units. Finney contacted First Tennessee, and later Nationstar, to request 

a modification of his loans. First Tennessee and Nationstar told Finney that they would 

not consider a modification agreement because the Units were rental properties, not 

owner-occupied properties, and the lender, FHAMS 2007-FA4, had a policy of not 

considering or discussing loan modifications with owners of rental properties. 

Finney and Conlon subsequently filed this lawsuit, and Defendants moved to 

dismiss all of Plaintiffs’ claims. In ruling on the motion to dismiss, the Court concluded 

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that Plaintiffs’ complaint alleged a single claim for the breach of the covenant of good 

faith and fair dealing. (Doc. 20 at 9). Furthermore, the Court concluded that it could not 

dismiss this claim on a motion to dismiss because Plaintiffs had alleged that the inclusion 

of Paragraph 12 within the Deeds of Trust gave rise to a reasonable expectation that 

Defendants would consider a loan modification for rental properties. (Id. at 8). The Court 

framed the ultimate issue in this case as “whether, based on the language in the contract, 

which contemplates a potential modification, Plaintiffs could have reasonably expected 

that Defendants would in good faith consider Plaintiffs’ modification request.” (Id.) 

Accordingly, the Court denied the motion to dismiss with respect to Plaintiffs’ claim for 

breach of the covenant of good faith hand fair dealing. (Id.) 

II. Legal Standard

A. Summary Judgment

 Summary judgment is appropriate when “the movant shows 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). “A party asserting that a fact cannot be or is genuinely 

disputed must support that assertion by . . . citing to particular parts of materials in the 

record, including depositions, documents, electronically stored information, affidavits, or 

declarations, stipulations . . . admissions, interrogatory answers, or other materials,” or by 

“showing that materials cited do not establish the absence or presence of a genuine 

dispute, or that an adverse party cannot produce admissible evidence to support the fact.” 

Id. 56(c)(1)(A), (B). Thus, summary judgment is mandated “against a party who fails to 

make a showing sufficient to establish the existence of an element essential to that party’s 

case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. 

Catrett, 477 U.S. 317, 322 (1986). 

 Initially, the movant bears the burden of pointing out to the Court the basis for the 

motion and the elements of the causes of action upon which the non-movant will be 

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unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to 

the non-movant to establish the existence of material fact. Id. The non-movant “must do 

more than simply show that there is some metaphysical doubt as to the material facts” by 

“com[ing] forward with ‘specific facts showing that there is a genuine issue for trial.’” 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986) (quoting 

Fed. R. Civ. P. 56(e) (1963) (amended 2010)). A dispute about a fact is “genuine” if the 

evidence is such that a reasonable jury could return a verdict for the non-moving party. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant’s bare 

assertions, standing alone, are insufficient to create a material issue of fact and defeat a 

motion for summary judgment. Id. at 247–48. However, in the summary judgment 

context, the Court construes all disputed facts in the light most favorable to the nonmoving party. Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 2004). 

B. The Covenant of Good Faith and Fair Dealing

“Arizona law implies a covenant of good faith and fair dealing in every contract.” 

Bike Fashion Corp. v. Kramer, 46 P.3d 431, 434 ¶ 13 (Ariz. Ct. App. 2002) (quoting 

Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986)). “Such implied terms are as much 

a part of a contract as are the express terms.” Wells Fargo Bank v. Ariz. Laborers, 

Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 28 ¶ 59 

(Ariz. 2002). The purpose of this covenant is so “neither party will act to impair the right 

of the other to receive the benefits which flow from their agreement or contractual 

relationship.” Bike Fashion, 46 P.3d at 434 ¶ 13 (internal quotation marks omitted) 

(quoting Rawlings, 726 P.2d at 569-70)). This covenant “guarantees the protection of the 

parties’ reasonable expectations,” and is breached either “by exercising express discretion 

in a way inconsistent with a party’s reasonable expectations and by acting in ways not 

expressly excluded by the contract’s terms but which nevertheless bear adversely on the 

party’s reasonably expected benefits of the bargain.” Id. at 434-35 ¶¶ 13-14. However, 

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“an implied covenant of good faith and fair dealing cannot directly contradict an express 

contract term.” Id. at 434-35 ¶ 14. 

Finally, contract interpretation is a question of law “where the terms of a contract 

are found to be plain and unambiguous.” Chandler Med. Bldg. Partners v. Chandler 

Dental Grp., 855 P.2d 787, 791 (Ariz. Ct. App. 1993). 

III. Analysis 

 Plaintiffs rely upon the Court’s prior ruling for the proposition that as a matter of 

law, the language of Paragraph 12 supports a claim for breach of the covenant of good 

faith and fair dealing when a lender fails to consider a loan modification. (Doc. 39 at 2-

4). Defendants argue that nothing in the plain language of Paragraph 12 suggests that 

Defendants would consider in good faith Plaintiffs’ modification request. (Doc. 37 at 7). 

 Defendants are correct that nothing in the actual language of Paragraph 12 

obligates them to consider a loan modification. The first sentence provides that if the 

lender grants an extension of time for payment or modifies the amortization of the 

mortgage, then this does not release the borrower’s liability. This sentence does not 

require the lender to consider any such modification. The second sentence provides that if 

the borrower or the borrower’s successor-in-interest makes certain demands from the 

lender, the making of these demands does not cause the lender to be obligated to 

“commence proceedings” against the borrower’s successor-in-interest or to refuse to 

modify the loan. This sentence does not require the lender to consider a loan 

modification. The third sentence provides that forbearance by the lender does not waive 

any of the lender’s rights under the agreement. This sentence concerns situations in which 

the lender agrees to accept a partial payment, for example, and clarifies that this does not 

permanently modify the parties’ agreement; it does not require the lender to consider a 

loan modification. 

 Paragraph 12 does, however, contemplate the possibility of a loan modification in 

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general. The borrower might reasonably expect based on this language that there is the 

possibility of a loan modification, and such a possibility can arise only if both parties are 

willing to discuss a modification. Whether Plaintiffs in fact reasonably expected the 

possibility of a loan modification is a genuine issue of material fact, and because the 

implied covenant of good faith and fair dealing protects the parties’ reasonable 

expectations, Defendants are not entitled to summary judgment. 

 Defendants cite a number of cases from other jurisdictions for the proposition that 

a borrower under a residential mortgage loan has no reasonable expectation that the 

lender will consider a loan modification. (Doc. 37 at 8). None of these cases are 

controlling here. In Douglas v. U.S. Bank National Association, 2013 DNH 071, 2013 

WL 1890728, at *4 (D.N.H. May 6, 2013), the court noted that the borrower did not 

identify “any particular grant of discretion in the mortgage that they believe was 

exercised unreasonably.” 2013 WL 1890728, at *6. Here, Plaintiffs identify the inclusion 

of Paragraph 12 as implying that Defendants had discretion to consider a loan 

modification. In Dohner v. Wachovia Mortgage FSB, 2011 WL 4064067 (D. Utah Sept. 

13, 2011), the issue was not whether the lender was obligated to consider a loan 

modification but whether the lender was obligated to modify the loan. 2011 WL 4064067, 

at *2; see also Barna v. Wells Fargo Bank, N.A., 2013 WL 1182087, at *1, 3 (D. Nev. 

Mar. 20, 2013) (same). 

 Defendants also argue that the Deeds of Trust contemplate a residential, rather 

than a commercial, mortgage and therefore any language in Paragraph 12 referencing a 

loan modification cannot create reasonable expectations on the part of Plaintiffs as to the 

modification of a commercial loan. (Doc. 37 at 8). Although each of the Deeds of Trust 

indeed provides that the borrower will occupy the property as a principal residence within 

sixty days, (Doc. 37-2 at 43), it does not follow from this fact that Plaintiffs could not 

reasonably expect Defendants to consider a loan modification request. 

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 Under Arizona law, ambiguities in contracts are construed against the drafter. See 

MT Builders, L.L.C. v. Fisher Roofing, Inc., 197 P.3d 758, 763 ¶ 10 (Ariz. Ct. App. 

2008). First Horizon, and indirectly Defendants, chose the form for the Deeds of Trust. 

The fact that Defendants chose to use (or to assume the obligations under) a residential 

deed of trust form for a commercial loan does not permit them to avoid the reasonable 

expectations that arise on the part of the borrower under this form. If Defendants wished 

to not create the reasonable expectation by Plaintiffs that they would consider a loan 

modification, they should have used a commercial deed of trust form that more accurately 

reflected their loan policies. 

 Defendants next argue that even if they were required to “consider” a loan 

modification, they in fact considered Plaintiffs for a modification but informed Plaintiffs 

that they could not proceed with a modification because the loans were non-residential. 

(Doc. 37 at 9; Doc. 41 at 4). Defendants claim that this response constituted consideration 

of Plaintiffs’ request for a loan modification. But a reasonable juror could conclude that if 

Plaintiffs had a reasonable expectation that Defendants would consider a loan 

modification, that consideration required Defendants to evaluate the merits of Plaintiffs’ 

modification request. The Court cannot say as a matter of law that Defendants’ refusal to 

address the merits of Plaintiffs’ loan modification request constituted consideration of 

that request. 

 Defendants additionally contend that Plaintiffs cannot show that they suffered 

damages as a result of any alleged breach of the covenant of good faith and fair dealing. 

(Id. at 11). The Court cannot state on the record before it at summary judgment that 

Plaintiffs have no evidence of damages. For example, Plaintiffs may have relied upon 

Paragraph 12 in selecting First Horizon as their lender, a fact that could give rise to 

damages. 

 Finally, Defendants contend that Conlon has no contractual relationship to 

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Defendants and therefore no standing to raise any claim relating to Paragraph 12. (Id. at 

12). Plaintiffs assert that Conlon is an assignee of Finney’s rights under the Deed of Trust 

and therefore has standing. (Doc. 39 at 9). Although Plaintiffs offer no evidence in 

support of this assertion, a genuine issue of material fact may exist as to whether Conlon 

has standing, and the Court will not enter judgment against Conlon at this time. 

IV. Conclusion

 For the foregoing reasons, 

IT IS ORDERED denying Defendants’ Motion for Summary Judgment (Doc. 

37). 

 Dated this 31st day of March, 2015. 

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