NOTICE: NOT FOR OFFICIAL PUBLICATION.

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL

AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

SONG HE, et al., Plaintiffs/Appellees,

v.

COLES PROPERTIES LLC, a Tennessee limited liability company, 

Defendant/Appellant.

No. 1 CA-CV 17-0774 

Appeal from the Superior Court in Maricopa County

No. CV2017-004316

The Honorable Rosa Mroz, Judge

VACATED IN PART; AFFIRMED IN PART

COUNSEL

The Kozub Law Group, PLC, Scottsdale

By William A. Kozub, Richard W. Hundley

Counsel for Plaintiffs/Appellees

Evans Dove Nelson Fish & Grier, PLC, Mesa

By Douglas N. Nelson, Trevor J. Fish, Thomas J. Grier

Counsel for Defendant/Appellant

FILED 10-23-2018
SONG HE, et al. v. COLES PROPERTIES

Decision of the Court

2

MEMORANDUM DECISION

Judge James B. Morse Jr. delivered the decision of the Court, in which 

Presiding Judge James P. Beene and Judge Michael J. Brown joined.

M O R S E, Judge:

¶1 Appellant Coles Properties LLC ("Coles") and Appellee Song 

He assert competing equitable claims against certain real property 

("Property") as a result of misdeeds by Imagine Enterprises LLC

("Imagine"), who is not a party to this appeal. The superior court granted 

Song He's motion for summary judgment and judicially foreclosed two of 

Song He's mortgages in the Property. Because there is a material issue of 

fact as to the priority of one of Song He's mortgages, we vacate the 

foreclosure of that mortgage, but affirm the remainder of the court's 

judgment.

FACTS AND PROCEDURAL BACKGROUND

¶2 In January 2016, Coles entered into a joint venture agreement 

with Imagine. The purpose of the agreement was to purchase the Property 

and sell it at a profit. Imagine purchased the Property on February 16, 2016. 

Pursuant to the joint venture agreement, from January 2016 to August 2016,

Coles sent sums of money to Imagine for the earnest money, purchase, 

insurance, and improvement of the Property. However, Imagine did not 

perform according to their agreement.

¶3 On February 10, 2016, Song He agreed to loan money to 

Imagine. The funds were disbursed on February 24 and 25, 2016. Imagine 

soon defaulted, and on September 28, 2016, Song He brought a lawsuit 

against Imagine seeking damages from Imagine and an equitable mortgage

or constructive trust on the Property. Song He recorded a lis pendens on 

the Property on September 30, 2016.

¶4 Upon learning of the lis pendens, and to protect its claimed 

interest in the Property, Coles convinced Imagine to quitclaim the Property 

to it. On December 8, 2016, Coles recorded the quitclaim deed transferring 

the property from Imagine to Coles. On January 4, 2017, Song He obtained 

a default judgment granting him an equitable mortgage in the Property. At 

that time, a trustee's sale was scheduled for February 3, 2017. In order to 
SONG HE, et al. v. COLES PROPERTIES

Decision of the Court

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stop that trustee's sale, Song He paid off the mortgage on the property, and 

by subrogation obtained a first priority mortgage on the property.

¶5 Song He then filed this action, making various claims against 

Coles and Imagine, and requesting foreclosure of its payoff mortgage and 

equitable mortgage. Coles crossclaimed and counterclaimed, arguing that 

it had an equitable mortgage on the Property due to the funds paid into it 

and Imagine's malfeasance. Coles also asserted a claim for damages and to 

clear title under Arizona Revised Statutes ("A.R.S.") section 33-420. Song 

He moved for summary judgment, asking the court to dismiss Coles' § 33-

420 claims and to grant him a foreclosure for his payoff mortgage and 

equitable mortgage. The court granted Song He's motion and entered final 

judgment of judicial foreclosure pursuant to Arizona Rule of Civil 

Procedure 54(b). Coles timely appealed the judgment and we have 

jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and 

A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).

DISCUSSION

¶6 We review de novo a grant of summary judgment and view 

the facts in the light most favorable to the party against whom summary 

judgment was entered. United Dairymen of Ariz. v. Schugg, 212 Ariz. 133, 

140, ¶ 26 (App. 2006).

¶7 Summary judgment is appropriate when "the moving party 

shows that there is no genuine dispute as to any material fact and the 

moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 

56(a). "If the evidence would allow a jury to resolve a material issue in favor 

of either party, summary judgment is improper." Comerica Bank v. 

Mahmoodi, 224 Ariz. 289, 291, ¶ 12 (App. 2010). However, "the mere absence 

of a genuine dispute of material fact does not automatically entitle a 

plaintiff to judgment—the plaintiff must also demonstrate that the evidence 

entitles it to judgment as a matter of law." Wells Fargo Bank, N.A. v. Allen, 

231 Ariz. 209, 213, ¶ 16 (App. 2012).

I. Foreclosure

¶8 Coles acknowledges that part of the foreclosure was proper: 

the superior court did not err in foreclosing the payoff mortgage, which 

Song He obtained by subrogation. However, Coles argues that foreclosure

of Song He's equitable mortgage, obtained by default, was error because 

there is an issue of disputed material fact as to whether Song He's equitable 

mortgage has priority over Coles' claimed equitable mortgage. We agree. 

By granting foreclosure on Song He's equitable mortgage, the superior 
SONG HE, et al. v. COLES PROPERTIES

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court implicitly held either that Coles did not have a valid equitable 

mortgage claim or that any equitable mortgage it had was inferior to Song 

He's equitable mortgage.

¶9 Coles has made a prima facie showing of a constructive trust 

or equitable mortgage. It presented evidence that, pursuant to an 

agreement which Imagine did not keep, Coles gave sums of money to 

Imagine towards the purchase of the Property, for insurance on the 

Property, and for the improvement of the Property. This evidence supports 

a prima facie showing that Coles has an equitable interest in the property, 

and precludes summary judgment. See Gorney v. Meaney, 214 Ariz. 226, 232, 

¶ 17 (App. 2007) ("Summary judgment is also appropriate when a plaintiff 

fails to establish a prima facie case."); Turley v. Ethington, 213 Ariz. 640, 643, 

¶ 9 (App. 2006) ("A court may impose a constructive trust whenever title to 

property has been obtained through actual fraud, misrepresentation, 

concealment, undue influence, duress or through any other means which 

render it unconscionable for the holder of legal title to continue to retain 

and enjoy its beneficial interest." (internal quotation marks omitted)).

¶10 In addition, Song He has not shown as a matter of law that his

equitable mortgage is in a position superior to Coles' claimed equitable 

mortgage. First, Song He argues that Coles' equitable claims merged with 

its legal title when Coles became the legal title holder of the Property. In 

making this argument, Song He ignores that merger only applies when the 

parties so intended, and when merger would not be inequitable. See 

Hathaway v. Neal, 31 Ariz. 155, 159 (1926) (holding there is no merger if it 

"would work injury or violate well-established principles of equity, or be 

contrary to the intentions of the parties, and, primarily, of the mortgagee, 

who purchases the equity of redemption"); Mid Kansas Fed. Sav. & Loan 

Ass'n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 129 (1991) ("[E]ven if a 

merger would otherwise occur at law, contrary intent or equitable 

considerations may preclude this result under appropriate 

circumstances."); Bowman v. Cook, 101 Ariz. 366, 368 (1966) ("It is also the 

law that a mortgagee has an Election in equity to prevent a merger and keep 

the mortgage alive . . . ."). Song He has not shown as a matter of law that

Coles' intent or principles of equity necessitate a merger in this case. In fact, 

this lawsuit is evidence that Coles did not intend for there to be a merger.

Also, it would be inequitable to hold that Coles, in its attempt to protect any 

interest it had in the Property, inadvertently extinguished any claimed 

interest by accepting the quitclaim deed.

¶11 Second, Song He argues that the recording of the lis pendens

set the priority of Song He's equitable mortgage claim. As Song He notes, 
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a lis pendens serves to provide notice, and anyone who acquires an interest 

in the property after the recording of the lis pendens is charged with notice 

of the rights of the prior owner of the property and stands in the same 

position as the prior vendor with respect to the outcome of the litigation. 

Mammoth Cave Prod. Credit Ass'n v. Gross, 141 Ariz. 389, 391 (App. 1984).

However, a lis pendens does not grant priority—or any substantive right—

to the person who files it. BT Capital, LLC v. TD Serv. Co. of Ariz., 229 Ariz.

299, 301, ¶ 14 (2012); Kelly v. Perry, 111 Ariz. 382, 385 (1975). Therefore, the 

lis pendens recorded by Song He does not affect the priority of his equitable 

mortgage.

¶12 Because there are material questions of fact as to whether 

Coles has an equitable interest in the Property and the priority of the parties' 

claimed interests,1 we cannot say that Song He was entitled to a judicial 

foreclosure on the equitable mortgage as a matter of law. However, the 

parties agree, and the record indicates, that Song He was entitled to a 

judicial foreclosure on the payoff mortgage because there is no question as 

to its priority.

II. A.R.S. § 33-420

¶13 On Appeal, Coles argues that the superior court erred in 

dismissing its A.R.S. § 33-420 claims. However, the dismissal of these

claims was not included in the court's final Rule 54(b) judgment. Because 

the dismissal of those claims was not part of a final judgment, we have no 

jurisdiction to consider it. See A.R.S. § 12-2101(A) (describing when appeal 

may be taken).

CONCLUSION

¶14 For the foregoing reasons, we vacate the superior court's 

grant of foreclosure on Song He's equitable mortgage obtained by default 

judgment and affirm the remainder of the court's final judgment. As the 

successful party, Coles is entitled to costs on appeal. We defer Coles' 

 

1 As stated earlier, Song He's equitable mortgage in the Property arose

as a result of the default judgment it obtained. Coles sought relief from that 

judgment under Arizona Rule of Civil Procedure 60(b), but the superior 

court in that case ruled that it did not have standing. Coles appealed in

Case No. 1 CA-CV 17-0561. In that case, we ruled that Coles does have 

standing to seek relief from that judgment and remanded for the superior 

court to determine the merits of Coles' motion. The validity of Song He's 

claimed equitable mortgage depends on the outcome in that case.
SONG HE, et al. v. COLES PROPERTIES

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request for attorney fees on appeal to the superior court's discretion 

pending resolution of the matter on the merits. See Tierra Ranchos 

Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 204, ¶ 37 (App. 2007).