Court Opinion

ID: 4111308
Source: CourtListenerOpinion
Date Created: 2016-12-27 19:02:33.818938+00
Date Added: 2024-06-11T14:36:37.312742
License: Public Domain

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

IMH SPECIAL ASSET NT 168, LLC, an Arizona limited liability company;
IMH SPECIAL ASSET NT 161, LLC, an Arizona limited liability company,
                      Plaintiffs/Appellees,

                                        v.

  APERION COMMUNITIES, LLLP, an Arizona limited liability limited
  partnership; ELADIO PROPERTIES, LLLP, an Arizona limited liability
limited partnership; DAVID P. MANIATIS, individually, and as trustee of
  the DPM-TT TRUST under instruments dated June 6, 1995, by Eugenia
  Hoof Grantor; and MARK FAUCHER, as trustee of the DPM-TT TRUST
     under instruments dated June 6, 1995, by Eugenia Hoof Grantor,
                         Defendants/Appellants.

IMH SPECIAL ASSET NT 168, LLC, an Arizona limited liability company;
IMH SPECIAL ASSET NT 161, LLC, an Arizona limited liability company,
                      Plaintiffs/Appellees,

                                        v.

   NDM Trust, an irrevocable non-charitable trust, and ROBERT M.
 SEMPLE, in his official capacity as current and sole successor Trustee of
                             the NDM Trust,
                                Appellants.

 MCA FINANCIAL GROUP, LTD., by and through KEITH BIERMAN,
                       Receiver,
                       Appellee.
IMH SPECIAL ASSET NT 168, LLC, an Arizona limited liability company;
IMH SPECIAL ASSET NT 161, LLC, an Arizona limited liability company,
                      Plaintiffs/Appellees,

  MCA FINANCIAL GROUP, LTD., Court Appointed Receiver, by and
                 through KIETH BIERMAN,
                      Receiver/Appellees.

    REAVES LAW GROUP, by and through DAVID REAVES, Court
                   Appointed Receiver,
                    Receiver/Appellees,

                                  v.

  DAVID P. MANIATIS, individually, and as beneficiary of the David
  Maniatis IRA, and as beneficiary of the Eugenia Hoof IRA; KATHY
     MCQUITTY, individually; and UDALL LAW FIRM, LLP,
                        Defendants/Appellants.

                     MW2 INVESTMENTS, LLC,
                      Party in Interest/Appellant.

IMH SPECIAL ASSET NT 168, LLC, an Arizona limited liability company;
IMH SPECIAL ASSET NT 161, LLC, an Arizona limited liability company,
                      Plaintiffs/Appellees,

  MCA FINANCIAL GROUP, LTD., Court Appointed Receiver, by and
  through KEITH BIERMAN; REAVES LAW GROUP, by and through
            DAVID REAVES, Court Appointed Receiver,
                      Receivers/Appellees,

                                  v.

  DAVID P. MANIATIS, individually, and as beneficiary of the David
     Maniatis IRA, and as beneficiary of the Eugenia Hoof IRA,
                       Defendant/Appellant.

                                  2
IMH SPECIAL ASSET NT 168, LLC, an Arizona limited liability company;
IMH SPECIAL ASSET NT 161, LLC, an Arizona limited liability company,
                      Plaintiffs/Appellees,

                                     v.

  ELADIO PROPERTIES, LLLP; DAVID MANIATIS; DPM-TT TRUST,
                    Defendants/Appellants.

Nos. 1 CA-CV 13-0131, 1 CA-CV 14-0432, 1 CA-CV 15-0182, 1 CA-CV 15-
0413, 1 CA-CV 15-0474, 1 CA-CV 15-0475, 1 CA-CV 15-0514, 1 CA-CV 15-
                          0615 (Consolidated)
                           FILED 12-27-2016

           Appeal from the Superior Court in Maricopa County
           Nos. CV2010-010943, CV2010-010990 (Consolidated)
             The Honorable Eileen S. Willett, Judge (Retired)
                The Honorable Lisa Daniel Flores, Judge

   VACATED AND REMANDED IN PART; DISMISSED IN PART

                                 COUNSEL

Snell & Wilmer L.L.P., Phoenix
By Christopher H. Bayley, Benjamin W. Reeves
Counsel for Plaintiffs/Appellees IMH Special Asset NT 168, LLC; IMH Special
Asset NT 161, LLC

Udall Law Firm LLP, Tucson
By D. Burr Udall, Thomas D. Laue

Ronald Warnicke PLC, Phoenix
By Ronald E. Warnicke
Counsel for Defendants/Appellants Aperion Communities, LLLP; Eladio
Properties, LLLP; David P. Maniatis; and Mark Faucher

Reaves Law Group, P.C., Phoenix
By David M. Reaves
Counsel for Receiver/Appellee David M. Reaves

                                      3
                       IMH et al. v. APERION et al.
                         Decision of the Court

                      MEMORANDUM DECISION

Judge Peter B. Swann delivered the decision of the court, in which Presiding
Judge Andrew W. Gould and Judge Patricia A. Orozco joined.

S W A N N, Judge:

¶1            This is an appeal from the entry of summary judgment for
lenders in a deficiency action under A.R.S. § 33-814(A), and from certain
post-judgment collection orders. We hold that though the superior court
correctly entered summary judgment regarding the fact of the defendants’
defaults, and committed no abuse of discretion by denying the defendants’
motion for relief from the portion of the judgment related to the fair market
value hearing, the lenders were not entitled to summary judgment on their
claimed default balances. Though the lenders’ calculation of the default
balances included late fees and default interest, the defendants presented
evidence sufficient to create a genuine dispute of fact regarding whether
the lenders had agreed to waive such penalties.

¶2            Accordingly, we vacate the deficiency judgment and remand
for further proceedings regarding the default balances only. We dismiss
the appeal from the post-judgment orders as moot.

                 FACTS AND PROCEDURAL HISTORY

¶3            In early 2007, IMH Secured Loan Fund, LLC (“IMH Secured”)
made two separate but similar loans. First, in January 2007, IMH Secured
(later succeeded in interest by IMH Special Asset NT 161, LLC (“IMH 161”))
loaned $6,580,000 to Eladio Properties, LLLP (“Eladio”) and Aperion
Communities, LLLP (“Aperion”). In connection with the loan, David P.
Maniatis, president of both Aperion and Eladio, executed a promissory note
secured by a deed of trust on real property located in Texas. Maniatis also
personally guaranteed payment under the note. The loan, note, trust
property, guaranty, and all related matters are hereinafter referred to by the
prefix “Eladio.”

¶4            Second, in February 2007, IMH Secured (later succeeded in
interest by IMH Special Asset NT 168, LLC (“IMH 168”)) loaned $3,450,000
to Aperion. Maniatis, on Aperion’s behalf, again executed a promissory
note, secured by a deed of trust on a second parcel of real property located

                                      4
                       IMH et al. v. APERION et al.
                         Decision of the Court

in Texas. And again, Maniatis personally guaranteed payment under the
note. Maniatis and Mark Faucher also guaranteed payment in their
capacity as trustees of the DPM-TT Trust. The loan, note, trust property,
guaranty, and all related matters are hereinafter referred to by the prefix
“Aperion.”

¶5            Both the Eladio note and the Aperion note provided for
monthly interest-only payments for one year, calculated at the greater of
11.5% per annum or the prime rate plus 3.25%, followed by a final payment
of all unpaid principal, interest, and other amounts due. The notes
specified that failure to make payments would constitute an event of
default, which would not only trigger daily late fees of $1,000 and monthly
post-maturity late fees of 0.5% of the outstanding principal, but also permit
acceleration of all unpaid principal, interest, and other amounts. The notes
further specified that upon occurrence of a default event, all amounts
would bear interest at the rate of 24% per annum, compounded monthly.

¶6            It is undisputed that the borrowers defaulted on their
obligation to make payments under the notes. The lenders thereafter
instituted trustee’s sales of the Eladio and Aperion properties, and
ultimately purchased them for credit bids in January 2010. The lenders then
brought deficiency actions, later consolidated, against the borrowers and
guarantors on both loans.

¶7            The lenders moved for summary judgment. In support of the
motion, the lenders provided the declaration of Steven T. Darak, the Chief
Financial Officer of IMH Financial Corporation, IMH Secured’s successor
by merger and the sole member of IMH 161 and IMH 168. Darak stated
that defaults had occurred and that as of the date of the trustee’s sales, at
least $9,909,026.06 was outstanding under the Eladio note and at least
$5,364,935.21 was outstanding under the Aperion note, with default interest
continuing to accrue. Darak did not specify when the defaults occurred or
provide the documents he reviewed to calculate the default balances. But
he nonetheless used the balances to calculate deficiencies.

¶8            The defendants did not dispute that defaults had occurred, or
that the lenders had purchased the Eladio property for a $3,460,000 credit
bid and the Aperion property for a $3,200,000 credit bid. They contended,
however, that genuine issues of fact existed as to both the lenders’
calculation of the default balances and the fair market values of the trust
properties.

                                     5
                        IMH et al. v. APERION et al.
                          Decision of the Court

¶9           In support of their contention that the lenders had
miscalculated the default balances, the defendants provided Maniatis’s
declaration. Maniatis stated that he had many dealings with Shane Albers,
whom he believed to be “the manager of IMH,” and he

       personally had a conversation with Shane Albers wherein he
       agreed that if we made the interest payments due on the loans
       through September 2008, which we did, that IMH wouldn’t
       foreclose on the subject properties and would simply
       continue to accrue interest at the rates set forth in the
       Promissory Notes, which agreement is confirmed by the Loan
       Statements attached hereto that I received from IMH dated
       6/30/2009 showing the Principal and Interest due as of that
       date on both loans. Notably, the principal balances on the
       statements are different than those stated in the Declaration
       of Steven T. Darak offered in support of the pending Motion
       for Summary Judgment, and the interest accrued in the six (6)
       months after 6/30/2009, even assuming a default rate of 24%
       per annum could not be anything close to the figures
       presented by IMH in the Declaration of Steven T. Darak.

The June 2009 loan statements attached to the declaration bore “Loan
Statement” titles and an “IMH” logo and return address, and were
addressed to Maniatis as guarantor. They stated “Loan Type: Interest Only
Paid in Arrears,” set forth principal and interest balances consistent with
Maniatis’s declaration, and calculated “Monthly Interest” consistent with
the non-default interest rate as applied to the principal. The statements
calculated the “Current Monthly Payment” and “Net Balance Due” by
adding the interest balance to the new monthly interest.

¶10            The lenders filed a reply and with it provided additional
evidence. In a second declaration, Darak stated that the defendants had
defaulted on the loans in October 2008. He also stated that IMH entities
routinely send loan statements to borrowers to induce payment, but do not
include late fees or default interest on the statements and instead track those
charges separately. He provided copies of such tracking documents for the
Eladio and Aperion loans. The tracking documents set forth daily late fees,
monthly late fees, and compounded default interest.

¶11          Despite Darak’s assertions regarding IMH entities’ usual
practice of omitting the full amounts due from their loan statements, the
lenders moved to strike their own loan statements from Maniatis’s
summary-judgment submissions. They argued that the loan statements

                                      6
                        IMH et al. v. APERION et al.
                          Decision of the Court

were inadmissible, unauthenticated hearsay. The defendants responded
that the statements were “clearly likely admissible hearsay subject to the
business records exception.”

¶12            The superior court denied the motion to strike but noted that
it “only has considered evidence that is relevant and admissible.” The court
then granted partial summary judgment for the lenders, concluding: “[N]o
genuine issue of material fact exists as to liability. Defendants admit that
they are in default. However, genuine issues of material fact exist as to
damages.” Consistent with A.R.S. § 33-814(A), the court set a hearing on
the trust properties’ fair market values.

¶13            Before the time set for the fair market value hearing, the
parties asked the court for clarification regarding whether the default
balances had already been established. Disputing the applicability of the
statute of frauds, the parties also asked whether the defendants could offer
evidence of the oral modification agreement that Maniatis described in his
declaration. After holding a telephonic conference, the court answered the
first question “Yes” and the second question “No,” and denied as moot the
lenders’ motion in limine to exclude evidence regarding the amounts owed.
The court did not elaborate on the rulings in its minute entry. But the
parties later agreed in a joint pretrial statement that the court had accepted
the default balances identified in Darak’s declaration, and had also ruled
that daily late fees, monthly late fees, and default-rate interest continued to
accrue in accordance with the terms of the notes.

¶14            At the conclusion of the hearing, the court accepted the
opinions of the lenders’ appraiser: the court ruled that as of the date of the
trustee’s sales, the fair market value of the Eladio property was $3,000,000
and the fair market value of the Aperion property was $2,800,000. Relying
on those values, the credit bids of $3,460,000 for the Eladio property and
$3,200,000 for the Aperion property, and the default balances of
$9,909,026.06 for the Eladio loan and $5,364,935.21 for the Aperion loan, the
court calculated the Eladio deficiency as $6,449,026.06 and the Aperion
deficiency as $2,164,935.21. The court held that with respect to both
deficiencies, interest accrued from the date of the trustee’s sales at the rate
of 24%. The court awarded the lenders their attorney’s fees and costs, but
the lenders waived the opportunity to apply for fees and costs in the interest
of obtaining speedy entry of judgment. The court entered a signed, final
judgment in December 2012, and the lenders promptly commenced
aggressive collection efforts.

                                      7
                       IMH et al. v. APERION et al.
                         Decision of the Court

¶15           The defendants timely filed a notice of appeal from the
December 2012 judgment, thereby initiating our case number 1 CA-CV 13-
0131, but they thereafter obtained a suspension of the appeal to allow the
superior court to decide their motion for relief from judgment under Ariz.
R. Civ. P. 60(c)(3) and (6). In the Rule 60(c) motion, the defendants
contended that the lenders both failed to disclose material evidence before
the fair market value hearing and presented misleading testimony at the
hearing. The defendants further contended that the hearing’s three-hour
time limit unduly limited their ability to cross-examine witnesses and
present their case.

¶16           The superior court denied the Rule 60(c) motion, finding no
proof of misconduct warranting relief and observing that the defendants
had failed to object to minute entries setting the hearing for three hours.
This court reinstated 1 CA-CV 13-0131, and the defendants timely filed an
amended notice of appeal from the Rule 60(c) ruling.

¶17          Meanwhile, collection efforts ensued, leading to multiple
post-judgment orders and additional appeals, including a timely appeal
from orders enforcing a court-approved stipulation for a receivership.

¶18           We consolidated all of the appeals. We ruled, however, that
the notices of appeal related to the Rule 60(c) and stipulated enforcement
proceedings did not require consolidation because they were supplements
to the original appeal from the judgment in 1 CA-CV 13-0131. We later
dismissed some of the consolidated appeals and stayed briefing in the
remaining consolidated cases pending our decision in 1 CA-CV 13-0131.

                             DISCUSSION

I.    THE SUPERIOR COURT APPROPRIATELY ENTERED SUMMARY
      JUDGMENT ON THE FACT OF THE DEFAULTS, BUT ERRED BY
      GRANTING SUMMARY JUDGMENT AS TO THE DEFAULT
      BALANCES.

¶19           The defendants contend that the superior court erred by
granting summary judgment on the fact of liability and on the lenders’
calculation of the default balances. A moving party is entitled to summary
judgment “if the moving party shows that there is no genuine dispute as to
material fact and the moving party is entitled to judgment as a matter of
law.” Ariz. R. Civ. P. 56(a). We review the grant of summary judgment de
novo, taking the evidence and reasonable inferences in the light most
favorable to the nonmovant. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12
(2003).

                                    8
                         IMH et al. v. APERION et al.
                           Decision of the Court

¶20          The record reveals that the lenders were entitled to summary
judgment with respect to the fact of the defendants’ defaults. The lenders
presented evidence, by way of Darak’s first declaration, that defaults
occurred on both loans. The defendants unequivocally responded that the
defaults were “[u]ndisputed.” They cannot now complain that summary
judgment on the fact of the defaults was unjustified.

¶21           But though we affirm the entry of summary judgment as to
the fact of the defaults, we hold that the lenders were not entitled to
summary judgment on the default balances.

¶22            As an initial matter, we note that the lenders’ initial filings did
not satisfy their burden of persuasion. Darak’s first declaration was
insufficient to show that the lenders were entitled to summary judgment on
the balances claimed because he did not identify the default dates or
provide records to support his calculations. See Wells Fargo Bank, N.A. v.
Allen, 231 Ariz. 209, 213, ¶¶ 16-18 (App. 2012). The lenders did not cure the
evidentiary deficiency until they filed Darak’s second declaration with their
reply.

¶23             We observe that only in limited circumstances may evidence
be submitted for the first time with a summary-judgment reply. The rules
of civil procedure do contemplate that the reply may be accompanied by
evidence. See Ariz. R. Civ. P. 7.1(a) (“Affidavits submitted in support of any
answering memorandum or memorandum in reply shall be filed and served
together with that memorandum . . . .” (emphasis added)), 56(c)(2) (“The
moving party shall have 15 days after service of the response in which to
serve a reply memorandum and any supporting materials.” (emphasis added));
see also Sitton v. Deutsche Bank Nat’l Trust Co., 233 Ariz. 215, 220, ¶ 26 (App.
2013) (finding no abuse of discretion in superior court’s consideration of
supplementary, nonprejudicial declaration submitted with reply to motion
for summary judgment). But that does not mean that the movant may
unfairly profit by failing to present material evidence until after the
nonmovant may no longer meaningfully respond.1 See Michael D. Moberly

1       The summary-judgment scheme provides that the movant shall
submit a supported statement of facts, the respondent shall then have an
opportunity to dispute the movant’s facts and offer his or her own facts,
and the movant may finally file a reply. Ariz. R. Civ. P. 56(c)(2)-(3). The
rules do not authorize surreplies, and the respondent’s ability to object to
evidence presented for the first time on reply is limited even under Rule
7.1(f), which was enacted after the period relevant to this appeal.

                                        9
                        IMH et al. v. APERION et al.
                          Decision of the Court

& John M. Fray, Squandering the Last Word: The Misuse of Reply Affidavits in
Summary Judgment Proceedings, 15 Suffolk J. Trial & App. Advoc. 43, 54-55,
65 (2010) (discussing federal law). And though a court could mitigate the
harm posed by such circumstances by authorizing a surreply, such a
measure risks significantly expanding the time and resources required to
resolve summary-judgment motions. See id. at 77–78. We conclude,
therefore, that a movant may submit new evidence on reply only if the
evidence is supplemental and the respondent is not prejudiced by its
inability to answer substantively.

¶24           Here, the lenders’ reply evidence was proper. The lenders
identified certain default balances in the original statement of facts. The
respondents had the opportunity to challenge those balances and did so.
Darak’s second declaration did not represent a change in the lenders’
position regarding the balances — it merely provided the requisite
evidentiary support. Accordingly, the court could consider the new
evidence, and the lenders’ motion could not be denied based on the initial
evidentiary deficiency.

¶25           The lenders’ reply evidence did not, however, entitle them to
summary judgment. The defendants disputed the lenders’ claimed default
balances, presenting Maniatis’s declaration that the lenders had orally
waived default interest and late charges and that the waiver was reflected
in the June 2009 loan statements. The lenders contend that the defendants’
evidence was legally insufficient to preclude summary judgment. We hold
otherwise.

¶26            As an initial matter, we reject the lenders’ contention that the
defendants failed to preserve the “oral waiver” defense because they did
not specifically argue it in the body of their response. The response relied
on Maniatis’s declaration and the loan statements to argue that the lenders
had miscalculated the default balances. That evidence was sufficient to
place the oral waiver defense at issue.

¶27           We next reject the lenders’ contention that the loan statements
were inadmissible. The lenders did not deny creating or sending the
statements, and indeed affirmatively asserted that they sent those types of
statements in the normal course of business.

¶28          The lenders’ characterization of the statements as
inadmissible hearsay is flawed. The defendants bore no burden of
persuasion in the summary-judgment proceedings — their only burden
was to demonstrate the existence of a genuine dispute of material fact. Nat’l

                                      10
                         IMH et al. v. APERION et al.
                           Decision of the Court

Bank of Ariz. v. Thruston, 218 Ariz. 112, 115, ¶16 (App. 2008) (“The moving
party’s burden of persuasion on the motion remains with that party; it does
not shift to the non-moving party.”). “‘Hearsay’ means a statement
that . . . a party offers in evidence to prove the truth of the matter asserted
in the statement.” Ariz. R. Evid. 801(c). By submitting Maniatis’s
declaration and documents consistent with the declaration, the defendants
did not assume the burden of demonstrating that the documents
themselves were “true” — the mere fact that they purported to show a
lower balance due than the lenders later claimed was enough to create an
issue of fact concerning the waiver defense. In other words, the important
point on summary judgment was what the lenders had said, not whether it
was “true” in an ultimate sense.

¶29             We next address the lenders’ contentions that because the
defendants’ evidence of waiver described an oral agreement, the agreement
was unenforceable. The lenders first contend that the statute of frauds,
specifically A.R.S. § 44-101(6) and (9), barred oral modification of the loan
agreement. But the statute of frauds, by its terms, bars only “action[s]” on
certain oral agreements. A.R.S. § 44-101. The defendants’ presentation of
evidence in response to a summary-judgment motion was not an “action”;
it was a defense to an action on a written loan agreement. We construe the
statute literally as written, and find in it no bar to a defense based on an oral
representation. See Big A LLC v. Lindworth Inv., LLC, 458 S.W.3d 340, 343–
44 (Mo. Ct. App. 2015) (holding that the statute of frauds does not apply to
defenses).

¶30            The lenders finally contend that the promissory notes
precluded oral waivers by their terms. But in general, parties to a written
contract may orally modify it by mutual assent, supported by
consideration, even if the contract prohibits oral changes. Phx. Orthopaedic
Surgeons, Ltd. v. Peairs, 164 Ariz. 54, 57-58 (App. 1989), disapproved of on other
grounds by Valley Med. Specialists v. Farber, 194 Ariz. 363 (1999). And despite
the lenders’ argument to the contrary, the defendants’ claimed oral waiver
was sufficiently supported by consideration. “Forbearance by a creditor to
seize his debtor’s property or enforce a lien against it, has often been held
to be sufficient consideration to support an oral promise of guaranty when
such forbearance enables the promisor to obtain an advantage or benefit.”
Yarbro v. Neil McGinnis Equip. Co., 101 Ariz. 378, 381–82 (1966) (citing cases).
The evidence reasonably supports an inference that both the defendants
and the lenders would benefit from an agreement to maintain the status
quo — such would allow the defendants to keep the properties and would
allow the lenders to avoid the burdens of foreclosure. We also reject the
lenders’ contention that Maniatis’s description of the agreement was so

                                       11
                        IMH et al. v. APERION et al.
                          Decision of the Court

indefinite as to be objectively unbelievable. To be sure, Maniatis did not
identify an end date to the oral interest-only agreement. But because we
must draw all reasonable inferences in the defendants’ favor, we cannot say
that an imperfect description of the waiver of certain penalties in a short-
term loan with a balloon payment entitled the lenders to summary
judgment.

¶31           Maniatis’s declaration and the loan statements were sufficient
to raise a genuine dispute of material fact regarding the default balances,
and the lenders were not entitled to summary judgment on the balances.2

II.    THE ERRONEOUS ENTRY OF SUMMARY JUDGMENT ON THE
       DEFAULT BALANCES RENDERS THE POST-JUDGMENT
       PORTION OF THIS APPEAL MOOT.

¶32             A known default balance is critical to the calculation of a
deficiency judgment: the judgment is calculated as the difference between
the default balance and the greater of the trust property’s trustee’s-sale
price or its fair market value as of the sale date. A.R.S. § 33-814(A). Because
we hold that the lenders were not entitled to summary judgment on the
default balances, we must vacate the deficiency judgment and remand for
further proceedings. That means, as a practical matter, that the portion of
this appeal related to the stipulation-enforcement orders is moot. We
therefore dismiss it.

2             The defendants contend that the lenders’ claimed balances
were based on unlawful late fees. The defendants rely on Dobson Bay Club
II DD, LLC v. La Sonrisa de Siena, LLC, 239 Ariz. 132 (App. 2016) (review
granted Sept. 20, 2016). The lenders answer that the defendants waived
their opportunity to challenge the late fees by failing to raise the issue in
their response to the summary-judgment motion. But the lenders did not
specify that their calculations included late fees until they filed the reply,
and the defendants did object in their response to what they viewed as
unknown assessments even assuming application of the default-interest
rate. They also generally objected, albeit on “unfair trade practices”
grounds, to “the interest, penalties, and other charges assessed by
Plaintiffs.” On this record, we find that the defendants did not waive their
ability to challenge the late fees. But we express no opinion as to the
enforceability of the late fees, and the superior court may consider such a
challenge on remand.

                                      12
                         IMH et al. v. APERION et al.
                           Decision of the Court

¶33              We note, however, that even if the lenders do not prove their
claimed deficiency balances upon remand, substantial deficiency balances
will still exist even under the defendants’ version of the facts. Extrapolating
the data from Maniatis’s declaration and the June 2009 loan statements (and
in view of the defendants’ failure to assert that they made payments after
those statements were issued), it is undisputed that as of the date of the
trustee’s sales the defendants owed about $7,500,000 on the Eladio loan and
more than $3,900,000 on the Aperion loan. On remand, the lenders’
judgment-collection efforts must be considered as they apply to those
undisputed amounts.

III.   THE SUPERIOR COURT DID NOT ABUSE ITS DISCRETION BY
       DENYING THE DEFENDANTS’ MOTION FOR RULE 60(C)
       RELIEF RELATED TO THE FAIR MARKET VALUE HEARING.

¶34           Though we vacate the deficiency judgment based on the
dispute of fact concerning the default balances, we nonetheless decide the
appeal from the denial of the defendants’ Rule 60(c) motion because that
motion was based solely on the fair market value hearing. The fair market
value determination goes to a distinct component of the deficiency
judgment that is unaffected by the default balances. See A.R.S. § 33-814.

¶35             Rule 60(c) provides that “the court may relieve a
party . . . from a final judgment . . . for the following reasons: . . . (3) fraud
(whether heretofore denominated intrinsic or extrinsic), misrepresentation
or other misconduct of an adverse party; . . . or (6) any other reason
justifying relief from the operation of the judgment.” The defendants
moved for relief under Rule 60(c)(3) based on alleged disclosure violations
and misleading testimony, and for relief under Rule 60(c)(6) based on the
same grounds plus the court’s refusal to grant more time for the hearing.
We review the court’s ruling for an abuse of discretion. City of Phx. v. Geyler,
144 Ariz. 323, 328 (1985).

       A.     The Superior Court Did Not Abuse Its Discretion by Denying
              Relief Under Rule 60(C)(6).

¶36            As an initial matter, we note that to obtain relief under Rule
60(c)(6), “the reason for setting aside [the judgment or order] must not be
one of the reasons set forth in the five preceding clauses.” Panzino v. City of
Phx., 196 Ariz. 442, 445, ¶ 6 (2000) (citation omitted). Because relief for
misconduct is governed by Rule 60(c)(3), the defendants’ prospective Rule
60(c)(6) relief was limited to their contention that the court afforded them
insufficient time for the fair market value hearing.

                                       13
                        IMH et al. v. APERION et al.
                          Decision of the Court

¶37            We hold that the court acted within its discretion by
restricting the fair market value hearing to three hours, and we reject the
defendants’ contention that the limitation deprived them of due process.
The court has discretion to impose reasonable time limits on trial
proceedings to avoid undue delay, waste of time, or needless presentation
of cumulative evidence, so long as the time limits are sufficiently flexible to
allow for adjustment during trial and no prejudice results. Brown v. U.S.
Fidelity & Guar. Co., 194 Ariz. 85, 90–91, ¶¶ 29–30 (App. 1998). Here, the
hearing focused on a single, straightforward issue: the fair market values of
two properties. The court acted well within its discretion by determining
that the issue could be adequately addressed in three hours, and the parties
were given ample notice of the time limitation.3 Further, the record of the
hearing reveals that the parties were given a full and fair opportunity to
present their cases. They were kept updated throughout the hearing of the
time they had remaining, and they were able to present the testimony of
competing appraisers and submit the appraisers’ written reports into
evidence. The defendants were able to cross-examine the lenders’
witnesses, and they were given additional time at the end of the hearing to
conduct a re-direct examination of their own witness. The defendants’
tactical decision to spend the majority of their time on cross-examination
does not establish an abuse of discretion or prejudice. See Gamboa v. Metzler,
223 Ariz. 399, 402, ¶ 15 (App. 2010).

       B.     The Superior Court Did Not Abuse Its Discretion by Denying
              Relief Under Rule 60(C)(3) Related to the Lenders’
              Disclosures.

¶38           Rule 26.1 imposes a continuing duty to disclose, among other
things, documents “known by a party to exist whether or not in the party’s
possession, custody or control and which that party believes may be
relevant to the subject matter of the action, and those which appear
reasonably calculated to lead to the discovery of admissible evidence.”
Ariz. R. Civ. P. 26.1(a)(9), (b)(2). “[A] failure to disclose evidence that may
be relevant, regardless of whether the disclosure was required by a specific
discovery request or by the general duty of Rule 26.1, can constitute
misconduct under Rule 60(c)(3).” Norwest Bank (Minn.) v. Symington, 197
Ariz. 181, 186, ¶ 21 (App. 2000). Even an inadvertent failure to disclose

3      The hearing was initially set for two hours. At the defendants’
request, the court later reset the hearing for one day. But then a different
division of the court took over the case and reset the hearing for three hours,
issuing two minute entries to that effect in the months leading up to the
hearing.

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                        IMH et al. v. APERION et al.
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evidence as required under Rule 26.1 can be sufficient to warrant a finding
of misconduct by clear and convincing evidence. Id. at ¶ 22. But “proof of
misconduct, standing alone, does not justify relief under Rule 60(c)(3). The
movant must also show that the failure to disclose substantially interfered
with the ability to fully prepare for trial.” Id. at ¶ 23. The movant’s burden,
which must be met by a preponderance of the evidence, “may be
shouldered either by establishing the material’s likely worth as trial
evidence or by elucidating its value as a tool for obtaining meaningful
discovery . . . [or by raising a rebuttable presumption of interference by]
demonstrat[ing] that the misconduct was knowing or deliberate.” Id. at 187,
¶ 23 (citation omitted). The movant need not show “that the outcome of
the case would have been different but for the nondisclosure.” Id. at ¶ 26
n.1.

              1.      The Superior Court Did Not Abuse Its Discretion by
                      Determining that the Lenders’ Failure To Disclose
                      Their Intent To Develop the Properties Did Not
                      Constitute Misconduct.

¶39           The defendants contend that the lenders failed to disclose that
they intended to develop the properties and believed their development
plans increased the properties’ values. The defendants contend that in view
of the lenders’ undisclosed plan to hold the property for development, the
“as is” valuation evidence presented at the hearing was misleading and
prejudicial. The defendants point specifically to the listing agent’s
testimony that the Eladio property would be difficult to develop as a stand-
alone parcel.

¶40           The question before the court, however, was the properties’
fair market value. For purposes of calculating a deficiency judgment,

       “fair market value” means the most probable price, as of the
       date of the execution sale, in cash, or in terms equivalent to cash,
       or in other precisely revealed terms, after deduction of prior
       liens and encumbrances with interest to the date of the sale,
       for which the real property or interest therein would sell after
       reasonable exposure in the market under conditions requisite
       to fair sale, with the buyer and seller each acting prudently,
       knowledgeably and for self-interest, and assuming that
       neither is under duress.

A.R.S. § 33-814(A) (emphasis added). A property’s potential future uses are
of course relevant to its value at the time of the trustee’s sale. Cf. Life

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                        IMH et al. v. APERION et al.
                          Decision of the Court

Investors Ins. Co. of Am. v. Horizon Resources Bethany, Ltd., 182 Ariz. 529, 534
(App. 1995) (recognizing that actual post-sale conduct does not alter fair
market value as of the date of the sale). But the future user’s identity is
irrelevant. The lenders’ appraiser recognized in his reports that the
properties could be put to their “highest and best” uses if developed in
response to demand. The appraisers’ opinions therefore took into account
the value of the properties as potentially developable properties,
considering the market and the properties’ unique characteristics. The
lenders’ failure to disclose their personal plans and opinions did not
constitute misconduct.

              2.     The Superior Court Did Not Abuse Its Discretion by
                     Determining that the Lenders’ Failure To Disclose a
                     Purchase Offer Did Not Substantially Interfere with
                     the Defendants’ Ability To Prepare for the Hearing.

¶41             The lenders successfully argued at the hearing that the
properties’ listing agent should be allowed to testify about purchase offers
received after the date of the trustee’s sales. The defendants contend that
the lenders failed to disclose one of several offers to purchase the Eladio
property. At the hearing, the lenders relied on the following Statement
from the Uniform Appraisal Standards: “Data subsequent to the effective
date may be considered in developing a retrospective value as a
confirmation of trends that would reasonably be considered by a buyer or
seller as of that date.” The Statement further provides: “The appraiser
should determine a logical cut-off because at some point distant from the
effective date, the subsequent data will not reflect the relevant market. This
is a difficult determination to make.”

¶42            The lenders presented evidence of four offers to purchase the
Eladio property after the January 2010 trustee’s sale: (1) a February 2011
offer of less than $2,970,000; (2) a March 2011 offer of $3,465,000; (3) a June
2011 offer of $4,125,000; and (4) a June 2012 offer of $4,250,000, which was
under negotiation at the time of the hearing and was contingent on the
offeror’s ability to acquire neighboring properties. The defendants
presented evidence of an additional February 2011 offer to purchase the
property along with others for the total price of $5,900,000.

¶43           In September 2012, a month before the fair market value
hearing, the listing agent received a sixth offer to purchase the Eladio
property for $5,000,000 along with neighboring properties for other
amounts. It is undisputed that the lenders did not disclose that offer before

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                        IMH et al. v. APERION et al.
                          Decision of the Court

the hearing, and they made no showing that the defendants had
independent knowledge of the offer.

¶44            The lenders contend that they were not required to disclose
the September 2012 offer under Rule 26.1 because it was made long after
the trustee’s sale, was part of a package offer, and was not a serious offer
because it was made by a known associate of Maniatis who failed to provide
the listing agent with proof of funds.4 But “[a]ll that is required to trigger a
duty to disclose . . . is a determination that . . . a document ‘may’ have
relevant content. And ‘relevance’ for discovery purposes is quite broad, not
limited to evidence that is admissible at trial but including information that
may be useful solely because it reasonably may lead to admissible
evidence.” Norwest, 197 Ariz. at 185, ¶ 15. Under that standard, the
September 2012 offer should have been disclosed. The very Statement from
the Uniform Appraisal Standards on which the lenders relied to achieve
admission of the other offers expressly acknowledges that it is difficult to
determine where to draw the temporal line regarding the relevance of post-
trustee’s-sale data, and the lenders themselves presented evidence of a
package offer provided just three months before the undisclosed offer.
Though the lenders were free to argue at the hearing that the later offer was
not as instructive as the other offers, or that it was not genuine, they were
not free to withhold it from the defendants. Their failure to disclose the
offer constituted “misconduct” within the meaning of the rule.

¶45           We cannot say, however, that the court abused its discretion
by determining that the misconduct did not substantially interfere with the
defendants’ ability to prepare for the hearing. To be sure, the standard of
proof for interference is low: a preponderance of the evidence. See Norwest,
197 Ariz. at 187, ¶ 23. But the qualitative aspect is higher: the interference
must be “substantial.” See id. at 186, ¶ 23.

¶46           The defendants first attempted to establish substantial
interference by arguing that the misconduct was intentional. In support of
that contention, they claimed that the lenders’ post-judgment collection
efforts were unlawful and unprofessional. But even assuming the truth of
those allegations, we fail to see how they are instructive regarding the pre-
hearing disclosure issue.

4      The lenders also argue for the first time on appeal that there is no
evidence their listing agent provided them a copy of the offer. We discern
no reason not to attribute the agent’s knowledge to the lenders.

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                        IMH et al. v. APERION et al.
                          Decision of the Court

¶47            The defendants next attempted to establish substantial
interference by contending that they would have provided the undisclosed
offer to their appraiser and would have cross-examined the listing agent
about it. But to show substantial interference, the defendants were required
to prove that the offer had “likely” evidentiary worth or could lead to
“meaningful discovery.” See Norwest, 197 Ariz. at 187, ¶ 23 (citation
omitted). We found that standard satisfied in Norwest when the lender in a
deficiency case disclosed an appraisal that valued the property at $3,000,000
on the foreclosure date but failed to disclose a second appraisal that valued
the property at $6,000,000 a few months later. Id. at 183, 187, ¶¶ 5–6, 26.
We also found it satisfied in Breitbart-Napp v. Napp when the husband in a
dissolution case failed to disclose his business partner’s decision to market
certain properties that affected the parties’ settlement agreement. 216 Ariz.
74, 76, 82, ¶¶ 2, 27–30 (App. 2007). In both of those cases, the undisclosed
evidence’s value to the other party was plainly significant. Here, though
the September 2012 offer held some evidentiary value, we cannot say that
the court abused its considerable discretion by determining that the offer
was not so central to the parties’ dispute that the failure to disclose it
deprived the defendants of the opportunity to effectively prepare for the
hearing.

       C.     The Superior Court Did Not Abuse Its Discretion by Denying
              Relief Under Rule 60(C)(3) Related to the Lenders’ Testimony.

¶48            We finally address the defendants’ contentions that they were
entitled to relief under Rule 60(c)(3) based on the lenders’ presentation of
misleading testimony.

¶49           First, the defendants contend that the lenders’ listing agent
misleadingly valued the Eladio property as agricultural property. But the
agent did not in fact value the property. He simply reported the offers he
had received, and in describing the June 2012 offer expressed his opinion
that the Eladio property would be difficult to develop without the benefit
of assemblage. We perceive no impropriety in his testimony.

¶50            Second, the defendants contend that the lenders “failed to
point out” how the properties’ location in a Municipal Utility District
“increased the value of the property.” That contention is without merit.
The lenders’ appraiser specifically described the benefits of a Municipal
Utility District and testified that he “did give credit in [his] appraisals for
the fact that those approvals were basically in place for the creation of a
future MUD.”

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                       IMH et al. v. APERION et al.
                         Decision of the Court

¶51            Third, the defendants contend that the lenders “failed to
inform the Trial Court that their witnesses . . . were aware of undisclosed
facts” regarding the sales prices of certain adjacent properties. But review
of the record shows that the sales data was not undisclosed. The defendants
identified the underlying documents in the joint pretrial statement but
apparently chose not to use them at the hearing. The lenders were under
no obligation to introduce them.

¶52             Finally, the defendants contend that the lenders’ witnesses
misrepresented the availability of residential lots for sale in nearby
developments. The defendants first point out that though the lenders’
appraiser estimated that it would take approximately four years for the
market to absorb the available inventory, the listing agent’s marketing
materials projected a need for new development in approximately two
years. They then point to the post-hearing declaration of a different real
estate agent, in which the agent stated that two neighboring developments
were completely built-out and one had been completely sold-out by 2011.
Nothing in defendants’ arguments is indicative of impropriety by the
lenders. The defendants were able to draw the court’s attention to the
conflicting opinions of the appraiser and the listing agent by moving the
listing agent’s marketing materials into evidence at the hearing, and they
provide no explanation of how their late-acquired third opinion is
indicative of misconduct by the lenders.

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                       IMH et al. v. APERION et al.
                         Decision of the Court

                              CONCLUSION

¶53           We hold that though the superior court correctly entered
summary judgment for the lenders regarding the fact of the defendants’
defaults, and did not abuse its discretion by denying the defendants’
motion for Rule 60(c) relief related to the fair market value hearing, the
court erred by entering summary judgment on the lenders’ claimed
deficiency balances. Because the judgment relied on those balances, we
vacate it and remand for further proceedings consistent with this decision,
and we dismiss the appeal from the post-judgment collection efforts as
moot. We defer the parties’ competing requests for attorney’s fees and costs
on appeal to the superior court pending its resolution of the case. See Tierra
Ranchos Homeowners Ass’n v. Kitchukov, 216 Ariz. 195, 204, ¶ 37 (App. 2007).

                          AMY M. WOOD • Clerk of the Court
                          FILED: AA

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