Court Opinion

ID: 2683783
Source: CourtListenerOpinion
Date Created: 2014-07-15 16:01:58.162682+00
Date Added: 2024-06-11T13:13:38.671285
License: Public Domain

NOTICE: NOT FOR PUBLICATION.
   UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
          LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

 BETTY DON, an individual; ROBERT MEYERS and JANICE MEYERS,
              husband and wife, Plaintiffs/Appellants,

                                        v.

  ENTRUST ARIZONA, LLC, an Arizona limited liability corporation,
                    Defendant/Appellee.

                             No. 1 CA-CV 13-0495
                              FILED 07-15-2014

           Appeal from the Superior Court in Maricopa County
                          No. CV2011-053892
                The Honorable Alfred M. Fenzel, Judge
               The Honorable Michael R. McVey, Judge

                                  AFFIRMED

                                   COUNSEL

The Breslo Law Firm, LLC, Scottsdale
By John C. Breslo
Counsel for Plaintiffs/Appellants

Galbut & Galbut, Phoenix
By Olivier A. Beabeau, Keith R. Galbut, Cameron A. Fine
Counsel for Defendant/Appellee
                           DON et al. v. ENTRUST
                            Decision of the Court

                       MEMORANDUM DECISION

Presiding Judge John C. Gemmill delivered the decision of the Court, in
which Judge Peter B. Swann and Chief Judge Diane M. Johnsen joined.

G E M M I L L, Judge:

¶1             Betty Don and Robert and Janice Meyers (collectively
“Plaintiffs”) appeal from the trial court’s entry of summary judgment in
favor of Entrust Arizona, LLC on Plaintiffs’ breach of contract claim. We
affirm.

                              BACKGROUND

¶2            Entrust Arizona is a third-party administrator of self-
directed retirement accounts. A client deposits retirement funds into a
custodial account administered by Entrust and directs Entrust how to
invest the funds. Entrust is not a custodian of its clients’ funds, but
processes paperwork related to the funds and arranges for the transfer of
funds from the clients’ custodial account to the party designated by the
clients. All investments administered by Entrust are self-directed by the
client. Entrust receives an annual fee and a per-transaction fee for its
services.

¶3          Plaintiffs held accounts with Entrust. Each completed an
Individual Retirement Account (IRA) Application (“the Application”),
which included the following language:

        Until such time as I change or revoke the following
        designation, I hereby instruct the Custodian1 to follow the
        investment directions which I provide to the third party
        administrator 2 in investing and reinvesting the principal and
        interest as confirmed by direction letters and other
        agreements with the third party administrator, for the above

1   The “Custodian” was a bank that is not a party to this appeal.

2   Entrust was the third party administrator.

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                        DON et al. v. ENTRUST
                         Decision of the Court

      referenced IRA or other account for which the third party
      administrator serves as record keeper and administrator.

      ....

      Until such time as I change or revoke the following
      designation, I hereby instruct the Custodian to follow the
      investment directions which I provide to Administrator in
      investing and reinvesting the principal and interest, as
      confirmed by direction letters to Administrator from the
      undersigned, for the above referenced IRA or other
      Custodial account for which Administrator serves as record
      keeper.

      ....

      Custodian and Administrator may act solely on the written
      instruction, designation or representation of the
      Accountholder, and the Accountholder agrees to hold
      Custodian and Administrator harmless from all liabilities
      and expenses incurred in connection with any action taken
      in reliance upon Accountholder’s written instructions,
      designations and representations, or in the exercise of any
      right, power or duty of Custodian or Administrator, its
      agents or assigns. . . .

      Custodian, Administrator and their respective agents or
      assigns have no responsibility or fiduciary role whatever
      related to or in connection with the account in taking any
      action related to any purchase, sale or exchange instructed
      by the undersigned or the undersigned’s agents, including
      but not limited to suitability, compliance with any state or
      federal law or regulation, income or expense, or preservation
      of capital or income.

Plaintiffs were also parties to a Traditional Individual Retirement
Custodial Account Agreement (“Custodial Agreement”), an Internal
Revenue Service form, which contained the following language:

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                         DON et al. v. ENTRUST
                          Decision of the Court

      8.10 Responsibilities:       Depositor 3 agrees that all
      information and instructions given to the Custodian 4 or
      Administrator by the Depositor is complete and accurate
      and that the Custodian or Administrator shall not be
      responsible for any incomplete or inaccurate information
      provided by the Depositor[.]

      9.01 Investment of Contributions: In conjunction with
      sections 8.10 and 8.11 of this Agreement, at the direction of
      the Depositor, the Administrator or Custodian shall invest
      all contributions to the account and earnings thereon in
      investments which may be considered administratively
      feasible by the Custodian. . . .         The Custodian or
      Administrator shall be responsible for the execution of such
      orders and for maintaining adequate records thereof.

      9.02 Indemnification[:] The Custodian or Administrator
      shall have no duty other than to follow the written
      investment directions of the Depositor, and shall be under
      no duty to question said instructions and shall not be liable
      for any investment losses sustained by the Depositor under
      any circumstances.

¶4            Meyers executed three “Buy Direction Letters” in August
2005, using an Entrust form containing language that “authorize[d] and
direct[ed] the administrator [Entrust] . . . to BUY” three notes secured by
three specific residential properties. Don, using the same Entrust form,
executed two substantially similar Buy Direction Letters in September
2006 directing Entrust to buy two notes on two specific residential
properties. The Buy Direction Letters included the following language:

      I understand that my account is self-directed and that the
      administrator and/or trustee or custodian do not review the
      merits, appropriateness and/or suitability of an investment
      in general, or in connection with my account in particular.

3 The “Depositor” is identified as the “individual whose name appears on
the accompanying IRA application form,” which in this case is Don and
Meyers, respectively.

4 The Custodial Agreement also designated the same bank as the
Custodian and Entrust as the Administrator.

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                         DON et al. v. ENTRUST
                          Decision of the Court

      ....

      I understand that neither the administrator nor trustee or
      custodian is a “fiduciary” for my account as such term is
      defined in the Internal Revenue Code, ERISA, or any
      applicable federal, state, or local laws. I agree to release,
      indemnify, defend and hold the administrator and trustee or
      custodian harmless from any claims arising out of this
      investment, including, but not limited to claims that an
      investment is not prudent, proper, diversified or otherwise
      in compliance with ERISA, the Internal Revenue Code or
      any other applicable federal, state or local laws.

¶5            All five Buy Direction Letters indicated that the notes should
be secured by first position liens. Unbeknownst to Plaintiffs, each of the
five properties was encumbered by at least one prior deed of trust at the
time of Plaintiffs’ purchases. All five notes were purchased through
Mortgage Notes, Inc. or MNI Properties, LLC, entities owned by
Guillermo De La Vara, with De La Vara preparing the Buy Direction
Letters on behalf of Plaintiffs.

¶6             Mortgage Notes, Inc. filed for bankruptcy in June 2007.
Plaintiffs filed claims in the bankruptcy and received distributions. The
Arizona Corporation Commission later found that De La Vara had, among
other things, misrepresented or failed to disclose to some investors the
number of pre-existing liens attached to certain properties, resulting in
properties being subject to multiple lien investments that were often
under-secured. The Corporation Commission ordered De La Vara and his
wife to pay over $5.7 million in restitution. De La Vara was eventually
indicted by the Arizona Attorney General on charges related to the
investments solicited from Plaintiffs and others, to which he pleaded
guilty and was sentenced to prison.

¶7            Plaintiffs filed their complaint against Entrust in May 2011
alleging a single count of breach of a written contract and seeking
damages. The trial court granted summary judgment for Entrust and
awarded Entrust attorneys’ fees of $141,070.50 and costs of $1,584.52
pursuant to Arizona Revised Statutes (“A.R.S.”) sections 12-341.01(A), -
1838, and -1840, the Application, the Custodial Agreement, and the Buy
Direction Letters, and entered judgment in favor of Entrust. Plaintiffs
filed a timely notice of appeal. We have jurisdiction pursuant to A.R.S. §§
12-120.21(a)(1) and -2101(A)(1).

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                         DON et al. v. ENTRUST
                          Decision of the Court

                               ANALYSIS

¶8             Plaintiffs assert that the trial court erred in granting
summary judgment for Entrust because the Application, the Custodial
Agreement, and the Buy Direction Letters form a contract that imposed a
duty on Entrust to purchase first position liens in accordance with the Buy
Direction Letters. Plaintiffs argue that because Entrust failed to purchase
first position liens, Entrust breached the contract. Summary judgment
may be granted when “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). In reviewing a motion for summary judgment, we review de
novo whether any genuine issues of material fact exist and whether the
trial court properly applied the law. Penn-America Ins. Co. v. Sanchez, 220
Ariz. 7, 11, ¶ 23, 202 P.3d 472, 476 (App. 2008).

¶9              The Application declares that it and the Custodial
Agreement comprise Plaintiffs’ agreements with Entrust. Plaintiffs rely on
two provisions in the Application that state, “I hereby instruct the
Custodian to follow the investment directions which I provide to
Administrator.” These provisions impose no obligation on Entrust,
however, because Entrust is not the Custodian, but the Administrator.
Plaintiffs also argue that ¶ 9.02 in the Custodial Agreement, which states
that the “Administrator shall have no duty other than to follow the
written investment directions of the Depositor,” imposed on Entrust a
contractual duty to ensure that the investments were secured by first-
position liens, as described in the Buy Direction Letters. But this language
from the Custodial Agreement is contained in an indemnification
provision intended to protect Entrust and limit its obligations and
liabilities, not expand them. In ¶ 9.01, however, the Custodial Agreement
requires the Administrator to execute investment orders by the Depositor,
although that obligation is in conjunction with the Depositor’s obligations
to ensure “that all information and instructions given to the . . .
Administrator . . . is complete and accurate” and that the Administrator
“shall not be responsible for any incomplete or inaccurate information
provided by the Depositor.”

¶10          Accepting that the Custodial Agreement imposes a
contractual duty on Entrust to execute Plaintiffs’ orders, the question is
whether the Buy Direction Letters required Entrust to ensure that the
purchased assets were secured by a first position lien. Entrust argues that
the documents articulate no specific requirements that Entrust perform
due diligence, investigate title, record deeds of trust, or ensure that the
agreements between investors and third parties are valid. It asserts that

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                          DON et al. v. ENTRUST
                           Decision of the Court

the Buy Direction Letters were not instructions or contract provisions, but
were representations of Plaintiffs’ pre-existing investment agreements
with De La Vara. We agree.

¶11            On this record, the references to a first position lien in the
Buy Direction Letters did not impose a contractual obligation on Entrust
to ensure the purchases of first position liens; rather, they reflected the
agreements of Plaintiffs with De La Vara. In interpreting a contract, our
goal is to determine the intent of the parties. Taylor v. State Farm Mut.
Auto. Ins. Co., 175 Ariz. 148, 153, 854 P.2d 1134, 1139 (1993). Interpreting
the first lien priority provision as a contractual obligation would require
Entrust to perform a title search or otherwise investigate lien positions for
its clients’ chosen investments. Plaintiffs, however, admitted in discovery
that Entrust had no obligation to obtain a title report, to negotiate
promissory notes or deeds of trust, or to record deeds of trust, and that
they did not pay Entrust to obtain a title report or perform due diligence
in connection with their investments. In light of these admissions,
Plaintiffs could not have intended that Entrust be contractually bound to
investigate lien priority of the investments they selected.

¶12            Other portions of the record also indicate that the first
position references in the Buy Direction Letters were merely
representations of Plaintiffs’ agreements with De La Vara. De La Vara’s
preparation of the Buy Direction Letters for Plaintiffs, who then signed
them, demonstrates that Plaintiffs and De La Vara had formed agreements
independently of Entrust, further supporting the conclusion that Entrust
was a limited participant in the transaction, whose role was to effectuate
the already finalized agreement. Under the Custodial Agreement,
Plaintiffs were responsible for ensuring that the information provided to
Entrust was accurate. No terms in the Custodial Agreement or the
Application required Entrust to ensure a transaction’s legitimacy or
profitability, and neither was a fiduciary duty imposed upon Entrust to
protect Plaintiffs as clients.

¶13           Because Plaintiffs’ claim does not arise out of a written
contract, we need not consider the parties’ other arguments. Plaintiffs
contend that the trial court’s attorneys’ fees award to Entrust as the
prevailing party was erroneous, but they offer no supporting argument.
Plaintiffs have therefore abandoned the issue. See Modular Systems Inc. v.
Naisbitt, 114 Ariz. 582, 587, 562 P.2d 1080, 1085 (App. 1977) (appellant
must state with particularity why or how the trial court erred). Because
we affirm the trial court’s ruling and Entrust remains the prevailing party,
we affirm the award of attorneys’ fees.

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                         DON et al. v. ENTRUST
                          Decision of the Court

¶14          Entrust requests attorneys’ fees on appeal pursuant to A.R.S.
§ 12-341.01(A). In our discretion, we deny the request.

                            CONCLUSION

¶15          We affirm the grant of summary judgment.

                                 :gsh

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