FILED JUL 13 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. AZ-22-1002-LBT ANDREA GROVES, Debtor. Bk. No. 2:18-bk-14761-BKM

A&S LENDING, LLC, Adv. No. 2:19-ap-00183-BKM Appellant, v. MEMORANDUM∗ ANDREA GROVES, Appellee.

Appeal from the United States Bankruptcy Court for the District of Arizona Brenda K. Martin, Bankruptcy Judge, Presiding

Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.

INTRODUCTION

Creditor A&S Lending, LLC (“A&S”) appeals the bankruptcy court’s

declaratory judgment determining the extent of A&S’s liens on real

properties jointly owned by chapter 131 debtor Andrea Groves and her

business, A & D Property Consultants, LLC (“A & D”). The deed of trust at

∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532. “Rule” references are the Federal Rules of 1 issue granted a security interest in an undivided one-half interest in each

parcel of real property, but A&S argued that this was an error and that the

parties intended to encumber the entirety of both properties. After a two-

day trial, the bankruptcy court found no mutual mistake warranting

reformation of the deed of trust (except for an agreed correction to the

signature block) and entered judgment in favor of Debtor.

We AFFIRM.

FACTS

A. Prepetition Events

Debtor, a licensed real estate broker, and A & D, Debtor’s wholly-

owned LLC, were in the property-flipping business, i.e., they purchased

properties, improved them, and sold them for a profit, paying off the

financing in the process. Before the transaction at issue here, they had

successfully completed seven projects using financing from A&S’s

predecessor, Merchants Funding AZ, LLC (“Merchants”). In some of those

transactions, including the seventh, Merchants had required Debtor to

pledge her personal residence (the “Residence”) as additional collateral.

For the seventh transaction—a loan for the purchase and improvement of

property on State Avenue in Phoenix (the “State Avenue Loan”)—title to

the investment property was taken by A & D only, and the deed of trust

indicated that the grantors were A & D as to parcel A-1, the investment

property, and Debtor as to parcel A-2, the Residence.

Bankruptcy Procedure. 2 In 2017, Debtor contacted Merchants about financing an eighth

project, the purchase and remodel of real property located on Rancho Drive

in Phoenix (the “Rancho Property”). Merchants agreed to loan Debtor and

A & D a total of $326,949 at 10.5% interest, due in full in twelve months

(March 31, 2018).2 Of the amount loaned, $109,244 was designated to be

deposited into an account from which Debtor could make draws to pay for

improvements. As part of the transaction, Debtor executed an agreement

granting Merchants a security interest in the improvement account.

The documentation required for the Rancho Property transaction

differed from Debtor’s previous transactions with Merchants in that the

deed granting title to the Rancho Property granted it to Debtor and A & D

jointly, and Debtor was presented at closing with a warranty deed that

transferred the Residence from Debtor individually to Debtor and A & D as

joint tenants.3 The upshot was that Debtor and A & D each ended up

holding a one-half interest in both the Rancho Property and the Residence.

The deed of trust (“DOT”), however, contained virtually identical recital

language as that shown on the deed of trust for the State Avenue Loan.

2 Merchants later agreed to an extension of the due date to June 28, 2018. 3 The bankruptcy court stated in its findings that Debtor was required to sign two “quitclaim” deeds, one of which transferred title of the Rancho Property from A & D to herself and A & D jointly. This was not accurate; the recorded warranty deed in the record reflects that the deed transferring title of the Rancho Property to Debtor and A & D jointly was executed by Olivia K. Bateman, successor trustee of the Sheila K. Bateman Trust dated February 8, 2006, the seller of the Rancho Property. 3 Specifically, the initial paragraph of the DOT reads in pertinent part:

“THIS DEED OF TRUST is made as of April 6, 2017, between A&D

PROPERTY CONSULTANTS LLC, AN ARIZONA LIMITED LIABILITY

COMPANY (AS TO EXHIBIT A-1) AND ANDREA GROVES, AN

UNMARRIED WOMAN (AS TO EXHIBIT A-2) [defined as “Grantor”] . . .

for the benefit of MERCHANTS FUNDING AZ, LLC . . . .” Exhibit A-1 was

the legal description for the Rancho Property, and Exhibit A-2 was the legal

description for the Residence. The granting language states, in pertinent

part, “Grantor . . . hereby grants and conveys . . . the following property . . .

The real property described on Exhibit A-1 and Exhibit A-2 . . . .” The DOT

thus purported to encumber A & D’s interest in the Rancho Property and

Debtor’s interest in the Residence. As a result, under the DOT, the loan was

secured by an undivided one-half interest in each property rather than the

full interests in those properties, as had been required for the State Avenue

Loan.

Shortly after the purchase of the Rancho Property closed, the DOT

was assigned to A&S, and Merchants became the servicer on the loan.

Debtor and A & D later defaulted on the loan, and Debtor filed a chapter 13

petition in December 2018.

B. Bankruptcy Events

After A&S acquired the loan and DOT from Merchants, it discovered

what it described as errors in the loan documentation. A&S took the

position that the parties had intended for Merchants to acquire a security

4 interest in the entirety of both properties, and that the DOT erroneously

provided for the grant of only a one-half interest in each property. In

response, Debtor filed an adversary proceeding seeking a declaratory

judgment. A&S filed a counterclaim against Debtor and a crossclaim

against A & D for declaratory relief and reformation. During the litigation,

Debtor and A & D agreed that the signature block on the DOT erroneously

referred only to the Rancho Property and not to the Residence and so

agreed that reformation of the signature block was appropriate. 4

At trial, Debtor testified, among other things, that she did not recall

being informed what the specific collateral would be for the loan and that

the first time she saw the warranty deed was at closing. She testified that

she signed the deed transferring her interest in the Residence to herself and

A & D jointly because the title officer told her that it was required for

closing. The court also heard testimony from Robert “Bo” Seamands, the

loan officer at Merchants who had been involved in the loan transactions

for both the Rancho Property and the State Avenue Loan. The only specific

conversation Mr. Seamands recalled having with Debtor was the initial one

regarding the Rancho Property loan in which she stated, “let’s do it again,”

with reference to doing another loan like the State Avenue Loan.

Mr. Seamands did not recall telling Debtor what the collateral would be for

the loan, but he testified that Merchants would never have made a loan

4 The signature block designated Debtor and A & D as grantors “AS TO EXHIBIT A-1” and contained no mention of Exhibit A-2. 5 that was secured by only a one-half interest in the collateral and that

Debtor “would have had to” agree that she would utilize the equity in both

properties to secure the loan. He also testified that he was not involved

with preparing or reviewing the documentation for the loan.

After hearing closing arguments, the bankruptcy court ruled orally

on the record, denying A&S’s request to reform the DOT, except for the

error in the signature block. The court found that the evidence did not

support a finding that all parties intended that the full value of both

properties would be collateral for the loan, thus there was no mutual

mistake as required for reformation. The court found credible Debtor’s

testimony that she did not know the specific terms of the financing until

the day she reviewed the documents and agreed to sign them. The

bankruptcy court thereafter entered judgment declaring that A&S’s lien

attached to A & D’s undivided interest in the Rancho Property and

Debtor’s undivided interest in the Residence; reforming the signature block

on the DOT as agreed by the parties; and dismissing with prejudice A&S’s

counterclaims. The bankruptcy court also declared that Debtor and A & D

were the prevailing parties and were entitled to request attorneys’ fees.5

A&S timely appealed.

5 Debtor and A & D subsequently filed fee applications. On July 1, 2022, the bankruptcy court entered a minute order finding Debtor and A & D to be the prevailing parties. It awarded Debtor $109,981.80 in fees and $673.20 in costs, and it awarded A & D $5,355 in fees. 6 JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(K). We have jurisdiction under

.

ISSUES

Did the bankruptcy court err in granting judgment to Debtor on her

claim for declaratory relief and dismissing A&S’s counterclaim and

crossclaim with prejudice?

STANDARDS OF REVIEW

We review legal issues de novo and the bankruptcy court’s factual

findings under a clearly erroneous standard. Village Nurseries v. Gould (In re

Baldwin Builders),

(9th Cir. BAP 1999). De novo review

means that we review the matter anew, as if the bankruptcy court had not

previously decided it. Francis v. Wallace (In re Francis),

(9th

Cir. BAP 2014). A court’s factual determination is clearly erroneous if it is

illogical, implausible, or without support in the record. Retz v. Samson (In re

Retz),

(9th Cir. 2010). “When factual findings are based

on determinations regarding the credibility of witnesses, we give great

deference to the bankruptcy court’s findings, because the bankruptcy court,

as the trier of fact, had the opportunity to note ‘variations in demeanor and

tone of voice that bear so heavily on the listener’s understanding of and

belief in what is said.’”

(quoting Anderson v. City of Bessemer City,

(1985)).

7 DISCUSSION

A. This appeal will not be dismissed for failure to name A & D as an appellee. As a threshold matter, Debtor argues that this appeal is “fatally

defective” because A & D is not named as an appellee, and it is an

indispensable party. Debtor argues that an appeal that fails to name an

indispensable party must be dismissed, citing Interstate Oil Co. v. Gormley,

(9th Cir. 1939). In that case, the court of appeals dismissed an

appeal of an order confirming a sale of property by a receiver because the

appellant failed to name the purchaser of the property as an appellee.

. But that case does not hold that an appeal must always be dismissed

for failure to name an appellee. Rather, the appellate court has the

discretion to grant a timely application to add an appellee if the

circumstances warrant.

. And more recent Ninth Circuit authority

makes clear that failure to name an appellee in a notice of appeal is not a

jurisdictional bar to an appeal. West v. United States,

(9th

Cir. 2017).

Rule 8003(a)(2) provides, “[a]n appellant’s failure to take any step

other than the timely filing of a notice of appeal does not affect the validity

of the appeal, but is ground only for the district court or BAP to act as it

considers appropriate, including dismissing the appeal.” Accordingly, we

have discretion to determine whether this appeal should be dismissed for

failure to name A & D as an appellee. We decline to do so here.

8 Here, the notice of appeal complies with Rule 8003(a)(3). Although it

does not name A & D as an appellee, it was served on Ronald Ellett, who

represented both Debtor and A & D in the adversary proceeding. Mr. Ellett

articulated no prejudice resulting from the failure to name A & D in the

notice of appeal. Accordingly, the request for dismissal on this ground is

denied. 6

B. The bankruptcy court did not err in entering judgment in favor of Debtor and A & D and dismissing A&S’s counterclaim and crossclaim. A&S’s theory is that the language of the initial paragraph of the DOT

was erroneously “cut and pasted” from the deed of trust for the State

Avenue Loan. It contends that Debtor had to have known there was a

mistake in the loan documentation because, as an experienced real estate

broker and investor, she should have known that no real estate lender

would make a loan such as the one at issue here, where the collateral was

insufficient to secure at least the full loan amount.

“Reformation is an equitable remedy available to correct a deed to

reflect the parties’ intent.” In re Est. of Ganoni,

(Ariz. Ct.

App. 2015) (citing Korrick v. Tuller,

[, 530] (Ariz. 1933);

additional citation omitted). Reformation is dependent on a mutual

6 Moreover, because we are affirming on the merits, we need not require A&S to join A & D in this appeal. See Sewell v. MGF Funding, Inc. (In re Sewell),

, 178 n.7 (9th Cir. BAP 2006) (noting that it would not require appellant to join a party as an appellee, finding no prejudice to the omitted party because the Panel was not reversing the bankruptcy court’s order). 9 mistake. United Bank of Ariz. v. Ashland Dev. Corp.,

(Ariz.

Ct. App. 1990). The mutual mistake must be established by “clear,

convincing and satisfactory evidence that a definite intention on which the

minds of the parties had met preexisted the written instrument and that the

mistake occurred in its execution.” City of Scottsdale v. Burke,

(Ariz. Ct. App. 1972) (citations and internal quotations omitted). A

unilateral mistake by one party where the other party has engaged in fraud

or inequitable conduct will also support reformation to avoid an

inequitable result. Jeffries v. First Fed. Sav. & Loan Ass’n of Phoenix,

(Ariz. Ct. App. 1971).

Based on the foregoing authorities, A&S, as the party seeking

reformation, had the burden to show by clear, convincing, and satisfactory

evidence that the language of the DOT was due to a mutual mistake or that

Debtor engaged in fraud or inequitable conduct. A&S did not allege or

provide evidence that there was any fraud or inequitable conduct on

Debtor’s part, although A&D’s counsel attempted to raise the issue in his

closing argument.

The bankruptcy court found that the evidence did not establish a

mutual mistake by clear and convincing evidence. It noted that there was

little testimony regarding the terms of the loan and that the Debtor’s

testimony, which the court found credible, established that: (1) there was

no discussion with Mr. Seamands or anyone else at Merchants about the

specifics of the deal; (2) Debtor inquired about the deeds and was told by

10 the title company that they were necessary to complete the deal; and

(3) Debtor understood that the execution of the deeds would result in

Debtor and A & D each owning a one-half interest in each property,

although she did not necessarily understand why the transaction was

structured that way. Based on these findings, the court concluded that the

evidence was not clear and convincing that Debtor had mistakenly signed

the loan documents believing she was granting a lien on the full interests in

each property.

The bankruptcy court further found that Mr. Seamands’ testimony

made clear that “he had no specific recollection of walking through the

details of the Rancho Drive loan with Groves prior to the signing.” Instead,

his responses were that he “would have” or “must have” discussed the

collateral and terms with Debtor.

The bankruptcy court also rejected A&S’s argument that the loan

documents were ambiguous. As the court noted, whether a contract is

ambiguous is a question of law, and any ambiguity is subject to a factual

determination concerning the parties’ intent to be resolved by the trier of

fact. The Hartford v. Indus. Comm’n of Ariz.,

(Ariz. Ct.

App. 1994). “Language in a contract is ambiguous only when it can

reasonably be construed to have more than one meaning.” In re Est. of

Lamparella,

(Ariz. Ct. App. 2005) (citation omitted). Any

ambiguity in a contract is construed against the drafter. Jones v. Bank of Am.,

N.A.,

(D. Ariz. 2003). The bankruptcy court found

11 that the language of the DOT could be read consistently with the granting

of the interest each grantor held in each property, noting that the term

“Grantor” was defined in the introductory paragraph as A & D as to

Exhibit 1 and Debtor as to Exhibit 2. The court also stated that to the extent

there was any ambiguity, it would be construed against Merchants, which

prepared or directed the preparation of the documents.

A review of the trial transcript and exhibits, along with appropriate

deference to the bankruptcy court’s credibility finding, leads to the

conclusion that the court’s factual findings were logical, plausible, and

supported by the record. There was no evidence that Debtor believed she

was required to grant the full interests in both properties as security for the

loan and or that she knew the DOT contained erroneous language.

According to her testimony, her concern at closing was with getting the

transaction finalized, and she had no reason to question the documents

presented to her by the title company. And the bankruptcy court correctly

found that Mr. Seamands’ testimony was not sufficient to establish that

Debtor knew there was a mistake in the documentation. He simply had no

specific recollection of discussing the collateral with Debtor during the loan

approval process. 7

Notwithstanding this record, A&S argues that the bankruptcy court’s

findings were not supported by the evidence. Despite acknowledging the

7 Debtor asserts that Mr. Seamands’ testimony was not credible, but the bankruptcy court made no credibility finding as to Mr. Seamands. 12 deference afforded to credibility findings, A&S nevertheless attacks

Debtor’s credibility, pointing to Debtor’s extensive real estate experience

and the fact that previous transactions with Merchants had required the

pledge of the full value of both the investment property and the

Residence.8 A&S contends that most of Debtor’s testimony regarding the

transaction is not believable, i.e., that she never discussed the loan terms

with Mr. Seamands and did not know what security was required. A&S

also complains that Debtor did not disclose her “hidden belief” to

Merchants before signing the closing documents and alleges that the

decision of how to take title “must have been hers.” A&S contends that Mr.

Seamand’s testimony established that Debtor agreed to secure the loan

with the full value of both properties. But the testimony A&S relies on was

Mr. Seamand’s statements that the collateral “would have been discussed,”

and Debtor “would have had to” agree to utilize all the equity in both

properties to secure the loan.

A&S fails to acknowledge that, to show mutual mistake, it had to

have shown—by clear and convincing evidence—that both parties

understood the transaction to require the pledge of the full value of each

property as collateral for the loan. But the testimony did not establish that

8 A&S argues that “[i]t is not so much a matter of witness credibility as it is making sure that the overwhelming evidence is honored and that justice is done.” It cites In re Est. of Gillespie,

(Ariz. 1995). But that case involved summary judgment; there were no disputed material facts and no credibility finding was made. 13 Debtor knew this was a requirement, i.e., that she knew the DOT language

was incorrect.

A&S also argues that the bankruptcy court’s findings were not

supported by applicable law. It argues that the preamble paragraph of the

DOT cannot be considered as part of the contract between the parties and

that paragraph 1 of the DOT should control. But the DOT’s introductory

paragraph was not merely a recital. Instead, it defined the terms that were

used in the granting language. As such, those definitions were

incorporated into the operative language.

A&S further argues that the preamble of the DOT is ambiguous

because it is inconsistent with the granting paragraph, the signature block,

and other loan documents. But it supports this argument by attacking

Debtor’s credibility. It also fails to acknowledge that, to the extent there is

any ambiguity, it is construed against the drafter. Jones,

.

A&S has not persuaded us that the bankruptcy court erred in its

findings or conclusions.

Because we conclude that the bankruptcy court’s decision was

correct, we need not address Debtor’s additional arguments. 9

9 Debtor argues that: (1) A&S is bound by a letter agreement with Merchants to extend the due date of the loan, which provided that the parties waived all claims, defenses, and counterclaims relating to the note and DOT; and (2) any postpetition reformation of the DOT would be avoidable under the trustee’s strong-arm powers. The bankruptcy court declined to rule on either issue. 14 C. Attorneys’ Fees

Both parties to this appeal argue that they are entitled to attorneys’

fees incurred in this appeal, citing Arizona Revised Statutes § 12-341.01,

which provides, in relevant part, “[i]n any contested action arising out of a

contract, express or implied, the court may award the successful party

reasonable attorney fees.” But inserting such a request into an appellate

brief is inadequate and premature. None of the relevant issues have been

briefed, nor has any party submitted time sheets. Accordingly, we express

no opinion on the fee requests.

CONCLUSION

For the reasons explained above, the bankruptcy court did not err in

entering judgment in favor of Debtor and A & D on their claim for

declaratory relief and against A&S on its counterclaim and crossclaim.

We AFFIRM.

15