Umb Bank v. Parkview

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

UMB BANK, NA, Plaintiff/Appellee,

v.

PARKVIEW SCHOOL, INC., et al., Defendants/Appellants.

No. 1 CA-CV 21-0354
FILED 1-5-2023

Appeal from the Superior Court in Maricopa County
No. CV2021-005523
The Honorable Randall H. Warner, Judge

AFFIRMED

COUNSEL

Spencer Fane LLP, Phoenix
By Richard H. Herold, Jr., Jessica Anne Gale, Andrew M. Federhar
Counsel for Plaintiff/Appellee

Dickinson Wright, PLLC, Phoenix
By Bradley A. Burns, Vail Cloar, Amanda E. Newman
Counsel for Defendants/Appellants
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

OPINION

Judge Peter B. Swann1 delivered the opinion of the court, in which
Presiding Judge Cynthia J. Bailey and Judge D. Steven Williams joined.

S W A N N, Judge:

¶1 This is an appeal from an order appointing a receiver for a
school-charter holder that defaulted on its obligation to repay a secured
loan funded by bond proceeds. The appellants contend that the action was
barred based on the absence of a notice of claim under A.R.S. § 12-821.01,
the expiration of the one-year limitations period under A.R.S. § 12-821, and
a forbearance agreement. We conclude that no notice of claim was
required, that the complaint was timely even assuming application of the
one-year limitations period, and that the superior court properly deferred
to a Minnesota court’s ruling directing the trustee not to enter the
forbearance agreement. We therefore affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Park View School, Inc., is a nonprofit corporation that holds a
charter granted by the Arizona State Board for Charter Schools. Park View
operates two charter schools in Arizona, with operational, educational, and
management services provided by The Charter Management Group, LLC.

¶3 In 2016, the Industrial Development Authority of the County
of Pima made a secured loan to Park View of $7,620,000 in bond proceeds.
UMB Bank, N.A., a national banking association with a Minnesota
corporate trust office, is the successor trustee for the loan.

1 Judge Peter B. Swann was a sitting member of this court when the
matter was assigned to this panel of the court. He retired effective
November 28, 2022. In accordance with the authority granted by Article 6,
Section 3, of the Arizona Constitution and pursuant to A.R.S. § 12-145, the
Chief Justice of the Arizona Supreme Court has designated Judge Swann as
a judge pro tempore in the Court of Appeals for the purpose of participating
in the resolution of cases assigned to this panel during his term in office and
for the duration of Administrative Order 2022-162.

2
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

¶4 In 2017, and again in 2018, UMB and Park View entered year-
long forbearance agreements based on Park View’s ongoing inability to
make required debt service payments. In early 2019, UMB engaged a
consultant to assess Park View’s finances, operations, and management.
The consultant opined that Park View was financially mismanaged and had
engaged in related-party dealings without transparency.

¶5 UMB and Park View thereafter were unable to agree on
forbearance terms for the 2019-2020 school year. Park View then solicited
bondholders to exercise their directive authority under the loan documents
to, inter alia, force UMB to accept Park View’s proposed terms regarding
repayment and school operations. Based on the returned bondholder
ballots and a bondholder-representative letter, Park View demanded that
UMB either enter Park View’s proposed forbearance agreement or be
replaced as trustee.

¶6 In response, UMB filed a petition in Minnesota probate court
for trust administration instructions, declaring the bondholder and
bondholder-representative directives ineffective, and directing UMB not to
enter the proposed forbearance agreement. Park View moved to dismiss,
pointing out that it was neither served with process nor named as a party,
and arguing that the court lacked jurisdiction over it and the subject matter
of the dispute. After holding a hearing in which Park View participated as
what the court termed an “interested observer,” the court denied Park
View’s motion and set the matter for a March 2021 evidentiary hearing,
which Park View declined to attend. After considering the evidence, the
Minnesota court ruled that UMB had not been properly directed to enter
Park View’s proposed forbearance agreement and that the proposed
agreement’s terms were not in all bondholders’ best interests. The court
instructed UMB to reject the proposed agreement and authorized UMB to
exercise all rights and remedies, including initiating proceedings in the
appropriate jurisdiction for the appointment of a receiver.

¶7 In April 2021, UMB commenced an action for a receiver in
Maricopa County Superior Court, naming Park View and The Charter
Management Group as defendants. The defendants moved to dismiss
under the notice of claim statute, A.R.S. § 12-821.01, and the one-year
limitations period set forth in A.R.S. § 12-821. The superior court denied
the motion to dismiss, holding that no notice of claim was required because
“the only relief presently before the Court is appointment of a receiver,”
and that the action was not time-barred even assuming application of the
one-year limitations period because UMB alleged ongoing failures to make
installment payments.

3
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

¶8 The defendants reiterated their notice-of-claim and
limitations-period arguments in their response to UMB’s application for an
order to show cause, and additionally argued that the bondholder vote
precluded a receivership and that the allegations of mismanagement and
wrongdoing were false or harmless. The court ordered and received
supplemental briefing regarding the preclusive effect of the Minnesota
proceedings. The court then held an evidentiary hearing.

¶9 The court rejected the defendants’ argument regarding the
effect of a third forbearance agreement, concluding that under the prior
exclusive jurisdiction doctrine it lacked “the authority to undo or override
either [the Minnesota court’s] substantive ruling or its jurisdictional
determination.” The court held that a receiver was warranted to
“preserv[e] collateral pending further action to collect on the debt” and to
“attempt to place Park View in a financial position that would allow it to
keep operating and satisfy its obligation to bondholders.” The court limited
the receiver’s authority, however, explaining that “based on the Court’s
prior rulings regarding the claim statute, the receiver may not without a
specific court order cause Park View to pay UMB or bondholders for
amounts past due, although it may make current bond payments as they
become due.” Consistent with that limitation, the June 2021 appointment
order directed the receiver to pay “current debt payments owing to the
Trustee secured by the Bond Documents on the Collateral (but not
payments for amounts past due).”

¶10 The defendants appeal.

DISCUSSION

¶11 As an initial matter, we address several pending motions.
First, we address the defendants’ motion to strike UMB’s notice of
supplemental authority. Because ARCAP 17 authorizes supplementation
only as to “legal authority” that “c[a]me to the attention of a party after a
party has filed a brief, or after the appellate court has heard oral argument,”
we do not consider the supplemental notice to the extent that UMB cited
authority that the superior court relied on and the defendants briefed, and
to the extent that UMB sought to introduce evidence (irrelevant here) that
it served a post-ruling notice of debt acceleration.

¶12 Next, we address UMB’s motion for judicial notice. UMB asks
us to take judicial notice of Arizona State Charter School Board proceedings
in view of the Board’s post-ruling vote to begin the process of revoking Park
View’s charter. UMB argues that judicial notice “is important . . . because,

4
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

if the charter is revoked, portions of this case may be moot.” (Emphases
added.) We deny the motion because hypothetical mootness is irrelevant.

I. THE RECEIVERSHIP ACTION WAS NOT BARRED BY UMB’S
FAILURE TO FILE A NOTICE OF CLAIM.

¶13 Defendants first contend that the superior court erred by not
applying the notice of claim statute to preclude the receivership action. We
review the superior court’s interpretation and application of statutes de
novo. Sedona Grand, LLC v. City of Sedona, 229 Ariz. 37, 40, ¶ 8 (App. 2012).

¶14 As an initial matter, UMB responds that the forbearance
agreements functionally satisfied the notice of claim statute, and that the
defendants are waived or estopped from asserting the statute as a defense
both under the express terms of the forbearance agreements and by its pre-
litigation conduct. The defendants point out that UMB never argued
waiver or estoppel in the superior court. We need not resolve the
functional-compliance, waiver, or estoppel disputes because we detect no
error in the superior court’s determination that the absence of a notice of
claim was not fatal.

¶15 The notice of claim statute requires a plaintiff with a claim
against a public school2 to timely file a notice stating sufficient facts to
describe the claimed liability, a specific amount for which the claims can be
settled, and facts supporting that amount, so that the defendants may
investigate and assess liability, potentially settle, and make financial
planning and budgeting decisions. A.R.S. § 12-821.01(A); Deer Valley
Unified Sch. Dist. No. 97 v. Houser, 214 Ariz. 293, 295, ¶ 6 (2007). The statute
applies only when monetary damages are sought—it does not apply to
claims for declaratory or injunctive relief. State v. Mabery Ranch, Co., 216
Ariz. 233, 244–45, ¶¶ 47–53 (App. 2007). That said, if a claim for declaratory
or injunctive relief is merely a predicate to a damages claim, the notice of
claim statute still applies. See Arpaio v. Maricopa Cnty. Bd. of Supervisors, 225
Ariz. 358, 361–62, ¶¶ 3, 11–12 (App. 2010) (holding that notice of claim
statute applied to claims for injunctive relief and declaratory judgment
based on public entities’ unlawful seizure of funds “to the extent the
[plaintiff] then would seek recovery of some or all of the [funds]” from the
state and to the extent that “[p]resumably, the [plaintiff] would contend via
further amendment of the complaint or by separate action that these

2 Charter schools are public schools. A.R.S. §§ 15-101(4), -181.

5
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

specialty funds would need to be ‘replenished’” by the county board of
supervisors and its members).

¶16 Receivership is an equitable remedy, First Phoenix Realty Invs.
v. Superior Court (Rini), 173 Ariz. 265, 266 (App. 1992), which the court may
order “to protect and preserve property or the rights or parties therein, even
if the action includes no other claim for relief.” A.R.S. § 12-1241. UMB’s
complaint plainly requested a receivership. The defendants contend,
however, that the notice of claim statute applied because UMB’s request for
a receiver was part of a liquidation plan. They point out that in the factual
allegations of the complaint, UMB alleged that “the total aggregate due and
owing . . . is $9,109,152.77,” fifteen paragraphs later asked that the receiver
be authorized and instructed to apply funds to “the payment of all amounts
owed to the Trustee,” and still later asked that the defendants be ordered to
turn over to the receiver “all monies held or received by the Borrower from
and after the date of the Court Order . . . and grant a constructive trust over
all such monies in favor of the Trustee.” They contend that in view of those
allegations, UMB’s claim was subject to the notice of claim statute.

¶17 To be sure, the notice of claim statute applied to a request to
collect past-due debt. But on this record, we do not agree that the debt-
related allegations so tainted the receivership request as to transform it into
a mere predicate to a damages claim. UMB requested a receivership for the
prospective protection of the bondholders. To the extent that UMB
requested that past-due debt be collected within the receivership, severance
of those requests does not redefine the nature of the action—which the
superior court properly recognized when it ordered a receivership but
limited the receiver to making current debt payments only.

II. THE RECEIVERSHIP ACTION WAS NOT TIME-BARRED.

¶18 The defendants next contend that the superior court erred by
not applying the limitations period of § 12-821 to preclude the receivership
action. Section 12-821 provides that “[a]ll actions against any public entity
or public employee shall be brought within one year after the cause of
action accrues and not afterward.” We review de novo the interpretation
of limitations statutes and questions of accrual. Mertola, LLC v. Santos, 244
Ariz. 488, 490, ¶ 8 (2018). We disfavor dismissals based on limitations
periods. See Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182
Ariz. 586, 590 (1995).

¶19 Assuming without deciding that § 12-821 governs here, we
perceive no error in the superior court’s conclusion that the receivership

6
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

action was not time-barred. When a fixed non-credit-card debt is scheduled
to be repaid in installments, a cause of action accrues for purposes of A.R.S.
§ 12-548(A)’s limitations period upon “the due date of each matured but
unpaid installment and, as to unmatured future installments, the period
commences on the date the creditor exercises the optional acceleration
clause.” Webster Bank NA v. Mutka, 250 Ariz. 498, 499, ¶ 1 (App. 2021)
(citation omitted).

¶20 Here, UMB premised the receivership action on Park View’s
failure to satisfy its obligation to make regular debt payments in full since
2017, and at all since 2019. Though the older defaults could not form a
proper basis for the action, the action was timely under § 12-821 based on
the defaults that occurred within one year of the complaint. And though
the defendants contend that UMB accelerated the debt because it alleged in
the complaint “the total aggregate due and owing,” that purported
acceleration has no bearing on the timeliness of the receivership action.

III. THE SUPERIOR COURT PROPERLY DEFERRED TO THE
MINNESOTA RULING.

¶21 The defendants finally contend that the superior court erred
by relying on the Minnesota proceedings to reject their argument that a
third forbearance agreement barred the receivership.

¶22 After noting that Park View had notice and an opportunity to
participate in the Minnesota case, the superior court concluded that the
Minnesota court’s ruling was preclusive under the prior exclusive
jurisdiction doctrine. Prior exclusive jurisdiction is a mandatory rule that
applies when there are parallel state and federal in rem or quasi in rem
proceedings regarding the same res. Chapman v. Deutsche Bank Nat’l Trust
Co., 651 F.3d 1039, 1043–44 (9th Cir. 2011). Under the doctrine, “if a state or
federal court has taken possession of property, or by its procedure has
obtained jurisdiction over the same, then the property under that court’s
jurisdiction is withdrawn from the jurisdiction of the courts of the other
authority.” Sexton v. NDEX West, LLC, 713 F.3d 533, 536 (9th Cir. 2013)
(citation and internal quotation marks omitted). The rule recognizes “[t]he
logical and practical difficulty of two courts simultaneously vying for
possession or control of the same property.” United States v. $79,123.49 in
United States Cash & Currency, 830 F.2d 94, 96 (7th Cir. 1987). The rule “is
not restricted to cases where property has been actually seized under
judicial process before a second suit is instituted, but applies as well where
suits are brought to . . . administer trusts.” Princess Lida of Thurn & Taxis v.
Thompson, 305 U.S. 456, 466 (1939).

7
 UMB BANK v. PARKVIEW, et al.
Opinion of the Court

¶23 The prior exclusive jurisdiction doctrine has not previously
been adopted in a published Arizona decision and we are faced here not
with parallel federal and state actions but with a ruling from a different
state. Its logic is compelling, however, and to permit the Arizona court to
ignore the Minnesota court’s disposition and proceed with its own
determination would be illogical, impractical, and inequitable. The
superior court properly deferred to the Minnesota court regarding the res
over which it exercised jurisdiction.

CONCLUSION

¶24 We affirm for the reasons set forth above. In exercise of our
discretion, we deny the parties’ competing requests for attorney’s fees
under A.R.S. § 12-341.01. We also deny UMB’s request for fees under the
2017 forbearance agreement because the receivership is not based on
defaults under that expired agreement. As the prevailing party, UMB is
entitled to its costs on appeal upon compliance with ARCAP 21.

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

8