Equity Income Partners, LP, an Arizona Limited Partnership; Galileo Capital Partners Limited, a Cayman Islands Exempted Company, Plaintiffs-Appellants,
Chicago Title Insurance Company, a Delaware Corporation, Defendant-Appellee.
Before: Andrew J. Kleinfeld, Johnnie B. Rawlinson, and Andrew
D. Hurwitz, Circuit Judges.
CERTIFYING QUESTIONS TO THE ARIZONA SUPREME COURT
to Arizona Supreme Court
panel certified the following questions of law to the Arizona
Supreme Court pursuant to Ariz. Rev. Stat. § 12-1862:
1. When a lender purchases property by full-credit bid at a
trustee's sale, does Section 9 [of the standard form
lender's title insurance policies] apply, or does Section
2. Is a full-credit bid at a trustee's sale a
"payment" or "payment made" under
sections 2 or 9 of the policies?
3. To what extent does a full-credit bid at a trustee's
sale either (a) terminate coverage under section 2(a)(i) of
the policies, or (b) reduce coverage under Section 2 and any
possible liability under section 7?
Johnnie B. Rawlinson United States Circuit Judge, Presiding.
issue for decision in this diversity case is whether a
lender's full-credit bid at an Arizona trustee's sale
constitutes payment under a lender's title insurance
policy. Arizona law is dispositive, but unsettled. We
therefore request the Arizona Supreme Court to interpret,
under Arizona law, the provisions of a standard form
lender's title insurance policy. See Ariz. Rev.
Stat. §§ 12-1861 to -1867; Ariz. Sup. Ct. R. 27.
Factual and Procedural Background
summarize the material facts and procedural history as they
relate to the questions to be certified.
2006, Scott Mead and Keith Vertes ("Borrowers"),
obtained two $1.2 million loans from Equity Income Partners
Limited Partnership ("Equity") to purchase two
adjacent parcels (the "Properties") in Maricopa
County, Arizona. LER 6, 174–83, 343, 351; IER
19–30. The loans were each secured
by deeds of trust. LER 187, 198. At
the time, the Properties were collectively appraised as worth
over $3, 000, 000. IER 54–77. Borrowers purchased
owner's title insurance from Transnation Title Insurance
Company; LER 14, 169; Lenders purchased an American Land
Title Association Loan Policy (10-17-92) with ALTA
Endorsement – Form 1 Coverage from Ticor Title
Insurance Company. IER 371–85.
Ticor's successor-in-interest is Chicago Title Insurance
Company ("Insurer"). IER 267.
September 2006, Borrowers learned that they did not have
legal access to the Properties, and so informed Transnation.
LER 170, 287–88. Transnation sued Maricopa County, the
owner of the surrounding land, in an attempt to establish
access. IER 353.
January 2007, Lenders submitted a claim to Insurer. LER 310.
In February 2007, Insurer denied the claim, stating that
Lenders had not provided evidence of "any actual
loss." LER 311–12.
failed to make payments on the loans. IER 134. In March 2007,
Lenders noticed trustees' sales for the Properties.
See Ariz. Rev. Stat. § 33-808; see
also IER 501– 06. Shortly before the scheduled
sales, Borrowers asked Transnation to make the loan payments.
IER 248–49. With Lenders' agreement, Transnation
began making interest-only monthly payments "until the
access issue is resolved."IER 134–35.
March 2010, the Superior Court found in favor of Maricopa
County in Transnation's suit seeking access to the
Properties. IER 265. Transnation stopped making payments on
the loans in August 2010, and Borrowers made no further
payments. IER 267–68. On January
18, 2011, Lenders purchased the Properties at two
trustees' sales through full-credit bids totaling over
$2.6 million. See
Ariz. Rev. Stat. §§ 33-810(A), 33-811 (providing
for credit bids); see also IER 536–37; LER
October 2010, Lenders submitted a claim to Insurer for the
$1.2 million amount of each loan. LER 305–09. In July
2011, Lenders filed this suit in Maricopa County Superior
Court; Insurer removed to the United States District Court
for the District of Arizona. LER 320–30, 355–65.
August 2011, Insurer obtained an appraisal of the Properties
which set the diminution of value of the parcels caused by
the lack of ingress/egress at $343, 000 as of the foreclosure
sale date. LER 127–29. Insurer issued Lenders a check
for that amount and stated that it considered the matter
concluded. LER 122–25, 128, 132.
September 2012, the district court ruled that Lenders
"suffered loss at the time they made the loans in
reliance upon the Policies, " in 2006. LER 37–41.
then obtained appraisals for the diminution of value of the
Properties because of the lack of ingress or egress as of the
loan date, May 16, 2006; that diminution of value was