Ciena Capital Funding, LLC v. Krieg's, Inc.

• Decision Date: 07 April 2017
• Docket Number: No. 2 CA–CV 2016–0130,2 CA–CV 2016–0130
• Citation: 394 P.3d 39
• Parties: CIENA CAPITAL FUNDING, LLC, a Delaware limited liability company, Plaintiff/Appellee, v. KRIEG'S, INC., an Arizona corporation; Dean G. Krieg and Mary Louise Krieg, individually and as husband and wife; Krieg Family Trust u/a/d 6/21/96, by and through its trustees, Dean G. Krieg and Mary Louise Krieg, Defendants/Appellants.
• Court: Arizona Court of Appeals

394 P.3d 39

CIENA CAPITAL FUNDING, LLC, a Delaware limited liability company, Plaintiff/Appellee,

v.KRIEG'S, INC., an Arizona corporation; Dean G. Krieg and Mary Louise Krieg, individually and as husband and wife; Krieg Family Trust u/a/d 6/21/96, by and through its trustees, Dean G. Krieg and Mary Louise Krieg, Defendants/Appellants.

No. 2 CA–CV 2016–0130

Court of Appeals of Arizona, Division 2.

Filed April 7, 2017

Minkin & Harnisch, PLLC, Phoenix, By Andrew A. Harnisch and Jaclyn Foutz, Counsel for Plaintiff/Appellee

Mesch Clark Rothschild, Tucson, By Gary J. Cohen and David J. Hindman, Counsel for Defendants/Appellants

Judge Miller authored the opinion of the Court, in which Presiding Judge Staring and Judge Wright¹ concurred.

OPINION

MILLER, Judge:

¶ 1 Dean and Mary Krieg (individually and as a marital community), Krieg's, Inc., and the Krieg Family Trust (collectively, "Guarantors") appeal the trial court's grant of partial summary judgment for Ciena Capital Funding, LLC ("Ciena") as to liability for breach of contract. They argue the court should have granted their cross-motion for summary judgment or, alternatively, genuine issues of material fact prevented summary judgment for Ciena. We affirm the court's ruling subject to one modification as explained below.

Factual and Procedural Background

¶ 2 In September 2007, DI Safford, LLC borrowed $1,128,500 from Ciena² in connection with the purchase of a hotel in Safford, Arizona, and executed a loan agreement and promissory note. As part of the transaction, the Guarantors each signed materially identical agreements to guarantee DI Safford's obligations.³

¶ 3 By the terms of the agreements, Guarantors "unconditionally, absolutely and irrevocably" guaranteed DI Safford's obligations and liabilities under the loan agreement. The agreements also stated that Guarantors' obligations and liabilities were "direct and primary and not indirect or secondary." Each guaranty further provided:

Guarantor hereby expressly agrees (i) that the liabilities and obligations of Guarantor under this Guaranty shall not in any way be impaired or otherwise affected by the institution by or against any Borrower or any other person or entity of any bankruptcy, reorganization, insolvency or liquidation proceedings, or any other similar proceedings for relief under any bankruptcy law or similar law for the relief of debtors; (ii) that any discharge of any of the obligations and/or liabilities hereby guaranteed pursuant to any such bankruptcy or similar law or other law shall not diminish, discharge or otherwise affect in any way the obligations of Guarantor under this Guaranty; and (iii) that upon the institution of any of the above actions such obligations shall be enforceable against Guarantor.

Guarantors also expressly waived "any defense arising by virtue of any ... insolvency, bankruptcy, ... liquidation or dissolution of, or any cessation or limitation of liability from any cause (other than full and irrevocable payment and performance), of any Borrower."

¶ 4 By late 2008, DI Safford was struggling to make payments on its loan. By written agreement that both parties signed in March 2009, DI Safford and Ciena agreed to reduce the monthly payment amount due for March through December 2009. DI Safford continued making payments at the reduced rate until at least November 2011.

¶ 5 In March 2012, DI Safford and DGMLK jointly filed for protection under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101 –1146. The joint plan of reorganization delineated thirteen classes of claims, two of which were pertinent to this action.⁴ Class 4 provided that Ciena would "be paid $50,000 in full satisfaction of its claim" of a $1,128,500 deficiency against DI Safford on the closing date, at which point Ciena would no longer retain a lien interest in the hotel property or any personal property. Class 11 provided that Ciena's guaranty claim against DGMLK would be "satisfied in full by DI Safford." Ciena submitted a ballot approving the Class 4 claim on September 20, 2012. On September 26, 2012, Ciena's counsel emailed DI Safford's counsel to confirm they were "in agreement about the non-release of the non-debtor guarantors." DI Safford's counsel replied, "Yes we are in agreement—the Plan does not release or waive potential claims against the non-debtor guarantors." Notably, the Guarantors did not participate in the bankruptcy, request relief from the guaranties, or submit themselves to the jurisdiction of the bankruptcy court. The same day, Ciena submitted a second ballot that accepted the Class 11 claim, subject to counsel's agreement that "[t]he plan and the Class 11 treatment do not attempt to discharge the debt of the non-debtor guarantors." The bankruptcy court later confirmed the reorganization plan.

¶ 6 Ciena brought this action against Guarantors after bankruptcy confirmation, alleging breach of contract, enforcement of guarantees, and breach of the implied covenant of good faith and fair dealing. Guarantors were represented by the same attorney who had represented DI Safford during the bankruptcy proceedings and who made the representation concerning the reorganization plan having no effect on Guarantors' obligations. Ciena filed a motion for summary judgment on its breach of contract claim, and Guarantors filed a cross-motion for summary judgment on all claims. Following argument, the trial court issued an under-advisement ruling granting Ciena's motion for partial summary judgment in part, and denying Guarantors' motion for summary judgment. The court held Guarantors were liable to Ciena for breach of contract, but did not decide the issues of damages or attorney fees. The court certified its judgment pursuant to Rule 54(b), Ariz. R. Civ. P.

Jurisdiction

¶ 7 This court has an independent duty to consider whether we have jurisdiction over an appeal. Ghadimi v. Soraya , 230 Ariz. 621, ¶ 7, 285 P.3d 969, 970 (App. 2012). Our jurisdiction is purely statutory. See id. Although in general only final judgments are appealable, id. ,A.R.S. § 12–2101(A)(6) provides an express exception to the general rule, permitting an appeal from "an interlocutory judgment that determines the rights of the parties and directs an accounting or other proceeding to determine the amount of recovery." A grant of summary judgment in favor of a plaintiff as to liability is appealable under this paragraph, provided that it is signed, it contains express language indicating finality, it determines the rights of the parties on liability, and it determines that the amount of recovery is the only remaining question to be resolved. Cook v. Cook , 26 Ariz.App. 163, 168, 547 P.2d 15, 20 (1976) ; see also Bilke v. State , 206 Ariz. 462, ¶¶ 23, 26–28, 80 P.3d 269, 274, 275 (2003) (approving Cook and adding that Rule 54(b) certification sufficient to establish final determination of parties' rights). The trial court's summary judgment ruling in the present case meets each of these requirements; therefore, we have jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(1) and 12–2101(A)(6).

Choice of Law

¶ 8 As an initial matter, Ciena argues New York law governs this dispute, while Guarantors maintain Arizona law applies. The trial court did not expressly decide which law applied, making only a general reference to its reliance on "the cited case law" from the cross-motions for summary judgment, which included cases from both Arizona and New York. We review choice-of-law issues de novo. Pounders v. Enserch E&C, Inc. , 232 Ariz. 352, ¶ 6, 306 P.3d 9, 11 (2013).

¶ 9 Each guaranty agreement contains this choice-of-law provision:

[T]his Guaranty shall be governed, at the Lender's option by: (A) the laws of the state of New York, or (B) if guarantor resides or is organized in a state other than New York or if collateral has been pledged to secure the obligations guaranteed herein, then by the laws of the state or states where such collateral is located, or the state of the guarantor's residence or organization.

It is undisputed that the collateral hotel is located in Arizona.

¶ 10 In its amended complaint, Ciena asserted, "The Guarantees ... are governed by the laws of the state of New York or, alternatively, the laws of the state of Arizona." Ciena also cited certain Arizona attorney fees statutes in support of its fee request in the amended complaint. Then, in its motion for partial summary judgment, which was the first substantive motion filed in the case, Ciena stated, "The Guarant[i]es are governed by New York law."

¶ 11 As the forum state, the law of Arizona governs procedural matters as well as the choice of substantive law. Id. ¶ 8. Arizona follows the Restatement (Second) of Conflict of Laws (1971) ("Restatement") to determine which state's law applies in an action arising out of contract. Cardon v. Cotton Lane Holdings, Inc. , 173 Ariz. 203, 207, 841 P.2d 198, 202 (1992). An express choice-of-law provision in a contract ordinarily will be given effect, subject to certain inapposite exceptions. See id. at 208, 841 P.2d at 203 ; see also Societe Jean Nicolas Et Fils v. Mousseux , 123 Ariz. 59, 61, 597 P.2d 541, 543 (1979) (contractual choice-of-law clause entered into without fraud or unfair bargaining will be enforced, so long as it is reasonable at time of litigation and does not deprive litigant of day in court). Absent a "contrary indication of intention," a choice-of-law provision's reference to the law of a state means that state's "local law," rather than its whole "law" including its choice-of-law rules. Restatement §§ 186, cmt. b; 187 cmt. h.

¶ 12 The parties agree that the choice-of-law clause in the guaranty agreements is enforceable. Guarantors argue that Ciena exercised its option under the clause, selecting Arizona law to govern this dispute in its amended complaint, notwithstanding its clear statement later in its motion for partial summary judgment that New York law applies. Guarantors offer two arguments in support of their...