Great W. Bank v. LJC Dev., LLC

• Decision Date: 10 November 2015
• Docket Number: No. 1 CA–CV 14–0252.,1 CA–CV 14–0252.
• Citation: 362 P.3d 1037
• Parties: GREAT WESTERN BANK, a bank chartered under the laws of the State of South Dakota, successor-in-interest to the loans of TierOne Bank, a federally chartered savings bank, by acquisition of assets from the FDIC, as Receiver of TierOne Bank, which was closed by the Office of Thrift Supervisor on June 4, 2010, Plaintiff/Appellant, v. LJC DEVELOPMENT, LLC, an Arizona limited liability company; James Leo Crowley and Jane Doe Crowley, husband and wife; John Crowley and Jenni Crowley, husband and wife, Defendants/Appellees.
• Court: Arizona Court of Appeals

362 P.3d 1037

GREAT WESTERN BANK, a bank chartered under the laws of the State of South Dakota, successor-in-interest to the loans of TierOne Bank, a federally chartered savings bank, by acquisition of assets from the FDIC, as Receiver of TierOne Bank, which was closed by the Office of Thrift Supervisor on June 4, 2010, Plaintiff/Appellant,

v.LJC DEVELOPMENT, LLC, an Arizona limited liability company; James Leo Crowley and Jane Doe Crowley, husband and wife; John Crowley and Jenni Crowley, husband and wife, Defendants/Appellees.

No. 1 CA–CV 14–0252.

Court of Appeals of Arizona, Division 1.

Nov. 10, 2015.

Quarles & Brady LLP, By William Scott Jenkins, Jr., Alissa A. Brice, Phoenix, Counsel for Plaintiff/Appellant.

Aspey Watkins & Diesel, PLLC, By Whitney Cunningham, Jennifer M. Mott, Flagstaff, Counsel for Defendants/Appellees.

Presiding Judge KENTON D. JONES delivered the opinion of the Court, in which Judge RANDALL M. HOWE and Judge PETER B. SWANN joined.

OPINION

JONES, Judge:

¶ 1 Great Western Bank (Great Western) appeals a judgment entered in favor of Appellees on its claim and counterclaim following a bench trial. For the following reasons, we affirm.

FACTS¹ AND PROCEDURAL HISTORY

¶ 2 This appeal arises from two construction loan agreements between Great Western's predecessor² and Cedar Ridge Investments, L.L.C. (Borrower). Appellees are the guarantors of Borrower.

¶ 3 In early 2007, Borrower sought funding to develop a fifty-home subdivision in Flagstaff to be known as Cedar Ridge. Borrower first obtained a loan from Great Western to acquire and develop infrastructure (the A & D Loan) in May 2007. Appellees agreed to guarantee the A & D Loan in an amount up to but not exceeding Borrower's total principal indebtedness to Great Western. In January 2008, Borrower entered into a second agreement with Great Western to fund the actual construction of homes (the Agreement). The Agreement required Appellees to execute a guaranty separate from that securing the A & D Loan and was signed by eight bank officials. By its terms, the Agreement expired on December 1, 2008.

¶ 4 In July 2008, as acquisition and development of the infrastructure was nearing completion and Borrower was preparing to obtain permits for the construction of model homes, Great Western made an internal decision to cease construction financing in Arizona and advised Borrower it was withdrawing from the Agreement. When notified of this decision, Borrower immediately expressed to Great Western its concern regarding the continued viability of the project without the financing agreement in place, slowed construction in an effort to save money, and attempted to secure alternate financing. Borrower's efforts were ultimately unsuccessful, and without financing to build model homes, Borrower could not sell homes in Cedar Ridge and was therefore unable to generate revenue through which to service the A & D Loan.

¶ 5 Great Western then foreclosed on the A & D Loan, sold the property to another developer, and sued Appellees for the balance of approximately $2.6 million.³ Appellees conceded they, as guarantors, failed to repay the A & D Loan but sought offset and affirmative relief for profits Borrower lost as a result of Great Western's termination of the Agreement, which they contend constituted anticipatory repudiation and breach of the implied covenant of good faith and fair dealing. The case proceeded to trial for determination of the merit and value, if any, of Appellees' claims and counterclaims which might offset the deficiency owed to Great Western. Great Western submitted a timely request for findings of fact and conclusions of law.

¶ 6 At trial, Great Western argued it was not required under the Agreement to actually finance construction within Cedar Ridge, asserting the Agreement was merely a "guidance line" or an outline of proposed future loans, and Great Western retained complete discretion to decline funding. The trial court disagreed, noting the Agreement was titled "Loan Agreement," contained express language obligating Great Western to "make the Loans to Borrower," and required Borrower to "accept such Loans," subject to various terms and conditions. And, according to the Agreement's terms, the only basis upon which Great Western was entitled to withdraw its participation was Borrower's default—an event never alleged by Great Western.

¶ 7 The trial court concluded Great Western breached the Agreement by unilaterally terminating its obligation to extend financing without conducting case-by-case review of individual loan requests. The court determined Great Western's breach had prevented Borrower from receiving the benefit of the contract—namely, financing it required to build and market homes within Cedar Ridge, which would have, in turn, provided Borrower revenues through which it would be able to repay the A & D Loan. The court found Great Western had no valid excuse for doing so because Borrower had the ability to begin construction and was not in default of the Agreement. Finally, the court determined Borrower had proven with reasonable certainty it would have profited between $2,808,000 and $3,500,000 had Great Western not terminated the Agreement. Because the lost profits exceeded the outstanding balance on the A & D Loan, the court found Appellees' liability under the guaranty was reduced to zero. The trial court determined Appellees were the prevailing parties, having "effectively recovered $3.1 million, absolving them of their liability" to Great Western, and awarded Appellees their attorneys' fees and double their taxable costs pursuant to Arizona Revised Statutes (A.R.S.) sections 12–341⁴ and –341.01 and Arizona Rules of Civil Procedure 54(f) and 68.

¶ 8 The trial court denied Great Western's motions to amend the findings of fact and conclusions of law and for reconsideration. Great Western timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(1) and –2101(A)(1).

DISCUSSION

I. Interpretation of the Agreement

¶ 9 In its opening brief, Great Western characterizes the Agreement as "an agreement between Borrower and [Great Western] under which Borrower could request loans after satisfying certain terms and conditions, and subject to an individual case-by-case review by [Great Western]." Upon this premise, Great Western argues the trial court erred in concluding that "[b]y entering into the [Agreement], [Great Western] agreed to make loans, on a case-by-case basis, provided Borrower complied with the terms and conditions set forth [there] in," re-advancing its theory that the documents were simply an "outline" for future financing. The interpretation of a contract is a question of law which we review de novo. Colo. Cas. Ins. v. Safety Control, 230 Ariz. 560, 565, ¶ 7, 288 P.3d 764 (App.2012) (citing Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12, 138 P.3d 1210 (App.2006) ). In doing so, our primary purpose is to discover and enforce the parties' intent at the time the contract was made, Taylor v. State Farm Mut. Auto. Ins., 175 Ariz. 148, 152, 854 P.2d 1134 (1993), looking first to " ‘the plain meaning of the words as viewed in the context of the contract as a whole,’ " ELM Retirement Ctr., L.P. v. Callaway, 226 Ariz. 287, 290–91, ¶ 15, 246 P.3d 938 (App.2010) (quoting United Cal. Bank v. Prudential Ins., 140 Ariz. 238, 259, 681 P.2d 390 (App.1983) ).

¶ 10 Setting aside that Great Western's own description of the purpose of the Agreement is nearly identical to the trial court's finding, we find no error. Although Great Western refers to the Agreement as a "guidance line," these words have no legal significance and appear nowhere within the provisions of the Agreement. The contract itself is specifically titled "Loan Agreement."

¶ 11 Great Western's internal communications and writings to Borrower refer to the Agreement inconsistently as a "commitment," a "line of credit," a "guidance line of credit," and a "loan agreement." However, in correspondence to Borrower dated the day prior to the execution of the Agreement, Great Western explained the term "guidance line," stating:

The line of credit that has been approved is a "guidance line," which is an indication of the maximum allowable amount of loans outstanding that you may have with [Great Western] during the term of the guidance line. Even though this is a commitment, each individual housing start and lot purchase is subject to [Great Western]'s individual case-by-case approval.... The guidance line amount is $3,600,000.00.

Marlin Hupka, a vice president of both Great Western and its predecessor, provided the same explanation at trial.

¶ 12 Great Western's explanation is inconsistent with the actual terms of the Agreement, which identifies Great Western as "Lender" and begins with an "Agreement to Make and Take Loan," stating:

Subject to the terms and conditions set forth in this Agreement, Lender agrees to make the Loans to Borrower, each such Loan to be used by Borrower for the acquisition of a Lot and for subsequent construction by Borrower of Improvements thereon, and Borrower agrees to accept such Loans from Lender as hereinafter described.

(Emphasis added). The Agreement continues: "Lender will, from time to time, make Lot Specific Advances to Borrower under the Loan for the purchase of the Related Lot and construction of Improvements thereon." (Emphasis added). It was only after Great Western withdrew from the Agreement that it informed Borrower it considered the Agreement an "uncommitted credit facility" or described the Agreement as "not a commitment" but "a set of terms" by which to make future loans. To accept this explanation would render the language within the "Agreement to Make and Take Loan" meaningless. We decline to adopt such a construction. See ELM Retirement, 226 Ariz. at 291, 246 P.3d 938 ("In interpreting a contract, we do not construe one term in a way that renders another meaningless.").

¶ 13 Great Western relies upon language...