Tenet Healthsystem TGH, Inc. v. Silver

• Decision Date: 27 August 2002
• Docket Number: No. 2 CA-CV 2001-0172.,2 CA-CV 2001-0172.
• Parties: TENET HEALTHSYSTEM TGH, INC., an Arizona corporation; Tenet Healthsystem WRF, Inc., an Arizona corporation, Plaintiffs/Appellants. v. Richard A. SILVER and Margot N. Silver, husband and wife; Tucson Orthopaedic and Fracture Surgery, P.C., an Arizona corporation, Defendants/Appellees.
• Court: Arizona Court of Appeals

52 P.3d 786

203 Ariz. 217

TENET HEALTHSYSTEM TGH, INC., an Arizona corporation; Tenet Healthsystem WRF, Inc., an Arizona corporation, Plaintiffs/Appellants. v. Richard A. SILVER and Margot N. Silver, husband and wife; Tucson Orthopaedic and Fracture Surgery, P.C., an Arizona corporation, Defendants/Appellees.

No. -0172.

Court of Appeals of Arizona.

August 27, 2002.

Lewis & Roca, LLP, by Rob Charles, Patricia K. Norris, Kristin M. Page, Tucson, for plaintiffs/appellants.

Law Offices of Dennis A. Rosen, by Dennis A. Rosen, Gayle D. Reay, Tucson, for defendants/appellees.

OPINION

ESPINOSA, Chief Judge.

¶ 1 This appeal arises from an action for breach of a guaranty executed by defendants Tucson Orthopaedic and Fracture Surgery, P.C., and Richard and Margot Silver (collectively, the Silvers) in favor of plaintiffs Tenet HealthSystem TGH, Inc., and Tenet Health-System WRF, Inc. (collectively, Tenet). The trial court granted the Silvers' motion for partial summary judgment in Tenet's action to enforce the guaranty and entered judgment pursuant to Rule 54(b), Ariz.R.Civ.P., 16 A.R.S., Pt. 2. On appeal, Tenet contends the trial court erroneously found that Tenet's credit purchase of the secured property at a trustee's sale extinguished the Silvers' liability and erred by denying Tenet's application for a writ of attachment on property the Silvers owned and by awarding them attorney's fees. We agree and reverse.

Background

¶ 2 We view the facts of this case in the light most favorable to Tenet, the party opposing summary judgment. Nestle Ice Cream Co. v. Fuller, 186 Ariz. 521, 924 P.2d 1040 (App.1996). Tenet owned former Tucson General Hospital and, in December 1999, agreed to sell it to Tucson Clinical Care (TCC). As part of the transaction, TCC executed a $7 million promissory note as part of the purchase price, due in sixty days and secured by a deed of trust on the hospital. At the same time, the Silvers guaranteed $1.5 million of TCC's obligation to Tenet under the note and several other agreements. The guaranty agreement provided, in part:

2. [The Silvers] guarantee[] that if [TCC] does not timely perform or pay [the note] ... in full when due, [the] Silver[s] shall, upon demand by [Tenet], forthwith satisfy [the note].... [The Silvers'] liability under this Agreement shall continue until and only until payment of One Million Dollars ... or more has been made on the outstanding principal balance of the Note. This Agreement is a guaranty of due and punctual performance and payment and is not merely a guarantee of collection.

3. [The Silvers] hereby:

(a) Consent[ ] that [Tenet] may, without affecting the enforceability or effectiveness of this Agreement ... and without affecting... the liability of [the Silvers], ... at any time ... and without notice or demand...:

(i) Waive or delay the exercise of any of its rights or remedies against [TCC] or any other person or entity;

....

(iv) Apply payments by [TCC], the [Silvers], or any other person or entity to the Guaranteed Obligations; and (b) Waive[ ] all notices whatsoever with respect to this Agreement....

4. The liability of [the Silvers] under this Agreement is absolute, unconditional and irrevocable, without regard to the liability of any other guarantor[ ] and shall not in any manner be affected by reason of any action taken or not taken by [Tenet], which action or inaction is herein consented and agreed to, nor by the partial or complete unenforceability or invalidity of any other guaranty or surety agreement.... All of [Tenet's] rights and remedies shall be cumulative....

....

7. [Tenet] may bring and prosecute a separate action or actions against [the Silvers] whether or not [TCC], any other guarantor, or any other person is joined in any such action or a separate action or actions are brought against [TCC], any other guarantor, or any other person for all or any part of the [note]....

(Underlining in original.)

¶ 3 TCC failed to make the first principal payment of $1 million, due January 10, 2000. On January 11, Tenet demanded payment from TCC and notified the Silvers of TCC's default. Ten days later, Tenet demanded payment from the Silvers. In February, because no payment had been made, Tenet filed this suit against TCC on the note and against the Silvers and other guarantors, who had guaranteed an additional $3.5 million of TCC's obligation, on their guaranties.¹ In September, Tenet filed a motion for partial summary judgment against the Silvers, arguing that their liability was fixed by the guaranty. The Silvers filed a cross-motion for summary judgment, arguing their obligation had been extinguished because Tenet had recently given notice of a trustee's sale of the hospital property, the value of which exceeded the Silvers' discharge limit of $1 million.

¶ 4 In October, TCC filed a petition in the United States District Court under Chapter 11 of the United States Bankruptcy Code. The trial court ruled that the automatic stay resulting from the filing of the petition prevented it from ruling on the parties' summary judgment motions. See 11 U.S.C. § 362(a). The stay was lifted in February 2001, and Tenet proceeded with its deed of trust sale, at which Tenet purchased the hospital with its credit bid of $4.6 million. Tenet later sold the hospital for that amount. As a result, the Silvers supplemented their cross-motion for summary judgment, contending that their "obligation ha[d] been satisfied." The trial court agreed and entered partial summary judgment in their favor. This appeal by Tenet followed.

Standard of Review

¶ 5 On appeal from summary judgment, we review de novo whether the trial court correctly applied the law. Hahn v. Pima County, 200 Ariz. 167, 24 P.3d 614 (App.2001). Contract and statutory interpretation issues are questions of law subject to our de novo review. Bothell v. Two Point Acres, Inc., 192 Ariz. 313, 965 P.2d 47 (App.1998) (interpretation of release provision); Hartford Accident & Indem. Co. v. Federal Ins. Co., 172 Ariz. 104, 834 P.2d 827 (App.1992) (statutory interpretation).

The Silvers' Guaranty

¶ 6 We first address whether, as the Silvers argued and the trial court implicitly found, the proceeds Tenet received from the sale of the hospital extinguished the Silvers' liability under the guaranty. Tenet argues that, under the terms of the guaranty agreement, a partial principal payment could cancel the Silvers' liability only if timely and voluntarily made. The Silvers counter that any partial principal payment in excess of $1 million, including an involuntary one by trustee's sale or foreclosure, extinguishes their liability.

¶ 7 The nature and extent of a guarantor's liability depends upon the terms of the guaranty contract. Provident Nat'l Assurance Co. v. Sbrocca, 180 Ariz. 464, 885 P.2d 152 (App.1994). As with any question of contract interpretation, our goal is to effectuate the parties' intent, giving effect to the contract in its entirety. Id.; see also Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134 (1993). And, although we generally construe a guaranty to limit a guarantor's liability, we must give effect to its clear and unambiguous terms. Consolidated Roofing & Supply Co. v. Grimm, 140 Ariz. 452, 682 P.2d 457 (App.1984). Neither party contends the guaranty is ambiguous; they merely suggest alternate interpretations. See Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 96, 804 P.2d 822, 825 (App.1990)

(a contractual term "is not ambiguous ... merely because one party assigns a different meaning to it in accordance with his or her own interest"); see also Taylor.

¶ 8 Preliminarily, we disagree with the Silvers that this case presents an issue that can be resolved by A.R.S. § 33-814(C). That statute provides in part: "If ... a trustee's sale is held, the liability of a person who is not a trustor for the deficiency is determined pursuant to subsection A of this section and any judgment for the deficiency against the person shall be reduced in accordance with subsection A of this section." As anticipated by that subsection, the deficiency judgment against the principal debtor "shall be for an amount equal to the sum of the total amount owed the beneficiary as of the date of the sale, as determined by the court less ... the sale price at the trustee's sale." § 33-814(A). Although we agree with the Silvers that § 33-814 requires reduction of the principal amount due, the statute does not address whether the sale price of a property at a trustee's sale necessarily extinguishes a guarantor's liability like that of the Silvers under the guaranty here.

¶ 9 The guaranty clearly recites that the Silvers "agreed to execute" it "as an inducement to [Tenet] to execute the Sale Agreement and to close the transactions contemplated by the Sale Agreement." Under the guaranty, the Silvers would be liable for $1.5 million "until payment of One Million Dollars... or more has been made on the outstanding principal balance of the Note," and they expressly acknowledged their guaranty was one of "due and punctual performance." As noted earlier, Tenet simultaneously filed actions against TCC on the promissory note and against the guarantors on their respective guaranties before giving notice of a trustee's sale of the property and, until the sale occurred and the hospital was sold, no principal payment had been made on the note. The question, then, is what effect application of the post-default proceeds should have on the Silvers' liability, which in turn depends on the parties' discernable intent in executing the guaranty. See Taylor.

¶ 10 Contrary to the guaranty's express provision that the Silvers had induced Tenet to sell the hospital to TCC by assuring TCC's "performance" up to the discharge amount, the Silvers' interpretation suggests that the parties intended to allow Tenet to collect on the Silvers' guaranty only if it could not recover at least the amount of the Silvers' discharge...