Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-01277/USCOURTS-azd-2_02-cv-01277-6/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

FINOVA Capital Corporation, )

a Delaware corporation )

)

 Plaintiff/Counter-defendant )

 ) No. CIV 02-1277-PHX-RCB

)

vs. ) O R D E R

)

Richard A. Arledge, Inc. a )

Texas corporation d/b/a )

Arledge Motor Co., Richard A. )

Arledge, individually and as )

the husband of Peggy L. )

Arledge, and Peggy L. )

Arledge, individually and as )

the wife of Richard A. )

Arledge, )

 )

Defendants/Counter- )

Plaintiff/Third-Party )

Plaintiff, )

 )

vs. )

 ) 

Leucadia National )

Corporation, )

 )

Third-Party Defendant. ) )

Background

Essentially the present action is a contract dispute arising 

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1 As a result of AMC's recovery against FINOVA, the judgment provides for

a set-off. See Doc. 269 at 2, ¶ 3.

2 Although, as just stated, defendants style this motion as one for a new

trial (among other things), a close reading of their motion shows that they are

not actually seeking a new trial. Rather, defendants are seeking to have this

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out of a Loan Agreement between plaintiff FINOVA Capital

Corporation ("FINOVA"), as the lender, and defendants Richard A.

Arledge, Inc. d/b/a Arledge Motor Co. ("AMC"), et al., as the

borrowers. Following a six day bench trial, the court issued its

findings of fact and conclusions of law as Fed. R. Civ. P. 52(a)

requires. In FINOVA Capital Corporation v. Arledge, 2006 WL

2547350 (D. Ariz. Aug. 31, 2006) (doc. 266) ("FINOVA II"), the

court found that defendants were liable to FINOVA because although

FINOVA breached the Loan Agreement, the "nature of th[at] breach 

. . . was not so fundamental" so as "to excuse defendants" from

certain obligations thereunder. Id. at *9, ¶ 6. Thus, the court

awarded FINOVA damages in "the principal amount of $1,665,193.30,"

plus pre-judgment interest and post-judgment interest thereon. Id.

at *9, ¶ 13(a). By the same token though, the court also found

that FINOVA breached the Loan Agreement. Id. at *9, ¶ 14. Hence,

the court awarded AMC damages in "the principal amount of

$479,213.08," plus pre-judgment and post-judgment interest thereon. 

Doc. 269 at 2, ¶ 2.1 

Currently pending before the court are two post-judgment

motions: (1) "Plaintiff's Motion to Alter or Amend Judgment and to

Amend Findings and Conclusions" (doc. 278); and (2) "Defendants'

Motions for New Trial, to Amend Findings of Fact and Conclusions of

Law and to Amend Judgment and Supporting Memorandum of Points and

Authorities"2 (doc. 280). In addition, also pending before the

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court "vacate" FINOVA II and the judgment entered in accordance therewith. Mot.

(doc. 280) at 4. Defendants are further seeking to have this court "reopen the

case and enter [their pre-trial] proposed findings of fact and conclusions of law

[,]" and then enter "a judgment consistent therewith." Id. Alternatively,

defendants are seeking to have this court "at a minimum, . . . amend the findings

of fact and conclusions of law" in FINOVA II, and likewise to amend the judgment

as to four separate issues which will be discussed herein. See id. The court will

tailor its discussion of defendants' motion accordingly, omitting any consideration

of a new trial.

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court is "Plaintiff's Motion for Order (A) Exonerating Parties

Under Bonds and (B) Vacating Provisional Attachment Order" (doc.

268). Having found oral argument unnecessary, the court rules as

follows. 

Discussion

I. Post-Judgment Motions

A. Governing Legal Standards

1. Fed. R. Civ. P. 52

The parties timely moved for relief under Fed. R. Civ. P. 52. 

Rule 52(b) provides in relevant part that "[o]n a party's motion

filed not later than 10 days after entry or judgment, the court may

amend its findings – or make additional findings – and may amend

the judgment accordingly." "Recognized grounds for Rule 52 motions

include: (1) the trial court made a manifest mistake of fact or

law, (2) there is newly discovered evidence, and (3) there has been

a change in the law." Cohn v. Contra Costa Health Services

Department, 2006 WL 825276, at *1 (N.D. Cal. March 29, 2006)

(internal quotation marks and citation omitted). However, "[a]

party may not use Rule 52 to relitigate issues or advance new legal

theories, and a court should not rehear the merits of the case." 

Id. (internal quotation marks and citation omitted). Likewise,

"Rule 52 is not a substitute for appeal, nor is it an equitable

response to the request for just one more time, please." Id. at *2

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(internal quotation marks end citation omitted). 

2. Fed. R. Civ. P. 59

The standard for altering or amending a judgment under Rule

59(e) is nearly identical to the standard for granting similar

relief under Rule 52. According to the Ninth Circuit, "[a]mendment

or alternation is appropriate under Rule 59(e) if (1) the district

court is presented with newly discovered evidence, (2) the district

court committed clear error or made an initial decision that was

manifestly unjust, or (3) there is an intervening change in

controlling law." Zimmerman v. City of Oakland, 255 F.3d 734, 740

(9th Cir. 2001) (citation omitted). Rule 59(e) is an

"extraordinary remedy, to be used sparingly in the interests of

finality and conservation of judicial resources." Kona

Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir.

2000). Thus, "absent highly unusual circumstances[]" a judgment is

not properly reopened. Id.; see also Cohn, 2006 WL 825276, at *1

(internal quotation marks and citation omitted) ("[A] judgment [in

a nonjury case] should not be set aside except for substantial

reasons.")

Denial of a motion to amend a judgment is subject to an abuse

of discretion standard of appellate review. See Gibson v. Galaza,

2007 WL 868011, at *1 (E.D. Cal. March 20, 2007) (citing Far Out

Productions, Inc. v. Oskar, 247 F.3d 986, 992 (9th Cir. 2001)). 

Generally, "[a] district court abuses its discretion when it bases

its decision on an erroneous view of the law or a clearly erroneous

assessment of the facts." Id. (citing Coughlin v. Tailhook Ass'n,

112 F.33 1052, 1055 (9th Cir. 1997)). With these general

principles firmly in mind, the court has carefully considered the

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3 FINOVA "accept[s]" these rulings "[f]or purposes of this motion," but

is expressly reserving its rights to challenge these rulings on appeal. See Mot.

(doc. 278) at 4, n.2.

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parties' respective motions to alter and/or amend the judgment. 

B. FINOVA's Post-Judgment Motion

1. Opportunity to Cure

Earlier in this litigation, among other things, the court

rejected "Finova's contention that a violation of the [Loan

Agreement's] MNCF [minimum net cash flow] covenant is incurable." 

Doc. 167 ("FINOVA I") at 25. The court thus partially granted

defendants' summary judgment motion finding that "while there [wa]s

a qualifier as to the cure allowed ("Lender's satisfaction"),"

under the terms of the subject Loan Agreement, "there [wa]s

unquestionably a right to cure[]" the MNCF covenant. Id. at 24. 

Further, in FINOVA I the court found that "a meaningful 'cure' must

necessarily permit the [defendants] to inject enough money into the

company to achieve a positive net cash flow, as defined in . . .

the Loan Agreement[.]" Id. at 27. The court opined that "[n]o other

interpretation of th[e] [MCNF] covenant would be reasonable under

the contract as a whole."3

 Id.

Given these rulings, plainly one of the issues at trial was

whether FINOVA gave defendants an opportunity to exercise their

right under the Loan Agreement to cure the minimum net cash flow

covenant ("MNCFC"). After carefully considering all of the trial

proof, in FINOVA II this court expressly found that FINOVA "did not

allow AMC the opportunity to cure[;]" hence FINOVA breached the

Loan Agreement. See FINOVA II, 2006 WL 2547340, at *9. As FINOVA

views the trial proof, however, there was no evidence to support

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that conclusion. Thus, "as a matter of law[]" FINOVA asserts that 

that finding cannot be a basis for holding that it breached the

Loan Agreement. See Mot. (doc. 278) at 6. 

FINOVA correctly frames the issue on this motion as "whether

there is any evidence to support the Court's conclusion that FINOVA

'did not allow AMC the opportunity to cure' its cash flow

shortfall." Id. at 5. FINOVA goes on, however, to couch its

argument in slightly different terms. More specifically, FINOVA

contends that "there [wa]s no evidence that [it] prevented

defendant Richard Arledge from infusing cash into his own company

in an attempt to cure any cash shortfall." Id. (emphasis in

original). 

To support this contention, FINOVA relies upon a snippet of

trial testimony from Ryan De Witte, the FINOVA Account Executive

responsible for AMC's account. Mr. De Witte agreed that after he

noticed that AMC was in default under the Loan Agreement on May 7,

2002, he "sent an e-mail with a spreadsheet containing FINOVA's

calculation of the [MNCFC] on May 16th, May 17th[.]" Id. (citation

omitted). Following up on that question, Mr. DeWitte was asked

"with that information, did Mr. Arledge ever put money into [AMC]

to make up for that difference?" Id. (citation omitted). Mr. De

Witte simply responded, "No." Id. (citation omitted). From

FINOVA's perspective, this testimony shows that the prevention

"issue never even arose[]" during the trial. Id.

Defendants retort that by framing it in terms of prevention,

FINOVA is "mischaracteri[zing]" the issue. Resp. (doc. 285) at 2. 

Furthermore, FINOVA's prevention argument, according to defendants,

"ignores the fact that [defendant] Arledge repeatedly disputed the

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MNCFC calculation on which the alleged default was based[.]" Id.

(citations and footnote omitted). As defendants summarize it, the

court should deny FINOVA's motion on the cure issue because "with a

dispute as to the accuracy of the MNCFC calculation, and, more

importantly, without any information as to the amount FINOVA would

require and in the face of a claim that the default could not be

cured, Arledge can hardly be faulted for not infusing an uncertain

and unknown amount of cash to cure an 'incurable' default." Id. at

3 (citations omitted). 

At the outset, the court observes that preventing the Loan

Agreement from being cured or "not allow[ing] AMC the opportunity

to cure[,]" are two sides of the same coin. See FINOVA II, 2006 WL

2547340, at *9. It is possible, for example, to view FINOVA's

failure to provide defendants with an amount of the claimed MNCFC

violation as an act by FINOVA which effectively prevented

defendants from curing that violation. At the same time, it is

also possible to view that same inaction by FINOVA, as did the

court, as "not allow[ing] AMC the opportunity to cure[.]" See id.

Thus, as can be seen, reframing the cure issue does nothing to

advance FINOVA's argument that the evidence does not support the

court's finding that FINOVA did not allow AMC the opportunity to

cure. 

What is more, there is ample record proof, which FINOVA

conveniently overlooks, to support this court's determination that

FINOVA "did not allow AMC the opportunity to cure" the MNCFC

violation. See id. For instance, by selectively quoting from Mr.

De Witte's trial testimony, FINOVA fails to take into account that

he repeatedly testified that the MNCFC violation could not be

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cured. Mr. De Witte took that position during a conversation he

had with defendant Arledge shortly after Arledge received the May

7th Default Notice from FINOVA. See Tr. (4/11/06) (doc. 273) at

151-52. Mr. De Witte's testimony in that regard was unequivocal. 

When asked, "Do you remember making it clear to Mr. Arledge that a

violation of the [MNCFC] in his loan agreement could not be

cured[,]" Mr. De Witte responded, "I do recall that, absolutely." 

Id. at 153. Mr. De Witte freely admitted that following the May

7th Default Notice he had "numerous conversations" with defendant

Arledge during which he told Arledge "that it [the MNCFC] was a

non-curable default." Id. at 184. Plainly the foregoing supports

this court's factual finding in FINOVA II that during the ten day

cure period "De Witte continued to tell Arledge that the violation

was not curable." FINOVA II, 2006 WL 2547340, at *5 (emphasis

added). 

In a similar vein, Mr. De Witte agreed that "there was nothing

that [Mr.] Arledge could have done to cure a breach of that

covenant [MNCF][.]" Doc. 273 at 153:12-14. Mr. De Witte explained

that that was his "viewpoint[,] . . . based on conversations with

[FINOVA's] in-house counsel." Id. at 153:17-18. FINOVA, through

Mr. De Witte, held steadfastly to its conviction that the default

was incurable "[e]ven in the first part of June," 2002. Id. at

166:8. This view was echoed in a June 11, 2002, letter from

FINOVA's Vice President and Assistant General Counsel wherein he

states:

FINOVA maintains that events of default 

exist under the loan agreement. Moreover, 

as you are probably aware, breaching a 

financial covenant is not susceptible to 

being cured because it is based on financial 

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performance measurement for a specific period 

of time. In other words, borrower cannot undo 

its financial performance that results in a 

covenant violation.

Id. at 190 (quoting exh. 127 at 2). 

Consistent with its position that the MNCFC was not curable,

when asked if "Finova ever provide[d] [him] any means by which [he]

could cure the [MNCFC][,]" defendant Arledge simply responded,

"No." Tr. (4/14/06) (doc. 274) at 165. Indeed Arledge testified

that he "was told specifically that putting money in would not cure

the [MNCFC]." Id. at 164. Not only is the record replete with

references to the fact that FINOVA viewed the default as incurable,

it also contains testimony from Mr. DeWitte conceding that prior to

this litigation FINOVA never sent defendants "[c]orrect

calculations" as to the amount necessary to cure the default. See

Doc. 273 at 188-89. This failure to provide defendants with the

accurate calculations necessary to cure the default was compounded

by FINOVA's insistence that the default was not curable in the

first instance. 

As the foregoing shows, there are ample record facts to

support the court's conclusion of law that "FINOVA breached the

Loan Agreement when . . . it did not allow AMC the opportunity to

cure[.]" FINOVA II, 2006 WL 2547340, at *9, ¶ 14. Moreover, even

if framed, as FINOVA does, in terms of FINOVA preventing defendants

from curing the breach, the same evidence can easily support that

conclusion as well. In short, although the court may have

"[d]rawn[n] different inferences from the evidence and testimony at

trial than [FINOVA] would have preferred" as to whether FINOVA

allowed defendants the opportunity to cure, that "does not rise to

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the level of a manifest error of fact." See Cohn, 2006 WL 825276,

at *2. Nor has FINOVA shown that the court "made a manifest

mistake of . . . law" in finding that FINOVA did not give

defendants an opportunity to cure the breach. See id. at *1

(internal quotation marks and citation omitted). In fact, FINOVA

has not pointed to any law to support such a view. 

As can be seen, in essence FINOVA is attempting to relitigate

the cure issue. As set forth at the outset, however, neither Rule

52 or Rule 59 provides a basis for the court to reconsider the

merits. Accordingly, the court denies FINOVA's motion to alter

and/or amend to the extent that motion is premised upon the court's

finding that FINOVA did not allow defendants the opportunity to

cure the default. 

2. Sale of Leases

In FINOVA II the court made several factual findings with

respect to a May 20, 2002, letter from defendant Arledge to Mr. De

Witte. In that letter, defendant Arledge wrote, among other

things:

I AM REQUESTING FINOVA TO ALLOW ME TO SELL

SOME OR ALL OF MY LEASES. THE MONIES 

GENERATED BY THIS SALE WILL ENABLE ME TO PAY 

DOWN THE DEBT TO FINOVA AND GENERATE CASH, WHICH 

WILL ALLOW ME TO PURCHASE A NEW CAR FRANCHISE.

FINOVA II, 2006 WL 2547340, at *6 (quoting exh. 125) (emphasis

added). The court flatly rejected Arledge's contention "that this

letter was a written request for the exact amount that was needed

to cure the Default." Id. Although it disagreed with Arledge as

to the meaning of this letter, the court did find found that

"FINOVA never responded to Arledge's request." Id. Based upon the

foregoing, the court held that "FINOVA breached the Loan Agreement

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. . . when it failed to give AMC an answer regarding its request to

sell leases." Id. at *9. 

Now FINOVA is seeking to have the court amend FINOVA II to

delete this particular conclusion of law. As with the cure issue,

FINOVA claims that there is no evidence in the record to support

the conclusion that it did not respond to defendant Arledge's

request to sell leases. In its Reply, FINOVA further claims that

the court "overlooked" the following testimony by Mr. De Witte. 

When asked whether he "recall[ed] what [he] told [Mr. Arledge]

Finova's position was as to selling . . . leases[,]" DeWitte

replied: "I told [Arledge] that to the extent that he was able to

go out and find a buyer to buy his assets, that he certainly could

do so as long as the proceeds were used to pay off Finova's debt." 

Doc. 273 at 67. From FINOVA's perspective, this testimony

undermines the court's legal conclusion that FINOVA breached the

Loan Agreement by "fail[ing] to give AMC an answer regarding its

request to sell leases." FINOVA II, 2006 WL 2547340, at *9. 

Despite FINOVA's protestations to the contrary, the court did

not "overlook" the quoted excerpt from Mr. De Witte's trial

testimony, which is FINOVA's sole basis for challenging the court's

finding that it did not respond to defendant Arledge's request to

sell leases. Instead, as was its prerogative, the court choose to

credit the overwhelming countervailing testimony. For example, Mr.

Arledge testified that repeatedly FINOVA did not respond to his

requests, verbal or written, to sell leases. See Doc. 274 at

124:16-24; 154:3-6; and 154: 13-25. In fact, when pointedly asked,

"did Mr. DeWitte or anybody at Finova ever discuss with you your

requ[ests] to sell leases[,]" Mr. Arledge replied, "No." Id. at

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154:25 - 155:1-2. Mr. Arledge answered in much the same way when

asked whether "Finova ever respond[ed] to [his] request to sell

leases[,]" emphatically stating, "Finova has never responded to my

request to sell leases Id. at 156:11 (emphasis added).

In light of the foregoing, and taking the record as whole,

there was no "manifest mistake of fact or law[]" warranting

altering or amending the judgment with respect to the court's

finding that FINOVA did not respond to Arledge's request to sell

leases. As it did with the cure issue, FINOVA is seeking to have

the court rehear the merits of this case, which is an improper

basis for invoking Rule 52 or, for that matter, Rule 59. Thus, the

court denies FINOVA's motion to alter or amend the judgment and to

amend the court's findings of fact and conclusions of law as set

forth in FINOVA II as it relates to the court's finding that FINOVA

did not respond to defendant Arledge's request to sell leases. 

3. Lost Sales Tax Credits

In FINOVA II, this court found that "AMC is entitled to the

damages incurred due to lost tax credits[.]" FINOVA II, 2006 WL

2547340, at *10, ¶ 22. In awarding such damages, the court

expressly "accept[ed] Don Erickson's, Defendants' expert,

calculation on th[at] issue, equaling $301,260.00[,]" and cited to

page 5 of exhibit 296, Mr. Erickson's entire report, as the basis

for that finding. See id. (citation omitted). 

In the event the court, as it has, upholds its findings of

liability against FINOVA as to defendants' counterclaim, FINOVA is

making an alternative "narrow request[.]" Mot. (doc. 278) at 9. 

It is seeking to amend the judgment to reduce the "principal amount

of the damage award against" FINOVA from $479.213.08 to

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$363,177.94. Id. at 10, ¶ E(ii). Consistent with that request,

FINOVA also is seeking to amend paragraph 22 of section B of FINOVA

II, entitled "Conclusions of Law with Respect to Defendants'

Counterclaim[,]" to replace the number "301,260.00" with

"$185,224.86[.]" Reply (doc. 286) at 9, ¶ 2(a). This reduction

represents the difference between the lost tax credit damages

($301,260.00) as indicated in Mr. Erickson's expert report which

was not admitted into evidence (exh. 296 at 5), and the amount of

such credits to which he actually testified ($185,224.86). See Tr.

(4/17/06) (doc. 275) at 112:18-22. FINOVA also seeks to amend the

order, as reflected in FINOVA II, to delete the reference to

exhibit 296 because, as just noted, that exhibit was not offered or

received into evidence. See Reply (doc. 286) at 9, ¶ 2(b). 

Plainly FINOVA's position is well taken; and, indeed,

defendants explicitly "concede" that this reduction is proper

"based on the evidence presented at trial." Resp. (doc. 285) at 2,

n.1. Accordingly, the court grants FINOVA's motion to alter or

amend the judgment, and likewise to amend the FINOVA II order to

omit the reference to exhibit 296, as just discussed. In all other

respects, however, for the reasons set forth above, the court

denies FINOVA's motion to alter and/or amend FINOVA II and the

corresponding judgment.

C. Defendants' Post-Judgment Motion

Defendants contend that this court in FINOVA II (and in the

corresponding judgment) committed "manifest errors of both law and

fact" with respect to four different issues, each of which will be

discussed below. See Mot. (doc. 280) at 4. From defendants'

standpoint because those four issues "go [to] the heart of this

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case[,]" the court should "completely vacat[e] [FINOVA II] and the

Judgment and entering the proposed Findings of Fact and Conclusions

of Law lodged by Defendants prior to trial." Id. at 17. If the

court disagrees, "at a minimum[]" the defendants "urge" the court

to delete nine specific parts of FINOVA II, and to add three new

findings of fact and six new conclusions of law. See id. at 17-18. 

1. MNCFC Violation

According to defendants, under section 1.40 of the Loan

Agreement, "[t]o calculate AMC's Net Cash Flow and prove a

violation of the [MNCFC], FINOVA had to include in its

calculations[,]" among other things, "'all [of AMC's] cash

receipts, including, but not limited to, collections on Receivables

and Lease[s], down payment, trade-ins on sales and repossession

recoveries.'" Id. at 5 (quoting FINOVA II, 2006 WL 2547340, at *2

(quoting in turn exh. 108)). Defendants maintain, however, that

FINOVA did not fully comply with that requirement because "in

determining AMC violated the MNCFC and in issuing its May 7, 2002,

default letter, FINOVA admitted 'all cash receipts' of AMC were not

included in its calculations, nor did it offer at trial

calculations purporting to include the omitted cash receipts." Id.

Defendants further argue, albeit implicitly, that FINOVA erred

in calculating AMC's net cash flow because it did not include

defendant Arledge's contributions to AMC. See id. at 6. Based

upon the foregoing, defendants maintain that "FINOVA did not

satisfy its burden" of proving that "AMC violated the MNCFC." Id.

In other words, defendants argue that FINOVA did not prove an MNCFC

violation at trial because FINOVA improperly calculated their net

cash flow.

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4 In fact, in the Final Pretrial Order, to which the parties stipulated,

among the "contested issues of fact and law[]" defendants identified were the

following: 

Whether FINOVA included AMC's security 

deposits, repossession fees, returned 

check charges and late fees in calculating 

the [MNCFC][;] [and] . . . Whether FINOVA 

included the cash the Arledges deposited into 

AMC in calculating the [MNCFC]. 

Doc. 231 at 17, ¶¶ 4 and 5. 

5 Section 1.40 of the Loan Agreement defined "Net Cash Flow" as "the sum"

of "all cash receipts" and "all cash expenses" which were "reflected on the

financial statements of Borrower [Arledge d/b/a AMC] to Lender [FINOVA][.]" Def.

Tr. exh. 108 at 4, § 1.40. 

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This defense argument is not new to the court. At various

times throughout this litigation, including during the trial,

defendants made this same argument.4 Thus the court finds that, as

did FINOVA, defendants are improperly Rules 52 and 59 to relitigate

previously resolved issues, e.g., the issue of how FINOVA

calculated the MNCFC violation. In essence, defendants are asking

this court to "rehear the merits of the case," which is precisely

what a court should not do on a Rule 52 motion such as this. See

Cohn, 2006 WL 825276, at *1. 

What is more, even if the court were to revisit the issue of

how FINOVA calculated the MNCFC violation, it would reach the same

conclusion: FINOVA proved that defendants breached that covenant. 

Among other ways, FINOVA proved that breach through the testimony

of Mr. De Witte. He explained that in accordance with the express

terms of the Loan Agreement, to calculate defendants' net cash flow

FINOVA examined the financial statements provided by defendants.5

See Resp. (doc. 284) at 5 (citing doc. 273 at 60:25-61:1-9). When

it did that, FINOVA found a violation of the MNCFC. See id.

(citing, inter alia, doc. 273 at 51:9-25-52:1-15). Thus, to the

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extent defendants are suggesting in this motion that FINOVA did not

prove a breach of the MNCFC because it did not look beyond the

financial documents provided by defendants, plainly that argument

is without merit. The Loan Agreement did not place such an

obligation upon FINOVA. FINOVA was entitled, as it did, and as

defendants were aware that it would, to rely upon the financial

statements defendants supplied to calculate the net cash flow. See

Doc. 274 at 13:7-16. Succinctly put, defendants have not satisfied

the court that it made a "manifest mistake of law or fact" when it

found that AMC violated the MNCFC. Thus, the court denies

defendants' motion to alter and/or amend the judgment in this

regard. 

2. Estoppel

As to FINOVA's complaint, the court specifically found that

"[b]etween May 7, 2002 and May 17, 2002, [defendant] Arledge called

[FINOVA] numerous times to discuss the MNCFC violation." FINOVA

II, 2006 WL 2547340 at *5. Even though "[d]uring those

conversations, Arledge asserted that, according to his own

calculation, AMC was not in default[,]" the court found that "AMC

refused to provide such exonerating calculations to [FINOVA] for

comparison." Id. Perhaps more significant in terms of the present

motion is the court's additional finding that "[t]hroughout the

litigation of this lawsuit, Arledge and AMC continued to refuse to

provide such calculations based on attorney client privilege and

the work product doctrine." Id.

Indeed, it was not until May 6, 2005, that defendants

ultimately provided FINOVA with the purportedly exonerating

calculations. See id. at *6. In light of these findings of fact,

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the court expressly held that "[d]efendants [we]re estopped from

asserting that, under a recalculation of AMC's cash flow, Arledge

was not in violation of the MNCFC in February and March of 2002." 

See Id. at *9, ¶9. The court reached this conclusion because

defendants "prevented FINOVA from receiving and reviewing the

information regarding the recalculations." Id. 

As an additional basis for vacating the judgment, defendants

challenge this "estoppel" ruling. They do so on two grounds. 

First, defendants note that FINOVA did not specifically "identify

estoppel in the [pre-trial order] as a means to avoid AMC's

assertion [that] FINOVA did not properly calculate or prove the

default under the MNCFC." Mot. (doc. 280) at 7 (footnote omitted). 

This argument is without merit. Even a cursory reading of FINOVA II

shows that the issue was not whether FINOVA established estoppel as

an affirmative defense. Rather, the issue was whether defendants

should be precluded from relying upon Arledge's recalculations due

to defendants' failure to timely disclose that evidence. Clearly

those are separate and distinct issues. Thus, even assuming

arguendo that FINOVA did not assert estoppel as an affirmative

defense in the pre-trial order, such an omission is not fatal to

the court's "estoppel" ruling because that ruling was not

predicated upon FINOVA's proving estoppel as an affirmative

defense.

Second, assuming (incorrectly) that the court in FINOVA II was

applying the doctrine of equitable estoppel, defendants assert that

the court erred because FINOVA did not prove "even one of the three

elements necessary" to establish equitable estoppel. See id. at 8. 

Defendants further claim that because equitable estoppel is an

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affirmative defense, by invoking it to "preclude [defendants']

direct rebuttal of evidence offered by FINOVA that a violation of

the MNCFC occurred[,]" the court "effectively turn[ed] on its head

FINOVA's burden to prove a breach of the MNCFC." Id. 

FINOVA accurately responds that defendants' second argument 

"miss[es] the point of the Court's estoppel ruling[.]" Resp. (doc.

284) at 7. To be sure, the court did state that defendants were

"estopped from asserting that . . . Arledge was not in violation of

the MNCFC[.]" FINOVA II, 2006 WL 2547340, at *9, ¶ 9. Despite the

court's use of the word "estop[,]" it is readily apparent from

FINOVA II and the prior proceedings as detailed in the record, that

the court did not actually rely upon estoppel as a legal term of

art or doctrine as, for example, equitable or judicial estoppel. 

Rather, as even a cursory reading of FINOVA II shows, what the

court actually did was to preclude defendants from relying upon

Arledge's recalculation of AMC's cash flow. The primary reason for

preclusion was defendants' failure to timely disclose, and the

resultant prejudice to FINOVA. Accordingly, defendants' equitable

estoppel analysis is not relevant to the court's decision to

preclude defendants' recalculation evidence. 

Moreover, given defendants' history of not providing the

supposedly exonerating calculations, the court was within its

discretion in precluding the admission of such evidence under Fed.

R. Civ. P. 37(c)(1) – a fact which defendants overlook. Under that

Rule, when a party, "without substantial justification fails to

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6 The type of "information" to which Rule 37(c)(1) applies includes "a

copy of, or a description by category and location of, all documents, data

compilations, and tangible things that are in the possession, custody, or control

of the party and that the disclosing party may use to support its claims or

defenses[.]" Fed. R. Civ. P. 26(a)(1)(B) (emphasis added). Plainly Arledge's

recalculations supported defendants' position that the MNCFC was not breached, and

thus such evidence falls into the category of documents which defendants had a duty

to disclose under Rule 26. 

7 See, e.g., Resp. (doc. 284) at 7-10 (and citations therein). 

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disclose" certain information,6 that party is "not, unless such

failure is harmless, permitted to use as evidence at a trial. . .

any . . . information not so disclosed." Fed. R. Civ. P. 37(c)(1). 

Defendants, as the party facing preclusion, had the burden of

proving harmlessness. See Yeti by Molly v. Deckers Outdoor Corp.,

259 F.3d 1101, 1107 (9th Cir. 2001) ("Implicit in Rule 37(c)(1) is

that the burden is on the party facing sanctions to prove

harmlessness.") 

In FINOVA II the court did not explicitly find that defendants

were "without substantial justification" when they did not timely

disclose Arledge's recalculations. The circumstances surrounding

defendants' failure to disclose that evidence, which are well

documented in the record,7 readily support such a finding however. 

In FINOVA I this court held that "while Finova may have originally

erred to some degree in its original calculation of AMC's default

of the MNCF covenant - AMC was in fact (to some degree) in

violation of that covenant." FINOVA I (doc. 167) at 14 (emphasis

in original). Not only that, in FINOVA I the court expressly noted

that it had "little trouble concluding that some violation of the

MNCF covenant occurred (based on Defendants' failure to dispute

this specific point)[.]" Id. at 14-15 (emphasis added). The

litigation proceeded with FINOVA relying upon those rulings.

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Within days after the issuance of FINOVA I, however, defendant

Arledge "realized" that FINOVA's calculations, which formed the

basis for finding that "AMC had violated the MNCFC did not include"

certain items. FINOVA II, 2006 WL 2547340, at *6 (citation

omitted). Therefore, Arledge recalculated AMC's net cash flow and

"[i]n April 2005, [he] conducted a final calculation of the MNCFC

for the contested time period." Id. As noted earlier, that

"calculation was ultimately provided to FINOVA on May 6, 2005[,]"

after the close of discovery. Id. The timing of Arledge's

recalculations (coming on the heels of an adverse summary judgment

ruling), coupled with their late disclosure, provides sufficient 

justification for preclusion under Rule 37(c)(1). 

What is more, finding that defendants were "without

substantial justification" for failing to timely disclose is

implicit in the court's stated "belie[f]" that there was "harm to

plaintiff [FINOVA] in [defendants'] failure to disclose [that

evidence] earlier." Doc. 275 at 92:10. The record easily supports

this finding of harm given, as just explained, the timing of

defendants' disclosure of the cash flow recalculations. Thus,

because defendants were "without substantial justification" for

their late disclosure of Arledge's recalculations, and because

defendants did not satisfy their burden of showing that such

disclosure was harmless, preclusion under Rule 37(c)(1) was

warranted. Accordingly, to the extent defendants are seeking to

amend the judgment based upon that preclusion ruling, the court

denies this aspect of defendants' motion. 

3. Material Breach

 Third, defendants disagree with the court's conclusion of law

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that "the nature of [FINOVA's] breach . . . was not so fundamental

to the contract to excuse [them] from (1) granting FINOVA access

for a requested audit; (2) paying interest payments; and (3) paying

overadvance principal payments." Mot. (doc. 280) at *9, ¶ 6. They

also challenge the court's related finding that "had FINOVA funded

the requested advance of $34,000 (requested on or about June 20,

2002), it would not have altered in any material way Defendants'

ability to pay the overadvances." FINOVA II, 2006 WL 2547340, at

*9, ¶ 12. 

Once again, defendants are taking the position that "FINOVA's

breaches, including . . . its refusal to allow AMC to sell leases

to pay off the loan and to make the advance requested on June 20,

2002 were material and excused AMC's further performance." Mot.

(doc. 280) at 10. Defendants then analyze each of the five factors

under section 241 of the Restatement of Contracts (Second), which

they claim should be taken into account when deciding whether a

given breach is material. Defendants assert that they are entitled

to relief under Rule 52 and/or Rule 59 because the "the Court

failed to properly apply" those Restatement factors. Id. at 11. 

FINOVA responds analyzing the same five Restatement factors,

and reaches the opposite conclusion: The court properly found that

FINOVA's breach was not material so as to excuse defendants from

performing certain obligations under the Loan Agreement. 

This materiality argument need not detain the court for long. 

This is an argument which defendants have consistently made

throughout this litigation. In fact, in the Final Pre-Trial Order

(to which the parties stipulated), not only did defendants argue,

as they are on this motion, a material breach by FINOVA, but they

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also outlined the five Restatement factors. See Doc. 231 at 11-13. 

Defendants' argument is nothing more than a transparent attempt to

relitigate the material breach issue. However, as noted earlier,

the purpose of a Rule 52 motion is not to rehear the merits of the

case. See Cohn, 2006 WL 825276, at *1. 

Furthermore, defendants have not shown as they must on a

motion to alter or amend a judgment that the "court made a manifest

mistake of fact or law[]." See id. Likewise, defendants have not

shown, as Rule 59 requires, that the court "committed clear error

or made an initial decision [as to the materiality issue] that was

manifestly unjust[.]" See Zimmerman, 255 F.3d at 740. At the end

of the day, defendants' argument is nothing more than a

disagreement as to how the court, albeit implicitly, applied the

Restatement factors. This disagreement does not rise to the level

of "highly unusual circumstances" so as to justify reopening this

judgment, however. See Kona, 229 F.3d at 890. 

4. Receivables

Due to "FINOVA's foreclosure of AMC's assets and collateral,

AMC allege[d] that it was forced out of business[.]" FINOVA II,

2006 WL 2547340, at *8. As outlined in FINOVA II, defendants

claimed to have sustained a variety of damages as a result of that

foreclosure, including "lost . . . equity in [their] receivables,

[and] lost future profits." Id. Although the court did award some

types of damages to defendants, it expressly found that there was

"an insufficient showing that AMC suffered any lost profits." Id.

at *10, ¶ 24. Given that lack of proof, the court held that AMC

was "not entitled to any damages for other alleged lost profits." 

Id. (emphasis added).

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The fourth and final defense argument for altering or amending

the judgment is that the court "should have considered and awarded

AMC the equity it lost in its collateral upon which FINOVA

foreclosed[]" – equity which defendants value at $1,300,968,11. 

See Mot. (doc. 280) at 15 and 18. FINOVA counters that "the Court

properly determined that AMC failed to establish its lost profits,

which necessarily included the profits reflected by the 'equity' in

the accounts receivable as of May 2002." Resp. (doc. 284) at 16

(footnote omitted). That determination was proper, according to

FINOVA, because as the court found, AMC did not establish lost

profit damages "with the level of certainty required by law." Id.

Defendants' response is two-fold. First, defendants maintain that

the "lost receivables" are separate damages from those for lost

profits. See Reply (doc. 288) at 7. Second, defendants believe

that in any event they did prove the "lost equity in receivables

damages with sufficient certainty." Id.

 Underlying defendants' argument is the assumption that

because in its conclusions of law the court in FINOVA II did not

specifically mention AMC's receivables, it did not consider whether

defendants were entitled to an award of such damages. This is an

understandable, but inaccurate assumption. To the extent the court

contemplated awarding damages other than those discussed in section

II(B), ¶¶ 16-23, those damages are subsumed in the reference to

"other alleged lost profits." See FINOVA II, 2006 WL 2547340, at

*10, ¶ 24 (emphasis added). Hence, because the court held that

there was an "insufficient showing that [defendants] suffered any

lost profits[,]" that holding applies with equal force to

defendants' claimed damages for lost equity in their receivables." 

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See id.

With that clarification, the court notes that as with the

other issues which defendants raise on this motion, they are

impermissibly seeking to relitigate an issue which they argued

unsuccessfully during trial. Basically defendants are asking this

court to reexamine the trial proof as to the equity value of AMC's

receivables (i.e. consisting primarily of leases). As previously

discussed, while motions to amend judgments serve a variety of

purposes, rehearing the merits of a case is not one of them. 

Rather, among other things, motions to amend are to correct

manifest mistakes of law or fact – neither of which defendants have

shown with respect to the receivables issue. Consequently, the

court denies defendants' motion to alter or amend the judgment

insofar as it is premised upon the fact that the court did not

award defendants damages for the claimed loss of equity in AMC's

receivables. 

To summarize with respect to defendants' motion brought

pursuant to Fed. R. Civ. P. 52 and 59, the court denies this motion

in its entirety. Denial is proper because defendants have not met

the high threshold which is necessary to warrant altering or

amended the judgment under either of those Rules. Defendants have

pointed to no "highly unusual circumstances" which might justify

reopening the judgment herein. See Kona, 229 F.3d at 890. Nor

have they come forth with "substantial reasons[,]" Cohn, 2006 WL

825276, at *1, which could be the basis for granting this

"extraordinary remedy[.]" See Kona, 229 F.3d at 890. 

. . .

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II. Exoneration of Bonds & Vacation of Provisional Attachment

Order

Having denied the parties' post-judgment motions with one

corrective exception, there is one final motion which the court

must address – FINOVA's motion for exoneration and return of the

bonds which it posted in connection with being awarded injunctive

relief, and for vacatur of the order granting defendants a writ of

prejudgment attachment. Doc. 268. 

Early on in this litigation the court issued three orders

granting injunctive relief to FINOVA. Each of those orders was

expressly "conditioned" upon FINOVA filing a bond with the Clerk of

the court in accordance with Fed. R. Civ. P. 65©. On July 19,

2002, FINOVA filed the first of those bonds; this one in the amount

of $25,000.00 See Doc. 5. A few months later, this time in

connection with a Supplemental Temporary Restraining Order against

defendants, FINOVA filed a second $25,000.00 bond. See Doc. 25. A

short time later, the court granted FINOVA's motion for a

preliminary injunction; this time the court required FINOVA to

file, which it did, a $100,000.00 bond. See Doc. 41. 

Several years later, on September 21, 2005, the court denied

defendants' application for a Temporary Restraining Order. Doc.

210. However, the court did grant defendants' alternative

application for a prejudgment writ of attachment pursuant to A.R.S.

§ 12-1521. Id. at 12. As section 12-1524 requires, the court set

bond at "$4.5 million." Id. at 13. 

On September 18, 2006, "in anticipation of judgment being

entered in the form jointly lodged on September 15, 2006[,]" FINOVA

filed a motion for release and exoneration with respect to the

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three injunction related bonds described above. Doc. 268 at 1. As

part of this motion FINOVA is seeking to have the Clerk of the

Court release the original of those bonds "to a representative of

legal counsel for FINOVA[.]" Id. at 2, ¶ (2). FINOVA is also 

seeking to have the court vacate its September 21, 2005, order

granting a writ of prejudgment attachment (doc. 210). 

FINOVA's position is that entry of judgment renders the bonds

"moot." Doc. 268 at 3. Therefore, because two days after the

filing of this motion to vacate, etc., on September 20, 2006, the

judgment was filed in this action, FINOVA believes that the bonds

are moot. As to the writ of prejudgment attachment, FINOVA asserts

that the court should vacate the order granting that relief because

the judgment "after all applicable set-offs[] results in FINOVA

being awarded a net monetary judgment against Defendants." Id.

Thus, FINOVA reasons, "there is no remaining claim on the part of

Defendants to support an attachment against FINOVA's assets." Id.

Defendants did not respond directly to any of these arguments. 

In fact, they did not respond at all with respect to the request to

vacate the writ of prejudgment attachment. As to the three bonds

corresponding to FINOVA's injunctive relief, defendants request

that the court deny such relief "and retain the bonds until such

time as [it] rules on Defendants' Rule 52 and 59 post-trial

motions." Doc. 277 at 2 (emphasis added). 

Because the court has now ruled on defendants' post-trial

motions, there is no basis for denying FINOVA's motion to

"releas[e] and exonerat[e] FINOVA and its sureties from any and all

further liability under the FINOVA Bonds" (doc. 7, 25, and 41). 

Accordingly, the court hereby grants FINOVA's motion in this

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regard( doc. 268). In addition, because defendants do not object

to vacating the writ of prejudgment attachment; and because there

is no basis for denying such relief at this time, the court also

grants FINOVA's motion to vacate the September 23, 2005 (doc. 215)

Order "to the extent that such Order granted Defendants'

application for prejudgment attachment against FINOVA." See Doc.

268 at 3, ¶ C(3). 

IT IS HEREBY ORDERED that: 

(1) plaintiff FINOVA Capital Corporation's "Motion to Alter or

Amend Judgment and to Amend Findings and Conclusions" (doc. 278) is

GRANTED in part, to the extent FINOVA is seeking a reduction from

$479,213.08 to $363,177.94 as the principal amount awarded against

it in paragraph 2 of the Judgment (doc. 269);

(2) FINOVA's motion (doc. 278) is DENIED in all other

respects;

(3) "Defendants' Motions for New Trial, to Amend Findings of

Fact and Conclusions of Law and to Amend Judgment" (doc. 280) are

DENIED; 

(4) "Plaintiff's Motion for Order (A) Exonerating Parties

Under bonds and (B) Vacating Provisional Attachment Order" (doc.

268) is GRANTED;

(5) The Clerk of the Court shall enter an Amended Judgment

consistent with this Order, which shall include an amendment of

paragraph 2 of the original judgment indicating that “AMC Shall

have and recover from FINOVA the principal amount of $363,177.94,”

rather than the amount previously indicated of $479,213.08; all

calculations in the Amended Judgment shall conform to this

$363,177.94 award; and 

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(6) The Clerk of the Court shall release to a representative

of legal counsel for FINOVA the originals of each of the FINOVA

bonds (docs. 7, 25, and 41).

DATED this 29th day of June, 2007.

Copies to counsel of record

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