Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-01277/USCOURTS-azd-2_02-cv-01277-5/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, )

)

Plaintiff, ) No. CIV 02-1277-PHX RCB

)

Vs. ) O R D E R

)

Richard A. Arledge, Inc., )

d/b/a Arledge Motor Co., )

et al., )

)

Defendants. ) )

This action was commenced on July 10, 2002, when Plaintiff

FINOVA Capital Corporation (“FINOVA”) filed a complaint against

Defendants Richard A. Arledge, Inc., d/b/a Arledge Motor Co.

("AMC"), et al., in this matter. Complt. (doc. 1). Thereafter, on

October 4, 2002, Defendants filed their Answer and Counterclaim. 

(doc. 42). FINOVA asserts breach of contract claims against

Defendants and seeks recovery of a deficiency owed by AMC under a

loan contract and by the Arledges as the guarantors of such loan

contract. Pretrial Order (doc. 231). AMC and the Arledges rely

upon the following affirmative defenses: Waiver, Release, Estoppel, 

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Prior breach, Excuse of Performance, Unclean hands, Set off,

Payment, Accord and satisfaction, Impairment of collateral, Failure

of consideration, Usury, Unconscionability, Fraud, and Prior Course

of Dealing and Course of Performance. Id. Furthermore, AMC and

the Arledges contend that FINOVA committed a prior material breach

of the loan contract, which excused their further performance and

was a producing cause of their damages. Id. 

On April 30, 2004, FINOVA filed a motion for summary judgment

on all the matters in this case. (doc. 133). That same day,

Defendants filed a cross-motion for summary judgment. (doc. 135). 

On August 25, 2004, the Court entered an order granting partial

summary judgment in this action in favor of Plaintiff. Order (doc.

167). However, the Court noted that a determination as to who was

responsible for monitoring the "minimum net cash flow covenant"

("MNCFC") remained at issue. Id. at 29. 

On April 11 through April 18, 2006, a bench trial was

conducted on the remaining issues in this matter. Min. Entry (doc.

257). At the bench trial, documentary evidence was presented and

the court heard testimony from witnesses for both parties. Having

reviewed the evidence presented, the court now makes its findings

of fact and conclusions of law.

I. FINDINGS OF FACT

FINOVA is a Delaware corporation, with its principal place of

business in Maricopa County, Arizona. AMC is a Texas corporation

with its principal place of business located in Dallas County,

Texas. Richard A. Arledge ("Arledge") and Peggy L. Arledge are

husband and wife and reside in Collin County, Texas. The amount in

controversy in this action, exclusive of interest and costs, is in

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excess of $75,000.

FINOVA is a commercial finance company, which, at the time of

the events in question, provided commercial financing to companies

like AMC. At the time of the events in question, AMC was in the

business of selling and leasing (and financing the sale and leasing

of) used automobiles. Arledge is the president of AMC. 

From June 17, 1992 to December 14, 1995, AMC obtained

financing from TransAmerica, a commercial finance company. On or

about October 17, 1995, TransAmerica notified AMC that it was in

violation of the "interest coverage ratio" contained in AMC's loan

documents with TransAmerica. The "interest coverage ratio" was not

curable. Sometime in October 1995, Arledge contacted Steve

Cammack, the former Credit Division Manager for TransAmerica and

the Division Manager of the Rediscount division for FINOVA, at all

relevant times in this litigation to inquire if FINOVA would be

able to extend financing to AMC. Cammack was involved with the

negotiations of the loan, loan terms, loan agreements and documents

with AMC. 

A. Agreements and Contracts Between FINOVA and Defendants

On December 14, 1995, FINOVA, as lender, and AMC, as borrower,

executed and delivered: (a) a Loan and Security Agreement and a

Schedule to the Loan and Security Agreement dated December 14, 1995

(collectively, the "Original Loan Agreement"); and (b) a Promissory

Note (the "Original Note") (collectively the "Initial Loan

Documents"). The Initial Loan Documents provided AMC a revolving

line of credit of $3,000,000. Pursuant to and contemporaneously

with the execution of the Initial Loan Documents, the Arledges

executed and delivered to FINOVA a document entitled "Guaranty

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(Continuing/Unlimited)" (the "Guaranty"), which guaranteed to

FINOVA the payment and performance by AMC of all its loan

obligations under the Initial Loan Documents. The Original Loan

Agreement contained a "net income" covenant, which was designed to

determine whether AMC had a positive net income on its income

statements.

On October 21, 1999, AMC executed a document entitled "Fourth

Amended and Restated Promissory Note" in the principal amount of

$10,000,000, which superceded the Original Note. At that time, the

Original Loan Agreement was amended by the Ninth Amended and

Restated Schedule to the Loan and Security Agreement (the "Ninth

Amendment"). The Ninth Amendment introduced, in place of the "net

income" covenant, the "minimum net cash flow covenant" ("MNCFC") to

the Loan Agreement. The MNCFC was retained in the "Tenth Amended

and Restated Schedule to Loan and Security Agreement" (the "Loan

Agreement"), which was acknowledged by the Arledges as guarantors.

The MNCFC is set forth in Section 6.2(K) of the Loan

Agreement, which requires that AMC not "[a]llow the Net Cash Flow

to be less than One Dollar ($1.00) for the period of

determination," with the term "Net Cash Flow" defined under Section

1.40 of the Loan Agreement as follows:

NET CASH FLOW. The term "Net Cash Flow" shall

mean, for the twelve (12) month period immediately

preceding any date of determination, as reflected

on the financial statements of Borrower supplied

to Lender pursuant to Section 4.4 hereof, the sum

of the following: (i) all cash receipts,

including, but not limited to, collections of

Receivables and Leases, down payments, trade-ins

on sales and repossession recoveries, less (ii)

all cash expenses, including cost of goods sold

(with the cost of goods sold with respect to the

Leases to be calculated at Cost Ratio multiplied

by the total gross liquidations of Receivables and

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Leases, including residual recovery from the

Leases, for the period of determination).

(Exbt. 108). AMC was responsible for providing FINOVA with the

documents and information requested by FINOVA to determine the Net

Cash Flow.

Pursuant to the Loan Agreement, FINOVA agreed to provide AMC

with a loan facility not to exceed $10,000,000 for the financing of

(1) AMC's purchase of motor vehicle inventory and (2) loans and

leases arising from the marketing of such inventory. Section

2.3(C) of the Loan Agreement established that the term of the loan

was due to expire on September 30, 2004.

Under Section 2.2 of the Loan Agreement, interest was to

accrue on the principal balance of the amounts advanced under the

Loan Agreement at the "Stated Interest Rate," which is equal to

three percent (3%) in excess of:

...the "Prime" rate publically announced by

Citibank N.A., New York, New York (or such other

"money center" bank as [FINOVA], in its sole

discretion, may select from time to time, but

shall not be more than the highest rate of the

five largest banks in the Continental United

States as their respective corporate base,

reference, prime or similar benchmark rate),

provided however, that such rate may not be the

lowest rate charged to such bank's customers.

(Exbts. 102, 108). AMC was obligated under Section 2.3 of the Loan

Agreement to make monthly payments of accrued interest to FINOVA. 

In addition to the obligations of maintaining a positive cash

flow and making monthly interest payments, AMC had numerous other

obligations under the Loan Agreement, including the obligation to

make principal payments of all loan "overadvances." Section 2.5 of

the Loan Agreement provides that AMC was required to immediately

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cure any loan overadvance (i.e., the amount by which the loan

balance exceeds the limits under the Loan Agreement) by making full

payment of the amount of such overadvance. 

Section 1.10 of the Loan Agreement defines "Default" as "an

event which with the passage of time or notice or both would

constitute an 'Event of Default' (as defined in Section 7.1)." 

Section 7.1 of the Loan Agreement sets forth numerous events that

would constitute Events of Default, including those set forth in

Section 7.1(A) and Section 7.1(B). Section 7.1(A) addresses

monetary events, providing that an Event of Default shall arise

"[i]f any payment of principal or interest or any other amount due

Lender is not paid within five (5) days after the same shall be due

and payable." Section 7.1(B), referring to non-monetary events,

provides that an Event of Default arises:

If [AMC] or [Arledge] fails or neglects to

perform, keep or observe any of the terms,

provisions, conditions or covenants, contained in

this Agreement, any of the other Loan Documents or

any other agreement or document executed in

connection with the transactions contemplated by

this Agreement or if any representation, warranty

or certification made by [AMC] herein or in any

certificate or other writing delivered pursuant

hereto shall prove to be untrue in any material

respect as of the date upon which the same was

made or at any time thereafter, and the same is

not cured to Lender's satisfaction within ten (10)

days after Lender has given written notice to

[AMC] identifying such default.

(Exbt. 102). Pursuant to Section 2.9(i) of the Loan Agreement,

FINOVA was not obligated to make loan advances to AMC where a

"Default or Event of Default shall have occurred." Id.

All of AMC's payment and other obligations under the Loan

Agreement are secured by collateral in which FINOVA was granted a

first priority security interest (collectively, the "Collateral"),

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including but not limited to the following:

A. All Receivables and Leases and all accounts,

chattel paper, instruments, contract rights

and general intangibles, all of [AMC's]

right[s], remedies, security, liens,

guaranties,...all deposits or other security

or support for the obligation of any Account

Debtor thereunder...;

B. All inventory, new or used, including parts 

and accessories;

C. All equipment, new or used, including but not

limited to vehicles on lease or held for

lease and all parts and accessories;

D. All bank accounts of [AMC];

E. All monies, securities and property, now or

hereafter held, received by, or entrusted to,

in the possession or under the control of

[FINOVA] or a bailee of Lender;

F. All accessions to, substitutions for all

replacements, products and proceeds of the

foregoing, including, without limitation,

proceeds of insurance policies referenced in

[clause "A"] above (including but not limited

to claims paid and premium refunds); and

G. All books and records (including, without

limitation, customer lists, credit files,

tapes, ledger cards, computer software and

hardware, electronic data processing

software, computer printouts and other

computer materials and records) of [AMC]

evidencing or containing information

regarding any of the foregoing.

(Exbt. 102) at 8. On or about December 20, 1999, FINOVA, AMC and

Arledge, as custodian, entered into an Agency and Custodian

Agreement (the "Custodian Agreement"), which allowed Arledge, on

behalf of FINOVA, to retain physical possession of the car leases,

titles and other paper Collateral in which FINOVA was granted a

security interest. (Exbt. 109). In addition, on or about May 1,

2001, FINOVA, AMC and Arledge executed a document entitled

"Subordination and Standstill Agreement" (the "Subordination

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Agreement"). (Exbt. 110). Under the Subordination Agreement, AMC

and Arledge agreed that (a) all indebtedness presently existing or

ever arising and owing from AMC to Arledge was subordinated to

FINOVA in all rights to payment and in all other respects and (b)

upon FINOVA notifying Arledge of a Default under the Loan

Agreement, Arledge would "hold all payments of principal and

interest received from [AMC] in trust for the benefit of [FINOVA]." 

Id. at 1. 

AMC's account was managed by FINOVA's Rediscount Division

located in Dallas, Texas. Jim Harris was the Account Executive

responsible for AMC's account in Dallas, Texas. Matt Hall and Brad

Fisher were the Portfolio Managers responsible for AMC's account in

Dallas, Texas. In or about late March to early April 2002, Harris,

Arledge, Jim Montgomery (AMC's accountant), Steven Thomas, Matt

Hall and Brad Fisher met at a Steak-n-Ale, a restaurant in Dallas,

Texas, to discuss matters relating to AMC's loan. During this

meeting, Arledge was informed that AMC's account was being

transferred to FINOVA's Chicago office. Ryan DeWitte became the

Account Executive responsible for AMC's account in Chicago. Steve

Narsutis was the Vice President/Division Manager of FINOVA's office

in Chicago. 

B. MNCFC Issue

As stated previously, one of AMC's obligations under the Loan

Agreement (as set forth under the MNCFC) was to ensure that the

company maintained a positive cash flow position from month to

month. Based upon monthly financial statements provided by AMC,

FINOVA determined prior to May 7, 2002 that AMC was in violation of

the MNCFC for the months of February 2002 and March 2002. Narsutis

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and DeWitte met with Arledge on or about April 22, 2002 at AMC's

car lot and informed him that AMC was in violation of the MNCFC. 

On May 7, 2002, FINOVA sent to AMC a formal written notice

(the "May 7 Default Notice") that AMC had violated the MNCFC for

February and March 2002. The May 7 Default Notice also noted that

there was a violation of the MNCFC for January 2002, however FINOVA

later determined that there was no such violation. FINOVA further

indicated in the May 7 Default Notice that such Defaults would

mature into Events of Defaults ten days thereafter.

After AMC's receipt of the May 7 Default Notice, Arledge asked

Ryan DeWitte, of FINOVA, to send to AMC's accountant, Jim

Montgomery, a copy of FINOVA's calculation of the MNCFC violation. 

On May 17, 2002, DeWitte sent by e-mail to Montgomery a spreadsheet

setting forth the calculations upon which the May 7 Default Notice

was based. Thereafter, there were a number of phone discussions

between DeWitte and Arledge with respect to the MNCFC issue. In one

such discussion, Arledge noted that FINOVA had made a mathematical

error in the calculations DeWitte had sent to him. DeWitte agreed

and thus determined that there was no violation of the MNCFC for

January 2002. However, violations still remained for February 2002

and March 2002.

Additionally, Arledge asked DeWitte if the money he invested

into AMC counted towards satisfaction of the MNCFC. DeWitte

acknowledged that such money invested did count towards

satisfaction of the MNCFC, however the money Arledge withdrew from

AMC also must be accounted. During this conversation, Arledge

asked what he could do to cure the default. DeWitte responded that

the default was not curable.

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Between May 7, 2002 and May 17, 2002, Arledge called DeWitte

numerous times to discuss the MNCFC violation. During these

conversations, Arledge asserted that, according to his own

calculation, AMC was not in default. However, AMC refused to

provide such exonerating calculations to DeWitte for comparison. 

Throughout 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. 

In addition, during this time period Arledge offered to cure

the default, however FINOVA failed to give Arledge an amount of the

claimed violation. DeWitte continued to tell Arledge that the

violation was not curable. Arledge made no cash payment or offer to

make a cash payment into AMC to "cure" the cash shortfalls. 

However, Arledge asserts that he called DeWitte everyday to request

the exact amount required to cure. 

After the passage of the ten-day cure period, Arledge

submitted to FINOVA revised financial statements wherein AMC

reclassified certain entries in an attempt to change the MNCFC

computation. FINOVA disputed the accounting legitimacy of such

reclassifications, however, in any event, AMC was still in

violation of the MNCFC for February 2002 and March 2002 even if the

reclassifications were taken into account. AMC eventually reverted 

to its original financial statements.

Jim Harris, AMC's accountant, reviewed the calculation of the

MNCF and discovered that a number for October 2001 had been

inputted incorrectly. As a result, AMC was not in default of the

MNCFC for the month of January 2002, and the numbers for the months

of February and March 2002 were reduced. Subsequently, DeWitte

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reviewed the revised calculation of the MNCFC performed by Harris

and discovered additional errors in the calculation used to support

the May 7 Default Notice. However, the calculations still

indicated that AMC was in violation of the MNCFC for February 2002

and March 2002. 

On or about September 2004, Arledge realized that the

calculation prepared by Harris indicating that AMC had violated the

MNCFC did not include cash receipts, such as AMC's late fees, NSF

fees, security deposits, and repossession fees. (Trial Transcript

for April 14, 2006) at 02:29:58PM-02:30:40PM. In April 2005,

Arledge conducted a final calculation of the MNCFC for the

contested time period. This calculation was ultimately provided to

FINOVA on May 6, 2005. 

C. Request to Sell Leases

On or about May 20, 2002, Arledge requested that FINOVA allow

AMC to change its line of business from a used car dealership to a

new car dealership. By letter dated May 20, 2002, Arledge sought

permission from FINOVA to sell off enough of the leases comprising

FINOVA's collateral in order to (a) pay down the debt owing to

FINOVA and (b) generate cash to "purchase a new car franchise." 

Specifically, Arledge stated,

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.

(Exbt. 125). Arledge maintains that this letter was a written

request for the exact amount that was needed to cure the Default.

It wasn't. FINOVA never responded to Arledge's request.

. . .

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D. AMC's Requested Loan Advance

On June 20, 2002, AMC sent to FINOVA a Request for Advance

Form, requesting an advance under the Loan Agreement in the amount

of $34,000 (the "Advance Request"). FINOVA responded to the

Advance Request the next day, on June 21, 2002. In its response,

FINOVA (a) confirmed the continued existence of one or more

Defaults or Events of Default under the Loan Agreement, (b) refused

to fund the requested advance as a result, and (c) requested access

to AMC on June 26, 2002 for an audit.

E. Requested Audit and Interest Payments

On June 26, 2002, AMC denied FINOVA's auditor access for the

audit, which FINOVA requested and scheduled in its letter dated

June 21, 2002. In response, FINOVA sent a letter to AMC's legal

counsel on June 26, 2002 (the "June 26 Default Letter"), advising

AMC that another Default had arisen under Section 3.6 of the Loan

Agreement as a result of AMC's failure to grant FINOVA access for

the audit. The June 26 Default Letter further advised AMC that

such Default would mature into an Event of Default in ten days if

FINOVA was not granted access for the audit. However, AMC did not

grant FINOVA access to conduct the audit. Consequently, the

Default arising from AMC's refusal to grant FINOVA access for the

audit matured into an Event of Default on July 6, 2002.

AMC did not make any payments of loan interest to FINOVA in

June, July or August of 2002 because it believed that FINOVA had

already materially breached the Loan Agreement. In July 2002,

Arledge took $330,000 out of AMC for his own use. He withdrew an

additional $469,000 in August 2002.

. . .

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F. Filing of Lawsuit and Entry of First TRO

On July 12, 2002, FINOVA sent to Arledge a letter formally

terminating the Custodian Agreement and demanding that Arledge

immediately deliver to FINOVA that portion of the Collateral for

which he had been entrusted as custodian. Arledge refused to

deliver such collateral. On July 15, 2002, FINOVA filed in this

action its Application for Temporary Restraining Order (With

Notice) and Order to Show Cause (the "First TRO Application"). In

the First TRO Application, FINOVA requested, among other things,

that (a) AMC be enjoined from interfering with FINOVA's audit

rights and (b) that Arledge be enjoined from interfering with

FINOVA taking possession of that portion of the Collateral that had

been entrusted to Arledge under the Custodian Agreement. On July

17, 2002, the Court entered its Temporary Restraining Order (With

Notice) and Order to Show Cause (the "First TRO"). (doc. 5). 

Pursuant to the First TRO, FINOVA was required to post a security

bond in the amount of $25,000. Such bond was posted on July 19,

2002.

On July 26, 2002, FINOVA sent to AMC a notice of Default with

respect to AMC's failure to cure the overadvance existing as of

such date. AMC had failed to pay any overadvance payments after

May 2002. Thereafter, on August 16, 2002, FINOVA sent to AMC a

notice of Default with respect to AMC's failure to (a) cure the

overadvance existing as of that date and (b) make its interest

payments. On that same date, FINOVA also sent a separate notice to

Arledge under the Subordination Agreement demanding that Arledge

remit to FINOVA all payments which he had received from AMC in

trust for the benefit of FINOVA. Arledge refused to make any

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payments to FINOVA and, instead, made payments to his personal

creditors, including $500,000 to his father, E.K. Arledge. 

G. FINOVA's Enforcement Efforts

FINOVA pursued several enforcement options against AMC under

the loan agreement. First, FINOVA enforced its rights under

Section 3.9 of the Loan Agreement. On August 19, 2002, FINOVA made

a written demand upon AMC requesting that AMC deliver to FINOVA all

Collateral Proceeds thereafter received by or on behalf of AMC. 

AMC refused to deliver such proceeds. Thus, on September 10, 2002,

upon application of FINOVA, the Court entered its Supplemental

Temporary Restraining Order (With Notice) and Order to Show Cause

(the "Supplemental TRO"). (doc. 23). Pursuant to the Supplemental

TRO, FINOVA was required to post a security bond in the amount of

$25,000. Such bond was posted on September 12, 2002. 

After a preliminary injunction hearing, the Court, in its

Preliminary Injunction dated September 27, 2002, continued the

Supplemental TRO, but increased the portion of the Collateral

Proceeds to be forwarded to FINOVA from 60% to 70%. (doc. 40).

Pursuant to the Preliminary Injunction, FINOVA was required to post

a security bond in the amount of $100,000. Such bond was posted on

October 1, 2002.

Thereafter, FINOVA proceeded with a public UCC sale of its

remaining Collateral, pursuant to Section 7.4 of the Loan

Agreement. By written notice dated October 1, 2002, FINOVA

notified AMC and the Arledges that it intended to conduct a public

sale of the Collateral in accordance with the Loan Agreement and

the Uniform Commercial Code ("UCC"). FINOVA advertised the

scheduled UCC sale, and conducted the sale on October 28, 2002. 

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The Collateral was sold at the UCC sale pursuant to a credit bid of

$2,009,605.58, leaving a deficiency principal balance of

$1,665,193.30 owing under the Loan Agreement and Note, plus

interest accruing at the Stated Interest Rate. 

H. AMC's Search for New Financing and Claimed Damages

After the loan with FINOVA ceased, AMC sought new financing

options. To aid this process, Defendants hired a broker to help

the company establish a new loan agreement. The brokerage contract

indicates that AMC was charged $25,000 as a retainer fee for the

broker's services, and then charged an additional 3% of the amount

of the secured loan as a "success" fee. (Exbts. 238, 239). On May

22, 2003, AMC signed a new financing contract with Oak Rock

Financial, LLC, for a revolving loan in the amount of $1,000,000

("Oak Rock Financial Loan"). (Exbt. 237). Thus, in total, AMC

paid $55,000 to the broker to locate the company's new financing

with Oak Rock Financial. (Exbt. 239). In addition, Oak Rock

Financial charged AMC an interest rate that was 4.75% higher than

that previously charged by FINOVA. (Exbt. 296) at 6. 

As a result of FINOVA's foreclosure of AMC's assets and

collateral, AMC alleges that it was forced out of business, lost

the equity in its receivables, lost future profits, incurred

wholesale and make-ready losses, lost its "tracers" (or

"trackers"), and lost the use of its sales tax credits. Defendants

together claim that FINOVA's conduct forced them to hire a broker,

pay a fee to secure a new financing arrangement, and pay interest

in excess of the interest charged under the Loan Agreement.

Independently, the Arledges claim that FINOVA's conduct forced them

to sell their house for a loss of $250,000.

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II. CONCLUSIONS OF LAW

1. The Court has subject matter jurisdiction over this action

pursuant to 28 U.S.C. § 1332.

2. The Court has personal jurisdiction over all of the parties,

and venue is proper in this district.

A. Conclusions of Law with Respect to FINOVA's Complaint

3. The Loan Agreement is a valid and enforceable contract between

FINOVA and AMC. The Guaranty creates a valid and enforceable

obligation owing by the Arledges, jointly and severally, in favor

of FINOVA.

4. As found previously by the Court, the MNCFC under the Loan

Agreement is curable. 

5. FINOVA has the primary obligation to monitor the MNCFC. 

However, the Court concludes that there is no reason why Defendants

could not also monitor the MNCFC, and, indeed, Defendants have

conducted such monitoring and have the greatest access to the

documents needed to determine the status of AMC's net cash flow.

6. In any event, the nature of this breach by FINOVA was not so

fundamental to the contract to excuse Defendants from (1) granting

FINOVA access for a requested audit; (2) paying interest payments;

and (3) paying overadvance principal payments.

7. One or more Events of Default arose under the Loan Agreement

as a result of AMC failing to pay FINOVA interest in accordance

with the Loan Agreement since June 2002, and AMC failing to repay

to FINOVA the various loan overadvances.

 8. One or more of these Events of Default arose under the

Loan Agreement as a result of AMC violating the MNCFC.

9. Defendants are estopped from asserting that, under a

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recalculation of AMC's cash flow, Arledge was not in violation of

the MNCFC in February and March of 2002. Defendants are estopped

from making this assertion because they prevented FINOVA from

receiving and reviewing the information regarding the

recalculations.

10. The Court is not satisfied that any of the exhibits received

at trial establish that Arledge sought in writing the amount of

money needed to cure the MNCFC violation. One must greatly stretch

the language of Arledge's May 20, 2002 letter to DeWitte, stating

that AMC wanted to sell leases to "pay down the debt," to conclude

that AMC was requesting an amount to cure. 

11. The Court is not satisfied that Arledge was credible when he

testified that he called DeWitte daily requesting a cure amount,

however the Court finds that Arledge requested such an amount at

least once.

12. The Court finds and concludes 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. 

13. Thus, the Court concludes that FINOVA is entitled to the

unpaid amount of the debt, plus interest. The amounts owing to

FINOVA are as follows:

(a) principal amount of $1,665,193.30;

(b) pre-judgment interest through April 30, 2004

in the amount of $181,436.69;

(c) pre-judgment interest from April 30, 2004

through March 31, 2006 (at $323.79 per day) in the

amount of $226,653.00;

(d) pre-judgment interest after March 31, 2006

through the date of this order (at $323.79 per

day); and 

(e) post-judgment interest as set by the clerk

pursuant to 28 U.S.C. § 1961.

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B. Conclusions of Law with Respect to Defendants' Counterclaim

14. FINOVA breached the Loan Agreement when (1) it did not allow

AMC the opportunity to cure and (2) when it failed to give AMC an

answer regarding its request to sell leases.

15. Defendants Richard and Peggy Arledge lack standing to assert

any of the claims set forth in the Counterclaim. Defendants have

provided no authority that indicates that, as guarantors, the

Arledges possess the necessary standing to affirmatively assert a

lender liability claim against FINOVA. Pursuant to the Guaranty,

the Arledges are liable for the full amount of the deficiency owing

by AMC. See Poling v. Morgan, 829 F.2d 882, 885 (9th Cir. 1987). 

16. The Court determines that there was no bad faith claim

asserted by Defendants, in the usual sense, and, in any event,

concludes that there is no basis for a bad faith claim. Thus, Kurt

Bloeser's testimony is irrelevant, as there was no tort claim

asserted and, hence, there are no tort damages. FINOVA's oral

motion to strike Bloeser's testimony shall be granted.

17. Defendants have no right to any punitive damages, as such

damages are not an available remedy for a breach of contract claim. 

See Rhue v. Dawson, 841 P.2d 215, 227 (Ariz. App. 1992).

18. The Arledges, as guarantors, are not entitled to damages for

the sale of their house. 

19. The Court concludes that any damages due AMC shall only be

calculated to the end of the FINOVA loan period, September 30,

2004.

20. AMC is entitled to the amount of damages incurred due to the

difference in the interest rates imposed under the FINOVA loan and

that imposed under the Oak Rock Financial Loan. These damages,

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however, shall only be calculated from the date Arledge obtained

the Oak Rock Financial Loan, May 22, 2003, (Exbt. 237), to

September 30, 2004. 

21. AMC is entitled to the cost of the finder's fee of $55,000.00,

incurred when it sought a new loan. 

22. AMC is entitled to the damages incurred due to lost tax

credits. The Court accepts Don Erickson's, Defendants' expert,

calculation on this issue, equaling $301,260.00. (Exbt. 296) at 5.

23. AMC is entitled to a portion of the damages it claims with

regard to the "tracers." Not all of the 222 "tracers" that AMC

lost retained the same value, because each likely had a different

age and history of use. The Court concludes that AMC is entitled

to half of what it requests for the cost of the "tracer" devices,

valued at $350 each, and half the claimed costs for installing and

monitoring the "tracers" for a total of $58,275.00. 

24. Lastly, but for the damages listed above, the Court finds that

there has been an insufficient showing that AMC suffered any lost

profits. Thus, AMC is not entitled to any damages for other

alleged lost profits. 

IT IS ORDERED that plaintiff shall lodge a proposed form of

judgment, consistent with this order, within ten (10) days of the

entry of the order. The defendants, at their option, may lodge a

proposed form of judgment within the same 10 days. The Court

. . . 

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encourages the parties to seek to agree as to the proposed form of

judgment. 

 DATED this 31st day of August, 2006.

Copies to counsel of record.

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