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

Court of Appeals of Arizona, Second Division

April 7, 2017

Ciena Capital Funding, LLC, a Delaware limited liability company, Plaintiff/Appellee,
Krieg's, Inc., an Arizona corporation; Dean G. Krieg and Mary Louise Krieg, individually and as husband and wife; Krieg Family Trust U/A/D 6/21/96, by and through its trustees, Dean G. Krieg and Mary Louise Krieg, Defendants/Appellants.

         Appeal from the Superior Court in Graham County No. CV201400175 The Honorable Michael Latham, Judge

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

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

          Judge Miller authored the opinion of the Court, in which Presiding Judge Staring and Judge Wright[1] concurred.


          MILLER, Judge.

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

         Factual and Procedural Background

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

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

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

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

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

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

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


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

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