United States District Court, D. Arizona
ORDER
G.
Murray Snow Judge
Pending
before the Court are Plaintiff MBP Collection, LLC's
Motion for Partial Summary Judgment (Doc. 16), and Defendant
Everest National Insurance Company's Motion for Summary
Judgment (Doc. 17). For the following reasons, the Court will
grant MBP's Motion for Partial Summary Judgment.
BACKGROUND
In
2012, MBP Collection LLC (“Metro Bank”) loaned
3.6 million dollars to Global Medical Equipment of America,
Inc. (“Global Medical”). (Doc. 18, ¶ 13).
Global Medical obtained this loan to purchase two other
medical equipment companies-JCare Medical and A&A
Medical-and to pay off an existing loan with a different
bank. (Doc. 18, ¶ 8). Because the loan amount did not
cover the entire purchase price of the two other medical
equipment companies, Metro Bank required that Global Medical
would not make any additional payments to other creditors
during the first four years of the repayment plan. (Doc. 18,
¶ 21).
At the
time, Metro Bank thought it had also obtained Standby
Creditor's Agreements (“SC Agreements”) from
Michael Trahktman, who was selling A&A Medical Stock, and
Debra Sloan, who was selling the JCare Medical stock.
(See Doc. 18, Exs. 5, 6). These two agreements
required Michael Trahktman and Debra Sloan (“the
creditors”) to refuse any payments from Global Medical
during the first four years of the loan repayment period.
(Doc. 18, ¶ 23). Notably, the agreements required the
creditors to pay to Metro Bank any payments made from Global
Medical to the creditors during this four-year period. (Doc.
18, ¶ 24).
Between
2013 and 2017, Everest National Insurance Company
(“Everest”) issued Metro Bank two financial
institution bonds: one for 2013-2014 (“2013-2014
Bond”, and one for 2014-2017 (“the Bond”).
(See Doc. 18, Exs. 1, 2). Insurance Agreement (E) of
the Bond provides coverage for a “Loss resulting
directly from [Metro Bank] having, in good faith, for its own
account or for the account of others, . . . acquired sold or
delivered or given value, extended credit or assumed
liability on the faith of, any Written, Original . . .
personal Guarantee. . . or Security Agreement.”
(See Doc. 18, Ex. 1 at 7, Ex. 2 at 5). Under the
Bond, a “Guarantee” is defined as a
“[w]ritten undertaking obligating the signer to pay the
debt of another, to the Insured . . . if the debt is not paid
in accordance with its terms.” (See Doc. 18
Ex. 1 at 12, Ex. 2 at 10). A “Security Agreement”
is defined as a “[w]ritten agreement which creates an
interest in personal property or fixtures and which secures
payment or performance of an obligation.”
(Id.). Both bonds specifically apply to losses that
are first discovered during the Bond period. (Doc. 18, Ex. 2,
at 14). The bonds further require that Metro Bank notify
Everest of any discovered loss within thirty days, and to
provide proof of the loss within six months. (Doc. 18, ¶
31).
In
2014, Metro Bank exercised its right of receivership under
the loan agreement with Global Medical. After the
receivership was in place, Metro Bank discovered that Global
Medical had not been truthful in its loan application. (Doc.
18, ¶ 16). In addition to misrepresenting the selling
prices of A&A Medical and JCare, Metro Bank also
discovered that the S.C. Agreements with the creditors were
forged. (Doc. 18 ¶ 14).
In
March 2016, Metro Bank notified Everest of a claim resulting
from the forged S.C. Agreements. And then, in April, Metro
Bank provided Everest with proof of loss, which requested
that Everest consider the claim under both the 2013-2014 Bond
and the 2014-2017 Bond. (Doc. 18 ¶ 19).
There
are two issues in this order: (1) whether the S.C. Agreements
are covered by the Bond as either a “security” or
a “guarantee”, and if so, (2) whether the
notice-prejudice rule applies to the Bond.
DISCUSSION
I.
The S.C. Agreements are “Guarantees” Under the
Terms of the Bond
In
Arizona, “[p]rovisions of insurance policies are to be
construed in a manner according to their plain and ordinary
meaning.” Sparks v. Republic Nat. Life Ins.
Co., 132 Ariz. 529, 534647 P.2d 1127, 1132 (1982). Under
the Bond, Metro Bank was insured for forged guarantees. (Doc.
18, Ex. 2 at 5). A “Guarantee” is defined as a
“[w]ritten undertaking obligating the signer to pay the
debt of another, to the Insured . . . if the debt is not paid
in accordance with its terms.” (Doc. 18, Ex. 1, at 7).
The
Loan Agreement required Global Medical to forgo any payments
to the creditors during the first four years of the loan
repayment period. (Doc. 18, ¶ 21). If Global Medical
made payments to the creditors during this four-year period,
that would plainly violate the terms of the debt agreement.
And in that event, under the S.C. Agreements, the creditors
would be obligated to pay to Metro Bank any such
funds the creditors received from Global Medical that did not
exceed the amount that Global Medical owed Metro Bank.
Because the purported agreements between the bank and the
creditors obligated them to pay to the bank any amounts paid
to the creditors by Global Medical that violated the terms of
its agreement with MBP, those S.C. Agreements meet the terms
of a “Guarantee” under the Bond.[1] Notably, a
guarantee agreement does not have to create an obligation to
pay the entire debt. See Tenet Healthsystem Inc. v.
Silver, 203 Ariz. 217, 219, 52 P.3d 786, 788 (App. 2002)
(“The nature and extent of a guarantor's liability
depends upon the terms of the guaranty contract.”).
Everest
cites to case law from courts outside this Circuit to argue
that the S.C. Agreements are not guarantees. ...