FINOVA CAPITAL CORPORATION v. RICHARD A. ARLEDGE, INC. (D.Ariz. 2006)

ROBERT BROOMFIELD, Senior District Judge

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, 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 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 (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 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 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"), 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 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 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.

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 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: 30:40 PM. 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. . . .

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.

. . .

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 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. 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.

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 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.

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, 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 . . . encourages the parties to seek to agree as to the proposed form of judgment.