Ciena Capital Funding, LLC v. Krieg’s, Inc. – 4/7/2017

May 2, 2017

Arizona Court of Appeals Division Two holds that when a contract allows a party to elect which of several states’ laws apply, the party need not exercise its right before filing a substantive motion if its election does not contradict its earlier positions.

A company borrowed money from a lender.  Several individuals and entities guaranteed the loan through separate agreements.  The company defaulted and filed for Chapter 11 bankruptcy, through which it agreed to pay $50,000 to satisfy its obligations to the lender.  The lender subsequently brought an action against the guarantors for breach of contract.  The parties filed cross-motions for summary judgment.

The trial court granted the lender’s motion for summary judgment with regard to whether the guarantors breached their contracts but denied the motion with regard to damages.  It also denied the guarantors’ motion for summary judgment, and the guarantors appealed.

The court of appeals first concluded that the lender properly exercised its right to elect New York law.  It reasoned that (1) the contracts expressly permitted the lender the option to elect either Arizona or New York law, (2) nothing the lender did before electing New York law was inconsistent with New York law, (3) the guarantors did not seek a court order clarifying which law applied, and (4) the guarantors were not prejudiced by the lender’s failure to select an option until filing its motion for summary judgment.

The court then held that, under New York law, the company’s agreement to satisfy its debts with a $50,000 payment to the lender did not absolve the guarantors of their independent obligations under their contracts.  The court also concluded, however, that the trial court erred in determining that the guarantors breached their obligations as of a particular date because the date of the breach was a dispute of material fact relevant to damages.

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