Federal District Court Opinions

(Ariz. 2006) FINOVA Capital Corporation, Plaintiff, v.
Richard A. Arledge, Inc., d/b/a Arledge Motor Co., et al.,
Defendants. No. CIV 02-1277-PHX RCB. United States
District Court, D. Arizona. August 31, 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,
Page 2 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


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 Page 3 excess of

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 Page 4 (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 Page 5 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

(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 Page 6 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”), Page 7 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

C. All equipment, new or used, including but not limited
to vehicles on lease or held for lease and all parts and

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 Page 8
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 Page 9
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. Page 10

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 Page 11 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,


(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. . . . Page 12

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.

. . . Page 13

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 Page 14 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. Page 15 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.
Page 16


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

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
Page 17 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

(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. Page 18

B. Conclusions of Law with Respect to Defendants’

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, Page 19 however, shall only be
calculated from the date Arledge obtained the Oak Rock
Financial Loan, May 22, 2003, (Exbt. 237), to September 30,

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 . . . Page 20 encourages the
parties to seek to agree as to the proposed form of