Opinion
C. A. PC-2015-4599
09-12-2022
GULATI FAMILY LIMITED PARTNERSHIP II Plaintiff, v. JCDH PROPERTIES, LLC THE CIOE COMPANIES, LLPRICHI INVESTMENT PROPERTIES, LLC JOHN M. CIOE, individually ROBERT A. CIOE, individually ROBERT R. CIOE, individually Defendants.
For Plaintiff: Charles D. Blackman, Esq. For Defendant: Robert Fine, Esq.
For Plaintiff: Charles D. Blackman, Esq.
For Defendant: Robert Fine, Esq.
DECISION
TAFT-CARTER, J.
This matter is before the Court for decision following a non-jury trial on Counts II-VI of the Amended Complaint filed by Plaintiff Gulati Family Limited Partnership II (GFLP). GFLP filed the instant action against Defendants JCDH Properties, LLC (JCDH), the Cioe Companies, LLP (TCC), RICHI Investment Properties, LLC, and John M. Cioe, individually, Robert A. Cioe, individually, and Robert R. Cioe, individually.
I
Travel of the Case
GFLP filed the operative complaint in this matter-i.e., the Amended Complaint-on June 23, 2021. The Amended Complaint contains six counts: Count I, Action on Promissory Note;Count II, Promissory Estoppel; Count III, Promissory Estoppel; Count IV, Garnishment/Constructive Trust; Count V, Misrepresentation and Fraud; and Count VI, Express Guaranty.
The original Complaint was filed on October 21, 2015. After discovery, GFLP moved to add an additional count (Count VI: Express Guaranty) on June 5, 2019. Following hearing on June 17, 2019, this Court granted Plaintiff's Motion to Amend Complaint. However, due to a harmless oversight on the part of GFLP's Counsel, the Amended Complaint was not filed until June 23, 2021, just before the start of trial. (Trial Tr. 3:12-21, July 12 and 13, 2021 (Tr.))
Count I is a claim against JCDH stemming from its October 2010 default on the GFLP Promissory Note. Summary judgment was previously granted against JCDH as to Count I. (Statement of Undisputed Facts (SUF) ¶ 14.)
Count II is a claim against TCC predicated upon its alleged promise to loan $650,000 to JCDH, GFLP's reliance on the alleged promise in the form of its $100,000 loan to JCDH, and TCC's alleged subsequent failure to loan the full $650,000.
Count III is a claim against all Defendants, except JCDH, to enforce their alleged oral guaranty of GFLP's loan to JCDH.
Count IV is a claim against TCC that seeks to have this Court garnish monies allegedly owed by TCC to JCDH and order them paid directly to GFLP, or alternatively, to have this Court impose a constructive trust in favor of GFLP.
Count V is a claim against all Defendants for alleged misrepresentation and fraud as to what GFLP alleges were Defendants' material misrepresentations in connection with loans to JCDH.
Count VI is a claim for express guaranty based on Defendants' alleged failure to reimburse GFLP for its losses on its loan to JCDH, a guaranty GFLP asserts is contained in section 2.4 of the Restated and Amended Operating Agreement (2005) of JCDH Properties LLC (Restated Operating Agreement).
On September 25, 2018, Judge Silverstein denied the parties' cross-motions for summary judgment. (Bench Decision (September 25, 2018) (Silverstein, J.).) First, with respect to GFLP's Motion for Partial Summary Judgment as to Count III, which was predicated upon GFLP's contention that section 2.4 of the Restated and Amended Operating Agreement (2005) of JCDH Properties LLC (Restated Operating Agreement) constituted a written "guaranty" by Defendants of GFLP's loan to JCDH, Judge Silverstein denied the motion, ruling that the language of section 2.4 was insufficient to constitute an enforceable guaranty under either Rhode Island or Arizona law. Id. at 3:8-16. First, Judge Silverstein noted that the language of section 2.4 was "so ambiguous because of the 'and/ors' and because of the language 'it is expected' so as to make that language not even sufficient as a memorandum to sustain the legal concept of guaranty in order to get out from under what we refer to as statute of frauds." Id. at 3:8-14. Second, with respect to Defendants' Cross-Motion for Summary Judgment as to the remaining counts, which was based on Defendants' assertion that it did fund a $650,000 loan to JCDH-a factual assertion contested by GFLP-Judge Silverstein denied the motion, finding Defendants' evidence "not sufficient in the face of [GFLP's] denial and in the lack of any evidence demonstrating receipt by [GFLP] or by [JCDH] of the $650,000." Id. at 4:6-9. Defendants' Renewed Motion for Summary Judgment was denied on October 17, 2019. See Docket PC-2015-4599.
GFLP's Motion for Partial Summary Judgment also requested summary judgment as to Count I, the claim against JCDH stemming from its October 2010 default on the terms of the GFLP Promissory Note. Summary judgment was previously granted against JCDH as to Count I. (SUF ¶ 14.)
Judge Silverstein elected not to address GFLP's secondary argument seeking to impose personal liability for a signature given in a corporate capacity, which he found without merit. Id. at 3:1-7 ("Much has been made and argued to the Court with respect to whether or not when one signs in a corporate capacity in this case passing as managing member of the LLC he personally can be liable on language of a guaranty. Here, based on the case law provided to the Court, the Court would answer that question, if it were appropriate under the circumstances, in the negative.")
This action proceeded to trial without a jury on July 12 and 13, 2021. At trial, GFLP presented the following witnesses: Ramesh Gulati, John M. Cioe, and Joseph Altieri. See Tr. Index. After conclusion of GFLP's case-in-chief, Defendants recalled John M. Cioe and also presented Robert R. Cioe. See id. The parties jointly submitted six full exhibits in advance of trial. GFLP offered an additional twenty-eight exhibits that were entered in full, while Defendants offered an additional eight exhibits that were also entered in full. At the close of GFLP's case-in-chief, and again at the close of trial, Defendants renewed their motion for entry of judgment on the pleadings pursuant to Rule 52(c) of the Superior Court Rules of Civil Procedure. GFLP objected to both motions, and the Court reserved ruling on both motions. (Tr. 134:10-135:5; 200:6-9.)
Joint Exhibits 1-6. (Tr. 5.)
GFLP's Exhibits 7, 9-23, 24, 25, 27, 28, 33-39 and 40. (Tr. 5, 48, 115, 134.)
Defendants' Exhibits E-J, L and M. (Tr. 199.)
The parties elected to submit post-trial briefs in lieu of closing arguments. (Tr. 200:10-21.) Both post-trial briefs were submitted on November 3, 2021. See Docket PC-2015-4599; see also Plaintiff Gulati Family Limited Partnership II's Proposed Findings of Fact and Proposed Conclusions of Law (Pl.'s Prop. Findings and Prop. Concl.) and Post-Trial Memorandum of Defendant Cioe Parties (Defs.' Post-Trial Mem.).) Jurisdiction is pursuant to Rule 52(a) of the Superior Court Rules of Civil Procedure.
II
Findings of Fact
The Court has reviewed the evidence presented at trial by the parties and makes the following findings of fact.
This action involves a dispute between investors in an Arizona real estate development project as to whether GFLP, an investor in the project, is entitled to recover from Defendants, fellow investors in the project, the losses GFLP experienced when JCDH, the real estate developer, defaulted on a $100,000 loan from GFLP.
JCDH also defaulted on Defendant TCC's loan to JCDH, which totaled $235,000. (Tr. 49:6; 158:9-20.)
Restated and Amended Operating Agreement (2005) of JCDH Properties LLC
The real estate development project giving rise to the instant litigation was in Marana, Arizona and was known as "Serenita at Saguaro Ranch." (Tr. 8:7-25.) JCDH, an Arizona limited liability company formed in 2004, had previously acquired the development rights to the thirteen-lot Serenita subdivision. (SUF ¶ 4.) JCDH was organized pursuant to an Operating Agreement dated June 25, 2004, which was restated and amended on June 21, 2005 as the Restated and Amended Operating Agreement (2005) of JCDH Properties LLC (Restated Operating Agreement).
The Restated Operating Agreement, a comprehensive and detailed agreement, contains key terms of JCDH's formation and governance, including its formation as an Arizona limited liability company, its purpose, and its capitalization, as well as the rights and duties of its members, including such details as profits, losses, and distributions, and various other provisions essential to the running of the company. Included within these provisions are several terms relevant to the instant litigation, including a provision concerning "Member Loans":
Section 2.4 of the Restated Operating Agreement provides:
"2.4 Member Loans. If funds are needed by the Company, Members may make such loans to the Company in such amount as the Members reasonably determine is needed. It is expected that Al Mansfield and/or AJM Investments, John Cioe, Robert Cioe and/or A.J.R. Investments L.L.C. will, if required, guaranty ("Personal Guaranty") loans to the Company for use as operating capital."
Additional key terms of the Restated Operating Agreement, include (1) a provision governing any future additions or amendments to the Restated Operating Agreement, (2) a merger clause, (3) a choice of law provision, and (4) section 6.8, a provision relating to member loans to the company, which states:
Section 1.9(f) of the Definitions section of the Restated Operating Agreement provides: "'Agreement': this written Restated and Amended Operating Amendment (2005). No other document or oral agreement among the Members shall be treated as part of or superseding this Agreement unless it is reduced to writing and it has been signed by all of the Members."
Section 10.5 of the Miscellaneous Provisions section of the Restated Operating Agreement contains the following merger clause, which provides:
"10.5 Entire Agreement. This Agreement including the exhibits and schedules hereto, if any, contains the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, express or implied, oral or written, among the parties with respect to such subject matter. The express terms of this Agreement shall control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Each of the exhibits and schedules hereto is incorporated herein by this reference and constitutes a part of this Agreement."
Section 10.8 of the Miscellaneous Provisions section of the Restated Operating Agreement contains the following choice-of-law provision:
"10.8 Arizona Law to Govern. The enforcement, performance, discharge, lack of performance and formation of this Agreement shall be governed by, and construed and enforced in accordance with, the law of the State of Arizona, regardless of any applicable conflict-of-law rules to the contrary."
"6.8 Loans to Company. Nothing in this Agreement shall prevent any Member from making secured or unsecured loans to the Company by agreement with the Company. All such loans shall be evidenced by a promissory note executed by the Company and shall contain such terms and conditions as are commercially reasonable or as may be agreed to by the Members."
GFLP's Investment in JCDH
GFLP's initial investment in JCDH's Arizona real estate development project came about as a result of discussions that began in August 2005 at a family barbeque hosted by attorney Joseph Altieri (Altieri) at his home in Narragansett, Rhode Island. (Tr. 7:1-4; 7:7-9; 74:3-5; 127:5-11.) In attendance was Ramesh Gulati (Gulati), a friend of Altieri who is a certified financial planner, financial advisor, and owner of his own registered investment advisory firm dealing in financial products including stocks, bonds, mutual funds, exchange trade funds, private placements, and real estate. (Tr. 6:5-14; 7:7-9; 11:9-15; 124:2-11; 127:5-19.) Gulati is the managing partner of GFLP, a Rhode Island limited partnership (SUF ¶ 1) and the vehicle through which Gulati managed the money and assets of his family. (Tr. 6:15-25.) Also in attendance was Altieri's nephew, John M. Cioe. (Tr. 8:13-18.) At the time, John M. Cioe was a general partner of TCC, an Arizona limited liability partnership, and his brother, Robert R. Cioe, and father, Robert A. Cioe are or were partners in TCC. (SUF ¶¶ 2-3.) (Tr. 7:12-25.)
There was a discrepancy at trial as to who hosted the barbeque. Joseph Altieri testified that he hosted the barbeque (Tr. 127:5-6), while Ramesh Gulati testified that the barbeque was at the home of Robert A. Cioe. (Tr. 7:5-23.) Joseph Altieri's backyard and Robert A. Cioe's backyard are contiguous. (Tr. 127:5-14.)
John M. Cioe was a general partner of TCC at all pertinent times in 2009 and 2010. (SUF ¶ 3.)
During the August 2005 event, Gulati and John M. Cioe discussed the Arizona real estate development project known as "Serenita at Saguaro Ranch." (Tr. 8:4-25; 127:15-22.) Intrigued by the potential investment opportunity, as well as by stories of the Cioes' recent success in the world of Arizona real estate development, Gulati kept in touch with John M. Cioe. (Tr. 8:13-25; 9:19-25.)
On or about August 11, 2005, GFLP purchased a 1 percent membership stake in JCDH through an initial investment of $50,000. (SUF ¶ 6.) (Tr. 11:4-6.) In connection with becoming a member of JCDH, GFLP signed a Joinder Agreement to the Restated Operating Agreement (Joinder Agreement), which was executed later that month. (SUF ¶ 6.) (Tr. 12:16-13:18.) GFLP acknowledges that it is "an experienced investor" and also that it "appreciated that there were risks associated with the . . . investment," (SUF ¶ 7) (Tr. 13:19-22), and Gulati testified at trial that he received the Joinder Agreement and was aware of the "high degree of risk" of "loss by [the investor] of its entire investment." (Tr. 51:15-24.) GFLP makes no claim in the present action to recover GFLP's lost equity investment of $50,000. (SUF ¶ 7.) (Tr. 13:19-35.)
Gulati made the $50,000 equity investment on behalf of both GFLP and Altieri, with Gulati fronting $25,000 for Altieri. (Tr. 11:9-12:14; 128:15-129:9.)
GFLP's and TCC's 2009 Emergency Loans to JCDH
By late 2009, the real estate market in Arizona was declining rapidly as the global financial crisis continued to devastate the nation's real estate market. (Tr. 16:15-22; 137:17-22.) By October 2009, JCDH was facing a severe liquidity shortage that threatened to derail the Serenita project. (Tr. 16:5-7; 16:17-22.) JCDH was responsible for significant payments to Marshall and Isley Bank (M & I Bank) on several aggregated loans, and these payments were coming due toward the end of October 2009. (Tr. 87:4-15.) Seeking to forestall foreclosure, members of JCDH took measures to secure emergency funding, including TCC, which set in motion a loan to JCDH. (Tr. 136:12-24.) In the course of arranging for such funding, agreements, described below, were drafted and communicated to all members of JCDH, including GFLP and Gulati, seeking authorization for such loans. (Tr. 136:20-24.)
The payments totaled approximately $109,808.15 (Tr. 22:4-8.)
When Gulati learned of the terms of the prospective loans from TCC to JCDH-which included a 12 percent annual interest rate as well as a 3 percent origination fee, with an interest rate that went up to 18 percent in the event of any defaults-he became interested in having GFLP lend money to JCDH on the same terms, which he characterized during his trial testimony as "pretty good terms." (Tr. 17:2-8.) Gulati also testified that he was aware that JCDH "was going bankrupt" and needed money to get through the downturn in the Arizona real estate market. (Tr. 16:15-22; 17:15-17.) The terms involved-a 3 percent origination fee and a 12 percent annual rate of interest-were characterized by John M. Cioe at trial as "a customary hard loan deal at the time in Arizona." (Tr. 136:16-24.)
There was some discrepancy at trial as to who proposed that GFLP loan money to JCDH: Gulati testified that upon receiving the e-mail seeking authorization for TCC to loan money to JCDH, he called John M. Cioe immediately because he was concerned about the company. (Tr. 16:8-14.) Gulati testified as to his conversation with John M. Cioe, "I said, I'm like, hey, you know, those are - you know, those are good terms for the company, and he said - he said, yeah, you know, they were and, if I liked them so much, I could get involved." (Tr. 17:9-14.) John M. Cioe testified that he did not approach Gulati requesting a loan, but rather that the GFLP loan came about as a result of the notice to JCDH members of the TCC loan to JCDH. (Tr. 136:12-14.) According to John M. Cioe, following that e-mail notification, Gulati "contacted me and he called me up and asked about the loan, asked about the terms, and asked if he could get a piece of it." (Tr. 136:15-137:4.)
In connection with TCC's loan to JCDH and with GFLP's subsequent loan to JCDH, TCC and GFLP each executed two key agreements: Each executed with JCDH (1) a Promissory Note memorializing its respective loan agreement with JCDH, and for each Promissory Note, the members of JCDH executed with TCC and GFLP, respectively, (2) a corresponding Agreement to Loan Terms and Amendment to Operating Agreement of JCDH Properties LLC, made effective October 21, 2009. (SUF ¶ 10.) For ease of reference, the Court will refer herein to the GFLP documents as the GFLP Agreement to Loan Terms and the GFLP Note, and to the TCC documents as the TCC Agreement to Loan Terms and the TCC Note.
The key provisions of these agreements were as follows:
Agreement to Loan Terms and Amendment to Operating Agreement
Each Agreement to Loan Terms and Amendment to Operating Agreement of JCDH (Agreement to Loan Terms) contains several provisions governing the terms of loans and potential loans to JCDH during this critical time. Each Agreement to Loan Terms, made effective as of October 21, 2009 as to both TCC and GFLP, was entered into by "all of the members of JCDH . . . for the purpose of agreeing to the terms of one or more loans contemplated to be made . . . to [the] Company."
Because the GFLP Agreement to Loan Terms and the TCC Agreement to Loan Terms are substantially identical, the Court will first outline the provisions shared by both agreements and will then outline the key additions contained only in the GFLP Agreement to Loan Terms.
The members and signatories included members of GFLP and TCC. (Agreement to Loan Terms 1.)
A separate Agreement to Loan Terms was executed in connection with both (1) the TCC Note and (2) the GFLP Note. Although the two Agreements to Loan Terms are substantially similar in many respects-including the key terms of the two loans, such as the interest rate (12 percent per annum) and the origination fee (3 percent of the principal amount)-the GFLP Agreement to Loan Terms contains an additional provision, excerpted below, providing that GFLP's loan "shall be paid in full before any other such loans are repaid."
The key provisions shared by both Agreements to Loan Terms are as follows:
First, the Agreements to Loan Terms contain several "WHEREAS" clauses outlining the market conditions giving rise to the need for additional funds and outlining the members' objectives in entering into the agreements:
"WHEREAS, in light of the state of the economy and the depressed nature of the real estate market in Arizona, the Company needs funds to service the existing real property loans encumbering its real properties to fend off foreclosure until the market recovers." (Agreement to Loan Terms 1.)
In particular, as set forth in the final WHEREAS clause, the members agreed to the terms under which member TCC was permitted to loan funds to JCDH, although the Agreements to Loan Terms make clear that the loan from TCC was merely contemplated by TCC, for it outlined loan terms only "to the extent [that] TCC, in its absolute discretion, determines to do so":
"WHEREAS, the parties desire to agree to the terms under which TCC will loan funds to the Company, to the extent [that] TCC, in its absolute discretion, determines to do so." (Agreement to Loan Terms 1) (emphasis added).
The other WHEREAS clause noted that the other members "ha[d] advised that they [were] unwilling or not required . . . to make additional loans or capital contributions to the Company at this time." (Agreement to Loan Terms 1.)
Second, the Agreements to Loan Terms specifically include the "Loan Terms" under which GFLP and TCC each agreed to fund their respective loans to JCDH. A significant portion of the Agreements to Loan Terms executed in connection with the loans to JCDH are devoted to setting forth the terms of the loans. Section 1, Loan Terms, specifies the annual interest rate and origination fee:
"1. Loan Terms. Pursuant to Sections 2.4 and 6.8 of that certain Restated and Amended Operating Agreement (2005) dated June 21, 2005 . . . the parties agree that any loans from [the lender] to [JCDH] on or after the date of this Agreement shall bear simple interest at the rate of twelve percent (12%) per annum, compounded annually, until paid in full. In addition, [the lender] shall receive an origination fee in the amount of three percent (3%) of the principal amount of each such loan, such fee to be paid to [the lender] at the time of the funding of any such loans." (Agreement to Loan Terms 1) (emphasis added).
Third, the Agreements to Loan Terms include section 2, the "Company Distribution Priority," pursuant to which GFLP and TCC each agreed to fund separate loans to JCDH. The first sentence of the "Company Distribution Priority" contains an identical provision establishing that both TCC and GFLP had priority to recover on their emergency loans to JCDH over the capital investments of other JCDH members:
"2. Company Distribution Priority. Notwithstanding anything in the
[Restated] Operating Agreement to the contrary, in consideration of any loans [the lender] hereafter extends to [JCDH], the members of [JCDH] agree that there will be no distributions from [JCDH] to its members (whether in the form of equity distributions or in connection with loans made prior to the date of this Agreement) until the principal and all accrued but unpaid interest on any loans made by [the lender] to [JCDH] pursuant to this Agreement are satisfied in full, together with all origination fees contemplated herein." (Agreement to Loan Terms 1-2) (emphasis added).
Finally, in terms of language, signatories, and structure, the GFLP Agreement to Loan Terms largely mirrors the TCC Agreement to Loan Terms, but with a key difference: The GFLP Agreement to Loan Terms contains the following additional provision in section 2, the "Company Distribution Priority":
"2. Company Distribution Priority If and to the extent loans are made to JCDH after October 15, 2009 by one or more of its members, unless all of the payee members with respect to such loans agree otherwise, the principal amount and
accrued but unpaid interest on such loans shall be repaid by JCDH based on a "last in first out" basis, pursuant to which the last of such loans to be made are repaid before the earlier loans; provided, however, that the $103,092.80 contemplated to be loaned by the GFLP shall be paid in full before any other such loans are repaid." (GFLP Agreement to Loan Terms at 2) (emphasis added).
Promissory Notes - GFLP and TCC
JCDH executed a Promissory Note to GFLP, made effective as of October 21, 2009 (the GFLP Note), and contemporaneously executed a separate Promissory Note to TCC, made effective as of October 15, 2009 (the TCC Note). (SUF ¶ 9.)
The two promissory notes are very similar: First, both promissory notes set forth identical key terms of the two loans: the interest rate (12 percent per annum) and the origination fee (3 percent of the principal amount). (TCC Note 1, (SUF, Ex. 4).)
Second, both promissory notes contain a substantially similar provision giving each lender-TCC and GFLP, respectively-"absolute discretion" as to the amount to loan to JCDH.
The TCC Note, executed in connection with TCC's loan to JCDH, provides TCC with "absolute discretion" as to the amount to loan to JCDH. Pursuant to the TCC Note, JCDH "promise[d] to pay . . . the principal sum of SIX HUNDRED FIFTY THOUSAND DOLLARS ($650,000), or so much thereof as [TCC], in its absolute discretion, determines to advance to [JCDH] pursuant to the terms of this Note . . . ." (TCC Note 1) (emphasis added). In addition, just below the document title, "PROMISSORY NOTE," the TCC Note bears a legend stating, "Up to $650,000." (TCC Note 1 (SUF, Ex. 4) (emphasis added).)
The GFLP Note, executed in connection with GFLP's loan to JCDH, provides GFLP with "absolute discretion" as to the amount to loan to JCDH: Pursuant to the GFLP Note, JCDH "promise[d] to pay . . . the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or so much thereof as [GFLP], in its absolute discretion, determines to advance to [JCDH] pursuant to the terms of this Note . . . ." (GFLP Note 1 (SUF, Ex. 3) (emphasis added).)
Third, there are some key differences between the two promissory notes: First, just below the document title, "PROMISSORY NOTE," the GFLP Note bears a legend with the figure "$100,000," (GFLP Note 1 (SUF, Ex. 3)), whereas the corresponding legend on the TCC Note states "Up to $650,000." (TCC Note 1 (SUF, Ex. 4) (emphasis added).) Second, the GFLP Note includes two additional terms: (1) a "[t]ime is of the essence" provision, and (2) a choice of law provision indicating that the Note shall be construed according to Arizona law. (GFLP Note 2-3 (SUF, Ex. 3.).)
During the period these agreements were being negotiated and drafted, and multiple times between October 19 and October 22, 2009, John M. Cioe and Gulati discussed the need for additional capital to cover JCDH's loans to M & I Bank. Following these conversations, GFLP wired $100,000 to JCDH's account at M & I Bank. (SUF ¶ 8.) This transaction took place on October 22, 2009, the day payments on JCDH's loans to the bank were due. (Tr. 136, 185, 187). TCC's loans to JCDH from October 2009 to July 9, 2010 totaled $217,500. After July 9, 2010, TCC loaned an additional $17,500 to JCDH. The total amount loaned to JCDH by TCC during the 2009-2010 period was $235,000. (Pl.'s Ex. 40; Defs.' Exs. H, G; Tr. 49:6; 158:9-20; 179:1-5.)
Over the course of the entire project, TCC loaned JCDH a total of approximately $7 million. (Tr. 66:23-24.)
JCDH's 2010 Default on the GFLP and TCC
In July 2010, John M. Cioe sent an e-mail to the members of JCDH (including Gulati) reporting that "market conditions have continued to decline and JCDH [] is currently negotiating with [M & I Bank] to negotiate the bulk sale of some or all of the remaining assets of JCDH Properties." (Pl.'s Ex. 27.) Gulati testified at trial that he was shocked to receive John M. Cioe's July 2010 e-mail, and that he became "very nervous," stating that at the time, "everything else I had heard was everything was going fine" on the Serenita project. (Tr. 43:18-22.) By late 2010, it was determined by John M. Cioe that TCC should discontinue providing any additional loans to JCDH because the real estate development project no longer appeared to be viable. (Tr. 117:5-22.) JCDH subsequently defaulted on both the GFLP Note and the TCC Note. (SUF ¶ 11.)
GFLP's 2010 Demand on Defendants
In October 2010, just over a year after GFLP wired $100,000 to JCDH's account, Gulati demanded payment on the GFLP Note from JCDH. (SUF ¶ 12; Tr. 44:6-7.) Gulati also demanded payment from TCC and all three Cioe family members individually, claiming a "guaranty" that the Cioes deny making: that John M. Cioe orally represented to Gulati that the GFLP Note would be backed by "the full faith and credit of the Cioe family." (SUF ¶ 13; Tr. 45:6-11.) That statement was repeatedly denied by John M. Cioe at trial; when asked several times whether he had ever promised to guarantee GFLP's loan to JCDH or "ever use[d] the word 'full faith and credit'" during his discussions with Gulati, John M. Cioe testified that he had not. (Tr. 19:12-13; 35:9-10; 56:18-20; 142:9-10; Pl.'s Ex. 28.)
Namely, John M., Robert A., and Robert R. Cioe.
Although Gulati testified at trial that he is a certified financial planner, and familiar with the concept of loan guarantees (Tr. 50:17-20), nevertheless he conceded that he never asked for a written guarantee when he made the commitment for GFLP to loan $100,000 to JCDH, asserting that instead, he asked for "personal guarantees from the Cioe family." (Tr. 56:8-57:1.) He also asserted that at the time of the loan, he "wasn't going to be putting money into a project that was going into foreclosure without guarantees," and insisted that John M. Cioe represented at the time that such guarantees would be in the written documents surrounding the loan. (Tr. 56:4-7; 56:10-24.) Despite the e-mails and other communications to which Gulati alluded during trial, there is no evidence in the record of the instant litigation of any written communication indicating any sort of expression to the effect that TCC or the Cioe family would guarantee GFLP's debt to JCDH, and Gulati conceded at trial that he "d[id] not have any written guarantees from anyone in regard to [the GFLP Note]." (Tr. 55:10-13.) Moreover, as described above, such written guarantees, in fact, appear nowhere in the agreements executed in connection with GFLP's loan to JCDH. The instant litigation subsequently ensued.
Gulati conceded at trial that, at the time GFLP was making the commitment to loan $100,000 to JCDH, Gulati did not seek a written guaranty of GFLP's loan. Later, however, during the instant litigation, GFLP added Count VI to the Amended Complaint. As described above, Count VI was based on the allegation that section 2.4 of the Restated Operating Agreement contained a written guaranty of the GFLP loan to JCDH. In its post-trial briefing, GFLP notes that this count "is out of logical order with the other counts because GFLP did not have a copy of the Restated Operating Agreement at the time the original complaint was filed and received it only through this action." (Pl.'s Prop. Findings and Prop. Concl. 29, n.5) (emphasis added). Although GFLP acknowledges that it became aware of section 2.4 only through discovery in the instant action, GFLP nevertheless asserts that "[t]he promise that both loans would be guaranteed by the Cioes is captured by the express language 'pursuant to Section 2.4 . . . of the Restated Operating Agreement,' which refers to an obligation by the original investors in JCDH to personally guaranty 'Member Loans' to the company." (Pl.'s Prop. Findings and Prop. Concl. 2.)
Gulati calculated that the amount of $682,400.61 was due under the GFLP Note as of July 12, 2021, the start date of the trial. (Pl.'s Ex. 34; Tr. 49-50.)
III
Standard of Review
Rule 52(a) of the Superior Court Rules of Civil Procedure states that "[i]n all actions tried upon the facts without a jury . . . the court shall find the facts specially and state separately its conclusions of law thereon[.]" Super. R. Civ. P. 52(a). In a non-jury trial, "'[t]he trial justice sits as a trier of fact as well as of law.'" Parella v. Montalbano, 899 A.2d 1226, 1239 (R.I. 2006) (quoting Hood v. Hawkins, 478 A.2d 181, 184 (R.I. 1984)). In that role, the trial justice "'weighs and considers the evidence, passes upon the credibility of the witnesses, and draws proper inferences.'" Id. (quoting Hood, 478 A.2d at 184). "Also, it is permissible for the trial justice to draw inferences from the testimony of witnesses, and such inferences, if reasonable, are entitled on review to the same weight as other factual determinations." Rhode Island Mobile Sportfisherman, Inc. v. Nope's Island Conservation Association, Inc., 59 A.3d 112, 118 (R.I. 2013) (citing Cahill v. Morrow, 11 A.3d 82, 86 (R.I. 2011)) (internal quotations omitted).
The trial justice "'need not engage in extensive analysis to comply with'" the requirements of Rule 52(a). JPL Livery Services, Inc. v. State of Rhode Island Department of Administration, 88 A.3d 1134, 1141 (R.I. 2014) (quoting Connor v. Schlemmer, 996 A.2d 98, 109 (R.I. 2010)). The "trial justice's analysis of the evidence and findings in the bench trial context need not be exhaustive," and "if the decision reasonably indicates that [the trial justice] exercised [his or her] independent judgment in passing on the weight of the testimony and the credibility of the witnesses[,] it will not be disturbed on appeal unless it is clearly wrong or otherwise incorrect as a matter of law." Id. (alteration in original) (quoting Notarantonio v. Notarantonio, 941 A.2d 138, 144-45 (R.I. 2008)).
IV
Analysis
A
Choice of Law
Rhode Island courts generally honor contractual choice-of-law provisions in which the parties to a contract stipulate to the applicable law governing their transaction. Sheer Asset Management Partners v. Lauro Thin Films, Inc., 731 A.2d 708, 710 (R.I. 1999) (citing Owens v. Hagenbeck-Wallace Shows Co., 58 R.I. 162, 172, 192 A. 158, 164 (1937)).
In this case, the Restated Operating Agreement contains a choice-of-law provision specifying that Arizona law is to govern enforcement and interpretation of the contract. The Court will therefore apply Arizona substantive law to the parties' disputes regarding their rights and obligations under various contractual provisions. However, the Rhode Island Supreme Court has held "that 'the procedural law of the forum state applies even if a foreign state's substantive law is applicable.'" State v. Briggs, 756 A.2d 731, 735 (R.I. 2000) (quoting Israel v. National Board of Young Men's Christian Association, 117 R.I. 614, 620, 369 A.2d 646, 650 (1977)).
Section 10.8 of the Miscellaneous Provisions section of the Restated Operating Agreement contains the following choice-of-law provision:
"Arizona Law to Govern. The enforcement, performance, discharge, lack of performance and formation of this Agreement shall be governed by, and construed and enforced in accordance with, the law of the State of Arizona, regardless of any applicable conflict-of-law rules to the contrary."
B Count VI: Express Guaranty
Count VI alleges violation by Defendants of an "express guaranty" for failure to reimburse GFLP for the losses it experienced when JCDH defaulted on GFLP's loan. GFLP contends that section 2.4 of the Restated Operating Agreement constitutes an "express guaranty," by Defendants to GFLP, on GFLP's Note, and further alleges that Defendants have breached this purported "express guaranty" by refusing to reimburse GFLP for losses stemming from JCDH's default. Count VI was not asserted in the original Complaint, but instead was the sole count added to the Amended Complaint. However, Count VI should logically be considered before the other counts that went forward at trial: Count VI is the only claim brought by GFLP that is asserted squarely on the basis of a writing, section 2.4 of the Restated Operating Agreement, whereas the remaining counts-promissory estoppel, garnishment/constructive trust, and misrepresentation and fraud- are based largely on Defendants' alleged breach of purported oral promises.
It does not appear that Gulati relied on section 2.4 of the Restated Operating Agreement in making the decision to make a loan to JCDH, because he testified at trial that he "first s[aw] the Restated . . . Operating Agreement" during the discovery phase of the instant litigation. (Tr. 50:21-24.) Moreover, GFLP has asserted that Count VI was added after discovery in the instant litigation "revealed that the Restated Operating Agreement itself expressly provides the very assurance on which Gulati relied in executing the Note" to JCDH. (Mem. Supp. Pl.'s Mot. Partial Summ. J. 5.) Gulati did, however, state that the terms of the Joinder Agreement to which he agreed in connection with his initial $50,000 equity investment provided that as a "Joining Member," he "acknowledge[d] receipt of a copy of [the Restated Operating Agreement]." (Tr. 50:25-51:14.)
1
Law of the Case Doctrine
Before analyzing whether section 2.4 of the Restated Operating Agreement constitutes an "express guaranty" obligating Defendants to reimburse GFLP for the losses it incurred on its loan to JCDH, it is important to note that the Court previously ruled on this precise issue earlier in the instant litigation. Under the law of the case doctrine, a court is ordinarily precluded from reexamining an issue previously decided by the same court, and our Supreme Court has stated that "the 'law of the case' is a well-established doctrine" under Rhode Island law. Goodman v. Turner, 512 A.2d 861, 864 (R.I. 1986) (citations omitted). The cases discussing this doctrine make clear that "after a judge has decided an interlocutory matter in a pending suit, a second judge, confronted at a later stage of the suit with the same question in the identical manner, should refrain from disturbing the first ruling." Id. (citations omitted). "[T]he doctrine does not apply," however, when the court is "presented with an expanded record," in which case "it is within the trial justice's sound discretion whether to consider the issue." Id. (citations omitted).
It was previously decided that GFLP's Motion for Partial Summary Judgment, predicated upon GFLP's contention that section 2.4 of the Restated Operating Agreement constituted an "express promise of a guaranty" by Defendants for "secondary liability" for GFLP's loan to JCDH, was denied. (Mem. Supp. Pl.'s Mot. Partial Summ. J. 5.) It was concluded that the language of section 2.4 was insufficient to constitute an enforceable guaranty under either Rhode Island or Arizona law. (Bench Decision, September 25, 2018 (Silverstein, J.) 3:1-16.) In particular, the conditional language of section 2.4 was "so ambiguous because of the 'and/ors' and because of the language 'it is expected' so as to make that language not even sufficient as a memorandum to sustain the legal concept of guaranty in order to get out from under what we refer to as statute of frauds." Id. at 3:8-14.
GFLP's Motion for Partial Summary Judgment sought summary judgment on Counts I and III of the original Complaint. Count III, analyzed below, is a claim for promissory estoppel against all Defendants except JCDH on the ground that Defendants John M. Cioe, Robert A. Cioe, and Robert R. Cioe promised that GFLP's loan to JCDH would be "backed by the full faith and credit of the Cioe Family," including TCC and RICHI. However, the Motion for Partial Summary Judgment also contained additional allegations, namely that "discovery has since revealed that the Restated Operating Agreement itself expressly provides the very assurance on which Gulati relied in executing the Note" to JCDH. (Mem. Supp. Pl.'s Mot. Partial Summ. J. 5.)
At trial and in its post-trial memorandum, GFLP once again asserted that section 2.4 of the Restated Operating Agreement constitutes an "express guaranty" obligating Defendants to reimburse GFLP for its losses on its loan to JCDH-and asserted that such an "express guaranty" satisfies the Statute of Frauds. GFLP asserted this argument on "the same question" and in a substantially "identical manner" as it was presented in its Motion for Partial Summary Judgment that was previously denied. See Goodman, 512 A.2d at 864.
Clearly, section 2.4 of the Restated Operating Agreement does not constitute an "express guaranty." Furthermore, pursuant to the law of the case doctrine, the analysis could end there. However, in view of the trial, the Court undertakes its own analysis of section 2.4.
2
Section 2.4 of the Restated Operating Agreement
Section 2.4 of the Restated Operating Agreement provides:
"2.4 Member Loans. If funds are needed by the Company, Members may make such loans to the Company in such amount as the Members reasonably determine is needed. It is expected that Al Mansfield and/or AJM Investments, John Cioe, Robert Cioe and/or A.J.R. Investments L.L.C. will, if required, guaranty ("Personal Guaranty") loans to the Company for use as operating capital." (emphasis added).
Section 2.4 does not create an enforceable "express guaranty." Instead, section 2.4 contains provisions contemplating (1) what all members are permitted to do in connection with potential future loans to JCDH, and (2) what certain members are "expected" to do, in the future, if certain contingencies arise: If the need for loans arises in the future, loans may be made to JCDH by its members, and it is expected-though not, by the terms of section 2.4, required-that various entities and individuals will, if required, provide a "personal guaranty" on such theoretical future loans. Although section 2.4 offers a general outline of what the parties contemplate they may do in the future, nowhere does it contain any sort of enforceable promises.
First: The first sentence of section 2.4 provides that in the event of a future contingency ("[i]f funds are needed by the Company"), JCDH members are allowed-though not required- to make loans to the company, and they may determine the loan amounts. This provision states explicitly: "Members may make such loans to the Company in such amount as the Members reasonably determine is needed." (Section 2.4 (emphasis added).) This first provision is, by its clear language, permissive rather than mandatory. It is well settled that the term "may" carries a particular meaning when used in a contract: "The use of the word 'may' generally indicates permissive intent, while 'shall' and 'will' denote a mandatory provision." Ball v. Ball, 478 P.3d 704, 708 (Ariz.Ct.App. 2020) (citing City of Chandler v. Arizona Department of Transportation, 167 P.3d 122, 126 (Ariz.Ct.App. 2007). In Ball, the Arizona Court of Appeals held that the word "may" as used in a "parenting plan" imposed in connection with a divorce decree was merely "permissive" and thus did not create a mandatory legal obligation. A provision stating that "[e]ach parent may take the minor children to a church or place of worship of his or her choice" created a permissive framework: The word "may" did not create "ambiguity," but instead the use of the word "may" was held to "indicate permissive intent." Id. at 708 (emphasis added).
In this case, section 2.4's use of the term "may" is merely "permissive"-permitting that "Members may make such loans to the Company in such amount as the Members reasonably determine is needed"-but does not create an enforceable legal obligation. This conclusion is reinforced by the broader context of the Restated Operating Agreement, a comprehensive and detailed agreement containing key terms of JCDH's governance, because the Restated Operating Agreement sets forth numerous mandatory provisions that use the term "shall" to establish binding obligations, but it also contains permissive provisions-such as section 2.4-that use the term "may" to establish mere permissions rather than enforceable obligations.
See, for example, section 1.1 Formation ("[t]he parties shall immediately . . . execute all amendments of the Articles of Organization") (emphasis added); section 1.4 Place of Business ("[t]he principal place of business of the Company shall be 17255 N. 82nd Street, Suite 3, Scottsdale, AZ 85255, or such other place as the Members shall determine") (emphasis added).
See, for example, section 3.3 Bank Accounts; Books ("The Managing Member may from time to time open bank accounts in the name of the Company[.]") (emphasis added).
Second: The second sentence of section 2.4 provides that if both of the future contingencies outlined in the first sentence should arise-namely, that (1) if "funds are needed by the Company," and (2) if members choose to loan money to the Company, and "in such amount" as they "reasonably determine is needed," then "[i]t is expected that [particular members of the Company] will, if required, guaranty ("Personal Guaranty") loans to the Company[.]" (Section 2.4 (emphasis added).) The second sentence of section 2.4 is, by its clear language, entirely precatory rather than binding: This provision speaks in terms of an "expectation" as to what certain members of the Company might provide-"if required" in connection with potential future loans by other members-but does not create an enforceable obligation that they provide such guarantees.
It is a well-settled principle of contract law that a statement of "expectation" or "intention" does not create a binding contractual obligation, and for that reason, the party to whom a statement of intention or expectation is made is not justified in relying on it as an enforceable promise. Arizona courts have repeatedly applied the principle that "[a]n expression of an intention to do something is not a promise," and therefore words of mere "intent" do not create a binding obligation. School District No. 69 of Maricopa County v. Altherr, 458 P.2d 537, 544 (Ariz.Ct.App. 1969) (in action by building contractor against school board alleging breach of contract to purchase a building, contractor's reliance on board's written statement that it "intended" and "desired" to purchase building was not justified because words of mere "intent" do not create binding obligation). Accord Johnson International, Inc. v. City of Phoenix, 967 P.2d 607, 613 (Ariz.Ct.App. 1998) (holding developer did not have binding enforceable contract with city because city's signing of a memorandum of understanding regarding prospective contract did not constitute enforceable promise, and noting that "an expression of intention to do something is not a promise").
Courts consistently apply the principle that a statement of "expectation" or "intention" does not create a binding contractual obligation, and have done so in cases involving loan agreements. Walker v. Gwinnett Hospital System, Inc., 588 S.E.2d 441, 444 (Ga.Ct.App. 2003). In Walker, a written agreement was executed between a hospital and a doctor who obtained a loan from the hospital. 588 S.E.2d at 443. The agreement did not specify the date of loan repayment, but instead stated that, "[i]t is the joint expectation of [the hospital] and [the doctor] that [the doctor] will have paid back in full the amount . . . within twelve (12) months [of] beginning the payback." Id. (emphasis added). The court held that the term "expectation" did not create a binding obligation that the loan would be repaid in that time, but was a "mere expression[] of opinion, hope, expectation, and the like." Id. at 444. "[T]his aspirational statement was simply an expression of hope or anticipation that [the doctor/borrower] would pay back the loan within those first 12 months. It was not couched in the mandatory language of a contractual obligation that the parties had used [elsewhere in the document]." Id. For that reason, a party to whom a mere "expectation" is conveyed "is not justified in relying upon it." Id.
Similarly, in a case involving a property development contract made between an owner of a real-estate company and others involved in the property development project, the following language was held to be merely aspirational and therefore created "[n]o contractual obligation:" "Parties contemplate that [the real-estate company] and [one of the participants] shall handle leasing, rental collection, and management of the entire project." Western Homes, Inc. v. Herbert Kettell, Inc., 45 Cal.Rptr. 856, 857 (Cal. Dist. Ct. App. 1965) (emphasis added). Interpreting the term "contemplate," the court held that "[n]o contractual obligation is contained in the paragraph," explaining: "There is at most an agreement to agree, which is not a contract, because either party may refuse to agree." Id. at 858. "The parties merely expressed what was 'contemplated,'" and such language "indicates an expectation or intention rather than a promise or undertaking." Id. (explaining that because no definite terms were present, the language was "uncertain" and thus "too indefinite to be contractual").
In this case, section 2.4 creates no legally enforceable commitment either (1) on the part of JCDH members to loan money to JCDH, or (2) on the part of the certain named members to provide a "personal guaranty" on any such putative future loans by members. By its clear language, the first part of section 2.4-which says members "may" loan money "if needed"-is merely permissive, and merely allows, but does not require, that members "may" make loans to the company in the future. Further, by the clear language of the second part of section 2.4, "it is expected" that certain other members "will, if required," provide a personal guaranty on such loans, but does not create any binding obligation on Defendants to provide a personal guaranty of potential future loans by members. The provision speaks in terms of an "expectation," and well-settled contract law establishes that language of "expectation" or "contemplation" or "intention" does not create a legally binding obligation upon which anyone can rely. It is "at most an agreement to agree, which is not a contract, because either party may refuse to agree." Western Homes, Inc., 45 Cal.Rptr. at 858. Finally, even if a member were to choose to loan money to JCDH and sought a guaranty from one of the individuals or entities listed in section 2.4, those individuals or entities do not have an enforceable commitment to do so, because it was expressed as a mere "expectation" but not couched in the mandatory language of a contractual obligation.
GFLP's interpretation of section 2.4-that "all such loans will be personally guaranteed by John . . . and Robert Cioe and others . . . ." (Pl.'s Pretrial Mem. at 3)-is rebutted by the merely permissive language ("may"), the merely precatory language ("[i]t is expected"), and the merely conditional language ("if required") of the provision. Arizona case law requires that "[a] contract must be construed so that every part is given effect." Phillips v. Flowing Wells Unified School District No. 8 of Pima County, 669 P.2d 969, 970 (Ariz.Ct.App. 1983). See also Cavanagh v. Schaefer, 545 P.2d 416, 418 (Ariz. 1976) (a contract must be construed in its entirety).
Finally, it bears noting that under Arizona law-which governs the "enforcement, performance, discharge, lack of performance and formation" of the Restated Operating Agreement-were any of the individuals and entities identified in section 2.4 to undertake a "Personal Guaranty" for the debt of another member, that commitment would, of course, be subject to the Statute of Frauds requirement that this theoretical future guaranty be in writing. See Ariz. Rev. Stat. Ann. 44-101. Section 2.4 itself is not, as a matter of law, an "express guaranty" and therefore does not overcome the Statute of Frauds requirement that contracts to guarantee the debt of another be in writing-a longstanding requirement analyzed below in connection with GFLP's Count III claim for Promissory Estoppel.
Section 2.4 is the sole written provision that GFLP claims is an "express guaranty" of repayment of GFLP's loan to JCDH. (See Tr. at 55:10-15; Pl.'s Pretrial Mem. at 3.) Because this Court has determined that section 2.4 does not contain any sort of enforceable contractual obligation-let alone an "express guaranty"-GFLP's request for recovery under Count VI is denied. The Court turns next to consider GFLP's alternative claim, Count III, for promissory estoppel, under which GFLP claims it was given an oral "guaranty" by Defendants.
C Count III: Promissory Estoppel
Count III is a claim for promissory estoppel against all Defendants, except JCDH, to enforce an alleged oral "guaranty" of GFLP's loan to JCDH, but it is based not on a writing, but on what GFLP asserts amounts to an oral guaranty on the part of Defendants to reimburse GFLP for its losses on its loan to JCDH. Count III is a claim for promissory estoppel alleging that Defendants John M. Cioe, Robert A. Cioe, and Robert R. Cioe promised that GFLP's loan to JCDH would be "backed by the full faith and credit of the Cioe Family." (Am. Compl. ¶ 37.) Count III was in GFLP's original Complaint as the sole basis for GFLP's allegation that Defendants provided a "guaranty" to reimburse GFLP in the event of a JCDH default.
GFLP added Count VI to its Amended Complaint in an apparent effort to avoid the Statute of Frauds bar to the claim under Arizona law. Moreover, Count VI was added after discovery in the instant litigation which, in GFLP's view, "revealed that the Restated Operating Agreement itself expressly provides the very assurance on which Gulati relied in executing the Note" to JCDH. (Mem. Supp. Pl.'s Mot. Partial Summ. J. 5.)
GFLP's claim that Defendants made an oral "guaranty" on GFLP's loan to JCDH is barred by the Statute of Frauds, which under longstanding Arizona law bars recovery for an alleged oral promise to guarantee the debt of another.
1
The Statute of Frauds
Arizona law codifies the longstanding principle that the Statute of Frauds bars recovery for an alleged oral guaranty for the debt of another where there is no written instrument establishing the existence of that promise, and specifically provides:
Rhode Island law similarly requires that a guaranty to answer for the debt of another be in writing and signed by the party to be charged:
"No action shall be brought . . . to charge any person upon his or her special promise to answer for the debt, default, or miscarriage of another person . . . unless the promise or agreement upon which the action shall be brought, or some note or memorandum thereof, shall be in writing, and signed by the party to be charged therewith, or by some other person by him or her thereunto lawfully authorized." G.L. 1956 § 9-1-4(4), (7).
"No action shall be brought in any court in the following cases unless the promise or agreement upon which the action is brought, or some memorandum thereof, is in writing and signed by the party to be charged, or by some person by him thereunto lawfully authorized: . . . [t]o charge a person upon a promise to answer for the debt, default or miscarriage of another." Ariz. Rev. Stat. Ann. § 44-101.
Pursuant to this longstanding principle, any promise to answer for the debt, default, or miscarriage of another, in order to create a legal obligation, must be in writing or evidenced by a sufficient note or memorandum and signed by the promisor or some other person lawfully authorized by the promisor. 37 C.J.S. Statute of Frauds § 8. This provision of the Statute of Frauds is commonly referred to as the "suretyship provision" or "surety provision." Id. The surety provision "requires written evidence when one person promises to pay the debt of another, because there is a temptation for a promisee, in a case where the real debtor has proved insolvent or unable to pay, to enlarge the scope of the promise, or to torture mere words of encouragement and confidence into an absolute promise." Id. (emphasis added).
Arizona courts have consistently applied the surety provision of the Statute of Frauds to bar claims such as GFLP's claim for promissory estoppel asserted in Count III. In cases where a plaintiff has brought an action alleging that a defendant has made an oral promise of a guaranty as to the plaintiff's debt-outside of an existing written agreement-Arizona courts have consistently barred the action on Statute of Frauds grounds.
In Blakeway v. Texas Business Investments Co., 470 P.2d 710 (Ariz.Ct.App. 1970), for example, the Arizona Court of Appeals held that the Statute of Frauds barred an action to recover on a suretyship guaranty where there was no writing supporting the claim. 470 P.2d at 713. In that case, the defendant was among several defendants sued by the plaintiff, an investment company, in an action against several guarantors of the plaintiff's debt stemming from a promissory note executed by a construction company. Id. at 711. The plaintiff, an investment company that had loaned money to a construction company, had personal guarantees in writing from several shareholders in the construction company. Id. The sole exception was the defendant, who had never signed the promissory note, and thus there was no written promise on the part of that defendant to guarantee the plaintiff investment company's promissory note to the construction company. Id. The promissory note, on its face, was personally guaranteed in writing by all of the construction company's shareholders except one. Id. All of the defendants had signed written surety agreements with the plaintiff, except for one particular defendant, whose alleged guaranty was not part of the writing. Id. As to that defendant, the plaintiff alleged that the defendant had made an oral promise to provide a guaranty of the plaintiff's loan, and the trial court allowed a post trial amendment of the plaintiff's complaint-on the basis of evidence adduced at trial as to the alleged oral guaranty by the defendant-to add a claim for a guaranty against that defendant on the basis of the oral promise. Id.
The Arizona Court of Appeals reversed, noting that although the plaintiff's original complaint contained an allegation that the defendant had agreed in writing to pay the plaintiff's obligation in the event of default by the borrower, the evidence at trial did not conform to the plaintiff's complaint. Id. at 712. Instead, the evidence at trial was that there was a mere oral agreement of guaranty purportedly made by that one defendant. Id. at 711. The Court of Appeals held that the trial court erred by allowing the posttrial amendment adding a claim against the defendant based on the alleged oral guaranty, holding that such an oral guaranty was barred by the Statute of Frauds under Arizona law. Id. at 712-13. Although the plaintiff's complaint alleged that the defendant assumed and agreed in writing to pay the plaintiff's obligation in the case of default, the defendant had not, in fact, signed the note as guarantor, and therefore the Statute of Frauds applied to bar recovery on the theory initially espoused in the plaintiff's complaint. Blakeway, 470 P.2d at 713.
In this case, the rationale behind the longstanding principle that the surety provision of the Statute of Frauds bars recovery for an alleged oral promise to guaranty the debt of another where there is no written instrument applies. Because GFLP's loan to JCDH was not expressly guaranteed in a written agreement, GFLP's attempt to assert a claim for promissory estoppel to enforce Defendants' alleged oral guaranty of the GFLP Note is barred by the Statute of Frauds. This case illustrates the rationale behind the Statute of Frauds: The doctrine bars surety claims based on alleged oral promises because they are not considered reliable.
The Statute of Frauds is codified in both Arizona and Rhode Island law. See Ariz. Rev. Stat. Ann. § 44-101 and G.L. 1956 § 9-1-4(4).
Gulati's assertion during trial-that John M. Cioe personally told him that the GFLP Note would be backed by "the full faith and credit of the Cioe family"-is barred by the Statute of Frauds and thus cannot establish a cause of action against Defendants to recover losses under the GFLP Note. (Tr. 18:11-18; 18:24-19:1; 19:12-13; 35:9-13; 36:7-9; 56:18-20; 67:2-5.) Further, it stands to reason that if Gulati, a career investor, was indeed "made . . . uncomfortable" by John's "rush" to secure GFLP's $100,000, then that fact alone should have increased his resolve to secure a separate, written guarantee. See, e.g., Boston Investment Property No. 1 State v. E.W. Burman, Inc., 658 A.2d 515, 518 (R.I. 1995) ("In the case of sophisticated commercial entities in the commercial real estate market, contract law is the proper device to allocate economic risk."); Windship 21 LLC v. Appsware Holdings, Inc., No. 1 CA-CV 16-0747, 2017 WL 5586974, at *2 (Ariz.Ct.App. Nov. 21, 2017) (sophisticated business actors experienced in transactions, negotiations, and the formation of contracts are presumed to have a greater awareness of the risk of being bound to unfavorable contract terms that they themselves execute).
"Q. Was Mr. [John] Cioe asking you to wire money before the agreements were actually signed? "A. Yes. "Q. All right. How did you feel about that? "A. That made me uncomfortable, obviously, because, you know, it was a rush, it had to happen immediately, and I wanted to reiterate that we wanted to make sure . . . before I was going to be . . . taking this leap of faith. So he said not to worry, it's backed by the full faith and credit of the Cioe family . . . we're going to be able to save the project, and I said, And [sic] make sure the money that gets in there, that my money comes out first." (Tr. at 34:25-35:13.)
2
The "Leading Object" Exception to the Statute of Frauds Does Not Apply
GFLP argues that the Statute of Frauds does not apply to bar Count III, but instead that the instant claim is subject to the "leading object" exception to the Statute of Frauds surety provision. Arizona law recognizes an exception to the Statute of Frauds' bar to oral promises guaranteeing the debt of another in cases where the "leading object of the person promising to pay the debt which was originally that of another is to protect his own interest and not to become the other's guarantor. . . ." Graham v. Vegetable Oil Products Co., 401 P.2d 242, 247 (Ariz.Ct.App. 1965). The "leading object" exception applies only in cases where "the promisor has a personal, immediate and pecuniary interest in the transaction" and "benefit[s] by the performance of the promisee," and the agreement is valid, even if it is not in writing. Yarbro v. Neil B. McGinnis Equipment Co., 420 P.2d 163, 165 (Ariz. 1966). The burden of overcoming the Statute of Frauds rests upon the party opposing operation of the Statute of Frauds. Graham, 401 P.2d at 247.
Arizona courts have applied the "leading object" exception to the Statute of Frauds only in cases where promises are created for the direct benefit of the promisor. Arizona courts have distinguished between cases where (1) promises by which the debt of one party is sought to be charged upon and collected from another-in which the Statute of Frauds bars claims based on oral promises-versus cases where (2) promises related to debts are created for the direct benefit of the promisor.
Cases where Arizona courts apply the "leading object" exception-and hold that an oral promise falls outside the Statute of Frauds surety provision-all involve instances where a promisor undertakes a commitment that provides clear financial benefit directly to that promisor. In a leading case, a defendant had poor credit yet sought to purchase a tractor, and therefore arranged for a conditional sale of the tractor to another buyer. Yarbro, 420 P.2d at 165. When that buyer defaulted on payments due on the tractor, the defendant made an oral promise to pay installments that the buyer owed, and thereby obtained benefits such as being able to use the tractor. The court held that the oral promise in that case was not barred by the Statute of Frauds because the defendant in the case had made the promise in order to obtain direct benefits for himself-and for that reason the oral promise was inherently more credible than a putative oral promise that one had made an oral promise to guarantee the debt of another. Id. The Yarbro court held that for the "leading object" exception to obviate the need for a written guaranty, the benefit to the third party could not be incidental, indirect, or remote. Id.; see also Roberts v. Livdahl, No. 2 CA-CV 2016-0055, 2017 WL 2979152, at *3 (Ariz.Ct.App. July 12, 2017).
Cases where Arizona courts decline to apply the "leading object" exception-and hold that an oral promise is barred under the Statute of Frauds surety provision-all involve the classic surety fact pattern: A claimant asserts that a promisor has made an oral promise to pay the debt of the claimant. See, e.g., McClave v. Electric Supply, Inc., 379 P.2d 123, 129 (Ariz. 1963) (oral promise of defendant, executrix of decedent's business, that she would pay decedent's business debt, did not specify whether she was undertaking to cover the debts as a "principal obligor" or as a "guarantor," and so court interpreted it as a "guarantor" and thus within the Statute of Frauds); accord Blakeway, 470 P.2d at 713.
In this case, the oral promise alleged by GFLP is a claim that a putative promisor- Defendants-have made an oral promise to pay the debt of another-GFLP-and therefore the Statute of Frauds operates to bar such a promise. Here, Gulati maintained that an oral promise to guaranty a loan was made, but Defendants maintained the opposite. Although both GFLP and Defendants separately made loans to JCDH and thus had loans tied up in the success of the JCDH subdivision project, "the mere showing of a substantial interest on the part of the promisor, without more, sheds no light upon the intention of the parties at the time the alleged promise was made." Graham, 401 P.2d at 247. See also McClave, 379 P.2d at 129 ("Circumstances can hardly be conceived which would induce a person to promise to answer for the debt or default of another which would not at the same time benefit the promisor.").
(Tr. 18:11-18; 18:24-19:1.)
(Tr. 142:6-10 ("Q. Did you promise Mr. Gulati that . . . the GFLP loan would be guaranteed by the Cioe family? A. No, I did not. Q. Did you ever use the words 'full faith and credit'? A. No.").)
GFLP speculates that Defendants' "leading object" in securing the GFLP loan was simply "to save John and Rob[] [Cioe's] skin." (Pl.'s Prop. Findings and Prop. Concl. 46.) However, the uncontroverted record shows that, beginning in October 2009, TCC advanced an additional $235,000 to sustain the project through July 2010. (Pl.'s Ex. 40; Tr. 49:6; 158:9-20.) At that point, the decision was made to cut losses despite TCC's access to additional capital with which to pay M & I Bank. (Pl.'s Ex. 27.) Ultimately, this course of action-spending $235,000 to buy time and adopt a "wait and see" approach followed by acceptance of sunk costs when market conditions failed to improve-evidences reasonable business judgment in response to worsening economic conditions. As such, the only borrower that benefited directly from GFLP's loan was JCDH.
According to the trial testimony of John M. Cioe, the full $235,000 was paid out in two installments. The first installment ($61,000) came in 2009 and the second installment ($174,000) came in 2010. (Tr. 158:16.)
Even assuming, arguendo, that the "leading object" exception were to apply to GFLP's allegation of an oral guaranty, the legal effect would merely be that the Statute of Frauds would not operate to bar the Court's consideration of whether Defendants made an oral promise of a guaranty to GFLP. Weighing the evidence adduced at trial-including, in particular, the credibility of the witnesses as to whether such a promise was, in fact, made-the Court concludes that no such oral promise was made. See In re Estate of Newman, 196 P.3d 863, 874 (Ariz.Ct.App. 2008) (It is the function of the trial judge to "evaluate the witness' demeanor and make informed credibility determinations."). In this case, Gulati testified that the promise was made but John M. Cioe testified that it was not. This Court finds Defendants' testimony more credible regarding the non-existence of the alleged guaranty, and does not credit GFLP's testimony as to the assertion of an oral guaranty. The Court concludes that Gulati's testimony is not credible for several reasons. These include: (1) twice stating that he believed the parties' speculative real estate development was "doing well" during the 2009-10 housing bubble; (2) his account of events that led him to wire an unsecured loan predicated upon a supposed oral promise (in light of Gulati's background as a sophisticated, seasoned investor); and (3) his explanation of why he never felt the need to insist on a discrete, written guaranty. (Tr. 56:10-57:1.)
See Tr. 16:12-14 ("Well, I was concerned because, obviously, I thought the project was doing well [in October 2009] and now, all of a sudden, The Cioe Companies had to loan [JCDH] $750,000."); Tr. 43:20-25 ("Well, obviously, I was . . . very nervous at the time [July 2010], since everything else I had heard was everything [with the Project] was going fine.").
See Tr. 35:4-13 ("That made me uncomfortable . . . because, you know, it was a rush, it had to happen immediately, and I wanted to reiterate that we wanted to make sure that our original [three-conditions] agreement was in place before . . . I was going to be kind of taking this leap of faith.").
The Court concludes that the "leading object" exception does not apply to the present matter. JCDH was the borrower who directly benefited from the GFLP loan.
D
Count II: Promissory Estoppel
Count II is a separate claim for promissory estoppel against TCC predicated upon the following theory: (i) TCC "made a clear and unambiguous promise to loan . . . $650,000 to JCDH as is evidenced by the [TCC] Promissory Note"; (ii) GFLP relied on this promise, as well as on the "Last In, First Out" provision of the GFLP Agreement to Loan Terms, in its decision to loan $100,000 to JCDH's troubled real estate development project; and (iii) TCC did not loan a total of $650,000, but "[h]ad TCC performed as promised, there would have been sufficient funds to pay the GFLP Note pursuant to the 'Last In; First Out' provision." (Am. Compl. ¶¶ 33-34.)
Promissory estoppel provides an equitable remedy that renders a promise enforceable "where [(1)] a promise has been made 'which [(2)] the promissor should reasonably foresee would cause the promisee to rely, [and (3)] upon which the promisee actually relies to his detriment." Sholes v. Fernando, 268 P.3d 1112, 1117 (Ariz.Ct.App. 2011) (quoting Contempo Construction Co. v. Mountain States Telephone & Telegraph Co., 736 P.2d 13, 16 (Ariz.Ct.App. 1987); see also Filippi v. Filippi, 818 A.2d 608, 626 (R.I. 2003) (To establish a claim for promissory estoppel, plaintiff must prove "1. [a] clear and unequivocal promise, 2. [r]easonable and justifiable reliance upon the promise, and 3. [d]etriment to the promisee, caused by his or her reliance on the promise."). Under the doctrine of promissory estoppel, "'[a] promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance[,] is binding if injustice can be avoided only by enforcement of the promise.'" School District No. 69 of Maricopa County, 458 P.2d at 543. Promissory estoppel "protects [r]easonable reliance, and that reliance is reasonable only if it is induced by an actual promise." Id. at 544. Promissory estoppel "is not a theory of contract liability, but instead a replacement for a contract when parties are unable to reach a mutual agreement." Johnson International, Inc., 967 P.2d at 615 (citations omitted).
1
The Agreement to Loan Terms Gave TCC "Absolute Discretion" to Lend "Up to" $650,000
GFLP's claim of promissory estoppel is refuted by the language of the TCC Agreement to Loan Terms as well as the TCC Note, which by their plain terms gave TCC "absolute discretion" as to the amount of money to loan to JCDH, and did not obligate TCC to loan $650,000 but instead gave TCC discretion to loan "up to $650,000."
First, the TCC Agreement to Loan Terms, executed in connection with TCC's loan to JCDH, contained several "WHEREAS" clauses outlining the market conditions as well as the members' objectives in entering into the agreement, and included clear language giving TCC "absolute discretion" as to how much to loan to JCDH:
"WHEREAS, the parties desire to agree to the terms under which TCC will loan funds to the Company, to the extent [that] TCC, in its absolute discretion, determines to do so." (Agreement to Loan Terms 1) (emphasis added).
In particular, the members agreed to the terms under which member TCC was permitted to loan funds to JCDH, although the Agreement to Loan Terms made clear that the loan from TCC was merely contemplated by TCC, for it outlined loan terms only "to the extent [that] TCC, in its absolute discretion, determines to do so." (Agreement to Loan Terms 1.)
Second, the TCC Note, executed in connection with TCC's loan to JCDH, provided TCC with "absolute discretion" as to the amount to loan to JCDH. Pursuant to the TCC Note, JCDH "promise[d] to pay . . . the principal sum of SIX HUNDRED FIFTY THOUSAND DOLLARS ($650,000), or so much thereof as [TCC], in its absolute discretion, determines to advance to [JCDH] pursuant to the terms of this Note . . . ." (TCC Note 1) (emphasis added). In addition, just below the document title, "PROMISSORY NOTE," the TCC Note bears a legend stating, "Up to $650,000." Id. (emphasis added).
The clear language of the TCC Agreement to Loan Terms and of the TCC Note do not create an enforceable obligation to loan $650,000; instead, these documents provide the opposite. They give TCC complete discretion as to how much to lend to JCDH.
Courts have recognized that where a contract provides that one party to a contract may use its "sole discretion" in determining how to perform certain aspects of its contractual obligations, that provision affords the party the freedom to determine how to perform under that contract, and plaintiffs may not sue for breach where the party has exercised that discretion. In re United Parcel Service "Air-in-ground" Marketing & Sales Practices Litigation, 768 Fed.Appx. 673, 675 (9th Cir. 2019). In In re United Parcel Service, UPS shipping contracts provided that "[s]ome air shipments may be shipped by surface transportation" and "[carrier] will determine, in its sole discretion, the mode(s) of transportation for packages shipped," and that those packages "may be shipped by air or surface transportation, or both, at [carrier's] sole discretion" or that "[carrier] reserves the right in its sole discretion to use any mode of transportation whatsoever to provide the services selected by the shipper." Id. (emphasis added). The Ninth Circuit, applying California contract law, affirmed the federal district court's dismissal of a breach of contract action alleging that UPS breached the shipment contract by choosing to ship certain packages by truck rather than by air. Noting that "'clear and explicit' contractual language 'governs,'" the Ninth Circuit explained that where shipping contracts "clearly and explicitly permitted" UPS to "determine, in its sole discretion, the mode(s) of transportation for packages shipped," and therefore UPS was permitted to determine the mode of transportation, the plaintiff had no claim for breach of contract. Id. (affirming dismissal of breach of contract claims as well as auxiliary claims of implied contract and fraud).
Based on the foregoing analysis, this Court determines that neither the TCC Agreement to Loan Terms nor the TCC Note contain an enforceable obligation on the part of TCC to loan $650,000 to JCDH. On the contrary, these documents provide the opposite. They provide TCC with "absolute discretion" as to the amount to loan to JCDH. TCC and its agents did, in fact, loan a total of $235,000 to JCDH pursuant to the express terms of the Agreement to Loan Terms and the TCC Note. Accordingly, despite GFLP's representations to the contrary, there was no "clear and unequivocal" promise by TCC to loan a total of $650,000 to JCDH prior to or concurrent with GFLP's $100,000 loan. GFLP has failed to satisfy the first prong of promissory estoppel- the existence of a promise-and therefore the entire claim (Count II) must fail.
The GFLP Note, executed in connection with GFLP's loan to JCDH also provided GFLP with "absolute discretion" as to the amount to loan to JCDH. Pursuant to the GFLP Note, JCDH "promise[d] to pay . . . the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or so much thereof as [GFLP], in its absolute discretion, determines to advance to [JCDH] pursuant to the terms of this Note . . . ." (GFLP Note 1) (emphasis added).
2
The "Last In First Out" Provision Is Not a Promise by TCC to Loan $650,000 to JCDH
GFLP's claim of promissory estoppel is also unsupported by the GFLP Agreement to Loan Terms that was executed in connection with the GFLP Note. These documents, executed in connection with GFLP's loan to JCDH, nowhere obligate TCC to loan $650,000 to JCDH; indeed, there is no mention of a specific loan amount by TCC. Instead, the GFLP Agreement to Loan Terms sets forth the terms of the GFLP loan to JCDH, and provides protections for GFLP in the form of priority in loan repayment, as described below. Such loan repayment priority, however, was never implicated, because no loans were repaid by JCDH, owing to its subsequent insolvency and default on both the TCC and GFLP Notes.
As described above in the Findings of Fact, in terms of language, signatories, and structure, the GFLP Agreement to Loan Terms largely mirrors the TCC Agreement to Loan Terms, with material differences between the two documents including the following addition to section 2, the "Company Distribution Priority" section, in the GFLP Agreement to Loan Terms:
"If and to the extent loans are made to JCDH after October 15, 2009 by one or more of its members, unless all of the payee members with respect to such loans agree otherwise, the principal amount and accrued but unpaid interest on such loans shall be repaid by JCDH based on a "last in first out" basis, pursuant to which the last of such loans to be made are repaid before the earlier loans; provided, however, that the $103,092.80 contemplated be loaned by the GFLP shall be paid in full before any other such loans are repaid." (GFLP Agreement to Loan Terms at 2) (emphasis added).
GFLP argues that the above-referenced "last in first out" language is "an independent promise" that "TCC was supposed to put in its $650,000 before GFLP put it [sic] its $100,000[.]" (Pl.'s Prop. Findings and Prop. Concl. 50-51.) The Court disagrees.
First, as a matter of contractual obligation, the "last in first out" provision is rendered somewhat superfluous by a separate provision, also in section 2 of the "Company Distribution Priority," that provides even greater protection for GFLP in the form of an absolute priority in loan repayment. As described above in the Findings of Fact, the second portion of the "Company Distribution Priority" provides an additional protection for GFLP, stating "provided, however, that the $103,092.80 contemplated to be loaned by the GFLP shall be paid in full before any other such loans are repaid." (GFLP Agreement to Loan Terms 2) (emphasis added). This term provides GFLP with additional protection because it gives the GFLP Note absolute priority in the order of JCDH's repayment of the loans. This provision in section 2, by its terms, gives GFLP priority, in the repayment of the GFLP Note, over the TCC Note, and indeed gives GFLP repayment priority over any other member loans. Second, although there was discussion regarding which money would be deposited first, in the end, the $100,000 GFLP loan was deposited on October 22, before the TCC funds.
Ultimately, however, the sequence of deposits by GFLP and by TCC has no bearing on Count II, because in the end, none of the monies loaned-either by GFLP or by TCC-were ever repaid, owing to JCDH's default on both the GFLP Note and the TCC Note.
Although neither of the contractual provisions on which GFLP seeks to rely supports the claim for promissory estoppel in Count II, GFLP seeks to rely on Gulati's trial testimony as to the parties' discussion and negotiations surrounding the two contractual provisions, seeking to impart additional, implied promises on the basis of these discussions. Consideration of these discussions and negotiations is barred, however, by the parol evidence rule.
3
The Parol Evidence Rule
In any contractual dispute, a court's primary concern is to enforce the intentions and expectations of the parties to the agreement. When the agreement has been reduced to a complete and final integrated writing, courts will presume that the writing is the best evidence of what the parties intended. Merger clauses function to strengthen this presumption by explicitly stating that the written document is the complete and final expression of the parties' agreement. Regardless of whether a merger clause is present, however, courts generally will strictly apply the parol evidence rule and prevent the introduction of oral or extrinsic evidence to contradict, modify, or vary the terms of an integrated writing.
The parol evidence rule "prohibits the use of extrinsic evidence to add to, subtract from, vary or contradict the terms of a complete and unambiguous written agreement." Standage Ventures, Inc. v. State, 562 P.2d 360, 362 (Ariz. 1977). Whether the contract is a final, integrated agreement, and whether the contract is ambiguous, are both preliminary questions for courts to determine before applying the parol evidence rule. Anderson v. Preferred Stock Food Markets, Inc., 854 P.2d 1194, 1197 (Ariz.Ct.App. 1993) (citing Restatement (Second) Contracts § 210(3) at 118 (1981)). Once the court concludes that a written contract is fully integrated, "it may enforce the contract as written." Anderson, 854 P.2d at 1197. If "an ambiguity exists on the face of the document or the language admits of differing interpretations, parol evidence is admissible to clarify and explain the document," Standage Ventures, Inc., 562 P.2d at 362 (citing Bickart v. Greater Arizona Savings & Loan Association, 438 P.2d 403 (Ariz. 1968), but where the contract is unambiguous, parol evidence is not admissible. Apollo Group, Inc. v. Avnet, Inc., 58 F.3d 477, 482 (9th Cir. 1995).
"Pursuant to the parol evidence rule, the parties' final and fully integrated agreement may not be contradicted by any prior agreement." Id. In Apollo, the Ninth Circuit applied Arizona contract law and held that where an agreement for the sale of computer hardware was a final and fully integrated contract, the seller's alleged warranty made prior to execution of the contract was properly excluded as inadmissible parol evidence. Id. at 481-82. The contract in the case "expressly provide[d]" that it "supersede[d] any prior agreements between the parties" and was therefore a final and fully integrated agreement and thus parol evidence was not admissible. Id. at 482. In Apollo, the plaintiffs attempted to have the court consider an alleged "warranty" that was not contained in the final contract. Id. at 482. The court held that the alleged warranty could not be considered because it "clearly contradict[s] the parties' final agreement, which disclaimed any [such] warranties," and accordingly could not support a claim for breach of contract. Id. at 482; accord Anderson v. Owens, 205 F.2d 940 (9th Cir. 1953) (where parties entered into elaborate and complete writing regarding the terms of a sale contract, parol evidence of oral negotiations was not admissible).
In this case, the agreements made in connection with the GFLP and TCC loans to JCDH were made pursuant to the Restated Operating Agreement, which governed the management and operation of JCDH, and which made explicit provisions for additions and amendments to that governing document. The Restated Operating Agreement, as described above in the Findings of Fact, provided that "[n]o other document or oral agreement among the Members shall be treated as part of or superseding this [Restated Operating] Agreement unless it is reduced to writing and it has been signed by all of the Members."
Section 1.9(f) of the Definitions section of the Restated Operating Agreement provides: "Agreement": this written Restated and Amended Operating Amendment (2005). No other document or oral agreement among the Members shall be treated as part of or superseding this Agreement unless it is reduced to writing and it has been signed by all of the Members."
The key terms of JCDH's governance contains an explicit merger clause. Section 10.5 of the Miscellaneous Provisions section of the Restated Operating Agreement contains the following merger clause, which provides:
"10.5 Entire Agreement. This Agreement including the exhibits and schedules hereto, if any, contains the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, express or implied, oral or written, among the parties with respect to such subject matter. The express terms of this Agreement shall control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Each of the exhibits and schedules hereto is incorporated herein by this reference and constitutes a part of this Agreement."
Both the TCC Agreement to Loan Terms and the GFLP Agreement to Loan Terms are made pursuant to the Restated Operating Agreement, and by their clear terms do not amend general provisions such as the merger clause. Under the clear and express terms of section 10.5, the merger clause, the parties intended that the written agreement: (1) "contains the entire understanding and agreement among the parties hereto with respect to the subject matter hereof," and (2) "supersedes all prior agreements and understandings, express or implied, oral or written, among the parties with respect to such subject matter." This merger clause applies to the terms of the TCC Agreement to Loan Terms that, in turn, governs the TCC Note, as well as the GFLP Agreement to Loan Terms that, in turn, governs the GFLP Note.
The TCC Agreement to Loan Terms contains the explicit and unambiguous term: TCC will loan funds "to the extent TCC, in its absolute discretion, determines to do so," and testimony to the contrary is not admissible pursuant to the parol evidence rule. (TCC Agreement to Loan Terms 1.) Any evidence GFLP sought to present at trial regarding TCC's alleged promise to loan $650,000 is barred by the parol evidence rule because the TCC Agreement to Loan Terms and the TCC Note are clear and unambiguous. More specifically, the "in its absolute discretion" language, as stated in both the TCC Agreement to Loan Terms and the TCC Note, is clear and unambiguous as a matter of law and therefore cannot be altered by contradictory parol evidence. The parol evidence rule also excludes earlier negotiations by the parties as to the GFLP Agreement to Loan Terms, which represents "a fully integrated, unambiguous, and complete agreement between the parties thereto." American National Fire Insurance Co. v. Esquire Labs of Arizona, Inc., 694 P.2d 800, 805 (Ariz.Ct.App. 1984). As such, parol evidence on which GFLP seeks to rely in an effort to add to and vary the terms of the GFLP Loan Agreement is disallowed under the parol evidence rule. See Standage Ventures, Inc., 562 P.2d at 362.
Based on the foregoing, the Court concludes that the TCC Loan Agreement is a fully integrated contract. Having found as a matter of law that (i) a contract exists; (ii) the contract is unambiguous on its face; and (iii) it is fully integrated, the Court "may enforce the contract as written." Anderson, 854 P.2d at 1197. As such, any evidence by GFLP that contradicts the express terms of the TCC Agreement to Loan Terms is barred by the parol evidence rule. See Standage Ventures, Inc., 562 P.2d at 362. The Court additionally holds that (1) Defendants were not compelled to loan JCDH $650,000 but instead had "absolute discretion" as to the amount of the loan, and (2) Defendants complied with the terms of the TCC Agreement to Loan Terms, and therefore GFLP cannot recover on Count II: Promissory Estoppel. TCC's performance under the contracts reflects the "absolute discretion" provision: The uncontested evidence in the record indicates that TCC loaned to JCDH and lost a total of $235,000 between October 2009 and October 2010. (Tr. 48:25-49:6; 158:18-20; Pl.'s Exs. 22, 33, 40.) TCC's loan of a total of $235,000 to JCDH evidences a course of conduct entirely consistent with the terms of the TCC Agreement to Loan Terms.
E
Counts IV and V: Garnishment/Constructive Trust and Misrepresentation and Fraud
GFLP's remaining claims-Counts IV and V-like its claim for promissory estoppel in Count II-are predicated upon GFLP's argument that TCC improperly failed to loan $650,000 to JCDH. Count IV asks this Court to garnish the monies allegedly owed by TCC to JCDH and order them paid directly to GFLP, or alternatively, to impose a constructive trust for the benefit of GFLP. Count V is a claim against all Defendants for misrepresentation and fraud as to what GFLP alleges were Defendants' promises in connection with its loans to JCDH.
GFLP alleges that Defendants induced GFLP's loan of $100,000 by fraudulently misrepresenting that they would advance a $650,000 loan to JCDH. Under Arizona law, the elements of "actionable fraud may be stated as follows: (1) [a] representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury." Waddell v. White, 108 P.2d 565, 568-69 (Ariz. 1940) (internal citations omitted); see also Dawson v. Withycombe, 163 P.3d 1034, 1047 (Ariz.Ct.App. 2007) (emphasis added) ("To maintain a claim for fraudulent misrepresentation, the claimant must demonstrate the speaker's knowledge of the falsity of the statement."). In accordance with the Court's above findings concerning the viability, unambiguity, and full integration of the TCC Agreement to Loan Terms, GFLP is barred by the parol evidence rule from introducing evidence of fraud (either by TCC and/or its agents) to contradict the clear terms of the written loan agreement. Further, as stated above, the Court has also found that TCC did, in fact, loan funds to JCDH pursuant to the express terms of the TCC Agreement to Loan Terms ($235,000 total). Because there exists no admissible evidence in the record of a fraudulent statement by any Defendants-much less evidence that any Defendants knew of the falsity of said statement-Count V must likewise fail.
See also Travers v. Spidell, 682 A.2d 471, 472-73 (R.I. 1996) ("To establish a prima facie damages claim in a fraud case, the plaintiff must prove that the defendant 'made a false representation intending thereby to induce plaintiff to rely thereon' and that the plaintiff justifiably relied thereon to his or her damage.") (internal citations omitted).
Considering that (i) the Court has determined that TCC does not owe JCDH $415,000,and (ii) GFLP's Count IV (Garnishment and/or Constructive Trust) is predicated upon the success on the merits of either Count II or Count V, there is no need for this Court to consider GFLP's garnishment/constructive trust claim except to say that it fails.
$650,000 minus the $235,000 loaned equals $415,000.
V
Conclusion
For the reasons stated herein, the Court concludes the following:
1. Judgment in favor of TCC as to Count II and Count III (promissory estoppel), Count IV (garnishment/constructive trust), and Count V (misrepresentation and fraud) of the Amended Complaint. 2. Judgment in favor of the other Cioe Parties as to Count III (promissory estoppel), Count V (misrepresentation and fraud), and Count VI (express guaranty) of the Amended Complaint. 3. Judgment in favor of Robert A. Cioe as to Counts II through VI of the Amended Complaint, as he was not a member of JCDH or the Cioe Companies at the time of the alleged events. Counsel shall prepare the appropriate order.