Elizabeth Retail Properties, Llc et al v. Keybank National Association

Motion for Summary Judgment Dismissing First Amended Complaint and Memorandum of Points and Authorities. Oral Argument requested.

D. Or.September 15, 2016

DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Joel A. Parker, OSB #001633 Email: jparker@schwabe.com Schwabe, Williamson & Wyatt, P.C. Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Facsimile: 503.796.2900 Attorneys for Defendant, KeyBank National Association IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON PORTLAND DIVISION ELIZABETH RETAIL PROPERTIES, LLC; JUDITH L. ANSTETH JEWELERS, INC.; and JUDITH ARNELL, an individual, Plaintiffs, vs. KEYBANK NATIONAL ASSOCIATION, a foreign business corporation, Defendant. No. 3:13-cv-02045-SB DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES (Oral Argument Requested) Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 1 of 43 Page i - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 TABLE OF CONTENTS I. INTRODUCTION ...................................................................................................................... 1 II. FACTUAL BACKGROUND ................................................................................................... 1 III. PROCEDURAL BACKGROUND .......................................................................................... 6 IV. ARGUMENT ........................................................................................................................... 7 A. KeyBank did not breach the good faith covenant by demanding payment of Ansteth Jewelers' demand note. .......................................................................... 7 1. Ansteth Jewelers' note was a demand note. ................................................ 8 2. Plaintiffs should have known that Charles Arnell's bankruptcy was an event of default under Elizabeth Retail's loan documents. .................... 9 3. KeyBank did not owe a contractual duty to Ansteth Jewelers or Judith Arnell to notify them of Elizabeth Retail's defaults. ...................... 11 4. KeyBank did not owe a duty to Ansteth Jewelers or Judith Arnell based on a special relationship. ................................................................. 12 5. KeyBank did not have a secret plan to foreclose Elizabeth Retail's deed of trust............................................................................................... 12 6. Paying off the Ansteth Loan did not impair plaintiffs' ability to fulfill their other obligations to KeyBank. ................................................ 16 B. KeyBank did not breach the good faith covenant by not declaring Elizabeth Retail's loan in default earlier. .............................................................. 18 C. KeyBank's workout negotiations did not breach the good faith covenant. ........... 21 1. The implied covenant of good faith does not apply to workout negotiations. .............................................................................................. 22 2. KeyBank's representations concerning "cure" of the bankruptcy default did not breach the good faith covenant. ........................................ 23 3. KeyBank's refinancing suggestion did not breach the implied covenant of good faith and fair dealing. ................................................... 28 D. The foreclosure notices were not defamatory. ...................................................... 33 V. CONCLUSION ....................................................................................................................... 35 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 2 of 43 Page ii - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 TABLE OF AUTHORITIES Page(s) Cases In re Acosta-Rivera, 557 F.3d 8 (1st Cir. 2009) ........................................................................................................27 Ahern v. Central Pacific Freight Lines, 846 F. 2d 47 (9th Cir. 1988) ....................................................................................................19 Arnett v. Bank of America, N.A., 874 F. Supp. 2d 1021 (D. Or. 2012) ........................................................................................11 Ball v. Oregon Erecting Co., 273 Or. 179, 539 P. 2d 1059 (Or. 1975) ..................................................................................19 Bank of America, N.A & S.T. v. McMahon, 1993 U.S. App. LEXIS 24903 (9th Cir. 1993) ........................................................................23 Barinaga v. JP Morgan Chase & Co., 749 F. Supp. 2d 1164 (D. Or. 2010) ........................................................................................21 Best v. United States National Bank of Oregon, 303 Or. 557, 739 P.2d 554 (1987) ...........................................................................................22 Brant v. CCG Fin. Corp., 693 F. Supp. 889 (D. Or. 1988) ...............................................................................................11 Confederated Tribes of the Warm Springs Res. of Or. v. Ambac Assurance Corp., 2010 U.S. Dist. LEXIS 124309 (D. Or. Nov. 17, 2010) ..........................................................12 Cross v. Safeway, Inc., 2003 U.S. Dist. LEXIS 25698 (D. Or., June 2, 2003) .............................................................34 DeParrie v. Hanzo, 2000 U.S. Dist. LEXIS 23512 (D. Or., March 6, 2000) ..........................................................34 Elizabeth Retail Properties, LLC v. KeyBank National Association, 83 F. Supp. 3d 972 (D. Or. 2014) .................................................................................... passim Elizabeth Retail Properties, LLC v. KeyBank National Association, Opinion and Order (D. Or., Jan. 26, 2015) (dkt. #40) ....................................................1, 6, 34 Matter of Ellinwood, 59 Or. 536, 651 P. 2d 190 (1982), rev. denied, 294 Or. 460 (1983) ........................................21 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 3 of 43 Page iii - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 In re Entz-White Lumber & Supply, Inc., 850 F. 2d 1338 (9th Cir. 1988) ................................................................................................26 Erickson v. Long Beach Mortgage Co., 2011 U.S. Dist. LEXIS 20919 (W.D. Wa., March 2, 2011), aff'd, 2012 U.S. App. LEXIS 10794 (9th Cir., May 29, 2012) ..........................................................................17 Fasolino Foods Co. v. Banca Nazionale Del Lavoro, 961 F.2d 1052 ..........................................................................................................................19 Fleshman v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 82670 (D. Or., June 17, 2014) ...........................................................12 In re Grabowski, 462 B.R. 534 (Bankr. W.D. Pa. 2011) .....................................................................................27 H.D. Smith Wholesale Drug Co. v. Crawford, 2013 U.S. Dist. LEXIS 60320 (C.D. Ill., April 29, 2013) .......................................................24 Hogan v. NW Trust Services, 2010 U.S. Dist. LEXIS 45597 (D. Or., May 7, 2010) .............................................................10 Lakeside Inn, Inc. v. Bank of the West, 2015 U.S. Dist. LEXIS 37873 (D. Nev., March 25, 2015) ......................................................19 Lansford v. Georgetown Manor, Inc., 192 Or. App. 261, 84 P.3d 1105 (2004).............................................................................34, 35 Lund v. Arbonne Int'l Inc., 132 Or. App. 87, 887 P.2d 817 (1994).....................................................................................35 Manheim Automotive Financial Services, Inc. v. Fleet Funding Corp., 2010 U.S. Dist. LEXIS 40939 (E.D.N.Y., March 22, 2010) ...................................................25 In re Markovich, 207 B.R. 909 (BAP 9th Cir. 1997)...........................................................................................27 In re Nash, 765 F.2d 1410 (9th Cir. 1985) .................................................................................................26 In re Newton, 490 B.R. 126 (Bankr. D. D.C. 2013) .......................................................................................27 Northwestern Pacific Indemnity Co. v. Junction City Water Control District, 295 Or. 553, 668 P.2d 1206 (1984) .........................................................................................10 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 4 of 43 Page iv - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 In re Pavelich, 299 B.R. 777 (BAP 9th Cir. 1999)...........................................................................................27 Rapacki v. Chase Home Finance, LLC, 2012 U.S. Dist. LEXIS 54685 (D. Or., April 17, 2012) ..........................................................12 RBS Citizens, N.A. v. Ladany, 2011 Ill. App. Unpub. LEXIS 3048 (Ill App., Dec. 6, 2011). ...................................................................................................................................26 Reger Development, LLC v. National City Bank, 592 F. 3d 759 (7th Cir. 2010), cert. denied, 130 S.Ct. 3507 (2010) ........................................17 Schmelzer v. Wells Fargo Home Mortgage, 2011 U.S. Dist. LEXIS 134015 (D. Or., Nov. 21, 2011) .........................................................23 Sheet Metal Workers Intern. Ass'n Local Union No. 27 v. E.P. Donnelly, Inc., 673 F. Supp. 2d 313 (D.N.J. 2009) ..........................................................................................10 Silving v. Wells Fargo Bank, N.A., 800 F. Supp. 2d 1055 (D. Ariz. 2011) .....................................................................................23 In re Smith, 507 F.3d 64 (2d Cir. 2007).......................................................................................................27 Stoss v. JP Morgan Chase Bank, 2013 U.S. Dist. LEXIS 185150 ...............................................................................................23 Tolbert v. First National Bank of Oregon, 312 Or. 485, 823 P. 2d 965 (1991) ..........................................................................................23 Trident Center v. Connecticut General Life Ins., 847 F. 2d 564 (9th Cir. 1988) ..................................................................................................19 Unigeston Holding, S.A. v. UPM Technology, Inc., 2016 U.S. Dist. LEXIS 12758 (D. Or., Feb. 3, 2016) ........................................................11, 12 Upton v. Tribilock, 91 U.S. 45, 23 L. Ed. 203 (1875) .............................................................................................10 Weiner v. Naegele, 2012 U.S. Dist. LEXIS 97925 (D. Minn., July 16, 2012)........................................................24 Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji), 698 F.3d 231 (5th Cir. 2012) ...................................................................................................26 Wensley v. First Nat'l Bank of Nevada, 874 F. Supp. 2d 957 (D. Nev. 2012) ........................................................................................23 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 5 of 43 Page v - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Statutes 11 U.S.C. § 349(b) .........................................................................................................................26 11 U.S.C. § 707(a) .........................................................................................................................27 11 U.S.C. § 727(a)(10) ...................................................................................................................27 11 U.S.C. § 727(d) .........................................................................................................................27 ORS 12.120(2) ...............................................................................................................................34 UNIFORM COMMERCIAL CODE § 1-208 ..................................................................................8 Other Authorities Fed.R.Civ.P. 56(c) ...........................................................................................................................1 3 COLLIER ON BANKRUPTCY ¶ 349.01[2], at 349-3 (16th ed. 2015)................................... 26 6 COLLIER ON BANKRUPTCY ¶ 727 LH[5], at 727-91 (16th ed. 2015)................................ 27 Black's Law Dictionary 387 (7th ed. 1999) ...................................................................................26 W. Berryhill, et al., STRUCTURING COMMERCIAL REAL ESTATE WORKOUTS, § 2.02, App. 2-B (2d ed., 2008 Supp.).................................................................................................30 R. Clarke, THE WORKOUT MANUAL § 46, at 53 (1993) .......................................................28 J. Hastie, "Real Estate Workouts (Part 2, With Forms), The Practical Real Estate Lawyer, vol. 28, no. 4, at 40 (July 2012).............................................................................................................30 Avery Katz, "An Economic Analysis of the Guaranty Contract," 66 U. Chi. L. Rev. 47 (Winter 1999) .............................................................................................................25 A. Kyle, "Dealing with Default (With Forms), The Practical Real Estate Lawyer, vol. 23, no. 3, App. 3 (May 2007).....................................................................................................................9 1A L. Lawrence, LAWRENCE'S ANDERSON ON THE UNIFORM COMMERCIAL CODE § 1-208:9, at 546 (3d ed. 2011 rev.)..............................................................................................8 M. Lux, "Negotiating Commercial Loans for Closely Held Companies When Credit is Tight," The Practical Lawyer (Aug. 2011) ................................................................24 R. Mann, "The Role of Secured Credit in Small-Business Lending," 86 Georgetown L.J. 1, 23 (Oct., 1997) .........................................................................................25 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 6 of 43 Page vi - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Oregon State Bar Ass'n, Oregon Real Estate Deskbook, Form 22-2, Commercial Trust Deed (2015 ed.).................................................................................................................................25 Patrick E. Mears, et al., STRATEGIES FOR SECURED CREDITORS IN WORKOUTS AND FORECLOSURES, at 181 (ALI/ABA 2004)....................................................................24, 30 A. Ramsey, "Real Estate Workouts from the Lender's Perspective (With Forms)," The Practical Real Estate Lawyer, vol. 27, no. 4, at 45-51 (July 2911).........................................................30 D. Rome, BUSINESS WORKOUTS MANUAL ¶ 1.07, at 1-9 to 1-10 (1992).................................22 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 7 of 43 Page 1 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 I. INTRODUCTION Defendant KEYBANK NATIONAL ASSOCIATION (“KeyBank”), by and through its undersigned attorney of record, moves the Court pursuant to Fed.R.Civ.P. 56(c) for summary judgment dismissing all remaining claims in plaintiffs' First Amended Complaint filed March 12, 2014 (dkt. #22) (the "Complaint") on the ground that the pleadings, depositions, answers to interrogatories, and admissions on file, together with the declarations filed concurrently herewith, demonstrate that there is no genuine dispute as to any material fact and KeyBank is entitled to judgment as a matter of law. On November 17, 2014, Magistrate Hubel filed Findings and Recommendation (dkt. #36) granting in part KeyBank's Rule 12(b)(6) motion (dkt. #23) and recommending dismissal of plaintiffs' claims for wrongful foreclosure, bad faith foreclosure, damage to business reputation, and trespass. Elizabeth Retail Properties, LLC v. KeyBank National Association, 83 F. Supp. 3d 972 (D. Or. 2014). On January 26, 2015, Judge Simon entered an Opinion and Order adopting the Findings and Recommendation ("Opinion and Order") (dkt. #40). The only claims that survived the Motion to Dismiss are plaintiffs' First Claim for Relief (bad faith breach of contract) and Elizabeth Retail's Third Claim for Relief (defamation). Discovery is complete, and the undisputed facts demonstrate that these claims have no merit. II. FACTUAL BACKGROUND This case concerns commercial loans made by KeyBank to plaintiffs Judith L. Ansteth Jewelers, Inc. ("Ansteth Jewelers") and Elizabeth Retail Properties, LLC ("Elizabeth Retail"), respectively. Complaint, ¶¶ 6, 11; Elizabeth Retail, 83 F. Supp. 3d at 979; Street Decl., ¶ 5.1. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 8 of 43 Page 2 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Plaintiff Judith Arnell owns both companies.1 Id.; Complaint, ¶ 3. Elizabeth Retail was a single-asset real estate holding company formed in 2004 for the sole purpose of holding title to the two retail condominiums in which Ansteth Jewelers operated its jewelry store. Declaration of Joel A. Parker in Support of Defendant’s Motion for Summary Judgment (“Parker Decl.”), ¶ 13, Ex. 12 (“Elizabeth Retail Dep. Tr.”) 53:1-4, 74:9-11 & Ex. 24. Elizabeth Retail originally financed the purchase of the condominiums with loans from U.S. Bank in 2005, but refinanced them with KeyBank two years later because KeyBank offered a lower interest rate and smaller monthly payments. Id., 91:9-22. Ansteth Jewelers operated a retail jewelry store in the condominiums under a lease with Elizabeth Retail. Elizabeth Retail, 83 F. Supp. 3d at 979; Parker Decl, ¶ 11, Ex. 10 (“Ansteth Jewelers Dep. Tr. II”) 64:6-8.2 On March 23, 2007, Ansteth Jewelers obtained a $100,000.00 revolving line of credit from KeyBank (“Ansteth Loan”). Elizabeth Retail, 83 F. Supp. 3d at 979; Street Decl., ¶ 4.2; Thompson Decl., ¶ 2.1 & Ex. 1; Complaint, ¶ 11. Concurrently, Elizabeth Retail obtained a $615,000 commercial real estate loan (“Elizabeth Retail Loan”) from KeyBank. Elizabeth 1 KeyBank believed, and the loans were underwritten based on representations that Judith Arnell's husband, Charles Arnell, was a co-owner of Elizabeth Retail, and on the strength of his financial condition. Street Decl., ¶¶ 5.4-5.5 & Ex. 7. At loan origination, Judith Arnell and Charles Arnell signed numerous loan documents representing that they were both members (i.e., equity owners) of Elizabeth Retail. Thompson Decl., ¶¶ 2.4, 3.3 & Exs. 3, 6, 8-10, 12-21. Until very recently, Ms. Arnell maintained that her husband was a member of Elizabeth Retail. Judith Arnell Admis. No. 3. But in a deposition, she testified that these representations were false and she was always the 100% owner of Elizabeth Retail. Elizabeth Retail Dep. Tr. 7:10-24. 2 Ms. Arnell testified that the lease payments were insufficient to meet Elizabeth Retail's Loan payments as well as cover its real property taxes, condominium owners' dues and property insurance, and, consequently, Ansteth Jewelers continuously had to "subsidize" the company so it could meet its obligations. Elizabeth Retail Dep. Tr. 79:19-25, 80:6-13, 83:8-18, 87:18-22, 89:15-20, 90:2-23, 91:5-8. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 9 of 43 Page 3 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Retail, 83 F. Supp. 3d at 979; Complaint, ¶ 6; Thompson Decl., ¶¶ 3.1, 3.3 & Exs. 12-21. The Ansteth Loan was evidenced by a demand note. Elizabeth Retail, 83 F. Supp. 3d at 979; Street Decl., ¶ 3.7; Thompson Decl., ¶ 2.3 & Ex. 1. It was guaranteed by Elizabeth Retail, Judith Arnell, and her husband, Charles Arnell, pursuant to absolute and unconditional commercial guaranties. Thompson Decl., ¶ 2.4 & Exs. 4-6. The Elizabeth Retail Loan was a 10-year term loan secured by a first priority deed of trust on the retail condominiums in which Ansteth Jewelers operated its jewelry store. Street Decl., ¶¶ 5.2, 5.6 & Exs. 3-4; Cochran Decl., ¶ 3.10 & Exs. 4-5. The Elizabeth Retail Loan was guaranteed by Ansteth Jewelers, Judith Arnell and Charles Arnell pursuant to absolute and unconditional commercial guaranties. Thompson Decl., ¶ 3.3 & Exs. 15-17; Cochran Decl., ¶ 4.2 & Exs. 4-6. Elizabeth Retail's promissory note and deed of trust contained various "events of default" the occurrence of which gave KeyBank the contractual right to accelerate the Loan and foreclose the deed of trust. Street Decl., ¶ 3.8; Cochran Decl., ¶¶ 7.2, 7.5, 7.6 & Exs. 4-5. One such default was the bankruptcy of a guarantor. Thompson Decl., ¶¶ 3.3, 5.6 & Exs. 12-13; Cochran Dec., ¶¶ 4.2, 7.1, 7.2 & Exs. 4-5. It is undisputed that none of the plaintiffs read any documents associated with either the Ansteth Loan or the Elizabeth Retail loan at the time they borrowed the funds from KeyBank. Elizabeth Retail Dep. Tr. 13:8-12, 102:4-9, 103:3-15, 104:3-8, 104:16-25, 105:1-6, 105:22-25, 106:1-5; Parker Decl, ¶ 10, Ex. 9 (“Ansteth Jewelers Dep. Tr. I”) 22:21-24, 23:5-11; Ansteth Jewelers Dep. Tr. II, 87:6-9. Ms. Arnell admitted that as of the date of her deposition she still had not read the loan documents. Ansteth Jewelers Dep. Tr. I, 23:12-15. On February 3, 2011, guarantor Charles Arnell filed a Chapter 7 bankruptcy petition, and on September 1, 2011 he received a discharge. Elizabeth Retail, 83 F. Supp. 3d at 980-81; Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 10 of 43 Page 4 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Complaint, ¶¶ 17, 29; Parker Decl, ¶ 8, Ex. 7 (“Charles Arnell Dep. Tr.”), 91-93, 121:7-8 & Ex. 8, Russillo Decl., ¶ 7.13 & Exs 31-33. Mr. Arnell was insolvent when he filed his bankruptcy petition (his bankruptcy Schedules listed assets of $1,647,109.98 and liabilities of $5,052,872.04).3 Elizabeth Retail, 83 F. Supp. 3d at 980; Charles Arnell Dep. Tr. 106:21-24 & Ex. 9. More than 90% of his unsecured debts were based on personal guaranties of various business loans. Id., 146:17-21 & Ex. 26. In April 2011, the Ansteth Loan and the Elizabeth Retail Loan were downgraded to "substandard" and transferred to KeyBank's commercial loan workout department, called the Asset Recovery Group ("ARG"), to identify, analyze and address the problems with the Loans. Street Decl., ¶ 7.1-7.3, 7.6 & Ex. 11; Thompson Decl., ¶¶ 4.3-4.4, 5.1 & Exs. 23-24. Four months later, on August 17, 2011, KeyBank made demand upon Ansteth Jewelers to repay its demand note. Elizabeth Retail, 83 F. Supp. 3d at 981-82; Complaint, ¶ 21; Thompson Decl., ¶ 7.2 & Ex. 27; Russillo Decl., ¶ 4.1 & Ex. 6. On September 8, 2011, Judith Arnell, one of the guarantors, repaid the Ansteth Loan. Ansteth Jewelers Dep. Tr. II, 57:24-25, 58:1-11 & Ex. 14; Complaint, ¶ 27; Thompson Decl., ¶ 7.8 & Ex. 28. In February 2012, KeyBank obtained an independent appraisal of Elizabeth Retail's condominiums, which revealed that the property had decreased in value from $750,000 at loan origination to $530,000, less than the amount owed to KeyBank. Cochran Decl., ¶ 6.6 & Ex. 15. Sometime between May 2, 2012 and June 22, 2012, Elizabeth Retail listed the condominiums with a real estate broker for the stated purpose of selling them and paying off 3 For unknown reasons, Mr. Arnell failed to list his guaranties of the Ansteth Loan and the Elizabeth Retail Loan as liabilities in his bankruptcy Schedules. Charles Arnell Dep. Tr. Ex. 9 (Schedules F and H); Russillo Decl., ¶ 3.5 & Ex. 32. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 11 of 43 Page 5 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 KeyBank "in the coming months." Elizabeth Retail Dep. Tr. 186:12-25, 187:11-25, 188:1-7, 200:16-18; Parker Decl., ¶ 12, Ex. 11, (“Judith Arnell Dep. Tr.”) 13:7-9; Russillo Decl., ¶¶ 6.20- 6.22 & Exs. 23-24. The condominiums were initially listed for $735,000, but in September 2012 Elizabeth Retail reduced the price to $675,000. During the entire period in which the property was listed, May 2012-January 2013, no one made an offer to buy the condominiums. Parker Decl, ¶ 3, Ex. 2 (Elizabeth Retail Admis. No. 23); Elizabeth Retail Dep. Tr. 190:1-7, 18-22; Judith Arnell Dep. Tr. 12:10-14, 13:1-9, 15:21-25, 16:1-3, 39:7-10, 45:7-13, 86:18-24. (Ms. Arnell testified that she would have reduced the price further if she had received an offer. Elizabeth Retail Dep. Tr. 191:1-3.) On July 27, 2012, after several months of discussions, KeyBank sent Elizabeth Retail a draft forbearance agreement. Cochran Decl., ¶ 8.18 & Ex. 33; Russillo Decl., ¶ 6.26 & Ex. 27. Elizabeth Retail refused to sign the agreement or negotiate further respecting an alternative forbearance agreement. Cochran Decl., ¶ 8.21 & Ex. 34; Russillo Decl., ¶ 6.28 & Ex. 28. On August 27, 2012, KeyBank recorded a Notice of Default and Election to Sell ("Notice of Default") pursuant to the Oregon Trust Deed Act based on three defaults under Elizabeth Retail's Deed of Trust: (1) failure to provide financial documentation despite repeated requests; (2) the bankruptcy of a guarantor, Charles Arnell; and (3) devaluation of the real property, such that KeyBank deemed itself insecure and believed that payment or performance of the note was impaired. Cochran Decl., ¶ 9.5 & Ex. 37; Russillo Decl., ¶ 7.9 & Ex. 30. Shortly after the Notice of Default was recorded, plaintiffs fired their attorney and replaced him with another attorney, who, on September 8, 2012, made a proposal to KeyBank for a forbearance agreement. Elizabeth Retail Dep. Tr. 206:12-22 & Ex. 50; Cochran Decl., ¶¶ 10.1, 10.2 & Ex. 41; Russillo Decl., ¶¶ 8.1, 8.3 & Ex. 39. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 12 of 43 Page 6 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 On November 6, 2012, KeyBank made a counterproposal to Elizabeth Retail. Cochran Decl., ¶¶ 12.3-12.4 & Exs. 51-52; Russillo Decl., ¶ 8.12 & Ex. 46. Elizabeth Retail did not respond to that counterproposal, and on February 6, 2013 a foreclosure sale occurred. Cochran Decl., ¶¶ 12.10, 12.14, 13.15 & Ex. 67; Russillo Decl., ¶¶ 8.13, 8.20, 10.1-10.2 & Ex. 56. III. PROCEDURAL BACKGROUND On October 9, 2013, plaintiffs filed a complaint against KeyBank in Multnomah County Circuit Court alleging seven causes of action. Elizabeth Retail, 83 F. Supp. 3d at 982. On November 15, 2013, KeyBank removed the action to this Court. Id. On November 22, 2013, KeyBank moved to dismiss the original complaint (dkt. #5). Prior to responding to the motion to dismiss, the Court allowed plaintiffs to conduct limited discovery. See Protective Order (dkt. #20). On March 12, 2014, plaintiffs filed a First Amended Complaint (dkt. #22) (the "Complaint") seeking damages of not less than $2,200,000. Elizabeth Retail, 83 F. Supp. 3d at 982. On March 21, 2014, KeyBank filed a motion to dismiss this Complaint (dkt. #23). On November 17, 2014, Magistrate Hubel entered Findings and Recommendation, granting the motion to dismiss in part and denying it in part (dkt. #36). Elizabeth Retail, 83 F. Supp. 3d at 972. On January 26, 2015, Judge Simon entered an Opinion and Order (dkt. #40) adopting the Magistrate's Findings and Recommendation and dismissing with prejudice plaintiffs' claims for wrongful foreclosure, bad faith foreclosure, damage to business reputation, and trespass. Opinion and Order, at 3. The only claims that survived the motion to dismiss are plaintiffs' First Claim for Relief (bad faith breach of contract) and Elizabeth Retail's Third Claim for Relief (defamation). Based on the undisputed facts, both claims should be dismissed. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 13 of 43 Page 7 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 IV. ARGUMENT Magistrate Hubel identified three areas of concern ("[w]hat gives the Court pause"): (1) KeyBank's awareness that Charles Arnell's bankruptcy was an "event of default" and failure to disclose it to Ms. Arnell; (2) not declaring the Elizabeth Retail Loan in default until after Mr. Arnell received a discharge and the Ansteth Loan was paid off; and (3) two statements made during negotiations, viz., that the bankruptcy-related default was "not curable," and that the "best course of action" would be to refinance the Elizabeth Retail Loan. Elizabeth Retail, 83 F. Supp. 3d at 990-91. Magistrate Hubel explained, "The timing of these events and representations by Defendant, coupled with the concomitant impact they had and/or could have had on Plaintiffs' ability to fulfill their respective obligations, state a claim for breach of the duty of good faith and fair dealing that should survive a motion to dismiss." Id. at 991. Now that discovery is finished and there is a complete factual record, it is clear that none of the statements, in the context in which they were made, amount to breach of the implied covenant of good faith. And all evidence in the record demonstrates that KeyBank did not resort to foreclosing the Elizabeth Retail Deed of Trust until plaintiffs terminated negotiations. Accordingly, KeyBank is entitled to summary judgment dismissing the remaining claims. A. KeyBank did not breach the good faith covenant by demanding payment of Ansteth Jewelers' demand note. Plaintiffs' principal “bad faith” claim is based on the allegation that at the time it made demand on Ansteth Jewelers to pay the Ansteth Loan, KeyBank "made no reference to any other alleged default nor its intent to foreclose on the property based on another default." Complaint, ¶ 24. Magistrate Hubel summarized plaintiffs' contention: […] Plaintiffs maintain that, as early as mid-November 2011, Defendant already had a plan in place to terminate its relationship Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 14 of 43 Page 8 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 with Plaintiffs and foreclose on the property owned by Elizabeth Retail in the first quarter of 2012. Elizabeth Retail, 83 F. Supp. 3d at 982. The undisputed evidence demonstrates that KeyBank neither had a "secret plan" to foreclose, nor a legal duty to explain the Elizabeth Retail Loan defaults to Ansteth Jewelers and Judith Arnell. Judith Arnell's repayment of the Ansteth Loan merely fulfilled one contractual obligation, without preventing Ansteth Jewelers or Ms. Arnell from "fulfill[ing] their [other] obligations" to KeyBank.4 1. Ansteth Jewelers' note was a demand note. It is undisputed that Ansteth Jewelers' promissory note was a demand note. Thompson Decl., ¶ 2.3 & Ex. 1; Street Decl., ¶¶ 3.7, 4.2 & Ex. 1. Judith Arnell testified, "they [KeyBank] can call the line of credit any time…." Ansteth Jewelers Dep. Tr. II, 103:3-4. Accord, Elizabeth Retail Dep. Tr. 134:22-25, 135:1; Ansteth Jewelers Dep. Tr. II, 125:24-25, 126:1-4. The defining characteristic of a demand note is that the holder may call the note at any time, with or without reason. See 1A L. Lawrence, LAWRENCE'S ANDERSON ON THE UNIFORM COMMERCIAL CODE § 1-208:9, at 546 (3d ed. 2011 rev.) ("A creditor has the absolute right to demand payment of an obligation payable on demand for no reason, any reason, or even for malicious reasons."); Black's Law Dictionary 224 (5th ed. 1983) (a demand note "may be called by lender at any time because there is no fixed maturity date"). KeyBank's August 17, 2011 letter calling the Ansteth Loan served a single, discrete purpose: To demand payment of the loan and inform Ansteth Jewelers that there would be 4 Their "other obligations" to KeyBank were their respective guaranties of the Elizabeth Retail Loan. Thompson Decl., ¶ 3.3 & Exs. 15 and 17; Cochran Decl., ¶¶ 4.1, 4.2 & Exs. 7-9. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 15 of 43 Page 9 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 consequences if it failed to do so. Russillo Decl., ¶ 4.1 & Ex. 6; Parker Decl., ¶ 9, Ex. 8 (“Russillo Dep. Tr.”) 46:2-5, 48:1-3; Thompson Decl., ¶ 7.2. That is the function of a demand letter. KeyBank's letter calling Ansteth's Loan was not a status report on both loans, but merely a demand to one borrower for payment of one loan.5 2. Plaintiffs should have known that Charles Arnell's bankruptcy was an event of default under Elizabeth Retail's loan documents. Plaintiffs do not allege that KeyBank tried to conceal Charles Arnell's bankruptcy from them, nor could KeyBank possibly have done so. Ms. Arnell plainly knew that her husband filed bankruptcy. Elizabeth Retail Dep. Tr. 101:19-20. Nor do plaintiffs allege that KeyBank concealed the contents of Elizabeth Retail's loan documents or prevented plaintiffs from reading these documents, or that plaintiffs lacked the means to discover for themselves that Charles Arnell's bankruptcy was an "event of default." An "event of default" is a "defined set of circumstances in the loan documents." Street Decl., ¶ 3.8; Russillo Decl., ¶ 4.1. KeyBank did not play "hide the ball" concerning any default. Ms. Arnell simply had to read the loan documents that she signed to know what the "events of default" were. The problem is, she never read the documents. During discovery, Ms. Arnell admitted that she (1) never read any of the loan documents, (2) did not know that her husband was a guarantor, and (3) did not know that his bankruptcy was an "event of default." Elizabeth Retail Dep. Tr. 13:8-12, 102:4-9, 103:3-15, 104:3-8, 104:16-25, 105:1-6, 105:22-25, 106:1-5. In a remarkable line of questioning, Ms. Arnell testified: 5 The letter included a typical "reservation of rights" provision. Russillo Decl., ¶ 4.1 & Ex. 6; Thompson Decl., ¶ 7.2 & Ex. 26. Cf., A. Kyle, "Dealing with Default (With Forms)," The Practical Real Estate Lawyer, vol. 23, no. 3, App. 3 (May 2007) (non-waiver/reservation of rights language). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 16 of 43 Page 10 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Q: Did you know at that time in 2011 that he [Charles Arnell] was a guarantor of the Elizabeth Retail [loan]? A: I didn't. Q: You didn't? A: I am embarrassed but I did not. I thought it was all in my name. Q: And so you had no idea, whatever the loan documents said about the bankruptcy, the effect of a bankruptcy of a guarantor? A: No. […] Elizabeth Retail Dep. Tr. 102:4-13. See also, id. 102:14-25, 103:1-5. The law does not excuse parties from failing to read their contracts. See Upton v. Tribilock, 91 U.S. 45, 50, 23 L. Ed. 203 (1875) ("It will not do for a [person] to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained."); Hogan v. NW Trust Services, 2010 U.S. Dist. LEXIS 45597, at **15-16 (D. Or., May 7, 2010) ("Failure by plaintiffs to understand the express contract terms by which they bound themselves […] does not state a claim for breach of implied covenant of good faith and fair dealing."); Sheet Metal Workers Intern. Ass'n Local Union No. 27 v. E.P. Donnelly, Inc., 673 F. Supp. 2d 313, 328 (D.N.J. 2009) ("Walking blindfolded through one's business affairs does not excuse the ensuing collision."); Northwestern Pacific Indemnity Co. v. Junction City Water Control District, 295 Or. 553, 557 n.4, 668 P.2d 1206 (1984) (“[I]n the absence of extraordinary circumstances, […] failure to read an instrument is not a defense to enforcement.”). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 17 of 43 Page 11 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 3. KeyBank did not owe a contractual duty to Ansteth Jewelers or Judith Arnell to notify them of Elizabeth Retail's defaults. For KeyBank to have breached the good faith covenant by not explaining to Ms. Arnell what Elizabeth Retail's loan documents said, the plaintiffs must show that the documents contain an express or implied "duty to disclose." Silence does not give rise to liability unless there is a duty to disclose. Unigeston Holding, S.A. v. UPM Technology, Inc., 2016 U.S. Dist. LEXIS 12758, at **14-15 (D. Or., Feb. 3, 2016) (per Simon, J.); Brant v. CCG Fin. Corp., 693 F. Supp. 889, 894 (D. Or. 1988). No such duty existed in this case. Indeed, the very opposite is true. Ansteth Jewelers and Judith Arnell each had an express contractual duty under their respective guaranties to keep themselves "adequately informed" about Elizabeth Retail, and the same contracts specified that KeyBank had "no obligation to disclose … any information or documents" concerning Elizabeth Retail. Their guaranties provided: Guarantor represents and warrants to Lender that: […] (J) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under the Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower. Thompson Decl., ¶ 3.3 & Exs. 15 and 17; Russillo Decl., ¶ 4.1 & Exs. 3 and 5 (emphasis added). This express contractual provision is clear, unambiguous, and dispositive. The implied covenant of good faith, even expansively conceived, does not override express provisions of a contract. See Arnett v. Bank of America, N.A., 874 F. Supp. 2d 1021, 1033 (D. Or. 2012) (per Simon, J.) ("A duty of good faith and fair dealing, however, may be implied as to a disputed issue only if the parties have not agreed to an express term that governs that issue."). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 18 of 43 Page 12 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 4. KeyBank did not owe a duty to Ansteth Jewelers or Judith Arnell based on a special relationship. The only extra-contractual ground for imposing a “duty to disclose" is if a “special relationship” exists between KeyBank and Ms. Arnell or Ansteth Jewelers. See Unigeston Holding, at *15 n. 8 (a duty to disclose may exist when there is a special relationship). This Court has described prerequisites for a “special relationship” as follows: A special relationship exists where “one party has authorized the other to exercise independent judgment in his or her behalf and, consequently, the party who owes the duty has a special responsibility to administer, oversee, or otherwise take care of certain affairs belonging to the other party. Confederated Tribes of the Warm Springs Reservation of Or. v. Ambac Assurance Corp., 2010 U.S. Dist. LEXIS 124309 (D. Or. Nov. 17, 2010) (citation omitted). The law is firmly established that a special relationship does not exist in arm's-length commercial transactions. Unigeston Holding, at *15 n.8. It is likewise well-settled that a commercial loan is an arm's-length relationship. Fleshman v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 82670, at *9 (D. Or., June 17, 2014); Rapacki v. Chase Home Finance, LLC, 2012 U.S. Dist. LEXIS 54685, at *11 (D. Or., April 17, 2012). There is no evidence that the relationship between the plaintiffs and KeyBank was anything other than an arm's-length commercial relationship or that any of the plaintiffs ever authorized KeyBank to exercise independent judgment on their behalf. 5. KeyBank did not have a secret plan to foreclose Elizabeth Retail's deed of trust. The undisputed evidence demonstrates conclusively that plaintiffs’ “bad faith” claim has no basis in fact. KeyBank never had a "secret plan" to foreclose Elizabeth Retail’s deed of trust when it called the Ansteth Loan. KeyBank decided to initiate foreclosure nearly a year later, Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 19 of 43 Page 13 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 when Elizabeth Retail refused to sign a forbearance agreement and ceased negotiating. Ms. Arnell concedes that she has no evidence that KeyBank had a plan to foreclose the deed of trust, and she admits that she did not even suspect that KeyBank had such a plan. Elizabeth Retail Dep. Tr. 254:1-21. Nonetheless, she has not withdrawn the "bad faith" claim. Brent Thompson, the workout officer who made the decision to call Ansteth Jewelers' loan in August 2011, testified that he never recommended declaring Elizabeth Retail's loan in default, accelerating the loan, terminating the relationship, or foreclosing the deed of trust. Thompson Decl., ¶¶ 5.9, 7.9-7.10; Thompson Dep. Tr. 104:12-22. He was focused on obtaining financial and valuation data and developing a workout plan. Thompson Decl., ¶¶ 5.8, 5.9. Mr. Thompson's testimony is confirmed by his contemporaneous reports to management. In a report prepared on August 3, 2011, he wrote: Currently KeyBank is performing a complete financial, collateral and guarantor review. […] Once all the requested information is received in conjunction with [an] understanding of the bankruptcy[,] KeyBank will better understand the credit[;] currently this credit is slated as an exit for 1Q2012 [first quarter of 2012]. Id., ¶¶ 5.8-5.9 & Ex. 24. Mr. Thompson explained that the word "exit" as used in his report is not synonymous with "accelerate" or "foreclose:" "Exit" does not mean "declare a default" or "accelerate the loan" or "foreclose". It meant that my aim was to have a workout strategy in place by the end of the first quarter of 2012. By that time I expected to have received the requested financial information from the borrowers and the nonbankrupt guarantors, obtained an independent appraisal of Elizabeth Retail's condominiums, completed my analysis, and negotiated some type of workout. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 20 of 43 Page 14 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Id., ¶ 5.8 & Ex. 24 (emphasis added). See also, Thompson Dep. Tr. 104:2-11 ("exit" means "there needs to be a workout plan or an objective in place [for] this borrower;" an "[e]xit from the current status the loan's in"); Parker Decl, ¶ 5, Ex. 4 (“Street Dep. Tr.”) 76:17-25, 78:1-13 ("exit" does not mean "we want the borrower to leave;" "exit" means "we want to address the issues and make sure that we have either mitigated, enhanced or otherwise addressed those issues"). In a second report prepared October 31, 2011, Mr. Thompson changed the "Exit Date" from the first quarter of 2012 to the second quarter. Thompson Decl., ¶ 7.12 & Ex. 29. This report, like his prior report, says nothing about declaring Elizabeth Retail’s loan in default, accelerating the loan, or foreclosing the deed of trust. Craig Russillo, KeyBank's attorney who handled the foreclosure, did not do any legal work on the Elizabeth Retail loan between September 2011, when the Ansteth Jewelers’ loan paid off, and March 2012. Russillo Dep. Tr. 67:19-23; Russillo Decl., ¶ 6.1. If in 2011 there had been a secret plan to foreclose, KeyBank would not have sidelined its attorney for six months. Moreover, when Mr. Russillo resumed working on the matter in March 2012, it was not to foreclose, but, rather, to negotiate with Elizabeth Retail's lawyer. In Mr. Russillo's first letter to plaintiffs' lawyer, on March 20, 2012, he wrote: Due to the fact that Elizabeth [Retail] is current on its loan payments, KeyBank is willing to negotiate towards a workout agreement that would give your client a limited amount of time (i.e., 3 to 6 months) to find such financing. Russillo Decl., ¶ 6.8 & Ex. 17. Two weeks later, on April 3, 2012, Mr. Russillo sent an e-mail to plaintiffs' lawyer: Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 21 of 43 Page 15 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 As we discussed, the bank is willing to wait until April 16 to receive a proposal from your clients as to how they intend to address the defaults under the note. Russillo Decl., ¶ 6.9 & Ex. 18. In another letter, dated June 13, 2012, Mr. Russillo continued to pursue a negotiated resolution: KeyBank is not, at this time, making demand for full payment of the Note, even though it has the right to do so, and, instead, is willing to work with ERP and its guarantors to give them time to provide the requested financial information and propose a plan to repay KeyBank in the short term Russillo Decl., ¶ 6.18 & Ex. 22. Sheila Cochran, the workout officer who handled Elizabeth Retail's loan from November 2011 until the foreclosure sale in February 2013, testified that she did not decide to initiate foreclosure until August 2012; and when she did, the triggering event was Elizabeth Retail's refusal to execute the forbearance agreement negotiated by the parties or to continue negotiating respecting an alternative agreement. Cochran Decl., ¶¶ 8.21-8.22. See also, Street Decl., ¶¶ 9.1- 9.3; Russillo Decl., ¶¶ 6.28-6.29. Ms. Cochran did not request approval from her manager to conduct a foreclosure sale until January 2013. Parker Decl., ¶ 6, Ex. 5 (“Cochran Dep. Tr.”) 59:5-19, 60:7-16, 61:5-9, 61:17-22, 69:21-23, 93:12-25, 94:1-8, 95:1-6; Cochran Decl., ¶¶ 13.8- 13.10 & Exs. 61-63. Chong Street, the senior workout officer who eventually authorized foreclosure, testified that when he became Team Lead in November 2011, there was no workout strategy in place for Elizabeth Retail. Street Decl., ¶ 7.9. He also testified that he did not authorize the foreclosure sale until January 24, 2013. Id., ¶¶ 11.2-11.3, 11.10, 11.13 & Exs. 25 and 27. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 22 of 43 Page 16 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Finally, overwhelming, undisputed evidence shows that during 2011 and most of 2012, KeyBank continuously tried to develop a workout plan and negotiate a forbearance agreement. Cochran Decl., ¶¶ 6.1-6.2, 6.5, 6.8-6.9, 8.1, 8.3-8.6, 8.9, 8.14, 8.17-8.18, 8.23, 9.1, 10.4-10.5, 12.2-12.3, 12.8-12.9 & Exs. 20, 21, 25, 32 and 54; Street Decl., ¶ 11.15 & Ex. 31. KeyBank would not have devoted this much effort pursuing a workout if foreclosure had been its objective all along. In sum, there was no "secret plan" to foreclose. 6. Paying off the Ansteth Loan did not impair plaintiffs' ability to fulfill their other obligations to KeyBank. Magistrate Hubel allowed the parties to develop a factual record regarding plaintiffs’ claim that a demand on the demand line of credit might have adversely affected plaintiffs’ ability to satisfy other obligations. See Elizabeth Retail, 83 F. Supp. 3d at 991. With discovery complete, the undisputed facts establish that paying off Ansteth Jewelers' loan fulfilled Judith Arnell's contractual obligation to KeyBank under her guaranty, without preventing either her or Ansteth Jewelers from (a) fulfilling their further obligations under their guaranties of Elizabeth Retail's loan, or (b) consummating a workout plan with KeyBank and thereby avoiding foreclosure. It is undisputed that Ansteth Jewelers had an unconditional contractual obligation to repay the Ansteth Loan "on demand" under its promissory note. Thompson Decl., ¶ 2.3 & Ex. 1. Plaintiffs acknowledge that Ansteth Jewelers' note was a demand note. Ms. Arnell admitted, "When I pulled out the documents, I go, oh, yeah, I guess they can call the entirety [of Ansteth Jewelers' loan] at any time." Elizabeth Retail Dep. Tr. 134:22-25, 135:1. See Reger Development, LLC v. National City Bank, 592 F. 3d 759, 765 (7th Cir. 2010) (construing a nearly identical LaserPro note as a demand note), cert. denied, 130 S.Ct. 3507 (2010). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 23 of 43 Page 17 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Likewise, Judith Arnell and Elizabeth Retail each had an unconditional contractual obligation to repay the Ansteth Loan under the terms of their respective guaranties. Thompson Decl., ¶ 2.4 & Exs. 4 and 6. The existence and terms of these guaranties are not in dispute. Judith Arnell paid off the Ansteth Loan on September 8, 2011. Id., ¶ 7.8 & Ex. 28; Ansteth Jewelers Dep. Tr. II, 57:24-25, 58:1-7 & Ex. 14. By doing so, Ms. Arnell did nothing more, nor less, than fulfill her contractual obligation under her guaranty. Thompson Decl., ¶ 2.4 & Ex. 4. The only damages claimed by plaintiffs arising from repayment was that "payment of that loan … deprived me of the use of the funds." Parker Decl., ¶ 4, Ex. 3 (Ansteth Jewelers Int. Nos. 12 & 13). That is the case whenever anyone pays a just debt that is due. As the Washington district court recently noted, "[I]t is unclear how payment on an outstanding debt constitutes damages." Erickson v. Long Beach Mortgage Co., 2011 U.S. Dist. LEXIS 20919, at *14 (W.D. Wa., March 2, 2011), aff'd, 2012 U.S. App. LEXIS 10794 (9th Cir., May 29, 2012). Moreover, the undisputed evidence shows that paying off the Ansteth Loan did not prevent plaintiffs from "fulfilling their other obligations" to KeyBank. First, paying off the Ansteth Loan actually improved prospects of a successful workout. In two reports to KeyBank's management, Mr. Thompson, the workout officer, recognized paying off the Ansteth Loan as an "upgrade trigger" for Elizabeth Retail's loan. Thompson Decl., ¶¶ 5.9, 7.9 & Exs. 24 and 29. Second, paying off the Ansteth Loan did not prevent Elizabeth Retail from entering into and consummating either of the two forbearance proposals made by KeyBank. KeyBank's July 31, 2012 proposal did not require any additional payments, only the borrower's regular monthly payments due under the promissory note. Cochran Decl., ¶¶ 8.18, 8.19 & Ex. 33; Street Decl., ¶¶ 8.8-8.9 & Ex. 19; Russillo Decl., ¶¶ 6.25-6.27 & Ex. 27. KeyBank's November 6, 2012 proposal did require additional payments, but KeyBank did not seek more than plaintiffs were Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 24 of 43 Page 18 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 able to pay. Plaintiffs did not object to the amount of the payments or request smaller payments. Ms. Arnell testified that money was not an issue for her. She acknowledged that she was capable of making the payments, but decided, of her own accord, not to make the deal. She testified that she wanted a longer forbearance period, not smaller payments. Elizabeth Retail Dep. Tr. 219:23- 25, 220:9-13, 221:16-18, 222:5-7; Judith Arnell Dep. Tr. 7:4-17, 8:7-23, 49:1-3.6 Plaintiffs might have negotiated different workout terms, but, instead, they chose to terminate negotiations, for no apparent reason, while KeyBank's November 6, 2012 offer was on the table. Elizabeth Retail Dep. Tr. 229:18-22; Cochran Decl., ¶¶ 12.1-12.4, 12.7; Street Decl., ¶¶ 11.1-11.3, 11.14-11.15; Russillo Decl., ¶¶ 8.20, 9.4, 9.6. In sum, there is no evidence that paying off the Ansteth Loan prevented plaintiffs from fulfilling their other obligations to KeyBank or successfully negotiating a forbearance agreement. B. KeyBank did not breach the good faith covenant by not declaring Elizabeth Retail's loan in default earlier. Magistrate Hubel expressed concern that KeyBank "did not declare Mr. Arnell's bankruptcy filing an event of default until several months after his debts were discharged." Elizabeth Retail, 83 F. Supp. 3d at 990. Plaintiffs themselves have never alleged that they were harmed because KeyBank did not declare Elizabeth Retail's loan in default sooner. Generally, a lender has the option under the loan documents "whether to declare a default, whether and when to accelerate, and whether, having chosen to take advantage of any of its [nonjudicial] remedies, to rescind the process before its completion. See Trident Center v. Connecticut General Life Ins., 847 F. 2d 564, 567 (9th Cir. 1988). 6 Elizabeth Retail terminated negotiations with KeyBank without ever asking for a longer forbearance period. Elizabeth Retail Dep. Tr. 225:16-18. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 25 of 43 Page 19 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 In some cases, a lender may take prompt action to prevent a deteriorating situation from getting worse. Thus, in Lakeside Inn, Inc. v. Bank of the West, 2015 U.S. Dist. LEXIS 37873 (D. Nev., March 25, 2015), the district court held that the bank had the right to foreclose based on breach of certain financial covenants even though no payments had been missed and the underlying debt was fully secured. The court explained: These events serve as warnings to a lender that the borrower's ability to repay may be in jeopardy, even if no payment has yet been late. It is not unreasonable for a security instrument to provide for acceleration and foreclosure under such circumstances, so that a lender may recover its investment before the chance of recovery becomes further jeopardized. Id. at ** 16-17 n. 5. In other cases, patience may be the preferable business judgment. KeyBank and its borrowers are often able to arrive at a mutually acceptable solution without the need to declare a default and pursue legal remedies. Thompson Decl., ¶ 5.3; Street Decl., ¶ 7.4; Cochran Decl., ¶ 5.3. The law generally favors compromise and encourages settlements. Ahern v. Central Pacific Freight Lines, 846 F. 2d 47, 48 (9th Cir. 1988); Ball v. Oregon Erecting Co., 273 Or. 179, 189, 539 P. 2d 1059, 1064 (Or. 1975). Absent an express contractual provision, requiring a lender to declare a loan in default immediately, instead of allowing the lender to gather information, engage in discussions with the borrower, and consider other alternatives, would be bad policy, foster unnecessary litigation, and lead to undesirable results for both lenders and borrowers.7 See Fasolino Foods Co. v. Banca Nazionale Del Lavoro, 961 F.2d 1052, 1057 (2d Cir. 1992 (“a 7 Declaring a default may have unintended, adverse consequences. Thompson Decl., ¶ 5.6. For example, the borrower may have a loan with another financial institution that contains a "cross-default clause", i.e., a clause making it a default if the borrower is in default under another loan. Id. Prematurely declaring a default might inadvertently make matters worse for both the lender and the borrower, and, possibly, for other creditors as well. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 26 of 43 Page 20 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 contrary view would discourage lenders from allowing borrowers leeway and encourage those lenders to play hardball in the face of every default, no matter how minor.”). Timing of the exercise of default remedies is best left to the contractual arrangements between the parties. In this case, neither the promissory note nor the deed of trust required KeyBank to declare a default immediately at the risk of losing its rights or remedies. Russillo Decl., ¶¶ 5.4-5.5, 5.7 & Exs. 7 and 11; Thompson Decl., ¶ 3.3 & Exs. 12 and 13; Cochran Decl., ¶¶ 7.4, 7.6 & Exs. 4 and 6. The "Lender's Rights" and "Rights and Remedies on Default" provisions of the note and deed of trust state that KeyBank "may" exercise specified remedies, not that it "must" do so. Cochran Decl., ¶¶ 7.4-7.6 & Ex. 4 (emphasis added). Additionally, Elizabeth Retail's note and deed of trust each contain express anti-waiver provisions. The note states, "Lender may delay or forego enforcing any of its rights or remedies without losing them." Russillo Decl., ¶ 5.4 & Ex. 7. The deed of trust provides, "No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right." Id., ¶ 5.5 & Ex. 11. The right to contract privately is a vital part of the liberty of citizenship, and an important role of the courts is to enforce contractual rights and obligations. W. J. Seufert Land Co. v. Greenfield, 262 Or. 83, 90-91, 496 P2d 197 (1972). "Where parties are competent to contract with each other, in the absence of fraud, undue influence, duress or mistake in making the agreement, neither party can be relieved of an agreement because he did not use good business judgment or because the contract had not been as profitable as expected." Matter of Ellinwood, 59 Or. 536, 539, 651 P. 2d 190, 193 (1982), rev. denied, 294 Or. 460 (1983). The contractual language, "at any time", "Lender may", and "at its option", together with the anti-waiver provisions, establish unequivocally that KeyBank was not required to declare a Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 27 of 43 Page 21 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 default or pursue default remedies at a particular time. The implied covenant of good faith cannot contradict these express provisions. See Elizabeth Retail, 83 F. Supp. at 990 (citing Klamath Off-Project Water Users, Inc. v. Pacificorp, 237 Or. App. 434, 445, 240 P.3d 94 (2010)); Barinaga v. JP Morgan Chase & Co., 749 F. Supp. 2d 1164, 1178 (D. Ore. 2010). Plaintiffs in fact have never raised any issue about the timing of KeyBank's declaration of default, or claimed an entitlement or benefit from an earlier declaration of default.8 On the contrary, plaintiffs consistently sought more time, not less, to sell or refinance the condominiums. Judith Arnell Dep. Tr. 8:7-23; Cochran Decl., ¶ 10.2 & Ex. 41. Plaintiffs’ "bad faith" claim based on the timing of the declaration of default fails. C. KeyBank's workout negotiations did not breach the good faith covenant. Magistrate Hubel expressed two concerns regarding the parties' negotiations. The first was that KeyBank's lawyer represented that the bankruptcy-related default was "not curable." Elizabeth Retail, 83 F. Supp. 3d at 990-91. The second was that KeyBank's lawyer stated that the "best course of action" would be to refinance the Elizabeth Retail Loan. Id. With discovery complete, and the facts concerning the negotiations fully developed, the “bad faith negotiations” claim must fail for two basic reasons. First, the implied covenant of good faith does not apply to post-default negotiations. Second, even if the covenant applies, the 8 Plaintiffs have no evidence suggesting that if KeyBank had declared Elizabeth Retail in default sooner Mr. Arnell would have dismissed his bankruptcy case in order to "cure" the default. Moreover, dismissal of Mr. Arnell's bankruptcy case, by itself, would not have led to a different outcome. Mr. Arnell was insolvent and would have remained insolvent following dismissal. See Elizabeth Retail, 83 F. Supp. 3d at 980; Charles Arnell Dep. Tr. 106:21-24. Insolvency of a guarantor was a separate "event of default" under the note and deed of trust. Russillo Decl., ¶ 7.13 & Exs. 7 and 11. Likewise, the "insecurity" default would have existed if Mr. Arnell's bankruptcy case was dismissed. Russillo Decl., ¶¶ 6.7, 6.16 & Exs. 17 and 22. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 28 of 43 Page 22 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 statements made by KeyBank's attorney during the negotiations did not breach the covenant. 1. The implied covenant of good faith does not apply to workout negotiations. The implied covenant of good faith applies to the "performance and enforcement" of an existing contract. See Best v. United States National Bank of Oregon, 303 Or. 557, 561, 739 P.2d 554 (1987). If there is no contract to which the implied covenant can attach, there is no breach of the covenant as a matter of law. Negotiations aimed at a new, post-default workout agreement do not involve "performance or enforcement" of an existing contract. It is well-settled that the good faith covenant does not apply to precontractual negotiations. See Tolbert v. First National Bank of Oregon, 312 Or. 485, 493, 823 P. 2d 965 (1991) (citing RESTATEMENT (SECOND) OF CONTRACTS § 205 and FARNSWORTH ON CONTRACTS § 3.26a); Schmelzer v. Wells Fargo Home Mortgage, 2011 U.S. Dist. LEXIS 134015, at **21-24 (D. Or., Nov. 21, 2011) (no breach where bank failed to enter into modification agreement); Stoss v. JP Morgan Chase Bank, 2013 U.S. Dist. LEXIS 185150, at **16-18 (same); Bank of America, N.A & S.T. v. McMahon, 1993 U.S. App. LEXIS 24903, at **9 (9th Cir. 1993); Wensley v. First Nat'l Bank of Nevada, 874 F. Supp. 2d 957, 964 (D. Nev. 2012); Silving v. Wells Fargo Bank, N.A., 800 F. Supp. 2d 1055, 1071 (D. Ariz. 2011). A successful workout is the end result of the normal give-and-take of negotiation and compromise. D. Rome, BUSINESS WORKOUTS MANUAL ¶ 1.07, at 1-9 to 1-10 (1992). Even if the Court were to change existing law and declare that the implied covenant applies to post- default negotiations, there is no basis to find that KeyBank breached that covenant. The undisputed facts show that for more than six months, KeyBank continually tried to negotiate a forbearance agreement, while at the same time Elizabeth Retail withheld financial Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 29 of 43 Page 23 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 statements, gave KeyBank materially false information, engaged in dilatory tactics, and, ultimately, broke off negotiations, without explanation, while an offer from KeyBank was on the table. Cochran Decl., ¶¶ 8.1-8.9, 8.14-8.15, 8.18-8.19, 8.21, 10.3, 12.1-12.3, 12.13; Russillo Decl., ¶¶ 6.7-6.29, 8.1-8.3, 8.6-8.20; Street Decl., ¶¶ 8.9, 10.3, 11.15, 11.19. Ms. Arnell herself testified that she does not know why her attorneys did not respond to KeyBank's offer. Judith Arnell Dep. Tr. 34:10-14, 35:2-18. 2. KeyBank's representations concerning "cure" of the bankruptcy default did not breach the good faith covenant. Magistrate Hubel was concerned with KeyBank's representations regarding "cure" of the bankruptcy default. See Elizabeth Retail, 83 F. Supp. 3d at 990-91. With all the facts now in evidence, it is clear that these representations did not breach the good faith covenant. In a March 20, 2012 letter to plaintiffs' attorney, Gary Shepherd, KeyBank's lawyer, Craig Russillo, wrote, "the default […] arising out of Charles Arnell's bankruptcy is not curable and is not one that KeyBank is willing to waive." Russillo Decl., ¶ 6.7 & Ex. 17. He added: Accordingly, the best course of action is to seek financing to pay KeyBank in full. Due to the fact that Elizabeth [Retail] is current on its loan payments, KeyBank is willing to negotiate towards a workout agreement that would give your client a limited amount of time (i.e., 3 to 6 months) to find such financing. Id., ¶ 6.8. In a second letter to Gary Shepherd, dated June 13, 2012, Mr. Russillo wrote, "Charles Arnell's bankruptcy constitutes an Event of Default under the Note. This Event of Default is not curable, absent a dismissal of Charles Arnell's bankruptcy." Russillo Decl., ¶ 6.18 & Ex. 22. Mr. Russillo added: KeyBank is not, at this time, making demand for full payment of the Note, even though it has the right to do so, and, instead, is willing to work with [Elizabeth Retail and its guarantors to give Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 30 of 43 Page 24 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 them time to provide the requested financial information and propose a plan to repay KeyBank in the short term. Id. Both statements were made during workout negotiations to which the implied covenant of good faith does not apply. See § C. 1., supra, at 22. And, the statements were correct. Guaranties "are ubiquitous in commercial transactions and in commercial law." Avery Katz, "An Economic Analysis of the Guaranty Contract," 66 U. Chi. L. Rev. 47 (Winter 1999). Guaranties are a basic tool that enables lenders to manage their risk. R. Mann, "The Role of Secured Credit in Small-Business Lending," 86 Georgetown L.J. 1, 23 (Oct., 1997). At loan origination, Charles Arnell's guaranty provided significant credit support for Elizabeth Retail's loan through his annual income of $417,533, together with his real estate equity and liquidity. Charles and Judith Arnell together reported liquidity (i.e., cash and cash equivalents) totaling $552,000. Street Decl., ¶ 5.4 & Ex. 6. Nearly all of this liquidity was attributable to Charles Arnell. Mr. Arnell testified that he had "[o]ver half a million" in cash in 2007 and 2008. Charles Arnell Dep. Tr. 86:14-17. This liquidity disappeared completely by 2011. When he filed bankruptcy, Mr. Arnell's liquid assets totaled only $332. Russillo Decl., ¶ 9.5 & Ex. 56 (Schedule B, Items 1, 2). The bankruptcy of a guarantor is a common "event of default" in commercial transactions. M. Lux, "Negotiating Commercial Loans for Closely Held Companies When Credit is Tight," The Practical Lawyer, at 49 (Aug. 2011); see, e.g., Patrick E. Mears, et al., STRATEGIES FOR SECURED CREDITORS IN WORKOUTS AND FORECLOSURES, at 181 (ALI/ABA 2004) ("WORKOUT STRATEGIES") (form default clause); H.D. Smith Wholesale Drug Co. v. Crawford, 2013 U.S. Dist. LEXIS 60320, at *4 (C.D. Ill., April 29, Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 31 of 43 Page 25 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 2013); Weiner v. Naegele, 2012 U.S. Dist. LEXIS 97925, at **8-9 (D. Minn., July 16, 2012); Manheim Automotive Financial Services, Inc. v. Fleet Funding Corp., 2010 U.S. Dist. LEXIS 40939, at *9 (E.D.N.Y., March 22, 2010).9 Elizabeth Retail's note was secured by a form deed of trust called "LaserPro," developed by an Oregon corporation and used by 112 financial institutions in Oregon and 3,328 financial institutions nationwide. Jennings Decl., ¶¶ 4-5 & Exs. 1-19; see also, Street Decl., ¶¶ 3.6, 3.8. The LaserPro note and deed of trust each provide that a guarantor's bankruptcy is an "event of default." Cochran Decl., ¶¶ 7.2, 7.5 & Exs. 4 and 5; Russillo Decl., ¶¶ 5.4, 5.5 & Exs. 7 and 11. The Oregon State Bar ("OSB") publishes a Real Estate Deskbook, which contains a form commercial deed of trust. See Oregon Real Estate Deskbook, Form 22-2, Commercial Trust Deed (2015 ed.). The OSB deed of trust, like the LaserPro deed of trust, also provides that a guarantor's bankruptcy is an "event of default." Id. Magistrate Hubel noted that the bankruptcy of a guarantor "did not fall within the limited exception to the cure provision" in the loan documents. Elizabeth Retail, 83 F. Supp. 3d at 990- 91. The "cure" provision states: If any default other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this note within the preceding twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within fifteen (15) days or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems 9 Commercial loan documents contain numerous representations, warranties, covenants and specifically defined "events of default" which enable lenders to manage credit risk. Street Decl., ¶ 3.8. The bankruptcy of a guarantor is just one such provision. These provisions serve as a tripwire, allowing lenders to manage risk by accelerating the loan or taking other action to address problems with the credit, prevent further deterioration, and mitigate potential loss. Id. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 32 of 43 Page 26 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 in Lender’s sole discretion to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. Thompson Decl., ¶ 3.3 & Ex. 12; Cochran Decl., ¶ 4.2 & Ex. 4; Russillo Decl., ¶ 4.3 & Ex. 7 (emphasis added). Black's Law Dictionary defines "cure" as a means of "removing legal defects or correcting legal errors." Black's Law Dictionary 387 (7th ed. 1999). Accord, In re Entz-White Lumber & Supply, Inc., 850 F. 2d 1338, 1340 (9th Cir. 1988) (“[T]he plain meaning of ‘cure’ is to remedy or rectify the default and restore matters to the status quo ante.”). If the bankruptcy default was "curable,"10 timely dismissal of Mr. Arnell's bankruptcy case was probably the only way to cure it. The effect of dismissal of a bankruptcy case is governed by 11 U.S.C. § 349(b), aptly entitled "Effect of Dismissal." Section 349(b)'s basic purpose is to "undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case." In re Nash, 765 F.2d 1410, 1414 (9th Cir. 1985); Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji), 698 F.3d 231, 238 (5th Cir. 2012); 3 COLLIER ON BANKRUPTCY ¶ 349.01[2], at 349-3 (16th ed. 2015). However, Mr. Russillo correctly observed that "the default […] arising out of Charles Arnell's bankruptcy is not curable.…" Russillo Decl., ¶ 6.7 & Ex. 17. Mr. Arnell had received his discharge more than six months before Mr. Russillo wrote the letter to plaintiffs' lawyer. Complaint, ¶ 29; Charles Arnell Dep. Tr. 121:3-10 & Ex. 20; Russillo Decl., ¶ 7.13 & Exs. 31 and 33. It is practically impossible to undo a Chapter 7 case and restore the status quo post- 10 Plaintiffs have not cited a single case, and KeyBank's research has found none, holding that a default arising from a guarantor's bankruptcy is curable. Cf., RBS Citizens, N.A. v. Ladany, 2011 Ill. App. Unpub. LEXIS 3048, at *17 (Ill. App., Dec. 6, 2011) ("[W]e do not even know whether a default based on a guarantor's bankruptcy can be cured."). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 33 of 43 Page 27 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 discharge. A Chapter 7 debtor does not have an absolute right to dismiss a bankruptcy case. In re Acosta-Rivera, 557 F.3d 8, 13 n.7 (1st Cir. 2009); In re Smith, 507 F.3d 64, 72 (2d Cir. 2007); 11 U.S.C. § 707(a). Moreover, dismissal does not revoke a previously entered discharge order. See In re Pavelich, 299 B.R. 777 (BAP 9th Cir. 1999). A request to waive a Chapter 7 discharge must be made before the discharge is entered. In re Newton, 490 B.R. 126, 127 (Bankr. D. D.C. 2013); In re Grabowski, 462 B.R. 534, 538 (Bankr. W.D. Pa. 2011); 11 U.S.C. § 727(a)(10). After a discharge is granted, the debtor has no standing to revoke the discharge. In re Markovich, 207 B.R. 909, 911-12 (BAP 9th Cir. 1997); 6 COLLIER ON BANKRUPTCY, ¶ 727.LH[5], at 727-91 (16th ed. 2015); 11 U.S.C. § 727(d). Thus, "cure" through restoring Mr. Arnell's pre-filing status quo was virtually impossible in March of 2012. Importantly, that "cure" of the bankruptcy default was never discussed during the workout negotiations. Mr. Shepherd did not challenge Mr. Russillo's statements, propose a different "cure," or, for that matter, even mention "cure" in the negotiations. Russillo Decl., ¶¶ 6.9-6.11, 6.14, 6.20-22, 6.24 & Exs. 18-21, 23-24, and 26; see also, Russillo Dep. Tr. 91:23- 25, 92:1-3, 93:3-10. After plaintiffs fired Mr. Shepherd, their new attorney, Scott Jensen, did not negotiate with KeyBank concerning "cure," either. Russillo Decl., ¶¶ 6.10, 8.2, 9.4. Both Mr. Shepherd and Mr. Jensen negotiated with KeyBank's lawyer regarding a possible forbearance agreement, not "cure" of any defaults. Id., ¶¶ 6.11, 6.25, 6.27, 8.2, 8.20. In sum, Mr. Russillo's statements concerning "cure" do not rise to the level of breach of contract. The implied covenant does not apply to post-default, arm's-length negotiations and his position was legally correct. Moreover, plaintiffs' lawyers did not dispute the statements or suggest any kind of "cure" for the defaults, and plaintiffs did not rely on the statements. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 34 of 43 Page 28 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 3. KeyBank's refinancing suggestion did not breach the implied covenant of good faith and fair dealing. Magistrate Hubel also expressed concern with KeyBank's attorney's statement that "the best course of action" would be to refinance the Elizabeth Retail Loan, when the Loan "was under water by $35,000.00 and [the] five-year prepayment penalty period had not yet expired."11 See Elizabeth Retail, 83 F. Supp. 3d at 990-91. This statement, like the statement regarding "cure," was made in the context of negotiating a workout to resolve Elizabeth Retail's defaults. Mr. Russillo's March 20, 2012 letter to plaintiffs' lawyer addressed the "insecurity default" as follows: "The only way to cure the [insecurity] default is to significantly pay down the balance or pledge other security to increase KeyBank's secured position vis-à-vis the Note balance." Russillo Decl., ¶ 6.7 & Ex. 17. This is a typical approach to collateral deficiency. See Richard A. Clarke, THE WORKOUT MANUAL § 46, at 53 (1993) ("The prime objective […] is to minimize the lender’s risk by eliminating collateral deficiency. This can be accomplished by either reducing the loan balance or acquiring additional collateral."). Mr. Russillo suggested refinancing as an alternative to this "cure:" [T]he best course of action for your clients is to seek financing to pay KeyBank in full. […] KeyBank is willing to negotiate towards a workout agreement that would give your client a limited amount of time (i.e., 3 to 6 months) to find such financing. 11 Brief mention should be made of Magistrate Hubel's allusion to the prepayment penalty. The prepayment penalty was a moot point when Mr. Russillo sent his March 20, 2012 letter. Elizabeth Retail’s loan was subject to a prepayment penalty, based on a sliding scale, during the first five years. Cochran Decl., ¶ 3.14 & Ex. 4. After year five, the loan could be prepaid at any time without penalty. Id. The fifth anniversary was March 23, 2012, a mere three days after Mr. Russillo sent his letter. Id., ¶ 3.1 & Ex. 1; Russillo Decl. ¶ 6.7 & Ex. 17. Thus, the prepayment penalty played no part in the negotiations and is of no consequence to this case. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 35 of 43 Page 29 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Id. Mr. Russillo did not claim that refinancing was the "only course of action," or that KeyBank would not consider other alternatives, he merely advocated it as the "best" option. On April 16, 2012, plaintiffs' lawyer responded: "My client's initial attempt to secure alternative financing to pay off the bank in full was not successful." Russillo Decl., ¶ 6.10 & Ex. 19. Mr. Shepherd also noted, "There is no additional property to pledge as security." Id. Although KeyBank didn't know it at the time, both of Mr. Shepherd's statements were false. Ms. Arnell testified that she had "a lot of equity" in a Portland condominium, as well as "several hundred thousand dollars" in equity in a second condominium in Chicago. Elizabeth Retail Dep. Tr. 152:18-25, 153:1-6, 153:21-23, 164:3-19. She did not offer KeyBank liens on these properties as part of a workout because she "didn't think about it." Elizabeth Retail Dep. Tr. 173:6-12; 165:2-3. She also testified that she never tried to refinance the loan. Elizabeth Retail Dep. Tr. 152:18-25, 153:21-23, 207:8-13, 208:3-8. KeyBank's "refinancing" suggestion became moot shortly after it was made because Elizabeth Retail decided to sell the condominiums. On June 22, 2012, Mr. Shepherd notified Mr. Russillo that Elizabeth Retail had listed condominiums for sale and intended to pay off the Elizabeth Retail Loan "in the coming months." Russillo Decl., ¶ 6.21 & Ex. 23; Cochran Decl., ¶ 8.11 & Ex. 29. This was perfectly acceptable to KeyBank, and for the remainder of Mr. Shepherd's representation the negotiations concerned a forbearance agreement to allow Elizabeth Retail time to sell the property. Russillo Decl., ¶¶ 6.23-6.24 & Exs. 25-26. KeyBank offered to forbear until September 30, 2012. Id., ¶ 6.23 & Ex. 25; Cochran Decl., ¶ 8.15 & Ex. 31. Mr. Shepherd responded to KeyBank's proposal, "That seems fair-- thanks." Russillo Decl., ¶ 6.24 & Ex. 26; Cochran Decl., ¶ 8.16 & Ex. 32. Based on that Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 36 of 43 Page 30 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 response, Mr. Russillo prepared a forbearance agreement and sent it to Mr. Shepherd. Russillo Decl., ¶¶ 6.25-6.27 & Ex. 27; Cochran Decl., ¶ 8.18 & Ex. 33; Street Decl., ¶ 8.9 & Ex. 19. The draft agreement granted Elizabeth Retail an even longer forbearance period than the one agreed to as well as other provisions favorable to the borrower. Russillo Decl. ¶ 6.27 & Ex. 27.12 On August 7, 2012, Gary Shepherd unexpectedly sent a letter to Craig Russillo rejecting KeyBank's forbearance agreement and refusing to negotiate any alternative agreement. Russillo Decl., ¶¶ 6.28-6.29 & Ex. 28; Cochran Decl., ¶ 8.21 & Ex. 34; Street Decl., ¶ 9.1. Less than a month later, plaintiffs fired Mr. Shepherd and retained a new attorney, Scott Jensen. Russillo Decl., ¶ 8.1; Cochran Decl., ¶ 10.1. On September 8, 2012, Mr. Jensen made a written proposal to KeyBank for a different forbearance agreement than the one previously negotiated with Mr. Shepherd. Russillo Decl., ¶ 8.3 & Ex. 39; Cochran Decl., ¶ 10.2 & Ex. 41. In response, KeyBank again requested financial information. Russillo Decl., ¶ 8.6 & Ex. 40; Cochran Decl., ¶ 10.5 & Ex. 42. Over the next month, plaintiffs finally disclosed financial statements. Russillo Decl., ¶¶ 8.7-8.8, 8.10 & Exs. 41-42, 44; Cochran Decl., ¶¶ 11.1-11.3 & Exs. 43-45. The disclosure revealed significant deterioration in credit quality since the Elizabeth Retail Loan was underwritten. Cochran Dep. Tr. 98:6-13. Elizabeth Retail's Loan was under water; the Arnells 12 Forbearance agreements typically require the borrower to acknowledge the existing defaults and the amount owed, pay a forbearance fee, and reimburse the lender for legal fees. See, e.g., WORKOUT STRATEGIES, at § 2.05; W. Berryhill, et al., STRUCTURING COMMERCIAL REAL ESTATE WORKOUTS, at § 2.02, App. 2-B (2d. ed. 2008 Supp.) (sample forbearance agreement); J. Hastie, "Real Estate Workouts (Part 2, With Forms), The Practical Real Estate Lawyer, vol. 28, no. 4, at 40 (July 2012) (sample forbearance agreement); A. Ramsey, "Real Estate Workouts from the Lender's Perspective (With Forms), The Practical Real Estate Lawyer, vol. 27, no. 4, at 45-51 (July 2011). KeyBank's proposed forbearance agreement did not include any of these lender-oriented provisions. Russillo Decl., ¶ 6.27; Cochran Decl., ¶ 8.19; Street Decl., ¶¶ 8.8-8.9. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 37 of 43 Page 31 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 had negligible liquidity; their net worth had dropped by more than 88%; Elizabeth Retail was insolvent, or very nearly so; Ansteth Jewelers had to subsidize Elizabeth Retail, while its own credit quality was steadily declining.13 Cochran Decl., ¶¶ 11.5-11.12 & Exs. 1, 14, 45-46. Mr. Jensen’s September 8, 2012 letter indicated that Elizabeth Retail had modified its objective from that of selling the condominiums "in the coming months," to "continuing efforts to sell or refinance" the condominiums. Russillo Decl., ¶¶ 6.21, 8.3 & Exs. 23, 39; Cochran Decl., ¶¶ 10.2, 12.1-12.2 & Ex. 41. KeyBank was willing to work with Elizabeth Retail to achieve this goal, but the September 8 proposal sought a forbearance period of indefinite duration that was unacceptable. Cochran Decl., ¶¶ 12.1-12.2. On November 6, 2012, KeyBank made a counterproposal to Elizabeth Retail. Cochran Decl., ¶ 12.3 & Ex. 51; Russillo Decl., ¶ 8.12 & Ex. 46. Elizabeth Retail did not object to any terms proposed by KeyBank, or otherwise respond to this offer. Cochran Decl., ¶ 12.10; Russillo Decl., ¶ 8.13; Street Decl., ¶ 10.4; Elizabeth Retail Dep. Tr. 225:16-25, 229:18-22. Three weeks after receiving KeyBank's offer, plaintiffs, through their attorney, Mr. Jensen, sent an e-mail to KeyBank's lawyer, Craig Russillo: Working on resolution based on your November 9 letter and will follow up with you as soon as possible. Russillo Decl., ¶ 8.16 & Ex. 49; Cochran Decl., ¶ 12.11 & Ex. 55. After another three weeks passed (now six weeks after receiving KeyBank's offer), Mr. Jensen informed KeyBank that plaintiffs were working to obtain financing and at the same time trying to sell the property: 13 Ms. Arnell confirmed that sales had decreased every year between 2008 and 2012. Elizabeth Retail Dep. Tr. 249:21-25, 250:1-4, 251:12-14 ("Business was less each year."). Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 38 of 43 Page 32 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Our clients are working on the funding detailed in your counterproposal. In addition, we are working on a sale that would result in full payment of the loan. We are working diligently and will get back to you as soon as possible, hopefully early during the first week of January 2013. Cochran Decl.. ¶ 12.12 & Ex. 56; Russillo Decl., ¶ 8.18 & Ex. 51. Judith Arnell testified that Mr. Jensen's statements were completely false. She testified that she never attempted to refinance the condominiums; she never received any offer to purchase the condominiums; and no sale of the condominiums was in prospect. Elizabeth Retail Dep. Tr. 190:18-22; 227:2-5, 228:16-19, 228:24-25, 229:1; Parker Decl., ¶ 3, Ex. 2 (Elizabeth Retail Admis. No. 23); Judith Arnell Dep. Tr. 13:16-18, 16:4-10, 16:5-13. Ms. Arnell also testified that she could have made the payments under KeyBank's counterproposal, but she wanted a longer forbearance period. Elizabeth Retail Dep. Tr. 219:23- 25, 220:9-13, 221:16-18, 222:5-7; Judith Arnell Dep. Tr. 7:4-17, 8:7-9, 49:1-3. However, for completely unknown reasons, her attorneys did not communicate to KeyBank her desire for a longer forbearance period. Judith Arnell Dep. Tr. 16:14-15, 48:23-25; Elizabeth Retail Dep. Tr. 225:16-18; Russillo Decl., ¶¶ 8.20, 9.6. In mid-January 2013, more than two months after receiving KeyBank's counterproposal, plaintiffs fired Scott Jensen and replaced him with Stacy Rutledge and Danny Hitt. Russillo Decl., ¶ 9.1 & Ex. 53. Plaintiffs' new lawyers did not request a longer forbearance period, either, nor resume negotiations for a forbearance agreement on any terms. Id., ¶¶ 9.4, 9.6. On January 18, 2013, Judith Arnell filed a complaint against KeyBank with the Consumer Financial Protection Bureau ("CFPB"). Street Decl., ¶ 11.14 & Ex. 30. Ms. Arnell claimed that she "hired 3 different lawyers to try to extend the foreclosure until May [2013] to give me time to sell property." Id.; Judith Arnell Dep. Tr. Ex 1. She now admits that this Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 39 of 43 Page 33 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 statement was false. Judith Arnell Dep. Tr. 10:12-22, 11:10-17. None of her attorneys ever asked KeyBank to postpone the foreclosure sale to any date for any reason. Russillo Decl., ¶¶ 6.20, 8.20, 9.4, 9.6. KeyBank responded to Ms. Arnell’s complaint, stating that the bank was still "willing to listen and continue negotiation.…" Street Decl., ¶ 11.15 & Ex. 31. Elizabeth Retail ignored this invitation to resume negotiations. Ms. Arnell testified that she does not know why her attorney failed to respond to this overture. Judith Arnell Dep. Tr. 34:10-14, 35:2-3, 7-12, 35:15-18. She explained, "I left it in my attorney's hands to do what was in my best interest." Id., 54:18-23. In sum, none of the statements made during workout negotiations breached any duty owed to plaintiffs. Parties to arm's-length loan workout negotiations should be free to explore different options and engage in wide-ranging discussions, even hard-nosed negotiations, without concern that their positions might lead to "bad faith breach of contract" claims whenever the other party doesn't get the deal it wants. D. The foreclosure notices were not defamatory. Plaintiffs' Third Claim for Relief ("Defamation") alleges that KeyBank "repeatedly represented and published to the public and plaintiffs' customers14 that they were in default of the [Elizabeth Retail] Loan and that [KeyBank was] legally entitled to foreclose on the property." Complaint, ¶ 48; Elizabeth Retail, 83 F. Supp. 3d at 993. These statements were contained in the statutory foreclosure notices prescribed by the Oregon Trust Deed Act ("OTDA"). Id.; Russillo 14 Ms. Arnell admits that this allegation relates only to Ansteth Jewelers, because Elizabeth Retail was a real estate holding company and never had any "customers." As she testified, "Nobody even knew there was an Elizabeth Retail.…" Elizabeth Retail Dep. Tr. 244:4-20, 53:1-4. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 40 of 43 Page 34 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 Decl., ¶¶ 7.9-7.10, 7.16-7.22 & Exs. 30, 34-37.15 Magistrate Hubel held that the Notice of Default ("NOD") and Notice of Sale ("NOS") did not "plausibly allege" any defamatory statement about either Ansteth Jewelers or Judith Arnell. Elizabeth Retail, 83 F. Supp. 3d at 995. Consequently, Ansteth Jewelers' and Judith Arnell's defamation claims were dismissed with leave to replead. Opinion and Order, at 3. They elected not to re-assert any claims for defamation. Elizabeth Retail concedes that the statements in the notices were true. Ms. Arnell was shown the foreclosure notice and asked about each default: "Is it your position that those statements are false?" She answered, "No." Elizabeth Retail Dep. Tr. 233:14-20. Accordingly, the defamation claim must be dismissed. "Truth is an affirmative defense to a defamation claim." Lansford v. Georgetown Manor, Inc., 192 Or. App. 261, 270, 84 P.3d 1105 (2004). Even if the statements in the NOD and NOS were untrue, Magistrate Hubel held that the qualified privilege applied to these notices. Elizabeth Retail, 83 F. Supp. 3d at 995-996. The qualified privilege may be lost if the defendant does not believe the statement is true, lacks reasonable grounds to believe that it is true, or if the statement is published for a purpose other than that for which the privilege is given. Lund v. Arbonne Int'l Inc., 132 Or. App. 87, 96, 887 P.2d 817 (1994). "The burden of proving an abuse of the qualified privilege … rests upon the plaintiff." Lansford, 192 Or. at 270 (citation omitted). 15 The statute of limitations for a defamation action is one year. ORS 12.120(2); DeParrie v. Hanzo, 2000 U.S. Dist. LEXIS 23512, at *21 (D. Or., March 6, 2000). The one-year period begins to run from the date of publication. Cross v. Safeway, Inc., 2003 U.S. Dist. LEXIS 25698, at **8-9 (D. Or., June 2, 2003). Plaintiffs filed their complaint on October 9, 2013 (dkt. #1). Therefore, the only publications within the limitations period are four publications in the Daily Journal of Commerce after October 9, 2012. Russillo Decl., ¶ 7.22 & Ex. 37. Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 41 of 43 Page 35 - DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 The Court gave Elizabeth Retail an opportunity to present evidence that KeyBank abused the qualified privilege: [T]he Court declines to recommend dismissal of Elizabeth Retail's defamation claim at the motion to dismiss stage because Elizabeth Retail must be given the opportunity to overcome this qualified privilege by presenting evidence of improper motive on [KeyBank's] part. Elizabeth Retail, 83 F. Supp. 3d at 996. Elizabeth Retail has no evidence of any improper motive. The undisputed evidence shows that the foreclosure notices were made solely to comply with the OTDA, KeyBank believed the statements in the notices were true, and KeyBank actually foreclosed on the condominiums. Russillo Decl., ¶¶ 7.8-7.23, 10.1-10.2 & Exs. 30, 34-37 and 56; Cochran Decl., ¶¶ 9.6, 9.11, 13.15 & Ex. 67. V. CONCLUSION Based on the foregoing, defendant KeyBank respectfully requests that the Court GRANT Summary Judgment and DISMISS all remaining claims with prejudice. Dated this 15th day of September, 2016. SCHWABE, WILLIAMSON & WYATT, P.C. By: s/ Joel A. Parker Joel A. Parker, OSB #001633 Telephone: (503) 222-9981 Of Attorneys for Defendant, KeyBank National Association Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 42 of 43 Page 1 - CERTIFICATE OF SERVICE SCHWABE, WILLIAMSON & WYATT, P.C. Attorneys at Law Pacwest Center 1211 SW 5th Ave., Suite 1900 Portland, OR 97204 Telephone: 503.222.9981 Fax: 503.796.2900 PDX\027891\182934\JAP\18845112.9 CERTIFICATE OF SERVICE I hereby certify that on the 15th day of September, 2016, I caused the foregoing DEFENDANT’S MOTION FOR SUMMARY JUDGMENT DISMISSING FIRST AMENDED COMPLAINT AND MEMORANDUM OF POINTS AND AUTHORITIES to be served on the following party at the address below: Danny L. Hitt, Jr. James L. Hiller HITT HILLER MONFILS WILLIAMS LLP 411 SW 2nd Ave Ste 400 Portland, OR 97204 E-Mail: dhitt@hittandhiller.com Of Attorneys for Plaintiffs by: U.S. Postal Service, ordinary first class mail U.S. Postal Service, certified or registered mail, return receipt requested hand delivery facsimile CM/ECF electronic service other (specify) s/ Joel A. Parker Joel A. Parker, OSB #001633 Case 3:13-cv-02045-SB Document 77 Filed 09/15/16 Page 43 of 43