First-Citizens Bank & Trust Co. v. Morari
242 Ariz. 562
| Ariz. Ct. App. | 2017Background
- Sun Sky Hospitality borrowed $3,737,000 from United Western (now First Citizens) in 2010 to buy Arizona real property; promissory note, loan agreement, and deed of trust were executed and recorded in Arizona.
- Three individuals (Shah, Patel, Morari) each signed personal guaranties for 100% of Sun Sky's obligations in 2012; their spouses did not sign any guaranties.
- Sun Sky defaulted in November 2012; First Citizens sued Sun Sky, the guarantors, and the guarantors’ spouses (the spouses are California domiciliaries).
- The complaint attached three guaranties that contained no general choice-of-law clause; First Citizens later sought to rely on three supplemental guaranties (not attached) that contained California choice-of-law provisions.
- The spouses moved to dismiss under Ariz. R. Civ. P. 12(b)(6) arguing Arizona law (A.R.S. § 25-214(C)(2)) requires both spouses’ signatures to bind community property; trial court dismissed the spouses with prejudice and denied leave to amend; First Citizens appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which state law governs enforceability of the attached guaranties (choice-of-law)? | California law applies (would bind community with one spouse’s signature). | Arizona law governs because the principal obligation is governed by Arizona and factors give Arizona most significant relationship. | Arizona law applies under Restatement § 194 and relevant contacts. |
| Can spouses (non-signatories) be held on guaranties absent their signatures? | Supplemental guaranties with California choice-of-law (if considered) would permit recovery against community. | Spouses never signed guaranties; under Arizona law § 25-214(C)(2) both spouses must join to bind community. | No; under Arizona law non-signatory spouses cannot be bound—dismissal proper. |
| Was denial of leave to amend complaint (to add supplemental guaranties) an abuse of discretion? | Amendment would cure pleading defect because supplemental guaranties contain California choice-of-law. | Amendment would be futile because non-signatory spouses cannot be bound and cannot be bound by choice-of-law in contracts they did not sign. | Denial was not an abuse of discretion because amendment would have been futile. |
| Are attorney fees recoverable to First Citizens on appeal or under guaranty fee clause? | Requests for fees under A.R.S. §§ 12-341.01/12-342 and guaranty fee clause. | Spouses sought fees; First Citizens not prevailing. | Denied First Citizens’ fee requests; awarded fees to spouses under §§ 12-341 and 12-341.01. |
Key Cases Cited
- Phx. Arbor Plaza, Ltd. v. Dauderman, 163 Ariz. 27 (App. 1989) (applies Restatement § 194 to hold law governing principal obligation may govern guaranty and protects non-signatory spouse under Arizona community-property rules)
- Lorenz-Auxier Fin. Grp., Inc. v. Bidewell, 160 Ariz. 218 (App. 1989) (choice-of-law clause in a contract does not bind a non-signatory spouse)
- Coleman v. City of Mesa, 230 Ariz. 352 (App. 2012) (standard of review and pleading principles for Rule 12(b)(6) dismissals)
- New England Merchs. Nat’l Bank v. Rosenfield, 679 F.2d 467 (6th Cir. 1982) (under Restatement § 194, law of principal obligation governs related guaranties)