National v. Gallagher, 1 CA-CV 15-0512

Background

Gallagher obtained a $12,500 student loan from Bank One in June 2004; the Trust acquired the loan in October 2004.
Gallagher’s last loan payment was in August 2007; he was indicted in February 2008 on fraud charges that referenced the loan among others.
Gallagher pled guilty pursuant to a June 30, 2008 plea agreement to Count One and consented to a forfeiture order; Count 78 (which referenced the Bank One loan) was later dismissed.
The Trust filed suit to collect the unpaid loan balance on March 14, 2014; it won in compulsory arbitration, lost on Gallagher’s appeal to superior court, and then moved for summary judgment in superior court, which was granted.
Gallagher argued the claim was time-barred under the six-year statute for written-contract breaches and that the 2008 plea agreement did not restart the limitations period; the Trust argued the plea agreement was an acknowledgment of debt under A.R.S. § 12-508 that tolled/restarted limitations.
The court considered whether the plea agreement satisfied the elements for a written acknowledgment of debt (identification of obligation, promise to pay, expression of justness) and whether it was made to the creditor or an agent.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Trust’s breach-of-contract claim was time-barred	Plea agreement acknowledged debt and restarted limitations to June 30, 2014 so March 2014 complaint was timely	Cause of action accrued when payments ceased in Aug 2007; six-year limitations expired Aug 2013 so March 2014 suit untimely	Held for Gallagher: claim was time-barred because the plea agreement did not restart the limitations period
Whether the 2008 plea agreement was a sufficient written acknowledgment of the Bank One loan under Freeman/§ 12-508	The plea agreement’s admission that Gallagher received >$700,000 in fraudulent loans functioned as an acknowledgment of related loan obligations	The plea agreement did not identify the Bank One loan, contain a promise to pay, nor express justness of that specific debt	Held for Gallagher: plea agreement failed Freeman elements (identify obligation, promise to pay, expression of justness)
Whether an acknowledgment must be made to the creditor or its agent	N/A (Trust implicitly argues plea agreement can be effective even if not made directly to Trust)	Plea was not made to the Trust or its agent and there’s no evidence it was intended to be communicated to the Trust	Held for Gallagher: acknowledgment must be to creditor/agent or third person intended to communicate it, and the plea agreement was not made to the Trust or its agent
Whether dismissal and forfeiture in the criminal case altered accrual or tolling	N/A	Criminal proceedings and forfeiture did not establish a contractual acknowledgment to restart limitations	Held for Gallagher: criminal proceedings did not toll or restart civil limitations absent a qualifying written acknowledgment

Key Cases Cited

Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42 (App. 2010) (standard of review for summary judgment and construing facts for nonmoving party)
Melendez v. Hallmark Ins. Co., 232 Ariz. 327 (App. 2013) (procedural standard for summary judgment review)
Cook v. Town of Pinetop-Lakeside, 232 Ariz. 173 (App. 2013) (statute-of-limitations accrual reviewed de novo)
Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586 (1995) (breach-of-contract claim accrues when party can sue)
Freeman v. Wilson, 107 Ariz. 271 (1971) (elements for a written acknowledgment of debt that restarts limitations)
De Anza Land & Leisure Corp. v. Raineri, 137 Ariz. 262 (App. 1983) (acknowledgment must show both acknowledgment of debt and willingness to pay)
Bulmer v. Belcher, 22 Ariz. App. 394 (1974) (acknowledgment must be made to creditor, agent, or third person intended to communicate to creditor)
John W. Masury & Son v. Bisbee Lumber Co., 49 Ariz. 443 (1937) (early articulation of acknowledgment-and-willingness-to-pay rule)