Eight Engelman Berger Attorneys Recognized in The Best Lawyers in America© 2020

Eight of Engelman Berger’s attorneys have been selected for inclusion in The Best Lawyers in America© 2020, considered by many to be the definitive guide to legal excellence. EB attorneys were chosen in the areas of Bankruptcy, Litigation, Public Finance, and Real Estate Law. EB would like to congratulate Patrick Clisham, Scott Cohen, Brad Pack, and Bill Anger for being our firm’s newest additions to the Best Lawyers list!

            Steven N. Berger (since 2003)

                        Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

                        Litigation – Bankruptcy

            Brigitte Finley Green (since 2007)

                        Public Finance Law

            Tamalyn E. Lewis (since 2015)

                        Bankruptcy and Creditor Debtor Rights / Insolvency and Recognition Law

            Kurt A. Peterson (since 2018)

                        Real Estate Law

           Patrick A. Clisham

                        Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

           Scott B. Cohen

                        Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

           Bradley D. Pack

                        Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

           William H. Anger

                        Real Estate Law

Best Lawyers® is the oldest and most respected peer review publication in the legal profession. Best Lawyers® selects its honored attorneys entirely by peer review. Their methodology is designed to gather as accurate of a consensus opinion of the leading attorneys in the profession. Selections are made after compiling data from extensive peer review surveys in which tens of thousands of leading lawyers confidentially review and evaluate their professional peers. Opinions are based on the lawyers’ professional abilities which are compared to others in the same geographical location and legal practice area.

Congratulations Steve, Brigitte, Tami, Kurt, Patrick, Scott, Brad, and Bill!

EB Associate Michael Rolland Quoted in Arizona Business Magazine Article

Engelman Berger would like to congratulate associate Michael Rolland on being quoted in a recently published Arizona Business Magazine article entitled, “10 Ways AI Could Disrupt Every Facet of the Legal Industry.”

This article expands on how the adoption of AI in the business world is likely to completely change the legal industry, stating that the practice of law is on the “cusp of a revolution.” AI, otherwise known as artificial intelligence, is the adoption and execution of human intelligence processes by technology, machines, and in particular, computer systems. AI allows these systems to learn as well as perform logical reasoning, self-correction, and more. Some of the topics addressed in this article include, automation, healthcare law, increased efficiency and improved speed with AI, legal research, staffing, and more.

Rolland is quoted, “However bold my prediction, it probably won’t be bold enough” (…) “AI promises – or threatens, depending on your point of view – to disrupt every facet of the legal industry, without exception.” Rolland also states, “You want the newer news?” (…) “I believe a burgeoning frontier is the application of AI to internal firm data to generate viable alternative fee billing arrangements on a broad scale. Legal publications have been predicting the death of the billable-hour model for years … I think the coming years will see a new generation of billing programs that can automatically capture your time and intelligently categorize it with an exponentially improved level of granularity.”

To read the article, follow this link: https://azbigmedia.com/business/law/10-ways-ai-could-disrupt-every-facet-of-the-legal-industry/.

Guarantors May Have a New Statute of Limitations Defense

In Monroe v. Arizona Acreage LLC, No. 1 CA-CV 18-0476, 2019 WL 2134794 (Ariz. Ct. App. May 16, 2019), the Arizona Court of Appeals implied that under certain circumstances a general continuing guaranty executed outside the state may be governed by a four year statute of limitations under A.R.S. § 12-544(3), even if the underlying obligation is subject to a six year statute of limitations under A.R.S. § 47-3118. In light of this opinion, counsel for guarantors should consider whether their client’s guaranty was (1) executed out of state, (2) a general, rather than a specific, guaranty and/or executed by a non-owner, and (3) whether more than four years has elapsed since its execution. If the answers to these questions are each “yes,” then Monroe suggests that you may have a meritorious statute of limitations defense. 

Presiding Judge Lawrence F. Winthrop delivered the opinion of the Court, in which Judge Maria Elena Cruz and Chief Judge Samuel A. Thumma joined. 

Background

Two different limited liability companies executed separate promissory notes in favor of multiple lenders in order to develop several acres of land in Mohave County. Both notes were secured by deeds of trust on the land, and personally guaranteed by the same developer. The notes, deeds of trust, and personal guaranties were all executed in Nevada. The borrowers stopped making payments on the notes in June 2008, and in June of 2014, the investors filed two class action lawsuits. The Court entered judgments against the borrowers and guarantor, which they appealed.

Analysis

Among other issues, on appeal the borrowers and guarantor argued that the promissory notes and guaranties were subject to a four year statute of limitations under A.R.S. § 12-544(3), and that therefore the investors’ actions—brought nearly six years after the default—were time-barred. A.R.S. § 12-544(3) states (with emphasis added):

There shall be commenced and prosecuted within four years after the cause of action accrues, and not afterward, the following actions:

3. Upon a judgment or decree of a court rendered without the state, or upon an instrument in writing executed without the state. This paragraph does not apply to a judgment for support, as defined in section 25-500, and to associated costs and attorney fees.

The investors countered that the notes and guaranties are actually governed by the UCC’s six year limitation for negotiable instruments, found in A.R.S. § 47-3118(A):

Except as provided in subsection E, an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.

Both parties agreed with the maxim that a specific statute of limitations shall prevail over a competing general statute, but disagreed as to which statute is specific and which is general. The Court ultimately sided with the investors, reasoning that A.R.S. § 47-3118(A) is the more recent statute (enacted almost 70 years after § 12-544), that its application to negotiable instruments is more specific than § 12-544’s application to instruments generally, and that this approach is more consistent with the policy purpose of the UCC to create uniformity in commercial transactions. Accordingly, the Court unambiguously held that A.R.S. § 47-3118(A) governs the notes and deeds of trusts, notwithstanding the fact that they were executed out of state.

Personal guaranties, however, are not negotiable instruments, and therefore required another layer of analysis. The Court first observed that, in Arizona, guaranty agreements are “contracts separate from their related instruments” and are generally not subject to the U.C.C. Monroe, 2019 WL 2134794 at 5. However, the Court went on to create an exception to this rule where the borrower is an entity owned by the guarantor and where the guaranty is a “specific” guaranty that obligates the guarantor “to repay only the debts of the particular promissory notes.” Id. Finding that the given facts presented such a situation, the Court held that the statute of limitations for the guaranties would be governed by the U.C.C. and track the six year limitations period for the underlying notes.

It should be noted that the decision appears to be based on the Court’s view that it would be “illogical” for a personal guaranty to expire earlier than the underlying obligation. Although the merits of this practical approach are readily apparent, the Court did not root this conclusion in statutory authority or precedent. The plain language of neither A.R.S. § 12-544 nor § 47-3118 contemplate any such exception, and the sole case cited by the Court to support its distinction between specific and general guaranties in this context – Consolidated Roofing & Supply Co., Inc. v. Grimm, 140 Ariz. 452, 682 P.2d 457 (App. 1984) – relied on prior provisions of the U.C.C. that have since been repealed. Nonetheless, the Court’s decision results in a clear rule that out-of-state “specific” guaranties that are executed by the borrower’s owner are subject to A.R.S. § 47-3118, not § 12-544.

Ramifications

The implication of this rule is that a guaranty will be subject to the four year limitation of A.R.S. § 12-544 in circumstances where (i) the out-of-state guaranty is not a specific guaranty but merely a general continuing guaranty, or (ii) the guaranty is not executed by the borrower’s owner. Accordingly, this decision potentially has significant ramifications for lenders and guarantors alike, albeit in narrow circumstances where the guaranty is executed outside the state but being enforced in Arizona.

Lenders and their counsel generally assume a six year limitation applies to all contracts, and likely will not think to analyze whether they need to bring suit within four years. It is also relatively common for lenders to rely on a single general continuing guaranty executed at the start of the lending relationship that is designed to apply to any and all current and future indebtedness of the borrower, rather than to have the guarantor execute a fresh guaranty specifically identifying the underlying obligations each time a new loan is made. Therefore, if you are counsel for a guarantor being sued on their personal guaranty, you should determine:

(1) Was the guaranty executed out of state?

(2) Has four years lapsed since the breach?

If the answer to both 1 and 2 are yes, then you should also determine:

(3) Is it a specific guaranty?

(4) Is your client an owner of the borrower?

If either 3 or 4 are no, then you may have a meritorious argument pursuant to A.R.S. § 12-544 and Monroe that the case should be dismissed.

If you are a lender, the Monroe decision simply reinforces the need to follow, or at minimum deliberately consider, certain standard provisions and lending practices for your form guaranties, such as:

  • A provision stating that the guaranty is being executed in Arizona;
  • A provision specifically stating the period in which an action for breach of the guaranty must be brought;
  • Include continuing guaranty language, but also specifically reference the primary obligations you know are being guaranteed; and
  • Have guarantors execute updated guaranties executes a new loan agreement or loan modification that increases the indebtedness. 

About the Author: Michael Rolland is a member of the civil litigation and commercial transactions practice groups with the law firm of Engelman Berger, P.C. Michael has a special interest in the intersection of technology and the law, and writes on tech law issues.

Disclaimer: This blog is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this blog. If you need legal advice, consult with a lawyer.

Meet Matthew McCabe Our Summer Law Clerk

Meet Matthew McCabe Engelman Berger’s summer Law Clerk. Matthew graduated from the University of Arizona in 2002 with a Bachelor of Arts in Finance and Entrepreneurship. Prior to attending law school at Arizona State University’s Sandra Day O’Connor College of Law, Matthew founded his own company, Loan Resolution Corporation in Scottsdale, Arizona, which provides financial services to the mortgage industry. Over the course of 11 years, Matthew grew the company from zero to over $21M in annual revenue and nearly 300 full time employees. Matthew’s current goal is to become an attorney and focus his practice on real estate, bankruptcy, and commercial litigation. He has worked as a law clerk for a law firm in Phoenix, and served as a Judicial Intern for the Honorable Daniel P. Collins at the United States Bankruptcy Court in Phoenix, Arizona. While working with Engelman Berger this summer as a law clerk, Matthew will have an opportunity to gain exposure to different areas of law such as real estate, bankruptcy and commercial litigation, which will help him further define his legal path for the future. Over the summer, Matthew will be assisting on a wide variety of project assignments and have a chance to work with all the attorneys in our firm, including a number of out-of-office projects and experiences such as attending court hearings, depositions and closings.

Born in Portland, Oregon, Matthew enjoys spending his free time running and participating in other outside activities. He has competed in multiple triathlons and marathons, including the 2014 New York City Marathon. As an Eagle Scout, he is also active in a local Cub Scout troop. Matthew has been honored for his entrepreneurial accomplishments and received multiple award distinctions such as, “40 Most Influential Mortgage Professionals Under 40” by National Mortgage Professional Magazine, Arizona Republic’s “35 Entrepreneur’s under 35,” and “The Most Powerful Locals Age 40 and Under” by So Scottsdale Magazine.

Engelman Berger Wishes You a Safe and Celebratory 4th of July

Engelman Berger would like to wish our clients, friends, and the public a safe and celebratory 4th of July! On this day, we come together as a nation to celebrate American Independence and to commemorate the Declaration of Independence. We hope you have the chance to spend time with friends and family and enjoy the beautiful firework displays.

EB Attorneys Michael Rolland and Brad Pack to Attend and Participate in State Bar of Arizona’s Annual Convention on June 28th

Engelman Berger attorneys Michael Rolland and Brad Pack will be attending and participating in the State Bar of Arizona’s Annual Convention on June 28th. Michael Rolland’s presentation, organized by the Arizona Bankruptcy American Inn of Court, will be at 2:25-3:30PM on Friday, June 28th. He will be part of a nine-member ethics panel, including an Arizona Bankruptcy Court Judge Daniel Collins, where he will present legal analysis on timely ethical issues confronting the modern bankruptcy attorney.

Bradley Pack will be presenting from 11am-noon on “Commercial Case Law Update and Hot Topics” as part of a panel that includes Retired District of Arizona Bankruptcy Court Judge Sarah Sharer Curley and District of New Mexico Bankruptcy Court Judge David T. Thuma. Mr. Pack’s portion of the presentation will focus on emerging trends in the appellate doctrine of equitable mootness, both in the Ninth Circuit and nationwide.

The State Bar of Arizona is a non-profit organization that operates under the Arizona Supreme Court. Formed in 1933, the Bar regulates approximately 18,500 active attorneys and provides legal based educational and developmental programs to the Arizona public. The Bar’s mission states that it “exists to serve and protect the public with respect to the provisional legal services and access to justice.”

Engelman Berger Sponsoring State Bar of Arizona’s Annual Convention on June 26th-28th

The State Bar of Arizona will be hosting its annual convention on Wednesday, June 26th through Friday, June 28th. Engelman Berger is a proud sponsor of the Tax and Business Law sections’ seminar at this interactive and educational event. The convention will be held at the Sheraton Grand at Wild Horse Pass where participants will be able to combine education with relaxation while attending the convention at this beautiful resort.

The State Bar of Arizona’s Annual Convention offers attendees a selection of over 50 seminars on topics of interest as well as over 20 meetings and special events that participants of the convention are encouraged to attend. In an effort to provide a comprehensive program that reaches the broadest membership, the State Bar of Arizona convention will include seminars and meetings addressing 29 different practice areas. For further details on the program content and special events, download the convention brochure at http://www.azattorneymag-digital.com/azattorneymag/2019conmag/MobilePagedReplica.action?.

For more information about the convention or to register, visit https://www.eiseverywhere.com/website/2415/.

Engelman Berger Sponsors the Arizona Bankers Association’s 116th Annual Convention and Meeting

Engelman Berger is proud to sponsor the Arizona Bankers Association’s 116th Annual Convention on June 6-8, 2019 at the Ritz Carlton at Dove Mountain Arizona. EB shareholders Scott Cohen, Tami Lewis, and Kurt Peterson will attend this “members only” event. They will participate in a business session where attendees will hear from a wide variety of keynote speakers and leading Arizona business professionals on the topics of: Global & U.S. Economic Conditions, Treasury Management, and more. This year’s convention will also include networking events, a Luau party and a Bankers Cup Golf Tournament, where participants will have the opportunity to network and mingle among their fellow attendees.

Scott Cohen has previously served as a subject matter expert for the Arizona Bankers Association and continues to be an active member of the organization. We look forward to hearing about the event from Scott, Tami, and Kurt.

Rejection of Trademark License Not Tantamount to Revocation

Have you ever worried about the status of your intellectual property rights if the licensor filed bankruptcy? Outside of bankruptcy, it was settled law that a licensor who breaches cannot revoke its rights under a contract, absent some special contract terms or unique aspect of law. In a bankruptcy, however, revocation was a serious concern in entertainment law and the fashion industry, for example. Days ago, the U.S. Supreme Court clarified your rights and ended any chance of debtors licensing away their intellectual property rights, declaring bankruptcy, and then re-trading them.

In Mission Product Holdings, Inc. v. Tempnology, LLC, nka Old Cold LLC, 2019 WL 2166392, the Supreme Court addressed the issue of whether a debtor-licensor’s rejection of a contract deprives the licensee of its rights to use the trademark. The Supreme Court held that it does not.  Succinctly put, “A rejection breaches a contract but does not rescind it.” Accordingly, those rights conveyed by the contract survive the breach and remain in place.

This case arises in the context of a licensing agreement but should apply equally to all contracts with debtors. Tempnology primarily manufactured workout clothing designed to keep you cool and marketed those products under the brand name “Coolcore.” It used trademarks to distinguish its gear from the competition. Tempnology entered into a contract with Mission Product Holdings which gave Mission an exclusive license to distribute certain Coolcore products in the U.S. It also granted Mission a non-exclusive license to use the Coolcore trademarks. Before the agreement expired, Tempnology filed a voluntary petition under Chapter 11 of Title 11 of the U.S. Code a/k/a the Bankruptcy Code. Tempnology then asked the bankruptcy court to allow it to “reject” the licensing agreement.

The bankruptcy court approved the rejection, thereby relieving the debtor of any obligation to continue to perform and giving counterparty Mission a pre-petition claim for damages. Tempnology wanted more. Tempnology sued for declaratory judgment asking the court to determine that rejection was tantamount to rescission in that it terminated the rights it granted Mission to use Coolcore trademarks. While the bankruptcy court agreed with Tempnology, the Bankruptcy Appellate Panel for the First Circuit disagreed. The First Circuit Court of Appeals rejected the BAP’s analysis and an opinion out of the Seventh Circuit, and reinstated the bankruptcy court’s decision. 

Numerous courts have struggled with the ramifications of a debtor’s rejection of a contract pursuant to Section 365 of the U.S. Bankruptcy Code. Over time, two views emerged.  Some courts concluded that a contract breach should have the same consequences as a breach outside of bankruptcy. Under this scenario, a breach allows the counterparty a suit for damages while leaving intact the rights the counterparty received under the agreement. Other courts have held that a contract breach is more akin to a rescission in a non-bankruptcy environment. In this paradigm, the counterparty still has a suit for damages but the rejection terminates the entire agreement and corresponding contractual rights conferred upon the counterparty. 

As Professor Baird wrote and Justice Kagan quoted for the majority: “A debtor’s property does not shrink by happenstance of bankruptcy, but it does not expand, either.” This principle applies equally to personal property contracts as it does to license agreements. In fact, the hypothetical Justice Kagan weaves throughout the opinion is that of a law firm’s lease of a copier. Thus, we are guaranteed to see various applications of Tempnology as debtors and creditors explore the boundaries of this latest Supreme Court decision.

About the Author: Scott Cohen has practiced commercial bankruptcy, creditors’ rights, and insolvency litigation for 27 years. He is a Board Certified Specialist in Business Bankruptcy Law and a past Bankruptcy Section Chair of the State Bar of Arizona.

Disclaimer: This blog is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this blog. If you need legal advice, consult with a lawyer.

Engelman Berger Wishes Everyone a Safe and Memorable Memorial Day

Engelman Berger takes this moment to wish our community a safe and memorable Memorial Day. We hope you are able to enjoy the holiday weekend with friends and family as we keep those who have died in service to our country close to our hearts.

Memorial Day is a national American holiday that honors the men and women in the U.S. Military who lost their lives serving our country. Memorial Day was first known as “Decoration Day” and was established a few years after the Civil War. It became an official federal holiday in 1971. Many individuals, families, friends, etc. visit cemeteries or memorials to honor those who served but did not come home.