                              STATE OF MINNESOTA
                              IN COURT OF APPEALS
                                    A15-1628

                               NJK Holding Corporation,
                                    Respondent,

                                           vs.

                                 The Araz Group, Inc.,
                                      Appellant.

                                   Filed May 2, 2016
                                        Affirmed
                                   Schellhas, Judge

                            Hennepin County District Court
                               File No. 27-CV-14-8932

Christopher W. Madel, Cassandra M. Batchelder, Brandon E. Thompson, Robins Kaplan
LLP, Minneapolis, Minnesota (for respondent)

Lee A. Hutton, III, Nicholos A. Dolejsi, Dennis C. Anderson, Zelle LLP, Minneapolis,
Minnesota; and

Richard K. Walker (pro hac vice), Walker & Peskind, PLLC, Scottsdale, Arizona (for
appellant)

      Considered and decided by Schellhas, Presiding Judge; Jesson, Judge; and

Klaphake, Judge.*

                                    SYLLABUS

      A promise to forgive debt is a credit agreement within the meaning of Minn. Stat.

§ 513.33 (2014) and requires a writing to be enforceable.




*
 Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
                                      OPINION

SCHELLHAS, Judge

       Appellant challenges the district court’s grant of summary judgment to respondent,

arguing that a promise to forgive debt is not a credit agreement under Minn. Stat. § 513.33

and does not require a writing to be enforceable. We affirm.

                                         FACTS

       On December 10, 1997, appellant The Araz Group Inc. executed a promissory note

for $320,000 payable to respondent NJK Holding Corporation for value received. On

May 6, 1998, the parties executed a revolving credit agreement, amended and restated

promissory note, and security agreement (the loan documents). Under the loan documents,

NJK granted Araz a $700,000 line of credit, which included the original loan of $320,000.

The loan documents required Araz to pay interest on a quarterly basis until the loan matured

on December 9, 2002, when any remaining principal balance and accrued interest were

due. NJK disbursed to Araz an additional $100,000 on December 30, 1998, and $280,000

on January 29, 1999, bringing the total principal owed to $700,000. Araz recorded the loan

from NJK as a liability on its financial statements from 1998 until it removed the loan from

its financial statements in 2011. Between 1998 and 2006, Araz periodically requested from

NJK confirmation of Araz’s indebtedness to NJK, which NJK typically sent directly to

Araz’s auditors. Araz made no payments on the loan until August 2003.

       Nazie Eftekhari is Araz’s chief executive officer. Her sister, Jibil Kazeminy, was

married to Nader Kazeminy, NJK’s chief executive officer, for about 20 years until they

divorced in August 2014. Nader Kazeminy’s father, Nasser Kazeminy, is NJK’s sole


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shareholder. NJK’s former chief financial officer, Michael Davies, testified that NJK

provided the original $320,000 loan to Araz due to difficulties that Araz was experiencing

with one of its lenders. Nazie Eftekhari testified that, when Nader Kazeminy offered her

the original loan, she told him, “‘I don’t want this. I can’t pay this back,’” and he responded,

“‘[Y]ou don’t have to.’” According to Nazie Eftekhari, Nader and Nasser Kazeminy told

her “[o]n numerous occasions” that Araz “d[id not] have to pay [the loan] back, that it has

been written off.” Nazie Eftekhari testified that she later was asked to execute the loan

documents so that NJK could obtain a tax write-off.

       In 2001, after unsuccessful attempts to collect from Araz on the amended and

restated promissory note, Davies determined that Araz did not have the financial means to

pay its debt to NJK and that further collection efforts were “pointless.” For tax purposes,

NJK wrote off the entire $700,000 loan to Araz as a bad debt. After the write-off, between

August 2003 and September 2011, Araz made a total of 57 “sporadic” payments to NJK.

NJK reported the payments to the IRS as income. The payments were insufficient to cover

the accrued interest on the debt.

       Araz presented evidence that, at a May 4, 2010 birthday party for Amir Eftekhari

(Nazie Eftekhari’s brother and the president of Araz), Nader Kazeminy screamed at Nazie

Eftekhari, accused her of “‘stealing money’” from NJK and from his and Jibil Kazeminy’s

children because he had to take money out of the children’s trust fund, stated that NJK had

to “‘write off’” Araz’s debt and take a loss, and stated, “‘our money is gone.’” Nazie

Eftekhari testified to her belief that Nader Kazeminy’s statements at the party meant that

NJK had forgiven the debt owed by Araz. But following the party, Araz made 13 payments


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to NJK. And in its responses to NJK’s requests for admissions, Araz admitted that it never

received from NJK a form on which cancellation of debt is reported to the IRS and that

Araz did not report cancellation-of-debt income on its 2010, 2011, 2012, or 2013 federal

tax returns. Nazie Eftekhari testified that she did not authorize any payments to NJK and

that she instructed Amir Eftekhari and Araz’s chief financial officer to stop the payments.

According to Nazie Eftekhari, Amir Eftekhari authorized the payments “to keep peace in

the family.”

       In September 2012, NJK sent Araz its first written demand for payment of the debt.

Araz responded by e-mail that “all matters between NJK and the Araz Group have been

settled. There is no outstanding debt by either party to the other.” NJK then sued Araz for

breach of contract and moved for summary judgment on its claim. The district court granted

summary judgment to NJK as to Araz’s defense that NJK forgave the debt because no

writing of debt forgiveness exists. Because of material fact issues, the court denied

summary judgment to NJK as to Araz’s defense that the money loaned to Araz was

originally a gift. A jury found later that Araz failed to prove that the money was a gift from

NJK to Araz, and the court entered judgment in favor of NJK in the amount of

$1,381,033.55, with interest accruing at $155.56 daily, plus attorney fees of $148,531 and

costs of $8,003.

       This appeal follows.




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                                            ISSUE

       Is a promise to forgive debt a “credit agreement” under Minn. Stat. § 513.33 that

requires a writing to be enforceable?

                                        ANALYSIS

       Araz challenges the district court’s summary-judgment rejection of its forgiveness

defense. Summary judgment is proper when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that either party is entitled to a judgment as

a matter of law.” Minn. R. Civ. P. 56.03.

                     On appeal from summary judgment, [appellate] court[s]
              review[] de novo whether there are any genuine issues of
              material fact and whether the district court erred in its
              application of the law to the facts. [Appellate courts] view the
              evidence in the light most favorable to the party against whom
              summary judgment was granted . . . .

Commerce Bank v. W. Bend Mut. Ins. Co., 870 N.W.2d 770, 773 (Minn. 2015) (citation

omitted). “No genuine issue for trial exists when the record taken as a whole could not lead

a rational trier of fact to find for the nonmoving party.” McKee v. Laurion, 825 N.W.2d

725, 729 (Minn. 2013) (quotations omitted).

       Under Minnesota law, “[a] debtor may not maintain an action on a credit agreement

unless the agreement is in writing, expresses consideration, sets forth the relevant terms

and conditions, and is signed by the creditor and the debtor.” Minn. Stat. § 513.33, subd.

2. “‘[C]redit agreement’ means an agreement to lend or forbear repayment of money,

goods, or things in action, to otherwise extend credit, or to make any other financial



                                              5
accommodation[.]” Id., subd. 1(1). “[T]he agreement by a creditor to take certain actions,

such as . . . forbearing from exercising remedies under prior credit agreements,” does “not

give rise to a claim that a new credit agreement is created, unless the agreement satisfies

the requirements of subdivision 2.” Id., subd. 3. We have determined that “claims on

agreements falling under section 513.33 fail as a matter of law if the agreement is not in

writing.” Greuling v. Wells Fargo Home Mortg., Inc., 690 N.W.2d 757, 761–62 (Minn.

App. 2005). An “action” under section 513.33 includes an affirmative defense. See

BankCherokee v. Insignia Dev., LLC, 779 N.W.2d 896, 903 (Minn. App. 2010) (“[T]he

term ‘action’ as it is used in section 513.33 reasonably encompasses an affirmative

defense.”), review denied (Minn. May 18, 2010).

       Araz argues that the district court erred by determining that NJK’s alleged oral

promise to forgive the debt is a credit agreement because the court conflated the operative

word “forbear[ance]” with forgiveness, i.e., the complete negation of debt. Araz argues

that agreements to forgive debt do not fall under section 513.33 and that NJK’s alleged

promise to forgive the debt did not modify the underlying debt agreement, change the

conditions of repayment, or otherwise accommodate Araz and therefore was not a credit

agreement under section 513.33.

       “[Appellate courts] review questions of statutory interpretation de novo.” Sumner v.

Jim Lupient Infiniti, 865 N.W.2d 706, 708 (Minn. 2015). “The object of all interpretation

and construction of laws is to ascertain and effectuate the intention of the legislature.”

Minn. Stat. § 645.16 (2014).




                                            6
              The first step in statutory interpretation is to determine whether
              the statute’s language, on its face, is ambiguous. If a statute is
              unambiguous, then [appellate courts] must apply the statute’s
              plain meaning. If, however, a statute has more than one
              reasonable interpretation, then it is ambiguous and [appellate
              courts] may use the canons of construction to determine its
              meaning.

Sumner, 865 N.W.2d at 708 (quotations and citation omitted).

       Section 513.33 does not define “forbear[ance]” or “financial accommodation.” See

Minn. Stat. § 513.33, subd. 1 (defining terms). “[Appellate courts] interpret words

according to their plain meaning . . . .” Wayzata Nissan, LLC v. Nissan N. Am., Inc., 875

N.W.2d 279, 285 (Minn. 2016) (citing Minn. Stat. § 645.08(1) (2014)). “When there is no

applicable statutory definition, [appellate courts] often consult dictionary definitions to

discern a word’s plain meaning.” Id. at 286. “[F]orbearance” is “[t]he act of refraining

from enforcing a right, obligation, or debt.” Black’s Law Dictionary 717 (9th ed. 2009).

An “accommodation” is “[a] loan or other financial favor” or “[t]he act or an instance of

making a change or provision for someone or something; an adaptation or adjustment.” Id.

at 17. We conclude that section 513.33 is ambiguous because it reasonably may be

interpreted to either include or exclude forgiveness of debt as a “credit agreement” in the

nature of a “forbear[ance]” or “other financial accommodation.” Minn. Stat. § 513.33,

subd. 1(1).

       Minnesota was one of the first states to enact a statute of frauds applicable to credit

agreements. 1985 Minn. Laws ch. 245, § 1, at 785; John L. Culhane, Jr. & Dean C.

Gramlich, Lender Liability Limitation Amendments to State Statutes of Frauds, 45 Bus.

Law. 1779, 1779–80 (1990) (discussing origins of credit-agreement statutes and stating


                                              7
that “Minnesota, North Dakota, and South Dakota enacted the first such statutes, beginning

in 1985”). “[Section 513.33] was enacted in 1985 to protect lenders from having to litigate

claims of oral promises to renew agricultural loans.” Rural Am. Bank of Greenwald v.

Herickhoff, 485 N.W.2d 702, 705 (Minn. 1992). But no Minnesota authority directly

addresses whether a promise to forgive debt is a “credit agreement” under Minn. Stat.

§ 513.33.

       Our research indicates that the only published cases that directly address whether a

promise to forgive debt constitutes a credit agreement involve the interpretation of

Illinois’s credit-agreement statute.1 In the first of these cases, the debtor alleged that the

lender had agreed orally to forgive the unpaid balance of a loan in exchange for the debtor’s

contribution of time and money to a real-estate project with which the lender was involved.




1
 Illinois’s credit-agreement statute, which is substantially similar to Minnesota’s credit-
agreement statute, provides:

                     A debtor may not maintain an action on or in any way
              related to a credit agreement unless the credit agreement is in
              writing, expresses an agreement or commitment to lend money
              or extend credit or delay or forbear repayment of money, sets
              forth the relevant terms and conditions, and is signed by the
              creditor and the debtor.

815 Ill. Comp. Stat. Ann. 160/2 (2008). “‘Credit agreement’ means an agreement or
commitment by a creditor to lend money or extend credit or delay or forbear repayment of
money not primarily for personal, family or household purposes, and not in connection
with the issuance of credit cards.” Id. at 160/1 (2008). “[T]he agreement by a creditor to
modify or amend an existing credit agreement or to otherwise take certain actions, such
as . . . forbearing from exercising remedies in connection with an existing credit
agreement,” does “not give rise to a claim, counter-claim, or defense by a debtor that a new
credit agreement is created, unless the agreement satisfies the requirements of Section 2.”
Id. at 160/3 (2008).

                                              8
Resolution Tr. Corp. v. Thompson, 989 F.2d 942, 943 (7th Cir. 1993). The district court

granted summary judgment in favor of the lender on its claim to recover the unpaid balance

because the agreement was not enforceable without a writing, and the Seventh Circuit

affirmed. Id. at 943–44. While the issue in Thompson was whether the lender was a

“creditor” within the meaning of Illinois’s credit-agreement statute, the Seventh Circuit

noted that “it is apparent that the oral agreement alleged by [the debtor] is a ‘credit

agreement’ within the meaning of the Act.” Id.

       In Whirlpool Fin. Corp. v. Sevaux, a creditor allegedly assured a debtor that he

would not be required to make payment on a promissory note because the money advanced

would become part of a larger equity investment in the debtor’s business. 866 F. Supp.

1097, 1098–99 (N.D. Ill. 1994). The creditor brought an action for payment on the note

and moved to dismiss the debtor’s counterclaims and affirmative defenses, arguing that the

agreement constituted an unenforceable credit agreement. Id. at 1099–100. The district

court denied the creditor’s motion, concluding that the definition of a credit agreement did

not include an alleged promise to invest. Id. at 1100–01. The court reasoned in part:

              [T]he meaning of “forbear repayment of money” reasonably
              can be interpreted to exclude what [the debtor] alleges here—
              the complete elimination of the contemplated debt. . . . The
              statute does not include in the definition of credit agreement a
              promise to forgive or extinguish obligations; regarding
              repayment of money, it contemplates only their delay or
              forbearance.

Id. at 1100. But the district court later granted the creditor’s motion for summary judgment

because the alleged investment agreement in fact included debt financing and therefore

was a credit agreement. Whirlpool Fin. Corp. v. Sevaux, 874 F. Supp. 181, 185–86, 188


                                             9
(N.D. Ill. 1994). The court concluded that the debtor’s claims and defenses regarding the

alleged oral agreement that he would not be required to repay the promissory note were

“‘related to’” a credit agreement between the parties and were barred by the credit-

agreement statute. Id. at 187–88.

       In Westinghouse Elec. Corp. v. McLean, a debtor defaulted on a loan agreement,

and its guarantors subsequently agreed to execute a promissory note in favor of the creditor.

938 F. Supp. 487, 488–89 (N.D. Ill. 1996). The creditor allegedly promised not to enforce

the note when it came due in three years. Id. at 489. The guarantors argued that “the promise

they received was a promise to forgive (not forbear) the debt and, therefore, the

statements . . . [we]re not credit agreements.” Id. at 490. The district court rejected the

guarantors’ argument, concluding that the “definition of a ‘credit agreement’ encompasses

oral agreements to forgive, as well as forbear, a debt.” Id. at 491. The court then granted

summary judgment in favor of the creditor on its claims against the guarantors. Id. at 494.

The analysis in McLean is persuasive.

       As noted above, “[t]he object of all interpretation and construction of laws is to

ascertain and effectuate the intention of the legislature.” Minn. Stat. § 645.16. Section

513.33 defines a “‘credit agreement’” to include “an agreement to . . . forbear repayment

of money . . . or to make any other financial accommodation,” Minn. Stat. § 513.33, subd.

1 (emphasis added), suggesting that the legislature intended for “credit agreement” to be

interpreted broadly.

       The supreme court’s decision in Herickhoff also suggests that section 513.33 should

be interpreted broadly. In Herickhoff, a bank loaned money to a farmer and his wife and


                                             10
separately to the farmer’s father; the farmer and his wife also signed a “loan agreement”

providing for priority repayment of the father’s loan from the proceeds of the farmer’s

crops. 485 N.W.2d at 704. This court reversed judgment in favor of the bank on its action

to recover on the father’s unpaid loan, concluding that the loan agreement “was not a

lending agreement, a forbearance agreement or an extension of credit” and therefore “was

not within [section 513.33]” because ‘“any financial accommodation’ must be interpreted

to mean a financial accommodation in the nature of lending or forbearance agreement or

some other agreement for extension of credit.” Id. at 703–04, 706 (quotation omitted). The

supreme court disagreed and stated:

                       We believe such analysis does disservice to the spirit
                and purpose of the legislation. The Loan Agreement is
                precisely the kind of “financial accommodation” intended to
                be covered by the statute. The Loan Agreement is a financial
                accommodation with respect to a lending agreement. In the
                alternative, one could describe the Bank’s promise to apply
                proceeds to [the father]’s loan first as an agreement to forbear
                repayment of [the son]’s loan.

Id. at 706. The supreme court held that “the Loan Agreement’s priority repayment plan

qualifie[d] as a financial accommodation within the meaning of the credit agreement

statute.” Id.

       We also are guided by the statutory presumption that the legislature does not intend

to produce absurd, impossible, or unreasonable results. See Minn. Stat. § 645.17 (2014)

(“In ascertaining the intention of the legislature the courts may be guided by

the . . . presumption[]” that “the legislature does not intend a result that is absurd,




                                              11
impossible of execution, or unreasonable[.]”). And we are persuaded by the sound

reasoning of the district court, as follows:

                     Particularly when the parties went to the trouble of
              setting forth their original agreement in writing, it would be
              anomalous to require a writing for a temporary forbearance, a
              modification of the loan terms, or some other interim financial
              accommodation, while allowing debtors to waltz into court
              claiming an oral forgiveness of the entire debt. In other words,
              under Araz’s interpretation, a temporary forbearance requires
              a writing, but a permanent one—or a cancellation of the debt—
              does not. That is inconsistent both with the legislative intent
              and [Minn. Stat. § 513.33, subd. 3].

We agree that requiring a writing for a modification of a credit agreement but not for a

promise to forgive debt under a credit agreement would produce an absurd result that was

not intended by the legislature.

                                      DECISION

       We conclude that a promise to forgive debt is a credit agreement within the meaning

of section 513.33 and therefore requires a writing to be enforceable. Because NJK’s alleged

promise to forgive Araz’s debt was not in writing, Araz’s debt-forgiveness defense fails as

a matter of law. The district court properly granted summary judgment to NJK as to Araz’s

debt-forgiveness defense.

       Affirmed.




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