Meecorp Capital Markets LLC v. Tex-Wave Industries LP ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 6, 2008
No. 07-40099 Charles R. Fulbruge III
Clerk
MEECORP CAPITAL MARKETS LLC
Plaintiff-Appellee
v.
TEX-WAVE INDUSTRIES LP; MONTY GUILES; DAVID CROFT
Defendants-Appellants
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 2:06-CV-00148
Before JOLLY, HIGGINBOTHAM, and PRADO, Circuit Judges.
PER CURIAM:*
A lender sought recovery on a defaulted debt. Via summary judgment, the
district court awarded the lender the full amount owed from, jointly and
severally, the debtor and two guarantors. Because a fact issue remains as to
whether the guarantors should be held personally liable, we reverse and remand
for a determination of their liability. We also reverse the district court’s
judgment on the total liability amount and remand for further proceedings to
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-40099
recalculate the award, crediting the amount recovered by the lender in its
foreclosure sale.
I. FACTUAL & PROCEDURAL BACKGROUND
On June 15, 2004, Plaintiff-Appellee Meecorp Capital Markets (“Meecorp”)
and Defendant-Appellant Tex-Wave Industries, LP (“Tex-Wave”) entered into an
agreement by which Meecorp agreed to loan $4,620,000 to Tex-Wave for the
building of a hot-dip galvanizing facility on a seven-acre site leased from the City
of Robstown, Texas.1 In return, Tex-Wave executed three five-year promissory
notes in the amounts of $1,670,000, $1,662,000, and $1,288,000. Meecorp also
obtained a security interest in the galvanizing plant and the seven-acre
leasehold, a personal “Guaranty” agreement from Tex-Wave principals,
Defendants-Appellants Monty Guiles (“Guiles”) and David Croft (“Croft”), and
a pledge agreement under which Meecorp would have the right to take control
of and vote Tex-Wave’s partnership interests in the event of default. Meecorp
also obtained a surety bond from the City of Robstown.
The promissory notes obligated Tex-Wave to pay interest on the loan from
July 1, 2004, until the maturity date of the loan. Tex-Wave made payments
until November 1, 2005, when it failed to make the interest payment due on that
date. On November 9, 2005, Meecorp sent Tex-Wave, Croft, and Guiles
(collectively, “Defendants”) a written notice of default, warning that Meecorp
would exercise its rights under the loan agreement if it did not receive payment
within five days. Tex-Wave failed to make the payment, and Meecorp
accelerated the loan. On March 30, 2006, Meecorp filed the instant suit against
Defendants and others,2 seeking a declaration that Tex-Wave defaulted on its
1
Tex-Wave also received support for this project from the U.S. Economic Development
Administration and the City of Robstown.
2
Also named in the suit were the law firm of Ysassi & Ysassi, PC, and Epimenio Ysassi,
a lawyer at that firm. Meecorp later amended its pleadings to add claims against the City of
Robstown and members of the Robstown City Council. Meecorp has settled its claims against
2
No. 07-40099
loan, a judgment for the defaulted principal amount of $4,620,000 plus interest
and other fees, and enforcement of the Guaranty given by Guiles and Croft.
On May 2, 2006, Meecorp foreclosed on the leasehold estate and
improvements. Meecorp was the only bidder at the sale and placed the winning
bid of $3 million. On October 12, 2006, Tex-Wave obtained a temporary
injunction from a Texas state district court “enjoining [Meecorp] from listing for
sale or selling the business of [Tex-Wave] during the pendency of this lawsuit.”
On October 27, 2006, Meecorp filed a motion for summary judgment
against Defendants. After responsive briefing, the district court granted
summary judgment, holding Defendants jointly and severally liable for
$7,013,869.93 (the balance due on the three promissory notes plus interest and
late fees), and declared that an “Event of Default” had occurred, giving Meecorp
the right to vote the partnership interests of Tex-Wave pursuant to the pledge
agreement. Tex-Wave, Guiles, and Croft brought this appeal.
II. STANDARD OF REVIEW
This court reviews de novo a district court’s grant of summary judgment.
See Mello v. Sara Lee Corp., 431 F.3d 440, 443 (5th Cir. 2005). Summary
judgment is warranted “if the pleadings, the discovery and disclosure materials
on file, and any affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of law.” FED. R. CIV.
P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (“[T]he
plain language of Rule 56(c) mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who fails to make
a showing sufficient to establish the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof at trial.”).
The movant “must establish beyond peradventure all of the essential elements
the law firm, Ysassi, Robstown, and the City Council members.
3
No. 07-40099
of the claim or defense to warrant judgment in [its] favor.” Fontenot v. Upjohn
Co., 780 F.2d 1190, 1194 (5th Cir. 1986).
III. DISCUSSION
There is no dispute that Tex-Wave defaulted on its debt.3 In their appeal,
Defendants instead focus on two issues: (1) whether Guiles and Croft should be
released from liability under the Guaranty; and (2) whether the judgment
awarded to Meecorp should be reduced by the $3 million recovered in its
foreclosure sale, an issue not raised by Defendants at summary judgment.
A. Liability of Guiles and Croft under the Guaranty
The district court held that Meecorp met its summary judgment burden
by showing that (1) Guiles and Croft agreed to “‘guarantee[] absolutely and
unconditionally to Lender the payment of the Debt,’” and (2) Tex-Wave was in
default on that debt. Under the district court’s reasoning, this was sufficient to
establish that, as a matter of law, Meecorp was entitled to recover under the
Guaranty.
Guiles and Croft center their argument before this court—as they did in
opposing summary judgment—on the following provision in the Guaranty:
Notwithstanding anything else contained herein to the contrary, if,
after a default shall occur under the Loan Agreement and the Note,
if the Guarantors shall cooperate with the Lender in realizing the
collateral, including, without limitation, the foreclosure of the
Mortgagee, and shall not in any way interfere with the Lender in
connection therewith, and the foreclosure sale shall take place
without interference by any of the Guarantors or principals, officers
or directors of the Borrower, then the Lender shall waive the
provisions of this Guaranty and shall deliver the Guaranty back to
the Guarantors marked “satisfied.”
3
Defendants argued in their response to Meecorp’s summary judgment motion that a
side agreement with Meecorp averted default on the underlying debt. However, the district
court found no such agreement and Defendants do not appeal that portion of the judgment.
Therefore, we will not review that portion of the district court’s order. See Donovan v. Rd.
Rangers Country Junction, Inc., 736 F.2d 1004, 1006 (5th Cir. 1984) (per curiam).
4
No. 07-40099
Guiles and Croft argue that the district court improperly imposed the burden of
proof on them to show cooperation and lack of interference under this provision.
They claim that because Meecorp did not show either a failure to “cooperate with
the Lender in realizing the collateral” or some “interference,” Guiles and Croft
should have been released under the plain language of the Guaranty after the
foreclosure sale. Guiles and Croft also stated in their response to Meecorp’s
summary judgment motion that they did “cooperate[] with any and all requests
of Meecorp, even offering to turn over the keys.” In addition, Guiles and Croft
claim that regardless of who bore the burden of proof on this question at
summary judgment, Tex-Wave’s injunction could not be interpreted as
interference, because Tex-Wave obtained the state court injunction five months
after Meecorp’s successful foreclosure sale.4
Meecorp counters that Guiles and Croft failed to carry their burden to
prove that they had satisfied the requirements of the Guaranty. See Fitzmaurice
v. Van Vlaanderen Mach. Co., 264 A.2d 740, 744 (N.J. Super. Ct. App. Div. 1970)
(“Where a party seeks to avoid a contractual obligation by reason of the
happening of an event or condition stipulated in a contract, the burden of
establishing the occurrence of the condition rests upon the party asserting it.”).5
Because the moving party does not need to produce evidence showing the
absence of an issue of fact with respect to an issue on which the nonmoving party
would bear the burden of proof at trial, see Celotex Corp. v. Catrett, 477 U.S. 317,
4
Relatedly, Guiles and Croft note that the face of the state injunction merely enjoins
Meecorp “from listing for sale or selling the business of [Tex-Wave].” (emphasis added). This,
they argue, might include Tex-Wave’s sweat equity or good will but cannot be construed to
include the leasehold, fixtures, and related property Meecorp owns outright as a result of the
foreclosure sale.
5
The Guaranty explicitly provides that it should be construed under New Jersey law:
“This Guaranty is, and shall be deemed to be, a contract entered into under and pursuant to
the laws of the State of New Jersey, without regard to conflicts of laws considerations and shall
be in all respects governed, construed, applied and enforced in accordance with the laws of said
state . . . .”
5
No. 07-40099
322-23 (1986), Meecorp argues that it need not negate Guiles and Croft’s
unsupported assertions of cooperation. See also Fontenot v. Upjohn Co., 780 F.2d
1190, 1195 (5th Cir. 1986) (“If the movant . . . does not bear the burden of proof,
he should be able to obtain summary judgment simply by disproving the
existence of any essential element of the opposing party’s claim or affirmative
defense.”).
First, we consider whether Meecorp met its initial burden under Rule
56(c). A genuine issue of facts exists “if the evidence is such that a reasonable
jury could return a verdict for the non-moving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). “We must view all evidence in the light
most favorable to the party opposing the motion and draw all reasonable
inferences in that party’s favor.” Crawford v. Formosa Plastics Corp., 234 F.3d
899, 902 (5th Cir. 2000) (citing Anderson, 477 U.S. at 255). Additionally,
when the movant is a plaintiff he must ordinarily do more than
defeat the opposing party’s affirmative defenses in order to obtain
a final [rather than partial] judgment. Since, in addition to
asserting an affirmative defense, the defendant will likely have
denied the plaintiff’s allegations, the plaintiff must also establish all
of the essential elements of his claim.
Fontenot, 780 F.2d at 1195-96 (internal quotation marks and citations omitted).
“If the moving party fails to meet this initial burden, the motion must be denied,
regardless of the nonmovant’s response.” Little v. Liquid Air Corp., 37 F.3d
1069, 1075 (5th Cir. 1994) (citing Celotex, 477 U.S. at 325).
In its summary judgment motion, Meecorp established through
authenticated documents that Tex-Wave was in default on its debt and that
Guiles and Croft were liable under a provision of the Guaranty. However, the
plain language of the Guaranty also directs that if the foreclosure takes place
without interference, then Meecorp “shall deliver the Guaranty back to the
Guarantors marked ‘satisfied.’” Meecorp ignored this provision in its initial
6
No. 07-40099
motion, and in its reply brief, Meecorp’s citation to the state court injunction
actually raised a factual question as to whether interference existed. Because
Meecorp failed to establish that there was no issue of fact with respect to the
Guaranty, summary judgment was not appropriate.
Evidence of the state court injunction raises a fact question as to whether
Guiles and Croft interfered with Meecorp’s realizing on the collateral.
Therefore, on the question of the individual liability of Guiles and Croft under
the Guaranty, we vacate the district court’s summary judgment and remand for
a determination of whether Guiles and Croft fulfilled their obligation to
cooperate and not interfere with Meecorp’s effort to “realiz[e]” its collateral.
B. Outstanding Loan Amount
In its motion for summary judgment, Meecorp presented the affidavit of
Daniel Edrei (“Edrei”), Managing Member of Meecorp, attesting that the total
amount due under the company’s loan to Tex-Wave, including interest and late
fees, was $7,013,869.93.6 Tex-Wave explicitly denied that the total amount
calculated by Meecorp was the correct amount, but it did not request that the $3
million credit from the foreclosure sale be applied to the debt, nor did
Defendants offer any evidence to refute Meecorp’s calculation. The district court
awarded the full amount requested in Meecorp’s summary judgment motion
without applying any credit for the $3 million Meecorp recovered in the
foreclosure sale. We hold that the district court erred by failing to credit the
outstanding loan amount by proceeds of the foreclosure sale.
The plain language of the loan agreement requires a credit in this
situation: “In the event of a sale of the Collateral, or any other disposition
6
Meecorp’s motion also was accompanied by copies of the loan agreement, the three
promissory notes, the Guaranty, the pledge agreement, Meecorp’s notice of Tex-Wave’s
November 1, 2005 missed loan payment, and a copy of the state court injunction. However,
there was no explanation of the total amount due other than the figure cited in Edrei’s
affidavit.
7
No. 07-40099
thereof, Lender shall apply all proceeds first to all costs and expenses of
disposition, including reasonable attorneys’ fees, and then to the Obligations of
Borrower to Lender.”7 There is no dispute that Meecorp successfully sold—and
itself purchased—Tex-Wave’s leasehold, fixtures, and related property securing
the loan for $3 million on May 2, 2006. Meecorp should have reduced Tex-
Wave’s debt by that amount.
In its pleadings, Meecorp admits as much, stating that “[s]ince the filing
of this lawsuit, Plaintiff Meecorp has pursued non-judicial remedies and has
foreclosed upon certain collateral securing the loan. The amount sought in this
lawsuit will be offset to the extent of this foreclosure.” Further, in its summary
judgment motion, Meecorp stated, “This sale price [of the foreclosed property]
should have operated as an offset to the balance due under the loan.”
Meecorp claims, however, that the $3 million credit Tex-Wave seeks is an
“offset” and is therefore an affirmative defense that Tex-Wave should have
raised in its pleadings. Meecorp also claims that Tex-Wave is not entitled to a
credit because the state court injunction allegedly prevented Meecorp from
selling the collateral.8 We find this reasoning unpersuasive. The $3 million
operates not as an offset, but as a credit, which, by operation of law, should
reduce the amount of the underlying debt. Indeed, this is the purpose of the
7
The Guaranty also provides for a credit in a foreclosure sale: “IF THE LENDER
FORECLOSES ON ANY REAL PROPERTY COLLATERAL PLEDGED BY THE
BORROWER: (I) THE AMOUNT OF THE DEBT MAY BE REDUCED ONLY BY THE PRICE
FOR WHICH THAT COLLATERAL IS SOLD AT THE FORECLOSURE SALE, EVEN IF THE
COLLATERAL IS WORTH MORE THAN THE SALE PRICE . . . .”
8
Meecorp claims that because of the state court injunction, “the Leasehold Estate is of
no value and thus represents no offset to the loan.” However, Meecorp cites no legal authority
for this proposition, and we have no evidence that the state court action hindered or continues
to hinder Meecorp’s use or sale of the foreclosed property it now owns.
8
No. 07-40099
foreclosure sale.9 Meecorp advocates a result in which it sells the collateral,
pockets the proceeds, and does not adjust the loan amount. This cannot be the
correct result. We hold that, as a matter of law, Defendants were entitled to
have their outstanding loan amount credited by the amount recovered in
Meecorp’s foreclosure sale.
However, it is unclear whether simply reducing the judgment by $3 million
would achieve the proper result. In its summary judgment submission,
Meecorp’s only basis for its figure was Edrei’s affidavit setting the total amount
due, “including interest and late fees.” It is possible that a $3 million reduction
in the loan amount could affect those calculations. Furthermore, the loan
agreement specifies that proceeds from the foreclosure should first be applied to
“all costs and expenses of disposition, including reasonable attorneys’ fees.”
Therefore, we remand to the district court to recalculate the proper judgment
amount, taking into account a $3 million credit for Meecorp’s foreclosure sale.
IV. CONCLUSION
Finding that the district court erred in granting summary judgment on
both issues discussed herein, we reverse and remand for proceedings consistent
with this opinion.
REVERSED AND REMANDED.
9
It is a basic concept of mortgage law that the amount recovered in a foreclosure sale
reduces the overall amount of the debt. See RESTATEMENT (THIRD) OF PROP.: MORTGAGES
§ 8.4(a), (b) (1997) (“If the foreclosure sale price is less than the unpaid balance of the mortgage
obligation, an action may be brought to recover a deficiency judgment against any person who
is personally liable on the mortgage obligation . . . . [T]he deficiency judgment is for the amount
by which the mortgage obligation exceeds the foreclosure sale price.”).
9