Layne v. Bank One KY ( 2005 )


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  •                                 RECOMMENDED FOR FULL-TEXT PUBLICATION
    Pursuant to Sixth Circuit Rule 206
    File Name: 05a0010p.06
    UNITED STATES COURT OF APPEALS
    FOR THE SIXTH CIRCUIT
    _________________
    X
    Plaintiffs-Appellants, -
    R. GEOFF LAYNE; CHARLES E. JOHNSON, JR.,
    -
    -
    -
    No. 03-6062
    v.
    ,
    >
    BANK ONE, KENTUCKY, N.A.; BANC ONE                     -
    -
    Defendants-Appellees. -
    SECURITIES CORPORATION,
    -
    N
    Appeal from the United States District Court
    for the Eastern District of Kentucky at Lexington.
    Nos. 01-00269; 01-00368—Jennifer B. Coffman, District Judge.
    Argued: December 6, 2004
    Decided and Filed: January 10, 2005
    Before: MARTIN and MOORE, Circuit Judges, BELL, Chief District Judge.*
    _________________
    COUNSEL
    ARGUED: Mason L. Miller, GETTY & MAYO, Lexington, Kentucky, for Appellant. Dustin E.
    Meek, TACHAU, MADDOX, HOVIOUS & DICKENS, Louisville, Kentucky, for Appellees.
    ON BRIEF: Mason L. Miller, Richard A. Getty, GETTY & MAYO, Lexington, Kentucky, for
    Appellant. Dustin E. Meek, Mary E. Eade, TACHAU, MADDOX, HOVIOUS & DICKENS,
    Louisville, Kentucky, Leonard A. Gail, BANK ONE, Chicago, Illinois, for Appellees.
    _________________
    OPINION
    _________________
    KAREN NELSON MOORE, Circuit Judge. Plaintiff-Appellant, Charles E. Johnson, Jr.
    (“Johnson”), appeals the district court’s grant of summary judgment in favor of Defendants-
    Appellees, Bank One, Kentucky, N.A. and Banc One Securities Corporation (collectively, “Bank
    One”). The district court found that under Kentucky law, Bank One was not liable for the
    depreciation in value of the shares it held as collateral for a loan to Johnson. Furthermore, the
    district court found that by selling the stock on a national stock exchange, Bank One acted in a
    commercially reasonable way in disposing of the collateral. On appeal, Johnson asserts that the
    *
    The Honorable Robert Holmes Bell, Chief United States District Judge for the Western District of Michigan,
    sitting by designation.
    1
    No. 03-6062               Layne, et al. v. Bank One, Kentucky, et al.                                            Page 2
    district court erred in these findings, as well as by granting Bank One summary judgment on his
    breach of fiduciary duty and breach of contract claims. Johnson also argues that summary judgment
    is inappropriate with regards to Bank One’s counterclaims against him. We conclude that the
    district court did not err on any of these issues, and thus, the grant of summary judgment to the
    defendants is AFFIRMED.
    I. BACKGROUND
    This case arises out of two loan transactions made by Bank One to plaintiffs Johnson and
    Geoff Layne (“Layne”).1 Johnson was the founder and CEO of PurchasePro.com, Inc.
    (“PurchasePro”); Layne served as the national marketing director of the company. Following a
    successful initial public offering, both Johnson and Layne had considerable      net worth, though their
    PurchasePro shares were subject to securities laws restricting their sale.2 To increase their liquidity,
    Johnson and Layne entered into separate loan agreements with Bank One for an approximately $2.83
    million and $3.25 million line of credit respectively, secured by their shares of PurchasePro stock.
    The loan agreements included a Loan-to-Value (“LTV”) ratio, which conditioned default on the
    market value of the collateral stock. The LTV ratio was calculated as the outstanding balance on
    the line of credit over the market value of the collateral stock. Specifically, Layne’s loan agreement
    had a 50% LTV ratio, which meant that the market value of the collateral stock must be at least
    twice the outstanding balance on the line; Johnson’s loan agreement had a 40% LTV 4ratio, which
    meant that the market value must remain two and a half times the outstanding balance. The credit
    agreements provided that if the LTV ratio exceeded those specified percentages, Johnson and Layne
    had five days to notify Bank One and either increase the collateral or reduce the outstanding balance
    such that the target LTV ratios were met. Failure to remedy the situation would be an immediate
    default and Bank One “may exercise any and all rights and remedies” including, “at Lender’s
    discretion,” selling the shares. Joint Appendix (“J.A.”) at 353-54 (Comm. Pledge & Sec. Agmt.)
    (emphasis added). If Bank One intended to sell the shares, it had to give Johnson written notice ten
    days prior to the sale. Pursuant to these agreements, Johnson and Layne entered into trade
    authorization agreements that enabled Bank One to sell the shares without their consent. Though
    Bank One had the option of selling the collateral shares if the LTV ratios were not met, nothing in
    the loan agreements obligated it to do so.
    1
    On March 29, 2004, Bank One and Layne entered into a settlement agreement of all of their claims. As a
    result, Layne agreed to voluntarily dismiss his appeal pursuant to Fed. R. App. P. 42(b). Johnson’s appeal remains before
    us for determination.
    2
    Johnson and Layne were considered “affiliates” of PurchasePro as defined under SEC Rule 144 and therefore,
    their shares in the company were restricted. 17 C.F.R. § 230.144. Pursuant to Rule 144, an affiliate may not sell
    restricted securities unless certain conditions are met, including a minimum holding period, a limitation on the amount
    to be sold, and the manner of the sale. 17 C.F.R. § 230.144(d)-(f).
    3
    It is unclear from the record if other assets were offered or accepted to secure the loans. With regards to their
    PurchasePro shares, Layne pledged 482,142 shares to secure his $3.25 million credit line, while Johnson pledged
    410,000 shares for his $2.8 million credit line.
    4
    For example, if Johnson utilized the entire line of credit, approximately $2.8 million, the market value of his
    collateral stock would need to be approximately $6.9 million to comply with the required LTV ratio of 40%.
    No. 03-6062              Layne, et al. v. Bank One, Kentucky, et al.                                         Page 3
    In February 2001, along with the rest of the Internet sector, the stock price of PurchasePro
    fell considerably, such that both loans exceeded their respective LTV ratios.5 Rather than selling
    the collateral stock, Bank One entered into discussions with Johnson and Layne to pledge more
    collateral. The record reveals that Layne and Johnson repeatedly stated their intentions to pledge
    additional collateral to meet the LTV requirements. On March 6, 2001, Layne wrote that he had
    “been able to hold [Bank One] off from calling it in because of additional collateral that I have
    pledged.” J.A. at 355 (Email from Layne to Lichtenberger). On March 19, 2001, Johnson sent an
    email to Layne inquiring about whether Bank One was “hanging in there.” J.A. at 517 (Email from
    Johnson to Layne). On March 22, 2001, Bank One sent a letter to Layne informing him that the loan
    was in default. J.A. at 362 (Letter from Holton to Layne). That same day, in a conversation with
    Bank One, Layne stated that “[you] guys have been great . . . holding on for this long,” but he
    indicated he would like to begin selling some of the collateral stock. J.A. at 357 (Tr. of call between
    Layne and Thompson). After this conversation, Bank One began taking steps to liquidate the
    collateral stock for both loans. Later that same day, however, Johnson sent an email to Layne under
    the subject heading “Bank 1” which stated “they want to sell our shares and I want to stop it with
    additional collateral-pls call.” J.A. at 364 (Email from Johnson to Layne). Later that night, Layne
    sent an email to Burr Holton (“Holton”), Bank One’s loan officer, under the heading “[h]old off on
    selling” which stated that “[Johnson] is putting together a collateral package (real estate, additional
    shares, etc.) to secure the note at acceptable levels.” J.A. at 366 (Email from Layne to Holton).
    Early the next morning, Layne left a voicemail for Doug Thompson, Bank One’s senior trader,
    stating “[i]t’s a possibility that . . . [Johnson]’s gonna put up some additional securities to secure his
    note and my note and maybe we don’t sell right now. So I just wanna put a hold on any . . . trading
    activity until [Johnson] talks with [the loan officer].” J.A. at 365 (Voice Message from Layne to
    Thompson). On April 3, 2001, Layne called Holton and stated that “he was ready to sell his
    [collateral] stock as soon as possible” and that “he has decided not [to work] with Mr. Johnson on
    combining their loans and adding additional collateral, which would have cured their default.” J.A.
    at 367 (Memo. from Holton to File). The next day, April 4, 2001, Layne faxed a letter to Holton
    which stated that he would not be able to provide additional collateral to satisfy the loan agreement.
    J.A. at 491 (Letter from Layne to Holton); 634 (Layne Dep.). The following day, however, Layne
    changed his mind again and faxed Holton a letter which stated:
    [Johnson] and myself are putting together a collateral package to secure our notes
    with Bank One. I DO NOT wish for the bank to proceed with any liquidation
    whatsoever of my PurchasePro stock at this time. I believe we have a strong
    company and that market conditions will improve, thus enabling the stock to recover
    to a price that allows me to pay my debt to Bank One in it’s [sic] entirety. And that
    is certainly in everybody’s best interest.
    J.A. at 371 (Letter from Layne to Holton). The same day, Layne sent an email to Holton which
    stated “[Johnson] will be back this afternoon and we will firm the plan then. I would like to have
    time to discuss this [sic] him before we start liquidation.” J.A. at 369 (Email from Layne to Holton).
    The record reveals that Johnson and Bank One were involved in discussions in the end of April and
    May to pay down the balance or pledge additional collateral including his house in Las Vegas. At
    the end of May, the proposed deal fell through and Bank One sent letters to Johnson notifying him
    of his continued default on the loans. Throughout the entire time from February to May 2001, Layne
    and Johnson continued to make principal and interest payments under the terms of the agreement,
    but both loans significantly exceeded their respective LTV ratios. Bank One finally sold Johnson’s
    5
    Because the loans were over-collateralized, though the market value of the stock was below the required LTV
    level, it was still greater than the outstanding loan balances. Thus, Bank One could have sold the stock in February,
    recouped the value of the loans, and returned the surplus proceeds to Layne and Johnson.
    No. 03-6062              Layne, et al. v. Bank One, Kentucky, et al.                                       Page 4
    PurchasePro shares over four days in July, recovering $524,757.39 in net proceeds to pay down his
    debt, leaving approximately a $2.2 million unpaid balance.6
    Layne and Johnson separately filed suit against Bank One in the United States District Court
    for the Eastern District of Kentucky on a number of counts. On January 30, 2002, the cases were
    consolidated. Bank One filed counterclaims against Johnson and Layne, seeking payment for the
    deficiencies on the loans. On November 1, 2002, Bank One filed a motion for summary judgment
    on all counts as well as its counterclaims. On March 26, 2003, the district court granted Bank One’s
    motion. Johnson appeals from that ruling.
    II. ANALYSIS
    A. Standard of Review
    We review “the grant of summary judgment de novo, viewing all evidence in the light most
    favorable to the nonmoving party.” Boone v. Spurgess, 
    385 F.3d 923
    , 927 (6th Cir. 2004). “Under
    Rule 56(c), summary judgment is proper ‘if 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 the moving party is entitled to a judgment as a matter of law.’” Celotex
    Corp. v. Catrett, 
    477 U.S. 317
    , 322 (1986) (quoting Fed. R. Civ. P. 56(c)).
    B. Duty to Preserve Collateral
    We first consider Johnson’s argument that Bank One violated a duty under Kentucky law
    to preserve the value of the collateral held in its possession. With respect to the regulation of
    secured transactions, Kentucky has adopted the Uniform Commercial Code (“U.C.C.”), which states
    that “a secured party shall use reasonable care in the custody and preservation of collateral in the
    secured party’s possession. In the case of chattel paper or an instrument, reasonable care includes
    taking necessary steps to preserve rights against prior parties unless otherwise agreed.” Ky. Rev.
    Stat. Ann. § 355.9-207. Whether a secured party’s duty to preserve collateral applies to pledged
    shares is an issue of first impression in Kentucky. Because our jurisdiction in this case is based on
    a diversity of citizenship among the parties, “[w]e are in effect sitting as a state appellate court in
    Kentucky, with the obligation to decide the case as we believe the Kentucky Supreme Court would
    do.” Stalbosky v. Belew, 
    205 F.3d 890
    , 893 (6th Cir. 2000). As the district court noted below,
    although Kentucky courts have not reviewed the matter, several courts around the country have
    addressed the issue of whether § 9-207 applies to pledged stock. Before analyzing their holdings,
    however, we begin our analysis with the U.C.C. itself.
    The comment to § 9-207 states that the provision “imposes a duty of care, similar to that
    imposed on a pledgee at common law, on a secured party in possession of collateral,” and cites to
    §§ 17-18 of the Restatement of Security. U.C.C. § 9-207 cmt. 2. Section 17 of the Restatement is
    essentially identical to the first sentence of § 9-207, and its accompanying explanatory comment
    states that “[t]he rule of reasonable care expressed in this Section is confined to the physical care
    of the chattel, whether an object such as a horse or piece of jewelry, or a negotiable instrument or
    document of title.” Restatement of Security § 17 cmt. a (1941) (emphasis added). Section 18 of the
    Restatement mirrors the second sentence of § 9-207 and addresses “instruments representing claims
    of the pledgor against third persons.” Restatement of Security § 18. Though it deals with negotiable
    instruments rather than equity investments, § 18 sheds light on the topic of preserving collateral
    value. Specifically, the explanatory comment accompanying the section states “[t]he pledgee is not
    6
    If the full $2.8 million credit line was used, the market price of the 410,000 shares would need to be
    approximately $16.89 in order to maintain an LTV ratio of 40%. In July, the shares were sold at an average price of
    $1.28 over the four-day period. The LTV ratio at the time the collateral was sold was approximately 530%.
    No. 03-6062                Layne, et al. v. Bank One, Kentucky, et al.                                              Page 5
    liable for a decline in the value of pledged instruments, even if timely action could have prevented
    such decline.” Restatement of Security § 18 cmt. a (1941) (emphasis added). In the context of
    pledged stock, courts have used this language from the Restatement to hold that “a bank has no duty
    to its borrower to sell collateral stock of declining value.” Capos v. Mid-Am. Nat’l Bank, 
    581 F.2d 676
    , 680 (7th Cir. 1978). See also Tepper v. Chase Manhattan Bank, N.A., 
    376 So. 2d 35
    , 36 (Fla.
    Dist. Ct. App. 1979) (holding that “a pledgee is not liable for a decline in the value of pledged
    instruments”); Honolulu Fed. Sav. & Loan Ass’n v. Murphy, 
    753 P.2d 807
    , 816 (Haw. Ct. App.
    1988) (finding that a lender has no duty to preserve the value of pledged securities by financially
    supporting the issuing company); FDIC v. Air Atl., Inc., 
    452 N.E.2d 1143
    , 1147 (Mass. 1983)
    (finding a lender not liable for the “ruinous” decline in the market value of pledged stock); Marriott
    Employees’ Fed. Credit Union v. Harris, 
    897 S.W.2d 723
    , 728 (Tenn. Ct. App. 1995) (holding that
    the duty of reasonable care “refers to the physical possession of the stock certificates” and does not
    impose liability for depreciation in value); Dubman v. N. Shore Bank, 
    271 N.W.2d 148
    , 151 (Wisc.
    Ct. App. 1978) (concluding that “our law does not hold a pledgee responsible for a decline in market
    value of securities pledged to it as collateral for a loan absent a showing of bad faith or a negligent
    refusal to sell after demand”). As the Seventh Circuit stated, “[i]t is the borrower who makes the
    investment decision to purchase stock. A lender in these situations       merely accepts the stock as
    collateral, and does not thereby itself invest in the issuing firm.”7 Capos, 
    581 F.2d 680
    . “Given the
    volatility of the stock market, a requirement that a secured party sell shares . . . held as collateral,
    at a particular time, would be to shift the investment risk from the borrower to the lender.” Air Atl.,
    
    Inc., 452 N.E.2d at 1147
    .
    We agree with the reasoning of these courts and believe that the Kentucky Supreme Court
    would adopt a similar approach with regards to Ky. Rev. Stat. Ann. § 355.9-207. Specifically, we
    conclude that under Kentucky law a lender has no obligation to sell pledged stock held as collateral
    merely because of a market decline. If the borrower is concerned with the decline in the share value,
    it is his responsibility, rather than that of the lender, to take appropriate remedial steps, such as
    paying off the loan in return for the collateral, substituting the pledged stock  with other equally
    valued assets, or selling the pledged stock himself and paying off the loan.8
    7
    As noted by the district court, the few courts which have found differently involved cases in which the
    securities held as collateral were convertible debentures, and the secured party failed to covert them into stock. Reed
    v. Cent. Nat’l Bank, 
    421 F.2d 113
    , 118 (10th Cir. 1970); Grace v. Sterling, Grace & Co., 
    289 N.Y.S.2d 632
    , 638 (N.Y.
    App. Div. 1968). The courts in those cases held that § 9-207 requires the pledgee to take the necessary steps to preserve
    the value of the securities. As the district court correctly noted, however, “the losses occasioned by the secured creditor’s
    failure to convert the debentures were clearly foreseeable, because the creditors had specific knowledge of an event that
    would materially affect the value of the securities.” J.A. at 260-61 n.7 (Dist. Ct. Order). By contrast, where the
    collateral held by the secured party is stock, “there is no similar, pre-defined event which the creditor knows will impact
    the value of the stock.” J.A. at 261 n.7 (Dist. Ct. Order). Because the fluctuation in value is not foreseeable, to require
    a creditor to preserve value of stock is to “foist that role [of investment adviser] upon it.” 
    Capos, 581 F.2d at 680
    .
    8
    Johnson argues that these options were not available to him in this case because he did not have other assets
    to substitute and was unable to sell the stock on his own because of his insider status. Appellant’s Reply Br. at 13-14.
    Particularized facts of the borrower’s situation, however, are insufficient to alter the law and burden the lender with the
    responsibility of being an investment adviser. The fact that the borrower adopted a risky investment strategy does not
    transform the legal obligations of the lender unless explicitly specified in the contract. Moreover, the record does not
    support Johnson’s contention that he could not avail himself of other options to preserve the value of his collateral.
    Johnson had other assets which he could have substituted for the collateral stock. In his deposition, Johnson stated that
    his house in Las Vegas was valued at around $5.0 million and was free of any mortgages and encumbrances. J.A. at 591-
    92 (Johnson Dep.). Discussions were held between Bank One and Johnson during the months of April and May
    specifically about using the Las Vegas house as additional collateral. Furthermore, despite the fact that he was an
    insider, Johnson could have sold his restricted stock through a Rule 144 transaction so long as he ensured the sale was
    No. 03-6062               Layne, et al. v. Bank One, Kentucky, et al.                                           Page 6
    In his brief, Johnson attempts to distinguish his case from the several cases outlined above,
    by arguing that in the situation where a loan is over-secured, the pledgee has a duty to preserve the
    surplus. Johnson argues that where a loan is over-secured, the amount of collateral greater than the
    loan value belongs to the borrower and a duty should be imposed on the secured party to protect that
    surplus because the secured party has no incentive to do so on its own. By contrast, Johnson argues,
    where a loan is under-secured, the secured party’s incentive is the same as that of the borrower, and
    thus no statutory duty to preserve the value of the collateral is necessary. In support of his argument,
    Johnson cites to two district court opinions which distinguish between over-secured and under-
    secured loans. Unfortunately, his theory is neither supported by these cases nor compelling on its
    own.
    Generally, the dual purpose of collateral is to secure financing for the borrower and hedge
    against credit risk for the lender. Where a lender extends credit solely on the basis of over-secured
    collateral, it is because of perceived heightened risk, and therefore over-collateralization provides
    the lender with more flexibility. In this case, Bank One agreed to loan Johnson $2.8 million dollars
    only if he pledged two-and-a-half times that value in PurchasePro stock, or $6.9 million. The
    underlying rationale was that unless the surplus value was included, the collateral may be
    insufficient at the time of any default. The LTV ratio was to provide a cushion so that Bank One
    could either wait for the stock to rebound, restructure the loan, solicit additional collateral, or call
    the loan with enough time to sell the stock to recoup the value. If accepted, Johnson’s argument
    would bifurcate the collateral amount between the actual value of the loan and the surplus value, and
    impose a duty upon the lender to preserve the latter. Requiring preservation of the surplus value,
    however, leaves only the actual value of the loan to serve as collateral and wipes out any flexibility
    for the lender. Under Johnson’s theory, Bank One would have had only $2.8 million worth of stock
    as collateral for the $2.8 million loan and would have been required to preserve the remaining $4.1
    million of surplus. On the first day the market value of the stock fell below the LTV requirement,
    Bank One would have called the loan or risked liability under § 9-207. Imposing automatic liability
    for the decreased value of the surplus defeats the inherent purpose of requiring over-collateralization
    in the first place.
    The two cases Johnson cites for support do not stand for the proposition that over-
    collateralization necessarily implies a duty of the lender to preserve, but rather suggest that the
    borrower does have a valid interest in the surplus value and therefore his wishes should not be
    ignored in over-collateralized situations. In Fidelity Bank & Trust Co. v. Production Metals Corp.,
    
    366 F. Supp. 613
    , 618 (E.D. Pa. 1973), the district court found that “where the value of the collateral
    exceeds the amount of the debtor’s entire obligation . . . there is no justification for a rule
    authorizing the pledgee to disregard [the pledgor’s] interest in the collateral and deprive him of the
    right to control its disposition for the benefit of both parties.” The district court noted that where
    the pledgee, “upon request of the pledgor” fails to take steps to preserve the value of the collateral,
    “a question should properly be raised as to whether the pledgee has exercised reasonable care under
    the circumstances.” 
    Id. (emphasis added).
    The Fidelity court noted, however, that “where the entire
    obligation of the pledgor exceeds the value of the collateral held by the pledgee . . . the pledgee’s
    refusal to sell the collateral upon request of the pledgor would not, as a matter of law, constitute a
    breach of his duty to preserve its value.” 
    Id. at 619.
    Similarly, in FDIC v. Caliendo, 
    802 F. Supp. 575
    , 583-84 (D.N.H. 1992), the district court, citing Fidelity Bank, ruled that a pledgor could bring
    a claim under § 9-207, where there is an over-collateralized loan, a default by the pledgor, and “the
    not a result of any material, non-public information. 17 C.F.R. § 230.144(b). See, e.g., J.A. at 513-16 (Layne’s Stock
    Selling Plan). Johnson stated in his deposition that he was intending to sell his restricted shares pursuant to a selling
    plan, the proceeds of which he would use “to pay [Bank One] off one hundred percent.” J.A. at 591 (Johnson Dep.).
    Unfortunately, the sale of Johnson’s shares under the plan was triggered by the stock reaching a certain price, which it
    never did.
    No. 03-6062           Layne, et al. v. Bank One, Kentucky, et al.                                Page 7
    receipt of a reasonable request by the pledgor/borrower to either sell or have the stock redeemed.”
    These two cases do not provide any support for Johnson’s argument that a duty to preserve collateral
    arises simply because of an over-collateralized situation; rather, where there is over-collateralization
    and the pledgor has requested liquidation, the pledgee should respect the pledgor’s interest in the
    surplus value. These two cases are inapposite to Johnson’s case, because the record is clear that he
    never made a request to the bank to sell the collateral to preserve his surplus, but rather urged Bank
    One as late as May 1, 2001, to do the opposite.
    In sum, we conclude that, under Kentucky law, a lender is not under any duty or obligation
    to sell collateral in its possession merely because the collateral is declining in value, regardless of
    whether the loan is over-collateralized. Therefore, the district court’s grant of summary judgment
    on this issue is affirmed.
    C. Commercially Reasonable Disposition
    Johnson’s second argument raised on appeal is that Bank One violated Kentucky law by
    failing to dispose of the PurchasePro stock in a commercially reasonable manner. Following the
    U.C.C., Kentucky law requires that “[e]very aspect of a disposition of collateral, including the
    method, manner, time, place, and other terms, must be commercially reasonable.” Ky. Rev. Stat.
    Ann. § 355.9-610. The purpose of the provision is to protect the debtor’s interest by ensuring he
    will “receive the market price of his collateral.” Ocean Nat’l Bank v. Odell, 
    444 A.2d 422
    , 426 (Me.
    1982). The law also provides a “recognized market” safe harbor, which states that:
    [a] disposition of collateral is made in a commercially reasonable manner if the
    disposition is made:
    (a) In the usual manner on any recognized market;
    (b) At the price current in any recognized market at the time of disposition; or
    (c) Otherwise in conformity with reasonable commercial practices among
    dealers in the type of property that was the subject of the disposition.
    Ky. Rev. Stat. Ann. § 355.9-627(2). The U.C.C. comments define a “recognized market” as “one
    in which the items sold are fungible and prices are not subject to individual negotiation. For
    example, the New York Stock Exchange is a recognized market.” U.C.C. § 9-610 cmt. 9. Sales on
    a recognized market are commercially reasonable “because the price on the recognized market
    represents the fair market value [of the collateral] from day to day.” Nelson v. Monarch Inv. Plan
    of Henderson, Inc., 
    452 S.W.2d 375
    , 377 (Ky. 1970); see also FDIC v. Blanton, 
    918 F.2d 524
    , 527-
    28 (5th Cir. 1990) (“A recognized market assures a fair price through neutral market forces, and thus
    obviates the debtor’s need for protection through redemption, appraisal, or monitoring the sale.”).
    Therefore, where the collateral is sold in a recognized market, Kentucky courts have found the
    transaction to be commercially reasonable as a matter of law. Bailey v. Navistar Fin. Corp., 
    709 S.W.2d 841
    , 842 (Ky. Ct. App. 1986). Courts in other states have held similarly that a sale on a
    recognized market is per se commercially reasonable. See 
    Blanton, 918 F.2d at 529
    (noting that
    under Texas law, sale of collateral on a recognized market is commercially reasonable); Suffield
    Bank v. LaRoche, 
    752 F. Supp. 54
    , 59 (D.R.I. 1990) (holding that the sale of pledged stock on the
    American Stock Exchange “ensured that its sale was commercially reasonable and beyond the
    scrutiny of this Court”). Moreover, the law provides that “[t]he fact that a greater amount could
    have been obtained by . . . disposition . . . at a different time or in a different method from that
    selected by the secured party is not of itself sufficient to preclude the secured party from establishing
    that the . . . disposition . . . was made in a commercially reasonable manner.” Ky. Rev. Stat. Ann.
    § 355.9-627(1).
    Applying the U.C.C. provisions to this case, the district court was correct to find that Bank
    One’s disposition of the PurchasePro shares through a sale on the NASDAQ national market was
    No. 03-6062               Layne, et al. v. Bank One, Kentucky, et al.                                             Page 8
    commercially reasonable. Johnson rehashes his arguments about preserving collateral value to
    contend that delaying the sale of the pledged stock from February was commercially unreasonable.
    Appellant’s Br. at 45. Johnson’s argument, however, misinterprets the statute. Section 9-610 does
    not impose an obligation on a lender to liquidate and sell the collateral stock at a specific time during
    the life of the loan. Put another way, § 9-610 does not address whether a lender should dispose of
    its collateral, but rather once that decision has been made, how the disposition should occur. When
    Johnson’s loan fell below the LTV ratio, Bank One attempted to restructure the loan and secure
    additional collateral rather than sell the shares. Under the pledge agreement and Kentucky law,
    Bank One was not under any obligation to sell the stock at that point. In late May, after repeated
    negotiations with Johnson     fell through, Bank One decided to begin the liquidation process, which
    was completed by July.9 The sale of the stock was on the NASDAQ, a recognized market, and thus
    ensured that Johnson received the fair market value 10    for his stock shortly after the decision to
    liquidate was made, which is all that § 9-610 requires. Therefore, we conclude that the sale of
    Johnson’s PurchasePro stock was commercially reasonable and the district court’s grant of summary
    judgment on this issue is affirmed.
    9
    Johnson argues in the alternative that the delay from the time of the liquidation decision in May until July was
    commercially unreasonable because the stock value dropped during these months. This argument is similarly
    unpersuasive. As § 355.9-627(1) states, the mere fact that a higher value could have been obtained earlier, by itself, is
    not sufficient to show that a transaction was commercially unreasonable. Moreover, there is no evidence in the record
    that Bank One unreasonably delayed the sale of the stock. The record demonstrates that during the month and a half
    between the decision to liquidate and the actual sale, Bank One was in discussions with PurchasePro’s counsel to ensure
    that the sale of stock owned by Layne and Johnson was not in violation of any securities laws. Specifically, Bank One
    delayed the sale to ensure compliance with Rule 144 requirements. 17 C.F.R. § 230.144(b); see Rice v. Liberty Surplus
    Ins. Corp., Nos. 03-6071, 03-6091 & 03-6092, 
    2004 WL 2413393
    , at *3 (6th Cir. Oct. 28, 2004) (noting that under Rule
    144 restricted stock may not be sold unless issuing corporation files a letter with the SEC certifying that the conditions
    of the rule have been met). Because the stock was lightly traded in the market, the shares were sold over a four-day
    period to avoid dumping a large block and further depressing the price. Such a delay is not commercially unreasonable.
    Finally, Johnson’s argument rests on the unproven assumption that Bank One should have known that a delay in the sale
    of the shares would necessarily result in a lower market value. PurchasePro shares were highly volatile, and it was
    plausible that the price could have rebounded. As a result, it could be commercially reasonable for Bank One to have
    delayed the sale to see if the market would return. See U.C.C. § 9-610 cmt. 3 (explaining that the U.C.C. “does not
    specify a period within which a secured party must dispose of collateral,” because there may be times when it is “prudent
    not to dispose of goods when the market has collapsed”).
    10
    Johnson argues that the recognized-market exception cannot be per-se reasonable as to timing because it
    would allow a lender to delay potentially a sale for years, which would be an unreasonable result. Appellant’s Br. at 45.
    We need not address the issue about whether a disposition of collateral on a recognized market is per-se reasonable,
    because the facts in this case reveal that Bank One sold the stock shortly after negotiations with Johnson broke down,
    after ensuring compliance with the securities laws and taking into account market volume. See supra note 9. Addressing
    Johnson’s issue, however, in the situation where a loan has been called, the lender has an incentive to sell the collateral
    for the greatest value possible so as to pay off the outstanding debt. The situation where a lender would hold off on the
    sale of collateral until the price drops precipitously and thereby risk the ability to recover its loan would be rare. The
    comment to § 9-610 states, however, that where a secured party does not dispose of collateral and “there is no good
    reason for not making a prompt disposition, the secured party may be determined not to have acted in a ‘commercially
    reasonable’ manner.” U.C.C. § 9-610 cmt. 3. Though the language seems at odds with § 9-627(a), the comment to that
    section states there is no inconsistency, but rather while a low price is insufficient of itself to prove commercial
    unreasonableness, in such a situation “a court should scrutinize carefully all aspects of a disposition to ensure that each
    aspect was commercially reasonable.” U.C.C. § 9-627 cmt. 2. Despite this language, courts have been reluctant to
    second-guess the timing of the disposition of collateral in most situations, even where the price has declined
    precipitously. See, e.g., Air Atl. 
    Inc., 452 N.E.2d at 1147
    (finding that a five-year delay from the decision to liquidate
    until the actual sale of stock was not commercially unreasonable, even where “the market declined ‘ruinously’ and the
    decline was ‘notorious’”).
    No. 03-6062           Layne, et al. v. Bank One, Kentucky, et al.                               Page 9
    D. Breach of Fiduciary Duty
    The third argument Johnson raises on appeal is that Bank One breached a fiduciary duty by
    failing to sell the PurchasePro stock when the LTV ratio exceeded 40%. Under Kentucky law, a
    fiduciary relationship is “founded on trust or confidence reposed by one person in the integrity and
    fidelity of another and which also necessarily involves an undertaking in which a duty is created in
    one person to act primarily for another’s benefit in matters connected with such undertaking.”
    Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 
    807 S.W.2d 476
    , 485 (Ky. 1991) (emphasis added). In
    interpreting Kentucky law, we have held that “[e]xcept in special circumstances, a bank does not
    have a fiduciary relationship with its borrowers.” Sallee v. Fort Knox Nat’l Bank, N.A., 
    286 F.3d 878
    , 893 (6th Cir. 2002). We have stated that:
    banks do not generally have fiduciary relationships with their debtors. This flows
    from the nature of the creditor-debtor relationship. As a matter of business, banks
    seek to maximize their earnings by charging interest rates or fees as high as the
    market will allow. Banks seek as much security for their loans as they can obtain.
    In contrast, debtors hope to pay the lowest possible interest rate and fee charges and
    give as little security as possible. Without a great deal more, a mere confidence that
    a bank will act fairly does not create a fiduciary relationship obligating the bank to
    act in the borrower’s interest ahead of its own interest.
    
    Id. As one
    court noted, “it would be absurd to think that [a bank] could never take its own interests
    into account, or that [the borrowers’] interest had to be absolutely paramount at all times and in all
    situations.” Harris v. Key Bank Nat’l Ass’n, 
    193 F. Supp. 2d 707
    , 717 (W.D.N.Y. 2002). That court
    concluded, “[o]bviously it would have been in [the borrowers’] best interests for [the bank] simply
    to have forgiven their debt altogether, but the law imposes no duty on a creditor to do so.” 
    Id. Applying these
    principles to this case, we conclude that Bank One did not breach a fiduciary
    duty owed to Johnson by failing to sell the collateral stock earlier. Johnson relies on language in
    the pledge asset agreement which authorized Bank One “as my agent and attorney in fact to buy, sell
    . . . and trade” securities. J.A. at 399 (Pledge Asset Agmt.). The agreement also states that Bank
    One “as attorney in fact is authorized to act for me and in my behalf in the same manner and with
    the same force and effect as I might or could do.” J.A. at 399 (Pledge Asset Agmt.). Johnson
    contends that the effect of this language is to create a fiduciary relationship where Bank One must
    act in his best interests. In his deposition, Johnson stated that he believed the language created an
    automatic trigger whereby Bank One was obligated to sell the stock if the LTV ratio exceeded 40%
    because he “did not want to get [his] personal opinion or feelings at the time involved.” J.A. at 566
    (Johnson Dep.). Indeed, it appears from his deposition that Johnson viewed the agreement similar
    to a stop-order transaction, whereby the stock would be sold if it fell below a certain value.
    While that might have been Johnson’s intention, the agreement did not reflect it. The
    language which Johnson cites in his brief does not create a fiduciary relationship, but rather merely
    authorizes Bank One to trade his stock. Nowhere in the agreement does it say that Bank One’s
    trading must be done in Johnson’s best interests. In fact, the commercial pledge and security
    agreement explicitly states otherwise — in the event of default, “Lender may exercise any one or
    more of the [prescribed] rights and remedies.” J.A. at 353 (Comm. Pledge & Sec. Agmt.) (emphasis
    added). One of the prescribed remedies in the event of a default is “[s]ell the Collateral, at Lender’s
    discretion.” J.A. at 353 (Comm. Pledge & Sec. Agmt.) (emphasis added). “Lender shall not be
    obligated to make any sale of Collateral regardless of a notice of sale having been given.” J.A. at
    353 (Comm. Pledge & Sec. Agmt.) (emphasis added). The language clearly sets forth that Bank One
    entered into the loan agreement with Johnson with the sole intention to act in the best interests of
    its shareholders. Pursuant to that intention, Bank One determined that it was better to add collateral
    and maintain the loan rather than call it in and sell the shares.
    No. 03-6062           Layne, et al. v. Bank One, Kentucky, et al.                           Page 10
    Because neither Kentucky law nor the contract created a fiduciary relationship between the
    parties, we affirm the district court’s grant of summary judgment to Bank One on this issue.
    E. Breach of Contract and the Implied Covenant of Good Faith
    Johnson’s next argument on appeal is that Bank One is liable for breach of contract or for
    breach of the implied covenant of good faith. Rather than providing new arguments, Johnson
    restyles his earlier ones into contract claims. Specifically, he argues that because Bank One had a
    duty to preserve the value of the collateral and parties cannot contract away U.C.C. duties, Bank One
    is liable for a breach of contract. Appellant’s Br. at 58. Having concluded that U.C.C. § 9-207 does
    not impose such a duty on a secured party, we affirm the grant of summary judgment on the breach
    of contract claim.
    Similarly, with regards to the breach of the implied covenant of good faith, Johnson argues
    that under the objective standard of good faith prescribed by the U.C.C., parties must act in
    “observance of reasonable commercial standards of fair dealing.” Ky. Rev. Stat. Ann. § 355.9-
    102(1)(aq). Restyling his earlier arguments about commercial reasonableness, he argues that it was
    unreasonable for Bank One not to have called the loan earlier and sold the collateral stock, and
    therefore it acted in bad faith. Having concluded that Bank One was not obligated to preserve the
    value of the collateral, that it acted in a commercially reasonable manner in disposing of the
    collateral, and that it did not owe a fiduciary duty to Johnson, we hold that Bank One did not breach
    the implied covenant of good faith, and therefore the grant of summary judgment on this issue is
    affirmed as well.
    F. Bank One’s Counterclaims
    Finally, Johnson appeals the grant of summary judgment to Bank One on its counterclaim
    for the deficiency on the loan. Johnson failed to raise any arguments other than the ones dismissed
    above about why Bank One should not prevail on its collection claims. As the district court noted,
    Johnson has not “disputed [that he] knowingly and willingly executed the loan agreements in
    question or that he defaulted on the loans.” J.A. at 270 (Dist. Ct. Order). Accordingly, we affirm
    the grant of summary judgment on this issue as well.
    III. CONCLUSION
    In summary, we conclude that none of issues Johnson raises on appeal are compelling, and
    therefore we AFFIRM the grant of summary judgment in favor of Bank One.