General Electric Capital Corp v. Harvey Gainey, Sr. ( 2014 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0268n.06
Case No. 12-2671
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Apr 10, 2014
General Electric Capital Corp., ) DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellee, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR
) THE WESTERN DISTRICT OF
Harvey Gainey, Sr., ) MICHIGAN
)
Defendant-Appellant. )
)
____________________________________/ )
Before: MERRITT, SUTTON, and GRIFFIN, Circuit Judges.
MERRITT, Circuit Judge. This is a diversity collection case filed by plaintiff General
Electric Capital Corporation to collect on a personal guaranty against defendant Harvey Gainey.
Gainey is President and Chief Executive Officer of Gainey Corporation. The debts of two of its
wholly-owned subsidiaries, Super Service, Inc. and Lester Coggins Trucking, Inc., are at issue in
this appeal. The companies entered into equipment lease agreements and equipment financing
agreements with General Electric Capital or its predecessors in interest. Gainey signed
guaranties securing financing for the companies on several occasions, some in his individual
capacity and others in his capacity as an officer of the companies. The only guaranty at issue in
this case is a personal guaranty executed on January 19, 2005, in favor of General Electric
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Gen. Elec. Cap. Corp. v. Gainey
Capital to secure financing to purchase tractors for Super Service. The question is what
indebtedness did the defendant guarantee and how much does he owe?
After denying summary judgment to General Electric Capital, the district court conducted
a two-day bench trial and entered a verdict in favor of plaintiff General Electric Capital. The
district court found that the language in the January 19, 2005, personal guaranty unambiguously
covered lease agreements executed before 2005. The focus of this appeal is on the breadth of the
personal guaranty executed by Gainey on January 19, 2005, and whether it covers the
indebtedness of his companies under lease agreements executed prior to 2005 between Super
Service and Lester Coggins Trucking and predecessors in interest of General Electric Capital.
Gainey also challenges the damage award made by the district court on several grounds. For the
following reasons, the judgment of the district court is affirmed.
I.
Gainey executed a guaranty with Great Dane Limited Partnership to secure the
indebtedness of Super Service for trailers leased from Great Dane pursuant to an Equipment
Lease Agreement dated August 1, 2000. Plaintiff’s Ex. 1. The guaranty was signed by Harvey
Gainey on behalf of Gainey Corporation. Great Dane sold its rights under the lease agreements
to General Electric Capital in 2003.
Gainey also executed a continuing personal guaranty with CitiCapital Commercial to
secure the indebtedness of his company, Lester Coggins Trucking, for equipment leased with
CitiCapital. Plaintiff’s Ex. 15. CitiCapital sold its rights and interests in the lease with Lester
Coggins Trucking to General Electric Capital in November 2004.
Super Service renewed its 2000 leases with Great Dane and its successor in interest,
General Electric Capital, including a Master Lease Agreement executed on January 19, 2005.
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Plaintiff’s Ex. 3. In consideration of the renewal, and to secure financing for the purchase of
new tractors, Gainey contemporaneously executed the personal guaranty at issue herein that
guaranteed Super Service’s obligations to General Electric Capital. Plaintiff’s Ex. 2.
In 2008, Super Service and Lester Coggins Trucking, as well as other Gainey companies,
filed for Chapter 11 bankruptcy. General Electric Capital sought to enforce the January 19,
2005, personal guaranty against Gainey when Super Service and Lester Coggins Trucking
entered into bankruptcy and discontinued paying on their equipment leases with General Electric
Capital.
II. Liability under the Personal Guaranty
Gainey raises three arguments on appeal: (1) the evidence was not sufficient to find that
the January 19, 2005, personal guaranty applies to the Super Service Equipment Lease from
2000; (2) in any event, there is no deficiency under the 2000 Super Service Lease that would be
covered by the personal guaranty; and (3) whatever remained under the Lester Coggins Trucking
Lease from 2004 should have been collected in the bankruptcy proceeding and not from Gainey.
A. The Terms of the January 19, 2005, Guaranty
The guaranty executed by Gainey in his personal capacity on January 19, 2005, reads as
follows:
To induce you [General Electric Capital Corporation] to enter into, purchase or
otherwise acquire, now or at any time hereafter, any promissory notes, security
agreements, chattel mortgages, pledge agreements, collateral, sale contracts, lease
agreements, and/or any other documents evidencing, or relating to any lease, loan,
extension of credit or other financial accommodation . . . to Super Service, Inc.
. . ., but without in any way binding you to do so, the undersigned, for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does herby guarantee to you, your successors and assigns, the due
regular and punctual payment of any sum or sums of money which the Customer
[Super Service] may owe to you now or at any time hereafter, whether evidenced
by an Account Document, an open account or otherwise, and whether it represents
principal, interest, rent, late charges, indemnities, an original balance, an
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accelerated balance, liquidated damages, a balance reduced by partial payment, a
deficiency after the date or other disposition of any leased equipment, collateral or
security, or any other type of sum of any kind whatsoever that the Customer may
owe to you now or in the future, and does hereby further guarantee to you, your
successors and assigns, the due, regular and punctual performance of any other
duty or obligation of any kind or character whatsoever that the Customer may
owe to you now or at any time hereafter . . . .
Plaintiff’s Ex. 2 (emphasis added). The guaranty was executed as part of a January 19, 2005,
transaction to renew the 2000 Equipment Lease Agreement and to buy additional new tractors.
Gainey contends that the January 19, 2005, guaranty applied solely to the January 19, 2005,
transaction to purchase new tractors and was not intended to cover any other transactions
between his companies and General Electric Capital.
“Contracts of guaranty are to be construed like other contracts, and the intent of the
parties, as collected from the whole instrument and the subject-matter to which it applies, is to
govern.” Comerica Bank v. Cohen, 805 N.W.2d 544, 548 (Mich. Ct. App. 2010) (quoting First
Nat’l Bank v. Redford Chevrolet Co., 258 N.W. 221, 223 (Mich. 1935) (quotation marks and
citation omitted)). Therefore, a guaranty must be enforced as written if unambiguous and
construction of the contract is a question of law for the courts. The district court, in its oral
ruling, found the “breadth of the guarantee is unambiguous . . . . [T]he language of the guarantee
is very broad indeed, using language like ‘any obligation,’ ‘at any time,’ ‘any leased equipment,’
‘any other type or sum of any kind,’ ‘owed to you now or hereafter.’” Gen. Elec. Cap. Corp. v.
Gainey, Opinion and Judgment at 5-6, No. 1:09-CV-47 (W.D. Mich. Mar. 27, 2012).
Accordingly, the district court found as a matter of law that “[t]his is a very broad guarantee” and
it “is not just limited to the lease that was executed that day [January 19, 2005], but also includes
the obligations of Super Service pursuant to the lease that was entered on August 1, 2000.” Id.
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at 6. We agree with the district court that the language is very broad and its meaning
unambiguous.
The district court went on to hold that the extrinsic evidence that Gainey seeks to rely on,
including oral conversations with General Electric Capital representatives, are merged into the
contract and cannot be relied upon to defeat the plain language of the contract. We agree with
the district court on this point as well. Therefore, because we hold that the unambiguous
language of the guaranty covers any and all outstanding debt between Super Service and Lester
Coggins Trucking and General Electric Capital incurred at any time, we do not need to consider
the parol evidence presented by Gainey. We note, however, that even were we to consider
evidence outside of the plain language of the contract, we would reach the same conclusion.
For example, Gainey testified at trial that he had personal conversations with
representatives of General Electric Capital where he was assured that the 2005 personal guaranty
covered only the 2005 lease agreement for the new tractors and not earlier lease obligations. He
provided no corroborating documentation such as phone records or emails memorializing the
alleged conversations. When a contract is reduced to writing, any previous parol agreements
relating to the subject matter are merged into the written contract. Brachman v. Wheelock, Inc.,
72 N.W.2d 246, 249 (Mich. 1955). Gainey also relies on a document summarizing the 2005
agreement. The “Transaction Summary,” prepared internally by General Electric Capital for
employees of the company who are required to sign off on such transactions, is a sort of
executive summary. That document contains equally broad language: “The [January 19, 2005]
transaction will be cross-collateralized and cross-defaulted to all existing GE outstandings and
will be further supported by the personal guarantee of Harvey Gainey.” Plaintiff’s Ex. 22.
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Gainey also argues that the guaranty was only meant to cover payments relating to the
lease agreement signed contemporaneously with the January 19, 2005, guaranty. This argument
is unavailing in countering the broad language of the 2005 personal guaranty. The plain
language of the 2005 guaranty covers “any and all” amounts due by Super Service to General
Electric Capital “at any time hereafter.” The payments at issue became due and owing in 2008,
even though the agreement under which they became due was executed in 2000. The terms of
the guaranty covered not only the new trucks financed by the January 19, 2005, lease, but
unambiguously covered any amounts due by Super Service to General Electric Capital, including
amounts due on trailers financed under the 2000 Equipment Lease.
B. Lack of Consideration for the Guaranty
Gainey contends that the personal guaranty is invalid for failure of consideration. He
seems to be arguing that because he did not receive any personal benefit in his individual
capacity, the personal guaranty cannot be valid. He argues that any consideration for the
January 19, 2005, deal was provided to the corporation, Super Service, not to him personally.
First, the plain language of the guaranty says it was given in return for valuable consideration.
Plaintiff’s Ex. 2. Gainey argues that because the guaranty is a separate document from the lease
agreements, there must be separate consideration to support the guaranty. This is not so. The
2005 personal guaranty was a condition of General Electric Capital renewing the earlier lease
agreement with Super Service for continued use of the trailers. Generally, renewal of an
agreement is sufficient consideration to support a guaranty executed after the date of the original
agreement. Restatement (Third) of Suretyship and Guaranty § 9, at 35 (1986). The same
consideration that supported the lease agreements supported the guaranties.
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Furthermore, adequate consideration is given to guarantors by execution of the principal
contract contemporaneously with the execution of the guaranty. W. T. Rawleigh Co. v. Trerice,
195 N.W. 79, 82 (Mich. 1923). The lease agreement with Super Service executed
contemporaneously with the personal guaranty on January 19, 2005, was for new Volvo tractors
at a cost, financed by General Electric Capital, of $2,050,381. By making the additional credit
available to Super Service to purchase the tractors, sufficient consideration was given for both
the new indebtedness and the prior indebtedness.
III. Damages
A. Adequate Proof of the Damage Amount
Gainey contends that General Electric Capital did not establish its damages at trial. We
will overturn a district court’s damages calculation only for clear error. Canderm Pharmacal,
Ltd. v. Elder Pharms., Inc., 862 F.2d 597, 606 (6th Cir. 1988). The district court awarded a total
of $429,175.65 to General Electric Capital. It arrived at this number through five exhibits
entered into evidence by General Electric Capital at trial through Kevin Partin: Exhibits 11, 12,
17, 18 and 21. Kevin Partin testified at trial on behalf of General Electric Capital concerning the
appraisals and the final amounts received at auction for the returned equipment. These exhibits
are the proof of claims filed by General Electric Capital in the Super Service bankruptcy
proceeding and the appraisals of Taylor & Martin, Inc., and AccuVal, two professional appraisal
companies used to value the returned trailers. Gainey did not object to introduction of any of
these exhibits at trial. The district court added together the deficiency on the 2000 Super Service
Equipment Lease of $392,602.98 and the cure amount under the 2004 lease with Lester Coggins
Trucking of $36,571.67 to arrive at the total damage amount.
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While the burden was on General Electric Capital to establish damages, Gainey provided
little reliable counterproof or challenge in the district court to the accuracy of the amounts put
forth by General Electric Capital. Gainey simply claims that there is no deficiency on the Super
Service Lease because the monthly payments were made until October 2008. Gainey provided
little more than conclusory statements to counter or rebut the extensive documentation submitted
by General Electric Capital.
B. October 6, 2006, Audit Letter Report from General Electric Capital to Super Service
Gainey challenges the amount of indebtedness based on an audit report General Electric
Capital sent to Super Service dated October 6, 2006. Defendant’s Ex. D. Gainey contends that
an entry on the audit report that said “Remaining Balance: $269,859.48” was the full amount due
and owing on the 2000 lease amount as of September 30, 2006. Based on this number, Gainey
claims that it is impossible that he would owe more than that amount in 2008 when payments
stopped on the August 1, 2000, lease agreement.
Under the lease agreement, Super Service made a monthly rental payment. Also pursuant
to the Equipment Lease, General Electric Capital was required to sell the trailers at the end of the
lease term and Super Service was responsible for any amount less than 30% of the original cost.
(This was to encourage the lessee, here Super Service, to maintain the equipment during the
lease term.) Therefore, pursuant to the terms of the 2000 Equipment Lease and renewals of that
lease, Super Service (and Gainey through the personal guaranty) owed monthly rent plus any
shortfall below 30% of the original total cost of the trailers upon return of the trailers. The audit
report shows only the monthly rent payments, not any resulting shortfall, which could not be
calculated until the trailers were returned. Therefore, Gainey is incorrect that the October 2006
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audit report is evidence of Super Service’s total indebtedness to General Electric Capital as of
that date.
C. Mitigation of Damages
General Electric Capital had the duty to mitigate damages with respect to any breaches
under the equipment leases. Gainey contends that General Electric Capital failed to get a
reasonable price for the trailers returned pursuant to the lease terms. General Electric Capital
relied on expert testimony and documentation of the trailers’ value provided by professional
appraisers. Gainey relied on the testimony of one of his employees and his own calculations and
mostly anecdotal evidence that the trailers at issue were worth more than General Electric
Capital had received for them.
Gainey advances two arguments to demonstrate that General Electric Capital did not
adequately mitigate its damages under the terms of the equipment leases. First, Gainey contends
that Super Service made inquiries in January 2009, after commencement of the bankruptcy,
about not rejecting the leases in the bankruptcy proceeding and buying back 94 trailers from
General Electric Capital but that General Electric Capital refused to consider this option. The
only evidence that Super Service tried to “unreject” the leases came from the testimony of Carl
Oosterhouse, an employee of Gainey Corporation. No documentation was offered at trial to
corroborate that such an offer was made to General Electric Capital. Gainey points us to a
memorandum dated March 23, 2009, from Gainey to Oosterhouse, but it was not offered into
evidence at trial and we may not consider it on appeal. In any event, General Electric Capital
denies it knew of this memorandum or the desire of Super Service to buy back the trailers except
the testimony of Oosterhouse, which the district court, as the fact finder, did not find credible.
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Second, General Electric Capital had the duty to conduct a commercially reasonable sale
of the trailers once Super Service returned them. Gainey contends that General Electric Capital
“received far less than it should have” because it did not let potential buyers know about the
auction of the trailers, and the appraisal of the trailers was faulty. The trailers were all 2001
Great Dane models and were eight years old by the time of the auction. The trailers all sold for
between $2,500 and $3,610 in early 2009. Gainey points to appraisals ranging between $6,000
and $11,000 in August 2008. Defendant’s Exhibits Q, T and X. However, these appraisals were
valuations based only on the make and age of the trailers without physically inspecting the actual
trailers. Hence, these valuations used by Gainey are not particularly useful as true “appraisals.”
In addition, the market in early 2009 for hauling had declined considerably since the summer of
2008 due to the economic downturn during the fall of 2008.
Steven Phelps testified for General Electric Capital that he personally inspected the
trailers and had Truck.com inspect the trailers. He testified that most of the trailers were in
“poor” condition, citing a myriad of issues with the trailers. Gainey’s only rebuttal to Phelps’
testimony about the poor condition of the trailers was his own testimony about the condition of
the trailers. On March 18, 2009, General Electric Capital conducted a liquidation auction of the
trailers through the regularly scheduled auction process. From the auction and a separate sale
after the auction to sell some of the unsold trailers, General Electric Capital received sale
proceeds of $306,210. It also incurred additional expenses of $35,274.78 to sell the trailers. The
deficiency after the liquidation was $392,603.98. Plaintiff’s Ex. 12. We find no clear error in
the district court’s adoption of this calculation.
D. Lester Coggins Trucking
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Gainey maintains that the district court erred in awarding General Electric Capital
$36,571.67 as the “cure amount” for the Lester Coggins Lease from 2004. Gainey argues that
General Electric Capital pursued recovery of all it was owed under the Lester Coggins Trucking
Lease in the bankruptcy court and recovered everything to which it is entitled. However,
General Electric Capital expressly reserved in the bankruptcy court the right to pursue Gainey for
payment under the personal guaranty for the difference between the “Disputed Cure Amount”
and the “Revised Cure Amount.” Stipulated Order Resolving Disputed Cure Amount (Apr. 23,
2010). Ex. 17 at 2. The district court did not err in adding in the $36,571.67 “cure amount” to
Gainey’s personal liability for the deficiency not recovered in the bankruptcy court.
In sum, Gainey has not demonstrated that the district court’s damage award was clear
error.
For the foregoing reasons, we affirm the judgment of the district court.
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