KMC Real Estate Investors, LLC, George L. Alcorn, David Berry, David Britt, Abdul G. Buridi, Jeffrey Campbell, Keith Carter v. RL BB Financial, LLC ( 2012 )

Pursuant to Ind.Appellate Rule 65(D), this
Memorandum Decision shall not be
regarded as precedent or cited before any
FILED
Jun 04 2012, 8:31 am
court except for the purpose of establishing
the defense of res judicata, collateral
CLERK
estoppel, or the law of the case. of the supreme court,
court of appeals and
tax court
ATTORNEY FOR APPELLANTS: ATTORNEYS FOR APPELLEE:
MICHAEL W. MCCLAIN STEVEN M. BADGER
Ballinger McClain, PLLC JAMES P. MOLOY
Louisville, Kentucky NATHAN T. DANIELSON
Bose McKinney & Evans LLP
STEVEN P. LANGDON Indianapolis, Indiana
McNeely Stephenson Thopy & Harrold
New Albany, Indiana
IN THE
COURT OF APPEALS OF INDIANA
KMC REAL ESTATE INVESTORS, LLC, )
GEORGE L. ALCORN, DAVID BERRY, )
DAVID BRITT, ABDUL G. BURIDI, )
JEFFREY CAMPBELL, KEITH CARTER, )
ALEXANDER DIGENIS, THOMAS ECKERT, )
SATYA GARIMELLA, EUGENE GILES, )
SHAWN GLISSON, ELI HALLAL, )
JOHN HATEGAN, AMY HALLAL )
HENDERSON, SAMER HUSSEIN, ROBERT )
KARMAN, LESLIE STROUSE MATTINGLY, )
JOHN MCCONNELL, JULIO MELO, CHARLES )
OATES, BRIAN PARADOWSKI, )
RUKHSANA RAHMAN, SYED RAZA, )
LAWRENCE ROUBEN, JOHN RUMISEK, )
ANIL SHARMA, CHRISTODULOUS S. )
STAVENS, MIO STIKOVAC, and BRIAN )
THORNTON, )
)
Appellants-Respondents, )
)
vs. ) No. 10A05-1109-MF-501
)
RL BB FINANCIAL, LLC, )
)
Appellee-Petitioner. )
)
\
APPEAL FROM THE CLARK SUPERIOR COURT
The Honorable Roger L. Duvall, Special Judge
Cause No. 10D02-1102-MF-79
June 4, 2012
MEMORANDUM DECISION - NOT FOR PUBLICATION
VAIDIK, Judge
Case Summary
A group of twenty-two physicians (collectively “Physicians”) appeal the trial
court’s ruling granting summary judgment in favor of RL BB Financial, LLC (“Assignee
Lender”). The Physicians argue that the personal guaranties they signed for a loan used
to build a hospital are unenforceable on multiple grounds and that there is insufficient
evidence to prove Assignee Lender’s damages. We hold that the Physicians are bound by
the enforceable guaranties that they signed and that there is sufficient evidence proving
Assignee Lender’s damages. The trial court did not err in granting summary judgment.
Facts and Procedural History
Kentuckiana Investors, LLC (“KI”) is a group of practicing physicians, including
the twenty-two involved in this appeal. One of its purposes was to invest in the
construction of a new hospital in Clark County, Indiana, that would be operated by
Kentuckiana Medical Center, LLC (“Medical Center”).
In the first half of 2007, the Physicians invested in KI, paying approximately
$34,000 per unit of ownership. The KI Operating Agreement signed by each Physician
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indicated that each investor’s individual guaranty liability on mortgage debt incurred by
Medical Center would be capped at four times each investor’s capital contribution.
On June 21, 2007, Medical Center executed and delivered to Branch Banking &
Trust Company (“Original Lender”) a note in the principal amount of $21.5 million. The
note was secured by a mortgage in Medical Center’s real property and the proposed
hospital building, which was to be constructed with the loan proceeds on the property.
The mortgage was recorded the next day.
The Physicians signed personal guarantees of Medical Center’s indebtedness to
Original Lender, which explicitly state that they are to be governed by Kentucky
substantive law. The guaranties were negotiated by Medical Center representatives and
provided three tiers of liability, such that liability would be reduced over time as the
hospital met certain cash flow targets. The actual amount of liability varied greatly from
physician to physician, and oftentimes was much greater than the liability cap imposed
under the KI Operating Agreement. See Appellee’s App. p. 97, 103, 109, 115, 121, 127,
133, 139, 145, 151, 158, 164, 170, 176, 182, 188, 194, 200, 207, 213, 220, 226, 232, 238,
244, 250, 256, 262, 268. Notably, the Physicians were not represented by attorneys when
reviewing and signing the guaranties. Br. of Appellants Buridi, et al. p. 7. Also, many of
the physicians admitted that they did not read the guaranties before signing them. Id. at
621, 660, 674, 682, 686, 692. The guaranties were all dated June 21, 2007, and were
made “to induce [Original Lender] to make the Loan to Borrower.” Id. at 103. Three of
the guaranties, however, were not signed until approximately three weeks later – those
signed by Abdul G. Buridi, Amy Hallal Henderson, and Lawrence Rouben. Id. at 120,
181, 243.
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On April 6, 2009, one of the Physicians, Alexander Digenis, sold three of his five
membership units in KI to Chris Stavens, Eli Hallal, and Brian Thornton in accordance
with the KI Operating Agreement. Id. at 660-61. Digenis attempted to contact Original
Lender to inform them of the transaction, but he received no response. Id. at 661.
Similarly, on May 1, 2010, Rukhsana Rahman sold all of her membership units in KI to
Chris Stavens and Eli Hallal. Id. at 686. Shawn Glisson invested in five units of KI, but
this investment was a joint investment with his equal business partner, so he contends he
only owned two-and-one-half units of KI.
In 2010, RL BB Financial, LLC, (“Assignee Lender”) purchased the loan from
Original Lender. Medical Center then defaulted on its obligations under the note and
mortgage by failing to make loan payments and failing to pay real-estate taxes. Id. at
414. Medical Center also filed a voluntary bankruptcy petition in the United States
Bankruptcy Court for the Southern District of Indiana on April 1, 2011, another event of
default. Id. at 699. Medical Center admitted that it owes Assignee Lender the principal
sum of $20,606,597.77, plus interest and other charges.
Assignee Lender filed a Complaint against Medical Center on February 23, 2011,
seeking a judgment on the note in the amount of $20,606,598.00 and for foreclosure of a
related mortgage and the appointment of a receiver. Id. at 46-51. Assignee Lender
moved for summary judgment against the Physicians on May 17, 2011, seeking to
enforce their individual guaranties. The trial court granted the motion.
The Physicians now appeal.1
1
We note that the Physicians request oral argument in their Appellant’s Brief. However, this is
not the proper procedure for requesting oral argument because no motion was filed. Indiana Appellate
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Discussion and Decision
The Physicians contend that the trial court erred in granting summary judgment to
Assignee Lender. Three of the arguments apply to the group of physicians as a whole:
(1) the guaranties were entered into by agents who were acting outside the scope of their
authority, rendering the guaranties void; (2) there is insufficient evidence to prove
liability and damages; and (3) Assignee Lender failed to first exhaust its rights against
Medical Center and execute on its collateral before enforcing the personal guaranties.
The other three arguments apply only to individual Physicians: (1) the Buridi, Henderson,
and Rouben guaranties were signed almost three weeks after the contract was executed
and are therefore void for lack of consideration; (2) the Glisson guaranty is void in whole
or in part for a unilateral mistake of fact; and (3) Digenis’ and Rahman’s transfer of
ownership interest in their shares of KI reduces or eliminates their liability under their
personal guaranties. We will address each argument in turn.
When reviewing the entry or denial of summary judgment, our standard of review
is the same as that of the trial court: summary judgment is appropriate only where there
is no genuine issue of material fact and the moving party is entitled to a judgment as a
matter of law. Ind. Trial Rule 56(C); Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904
N.E.2d 1267, 1269 (Ind. 2009).2 All facts established by the designated evidence, and all
Rule 52(B) states “A party’s motion for oral argument shall be filed no later than seven days after: (1) any
reply brief would be due under rule 45(B) . . . .” In any event, we find that oral argument is not warranted
in this case.
2
The guaranties specifically state that they are to be governed by Kentucky law. However, while
the guaranties are governed by Kentucky law, “procedural and remedial matters are governed by the law
of the forum state.” Ashley v. State, 757 N.E.2d 1037, 1040 (Ind. Ct. App. 2001).
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reasonable inferences from them, are to be construed in favor of the nonmoving party.
Naugle v. Beech Grove City Sch., 864 N.E.2d 1058, 1062 (Ind. 2007).
I. Physician Arguments
A. Validity of the Personal Guaranties
The Physicians contend that the guaranties were entered into by Medical Center’s
management representatives acting as agents of the Physicians. They argue that the
agents had no authority to negotiate and deliver the guaranties, and exceeded the scope of
their authority, so therefore the guaranties should be nullified. We disagree.
Specifically, the Physicians contend that the terms of the guaranties were not
authorized because the amount of their personal liability exceeded the cap outlined in the
KI Operating Agreement. They argue that representatives from the Medical Center
negotiated the terms of the guaranties on behalf of the Physicians, and were aware of the
personal liability caps contained in the KI Operating Agreements. By negotiating a
guaranty that exceeded that cap, the Physicians contend that the Medical Center agents
were acting outside the scope of their authority. We find this argument to be without
merit.
While Medical Center representatives negotiated the terms of the guaranties and
delivered the guaranties to the Physicians, the guaranties were signed by the Physicians
themselves, not Medical Center representatives. “Absent an ambiguity in the contract,
the parties’ intentions must be discerned from the four corners of the instrument without
resort to extrinsic evidence.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d
381, 385 (Ky. Ct. App. 2002). The signatures contained within the four corners of the
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guaranties were those of the Physicians, so they were the ones who entered into the
contract, not agents from the Medical Center on behalf of the Physicians.
Each guaranty also clearly stated the amount of individual liability each Physician
was taking on. If the Physicians had read the guaranties, they would have been acutely
aware of the personal liability that they were accepting by signing the guaranties. “The
fact that one party may have intended different results, however, is insufficient to
construe a contract at variance with its plain and unambiguous terms.” Id. Just because
the Physicians did not intend to contract to a higher amount of personal financial liability
in the guaranties they signed with Original Lender does not change the fact that they did
do so, and it does not allow us to construe the contract in a way that is at odds with its
plain language. Failure to read the terms of the contract, as long as there was the
opportunity to read it, is not grounds for nullification. See Cline v. Allis-Chalmers Corp.,
690 S.W.2d 764, 766 (Ky. Ct. App. 1985).
Regardless, there are some instances where a guarantor is not liable because of the
actions of his agents who negotiated the agreement. The Physicians argue that this is one
of those cases because Medical Center’s agents negotiated the contract with the Original
Lender in a manner they did not have the authority to do. They liken this situation to that
in the Ohio case of Becker v. Bank One, Steubenville, N.A., 1991 WL 16543 (Ohio Ct.
App. Feb. 8, 1991). In Becker, only the signature page of a personal guaranty was sent to
Becker’s office and he was told it was “another partnership document [he] need[ed] to
sign.” Id. at *1. The signature page was later attached to a personal guaranty without
Becker’s knowledge or authority. Id. The trial court’s verdict in favor of Becker was
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upheld because “the guaranty transaction was entered into without [Becker]’s knowledge,
authority or permission.” Id. at *4.
However, the present case is clearly factually distinguishable from Becker because
these guaranties were entered into with the Physicians knowledge, authority, and
permission. The Physicians were not merely given a page to sign that was then attached
to a personal guaranty; they were each given their own guaranty in whole to read and
sign. See, e.g., Appellee’s App. p. 108 (each guaranty was notarized, authorizing that the
Physician who signed the guaranty “acknowledged that he (or she) executed and
delivered the foregoing instrument as his (or her) free and voluntary act and deed.”). The
terms were clearly spelled out, and any failure to read the terms of the guaranty by the
Physicians was through no fault of the Original Lender. When the Physicians signed the
guaranties, they did so with full knowledge and authority of their terms; they were not the
victims of fraud, differentiating this case from Becker.
Finally, the Physicians argue that they need to conduct discovery to determine if
there was the type of fraud that would place this case in the same category as Becker and
relieve the Physicians of personal liability. But the record shows that each Physician had
the entire guaranty in front of him when it was signed, id., the Physicians themselves
were the ones who signed the guaranties, and the Physicians do not contest these facts.
Br. of Appellants Buridi, et al. p. 7. Further discovery is unwarranted.
We therefore take the terms of the guaranties as they are written, and we find that
the trial court did not err in finding there is no issue of material fact that the Physicians
should be held personally liable for the full amounts indicated in their guaranties.
B. Sufficient Proof of Liability and Damages
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The Physicians also contend that there is insufficient evidence to prove the amount
of damages that Assignee Lender has incurred. They argue that a single affidavit is not
enough to verify that Medical Center is liable to Assignee Lender and that the amount of
principal due is $20,606,597.77. We disagree.
Assignee Lender made a prima facie case showing liability and also the amount
owed by Medical Center through the affidavit of Thomas Skoko. Appellee’s App. p.
411-15. Skoko is an asset manager for Rialto Capital Advisors, LLC, a company to
which Assignee Lender granted power of attorney to take all necessary actions with
respect to the loan and loan documents at issue in this case. Id. at 411-12. As an asset
manager for Rialto, Skoko is familiar with the loan, has the responsibility for collecting
the loan, and has access to the accounts and records dealing with the loan. Id. at 412.
Skoko therefore has personal knowledge as to the loan, and swore in his affidavit that as
of February 8, 2011, Medical Center defaulted for failure to make payments according to
the terms of the loan documents and failure to pay real estate taxes, and owed Assignee
Lender a principal sum of $20,606,597.77 plus interest, late charges, and other amounts
due pursuant to the loan documents. Id. at 414. After Assignee Lender made that prima
facie case through Skoko’s affidavit, the burden then shifted to the Physicians to show
that there was a genuine issue of material fact concerning this issue. See Dreaded, Inc.,
904 N.E.2d at 1270.
In their brief, the Physicians cite no evidence and make no argument that the
amount of principal due on the loan is incorrect. The Physicians merely question the
sufficiency of the Skoko affidavit to substantiate the liability and amount of damages.
However, affidavits are appropriate evidence to use at the summary-judgment stage as
9
long as they are based on personal knowledge and set forth facts that would be admissible
in evidence. T.R. 56(E). Additionally, affidavits have previously been held to
“establish[] a prima facie case to recover the debt” from guarantors. Am. Mgmt., Inc. v.
MIF Realty, L.P., 666 N.E.2d 424, 430 (Ind. Ct. App. 1996). Because affidavits are
appropriate evidence at the summary-judgment stage, the Skoko affidavit is sufficient
proof of damages in this case.
Additionally, although the Skoko affidavit is sufficient proof of liability and
damages, Assignee Lender also provided the sworn admission of the principal obligor,
Medical Center, from its bankruptcy proceedings as proof of damages. Appellee’s App.
p. 774. In the sworn admission, Medical Center admits to owing $20,606,597.77 on its
note and first mortgage. Id. Taking this admission together with the Skoko affidavit, the
Physicians have failed to show that there is a genuine issue of material fact surrounding
liability and the amount of damages; the trial court did not err in making this finding.
C. Impairment of Collateral
The Physicians finally contend that the trial court erred in granting summary
judgment in favor of Assignee Lender because Assignee Lender must first exhaust its
rights against Medical Center and execute on its collateral before enforcing the personal
guaranties. The Physicians also argue that they should be allowed to conduct discovery
to determine if Assignee Lender unreasonably impaired the value of the Medical Center’s
collateral, the collateral that they claim should have been executed on first. We disagree.
Kentucky classifies a guaranty as either one for payment – an absolute guaranty –
or one for collection – a conditional guaranty. See Liberty Nat’l Bank & Trust Co. v.
Russ, 668 S.W.2d 567, 568 (Ky. Ct. App. 1984). A guaranty is an absolute guaranty
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when it is subject to no conditions and contains an absolute promise to pay the
outstanding indebtedness guaranteed. See id. The type of guaranty is determined under
Kentucky law by looking at its language. McGowan v. Wells’ Trustee, 213 S.W. 573,
577 (Ky. 1919). The guaranty involved in this case is an absolute guaranty, as it
expressly states that “[t]his is a guaranty of payment, not of collection . . . .” Appellee’s
App. p. 417. The guaranty goes on to say that “Guarantor therefore agrees that Lender
shall not be obligated prior to seeking recourse against or receiving payment from
Guarantor, to do any of the following . . . , all of which are hereby unconditionally
waived by Guarantor: (1) take any steps whatsoever to collect from Borrower . . . .” Id.
When a guaranty is absolute, “the guaranty may proceed against the guarantor at
once on default of the principal. The guarantor’s liability is dependant upon the same
rule of law by which the liability of one who has broken his contract is determined.”
Yager v. Ky. Title Co., 66 S.W. 1027, 1028 (Ky. 1902). Therefore, Assignee Lender had
the right to immediately enforce the guaranties against the Physicians and did not need to
first exhaust its remedies against Medical Center or execute on its collateral. As a result,
the Physicians’ argument of impairment of collateral also must fail, because the collateral
in question was not at issue. The trial court did not err in granting summary judgment in
favor of Assignee Lender.
II. Individual Arguments
In addition to the arguments applying to all of the Physicians’ guaranties as a
whole, the Physicians also make arguments that concern only specific individual
Physicians.
A. Lack of Consideration
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The Physicians argue that there are issues of material fact that certain guaranties
should be invalid for lack of consideration, which is an absolute requirement for a
contract under Kentucky law. See, e.g., Huff Contracting v. Sark, 12 S.W.3d 704, 707
(Ky. Ct. App. 2000). Specifically, the Buridi, Henderson, and Rouben guaranties were
signed almost three weeks after the contract was executed. Therefore, the Physicians
argue, there was no benefit to them because the contract had already been signed, and
Original Lender gave up nothing because it was already contractually obligated to
provide the loan proceeds by the time these three guaranties were signed.
Assignee Lender, however, argues that Smith v. Bethlehem Sand & Gravel Co.,
LLC, 342 S.W.3d 288 (Ky. 2011), is instructive on this issue. In Bethlehem Sand, Smith,
the guarantor, executed a guaranty of a loan made to his company, Brooks Sand &
Gravel. However, Smith argued that the guaranty was invalid for lack of consideration
because it was executed one day after the promissory note was executed. The Kentucky
Court of Appeals found adequate consideration because the guaranty was part of the
inducement for making the loan, and the Note and guaranty were both signed for exactly
the same purpose. Id. at 294-95.
The Physicians contend that Bethlehem Sand is distinguishable because of the
difference in the amount of delay, the number of guarantors, and the sophistication of the
party signing the guaranty. Br. of Appellants Buridi, et al. p. 13. However, we agree
with Assignee Lender that the court was focusing on the financial interest of the
individual guarantor, Smith, in the borrower, Brooks Sand & Gravel, and the substance of
the transaction itself when it found that there was adequate consideration present in
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Bethlehem Sand. We therefore reject the Physicians’ attempt to distinguish Bethlehem
Sand from the present case, and we apply its holding and reasoning.
In this case, the Physicians had a clear financial interest in the borrower, KI, as
they all invested varying amounts of money in the corporation. Also, the substance of the
transaction itself shows that the guaranties were signed in order to induce the loan,
meaning that the guaranties and note were signed for the exact same purpose. Despite
any delay in signing these three specific guaranties, the guaranties as a whole and the
note were signed with the specific purpose of procuring the loan for the construction of
the hospital. We therefore find any argument contending that there was a lack of
consideration as a result of the delay in signing to be without merit under the reasoning in
Bethlehem Sand.
B. Mistake of Fact
The Physicians also argue that there are material issues of fact concerning whether
Glisson’s guaranty is void in whole or in part for a unilateral mistake of fact. They
contend that his personal liability under the guaranty is disproportionate to the two-and-a-
half shares of KI that he owns – half of the jointly owned five shares he owns with his
business partner – and that Original Lender must have made a mistake in drafting the
terms of his guaranty. We find this argument to be without merit.
Under Kentucky law, in order to rescind a contract for a unilateral mistake, “the
consequences of the mistake must be so grave that the enforcement of the contract would
be unconscionable, the mistake must relate to a material feature of the contract, the
mistaken party must have exercised ordinary diligence, and the rescission must be
13
possible without serious prejudice to either party.” Jones v. White Sulphur Springs Farm,
Inc., 605 S.W.2d 38, 43 (Ky. Ct. App. 1980). This is simply not the case here.
Glisson was given the opportunity to read the guaranty before he signed it, and if
he thought that the amount of liability was incorrect based on the number of shares of KI
that he owned, he should not have signed it. A party’s own negligence in failing to read
the terms of a contract prevents him from claiming that it does not say what he believes it
should. See Prewitt v. Estate Bldg. & Loan Ass’n, 156 S.W.2d 173, 174 (Ky. 1941).
Glisson did not exercise ordinary diligence in the signing of the guaranty, so he cannot
now claim that the guaranty contained a mistake, the enforcing of which would cause
consequences so grave as to be considered unconscionable. The trial court did not err in
finding this guaranty to be enforceable.
C. Transfer of Ownership of KI Shares
Finally, the Physicians argue that there are material issues of fact concerning
whether the transfer of Digenis’ and Rahman’s ownership interest in their shares of KI
reduces or eliminates their liability under their personal guaranties. They contend that
Digenis and Rahman informed Original Lender of these transfers, so they should have
been allowed to conduct discovery to determine if the bank was in fact on notice of the
transfers. We disagree.
When Digenis and Rahman notified Original Lender of their transfers, they did so
orally and not in writing. Under Kentucky law, “oral agreements or representations
cannot be proved or relied upon if they contradict a positive provision of the written
contract.” Fifth Third Bank v. Waxman, 726 F. Supp. 2d 742, 751 (E.D. Ky. 2010). The
guaranties signed by the Physicians, including Digenis and Rahman, specifically stated
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that “[n]o amendment, modification or waiver shall be deemed to be made by Lender
unless in writing signed by an officer of Lender.” Appellee’s App. p. 420 (emphasis
added). Therefore, the oral representations made by Digenis and Rahman cannot be
relied upon because they directly contradict a provision of the written guaranty.
Additionally, guaranties fall within Kentucky’s statute of frauds, Ky. Rev. Stat.
Ann. § 371.010 (West 1990), and “the Supreme Court of Kentucky [has] recognized that
subsequent agreements that materially alter the terms of agreements within the statute of
frauds must also meet the statute of frauds’ writing requirement.” Waxman, 726 F. Supp.
2d at 752. If Digenis and Rahman wanted to reduce or eliminate their personal liability
under their guaranties, they must have done so in writing. The trial court therefore did
not err in finding that there was no issue of material fact that Digenis’ and Rahman’s
liability should not be reduced or eliminated as a result of their transfer of KI shares.
Affirmed.
CRONE, J., and BRADFORD, J., concur.
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