Big Pines v. Baker , 2021 ND 70 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
APRIL 20, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 70Big Pines, LLC, Plaintiff, Appellee,
and Cross-Appellant
v.
Biron D. Baker, M.D., and
Biron D. Baker Family Medicine PC, Defendants, Appellants,
and Cross-Appellees
No. 20200237
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable William A. Herauf, Judge.
AFFIRMED AND REMANDED.
Opinion of the Court by Crothers, Justice.
Grant T. Bakke (argued) and Shawn A. Grinolds (on brief), Bismarck, ND, for
plaintiff, appellee, and cross-appellant.
Mark R. Western (argued), Fargo, ND, and James W. Martens (appeared),
Bismarck, ND, for defendants, appellants, and cross-appellees.
Big Pines v. Baker
No. 20200237
Crothers, Justice.
Biron D. Baker Family Medicine, PC and Biron D. Baker, M.D., appeal
from a district court judgment awarding Big Pines, LLC attorney’s fees and
costs. We affirm and remand for consideration of attorney’s fees on appeal.
I
In 2011, Baker Medicine signed an agreement to lease commercial
property from Phoenix M.D., L.L.C. Baker executed the lease personally and
for Baker Medicine as its president. The lease contained a personal guaranty,
which in pertinent part stated:
“[T]he Guarantor absolutely and unconditionally guarantees
prompt and satisfactory performance of the lease agreement, in
accordance with all of its terms and conditions . . . If the Tenant
should default in performance of its obligations under the lease
agreement according to it’s [sic] terms and conditions, the
Guarantor shall be liable to the Landlord for all expenses, costs,
and damages that the Landlord is entitled to recover from the
Tenant, including, to the extent not prohibited by law, all costs and
fees incurred in attempting to realize upon this guaranty.”
Baker Medicine allegedly vacated the premises several months prior to the end
of the lease and in a damaged condition. Phoenix subsequently sold the
building to Big Pines. Phoenix assigned its interest in the lease to Big Pines as
part of the sale.
Big Pines sued alleging breach of the lease by Baker Medicine and breach
of the personal guaranty by Baker. On May 13-15, 2019, a jury trial was held.
On May 15, 2019, the jury found Baker Medicine and Baker breached the lease
and awarded Big Pines $18,750 in damages. Big Pines later moved for an
award of attorney’s fees under the personal guaranty. On July 1, 2019, the
district court denied Big Pines’ request, concluding the personal guaranty was
not assigned to Big Pines.
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Big Pines appealed the district court’s interpretation of the lease and
personal guaranty, and its denial of attorney’s fees. Big Pines, LLC v. Baker,
2020 ND 64, 940 N.W.2d 616. This Court reversed and remanded the case for
an award of attorney’s fees in favor of Big Pines. Id. at ¶¶ 1, 20.
On April 14, 2020, Big Pines moved for attorney’s fees totaling
$108,567.50, as well as any future fees and costs until the case is “fully and
finally dismissed.” On July 27, 2020, the court held an evidentiary hearing on
Big Pines’ motion. On August 5, 2020, the court granted Big Pines’ motion and
ordered that Baker and Baker Medicine pay Big Pines $103,138. Judgment
was entered on August 19, 2020, after which Baker and Baker Medicine made
a timely appeal.
II
Baker and Baker Medicine argue the district court erred in calculating
the recoverable amount of attorney’s fees incurred by Big Pines. Baker and
Baker Medicine claim awarding any attorney’s fees to Big Pines was
inappropriate because the litigation to enforce the lease was not an attempt to
“realize upon the guaranty” as required by the agreement. To address this
issue, we first must understand the nature of Baker’s personal guaranty.
The liability of a guarantor will not extend beyond the plain and certain
import of the contract of guaranty. Gen. Elec. Credit Corp. of Tenn. v. Larson,
387 N.W.2d 734, 736 (N.D. 1986). The language of a contract is to govern if the
language is clear and explicit and does not involve an absurdity. N.D.C.C. § 9-
07-02. “The whole of the contract is to be taken together so as to give effect to
every part if reasonably practicable. Each clause is to help interpret the
others.” N.D.C.C. § 9-07-06. “Technical words are to be interpreted as usually
understood by persons in the profession or business to which they relate, unless
clearly used in a different sense.” N.D.C.C. § 9-07-10. To determine the
meaning of the phrase “to realize upon” the specifics of this guaranty, it is
necessary to evaluate the guaranty as a whole. See N.D.C.C. § 9-07-06.
2
A
“The law recognizes two distinct types of guaranty: a guaranty of
collection (or conditional guaranty) and a guaranty of payment (or
unconditional guaranty).” Chahadeh v. Jacinto Medical Grp., P.A., 519 S.W.3d
242, 246 (Tex. App. 2017) (citing Cox v. Lerman, 949 S.W.2d 527, 530 (Tex.
App. 1997)). This Court has recognized the distinction between a guaranty of
payment and a guaranty of collection, stating:
“The fundamental distinction between a guaranty of payment and
one of collection is that, in the first case, the guarantor undertakes
unconditionally that the debtor will pay, and the creditor may,
upon default, proceed directly against the guarantor without
taking any step to collect of the principal debtor, . . . while, in the
second case, the undertaking is that, if the demand cannot be
collected by legal proceedings, the guarantor will pay, and
consequently legal proceedings against the principal debtor and a
failure to collect of him by those means are conditions precedent to
the liability of the guarantor, . . .”
Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 644 (N.D. 1980); State
Bank of Burleigh Cty. v. Porter, 167 N.W.2d 527, 532-33 (N.D. 1969).
A guaranty of the payment of debt is different than a guaranty of
collection—the former being absolute and the latter being conditional. See
Brown v. Hederman Bros., LLC, 207 So.3d 698, 702-03 (Miss. Ct. App. 2016)
(explaining the contrasts between a guaranty of collection and one of payment,
the former allowing the creditor to “seek performance from the guarantor only
after the occurrence of some condition,” while the latter “is one that requires
no condition precedent to its enforcement against the guarantor other than
mere default by the principal debtor. . .”); CoastalStates Bank v. Hanover
Homes of South Carolina, LLC, 759 S.E.2d 152, 157 (S.C. Ct. App. 2014) (“A
guaranty of payment is an absolute or unconditional promise to pay a
particular debt if it is not paid by the debtor at maturity.”); R.B. Cronland
Bldg. Supplies, Inc. v. Sneed, 589 S.E.2d 891, 893 (N.C. Ct. App. 2004) (“A
guaranty of payment is an absolute promise by the guarantor to pay the debt
at maturity if it is not paid by the principal debtor.”); AMA Mgmt. Corp. v.
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Strasburger, 420 S.E.2d 868, 872 (S.C. Ct. App. 1992) (A guaranty of payment
“is a personal obligation running directly from the guarantor to the creditor
which is immediately enforceable against the guarantor upon default of the
debtor.”). A guaranty of payment binds the guarantor to pay the debt at
maturity. Kee v. Lofton, 737 P.2d 55, 59 (Kan. Ct. App. 1987). A guaranty to
secure “due and punctual performance and payment” is a guaranty of payment.
Tenet Healthsystem TGH, Inc. v. Silver, 52 P.3d 786, 789-90 (Ariz. Ct. App.
2002). On the debtor’s default, the underlying obligation becomes fixed and the
creditor need not make a demand on the principal debtor before pursuing the
guarantor. See Sneed, 589 S.E.2d at 893 (In a guaranty of payment, “[t]he
obligation of the guarantor is separate and independent from the obligation of
the principal debtor, and the creditor’s cause of action against the guarantor
ripens immediately upon failure of the principal debtor to pay the debt at
maturity.”); Marine Midland Bank, N.A. v. Elshazly, 753 F.Supp. 20, 23 (D.
Conn. 1991) (“Under a guaranty of payment contract, the [creditor] need not
prove that it proceeded against [debtor], nor unsuccessfully sought payment
from [debtor] prior to this suit against [guarantor].”).
In contrast to a guaranty of payment, a guaranty of collection is a
promise that the guarantor will pay the creditor if the creditor cannot collect the
claim from the principal debtor, generally following suit against that debtor.
See Forsyth Cty. Hosp. Auth. Inc. v. Sales, 346 S.E.2d 212, 214 (N.C. Ct. App.
1986) (“A guaranty of collection is distinguished from a guaranty of payment
in that the former is a promise by the guarantor to pay the debt only on the
condition that the creditor first diligently prosecute the principal debtor
without success.”). Such a guaranty conditions liability on the creditor
exhausting remedies against the debtor. See Park Bank v. Westburg, 832
N.W.2d 539, 551 (Wis. 2013) (“Unlike a guaranty of collection, a guaranty of
payment does not condition liability upon the creditor exhausting remedies
against the debtor.”).
This Court has concluded a guaranty was absolute based on the following
language: “This Guaranty is an absolute and completed one and shall be a
continuing one.” Wallwork Lease and Rental Co., Inc. v. Decker, 336 N.W.2d
356, 358 (N.D. 1983). In Wallwork, we held “[t]he underscored language of the
4
guaranty agreement affirms that this is an absolute guaranty, and,
accordingly, liability becomes fixed upon default of the debtor.” Id. To create a
conditional guaranty, the drafter must include language creating a condition
precedent to the guarantee’s ability to proceed against the guarantor. See
Citizens’ State Bank of Rugby v. Lockwood, 156 N.W. 47, 52 (N.D. 1915) (“We
look in vain for any expression in the contract itself . . . to show that the parties
to this agreement intended . . . to constitute a guaranty of collection, or any
form of indemnity against loss importing the performance by plaintiffs of any
condition precedent to the liability of the defendants.”); Hawaii Leasing v.
Klein, 698 P.2d 309, 313 (Haw. Ct. App. 1998) (“Here, the contract of guaranty
was conditional since Defendants’ liability was contingent upon Plaintiff’s
selling the [leased equipment] should [the principal] default under the
equipment lease . . .”); Western Industries, Inc. v. Chicago Mining Corp., 926
P.2d 737, 740 (Mont. 1996) (“The express terms of the guaranties require [the
guarantee] to first proceed against [the principal], and it is undisputed that
this language establishes a condition precedent to the Guarantors’ liability.”).
Here, the guaranty contained no limiting language, nor did it impose a
condition precedent to Big Pines’ ability to proceed directly against Baker as
guarantor. Instead, the guaranty provided that should Baker Medicine default
in its performance of lease obligations, Baker would be individually liable to
Big Pines for all expenses, costs, and damages Big Pines would be entitled to
collect from Baker Medicine. Consistent with the guaranty’s language, Big
Pines sued both parties and obtained judgment “against Defendants Biron D.
Baker, M.D. and Biron D. Baker Family Medicine PC in the amount of $18,750
together with such post-Judgment interest as shall accrue under this
Judgment pursuant to North Dakota law.”
We conclude the guaranty was absolute, and a guaranty of payment
rather than one of collection. However, our conclusion begins rather than
concludes our analysis because the guaranty must be read as a whole, and we
must consider the effect of the remaining language on the guarantor’s
obligation.
5
B
In addition to a guaranty of payment, the contract here permits recovery
of “all costs and fees incurred in attempting to realize upon this guaranty.”
Baker and Baker Medicine argue “to realize upon” means to convert noncash
assets into cash. Baker and Baker Medicine claim Big Pines did not incur any
recoverable fees because Big Pines could not attempt to realize on the guaranty
until Baker Medicine’s liability was determined and judgment was entered.
Baker further argues Big Pines is not entitled to any attorney’s fees because
Baker paid the judgment before Big Pines made any post-judgment collection
efforts.
This Court has not defined “to realize upon,” nor have we addressed the
phrase under similar circumstances. Black’s Law Dictionary defines
realization as “[c]onversion of noncash assets into cash assets.” Black’s Law
Dictionary (11th ed. 2019). Other courts have defined “realize” as reducing
something to actual cash in hand. See McFarland v. Northwest Realty Co., 362
N.W.2d 98, 100 (S.D. 1985); Chelan Orchards v. Olive, 235 P. 805, 806 (Wash.
1925); Weldon v. Newsom, 186 P. 516, 517 (Colo. 1920). Further, while we have
no specific definition, this Court has used the phrase in the context of a party
converting assets into cash. See Murphy v. Hanna, 164 N.W. 32, 33 (N.D. 1917)
(“[A] failure to so realize upon and convert such assets as were available into
cash . . .”). The phrase “to realize upon” is used in the guaranty in a manner
consistent with the definitions set out above.
In this case, the guaranty was one of payment and Baker was
immediately liable upon Baker Medicine’s default. Big Pines was not required
to proceed against Baker Medicine prior to proceeding against Baker
individually. In fact, Big Pines proceeded directly against both Baker Medicine
and Baker rather than only against Baker Medicine. Therefore, the costs
incurred during litigation to enforce the lease and the personal guaranty were
costs incurred in attempting to realize upon the guaranty. The district court
did not err in awarding attorney’s fees for the litigation against Baker to
convert a legal claim into a judgment, and ultimately efforts to convert that non-
cash judgment into cash.
6
III
Baker and Baker Medicine argue that, if attorney’s fees are recoverable
under the guaranty, the district court abused its discretion by failing to engage
in a “lodestar” analysis to determine the reasonableness of the attorney’s fees
requested by Big Pines.
When determining the reasonableness of an award of attorney’s fees,
“the ‘lodestar’ amount—the number of reasonably expended hours times a
reasonable hourly rate—is presumed to be the reasonable fee.” Thompson v.
Schmitz, 2011 ND 70, ¶ 18, 795 N.W.2d 913. “The calculation of the lodestar
figure does not end the analysis, and the presumptively reasonable amount
may be varied depending upon other considerations.” Palmer v. Gentek Bldg.
Prod., Inc., 2019 ND 306, ¶ 24, 936 N.W.2d 552. Other important factors to
consider when determining reasonable attorney’s fees may be found in
N.D.R.Prof. Cond. 1.5(a); Tillich v. Bruce, 2017 ND 21, ¶ 11, 889 N.W.2d 899.
Rule 1.5(a), N.D.R.Prof. Cond., provides the following guidelines:
“(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal
service properly;
(2) the likelihood, if apparent to the client, that the acceptance of
the particular employment will preclude other employment by the
lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
(6) the nature and length of the professional relationship with the
client;
(7) the experience, reputation, and ability of the lawyer or lawyers
performing the services; and
7
(8) whether the fee is fixed or contingent.”
Although this Court has adopted guidelines to determine a reasonable
award of attorney’s fees, we also have recognized the decision rests in the
sound discretion of the district court. See First Trust Co. of N.D. v. Conway,
345 N.W.2d 838, 844 (N.D. 1984). Further, a district court is not required to
describe its calculations in detail when awarding attorney’s fees so long as this
Court can discern a basis for the award. See Greenwood, Greenwood &
Greenwood, P.C. v. Klem, 450 N.W.2d 745, 748 (N.D. 1990). “An itemized bill
may be used to establish attorney’s fees.” Riemers v. State, 2008 ND 101, ¶ 15,
750 N.W.2d 407.
Here, the district court evaluated an itemized and detailed bill provided
by Big Pines as well as Shawn Grinolds’ affidavit and testimony. Grinolds
testified to all of the following at the July 27, 2020 evidentiary hearing: (1) the
work he completed for Big Pines was necessary and not duplicative; (2) the
hourly rates he charged Big Pines were reasonable and less than he charged
other clients; (3) Big Pines had only one attorney present throughout litigation
while Baker and Baker Medicine had two; (4) the amount of attorney work was
more than usual and heightened due to motions and conduct on the part of
Baker and Baker Medicine; and (5) the majority of trial time was spent proving
damages on the cost of repairs claim. The district court noted the disproportion
between the amount awarded and the fees requested. The court noted the time
spent on proving the claim for damages was approximately 95% of the total
fees requested. The court noted the fees were reasonable and customary for the
work provided, and that Baker did not provide evidence to the contrary but
relied only on argument. The court also found many of the plaintiff’s increased
hours on the case were due to conduct by the defense.
The district court was not required to make findings on every factor to
determine reasonableness so long as this Court is able to discern the basis for
the award. We have been provided with a discernible basis for the district
court’s award of attorney’s fees, and we conclude the award is not arbitrary or
unreasonable. The court did not abuse its discretion.
8
IV
Big Pines argues in its cross-appeal that it is entitled to attorney’s fees
on appeal. “Although this Court and the trial court have concurrent
jurisdiction to award attorney’s fees on appeal, we have expressed our
preference that the initial determination be made by the trial court.” Routledge
v. Routledge, 377 N.W.2d 542, 549 (N.D. 1985). Accordingly, we remand for the
district court to determine what attorney’s fees Big Pines is entitled to on
appeal.
V
We have considered the parties’ remaining arguments and conclude they
are either unnecessary to our decision or without merit. The district court
judgment is affirmed, and we remand with instructions to determine what
attorney’s fees Big Pines is entitled to on appeal.
Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
9