Village of Filley v. Setzer ( 2014 )

Decisions of the Nebraska Court of Appeals
VILLAGE OF FILLEY v. SETZER 575
Cite as 22 Neb. Ct. App. 575
vexatiously or for delay. We therefore deny Theresa’s request
for attorney fees on appeal.
VI. CONCLUSION
For the reasons stated above, we affirm the county court’s
order as to the Second Codicil. However, we affirm as modi-
fied the court’s order with respect to the appointment of a
special administrator to reflect that Alice’s request should have
been dismissed without prejudice.
Affirmed as modified.
Village of Filley, Nebraska, appellee and cross-appellee,
v. M ark Setzer and K athy Setzer, appellants, and
Thomas Setzer, appellee and cross-appellant.
___ N.W.2d ___
Filed December 9, 2014. No. A-13-356.
1. Summary Judgment. Summary judgment is proper if the pleadings and admis-
sible evidence offered at the hearing show that there is no genuine issue as to any
material facts or as to the ultimate inferences that may be drawn from those facts
and that the moving party is entitled to judgment as a matter of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in the light most favorable to the party against
whom the judgment was granted, and gives that party the benefit of all reasonable
inferences deducible from the evidence.
3. Judgments: Final Orders: Appeal and Error. A judgment rendered or final
order made by the district court may be reversed, vacated, or modified for errors
appearing on the record.
4. Contracts: Guaranty: Limitations of Actions: Liability: Debtors and
Creditors. A statute of limitations begins to run against a contract of guaranty
the moment a cause of action first accrues and a guarantor’s liability arises when
the principal debtor defaults.
5. Contracts: Acceleration Clauses: Limitations of Actions: Debtors and
Creditors. In the absence of a contractual provision allowing acceleration, where
an obligation is payable by installments, the statute of limitations runs against
each installment individually from the time it becomes due. Where a contract
contains an option to accelerate, the statute of limitations for an action on the
whole indebtedness due begins to run from the time the creditor takes positive
action indicating that the creditor has elected to exercise the option.
6. Contracts: Acceleration Clauses: Limitations of Actions. In the absence of a
contractual provision allowing acceleration, where an obligation is payable by
Decisions of the Nebraska Court of Appeals
576 22 NEBRASKA APPELLATE REPORTS
installments, the statute of limitations runs against each installment individually
from the time it becomes due.
7. Affidavits. Supporting and opposing affidavits shall be made on personal knowl-
edge, shall set forth such facts as would be admissible in evidence, and
shall show affirmatively that the affiant is competent to testify to the matters
stated therein.
Appeal from the District Court for Gage County: Daniel E.
Bryan, Jr., Judge. Affirmed.
John C. Hahn and Brent C. Stephenson, of Jeffrey, Hahn,
Hemmerling & Zimmerman, P.C., L.L.O., for appellants.
Eric J. Adams and Thomas O. Ashby, of Baird Holm, L.L.P.,
for appellee Village of Filley.
Daniel E. Klaus, of Rembolt Ludtke, L.L.P., for appellee
Thomas Setzer.
Moore, Chief Judge, and Irwin and Pirtle, Judges.
Pirtle, Judge.
INTRODUCTION
The Village of Filley loaned money to HeatSource 1, Inc.
(HeatSource), pursuant to a community development block
grant program. Mark Setzer, Kathy Setzer, and Thomas
Setzer (collectively appellants) were guarantors on the loan.
HeatSource defaulted on the loan, and Filley filed suit against
appellants. The district court for Gage County granted partial
summary judgment in favor of Filley, finding that Filley’s
cause of action was not barred by the statute of limitations,
and subsequently found appellants were liable to Filley in
the amount of $116,469.67. Mark and Kathy appealed, and
Thomas cross-appealed. Based on the reasons that follow,
we affirm.
BACKGROUND
In February 2002, the State of Nebraska Department of
Economic Development (Department) approved Filley and
HeatSource for a community development block grant in the
amount of $242,400. Of those funds, $236,440 was to be
loaned from Filley to HeatSource, and in exchange for the
Decisions of the Nebraska Court of Appeals
VILLAGE OF FILLEY v. SETZER 577
Cite as 22 Neb. Ct. App. 575
loan, HeatSource was to provide 12 full-time job positions for
2 years in Filley.
On April 25, 2002, HeatSource and appellants, individ­
ually, signed and delivered a promissory note to Filley in the
principal amount of $236,440, interest free, to be paid in 120
consecutive monthly payments in the amount of $1,970.33
each. The Department had no direct role in the making or the
administration of the promissory note; Filley was the admin-
istrator and holder of the note. HeatSource and appellants,
individually, also entered into a loan agreement with Filley
on April 25, 2002, which further outlined the parties’ rights
and obligations.
Although appellants signed and were obligated under the
terms of the promissory note, they also personally guarantied
payment and performance of HeatSource’s indebtedness to
Filley by signing a guaranty dated April 29, 2002.
On November 4, 2003, Thomas transferred his interest in
HeatSource to Mark and Kathy and/or HeatSource. In 2004,
Filley learned that Thomas had transferred his interest and was
no longer affiliated with the company. The promissory note
contained an acceleration clause pertaining to the transfer of
ownership in HeatSource which stated, “It is further under-
stood and agreed that, in the event of the sale or transfer of any
ownership interest in the Borrower, then this note shall become
immediately due and payable.” Filley did not take any action to
collect the full amount due on the note.
Subsequently, HeatSource defaulted on its obligations owed
to Filley pursuant to the promissory note by failing to make
scheduled payments on the promissory note. The last pay-
ment Filley received was on June 8, 2009. The promissory
note also had an acceleration clause in regard to a default in
payments, which provided that “if there is a default in the pay-
ment of the debt, and it is not cured within Fifteen (15) days,
or if default is made under the terms of the Loan Agreement
. . . the principal sum, with accrued interest, will become due
and collectible.”
On November 18, 2011, Filley filed a complaint against
appellants alleging that HeatSource was “in default of its
obligations owed to Village of Filley pursuant to the Note for,
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578 22 NEBRASKA APPELLATE REPORTS
among other things, failure to make scheduled payments on
said Note.” Filley declared the note, and all amounts owed
based on the note, due and payable in full. The complaint fur-
ther alleged that HeatSource owed Filley the principal amount
of $116,469.67, plus interest, and that pursuant to the terms of
the note and guaranty, appellants were liable to Filley for the
principal amount and interest.
Mark and Kathy filed an answer with a general denial as
to the claim and alleged a number of affirmative defenses,
including Filley’s failure to mitigate damages and exhaust
administrative remedies. Mark and Kathy were later granted
leave to file a first amended answer to affirmatively allege
that Filley’s cause of action was barred by the statute
of limitations.
Thomas filed a separate answer and subsequently a first
amended answer, denying Filley’s allegations and asserting a
number of affirmative defenses, including failure to mitigate
damages, failure to exhaust administrative remedies, and expi-
ration of the statute of limitations. Thomas also filed a cross-
claim against Mark and Kathy asking that if he is found liable
to Filley on the promissory note and/or guaranty, that judgment
be entered in his favor and against Mark and Kathy for the full
amount of his liability to Filley.
On March 8, 2012, Filley filed a motion for summary judg-
ment. At the summary judgment hearing, Filley submitted three
affidavits in support of its motion: an affidavit and supplemen-
tal affidavit of David A. Norton, the village clerk for Filley,
and an affidavit of Bob Doty, the housing program manager
for the Department. In opposition to the motion for summary
judgment, Thomas submitted his own affidavit, and Mark and
Kathy submitted their own affidavits.
Following the summary judgment hearing, the trial court
entered an order on July 5, 2012, granting partial summary
judgment in favor of Filley. The court determined that Filley’s
claim was not barred by the statute of limitations, because the
cause of action arose on November 18, 2011, when Filley filed
its complaint asserting that it was accelerating the amount due
on the note. The court also determined that Filley mitigated
its damages and had exhausted all administrative remedies
Decisions of the Nebraska Court of Appeals
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Cite as 22 Neb. Ct. App. 575
available to it. The court determined that a money judgment
would be entered in favor of Filley and against appellants
jointly and severally on their note and guaranty, but that the
amount appellants owed Filley was a genuine issue of material
fact left to be determined. Trial was scheduled for October 18,
2012, at which time the court would make a final determina-
tion on the merits of the case.
Subsequently, the parties submitted a joint stipulation of
facts in lieu of having a trial, which joint stipulation was
received into evidence. HeatSource’s payment history was
attached to the joint stipulation, showing the date and amount
of each payment HeatSource made on the promissory note. The
draw history was also attached to the joint stipulation, reflect-
ing the date and amount of each draw HeatSource made under
the loan agreement. The joint stipulation stated that HeatSource
made the final draw on March 26, 2004, and that under the
terms of the note and loan agreement, HeatSource agreed that
the first monthly installment was due and payable within 30
days of the draw.
Based on the joint stipulation, the court entered an order
finding that appellants were jointly and severally liable to
Filley in the amount of $116,469.67.
The trial court subsequently ruled on Thomas’ cross-claim,
finding that Mark and Kathy are jointly and severally liable to
Thomas for any and all amounts that Thomas pays on the judg-
ment entered in favor of Filley.
ASSIGNMENTS OF ERROR
Mark and Kathy assign, restated, that the trial court erred
in (1) granting partial summary judgment in favor of Filley,
concluding that Filley’s claim was not barred by the statute of
limitations, and (2) finding that Filley had mitigated its dam-
ages and exhausted its administrative remedies.
On cross-appeal, Thomas assigns that the trial court erred
in (1) finding that Filley’s claim was not barred by the statute
of limitations, (2) finding that Filley had mitigated its dam-
ages and exhausted its administrative remedies, (3) finding
that the only genuine issue of material fact remaining was the
amount owed under the promissory note, and (4) granting a
Decisions of the Nebraska Court of Appeals
580 22 NEBRASKA APPELLATE REPORTS
monetary judgment in favor of Filley. Thomas, however, does
not set forth any arguments in support of the errors assigned
in his brief. Rather, he relies solely on “the reasons stated in
Appellant’s brief” to support his stated errors. Accordingly, we
do not address Thomas’ assignments of error that were not also
assigned by Mark and Kathy. See Dowd Grain Co. v. County
of Sarpy, 19 Neb. Ct. App. 550, 810 N.W.2d 182 (2012) (in order
to be considered by appellate court, alleged errors must be both
specifically assigned and specifically argued in brief of party
asserting error).
STANDARD OF REVIEW
[1] Summary judgment is proper if the pleadings and admis-
sible evidence offered at the hearing show that there is no
genuine issue as to any material facts or as to the ultimate
inferences that may be drawn from those facts and that the
moving party is entitled to judgment as a matter of law. Harris
v. O’Connor, 287 Neb. 182, 842 N.W.2d 50 (2014).
[2] In reviewing a summary judgment, an appellate court
views the evidence in the light most favorable to the party
against whom the judgment was granted, and gives that party
the benefit of all reasonable inferences deducible from the evi-
dence. Id.
[3] A judgment rendered or final order made by the district
court may be reversed, vacated, or modified for errors appear-
ing on the record. Neb. Rev. Stat. § 25-1911 (Reissue 2008).
ANALYSIS
[4] Appellants first assign that the trial court erred in grant-
ing partial summary judgment in favor of Filley, finding that
Filley’s cause of action was not barred by the statute of
limitations. Pursuant to Neb. Rev. Stat. § 25-205 (Reissue
2008), the applicable statute of limitations is 5 years: “[A]n
action upon a specialty, or any agreement, contract, or prom-
ise in writing, or foreign judgment, can only be brought
within five years.” Appellants contend that Filley’s cause of
action accrued in November 2003, when Thomas transferred
his ownership interest in HeatSource to Mark and Kathy and/
or HeatSource. If appellants’ contention is correct, the 5-year
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Cite as 22 Neb. Ct. App. 575
statute of limitations for a cause of action against appellants
would have expired in November 2008 for the note and guar-
anty. See Production Credit Assn. of the Midlands v. Schmer,
233 Neb. 749, 448 N.W.2d 123 (1989) (statute of limitations
begins to run against contract of guaranty the moment cause of
action first accrues and guarantor’s liability arises when princi-
pal debtor defaults).
In regard to Thomas’ transfer of ownership, the promissory
note provides: “[I]n the event of the sale or transfer of any
ownership interest in the Borrower, then this note shall become
immediately due and payable.” Appellants contend that the
language in the note is self-operative. That is, at the moment
Thomas transferred his ownership, the note’s acceleration
clause was invoked and the remaining loan balance became
immediately due and payable. Appellants argue that because
HeatSource did not immediately satisfy the outstanding loan
balance, HeatSource has been in default under the terms of the
promissory note since 2003.
However, Nebraska case law is contrary to appellants’
argument. In National Bank of Commerce v. Ham, 256 Neb.
679, 592 N.W.2d 477 (1999), the Nebraska Supreme Court
held that an acceleration provision, although absolute in its
terms, is not self-operative. In Ham, a borrower entered into
a personal money reserve plan agreement with National Bank
of Commerce (NBC). The agreement required the borrower
to repay, in monthly installments, any money lent to him.
The agreement in Ham also contained an acceleration clause
which provided that if any payment was not made when due,
all sums due and owing to NBC “‘shall immediately become
due and payable, without demand or notice.’” 256 Neb. at
682, 592 N.W.2d at 480. Payments were missed in January,
March, and May 1990, and a representative of NBC sent a
letter to the borrower on August 15, 1990, informing him
that NBC was exercising its option to accelerate. On July 14,
1995, NBC sued the borrower to recover the amount due under
the agreement.
[5] On appeal, the Supreme Court in Ham held:
In the absence of a contractual provision allowing accel-
eration, where an obligation is payable by installments,
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the statute of limitations runs against each installment
individually from the time it becomes due. . . . Where a
contract contains an option to accelerate, the statute of
limitations for an action on the whole indebtedness due
begins to run from the time the creditor takes positive
action indicating that [the creditor] has elected to exercise
the option.
256 Neb. at 682, 592 N.W.2d at 479-80. The court concluded
that NBC’s claim against the borrower was not barred by the
5-year statute of limitations because the statute of limitations
began to run in August 1990, when NBC gave written notice of
its election to accelerate the unpaid balance due.
Appellants argue that National Bank of Commerce v. Ham,
supra, can be distinguished because it involved an action
by a creditor against a borrower, rather than an action on a
guaranty as in the present case. However, in City of Lincoln
v. Hershberger, 272 Neb. 839, 725 N.W.2d 787 (2007),
the Nebraska Supreme Court held that although that case
involved guarantors asserting a statute of limitations defense,
as opposed to the original debtor, the principles relied on in
National Bank of Commerce v. Ham, supra, apply equally
to the original debtor and the guarantor of the same debt.
City of Lincoln v. Hershberger, supra, involved an install-
ment contract with an optional acceleration clause. The court
noted that the statute of limitations for an action on the
whole indebtedness due begins to run from the time the
creditor takes positive action indicating that it has elected
to exercise the acceleration option. The court concluded that
the statute of limitations began to run on the city’s claim
against the debtor on the date the city sent a letter to the
guarantors indicating the city’s intent to exercise its right to
accelerate. The court further explained that because the day
the letter was sent was the date of the debtor’s default for
purposes of the city’s action against the debtor, it was also
the date upon which the statute of limitations began to run
on each guaranty.
The present case is similar to National Bank of Commerce
v. Ham, 256 Neb. 679, 592 N.W.2d 477 (1999), and City
of Lincoln v. Hershberger, supra, in that it involves an
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Cite as 22 Neb. Ct. App. 575
installment contract with an optional acceleration clause. It is
also similar to Hershberger in that it is the guarantors’ assert-
ing a statute of limitations defense. Although the acceleration
clause upon which appellants rely for their statute of limita-
tions defense is based on a transfer of ownership rather than
a default in payment as in Ham and Hershberger, the same
principles set forth in Ham and Hershberger apply. That is,
where a contract contains an option to accelerate, the statute
of limitations for an action on the whole indebtedness due
begins to run from the time the creditor takes positive action
indicating that the creditor has elected to exercise the option.
National Bank of Commerce v. Ham, supra.
Accordingly, the acceleration clause at issue was not self-
operative and Filley’s cause of action did not accrue in
November 2003, when Thomas transferred his ownership
interest in HeatSource to Mark and Kathy and/or HeatSource.
Filley’s cause of action would not accrue until it took some
action to indicate it intended to exercise the option to acceler-
ate the note. Filley has never given notice of its election to
accelerate due to Thomas’ transferring his ownership. The
only action Filley has taken to indicate it was accelerating
the note was its filing of the complaint against appellants
on November 18, 2011, and the complaint is not based on
the transfer of ownership. Rather, the complaint is based
on HeatSource’s being in default of its obligations owed to
Filley for failing to make scheduled payments on the note,
which stems from a different acceleration clause within the
promissory note as previously set forth. Regardless of which
acceleration clause the complaint was based on, the filing of
the complaint was the first action taken by Filley to indicate
it was accelerating the note. That being so, Filley’s cause of
action based on Thomas’ transfer of ownership did not accrue
in November 2003 and the statute of limitations did not expire
in November 2008.
Appellants further argue that even if the acceleration clause
for transfer of ownership was not self-operative, the statute of
limitations precluded Filley from recovering installment pay-
ments that were due and owing for more than 5 years prior
to the commencement of the case. Appellants argue that the
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584 22 NEBRASKA APPELLATE REPORTS
monthly payments were all separate payments that accrued
at different times and that therefore, the statute of limitations
would have expired on some of the payments before Filley
commenced its suit.
[6] Based on Ham and Hershberger, this argument has no
merit. Both cases involved installment contracts, and in both
cases, the court held that “‘[i]n the absence of a contractual
provision allowing acceleration, where an obligation is pay-
able by installments, the statute of limitations runs against
each installment individually from the time it becomes due.’”
City of Lincoln v. Hershberger, 272 Neb. 839, 844, 725
N.W.2d 787, 791 (2007) (emphasis supplied), quoting National
Bank of Commerce v. Ham, 256 Neb. 679, 592 N.W.2d 477
(1999). As discussed, the promissory note in this case is an
installment contract with an acceleration provision. Therefore,
the statute of limitations does not run against each install-
ment individually.
The trial court correctly determined that Filley’s cause of
action on the whole indebtedness due under the note began to
run on November 18, 2011, when Filley took positive action
to accelerate the debt. Therefore, the trial court did not err in
granting partial summary judgment in favor of Filley, find-
ing that Filley’s cause of action was not barred by the statute
of limitations.
Appellants next assign that the trial court erred in find-
ing that Filley had mitigated its damages and exhausted its
administrative remedies. These findings were made as part
of the partial summary judgment granted in Filley’s favor.
The trial court found that Filley presented sufficient evidence
to establish that it had mitigated its damages and exhausted
its administrative remedies. It further found that the burden
shifted to appellants and that they failed to present evidence
that Filley failed to exhaust its administrative remedies or
mitigate its damages.
In regard to administrative remedies, Filley presented
an affidavit of Doty, the housing program manager for the
Department, who is a custodian of the Department’s documents
Decisions of the Nebraska Court of Appeals
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Cite as 22 Neb. Ct. App. 575
and has personal knowledge of the interaction between the
Department, Filley, and appellants. Doty stated:
Prior to this lawsuit, [Filley] exhausted administrative
procedures or remedies, if any, it had available to it
through the Department. The Department has no objection
to the filing of the Complaint in this action by [Filley] or
to any effort by [Filley] under state law to see a judgment
against [appellants].
Filley also presented an affidavit of Norton, the village
clerk of Filley, who stated that there were not any adminis-
trative requirements of the Department that must be satisfied
or completed as a precondition to Filley’s filing a complaint
against appellants.
Appellants did not present any evidence to counter that pre-
sented in Doty’s or Norton’s affidavits and failed to present any
evidence that Filley had administrative remedies that it failed
to pursue. Accordingly, the trial court did not err in finding that
Filley had exhausted its administrative remedies.
In regard to Filley’s mitigation of damages, Doty’s affi-
davit states that before the lawsuit was filed by Filley “there
were no steps to [his] knowledge that [Filley] was required
to or recommended to take with the Department to somehow
mitigate the unpaid balance of the Note and the Guaranty
or reduce damages to [Filley] from the failure of [appel-
lants] to pay.” Norton’s affidavit states that “[Filley] took all
steps necessary to diminish or reduce its damages through
the Department.”
Appellants contend, however, that Filley could have retained
the note proceeds, thereby mitigating its damages, if it had
submitted additional documents to the Department. The affi-
davits of Mark and Kathy both state that the community
development block grant contract between the Department and
Filley provided Filley the opportunity to retain HeatSource’s
payments made on the note by submitting notice and a plan
for the reuse of the program income for economic develop-
ment activities and by obtaining approval of the plan from the
Department by certain deadlines. If the deadlines were not met,
Decisions of the Nebraska Court of Appeals
586 22 NEBRASKA APPELLATE REPORTS
then the payments that were received from HeatSource were to
be returned to the Department.
[7] Appellants contend that Filley failed to take the steps
necessary to retain the program income. Specifically, Mark and
Kathy’s affidavits state that
upon information and belief, [Filley] failed to obtain
the Department’s approval for a reuse program and was
forced to return the program proceeds to the Department.
Had [Filley] acted reasonably and prudently, it would
have obtained approval of a reuse program, kept the pro-
gram proceeds, and reduced its claim for damages.
Appellants’ claim that Filley could have taken steps to retain
appellants’ payments on the note and did not do so is based
“upon information and belief” of Mark and Kathy and not
upon personal knowledge. Appellants do not present actual
knowledge or other evidence to support their conclusion that
Filley did not obtain the Department’s approval for a reuse
program. See Neb. Rev. Stat. § 25-1334 (Reissue 2008) (sup-
porting and opposing affidavits shall be made on personal
knowledge, shall set forth such facts as would be admissible
in evidence, and shall show affirmatively that affiant is com-
petent to testify to matters stated therein). As such, appel-
lants failed to produce any competent evidence to contradict
Filley’s evidence that it mitigated its damages. The record
supports the trial court’s determination that Filley mitigated
its damages.
CONCLUSION
We conclude the district court did not err in granting par-
tial summary judgment in favor of Filley, finding that Filley’s
cause of action was not barred by the statute of limitations
and that Filley had mitigated its damages and exhausted
its administrative remedies. Accordingly, the district court’s
$116,469.67 judgment in favor of Filley and against appellants
is affirmed.
Affirmed.