U.S. Bank National Association v. Leon Wildstein

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[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-12780
Non-Argument Calendar
____________________
U.S. BANK NATIONAL ASSOCIATION, as trustee for The
Registered Holders of ML-CFC Commercial Mortgage Trust 2007-
5, Commercial Mortgage Pass-Through Certificates, Series 2007-5,
Plaintiff-Appellee,
versus
LEON WILDSTEIN,
Defendant-Appellant.
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2 Opinion of the Court 21-12780
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:19-cv-01151-LMM
____________________
Before WILSON, BRANCH, and ANDERSON, Circuit Judges.
PER CURIAM:
U.S. Bank National Association sued Leon Wildstein for
breach of contract. In its first motion for summary judgment, on
the issue of breach, U.S. Bank argued that Wildstein breached the
parties’ Guaranty Agreement (1) when he diverted to himself
commercial real estate rental payments that should have been paid
into a collateral bank account, and (2) when he refused to surrender
those rents upon demand. In a second motion for summary
judgment on damages, the bank argued that there was no genuine
dispute that it was owed the total value of rents diverted by
Wildstein. The district court agreed and granted both motions for
summary judgment. On appeal, Wildstein argues that there is a
dispute of material fact about whether he willfully breached the
Guaranty, whether he is protected by the limitation of liability
provision in the Guaranty, and the amount of damages he owes.
After careful review, we affirm the district court’s grant of
summary judgment.
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I. Background
A. The Operative Agreements
Cangor Investments, LLC (“Cangor”) and U.S. Bank are
the borrower and lender, respectively, under a commercial real
estate mortgage and note. Leon Wildstein is the sole manager of
Cangor and owns 90% of its membership interests. The legal
relationship between Cangor and U.S. Bank began on November
12, 2009, when Cangor assumed from a previous borrower a
$7,575,000 note held by U.S. Bank on a commercial property
located in Kennesaw, Georgia. The maturity date of the loan was
December 8, 2016. That transaction was memorialized in an
Assumption Agreement.
The same day, and as part of the assumption, Cangor and
U.S. Bank executed a Cash Collateral Account Agreement
(“Collateral Agreement”). The Collateral Agreement required
Cangor to set up a specific bank account for the collection of rents
paid by tenants of the commercial property (“the collection
account”). The agreement required Cangor to send a tenant
direction letter instructing the then-tenant of the commercial
property, Aaron’s Rents, Inc., to send rent payments directly to the
collection account. Alternatively, if the tenants erred and sent any
rents directly to Cangor, Cangor was required to hold the rent in
trust for the benefit of U.S. Bank and deposit said rents into the
collection account within one business day. Without the prior
written consent of U.S. Bank, Cangor could not “terminate,
amend, revoke or modify any Tenant Direction Letter” or
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otherwise “direct or cause any tenant . . . to pay any amount in any
manner other than as provided in the related Tenant Direction
Letter.”
The cash in the collection account was then to be distributed
in a specific order, otherwise known as a “waterfall”: first to the
tax and insurance account, then to the U.S. Bank “until an amount
equal to the amount of principal of and interest on the Principal
Balance due and payable by [Cangor] on such Payment Date has
been allocated thereto,” next to the capital expenditure reserve
account, and finally, if a cash management period existed—
meaning an occurrence of a triggering event 1 as defined in the
contract—and there was no event of default, to Cangor for
operating and extraordinary expenses, at U.S. Bank’s discretion,
and the remainder to a U.S. Bank cash sweep reserve account.
If a “triggering event” occurred, including “an Event of
Default,” a cash management period would commence, and U.S.
Bank could notify Cangor that all funds on deposit in the collection
1 The contract defines a trigger event as “any of the following: (i) an Event of
Default; (ii) the date that is eighteen (18) months prior to the Maturity Date
unless borrower has deposited with Lender a Letter of Credit in accordance
with Section 13.2 of the Loan Agreement; (iii) the bankruptcy or insolvency of
the tenant under the Aaron Rents’ Lease or its parent company (iv) the tenant
under the Aaron Rents’ Lease goes dark or otherwise ceases rent payments
under the Aaron Rents’ Lease; or (v) the net worth or liquidity of Aaron Rents,
Inc. falls below a reasonably acceptable amount to Lender.”
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account were to be remitted to U.S. Bank, who would then
establish a different cash collateral account held by U.S. Bank. The
agreement specified that, in the event of default, the “waterfall”
distribution would not apply, and “any amounts deposited into or
remaining in any Account shall be for the account of Lender and
may be withdrawn by Lender to be applied in any manner as
Lender may elect in Lender’s discretion.”
Wildstein also signed a Guaranty Agreement. In the
agreement, Wildstein, the guarantor, “irrevocably and
unconditionally guarantee[d] to Lender the payment and
performance of the Guaranteed Obligations as and when the same
shall be due and payable.” The “Guaranteed Obligations” for
which Wildstein was liable were defined as “recourse liabilities,”
meaning “[l]osses incurred by Lender arising out of or caused
by . . . (a) fraud, intentional misrepresentation, or willful
misconduct by Borrower or Guarantor in connection with the
Loan” and “(d) the misapplication, misappropriation, or
conversion by Borrower, Guarantor, or any Affiliate of . . . any
Rents or security deposits.”
Wildstein “consent[ed] and agree[d] . . . that [his]
obligations hereunder shall not be released, diminished, impaired,
reduced, or adversely affected in any way.” He “waive[d] any
common law, equitable, statutory or other rights . . . which
Guarantor might have in connection with” any “[m]odifications,
[r]eleases,” “[c]ondition of Borrower or Guarantor” such as
insolvency, and “[i]nvalidity” and [u]nenforceability,” including
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any “valid defenses, claims or offsets (whether at law, equity, or by
agreement) which render the Guaranteed Obligations wholly or
partially uncollectible from Borrower.” 2 The agreement did
include a limited liability provision providing that Wildstein was
not liable for any costs or losses incurred by U.S. Bank due to U.S.
Bank’s gross negligence or willful misconduct.
Prior to the loan maturity date, Cangor contacted U.S. Bank
about renewing the loan. According to Wildstein, despite the
bank’s reassurances that “everything was okay” with Cangor’s
request, U.S. Bank waited until weeks before the maturity date to
notify Cangor that the loan would not be renewed. Cangor did not
pay the loan in full on the maturity date. Cangor requested an
extension to obtain alternative financing and a forbearance period,
but U.S. Bank rejected those requests and initiated foreclosure
proceedings. In July 2017, Cangor filed a verified complaint in state
court seeking to enjoin foreclosure and recover damages for U.S.
Bank’s alleged fraud, breach of fiduciary duty, breach of contract,
and breach of implied duty of good faith and fair dealing. This state
court litigation is ongoing.
Meanwhile, when the loan was not repaid on the maturity
date, U.S. Bank terminated Cangor’s right to withdraw funds from
the collection account. However, deposits could still be made, and
Aaron’s Rents continued to deposit its rent into the collection
2
The parties also agreed that the contract would be interpreted and enforced
under Georgia law.
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account. In June 2017, Wildstein sent Aaron’s Rents an e-mail
directing it to remit the monthly rent payments directly to him
instead of the collection account. U.S. Bank seized the money in
the collection account—$549,730.41—and applied it to the
outstanding loan. Thereafter, U.S. Bank applied a letter of credit
posted by Cangor for $415,000 to the outstanding loan amount.
The unpaid principal balance of the loan remains $7,575,000.
Wildstein stated that he believed the collection account was
frozen after U.S. Bank terminated Cangor’s right to withdraw
funds, and therefore directed tenant Aaron’s, Inc. to send the rent
to him. Because U.S. Bank seized the collection account and
received Cangor’s letter of credit, Wildstein “was operating under
the assumption that [U.S. Bank was] applying the $549,730.41 from
the frozen account and the $415,000 letter of credit to the
mortgage,” and Cangor did not make any direct mortgage
payments to U.S. Bank. According to Wildstein, U.S. Bank did not
complain about the lack of mortgage payments for almost a year
and a half. Then in February 2019, Wildstein received a demand
letter requesting Wildstein remit the unaccounted-for monthly
rent payments for the previous 20 months to U.S. Bank. In
response, Wildstein offered to pay the difference between the
mortgage payments that were allegedly due and the amounts U.S.
Bank obtained previously from the collection account and the
letter of credit. U.S. Bank has not accepted Wildstein’s offer to
repay.
B. Procedural History
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U.S. Bank subsequently sued Wildstein for breach of
contract in federal court, arguing that Wildstein breached the
Guaranty Agreement. The bank filed a motion for summary
judgment, which Wildstein opposed. The district court granted
the motion in part, determining that there was no question of fact
that Wildstein had breached the Guaranty because he engaged in
willful misconduct by violating a condition of the Collateral
Agreement by instructing Aaron’s Rents to remit the rental
payments to him, but a question of fact remained as to the amount
of damages owed to U.S. Bank. The district court found that
Wildstein’s breach was willful because he “intentionally did what
the Collateral Account Agreement forbade,” and because the facts
Wildstein offered to dispute his “willful” breach—that he believed
the account was frozen, that he did not challenge U.S. Bank’s
control of the funds in the collection account, and that he offered
to repay what was owed—did not create a genuine dispute that he
willfully breached the agreement.
In January 2021, U.S. Bank filed a supplemental motion for
summary judgment on damages which was granted in July. The
district court held that, after additional discovery, U.S. Bank was
able to demonstrate that there was no dispute of material fact that
Wildstein owed U.S. Bank the total amount of the diverted rents
($2,138,845) plus prejudgment interest and attorney’s fees as
specified in the contract. This appeal on both motions for
summary judgment followed.
II. Discussion
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“We review a district court’s grant of summary judgment de
novo, view[ing] the evidence in the light most favorable to the non-
moving party.” Gogel v. Kia Motors Mfg. of Ga., Inc., 967 F.3d
1121, 1134 (11th Cir. 2020) (en banc) (quotations omitted).
Summary judgment is proper if the materials in the record indicate
“that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). “Only disputes over facts that might affect the outcome of
the suit under the governing law will properly preclude the entry
of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986).
A. Liability
Wildstein argues that there is a question of material fact as
to whether he engaged in willful misconduct or engaged in
conversion such that he breached the terms of the Guaranty
Agreement. He also argues that there is a question of fact as to
whether the alleged losses are the result of U.S. Bank’s own gross
negligence or willful misconduct, such that he would not be liable
under the limited liability provision of the Guaranty Agreement.
Under Georgia law, “contracts of guarantee should be construed
strongly against the guarantor, and if the construction is doubtful,
that which goes most strongly against the party undertaking the
obligation is generally to be preferred.” Ameris Bank v. All. Inv. &
Mgmt. C., LLC, 739 S.E.2d 481, 486 (2013) (quotation omitted).
“Once a plaintiff establishes a prima facie case by producing a
guarantee and showing that it was executed, the plaintiff is entitled
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to judgment as a matter of law unless the defendant can establish a
defense.” Id. at 485 (quotation omitted). “Georgia law is clear that
creditors are entitled to summary judgment in a suit on an
unconditional guaranty when the guarantor has waived all of his
defenses.” Core LaVista, LLC v. Cumming, 709 S.E.2d 336, 340–
41 (2011).
The Guaranty Agreement was created to guaranty Cangor’s
obligations and proper performance under the assumption of the
note by making Wildstein liable for “[l]osses incurred by Lender
arising out of or caused by . . . fraud, intentional misrepresentation,
or willful misconduct by Borrower or Guarantor in connection
with the Loan” and “the misapplication, misappropriation, or
conversion by Borrower, Guarantor, or any Affiliate of . . . any
Rents or security deposits.” The Agreement also limited
Wildstein’s liability for any injuries to U.S. Bank incurred because
of its own gross negligence or willful misconduct. After careful
review, we find that there is no dispute of material fact that
Wildstein willfully engaged in misconduct and that the limitation
of liability provision does not protect Wildstein here.
It is undisputed that Wildstein sent an e-mail to Aaron’s
Rents, the tenant at the property, directing Aaron’s to send rent to
Wildstein instead of to the collection account. It is also undisputed
that the Collateral Agreement required that the tenant send
payments directly to the collection account and provided that
Cangor could not “terminate, amend, revoke or modify any
Tenant Direction Letter” or otherwise “direct or cause any tenant
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. . . to pay any amount in any manner other than as provided in the
related Tenant Direction Letter” without the prior consent of U.S.
Bank. Therefore, if Wildstein’s direct contravention of the
Collateral Agreement by directing Aaron’s Rents to send rent
money to himself rather than the collection account, qualifies as
“willful misconduct” under Georgia law, Wildstein is liable for the
losses incurred by U.S. Bank by the misconduct. We turn next to
this question.
The parties dispute whether Georgia law requires an “intent
to inflict injury” to establish willful misconduct. See 2010-1 SFG
Venture LLC v. Lee Bank & Tr. Co., 775 S.E.2d 243, 251 (Ga. App.
2015) (defining willful misconduct in a limitation on liability
provision of a participation agreement to require “an actual
intention to do harm or inflict injury”). Wildstein argues that there
is dispute of material fact about whether he lacked the requisite
intent to “do harm or inflict injury,” because he believed the
collection account to be frozen when he directed Aaron’s Rents to
send the rent payment to him, and he assumed the monies seized
by U.S. Bank from the collection account and his letter of credit
satisfied the mortgage obligations. As further indication that he
was not acting with an intent to harm U.S. Bank, he notes that,
after receiving the demand letter for rents, he offered to pay U.S.
Bank the difference between the monthly payments due and the
monies U.S. Bank had seized and to resume monthly mortgage
payments.
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Assuming without deciding that an “intent to inflict injury”
is required to show “willful misconduct,” as Wildstein argues, none
of Wildstein’s facts, taken as true, create a material dispute of fact
that Wildstein willfully intended to do harm to U.S. Bank, and
therefore engaged in willful misconduct by writing Aaron’s and
telling the tenant to send money to Wildstein instead of U.S. Bank
in breach of the Collateral Agreement. Assuming Wildstein
believed the collection account to be frozen, he still intentionally
acted contrary to the terms of the Collateral Agreement when he
directed the tenant to pay its monthly rent to him personally—
thereby diverting funds that belonged to U.S. Bank. Accordingly,
Wildstein, the sole manager of Cangor, engaged in willful
misconduct by misappropriating rent monies, resulting in losses to
U.S. Bank for which he was liable under the terms of the Guaranty
Agreement. 3
Alternatively, Wildstein argues that he is not liable because,
under the limitation of liability provision, he is not liable for losses
incurred due to the gross negligence or willful misconduct of U.S.
Bank. Wildstein has not offered any facts indicating that any
3
Wildstein argues that the collection account was “frozen” because a check
he wrote from the account was not honored, while U.S. Bank asserts that the
account was never frozen and only Cangor’s right to withdraw funds was
suspended. However, it is irrelevant whether the account was frozen or
Cangor’s withdrawal privileges were simply suspended. Either way, the
diversion of rents to Wildstein’s own account was a violation of the plain
terms of the Collateral and Guaranty Agreements.
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alleged gross negligence or willful misconduct by U.S. Bank caused
him to divert the rental funds. Wildstein cited evidence from his
state court case as proof of U.S. Bank’s misconduct, including U.S.
Bank’s attempt to foreclose on the loan and its failure to renew it,
that would relieve him of liability here. But Wildstein does not
explain how these facts establish that U.S. Bank, through gross
negligence or willful misconduct, caused the losses it incurred due
to Wildstein’s diversion of the rental payments.
Wildstein also voluntarily waived his common law and
equitable defenses in the Guaranty Agreement, including “valid
defenses, claims or offsets . . . which render the Guaranteed
Obligations wholly or partially uncollectible from Borrower.”
“Georgia law is clear that creditors are entitled to summary
judgment in a suit on an unconditional guaranty when the
guarantor has waived all of his defenses.” Core LaVista, LLC, 709
S.E.2d at 340–41. Thus, even if U.S. Bank engaged in misconduct
related to the mortgage note, this defense did not relieve Wildstein
of his obligations under the Guaranty Agreement because he failed
to state any facts alleging that gross negligence or willful
misconduct by U.S. Bank caused him to divert the rental payments.
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Therefore, the district court did not err by granting
summary judgment on U.S. Bank’s claim that Mr. Wildstein
breached the Guaranty Agreement. 4
B. Damages
Wildstein argues that there are questions of fact about
whether the rent received by Wildstein was the appropriate
measure of damages.
Under the Collateral Agreement, “[u]pon the occurrence of
an Event of Default, any amounts deposited into or remaining in
any Account shall be for the account of Lender and may be
withdrawn by Lender to be applied in any manner as Lender may
elect in Lender’s discretion.” The parties do not dispute that the
total value of the loan was due on December 8, 2016, and that the
balance on the loan was not paid. The initial loan agreement
assumed by Cangor defined events of default as when the
“[b]orrower fails to pay the outstanding Indebtedness on the
Maturity Date,” which occurred here. Therefore, there is no
question of fact that an event of default occurred here. According
to the Collateral Agreement, upon an event of default, “any
amounts deposited into or remaining in any Account shall be for
the account of Lender and may be withdrawn by Lender to be
applied in any manner as Lender may elect in Lender’s discretion.”
4
Because we find that there is no material dispute of fact as to whether
Wildstein breached the Guaranty through “willful misconduct,” we do not
discuss his arguments related to conversion.
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As of June 2017, Wildstein stopped depositing the rents into the
collateral account. Because Cangor was in default, U.S. Bank could
have used the funds at its discretion. Therefore, there is no dispute
of material fact that “to compensate the injured party for the loss,”
U.S. Bank is owed the value of the collected rents diverted to
Wildstein. 5 See Goody Prod., Inc., 740 S.E.2d at 270.
AFFIRMED.
5
The district court also granted prejudgment interest and attorney’s fees
below. Wildstein does not challenge those calculations on appeal.