JRG Captl Investors I, L.L.C. v. Maurice Doppelt

Case: 13-20418 Document: 00512722870 Page: 1 Date Filed: 08/05/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 13-20418
Fifth Circuit
FILED
August 5, 2014
Lyle W. Cayce
Clerk
JRG CAPITAL INVESTORS I, L.L.C.,
Plaintiff–Appellee.
versus
MAURICE DOPPELT,
Defendant–Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:11-CV-3299
Before DAVIS, SMITH, and BENAVIDES, Circuit Judges.
PER CURIAM:*
In this case applying a surety contract, defendant Maurice Doppelt (the
guarantor) appeals a judgment for plaintiff JRG Capital Investors I, L.L.C.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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(“JRG”) (the current note holder), following a bench trial. Because the surety
contract provided for a guaranty only of the borrower’s recourse obligations—
of which none remain—we reverse and render judgment for Doppelt.
I.
An entity called 839 East 19th Street, L.P., executed a five-million-dollar
Promissory Note (“the Note”) to Citibank, N.A. (JRG’s predecessor-in-interest),
collateralized by, among other things, an interest in improved real property,
namely an apartment building. Just over three weeks later, Doppelt executed
a Guaranty of Borrower’s Recourse Obligations (“the Guaranty”). Shortly after
Citibank sold the Note to JRG, JRG foreclosed on the property. After foreclos-
ure, there remained a substantial deficiency in the Note.
The Note created what was generally a nonrecourse debt, meaning that
the borrower could not be held personally liable for any deficiency. The Note
provided, however, a number of exceptions that—if triggered—would have
resulted in the borrower’s bearing recourse obligations. The parties do not dis-
pute that the borrower never triggered any of its recourse obligations and that
the Note remained a nonrecourse note following JRG’s foreclosure. The dis-
pute is whether Doppelt guaranteed only the borrower’s recourse obligations,
of which there are now none, or whether he guaranteed the entire value of the
Note.
The parties point to a number of different provisions in both the Note
and the Guaranty as manifesting their respective proffered interpretation of
Doppelt’s guaranty. Four provisions are central to this inquiry: section 20 of
the Note and sections 1, 3, and 4 of the Guaranty.
Section 20 generally delimits the borrower’s recourse obligations. It pro-
vides, in subsection (A), that the “Borrower shall not be personally liable for
the payment and performance of the indebtedness and obligations” arising
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under the Note, limiting the holder of the Note to foreclosing on the collateral.
But subsection (B) contains a host of exceptions that would trigger recourse
obligations on the borrower, including, inter alia, fraud or misrepresentation;
failure of the borrower to pay the lender gross receipts from renting out the
property; engaging in conduct designed to prevent the lender from exercising
its interest in the real property; selling the property without the lender’s con-
sent; failing to pay the lender any insurance proceeds; failing to pay taxes on
the property; failing to maintain the property; releasing tenants from their
obligations without the lender’s consent; and removing personal property.
Subsection (B) also provides that “the Nonrecourse Provisions [shall not] be
construed to release or relieve any guarantor of any indebtedness or obligations
of Borrower to Lender from full personal liability for the payment and perfor-
mance of such guarantor’s obligations under any guaranty now or hereafter
entered into in connection with the Loan or the Property.”
Section 1 of the Guaranty defines Doppelt’s obligations to the noteholder.
It provides, in relevant part, what Doppelt promised to the lender:
1. GUARANTY
Guarantor . . . guarantees and promises to Lender: (i) the prompt,
complete and full payment and performance when due . . . of Borrower’s
Recourse Obligations; and (ii) in addition to all other amounts due
hereunder, the prompt, complete and full payment, upon demand, of all
attorneys’ fees, costs and expenses . . . , and all other costs and expenses
incurred by Lender in enforcing any rights or remedies under or other-
wise in connection with this Guaranty or any of the Loan Documents
. . . . All obligations of Borrower described in clauses (i) and (ii), above,
are referred to herein collectively as the “Obligations.” All amounts
due, debts, liabilities and payment obligations described in clauses
(i) and (ii), above, are referred to herein as the “Indebtedness.”
Section 3 of the Guaranty provides that Doppelt’s obligations are “inde-
pendent of and in addition to the obligations of the Borrower,” with the balance
of the section making clear that the holder of the Note may bring a separate
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action against Doppelt without bringing an action against or joining the bor-
rower; providing for joint and several liability “if Guarantor consist of more
than one person”; and providing that a release or substitution of any one guar-
antor does not affect the obligations of another.
Finally, section 4 of the Guaranty provides several “waivers” by the guar-
antor. The only possibly relevant waiver, in section 4(i)(i), provides that the
borrower may collect against Doppelt without first foreclosing on any real prop-
erty interest and that, upon foreclosure, “Lender may collect from Guarantor
even if Lender, by foreclosing on the real property collateral, has destroyed any
right Guarantor may have to collect from Borrower any sums that Guarantor
pays to Lender pursuant to this Guaranty Agreement.”
II.
We examine these various contractual provisions to answer this ques-
tion: Did Doppelt provide a complete guaranty of the full value of the Note or
only a guaranty of the borrower’s recourse obligations? We address this ques-
tion de novo. 1
In Texas, “[a] guarantor is a ‘favorite of the law,’ and any uncertainty as
to the meaning of his contract of guaranty should be resolved in his favor.” 2
Other cases from Texas indicate that a “guaranty agreement is to be strictly
construed and may not be extended beyond its precise terms by construction
1 Westlake Petrochemicals, L.L.C. v. United Polychem, Inc., 688 F.3d 232, 245 (5th Cir.
2012) (“A guaranty is, of course, a form of contract, and we review a district court’s construc-
tion of any contract de novo.”).
2FDIC v. Woolard, 889 F.2d 1477, 1480 (5th Cir. 1989) (citing Sw. Sav. Ass’n v. Dun-
agan, 392 S.W.2d 761, 766 (Tex. Civ. App.―Dallas 1965, writ ref’d n.r.e.); Coker v. Coker, 650
S.W.3d 391, 394 (Tex. 1983); W. Bank-Downtown v. Carline, 757 S.W.2d 111, 114 (Tex.
App.―Houston [1st Dist.] 1988, writ denied)).
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or implication.” 3 The primary objective, as with all contract construction, is to
ascertain the true intentions of the parties as expressed in the instrument.
Coker, 650 S.W.2d at 393 (citations omitted).
III.
On the basis of the contracts and Texas law, Doppelt’s interpretation is
correct: He provided a guaranty only of the borrower’s recourse obligations, of
which there are now none. He did not provide a guaranty of the total value of
the Note.
A.
Of the various provisions the parties emphasize, only section 1 of the
Guaranty actually describes the scope of the promise made by Doppelt. For
instance, section 20 of the Note describes a Guaranty made elsewhere and in
a separate agreement: It speaks of not “reliev[ing] any guarantor . . . from full
personal liability . . . of such guarantor’s obligations under any guaranty now
or hereafter entered into” in connection with the Note. The Note was executed
more than three weeks before the Guaranty, which actually defines “such” obli-
gations referenced by the Note.
Section 3 of the Guaranty does provide that Doppelt’s obligations are
independent of those of the borrower, but that provision is manifestly con-
cerned with litigation. Of the fourteen lines of section 3, JRG directs our atten-
tion only to the first ten words of the first sentence providing that “[t]he obli-
gations of Guarantor hereunder are independent of and in addition to the obli-
gations of Borrower,” and JRG would have us stop reading at that point.
3 Woolard, 889 F.2d at 1480 (citing Reece v. First State Bank of Denton, 566 S.W.2d
296, 297 (Tex. 1978); McKnight v. Va. Mirror Co., 463 S.W.2d 428, 430 (Tex. 1971)).
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The remainder of the sentence provides that a separate action may be
maintained against Doppelt even if the borrower is not itself sued or joined in
the suit. And the remaining thirteen lines provides for joint and several liabil-
ity where the guarantor is more than one person and for other litigation-
related stipulations. (The provision is largely superfluous because Doppelt is
a natural person and the only guarantor.) Plainly, there is nothing in section 3
suggesting that Doppelt promised more than a guaranty of the borrower’s
recourse obligations.
Section 4(i)(i) at first seems more relevant, but it too references a guar-
anty made elsewhere. It provides that the lender may collect against Doppelt
even if “by foreclosing on the real property collateral, [the lender] has destroyed
any right Guarantor may have to collect from Borrower.” But the provision,
again, references a Guaranty made elsewhere by describing the right to collect
from Doppelt as “any sums that Guarantor pays to Lender pursuant to this
Guaranty Agreement.”
That leaves us with the only provision of the two contracts that actually
defines Doppelt’s promise, § 1 of the Guaranty. That provision includes two
guaranty clauses. The first is the only one that speaks clearly to the issue
before us and provides that Doppelt guaranteed “(i) the prompt, complete and
full payment and performance when due . . . of Borrower’s Recourse Obliga-
tions.” The second is much lengthier and seems to be aimed at protecting the
lender’s interests by ensuring that Doppelt would pay for the costs of the lender
enforcing the Guaranty or its rights under the Note:
(ii) in addition to all other amounts due hereunder, the prompt, com-
plete and full payment, upon demand, of all attorneys’ fees, costs and
expenses . . . , and all other costs and expenses incurred by Lender in
enforcing any rights or remedies under or otherwise in connection with
this Guaranty or [the Note] . . . .
The plain language of § 1 of the Guaranty indicates that Doppelt
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provided a guaranty for only (i) the borrower’s recourse obligations and (ii) the
costs associated with the Lender enforcing its rights under the Guaranty and
Note. There is no ambiguity in the Guaranty, and we give effect to the manifest
mutual intent of the parties to bind Doppelt to provide a guaranty only for the
borrower’s recourse obligations. See Coker, 650 S.W.2d at 393.
B.
The plain language of the Guaranty and absence of any ambiguity
(patent or latent) as to the scope of Doppelt’s obligations under the Guaranty
are enough for us to reverse and render judgment in his favor. We are never-
theless bolstered in our confidence in this judgment given the contextual
evidence.
As to context, the full name of the Guaranty is “Guaranty of Borrower’s
Recourse Obligations.” This is an odd title if, in fact, Doppelt was providing a
guaranty of not just the borrower’s recourse obligations but the full value of
the Note where the borrower had no further recourse obligations.
Further, both the Guaranty and the Note use different language to
describe the total value of the Note when the parties so intended. For instance,
in section 20(B) of the Note (providing for exceptions to the nonrecourse provi-
sions), the parties provided that upon the occurrence of any of the events listed
in that provision, “nothing contained in any of the Nonrecourse Provisions
shall relieve Borrower from personality liability for the payment and perfor-
mance of the indebtedness and obligations evidence or arising under this Note.”
This language was plainly directed at ensuring the personal liability of the
Borrower for the full value of the Note upon the occurrence of one of the sec-
ion 20(B) events. 4 Similarly, in the Guaranty the parties define the term
4 These sorts of quasi-non-recourse loans, where loans are generally non-recourse with
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“indebtedness” to include “All amounts due, debts, liabilities and payment obli-
gations described [in section 1 of the Guaranty].” Yet, the parties decided not
to use similar language to define the scope of Doppelt’s guaranty; rather, they
opted to limit his guaranty to “Borrower’s Recourse Obligations.”
The foregoing language is in direct contrast with another guaranty con-
tract drafted, as this one was, by Citibank, which more explicitly provided for
an unlimited guaranty. In Citibank, N.A. v. Skar, LLC, we see a grammati-
cally similar guaranty provision but with a major difference:
Guarantor absolutely, unconditionally and irrevocably, jointly and sev-
erally, guarantees . . . (i) the prompt, complete and full payment and
performance when due . . . of all of Borrower’s present and future indebt-
edness and obligations, whether monetary or non-monetary, under the
Loan Documents (including, without limitation, the payment of princi-
pal and interest and other sums due under the Note) (as used herein,
the term ‘indebtedness’ shall have its most comprehensive meaning . . .
) and (ii) in addition to all other amounts due hereunder, the prompt
and complete payment of all attorneys fees, costs and expenses . . . sub-
ject to the limitation that Guarantor’s obligations and liability pursuant
to this subparagraph 1(a) shall be limited to Guarantor’s payment (as
opposed to Borrower's payment) of the principal amount of
$2,100,000.00 (the “Guaranteed Amount”), together with interest which
shall accrue on the Guaranteed Amount from the date written demand
for payment of the Guaranteed Amount, and all interest thereon from
the date, shall be paid in full. All obligations of Borrower described in
clauses (i) and (ii) above are referred to collectively as the “Obligations.”
All amounts due, debts, liabilities and payment obligations described in
clauses (i) and (ii), above, are referred to herein as the “Indebtedness.”
48 Conn. L. Rptr. 865 (Conn. Super. Ct. 2009) (some alterations in original).
The contrast between these two otherwise word-for-word carbon-copy
Citibank-drafted provisions bolsters the conclusion that the phrase “of Borrow-
er’s Recourse Obligations” was a deliberate manifestation of the parties’ intent
several exceptions, are familiar to Texas law. See, e.g., Pineridge Associates, L.P. v. Ridge-
pine, LLC, 337 S.W.3d 461, 465–66 (Tex. App.―Fort Worth 2011, no pet.).
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to limit Doppelt’s guaranty. 5
Finally, the elaborate nonrecourse provisions of the Note also provide
evidence that the parties were well aware of the difference between the bor-
rower’s recourse and nonrecourse obligations. The Note provided twelve situa-
tions in which the borrower would trigger recourse obligations (viz., personal
liability). These provisions comprise the largest portion of the contract
between the borrower and the lender and, in elaborate detail, describe exactly
when the borrower would have recourse obligations. The elaborateness of the
provisions governing and cabining the borrower’s recourse obligations suggests
that the parties were purposeful when they limited Doppelt’s guaranty to “Bor-
rower’s Recourse Obligations.” 6
C.
The proffered contrary interpretation by JRG is untenable. According to
JRG, the second clause of the Guaranty (specifically the phrase “in addition to
all other amounts due hereunder”) and section 20 of the Note all prove that
Doppelt was providing a guaranty of the full value of the Note, not just the
borrower’s recourse obligations.
5 It is not uncommon for these sorts of quasi-nonrecourse obligations to be coupled
with limited or “special” guaranties. See Michael J. Guyerson, & David M. Little, Bad Boy
Guaranties: Know What To Do When the Lender Comes for You, COLO. LAW., September 2013,
at 29 (“Nonrecourse loans are common, but most come with a twist. In its basic form, a bad
boy guaranty is part of a commercial nonrecourse loan transaction where the liability of the
borrower and the third-party guarantor are transformed from nonrecourse liability . . . to full
recourse liability in the event of certain triggering actions or “bad boy’ events.”); Rick L.
Knuth, The Commercial Loan Guaranty-Types & Techniques, UTAH B.J., July/August 2008,
at 14, 18; Peter A. Alces, An Essay on Independence, Interdependence, and the Suretyship
Principle, 1993 U. ILL. L. REV. 447, 455 (1993).
6 See also John C. Murray & Randall L. Scott, Enforceability of Carveouts to Non-
recourse Loans: An Evolution, 48 REAL PROP. TR. & EST. L.J. 217, 237–41 (2013) (discussing
several cases where a guarantor became liable for the full value of the borrower’s debt upon
the triggering of recourse provisions).
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Such a construction of the second clause of the Guaranty would have the
phrase “in addition to all other amounts due hereunder” render superfluous
basically the entirety of the guaranty clause. If that phrase were meant impli-
citly to provide a guaranty for the full value of the borrower’s obligations under
the Note, there was no reason to provide a separate guaranty for the borrower’s
recourse obligations. And there would be no reason to provide that Doppelt
would guaranty the costs of enforcing the lender’s rights under the Note,
because the Note already provided for such reimbursement (thus becoming
part of the borrower’s obligations under the Note). 7
Section 20 of the Note, for its part, does not define any guaranty.
Rather, it contemplates a guaranty to be made later. The parties could well
have, later, entered into a guaranty that did cover the full value of the Note
and not just the borrower’s recourse obligations, and section 20 would have
accommodated it just as well as it accommodates Doppelt’s more limited guar-
anty. But such is not the guaranty the parties ultimately agreed on later.
JRG also directs our attention to the “last antecedent rule of construc-
tion” to argue that the phrase “[a]ll amounts due, debts, liabilities and payment
obligations described in clauses (i) and (ii), above, are referred to herein as the
‘Indebtedness’” (found at the end of section 1 of the Guaranty) is properly inter-
preted to mean “the full value of the note” because the prepositional phrase
“described in clauses (i) and (ii)” cabins only the phrase “payment obligations.”
That contention is beside the point. Supposing the JRG is right in its construc-
tion of this phrase as referring to the total value of the Note, Doppelt never
provided—as the guarantor provided in Skar—a guaranty of the borrower’s
7Also, relying on this phrase is misplaced because it is question-begging. The precise
question in this case is what “amounts [are] due [under the Guaranty].” This phrase refer-
ences an amount due but does not tell us what that amount is or how to ascertain it.
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“Indebtedness” or even of “[a]ll amounts due, debts, [and] liabilities.” He pro-
vided a guaranty only of “Borrower’s Recourse Obligations.”
D.
Finally, Texas law is favorable to guarantors in suits like this one. We
are to resolve ambiguities in Doppelt’s favor, and we are also directed “strictly
[to] construe” the extent of his guaranty. See, e.g., Reece, 566 S.W.2d at 297.
Yet, to affirm the judgment for JRG, we would have to go further than resolving
ambiguity against Doppelt; we would have to accept as proper a decidedly awk-
ward and unnatural reading of the plain language of the Guaranty and ignore
the contextual evidence leading us in the same direction as the plain language
of the contract.
The judgment is REVERSED, and judgment is RENDERED for Doppelt.
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