Union Bank, N.a., Resp. v. John T. Blanchard, Apps.

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
UNION BANK, N.A., successor-in-
interest to the Federal Deposit DIVISION ONE
Insurance Corporation, as receiver of c=>
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Frontier Bank, No. 72805-9-1
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Respondent, t
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PUBLISHED OPINION
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JOHN T. BLANCHARD and JANE DOE ro
BLANCHARD, husband and wife;
RANDY S. PREVIS and KATIE L.
PREVIS, husband and wife,
Appellants. FILED: June 6, 2016
Dwyer, J. —When Wellington Hills Park, LLC defaulted on a debt owed to
Union Bank, Union commenced this action on commercial guaranties executed
by John Blanchard, Randy Previs, and Katie Previs (the guarantors) securing
that debt. The guarantors asserted numerous affirmative defenses and
WAS
counterclaims in response, but the trial court concluded that Union was entitled to
APPE
judgment as a matter of law on its claims and dismissed the guarantors'
counterclaims. Because the trial court was correct to enforce the absolute and
unconditional guaranties and the guarantors do not establish a genuine issue of
material fact with regard to their claims and defenses, we affirm.
No. 72805-9-1/2
A. Blanchardand the Previses give guaranties of borrower's
indebtedness to Frontier Bank
Wellington Hills Park (borrower) is a limited liability company that owned
the Wellington Hills Business Campus in Woodinville (the property). Its members
are Randy and Katie Previs (85 percent owners), who are long-time real estate
investors and developers, and John Blanchard (15 percent owner), "an
experienced business and real estate attorney," who also served as borrower's
general counsel.
In 2005, borrower obtained a construction loan to develop the property
from Frontier. Borrower executed a promissory note evidencing the debt owed to
Frontier.1 The note was secured by a construction deed oftrust that encumbered
the property and an assignment of rents. It was also secured by individual
guaranties executed by Blanchard and each of the Previses (the guaranties).
As part of the loan transaction, Blanchard and the Previses each signed
three documents. Specifically, they each signed the note as a member of
borrower, signed an individual commercial guaranty, and signed the final loan
agreement twice—first as a member of borrower, then as a guarantor.2
Borrower defaulted on the note when it came due on January 5, 2010.
6. Frontier fails and Union buys Frontier's assets from the Federal
Deposit Insurance Corporation (FDIC), including the note and guaranties
On April 30, 2010, the Washington State Department of Financial
1The original debt principal was $19,500,000 but this amount was increased to
$36,700,000 pursuant to a "change in terms" agreement.
2Blanchard and the Previses signed similar final loan agreements (called "Notice[s] of
Final Agreement") each time the terms of the note changed, as well as when they signed the
construction loan commitment letter.
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No. 72805-9-1/3
Institutions closed Frontier. The FDIC was appointed as the receiver to liquidate
Frontier and wind up its affairs. The same day, Union purchased certain of
Frontier's assets from the FDIC, including the note and the guaranties. With
respect to the assets it purchased, Union succeeded to the FDIC's rights as
Frontier's receiver. The FDIC also authorized Union to avail itself of statutory
protections available to the FDIC and its assignees.
The final day to file claims against Frontier with the FDIC was August 4,
2010; neither Blanchard nor the Previses filed claims by that deadline.
C. The Snohomish County Superior Court appoints a receiver for
borrower and the property; Appellants actively oppose the acts of the receiver
On November 19, 2010, Union filed an application for the appointment of a
custodial receiver for borrower and the property in Snohomish County Superior
Court (the receivership court).3 On December 21, 2010, the receivership court
entered its order appointing Turnaround Inc. as custodial receiver.
On July 27, 2011, Union moved to convert the custodial receivership to a
general receivership. Blanchard and Randy Previs opposed the motion. The
receivership court entered an order converting the case to a general receivership
and appointing Turnaround as general receiver, which became effective on
November 17, 2011.
On December 19, 2011, the receiver gave notice of the deadline to file
proofs of claim in the receivership. Blanchard, the Previses, and Randy Previs,
as assignee of Veritas Development, Inc. (Veritas),4 filed claims.
On April 27, 2012, the receiver moved for an order approving a settlement
3 Cause No. 10-2-09992-0.
4Veritas is a company formally owned by the Previses' daughter, Ashley Previs.
No. 72805-9-1/4
agreement and release of claims in connection with a soft cost insurance claim
previously asserted by borrower. Blanchard and Randy Previs opposed the
settlement. On June 1, 2012, the receivership court entered an order approving
the settlement agreement and release of claims. In support of its order, the court
found "that the [agreement is fair and equitable, and in the best interests of the
estate and its creditors, and that the responses or objections should be over
ruled."
On July 26, 2012, the receiver moved the receivership court for an order
to approve bid procedures for the sale of the property. On August 31, 2012, the
court granted the motion and entered its bid procedures order.
On January 23, 2013, the receiver gave notice ofthe successful bidder
underthe bid procedures order and set a hearing to approve the sale.
Blanchard, Randy Previs, and Veritas opposed the proposed sale. On January
31, 2013, the receivership court approved the sale of the property by a purchase
and sale agreement between the receiver and OIBP Wellington Hills, LLC (OIBP)
for a purchase price of $10,850,000.
On February 8, 2013, Randy Previs and Veritas sought revision of the sale
order, but their revision motion was denied. On March 25, 2013, they filed a
notice of appeal ofthe sale orderwith this court.5
Blanchard and the Previses did not post the $7,102,611 bond required to
supersede the judgment and stop the sale. Instead, they had borrower declare
bankruptcy.
5 No. 70106-1-1.
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No. 72805-9-1/5
D. Borrower declares bankruptcy; the bankruptcycourt rejects Appellants'
opposition and directs the sale of the property
On August 20, 2013, borrower filed a Chapter 7 bankruptcy case in the
United States Bankruptcy Court for the Western District of Washington (the
bankruptcy court).6 The Chapter 7 voluntary petition was signed by Randy
Previs, as borrower's managing member.
On September 13, 2013, the Chapter 7 trustee (the trustee) filed a motion
requesting that the bankruptcy court approve the sale of the property to OIBP
and stating that "assurance and speed of closing" were critical and that "the
Trustee cannot ignore the history of the dispute and the decisions made by the
Receiver, the tenant, the Bank, the County, the Superior Court and the Court of
Appeals."
The trustee also filed his own declaration in support of the sale, stating:
I have concluded, based on the facts and circumstances of this
case, that I should seek Bankruptcy Court approval to sell the
Property to OIPB Wellington Hills, LLC, pursuant to essentially the
same terms as those agreed to in the state court receivership
case. ... I have determined it is not in the best interest of the
estate and its creditors to accept the offer of Veritas and put it
before the Court for approval, or to open up this matter to an
auction or to a new marketing process.
Veritas and Blanchard filed objections to the trustee's motion. Randy
Previs, under the letterhead of Seavestco, Inc., filed an objection both to the
trustee's motion and to the receiver's continued control of the property pending
its sale. On October 16, 2013, the bankruptcy court granted the trustee's motion,
made findings, and entered its order approving the sale of the property.
On October 30, 2013, Veritas filed a notice of appeal from the bankruptcy
6 Case No. 13-17546-KAO.
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No. 72805-9-1/6
sale order.
On November 26, 2013, the sale of the property closed and, from the sale
proceeds, the closing agent disbursed $9,696,411.88 to Union pursuant to its
construction deed of trust.
E. The bankruptcy court enforces the guaranties and subordinates
Appellants'proofs of claim to Union's claim
Blanchard, the Previses, and Veritas, by Randy Previs as its assignee,
filed proofs of claims in the bankruptcy case.
On March 31, 2014, Union moved for summary judgment against
Blanchard and the Previses on the ground that the subordination provision in the
guaranties subordinated their proofs of claim to Union's claims. In their
opposition to the motion, Blanchard and the Previses argued that "Union Bank's
conduct in conducting the receivership of Wellington Hills Business Park was
substantively unconscionable, rendering the personal guaranties—including the
subordination clause—unenforceable."
On May 27, 2014, the bankruptcy court entered summary judgment in
favor of Union, upholding the guaranties, enforcing the subordination provisions
in the guaranties, and holding that "all distributions on [Appellants'] claims must
be paid to Union Bank."
F. The receivership and bankruptcy case appeals are voluntarily
dismissed with prejudice; the cases are closed
On December 23, 2013, Veritas, borrower, and the trustee agreed to
dismiss with prejudice the appeal from the bankruptcy sale order. The appeal
was dismissed with prejudice on December 31, 2013. On January 30, 2015, the
No. 72805-9-1/7
bankruptcy court entered its order discharging the trustee and closing the case.
On January 7, 2014, Randy Previs and Veritas moved this court to
withdraw its appeal of the sale order of the receivership court. The appeal was
dismissed on January 23, 2014. On December 18, 2014, the receivership court
entered an order approving the receiver's final report and discharging the
receiver.
G. This action is commenced; Appellants assert affirmative defenses and
counterclaims
On March 29, 2013, while the receivership case was pending and before
the bankruptcy case was commenced, Union filed this action for judgment on the
guaranties in the King County Superior Court. In response, the guarantors
asserted numerous affirmative defenses and counterclaims. On October 10,
2014, the superior court granted summary judgment in favor of Union and
against the guarantors, determining that Union was entitled to judgment as a
matter of law and dismissing the guarantors' claims with prejudice. On
December 9, 2014, after their motion for reconsideration was denied, the
guarantors filed the underlying notice of appeal.
II
The guarantors argue that the trial court erred by granting summary
judgment to enforce the guaranties. This is so, they assert, because a material
dispute of fact exists as to whether the guaranties are void or voidable. They are
incorrect.
We review the grant of summary judgment de novo, undertaking the same
inquiry as the trial court. Jones v. Allstate Ins. Co., 146 Wash. 2d 291, 300, 45 P.3d
No. 72805-9-1/8
1068 (2002). Summary judgment is appropriate only if the supporting materials,
viewed in the light most favorable to the nonmoving party, demonstrate "that
there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law." CR 56(c); Hartley v. State, 103 Wash. 2d
768, 774, 698 P.2d 77 (1985). A "'complete failure of proof concerning an
essential element of the nonmoving party's case necessarily renders all other
facts immaterial.'" Young v. Key Pharm.. Inc., 112 Wash. 2d 216, 225, 770 P.2d
182 (1989) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct.
2548,91 L. Ed. 2d 265 (1986)).
Union contends that each of the guarantors' claims and defenses is
foreclosed by enforcement ofthe guaranties, together with application of the
state statute of frauds and the federal D'Oench7 doctrine, as codified at 12
U.S.C. § 1823(e). Thus, before addressing the specific assertions made by the
guarantors herein, we begin by examining these proposed bases for rejecting the
guarantors' claims and defenses.
A
Union asserts that the guaranties are absolute and unconditional promises
to pay borrower's debt and that the guarantors waived nearly all claims and
defenses to making such payment. We agree.
We recently summarized general principles relevant to the enforceability
of absolute and unconditional guaranties.
"A 'guaranty' 'is a promise to answer for the debt, default, or
miscarriage of another person.' 'A contract of guaranty, being a
7 D'Oench. Duhme &Co. v. Fed. Deposit Ins. Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L
Ed. 956(1942).
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No. 72805-9-1/9
collateral engagement for the performance of an undertaking of
another, imports the existence of two different obligations, one
being that of the principal debtor and the other that of the
guarantor.'" fSauterv. Houston Cas. Co., 168 Wash. App. 348, 356,
276 P.3d 358 (2012) (citation omitted) (internal quotation marks
omitted) (quoting Wilson Court Ltd. P'ship v. Tony Maroni's. Inc.,
134Wn.2d 692, 707, 952 P.2d 590 (1998)).] A guaranty'"is
independent'" of the debt, "'and the responsibilities which are
imposed by the .. . guaranty differ from those . .. created by the
contract to which the guaranty is collateral.'" rWilson Court Ltd.
P'ship, 134 Wash. 2d at 707 (quoting Robev v. Walton Lumber Co., 17
Wash. 2d 242, 255, 135 P.2d 95 (1943)); accord Freestone Capital
Partners, LP v. MKA Real Estate Opportunity Fund I. LLC, 155 Wn.
App. 643, 661, 230 P.3d 625 (2010).] "A written guarantee of
payment of the principal's indebtedness . . . [is] governed by its own
terms." rMcAllister v. Pier 67. Inc., 1 Wash. App. 978, 983, 465 P.2d
678(1970).]
"[W]here a guarantorfreely and voluntarily guarantees the
payment of another, and a creditor relies to its detriment on this
guaranty, the law generally requires the guaranty to be enforced."
fin re Spokane Concrete Prods.. Inc., 126 Wash. 2d 269, 278, 892
P.2d 98 (1995).] "'An absolute guaranty is an unconditional
undertaking on the part ofthe guarantor that the person primarily
obligated will make payment or will perform, and such a guarantor
is liable immediately upon default of the principal without notice.'"
rCenturv 21 Prods.. Inc. v. Glacier Sales, 129 Wash. 2d 406, 414, 918
P.2d 168 (1996) (quoting Joe Heaston Tractor &Implement Co. v.
Sec. Acceptance Corp., 243 F.2d 196 (10th Cir. 1957)); see also
Gravson v. Platis. 95 Wash. App. 824, 826, 978 P.2d 1105 (1999).]
"An absolute and unconditional guaranty should be and is
enforceable according to its terms. The courts are to enforce it as
the parties meant it to be enforced, with full effect given to its
contents, and without reading into it terms and conditions on which
it is completely silent." fNat'l Bank ofWash, v. Equity Inv'rs, 81
Wash. 2d 886, 919, 506 P.2d 20 (1973).]
Frontier Bank v. Binao Invs.. LLC. 191 Wash. App. 43, 53-54, 361 P.3d 230 (2015)
(some alterations in original).
Just as guaranties may be absolute and unconditional, so may they waive
claims and defenses. Waiver provisions in guaranties are uniformly upheld and
enforced by Washington courts, including on summary judgment. Old Nat'l Bank
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No. 72805-9-1/10
of Wash, v. Seattle Smashers Corp.. 36 Wash. App. 688, 691, 676 P.2d 1034
(1984) (upholding waiver of consent of guarantor to grant borrower extension of
time because "the language of the guaranty is determinative"); Fruehau Trailer
Co. of Canada Ltd. v. Chandler, 67 Wash. 2d 704, 709, 409 P.2d 651 (1966)
(upholding waiver of defense of release or discharge of principal obligation
because "the [relevant] provision of the agreement constituted a full and
complete waiver by the guarantors"); Gravson v. Platis, 95 Wash. App. 824, 834,
978 P.2d 1105 (1999) (upholding waivers of right of recourse against lender and
of defense based on lender's acceptance of deed in lieu); Columbia Bank. N.A. v.
New Cascadia Corp., 37 Wash. App. 737, 739-40, 682 P.2d 966 (1984) (upholding
waivers of consent of guarantor to grant borrower extension oftime and to
release co-guarantor).
There is no dispute as to the language ofthe guaranties herein at issue.
They clearly state that they are absolute and unconditional.
AMOUNT OF GUARANTY. The amount of this Guaranty is
Unlimited.
CONTINUING UNLIMITED GUARANTY. Forgood and valuable
consideration, [Guarantor] absolutely and unconditionally
guarantees and promises to pay to [Lender] or its order, in legal
tender of the United States of America, the Indebtedness ... of
[Borrower] to Lender on the terms and conditions set forth in this
Guaranty. Under the Guaranty, the liability of Guarantor is
unlimited and the obligations of Guarantor are continuing.
(Emphasis added.)
The guaranties also contain clear waiver provisions, which state that the
guarantor "waives any and all rights or defenses . . . given to guarantors at law or
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No. 72805-9-1/11
in equity other than actual payment and performance of indebtedness."8 They
also state that the guarantor "waives and agrees not to assert or claim .. . any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right." The guaranties
further state that the guarantor "warrants and agrees that each of the waivers set
forth above is made with Guarantor's full knowledge of its significance and
consequences and that... the waivers are reasonable and not contrary to public
policy or law."
There can be no serious dispute that the express terms of the guaranties
make them unconditional guaranties of payment and waive nearly all
counterclaims and defenses, except payment. Accord Frontier Bank, 191 Wn.
App. at 54 (so construing a substantially similar guaranty); In re Cronev, 2011
WL 1656371 (Bankr. W.D. Wash. May 2, 2011) (same). Accordingly, if the
guaranties herein are enforceable, the only defense remaining to the guarantors
would be actual payment (which they do not assert). Furthermore, because the
promissory notes that these guaranties support are delinquent, the obligations of
the guarantors would also be delinquent.
B
Union also asserts that the state statute of frauds operates to foreclose
some of the guarantors' claims and defenses. We agree.
Washington's statute of frauds bars the enforcement of credit agreements
that are not in writing:
8This specifically includes: "any right to claim discharge of the Indebtedness on the basis
ofunjustified impairment ofany collateral for the Indebtedness."
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No. 72805-9-1/12
A credit agreement is not enforceable against the creditor unless
the agreement is in writing and signed by the creditor. The rights
and obligations of the parties to a credit agreement shall be
determined solely from the written agreement, and any prior or
contemporaneous oral agreements between the parties are
superseded by, merged into, and may not vary the credit
agreement. Partial performance of a credit agreement does not
remove the agreement from the operation of this section.
RCW 19.36.110 (emphasis added).
A "credit agreement" is defined as:
an agreement, promise, or commitment to lend money, to otherwise
extend credit, to forbear with respect to the repayment of any debt
or the exercise of any remedy, to modify or amend the terms under
which the creditor has lent money or otherwise extended credit, to
release any guarantor. . . , or to make any other financial
accommodation pertaining to a debt or other extension of credit.
RCW 19.36.100.
Herein, the guarantors assert that Frontier made them various promises to
extend them further credit, including by giving them a "mini-perm" loan9 in 2009,
when it appeared as if borrower would be unable to continue making payments
due on the loan. In support ofthis assertion, the guarantors point to multiple "risk
assessment report[s]" by Frontier, some ofwhich acknowledge the possibility that
borrower will need additional credit in order to stay current on loan payments,
and a "loan memorandum," which appears to be an application for the mini-perm
loan in question. As an initial matter, none ofthese documents actually includes
a promise to extend credit. More to the point, none is signed by a Frontier
9Amini-perm loan is a temporary loan issued by banks as bridge funding for a
development loan from construction to tenancy.
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No. 72805-9-1/13
representative.10 Therefore, the guarantors' reliance on these documents is
barred as proof of the purported promises by the statute of frauds.
There is no documentary evidence of the existence of any credit
agreement between Frontier or Union and the guarantors, aside from the
undisputed loan agreements, promissory note, and guaranties at the heart ofthe
controversy, whose existence and terms are undisputed.
C
Union also asserts that application of the federal D'Oench doctrine further
limits the claims and defenses available to the guarantors. We agree.
"The federal D'Oench doctrine prohibits a party from asserting a
cause of action against the FDIC orits assignees based upon
unwritten agreements or other schemes alleged to be entered into
by a failed bank. Lanalev v. Fed. Deposit Ins. Corp.], 484 U.S. 86,
92-93 108 S. Ct. 396, 98 L. Ed. 2d 340 (1987). In D'Oench M
Duhme & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956
(1942), the United States Supreme Court enunciated this doctrine,
which is intended to protectthe FDIC andits assignees from
fraudulent schemes by borrowers offailed institutions. The doctrine
also protects the FDIC by allowing bank representatives to rely
solely on the records of the bank in evaluating the bank's financial
condition, rather than leaving it exposed to suits founded on
undisclosed conditions or deceptive documents. [Fed. Deposit Ins.
Corp.1 v. Zook Bros. Constr. Co., 973 F.2d 1448, 1450-51 (9th Cir.
1992)."
Frontier Bank, 191 Wash. App. at 63-64 (emphasis added) (alterations in original)
(quoting Kananv v. Union Bank. N.A., No. C11-6062 RJB, 2012 WL 5258847, at
*5 (W.D. Wash. Oct. 24, 2012)): accord Nw. Land &Inv.. Inc. v. New W. Fed.
Sav. &LoanAss'n. 64 Wash. App. 938, 943, 827 P.2d 334 (1992) (The D'Oench
doctrine "bars a borrower from asserting ... any claim or defense based on any
10 The guarantors assert that one of these reports was signed by three representatives of
Frontier. In fact, the worksheet to which they refer is separate from any report that mentions the
"mini-perm" in any way.
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No. 72805-9-1/14
unrecorded agreement which alters the terms of a seemingly unqualified
obligation to pay").
The D'Oench doctrine was codified at 12 U.S.C. § 1823(e), as part of the
Federal Deposit Insurance Act. That provision provides, in pertinent part:
No agreement which tends to diminish or defeat the interest
of the [FDIC] in any asset acquired by it under this section or
section 1821 of this title, either as security for a loan or by purchase
or as receiver of any insured depository institution, shall be valid
against the [FDIC] unless such agreement—
(A) is in writing,
(B) was executed by the depository institution and any
person claiming an adverse interest thereunder, including the
obligor, contemporaneously with the acquisition ofthe asset by the
depository institution,
(C) was approved bythe board of directors of the depository
institution or its loan committee, which approval shall be reflected in
the minutes of said board or committee, and
(D) has been, continuously, from the time of its execution, an
official record of the depository institution.
12 U.S.C. § 1823(e)(1) (emphasis added).
Contracts that do not meet these requirements "cannot be enforced even
when a bank fraudulently induces a customer with oral misrepresentations, or
when a customer is completely innocent." Nw. Land, 64 Wash. App. at 943; accord
Lanqlev, 484 U.S. at 93 ("We conclude . . . that neither fraud in the inducement
nor knowledge by the FDIC is relevant to the section's application. No
conceivable reading ofthe word 'agreement' in § 1823(e) could cause it to cover
a representation orwarranty that is bona fide but to exclude one that is
fraudulent."); Frontier Bank. 191 Wash. App. at 66-67 (applying Lanqley).
Responding to the perceived unfairness of this result, the Supreme Court stated:
The short of the matter is that Congress opted for the
certainty ofthe requirements set forth in § 1823(e). An agreement
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No. 72805-9-1/15
that meets them prevails even ifthe FDIC did not know of it; and an
agreement that does not meet them fails even if the FDIC knew. It
would be rewriting the statute to hold otherwise.
Lanqlev, 484 U.S. at 95.
The FDIC authorized Union to avail itself of the protections provided
pursuant to this statute,11 and Union does so herein.
The application ofthis statute to the guarantors' affirmative defenses is
similar to our application ofthe state credit agreements statute of frauds. That is,
the federal statute, for largely the same reasons, bars consideration of the
documents upon which the guarantors primarily rely.12 However, the federal
statute is independently relevant. For one, the circumstances herein are the
precise target of the law, which was meant to protect purchasers of FDIC assets
acquired from failing financial institutions. Moreover, prior applications of this law
to analogous circumstances make clear that not even fraud on the part of the
failed financial institution—coupled with knowledge on the part of the acquiring
institution—removes an alleged credit agreement from the statute'stechnical
requirements.
Thus, the guarantors' argument regarding separate financial
arrangements made with Frontier are foreclosed by state and federal laws that
11 While the guarantors attempt to castdoubt upon this fact (Blanchard stated, for
example, "Randy Previs and Iwere left completely out of th[e] process [of obtaining the FDIC's
permission] and to this day Ihave no idea how the Union Bank consent request was worded or
what information it contained. ... Iam in the dark about that."), the only relevant record evidence
indicates that Union obtained the required permission from the FDIC.
12 As for the signed worksheet upon which the guarantors seek to rely, because it was
signed by only Frontier, even if—contrary to our conclusion—it were to pass muster under the
state statute, it would nevertheless fall short under the federal statute. Indeed, Blanchard
acknowledged as much in a declaration submitted to the trial court, which stated, in pertinent part,
"our arrangements with Frontier Bank may not meet all of the strict (unrealistic and unfair)
standards of D'Oench."
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No. 72805-9-1/16
require such agreements to comply with certain technical requirements.
We turn now to the propriety of the trial court's order on summary
judgment.
D
The guarantors raise a number of claims and defenses to Union's action
on the guaranties. These can be generalized into three categories: fraudulent
inducement to enter into the guaranties, fraudulent inducement to contribute
additional funds to the property development project, and misconduct by Union
after acquiring the guaranties, particularly in the course of the receivership and
bankruptcy proceedings.
i
Fraud in the inducement by Frontier- the guaranties: The guarantors first
contend that they were fraudulently induced to sign the guaranties by
representations made by Frontier that, if necessary, it would extend borrower
further credit to fund the project through tenancy. This contention fails for several
reasons.
Initially, the guarantors' claim relies on alleged unwritten credit
agreements. Accordingly, it is barred by the state statute offrauds and the
federal D'Oench doctrine.
Furthermore, even were we to consider the guarantors' allegations, their
claim would nevertheless fail because they did not properly plead it or offer
sufficient evidence in support thereof to withstand summary judgment.
Fraud must be pleaded with particularity. CR 9(b). Particularity
requires that the pleading apprise the defendant of the facts that
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No. 72805-9-1/17
give rise to the allegation of fraud. See Pedersen v. Bibioff. 64 Wn.
App. 710, 721, 828 P.2d 1113(1992); Harstad v. Frol, 41 Wash. App.
294, 301-02, 704 P.2d 638 (1985). . . .
The elements of fraud include
(1) representation of an existing fact; (2) materiality;
(3) falsity; (4) the speaker's knowledge of its falsity;
(5) intent of the speaker that it should be acted upon
by the plaintiff; (6) plaintiff's ignorance of its falsity; (7)
plaintiff's reliance on the truth of the representation;
(8) plaintiffs right to rely upon it; and (9) damages
suffered by the plaintiff.
Stilev v. Block, 130 Wash. 2d 486, 505, 925 P.2d 194 (1996).
Adams v. King County, 164 Wash. 2d 640, 662, 192 P.3d 891 (2008).
The guarantors' claim falls critically short because they did not plead or
offer evidence that, even if a representation was made regarding future credit
agreements, it was false when made and made with knowledge of its falsity.13
Fraud in the inducement by Frontier- additional contributions: The
guarantors assert that they were induced to make additional financial
contributions to the property development project by Frontier's fraudulent
promises to extend them further credit in exchange for their payments. At the
outset, this contention fails for the same reason as did the fraudulent inducement
C|aim_that is, because it relies on unsigned credit agreements, it is barred by
the state statute of frauds and the federal D'Oench doctrine.
In addition, the guarantors failed to properly plead or offer sufficient
13 The guarantors also obliquely contend that they were fraudulently induced to enter into
the guaranties because Frontier was likely already in financial trouble atthe time they agreed to
them. Specifically, in their opening brief, the guarantors state, "Appellants believe it is likely that
Frontier Bank was 'in trouble' financially and not in compliance with applicable bank regulations at
the time the original Wellington Construction Loan (and Appellants signed the Guaranty) was
made." Br. of Appellant at 21. This iteration of the fraudulent inducement claim also suffers from
poor pleading and insufficient proof. The guarantors do not establish, among other things, a
relevant "representation."
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No. 72805-9-1/18
evidence in support of their claim. Specifically, assuming that Frontier did
promise to extend further credit, they did not plead (and offered no evidence that)
the maker of this promise knew it to be false at the time made. Instead, the
guarantors repeatedly assert that Frontier reneged on the promise. This is
insufficient.
Finally, this particular fraudulent inducement claim also fails because it is
unrelated to the guarantors' decisions to enter into the guaranties. Even were we
to assume the veracity of the guarantor's contentions, they would not cast light
on the validity of the guaranty. Because it does not undermine the validity ofthe
guaranties, this claim falls into the set of claims and defenses that were waived in
the guaranties.
iii
Misconduct by Union after procuring the guaranties: The guarantors also
assert claims of misconduct by Union. Their first contention is that Union,
through actions taken in the receivership and bankruptcy cases, impaired the
value of the loan collateral (i.e., the property). They also contend that Union did
not work in good faith with them to sell the property for the highest price.14
Initially, all ofthe guarantors' claims with respect to Union are barred by
the terms of the guaranties. Having determined that the guaranties are
enforceable despite the fraud alleged by the guarantors, it follows that the waiver
provisions apply. Pursuant to these provisions, the guarantors waived claims
and defenses to nonpayment, including those asserted herein.
14 See Reply Brief ofAppellant at 20 ("[T]he ultimate and most egregious bad faith in this
matter is Union Bank's repeated refusal to even look at multiple opportunities to realize millions of
dollars more for [the property].").
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No. 72805-9-1/19
The argument regarding Union's alleged misconduct in the receivership
and bankruptcy cases suffers from two additional critical flaws. First, the
guarantors incorrectly attribute decisions that were made by the receiver or the
trustee to Union. To the extent that the guarantors mean, literally, that the
actions in question were taken by Union, they simply misstate the record.
However, their argument seems to be that, although Union did not literally make
the decisions in question, those decisions are nevertheless attributable to Union.
The attribution is based, we assume, on an unspecified principal-agent
relationship. This argument is nothing more than speculation and, therefore,
fails.
The argument also overlooks the role of the court in the allegedly improper
actions. A receiver is "a person appointed by the court as the court's agent, and
subject to the court's direction, to take possession of, manage, or dispose of
property of a person." RCW 7.60.005(10). The power to appoint a receiver is
within the trial court's discretion. King County Dep't of Cmtv. & Human Servs. v.
Nw. Defenders Ass'n, 118Wn. App. 117, 122, 75 P.3d 583 (2003). Likewise, a
trustee in bankruptcy is an officer of the court. In re Castillo, 297 F.3d 940, 946
(9th Cir. 2002): accord Leonard v. Vrooman, 383 F.2d 556, 560 (9th Cir. 1967)
(noting that a trustee in bankruptcy is an officer of the court and is not subject to
suit without leave ofthe appointing court for acts done in his official capacity and
within his authority); Vass v. Conron Bros. Co., 59 F.2d 969, 970 (2d Cir. 1932)
(holding that a bankruptcy trustee, like a receiver, is an officer of the court, and
trustee's possession is protected because it is the court's). At the time of the
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No. 72805-9-1/20
alleged misconduct by the receiver and the trustee, they were subject to the
continuing authority of the court, which ratified each of the challenged decisions.
The guarantors were clearly dissatisfied by the result of those proceedings, but
they may not make them the subject of this action by incorrectly attributing them
to the only other party appearing in the caption.15
The guarantors also assert that Union violated a duty of good faith to them
by refusing to consider alternate arrangements for extracting value from the
property.
"'[A]n implied duty of good faith and fair dealing [is] imposed
on the parties to a contract.'" Miller v. U.S. BankofWash.. N.A..
72 Wash. App. 416, 425, 865 P.2d 536 (1994) (quoting Betchard-
Clavton. Inc. v. King, 41 Wash. App. 887, 890, 707 P.2d 1361
(1985)).] With guaranties, "the creditor's [implied] covenant ofgood
faith is to diligently pursue collection of the debt, and the guarantor
may be relieved of liability on the debt where the creditor does not
exercise due diligence in collection of that debt." [|dj
But this court has "specifically limited claims by guarantors
against lenders, including breach ofgood faith claims, to
performance of specific contract terms." fGravson, 95 Wash. App. at
833]. Absolute guarantors lack "'any recourse against the lender
unless it is alleged and proved that the lender acted in bad faith.'"
[Id at 831 (emphasis added) (quoting Nat'l Bank ofWash., 81
Wash. 2d at 920).] As previously stated, this court has held that "'a
guarantor cannot rely upon the relationship between a lender and a
15 The guarantors' claims regarding actions taken in the receivership and bankruptcy
cases also fail because they actively participated in those proceedings by, among other things,
filing proofs of claim and opposing any sale of the property.
RCW 7.60.190, entitled, "Participation ofcreditors and parties in interest in receivership
proceeding-Effect of court orders on nonparties," provides that creditors and parties who receive
notice, have actual knowledge of, and actively participate in receivership proceedings are bound
by the acts of the receiver and the order of the receivership court, regardless of whether they are
formally joined as parties. The same principles apply to acts of the bankruptcy trustee and orders
of the bankruptcy court. Lanoenkamo v. Culp. 498 U.S. 42, 45, 111 S. Ct. 330, 112 L Ed. 2d 343
(1990) (by filing a proof of claim, one submits himself to the jurisdiction of the bankruptcy court);
In re Farmland Indus.. Inc.. 376 B.R. 718, 727 (Bankr. W.D. Mo. 2007) (bankruptcy court sales
order is binding on entity that participated in bankruptcy case sale motion and that entity cannot,
in another lawsuit, challenge the sale as improper).
Because the guarantors filed proofs ofclaim in both the receivership and the bankruptcy
cases and because they contested both attempts to obtain authorization to sell the property, they
are bound by the actions taken in each case and cannot challenge them here.
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No. 72805-9-1/21
borrower to create a fiduciary duty running from the lender to the
guarantor.'" [Id, at 833 (quoting Miller. 72 Wash. App. at 426).]
Frontier Bank. 191 Wash. App. at 70 (first alteration in original).
In sum, the common law duty of good faith does not require Union to
refrain from its rights under the guaranties, as it properly does here. See GMAC
v. Everett Chevrolet. Inc.. 179 Wash. App. 126, 150, 317 P.3d 1074. review denied.
181 Wn.2d 1008(2014).
Because the guarantors' claims and defenses fail as a matter of law, the
trial court's order granting summary judgment in Union's favor as to its claims
pursuant to the guaranties was proper.
Ill
Union requests attorney fees on appeal based on the terms ofthe
guaranties.
In Washington, attorney fees may be awarded for costs of litigation only
when authorized by contract, statute, or recognized ground of equity. Durland v.
San Juan County, 182 Wash. 2d 55, 76, 340 P.3d 191 (2014).
Herein, the guaranties state, "Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this Guaranty
Costs and expenses include Lender's attorneys' fees and legal expenses ... for
appeals." Because Union has established a right to the enforcement of the
guaranties, it is entitled to an award of reasonable attorney fees on appeal.
Accordingly, upon compliance with RAP 18.1, a commissioner of this court
will enter an appropriate order.
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No. 72805-9-1/22
Affirmed.
We concur:
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-22-