Opinion
CASE NO. A2-01-17.
October 15, 2001
MEMORANDUM AND ORDER
I. Introduction
Before the Court are various summary judgment motions by the parties to this action, involving a series of promissory notes and personal guarantees connected to loans obtained by BioDigestor Industries, Inc. (BDT), from Alerus Financial, N.A. As set forth below, the motion by Lunseth against Hombach (doc. # 37) is GRANTED; the motion by Hombach against Mathsen, Amiot, Kvidt, O'Connell, and Entech (doc. # 56) is DENIED; and the motions by Kvidt, O'Connell and EnTech against Hombach (doc.'s # 65, 66, 76) are GRANTED.
II. Background
A. Facts
This case grew out of intra-corporate disputes at BDT. As mentioned, the motions before the Court implicate only issues related to financing arrangements obtained by BDT. All of the parties here have had some involvement with BDT, the corporation which lies at the center of this controversy. BDT s business involved designing and installing systems for the removal or conversion of organic waste, such as to control odors from food processing plants or to process municipal wastewater. BDT recently entered into a joint venture agreement with Lunseth to construct a wastewater treatment plant for the city of Grand Forks; the underlying contract is apparently worth $9.2 million.
The Court notes a case filed by the shareholders of BDT against Hombach for various breaches of corporate duties and other law is pending in this Court. Aubol, et al., v. Hombach, et al., A2-01-87.
The parties can best be described by reference to BDT. Plaintiff H. Peter Hombach was a founding shareholder of BDT and served as its president and chief scientist; he also served as a member of the board of directors and as chairman of that board. As a result of various disagreements, he left these positions in August 2000. Defendants O'Connell, Kvidt, Mathsen, Amiot, and Aubol were members of BDT s board of directors at all relevant times. Defendant Becker became president and chief executive officer of that board on September 1, 2000. Defendant Entech is a wholly owned subsidiary of BDT. Finally, O'Connell is also a major shareholder of both Lunseth and Bac-T systems.
The underlying transactions at issue are four loans BDT obtained from Alerus, each secured by a promissory note from BDT. The dates and amounts of these loans are as follows: September 30, 1999, $304,800; September 30, 1999, $305,000; January 14, 2000, $300,000; October 11, 2000, $350,050. Each promissory was signed for BDT by Don Mathsen and Mark Amiot in their roles as vice president and secretary/treasurer, respectively.
In connection with these loans, various parties executed personal guarantees in favor of Alerus. On September 30, 1999, Mathsen, Amiot, and Hombach each executed such a guarantee; Entech executed one, through Amiot, on January 14, 2000. These four guarantees are identical. Their terms state the liability of Guarantor is unlimited and the obligations of Guarantor are continuing. The documents define indebtedness as being used in its most comprehensive sense and includ[ing] any and all of [BDT s] liabilities, obligations, debts, and indebtedness to [Alerus], now existing or hereinafter incurred or created[.] They also contain a series of waivers; these include a waiver of the right to require Alerus to proceed directly or at once against any person, including [BDT] or any other guarantor and to pursue any other remedy within [Alerus ] power. The parties also subordinated any claims against BDT.
On October 11, 2000, Kvidt and O'Connell executed similar guarantees. However, these guarantees were limited to the October 11, 2000 loan of $350,050 and its accompanying note. In contrast, the first four guarantees covered by their terms all indebtedness of BDT to Alerus, Therefore, the Kvidt and O'Connell guarantees are not open and continuing in the fashion of the original four, although they contain the same waivers mentioned above.
Disagreements between Hombach and others at BDT culminated with his leaving in August 2000. There followed financial problems at BDT, leaving it unable to meet its obligations under the notes. On January 24, 2001, the notes and guarantees securing them were assigned by Alerus to Lunseth. The amount of these notes is $1,147,209.52 principal; accrued interest of $35,180.86 as of February 26, 2001, and interest of roughly $348 daily. That same day, Bac-T acquired virtually all of BDT s assets, including rights to the wastewater project, BDT technologies, patents, work product, and all Entech stock. The agreement was signed by Becker for BDT and O'Connell and Kvidt for Bac-T.
B. Parties positions
Hombach initiated this litigation on January 17, 2001, when he filed a complaint against BDT. This complaint charged BDT with misapplying or wasting corporate assets and violating North Dakota corporate law. He then sought appointment of a receiver to take control of BDT, and this Court granted that motion on February 23. The Court subsequently allowed Lunseth and Bac-T to intervene in the action and, following a hearing, accepted the resignation of the original receiver.
Shortly thereafter, Lunseth and Bac-T filed their answer and counterclaim. The counterclaim alleges that the promissory notes from BDT to Alerus, which Lunseth had acquired, were in default; that Homabach had signed the above-described guarantee; and that he was thereby liable to Lunseth for the amounts due under the notes. It also asserted that it was attempting to sell the assets of BDT, and that any such sales would reduce Hombach s liability.
Hombach then filed an answer to the counterclaim and a third party complaint against the individual defendants, BDT and Entech. As to Lunseth s counterclaim, he alleged many affirmative defenses. For his counterclaim and third party complaint, he advanced five counts. First, he alleged defendants O'Connell, Kvidt, Mathsen, Amiot, Aubol, as well as other members of BDT s board and Becker, breached their fiduciary duty to BDT s shareholders. Second, he alleged these defendants breached their fiduciary duty to him as a fellow board member. Third, he alleged BDT and Becker committed fraud to induce him to settle disputed claims between him and BDT. Fourth, he alleges conversion by BDT. Finally, against O'Connell, Kvidt, Mathsen, Entch, and Amiot, he seeks contribution relating to the guarantees.
However, the claims currently before the Court concern the notes. Lunseth has moved for summary judgment against Hombach on his guarantee. Hombach resists this motion, and he has moved for summary judgment against Mathsen, Amiot, Kvidt, O'Connell, and Entech for contribution in the event Lunseth prevails against him. Each of those five defendants resists Hombach s motion, and Entech, O'Connell and Kvidt have moved for summary judgment against him. Mathsen and Amiot, while resisting Hombach, have not moved for summary judgment.
III. Analysis
A. Summary judgment standard
Summary judgment is appropriate when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is "material" if it might affect the outcome of a case, and a dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Churchill Bus. Credit, Inc. v. Pacific Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995).
The inquiry for summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law." However, the nonmovant must do more than merely restate earlier pleadings. See McLaughlin v. Esselte Pendaflex Corp., 50 F.3d 507, 510 (8th Cir. 1995). Mere arguments or allegations are insufficient to defeat summary judgment; the nonmovant must advance specific facts to create a genuine issue of material fact for trial. See, e.g., F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997). This requirement is not satisfied by speculation, conjecture, or fantasy; it requires sufficient probative evidence to allow a finding in its favor, assuming the evidence is established at trial. See Wilson v. International Business Machines Corp., 62 F.3d 237, 241 (8th Cir. 1995).
B. Analysis
1. Guarantee liability: Lunseth v. Hombach
The Court has little difficulty concluding that Hombach is liable to Lunseth as assignee of Alerus on the personal guaranty he signed September 30, 1999, and that this liability extends to the full amount of the guarantee. An assignee may proceed in place of the assignor on a personal guaranty. See, e.g., Diversified Financial Systems, Inc., v. Binstock, 575 N.W.2d 677, 679 (N.D. 1998). Therefore, the relationship at issue is governed by the plain language of the guarantee. See Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 643 (N.D. 1980) (holding that guarantee liability is governed by the terms of the guarantee). Hombach does not contest that he signed the guarantee or that the notes are in default. The guarantee provides that Hombach promises to pay to [Lunseth] or its order, in legal tender of the United States, the indebtedness of BDT. By the terms of the guarantee, therefore, it is apparent that Hombach is liable to Lunseth for the full amount guaranteed.
Hombach has raised several objections to this liability, however, which the Court will briefly address. Initially, the Court recognizes his argument that the coguarantors are equally liable; that issue will be addressed in detail below. Second, the Court recognizes that Hombach listed, in his answer, the laundry list of affirmative defenses which might conceivably be available to one in his position. His briefing, however, indicates that only two of these are truly at issue. First, he argues that he was only aware of the first loan, and thus should not be liable on the others. Second, he asserts that Lunseth is not entitled to summary judgment because of O'Connell s alleged squeezing him out of BDT. The Court will address these together.
The Court is not persuaded by Hombach s argument that he is not liable because he did not know of loans beyond the first one or because he was squeezed out. Even assuming these are true — and there is evidence in the file suggesting Hombach knew of the loans — they do not alter the legal relationship created by the contract at issue. The contract secures all indebtedness of BDT now existing or hereinafter incurred or created. It is also plainly labeled as unlimited and continuous. Thus, the language of the contract undercuts the argument that the guarantee pertained only to the initial loan, or that Hombach had to be aware of future loans for them to be included.
Further, Hombach waived in the guarantee any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness. The guarantee also acknowledges each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences[.] Thus, even assuming that Hombach s claims constitute conceptually valid defenses to collection, which the Court assumes without deciding, he has waived the right to assert them against Alerus and thus its assignee. Finally, Hombach subordinated his claims against BDT to the claims Lunseth has against him, preventing him from pursuing them in this fashion.
Hombach s allegations of illegal conduct by Lunseth and O'Connell, as well as his complaints that the BDT board violated corporate duties, will be heard in their own place. That place, however, is not this portion of the litigation. Therefore, the Court holds the motion for summary judgment by Lunseth against Hombach on his guarantee is GRANTED (doc. # 37), and the Court will enter a partial judgment on this claim. Lunseth is DIRECTED to prepare and file with the Court a proposed partial judgment within ten (10) days of the date of this Order; plaintiff shall then have five (5) days to object to the form of the judgment, but not to its entry, as those objections are resolved by this Order. Finally, the Court orders that enforcement of this judgment will be STAYED until further order by the Court; Lunseth may apply for relief from the stay when appropriate.
2. Coguarantor liability: Hombach v. his coguarantors
Essentially, the issue presented by these motions is whether one who executes a full, joint and several guarantee may compel his coguarantors to pay their pro rata shares to a creditor who has obtained a judgment against him, or whether he must pay a portion of the judgment himself and seek contribution later. Naturally, Hombach argues the first conclusion; Mathsen, Kvidt, Amiot, O'Connell, and Entech urge the second. The Court holds that Hombach must pay more than his pro rate share of the guarantee obligations before seeking contribution.
This conclusion is dictated by N.D. Cent. Code. § 9-01-08, entitled joint obligation — contribution. It provides, A party to a joint obligation or to a joint and several obligation who satisfies more than his share of the claim against all obligors may require a proportionate contribution from all the parties joined with him. Id. (emphasis supplied). The language of the statute thus provides that a joint obligor may recover only once he satisfies more than his share of the debt; it makes such satisfaction a prerequisite to contribution.
This conforms with the general rule as expressed in the Restatement of Restitution, § 81, which provides a person who has discharged more than his proportionate share of a duty owed by himself and another as to which, between the two, neither had a prior duty of performance, is entitled to contribution from the other[.] Further, § 82 of the Restatement clarifies a coobligor is entitled to contribution when, and only when, he has discharged more than his proportionate share.
In light of this conclusion, the Court holds that Hombach may not seek contribution until he has paid more than his proportionate share of the indebtedness. Therefore, his motion for summary judgment is DENIED. Contrarily, the motions for summary judgment by Entech, O'Connell, and Kvidt are GRANTED, and the contribution claim as against them is dismissed. Further, though they have not filed a motion, the Court grants summary judgment on the contribution claims against Amiot and Mathsen.
IT IS SO ORDERED.