Opinion
NO. 2012-CA-001516-MR
02-14-2014
DONALD R. RICHARDSON APPELLANT v. CONLEY GREGORY, JOANNA GREGORY, WIFE, KENTUCKY HIGHLANDS INVESTMENT, A KENTUCKY CORPORATION, AND MONTICELLO WOOD INDUSTRIES, LLC APPELLEES
BRIEFS FOR APPELLANT: James M. Frazer Monticello, Kentucky Winter R. Huff Monticello, Kentucky BRIEF FOR APPELLEES, CONLEY GREGORY AND JOANNA GREGORY: Sara Beth Gregory Lance W. Turner Monticello, Kentucky BRIEF FOR APPELLEE, KENTUCKY HIGHLANDS INVESTMENT CORPORATION: D. Duane Cook John M. Sosbe Georgetown, Kentucky John Paul Jones, II Monticello, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM WAYNE CIRCUIT COURT
HONORABLE VERNON MINIARD, JR., JUDGE
ACTION NOS. 09-CI-00165 & 09-CI-00390
OPINION
AFFIRMING IN PART,
REVERSING IN PART, AND REMANDING
BEFORE: CAPERTON, DIXON, AND VANMETER, JUDGES. CAPERTON, JUDGE: Donald R. Richardson appeals from the trial court's grant of summary judgment in favor of Kentucky Highlands Investment Corporation in which the court also awarded interest and attorney fees. After our review of the record, we have concluded that the court erred in its calculation of interest; we must reverse on this ground and remand this matter for further proceedings. However, we affirm the remainder of the trial court's findings of fact and conclusions of law. In addition, Richardson appeals from the partial summary judgment entered in favor Conley Gregory and Joanna Gregory. We conclude that this matter is not properly before on us on appeal due to it being an interlocutory order and that key issues remain between the Gregorys and Richardson; thus, we decline to address the arguments raised by the parties concerning this interlocutory order.
Generally, our appellate jurisdiction is restricted to final judgments. Absent an order determining all the rights of all the parties in an action or proceeding or having been made final by reciting the CR 54.02(1) language, an order is interlocutory and we are without jurisdiction to hear an appeal there from. Wilson v. Russell, 162 S.W.3d 911, 913-941 (Ky. 2005). See also Stice v. Leonard, 420 S.W.2d 672, 674 (Ky. 1967) citing First Nat. Bank of Mayfield v. Gardner, Ky., 330 S.W.2d 409.
This Court recently reiterated "this court is required to raise a jurisdictional issue on its own motion if the underlying order lacks finality." Tax Ease Lien Investments 1, LLC v. Brown, 340 S.W.3d 99, 101 (Ky. App. 2011) citing Huff v. WoodMosaic Corp., 454 S.W.2d 705, 706 (Ky.1970).
Sub judice, we believe that key issues remain pertaining to the litigation between the Gregorys and Richardson. The Gregorys filed suit against Richardson seeking a declaratory judgment that Richardson was still obligated to pay all loans which he personally guaranteed or borrowed personally, relating to Monticello Wood Industries, LLC ("MWI"). The Gregorys sought contribution and indemnity from Richardson for payments made on said loans. Richardson filed a counterclaim against Gregory and a Third Party Complaint against MWI and KHIC. Richardson's counterclaim against Gregory asserted that he is not liable on the notes or personal guaranty because Gregory agreed to purchase his share of the company and assume all of the indebtedness. Richardson's counterclaim relied upon a purported contract labeled "rough draft". Richardson further alleged that appropriate representatives of KHIC advised him that KHIC would allow Gregory to assume the indebtedness and that KHIC failed and refused to permit Gregory to assume the indebtedness.
The partial summary judgment appealed from addressed the Gregorys' and Richardson's arguments concerning whether the Gregory's contractually agreed to buy out Richardson based on a "rough draft" contract, which Richardson argued precluded his personal liability on the notes and personal guaranty. Richardson asserted that the rough draft was a fully enforceable contract. The rough draft contained a provision that it was expressly conditioned upon Gregory's ability to obtain appropriate and acceptable financing.
The court found that the undisputed evidence that the condition stated in the rough draft relied upon by Richardson was not met. The court then granted the Gregorys' motion for partial summary judgment and declared that the document at issue, by its own terms, was null and void and had no effect whatsoever on the rights of the parties. The court further declared that Richardson remained obligated in regard to all loans which he personally guaranteed or borrowed relating to MWI, subject to the defenses raised by both Richardson and the Gregorys as to the validity of personal guarantees held by KHIC.
We must conclude that the partial summary judgment was not a final and appealable order as it did not determine all the rights of all the parties in an action or proceeding or having been made final by reciting the CR 54.02(1) language. Indeed, as between Richardson and the Gregorys, the court did not make findings regarding contribution and indemnity; thus, the court properly concluded that this partial summary judgment was not a final and appealable order. Accordingly, we decline to address the parties' arguments concerning the purported contract between Richardson and Gregory given our remand of this matter. The court on remand will have the opportunity to address the remaining issues of contribution and indemnity between the Gregorys and Richardson.
On October 10, 2001, Conley Gregory and Donald Richardson formed a limited liability company known as Monticello Wood Industries, LLC ("MWI"). Gregory and Richardson were the only members of MWI. In 2003 and 2004 MWI borrowed money from Kentucky Highlands Investment Corporation ("KHIC") in five separate loans. All of these loans to MWI were personally guaranteed, jointly and severally, by Richardson and the Gregorys. Three of the loans also had a USDA guaranty of the loans.
The loans were secured by MWI's assets in addition to the personal guarantees of Richardson and the Gregorys. We note that Gregory and Richardson also borrowed additional money from the Monticello Banking Company in two separate notes.
The parties had agreed to share equally in the profits and expenses of MWI. Problems arose when Richardson began failing to make his share of contributions and payments need to operate the company sometime in 2005. The parties attempted to negotiate a buyout of Richardson's interest in MWI. The litigation began on May 5, 2009, when the Gregorys filed suit against Richardson seeking a declaratory judgment that Richardson was still obligated to pay all loans which he personally guaranteed or borrowed personally relating to MWI. The Gregorys sought contribution and indemnity from Richardson for payments made on said loans. Richardson filed a counterclaim against Gregory and a third party complaint against MWI and KHIC. Richardson's counterclaim against Gregory asserted that he is not liable on the notes or personal guaranty because Gregory agreed to purchase his share of the company and assume all of the indebtedness in 2006. Richardson's counterclaim relied upon a purported contract labeled "rough draft".
Richardson's third party counterclaim against KHIC sought a determination that Richardson was no longer obligated on his personal guarantees of the loans because: (1) appropriate representatives of KHIC advised him that KHIC would allow Gregory to assume the indebtedness; and (2) that KHIC failed and refused to permit Gregory to assume the indebtedness and such action was arbitrary, unreasonable and in violation of the covenant of good faith dealing and further constitutes an intentional interference with the business relations of Richardson. Richardson additionally asserted that KHIC continued to communicate to the Gregorys about the indebtedness and forbearance in collection, but excluded Richardson from these discussions. Richardson also requested that the court issue an order requiring KHIC to assert in the Gregory/Richardson action any claims KHIC had against MWI or the assets of MWI.
KHIC filed its answer to Richardson's third-party complaint on August 19, 2009, but chose not to assert its claims against MWI (who was not a party to the Gregory/Richardson action) or its claims on the guarantees of the loans to MWI. Instead, on November 3, 2009, KHIC brought a foreclosure action against MWI, Richardson, and the Gregorys to collect on the loans made to MWI. In his original answer to the foreclosure action, Richardson admitted signing guarantees of the MWI loans but claimed that KHIC unreasonably, arbitrarily, capriciously, and without good cause, failed and refused to permit Gregory to assume the indebtedness and release Richardson from liability.
Thereafter, on September 23, 2010, the court permitted Richardson to amend his answer and assert additional defenses, including claims that Richardson was released from liability on his guarantees of the MWI Loans because: (1) KHIC breached its covenant of good faith and fair dealing by refusing to communicate to Richardson the efforts of Gregory to sell MWI; (2) KHIC breached its covenant of good faith and fair dealing by not advising Richardson of the effect of certain USDA regulations; (3) KHIC failed to comply with certain USDA regulations; and (4) KHIC breached its duty of good faith and fair dealing by failing to consider the offer of MWI to surrender the collateral in full satisfaction of the debt.
On November 25, 2009, Richardson moved to dismiss the claims made against him in the foreclosure action on the grounds that these claims were compulsory counterclaims which were required to be asserted in the Gregory/Richardson action, and because they were not then KHIC had waived them. KHIC notes that Richardson did not allege any prejudice by the bringing of the claims in the foreclosure action instead of the Gregory/Richardson action. KHIC responded to Richardson's motion by asserting: (1) the guaranty claims were not compulsory counterclaims; and (2) the court should either permit KHIC to amend its pleadings or to consolidate the actions. The court consolidated the actions on January 20, 2010.
Thereafter, on August 10, 2011, the court entered its partial summary judgment and order of sale (the "MWI Judgment"). The MWI Judgment determined that MWI owed KHIC $2,524,057.92 plus interest, as of May 20, 2011; that the MWI loans were secured by all the assets of MWI; and that these assets were ordered to be sold at public auction. The sale of MWI's assets left a balance due of $1,739,927.61 with interest accruing at the rate of $266.27 per day. KHIC then filed a summary judgment motion with the court to resolve the deficiency claims against Richardson and the Gregorys for the outstanding balance owed to KHIC by MWI on December 29, 2011. Richardson filed a reply as well as another motion to amend his counterclaim against the Gregorys and his third party complaint against KHIC.
On May 3, 2012, the court entered its final judgment granting summary judgment to KHIC and denying Richardson's motions to amend. The court found that absolute guarantees signed by Richardson contained express waivers of every kind of claim or defense that Richardson had asserted in the case. Richardson was a sophisticated businessman and had not asserted that he was fraudulently induced into signing the guarantees or that there was any ambiguity in the contracts. He was not released from the guarantees by KHIC. The court noted that the waivers in a guaranty are enforceable: "An absolute guaranty is a contract by which the guarantor promises that if the debtor does not perform his obligation or obligations, the guarantor will perform some act (such as the payment of money) to or for the benefit of the creditor, irrespective of any additional contingencies." APL, Inc. v. Ohio Valley Aluminum, Inc., 839 S.W.2d 571, 573 (Ky. App. 1992) citing Pulaski Stave Co. v. Miller's Creek Lumber Co., 138 Ky. 372, 128 S.W. 96, 102 (1910); see 38 Am.Jur.2d Guaranty § 21 (1968). The court further held that every action taken by KHIC in regard to the loan to MWI was within its rights under its agreement with Richardson. Thus, the court concluded that the guarantees were enforceable and judgment was entered in the amount of $1,739,927.61 plus costs of collection incurred by KHIC after December 1, 2011, plus interest at the contract rate from December 1, 2011, to the date of judgment against Richardson, plus interest on these amounts at the post-judgment rate of 12% per annum from the date of judgment against Richardson until paid. It is from this order that Richardson now appeals.
On appeal, Richardson presents the following arguments: (1) KHIC's claims should have been barred for failure to present them as compulsory counterclaims; (2) the trial court erred in granting summary judgment to KHIC; (3) the post-judgment award of interest is erroneous as a matter of law; the award of prejudgment interest was excessive as to duration; (4) the trial court erred in granting summary judgment to Gregory; there were material issues of fact and law regarding the purchase agreement; (5) the trial court erred by refusing to permit the amended counterclaim against Gregory and amended third party complaint against KHIC; and (6) the calculation of the judgment was erroneous as a matter of law.
As discussed earlier, we decline to address this argument concerning the partial summary judgment given the unresolved issues presented to the trial court on this matter.
In response, KHIC argues: (1) Richardson is liable for the entire outstanding balance of the MWI loans as he signed absolute, unconditional, joint and several guarantees of each of the MWI loans, he was never released from these guarantees by KHIC, and he has waived the right to assert any counterclaim, setoff, and other defenses against KHIC; (2) KHIC claims were not lost on Richardson's guarantees because they chose not to pursue them in the Gregory/Richardson action; (3) no alleged breaches of USDA regulations by KHIC relieved Richardson on his obligations under the guarantees he signed; (4) KHIC did not breach any implied duty of good faith owed to Richardson; (5) the guarantees signed by Richardson require him to pay attorney's fees and costs incurred by KHIC in its efforts to collect its loans to MWI; (7) KHIC is entitled to pre-judgment interest at the contract rate and then the statutory rate post-judgment; and (8) the court did not abuse its discretion by refusing to grant Richardson's eleventh hour motion to amend his claims against KHIC.
The Gregorys also argue that the court did not abuse its discretion in denying Richardson's request to amend his pleadings.
At the outset we note that the applicable standard of review on appeal of a summary judgment is, "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). Summary judgment, "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." CR 56.03. The trial court must view the record "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). Summary judgment is proper only "where the movant shows that the adverse party could not prevail under any circumstances." Id. However, "a party opposing a properly supported summary judgment motion cannot defeat that motion without presenting at least some affirmative evidence demonstrating that there is a genuine issue of material fact requiring trial." Hubble v. Johnson, 841 S.W.2d 169, 171 (Ky. 1992), citing Steelvest, supra. See also O'Bryan v. Cave, 202 S.W.3d 585, 587 (Ky. 2006); Hallahan v. The Courier Journal, 138 S.W.3d 699, 705 (Ky. App. 2004). Since summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court's decision and will review the issue de novo. Lewis v. B & R Corporation, 56 S.W.3d 432, 436 (Ky. App. 2001). With this in mind we now turn to the issues raised by the parties.
As his first basis for appeal, Richardson argues that KHIC's claims should have been barred for failure to present them as compulsory counterclaims.
CR 13.01 requires:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has againstWe agree with KHIC that "The real purpose of Rule 13.01 is to require that all issues be resolved between the parties in one trial and to avoid the multiplicity of trials." Williams v. Carter Bros. Co., 390 S.W.2d 873, 875 (Ky. 1965). Sub judice the real purpose of CR 13.01 was met when the cases were consolidated. Thus, we decline to reverse on this ground.
any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. The pleader need not state the claim if (a) at the time the action was commenced the claim was the subject of another pending action, or (b) the opposing party brought suit upon his claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim, and the pleader is not stating any counterclaim under Rule 13. Any counterclaim against the Commonwealth, or any agency or political subdivision thereof, may be stated at the pleader's option.
As his second basis for appeal, Richardson argues that the trial court erred in granting summary judgment to KHIC. In support thereof Richardson asserts: (1) KHIC's claims should have been barred for failure to follow applicable regulations, or at least, there were material issues of fact concerning KHIC's obligations of good faith and fair dealing; (2) the treatment by KHIC and Gregory of MWI assets which were collateral for the loans at issue precluded summary judgment; and (3) material issues of fact concerning attorney's fees, appraisal costs, and insurance precluded summary judgment.
Richardson argues that KHIC's claims should have been barred for failure to follow applicable regulations, or at least there were material issues of fact concerning KHIC's obligations of good faith and fair dealing precluding summary judgment. KHIC argues that they did not breach any implied duty of good faith and fair dealing because the alleged failure to follow USDA regulations does not constitute a breach of good faith and fair dealing; KHIC's refusal to release Richardson from his guaranty was not a breach of the duty of good faith and fair dealing; and Richardson has not alleged, or proven, that he suffered any damages from any alleged breach of KHIC of the duty of good faith and fair dealing.
The court below, in addressing Richardson's argument that KHIC's failure to follow procedural or substantive regulations is an equitable defense to foreclosure, noted that the cases relied upon by Richardson required that the defense be asserted by the "borrower", which Richardson was not. Moreover, the cases cited by Richardson relied upon protections for farmers built into the Agriculture Credit Act which Congress did not include in the USDA regulations at issue. We agree with the court below that any alleged failure of KHIC to follow applicable USDA regulations does not bar their claims against Richardson.
Richardson cites this Court to 7 CFR § 4287.157, 7 CFR § 4287.134, and 7 CFR § 4287.145. The only regulation which concerns the borrower is 7 CFR § 4287.145 and this regulation does not provide relief to Richardson, who we reiterate is not the borrower sub judice. Thus, we find no error in the trial court concluding same.
In the event of one or more incidents of default or third party actions that the borrower cannot or will not cure or eliminate within a reasonable period of time, liquidation may be considered. If the lender concludes that liquidation is necessary, it must request the Agency's concurrence. The lender will liquidate the loan unless the Agency, at its option, carries out liquidation. When the decision to liquidate is made, if the loan has not already been repurchased, provisions will be made for repurchase in accordance with § 4279.78 of subpart A of part 4279 of this chapter. (a) Decision to liquidate. A decision to liquidate shall be made when it is determined that the default cannot be cured through actions contained in § 4287.145 of this subpart or it has been determined that it is in the best interest of the Agency and the lender to liquidate. The decision to liquidate or continue with the borrower must be made as soon as possible when any of the following exist: (1) A loan has been delinquent 90 days and the lender and borrower have not been able to cure the delinquency through one of the actions contained in § 4287.145 of this subpart. (2) It has been determined that delaying liquidation will jeopardize full recovery on the loan. (3) The borrower or lender has been uncooperative in resolving the problem and the Agency or the lender has reason to believe the borrower is not acting in good faith, and it would enhance the position of the guarantee to liquidate immediately. (b) Liquidation by the Agency. The Agency may require the lender to assign the security instruments to the Agency if the Agency, at its option, decides to liquidate the loan. When the Agency liquidates, reasonable liquidation expenses will be assessed against the proceeds derived from the sale of the collateral. Form FmHA 1980-45, "Notice of Liquidation Responsibility," will be forwarded to the Finance Office when the Agency liquidates the loan. (c) Submission of liquidation plan. The lender will, within 30 days after a decision to liquidate, submit to the Agency in writing its proposed detailed method of liquidation. Upon approval by the Agency of the liquidation plan, the lender will commence liquidation. (d) Lender's liquidation plan. The liquidation plan must include, but is not limited to, the following: (1) Such proof as the Agency requires to establish the lender's ownership of the guaranteed loan promissory note and related security instruments and a copy of the payment ledger if available which reflects the current loan balance and accrued interest to date and the method of computing the interest. (2) A full and complete list of all collateral including any personal and corporate guarantees. (3) The recommended liquidation methods for making the maximum collection possible on the indebtedness and the justification for such methods, including recommended action: (i) For acquiring and disposing of all collateral; and (ii) To collect from guarantors. (4) Necessary steps for preservation of the collateral. (5) Copies of the borrower's latest available financial statements. (6) Copies of the guarantor's latest available financial statements. (7) An itemized list of estimated liquidation expenses expected to be incurred along with justification for each expense. (8) A schedule to periodically report to the Agency on the progress of liquidation. (9) Estimated protective advance amounts with justification. (10) Proposed protective bid amounts on collateral to be sold at auction and a breakdown to show how the amounts were determined. (11) If a voluntary conveyance is considered, the proposed amount to be credited to the guaranteed debt. (12) Legal opinions, if needed. (13) If the outstanding balance of principal and accrued interest is less than $200,000, the lender will obtain an estimate of fair market and potential liquidation value of the collateral. If the outstanding balance of principal and accrued interest is $200,000 or more, the lender will obtain an independent appraisal report meeting the requirements of § 4279.144 of subpart B of part 4279 of this chapter on all collateral securing the loan which will reflect the fair market value and potential liquidation value. In order to formulate a liquidation plan which maximizes recovery, collateral must be evaluated for the release of hazardous substances, petroleum products, or other environmental hazards which may adversely impact the market value of the collateral. The appraisal shall consider this aspect. The independent appraiser's fee, including the cost of the environmental site assessment, will be shared equally by the Agency and the lender. (e) Approval of liquidation plan. The Agency will inform the lender in writing whether it concurs in the lender's liquidation plan. Should the Agency and the lender not agree on the liquidation plan, negotiations will take place between the Agency and the lender to resolve the disagreement. When the liquidation plan is approved by the Agency, the lender will proceed expeditiously with liquidation. (1) A transfer and assumption of the borrower's operation can be accomplished before or after the loan goes into liquidation. However, if the collateral has been purchased through foreclosure or the borrower has conveyed title to the lender, no transfer and assumption is permitted. (2) A protective bid may be made by the lender, with prior Agency written approval, at a foreclosure sale to protect the lender's and the Agency's interest. The protective bid will not exceed the amount of the loan, including expenses of foreclosure, and should be based on the liquidation value considering estimated expenses for holding and reselling the property. These expenses include, but are not limited to, expenses for resale, interest accrual, length of time necessary for resale, maintenance, guard service, weatherization, and prior liens. (f) Acceleration. The lender, or the Agency if it liquidates, will proceed to accelerate the indebtedness as expeditiously as possible when acceleration is necessary including giving any notices and taking any other legal actions required. A copy of the acceleration notice or other acceleration document will be sent to the Agency (or lender if the Agency liquidates). The guaranteed loan will be considered in liquidation once the loan has been accelerated and a demand for payment has been made upon the borrower. (g) Filing an estimated loss claim. When the lender is conducting the liquidation and owns any or all of the guaranteed portion of the loan, the lender will file an estimated loss claim once a decision has been made to liquidate if the liquidation will exceed 90 days. The estimated loss payment will be based on the liquidation value of the collateral. For the purpose of reporting and loss claim computation, the lender will discontinue interest accrual on the defaulted loan in accordance with Agency procedures, and the loss claim will be promptly processed in accordance with applicable Agency regulations. (h) Accounting and reports. When the lender conducts liquidation, it will account for funds during the period of liquidation and will provide the Agency with reports at least quarterly on the progress of liquidation including disposition of collateral, resulting costs, and additional procedures necessary for successful completion of the liquidation. (i) Transmitting payments and proceeds to the Agency. When the Agency is the holder of a portion of the guaranteed loan, the lender will transmit to the Agency its pro rata share of any payments received from the borrower; liquidation; or other proceeds using Form FmHA 1980-43, "Lender's Guaranteed Loan Payment to FmHA." (j) Abandonment of collateral. There may be instances when the cost of liquidation would exceed the potential recovery value of the collection. The lender, with proper documentation and concurrence of the Agency, may abandon the collateral in lieu of liquidation. A proposed abandonment will be considered a servicing action requiring the appropriate environmental review by the Agency in accordance with subpart G of part 1940 of this title. Examples where abandonment may be considered include, but are not limited to: (1) The cost of liquidation is increased or the value of the collateral is decreased by environmental issues; (2) The collateral is functionally or economically obsolete; (3) There are superior liens held by other parties in excess of the value of the collateral; (4) The collateral has deteriorated; or (5) The collateral is specialized and there is little or no demand for it. (k) Disposition of personal or corporate guarantees. The lender should take action to maximize recovery from all collateral, including personal and corporate guarantees. The lender will seek a deficiency judgment when there is a reasonable chance of future collection of the judgment. The lender must make a decision whether or not to seek a deficiency judgment when: (1) A borrower voluntarily liquidates the collateral, but the sale fails to pay the guaranteed indebtedness; (2) The collateral is voluntarily conveyed to the lender, but the borrower and personal and corporate guarantors are not released from liability; or (3) A liquidation plan is being developed for forced liquidation. (l) Compromise settlement. A compromise settlement may be considered at any time. (1) The lender and the Agency must receive complete financial information on all parties obligated for the loan and must be satisfied that the statements reflect the true and correct financial position of the debtor including all assets. Adequate consideration must be received before a release from liability is issued. Adequate consideration includes money, additional security, or other benefit to the goals and objectives of the Agency. (2) Before a personal guarantor can be released from liability, the following factors must be considered. (i) Cash, either lump sum or over a period of time, or other consideration offered by the guarantor; (ii) Age and health of the guarantor; (iii) Potential income of the guarantor; (iv) Inheritance prospects of the guarantor; (v) Availability of the guarantor's assets. (vi) Possibility that the guarantor's assets have been concealed or improperly transferred; and (vii) Effect of other guarantors on the loan. (3) Once the Agency and the lender agree on a reasonable amount that is fair and adequate, the lender can proceed to effect the settlement compromise. (4) A compromise will only be accepted if it is in the best interest of the Agency.
(a) Documentation of request. All transfers and assumptions must be approved in writing by the Agency and must be to eligible applicants in accordance with subpart B of part 4279 of this chapter. An individual credit report must be provided for transferee proprietors, partners, officers, directors, and stockholders with 20 percent or more interest in the business, along with such other documentation as the Agency may request to determine eligibility. (b) Terms. Loan terms must not be changed unless the change is approved in writing by the Agency with the concurrence of any holder and the transferor (including guarantors) if they have not been or will not be released from liability. Any new loan terms must be within the terms authorized by 4279.126 of subpart B of part 4279 of this chapter. The lender's request for approval of new loan terms will be supported by an explanation of the reasons for the proposed change in loan terms. (c) Release of liability. The transferor, including any guarantor, may be released from liability only with prior Agency written concurrence and only when the value of the collateral being transferred is at least equal to the amount of the loan being assumed and is supported by a current appraisal and a current financial statement. The Agency will not pay for the appraisal. If the transfer is for less than the debt, the lender must demonstrate to the Agency that the transferor and guarantors have no reasonable debt-paying ability considering their assets and income in the foreseeable future. (d) Proceeds. Any proceeds received from the sale of collateral before a transfer and assumption will be credited to the transferor's guaranteed loan debt in inverse order of maturity before the transfer and assumption are closed. (e) Additional loans. Loans to provide additional funds in connection with a transfer and assumption must be considered as a new loan application under subpart B of part 4279 of this chapter. (f) Credit quality. The lender must make a complete credit analysis which is subject to Agency review and approval. (g) Documents. Prior to Agency approval, the lender must advise the Agency, in writing, that the transaction can be properly and legally transferred, and the conveyance instruments will be filed, registered, or recorded as appropriate. (1) The assumption will be done on the lender's form of assumption agreement and will contain the Agency case number of the transferor and transferee. The lender will provide the Agency with a copy of the transfer and assumption agreement. The lender must ensure that all transfers and assumptions are noted on all original Loan Note Guarantees. (2) A new Loan Agreement, consistent in principle with the original Loan Agreement, should be executed to establish the terms and conditions of the loan being assumed. An assumption agreement can be used to establish the loan covenants. (3) The lender will provide to the Agency a written certification that the transfer and assumption is valid, enforceable, and complies with all Agency regulations. (h) Loss resulting from transfer. If a loss should occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor (including personal guarantors) is released from liability, the lender, if it holds the guaranteed portion, may file an estimated report of loss to recover its pro rata share of the actual loss. If a holder owns any of the guaranteed portion, such portion must be repurchased by the lender or the Agency in accordance with 4279.78(c) of subpart A of part 4279 of this chapter. In completing the report of loss, the amount of the debt assumed will be entered as net collateral (recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption will be included in the calculations. (i) Related party. If the transferor and transferee are affiliated or related parties, any transfer and assumption must be for the full amount of the debt. (j) Payment requests. Requests for a loan guarantee to provide equity for a transfer and assumption must be considered as a new loan under subpart B of part 4279 of this chapter. (k) Cash downpayment. When the transferee will be making a cash downpayment as part of the transfer and assumption: (1) The lender must have an appropriate appraiser, acceptable to both the transferee and transferor and currently authorized to perform appraisals, determine the value of the collateral securing the loan. The appraisal fee and any other costs will not be paid by the Agency. (2) The market value of the collateral, plus any additional property the transferee proposes to offer as collateral, must be adequate to secure the balance of the guaranteed loans. (3) Cash downpayments may be paid directly to the transferor provided: (i) The lender recommends that the cash be released, and the Agency concurs prior to the transaction being completed. The lender may wish to require that an amount be retained for a defined period of time as a reserve against future defaults. Interest on such account may be paid periodically to the transferor or transferee as agreed; (ii) The lender determines that the transferee has the repayment ability to meet the obligations of the assumed guaranteed loan as well as any other indebtedness; (iii) Any payments by the transferee to the transferor will not suspend the transferee's obligations to continue to meet the guaranteed loan payments as they come due under the terms of the assumption; and (iv) The transferor agrees not to take any action against the transferee in connection with the assumption without prior written approval of the lender and the Agency.
(a) The lender must notify the Agency when a borrower is 30 days past due on a payment or is otherwise in default of the Loan Agreement. Form FmHA 1980-44, "Guaranteed Loan Borrower Default Status," will be used and the lender will continue to submit this form bimonthly until such time as the loan is no longer in default. If a monetary default exceeds 60 days, the lender will arrange a meeting with the Agency and the borrower to resolve the problem. (b) In considering options, the prospects for providing a permanent cure without adversely affecting the risk to the Agency and the lender is the paramount objective. (1) Curative actions include but are not limited to: (i) Deferment of principal (subject to rights of any holder); (ii) An additional unguaranteed loan by the lender to bring the account current; (iii) Reamortization of or rescheduling the payments on the loan (subject to rights of any holder); (iv) Transfer and assumption of the loan in accordance with § 4287.134 of this subpart; (v) Reorganization; (vi) Liquidation; (vii) Subsequent loan guarantees; and (viii) Changes in interest rates with the Agency's, the lender's, and holder's approval, provided that the interest rate is adjusted proportionately between the guaranteed and unguaranteed portion of the loan and the type of rate remains the same. (2) In the event a deferment, rescheduling, reamortization, or moratorium is accomplished, it will be limited to the remaining life of the collateral or remaining limits as contained in § 4279.126 of subpart B of part 4279 of this chapter, whichever is less.
Next, Richardson argues that the treatment by KHIC and Gregory of MWI assets which were collateral for the loans at issue precluded summary judgment. Richardson asserts that Gregory sold MWI assets and that KHIC failed to apply the sale proceeds against MWI debt. We decline to reverse on this ground the grant of summary judgment because we believe that this matter is best addressed on remand as discussed infra.
Last, Richardson argues that there were material issues of fact concerning the claimed costs, including attorney's fees, which precluded summary judgment. KHIC argues that the guarantees signed by Richardson required him to pay all costs incurred by KHIC in its efforts to collect its loans to MWI. In granting summary judgment, the trial court found the attorney's fees sought to be reasonable given the complexity and duration of the litigation. The court set forth the judgment amount, $1,739,927.61 plus any costs of collection incurred by KHIC after December 1, 2011, plus interest. The guaranty of March 20, 2003, provided that Richardson agreed to indemnify KHIC and hold KHIC:
We discuss the trial court's award of interest infra.
[H]armless from and against any and all cost, expenses, liability, loss or damage incurred or suffered by Lender, including reasonable attorneys' fees and costs of litigation, arising out of or in connection with, whether directly or indirectly, any breach by the Guarantor of this Agreement or any other agreement referred to herein or executed in connection herewith.The guarantees of August 27, 2003 and June 30, 2004, provided that the maximum amount due would include "any costs and expenses incurred by the Lender in connection with enforcing the Lender's rights under this Guaranty, the Note, or any other Loan agreements being executed in connection with the Loan."
Richardson asserts that the guaranty agreements do not explicitly reference attorney's fees, appraisal, or insurance costs, which all appear to be included in the judgment. The guaranty of March 20, 2003 clearly lists attorney's fees as recoverable. Given the multiple guarantees executed we believe that the trial court did not err in awarding the costs Richardson disputes.
Richardson also directs this Court to KRS 411.195. On remand, the court will have the opportunity to reevaluate attorney fees actually earned.
Richardson directs this Court to the implied covenant of good faith and fair dealing found within our jurisprudence. Indeed:
Richardson also directs this Court to the UCC. We find distinguishable the cases cited by Richardson to this Court, as there is no argument that KHIC accelerated the mortgage.
In every contract, there is an implied covenant of good faith and fair dealing. 17A Am Jur2d Contracts section 380; KRS 355.1-203. Indeed, it may be said that contracts impose on the parties thereto a duty to doRanier v. Mount Sterling Nat. Bank, 812 S.W.2d 154, 156 (Ky. 1991). "An implied covenant of good faith and fair dealing does not prevent a party from exercising its contractual rights." Farmers Bank and Trust Co. of Georgetown, Kentucky v. Willmott Hardwoods, Inc., 171 S.W.3d 4, 11 (Ky. 2005) citing Hunt Enterprises, Inc. v. John Deere Indus. Equipment, Co., 162 F.3d 1161, (6th Cir.1998). Sub judice, KHIC simply exercised its contractual rights and thus, the court correctly concluded that KHIC did not violate a duty of good faith and fair dealing.
everything necessary to carry them out. Beech Creek Coal Co. v. Jones, Ky., 262 S.W.2d 174 (1953).
Contrary to what Richardson asserts, summary judgment was appropriate as, "[w]hat constitutes a reasonable attorney fee is an issue of fact when the action is between an attorney and client to collect or defend a fee for representation. It is an issue of law when the attorney and/or client seeks to recover a reasonable attorney fee from an opposing or third party." Inn-Group Management Services, Inc. v. Greer, 71 S.W.3d 125, 130 (Ky. App. 2002).
Richardson next argues the post-judgment award of interest is erroneous as a matter of law and that the award of prejudgment interest was excessive as to duration. At issue, the trial court awarded the contract rate of interest as the pre-judgment interest and then awarded the 12% statutory rate post-judgment.
KRS 360.040 states:
A judgment shall bear twelve percent (12%) interest compounded annually from its date. A judgment may be for the principal and accrued interest; but if rendered for accruing interest on a written obligation, it shall bear interest in accordance with the instrument reporting such accruals, whether higher or lower than twelve percent (12%). Provided, that when a claim for unliquidated damages is reduced to judgment, such judgment may bear less interest than twelve percent (12%) if the court rendering such judgment, after a hearing on that question, is satisfied that the rate of interest should be less than twelve percent (12%). All interested parties must have due notice of said hearing.
In interpreting KRS 360.040, this Court concluded that the statutory rate on a judgment does not apply to written obligation containing interest rates:
The second clause of the second sentence removes suits brought to recover monies owed upon written obligations containing their own interest rates. They are contracts. The stated rates of interest within them are obligations of the contracts. It is therefore constitutionally beyond the general power of government to mandate a particular rate of interest for them or for judgments derived from them.Union Trust, Inc. v. Brown, 757 S.W.2d 218, 220 (Ky. App. 1988).
Sub judice, we must conclude that the trial court erred in awarding the 12% statutory rate post-judgment and the contract rate of interest pre-judgment. The parties negotiated the interest rates and thus both are bound by it. "When the written obligation's rate of interest is lower than 12% per annum, the creditor must live with that." Brown at 220. Similarly, Richardson is bound by the same rate of interest pre-judgment; thus, we find no merit in his claim that the award of prejudgment interest was excessive as to duration. Accordingly, we reverse and remand this matter to court to award KHIC interest at the contract rate.
Richardson also argues that the trial court erred by refusing to permit the amended counterclaim against Gregory and amended third party complaint against KHIC. Richardson asserts that the motion to amend was timely filed prior to the entry of a final judgment; that he believed that the factual and legal defenses he had raised were bolstered by additional information discovered in the course of litigation and needed to be stated clearly in order to be addressed by a jury; and that neither the Gregorys nor KHIC presented any valid bar to the amended pleadings. KHIC argues that Richardson's proposed amendment rehashed arguments addressed by KHIC's motion for summary judgment and such arguments were unsuccessful as defenses and equally unpersuasive as claims.
The court in denying Richardson's motions to amend, noted that the motion was filed very late in the action, after KHIC had moved for summary judgment, and after Richardson had already amended his pleadings. The court concluded that the proposed amendment brought forth nothing new of substance and were instead a re-characterization of his defenses as claims.
Kentucky Rule of Civil Procedure (CR) 15.01 provides that amendments to pleadings "shall be freely given when justice so requires." We review a trial court's ruling on a motion for leave to amend for clear abuse of discretion. Graves v. Winer, 351 S.W.2d 193 (Ky. 1961). Salient factors for a trial court's consideration include prejudice to the adverse party, failure to cure deficiencies by amendment, or futility of the amendment. Tarrants v. Henderson County Farm Bureau, 380 S.W.2d 274 (Ky. 1964); First National Bank of Cincinnati v. Hartmann, 747 S.W.2d 614 (Ky. App. 1988). Additionally, "'The more common reasons for denying leave to amend are that the amendment will result in undue prejudice to the other party, is unduly delayed, is not offered in good faith, or that the party has had sufficient opportunity to state a claim and has failed.'" Stout v. City of Martin, 395 S.W.2d 591, 593 (Ky. 1965) citing 3 Moore's Federal Practice, R15 (Par. 15.08, pp. 897-900).
We agree with KHIC that the trial court did not abuse its discretion in denying Richardson's motions to amend given the court's rationale that the motions were filed late in the proceedings, after the first amended pleading, and brought forth nothing new of substance with the sought amendment. Finding no error, we decline to reverse on this ground.
Last, Richardson argues that the calculation of the judgment was erroneous as a matter of law as the judgment did not account for the sale of MWI collateral. On remand, the trial court will have the opportunity to reexamine the judgment amount and credit Richardson for the sale of MWI assets given to KHIC if warranted. Further, the trial court should set forth specific findings as to the incurred costs of KHIC and the associated interest therewith in order to aid further review. For the sake of transparency we believe that the trial court should set forth the incurred costs and interest specifically and then set forth the total amount due under the judgment.
We believe that Richardson is referring to the sale of the trucks and/or trailers which the proceeds are either in escrow or have been given to KHIC. On remand, the trial court can address this matter. Clearly, the judgment should reflect this transaction.
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In light of the aforementioned, we affirm the grant of summary judgment, reverse the award of interest and the amount of the judgment, and remand for further proceedings on the award of interest and amount of the judgment.
DIXON AND VANMETER, JUDGES, CONCUR WITH RESULT BUT WILL NOT FILE SEPARATE OPINION. BRIEFS FOR APPELLANT: James M. Frazer
Monticello, Kentucky
Winter R. Huff
Monticello, Kentucky
BRIEF FOR APPELLEES, CONLEY
GREGORY AND JOANNA
GREGORY:
Sara Beth Gregory
Lance W. Turner
Monticello, Kentucky
BRIEF FOR APPELLEE,
KENTUCKY HIGHLANDS
INVESTMENT CORPORATION:
D. Duane Cook
John M. Sosbe
Georgetown, Kentucky
John Paul Jones, II
Monticello, Kentucky