111 Debt Acquisition Holdings, LLC v. Six Ventures Ltd.

Summarized by James Bailey , Butler Snow LLP
15 years 3 weeks ago

Citation:

Sixth Circuit Court of Appeals, Case No. 09-4436, Opinion Feb. 7, 2011

Tag(s):

6th Circuit

Ruling:

Court of Appeals affirmed district court's granting of partial summary judgment and entry of final judgment against guarantors of corporate debt under guarantees of certain obligations of the primary obligor. The Court of Appeals has designated the opinion as "Not Recommended for Full-Text Publication."

Facts:

Six Ventures, Ltd. ("SVL") borrowed $20,900,000 from the predecessor-in-intrest to 111 Debt Acquisitions Holdings, LLC ("111 Debt"). The loan documents included guaranties executed by three (3) guarantors, Kahn, McMenamy and Rhodehamel. The guaranties were essentially limited guaranties, provided that certain events did not occur (the Springing Recourse Events ("SRE")). SVL defaulted and 111 Debt filed suit in district court for breach of contract, for foreclosure and for possession of the collateral. 111 Debt also sued the guarantors for breach of the limited guaranties. Rhodehamel, without the apparent consent of the other guarantors or appropriate corporate authority, caused SVL to file a bankruptcy case -- an SRE under the loan documents. 111 Debt filed a motion for partial summary judgment on the guaranty claim seeking to hold the guarantors liable for the full debt of SVL. The guarantors argued that the guaranties were ambigous and, therefore, summary judgment was inappropriate. Further, the guarantors argued that the filing of the bankruptcy petition did not consitute an SRE as SVL had not obtained the necessary corporate authority to file. The Court of Appeals dispensed with the ambiguity argument stating that the guarantors' argument that the language could be read to eliminate their liability in the event of a bankruptcy fling "counter-intuitive." Further, the Court of Appeals found that the district court's interpretation of the SRE provisions was consistent with the plain language of the loan agreement. Specifically, the Court found that all that was required for the triggering of an SRE under the loan agreement was for a guarantor to consent to, aid, solicit, support, cooperate, collude in or fail to contest a bankruptcy petition. Although there was evidence that the guarantors had questioned the legal authority of the filing without the necessary corporate authority, they had done nothing to expressly contest the filing. Finally, the Court of Appeals also affirmed the district court's grant of a final judgment at the same time it granted 111 Debt's motion to amend its complaint was not erroneous.

Judge(s):

Karen Nelson Moore, Jane Branstetter Stranch, Avern Cohn, United States District Judge, E.D. Mich. sitting by designation.

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