835 F. Supp. 2d 384
E.D. Mich.2011Background
- Chesterfield defaulted on a $17,000,000 commercial mortgage loan secured by the Chesterfield Village Square shopping center; the property was foreclosed and sold for $7,600,000, creating a deficiency of about $12.24 million.
- Plaintiff 51382 Gratiot Avenue Holdings, LLC obtained the loan’s assignment and filed suit seeking deficiency judgment against Chesterfield and guarantor John Damico, and later moved for summary judgment on the Note and Guaranty.
- The Loan Agreement contains an exculpation clause (Article 11(a)) limiting personal liability, but springing-recourse events in Article 11(c) and Section 4.2(j) can override that limit if triggered.
- Damico signed a Guaranty making him liable “to the same extent as Borrower” for obligations Borrower is personally liable for under Article 11, so if Chesterfield is liable, Damico is likewise liable.
- Defendants filed counterclaims and a third-party complaint asserting various contract, fraud, and reformation theories; the court later consolidated briefing and held hearings before ruling.
- The court ultimately held the Loan Agreement unambiguously imposes full recourse liability upon Chesterfield upon Chesterfield’s default and nonpayment, thus granting summary judgment for Plaintiff on the complaint and on the counterclaims, and directing Defendants to show cause why third-party claims should not be dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contractual liability for deficiency | Article 11(a) nonrecourse unless 11(b)/(c) triggered; 4.2(j) insolvency/failed payment triggers full recourse | Nonpayment alone cannot trigger full recourse; 4.2(j) requires solvency-based assessment and other springing events | Unambiguous: Defendants liable for deficiency; summary judgment for Plaintiff on complaint |
| Effect of springing recourse events | Section 4.2(j) and Article 11(c)(ii) unambiguously trigger full recourse when Chesterfield fails to pay and is insolvent | Springing recourse should be limited and not nullify Article 11(a) as a whole | Plaintiff’s reading consistent with contract as a whole; full recourse liability established |
| Guaranty scope | Damico’s Guaranty makes him liable to the same extent as Chesterfield under Article 11 | Guaranty should not expand liability beyond Borrower’s nonrecourse terms | Damico liable to the extent Chesterfield is liable; summary judgment on guaranty |
| Arbitrability of ambiguity and extrinsic evidence | Contract unambiguous; extrinsic evidence cannot create ambiguity | Extrinsic evidence reveals latent ambiguity about intent | No ambiguity; contract enforced as written; extrinsic evidence does not create latent ambiguity |
| Third-party claims | Counterclaims/third-party claims are defenses to breach and should be resolved with main claims | Third-party claims should proceed | Plaintiff granted summary judgment on counterclaims; third-party claims to be dismissed absent explanation |
Key Cases Cited
- Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459 (2003) (ambiguity defined by irreconcilable conflict or multiple meanings)
- Rory v. Cont’l Ins. Co., 473 Mich. 457, 703 N.W.2d 23 (2005) (contract interpretation; enforce as a whole; no revision of unambiguous terms)
- Associated Truck Lines, Inc. v. Baer, 346 Mich. 106, 77 N.W.2d 384 (1956) (interpret contract as a whole; give effect to every word)
- Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41, 664 N.W.2d 776 (2003) (interpretation of insurance and contract terms; no rewriting of contract)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (summary judgment standard; not mere speculation)