Masters Group International, Inc. v. Comerica Bank
380 Mont. 1
| Mont. | 2015Background
- Masters Group (Delaware corp.) borrowed from Comerica under a 2006 loan agreement (Michigan choice-of-law clause). Multiple amendments increased the line to $10.5M; guarantors (Pratt, Vlahos) pledged securities.
- By late 2008 Masters was out of compliance with the borrowing base; Comerica issued repeated Notices of Default and reserved rights, insisting any agreement be reduced to writing and signed by borrower, guarantors, and bank.
- Comerica offered a December 17, 2008 Forbearance Agreement (signed by Masters and Pratt; Vlahos unavailable) with conditions (cash transfers, security agreements, signatures) and an express ‘‘no waiver/unless in writing’’ clause. Parties exchanged funds and communications thereafter.
- On December 31, 2008 Comerica unilaterally offset/swept Masters’ and guarantors’ accounts (~$10.5M) without prior notice, causing Masters to fail payroll and collapse. Masters sued Comerica (breach of forbearance, breach of implied covenant, constructive fraud, deceit, wrongful offset, interference; punitive damages). BLDC separately sued Masters and recovered on its claim.
- At trial (Montana district court) the jury awarded BLDC about $275k, and awarded Masters about $52 million (contract, lost profits, consequential, punitive). Comerica appealed challenging severance, choice-of-law, contract-formation summary judgment, and admission of TARP evidence.
Issues
| Issue | Plaintiff's Argument (Masters / plaintiff) | Defendant's Argument (Comerica / defendant) | Held |
|---|---|---|---|
| 1. Severance denial | Masters: claims are related; trying together is efficient. | Comerica: third-party claims should be severed to avoid local prejudice and jury appeal. | Court: no abuse of discretion — implicit denial proper given arguments at time; affirmed. |
| 2. Choice-of-law (apply Michigan) | Masters: Montana has the most significant relationship; choice-of-law raised late and Montana law should control. | Comerica: contracts contain clear Michigan choice-of-law clauses that should govern all disputes. | Court: Comerica timely filed pretrial motion; choice-of-law clauses are clear and enforceable and extend to contract-related torts — Michigan law should have applied. |
| 3. Contract formation / waiver | Masters: factual dispute whether Comerica waived conditions; jury should decide. | Comerica: Forbearance conditions precedent were unmet; no binding contract — summary judgment or JMOL appropriate. | Court: disputed facts (acceptance of partial performance, conduct) create triable issue of waiver/formation; jury submission proper under either law. |
| 4. Admission of TARP evidence | Masters: evidence relevant to Comerica’s alleged misrepresentations and intent; shows resources available and disparate treatment. | Comerica: TARP irrelevant, highly prejudicial; no private cause of action; invites jury to punish bank. | Court: admitting TARP evidence was an abuse of discretion and prejudicial; reversible error requiring new trial on contract claims under Michigan law. |
Key Cases Cited
- Mont. Coal. for Stream Access v. Hildreth, 684 P.2d 1088 (Mont. 1984) (discretionary severance standard)
- Youngblood v. Am. States Ins. Co., 866 P.2d 203 (Mont. 1993) (choice-of-law clause unenforceable if contrary to Montana public policy)
- Casarotto v. Lombardi, 886 P.2d 931 (Mont. 1994) (application of Restatement §§ 187–188 to choice-of-law clauses)
- Modroo v. Nationwide Mut. Fire Ins. Co., 191 P.3d 389 (Mont. 2008) (giving effect to parties’ contractual choice-of-law)
- Boude v. Union Pac. R.R. Co., 277 P.3d 1221 (Mont. 2012) (prejudicial evidentiary error and reversible error standard)
- Neibarger v. Universal Coops., Inc., 486 N.W.2d 612 (Mich. 1992) (economic loss doctrine in UCC/goods context)
- Rinaldo’s Constr. Corp. v. Mich. Bell Tel. Co., 559 N.W.2d 647 (Mich. 1997) (tort recovery barred absent independent legal duty separate from contract)
- Hart v. Ludwig, 79 N.W.2d 895 (Mich. 1956) (no tort for mere failure to perform contractual promise absent independent duty)
- Gilbert v. DaimlerChrysler Corp., 685 N.W.2d 391 (Mich. 2004) (punitive damages available only when authorized by statute in Michigan)