249 W.Va. 26
W. Va. Ct. App.2023Background:
- Protea Biosciences obtained a $3 million line from Centra/United; four guaranties were signed: Puskar, Harris, Hostler ($1M each 8/27/2009) and Segal ($1M 9/28/2009).
- About a year later the Trust (Milan Puskar Revocable Trust) executed a separate $3M guaranty and later pledged collateral; none of the individual guarantors received written documentation releasing or reallocating their obligations.
- In 2017 the Trust funded PITA, which purchased the Protea note and associated guaranties from United; PITA then sued the remaining guarantors after Protea’s 2017 bankruptcy and default.
- Harris’s and Hostler’s estates settled with PITA (each for $537,500, Hostler’s settlement included $175,000 cash + up to $362,500 contingent asbestos-derived attorneys’ fees).
- The circuit court granted partial summary judgment to both sides in part and entered judgment against Segal; appeals were consolidated.
Issues:
| Issue | Plaintiff's Argument (PITA/Trust) | Defendant's Argument (Segal) | Held |
|---|---|---|---|
| 1) Fraudulent inducement (based on CTA/2017 reaffirmation) | CTA statement denying oral agreements was false; Segal induced reliance | No false representation: no contract between Segal and Trust obligating the Trust to protect guarantors; no clear & convincing evidence of fraud | Affirmed for Segal — summary judgment proper; no actionable fraud on CTA record |
| 2) PITA’s right to sue on Segal’s guaranty after purchasing the note | As assignee PITA can sue on guaranty and recover contractual remedies (interest, fees) | PITA is effectively the Trust (alter-ego) and should be limited to equitable contribution remedies | Reversed in part: PITA may pursue breach of contract as assignee but recovery is limited to what the Trust/co-guarantor would be entitled to (contributive share); contractual interest and attorney fees recoverable under guaranty |
| 3) Credit for Hostler Estate settlement (whether only cash or full contingent amount) | Reduce Protea balance only by actual cash paid ($175,000); contingent fees may never materialize | Settlement negotiated by PITA; Segal had no role — PITA should bear risk of contingent recovery | Affirmed for full credit to PITA: balance reduced by entire $537,500 (includes contingent portion) because Segal could not object to settlement he didn’t negotiate |
| 4) Contribution allocation between Trust and Segal (equal shares vs. proportional by liability caps) | Co-obligors should be equally liable absent express or implied agreement; Trust and Segal each ultimately liable for half of remaining balance | Segal: contributive share should be proportional to each guarantor’s capped liability (Segal 1/6 based on total potential $6M) | Affirmed that co-guarantors presumptively share equally; burden on proponent to prove express/implied agreement or equitable reason to allocate otherwise — here no such proof, so 50/50 up to each guarantor’s cap |
| 5) Discharge/waiver defenses (alteration of principal obligations, impairment of collateral, frustration) | Defenses not waived; lender actions (Trust guaranty, collateral changes, sale) discharged Segal | Guaranty and CTA contain broad, enforceable waivers of suretyship defenses, including alteration and impairment; guarantor consented in advance | Held waived and unenforceable: guaranty/CTA language precludes these defenses; summary judgment on those defenses affirmed against Segal |
Key Cases Cited
- Gaddy Eng’g Co. v. Bowles Rice McDavid Graff & Love, LLP, 231 W. Va. 577 (2013) (fraud cannot be predicated on an unperformed promise alone)
- Traders Bank v. Dils, 226 W. Va. 691 (2010) (promise made with no intent to perform can support fraudulent-inducement claim)
- Lengyel v. Lint, 167 W. Va. 272 (1981) (elements of actionable fraud and requirement of clear and convincing proof)
- Muzelak v. King Chevrolet, Inc., 179 W. Va. 340 (1988) (punitive damages and attorney fees available in tort fraud actions)
- Est. of Bayliss v. Lee, 173 W. Va. 299 (1984) (rule that equality of contribution is not absolute where parties have agreed otherwise or benefits are disproportional)
- Beverly v. Thompson, 229 W. Va. 684 (2012) (equitable allocation of contributive shares permitted within court’s discretion)
- Wallace v. Pinnacle Bank-Wyoming, 275 P.3d 1250 (Wyo. 2012) (waiver in guaranty of non-impairment-of-collateral defense defeats frustration claim)