Walker v. Probandt, 25 Neb. Ct. App. 30

Background

In 2008 A&G Precision Parts, LLC and related entities obtained a $1.5M loan from First State Bank (FSB); several individuals (Walker, Raynor, Brazier, Herz) cosigned the promissory note and were jointly and severally liable.
The LLCs defaulted; FSB sued in 2009. Walker later settled certain claims with FSB by paying $1.05M; FSB assigned the note to Skyline Acquisition, LLC (Skyline), an entity owned by Walker and his wife.
Multiple pleadings and settlements narrowed the parties; Plaintiffs (including Skyline) proceeded to trial against Raynor and Probandt; Probandt did not appear or answer.
Plaintiffs sought default judgment against Probandt; the district court denied default on most claims pretrial (to avoid inconsistent results) but later entered judgment for Skyline against Raynor for the note balance.
On appeal, the Nebraska Court of Appeals held the district court abused its discretion by not entering default judgment against Probandt on the fraud/misappropriation claim and awarded damages of $2,184,530 against Probandt; it affirmed judgment against Raynor but remanded to credit prior settlements against the note balance.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether default judgment should have been entered against Probandt	Plaintiffs: Probandt failed to answer; default allowed and damages proven at trial	Raynor/others: court properly declined default pretrial to avoid inconsistent results	Court: Default judgment appropriate on fraud/misappropriation claim only; $2,184,530 awarded; unjust-enrichment default denied
Whether Raynor was an accommodation party under the U.C.C. and entitled to defenses/contribution	Raynor: he was an accommodation party, barred from some liabilities and entitled to contribution; U.C.C. defenses apply	Plaintiffs/Skyline: Raynor liable as cosigner/maker; status irrelevant to Skyline’s claim	Court: Even assuming accommodation status, Raynor remains liable to Skyline; contribution claim denied because Raynor paid nothing beyond his share; suretyship defense waived by contract
Whether the note assignment to Skyline enhanced recovery or made Skyline a holder in due course	Plaintiffs: assignment valid; Skyline can recover full balance	Raynor: assignment was sham/alter-ego to enhance Walker’s recovery; Skyline not holder in due course so subject to defenses and set-off for prior settlements	Court: Skyline is assignee (real party) but not a holder in due course; must be credited for settlement amounts—remanded to recalculate balance owed by Raynor
Whether reformation/mutual mistake, lack of consideration, or procedural defects negate Raynor’s liability	Raynor: parties mutually mistaken about his status/ownership; insufficient consideration; procedural defects (standing/certificates)	Plaintiffs: note reflects parties’ intent; consideration exists (even minimal); Skyline as assignee has standing; procedural objections irrelevant to Skyline’s claim	Court: No clear and convincing evidence of mutual mistake; consideration sufficient; procedural arguments fail; liability stands subject to credit for prior settlements

Key Cases Cited

Frow v. De La Vega, 82 U.S. (15 Wall.) 552 (U.S. 1872) (courts should defer entry of default against one of multiple defendants where inconsistent judgments could follow)
Mandolfo v. Chudy, 253 Neb. 927 (Neb. 1998) (assignment of note to guarantor does not increase recoverable share against coguarantor)
Rodehorst v. Gartner, 266 Neb. 842 (Neb. 2003) (similar rule regarding guarantor assignments and limits on recovery)
Mason State Bank v. Sekutera, 236 Neb. 361 (Neb. 1990) (standard that default-judgment entry is discretionary; abuse of discretion required to reverse)
Chapman v. Department of Motor Vehicles, 8 Neb. App. 386 (Neb. Ct. App. 1999) (failure to answer in original district-court action entitles plaintiff to default judgment except as to value/damages)
Forker Solar, Inc. v. Knoblauch, 224 Neb. 143 (Neb. 1986) (discusses timing and effect of motions for default judgment)