Wallace Hardware Co. v. Abrams, s. 98-5309

Citation223 F.3d 382
Decision Date06 August 1999
Docket NumberNos. 98-5309,98-5594,s. 98-5309
Parties(6th Cir. 2000) Wallace Hardware Company, Inc., Plaintiff-Appellant/Cross-Appellee, v. Bill Abrams, Defendant-Appellee/ Cross-Appellant, L.D. "Lonnie" Abrams, Defendant-Appellee (98-5309)/Defendant (98-5594). Argued and Submitted:
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

Appeal from the United States District Court for the Eastern District of Kentucky at London. No. 94-00254--Jennifer B. Coffman, District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] W. Thomas Bunch, Matthew B. Bunch, BUNCH & BROCK, Lexington, Kentucky, Howard O. Mann, TRIMBLE & MANN, Corbin, Kentucky, for Appellant.

Kenneth A. Smith, Jr., London, Kentucky, for Appellees.

Before: NELSON and MOORE, Circuit Judges; ROSEN, District Judge.*

OPINION

ROSEN, District Judge.

I. INTRODUCTION

Plaintiff/Appellant Wallace Hardware Company, Inc. ("Wallace Hardware") appeals from various District Court rulings in favor of Defendant/Appellee/Cross-Appellant Bill Abrams and his brother, Defendant/Appellee L.D. ("Lonnie") Abrams. Most significantly, Wallace Hardware contends that the District Court erred by refusing to enforce a Tennessee choice of law provision in a guaranty purportedly executed by the parties. The lower court instead elected to apply Kentucky law, thereby rendering the guaranty invalid and unenforceable, and then awarded summary judgment in favor of the Abrams brothers on Wallace Hardware's breach-of-guaranty claim. For his part, Defendant/Cross-Appellant Bill Abrams appeals the District Court's order permitting Wallace Hardware to file an amended complaint asserting claims in addition to this breach-of-guaranty claim.1

In its amended complaint, Wallace Hardware augmented its breach-of-guaranty claim by asserting a breach-of-contract claim and two claims of fraud. The District Court ultimately entered summary judgment in favor of the Abrams brothers on two of these three claims,2 and Wallace Hardware also challenges these rulings on appeal. Finally, in the event we reinstate one or more of its claims, Wallace Hardware argues that the District Court erroneously decided certain matters bearing upon the issue of damages.

For the reasons stated below, we hold that the parties are bound by their choice of Tennessee law in the guaranty agreement, and we therefore reverse the award of summary judgment to the Abrams brothers on the breach-of-guaranty claim. As to the remaining issues, we generally affirm the decision of the District Court, with the exception of certain rulings relating to damages.

II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties

Plaintiff/Appellant Wallace Hardware Company is a Tennessee corporation that provides wholesale hardware goods and services to retail hardware stores. In the summer of 1991, Wallace Hardware entered into an agreement to supply hardware inventory to Tri-County Home Center, Inc. ("Tri-County"), a newly opening hardware store located in Corbin, Kentucky. Tri-County was incorporated by Defendant/Appellee Lonnie Abrams, who served as Tri-County's president. Defendant/Appellee/Cross-Appellant Bill Abrams provided financing for Tri-County, and assisted in operating the business.

B. The Tri-County Operating Agreement, Security Agreement, and Guaranty

In connection with Wallace Hardware's sale of hardware inventory to Tri-County, these two corporate entities executed a "New Account Application and Operating Agreement" dated August 9, 1991. Under this Agreement, Wallace Hardware extended a line of credit to enable Tri-County to purchase hardware goods and services. Both Lonnie and Bill Abrams signed the Agreement on behalf of Tri-County. Through their signatures, the Abrams brothers "agree[d] to be jointly, severally, and individually responsible for the payment of any and all goods and services furnished by Wallace Hardware Company, Inc. to our firm or to us individually." (J.A. at 52.)

To secure this line of credit, Tri-County executed an August 9, 1991 "Security Agreement," granting Wallace Hardware a security interest in "[a]ny and all inventory purchased by [Tri-County] from Wallace or otherwise [f]inanced by Wallace." (J.A. at 58.) Lonnie Abrams signed this security agreement on behalf of Tri-County as its president. The agreement's definitional section referred to Tennessee's enactment of the Uniform Commercial Code ("UCC") as the source for resolving any questions as to the meaning of terms. Finally, the security agreement provided that "the validity, interpretation, construction and enforcement of this Security Agreement, the obligations of [Tri-County] and the rights of Wallace hereunder, and any question which may arise concerning this Security Agreement or the transactions contemplated hereby, shall be governed in all respects by the law (including laws, statutes and case law) of the State of Tennessee." (J.A. at 59.)

In addition to this security agreement, Wallace Hardware also sought personal guaranties from both of the Abrams, in which they agreed to accept individual liability for Tri-County's indebtedness to Wallace Hardware. Accordingly, on August 21, 1991, Wallace Hardware tendered a "Guaranty Agreement" for signature by both Lonnie and Bill Abrams. Although both brothers' signatures appear on this Guaranty, Bill Abrams denies that he signed this document, and he has proffered the opinion of a handwriting expert that his purported signature is a forgery. For his part, Lonnie Abrams admits that he signed the Guaranty.

Under the terms of the Guaranty Agreement, the Abrams brothers "unconditionally guarantee[d] and promise[d] to pay to Wallace . . . any and all indebtedness" owed by Tri-County to Wallace Hardware. (J.A. at 61.) The guarantors' liability was "unlimited," "continuing," and encompassed "any indebtedness" incurred by Tri-County, including "that arising under successive transactions which shall either continue the indebtedness or from time to time renew it after it has been satisfied." (Id.) The obligations assumed by the guarantors were "independent" of Tri-County's obligations, and were not affected "by resort on the part of Wallace to any other security or remedy for the collection of said indebtedness." (Id.) Moreover, the guarantors "waive[d] any defense arising by reason of any disability or other defense of [Tri-County] or by reason of the cessation from any cause whatsoever of the liability of [Tri-County] for the indebtedness." (Id.) Finally, by its terms, the Guaranty Agreement was to be "governed by and construed in accordance with the laws of the State of Tennessee." (Id.)

C. Tri-County's Limited Operations Under Its Agreement with Wallace Hardware

Shortly after the above agreements were executed, Wallace Hardware began to ship merchandise to Tri-County's retail store in Corbin, Kentucky, and also assisted in setting up the store, displaying goods on the shelves, and establishing retail pricing for each item. The store opened in September of 1991, but soon began to lose money. On November 21, 1991, a fire broke out at a warehouse at which Tri-County kept surplus inventory, resulting in almost $200,000 in property damage3. In December of 1991, Tri-County ceased operations. At the time, its outstanding balance under its account with Wallace Hardware stood at over $900,000.

D. Procedural Background

Since Tri-County's hardware store closed in December of 1991, the parties have engaged in lengthy legal proceedings in three different forums. First, on December 17, 1991, Tri-County brought a breach-of-contract suit against Wallace Hardware in Kentucky state court. In turn, Wallace Hardware commenced a state court action against Tri-County just two days later, also alleging breach of contract. The parties resolved these suits shortly thereafter, through a stipulated order of voluntary dismissal without prejudice entered by the Kentucky court on December 20, 1991.

Pursuant to this state court order, Wallace Hardware was authorized to repossess the inventory it had sold to Tri-County under the parties' Operating Agreement. This order further provided that "Wallace shall thereby immediately allow to Tri-County a credit for all such inventory received at the prices at which it was invoiced by Wallace to Tri-County, and Tri-County shall, likewise, thereupon immediately receive satisfaction or partial satisfaction, as the case may be, of any debt or claim which may hereafter be determined to exist by Tri-County to and in favor of Wallace." (J.A. at 415 (emphasis in original).) By its terms, the order did not "[a]ffect either part[y's] right to assert any claims for damages or otherwise not specifically addressed herein," and neither party was deemed to have "waive[d] any of its rights or causes of action in any manner whatsoever against the other as a result of Tri-County's willingness to release inventory and as a result of Wallace's desire to receive and retain the inventory." (J.A. at 416.)

Before Wallace Hardware could commence repossession of the inventory, however, it first had to correct an earlier mistake in its effort to perfect its security interest in this inventory. When Wallace Hardware and Tri-County executed the Operating Agreement in August of 1991, Lonnie Abrams signed a UCC-1 form on behalf of Tri-County, confirming Wallace Hardware's security interest in the inventory to be supplied under the Operating Agreement. Wallace Hardware then filed this UCC-1 form in Whitley County, Kentucky on August 15, 1991. Because Tri-County's store was located in Laurel County, this initial filing was ineffective to perfect Wallace Hardware's security interest. Accordingly, Wallace Hardware re-filed the UCC-1 in Laurel County on December 19, 1991, thereby perfecting its security interest. On December 23 and 24, 1991, Wallace Hardware repossessed Tri-County's inventory, and gave Tri-County a credit in the amount of $784,269, leaving...

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