Winget v. Jp Morgan Chase Bank, N.A.

• Decision Date: 11 August 2008
• Docket Number: No. 07-1657.,07-1657.
• Citation: 537 F.3d 565
• Parties: Larry J. WINGET and the Larry J. Winget Living Trust, Plaintiffs-Appellants, v. JP MORGAN CHASE BANK, N.A., JP Morgan Chase & Co., Black Diamond Commercial Finance, LLC, and Black Diamond Capital Management Living Trust, LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

537 F.3d 565

Larry J. WINGET and the Larry J. Winget Living Trust, Plaintiffs-Appellants, v. JP MORGAN CHASE BANK, N.A., JP Morgan Chase & Co., Black Diamond Commercial Finance, LLC, and Black Diamond Capital Management Living Trust, LLC, Defendants-Appellees.

No. 07-1657.

United States Court of Appeals, Sixth Circuit.

Argued: March 17, 2008.

Decided and Filed: August 11, 2008.

ARGUED:

John E. Anding, Drew, Cooper & Anding, Grand Rapids, Michigan, for Appellants. R. Ryan Stoll, Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois, Melville W. Washburn, Sidley Austin, Chicago, Illinois, for Appellees.

ON BRIEF:

John E. Anding, Thomas V. Hubbard, Drew, Cooper & Anding, Grand Rapids, Michigan, for Appellants. R. Ryan Stoll, Andrew J. Jarzyna, Patrick J. Nash, Jr., Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois, Melville W. Washburn, Matthew A. Clemente, Kevin C. Pecoraro, Brian D. Rubens, Sidley Austin, Chicago, Illinois, for Appellees.

Before: RYAN, SILER, and COLE, Circuit Judges.

OPINION

SILER, Circuit Judge.

Through a series of transactions and agreements between 1999 and 2002, Defendants JP Morgan Chase Bank, N.A., and JP Morgan Chase & Co. (collectively, "JP Morgan"), served as the agent for a consortium of lenders that advanced credit to Venture Holdings Company, LLC ("Venture"), which was owned by Plaintiffs Larry J. Winget and the Larry J. Winget Living Trust (collectively, "Winget"). In 2002, JP Morgan and Winget executed the most recent and significant amendment to their original credit agreement, and, at the same time, also executed guarantees and pledges of collateral. These documents allowed JP Morgan significant access to Winget's companies, both Venture and its subsidiaries. As Venture's financial situation deteriorated and the company initiated bankruptcy proceedings, JP Morgan and the other lenders sought increasingly greater control over Winget's companies, eventually resulting in the takeover of one of Venture's subsidiaries. In an alleged attempt to force Winget into a financial settlement, JP Morgan and Defendants Black Diamond Commercial Finance, LLC, and Black Diamond Capital Management Living Trust (collectively, "Black Diamond") (collectively, JP Morgan and Black Diamond are the "Defendants") installed managers at Venture's subsidiaries that acted to significantly devalue the company's assets and initiate additional bankruptcy proceedings. Eventually, the assets of Venture and its subsidiaries were sold pursuant to Section 363 of the Bankruptcy Code. Winget brought its present claims of breach of the guaranty and pledge agreements and requests for declaratory judgments, following a suit by JP Morgan, which sought inspection of the collateral. The district court dismissed Winget's complaint (the "Complaint"), holding that Winget's claims were barred by res judicata, and premature to the extent that they were claims regarding future attempts to repossess collateral. Without seeking leave of the court, Winget filed an amended complaint, which the district court struck. After filing, and losing a motion for reconsideration, Winget appealed.

Winget now argues that the district court erred in (i) dismissing the Complaint without granting Winget leave to amend; (ii) striking Winget's amended complaint; (iii) failing to apply the correct standard of review when it dismissed the Complaint; (iv) looking to bankruptcy court orders in dismissing the Complaint; (v) not giving Winget the benefit of every inference from the allegations in the Complaint; (vi) ignoring Winget's defensive claims as a guarantor; (vii) holding that Winget's claims were barred by the April 2005 bankruptcy sale order; and (viii) holding that the claims asserted in the Complaint were premature.

We AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND

I. The Winget Companies

Beginning in the 1970s, Winget developed, owned, and controlled a network of companies that supplied plastic parts to automobile manufacturers. The backbone of this network was two companies, their affiliates, and subsidiaries: Venture and Deluxe Pattern Corporation ("Deluxe"). Winget personally owned, either directly or indirectly, one hundred percent of the equity of both Venture and Deluxe. Aside from Venture and Deluxe, Winget also owned P.I.M. Management Co. ("P.I.M."), a Michigan corporation, and Venco # 1, LLC ("Venco"), a Michigan limited liability company. In 1995, Winget purchased a foreign company that became Venture Asia Pacific ("Venture AP"), the stock of which P.I.M. held. At the time of this agreement, P.I.M. and Venco had a market value of approximately $250 million.

II. The Eighth Amendment, Winget Pledge, and Winget Guaranty

On May 27, 1999, a consortium of lenders consisting of JP Morgan, other banks, investment companies, and hedge funds (collectively, the "Lenders") provided credit to Venture pursuant to a credit agreement (the "Credit Agreement"). The parties subsequently amended the Credit Agreement eight times. The most recent, and only pertinent amendment here, was the Eighth Amendment (the "Eighth Amendment"), which was dated October 22, 2002, and executed in connection with a complex "workout" negotiation initiated as a result of the rapid financial deterioration of Venture and significant default under the Credit Agreement.

a. The Eighth Amendment

Pursuant to this agreement, the Lenders "agreed (1) temporarily not to exercise available rights against Venture and the collateral supporting the loans, and (2) to extend further credit to Venture." In exchange for these terms and the extension of additional credit, Winget agreed to provide additional collateral to support the repayment of Venture's debt, and agreed to additional guaranties. Winget, P.I.M., Venco, and Deluxe all entered into separate guaranty agreements wherein each independently guaranteed certain collateral, which included stock in P.I.M. and Venco, and the collateral was pledged pursuant to pledge agreements. In some cases, these guaranties were enforceable solely through the stock from P.I.M. and Venco, as both companies pledged their respective interests in Venture AP and Venture Holdings. These guaranties were formalized in the Winget Guaranty, the Winget Pledge, and the Consortium Pledge, which were executed concurrently with the Eighth Amendment (collectively, all four documents are the "Guaranty Documents").

b. The Winget Guaranty, Winget Pledge, and Consortium Pledge

In the Winget Guaranty, executed October 21, 2002, Winget guaranteed Venture's debt, but the document limited Winget's personal exposure, as JP Morgan's only recourse for payment on the Winget Guaranty was foreclosure on certain pledged stock, including P.I.M. and Venco's stock. JP Morgan was required to pursue any foreclosure under the Winget Guaranty pursuant to the terms of the Winget Pledges. The Winget Guaranty limited Winget's personal exposure to approximately $30 million.

The Winget Pledge, also executed October 21, 2002, significantly increased the amount of collateral available to the Lenders by covering Winget's equity interest in nine of its companies, which were under Deluxe's corporate umbrella. That same day, Winget also executed another pledge agreement that covered Winget's interests in P.I.M. and Venco (the "Consortium Pledge").

c. The Last Resort Conditions

As part of the Guaranty Documents, the Lenders included language that Winget refers to as the "Last Resort Conditions." The relevant portions of the Last Resort Conditions read:

Notwithstanding anything herein or elsewhere to the contrary, [JP Morgan] shall not exercise any rights or remedies under this Pledge Agreement until all reasonable efforts shall have been made by it to collect the Obligations from other collateral held by [JP Morgan] ... it being intended that the Collateral provided by this Pledge Agreement shall be realized upon by [JP Morgan] only as a last resort.

Notwithstanding anything herein or elsewhere to the contrary, no action will be brought for the repayment of the Guaranteed Obligations under this Guaranty and no judgment therefore will be obtained or enforced against Larry Winget other than with respect to the Pledged Stock in accordance with the provisions of the related Pledge Agreements, provided that the Guarantor shall be fully and personally liable for any damages arising from any violations of any of the agreements of the Guarantor herein in favor of the Lenders.

[N]otwithstanding any other provision in this Pledge Agreement or elsewhere, in the event (i) that [JP Morgan] receives for application on the Obligations an amount of not less than $50,000,000 from the sale or financing of [Venture AP] or [Venture Holdings] operations or from one or more outsider sources ... the obligations of the Pledgor hereunder shall be deemed satisfied and the pledge created hereby shall be terminated.

Aside from these three provisions, the Guaranty Documents also allegedly limited Winget's ability to operate Venco, P.I.M., and their subsidiaries through the use of affirmative and negative covenants. The result of the provisions was that the Guaranty Documents were only enforceable from the proceeds of the sale of the interests in the pledged companies, namely Deluxe, P.I.M., Venco, and their subsidiaries (collectively, the "Pledged Companies"), and the Lenders could not attempt to enforce the Guaranty Documents until they had made all reasonable efforts to exhaust the collateral aside from the interests in the Pledged Companies. At any time, Winget could terminate the Guaranty Documents by tendering $50 million to JP Morgan for the benefit of the Lenders.

III. The Contribution Agreement and Bankruptcy Proceeding

On March 28, 2003, Venture and its subsidiaries filed for Chapter 11 bankruptcy in the Eastern District of Michigan (the "Bankruptcy Proceeding"). In order to allow Venture to exit the Bankruptcy Proceeding, Winget began negotiations with the Lenders, the result of which...