Allen v. Yates, No. 03-CV-520.

• Decision Date: 03 March 2005
• Docket Number: No. 03-CV-520.
• Citation: 870 A.2d 39
• Parties: Albert John ALLEN, Appellant, v. Earl Preston YATES, Appellee.
• Court: D.C. Court of Appeals

870 A.2d 39

Albert John ALLEN, Appellant, v. Earl Preston YATES, Appellee.

No. 03-CV-520.

District of Columbia Court of Appeals.

Argued September 28, 2004.

Decided March 3, 2005.

Barry J. Rosenthal for appellant.

James J. Faughnan, with whom Julie Quagliano was on the brief, for appellee.

Before SCHWELB, RUIZ and GLICKMAN, Associate Judges.

SCHWELB, Associate Judge:

Albert John Allen, the guarantor of two promissory Notes payable to Admiral Earl Preston Yates, Trustee for the Lucy Welsh Yates Revocable Trust, appeals from an order granting Yates summary judgment in the full amount of the Notes, together with interest and counsel fees. Allen contends that summary judgment was unwarranted because, as a matter of law, his liability had been discharged in its entirety. In the alternative, Allen argues that he is entitled to an offset for moneys and other consideration received by Yates in a settlement resolving Yates' claims against the maker of the Notes, Allen & Associates International, Ltd. (AAI) and certain other parties in privity with AAI. We reject Allen's claim that his obligations have been discharged as a matter of law, but we conclude that a genuine issue of material fact is presented with regard to whether Allen is entitled to an offset and, if so, in what amount. Accordingly, we reverse the judgment and remand the case to the trial court for further proceedings consistent with this opinion.

I. FACTUAL BACKGROUND

Yates, in his capacity as Trustee, made loans to AAI, the first in January 1997, in the amount of $83,892.51 (Note No. 1), and the second in September 1997, in the amount of $50,000 (Note No. 2). Each loan was evidenced by a promissory Note and guaranteed by Allen in his individual capacity.¹ Note No. 1 provided for interest at a rate of 30% per year until paid. Note No. 2 provided for interest at a rate of 20% until maturity, and for a rate of 30% thereafter if the indebtedness was not timely paid. AAI, which had become insolvent, defaulted after having made three payments on the loans. Yates has alleged, in an affidavit which Allen has not controverted, that he extended the maturity dates of the Notes after having received an assurance from Allen that AAI was about to obtain a substantial payment in settlement of a dispute with the Department of Defense (DOD). According to Yates, Allen represented that this payment would be used to satisfy Allen's indebtedness.

In April 1999, AAI received a payment of approximately $2.1 million from the DOD. Upon receiving these funds, however, AAI transferred them to The Inter Tech Group, Inc. (TIG), the company's controlling shareholder.² In addition, the only other significant asset owned by AAI, consisting of shares of stock in a company named Catamarca Services, Inc. (Catamarca), was transferred to Holding One, Inc. (HOI), a corporation formed by TIG and TIG's controlling shareholders, Jerry Zucker and James Boyd. As a result, AAI was without assets to make any further payments on the Notes.

On July 23, 2001, a confession of judgment in the amount of $57,222.42, representing the principal and accrued interest on Note No. 2, was entered against Allen and AAI in the Circuit Court of the City of Norfolk, Virginia.³ The judgment was confessed by an attorney-in-fact appointed by Allen pursuant to a provision contained in the Note.⁴ On August 6, 2001, Yates brought this suit in our Superior Court against AAI, Allen, TIG, HOI, Zucker, and Boyd. In his complaint, Yates included four separate claims: (1) Breach of Contract, (2) Fraud, (3) Breach of Fiduciary Duty, and (4) Fraudulent Transfers, and he prayed for actual damages in the amount of $310,000, a sum which represented the indebtedness on both Notes, together with interest and counsel fees. Yates also asked the court to award him punitive damages in the amount of $2,500,000. Yates asserted that TIG, Boyd and Zucker caused AAI to transfer all of its assets to TIG, and that Yates was entitled to an award of punitive damages for breach of fiduciary duty and for the allegedly fraudulent transfer of the funds to avoid payment of the indebtedness.

On April 4, 2002, Yates entered into a settlement agreement with AAI, TIG, HOI, Boyd and Zucker (the "settling defendants"). Allen was not a party to this settlement. In the settlement agreement, Yates expressly reserved any and all claims that he might have against Allen. The instrument further provided that nothing therein should be construed as indemnification of Allen by the settling defendants, and the settling defendants denied "any liability or culpability for the allegations, claims and causes of action brought by" Yates. The parties recited in the agreement that the settlement was entered into "in order to avoid the expense of further litigation...." Under the terms of the settlement, Yates was entitled to receive: (1) $75,000 from TIG; (2) upon certain conditions, either (a) $150,000 from AAI from the proceeds of the settlement with the DOD, or (b) $75,000 from TIG; (3) 5% of shares of Catamarca stock possessed by HOI; (4) a seat on the Board of Directors of Catamarca; and (5) in the event Catamarca were to make any payments to HOI, 2.5% of any positive operating cash flow. The action was then dismissed against all settling defendants, but Yates' breach of contract claim against Allen proceeded to contested litigation. Yates and Allen each filed a motion for summary judgment. On January 31, 2003, the trial judge denied Allen's motion, but she granted Yates' cross-motion as to liability, reserving the determination of damages. Allen asked the court to reconsider its disposition of the issue of liability and to reopen discovery, arguing that his liability should be reduced by payments received by Yates pursuant to the settlement agreement, and that further discovery was reasonably calculated to ascertain facts that would support his claim for an offset.

By order entered on March 13, 2003, the trial judge denied Allen's motion and entered judgment against Allen in the amount of $377,891.94.⁵ The judge stayed her order for fifteen days to permit the parties "to submit any reason why the amount of the judgment should be decreased or increased." Allen filed a motion to alter or amend the order of March 13, 2003. By order dated April 15, 2003, the judge denied his motion. On the same date, the judge entered a final judgment in Yates' favor in the amount specified in the March 13 order. Allen filed a timely notice of appeal from the order granting summary judgment and from the denial of Allen's cross-motion.

II. LEGAL ANALYSIS

A. Standard of review.

Summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Super. Ct. Civ. R. 56(c). The moving party has the burden of demonstrating the absence of any genuine issue of material fact. Holland v. Hannan, 456 A.2d 807, 815 (D.C.1983). To defeat a motion for summary judgment, "the opposing party need only show that there is sufficient evidence supporting the claimed factual dispute to require a jury or judge to resolve the parties' differing versions of the truth at trial." Nader v. de Toledano, 408 A.2d 31, 42 (D.C.1979) (quoting Int'l Underwriters, Inc. v. Boyle, 365 A.2d 779, 782 (D.C.1976)). On summary judgment "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Indeed, while the moving party's papers are "closely scrutinized," the opponent's are to be treated "indulgently." Fry v. Diamond Constr., Inc., 659 A.2d 241, 246 (D.C.1995) (citations omitted).

Our review of an order granting summary judgment is de novo, and we apply the same substantive standards which are to be applied by the trial court. Opton, Inc. v. FDIC., 647 A.2d 1126, 1128 (D.C.1994) (citations omitted).

B. Allen's claim that his liability has been discharged.

Allen asserts that his obligations as secondary obligor were extinguished in their entirety by the settlement agreement. He argues that because AAI, the principal obligor, settled Yates' claim against AAI, and because the complaint against AAI had been dismissed, there was no longer a debt to which the guarantee applied. Accordingly, Allen contends that the trial judge should have granted his motion for summary judgment. These contentions are unpersuasive.

Allen's claim that the trial judge erred by declining to award summary judgment in Allen's favor is not properly before us. An order denying summary judgment is not a final order, and we have held that "a denial of a motion for summary judgment is not reviewable on appeal, either during trial or after trial." Hammond v. Weekes, 621 A.2d 838, 839 n. 1 (D.C.1993) (citations omitted). Moreover, even to the extent that it is offered as a bar to summary judgment in Yates' favor, Allen's claim of total discharge fails.⁶

Under the terms of the Notes, Yates had the right to release any obligor from liability singly, without releasing other obligors.⁷ On its face, the settlement agreement released AAI and the other settling defendants only, and it did not expressly affect Allen's obligations. It is true that, as a general rule, an obligee's release of the principal obligor discharges the principal's debt and thereby relieves the secondary obligor of liability. See Knight v. Cheek, 369 A.2d 601, 603 (D.C.1977)

. However, this rule has no application where, as here, the obligee has preserved his rights against the secondary obligor. See RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY (hereinafter RESTATEMENT) § 39(b) (1996).⁸ In Knight, the contract of guaranty provided that the "holder may, without affecting our liability, compromise or release ......