Ancor Holdings, LLC v. Peterson, Goldman

• Decision Date: 25 August 2009
• Docket Number: No. 05-08-00739-CV.,05-08-00739-CV.
• Citation: 294 S.W.3d 818
• Parties: ANCOR HOLDINGS, LLC, Appellant/Cross-Appellee, v. PETERSON, GOLDMAN & VILLANI, INC., Appellee/Cross-Appellant.
• Court: Texas Court of Appeals

294 S.W.3d 818

ANCOR HOLDINGS, LLC, Appellant/Cross-Appellee, v. PETERSON, GOLDMAN & VILLANI, INC., Appellee/Cross-Appellant.

No. 05-08-00739-CV.

Court of Appeals of Texas, Dallas.

August 25, 2009.

Jason C. Nash, Donald E. Herrmann, Kelly Hart & Hallman LLP, Fort Worth, TX, for Appellant.

Robert Carl Jones, Roger D. Kirstein, Robinson C. Ramsey, Langley & Banack, Inc., San Antonio, TX, for Appellee.

Before Justices MOSELEY, O'NEILL, and MURPHY.

OPINION

Opinion By Justice MURPHY.

Ancor Holdings, LLC appeals the trial court's judgment confirming an arbitration award under the Federal Arbitration Act (FAA) in favor of appellee, Peterson, Goldman & Villani, Inc. (PGV). In five issues, Ancor argues the arbitration award should be vacated because the arbitrator manifestly disregarded the law, exceeded her powers, and reached an award full of gross error, showing a failure to exercise honest judgment. PGV also filed a cross-appeal asserting the trial court erred when it (1) modified the arbitration award to exclude PGV's award for its share of the arbitration costs and (2) denied PGV's request to modify the name of appellant. We conclude the trial court erred by excluding PGV's award for one-half the arbitration costs and therefore modify the judgment of the trial court to reinstate PGV's award. We affirm the trial court's judgment as modified.

BACKGROUND

This dispute arises from PGV's action to enforce a guaranty agreement against Ancor. PGV was the successor-in-interest to a Continuing and Unconditional Guaranty (Guaranty) by Ancor and in favor of Bank of America, N.A. (Bank). The Guaranty related to $2,200,000 in promissory notes payable to the Bank by OpenPoint Systems, Inc., the successor-by-merger to three entities in which Ancor was the controlling shareholder. PGV purchased the promissory notes and Guaranty from the Bank in March 2003.

The Guaranty provided that it was "continuing and unlimited as to the amount," except as set forth in this limitation:

As of the date of any default under this Guaranty or under any Loan Documents ... between [OpenPoint] and the [Bank], to the extent the Bank resorts to [Ancor] for payment, this Guaranty is limited to an amount equal to the difference between (a) $1,643,000.00 and (b) the sum of (i) [OpenPoint's] reported total of accounts receivable as reported by [OpenPoint] to the Bank as of the date of such default (ii) the total value of [OpenPoint's] inventory as reported by [OpenPoint] to the Bank as of the date of such default and (iii) the total value of [OpenPoint's] net fixed assets as reported by [OpenPoint] to the Bank as of the date of such default; provided that Bank has a perfected, first priority lien, that is not subject to any claims of preference in any bankruptcy or insolvency proceeding, in such accounts receivable, inventory and fixed assets as of the date of such default.

(Emphasis in original). According to Ancor, the essential purpose of the Guaranty was to protect the Bank against further deterioration in the value of the Bank's collateral position. At the time the parties signed the Guaranty, the Bank's collateral had a reported value of $1,643,000. Therefore, Ancor believed it would be liable only for the difference between $1,643,000 and the reported value of the collateral at the time of a default.

The parties signed the Guaranty on March 7, 2000. One month later, the Bank recorded new UCC-1 financing statements on certain OpenPoint collateral to perfect its first priority lien status.¹ At the time the parties negotiated the Guaranty, Ancor's representatives assumed the Bank held a perfected security interest in the OpenPoint collateral. On May 16, 2000, two months after Ancor and the Bank executed the Guaranty and just over a month after the Bank filed new financing statements, OpenPoint filed for bankruptcy protection under Chapter 7 of the United States Bankruptcy Code, an event of default under the Guaranty.

During the bankruptcy proceedings, the bankruptcy trustee questioned the Bank's first priority lien status on the OpenPoint collateral. Two years later, in May 2002, the bankruptcy trustee filed an adversary proceeding against the Bank, alleging that the financing statements filed in the month preceding the bankruptcy filing should be avoided as a preference. The Bank alleged various defenses in its answer to the preference claim, and the bankruptcy trustee settled with PGV in April 2003 for $120,000. The bankruptcy court approved the settlement and ordered that PGV's remaining claim in excess of the settlement amount be subordinated to the claims of the general unsecured creditors for any future distributions from the bankruptcy estate. PGV received no further distributions from the bankruptcy estate.

On February 2, 2004, PGV filed suit seeking to enforce the Guaranty against Ancor. PGV asserted that because the bankruptcy trustee filed a preference claim, Ancor could not invoke the limitations formula provided in the Guaranty and was therefore liable for the full amount owed under the promissory notes. The trial court thereafter referred the case to arbitration pursuant to the parties' joint motion under the Guaranty's arbitration clause.

During the course of the arbitration proceedings, the arbitrator issued six interim orders and findings. The first Interim Order and Findings addressed the extent of Ancor's liability under the Guaranty. Applying the rules of contract construction, the arbitrator determined the pertinent language of the Guaranty was unambiguous, as urged by both parties. The arbitrator concluded the filing of a preference claim in the OpenPoint bankruptcy proceedings was enough to negate the limitation provision in the Guaranty, rendering Ancor liable for the full amount due under the promissory notes.

After Ancor asked for reconsideration of the first order, the arbitrator issued a Second Interim Order and Findings. In her second order, the arbitrator acknowledged Ancor's arguments regarding the language and meaning of the Guaranty, specifically noting that "[c]ontrary to its initial stipulation in these proceedings that the pertinent Guaranty language is unambiguous, Ancor now contends that the language is ambiguous. ..." After considering Ancor's claim of ambiguity, the arbitrator determined that "[w]hen the language of the Guaranty is read as a whole in light of the circumstances present when the Guaranty was entered, and in accordance with governing contract interpretation rules, one reasonable meaning emerges." Based on the phrase "subject to any claims of preference ... as of the date of such default," the arbitrator concluded the Guaranty reflected the parties' intention that the limitation language be vitiated such that "the Bank recover its right to a full Guaranty, where its lien is subject to any claim of preference. ..." (Emphasis in original). The arbitrator upheld her first decision.

Following the second order, PGV filed an amended petition and moved for summary judgment on the amount owed by Ancor. In response, Ancor filed an amended answer and a counterclaim for reformation of the Guaranty. On its reformation claim, Ancor asserted mutual mistake. It requested reformation to reflect the Bank's and Ancor's mutual intent for a "limited" guaranty. Acknowledging that Ancor's newly asserted affirmative defenses and counterclaim for reformation altered the nature of the proceedings and required additional discovery, the arbitrator allowed Ancor to proceed on the new defenses and counterclaim. After extensive briefing, the arbitrator concluded Ancor's reformation claim was not time-barred.²

Following an evidentiary hearing on the reformation issue, the arbitrator issued the Sixth Interim Order and Findings partially granting Ancor's request. She concluded Ancor's liability was capped under the formula paragraph at the maximum of $1,643,000. The arbitrator reformed the Guaranty "consistent with the intent of the parties," using language proposed by Ancor, as follows:

This Guaranty is continuing and unlimited as to the amount, except as set forth below. ...

As of the date of any default under this Guaranty or any Loan Documents ... between [OpenPoint] and the Bank, to the extent the Bank resorts to [Ancor] for payment, this Guaranty is limited to an amount equal to the difference between (a) $1,643,000.00 and (b) the sum of [i] [OpenPoint's] reported total of accounts receivable as reported by [OpenPoint] to the Bank as of the date of such default (ii) the total value of [OpenPoint's] inventory as reported by [OpenPoint] to the Bank as of the date of such default and (iii) the value of [OpenPoint's] net fixed assets as reported by [OpenPoint] to the Bank as of the date of such default; provided that the guaranty amount of $1,643,000 will only be reduced by the value of those items of collateral (accounts receivable, inventory and/or net fixed assets) in which the Bank holds a perfected first priority lien as of the date of any default, and which has not been made the subject of a claim of preference in any bankruptcy or insolvency proceeding.

(Emphasis in original). The arbitrator found by clear and convincing evidence that "a slight change" was warranted to conform the agreement to the actual terms reached among the representatives of Ancor and the Bank. She upheld the reformation in her "Clarification of Sixth Interim Order and Findings."

Thereafter, the arbitrator entered the Final Award, providing a detailed analysis of her findings and rationale. Importantly, she discussed the "perfected, first priority lien" language and concluded from the evidence that the first priority lien requirement was an "agreed term." She further emphasized that all parties were sophisticated businessmen and understood the value of the collateral was meaningless unless the Bank had the ability to collect. Applying the $1,643,000 damage cap formula, the arbitrator calculated and awarded PGV $829,764 in...