Bank of Oklahoma, N.A. v. Red Arrow Marina

• Decision Date: 13 October 2009
• Docket Number: No. 104,651.,104,651.
• Citation: 2009 OK 77,224 P.3d 685
• Parties: BANK OF OKLAHOMA, N.A., a National Association, Plaintiff/Appellant v. RED ARROW MARINA SALES & SERVICE, INC., an Oklahoma corporation; Sullivan E. Johnson, an individual; Brad Carson, an individual; and Red Arrow, Inc., an Oklahoma corporation, Defendants/Appellees.
• Court: Oklahoma Supreme Court

224 P.3d 685

2009 OK 77

BANK OF OKLAHOMA, N.A., a National Association, Plaintiff/Appellant v. RED ARROW MARINA SALES & SERVICE, INC., an Oklahoma corporation; Sullivan E. Johnson, an individual; Brad Carson, an individual; and Red Arrow, Inc., an Oklahoma corporation, Defendants/Appellees.

No. 104,651.

Supreme Court of Oklahoma.

October 13, 2009.

ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIV. 1

¶ 0 Seeking recovery on a defaulted loan, plaintiff bank brought an action against the mortgagor for foreclosure of property securing the debt and against the loan's guarantor. Plaintiff also alleged fraud in the inducement of the loan against all defendants. After the foreclosure sale plaintiff did not seek to recover the amount due that was left unsatisfied by the sale—the deficiency. All defendants claimed that the bank's failure to seek deficiency adjudication precluded its further recovery on the remaining claims. Upon motions by defendants, the District Court, Delaware County, Robert G. Haney, Judge, gave summary judgment to all. Plaintiff's motion for postjudgment relief was denied. The Court of Civil Appeals, Division I, affirmed the portion of the judgment that dismissed plaintiff's claims against the mortgagor but reversed the portion that gave summary relief to all other defendants. On certiorari granted upon defendants' petitions,

THE COURT OF CIVIL APPEALS' OPINION IS VACATED; THE TRIAL COURT'S SUMMARY JUDGMENT IS AFFIRMED IN PART AND REVERSED IN PART; AND THE CAUSE IS REMANDED FOR FURTHER PROCEEDINGS TO BE CONSISTENT WITH TODAY'S PRONOUNCEMENT.

Paul DeMuro, J. Michael Medina, Frederic Dorwart, Lawyers, Tulsa, Oklahoma, for Plaintiff/Appellant.

Lewis N. Carter, Doerner, Saunders, Daniel & Anderson, L.L.P., Tulsa, Oklahoma, for Defendants/Appellees Red Arrow Marina Sales & Service, Inc. and Sullivan E. Johnson.

Jack N. Herrold, David H. Herrold, Emily M. Jones, Herrold, Herrold & Co., P.C., Tulsa, Oklahoma, for Defendants/Appellees Brad Carson and Red Arrow, Inc.¹

OPALA, J.

¶ 1 Certiorari was granted to settle the first-impression question whether a creditor who does not impose liability on a mortgage debtor for the deficiency that remains after a foreclosure sale may maintain a suit against the debtor and other parties for fraud in the inducement of the loan that is secured by mortgage. In short, we are asked to decide whether the mortgage debt's satisfaction under Oklahoma's anti-deficiency statute² closes for a defrauded lender all other legal avenues of recovery. We hold that it does not.

¶ 2 The statute's protection extends only to mortgage debtors. But even for debtors this protection is not absolute. A lender's failure timely to seek imposition of deficiency liability will absolve borrowers of liability on the underlying debt, but will not free them from answering in damages for their fraudulent acts in the mortgage transaction. Though the debt's guarantor may in some instances derive some incidental benefit from the satisfaction of the underlying obligation, the anti-deficiency statute will not provide a shield against liability for anyone's fraudulent misrepresentations to a mortgage lender.

¶ 3 The trial court, though correct in finding that the mortgagor's liability on the mortgage debt stood extinguished by plaintiff's failure to seek deficiency recovery, erred in giving summary judgment to the other defendants on the bank's remaining claims. The statutory satisfaction of the mortgage debt, standing alone, is ineffective to defeat defendants' guaranty and fraud liability. The trial court also erred in denying plaintiff's quest for postjudgment relief by reconsideration of its earlier summary judgment.

¶ 4 The Court of Civil Appeals affirmed in part and reversed in part the trial court's decision. Although we reach here the same result as that of the Court of Civil Appeals, we vacate that court's opinion to provide precedential guidance on a question of substantive law not previously determined by this court. We also re-emphasize this court's established jurisprudence holding that the outer reach of a guarantor's obligation must be determined by the precise terms of the guaranty agreement and of the law that governs that obligation, not by resort to the separate, distinct, and totally inapplicable protections of the mortgage debtor by the shield of the anti-deficiency statute.

I. ANATOMY OF THE LITIGATION

¶ 5 Bank of Oklahoma (Bank) provided financing in 2000 for a $1,400,000 U.S. Small Business Administration loan to Red Arrow Marina Sales & Service, Inc. (Red Arrow Marina) for the purchase of a lakefront marina near Afton, Oklahoma then owned by Brad Carson (Carson) and Red Arrow, Inc. (collectively the Carson defendants). Evidenced by a promissory note, the obligation to the bank was secured by a mortgage on real property; a security agreement covering the marina's fixtures, inventory and equipment; and a guaranty for the full amount of the debt³ given by Sullivan E. Johnson (Johnson), Red Arrow Marina's president. Neither Red Arrow Marina nor Johnson ever made a payment on the loan obligation in suit.

¶ 6 Upon default Bank brought suit against: (1) Red Arrow Marina on the promissory note and to foreclose both the mortgage and security interest, (2) Johnson on the guaranty agreement and (3) both Red Arrow Marina and Johnson for fraud in inducing Bank to make a loan it claims it would not have made had it not been for defendants' alleged misrepresentations. Bank later amended its petition to allege fraud against the Carson defendants as well, claiming they too had conspired to mislead Bank into extending the loan.⁴ The thrust of Bank's fraud claim is that the marina's sellers, Carson and Red Arrow, Inc., and the marina's buyers, Johnson and Red Arrow Marina, jointly undertook fraudulently to misrepresent the marina property's value and Johnson's ability to repay the loan. Bank claims it was thereby misled into financing what amounted to an utterly sham transaction between Carson and Johnson.

¶ 7 The trial court gave in 2001 judgment to Bank against Red Arrow Marina and Johnson on the note and guaranty and decreed foreclosure of the mortgage and security interest to satisfy the loan obligation.⁵ The court held Bank's fraud claim in abeyance pending the outcome of the foreclosure sale. The sale's occurrence was long delayed: the foreclosed marina property failed to receive any bids at seven separate sheriff's sales conducted between 2002 and 2005 until finally selling for $280,000 at a public auction in November 2005.⁶ The district court confirmed the sale the following month. Although the amount realized from the sale fell far short of satisfying the full amount of the mortgaged debt, Bank did not seek judicial determination of the deficiency's⁷ amount due the creditor as authorized by the terms of 12 O.S.2001 § 686.⁸

¶ 8 In 2006—nearly one year after the sale—Bank filed a notice of renewal of the judgment obtained against Red Arrow Marina and Johnson five years earlier that decreed foreclosure of the mortgaged property.⁹ All defendants moved for summary judgment, arguing that the statutory satisfaction of the mortgage debt in toto that followed, as a matter of law, Bank's failure to obtain a deficiency determination¹⁰ absolved them of any further liability on the guaranty and fraud claims. The trial court gave summary judgment to all defendants. Plaintiff then unsuccessfully pressed the trial court for reconsideration of its summary disposition.¹¹ The Court of Civil Appeals, Division I, affirmed the trial court's judgment in favor of the defendant mortgagor Red Arrow Marina¹² but reversed that given for the other defendants on the remaining guaranty and fraud claims. We granted certiorari to determine and define by a precedential pronouncement the breadth of the protection afforded by Oklahoma's anti-deficiency statute.

II. STANDARD OF REVIEW

¶ 9 Summary process—a special pretrial procedural track pursued with the aid of acceptable probative substitutes¹³—is a search for undisputed material facts which, without resort to forensic combat, may be utilized in the judicial decision-making process.¹⁴ A court may grant summary judgment only when neither genuine issues of material fact nor any conflicting inferences that may be drawn from uncontested facts are in dispute and the law favors the moving party's claim or liability-defeating defense as a result of which the moving party becomes entitled to judgment as a matter of law.¹⁵ Only those evidentiary materials which eliminate from trial some or all fact issues on the merits of the claim (or of the defense) afford legitimate support for a trial court's use of summary process for a claim's adjudication, partial or total.¹⁶

¶ 10 Issues in summary process stand before us for de novo review.¹⁷ All facts and inferences tendered in a summary proceeding must be viewed in the light most favorable to the non-moving party.¹⁸ Just as trial courts must decide whether summary judgment is proper in the first instance, so too must appellate courts undertake an independent and non-deferential de novo review when testing the legal sufficiency of all evidentiary materials proffered by the parties in their quest for or in the defense against summary relief.¹⁹ If no material fact or inference derived from the materials stands in dispute, the movant is entitled to summary judgment if the law favors the moving party's claim or liability-defeating defense.²⁰

¶ 11 A trial court's denial of a motion for new trial—here denominated erroneously as a motion for reconsideration of the judgment—is reviewed for abuse of discretion.²¹ Where, as here, our assessment of the trial court's exercise of discretion in denying plaintiff a new trial rests on the propriety of the earlier summary judgment, we settle the abuse-of-discretion question by a de novo review of the summary adjudication's correctness.²² A trial court abuses its discretion when it errs...