First Dakota Nat'l Bank v. Graham
| Decision Date | 13 May 2015 |
| Docket Number | No. 27189.,27189. |
| Citation | 864 N.W.2d 292 |
| Parties | FIRST DAKOTA NATIONAL BANK, Plaintiff and Appellant, v. David GRAHAM, Justin Graham, Donald Graham and Dennis Glatt, Defendants and Appellees. |
| Court | South Dakota Supreme Court |
Steven K. Huff, Sheila S. Woodward of Johnson, Miner, Marlow Woodward & Huff, Prof. LLC, Yankton, South Dakota, Attorneys for plaintiff and appellant.
Thomas J. Nicholson of Nicholson, Tschetter, Adams & Nicholson, Sioux Falls, South Dakota, Attorneys for defendant and appellee David Graham.
Jason KW Krause of Dorothy & Krause Law Firm, PC, Sioux Falls, South Dakota, Attorneys for defendant and appellee Justin Graham.
Clair R. Gerry of Gerry & Kulm Ask, Prof., LLC, Sioux Falls, South Dakota, Attorneys for defendant and appellee Donald Graham.
James E. McMahon, Lisa Prostrollo of Murphy, Goldammer & Prendergast, LLP, Sioux Falls, South Dakota, Attorneys for defendant and appellee Dennis Glatt.
[¶ 1.] In this contract action, the lender seeks to enforce separate commercial guaranties against the individual guarantors. The guaranties were executed to secure the indebtedness of the borrower. The guarantors moved for summary judgment, claiming that the guaranties were unenforceable because no indebtedness existed after the lender bought the mortgaged property at a foreclosure sale for the full amount and extinguished the borrower's obligation. The circuit court agreed and granted the guarantors summary judgment. We affirm.
[¶ 2.] Huron Hospitality II, LLC owned and operated the Crossroads Hotel & Event Center (the Hotel) in Huron, South Dakota. In 2008, Huron Hospitality obtained a loan from First Dakota National Bank for $2,960,000 in exchange for a promissory note and mortgage on the Hotel. To further secure the obligation, First Dakota obtained separate commercial guaranties from the Huron Hospitality shareholders: Donald Graham, Justin Graham, Dennis Glatt, and David Graham (the Guarantors). Guarantor David Graham managed and operated the Hotel.
[¶ 3.] In July 2012, Huron Hospitality failed to make timely payments on the note. First Dakota gave Huron Hospitality and the Guarantors notice of the default. Neither Huron Hospitality nor the Guarantors cured the default. However, on July 3, 2012, Guarantor Glatt and his wife wrote to First Dakota expressing concern over David Graham's management of the Hotel. Specifically, they stated that “David cannot manage this property/investment any longer and [we] are looking for help in the resolution of this.” The Glatts listed specific problems with Graham's management, actions, and decisions. They requested that an independent management company be hired to take over the Hotel.
[¶ 4.] In August 2012, First Dakota filed an amended complaint for foreclosure and receivership against Huron Hospitality under SDCL chapter 21–49. In its complaint, First Dakota alleged that Huron Hospitality had defaulted on its note and that the parties' mortgage specifically permitted the appointment of a receiver during a foreclosure proceeding. In its prayers for relief, First Dakota sought a judgment declaring that the amount due on the note was $2,817,998.69, with interest accruing from August 8 until the date of entry of a judgment in favor of First Dakota at a rate of $774.52 per day. First Dakota also requested that the court assess late charges, attorneys' fees, and sales tax thereon. First Dakota further requested that the mortgaged property “be decreed to be sold by the Sheriff of Beadle County, South Dakota,” and “[t]hat the proceeds of the sale be brought into court and be applied in payment of the amount due First Dakota as found by the court's judgment, including all costs and disbursements of this action and of all sale, pre- and post-judgment interest, and reasonable attorneys' fees, sales tax and expenses.” First Dakota requested that it “may become the purchaser at the sheriff's sale the same as any other bidder,” and that it “may bid at the sale the full judgment debt.” It asserted that Huron Hospitality stipulated to the appointment of Kelly Inn, Ltd. as “the receiver for the duration of the litigation[.]”
[¶ 5.] Huron Hospitality did not answer First Dakota's amended complaint, and First Dakota moved the circuit court for entry of a default judgment and for permission to foreclose on the property. On October 15, 2012, after a telephonic hearing at which Huron Hospitality did not appear, the circuit court entered a default judgment against Huron Hospitality and granted First Dakota a “default judgment for foreclosure against HH LCC [ (Huron Hospitality) ].” The court's order provided that First Dakota was entitled to a default judgment against Huron Hospitality in the amount of $2,914,764.02, plus pre- and post-judgment interest and authorized expenses. The court ordered that the mortgaged premises be sold at public auction under the direction of the Sheriff of Beadle County. First Dakota was authorized by the court to bid “this judgment amount, $2,914.764.02, plus any post-judgment interest, attorney fees until date of sale, and all Receiver incurred expenses and any other indebtedness incurred by [First Dakota] on [Huron Hospitality's] behalf during the receivership.”
[¶ 6.] On December 18, 2012, Beadle County Sheriff Doug Solem issued a return of foreclosure sale to the circuit court. The return indicated that a sale was held on December 18 and that the sheriff sold the mortgaged property “to the highest bidder at public auction[.]” First Dakota was the highest (and only) bidder. The return provided that The circuit court confirmed the sale and ordered that the property remain under the control and management of the receiver “until the property is redeemed as provided by law or the expiration of the redemption period, whichever should occur first [.]” The court further ordered that the sheriff “shall make and deliver a deed to the purchaser of the property at the expiration of the period of redemption[.]”
[¶ 7.] After obtaining the property and after the expiration of the redemption period, First Dakota listed the Hotel for sale with a commercial real estate agency. First Dakota continued to utilize Kelly Inn to manage the hotel. The Hotel did not sell, and First Dakota informed the Guarantors in writing that it would enforce the guaranties unless one or more of the Guarantors arranged for an assignment of the Hotel or paid the debts incurred by First Dakota. None of the Guarantors responded to First Dakota's demands.
[¶ 8.] In November 2013, First Dakota filed a complaint against the Guarantors to enforce each “Commercial Guaranty” and alleged that each Guarantor owed First Dakota $3,241,883.03, plus costs, disbursements, attorneys' fees, sales tax on said fees, and other expenses associated with First Dakota having to run the Hotel.
The Guarantors, each represented by separate counsel, answered and denied that any obligation existed under the guaranty contracts. Guarantor Glatt moved for summary judgment, which motion Guarantors David, Justin, and Donald Graham later joined. First Dakota filed a cross-motion for summary judgment.
[¶ 9.] A hearing was held on July 28, 2014. Guarantors argued that because no debt remained between Huron Hospitality and First Dakota after the foreclosure sale, there existed no obligation for Guarantors to guarantee. Counsel claimed that First Dakota could have enforced the guaranties after First Dakota obtained its default judgment against Huron Hospitality. First Dakota, however, chose to proceed through foreclosure and bid on the property in full satisfaction of the debt. Guarantors argued that First Dakota could not enforce the guaranties, because there was no deficiency from the sale and the debt was completely extinguished.
[¶ 10.] In response, First Dakota submitted that South Dakota's foreclosure laws have no bearing on the Guarantors' obligations under the guaranties. According to First Dakota, its decision to make a “credit bid” at the auction, which bid extinguished Huron Hospitality's debt, is immaterial. Rather, the language of the “Commercial Guaranty” controls and provides that the Guarantors agreed to pay the debt, whether barred or unenforceable, for any reason. First Dakota further argued that any decision concluding that the indebtedness was extinguished by the foreclosure sale would give the Guarantors a windfall by not holding them responsible for what they agreed to pay. Finally, First Dakota explained at the summary judgment hearing that it did not intend to keep the hotel and recover the full obligation from Guarantors, stating, “We would be glad to turn over the keys to this hotel to the guarantors when they pay us their guarantee.”
[¶ 11.] At the conclusion of the hearing, the court issued an oral ruling. The court recognized that the Guarantors were not part of or expressly protected by the foreclosure sale. However, the court found significant First Dakota's choice to bid at the auction and to bid the entire amount of Huron Hospitality's obligation. First Dakota was not obligated to make that decision, but in doing so, left no surplus or deficiency on Huron Hospitality's obligation to First Dakota. Relying on the language of the guaranty contracts, the court ruled that without indebtedness for the Guarantors to guarantee, the guaranties were unenforceable. The court granted the Guarantors summary judgment and denied First Dakota's motion.
[¶ 12.] First Dakota appeals with the following issue: “By entering a credit bid at the foreclosure sale of the hotel property serving as partial collateral for its loan to Huron Hospitality, LLC, did First Dakota National Bank release Huron Hospitality's Guarantors from their separate contractual obligations?”
[¶ 13.] We review a circuit court's decision to grant summary judgment ...
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Pszanka v. Sutton Living Trust & Forrest C. Allred
...even though the principal debtor is relieved of liability. Appellants also argue that this case is similar to First Dakota National Bank v. Graham, 864 N.W.2d 292, 293 (S.D. 2015). Docket 5 at 15. In Graham, a hospitality company obtained a loan from a bank in exchange for a promissory note......