Haggard v. Bank of the Ozarks, Inc.

• Decision Date: 19 January 2012
• Docket Number: No. 11–10154.,11–10154.
• Citation: 668 F.3d 196
• Parties: Rodney O. HAGGARD, Plaintiff–Appellant, v. BANK OF the OZARKS, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

668 F.3d 196

Rodney O. HAGGARD, Plaintiff–Appellant,

v.BANK OF the OZARKS, INC., Defendant–Appellee.

No. 11–10154.

United States Court of Appeals, Fifth Circuit.

Jan. 19, 2012.

Robert Clary (argued), Owens, Clary & Aiken, L.L.P., Dallas, TX, for Plaintiff–Appellant.

Mark Douglas Cronenwett (argued), Higier, Allen & Lautin, P.C., Addison, TX, for Defendant–Appellee.

Appeal from the United States District Court for the Northern District of Texas.Before BENAVIDES and PRADO, Circuit Judges, and ALVAREZ, District Judge.^*PER CURIAM:

This appeal is from the grant of summary judgment in a diversity case in which the Plaintiff–Appellant is a limited partner in a partnership that received a loan from the Defendant–Appellee Bank. The dispute stems from a limited guaranty agreement between the Bank and the Plaintiff–Appellant, who became a guarantor of the loan received by the partnership. The parties agree that the guarantor's liability is limited to $500,000, and not the full liability of the loan, which originally was $1.6 million. The central issue is whether the guaranty agreement only requires payment from the guarantor once the balance of the outstanding loan is $500,000 or less. The district court ruled that the payment was immediately due regardless of whether the balance of the loan had been reduced to $500,000. Because we find the language of the guaranty agreement ambiguous, we VACATE the summary judgment and REMAND to the district court. Further, we AFFIRM the district court's denial of the motion for leave to file a supplemental claim. Finally, we VACATE the order awarding attorney's fees.

I. BACKGROUND

In 2007, Defendant–Appellee, Bank of the Ozarks, Inc. (“the Bank”), loaned McKinney Meadows L.P. (“the Partnership”) $1,600,000 to purchase a tract of real property in McKinney, Texas. The Partnership executed a promissory note payable to the Bank and also granted the Bank a lien on the acquired property. During this same transaction, Plaintiff–Appellant Rodney Haggard (“Haggard”), who was a limited partner in the Partnership, executed a limited guaranty agreement, which provided in part that:

[T]he liability of the Guarantor hereunder is limited to the last to be repaid $500,000.00 of the principal balance of the loan and all accrued and unpaid interest thereon from time to time, it being understood that until the principal balance of the Loan is reduced to less than $500,000.00, there will be no reduction in the amount guaranteed hereunder and that the amount guaranteed hereunder will only be reduced on a dollar for dollar basis as the principal balance of the Note is reduced below $500,000.00.

The agreement further provided that in the event of a default the Bank was not required to sue Haggard or the Partnership to enforce payment. Nor was the Bank required to enforce its rights against any security prior to demanding payment from Haggard.

The Partnership defaulted on the note, and the Bank brought suit in the Eastern District. That suit was dismissed when the parties entered into a forbearance agreement, which provided that the forbearance period would expire on March 30, 2010. On April 20, 2010, Haggard filed the instant suit, seeking a declaratory judgment that the Bank could not pursue him as the guarantor until the balance of the loan was reduced to $500,000. The Bank counterclaimed for breach of the guaranty contract, seeking $500,000 in principal, plus interest accrued on the entire balance, attorney's fees, and costs. The Bank also filed a third-party complaint against the Partnership for breach of the Note and indemnification. Both the Bank and Haggard filed motions for summary judgment.

On January 4, 2011, the Bank foreclosed its lien on the real property that secured the loan. The Bank secured its title to the property with a bid of $975,000. Haggard had previously submitted to the district court an appraisal valuing the land at $2,300,000. On January 5, the Bank filed a status report with the court, notifying it of the sale and asserting that the sale reduced the deficiency to $717,999.99. On January 14, Haggard filed a motion for leave to file a first amended complaint to add a supplemental claim. Haggard's supplemental claim was that under § 51.003 of the Texas Property Code, he was entitled to an offset against his liability equal to the difference between the fair market value of the property and the $975,000 from the foreclosure sale.¹ That same day, the district court granted in part and denied in part Haggard's and the Bank's motions for summary judgment. The court held that Haggard owed $500,000 in principal, and owed interest on that balance but did not owe interest on the entire principal balance of the loan, which the Bank had claimed.² In its final judgment, the court certified the judgment as appealable under Federal Rule of Civil Procedure 54(b), finding there was no just reason for delay. The court also granted the Bank's request for attorney's fees and costs. On February 7, the court summarily denied Haggard's motion to file an amended complaint. Haggard now appeals.³

II. ANALYSIS

A. Standard of Review

This Court reviews summary judgment de novo, using the same standards as the district court. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir.2010). Summary judgment is proper when “there is no genuine dispute as to any material fact and ... the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). We view the evidence and all justifiable inferences in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. Guaranty

Haggard contends that the district court erred by misconstruing the language of the guaranty agreement and concluding that he is immediately liable for $500,000. “A guaranty is an undertaking by the guarantor to answer for the payment of some debt ... of another person in the event of default.” United States v. Vahlco Corp., 800 F.2d 462, 465 (5th Cir.1986). To recover pursuant to the guaranty, the Bank must establish “proof of (1) the existence and ownership of the guaranty contract, (2) the terms of the underlying contract by the holder, (3) the occurrence of the conditions upon which liability is based, and (4) the failure or refusal to perform the promise by the guarantor.” Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex.App.-Dallas, 1994, no writ). Here, the dispute is whether the terms of the guaranty agreement impose a condition that Haggard becomes liable as a guarantor only after the principal balance is reduced to $500,000. In other words, Haggard claims that the guaranty expressly limits his liability to the last $500,000 due on the loan.⁴

Pursuant to Texas law, a guarantor “is a so-called favorite of the law and as such, a guaranty agreement is construed strictly in favor of the guarantor.” Vahlco, 800 F.2d at 465 . ⁵ Further, “the primary concern of the reviewing court is to ascertain the intent of the parties.” Resolution Trust Corp. v. Northpark Joint Venture, 958 F.2d 1313, 1320 (5th Cir.1992). “If the guaranty is ambiguous, then the court must apply the ‘construction which is most favorable to the guarantor.’ ” Id. (quoting Coker v. Coker, 650 S.W.2d 391, 394 n. 1 (Tex.1983)). “The starting point for analyzing the rights and duties of the parties to a guaranty should be the language of the instrument itself.” Federal Deposit Ins. Corp. v. Woolard, 889 F.2d 1477, 1480 (5th Cir.1989).

As previously set forth, the instant agreement, under the heading of “Guaranty of Obligation,” provides in relevant part that:

[T]he liability of the Guarantor hereunder is limited to the last to be repaid $500,000.00, of the principal balance of the Loan and all accrued and unpaid interest thereon from time to time, it being understood that until the principal balance of the Loan is reduced to less than $500,000, there will be no reduction in the amount guaranteed hereunder and that the amount guaranteed hereunder will only be reduced on a dollar for dollar basis as the principal balance of the Note is reduced below $500,000.00.

Haggard relies on the above language, asserting that his liability is “limited to the last to be repaid $500,000.00, of the principal balance of the Loan.”⁶ Haggard points out that if he were to pay $500,000 prior to the balance being reduced to $500,000, according to the agreement, he would still be liable for any remaining balance under $500,000, because “the amount guaranteed hereunder will only be reduced on a dollar for dollar basis as the principal balance of the Note is reduced below $500,000.00.”

Texas courts have recognized “two distinct types of guaranty: a guaranty of collection (or conditional guaranty) and a guaranty of payment (or unconditional guaranty).” Cox v. Lerman, 949 S.W.2d 527, 530 (Tex.App.—Houston [14 Dist.], 1997, no pet.). “A guaranty of collection is an undertaking of the guarantor to pay if the debt cannot be collected from the primary obligor by the use of reasonable diligence.” Id. (emphasis added). Generally, a guaranty of collection (or conditional guaranty) requires that the principal debtor be a party to the action seeking payment. Id. In contrast, a guaranty of payment (or unconditional guaranty) does not require as a condition precedent to its enforcement that the principal debtor be joined in the suit seeking payment because the guarantor is “akin to a co-maker in that the holder of the note can enforce it against either party.” Id.

Relying upon certain language from paragraphs 4 and 5 of the guaranty agreement, the district court concluded that the guaranty was an unconditional one under Texas law. In relevant part, paragraph 4 provides that Haggard is not released from his obligation to pay based upon any neglect or failure of the Bank with respect to collecting the “guaranteed indebtedness” or foreclosing on the lien. Paragraph 5 provides that the Bank does not...