Jpmorgan Chase Bank, N.A. v. Winget

• Decision Date: 14 December 2007
• Docket Number: No. 07-1096.,07-1096.
• Citation: 510 F.3d 577
• Parties: JPMORGAN CHASE BANK, N.A., as Administrative Agent, Plaintiff-Appellee, v. Larry J. WINGET and the Larry J. Winget Living Trust, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

510 F.3d 577

JPMORGAN CHASE BANK, N.A., as Administrative Agent, Plaintiff-Appellee, v. Larry J. WINGET and the Larry J. Winget Living Trust, Defendants-Appellants.

No. 07-1096.

United States Court of Appeals, Sixth Circuit.

Argued: November 1, 2007.

Decided and Filed: December 14, 2007.

ARGUED:

John E. Anding, Drew, Cooper & Anding, Grand Rapids, Michigan, for Appellants. Melville W. Washburn, Sidley Austin, Chicago, Illinois, for Appellee.

ON BRIEF:

John E. Anding, Thomas V. Hubbard, Drew, Cooper & Anding, Grand Rapids, Michigan, for Appellants. Melville W. Washburn, Matthew A. Clemente, Larry J. Nyhan, Kevin C. Pecoraro, Brian D. Rubens, Sidley Austin, Chicago, Illinois, William T. Burgess, Dickinson Wright, Detroit, Michigan, for Appellee.

Before: SILER, MOORE, and GILMAN, Circuit Judges.

OPINION

RONALD LEE GILMAN, Circuit Judge.

Through a series of transactions between 1999 and 2002, JPMorgan Chase Bank and its predecessor served as agent for a number of lenders that had advanced credit to Venture Holding Company LLC, a company owned by Larry J. Winget and the Larry J. Winget Living Trust (hereafter collectively referred to as Winget). JPMorgan, on the basis of the various agreements between the parties, sought to inspect the financial records of two other companies owned by Winget after Venture filed for bankruptcy. The district court granted JPMorgan's request for specific performance of the bank's inspection rights, a decision that Winget has appealed. For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. Factual background

1. The parties' relationship

In October of 2002, JPMorgan and Winget entered into the Eighth Amendment of the Credit Agreement between the lenders and Venture. A guaranty of payment (Winget Guaranty) was executed pursuant to the Eighth Amendment, which memorialized Winget's personal guarantee of Venture's obligations under the Credit Agreement. Winget also entered into two pledge agreements (Winget Pledges) in conjunction with the Winget Guaranty whereby Winget pledged all of the present and future stock in two other companies owned by Winget—P.I.M. Management Co. (P.I.M.) and Venco # 1, LLC (Venco). Finally, P.I.M. and Venco executed guaranties that were similar to the Winget Guaranty and the Winget Pledges (P.I.M. Guaranty and Venco Guaranty).

Venture and a number of Winget's other companies later filed for bankruptcy. Following the sale of various assets of the bankrupt companies, Venture's outstanding debt under the Credit Agreement stood at approximately $350 million. On September 21, 2005, JPMorgan, through its counsel, sent a letter to Winget requesting inspection of his personal financial records and the financial records of P.I.M. and Venco pursuant to the terms of the Winget Guaranty. Winget, on October 5, 2005, denied JPMorgan's request.

2. Relevant contractual provisions

At issue in this appeal is the inspection covenant set forth in § 11(d)(i) of the Winget Guaranty. This section provides in pertinent part as follows:

Each of the Guarantor Controlled Companies will permit the Administrative Agent, by its representatives and agents, to inspect any of the Property, corporate books and financial records of such Guarantor Controlled Company, . . . to examine and make copies of the books and accounts and other financial records of such Guarantor Controlled Company, and to discuss the affairs, finances and accounts of such Guarantor Controlled Company with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Administrative Agent may designate. . . .

This inspection covenant is one of a series of covenants that govern the actions that may be taken with respect to Winget's companies, including P.I.M. and Venco. These covenants include restrictions on (1) the declaration and payment of dividends (§ 11(d)(ii)), (2) the incurring of indebtedness (§ 11(d)(iii)), (3) mergers and consolidations (§ 11(d)(iv)), (4) investments and acquisitions (§ 11(d)(v)), (5) the creation of liens (§ 11(d)(vi)), and (6) transactions with specific affiliated entities (§ 11(d)(vii)). The Winget Guaranty states that Winget "will cause the Guarantor Controlled Companies to comply with each of the . . . covenants."

Another portion of the Winget Guaranty that is relevant to this appeal is § 3, which sets out the limits on JPMorgan's potential recovery under the Credit Agreement:

[N]o action will be brought for the repayment of the Guaranteed Obligations under this Guaranty and no judgment therefor will be obtained or enforced against Larry Winget other than with respect to the Pledged Stock in accordance with the provisions of the related pledge agreements, provided that the Guarantor shall be fully and personally liable for any damages arising from any violations of any of the agreements of the Guarantor herein in favor of the Lenders. No action for money judgment shall be commenced by the Administrative Agent arising from any alleged violation of the covenants contained in Section 11(d) until the completion of collection and liquidation efforts (as described in Section 5.2 of the Pledge Agreement of Guarantor as to PIM), unless there is a good faith allegation of material and irreparable harm. However, an action for specific performance and/or injunctive relief can be brought at any time following an alleged violation.

Although § 3 of the Winget Guaranty references only the P.I.M. Pledge, § 5.2 of both the P.I.M. Pledge and Venco Pledge contain identical language regarding any collection action against the pledged stock. These sections provide in pertinent part that

[n]otwithstanding anything herein or elsewhere to the contrary, the Agent shall not exercise any rights or remedies under this Pledge Agreement until all reasonable efforts have been made by it to collect the Obligations from other collateral held by the Agent . . ., it being intended that the Collateral provided by this Pledge Agreement . . . shall be realized upon by the Agent only as a last resort.

The "other collateral" that must first be pursued by JPMorgan is not defined in the Winget Guaranty, but the pledged stock of P.I.M. and Venco are explicitly excluded from the contemplated "other collateral." An almost identical "reasonable efforts" provision appears in § 3(iii) of both the P.I.M. and Venco Guaranties. Finally, pursuant to § 10 of the Winget Pledges, Winget can obtain a release of the P.I.M. and Venco stock by paying JPMorgan "not less than $50,000,000" to satisfy each pledge.

B. Procedural background

In Count I of the Complaint, JPMorgan requests an order for specific performance under the Winget Guaranty, requiring Winget to comply with the inspection requests outlined in its September 21, 2005 letter. Winget filed both an Answer, raising affirmative defenses, and a Counterclaim, which was subsequently amended. JPMorgan moved to dismiss the amended Counterclaim. The district court eventually dismissed the Counterclaim without prejudice and permitted Winget to assert those claims in a new, related case, which Winget did.

JPMorgan then moved for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. In its motion, JPMorgan sought to have Winget's affirmative defenses stricken and requested a final judgment as to its request for specific performance. The district court granted JPMorgan's request for specific performance and ruled that the affirmative defenses would be litigated as part of the companion case initiated on the basis of Winget's former Counterclaim.

At the request of the district court, both parties submitted proposed orders that would implement the specific performance of JPMorgan's inspection right. JPMorgan's proposed order was adopted, which the district court subsequently modified to protect Winget's right to assert his Fifth Amendment privilege against self incrimination in other proceedings. The district court also entered a protective order that restricts the use of any confidential material produced during the inspection process. On appeal, Winget argues that the district court erred by (1) failing to apply the "reasonable efforts" provision to JPMorgan's inspection rights, and (2) granting an overly broad order of specific performance.

II. ANALYSIS

A. Standard of review and applicable substantive law

We review de novo a judgment on the pleadings granted pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, using the same standard as applies to a review of a motion to dismiss under Rule 12(b)(6). Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 389 (6th Cir.2007). "For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment." Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir.1973). But we "need not accept as true legal conclusions or unwarranted factual inferences." Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir.1999). A Rule 12(c) motion "is granted when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law." Paskvan v. City of Cleveland Civil Serv. Comm'n, 946 F.2d 1233, 1235 (6th Cir.1991).

Jurisdiction in the present case is based on diversity of citizenship. "In diversity cases such as this, we apply state law in accordance with the controlling decisions of the state supreme court." Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir.2001). Accordingly, we apply Michigan state law to the interpretation of the parties' agreements and the district court's order of specific performance.

B. The "reasonable efforts" provision

Winget contends that JPMorgan's inspection rights as set forth in § 11(d) of...