Masters Grp. Int'l, Inc. v. Comerica Bank

Decision Date06 July 2021
Docket NumberDA 20-0362
Citation2021 MT 161,491 P.3d 675
CourtMontana Supreme Court
Parties MASTERS GROUP INTERNATIONAL, INC., Third-Party Plaintiff, Appellee, and Cross-Appellant, v. COMERICA BANK, Third-Party Defendant, Appellant, and Cross-Appellee.

For Appellant and Cross-Appellee: James H. Goetz, Goetz, Baldwin & Geddes, P.C., Bozeman, Montana David M. Wagner, Jeffrey R. Kuchel, Crowley Fleck PLLP, Missoula, Montana Joseph J. Shannon, Jane Derse Quasarano, Bodman PLC, Detroit, Michigan

For Appellee and Cross-Appellant: L. Randall Bishop, Attorney at Law, Kalispell, Montana Timothy B. Strauch, Strauch Law Firm, PLLC, Missoula, Montana Ward E. "Mick" Taleff, Taleff & Murphy, P.C., Great Falls, Montana

For Amicus Curiae Montana Bankers Association and Montana Independent Bankers Association: Randy J. Cox, Boone Karlberg P.C., Missoula, Montana

Justice Ingrid Gustafson delivered the Opinion of the Court.

¶1 Masters Group International, Inc. (Masters), and Comerica Bank (Comerica) cross-appeal from the November 8, 2019 Decision, Findings of Fact & Conclusions of Law, the June 12, 2020 Decision & Order on Costs, Interest & Attorney Fees, and the accompanying June 17, 2020 Judgment issued by the Second Judicial District Court, Butte-Silver Bow County, following a January 9-19, 2017 bench trial.

¶2 We restate the issues on appeal as follows:

1. Is the District Court's determination under Michigan law that Comerica breached the parties’ Forbearance Agreement causing Masters to suffer contract damages supported by substantial evidence?
2. Absent any effort by Comerica to plead or prove a claim or defense for setoff or recoupment, is the District Court's rejection of such a post-trial argument legally correct?
3. Is the District Court's determination under Michigan law that Masters is entitled to prejudgment interest legally correct and does the amount exceed the bounds of reason?
4. Is the District Court's determination under Montana law that Masters is entitled to attorney fees legally correct?
5. Was Masters entitled under Michigan law to recover damages for lost profits or the lost value of the United Kingdom business?
6. Is Masters entitled to recover all costs, not just statutory costs?

¶3 We affirm in part, reverse in part, and remand this matter to the District Court.

FACTUAL AND PROCEDURAL BACKGROUND

¶4 This is the second appeal between these two parties regarding a $10.5 million loan from Comerica to Masters and Masters’ eventual default on that loan. In 2015, this Court issued its opinion in Masters Group Int'l, Inc. v. Comerica Bank , 2015 MT 192, 380 Mont. 1, 352 P.3d 1101 ( Masters I ), which, in relevant part, reversed a jury verdict in favor of Masters and against Comerica in the amount of $52,037,593 and remanded the matter to the District Court to hold a new trial applying Michigan law. Masters I , ¶ 108. The Masters I opinion summarized the history of the case through the first trial and that background need not be repeated in full here. See Masters I , ¶¶ 3-31.

¶5 Masters was created by a group of investors who sought to acquire an existing office products business based in the United Kingdom and expand its operations into North America. On July 11, 2006, Masters obtained a $9 million loan from Comerica to accomplish this purpose. Both Masters and Comerica were represented by counsel in negotiating the loan. The language of the loan provided it would "be governed by and construed and enforced in accordance with the laws of the State of Michigan." One of Masters’ investors, Larry Pratt (Pratt) and the Larry F. Pratt Living Trust, guaranteed Masters’ loan by pledging $9 million worth of marketable securities. The loan was due to be repaid on or before July 11, 2008. With the money from the loan, Masters was able to acquire the U.K. company.

¶6 Masters sought to establish a new world headquarters in Butte and entered into a $200,000 loan agreement with the Butte Local Development Corporation (BLDC) in December 2006, to help finance start-up expenses for moving to Butte. In 2007, Masters leased warehouse space in Reno, Nevada, after it determined the proposed Butte facility was not feasible. Masters also amended its loan agreement with Comerica twice in 2007 for two $500,000 principal increases in the loan, bringing the total to $10 million. Masters provided Comerica with a $500,000 letter of credit from investors Matthew and Lilian Nolan (collectively Nolan) and a personal pledge of $500,000 from the Wachovia Bank control account of investor Dr. Michael Vlahos (Vlahos). Both 2007 amendments again provided the loan was to be governed by Michigan law and neither changed the July 11, 2008 maturity date.

¶7 In early 2008, the stock market began to crash, and the value of Pratt's pledged marketable securities decreased. Comerica sent Masters a Notice of Default on April 28, 2008, which explained Masters was in default because it was no longer in compliance with the borrowing formula after the decrease in value of Pratt's securities. Masters did not repay the $10 million loan by the maturity date of July 11, 2008. Comerica sent Masters another Notice of Default on July 30, 2008. On August 1, 2008, Comerica sent Masters a letter noting it was declining to extend the loan's maturity date and would forbear only from "day to day." Masters began to seek out a new lender. On August 27, 2008, Comerica loaned Masters another $500,000 and extended the now-$10.5 million loan's maturity date to November 1, 2008, based on a $500,000 letter of credit from investor Gerry Taylor (Taylor). Once again, the amendments to the loan stipulated that the agreements would be governed by Michigan law.

¶8 Masters did not repay the loan by November 1, 2008. On November 25, 2008, Comerica sent Masters another notice it was still out of compliance with the borrowing formula, noted it was again forbearing from "day to day," and demanded payment in full by December 5, 2008. Masters, which had been continuing to seek alternative financing since the August letter from Comerica, received an initial term sheet from Wells Fargo on December 2, 2008, and a modified term sheet on December 17, 2008, both of which were disclosed to Comerica. The term sheets, which were not binding, contemplated a $13 million loan from Wells Fargo to Masters, which would allow Masters to both pay off the $10.5 million Comerica loan and also finance its day-to-day operations of the business.

¶9 On December 17, 2008, Comerica sent Masters an offer to forbear on the loan until February 16, 2009 (the Forbearance Agreement). The Forbearance Agreement, like the loan, contained a provision that the agreement was to be governed by Michigan law. The Forbearance Agreement was signed by Karl Norton (Norton), a Vice President of Comerica's Special Assets Group. As we explained in Masters I :

The Forbearance Agreement stated that Masters was in default for failing to repay the loan from Comerica and for being out of compliance with the borrowing formula. It provided that Masters acknowledged that Comerica was "under no obligation to advance funds or extend credit to [Masters]," and that Comerica did not "intend to make further advances." It further provided: "Subject to timely, written acceptance by Borrower and Guarantors of the following conditions, Bank is willing to forbear until February 16, 2009, subject to earlier termination as provided below, from further action to collect the Liabilities."
The agreement imposed numerous significant conditions. Masters agreed to deposit $56,204 into Comerica's account, an amount equivalent to the estimated aggregate interest payments due from January 1, 2009, to February 16, 2009. On or before December 29, 2008, Vlahos (or another investor) would inject $250,000 into a "general account" to cover interest payments due through December 31, 2008, Comerica's legal expenses, and other fees, including the closing fee. Also on or before December 29, 2008, Vlahos was to liquidate his financial assets in his Wachovia securities account, execute a security agreement with Comerica on these assets, and ensure that the total transfer amounted to $500,000 by the close of business on December 29, 2008. On or before December 31, 2008, Masters would pay a $52,500 closing fee. On or before January 16, 2009, Pratt was to deposit cash in a Comerica account in order to cover the shortfalls in his $9 million obligation.
Comerica reserved the right to exercise its rights and remedies under the Forbearance Agreement, and a failure to exercise those rights and remedies was not to "be construed as a waiver or modification of those rights or an offer of forbearance." The Forbearance Agreement stated that Comerica would not be bound, absent an express written waiver by Comerica, until an agreement was met on all issues, "reduced to writing and signed by" Masters, its guarantors, and Comerica. Masters agreed to use its best efforts to procure alternative financing and provide written confirmation of the financing arrangement on or before January 23, 2009. Acceptance of the Forbearance Agreement required that "Borrower and Guarantors ... properly execute this Agreement and hand deliver [the] same to the undersigned by no later than 12:00 (noon) on December 19, 2008."
Masters signed the Forbearance Agreement on December 19, 2008. On December 22, 2008, a Comerica executive acknowledged receipt of the signed agreement and stated he was "look[ing] forward to the rest of the signatures." After transferring more than $8 million into a Comerica money market account, Guarantor Pratt signed the agreement on December 21, 2008. As Comerica was aware, Vlahos was out of the country and unavailable, so he had not yet signed the Forbearance Agreement.
On December 29, 2008, Comerica sent entitlement orders to Wachovia Securities instructing it to liquidate Vlahos's assets and wire the cash to Comerica. With regard to Vlahos's signature, Comerica sent an e-mail to Masters on
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