Masters Grp. Int'l, Inc. v. Comerica Bank, No. DA 14–0113.

• Docket Nº: No. DA 14–0113.
• Citation: 2015 MT 192, 380 Mont. 1, 352 P.3d 1101
• Case Date: July 01, 2015
• Court: United States State Supreme Court of Montana

380 Mont. 1
352 P.3d 1101
2015 MT 192

MASTERS GROUP INTERNATIONAL, INC., Third–Party Plaintiff and Appellee
v.
COMERICA BANK, Third–Party Defendant and Appellant.

No. DA 14–0113.

Supreme Court of Montana.

Argued Sept. 26, 2014.
Submitted Oct. 29, 2014.
Decided July 1, 2015.
Rehearing Denied Aug. 4, 2015.

352 P.3d 1104

For Appellant: James H. Goetz (argued), Goetz, Baldwin, & Geddes, P.C., Bozeman, Montana, Mark L. Stermitz, Matthew A. Baldassin, Crowley Fleck PLLP, Missoula, Montana, Jane Derse Quasarano, Thomas J. Tallerico, Jeffrey G. Raphelson, Bodman PC, Detroit, Michigan.

For Appellee: Timothy B. Strauch, Strauch Law Firm, PLLC, Missoula, Montana, Ward E. “Mick” Taleff (argued), Taleff Law Office, P.C., Great Falls, Montana.

For Intervenor State of Montana: Timothy C. Fox, Montana Attorney General, Mark Mattioli (argued), Chief Deputy Attorney General, Jon Bennion, Deputy Attorney General, Helena, Montana.

For Amici Curiae: J. Daniel Hoven, Browning, Kaleczyc, Berry & Hoven, P.C., Helena, Montana (for Motor Carriers of Montana and Montana Health Care Providers), Charles W. Hingle, Michael P. Manning, Steven T. Small, Holland & Hart LLP, Billings, Montana (for American Bankers Association), Lawrence A. Anderson (argued), Attorney at Law, P.C., Great Falls, Montana (for Amicus Montana Trial Lawyers Association).

Opinion

Justice BETH BAKER delivered the Opinion of the Court.

380 Mont. 3

¶ 1 Comerica Bank appeals a jury verdict and judgment rendered in favor of Masters Group International, Inc. in the Second Judicial District Court, Silver Bow County. We restate the determinative issues on appeal as follows:

1. Whether the District Court abused its discretion by denying Comerica's severance motion;

2. Whether the District Court erred in applying Montana law despite the existence of a contractual choice-of-law provision;

3. Whether the District Court erred in not deciding issues of contract formation as a matter of law;

4. Whether the District Court abused its discretion by allowing TARP evidence to be presented to the jury.

¶ 2 We affirm in part, reverse in part, and remand for a new trial.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 In 2004 and 2005, a group of executives and investors who would eventually form

352 P.3d 1105

Masters Group International, Inc., a Delaware corporation, entered into discussions with the Office of the Governor of the State of Montana about establishing an international office products assembly and distribution facility in Butte, Montana. Masters planned to acquire a United Kingdom office products business and expand its operations into North America, with Butte serving as the company's world headquarters. Masters sought to obtain State financial and technical assistance for developing this project. The negotiations resulted in a non-binding Letter of Understanding between Masters and the Governor's Office of Economic Opportunity

380 Mont. 4

signed in January 2006.

¶ 4 As early as January 2006, Masters was in communication with Comerica Bank, a financial services company incorporated under the laws of the State of Delaware with headquarters in Detroit, Michigan,¹ regarding a loan to facilitate the purchase of the office products business and to establish a headquarters in Butte. On July 11, 2006, Masters executed a loan agreement and promissory note (Agreement) with Comerica for $9 million, subject to repayment on or before July 11, 2008. Comerica's law firm, located in Detroit, Michigan, and Masters' law firms, located in Chicago, Illinois, negotiated the transaction. The Agreement financed the acquisition of the UK office products business and was intended to support the expansion of operations into North America. The Agreement did not contain any provision addressing its purpose, potential maturity extensions, or the availability of additional credit. The parties executed the Agreement in various locations, including Michigan, Illinois, Virginia, the District of Columbia, and the United Kingdom.

¶ 5 The Agreement provided that it would “be governed by and construed and enforced in accordance with the laws of the State of Michigan.” As collateral, Masters offered its inventory, equipment, and accounts receivable. Additionally, private investor Larry Pratt and the Larry F. Pratt Living Trust guaranteed the loan by pledging $9 million worth of marketable securities.

¶ 6 In October 2006, Masters and the Consolidated City and County of Butte–Silver Bow signed a Memorandum of Understanding that contemplated the development of an industrial warehousing and manufacturing facility within the Tax Increment Financing Industrial District No. 2 (TIFID District) in Butte. The Memorandum of Understanding included a proposed $4.5 million financial package from the TIFID District.

¶ 7 On December 6, 2006, Masters entered into a separate loan agreement (BLDC Agreement) with the Butte Local Development Corporation (BLDC), a non-profit corporation focused on economic development in the Butte–Silver Bow area. Under the BLDC Agreement, BLDC loaned Masters $200,000 as working capital for start-up expenditures related to Masters' proposed distribution center in the TIFID District. The BLDC Agreement stated that the loan would accrue interest at six percent for a period of two years during which time no payments would be due. After the two-year period, the

380 Mont. 5

loan balance would then be recapitalized and amortized over a period of eighty-four months beginning on June 6, 2008. Masters granted BLDC a security interest in its business assets, subordinate to Comerica's existing security interest.

¶ 8 Throughout the first half of 2007, Masters moved forward with its development plans in Butte by obtaining a geotechnical report, a transportation and feasibility analysis, and building design specifications. By the fall of 2007, however, it became clear that the proposed Butte facility would not be completed in time to meet the demands of Masters' customers, and that there was no feasible alternative location in Butte for such a facility. Masters therefore leased warehouse space in Reno, Nevada. In light of the situation, BLDC deauthorized the TIFID District financial package.

Amendments to the Agreement

¶ 9 On October 29, 2007, Comerica amended its Agreement with Masters to include a $500,000 increase in the principal amount of the loan. The Agreement was amended again on December 19, 2007, to include another

352 P.3d 1106

$500,000 increase, raising the loan total to $10 million. To obtain these increases, Masters provided Comerica with a $500,000 letter of credit from Matthew and Lilian Nolan and the personal pledge of Dr. Michael Vlahos for $500,000 in control accounts at Wachovia Bank. The October 2007 and December 2007 amendments were evinced by a Promissory Note, an Amended and Restated Letter Agreement, and an Amended and Restated Guaranty—each of which included a provision stipulating to the application of Michigan law. Neither amendment altered the Agreement's original July 11, 2008 maturity date.

¶ 10 During the early months of 2008, Pratt's marketable securities, which established the borrowing base for the loan, decreased in value. Comerica sent Masters a Notice of Default and Reservation of Rights letter on April 28, 2008, explaining that Masters was in default because it was out of compliance with the borrowing formula set forth in the Agreement as amended, given the significant decrease in the value of Pratt's securities. The letter stated that Comerica was under no obligation to advance funds, and that any discretionary advances would “not constitute a waiver of any defaults or any of [Comerica]'s rights and remedies or an offer of forbearance, and will not constitute [Comerica]'s agreement or commitment to make additional advances.” Additionally, the letter stated that Comerica anticipated discussions addressing the default that “may take place in the future,” and that any future agreement must be reached on all issues, reduced to writing, and signed by Masters, its guarantors, and Comerica.

380 Mont. 6

¶ 11 In July 2008, the parties discussed a renewal and further loan increases, but did not commit their negotiations to writing. The loan under the Agreement matured on July 11, 2008, without repayment by Masters. Comerica indicated to Masters that it could not address the renewal and loan increases until August 2008 due to staff vacations.

¶ 12 On July 30, 2008, Comerica sent Masters another Notice of Default and Reservation of Rights, explaining that it would not consider requests for an extension of the maturity of the loan or other modifications until Masters complied...