Moore, Owen, Thomas & Co. v. Coffey

• Decision Date: 31 August 1993
• Docket Number: No. 92-5314,92-5314
• Citation: 992 F.2d 1439
• Parties: MOORE, OWEN, THOMAS & COMPANY, Plaintiff, v. L. Coleman COFFEY and Robert Bruce Coffey, Defendants. and L. Coleman COFFEY and Robert Bruce Coffey, Plaintiffs-Appellees, v. Thomas O. MOORE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1439

992 F.2d 1439

25 Fed.R.Serv.3d 944

MOORE, OWEN, THOMAS & COMPANY, Plaintiff, v. L. Coleman COFFEY and Robert Bruce Coffey, Defendants. and L. Coleman COFFEY and Robert Bruce Coffey, Plaintiffs-Appellees, v. Thomas O. MOORE, Defendant-Appellant.

No. 92-5314.

United States Court of Appeals Sixth Circuit.

Argued March 25, 1993.

Decided April 30, 1993.

As Amended on Denial of Rehearing Aug. 31, 1993.

Christopher M. Hill (argued and briefed), William D. Kirkland, McBrayer, McGinnis, Leslie & Kirkland, Frankfort, KY, for L. Coleman Coffey and Robert Bruce Coffey.

Leslie Rosenbaum (argued and briefed), Rosenbaum & Rosenbaum, Lexington, KY, for Thomas O. Moore.

Before: KENNEDY and MILBURN, Circuit Judges; and KRUPANSKY, Senior Circuit Judge.

KENNEDY, Circuit Judge.

This action arises out of an agreement between Moore, Owen, Thomas & Company ("MOT") and L. Coleman Coffey and his son, Robert Bruce Coffey ("Coffeys"), for the purchase and sale of a marina and houseboat rental business. MOT executed a promissory note in payment for the rental company, and MOT's owner, Thomas O. Moore ("Moore"), offered his personal guaranty. Moore now appeals the order of the District Court granting summary judgment in favor of the Coffeys and holding Moore liable as personal guarantor of the note. Moore argues that the District Court erred in granting the Coffeys' motion for summary judgment because: (1) material issues of fact exist regarding whether the Coffeys fraudulently induced Moore to enter the guaranty agreement; and (2) Moore's "obligation" on the guaranty ¹ cannot be determined without first determining MOT's obligation to the Coffeys on the underlying purchase and sale agreement. Because we find genuine issues of material fact still exist, we reverse.

I.

The facts surrounding the commercial transaction at issue are set out in depth in the District Court's Findings of Fact and Conclusions of Law. Moore, Owen, Thomas & Co. v. Coffey, Civil Action No. 87-64 (E.D.Ky.1990). The following summarizes the pertinent facts.

In early November 1985, Moore, who conducted his business through a company he owned and controlled, MOT, began negotiations with the Coffeys for the acquisition of the Coffeys' family-owned marina and houseboat rental operation, known as Lake Cumberland State Dock Incorporated (LCSDI). The business, located in Lake Cumberland State Park, Kentucky, possessed a large inventory, including the largest houseboat fleet in the Eastern United States, several autos and trucks, and marina equipment. The houseboats were owned by a partnership, Vacation Cruises, of which the Coffeys were the partners. Vacation Cruises leased the houseboats to LCSDI, which used them in the boat rental business. The remaining assets were owned by LCSDI. ²

On December 11, 1985, the parties met to discuss the terms of a sale and agreed that the Coffeys would sell all of the stock of LCSDI to MOT. The parties further agreed upon a purchase price of five million dollars ($5,000,000). MOT was to execute a promissory note for $5,000,000 to be paid on an installment basis. To help induce the Coffeys to finance the purchase price, Moore "personally guarantee[d] the obligation of [MOT's] debt to [the Coffeys]." MOT's $5,000,000 note, Moore's guaranty, and other documents were executed at a closing on December 31, 1985. The Agreement for Purchase and Sale of Shares consisted of the following essential terms:

The agreement was for the purchase by MOT of all outstanding shares of LCSDI; The purchase price was $5 million; The first payment, a check in the amount of $200,000, was to be given to the Coffeys at closing ...; The purchaser, at closing, was also to deliver its note in the amount of $800,000 due on March 30, 1986; MOT was also to assume certain indebtedness listed on a "Schedule A" ...; The balance of the $5 million purchase price was to be paid in accordance with a promissory note to be delivered by MOT at closing ...; The Coffeys were to have contributed, prior to closing, the Vacation Cruises houseboats to LCSDI's capital so that, by closing, the Vacation Cruises houseboats would make up part of the assets of the corporation.

Subsequent to the closing, the parties disputed whether the debts of the marina business were to be assumed and paid by MOT or whether they were to be paid by the Coffeys. In the fall of 1986, MOT filed suit seeking a declaration as to the assumption of debt issue and a set-off against the purchase price for alleged misrepresentations by the Coffeys. The Coffeys counterclaimed against MOT, seeking judgment for the unpaid balance of the note and a declaration on the assumption of debt issue. Simultaneously with their Answer and Counterclaim, the Coffeys sued Moore in state court to enforce his guaranty. Moore removed the case to federal court where it was consolidated with MOT's action. Moore's answer asserts several affirmative defenses and claims entitlement to any and all rights, claims, and defenses available to MOT.

On January 31, 1990 (after bifurcating the issue of which party was responsible for the assumption of debt from the other issues in the litigation), the District Court concluded, as a matter of law, that not only had MOT agreed to pay $5,000,000 for the business, but also "MOT agreed to assume the indebtedness stated in the December 20, 1985 letter [$1.213 million] and is not entitled to a credit or offset against the purchase price owed to the Coffeys for any debts so assumed or paid." Shortly thereafter, on April 11, 1990, the Coffeys moved for partial summary judgment on their counterclaim against MOT and on their complaint against Moore, seeking entry of a money judgment on MOT's note and Moore's guaranty.

The District Court set the Coffeys' motion to be heard on May 31, 1990. Due to pending settlement negotiations, Moore and MOT were subsequently granted two extensions and given until June 6, 1990 to respond to the Coffeys' motion. On June 11, 1990, the parties told the District Court the case had been settled, but this settlement agreement eventually fell through. The Court then set another date, December 21, 1990, to hear the pending summary judgment motion. On December 20, 1990, the day before this scheduled hearing, MOT filed for Chapter 11 Bankruptcy relief. ³ After recognizing that it was prohibited by the automatic stay from further proceeding against MOT, the District Court granted Moore another extension (until January 7, 1991) in which to respond to the Coffeys' summary judgment motion.

On June 7, 1991, the District Court granted Moore another extension, until June 25, 1991, to file a response. However, on June 10, 1991, the court set aside the order extending Moore's time and, after finding MOT in default on the terms of the promissory note, entered judgment against Moore as guarantor for approximately $5.5 million dollars. Then, on August 22, 1991, after receiving a motion from Moore, the District Court vacated this judgment as having been "prematurely entered." Moore was given ten (10) more days to file a response.

Finally, on September 6, 1991, Moore filed a response to the Coffeys' summary judgment motion. In this response, Moore pointed out that the only issue adjudicated to date was whether MOT agreed to assume the business' debt; that his liability under the guaranty could not be determined until MOT's "obligation" was determined; and that if MOT was fraudulently induced to enter the purchase and sale agreement, or if Moore was fraudulently induced to enter the guaranty, then Moore had no obligation. The Coffeys filed their reply brief on September 20, 1991. Then, on October 10, 1991, Moore filed his affidavit in opposition to the Coffeys' motion for summary judgment. In this affidavit, Moore claims that during the negotiations for the sale of the marina business, the Coffeys made the following material misrepresentations to Moore in order to induce him to sign the guaranty agreement:

(a) The Coffeys represented that they had obtained or could easily obtain all necessary approvals from local, state, and federal authorities for the expansion of the marina business;

(b) The Coffeys displayed materials and supplies to Moore and represented that they were purchased for an expansion of the marina business to commence in the Spring of 1986;

(c) The Coffeys represented that an agreement was "all but done" by which the Commonwealth of Kentucky Department of Parks would reduce and stabilize the fees paid by the owner of the marina business to the Commonwealth of Kentucky;

(d) The Coffeys represented that subsequent to the purchase of the marina business, the purchaser could easily obtain an extension of the lease and license with the Commonwealth, which instruments were necessary to the operation of the marina business;

(e) The Coffeys represented that they had disclosed to Moore all liabilities of the corporation; and

(f) The Coffeys gave Moore certain financial statements which they represented were prepared in accord with generally accepted accounting principles and which statements were represented to accurately state the operating income, assets and liabilities of the corporation.

Moore goes on to claim that he relied upon these representations, that they were false, and that had Moore known they were false, he would not have signed the guaranty agreement.

The day after Moore filed his affidavit, the District Court entered summary judgment against him. The District Court found that "[t]here can be no dispute that MOTC has failed to perform; therefore, the Coffeys may properly look to MOTC's guarantor, Thomas O. Moore, to perform the obligations that MOTC failed to honor." The court also found no merit to Moore's claim that he was fraudulently induced to enter into the guaranty since Moore's attorney was an integral part of the negotiations and Moore had proffered no evidence to support his fraud defense. Again, the court entered judgment against Moore,...