Randles v. Hanson

• Decision Date: 27 April 2011
• Docket Number: No. 29,427.,29,427.
• Parties: Eve RANDLES, Plaintiff–Appellant,v.Allegra HANSON and KCB, LLC, Defendants–Appellees.
• Court: Court of Appeals of New Mexico

150 N.M. 362

258 P.3d 1154

2011 -NMCA- 059

Eve RANDLES, Plaintiff–Appellant,

v.Allegra HANSON and KCB, LLC, Defendants–Appellees.

No. 29,427.

Court of Appeals of New Mexico.

April 27, 2011.

Cuddy & McCarthy, LLP, Daniel J. Behles, Albuquerque, NM, for Appellant.Allegra Hanson, Attorney at Law, Allegra Hanson, Albuquerque, NM, Pro Se Appellee.Rodey, Dickason, Sloan, Akin & Robb, P.A., Edward Ricco, Jocelyn Drennan, Albuquerque, NM, for Appellee KCB, LLC.

OPINION

FRY, Judge.

{1} In this appeal, we must determine the legal and equitable remedies available to performing and contributing coguarantors against a principal debtor who has defaulted on a loan. Adopting the approach of the Restatement (Third) of Suretyship and Guaranty, we hold that a coguarantor who has fulfilled a duty of contribution to a performing coguarantor is entitled to recourse against a principal debtor as though the contributing coguarantor had performed the guaranty to the same extent as his or her contribution. Restatement (Third) of Suretyship & Guaranty § 58 (1996). A contributing coguarantor has the right to seek reimbursement, restitution, or subrogation against a defaulting principal debtor to the extent of his or her contribution. Id. cmts. b, c, d, at 248–50. We further conclude that a performing coguarantor's claim against a principal debtor is reduced to the extent that he/she receives contribution from another coguarantor. Id. cmt. e, at 250. Applying this holding to the facts of this case, we reverse the district court's grant of summary judgment in favor of Defendant KCB, LLC (KCB or “performing coguarantor”) and remand with instructions.

BACKGROUND

{2} This case arose out of a $500,000 loan issued by Compass Bank to New Mexico Motor Speedway, Inc. (Speedway) in October 2000. The loan was secured through the execution of personal guaranties by four shareholders of Speedway—Steven Kadner, Richard Chaves, and Jerome Beckes, who are the individual members of Defendant KCB, and Plaintiff Eve Randles—and by Michael Jones, Speedway's president at the time.

{3} Two days after the promissory note for the loan was executed, the parties entered into two written agreements that are relevant to the present dispute. The first agreement (Memorandum Agreement) was executed between all five guarantors and essentially allocated liability among the guarantors in the event of a default by Speedway. In this agreement, the guarantors acknowledged that they were “jointly and severally liable for all unpaid amounts” and, therefore, if Speedway defaulted, the agreement provided that each guarantor would be responsible for paying “one-fifth (1/5) of all amounts owed” within twenty days of the date of any written demand by the bank for payment.

{4} The second agreement (Compensation Agreement) was executed between Speedway and all five guarantors. This agreement memorialized an earlier offer from Speedway to pay “each guarantor $1.00 for each dollar guaranteed” as compensation for the “significant risk” each guarantor had taken in personally guaranteeing the loan. Accordingly, the agreement provided that Speedway would pay approximately $500,000 to the guarantors as compensation for their guaranties and that this amount would be distributed in equal percentages among the five guarantors.

A. Speedway's Default and Subsequent Bankruptcy

{5} In 2003, Speedway defaulted on the loan, and the bank demanded payment from the guarantors. Randles and Speedway's president, Jones, refused to pay, and the remaining three guarantors ultimately paid the entire $500,000 plus interest due on the note. These three individuals, as performing guarantors, then formed KCB and assigned their rights under the written agreements to KCB. Shortly thereafter, KCB sued Randles and Jones to recover their pro-rata shares of the amount KCB had paid to the bank. In that action, KCB obtained a judgment against Randles for her pro-rata share of the principal in the amount of $113,406, plus attorney fees, which Randles paid to KCB in June 2005.

{6} KCB also sought reimbursement from Speedway for its default. This effort stalled in June 2005 when Speedway filed for Chapter 11 bankruptcy. During the bankruptcy proceedings, KCB filed two claims against Speedway totaling one million dollars. The first claim was for $500,000—the amount KCB claimed it had paid to the bank upon Speedway's default (which we refer to as the “principal amount” or “underlying obligation”). The second claim was for an additional $500,000—the compensation KCB claimed it was due under the terms of the Compensation Agreement (“premium amount”). Subsequently, as part of its Chapter 11 reorganization efforts, Speedway agreed to pay KCB's claims and proposed a payment of one million dollars to cover both the principal and the premium amounts. At this point, Randles filed a conditional objection in bankruptcy court for $200,000 of Speedway's proposed payout to KCB, arguing that she was entitled to this amount because half ($100,000) represented her pro-rata share of the principal she had previously paid to KCB in the earlier judgment and the other half ($100,000) was her portion of the premium. Without addressing the merits of this dispute and in order to allow the bankruptcy proceedings to conclude, the parties agreed to a stipulated order that the disputed $200,000 would be placed in the trust account for KCB's attorney, Defendant Allegra Hanson, pending resolution of the parties' dispute as to the amount. The bankruptcy court's order disbursed the remaining $800,000 directly to KCB and stated that Speedway was deemed to have fulfilled its obligations to Randles and KCB regardless of the outcome of their dispute as to the $200,000. The parties then asked the bankruptcy court to decide the merits of their dispute as to the $200,000, but the court determined that it no longer had subject matter jurisdiction to do so. That set the stage for the current lawsuit.

B. Present Dispute

{7} In the proceedings below, which gave rise to this appeal, Randles filed an action in district court against KCB, arguing that she was entitled to the $200,000. She argued that half of this sum represented reimbursement from Speedway for her payment of the judgment to KCB for her pro-rata share of the principal and that the other half was her share of the premium. The parties filed cross-motions for summary judgment, with each party arguing that it was entitled to the $200,000 as a matter of law and equity. After a hearing on both motions, the district court denied Randles' motion and granted KCB's cross-motion for summary judgment. The court concluded that Randles was not entitled to the $100,000 principal or the $100,000 premium amounts as a matter of both law and equity. This appeal followed.

DISCUSSION

{8} On appeal, Randles argues that the district court erroneously denied her motion for summary judgment as to both the principal and the premium amounts. We address the parties' arguments with respect to each amount in turn.

A. Standard of Review

{9} “On appeal from the grant of summary judgment, we ordinarily review the whole record in the light most favorable to the party opposing summary judgment to determine if there is any evidence that places a genuine issue of material fact in dispute.” City of Albuquerque v. BPLW Architects & Eng'rs, Inc., 2009–NMCA–081, ¶ 7, 146 N.M. 717, 213 P.3d 1146. “However, if no material issues of fact are in dispute and an appeal presents only a question of law, we apply de novo review and are not required to view the appeal in the light most favorable to the party opposing summary judgment.” Id. In addition, “[w]here cross-motions for summary judgment are presented on the basis of a common legal issue, this Court may reverse both the grant of one party's motion and the denial of the opposing party's cross-motion and award judgment on the cross-motion.” Grisham v. Allstate Ins. Co., 1999–NMCA–153, ¶ 2, 128 N.M. 340, 992 P.2d 891.

B. Whether Randles is Entitled to the $100,000 Principal

{10} With regard to the $100,000 principal amount, Randles argues that her previous payment of the judgment to KCB for her pro-rata share of the principal entitled her to seek recourse from Speedway for that payment. Specifically, Randles contends that her contribution to KCB placed her in the position “as if she ha[d] participated with them originally in paying Compass Bank” and, therefore, she became entitled to recover the $100,000 principal from Speedway under three different theories: assignment, subrogation, and what she terms as general “equitable principles ... [of] unjust enrichment and double recovery.” In response, KCB argues that Randles is precluded from any recovery because she breached the Memorandum Agreement by refusing to pay when the bank demanded payment following Speedway's default. KCB further claims that the theories of assignment and subrogation are inapplicable under the facts of this case and that the doctrine of unclean hands precludes any recovery on equitable grounds.

{11} On this issue, the parties contend that there are no material facts in dispute. The parties agree that Randles breached the Memorandum Agreement by not paying her share of the principal within twenty days of Speedway's default; that KCB then sued Randles for her share of the principal after it had paid the entire loan principal to the bank; and that Randles paid $113,406, plus attorney fees, to KCB in satisfaction of the ensuing judgment KCB obtained against her.

{12} We diverge briefly to clarify that although the previous lawsuit filed by KCB against Randles was termed a “complaint for collection of debt” without using the term “contribution,” we consider that lawsuit essentially to be an action for contribution.¹ See Black's Law Dictionary 378 (9th ed. 2009) (defining “contribution” as “[t]he right that gives one of several persons who are liable on a common debt the ability to recover proportionately from each...