Porter Capital Corporation v. Haralson et al

Filing 44

MEMORANDUM OPINION. Signed by Judge James H Hancock on 10/10/2012. (JLC)

FILED
2012 Oct-10 PM 02:41
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PORTER CAPITAL
CORPORATION,

)
)

PLAINTIFF,
)
VS.

2:11-cv-1620-JHH
)

WILLIS HARALSON;
HUGH HARALSON, III, and
JERRY HARALSON,

)
)

DEFENDANTS.
MEMORANDUM OPINION
The court has before it the Motion (Doc. #30) for Summary Judgment filed by
Plaintiff Porter Capital Corporation (“Porter Capital”) on July 30, 2012. Pursuant to
the court’s order (Doc. #33) of July 31, 2012, the Motion (Doc. #30) for Summary
Judgment was deemed submitted, without oral argument, to the court for review as
of August 29, 2012.
I.

PROCEDURAL HISTORY
Plaintiff Porter Capital commenced this action on May 16, 2011 by filing a

single count complaint in this court for breach of guaranty. (See generally Compl.).
Plaintiff’s Motion (Doc. #30) for Summary Judgment asserts that no genuine issue

of material fact exists as to the breach of guaranty claim and that Porter Capital is
entitled to judgment as a matter of law.
The parties have each filed briefs and submitted evidence in support of their
respective positions concerning the Motion (Doc. #30) for Summary Judgment. On
July 30, 2012, Plaintiff submitted evidence (Doc. #32, Exhs. A-I)1 in support of the
Motion (Doc. #30) for Summary Judgment and also filed a supporting brief (Doc.
#31). Defendants Willis Haralson, Hugh Haralson, III, and Jerry Haralson filed a
response (Doc. #34) to the Motion (Doc. #30) for Summary Judgment on August 22,
2012, along with evidence (Doc. #35, Exhs. 1-9),2 a brief (Doc. #36), and a statement
of facts (Doc. #37). On August 29, 2012 Porter Capital filed a reply (Doc. #41) to the

Porter Capital submitted: the affidavit of Sal Trupiano (Exhibit A); the affidavit of Marc
Solomon (Exhibit B); the declaration of Marc Solomon (Exhibit C); portions of the deposition
testimony of Sal Trupiano (Exhibit D); portions of the deposition testimony of Hugh Haralson,
III (Exhibit E); portions of the deposition testimony of Willis Haralson (Exhibit F); portions of
the deposition testimony of Jerry Haralson (Exhibit G); Willis Haralson’s Responses to First Set
of Requests for Admission (Exhibit H); and Jerry Haralson’s Responses to First Set of Requests
for Admission (Exhibit I).
1

The Haralson Defendants submitted: the Complaint (Exhibit 1); the Answer and
Defenses (Exhibit 2); Hugh Haralson’s Responses to First set of Interrogatories (Exhibit 3);
Willis Haralson’s Responses to First Set of Interrogatories (Exhibit 4); Jerry Haralson’s
Responses to First Set of Interrogatories (Exhibit 5); portions of the deposition of Sal Trupiano
(Exhibit 6); portions of the deposition of Hugh Haralson, III (Exhibit 7); portions of the
deposition of Jerry Franklin Haralson (Exhibit 8); and portions of the deposition of Willis
Cochran Haralson (Exhibit 9).
2

2

opposition, along with additional evidence (Doc. #42, Exhs. A-C)3 and a reply (Doc.
#43) to Defendants’ statement of facts.
II.

STANDARDS FOR EVALUATING SUMMARY JUDGMENT
Under Federal Rule of Civil Procedure 56,4 summary judgment is proper "if the

pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law." Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986); Chapman v. AI Transport, 229 F.3d 1012, 1023
(11th Cir. 2000). The party asking for summary judgment always bears the initial
responsibility of informing the court of the basis for its motion and identifying those
portions of the pleadings or filings which it believes demonstrate the absence of a
genuine issue of material fact. See id. at 323. Once the moving party has met its
burden, Rule 56(e) requires the nonmoving party to go beyond the pleadings and by
its own affidavits, or by the depositions, answers to interrogatories, and admissions

Porter Capital submitted: additional portions of the deposition testimony of Hugh
Haralson, III (Exhibit A); additional portions of the deposition testimony of Willis Haralson; and
additional portions of the deposition testimony of Jerry Haralson (Exhibit C).
3

Federal Rule of Civil Procedure 56 was amended on December 1, 2010. However,
even with the 2010 amendments, “the standard for granting summary judgment remains
unchanged.” FED. R. CIV. P. 56 Advisory Committee’s Note (2010 Amendments).
4

3

on file, designate specific facts showing that there is a genuine issue for trial. See id.
at 324.
The substantive law will identify which facts are material and which are
irrelevant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All
reasonable doubts about the facts and all justifiable inferences are resolved in favor
of the non-movant. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.
1993). A dispute is genuine "if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. If the evidence
is merely colorable, or is not significantly probative, summary judgment may be
granted. See id. at 249.
The method used by the party moving for summary judgment to discharge its
initial burden depends on whether that party bears the burden of proof on the issue
at trial. See Fitzpatrick, 2 F.3d at 1115-17 (citing United States v. Four Parcels of
Real Property, 941 F.2d 1428 (11th Cir. 1991)(en banc)). If the moving party bears
the burden of proof at trial, then it can only meet its initial burden on summary
judgment by coming forward with positive evidence demonstrating the absence of a
genuine issue of material fact; i.e. facts that would entitle it to a directed verdict if not
controverted at trial. See Fitzpatrick, 2 F.3d at 1115. Once the moving party makes

4

such a showing, the burden shifts to the non-moving party to produce significant,
probative evidence demonstrating a genuine issue for trial.
If the moving party does not bear the burden of proof at trial, it can satisfy its
initial burden on summary judgment in either of two ways. First, the moving party
may produce affirmative evidence negating a material fact, thus demonstrating that
the non-moving party will be unable to prove its case at trial. Once the moving party
satisfies its burden using this method, the non-moving party must respond with
positive evidence sufficient to resist a motion for directed verdict at trial.
The second method by which the moving party who does not bear the burden
of proof at trial can satisfy its initial burden on summary judgment is to affirmatively
show the absence of evidence in the record to support a judgment for the non-moving
party on the issue in question. This method requires more than a simple statement
that the non-moving party cannot meet its burden at trial but does not require
evidence negating the non-movant’s claim; it simply requires the movant to point out
to the district court that there is an absence of evidence to support the non-moving
party’s case. See Fitzpatrick, 2 F.3d at 1115-16. If the movant meets its initial
burden by using this second method, the non-moving party may either point out to the
court record evidence, overlooked or ignored by the movant, sufficient to withstand
a directed verdict, or the non-moving party may come forward with additional
5

evidence sufficient to withstand a directed verdict motion at trial based on the alleged
evidentiary deficiency. However, when responding, the non-movant can no longer
rest on mere allegations, but must set forth evidence of specific facts. See Lewis v.
Casey, 518 U.S. 343, 358 (1996) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992)).
III.

RELEVANT UNDISPUTED FACTS5
A.

The Financing Arrangement

On or about February 23, 2011 Porter Capital made available to Lady Forest
Farms, Inc. (“Lady Forest”) a line of credit in the amount of $1,000,000 (the “credit
line”) as evidenced by the Commercial Financing Agreement (“Financing
Agreement”). (See Doc. #31 at 3-4, ¶¶ 1, 7; see also Doc. #37 at 1-2, ¶¶ 1, 7). The
Financing Agreement states its effectiveness “for a period commencing on the date
hereof [February 23, 2011] and continuing until the close of business on the first
anniversary of the date hereof.” (Exh. A to Compl., ¶ 11.1). The purpose of the

If the facts are in dispute, they are stated in the manner most favorable to non-moving
party. Fitzpatrick, 2 F.3d at 1115.
5

The Haralson Defendants filed a Response (Doc. #37) to Plaintiff’s Statement of
Undisputed Facts which at times disagrees with Plaintiff’s statement of the facts. However, the
Response notes only general disputes, and does not cite to any specific portion of the record in
support of the dispute. The court will engage in its best efforts to understand Defendants’
disputes using Defendants’ Memorandum (Doc. #36) but cannot be expected to parse the record
to find citation evidence for each one of Defendants’ general disputes.
6

Financing Agreement was for Lady Forest to obtain short-term financing by selling,
transferring, setting over and assigning to Porter Capital Corporation certain accounts
receivable and invoices held by Lady Forest at a discount below their face value.
(See Exh. A to Compl., ¶ 1).
The Financing Agreement provides that Porter Capital establish and maintain
a reserve account (the “Reserve Account”) for Lady Forest, and that upon payment
of an account receivable factored by Porter Capital pursuant to the Financing
Agreement, fifteen percent (15%) of the account receivable paid is held by Porter
Capital in the Reserve Account. (See Doc. #31 at 24, ¶ 2; Doc. #37 at 1, ¶ 2; see also
Exh. A to Compl., ¶ 5.2). Pursuant to Paragraph 22 of the Financing Agreement,
Lady Forest is obligated to reimburse Porter Capital for the actual amount of all fees,
costs and expenses, including but not limited to, attorney’s fees, which Porter Capital
may incur in any action to enforce the Financing Agreement or any related
transaction, or in connection with any bankruptcy or insolvency proceeding
commenced by Lady Forest. (See Doc. #31 at 4, ¶ 3; Doc. #37 at 1, ¶ 3; see also Exh.
A to Compl., ¶ 22).
The Haralson Defendants guaranteed all obligations of Lady Forest, jointly and
severally, pursuant to the Performance Covenant and Waiver (the “Performance
Covenant”) incorporated into the Financing Agreement as Exhibit F. (See Exh. A to
7

Compl. at Exh. F, “Performance Covenant”). The Performance Covenant and Waiver
was executed by each of the Defendants as an unconditional guarantee to Porter
Capital of the full payment and prompt and faithful performance of all present and
future indebtedness and obligations of Lady Forest to Porter Capital – including,
without limitation, Lady Forest’s obligations under the Financing Agreement. (See
Doc. #31 at 3-4, ¶ 4; Doc. #37 at 2, ¶ 4; see also Performance Covenant). As further
security for its obligations under the Financing Agreement, Lady Forest guaranteed
a security interest in certain collateral pursuant to the “Security Agreement” which
is incorporated into the Financing Agreement as Exhibit D and executed by Lady
Forest on February 23, 2011. (See Doc. #31 at 3, ¶ 5; see also Doc. #37 at 2, ¶ 5;
Exh. A to Compl. at Exh. D, “Security Agreement”).
B.

Lady Forest’s Bankruptcy

Porter Capital and Lady Forest performed under the Commercial Financing
Agreement for a period of forty-one (41) days, from February 23, 2011 to April 5,
2011. (See Trupiano Dep. at 57-58). On April 5, 2011, forty-one (41) days after
execution of the Financing Agreement, Lady Forest filed a voluntary petition for
bankruptcy under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Mississippi, Jackson Division, Case

8

No. 11-01259-NPO (the “Bankruptcy Case”).6 (See Doc. #31 at 4, ¶ 8; see also Doc.
#37 at 2, ¶ 8). On May 7, 2011 Lady Forest moved to convert its Chapter 11
bankruptcy case to a Chapter 7 case. That request was granted by the Bankruptcy
Court on May 24, 2011. (See Doc. #31 at 4, ¶ 9; see also Doc. #37 at 2, ¶ 9). On July
11, 2011, Lady Forest filed its schedules in its Bankruptcy Case, including Schedule
E, which is a list of creditors holding unsecured priority claims. On Schedule E Lady
Forest declared under oath that it had over $158,194.11 in unpaid 2010 ad valorem
taxes. (See Doc. #31 at 4, ¶ 10; see also Doc. #37 at 2, ¶ 10).
C.

Alleged Default under the Loan Documents

Porter Capital holds the Loan Documents (the Performance Covenant, Security
Agreement, and Financing Agreement) and owns any indebtedness evidenced
thereby. (See Doc. #31 at 3, ¶ 6; see also Doc. #37 at 2, ¶ 6). Porter Capital contends
that Defendants are in default of their Obligations under the Loan Documents for
failure to make payment when due. (See Trupiano Aff., ¶ 10). As evidence thereof,
Porter Capital sets out paragraph 12.2 of the Financing Agreement:
In further consideration of Porter Capital’s undertakings in this
Agreement, [Lady Forest] shall pay to Porter Capital a fee in an amount

There were no purchases by Porter Capital of any Lady Forest accounts receivable in
May 2011 or in any of the remaining months of 2011 thereafter. (See Trupiano Dep. at 57-58).
The last purchase of Lady Forest’s accounts receivable occurred in April 2011. (See id. at 57-58,
75).
6

9

equal to three percent of the Base Purchase Amount (the “Facility Fee”)
as of the termination date of the Initial Term and of each renewal term,
but the amount thereof shall be reduced by the total fees paid by [Lady
Forest] to Porter Capital in each term.
(See Exh. A to Compl., ¶ 12.2). The credit facility was made available to Lady
Forest, however, only for 41 days – the period of time from the inception of the
Financing Agreement to the filing of bankruptcy.7 (See Doc. #43 at 1, ¶¶ 1, 3).
Nevertheless, Porter Capital contends that Lady Forest owes the full twelve-month
facility fee of $270,000 (which is 3% of $9,000,000) less the $26,764.63 fees already
paid by Lady Forest to Porter Capital, for a total Facility Fee of $243,235.37
remaining due and owing. (See Doc. #31 at 5, ¶¶ 13, 14).
In addition to amounts owing under the Facility Fee, Porter Capital alleges that
Lady Forest owes an additional $18,000. Porter Capital paid off a debt of Lady
Forest in bankruptcy court; certain creditors of Lady Forest (collectively referred to
herein as “R.W. Farms”) asserted that they had sold live chickens to Lady Forest and
that they maintained a trust on Lady Forest’s property pursuant to the Packers and
Stockyard Act, 7 U.S.C. §§ 181-229 (1921). (See Doc. #31 at 5, ¶ 15; see also Doc.
#37 at 3, ¶ 15). Porter Capital believed that such a trust would have given the R.W.
Because Lady Forest filed for bankruptcy Porter Capital could not extend credit to Lady
Forest under the Financing Agreement thereafter. See 11 U.S.C. §§ 364, 365(c)(2). Lady Forest
counters that Porter Capital made a business decision to no longer advance monies to Lady
Forest under the Financing Agreement as of April 5, 2011, but does not make any argument
disputing the workings of the bankruptcy code. (See Doc. #36 at 9).
7

10

Farms creditors a superpriority lien vis-a-vis Porter Capital. (Id.) Therefore, in order
to preserve its rights under the Loan Documents, Porter Capital settled the claim with
R.W. Farms for $18,000. (See Doc. #31 at 5, ¶ 16). Porter Capital contends that it
is entitled to recovery of the additional $18,000 under Paragraph 10(b) of the
Financing Agreement.8 (See Trupiano Aff., ¶ 15).
Finally, Porter Capital contends that the guarantors of Lady Forest owe for
legal services performed by Burr & Forman LLP in connection with this action in the
amount of – as of July 30, 2012 – $68,922.00 with an additional expense fee of
$6,513.10. (See Doc. #31 at 6, ¶¶ 18, 19). The total sum of $336,670.47 is offset by
the Reserve Account amount of $36,934.51 used to fund the debt, making the total
recovery sought by Porter Capital (as of July 30, 2012) to be $299,735.96. (See Doc.
#31 at 6, ¶¶ 18, 19, 20).
Defendants dispute that any actual indebtedness is owed to Porter Capital based
on the fact that prior to May 2011, Porter Capital had made 100% collection of all of
the accounts receivable it had purchased from Lady Forest. (See Doc. #37 at 2, ¶ 6;
see also Trupiano Dep. at 58-59). More specifically:

Paragraph 10(b) of the Financing Agreement states that Lady Forest will “pay or
reimburse Porter Capital for all its costs and expenses incurred with the enforcement or
preservation of any rights under the Transaction Documents, and the verification of the Accounts
Receivable and the credit worthiness of the Customers, including, without limitation, fees and
disbursements of counsel to Porter Capital.” (Exh. A to Compl., ¶ 10.b.).
8

11

•

For the five days in February 2011 during which Porter Capital held
Lady Forest’s accounts receivable, Lady Forest factored $336,704.20
with Porter Capital. (See Trupiano Dep. at 57-58).

•

In March 2011, Lady Forest Factored $1,633,629.27 with Porter Capital.
(See Trupiano Dep. at 57-58).

•

In early April 2011, Lady Forest factored $194,542.80 with Porter
Capital. (See Trupiano Dep. at 57-58).

The total of the accounts receivable that Lady Forest factored with Porter Capital in
the forty-one (41) day performance period was $2,164,896.20. (See Trupiano Dep.
at 57-58). After April 5, 2011 Lady Forest made no further use of the loan facility or
the factoring agreement that was in place with Porter Capital in terms of submitting
additional invoices or advances from Porter Capital. (See Trupiano Dep. at 76).
Because Lady Forest was unable to follow through with the complete one year term
of the Financing Agreement due to its bankruptcy, the guarantors argue that “[i]t is
nothing short of legally absurd and per se unconscionable for Porter Capital
Corporation to claim a legal entitlement to recovery of the Facility Fee for a full 12

12

calendar months (or an additional 324 days) when Porter Capital only provided the
‘facility’ (for which the fee was charged) for only 41 days.”9 (Doc. #36 at 5).
IV.

Analysis
Despite the maze of facts set forth above, the dispute embraced in this case can

be boiled down to two simple questions: (1) Did Lady Forest breach the Financing
Agreement when it filed for bankruptcy?;10 and (2) Is Porter Capital entitled to
damages under the terms of the Agreement?
The Loan Documents evidence a written contract by and among Porter Capital,
Lady Forest, and the Haralson Defendants for the extension of a line of credit to Lady

9

Lady Forest’s calculations proceed as follows:
•

•
•

For the 41 days that Lady Forest used the facility, Lady Forest owed to
Porter Capital $29,999.25 (that is, 3% x $750,000 x 1.33 months =
$29,999.25)
Lady Forest had paid to Porter Capital $26,764.63 as a Facility Fee
At most, Lady Forest owes Porter Capital $3,234.62 in Facility Fees
($29,999.25 - $26,764.63 = $3,234.62)

(See Doc. #36 at 5). The argument proceeds that since Porter Capital has already used the
$36,934.51 in the Reserve Account for its own benefit, Lady Forest owes Porter Capital nothing
because Porter Capital netted $33,699.89 at the end of the day ($36,934.51 - $3,234.62 =
$33,699.89). (See id.; see also Trupiano Dep. at 71). Under this accounting, Lady Forest
contends “no harm – no foul.” (Doc. #36 at 6).
In order to begin answering this question, it is of note to recall that the Facility Fee as
set forth in the Financing Agreement is based upon an “assumption” that Porter Capital would
collect, through the accounts of Lady Forest, $750,000.00 per month, amounting to a total of
$9,000,000.00 (the “Base Purchase Agreement”) for the course of the one year Agreement
($750,000 x 12). The Facility Fee for the term of the Agreement was to be 3% of “assumed”
$9,000,000.00, otherwise stated as $270,000.
10

13

Forest by Porter Capital. (See discussion supra Section III). As such, basic contract
law applies.11 To prove its breach of contract claim, Porter Capital must establish: (1)
a valid contract binding the parties; (2) the plaintiff’s performance under the contract;
(3) the defendant’s nonperformance; and (4) resulting damages. See State Farm Fire
& Cas. Co. v. Slade, 747 So.2d 293, 303 (Ala. 1999); see also Shaffer v. Regions Fin.
Corp., 29 So.3d 872, 880 (Ala. Aug. 28, 2009). All of these elements seem to be in
dispute except the first. (See Doc. #31 at 6-8; see also Doc. #36 at 9-13).
A.

Performance under the Contract

Porter Capital cites evidence that it performed under the Financing Agreement
by advancing funds and purchasing accounts receivable from Lady Forest while
alleging that Lady Forest has failed thereunder. (See Doc. #31 at 8-9). Paragraph 2
of the Performance Covenant sets out Lady Forest’s default as:
(a)

(b)

any default in the payment or performance of any instrument (including
without limitation the Commercial Financing Agreement), or of the
Obligations hereby guaranteed; or
any warranty, representation, statement, or report made or delivered to
Porter Capital by or on behalf of [Lady Forest], or the undersigned,
being incorrect, false, untrue, or misleading when given in any material
respect whatever; . . .

The parties do not dispute that Alabama law applies to this action, nor do they dispute
that these are the elements necessary to state a claim for breach of contract in Alabama. (See
Doc. #31 at 6-12; see also Doc. #36 at 8-13).
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14

In the event of any of the foregoing, the Obligations hereby guaranteed shall
become, for the purpose of this Agreement, due and payable by the
undersigned forthwith without demand or notice.
(Doc. #31 at 9 (emphasis added); see also Performance Covenant). Under the
Security Agreement, obligations of Lady Forest become due and payable if an event
of default occurs, including “the appointment of any receiver or trustee for all or a
substantial portion of the assets of [Lady Forest].” (Exh. 1 to Trupiano Aff., ¶ 4; Exh.
A to Compl., ¶ 24). Paragraph 14.6 of the Financing Agreement includes Lady
Forest’s warrant that it had “no outstanding state, federal, or local tax liabilities, and
has filed all tax returns or other documents as required by law.” (Exh. 1 to Trupiano
Aff.).
Porter Capital argues that Lady Forest has been in default of all of the
aforementioned Loan Documents. Lady Forest failed to provide financial records
within forty-five (45) days of the end of the first quarter of 2011, thus defaulting
under the Performance Covenant. (See H. Haralson Dep. at 42-44). The event of
filing for bankruptcy on April 5, 2011 caused Lady Forest to become a debtor-inpossession, a trustee for the bankruptcy, thus causing violation of the Security
Agreement. See 11 U.S.C. § 1107; see also Exh. A to Compl., ¶¶ 24.5, 24.10). The
bankruptcy revealed violation of the Financing Agreement, in that Lady Forest had
over $150,000 in unpaid ad valorem taxes for the year 2010. (See Exh. 3 to Solomon
15

Decl.). These defaults, Porter Capital contends, make the Obligations of the Loan
Documents immediately due and payable.
Lady Forest makes much of the fact that as of April 18, 2011, Porter Capital
made the business decision to make no advances or payments to Lady Forest by
making written notification to that effect. (See Doc. #36 at 3, 8; see also Trupiano
Dep. at 82-83). As of that date, Lady Forest had “no access to, or ability to use or
obtain benefit from the credit facility provided for under the February 23, 2011
Commercial Financing Agreement.” (Doc. #36 at 3-4). Thus, Lady Forest argues,
it is Porter Capital which “either breached or refused to honor its obligations to Lady
Forest resulting in a denial of the factoring/credit facility.” (Doc. #36 at 8).
The problem for Lady Forest is that other than making the blanket assertion
that it was Porter Capital who breached the Agreement, the undisputed evidence
makes clear that the Agreement itself defines a breach, inter alia, as occurring when
a trustee is appointed for all or a substantial part of Lady Forest’s assets. (See
Financing Agreement, ¶14.1). Therefore, when Lady Forest filed for bankruptcy on
April 5, 2011, the Loan Documents were breached and the Financing Agreement was
renounced by Lady Forest. See Baldwin v. Panetta, 4 So.3d 555, 561 (Ala. Civ. App.
2008) (“A defendant breaches a contract when he or she prevents performance of the
contract without the fault of the plaintiff whose duty it was to perform and who is
16

ready, willing, and able to perform.”). Lady Forest does not, and cannot, refute that
the event of filing for bankruptcy caused Lady Forest’s renunciation of the Loan
Documents. (See generally Doc. #31).
Porter Capital has met its burden of establishing that Lady Forest failed to
perform under the Loan Documents. The question now becomes whether Porter
Capital is entitled to any damages as a result of Lady Forest’s breach of the contract.
B.

Damages

The parties seem to understand that the heart of the dispute centers on the
damages Porter Capital may be entitled to given Lady Forest’s breach of the Loan
Documents. Porter Capital’s calculations are relatively simple12 – the company
contends it is entitled to the Facility Fee for the remaining days covered by the initial
Agreement as set forth by Paragraph 12.2 of the Agreement, and attorney’s fees and
costs for the recovery thereof as set forth by Paragraph 22.2 of the Agreement. (See
Doc. #31 at 11-14). Lady Forest argues that the provision setting out the Facility Fee

One of the arguments made by Lady Forest in opposition to the motion for summary
judgment is that Porter Capital has made mutually inconsistent sworn statements as to the
amount of its alleged damages for which recovery is sought. (See Doc. #36 at 13). Although this
is true, the variance in sums is not as important as the provisions under which Porter Capital
alleges it is due damages for breach of guaranty. Because Porter Capital has consistently
maintained that it is entitled damages for the Facility Fee, attorneys’ fees, costs, and bankruptcy
expenses, it is of no import that the actual number has somewhat varied. (See Doc. #41 at 9-10).
12

17

is ambiguous because it is based upon an assumption, and therefore cannot be
enforced. (See Doc. #36 at 9-13).
The issue of contractual ambiguity is a question of law for a court to decide.
See Nationwide Ins. Co. v. Rhodes, 870 So.2d 695, 696 (Ala. 2003). In determining
whether ambiguity exists, a court should apply the common interpretation of the
language alleged to be ambiguous. See Porterfield v. Audubon Indem. Co., 856 So.2d
789, 799 (Ala. 2002). A contract is ambiguous if it is susceptible to two different
interpretations, each of which can be reasonably inferred from reading the contract.
See U.S. v. Bradley, 2012 WL 2890904 at *5 (11th Cir. July 13, 2012); see also
Frulla v. CRA Holdings, Inc., 543 F.3d 1247, 1252 (11th Cir. 2008). When the terms
of a contract are unambiguous, the contract’s construction and legal effect become
a question of law for the court, and when appropriate may be decided by summary
judgment. See Ocean Reef Developers II, LLC v. Maddox, – So.3d –, 2012 WL
1760211 at *3 (Ala. Civ. App. May 18, 2012). A court may not twist the plan
meaning of the terms in a contract to create an ambiguity under the guise of
interpretation. See Booth v. Newport Television LLC, – So.3d –, 2011 WL 6275695
at *5 (Ala. Civ. App. Dec. 16, 2011).

18

There is nothing ambiguous (latent or otherwise) about the provision of the
Agreement which requires a Facility Fee.13 Paragraph 12.1 of the Agreement is the
only place where the term “assumption” is used. This Paragraph indicates that the
parties negotiated the Facility Fee to be based on an averaged amount of $750,000
per month.
The rebates set forth in the rebate schedule attached hereto have been
established after negotiations between [Lady Forest] and Porter Capital
on the assumption that [Lady Forest] will tender to Porter Capital for the
purchase hereunder acceptable Accounts Receivable averaging at least
seven hundred fifty thousand dollars a month (the “Base Purchase
Amount”) during the Initial Term and each renewal term.
(Exh. A to Compl., ¶ 12.1). The fee had to be based on something, and for these
parties, it was based on the presumption that Lady Forest would factor at least
$750,000 per month with Porter Capital. Of note is that the Agreement does not
provide for a shifting fee based on shifting factoring. Instead, the fee remains
constant based on a presumption that Lady Forest would factor at least $750,000 per

Because the Agreement contains no ambiguity, the court cannot look beyond the four
corners of the instrument. See Martin v. First Nat’l Bank of Mobile, 412 So.2d 250, 253 (Ala.
1982). Nor does there exist any collateral matter which makes the meaning of the term
“assumption” uncertain. That a guarantor might have thought the $750,000 assumption was
removed from the Agreement does not change the meaning of the term as actually contained in
the Agreement. (See Doc. #36 at 11-12) (“Porter Capital was clearly advised at the time the
subject financing agreement was made that Lady Forest could not perform as assumed. The three
Defendants, in reliance upon Hugh Haralson, III disputed this term of the agreement, and Lady
Forest’s expressed intent clearly differed from that which Porter Capital now wishes to assert as
its sole basis for recovery.”).
13

19

month. Porter Capital agreed to extend to Lady Forest the line of credit in
consideration of receiving the Facility Fee for the term of the Agreement. (See Exh.
A to Compl., ¶ 12.2).
Having established that Lady Forest breached the Agreement by failing to pay
the Facility Fee for the term of the Agreement, the amount owing to Porter Capital is
at issue. As a general rule, damages in a breach of contract action are “that sum
which would place the injured party in the same condition he would have occupied
if the contract had not been breached.” Ex parte Steadman, 812 So.2d 290, 295 (Ala.
2001). Had Lady Forest not breached the Agreement, Porter Capital would have
received an additional $243,235.37 in Facility Fees, minus whatever amount Lady
Forest would pay to Porter Capital in fees each term. (See Trupiano Aff., ¶ 13).
Since Lady Forest paid Porter Capital no additional fees for the term of the
Agreement, $243,235.37 is the minimum amount Porter Capital has been damaged
as a result of the breach.14

Lady Forest alleges that the damages asserted by Porter Capital are legally
unconscionable. (See Doc. #36 at 14-16). The 3% Facility Fee, which Porter Capital asserts
would have been non-negotiable in the event it had been an issue during negotiations (see
Trupiano Dep. at 26-27), added to the contractual interest rate of 16.95%, would effectively
equate to 28.16% in interest for the 41 day period (given that Porter Capital received $2,164,876
for the 41 days). (See Doc. #36 at 15) (“Thus, Porter Capital [excluding its other claimed
damages] is effectively attempting to charge the three Defendant Guarantors 28.16% in interest
or finance charges in exchange for a 41 day period that the financing/factoring agreement was in
place.”).
It is true that an unconscionable contractual provision must be examined in light of all of
14

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In addition to the contractual Facility Fees due and owing to Porter Capital, the
Agreement makes clear that in the event of a breach, Porter Capital is entitled to
recover “the actual amount fo all fees, costs, and expenses, including but not limited
to attorneys’ fees, which Porter Capital may incur in any action to enforce this
Agreement . . . or in connection with any federal or state bankruptcy or insolvency
proceeding commenced by or against [Lady Forest].” (Trupiano Aff, Exh. 1, ¶ 22).
Provisions such as these are enforceable under Alabama law, and Lady Forest does
not argue otherwise. See Subway Rest., Inc. v. Madison Square Assoc., Ltd., 613
So.2d 1255, 1257 (Ala. 1993) (“In Alabama, in state law causes of action, attorney
fees are recoverable as part of the costs of the action . . . when provided in a
contract.”); (see Doc. #36 at 15-16). As of July 30, 2012, Porter Capital had
expended $75,435.10 in attorneys’ fees and costs to recover for Lady Forest’s breach
of contract. (See Solomon Aff., ¶¶ 5, 7). Porter Capital expended an additional

the circumstances and is defined as one “such as no man in his sense and not under delusion
would make on the one hand, and as no honest and fair man would accept on the other.” Layne
v. Garner, 612 So.2d 404, 408 (Ala. 1992). The problem for Lady Forest is that the
circumstances do not make the provision for 3% in Facility Fees unconscionable. On a predicted
$9,000,000 of factoring, 3% in Facility Fees and 16.95% interest are reasonable terms for
sophisticated business men to enter into. That there was a possibility of breach by bankruptcy
was surely a scenario of which Lady Forest was aware, and careful review of the Agreement
could have presented Lady Forest with a hypothetical situation such as the one currently before
the court. (See Doc. #41 at 3). Defendants here used their bargaining power to ensure that the
contract terms were not unreasonably favorable to Porter Capital or one-sided. See Layne, 612
So.2d at 408.
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$18,000 in connection with the bankruptcy commenced by Lady Forest. (See
Trupiano Aff., ¶ 15; Exh. A to Compl., ¶ 22). Therefore, the total amount due and
owing to Porter Capital for Lady Forests’s breach of the Agreement is $299,735.96.
V.

Conclusion
For the reasons asserted herein, the Motion (Doc. #30) for Summary Judgment

of Porter Capital Corporation is due be granted. Porter Capital Corporation is entitled
to recover from the guarantors of Lady Forest $299,735.96. A separate Judgment will
be entered.
DONE this the

10th

day of October, 2012.

SENIOR UNITED STATES DISTRICT JUDGE

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