Core Funding Group, L.P. v. McIntire et al
ORDER & REASONS granting in part and denying in part 144 Motion for Summary Judgment; granting in part and denying in part 160 Motion for Summary Judgment; dismissing 167 Motion to Sever. Signed by Judge Ivan L.R. Lemelle. (lag, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CORE FUNDING GROUP, LP
MICHAEL H. McINTIRE, McINTIRE
AND McINTIRE, LLC, HENRY T. DART
AND HENRY DART, ATTORNEYS AT
LAW, A PROFESSIONAL CORPORATION
ORDER AND REASONS
Before the Court is Defendants’, Michael H. McIntire and
McIntire and McIntire, LLC (“McIntire Defendants”) Motion for
Summary Judgment (Rec. Doc. No. 144), joined by Defendants Henry T.
Dart and Henry Dart (“Dart Defendants”) (see Rec. Doc. No. 165),
and Plaintiff Core Funding Group, L.P.’s (“Core”) Motion for
Summary Judgment (Rec. Doc. No. 160).
Both motions are opposed.
Also before the Court is the McIntire Defendants’ opposed
Motion to Sever or Bifurcate Trial on Counter-Claim (Rec. Doc. No.
167, see Plaintiff’s Opposition at Rec. Doc. No. 178).
For the following reasons,
IT IS ORDERED that Defendant’ Motion for Summary Judgment
(Rec. Doc. No. 144) is GRANTED IN PART and DENIED IN PART;
Plaintiff’s Motion for Summary Judgment (Rec. Doc. No. 160) is
GRANTED IN PART and DENIED IN PART; and
Defendants’ Motion to Sever or Bifurcate Trial on CounterClaim (Rec. Doc. No. 167) is DISMISSED.
Prior to January 2004, the McIntire Defendants, along with
several other attorneys including the Dart Defendants, filed a mass
tort/class action lawsuit entitled In re Harvey TERM Litigation,
No. 01-8708, Division “D”, in the Civil District Court for the
implemented a financing committee, known as the “25% Club”, to pay
the costs associated with filing and prosecuting the litigation.
Id. at 2.
To join the “25% Club”, an attorney had to bring his
assessment payments to a balance of $200,000 and commit to pay his
share of additional costs in the litigation should the fund become
In return, attorneys in the “25% Club” were to
judgment than non-member attorneys.
To enable the McIntire Defendants to join the “25% Club”, Core
issued a $200,000 loan to the McIntire Defendants on or about
January 5, 2004, on which the Dart Defendants signed as guarantor.
Rec. Doc. No. 144-2, at 2; Rec. Doc. No. 160-3, at 1.
documents include: (1) Offer to Lend/Loan Contract; (2) Promissory
Note; (3) Executor Letter; (4) Exhibit A; (5) Exhibit B; (6) Letter
of Protection; (7) Notice of Assignment; (8) Security Agreement;
(9) Absolute, Unconditional, and Irrevocable Transfer Sale and
Rec. Doc. No. 160-3, at 4.
The Loan Contract,
Promissory Note, and Security Agreement state that the transaction
shall be governed by Ohio law.
Id. at 5. Core additionally filed
a UCC-1 Financing Statement on January 22, 2004.
documents purport to create a security interest in the attorneys’
fees to be produced in the Underlying Litigation, as well as in
other legal accounts receivable and attorney fee interests of the
Rec. Doc. No. 144-2, at 4.
The ultimate due
date or maturity date on the promissory note was 3 years, or
January 5, 2007.
Rec. Doc. No. 160-3, at 5.
The interest rate
varied depending on the year - 14.65% for the first year, 15.75%
for the second year, and 17.25% for the third year - and the
interest rate upon default was 1.25% per ten day period.
Id. at 5-
The documents also provide that Core is entitled to reasonable
attorney fees incurred to obtain and collect a judgment.
Id. at 6.
To date, the defendants have not repaid any of the loan.
Id. at 5.
Core initially filed this lawsuit on August 22, 2007.
Doc. No. 1.
However, the McIntire Defendants were dismissed from
this action without prejudice on March 23, 2009 due to Core’s
failure to show good cause why service of process had not been
effected upon the McIntire Defendants.
See Rec. Doc. No. 10. Core
Defendants assume the authenticity of these documents for purposes of
their Motion for Summary Judgment only in order to narrow the issues before
the Court; for purposes of trial and in opposition to Core’s Motion for
Summary Judgment, Defendants deny their authenticity and Core’s status as
holder of them, as set forth infra. Rec. Doc. No. 144-2, at 3, n.2.
amended its Complaint to bring the McIntire Defendants back into
the suit on October 2, 2009, but on March 11, 2010, this Court
granted the McIntire Defendants’ Motion to Dismiss for lack of
opportunity to amend its Complaint to cure the defect.
Doc. No. 70.
Core filed its Second Amended Complaint on April 14,
2010, yet the McIntire Defendants were dismissed again on January
19, 2011, without prejudice, on account of issues with Core’s
Defendants were then brought back into this suit on February 18,
2011 via Core’s Third Supplemental and Amended Complaint. See Rec.
Doc. No. 123.
Summary Judgment Standard:
Summary judgment is proper if the pleadings, depositions,
affidavits, show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter
Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986).
A genuine issue exists if the evidence
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
Although the Court must consider the evidence with all
reasonable inferences in the light most favorable to the nonmoving
party, the nonmovant must produce specific facts to demonstrate
that a genuine issue exists for trial.
Webb v. Cardiothoracic
Surgery Assocs. of N. Texas, 139 F.3d 532, 536 (5th Cir. 1998).
The nonmovant must go beyond the pleadings and use affidavits,
depositions, interrogatory responses, admissions, or other evidence
to establish a genuine issue.
rebuttals of the pleadings are insufficient to avoid summary
Travelers Ins. Co. v. Liljeberg Enter., Inc. 7 F.3d
1203, 1207 (5th Cir. 1993).
Defendants’ Motion for Summary Judgment
Defendants contend that this Court should dismiss Core’s
Complaint on the following grounds: (1) lack of standing or
capacity; (2) maintenance and champerty; and (3) prescription,
statute of limitations, and/or the doctrine of laches.
No. 144, at 1.
Defendants additionally maintain that Core should
not be allowed to collect prejudgment interest due to incessant
delays in prosecuting the suit, that the default interest rate
unconscionable, and that the attorney fee provisions are void and
Lack of Standing or Capacity
As detailed in this Court’s previous order regarding Core’s
corporate existence, Core’s Texas charter was forfeited on August
See Rec. Doc. No. 117.
However, its charter was
Defendants argue that Core’s general partner, as reflected on
several filings with the Texas Secretary of State, including Core’s
Certificate of Limited Partnership, is Vineyard Capital, LLC, and
not Vineyard Capital Management, LLC, as Core contends.
No. 144-2, at 7-8.
Because Vineyard Capital, LLC has not existed
since August 27, 2007, Defendants argue that Core cannot exist, and
therefore this suit cannot be maintained.
Id. at 8-9.
Pursuant to the testimony of Core’s president, at the time of
Core’s formation in December 2001, Core’s organizers intended its
general partner would be a newly formed Delaware LLC called
“Vineyard Capital, LLC.”
Rec. Doc. No. 163, at 6.
the parties attempted to form Vineyard Capital, LLC, there was
already a Delaware LLC in that name formed March 26, 1998 by
someone wholly unrelated to Core.
organizers formed Vineyard Capital Management, LLC, in December
2001. Id. Core’s organization documents, however, were mistakenly
filed with Vineyard Capital, LLC listed at its general partner,
although such mistake has been corrected by a Certificate of
Amendment filed with the Texas Secretary of State by Core on April
19, 2011, amending Core’s certificate of partnership to reflect the
name of its general partner as Vineyard Capital Management, LLC.
Id. Vineyard Capital Management, LLC was reinstated in Delaware on
October 18, 2010.
As both documentary evidence and testimony shows that Core,
its general partner, and its limited partner Integrated Holdings,
are all in existence and in good standing, Defendants’ Motion for
Summary Judgment cannot be granted on the basis of Core’s lack of
standing or capacity at this time.
Maintenance and Champerty
As stated by the Ohio Supreme Court2:
“Maintenance” is assistance to a litigant in pursuing or
defending a lawsuit provided by someone who does not have
a bona fide interest in the case. “Champerty” is a form
of maintenance in which a nonparty undertakes to further
another’s interest in a suit in exchange for a part of
the litigated matter if a favorable result ensues. 14
Ohio Jurisprudence 3d (1995), Champerty and Maintenance,
Section 1. “The doctrines of champerty and maintenance
were developed at common law to prevent officious
intermeddlers from stirring up strife and contention by
vexatious and speculative litigation which would disturb
the peace of society, lead to corrupt practices, and
prevent the remedial process of the law.” 14 Corpus Juris
Secondum (1991), Champerty and Maintenance, Section 3.
See, also, Bluebird Partners, L.P. v. First Fid. Bank,
N.A. (2000), 94 N.Y.2d 726, 709 N.Y.S.2d 865, 731 N.E.2d
Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217, 219220 (Ohio 2003).
Defendants contend that the instant action
involves the “funding of litigation by an officious intermeddler
with no bona fide interest in the Underlying Litigation, with the
expectation of receiving payment (at a hefty premium) out of the
proceeds of that litigation,” and therefore the contracts at issue
are void ab initio in violation of the principles of maintenance
The parties do not dispute that Ohio law applies to this issue.
Rec. Doc. No. 144-2, at 9.
In finding that the advances made in Rancman constituted
champerty and maintenance, the Ohio Supreme Court stated, “[e]xcept
as otherwise permitted by legislative enactment or the Code of
Professional Responsibility, a contract making the repayment of
funds advanced to a party to a pending case contingent upon the
outcome of that case is void as champerty and maintenance. Such an
advance constitutes champerty and maintenance because it gives a
settlement of the underlying case, and promotes speculation in
Rancman, 789 N.E.2d at 221 (emphasis added).
the cases cited by Defendants all involve funding being made to an
actual litigant in the suit, not to counsel of any of the parties.
Additionally, subsequent cases have found the advancement of funds
to a party not to constitute maintenance and champerty where the
obligation to repay the funding was not contingent on the outcome
of the lawsuit.
See Lillibridge v. Tarman, 2009 WL 1311017 (Ohio
Ct. App. 2009); Ohio Farm Bureau Federation, Inc. v. Amos, 2004 WL
2003087 (Ohio Ct. App. 2009).
Here, the purpose of the loan was to enable the McIntire
Defendants, attorneys for several litigants in the Underlying
implemented to pay the costs of prosecuting the litigation with the
benefit of receiving a higher share from any settlement or judgment
than non-“25% Club” attorneys.
Repayment of the loan was not
solely contingent on the outcome of the Underlying Litigation.
Moreover, the public policy interests behind the doctrines of
maintenance and champerty are not present in this case, as the
Underlying Litigation would proceed whether or not the McIntire
Defendants were members of the “25% Club”, therefore the remedial
process of the law is not impeded nor can the litigation be deemed
Judgment is denied on this basis.
Prescription, Statutes of Limitation, and Laches
Defendants correctly state that under Louisiana conflict of
laws principles, applicable in this action pursuant to Klaxon v.
Stentor Electric Co., 313 U.S. 487 (1941), and its progeny,
although Ohio’s substantive law governs the action, Louisiana’s law
of prescription generally applies.
Rec. Doc. No. 144-2, at 12.
Specifically, La. Civ. Code art. 3549(B) provides:
B. When the substantive law of another state would be
applicable to the merits of an action brought in this
state, the prescription and peremption law of this state
applies, except as specified below:
(1) If the action is barred under the law of this state,
the action shall be dismissed unless it would not be
barred in the state whose law would be applicable to the
merits and maintenance of the action in this state is
warranted by compelling considerations of remedial
(2) If the action is not barred under the law of this
state, the action shall be maintained unless it would be
barred in the state whose law is applicable to the merits
and maintenance of the action in this state is not
warranted by the policies of this state and its
relationship to the parties or the dispute nor by any
compelling considerations of remedial justice.
prescriptive period is three years under La. Civ. Code art. 3494
for “an action on money lent.”
Rec. Doc. No. 144-2, at 13.
Pursuant to well-established rules of statutory construction,
Where two statutes deal with the same subject matter,
they should be harmonized if possible, as it is the duty
of the courts, in the construction of statutes, to
harmonize and reconcile laws. However, if there is a
conflict, that statute specifically directed to the
matter as issue must prevail as an exception to the
statute more general in character.
Black v. St. Tammany Parish Hosp., 25 So.3d 711, 717-18 (La. 2009)
(citing LeBreton v. Rabito, 714 So.2d 1226, 1229 (La. 1998);
Kennedy v. Kennedy, 699 So.2d 351, 358 (La. 1997); Chappuis v.
Reggie, 62 So.2d 92, 95 (1952); La. Civ. Code art. 13).
Code art. 3498 provides that actions on promissory notes are
subject to a prescriptive period of five years, commencing on the
date that payment becomes due.
As this provision specifically
governs the action at issue, the applicable prescriptive period of
five years commenced the date the note became due on January 5,
2007, and therefore this action has not prescribed under Louisiana
Louisiana’s relevant conflict of laws provision states that in such
circumstances “the action shall be maintained unless it would be
barred in the state whose law is applicable to the merits and
maintenance of the action in this state is not warranted by the
policies of this state and its relationship to the parties or the
dispute nor by any compelling considerations of remedial justice.”
La. Civ. Code art. 3549(B)(2). The parties do not dispute that the
applicable Ohio statute of limitations has not yet been exhausted.
Rec. Doc. No. 144-2, at 15; Rec. Doc. No. 163, at 8.
argue, however, that the suit is time-barred under Ohio’s doctrine
Rec. Doc. No. 144-2, at 15.
Laches is an equitable doctrine, defined by the Ohio Supreme
Court as “an omission to assert a right for an unreasonable and
unexplained length of time, under circumstances prejudicial to the
Connin v. Bailey, 472 N.E.2d 328 (Ohio 1984);
Hayman v. Hayman, 919 N.E.2d 797, 803 (Ohio Ct. App. 2009).
elements of a laches defense are (1) unreasonable delay or lapse of
time in asserting a right, (2) absence of an excuse for such delay,
(3) knowledge, actual or constructive, of the injury or wrong, and
(4) prejudice to the other party.”
Natl. Court Reporters, Inc. v.
Krohn & Moss, Ltd., 2011 WL 550100, *4 (Ohio Ct. App. 2011)
(quoting State ex rel. Cater v. N. Olmsted, 631 N.E.2d 1048 (Ohio
The party seeking to invoke the defense of laches must
show that he “has been materially prejudiced by the delay of the
person asserting his claim,” as “[d]elay in asserting a right does
not of itself constitute laches.”
Defendants claim that they have been materially prejudiced by
Core’s delay due to the prejudgment interest that has been running
against them as well as by the limited time within which the
McIntire Defendants were able to conduct discovery as a result of
being brought back into the lawsuit on the eve of trial, thereby
prejudicing their ability to defend themselves. Rec. Doc. No. 1442, at 16-17.
Core’s initial Complaint was filed in August 2007,
only seven months after the alleged default, but the McIntire
Defendants contend that they could not conduct discovery during the
first two years of the suit because “they had not been served with
it and issue was not joined as to them.”
Id. at 17.
however, has provided evidence in its opposition memorandum that
calls into question whether the McIntire Defendants were in fact
Nonetheless, after being brought back into the suit in 2009 and
2010, the McIntire Defendants’ failure to conduct discovery was of
their own volition, as they never filed a motion to stay discovery
while their dispositive motions were pending nor have they shown
how participating in discovery would have adversely affected their
previously filed motions.
Accordingly, the Defendants have failed
prejudice sufficient to warrant the application of the doctrine of
As the instant action is not time barred under applicable
Louisiana and Ohio law, and Defendants have neither argued nor does
this Court find that maintenance of the action in this state is not
warranted by the policies of this state and its relationship to the
parties or the dispute nor by any compelling considerations of
remedial justice, Defendants’ Motion for Summary Judgment on the
basis of prescription, statute of limitations, and/or the doctrine
of laches is denied.
should be denied due to Core’s undue delay in prosecuting the
Rec. Doc. No. 144-2, at 17-19.
As set forth
above, Core’s initial complaint was filed in August 2007, only
seven months after the alleged default, and although the McIntire
Defendants were dismissed in early 2009 when Core failed to show
good cause why service of process had not been effected, Core has
recently produced evidence indicating that the McIntire Defendants
may have indeed been served with the initial Complaint in September
procedural history of this action, Core has raised a genuine issue
rendering a denial of prejudgment interest based on Core’s delay in
prosecuting the action inappropriate at this time.
Substantive Unconscionability of Default Interest Rate
Defendants further argue that the default interest rate on the
promissory note, which is the equivalent of 45.625% per annum,
unconscionable under applicable Ohio law.” Rec. Doc. No. 144-2, at
19-20; see Rec. Doc. No. 149.
“Unconscionability is generally
recognized to include an absence of meaningful choice on the part
of one of the parties to a contract, combined with contract terms
that are unreasonably favorable to the other party.” Retail Credit
Corp. v. Shorterage, 1996 WL 199831, *1 (Ohio Ct. App. 1996)
(quoting Collins v. Click Camera & Video, Inc., 621 N.E.2d 1294
(Ohio Ct. App. 1993)); see also Orlett v. Surburban Propane, 561
N.E.2d 1066 (Ohio Ct. App. 1989).
To establish that a contract
provision is unconscionable, two prongs must be met: “(1) the terms
of the contract are unfair and unreasonable, i.e., ‘substantive
unconscionability,’ and (2) the individualized circumstances of the
parties were such that no voluntary meeting of the minds was
possible, i.e., ‘procedural unconscionability.’” Id. Defendants do
unconscionability, but suggest that the default interest rate is
“so obviously and clearly unreasonable and oppressive” that summary
Rec. Doc. No. 144-2, at 21.
In support of their claim, Defendants set forth Ohio’s three
main statutes regulating interest rates.
Id. at 22.
civil usury statute, Ohio R.C. § 1343.01, provides for a general
cap of 8% per annum, although several exceptions apply, including
where the principal amount of the debt exceeds $100,000, in which
case no maximum rate is provided.
Doc. No. 163, at 17.
Rec. Doc. No. 144-2, at 22; Rec.
Pursuant to Ohio R.C. § 1109.20, the highest
interest rate that can be charged by an Ohio Bank is 25% per annum,
regardless of the size of the loan.
Rec. Doc. No. 144-2, at 22.
Finally, Ohio’s criminal usury statute, Ohio R.C. § 2905.21,
defines “criminal usury” as illegally charging interest on an
extension of credit as a rate exceeding 25% per annum, unless the
rate of interest is otherwise authorized by law.
144-2, at 22; Rec. Doc. No. 163, at 18.
Rec. Doc. No.
Core argues that because
the loan at issue in this case exceeds $100,000, the parties were
specifically authorized by Ohio’s civil usury statute to agree to
an interest rate in excess of 8% per annum, and as such is
authorized by law, Ohio’s criminal usury statute is therefore
Rec. Doc. No. 163, at 18.
Although Core correctly states that it is authorized by Ohio
law to set an interest rate exceeding 8% per annum, at least one
Ohio court has found that such authority is not limitless, striking
down an interest rate of 107% per annum as unconscionable.
Classic Funding, LLC v. Louis Burgos, LLC, 2002 WL 31478977 (Ohio
Ct. App. 2002).
Moreover, the majority of courts addressing
interest rates between 35% and 50% have found such to be excessive,
unreasonable, oppressive and unenforceable, some basing their
conclusion in part on a comparison between the default rate and the
general contract rate.
See Rec. Doc. No. 144-2, at 23.
contractual rate increased each year, however the interest rate
upon default is over three times the contract rate for the first
year (14.65%) and more than double the rate for the third year
Accordingly, this Court finds that the default interest
rate of 45.625% per annum is an unreasonable and excessive charge,
in terms of substantive unconscionability only.
Attorney Fee Provisions
enforceable if the total amount owed at the time the contract was
entered into exceeds $100,000 and the commitment to pay attorneys’
fees obligates payment of a reasonable amount.
however, that “Ohio jurisprudence invalidates one-sided attorneys’
fee provisions, which in effect act as a penalty against the
debtor, provide no concomitant right to attorneys’ fees to the
debtor, and therefore encourage litigation by creditors.”
Doc. No. 144-2, at 24. Defendants claim that based on this general
rule, the attorney fee provisions of the contracts at issue here
are unenforceable as a matter of law.
Id. at 25.
The United States Sixth Circuit Court of Appeals has recently
finding that “[u]nder Ohio law, contractual provisions requiring
the payment of attorneys’ fees are enforceable when arrived at
‘through free and understanding negotiation’ and where both parties
‘were able to protect their respective interests.’” Saad v. GE HFS
Holdings, Inc., 2010 WL 623623, *10 (6th Cir. 2010) (citing Worth
v. Aetna Cas. & Sur. Co., 513 N.E.2d 253, 258 (Ohio 1987)).
court further stated that this general rule was abrogated by Ohio
R.C. § 1301.21.
As insufficient evidence exists at this time
regarding whether the instant provisions were reached “through free
reasonableness of the requested attorneys’ fees, Defendants’ Motion
for Summary Judgment must be denied as to this issue.
Plaintiff’s Motion for Summary Judgment
Core maintains that it is entitled to summary judgment with
regard to the enforcement of the promissory note because although
not in possession of the original loan documents, the requirements
for enforcing a lost instrument pursuant to Ohio R.C. § 1303.38 are
Rec. Doc. No. 160-3, at 7-12.
argues that it can prove the terms of the note, the due date on
therefore Defendants are liable for the principal amount plus
enforcement of the Security Agreement and security interest, as
well as all expenses, court costs, and reasonable attorney fees,
all of which are expressly agreed to in the loan documents.
Core additionally contends that the Dart Defendants’
accommodation maker or accommodation indorser/anomalous indorser
has been established.
Id. at 13-15.
Finally, Core asserts that
the McIntire Defendants’ counterclaim should be dismissed because
Defendants cannot prove that the parties agreed to an extension of
the due date for repayment of the $200,000 loan, nor can they show
$500,000 line of credit existed.
Id. at 20-24.
Enforcement of the Note
Core argues that although it is not in possession of the
original loan documents, it is entitled to enforce the note
pursuant to Ohio R.C. § 1303.38, which provides:
(A) A person not in possession of an instrument is
entitled to enforce the instrument if all of the
(1) The person was in possession of the instrument and
entitled to enforce it when loss of possession occurred.
(2) The loss of possession was not the result of a
transfer by the person or a lawful seizure.
(3) The person cannot reasonably obtain possession of the
instrument because the instrument was destroyed, its
whereabouts cannot be determined, or it is in the
wrongful possession of an unknown person or a person that
cannot be found or is not amenable to service of process.
(B) A person seeking enforcement of an instrument under
division (A) of this section must prove the terms of the
instrument and the person’s right to enforce the
instrument. If that proof is made, divisions (A) and (B)
of section 1303.36 of the Revised Code applies to the
case as if the person seeking enforcement has produced
The court may not enter judgment in
favor of the person seeking enforcement unless it finds
that the person required to pay the instrument is
adequately protected against loss that might occur by
reason of a claim by another person to enforce the
instrument. Adequate protection for the person required
to pay the instrument may be provided by any reasonable
Core claims that it sent the original loan documents to its former
counsel, who filed the initial Complaint on behalf of Core in
August 2007 with copies of the documents attached; however, Core
maintains that although Core’s former counsel was able to locate
Core’s file, it was unable to find the original documents.
Doc. No. 160-3, at 7.
Nevertheless, Core argues that it was in
possession of the note through its former counsel when the loss
whereabouts of the note cannot be determined, and Core can prove
the terms of the note via a copy pursuant to the Federal Rules of
Id. at 8.
requirements. Defendants challenge whether Core has proven that it
was in possession of the instrument and entitled to enforce it at
the time the loss occurred, whether a transfer of the instrument
occurred, and the reasonableness of Core’s ability to obtain
possession of the original documents.
Rec. Doc. No. 169, at 7;
Rec. Doc. No. 173, at 5-7.
Moreover, Defendants contend that Core
cannot prove the content of the original documents through copies
in accordance with the Federal Rules of Evidence.
Rec. Doc. No.
169, at 8-10; Rec. Doc. No. 173, at 8-10.
Under Federal Rules of Evidence 1002 and 1003, to prove the
duplicate is admissible to the same extent as an original unless
(1) a genuine question is raised as to the authenticity of the
original or (2) in the circumstances it would be unfair to admit
the duplicate in lieu of the original.
Core maintains that there
is no genuine question as to the authenticity of the original, as
Defendants have not denied the validity of their signatures, they
admit that they are not aware of any alterations to the text or
content of the loan documents after they signed them, and the
McIntire Defendants specifically admit that are not in possession
of any loan documents that have different terms or conditions from
the copies. Rec. Doc. No. 160-3, at 9-11. However, Defendants set
sufficiently raise a genuine question regarding their authenticity.
First, Defendants maintain that the initials alleged to be
McIntire’s found in the bottom left corner of several of the
Promissory Note, and the Executor Letter, are not McIntire’s
initials,3 they are not in McIntire’s handwriting, they were not on
the papers that McIntire signed at the time he signed them, and
McIntire did not give his consent for those initials to be made on
Rec. Doc. No. 169, at 4.
McIntire Defendants challenge the dates purportedly written by
admitting that the signatures contained on each of the alleged loan
documents look like McIntire’s signatures, the Defendants maintain
that they cannot definitively state that they are indeed his
inconsistency in the dates and page numbering on the fax headers as
well as between two signatures on the Executor Letter, alleged to
be the signatures of the notary, yet Defendants claim they do not
appear to be made by the same person.
In fact, the McIntire
Defendants contend that the documents were not signed in the
presence of a notary and witnesses, at least not by McIntire.
at 6, 8-9.
The McIntire Defendants additionally claim that the
copies of the loan documents in their possession were not made
simultaneously with signing of the papers, but were provided at
some point later, as they claim that the initials and dates
allegedly made by McIntire that are found on the provided copies
were not on the documents signed by McIntire in January 2004.
McIntire’s initials are “MHM” while the markings on the documents
appear to be “MAM”. Rec. Doc. No. 173, at 8.
The McIntire Defendants finally argue that the Social
Security number found on the UCC Lien allegedly filed by Core is
not McIntire’s correct Social Security number.
As Defendants have provided testimony indicating several
discrepancies in the documents relied upon by Core to prove the
content of the note at issue, summary judgment in Core’s favor
regarding enforcement of the note is inappropriate at this time.
Liability of the Dart Defendants
This Court has previously ruled that pursuant to Ohio R.C. §
1303.59(B)-(C), because the Dart Defendants’ signature on the
instrument at issue is accompanied by words indicating that the
signer is acting as guarantor with respect to the obligation of
another party to the instrument, the Dart Defendants are bound by
the contract they signed as an accommodation party.
See Rec. Doc.
No. 64, at 4. Thus, the issue remains whether the Dart Defendants’
guaranty is one of collection or payment.
The distinction is
significant because a payment guarantor is primarily liable on the
instrument, i.e. he agrees that if the instrument is not paid when
due he will pay it according to its terms, and the person entitled
to enforce the instrument need not resort to any other party.
Mutual Federal Savings Bank v. Sanford, 2000 WL 327222, *11 (Ohio
Ct. App. 2000).
On the other hand, a guarantor of collection is
instrument is not paid when due he will pay it according to its
terms, but only after the person entitled to enforce the instrument
has attempted unsuccessfully to recover from the maker or acceptor.
Ohio R.C. § 1303.59(D) states:
(D) If the signature of a party to an instrument is
accompanied by words indicating unambiguously that the
party is guaranteeing collection rather than payment of
the obligation of another party to the instrument, the
signer is obliged to pay the amount due on the instrument
to a person entitled to enforce the instrument only if
one of the following applies:
(1) Execution of judgment against the other party has
been returned unsatisfied.
(2) The other party is insolvent or in an insolvency
(3) The other party cannot be served with process.
(4) It is otherwise apparent that payment cannot be
obtained from the other party.
In Mutual Federal Savings Bank, supra, 2000 WL 327222 at *11, the
Ohio Third District Court of Appeals addressed a similar issue to
the one raised here and interpreted the above section to “indicate
that if an accommodation party (guarantor) signs an instrument and
that signature is not accompanied by words indicating unambiguously
accommodation party (guarantor) is obliged to pay the instrument
according to its terms when it was signed.
Conversely, if the
accommodation party’s (guarantor’s) signature is accompanied by
words indicating unambiguously that the party is only guaranteeing
collection of debt, the accommodation party is obliged to pay the
amount due upon the occurrence of one of several enumerated
In concluding that the guaranty at issue was one of
payment, the court stated:
In sum, the strong policy of R.C. § 1306.59 construing
ambiguous guarantees as guarantees of payment rather than
collection certainly mandates the conclusion that the
language of this guaranty [“personally guaranteed by”]
obligates the decedent as a guarantor of payment. To
bring the guaranty provision within the ambit of
collection, [the signer] was required to use indicative
terminology, such as the word “collection” or a similar
word like “loss.” See, Wolfe v. Schuster (1979), 591
S.W.2d 926, 930 (1979); Floor v. Melvin (1972), 5
Ill.App.3d 463, 464-466, 283 N.E.2d 303, 304-305.
Mutual Federal Savings Bank, supra, 2000 WL 327222 at *12.
Here, the Dart Defendants’ signature is not accompanied by
collection of the debt.
In fact, the loan documents fail to
provide any express terminology with regard to whether the Dart
Accordingly, the Dart Defendants’ guarantee must be construed as
one of payment, and therefore, their liability is not contingent
upon any condition regarding the McIntire Defendants.
The McIntire Defendants’ Counterclaim
The McIntire Defendants assert that Core represented and
verbally agreed, at or around the time the original $200,000
advance was made, to renegotiate and extend the due date of the
initial loan if the Underlying Litigation was not concluded by
January 5, 2007.
Rec. Doc. No. 169, at 12-13; see Rec. Doc. No.
Additionally, the McIntire Defendants claim that Core agreed
to fund a line of credit of up to $500,000 to provide for the
assessments necessary for McIntire Defendants to become and remain
Defendants claim that they relied upon these agreements to their
detriment when taking out the initial $200,000 loan from Core, as
they would not have agreed to any loan from Core had they known
first, that Core would demand payment and claim default before the
Underlying Litigation was completed and second, that Core would not
advance any funds beyond the initial $200,000.
Id. at 13-14.
With regards to the oral extension of the alleged due date and
the damages resulting from Core’s claim of default, Core’s motion
seeking dismissal of the McIntire Defendants’ Counterclaim must be
Core argues that the parol evidence rule prohibits
extrinsic evidence, including alleged prior or contemporaneous oral
agreements, that contradicts, varies, or modifies an integrated
Rec. Doc. No. 160-3, at 17.
“To say that a
contract is integrated means that a court will presume that a
complete and unambiguous written contract embodies the parties’
Superamerica LLC, 2004 WL 2260501, *3 (Ohio Ct. App. 2004).
presumption is strongest when the written agreement contains a
agreement constitutes the parties’ complete and final understanding
documents at issue contain.
Rec. Doc. No. 160-3, at 17; See
Worthington, supra, 2004 WL 2260501 at *3.
argues that the evidence fails to show an agreement, or meeting of
the minds, in January 2004 about an extension of the due date in
Rec. Doc. No. 160-3, at 17-19.
As set forth above, Defendants have raised several challenges
to the authenticity of the documents relied upon by Core, which
call into question whether Core can prove the content and terms of
inappropriate to grant summary judgment on the basis that the parol
evidence rule bars any evidence regarding an alleged oral agreement
Defendants have provided competent testimonial evidence that Core,
through its president, verbally agreed with both McIntire and Dart
that after the initial three year term of the first advance, the
loan would be renegotiated and extended depending on the status of
the Underlying Litigation. Rec. Doc. No. 169, at 12; Rec. Doc. No.
173, at 19-20.
For the following reasons, however, the McIntire Defendants’
Counterclaim based on Core’s alleged agreement to fund a line of
credit up to $500,000 is dismissed.
Core claims that it faxed
McIntire a letter regarding an offer for such line of credit, which
stated that the agreement would become effective upon the return of
conditions by both the McIntire and Dart Defendants. Rec. Doc. No.
160-3, at 21.
While the McIntire Defendants claim that McIntire
believes he did in fact sign the line of credit agreement, Dart
explicitly stated in his deposition that he never signed it.
Doc. No. 160-3, at 22; Rec. Doc. No. 169, at 13.
The McIntire Defendants nevertheless argue that “Core and
McIntire had a firm verbal agreement as of January 2004 that Core
would fund all assessments made in the Underlying Litigation, up to
Rec. Doc. No. 169, at 13.
Yet, under Ohio law, “[a]n
alleged oral contract is unenforceable pursuant to the Statute of
Frauds contained in R.C. § 1335.05 where the agreement is not to be
fully performed within a one-year period.” ZBS Industries, Inc. v.
Anothony Cocca Videoland, Inc., 637 N.E.2d 956, 959 (Ohio Ct. App.
1994) (citing Shepherd v. Westlake, 600 N.E.2d 1095 (Ohio Ct. App.
1991); DeCavitch v. Thomas Steel Strip Corp., 585 N.E.2d 879 (Ohio
Ct. App. 1990); Pullar v. Upjohn Health Care Serv., Inc., 488
N.E.2d 486 (Ohio Ct. App. 1984)).
As the McIntire Defendants
consistently maintained that the Underlying Litigation would not be
concluded in one year and considering that the conditions of the
commitment to pay one’s share of costs only if the initial fund
should become exhausted, the agreement clearly was not intended to
be fully performed within a one-year period. Rec. Doc. No. 169, at
Indeed, the McIntire Defendants did not request another
loan from Core until March 2005 when they requested $10,000 and
then in August 2005 when they requested $45,000.
Rec. Doc. No.
160-3, at 20-21. Accordingly, such agreement was required to be in
writing to be enforceable, and therefore summary judgment regarding
the alleged $500,000 line of credit is appropriate.
III. McIntire Defendants’ Motion to Sever or Bifurcate Counterclaim
The McIntire Defendants’ seek to sever the trial of their
counterclaim from the trial of the main demand in this action, or
alternatively to bifurcate the damages aspect of the counterclaim
counterclaim, or at least the damages aspect thereof, is not ripe
for trial at this time.
167-1, at 1.
Rec. Doc. No. 167, at 1; Rec. Doc. No.
Specifically, the McIntire Defendants contend that
the economic loss allegedly suffered by their inability to advance
the full amount of litigation costs necessary to earn a higher
legal fee as part of the “25% Club,” which resulted from Core’s
breach of the parties’ alleged line of credit agreement, cannot be
quantified at this time because the Underlying Litigation is not
yet concluded and the final amount of attorneys’ fees payable has
not yet been finally determined.
Rec. Doc. No. 167-1, at 3-4.
However, this Court’s previous finding that the alleged line of
credit agreement is unenforceable and grant of Core’s Motion for
Summary Judgment dismissing the McIntire Defendants’ claims based
Accordingly, the motion is DISMISSED.
New Orleans, Louisiana, this 11th day of May, 2011.
United States District Judge
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