Fourteen Corporation v. Magnoli, Jr. et al
Filing
20
Memorandum and Order Granting Plaintiff's 8 Motion for Summary Judgment and Denying Defendants' 13 Motion for Abstention or Stay the Case. Signed by District Judge Avern Cohn. (SCha)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
FOURTEEN CORPORATION, an
Ohio corporation,
Plaintiff,
vs.
Case No. 13-11803
MICHAEL MAGNOLI, Jr., an individual,
and MICHAELANGELO CONSTRUCTION
COMPANY, a Michigan corporation,
HON. AVERN COHN
Defendants.
______________________________________/
MEMORANDUM AND ORDER
GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT (Doc. 8)
AND
DENYING DEFENDANTS’ MOTION FOR ABSTENTION OR STAY THE CASE (Doc.
13)
I. Introduction
This is an action to enforce guaranty obligations in a bank loan and mortgage.
As will be explained, the loan transaction at issue has resulted in cases in state, federal,
and bankruptcy court. In this case, plaintiff Fourteen Corporation (Fourteen), the holder
by assignment, is suing defendants Michael Magnoli Jr. (Magnoli) and Michaelangelo
Construction Company (MCC) to enforce a separate guaranty obligations relating to the
Villages of Capital Pointe, LLC (Villages), who defaulted on a $8,000,000 loan originally
issued by Fidelity Bank and later assigned to Huntington National Bank (Huntington).
Magnoli is the member of Villages and president of MCC.
Before the Court is Fourteen’s motion for summary judgment, seeking judgment
that Magnoli and MCC are liable on the guaranty. While Fourteen has set forth the
amount it says is owing, it is not seeking summary judgment on damages.
Also before the Court is defendants’ motion for abstention or stay the case.
Defendants ask the Court to stay this action pending resolution of a separate action
Villages initiated in state court against Huntington.
For the reasons that follow, defendants’ motion to stay will be denied and
Fourteen’s motion for summary judgment will be granted.
II. Background
A. The Loan
On October 30, 2007, Villages obtained an $8,000,000 loan from Fidelity in
connection with a real estate development in Washington Township which consists of a
commercial building and 48 residential units. The loan is evidenced in a promissory
note signed by Villages. The maturity date under the note was January 1, 2013.
As security for the loan, Villages granted Fidelity a Future Advanced Mortgage
(mortgage) on the property. The mortgage contains a provision, found in section 14, in
which Villages assigned its “right, title and interest in and to any and all rents, issues
and profits . . . that in any way pertain to or are on account of the use or occupancy of
the whole or any part of the Property.” Section 14 also states that the assignment of
rests applies “only if this Mortgage secures commercial or industrial property other than
an apartment building with less than six apartments or any family residence.”
Villages also, on October 30, 2007, executed a Construction Loan Agreement
which contained additional terms and conditions relative to the loan.
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Also on October 30, 2007, each defendant executed a guaranty in which they
“unconditionally” guaranteed payment of Villages’ indebtedness to Fidelity when due. In
each guaranty, a defendant agreed to
waive any and all defenses, claims and discharges of [Villages] or any other
obligor, pertaining to Indebtedness, except the defense of discharge by payment
in full
In each guaranty, each defendant further agreed that it would
not assert, plead or enforce against [Fidelity] any defense of waiver, release,
statute of limitations, res judicata, statute of frauds, fraud, incapacity, minority,
usury, illegality or unenforceability which may be available to [Villages] or any
other person liable in respect of any Indebtedness, or any setoff available against
[Fidelity] to [Villages] or any such other person, whether or note on account of a
related transaction.
In 2012, Fidelity was closed by the Michigan Office of Financial Regulation. The
FDIC was then appointed receiver of Fidelity. The FDIC, as receiver, then entered into
a Purchase and Assumption Agreement with Huntington, under which it sold Fidelity’s
rights to the loan at issue to Huntington. Huntington later assigned its interest in the
loan to Fourteen, a wholly-owned subsidiary of Huntington. The assignment of the
mortgage was recorded. The record contains, inter alia, a copy of the note, Magnoli’s
and MCC’s guaranties, the assignment of Fidelity’s interest in the mortgage from the
FDIC to Huntington and other related assignment documents, a notice of Villages’
default, a notice of the assignments of rents, and a document showing Fourteen is a
subsidiary of Huntington
B. Demands for Payment
On January 11, 2013, counsel for Fourteen and Huntington sent a demand letter
to Villages and defendants, stating the loan was in default for failing to pay on the note
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upon maturity. Fourteen demanded payment in full from Villages and defendants.
Shortly thereafter, Huntington attempted to collect rents from the property in
accordance with the mortgage, evidenced by its filing of a Notice of Exercise of
Assignments of Rents on April 11, 2013.
C. The Lawsuits
On April 12, 2013, before Huntington collected any rents, Villages sued
Huntington in Macomb County Circuit Court, challenging Huntington’s ability to collect
rents under the assignment of rents provision. Villages asserts that the property
actually contains 48 family residential condominiums which are not subject to the
assignment of rents provision. The complaint asserts the following claims: (1) breach of
contract, (2) conversion, (3) tortious interference with a contract, and (4) injunctive relief.
Villages also moved for a TRO preventing the assignment of rents. The state
court entered a TRO on April 12, 2013. A hearing on the TRO was set for April 25,
2013.
Meanwhile, on April 22, 2013, Fourteen filed this case against defendants. The
complaint makes a single claim for breach of the guaranties.
On April 25, 2013, the date for the TRO hearing, Villages filed a petition for
bankruptcy under Chapter 11. In re Villages, case no. 13-48429.
On June 11, 2013, Fourteen filed for summary judgment in this case.
On June 12, 2013, Huntington removed the state court case to the bankruptcy
court as an adversary proceeding. Villages v. Huntington, Adv. P. No. 13-4679.
On June 26, 2013, Villages filed a motion to abstain and remand the adversary
proceeding to state court. Huntington opposed the motion.
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On July 12, 2013, Villages filed a motion to withdraw the reference in the
adversary proceeding.
Also on July 12, 2013, defendants filed a motion for abstention or to stay this
case pending resolution of Villages v. Huntington.
On July 31, 2013, the bankruptcy court adjourned a hearing on the motion to
abstain or remand the adversary proceeding pending resolution of Villages’s motion to
withdraw the reference.
On August 5, 2013, the motion to withdraw the reference was opened in this
district as Villages v. Huntington, case no. 13-13334. It was later reassigned to the
undersigned as a companion to this case.
On August 21, 2013, the Court held a hearing on the pending motions in this
case and a status conference with the parties in Villages v. Huntington. After the status
conference, the Court entered an order granting Huntington’s motion to withdraw the
reference, thereby placing Villages v. Huntington squarely on the Court’s docket.1
III. Analysis
A. Motion for Abstention or Stay
1. Legal Standards
Defendants invoke the abstention doctrine in Colorado River Water Conservation
Dist. v. United States, 424 U.S. 800 (1976). In Colorado River, the Supreme Court held
that in "exceptional" circumstances, a federal district court may stay or dismiss an action
solely because of the pendency of similar litigation in state court. Id. at 818. The
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The Court has entered an order denying Villages’ motion to abstain or remand.
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Supreme Court held that "considerations of 'wise judicial administration, giving regard to
conservation of judicial resources' " created a narrow exception to the "virtually
unflagging obligation of the federal courts to exercise the jurisdiction given them." Id. at
817. The principles underlying this doctrine "rest on considerations of '[w]ise judicial
administration, giving regard to conservation of judicial resources and comprehensive
disposition of litigation.'” Id. In this circuit, a court applying Colorado River must stay,
not dismiss, the case. See Bates v. Van Buren Twp., 122 Fed. Appx. 803, 809 (6th Cir.
2004)
Before the Colorado River doctrine can be applied, the Court must first determine
that the concurrent state and federal actions are actually parallel. See Crawley v.
Hamilton County Comm'rs, 744 F.2d 28 (6th Cir. 1984). “[E]xact parallelism” is not
required: [i]t is enough if the two proceedings are substantially similar.” Nakash v.
Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). Once a court has determined there are
parallel proceedings, the Supreme Court identified eight factors that a district court must
consider when deciding whether to abstain from exercising its jurisdiction due to the
concurrent jurisdiction of state court. PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206
(6th Cir.2001). Those factors are:
(1) whether the state court has assumed jurisdiction over any res or property; (2)
whether the federal forum is less convenient to the parties; (3) avoidance of
piecemeal litigation; (4) the order in which jurisdiction was obtained; (5) whether
the source of governing law is state or federal; (6) the adequacy of the state court
action to protect the federal plaintiff's rights; (7) the relative progress of state and
federal proceedings; and (8) the presence or absence of concurrent jurisdiction.
Id.
2. Application
As Fourteen points out, defendants’ request is flawed because there is no
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parallel state court proceeding. Villages v. Huntington was filed in state court, but it is
not a state court case; it is a case in this district, pending before the undersigned. Thus,
Colorado River does not apply. See Gottfried v. Medical Planning, 142 F.3d 326, 329
(6th Cir. 1998) (finding Colorado River abstention inappropriate because “where there is
no presently ongoing state proceeding parallel to the federal case, the exceptional
circumstances necessary for Colorado River abstention do not exist).
Additionally, Villages v. Huntington does not involve the same issue. While the
parties are related inasmuch as Villages is owned and/or controlled by defendants here,
the claim in this case is to enforce the guaranties executed by defendants. In Villages v
Huntington, the issue is whether the assignments of rents provision applies under the
circumstances. As explained below, defendants have waived any right they may have
individually to challenge Huntington’s actions. Put simply, there is no basis to abstain or
stay this action.
B. Fourteen’s Motion for Summary Judgment
A. Legal Standard
"The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56(a). A moving party may meet that burden "by
'showing'-that is, pointing out to the district court-that there is an absence of evidence to
support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325
(1986).
Revised Rule 56 expressly provides that:
A party asserting that a fact cannot be or is genuinely disputed must support the
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assertion by:
(A) citing to particular parts of materials in the record, including depositions,
documents, electronically stored information, affidavits, or declarations,
stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence of
a genuine dispute, or that an adverse party cannot produce admissible evidence
to support a fact.
Fed. R. Civ. P. 56(c)(1).2
The revised Rule also provides the consequences of failing to properly support or
address a fact:
If a party fails to properly support an assertion of fact or fails to properly address
another party's assertion of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address the fact;
(2) consider the fact undisputed for purposes of the motion;
(3) grant summary judgment if the motion and supporting materials-including the
facts considered undisputed-show that the movant is entitled to it; or
(4) issue any other appropriate order.
Fed. R. Civ. P. 56(e). "The court need consider only the cited materials, but it may
consider other materials in the record." Fed. R. Civ. P. 56(c)(3).
When the moving party has met its burden under Rule 56, "its opponent must do
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Plaintiff argues that documents attached to defendant’s motion cannot be
considered because they are not properly authenticated and or are otherwise
inadmissible. Plaintiff is mistaken. The documents attached as exhibits consist of (1)
documents attached as exhibits to plaintiff’s complaint, (2) documents recorded with the
Livingston County Register of Deeds, (3) copies of documents filed in plaintiff’s
Bankruptcy proceeding, and (4) a copy a transcript from plaintiff’s deposition. All of
these documents are properly considered on a motion for summary judgment; indeed,
some may be considered on a motion to dismiss.
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more than simply show that there is some metaphysical doubt as to the material facts."
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Ultimately
a district court must determine whether the record as a whole presents a genuine issue
of material fact, id. at 587, drawing "all justifiable inferences in the light most favorable
to the non-moving party, Hager v. Pike Cnty. Bd. of Ed., 286 F.3d 366, 370 (6th Cir.
2002).
B. Application
Fourteen relies on the language of the guaranties to argue that they
unambiguously provide that defendants are liable for Villages default and they have
waived any defenses to enforcement.
In response, defendants argue that they need discovery as to the “chain of title”
and damages. They also take issue with the Declaration of Matthew Wilk, a Vice
President of Huntington and a Vice President of Fourteen. They also suggest that
Villages’ claims against Huntington relative to its ability to collect rents have some
bearing on their obligations under the guaranties.
Defendants’ arguments do not carry the day. As to a need for discovery,
defendants have not stated what discovery is necessary in order to defend against
enforcement of the guaranties. To the extent they argue that Fourteen does not have a
valid interest based on the assignment, the record belies this assertion. Attached as
Exhibit C to Fourteen’s reply are all the assignment documents, including Huntington’s
assignment of the note and loan documents to Fourteen. The guaranties at issue are
specifically listed as part of the loan documents subject to the assignment. Even if the
guaranties were not so listed, under Michigan law an assignment of a promissory note
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has the effect of also assigning a guaranty of that promissory note, even if there is no
specific assignment of the guaranty. See Aiton v. Slater, 298 Mich. 469, 299 N.W. 149,
153–54 (1941) (finding guaranty agreement attached to bond was enforceable by the
holder of the bond, and “it was immaterial that the guaranty was not assigned at the
same time the notes were, as the assignee had the same rights to subject the securities
to payment of the debts as the assignor had”). Thus, despite defendants’ protestations
to the contrary, the “chain of title” and Fourteen’s right to enforce the guaranties is found
in the record.
Regarding discovery as to damages, defendants’ request is premature inasmuch
as Fourteen has not moved for summary judgment on damages; rather, it has moved
for summary judgment on liability.
As to the enforceability of the guaranties, defendants do not dispute that they
signed the guaranties or that the loan at issue is in default. The language of the
guaranties, some of which is noted above, leads to the conclusion that they are
enforceable.
Defendants appear to suggest that Villages’ claims against Huntington have
some relevance to their obligations. They are mistaken. The guaranties states that
they “absolutely and unconditionally guarantee[d] to [the lender] the full and prompt
payment when due, whether at maturity or earlier . . of the debts, liabilities and
obligations” arising under the loan. They also agreed that “[n]o act or thing need occur
to establish the liability of [defendants] hereunder, and no act or thing, except full
payment and discharged of all Indebtedness, shall in any way exonerate [defendants] or
modify, educe, limit or release the liability of [defendants] hereunder.” Defendants also
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waived all defenses, including setoff and any defenses available to Villages. The waiver
provision, states that defendants:
waiv[ed] any all defenses, claims and discharges of [Villages] or any obligor,
pertaining to Indebtedness, except the defense of discharge by payment in full.
Without limiting the generality of the foregoing, [defendants] will not assert, plead
or enforce against [Fidelity] any defense of waiver, release, statute of limitations,
res judicata, statute of frauds, fraud, incapacity, minority, usury, illegality or
unenforceability which may be available to [Villages] or any other person liable in
respect of any Indebtedness, or any setoff available against [Fidelity] to [Villages]
or any such other person, whether or note on account of a related transaction.
[Defendants] further agree[d] that the[y] shall be and remain obligated to pay
Indebtedness even though any other person obligated to pay Indebtedness,
including [Villages], has such obligation discharged in bankruptcy or otherwise
discharged by law.
The clear import of this language is that the only available defense to
enforcement is that full payment has been made. However, it is undisputed that the
loan is in default. Therefore, this defense is not available.
Finally, defendants’ attack on Wilk’s declaration falls short. The declaration is
admissible as he is a Vice President of both Huntington and Fourteen with knowledge of
the loan documents. Wilk’s declaration simply sets forth the foundation for the loan
documents, which are themselves admissible as business records. See Fed. R. Evid.
803(6).
In short, defendants have not put forth any valid argument to defeat Fourteen’s
motion for summary judgment to enforce the guaranties.
IV. Conclusion
For the reasons stated above, defendants’ motion for abstention or stay of case
is DENIED. Fourteen’s motion for summary judgment is GRANTED.
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SO ORDERED.
S/Avern Cohn
AVERN COHN
UNITED STATES DISTRICT JUDGE
Dated: August 28, 2013
I hereby certify that a copy of the foregoing document was mailed to the attorneys of
record on this date, August 28, 2013, by electronic and/or ordinary mail.
S/Sakne Chami
Case Manager, (313) 234-5160
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