Western Security Bank v. Schneider Limited Partnership et al
Filing
30
FINDINGS AND RECOMMENDATIONS re 12 MOTION for Summary Judgment (Schneider Limited Partnership) filed by Western Security Bank, 17 MOTION to Stay Action Pending Arbitration filed by Big Horn Basin Bone and Joint, LLC, J ay Winzenreid, M.D., Stephen Emery. IT IS RECOMMENDED that Defendants Motion to Stay Action Pending Arbitration (ECF 17) be DENIED. IT IS FURTHER RECOMMENDED that WSB's motion for partial summary judgment on liability (ECF 12) be GRANTED. Signed by Magistrate Judge Carolyn S Ostby on 5/6/2015. (JDH, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
WESTERN SECURITY BANK, A
Division of Glacier Bank,
CV 15-10-BLG-SPW-CSO
FINDINGS AND
RECOMMENDATION OF
U.S. MAGISTRATE JUDGE
Plaintiff,
vs.
SCHNEIDER LIMITED
PARTNERSHIP, JAY
WINZENREID, M.D., STEPHEN
EMERY, BIG HORN BASIN BONE
AND JOINT, LLC, ANDREW
BAKER, DANIEL MATTSON,
Defendants.
This action arises from commercial guaranty agreements. Now
pending are:
(1) Plaintiff Western Security Bank’s (“WSB”) Motion for
Summary Judgment (ECF 12) against Defendant Schneider
Limited Partnership (“Schneider”) as to Count 1 of the Complaint,
and
(2) Defendants Jay Winzenried, Stephen Emery, and Big Horn
Basin Bone and Joint, LLC’s (“Moving Defendants”) Motion to
Stay Proceedings (ECF 17).
Having reviewed the arguments and the applicable law, the Court
recommends as follows.
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I.
BACKGROUND
In December 2011, WSB entered into loan agreements with
Meridian Surgical Partners, LLC and affiliates, and Omni Funding
Corp., together with defendants Schneider, Andrew Baker, Daniel
Mattson, Jay Winzenreid, Stephen Emery, and Big Horn Basin and
Joint, LLC. Pursuant to these agreements, WSB loaned more than $2.0
million for construction of an ambulatory surgical center in Billings,
Montana. ECF 15 at 2.
Schneider and the Moving Defendants each executed an
unconditional Commercial Guaranty Agreement, which guaranteed a
certain percent of the debt owed to WSB by Omni. ECF 18-1. Omni
defaulted on the loan in September 2013, and WSB now seeks to
recover against the defendants for the money owed under the Guaranty
Agreements. WSB has previously settled its claims against the
Meridian entities, Daniel Mattson, and Andrew Baker. ECF 15 at 3.
Jurisdiction in this action rests on diversity. The case was
removed from state court in February 2015. ECF 1. The pending
motions were filed in March. The Court will first address the motion to
stay proceedings.
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II. MOTION TO STAY
A.
PARTIES’ ARGUMENTS
In February 2014, the Moving Defendants filed a Demand for
Arbitration with the American Arbitration Association, naming
Meridian Surgical Partners-Montana, LLC and Meridian Surgical
Partners, LLC, as respondents. ECF 23-3. The arbitration is currently
pending. The Moving Defendants argue that this case should be
indefinitely stayed pending resolution of the arbitration between them
and Meridian. Defendants argue that the operative facts in the
arbitration are based on Meridian’s failure to obtain a transfer
agreement with a local Billings hospital in order to open the ambulatory
surgical center. They argue that Meridian fraudulently induced them
to move forward with the financing of the ASC by misrepresenting to
them that Meridian had obtained a transfer agreement when in fact it
had not. ECF 18 at 24–25. They argue that both this action and the
arbitration are about the damages they suffered as a result of reliance
on the actions of Meridian, and that determination of liability and
assessment of damages, including payment to WSB, will be resolved in
the pending arbitration. Id. at 26.
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The Moving Defendants further argue that a stay is warranted
under either the mandatory grounds of the Federal Arbitration Act
(“FAA”), 9 U.S.C § 3, or in the exercise of the Court’s discretion. Id. at
24. They argue that a decision made in this proceeding could be used
against them in the pending arbitration, there is the potential for
contradictory findings, and WSB faces virtually no hardship based on
the delay. ECF 18 at 36.
WSB responds that the FAA is inapplicable because compelled
arbitration is not sought in this case, nor could it be. ECF 23 at 7.
WSB is not contractually bound by a written arbitration agreement. Id.
at 8.
WSB agrees that the standards for a discretional stay could apply
here, but argues that the Moving Defendants have not met their
burden. WSB argues that they seek an indefinite stay, which could put
the case on hold for months or even years. Id. at 10–11. WSB argues
that the monetary recovery sought in this case is not intertwined with
the issues to be arbitrated, and that the resolution of the arbitration
has no bearing on this Court’s adjudication of WSB’s claims. Id. at 11. If
anything, WSB argues that a decision in this case would only cement
the damages incurred by the Defendants, helping the arbitration, with
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no risk of inconsistent results. Id at 16, 19. WSB argues that the
allegations made in the Defendants’ motion indicate the need for
discovery to start. Id. at 15. Nonetheless, WSB also represents that it
does not presently plan to seek substantive ruling from this Court until
after the arbitration concludes. See ECF 23 at 6–7.
B.
LEGAL STANDARD
The Supreme Court has emphasized that “[a]rbitration is strictly
a matter of consent and thus is a way to resolve those disputes—but
only those disputes—that the parties have agreed to submit to
arbitration.” Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 741–
742 (9th Cir. 2014) (quoting Granite Rock Co. v. Int’l Bhd. of Teamsters,
561 U.S. 287, 299 (2010) (emphasis in original) (internal quotation
marks and citations omitted)). In determining whether parties have
agreed to submit to arbitration, courts are to “apply general state-law
principles of contract interpretation, while giving due regard to the
federal policy in favor of arbitration by resolving ambiguities as to the
scope of arbitration in favor of arbitration.” Id. (quoting Mundi v.
Union Sec. Life Ins. Co., 555 F.3d 1042, 1044 (9th Cir. 2009) (internal
quotation marks and citations omitted)). Once a dispute is referred to
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arbitration, a suit may be stayed for the pendency of the arbitration.
Specifically, the FAA provides that:
If any suit or proceeding be brought in any of the courts of
the United States upon any issue referable to arbitration
under an agreement in writing for such arbitration, the
court in which such suit is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to
arbitration under such an agreement, shall on application of
one of the parties stay the trial of the action until such
arbitration has been had in accordance with the terms of the
agreement, providing the applicant for the stay is not in
default in proceeding with such arbitration.
9 U.S.C. § 3.
In addition to stays granted under the FAA, a stay may be
granted based on the discretion of the Court. The U.S. Supreme Court
announced the general principle that district courts have inherent
power to control their dockets and promote efficient use of resources “for
itself, for counsel, and for litigants.” Landis v. North American Co., 299
U.S. 248, 254 (1936). A district court thus enjoys discretion to stay
proceedings in its own court when appropriate. Id.; Dependable
Highway Express, Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th
Cir. 2007); Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005).
But the Ninth Circuit Court of Appeals cautions that it reviews a
district court’s exercise of discretion in entering a stay order under a
“somewhat less deferential” standard than the abuse-of-discretion
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standard employed in other contexts. Dependable Highway, 498 F.3d at
1066 (citation omitted).
In Landis, the Supreme Court provided the following guidance for
courts considering motions for stay orders and observed that the
analysis requires balancing the benefits of a stay with any hardship a
stay may impose:
[A party seeking] a stay must make out a clear case of
hardship or inequity in being required to go forward, if there
is even a fair possibility that the stay for which he prays will
work damage to someone else. Only in rare circumstances
will a litigant in one cause be compelled to stand aside while
a litigant in another settles the rule of law that will define
the rights of both.
Landis, 299 U.S. at 255.
The Ninth Circuit has refined the Landis standard with the
following factors courts should consider: (1) generally, “stays should not
be indefinite in nature” and “should not be granted unless it appears
likely the other proceeding will be concluded within a reasonable
time[,]” Dependable Highway, 498 F.3d at 1066 (citing Leyva v. Certified
Grocers of California, Ltd., 593 F.2d 857, 864 (9th Cir. 1979)); (2) courts
more appropriately enter stay orders where a party seeks only damages,
does not allege continuing harm, and does not seek injunctive or
declaratory relief since a stay would result only in delay in monetary
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recovery, Lockyer, 398 F.3d at 1110 (citing CMAX, Inc. v. Hall, 300 F.2d
265, 268-69 (9th Cir. 1962)); (3) stays may be appropriate if resolution
of issues in the other proceeding would assist in resolving the
proceeding sought to be stayed, id. at 1110–1111 (citing CMAX, 300
F.2d at 269); and (4) stays may be appropriate for courts’ docket
efficiency and fairness to the parties pending resolution of independent
proceedings that bear upon the case, “whether the separate proceedings
are judicial, administrative, or arbitral in character, and [such stays do]
not require that the issues in such proceedings are necessarily
controlling of the action before the court.” Id. at 1111 (citing Leyva, 593
F.2d at 863–864).
C.
DISCUSSION
While the FAA instructs courts to stay disputes covered by an
arbitration clause until after the arbitration has been conducted, the
parties here are not moving to compel arbitration or to involve WSB in
the current arbitration. The commercial guaranties at issue do not
contain arbitration clauses. ECF 18-1.
This action is based on WSB’s claims to payment under the
Commercial Guaranty Agreements that the Moving Defendants each
signed. The arbitration, however, involves the Moving Defendants’
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claims for compensatory and incidental damages against respondents –
who are not parties before the Court in this action. Although the
arbitration apparently involves claims which relate to transactions
pertaining to the construction of the ambulatory surgery center in
Billings, Montana, the Moving Defendants have not shown that the
arbitration would be hindered by further proceedings in this case. The
FAA does not require a stay.
Finding that a stay under the FAA is inapplicable, the Court next
has considered whether a discretionary stay is appropriate. Based on
the Landis factors, the Court concludes that a stay would be
inappropriate for three reasons. First, the stay requested by the
Defendants would be indefinite in nature. The arbitration was already
extended once (ECF 24 at 6) and there is no specific timeframe for a
resolution. See ECF 24-1. WSB is not a party to the arbitration, yet a
stay would indefinitely prevent WSB from seeking resolution of its
claims here. Second, the resolution of the arbitration will not resolve
any disputed issues in this case. The arbitration will not alter the
Moving Defendants’ obligations under the Guarantee Agreements.
Finally, while this case does involve monetary damages alone, efficiency
and fairness weigh in favor of denying the stay.
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Thus, the Moving Defendants have not met their burden of
demonstrating that a stay is necessary or advisable in this case.
Therefore, it will be recommended that the motion to stay this action be
denied.
II.
MOTION FOR SUMMARY JUDGMENT
A.
PARTIES’ ARGUMENTS
WSB argues that it is entitled to summary judgment against
Schneider on the first count in the Complaint. It argues that the
Guaranty language is unambiguous and the law mandates entry of
summary judgment. Specifically, WSB argues that in its Commercial
Guaranty, Schneider “absolutely and unconditionally guarantees full
and punctual payment and satisfaction of its Share of the
Indebtedness.” ECF 13 at 5. WSB argues that Schneider contractually
agreed WSB could look to Schneider for repayment irrespective of any
other sources of repayment, and that only amounts actually paid by
others would operate to reduce the debt. ECF 13 at 6. WSP argues it is
entitled, as a matter of law, to recover 28.75% of unpaid indebtedness
from Schneider as a result of the Guaranty. ECF 13 at 6–7.
Finally, WSB argues that even though Schneider’s Answer to the
Complaint suggests that Schneider meant to guarantee the debt of
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another entity, that argument should be rejected. It argues that the
agreement is clear and that because the unambiguous agreement was
reduced to writing, the Court cannot look to extrinsic evidence in
determining the intent of Schneider.
B.
SUMMARY JUDGMENT 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
party seeking summary judgment always bears the initial responsibility
of informing the court of the basis for its motion, and identifying those
portions of the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact. Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those
which may affect the outcome of the case. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine
if there is sufficient evidence for a reasonable fact-finder to return a
verdict for the nonmoving party. Id. If the moving party meets its
initial responsibility, the burden then shifts to the opposing party to
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establish that a genuine issue of fact exists. Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
C.
DISCUSSION
Under applicable Montana law, the construction and
interpretation of a contract is a question of law. Corp. Air v. Edwards
Jet Ctr., 190 P.3d 1111, 1120 (Mont. 2008). Once a contract is reduced
to writing, the intention of the parties is to be ascertained from the
writing alone, where possible. M.C.A. § 28–3–303. The language of a
contract is to govern its interpretation if the language is clear and
explicit and does not involve an absurdity. M.C.A. § 28–3–401.
Whether there is ambiguity in a contract is also a question of law.
Corp. Air, 190 P.3d at 1121. Ambiguity must be determined on an
objective basis, and mere disagreement as to the interpretation of a
written instrument is not sufficient to create an ambiguity. Id. Absent
ambiguity, the Court must apply the language as written. Id.
The Schneider Guaranty clearly lists the borrower as Omni
Funding Corp., the Lender as Western Security Bank, and the
Guarantor as Schneider Limited Partnership. ECF 15-1 at 1. The
Guaranty states that the Guarantor, Schneider, “absolutely and
unconditionally guarantees full and punctual payment and satisfaction
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of Guarantor’s Share of the Indebtedness of Borrower to Lender, and
the performance and discharge of all Borrower’s obligations under the
Note and Related Documents.” Id. Additionally, the agreement
specifies that:
This is a guaranty of payment and performance and not of
collection, so Lender can enforce this Guaranty against
Guarantor even when Lender has not exhausted Lender’s
remedies against anyone else obligated to pay the
Indebtedness or against any collateral securing the
Indebtedness, this Guaranty or any other guaranty of the
Indebtedness.
*****
Guarantor’s Share of the Indebtedness will only be reduced
by sums actually paid by Guarantor under this Guaranty,
but will not be reduced by sums from any other source
including, but not limited to, sums realized from any
collateral securing the Indebtedness or this Guaranty, or
payments by anyone other than Guarantor . . . . Lender has
the sole and absolute discretion to determine how sums shall
be applied among guaranties of the Indebtedness.
Id. As a result of the language in the Guaranty, WSB argues that it is
entitled to recover 28.75% of the unpaid indebtedness from Schneider
under the Guaranty. Schneider has not responded to WSB’s motion.
Schneider, in its Answer to the Complaint, states that “the intent
of the guaranty was to guarantee the debts of ONI LLC, and not OMNI
Funding Corp.” ECF 5 at ¶18. But Schneider has not raised any
genuine issues of material fact by way of a response brief or a
Statement of Disputed Facts. See Local Rule 56.1(b). The contract
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explicitly states the Borrower’s name, Omni Funding Corp. ECF 15-1 at
1. Schneider has failed to provide any evidence demonstrating
ambiguity, and the language of the agreement is clear as to the identity
of the parties. Thus, the Court recommends that WSB’s motion for
partial summary judgment on liability be granted.
III. CONCLUSION
Based on the foregoing,
IT IS RECOMMENDED that Defendants’ Motion to Stay Action
Pending Arbitration (ECF 17) be DENIED.
IT IS FURTHER RECOMMENDED that WSB’s motion for partial
summary judgment on liability (ECF 12) be GRANTED.
NOW, THEREFORE, IT IS ORDERED that the Clerk shall serve
a copy of the Findings and Recommendation of United States
Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the findings and
recommendation must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after entry hereof,
or objection is waived.
DATED this 6th day of May, 2015.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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