Budget Inns of Bridgeport, LLC v. Patel
ORDER granting in part and denying in part 20 Motion for Summary Judgment. Signed by Judge Donald W. Molloy on 1/5/2015. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUDGET INNS OF BRIDGEPORT,
Plaintiff Budget Inns of Bridgeport, LLC (“Budget Inns”) filed this action
seeking a declaration that Defendant Rohit Patel (“Patel”) is in default of his
guaranty obligations related to a lease and agreement entered into in Michigan.
(Compl., Doc. 1.) Budget Inns also seeks judgment against Patel in the amount of
$2,707,111.47 (joint and several with his co-guarantors) and an award of
attorneys’ fees, costs, and interest. (Id.) Now before the Court is Budget Inns’s
Motion for Summary Judgment. (Doc. 20.) The Court has jurisdiction under 28
U.S.C. § 1332(a)(1). The motion is granted in part and denied in part.
Budget Inns owns commercial property located at 6379 Dixie Highway,
Bridgeport, Michigan (the “Property”). (Patel SDF, Doc. 30 at ¶ 1.) On July 5,
2012, Budget Inns, as Landlord, entered into a lease of the Property with
Bridgeport Hospitality, LLC (“Bridgeport”), as Tenant, for a term of 10 years
ending on July 4, 2022 (the “Lease”).1 (Id. at ¶ 2.) The Lease provided for
personal guarantees in Section 16.1 (the “Guaranty”):
In consideration of Landlord’s agreement to lease to Tenant, Tenant’s
full and timely performance of this Lease shall be guaranteed as set forth
in the Guaranty set forth below.
(Id. at ¶ 3; Lease, Doc. 23-1 at 17–18.) Five individuals, including Patel, executed
the Guaranty (the “Guarantors”). (Doc. 30 at ¶ 4; Doc. 23-1 at 17.) The Guaranty
[T]he undersigned, Vellaichamy Muthukumar, Manjula Jothi
Muthukumar, Rohit Patel, Nainesh Patel and Alopi Patel (collectively,
“Guarantor”), irrevocably guarantees to Landlord the full and prompt
payment when due and at all times thereafter of Rent (as defined in the
In his Statement of Disputed Facts, Patel disputes whether Bridgeport entered into the
Lease because Alopiben Patel, who executed the Lease on behalf of Bridgeport, “was not a
member of” Bridgeport and lacked authority to execute the Lease. (Doc. 30 at ¶ 2.) However,
Patel does not offer further argument on this contention in his briefs. In his Amended Answer,
Patel admitted that Bridgeport entered into the Lease but also asserted as an affirmative defense
that “[d]iscovery may disclose that the Lease is not a valid and enforceable agreement.”
(Answer, Doc. 19 at 2, 3.) In his Preliminary Pretrial Statement, Patel raised this issue and filed
the 2012 federal tax return and Operating Agreement of Bridgeport in support. (Docs. 11 at 2, 5,
11; 11-1; 11-2.) The tax return and Operating Agreement identify Bluewater Hospitality, LLC as
the Manager of Bridgeport. Patel contends only Bluewater Hospitality could execute the Lease
on behalf of Bridgeport, but he has not put forth any affidavits or evidence demonstrating that
Alopiben Patel did not have authority to sign on behalf of Bluewater Hospitality. Budget Inns
has not addressed the issue in any of its filings. Given Patel’s failure to brief this issue and put
forth any supporting affidavits or evidence, this issue does not present a genuine factual dispute.
Lease) and all other existing and future indebtedness and liabilities of
every nature and kind, now or hereafter owing from Tenant, its
successors and assigns to Landlord, and all interest and late charges
accrued thereon (the “Indebtedness”). Guarantor further guarantees the
full and timely performance and observance of all the covenants, terms,
conditions and agreements that Tenant, its successors and assigns must
perform pursuant to the Lease (this “Obligation”). The term “Lease” as
used in this Guaranty shall include the Lease and all renewals,
extensions and modifications thereof.
Guarantor guarantees that if Tenant, its successors or assigns shall for
any reason default under the Lease, including default in the payment of
Rent or Indebtedness or the performance of Obligations, Guarantor shall
forthwith, without further action by Landlord against Tenant, pay such
Rent or Indebtedness and arrears thereof to Landlord, and faithfully
perform and fulfill all obligations. Guarantor further guarantees to pay
Landlord all damages, including, without limitation, all attorneys’ fees
and expenses that may arise in consequence of any default by Tenant, its
successors or assigns under the Lease, and/or by the enforcement of this
Without affecting Guarantor’s obligations to Landlord hereunder,
Guarantor consents that Landlord may, in its sole discretion and without
notice to Guarantor, renew extend or modify th Lease at any time.
Guarantor waives: (a) notice of acceptance of this Guaranty by
Landlord; and (b) notice of presentment, demand for payment, protest,
or of action of any nature on any default under the Lease, including the
right to require Landlord to sue or otherwise to enforce payment of Rent
or Indebtedness or the performance of obligations under the Lease.
All of Landlord’s rights and remedies under the Lease and/or under this
Guaranty are intended to be distinct, separate and cumulative, and no
such right or remedy therein or herein mentioned, whether exercised by
Landlord or not, is intended to be in exclusion or a waiver of any of the
others. This Guaranty represents the entire agreement between
Guarantor and Landlord with respect to the subject matter hereof and
can only be modified, waived or terminated by a writing signed by
Landlord. This Guaranty shall be construed according to the laws of the
State of Michigan that are applied to guaranties made and to be
performed in that state.
If the Guarantor is more than one person, the liability of the undersigned
hereunder is joint and several. This Guaranty shall be binding upon the
Guarantor, and the Guarantor’s heirs, executors, administrators, legal
representatives, successors and assigns, and shall inure to the benefit of
Landlord, its successors and assigns.
(Doc. 30 at ¶ 5; Doc. 23-1 at 17–18.)
Following execution of the Lease and Guaranty, Bridgeport took possession
of the Property and began running its hotel. (Doc. 30 at ¶ 6.) In the fall of 2012,
Bridgeport defaulted on certain aspects of the Lease, in part, by failing to make
required payments. (Id. at ¶ 7.) On October 29, 2012, Budget Inns and Bridgeport
entered into an Agreement Regarding Lease and Guaranty Dated July 5, 2012 (the
“Agreement”). (Id. at ¶ 8; Agreement, Doc. 23-2.) The Agreement features
signatures by all five Guarantors, (Doc. 23-2 at 3); however, Patel insists his
signature is a forgery as he was never informed of the existence of the Agreement,
(Doc. 30 at ¶ 8; Patel Aff., Doc. 31 at ¶¶ 10, 11). The primary function of the
Agreement was to modify the payment schedule to enable Bridgeport to become
current on its payment obligations. (Doc. 30 at ¶ 10.) Bridgeport defaulted on its
payment obligations under the Lease and the Agreement by failing to timely make
the April 5, 2013 payment. (Id. at ¶ 11. ) Bridgeport again defaulted by failing to
make the August 5, 2013 payment. (Id. at ¶ 12.)
On September 11, 2013, Budget Inns filed suit in the Tenth Circuit for
Saginaw County in the State of Michigan against Bridgeport and the Guarantors to
recover amounts due and owing under the Lease (the “underlying action”). (Id. at
¶ 19; Underlying Compl., Doc. 23-5.) Bridgeport was evicted from the Property
on September 26, 2013. (Doc. 30 at ¶ 13; Or. of Eviction, Doc. 30-2.) After
Bridgeport and Guarantor Nainesh Patel failed to appear in the underlying action,
Budget Inns moved for a default judgment. On November 18, 2013, the Michigan
court held a hearing and entered Judgments against Bridgeport and Guarantor
Nainesh Patel in the amount of $2,707,111.47 plus costs, fees including
reasonable attorney fees, and statutory interest. (Doc. 30 at ¶¶ 20–22; Default
Judms., Docs. 23-7, 23-9.) On December 2, 2013, Patel was dismissed from the
underlying action for lack of personal jurisdiction, as he is a resident of Montana.
(Doc. 30 at ¶ 23; Or., Doc. 23-10.) On January 18, 2014, the Michigan court also
entered default judgment against Guarantor Alopi Patel. (Doc. 30 at ¶ 25.)
Guarantors Vellaichamy Muthukumar and Manjula Muthukumar appeared in the
suit and have subsequently on July 17, 2014, submitted a consent judgment
awarding Budget Inns $1,250,000. (Id. at ¶¶ 26, 27; Consent Judm., Doc. 30-5.)
On December 17, 2013, Budget Inns filed this action against Patel claiming
that, based on the default judgment entered by the Michigan court against
Bridgeport and under the terms of the Guaranty, Patel is jointly and severally
liable for the money owed by Bridgeport to Budget Inns. (Doc. 1.)
A party is entitled to summary judgment if it can demonstrate 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). Summary judgment is warranted where
the documentary evidence produced by the parties permits only one conclusion.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over
facts that might affect the outcome of the lawsuit will preclude entry of summary
judgment; factual disputes that are irrelevant or unnecessary to the outcome are
not considered. Id. at 248.
Whether Patel is liable to Budget Inns for Bridgeport’s liability.
Under Michigan law,2 “[c]ontracts of guaranty are to be construed like other
contracts, and the intent of the parties, as collected from the whole instrument and
the subject-matter to which it applies, is to govern.” Comerica Bank v. Cohen,
The parties agree that Michigan law applies to this dispute. (Br. in Support of Mot.,
Doc. 21 at 10; Br. in Opposition to Mot., Doc. 29 at 8 n. 1.)
805 N.W.2d 544, 548 (Mich. App. 2010) (internal quotation marks omitted).
[I]f contractual language is clear, construction of the contract is a
question of law for the court. If the contract is subject to two reasonable
interpretations, factual development is necessary to determine the intent
of the parties and summary disposition is therefore inappropriate. If the
contract, although inartfully worded or clumsily arranged, fairly admits
of but one interpretation, it is not ambiguous. The language of a contract
should be given its ordinary and plain meaning. In addition, a contract
is to be construed as a whole.
Id. (internal quotation marks and citation omitted). In a guaranty contract, the
guarantor does not “assume liability as a regular party to the primary
undertaking” but instead is liable “depend[ing] on an independent collateral
agreement by which he or she undertakes to pay the obligation if the primary
payor fails to do so.” Id. at 549 (internal quotation marks and emphasis omitted).
Guarantees of payment, such as the one at issue here, are “absolute” and
By the plain language of the Guaranty, Patel is liable because he
“guarantee[d] to [Budget Inns] the full and prompt payment . . . of Rent . . . and all
other existing and future indebtedness and liabilities of every nature and kind, now
or hereafter owing from [Bridgeport].” (Doc. 23-1 at 17.)
Patel argues that a genuine issue of material fact exists, insisting that the
Guaranty was discharged by material alterations and is therefore unenforceable
against him. (Doc. 29 at 8.) “Any material alteration of a principal debt or
obligation operates to completely discharge any guaranty of that debt or
obligation, unless the guarantor consented to the alteration. Any alteration that
increases the debt or obligation or extends the time for performance is material.”
Wilson Leasing Co. v. Seaway Pharmacal Corp., 220 N.W.2d 83, 89 (Mich. App.
1974) (internal citations omitted). If there is a material alteration, “[t]hose
guarantors, if any, who consented to the alteration are to be held liable for the full
amount of the lease, as amended. Those guarantors, if any, who did not consent to
the alteration are to be completely discharged from any liability on [the] lease.”
Id. at 90–91.
Patel insists that the Agreement materially altered the Lease by adding
interest and including a consent judgment of possession, and he insists he did not
consent to the Agreement. (Doc. 29 at 10–11.)
The Lease contains a provision for “late charges” in the amount of 5% of
the monthly rent due, (Doc. 23-1 at 2), and the Agreement, which includes a 12month payment schedule, contains corresponding “late penalties” of $975 each for
three months, (Doc. 23-2 at 5). The late penalties are equal to 5% of the $19,500
monthly rent. The Lease does not contain a provision for “interest,” yet the
Agreement contains an interest charge for 11 months totaling $2,841.33, (id.).
Thus, the interest charge contained in the Agreement amounts to an alteration of
Budget Inns argues that the alteration is immaterial because “the interest
called for in the [Agreement] was less than the amount that could have been
applied under the terms of the original Lease.” (Reply, Doc. 32 at 11.) Budget
Inns asserts that the Agreement could have included late penalties for all 12
months, but instead it contained late penalties for just three months and much
lower interest charges at roughly $300 per month for the remaining months.
However, the Agreement was executed on October 29, 2012, and it provides for
late penalties for the September, October, and November 2012 payments. The
Agreement could not have imposed late penalties for the nine remaining payments
that were not yet due. Budget Inns also argues that the interest charge is
“miniscule.” (Id. at 11.) In Wilson Leasing, the alteration amounted to a 23%
increase in the obligation. 220 N.W.2d at 88 (original obligation of $13,694.94
and increase of $3,129.21). Here, the alteration amounts to just a 1% increase.
(Doc. 23-2 at 5 (original 12-month obligation of $298,125.00 and increase of
$2,841.33 in interest).) However, Budget Inns fails to cite any authority
establishing that a de minimus increase is immaterial. Because the interest charge
does amount to an increase of the total obligation under the Lease—however
small—the alteration is deemed material.
The Lease contains a provision stating that in the event of default, Budget
Inns may terminate the Lease and repossess the Property, terminate Bridgeport’s
right of possession and repossess the Property, or have specific performance of the
Lease. (Doc. 23-1 at 9–10.) The Agreement adds an executed Consent Judgment
of Possession and a provision allowing Budget Inns to immediately obtain entry of
the Judgment in the event of default under the Agreement. (Doc. 23-2 at 2, 6.)
Thus, the Consent Judgment of Possession contained in the Agreement amounts to
an alteration of the Lease.
Budget Inns argues that the alteration is immaterial because the Lease
“allowed for immediate possession by [Budget Inns] in the event of [Bridgeport’s]
default.” (Doc. 32 at 11 (citing Doc. 23-1 at 9–10).) Where immediate
repossession of the Property was contemplated in the Lease, the alteration was
merely procedural. See Texaco Inc. v. Clifton, 274 N.W.2d 486, 490 (Mich. App.
1978) (“The enactment of the mandatory program was a contingency contemplated
by the parties when they entered into the agreement . . . . The enactment of the
mandatory program changed the parties’ duties under the terms of the contract but
it did not materially alter the terms of the contract.”). Because the Consent
Judgment of Possession neither increased the obligation nor extended the time for
performance, Wilson Leasing, 220 N.W.2d at 89, the alteration is immaterial.
Having concluded that the interest provided for in the Agreement amounted
to a material alteration, the question turns to whether Patel consented to the terms
of the Agreement. Patel maintains that a genuine issue of material fact exists
because his signature on the Agreement is a forgery. (Doc. 29 at 11.) However,
this fact issue as to Patel’s signature is immaterial because Patel consented to
modification of the Lease in the Guaranty.
The Guaranty provides:
Without affecting Guarantor’s obligations to Landlord hereunder,
Guarantor consents that Landlord may, in its sole discretion and without
notice to Guarantor, renew, extend or modify the Lease at any time.
(Doc. 23-1 at 18.) By the clear language of the Guaranty, Patel acknowledged that
Budget Inns may modify the Lease at any time, and Patel consented to any such
modification without notice.
The Court of Appeals of Michigan has held a similar consent provision
prevents discharge of a guarantor, “even if the modifications were material.” In re
Estate of Bluestone, 329 N.W.2d 446, 450 (Mich. App. 1982). In Estate of
Bluestone, multiple guarantors guaranteed a restaurant’s performance of certain
leases and loans concerning restaurant equipment. Id. at 447–48. The restaurant
defaulted on its initial obligations, and the parties agreed to restructure the
transactions. Id. None of the guarantors were notified of the restructuring
arrangements. Id. The restaurant again defaulted and filed for bankruptcy; an
action was brought against the guarantors for payment. Id. The guarantors sought
to discharge their liability under the guaranty. Id. The guaranty provided that the
agree that the holder of said lease may from time to time extend or
renew said lease for any period whatsoever and grant any releases,
compromises or indulgences with respect to said lease or any extension
or renewal thereof or any security therefor or to any party liable
thereunder or hereunder, all without notice to or consent of any of the
undersigned and without affecting the liability of any of the undersigned
Id. at 450 n. 2. After citing this consenting provision the court held, “The fact that
the guarantors expressly waived notice to future modifications demonstrates that
they ‘anticipated’ the possibility of such modifications. Hence, any refinancing
agreements which modified [the original] obligations did not operate to discharge
the guarantors, even if the modifications were material.” Id. at 450.
Like in Estate of Bluestone, Patel expressly waived notice to future
modifications of the Lease; the express waiver of notice in the Guaranty
demonstrates that he “anticipated” the possibility of modifications. The
Agreement does not operate to discharge Patel’s liability, even though the interest
modification was material. See also Harvard Drug Group, LLC v. Linehan, 684 F.
Supp. 2d 921, 926–27 (E.D. Mich. 2010) (modification of an agreement that added
interest to the original obligation did not operate to discharge guarantor where
guaranty expressly waived notice to future modifications).
Both parties misapply the second holding in Estate of Bluestone that
addressed one guarantor who signed a guaranty without an express consent to
modifications and waiver of notice. 329 N.W.2d at 450. As to that guarantor, the
court determined first that the refinancing agreements did not amount to a material
alteration because they did not extend the time of payment or impose additional
interest. Id. at 451. Next, the court determined that the refinancing agreements
“did not operate to the guarantors’ detriment, but rather to their benefit” because
they “were intended to ease [the] obligation by extending the time for payment
without imposing any additional interest.” Id. Therefore, the court held that “the
refinancing agreements [did] not operate to discharge the guarantors’ liability.”
Id. This holding as to Patel is inapposite because the Guaranty did contain a
consent to modifications and waiver of notice and because the Agreement did not
operate to the Guarantors’ benefit as it imposed additional interest.
Patel also argues that Budget Inns “acknowledged the need for the
guarantors to consent to any material alterations by requiring that the guarantors
sign the [Agreement].” (Doc. 29 at 14.) However, the consent and waiver in the
Guaranty controls over the Agreement—signed or unsigned—because the
Guaranty anticipated as a possibility a future modification of the Lease. See
Harvard Drug Group, 684 F. Supp. 2d at 927 (“not absolutely necessary” to
obtain guarantor’s signature on modification due to consent and waiver in
In sum, by the clear language of the Guaranty, Patel is liable for
Bridgeport’s liability, and, given the express consent to modifications and waiver
of notice contained in the Guaranty, the Agreement does not operate to discharge
Patel’s liability. There are no genuine issues of material fact, and Budget Inns is
entitled to summary judgment on this issue as a matter of law.
Whether the default judgment is the proper measure of damages.
Budget Inns claims that the Michigan court default judgment against
Bridgeport properly set forth Bridgeport’s liability under the Lease, and therefore
the judgment establishes the measure of damages for which Patel is liable. The
Michigan court entered judgment in the amount of $2,707,111.47, which includes:
the total amount of rent, taxes, interest, late fees, and bank fees incurred to date
plus the total amount of rent, tax payments, insurance, utilities, and maintenance
costs for which Bridgeport would be responsible to the end of the Lease term plus
attorney fees and legal costs incurred. (Doc. 21 at 15.) Budget Inns claims it is
also entitled to additional attorney fees and costs associated with this action. (Id.
Patel asserts that the default judgment against Bridgeport is not binding
against him, and Budget Inns does not offer an argument contesting this assertion.
Michigan surety law guides the determination of this issue. See Emmet Land Co.
v. Harbor Springs Real Estate Corp., 2002 WL 57389, at *3 n. 3 (Mich. App. Jan.
15, 2002) (relying on surety law to determine effect of prior judgment on
guarantor); see also Comerica, 805 N.W.2d at 548–49 (relying on surety law to
determine interpretation of guaranty). In P.R. Post Corp. v. Maryland Casualty
Co., the Michigan Supreme Court held that a judgment against a principal debtor
is not conclusively binding on a surety, and it is only “admissible as Prima facie
evidence in a suit by the obligee against the surety.” 271 N.W.2d 521, 524 (Mich.
1978). The Court relied on § 139(2) of the Restatement (First) of Security. Id. at
523 n. 1. The Restatement also addresses the admissibility of a default judgment:
When, in an action by the obligee against the principal obligor to
enforce the underlying obligation, a judgment in favor of the obligee is
obtained by default, confession, stipulation, or the like, the judgment
against the principal obligor is evidence only of its rendition in a
subsequent action of the obligee against the secondary obligor to
enforce the secondary obligation.
Restatement (Third) of Suretyship & Guaranty § 67(3) (1996) (formerly
Restatement of Security § 139 (1941)). The comments explain:
The rule set forth in subsection (3) differs from that in subsection (2)
because the probative significance of a judgment obtained by
confession, default, or the like is much less than that of a judgment after
trial on the merits. Moreover, the arguments of policy and efficiency
against duplication of trials have little weight where there has not been
a determination made by a fact finder after consideration of evidence
introduced by both sides to the litigation. Thus, a judgment against the
principal obligor obtained by default, confession, or the like does not
create a presumption in favor of the principal obligor’s liability in the
subsequent action by the obligee against the secondary obligor; rather
such a judgment is evidence only of its rendition.
Id. cmt. c. The default judgment against Bridgeport, therefore, does not establish,
as a matter of law, the measure of damages against Patel.
Additionally, Patel insists that there are genuine issues of material fact as to
the appropriate amount of damages. (Doc. 29 at 14–17.) Budget Inns states that
as of November 18, 2013, the amount due and owing is $2,707,111.47 based on
the default judgment, but Patel disputes this calculation of the damages. (Doc. 30
at ¶ 28.) Patel asserts that the default judgment is based on “several inappropriate
amounts” and contests the liquidated damages; damages for maintenance,
insurance, and utilities; interest and late penalties; tax payments; and attorney fees
and costs. (Doc. 29 at 18–22.) Patel also argues that Budget Inns has failed to
minimize damages. (Id. at 23.) Budget Inns maintains that “Bridgeport left the
Property in a very poor and damaged condition, and many items of personal
property belonging to [Budget Inns] were missing.” (Doc. 30 at ¶ 13–15.) Patel
states that he “does not have any knowledge or information concerning the
condition of the property and further discovery is necessary on this issue.” (Id.)
Budget Inns states that it is “unable to re-let the Property, due in significant part to
the current physical condition of the Property” and “all attempts at . . . selling the
property have been unsuccessful,” but Patel disputes the reasons why the Property
has not been re-let. (Id. at ¶ 16.) Budget Inns states that the costs of repairing the
Property and preparing it for re-rental would be in excess of $250,000 to 300,000,
but Patel disputes this calculation “due to the stage of discovery.” (Id. at ¶ 17.)
Budget Inns states it does not have the resources to pay for the needed repairs, but
Patel insists Budget Inns likely does have the resources based on the consent
judgment submitted by the Muthukumar Guarantors. (Id. at ¶ 18.) Most
importantly, Patel points out that discovery is not yet complete and that he has not
had the opportunity to depose the Manager of the Property, John Burns, who has
collected pertinent information as to the condition of the Property and the efforts
to re-let or sale the Property. (See Joint Discovery Plan, Doc. 9 at 3 (“All
discovery shall be completed by February 15, 2015.”).)
In its reply brief, Budget Inns acknowledges the potential impact of the
recent consent judgment submitted by the Muthukumar Guarantors and states that
“if the Court were to conclude that the default judgment is not the proper measure
of damages, [Budget Inns] acknowledges that fact issues may preclude summary
judgment as to the amount of damages that should be awarded against Patel on the
breach of the Lease and Guaranty.” (Doc. 32 at 14.) Therefore, because the
default judgment does not establish, as a matter of law, the proper measure of
damages, and because genuine factual disputes remain, Budget Inns is not entitled
to summary judgment on the issue of damages.
Accordingly, IT IS ORDERED that Plaintiff’s Motion for Summary
Judgment (Doc. 20) is GRANTED IN PART and DENIED IN PART. The Motion
is GRANTED in that Defendant is jointly and severally liable to Plaintiff for
Bridgeport Hospitality, LLC’s liability under the terms of the Lease and Guaranty.
The Motion is DENIED in all other respects.
DATED this 5th day of January, 2015.
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