Firstmerit Bank, N.A. v. Koenig, Patricia Ann

Filing 33

ORDER denying 15 Motion to Dismiss; granting 20 Motion for Summary Judgment. Plaintiff submissions re calculation of principal, interest and late charges and itemization of attorney's fees due 7/1/14. Defendants response due 7/8/14. Signed by District Judge James D. Peterson on 6/17/14. (krj)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

FIRSTMERIT BANK N.A.,

v.

Plaintiff,

OPINION & ORDER
13-cv-534-jdp

PATRICIA ANN KOENIG,
TIMOTHY A. KOENIG,
JILL M. KOENIG,
TIMOTHY A. KOENIG, LLC,
PATRICIA ANN KOENIG, in her capacity
as Trustee of the Patricia Ann Koenig Revocable
Trust Dated October 28, 1998, and
PATRICIA ANN KOENIG REVOCABLE
TRUST DATED OCTOBER 28, 1998,
Defendants.

This case arises out of two loans that Citizens Bank made to “K” Care, Inc., which were
guarantied by the defendants, and secured by collateral pledged by “K” Care itself and two of
the defendants. Citizens Bank has since merged into FirstMerit Bank N.A., the plaintiff. “K”
Care has defaulted on the loans, and now FirstMerit wants to get paid back.
FirstMerit has filed two lawsuits in its collection effort. In a state court suit filed in Vilas
County, Wisconsin, FirstMerit sued “K” Care, the Patricia Ann Koenig Revocable Trust Dated
October 28, 1998 (the Trust), and Timothy A. Koenig, LLC seeking foreclosure and replevin of
the collateral pledged by the defendants in that case. In this case, FirstMerit seeks to enforce the
guaranties made by the defendants identified in the caption.
Before the court are the defendants’ motion for dismissal or abstention, Dkt. 15, and
FirstMerit’s motion for summary judgment, Dkt. 20. The defendants have not demonstrated
that the state and federal cases are sufficiently parallel to warrant abstention, so the court will

deny their motion. FirstMerit has shown that there is no genuine dispute of fact that the
guaranty agreements are enforceable against the defendants, so the court will grant that motion.

UNDISPUTED FACTS
The material facts are not in dispute. Indeed, the defendants admit most of the factual
allegations in FirstMerit’s amended complaint, Dkt. 15, and have not submitted any brief in
opposition or proposed findings of fact to FirstMerit’s motion for summary judgment.
“K” Care is a Wisconsin corporation that appears to be in the business of owning and
operating residential care facilities. In July 2008, “K” Care borrowed more than $2,000,000
from Citizens Bank, and in January 2012, it borrowed an additional $60,000. Both loans were
evidenced by promissory notes. Dkt. 14-1 and Dkt. 14-2. Timothy A. Koenig, LLC and the
Trust secured both of the loans at issue with mortgages on three properties they owned; “K”
Care offered as collateral its personal property, including its accounts receivable; and the Trust
offered as collateral its equipment, furniture, and fixtures. Neither the mortgages nor the
collateral are directly at issue in this case.
Instead, this dispute is about the personal guaranties that defendants Patricia and
Timothy Koenig executed for “K” Care’s obligations, Dkt. 14-3 and Dkt. 14-4, as well as
guaranties they executed on behalf of, respectively, defendants Patricia Ann Koenig Revocable
Trust Dated October 28, 1998, and Timothy A. Koenig, LLC, Dkt. 14-6 and Dkt. 14-5. Each
agreement provided that the guarantor “absolutely and unconditionally guarantees full and
punctual payment and satisfaction of the Indebtedness of [“K” Care] to [Citizens Bank].” The
agreements also specified that Citizens Bank could enforce the guaranties against each
defendant even when Citizens Bank had not exhausted its remedies against anyone else
obligated to pay the indebtedness or against any collateral securing the indebtedness. Finally,

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the agreements confirmed that the defendants would pay all of Citizens Bank’s costs of
collection, including attorney’s fees. Citizens Bank eventually merged into FirstMerit.
Both notes matured on July 15, 2013. But “K” Care failed to pay the amounts due.
FirstMerit brought this case against the defendants, seeking repayment of the loans through
enforcement of the defendants’ guaranties. FirstMerit also filed a separate suit in the Circuit
Court for Vilas County, Wisconsin, case number 13-cv-197. That suit named “K” Care,
Timothy A. Koenig, LLC, and the Trust (with Patricia Koenig in her capacity as trustee) as
defendants, and sought monetary judgment against “K” Care, foreclosure against Koenig, LLC
and the Trust, and replevin of collateral from the Trust. The state court entered summary
judgment for FirstMerit on May 6, 2014.
The plaintiff is a citizen of Ohio; the defendants are citizens of Wisconsin. The parties
are completely diverse and the amount in controversy exceeds $75,000. Accordingly, this court
has diversity jurisdiction under 28 U.S.C. § 1332.

OPINION
Two motions are before the court and ripe for consideration. The first is the defendants’
motion for dismissal or abstention, and the second is FirstMerit’s motion for summary
judgment.

A. Abstention is not appropriate in this case.
The defendants premise their motion for abstention on the fact that FirstMerit has filed
a related proceeding in Wisconsin state court. This type of abstention—often referred to as
Colorado River abstention—touches on considerations of comity and urges federal courts to “stay
a suit and await the outcome of parallel proceedings as a matter of ‘wise judicial administration,

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giving regard to the conservation of judicial resources and comprehensive disposition of
litigation.’” Finova Capital Corp. v. Ryan Helicopters U.S.A., Inc., 180 F.3d 896, 898 (7th Cir.
1999) (citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)).
However, “the mere fact that an action is pending in state court is ordinarily no bar to parallel
federal proceedings” and federal courts “treat as paramount the overriding rule that abstention is
the exception,” not the norm. Clark v. Lacy, 376 F.3d 682, 685 (7th Cir. 2004) (emphasis added)
(internal citations omitted).
The Seventh Circuit has provided a two-step framework for determining whether a stay
is appropriate. “First, the court must consider whether the concurrent state and federal actions
are actually parallel . . . . Then, once it is established that the suits are parallel, the court must
consider a number of non-exclusive factors that might demonstrate the existence of ‘exceptional
circumstances.’” Id. (internal citations omitted). If the party seeking abstention fails to convince
at either step, the federal court will not stay the case.
At the first step of the analysis, the defendants must show that the two cases are parallel
by demonstrating that “substantially the same parties are litigating substantially the same issues
simultaneously in two fora.” Finova Capital Corp., 180 F.3d at 898 (7th Cir. 1999). To meet
their burden, the defendants assert that this case is parallel to the state case because there is
overlap in the subject matter at issue and in the parties to the dispute. They note that two suits
need not be identical as to parties, claims, or remedies to qualify as parallel. Ultimately,
however, the court disagrees that these two cases are similar enough to warrant abstention.
It is true that both cases start from “K” Care’s liability to FirstMerit for defaulting on the
same two loans. It is also true that the same plaintiff has brought both suits and at least some of
the defendants in this case will participate in the state case, either as defendants or as witnesses.
But the suits are not parallel in the requisite sense. The touchstone of this court’s inquiry into

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whether two suits are parallel is “a substantial likelihood that the state litigation will dispose of
all claims presented in the federal case.” Huon v. Johnson & Bell, Ltd., 657 F.3d 641, 646 (7th
Cir. 2011) (internal citations omitted). No such likelihood exists here as FirstMerit is asserting
the defendants’ liability for completely different sets of promises in each case. In the state case,
FirstMerit seeks foreclosure and replevin based on agreements that secured the loans it made to
“K” Care. In contrast, the federal case seeks to enforce different agreements that guarantied “K”
Care’s repayment of the loans. Although successful recovery in one case may reduce or eliminate
FirstMerit’s right to recover in the other case, neither court is poised to adjudicate or impose
liability for agreements that are before the other tribunal.
The only real issue that the state court could resolve that would dispose of FirstMerit’s
claims in this case is whether some affirmative defense excuses “K” Care’s failure to repay the
loans. But the defendants would have to convince this court that there is a “substantial
likelihood” that the state court will find in their favor on such a defense. They fall short of this
high bar, alleging only that “[i]t is entirely possible that this court and the state court may reach
inconsistent conclusions, potentially leaving the guarantors liable for a different amount than is
determined to be owed by the primary obligor.” Dkt. 15, at 4. This speculation about what the
state court might ultimately conclude does not satisfy the “substantial likelihood” requirement.
The defendants offer only conjecture as to what the state court could do, which is insufficient.
See, e.g., USWAY Corp. v. Wardzala, No. 11-cv-7023, 2012 WL 138605, at *3 (N.D. Ill. Jan. 18,
2012) (“[A]nticipation of the outcome in the state court is not enough to justify abstention.”)
(internal citations omitted); Fofi Hotel Co. v. Davfra Corp., 846 F. Supp. 1345, 1352 (N.D. Ill.
1994) (“As the guaranty explicitly states that it is not dependent on the validity of the note . . .
the [state] action and the federal action are not parallel as there is not a substantial likelihood
that the state litigation will dispose of all claims presented in the federal case.”).

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Any doubt about the weakness of the defendants’ argument in support of abstention was
resolved by the state court’s entry of summary judgment in favor of FirstMerit. The state court
concluded that “K” Care defaulted on its obligations, thus rejecting any affirmative defenses the
defendants offered as to the enforceability of the notes. See Dkt. 32-2. Given that the state
litigation has obviously not disposed of the claims FirstMerit brings in this court, the two
proceedings are not parallel and abstention is inappropriate.
Even if the defendants were able to raise some doubt as to whether the state litigation
could resolve the claims in this case, the court would have to resolve that doubt in favor of
allowing FirstMerit to proceed. Huon, 657 F.3d at 646. This court has an “‘unflagging
obligation’ to exercise the jurisdiction Congress has conferred,” and the defendants have simply
failed to offer enough to clear the high hurdle necessary for abstention. Id. at 649 (quoting
Colorado River, 424 U.S. at 817).
Because the state court proceedings are not parallel to this case, the court will deny the
defendants’ motion for abstention. Given that the state and federal cases are not parallel, the
court need not take up step two of the analysis and address the factors that determine whether
this case presents “exceptional circumstances.” AAR Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d
510, 518 (7th Cir. 2001) (“If the actions are not parallel, the Colorado River doctrine does not
apply.”).

B. FirstMerit is entitled to summary judgment.
FirstMerit has moved for summary judgment on all of its claims. Dkt. 20. The
defendants have not opposed FirstMerit’s motion for summary judgment, and the court will

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therefore accept FirstMerit’s proposed facts as undisputed. 1 Fed. R. Civ. P. 56(e)(2). The court
will not, however, grant summary judgment simply because FirstMerit’s motion is unopposed.
“Even if the opposing party completely fails to respond to a summary judgment motion, Rule
56(e) permits judgment for the moving party only if appropriate—that is, if the motion
demonstrates that there is no genuine issue of material fact and that the movant is entitled to
judgment as a matter of law.” Johnson v. Gudmundsson, 35 F.3d 1104, 1112 (7th Cir. 1994)
(original emphasis) (internal citations omitted). Thus, even though the defendants have not
advanced their own legal theory of the case and the court will accept FirstMerit’s proposed facts
as admitted, the familiar summary judgment framework applies. FirstMerit contends it has
satisfied all the prerequisites to collect under the guaranty agreements, and that there is no
genuine dispute of fact that requires a trial. The court agrees and will enter summary judgment
in FirstMerit’s favor because FirstMerit is entitled to judgment as a matter of law.
Under Wisconsin law, which governs the guaranty agreements at issue in this case, a
guaranty is a contract. Harris v. Metro. Mall, 112 Wis. 2d 487, 334 N.W.2d 519, 527 (1983).
To enforce liability, FirstMerit must therefore bring a breach of contract claim, which requires a
showing of three elements: “(1) the existence of a contract creating obligations flowing from
defendant to plaintiff; (2) a breach of those obligations; and (3) damages from the breach.”
Uebelacker v. Paula Allen Holdings, Inc., 464 F. Supp. 2d 791, 801 (W.D. Wis. 2006) (citing Nw.
Motor Car, Inc. v. Pope, 51 Wis. 2d 292, 187 N.W.2d 200, 203 (1971)). As the party bringing
the breach of guaranty claim, FirstMerit has the burden of proving all three elements. FirstMerit
Bank N.A. v. Weinkauf, No. 13-cv-626, 2014 WL 1454232, at *2 (W.D. Wis. Apr. 14, 2014).
Even had the defendants chosen to oppose the motion for summary judgment, they could not
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The defendants filed a motion to stay the briefing schedule for summary judgment, but the
court denied that motion and explicitly reminded defendants that their brief in opposition was
due April 4, 2014. Dkt. 26.
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dispute the validity of the guaranty agreements nor the damages FirstMerit would suffer from a
breach, and the court sees no reason to question the existence of the first and third elements for
a breach of contract. As discussed above, FirstMerit has sufficiently alleged its compliance with
federal laws and regulations to satisfy the court that its merger with Citizens Bank transferred
the right to enforce the guaranty agreements.
The only remaining issue, therefore, is whether there is a dispute that the defendants
breached their guaranty agreements. FirstMerit directs the court to the material terms of each
agreement, Dkt. 14-3, Dkt. 14-4, Dkt. 14-5, and Dkt. 14-6, which are identical. 2 The first
relevant section provides 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 obliged to pay the Indebtedness or against any
collateral securing the Indebtedness, this Guaranty or any other
guaranty of the Indebtedness. Guarantor will make any payments
to Lender or its order, on demand, in legal tender of the United
States of America, in same-day funds, without set-off or deduction
or counterclaim, and will otherwise perform Borrower’s obligations
under the Note and Related Documents.
Dkt. 14-3, at 1.
Wisconsin law distinguishes between “guaranties of payment” and “guaranties of
collection.” Park Bank v. Westburg, 2013 WI 57, ¶ 59, 348 Wis. 2d 409, 832 N.W.2d 539.
FirstMerit argues that the defendants’ guaranties are the former, which do “not condition
liability upon the creditor exhausting remedies against the debtor [and place a] creditor . . .
under no obligation to first seek collection from the principal debtor or any other guarantor.” Id.
¶ 60. In contrast, guaranties of collection impose liability on the guarantor only “if the principal

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For convenience, the court will cite to Patricia Koenig’s guaranty agreement, Dkt. 14-3, when
quoting relevant language. Unless noted otherwise, the same language also appears in the
agreements of the remaining defendants.
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creditor cannot collect the claim with due diligence, generally following suit against the principal
debtor.” Id. ¶ 59. By their terms, the guaranties at issue in this case are guaranties of payment
and allow FirstMerit to proceed against the defendants without first having to pursue collection
from “K” Care or any other party who secured the loans. The only requirement this provision
places on FirstMerit is the obligation to demand payment.
The second key provision in the guaranty agreements is the defendants’ waiver of their
right to defend against liability with “any defenses given to guarantors at law or in equity other
than actual payment and performance of the Indebtedness.” Dkt. 14-3, at 2. The waiver is
important because under Wisconsin law, “the defenses available to a guarantor are grounded in
the specific terms and conditions of the guaranty contract.” Park Bank, 2013 WI 57, ¶ 62; see
also FirstMerit Bank N.A., 2014 WL 1454232, at *5 (“[A] guaranty of payment binds the
guarantor to pay the debt according to the terms and conditions of the guaranty.”). The terms of
the agreement thus limit the defendants’ available defenses to one: showing that “K” Care paid
the debt.
Together, these two provisions set out exactly what facts FirstMerit must show to
establish a breach of the defendants’ obligations. Specifically, FirstMerit must demonstrate that:
(1) “K” Care did not make payments due under the notes; and (2) FirstMerit demanded
payment from the guarantors but they refused to pay. The undisputed facts confirm that both of
these conditions are present. In their answer, the defendants admit that the notes “are in arrears
and were not paid in full on July 15, 2013,” Dkt. 16, at 8, and in support of summary
judgment, FirstMerit has submitted a copy of the demand letter it sent to each of the
defendants in this case, Dkt. 23-4, at 2. The court therefore concludes that there is no dispute
that the defendants breached their obligations under the guaranty agreements.

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Related to its claims for breach the guaranty agreements, FirstMerit also seeks a
declaratory judgment allowing it to satisfy any award through the marital property of Timothy
Koenig and his wife, Jill Koenig. As part of his guaranty agreement, Timothy Koenig signed a
statement declaring that “this obligation is being incurred in the interest of Guarantor’s
marriage or family.” Dkt. 14-4, at 3. Under Wisconsin law, such marital purpose statements are
“conclusive evidence that the obligation to which the statement refers is an obligation in the
interest of the marriage or family.” Wis. Stat. § 766.55(1). When one spouse incurs an
obligation in the interest of the marriage or family, that obligation may be satisfied “from all
marital property and all other property of the incurring spouse.” § 766.55(2)(b). Based on these
statutes, FirstMerit argues that it is entitled to summary judgment on its claim for declaratory
relief. The defendants offer nothing to suggest that FirstMerit misreads Wisconsin law, and the
court agrees that FirstMerit may reach the marital property of Timothy and Jill Koenig to satisfy
any judgment it receives in this case. See FirstMerit Bank N.A., 2014 WL 1454232, at *3 n.1.
FirstMerit’s complaint also seeks to recover its attorney’s fees and costs of collection.
“The decision to grant attorney’s fees in a diversity action is controlled by state law.” Jackman v.
WMAC Inv. Corp., 809 F.2d 377, 383 (7th Cir. 1987). In Wisconsin, “litigants must pay their
own attorney fees unless there is a statute or enforceable contract providing otherwise.” Klemm v.
Am. Transmission Co., 2011 WI 37, ¶42, 333 Wis. 2d 580, 798 N.W.2d 223. Here, FirstMerit
directs the court to a provision of the guaranty agreements that requires the defendants to pay
FirstMerit’s “costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses,
incurred in connection with the enforcement of this Guaranty.” Dkt. 14-3, at 2. As the
defendants do not dispute that the provision applies, the court will award FirstMerit its
reasonable attorney’s fees. See FirstMerit Bank N.A. v. Weinkauf, No. 13-cv-626, slip op. at 2
(W.D. Wis. May 1, 2014).

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There is one final issue which the court must address before concluding that summary
judgment is appropriate. In their answer, the defendants pled three affirmative defenses. Dkt.
16, at 11. The court need not decide whether the waiver provisions in the guaranty agreements
foreclose these defenses because, ultimately, none of them have merit. The defendants first
asserted that “[t]his action should be dismissed as duplicative because the same matters are
being litigated in Wisconsin Circuit [C]ourt.” Id. To the extent that this is an “affirmative
defense,” the court has already disposed of the question of abstention. The defendants next pled
that FirstMerit “may have breached its duties of good faith and fair dealing as to the
transactions alleged in the Complaint.” In opposing a motion for summary judgment, however, a
party “may not rest upon mere allegations in the pleadings or upon conclusory statements in
affidavits; it must go beyond the pleadings and support its contentions with proper
documentary evidence.” Warsco v. Preferred Technical Grp., 258 F.3d 557, 563 (7th Cir. 2001).
The record is devoid of any support for this defense, and a lone sentence in the defendants’
answer is not enough to defeat summary judgment. Finally, the defendants suggested that
FirstMerit “may not be entitled to enforce the obligations as alleged in this Complaint.” Dkt.
16, at 11. This defense was to presumably attack FirstMerit’s acquisition of Citizens Bank’s
rights, but the defendants can identify nothing in the record to contradict FirstMerit’s assertion
that the merger complied with federal statutes and regulations.
FirstMerit has identified undisputed facts showing that the defendants breached their
guaranty agreements. Any affirmative defenses that the defendants may have planned on
offering to avoid liability have since fizzled out and find no support in the record. FirstMerit is
therefore entitled to judgment as a matter of law.
Several months have passed since FirstMerit first filed its motion. Therefore, the court
will direct FirstMerit to submit within fourteen days of this order its final calculation of the

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principal, interest, and late charges due under the guaranties, taking into account any payments
it has received or otherwise satisfied as a result of the state court’s summary judgment, and a
calculation of its reasonable attorney’s fees. The defendants may have seven days after receiving
FirstMerit’s calculations to respond to their accuracy. However, the court will not entertain any
arguments from the defendants about FirstMerit’s failure to prove entitlement to damages.

ORDER

IT IS ORDERED that:
1) Defendants’ motion for abstention, Dkt. 15, is DENIED;
2) Plaintiff’s motion for summary judgment, Dkt. 20, is GRANTED;
3) Plaintiff is directed to submit a calculation of the principal, interest, and late charges
due under the guaranty agreements by July 1, 2014;
4) Plaintiff is directed to submit an itemization of its reasonable attorney’s fees by July
1, 2014; and
5) Defendants may file a response to Plaintiff’s damage calculation and claim for
attorney’s fees by July 8, 2014.
Entered this 17th day of June, 2014.
BY THE COURT:
/s/
JAMES D. PETERSON
District Judge

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