General Electric Capital Corporation et al v. Malaszuk Specialized Logistics, LLC et al

Filing 56

OPINION and ORDER granting plaintiff BMO Harris Bank N.A.'s 36 Motion for Summary Judgment. Plaintiff may have until April 27, 2016, to submit a proposed judgment. Defendants John Malaszuk and Malaszuk Specialized Logistics, LLC may have until May 4, 2016, to file an objection, if any. Plaintiff may have until May 9, 2016 to reply. Signed by District Judge Barbara B. Crabb on 4/20/2016. (kwf)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BMO HARRIS BANK N.A.,
OPINION AND ORDER
Plaintiff,
15-cv-191-bbc
v.
MALASZUK SPECIALIZED LOGISTICS, LLC
and JOHN MALASZUK,
Defendants.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Plaintiff BMO Harris Bank N.A. is suing defendants John Malaszuk and Malaszuk
Specialized Logistics, LLC for the amounts owed on four loan agreements. General Electric
Capital Corporation and GE Capital Commercial, Inc. were the original plaintiffs in this
case, but I granted the unopposed motion to substitute BMO Harris Bank N.A. because
BMO had obtained all the rights to the loans.
Before the substitution, the former plaintiffs filed a motion for summary judgment,
dkt. #36, which is now fully briefed. Because BMO has not asked for permission to
supplement any of the summary judgment submissions, I understand BMO to be adopting
the briefs and arguments the former plaintiffs filed. (For the remainder of the opinion, I will
refer to BMO Harris Bank N.A. as “plaintiff” and to General Electric Capital Corporation
and GE Capital Commercial, Inc. as “GE.”)
Plaintiff’s argument in the motion for summary judgment is straightforward:

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defendants received a series of loans from GE in 2012 and 2013 and defendants have
defaulted on each of those loans. Defendants have raised several arguments in response to
the motion, but none of them are persuasive and none of them show that defendants should
not be held for the debts they still owe. Accordingly, I am granting plaintiff’s motion for
summary judgment.
From the parties’ proposed findings of fact and the record, I find that the following
facts are undisputed.

UNDISPUTED FACTS
Defendants John Malaszuk and Malaszuk Specialized Logistics, LLC are “involved
in . . . the transportation business.” Dfts.’ PFOF ¶ 6, dkt. #46. (The parties do not provide
any details regarding the nature of defendants’ business.) John Malaszuk is one of the
members of Malaszuk LLC, along with Lisa Malaszuk, who was married to John during the
events relevant to this case.
On February 27, 2012, General Electric Capital Corporation and defendant John
Malaszuk entered into a loan and security agreement under which GE lent money to John
in order to purchase certain vehicles.

On June 27, 2013, August 22, 2013 and September

27, 2013, GE and defendant Malaszuk LLC entered into loan and security agreements under
which GE lent money to Malaszuk LLC for the purchase of certain vehicles. John issued a
continuing guaranty with respect to the June 27 and August 22 agreements, under which he
agreed to fully perform, pay and discharge all of the present and future liabilities, obligations

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and debts owed by Malaszuk LLC to GE. John did not sign a guaranty with respect to the
September 27, 2013 agreement. Rather, Lisa Malaszuk signed a guaranty.
Both John Malaszuk and Malaszuk LLC failed to pay the amounts due under each
of the agreements. As a result, GE accelerated the entire amount due and repossessed the
vehicles provided as collateral for the agreements. GE sold all but two of the vehicles,
applying the net proceeds to the balance due. As of December 22, 2015, GE calculated that
the following amounts remained due:
1. $219,245.09 pursuant to the terms of February 27, 2012 agreement, with interest
accruing at the rate of $91.00 per diem;
2. $30,248.24 pursuant to the terms of the June 27, 2013 agreement, with interest
accruing at the rate of $12.78 per diem;
3. $134,459.39 pursuant to the terms of the August 22, 2013 agreement, with
interest accruing at the rate of $56.07 per diem; and
4. $6,590.35 pursuant to the terms of the September 27, 2013 agreement, with
interest accruing at the rate of $2.59 per diem.
After filing this case, GE transferred its rights with respect to all of these contracts to
plaintiff BMO.

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OPINION
A. Jurisdiction
Jurisdiction is present under 28 U.S.C. § 1332, which requires diversity of citizenship
between the plaintiff and defendants and an amount in controversy of more than $75,000.
As BMO points out, when a party is substituted under Fed. R. Civ. P. 25, it is the citizenship
of the original parties that matters for jurisdiction. Freeport-McMoran, Inc. v. KN Energy,
Inc., 498 U.S. 426 (2000).

Former plaintiffs General Electric Capital and GE Capital

Commercial are citizens of Delaware (where both are incorporated), Connecticut (where
General Electric Capital has its principal place of business) and Texas (where GE
Commercial has its principal place of business). Plts.’ PFOF ¶¶ 1-2, dkt. #50. Defendants
are citizens of Wisconsin, where John Malaszuk and the members of Malaszuk LLC (John
Malaszuk and Lisa Malaszuk) are domiciled. Id. at ¶¶ 3-4. Because plaintiff alleges that
defendants owe several hundred thousands of dollars, it is reasonable to infer that the
amount in controversy requirement is satisfied.

B. Choice of Law
A threshold question in diversity cases such as this one is which state’s law should
apply. In the opening briefs, neither side says anything about choice of law. Instead, they
sprinkle their briefs with citations to case law from both Wisconsin and various other state
and federal jurisdictions, without explaining why. Accordingly, I will apply Wisconsin law.
FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 283 (7th Cir. 2002) ("[T]here's no

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discussion of choice of law issues, and so we apply the law of the forum state."). In its reply
brief, plaintiff argues in a footnote that the guaranties should be governed by Wisconsin law,
some of the loan agreements should be governed by Texas law and other loan agreements
should be governed by Utah law. Plt.’s Br., dkt. #49, at 3 n.2. By failing to argue choice
of law in its opening brief, plaintiff forfeited this issue.

C. Merits
Defendants raise three arguments in their opposition to plaintiff’s motion for
summary judgment: (1) John Malaszuk cannot be held liable under the June 27, 2013 and
August 22, 2013 agreements because he did not receive any consideration for his guaranty
of those agreements; (2) GE did not have the right to repossess the collateral for the
February 27, 2012 agreement because defendants had not yet defaulted on that loan at the
time; and (3) by repossessing that collateral, plaintiffs prevented defendants from repaying
the loans and breached the duty of good faith and fair dealing. I will address each argument
in turn.

1. John Malszuk’s liability for June 27 and August 22 agreements
Defendant John Malaszuk says that the guaranties he provided for the June 27 and
August 22 agreement are not valid because he “did not receive a direct benefit in exchange
for his promise to guaranty the debts of Malaszuk [LLC]. All of the benefits for the deal
went to Malaszuk [LLC].” Dfts.’ Br., dkt. #45, at 7. Defendants rely on the general rule

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that every contract requires consideration to be enforceable. E.g., NBZ, Inc. v. Pilarski, 185
Wis. 2d 827, 837, 520 N.W.2d 93, 96 (Ct. App. 1994).
In response, plaintiff cites Dahlman v. Hammel, 45 Wis. 466, 468 (1878), and
Holmes v. Wisconsin Grain & Fuel Co., 166 Wis. 280, 164 N.W. 1007, 1008 (1917), in
which the court stated, “[t]he consideration of a guaranty need not pass between the parties
to it. It is enough if a benefit arises to the party for whom the guaranty is given; and
forbearance and extension of credit on the original indebtedness is sufficient.” In other
words, the lender is extending a loan in exchange for the guaranty. It does not matter that
the loan goes to someone other than the guarantor.
Although the cases plaintiff cites are dated, my own research uncovered no change in
the law on this point in more recent years. E.g., Electric Storage Battery Co. v. Black, 27
Wis. 2d 366, 369, 134 N.W.2d 481, 483 (1965) (if plaintiff “agreed to sell the goods to [a
third party] upon credit, on condition that the defendant would guaranty the debt,” that is
adequate consideration to hold guarantor liable). Newer cases addressing this issue are
nonprecedential, but they have adhered to the same conclusion. Luetzow v. Schubring,
2007 WI App 183, ¶¶ 10-11, 304 Wis. 2d 635, 736 N.W.2d 543 (“Where contracts of
guaranty are made simultaneously with the principal obligation, they are construed together
and may be supported by the same consideration.”); Norwest Bank Wisconsin Northeast v.
Angelich, 164 Wis. 2d 753, 477 N.W.2d 365 (Ct. App. 1991) (“[S]ufficient consideration
exists where there is a benefit to the promisor or the person whose account is guaranteed.”);
Nystrom v. Sweeney, 143 Wis. 2d 895, 422 N.W.2d 462 (Ct. App. 1988) (“The guaranty

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is enforceable if a benefit to the principal debtor is shown or if a detriment to the creditor
is established.”).
Because it is undisputed that defendant Malaszuk LLC received a loan under the June
27 and August 22 agreements, defendant John Malaszuk received all the consideration that
was necessary to make the guaranties enforceable.

2. GE’s right to repossess the collateral for the February 27, 2012 agreement
Defendants say that at the time that GE repossessed the collateral for each of the four
agreements, the September 27, 2013 agreement was the only one in default. (Plaintiff
disputes that, but I need not resolve that dispute to decide plaintiff’s motion for summary
judgment.) Defendants do not deny that the February 27, 2012 agreement has what
plaintiff calls a “cascading default” provision, under which a debtor’s or guarantor’s default
under any agreement with the creditor is considered a default for all of the agreements
between the same parties. Dkt. #24, exh. A, § 5.1. Rather, defendants’ argument is that a
default on the September 27, 2013 agreement should not have qualified as a default on the
February 27, 2012 agreement because the parties to the two agreements are different. In
particular, the September 27, 2013 agreement was between Malaszuk LLC and GE, with
Lisa Malaszuk signing the guaranty, whereas the February 27, 2012 agreement was between
John Malaszuk and GE, with no guaranty. In short, defendants say that GE should not have
repossessed the collateral for the February 27, 2012 agreement as a result of the default on
the September 27, 2013 agreement because John Malaszuk was not a party to the September

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27, 2013 agreement and did not provide a guaranty for that agreement.
Defendants do not explain the significance of this argument. It may be that they
mean to argue that GE breached the February 27, 2012 agreement by repossessing the
collateral, which excused them from any further duty to make payments on that agreement.
Regardless of defendants’ reason for making the argument, I agree with plaintiff that the
argument has a false premise, which is that John Malaszuk was not a guarantor on the
September 27, 2013 agreement. As plaintiff points out, John issued a continuing guaranty
with respect to the June 27 and August 22 agreements, under which he agreed to pay all
present and future liabilities, obligations, and debts owed to GE by Malaszuk LLC. Thus,
John Malaszuk’s guaranty of the June 27 and August 22 agreements extended to the
September 27 agreement as well.
Continuing guaranties are both common and lawful ways for a lender to protect its
financial interests. E.g., Federal Deposit Ins. Corp. v. Venture Contractors, Inc., 825 F.2d
143, 150 (7th Cir. 1987); Gritz Harvestore, Inc. v. A.O. Smith Harvestore Products, Inc.,
769 F.2d 1225, 1231-32 (7th Cir. 1985); Park Bank v. Westburg, 2013 WI 57, ¶ 93, 348
Wis. 2d 409, 447, 832 N.W.2d 539, 558; John Deere Co. v. Babcock, 89 Wis. 2d 672,
676A, 278 N.W.2d 885, 887 (1979). A continuing guaranty can be revoked at any time
with respect to future purchases, John Deere, 89 Wis. 2d at 675, 278 N.W.2d at 886, but
defendants do not argue that John Malaszuk ever revoked his guaranty.
Generally, a guarantor is entitled to notice of any new agreements. Id. Although
plaintiff does not say whether GE gave John Malaszuk notice of the September 27

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agreement, both the June 27 and August 22 guaranties included provisions waiving notice.
Dkt. #24, exh. C and exh. E, ¶ 3 (“Each Guarantor hereby waives (i) notice of acceptance
hereof and notice of extensions of credit given by GE Capital to [Malaszuk LLC] from time
to time.”).

Defendants do not identify any reasons why those waivers might not be

enforceable. John Deere, 89 Wis. 2d at 676, 278 N.W.2d at 886 (“[T]he guaranty offer at
issue contained a clause waiving notice of successive extensions of credit. We are obliged to
give effect to such a waiver on the record before us.”). Accordingly, I conclude that GE did
not violate plaintiff’s rights under the February 27, 2012 agreement by repossessing the
collateral after Malaszuk LLC defaulted on the September 27, 2013 agreement.

3. Alleged breach of duty of good faith and fair dealing
Finally, defendants argue that GE’s decision to repossess the collateral breached the
duty of good faith and fair dealing because GE refused a request by defendants to alter the
terms of the September 27 agreement so that defendants could avoid default by selling the
collateral at a reduced price. In addition, defendants argue that repossessing the collateral
prevented them from fulfilling their obligations under the other agreements.
“Every contract implies good faith and fair dealing between the parties to it, and a
duty of cooperation on the part of both parties.” Beidel v. Sideline Software, Inc., 2013 WI
56, ¶ 27, 348 Wis.2d 360, 842 N.W.2d 240 (internal quotations omitted). Under this
implied “duty of cooperation,” a party may commit a breach when it follows “the letter but
not the spirit of an agreement” and engages in the type of conduct that is “exactly what the

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agreement of the parties sought to prevent.” Id. (internal quotations omitted). However,
“[a] party may not . . . employ the good faith and fair dealing covenant to undo express
terms of an agreement.” Id. at ¶ 29.
Defendants’ allegations about GE’s alleged refusal to negotiate are vague. Defendants
neither cite documentation to support their allegations nor identify the individuals who were
involved. In any event, defendants cite no authority for the view that the duty of good faith
required GE to alter the terms of an agreement or refrain from enforcing the agreement in
the event of a breach by defendants. As noted above, the duty does not require a party to
“undo the express terms of an agreement.” Because this is what defendants believe that GE
should have done, their argument under the duty of good faith and fair dealing fails.

ORDER
IT IS ORDERED that
1. Plaintiff BMO Harris Bank N.A.’s motion for summary judgment, dkt. #36, is
GRANTED.
2.

Plaintiff may have until April 27, 2016, to submit a proposed judgment.

Defendants John Malaszuk and Malaszuk Specialized Logistics, LLC may have until May

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4, 2016, to file an objection, if any. Plaintiff may have until May 9, 2016 to reply.
Entered this 20th day of April, 2016.
BY THE COURT:
/s/
BARBARA B. CRABB
District Judge

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