Tuesday, February 17, 2015

The Presence or Absence of Take-Backsies, and Related Conversations

Choiniere v. Marshall, 2014 VT 117

By Christopher A. Davis

The issue in this case is whether genuine issues of material fact exist in a long-standing contract dispute that would allow the plaintiffs’ claims to proceed beyond the summary judgment phase to trial. Lower court says no. SCOV says yes. GAME ON, LITIGANTS.

Let’s head back together to September 2003, when Paul Choiniere and P & D Consulting, Inc. loaned Andrew Button $1 million to help him purchase an automobile dealership. Button’s father and stepmother Christine Rowe-Button personally guaranteed the loan. After receiving the loan, Button the Younger began negotiating with Choiniere for an additional $1.3 million loan because I guess three automobile dealerships are better than one. During those negotiations, Button’s father passed away, and stepmother Rowe-Button did what any nurturing step-parent would do in this time of familial uncertainty…she hired a lawyer to settle her husband’s estate and attempt to cut ties with the debt guaranteed to Choiniere. After months of back-and-forth between Rowe-Button’s attorney Anthony Marshall and her stepson’s attorneys (understandably uneasy about the cessation of Button’s credit line), Marshall arranged for Rowe-Button to send out a “Termination of Guaranty” letter on April 8, 2004 (we’ll call it the “April 8 Letter”) to each of the creditors, which stated that her signature on the original guaranty “may not reflect my actual signature thereon,” and also set out in ALL CAPS that any guaranties provided or purportedly executed and provided (if that IS your real name!) by any entity owned by the elder Buttons were thereby terminated.

On April 14, 2004, Marshall sent a letter to Choiniere (the “April 14 Letter”) captioned “Termination of Bank Guaranty,” in which he acknowledged that Rowe-Button might be on the hook for the money previously guaranteed, but would not be liable for any new indebtedness arising after the date of the April 14 Letter. Choiniere’s attorney advised him to “call” the 2003 loan to Button (meaning demand full payment immediately) and not to advance any more money unless the April 8 and 14 Letters were retracted and new assurances were made by his guarantor (Rowe-Button). Button’s attorney wrote to Rowe-Button and Marshall on April 27, 2014 (the “April 27 Letter,” so sorry for this) demanding that Rowe-Button, both individually and as executrix of Button the Elder’s estate, immediately sign letters revoking earlier letters and assure that all guaranties remained in force in accordance with their terms.

Marshall responded on behalf of Rowe-Button one day letter with a tricksy letter (the “April 28 Letter”) upon which the SCOV focuses much of its energy during the appeal decision. The letter was directed to one of Choiniere’s attorneys, acknowledging the April 8 Letter terminating all guaranties and stating the following: “We have been authorized by our clients to deliver this letter to you. BE ADVISED THAT THE TERMINATION NOTICE IS HEREBY REVOKED AND RESCINDED. If you have any questions, please do not hesitate to contact me.” With all metaphorical firearms theoretically holstered, Choiniere, through his company P & D Consulting, loaned an additional $1.3 million to Button.

Litigation got underway the following year. Button filed a complaint in 2005 seeking a declaration that Rowe-Button’s signature on the guaranty was valid. In 2006, Button filed for bankruptcy and bowed out of all litigation, but before he was removed, Choiniere (and his company P & D Consulting, which I will inconsistently lump in as collectively “Choiniere” going forward) intervened, jumping onto the stage all like “Button I’m sorry you’re bankrupt, and I’m’a let you finish, but I’m asserting a claim against your stepmother for the guaranteed balance on that $1 million.”

Choiniere and Rowe-Button each filed motions for summary judgment in 2008 around the question of whether the April 28 Letter rescinding the prior termination letters estopped Rowe-Button from reneging on any guaranties. Choiniere claimed that the April 28 Letter misled him into believing that any guaranties would be honored, and he relied on the letter when making business decisions such as whether to loan the additional $1.3 million to Button. Rowe-Button opposed and cross-moved for summary judgment on the same theories advanced by Choiniere (ratification, equitable estoppel, and waiver), claiming that she never authorized Marshall or his firm Harris Beach, PLLC, to send the April 28 Letter. The trial court denied both motions, except Rowe-Button’s motion with respect to Choiniere’s waiver claim. The court concluded there were material facts in dispute as to whether Rowe-Button approved the April 28 Letter and whether she was equitably estopped from claiming she had not authorized it. The court also concluded that the issue of damages was an issue for trial. Finally, the court found at that stage of proceedings that Choiniere had received the April 28 Letter, interpreted it as an affirmance of Rowe-Button’s status as guarantor, and relied upon it when loaning the additional $1.3 million to Button.

In response to the court’s ruling, Choiniere added Marshall and his law firm (collectively “Marshall”) to the case in January 2009, claiming in his fourth amended complaint that Marshall and Harris Beach were liable to him for fraud in the inducement and negligent misrepresentation in connection with the April 28 Letter (again, that was the one that rescinded previous letters that had claimed to terminate all guaranties). Choiniere then settled the case against Rowe-Button, leaving only Marshall and his law firm as defendants.

Marshall and his firm moved for summary judgment on four theories: 1) the April 28 Letter was not false in any material sense; 2) the letter was not intended to induce anyone to loan $1.3 million to Button; 3) the lenders did not justifiably rely on the letter as meaning Rowe-Button had relinquished her claim of forgery (remember that?); and 4) there was no evidence that shows what Choiniere would have collected on the $1 million note or any guaranty at the time that letter was sent.

In the court’s March 19, 2013 decision, it first rejected Marshall’s claim that it lacked personal jurisdiction over the defendants, before granting summary judgment to Marshall on three separate grounds. First, the Court found that the April 28 Letter did not contain false promises, because it did not respond to the specific demands made by Button’s counsel in the April 27 Letter (demanding clear adherence to the guaranties), did not retract the April 14 Letter (noting that Rowe-Button would not be liable for any future indebtedness beyond the initial $1 million), made no promises of any kind, did not indicate that Rowe-Button continued to guarantee the $1 million loan, and did not retract Rowe-Button’s claim that the original guaranty was forged. Second, the court found that Choiniere did not show that his reliance on the April 28 Letter was justified, because his own attorney at the time advised him not to loan any additional money without obtaining clear new assurances, and furthermore, neither Choiniere nor his attorney contacted Marshall (as he invited them to) to clarify the terms of the April 28 Letter. Third, evidence of damages was speculative. The appeal to the SCOV (and opportunity for a law blog article so dry you could rub steaks with it) followed.

On appeal, Choiniere identifies the major issue as whether Marshall and his law firm, either fraudulently or negligently, stated that Rowe-Button withdrew her ‘forged signature’ claim, thereby causing Choiniere not to call the $1 million note and inducing his company P & D Consulting to make the additional $1.3 million loan. Choiniere argues that there are the following material disputes of fact: 1) Rowe-Button authorized Marshall to rescind her previous attempt to terminate her guaranty; 2) Marshall said that Rowe-Button had withdrawn her claim that she was not liable for future advances on the note, but not her claim that her purported signature on the guaranty was forged; 3) Marshall wrote the rescission letter with an intent to deceive Choiniere and his company; and 4) the parties dispute the meaning of the term “termination of guaranty.” Choiniere also argues that a reasonable jury could find that Marshall caused him some economic loss. Marshall says no, there are no material facts in dispute, Choiniere didn’t address the trial court’s conclusion that there was no justifiable reliance (an independent ground for summary judgment), and finally the claim of his company P & D Consulting is barred by the statute of limitations. And he has an ugly face.

The SCOV lays out some ground rules like only it can. We’re gonna have a good clean fight. Because we’re reviewing a motion for summary judgment, we’re not going to afford the lower court’s decision any deference. Summary judgment is granted when the record clearly shows there’s no genuine issue of material fact and the movant (Marshall in this case because he won) is entitled to judgment as a matter of law. We’ll afford the nonmoving party (Choiniere) all reasonable doubts and inferences.

The SCOV doesn’t buy the lower court’s rationale for granting Marshall’s summary judgment motion. Choiniere’s lawyer told him not to make any additional loans unless Rowe-Button’s letters were retracted and new assurances were made. Choiniere’s lawyer contacted the lawyer for Button (the son), asking him to obtain a retraction or other guaranty from Rowe-Button that the guaranties remained in place, that the old loan was still guaranteed, and that she withdrew the forgery claim. Button’s lawyer wrote to Rowe-Button’s lawyer demanding they do those things, and one day later Marshall sent the April 28 letter at issue. While the trial court found the letter to be non-responsive to almost all the demands made by Button’s lawyer and therefore a rejection of the proposed terms, the SCOV says the letter isn’t an invitation to contract (by which we would examine acceptance or rejection of proposed terms), but rather a clarification of whether the original guaranty remained in force (by which we examine the impact the letter had on the guaranty). So the trial court goofed up by framing the question as whether Choiniere had sufficient evidence to persuade a jury that the letter contained a false promise. The April 28 letter either rescinded and revoked any guaranty of future indebtedness while preserving the forgery claim, or it rescinded and revoked everything sent by Rowe-Button in her earlier letters, leaving the guaranty in place and rescinding the forgery claim. This is a material factual dispute that will likely determine who prevails in the case, and therefore summary judgment is inappropriate.

As to Choiniere’s claim of reasonable or justifiable reliance, he can rely on a representation when it is not obviously false and the truth of the representation is not “within his knowledge” (I guess meaning “should know based on information he has”) or actually known by him. Given Marshall’s common sign-off in the letter (“if you have any questions, please do not hesitate me,” one of my favorites as well), that’s not a suggestion that Choiniere might misinterpret the letter and therefore should reach out to him. So justifiable reliance remains a disputed issue for trial. As to issue of whether Marshall was authorized to send the April 28 letter, the trial court shouldn’t have glossed over it, because whether Rowe-Button revoked her guaranty agreement was clearly in dispute and material to the case (Rowe-Button deposed that she repeatedly indicated to Marshall her signature was forged and she wouldn’t pay on the guaranty).

As to the evidence of damages arising from Choiniere not calling the $1 million note, Choiniere needed to show that money could have been collected on the note and guaranty at the time Marshall sent the April 28 letter. Choiniere’s damages expert assumed in his report that Choiniere would have been able to do so. There’s a material factual issue in dispute there in terms of whether the April 28 letter was designed to prevent Choiniere from calling in the $1 million note, and whether redemption on the note was a possibility. Perhaps reasonable people could disagree about whether Button or his company were in a position in April 2004 to pay on that note, but that’s not the same as concluding that Marshall’s actions had no adverse economic impact on Choiniere, as the trial court did.

Also, P & D Consulting’s claim of reliance remains in the case on remand because of the factual dispute as to the April 28 letter rescinded the April 14 letter (disclaiming liability for future indebtedness) as well as the April 8 letter (terminating all guaranties and claiming forgery)…so you can exhale now.

Finally, the SCOV agrees with the trial court’s rejection of Marshall’s claim (taken up originally in the context of a motion to dismiss Choiniere’s fourth amended complaint) that P & D was barred by the statute of limitations, finding sufficient evidence in the record of notice to Marshall of P & D’s claim regarding the additional $1.3 million loan and harm resulting therefrom that the trial court properly allowed the amendment in that complaint.

So basically, there are a number of material issues in dispute that prevent summary judgment, including the state of the parties’ guaranty agreement post-April 28 letter, whether reliance on that letter was justified, whether Marshall was authorized to send it, and whether there are economic damages. Reverse and remand for trial.

So sayeth the High Court.

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