Opinion
ACTION NO. 4:02-CV-497-Y
September 3, 2003
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
Pending before the Court is the Motion for Summary Judgment Against All Defendants, which was filed in this cause on January 10, 2003, by plaintiff Allied Van Lines, Inc. ("Allied"). Defendants filed a response in opposition to the motion on February 6, and Allied filed a reply to the response on February 14. After consideration of the foregoing documents and the applicable law, the Court concludes that Allied's motion should be granted.
I. Facts
Allied is in the business of transporting household goods for customers engaged in moving their residences. Allied's principal place of business is in Naperville, Illinois. Aaron Transfer Storage, Inc. ("Aaron") is also in the business of transporting household goods for customers engaged in moving their residences. Aaron's principal place of business is in Euless, Texas.
Allied contracted with Aaron to act as Allied's agent. The agency agreement was executed on Aaron's behalf by its president, defendant Grant E. Nichols ("Nichols"), on January 21, 1999. The agreement provides that if disputes arise, either party may demand arbitration before the American Arbitration Association ("AAA"), "the decision of which arbitration shall be final and binding." (Pl.'s App. at 81.)
Allied filed a claim against Aaron with the AAA, contending that Aaron owed Allied $129,415.16 under the agency agreement. In response, Aaron filed a counterclaim contending that it was entitled to certain credits for various services it performed while acting as Allied's agent. After a hearing at which Aaron was represented by counsel, the arbitrator awarded Allied the full amount of its claim and denied Aaron's counterclaim in its entirety. Aaron has not paid anything in satisfaction of the arbitration award, nor did it request that the AAA vacate or modify that award.
At the same time Allied and Aaron entered into the agency agreement, Allied also entered into separate guaranty agreements with defendants Grant E. and Jina Nichols, Nichols Transfer, Inc. ("Nichols Transfer") and Best Apartment Movers, Inc. ("Best"). The guaranty agreements with Nichols Transfer and Best were executed by their president, Grant E. Nichols. Each guaranty agreement recites that Allied required the guaranty to ensure "the prompt payment of all monetary obligations due or to become due from [Aaron] pursuant to the Agency Agreement. . . ." (Pl.'s App. at 95.) In the agreements, each guarantor guarantees "the prompt and complete payment of any and all indebtedness of [Aaron], now and hereafter existing, and becoming due and owing to Allied," including attorney's fees and all costs of collection. (Pl.'s App. at 95, 97, 99.) The guarantors also have failed to pay the amount awarded against Aaron in the arbitration.
As a result, Allied filed this suit seeking confirmation of the arbitrator's award against Aaron and requesting that the Court award it prejudgment interest from the date of the award to the date of judgment. Allied also contends that the guarantors have breached the guaranty agreements. Allied seeks summary judgment regarding all of its claims.
II. Summary Judgment Standard
Summary judgment is appropriate when the record establishes "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The party moving for summary judgment has the initial burden of demonstrating that it is entitled to a summary deposition. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party need not produce evidence showing the absence of a genuine issue of material fact with respect to an issue on which the nonmovant bears the burden of proof. Rather, in that situation, the moving party need only point out that the evidentiary documents in the record contain insufficient proof concerning an essential element of the nonmovant's claim. See id. at 323-35. Where, however, the moving party bears the burden of proof on the claim upon which it seeks summary judgment, it must present evidence that establishes "beyond peradventure all the essential elements of the claim or defense." Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986).
When the moving party has carried its summary judgment burden, the nonmovant must go beyond the pleadings and by its own affidavits or by the depositions, answers to interrogatories, or admissions on file set forth specific facts showing that there is a genuine issue for trial. FED. R. CIV. P. 56(e). This burden is not satisfied with some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).
III. Analysis
A. Claim against Aaron 1. Confirmation of Arbitrator's Award
As to Aaron, Allied seeks a summary judgment confirming the arbitrator's award and awarding prejudgment interest on that award. "A confirmation proceeding under 9 U.S.C. § 9 is intended to be summary: confirmation can only be denied if an award has been corrected, vacated, or modified in accordance with the Federal Arbitration Act." Taylor v. Nelson, 788 F.2d 220, 225 (5th Cir. 1986). The Act requires that "[n]otice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." 9 U.S.C.A. § 12 (West 1999). If a party fails to seek relief from the award within the time prescribed by the Act, that party forfeits the right to oppose confirmation of the award if confirmation is later sought by the other party. Lander Co., Inc. v. MMP Inv., Inc. 107 F.3d 476, 478 (7th Cir.), cert., denied, 522 U.S. 811 (1997); Cullen v. Paine, Webber, Jackson Curtis, Inc., 863 F.2d 851, 854 (11th Cir.), cert., denied, 490 U.S. 1107 (1989); Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175 (2nd Cir. 1984).
Aaron wholly failed to timely serve a motion seeking relief from the arbitration award. As a result, it cannot avoid confirmation of that award. Consequently, Allied's motion is granted to the extent it seeks confirmation of the arbitrator's award against Aaron.
indeed, in their response, Defendants do not strenuously contest Allied's request for confirmation. See Defs.' Br. in Opposition to Pl.'s Mot. for Summ. J. at 3.
2. Prejudgment Interest
Allied seeks prejudgment interest on the arbitrator's award from the date of that award until the date of judgment herein in the amount of nine percent per annum, as provided by Illinois law. Specifically, Allied seeks $14,870.44 in prejudgment interest from November 5, 2001 (the date of the arbitration award) through February 14, 2003 (the date of Allied's reply brief), plus an additional $31.91 per day for every day thereafter through entry of judgment.
In a case based on diversity jurisdiction such as this one, "`the recovery of interest prior to the date of judgment as an element of damages is a substantive question controlled by [the] state law governing the claim giving rise to the damages." Wood v. Armco, Inc., 814 F.2d 211, 213 n. 2 (5th Cir. 1987) (quoting Colonial Refrigerated Transp., Inc. v. Mitchell, 403 F.2d 541, 552 (5th Cir. 1968); see also Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1329 (5th Cir. 1994) (holding that state law governs the award of prejudgment interest on an arbitrator's award); Northrop Corp. v. Triad Int'l Mktg. S.A., 842 F.2d 1154, 1155 (9th Cir. 1988) (concluding that state law determines the rate of post-award, prejudgment interest in a diversity action seeking to enforce an arbitration award under the Federal Arbitration Act); contra Sun Ship, Inc. v. Matson Navigation Co., 785 F.2d 59, 63 (3rd Cir. 1986). The agency agreement entered into between Allied and Aaron that forms the basis of the parties' dispute specifically provides that the contract will "be interpreted in accord with the laws of Illinois." (Pl.'s App. at 81, ¶ 3.18.) Illinois law provides for interest at a rate of nine percent per annum from the date of an arbitration award until entry of judgment. See 735 ILL. COMP. STAT. 5/2-1303 (2003); Ryan v. Kontrick, 710 N.E.2d 11, 17 (Ill.App.Ct. — 1st Dist. 1999).
In response to Allied's request for prejudgment interest, Defendants contend that "[i]t is generally held that a trial court confirming an arbitration award may not add pre-judgment interest upon such award where such interest has not already been made a part of such award." (Defs.' Reps, at 3.) In support of that allegedly "generally held" proposition, Defendants cite only one case: Nuno v. Pulido, 946 S.W.2d 448, 451-52 (Tex.App.-Corpus Christi 1997, no writ).
In Nuno, the plaintiff brought a personal injury suit for injuries sustained as a result of a car accident that occurred in 1990. Id. at 450. The parties ultimately agreed to resolve their dispute through binding arbitration. Id. The arbitrator issued his award in 1995, and several weeks thereafter the trial court entered judgment in the amount awarded by the arbitrator. Id. The trial court also included in the judgment, however, an award of prejudgment interest that "represent[ed] accrual of interest on the arbitration award at an annual rate of 10% for approximately five years." Id. at 450-51 n. 2. Thus, in addition to the amount awarded by the arbitrator, the trial court's judgment included prejudgment interest from the date of the injury to the date of the arbitrator's award. The appellate court reversed, concluding that the parties' agreement to settle their claims by submitting them to binding arbitration included their claim for prejudgment interest. Id. at 451-52. Thus, the arbitrator's award included the claim for prejudgment interest, and the trial court's decision to award prejudgment interest for the period preceding the arbitrator's award conflicted with the parties' agreement to submit all claims to binding arbitration. Id.
Here, Allied does not seek prejudgment interest for the period prior to the arbitrator's award. Rather, Allied seeks prejudgment interest from the date of the arbitrator's award to the date of the judgment confirming that award. Not only is this interest permitted by Illinois law, but awarding such interest is also consistent with this Court's duty to ensure that its judgment confirming the award reflects what would have happened had Aaron immediately complied with the award. See Marion Mfg. Co. v. Long, 588 F.2d 538, 542 (6th Cir. 1978) ("[A] court's judgment confirming an arbitration award must reflect what would have happened had the parties immediately complied with the award instead of going to court."). As a result, the Court concludes that Allied should be awarded prejudgment interest from the date of the arbitrator's award until the date preceding entry of judgment at the rate of nine percent per annum, as provided by Illinois law. Thus, Allied shall recover $14,870.44 in prejudgment interest from November 5, 2001 to February 14, 2003, plus $31.91 per day thereafter until the date this Court's judgment is entered on the docket. B. Claims against the Guarantors 1. Applicable Law
Entry of judgment will occur on September 3, 2003. Thus, Allied's prejudgment-interest award will total $21,252.44 ($14,870.44 plus $6,382.00 (200 days at $31.91 per day)).
Allied also seeks summary judgment on its claims against the guarantors. The parties apparently disagree regarding which state's law applies to the guaranty agreements, inasmuch as Allied contends that Illinois law applies, (Pl.'s Br. at 6 n. 1.), while Defendants' brief cites primarily Texas law.
In determining which state's law to apply, a federal court whose jurisdiction is based on diversity of citizenship must apply the choice-of-law rules of the forum state. Marchesani v. Pellerin-Milnor Corp., 269 F.3d 481, 485 (5th Cir. 2001). Texas follows the Restatement (Second) of Conflicts of Laws ("the Restatement") in determining which state's law applies to contractual agreements. Maxus Exploration Co. v. Moran Bros., Inc., 817 S.W.2d 50, 53 (Tex. 1991).
When a contract does not contain a choice-of-law provision, the Restatement provides that the law of the state with the most significant relationship to the transaction and the parties should be applied. RESTATEMENT (SECOND) OF CONFLICT OF LAW § 188(1) (1971); Maxus, 817 S.W.2d at 53. In determining which state has the most significant relationship, section 188(2) of the Restatement counsels that a court consider: "(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties." RESTATEMENT § 188(2); Maxus, 817 S.W.2d at 53. When the parties' contract contains a choice-of-law provision, however, that provision will be respected if: (1) the chosen jurisdiction bears a substantial relationship to the transaction, and (2) the law of that jurisdiction is not contrary to the fundamental policy interests of any state with a materially greater interest in the issue which, under the most-significant-relationship test of section 188 of the Restatement, would provide the applicable state law in the absence of the choice-of-law provision. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677-78 (Tex. 1990) (relying on section 187 of the Restatement).
The guaranty signed by Grant and Jina Nichols guaranteeing Aaron's performance under the underlying agency agreement contains a choice-of-law provision. Specifically, the Nichols guaranty provides that "[t]his guaranty shall be governed and construed and enforced in accordance with the laws of the State of Illinois." (Pl.'s App. at 96.) Allied's corporate headquarters are located in Naperville, Illinois, (Pl.'s App. at 65), Allied performed several of its duties under the underlying agency agreement with Aaron in Illinois, (Pl.'s App. at 65-66), and Aaron made the payments required by the underlying agency contract to Allied in Illinois, (Pl.'s App. at 66). As a result, the Court concludes that the transaction and parties at issue in the Nichols' guaranty bear a sufficient relationship to Illinois to warrant enforcement of the agreed upon choice-of-law provision. See Uniwest Mortgage Co. v. Dadecor Condominiums, Inc., 877 F.2d 431, 435 (5th Cir. 1989) (concluding that Colorado bore a sufficient relationship to the transaction and parties to warrant enforcement of a choice-of-law provision in favor of Colorado law where one party's principal place of business was in Colorado and the other party made loan payments on the loan at issue in Colorado).
The question thus becomes whether Illinois law is contrary to the fundamental policy interests of any state with a materially greater interest in the issue. This "second inquiry . . . involves two standards: first, whether Texas' interest in the contract is materially greater than [Illinois's] interest in the contract, and if so, only then whether application of [Illinois] law to the contract would be contrary to a fundamental policy of Texas." Id. In determining whether Texas's interest in the Nichols guaranty is materially greater than Illinois's, this Court must examine the evidence in light of the factors enumerated in section 188(2) of the Restatement. Id. In other words, the Court must determine whether, if there were no choice-of-law provision, Texas law would apply because it has the most significant relationship to the transaction and parties at issue in the Nichols guaranty. If Texas does not have the most significant relationship, the inquiry ends and the Court applies the law chosen by the parties. If Texas has the most significant relationship, however, the Court must then decide whether Illinois law — the law chosen by the parties in the Nichols guaranty — is contrary to the fundamental policy interests of Texas.
This inquiry under section 188(2) of the Restatement will also determine the law applicable to the remaining guaranty agreements with Nichols Transfer and Best. The guaranty agreements with Nichols Transfer and Best do not contain the same choice-of-law provision in favor of Illinois law that is contained in the Nichols guaranty. As a result, the most-signficant-relationship test of section 188 determines the law applicable to the Nichols Transfer and Best guaranty agreements. See Maxus, 817 S.W.2d at 53.
As previously mentioned, in determining which state has the most significant relationship to the transaction and the parties, the court considers the following factors: "(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties." RESTATEMENT § 188(2); Maxus, 817 S.W.2d at 53. Allied is a Delaware corporation with its principal place of business in Illinois. The individual defendants are citizens of Texas, and the defendant corporations are Texas corporations with principal places of business in Texas. Thus, the location of the parties gives each state an equal interest. It appears, however, that the guaranty agreements were signed in Illinois. Grant Nichols executed all of the guaranty agreements, either in his individual capacity or as president of the guarantors, on the same day that he executed, on behalf of Aaron, the agency agreement. The agency agreement specifically recites that it was "made and entered into at Naperville, Illinois." (Pl.'s App. at 82, ¶ 3.18). Thus, the place-of-contracting factor favors Illinois. No evidence has been presented regarding the place of negotiation of either the guaranty or agency agreements. Regarding the place of performance, the Court notes that the guaranty agreements guaranteed Aaron's performance under the agency agreement. Under that agreement, Aaron was to act as Allied's agent "for booking, transporting and otherwise servicing interstate shipments to be carried by Allied trucks and equipment." (Pl.'s App. at 66, ¶ 3.) Little evidence has been presented demonstrating where Aaron performed these services. Nevertheless, the evidence demonstrates that Allied performed various administrative functions for Aaron under the agreement at its corporate headquarters in Illinois, and Aaron forward paperwork and payments due under the agency contract to Allied in Illinois. (Pl.'s App. at 65-66.) As a result, based on the evidence presented by the parties, the Court concludes that Illinois has a more significant relationship to the transaction and parties than Texas. Illinois law therefore will be applied to the Nichols Transfer and Best guaranty agreements. Furthermore, because Texas does not have a materially greater interest in the issue than Illinois, the parties' choice of Illinois law in the Nichols guaranty will be enforced. See Uniwest, 877 F.2d at 436. 2. Recovery Under the Guaranty Agreements
Aaron has not presented any evidence to the contrary.
In order to recover on the guaranty agreements under Illinois law, Allied must demonstrate that: (1) that there was consideration for the guaranty, (2) the principal obligation has matured, and (3) the principal obligors have defaulted. See 20 ILL. LAW PRAC., Guaranty § 64 (2003). Under Illinois law, "a contract guaranteeing the payment of a note or a debt is an absolute contract, and by it the guarantor undertakes, for a valuable consideration, to pay the debt at maturity if the principal debtor fails to do so, and upon it, if the debt is not paid at maturity, the guarantor may be sued at once." Beebe v. Kirkpatrick, 152 N.E. 539, 541 (1926). An absolute guarantor is "liable immediately upon default of the principal, without notice." Lawndale Steel Co. v. Appel, 423 N.E.2d 957, 960 (Ill.App.Ct. 1981).
Each guaranty was executed at the same time as the execution of the underlying agency contract between Allied and Aaron; thus, consideration for each guaranty agreement exists in the form of the consideration exchanged between Allied and Aaron. See Dillman v. Nadelhoffer, 43 N.E. 378, 378-79 (Ill. 1895); First Nat'l. Bank of Red Bud v. Chapman, 366 N.E.2d 937, 940 (Ill.App.Ct. 1977). There is no question but that the principal obligation has matured; Allied and Aaron agreed in the underlying agency agreement to refer all disputes to arbitration, and the arbitrator issued his award over one year ago. And, it is undisputed that Aaron has paid nothing against the debt. Thus, Allied has demonstrated that under Illinois law, it is entitled to a summary judgment enforcing the guaranty agreements.
Even assuming Texas law applies, however, summary judgment is nevertheless appropriate. Under Texas law, Allied must demonstrate that each guarantor signed the guaranty, that Allied is the legal holder and owner of the guaranty, and that a sum certain is due and owing on the guaranty. See RTC v. Crow, 763 F. Supp. 887, 892 (N.D. Tex. 1991). There appears to be no dispute regarding the first two factors; rather, Defendants contend that Allied has failed to demonstrate that a sum certain is due and owing on the guaranty. According to Defendants, the arbitration award cannot be enforced against the guarantors because they did not have notice of and an opportunity to be heard at the arbitration proceeding. As a result, because that award is the only evidence Allied presented regarding the amount owed by Aaron, Defendants contend Allied has not demonstrated that a sum certain is due.
Defendants' argument loses sight of the fact, however, that the guaranty agreements absolutely guaranty Aaron's debts to Allied and specifically refer to the underlying agency agreement between Allied and Aaron. That agreement provides that all disputes regarding the amount Aaron owed to Allied would be resolved by arbitration. Because the guarantors guaranteed Aaron's performance under a contract that provided for arbitration, the guarantors agreed to be bound by the arbitrator's award. See Empire Steel Corp. Of Texas v. Omni Steel Corp., 378 S.W.2d 905, 911 (Tex.Civ.App.-Fort Worth 1964, writ ref'd n. r. e.) ("We believe it must be presumed that by making specific reference in the guaranty instrument to [the principal's] losses under the contract, which contract contained the arbitration provisions, [the guarantor] intended to and did obligate itself that the losses be determined in the manner therein stated."); see also Grundstad v. Ritt, 166 F.3d 867, 872 (7th Cir. 1999) (applying Illinois law; concluding that because an absolute guarantor is liable immediately upon default of the principal, without notice, guarantor was liable under the guaranty even though he did not receive notice of the arbitration between the principal and its creditor).
Defendants also contend that Allied's cancellation of the agency contract with Aaron in September 1999 constitutes a material alteration that discharges the guarantors. A guarantor is released from his guaranty when there is a material alteration to the underlying contract made without the guarantor's consent. Palen v. Cullom Capital Woodworking, Inc., 506 N.E.2d 1062, 1063 (Ill.App.Ct. 1997); Austin Hardwoods, Inc. v. Vanden Berghe, 917 S.W.2d 320, 325 (Tex.App.-El Paso 1995, writ denied). Material alteration is an affirmative defense and requires that the guarantor demonstrate an alteration to the underlying contract "that either injures or enhances the risk of injury to the guarantor." Austin Hardwoods, 917 S.W.2d at 326.
Defendants have wholly failed to demonstrate that a material alteration was made to the agency agreement between Allied and Aaron. Allied's cancellation of the underlying agreement simply was not an alteration; indeed, the agency contract permitted Allied to cancel the contract upon three months' notice for any reason and upon ten days' notice in the event of Aaron's breach. (Pl.'s App. at 80.) Allied's cancellation did not injure or enhance the risk of injury of the guarantors under the guaranty agreements — the guarantors were obligated to pay all of Aaron's debts to Allied under the agency agreement before the cancellation, and they remained obligated exactly to that same extent after the agency agreement was cancelled. Indeed, as Allied notes in its reply brief, Defendants' contention would lead to an absurd result; instead of cancelling the agency agreement and thus limiting the amount of damages Aaron owed under the agreement, Defendants suggest that Allied must, in order to recover from the guarantors, refrain from cancelling the contract, which presumably would only increase the amount of Aaron's, and thus the guarantors', debt to Allied. Defendants have wholly failed to show that the law requires such a result.
3. Attorneys' Fees
Allied also seeks summary judgment on its claims for attorneys' fees against the guarantors. In the guaranty agreements, the guarantors agreed to pay all costs of collection, including attorneys' fees, incurred by Allied in collecting the underlying debt. (Pl.'s App. at 95, 97, 99.) Allied has requested a total of $49,775.48 in legal fees and has submitted affidavits in support of that request averring that the fees were reasonable and necessary. In response, Defendants contend that "`[w]hether the attorney's fees are reasonable and necessary are fact questions.'" (Def.'s Resp. at 13 (citing Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). While that may be true, Defendants have wholly failed to present any evidence tending to suggest that the fees requested by Plaintiffs were not reasonable and necessary. As a result, Defendants have failed to create a genuine issue of material fact regarding this issue, and Plaintiff is entitled to summary judgment regarding its request for attorney's fees as well.
IV. Conclusion
For the foregoing reasons, the Court concludes that Allied's Motion for Summary Judgment [document number 41] should be and is hereby GRANTED. The judgment of the arbitrator awarding Allied $129,415.16 is hereby CONFIRMED. Allied shall have and recover from Defendants $129,415.16, plus prejudgment interest in the amount of $21,252.44. Additionally, Allied shall recover from the guarantor defendants attorneys' fees in the amount of $49,775.48.