Opinion
NO. 2013-CA-000945-MR
06-05-2015
CENTER LINE DEVELOPMENT, LLC AND TIMOTHY REESE APPELLANTS v. PNC BANK, NATIONAL ASSOCIATION APPELLEE
BRIEF FOR APPELLANT: James G. Woltermann Jennifer H. Langen Covington, Kentucky BRIEF FOR APPELLEE: James M. Lloyd W. Scott Sinnett Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM KENTON CIRCUIT COURT
HONORABLE GREGORY M. BARTLETT, JUDGE
ACTION NO. 11-CI-03090
OPINION
AFFIRMING
BEFORE: JONES, KRAMER, AND D. LAMBERT, JUDGES. JONES, JUDGE: PNC Bank, National Association ("PNC") filed suit in Kenton Circuit Court after Center Line Development, LLC ("Center Line") defaulted on a business line of credit agreement, which Timothy Reese personally guaranteed. The circuit court entered summary judgment in favor of PNC. On appeal, Reese maintains the circuit court erred because the guaranty he signed is unenforceable under Kentucky Revised Statute ("KRS") 371.065(1). Alternatively, Reese argues that his personal liability should be limited to $10,000.00.
I. BACKGROUND
Center Line is a Kentucky Limited Liability Company. Reese is a member of Center Line. Sometime in the first half of 2005, PNC offered Center Line a business line of credit. According to Reese's August 27, 2012 affidavit, several documents were included as part of the mail solicitation PNC sent to Center Line: a Business Banking Line of Credit Agreement ("LOC"); Business Banking Line of Credit Agreement-Additional Terms ("Amendment"), and a Corporate Resolution.
The LOC is a nine-page document. It lists the borrower as Center Line, the bank as PNC, the maximum credit limit as $10,000.00, and the date of loan as March 4, 2005. Page two of the LOC agreement contains a "Definitions" section. Therein, "Agreement" is defined as "this Business Banking Line of Credit and any amendment or addendum to this Agreement." "Maximum Credit Limit" or "Maximum Credit" is defined as follows: "the total dollar amount of credit available to you from time to time, the initial amount of which is identified on the first page of the agreement." The LOC goes on to explain that the maximum credit limit "may change from time to time and which [change] will appear on your monthly billing statement."
The Amendment is a five-page document. It lists Center Line as the "borrower" and is addressed to "Mr. Tim Reese." Page one of the Amendment is in the nature of a form letter. It states:
Dear Tim Reese:
Congratulations! We are delighted that you are a PNC Business Banking customer. To thank you for your business, the special terms indicated below apply to your unsecured line of credit. The provisions of these Additional Terms shall supersede any inconsistent provisions of the enclosed Business Banking Line of Credit Agreement (the Agreement) and shall be deemed to be an Amendment to the Agreement issued in accordance with Section 25 of the Agreement. Thank you for your business.
Manager, Ft. Mitchell Branch
The Amendment goes on to state that unless otherwise indicated the "definitions and terms used" in the Amendment "shall have the meanings assigned to those terms in the Agreement [LOC]." Page 4, paragraph 6 of the Amendment contains the "Guaranty" section at issue. In relevant part, the Guaranty states:
6. Guaranty. In consideration of the extension of credit from the Bank to the Borrower and other good and valuable consideration, each of the undersigned owners (individually, a "Guarantor" and collectively the "Guarantors" hereby jointly and severally guarantees, and becomes surety for, the prompt payment and performance, when due, of all obligations owing by the Borrower to the Bank, whether now existing or hereafter due under the Terms and Conditions (collectively the "Obligations"). This guaranty is absolute, unconditional, irrevocable and continuing and will remain in full force and effect until all of the Obligations have been paid in full.
The fifth and last page of the Amendment contains two signature blocks. The first block is for the borrower and instructs that if the borrower is a corporation "the officer(s) named in the attached resolution must sign." Reese signed this block as a member of Center Line. The second signature block is for the "Guarantor(s)". The instructions for this block state that "all owners and principals of the borrower must sign as guarantors." Reese signed this block in his personal capacity. Both signatures are dated March 3, 2005.
Reese also signed and dated the last of the three documents, the Corporate Resolution. Therein, he certified that he was an officer of Center Line authorized to apply for credit and to enter into loan agreements on behalf of the corporation. Reese also dated his signature on this document as March 3, 2005.
Although the LOC listed the maximum line of credit as $10,000.00, it is undisputed that Center Line quickly exceeded that amount. It is also undisputed that as early as March 10, 2005, approximately a week after Reese signed the Amendment, PNC sent an account statement to Center Line listing the maximum amount of credit as $100,000.00. PNC sent similar statements to Center Line on April 8, 2005, May 10, 2005, April 8, 2011, May 10, 2011, and June 9, 2011. As of May 10, 2005, Center Line had already drawn approximately $50,000.00 on its PNC line of credit.
On December 6, 2011, PNC filed suit against Center Line and Reese. PNC alleged in its complaint that Center Line and Reese were jointly and severally liable to it for the sum of $94,288.70. PNC attached the LOC, Amendment, and Resolution to its complaint. On July 30, 2012, PNC moved for summary judgment. Reese responded by filing his own summary judgment motion. Reese argued in his motion that he was entitled to a judgment in his favor on the basis that the guaranty agreement is invalid under KRS 371.065.
Reese supported his motion with an affidavit. Reese averred that when he signed the Amendment, he was under the impression that the line of credit was solely Center Line's obligation. Reese stated that his understanding in this regard was based on the language in the Amendment referring to the line of credit as "unsecured." Reese further averred that he "was shocked when he was advised by his attorney that the Agreement with PNC contained guaranty language." Reese also stated in his affidavit that he never agreed to "guarantee a $100,000.00 line of credit" for Center Line's benefit. He further asserts that there was no mistake as to the amount of the line he was guaranteeing because at no time prior to PNC filing its lawsuit was he "ever advised by PNC that the [] line of credit was being secured by [his] personal guarantee."
On April 1, 2013, the Kenton Circuit Court entered judgment in favor of PNC. With respect to Reese's personal liability the circuit court found as follows:
On March 3, 2005, the Defendant, Timothy Reese, attached his signature to the Business Banking Line of Credit Agreement Additional Terms which superseded and became an amendment to the aforementioned Business Banking Line of Credit Agreement. The Defendants argue that the Defendant Reese cannot be held responsible for the guarantee, claiming that the Agreement violated the provisions of KRS 371.065. The Court finds that the agreement signed by the Defendant, Reese, does not violate the provisions of KRS 371.065. He signed the Business Banking Line of Credit. There is no violation of the statute.
The circuit court then entered a judgment in favor of PNC against Reese and Center Line, jointly and severally, "in the amount of $94,288.70 with interest thereon at the rate of 8% from and after October 26, 2011, and 12 per annum from the date of the judgment herein" along with costs and reasonable attorney's fees.
This appeal followed.
II. STANDARD OF REVIEW
The standard of review on appeal of a summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996) (citing Kentucky Rules of Civil Procedure (CR) 56.03). "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr, Inc., 807 S.W.2d 476, 480 (Ky. 1991).
"Because summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court's decision and will review the issue de novo." Lewis v. B&R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001).
III. ANALYSIS
We begin our analysis with KRS 371.065. It provides:
(1) No guaranty of an indebtedness which either is not written on, or does not expressly refer to, the instrument or instruments being guaranteed shall be valid or enforceable unless it is in writing signed by the guarantor and contains provisions specifying the amount of the maximum aggregate liability of the guarantor thereunder, and the date on which the guaranty terminates.
Termination of the guaranty on that date shall not affect the liability of the guarantor with respect to:
(a) Obligations created or incurred prior to the date; or
(b) Extensions or renewals of, interest accruing on, or fees, costs or expenses incurred with respect to, the obligations on or after the date.
(2) Notwithstanding any other provision of this section, a guaranty may, in addition to the maximum aggregate liability of the guarantor specified therein, guarantee payment of interest accruing on the guaranteed indebtedness, and fees, charges and costs of collecting the guaranteed indebtedness, including reasonable attorneys' fees, without specifying the amount of the interest, fees, charges and costs.
"The statute identifies three scenarios under which a guaranty may be valid or enforceable: (1) the guaranty may be written on the instrument being guaranteed; (2) the guaranty may 'expressly refer to' the instrument(s) being guaranteed; or (3) the guaranty may specify the guarantor's maximum aggregate liability and the date the guaranty ends."
"Few cases interpret KRS 371.065, but those that do recognize its goal is to 'reduce the risk' a consumer will agree to an unknown obligation—not to 'eliminate' all unknown obligations." Buridi v. Leasing Group Pool II, LLC, 447 S.W.3d 157, 172 (Ky. App. 2014) (citing Alliant Tax Credit Fund 31-A, Ltd. v. Nicholasville Community Housing, LLC, 663 F. Supp. 2d 575, 582 (E.D. Ky. 2009)). Under the statute, a guaranty agreement "which either is . . . written on, or . . . expressly refer[s] to, the instrument or instruments being guaranteed" is not required to specify the guarantor's maximum liability or the guaranty's termination date. Wheeler & Clevenger Oil Co., Inc. v. Washburn, 127 S.W.3d 609, 614-15 (Ky. 2004).
The statutory provision is intended to safeguard the guarantor:
KRS 371.065's requirement that a guaranty state the guarantor's maximum liability and the guaranty's termination date is a consumer-protection provision designed to protect the guarantor by reducing the risk of a guarantor agreeing to guarantee an unknown obligation. When the guaranty agreement is found on the document being guaranteed, however, that risk is negligible, which KRS 371.065 recognizes by exempting such guaranty agreements from its heightened requirements.Id. at 615.
As it did before the circuit court, PNC maintains that the guaranty at issue is "written on the document being guaranteed." Reese claims that this is impossible because the LOC is dated March 4, 2005, a day after Reese signed the guaranty on March 3, 2005.
The record does not contain an explanation for the disparity in dates. Nevertheless, Reese's affidavit is clear that the LOC was mailed to him along with the Amendment. Therefore, it is undisputed that both documents were in existence and in Reese's possession when he signed the Amendment, containing the guaranty, and dated it March 3, 2005. It is equally clear that the LOC and Amendment are part and parcel of the same document. The LOC defines the agreement as "this Banking Line of Credit Agreement and any amendment or addendum to this Agreement." Likewise, the Amendment specifically indicates that it "shall be deemed to be an Amendment" to the LOC "issued in accordance with Section 25 of the Agreement. Section 25 provides: "[w]e may amend this Agreement from time to time, in any respect, by giving you written notice where required by law. Such amendments will apply to outstanding balances and new loans except as otherwise indicated in the written notice. If you do not agree to be bound by the terms of any amendment, you must notify us of your election to terminate the account pursuant to Section 20 of these Terms and Conditions within thirty (30) days of the date we sent you our notice of the amendment."
Paragraph 3-7 of Reese's August 27, 2012 affidavit states as follows:
3. That CLD [Center Line] received a solicitation from PNC in the mail offering an unsecured line of credit.
4. That CLD [Center Line] had no banking relationship with PNC prior to the Line of Credit Agreement.
5. That CLD [Center Line] received the Line of Credit Agreement, Amendment to Line of Credit Agreement, and Resolution in the mail from PNC.
6. That CLD [Center Line] closed on the Line of Credit by mail by executing the documents and returning them to PNC.
7. That there was no closing with any PNC loan officer or at PNC.
The circuit court held that the guaranty fulfilled the statutory requirements because the second document containing the guaranty paragraph incorporated or referred to the first document. We agree. The second document, the Amendment, refers to the LOC numerous times (indeed, in its very title), thus incorporating it by reference. Smith v. Bethlehem Sand & Gravel Co., LLC, 342 S.W.3d 288 (Ky. App. 2011). As set forth earlier, the opening paragraph of the second document, addressed directly to Reese, states that its terms supersede any inconsistent provisions in the first document, and that it is deemed an amendment to that agreement. The document being guaranteed is comprised of two documents, the LOC and the Amendment. Thus, the guaranty is valid because it was "written on" this cohesive instrument.
Center Line nonetheless contends that the facts are analogous to those in two federal district court cases holding guaranties unenforceable under Kentucky law. In BP Products North America Inc. v. McGuirk Oil Co., Inc., Civil Action No. 1:10-CV-00089-JHM, 2011 WL 2149627 (W.D. Ky. June 1, 2011), the invalid guaranties were separate documents that were not attached to the contracts at issue, and were signed long after (at least nineteen days) the execution of the contracts. In invalidating the guaranties, the federal court observed that the language of the guaranty "does not indicate that it is to be made a part of any existing contract but instead appears to have been written generally so as to enable it to apply to 'any and all indebtedness ... howsoever such indebtedness may arise.'" Id. at *6. By contrast, the guaranty in this case is located in a document incorporated by reference into the contract at issue, and the only document actually signed by Reese.
In the other federal case, Guangzhou Consortium Display Product Co., Ltd. v. PNC Bank, Nat. Ass'n, 956 F.Supp.2d 769, 791 (E.D. Ky. 2013), the guaranties were not written on the instrument being guaranteed, were not signed by the guarantor, and did not specify the amount of liability and the date of termination. The only disputed issue was whether the guaranties expressly referred to the instrument being guaranteed. Because the guaranty in this case was written on the instrument being guaranteed, the analysis in Guangzhou is not directly pertinent.
Finally, the parties dispute the maximum amount of credit extended by PNC that is covered by the guaranty. Reese argues that it is only $10,000.00 as stated on LOC; he contends that the circuit court impermissibly reformed the LOC when it stated that the amount should have been $100,000.00. He further asserts that there was nothing in either the LOC or the Amendment that would have put him on notice that he was guaranteeing any amount in excess of $10,000.
The LOC provided that the account had been established "with a Maximum Credit Limit in the amount set forth on the first page of this agreement which may change from time to time and which will appear on your monthly billing statement." Thus, under the express terms of the LOC and Amendment, Center Line and Reese were put on notice that the credit limit could fluctuate, and Center Line subsequently acquiesced in borrowing amounts well over the $10,000.00 stated on the face of the agreement, as evidenced by numerous account statements submitted by PNC which showed a maximum credit limit of $100,000.00.
IV. CONCLUSION
For the reasons set forth above, the Kenton Circuit Court order granting summary judgment to PNC is affirmed.
ALL CONCUR. BRIEF FOR APPELLANT: James G. Woltermann
Jennifer H. Langen
Covington, Kentucky
BRIEF FOR APPELLEE: James M. Lloyd
W. Scott Sinnett
Louisville, Kentucky
(R. at 134).