Opinion
Case No. 99-35768 Adv. No. 99-3664
12-31-2013
In re: DAYTON TITLE AGENCY, INC., Debtor DAYTON TITLE AGENCY, INC. ET AL., Plaintiff v. THE WHITE FAMILY COMPANY, INC. ET AL., Defendant
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
__________
Guy R. Humphrey
United States Bankruptcy Judge
Judge Humphrey
Chapter 7
Memorandum Order Granting Motion of Chapter 7 Trustee for
Judgment on Surety Bond Against The Cincinnati Insurance Company
On September 16, 2013 plaintiff Ruth A. Slone, Chapter 7 Trustee for the estate of Dayton Title Agency, Inc. (the "Trustee"), moved this court to enter judgment against The Cincinnati Insurance Company ("CIC") (doc. 446). CIC is the surety on a supersedeas bond posted in this adversary proceeding by defendant Nelson D. Wenrick (the "Bond"). The Bond was approved by this court on October 8, 2003, along with Wenrick's Expedited Motion to Stay Judgment (doc. 385). The Trustee argues that, according to the terms of the Bond, this court is authorized to enter judgment against CIC by virtue of a recent Sixth Circuit Court of Appeals decision reinstating a 2003 judgment against Wenrick in the amount of $1,379,336.41 (doc. 446). In response, CIC contends that "[b]y its express terms, the supersedeas bond terminated on February 14, 2012, when the District Court reversed the judgment of this Court" (doc. 447 at p. 2).
As will be explained, this court finds that the Bond did not terminate in 2012 when the District Court reversed the 2003 judgment of this court, but remains in full force and effect. Therefore, and consistent with the basic principles of suretyship, the Trustee's motion for judgment on the surety bond against CIC is granted.
Procedural History
Wenrick was one of two recipients of checks for substantial sums written upon a trust account held by Dayton Title Agency, Inc. ("Dayton Title") in October 1999. Dayton Title Agency, Inc. v. White Family Cos., Inc. (In re Dayton Title Agency, Inc.), 292 B.R. 857, 864 (Bankr. S.D. Ohio 2003). Once these checks were negotiated, Dayton Title's account became overdrawn by more than $4 million, and the company was forced to file for Chapter 11 bankruptcy. Id. Following its bankruptcy filing, Dayton Title initiated an adversary proceeding against Wenrick to recover the $1,625,000 he received from the trust account. Id. at 864-65. On April 25, 2003 this court found for Dayton Title, and judgment was entered against Wenrick in the amount of $1,379,336.41. Id. at 879. Wenrick appealed (doc. 357).
Wenrick's co-Defendant, The White Family Companies, Inc. ("WFC"), originally received a $3,260,000 check from Dayton Title. Dayton Title Agency, Inc., 292 B.R. at 864. This court entered judgment against WFC in the amount of $2,762,814.97. Id. at 879.
As a part of the appeal, Wenrick filed an Expedited Motion To Approve Supersedeas Bond and Stay Judgment (doc. 374). The Bond, underwritten by CIC, covered the judgment entered against Wenrick for $1,379,336.41. It reads, in relevant part:
There were actually two components to the Bond: the original bond and a rider in an additional amount to cover Wenrick's share of $20,747.13 of funds that in August 2003 this court found to be recoverable by Dayton Title against Wenrick and WFC (doc. 354; doc. 374, Exhs. A and B). The rider is no longer at issue because the parties reached a settlement in 2005 that led to the payment of the $20,747.13 judgment (doc. 422).
KNOWN ALL MEN BY THESE PRESENTS:
That Nelson D. Wenrick, Defendant/Appellant in the above-captioned litigation, as principal, and The Cincinnati Insurance Company, as surety, are held and firmly bound to Plaintiff/Appellee, Dayton Title Agency Inc. . . . for the maximum sum of One Million Four Hundred Seventy Thousand Nine(doc. 374, Exh. A).
Hundred Fifteen and 62/100 Dollars ($1,470,915.62) . . . to the payment of which sum well and truly to be made, we do bind ourselves, our successors or assigns, jointly and severally, subject to the conditions of this instrument;
* * * *
NOW, THEREFORE, the condition of the above obligation is that if [Wenrick] shall abide by and perform the order and judgment of the United States District Court, and pay in full all monies, costs and damages which may be required of or awarded against [Wenrick] upon the final determination of said appeal, and such other conditions as the United States District Court may provide, then this obligation shall be void. On the other hand, if such judgment is for the payment of money and if said judgment is not paid upon the final, non-appealable order of the United States District Court, including a stay of the execution of said United States District Court determination pending further appeal, then this obligation shall be and remain in full force and effect, and judgment in the appropriate amount may be entered against the surety hereon.
This court approved the Bond in October 2003 and the appeal proceeded before the United States District Court, Southern District of Ohio (doc. 385). In February 2012 the District Court found that Dayton Title had no recoverable interest in the funds at issue, and reversed this court's judgment against Wenrick and The White Family Companies, Inc. ("WFC"). White Family Cos., Inc. v. Dayton Title Agency, Inc. (In re Dayton Title Agency, Inc.), 468 B.R. 258, 272 (S.D. Ohio 2012). Dayton Title, through the Trustee, timely appealed the District Court's decision to the United States Court of Appeals for the Sixth Circuit. In September 2013 the Sixth Circuit reversed the District Court's judgment and affirmed this court's original judgment. White Family Cos., Inc. v. Slone (In re Dayton Title Agency, Inc.), 724 F.3d 675 (6th Cir. 2013).
While WFC's appeal was pending in the District Court, the Dayton Title estate case was converted from Chapter 11 to Chapter 7, and the Chapter 7 trustee, Ruth Slone (the "Trustee"), was substituted as Plaintiff and appellee for the initial appeal (estate doc. 723).
Following issuance of the Sixth Circuit's decision and judgment, the Trustee moved this court both to rescind the stay upon the judgments entered against Wenrick and WFC (doc. 444), and for a judgment against CIC, Wenrick's surety (doc. 446). In response, CIC argues that the Trustee cannot collect against the Bond because the Bond terminated on February 14, 2012 when the District Court reversed the judgment of the bankruptcy court (doc. 447). On October 10, 2013 this court, without objection, rescinded the stay upon enforcement of the judgments (doc. 454).
Strictly speaking, Rule 9025 of the Federal Rules of Bankruptcy Procedure provides that the liability of the surety on a bond be determined in an adversary proceeding, rather than by motion as a contested matter. See Fed. R. Bankr. P. 9025; Bankr. Proc. Manual § 9025:1 (2013 ed.). Case law on the issue indicates that if a party does proceed on a bond by way of motion, the court should deny the motion. See, e.g., In re George Schumann Tire & Battery Co., 106 B.R. 296, 299 n.4 (Bankr. M.D. Fla. 1989) (denying the motion without prejudice). However, it is well established in the Sixth Circuit that "due process objections can be waived by a party's failure to timely act." In re Brown, 413 B.R. 700, 703 (B.A.P. 6th Cir. 2009) (citing Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 903 (6th Cir. 2006)). Given the time that has elapsed since the Trustee's motion in September of 2013, as well as CIC's failure to raise the issue either in its response to the motion (doc. 447) or at the November 7, 2013 status conference where CIC counsel had the opportunity to argue its position (doc. 457), the court finds that CIC has waived its due process rights to a separate adversary proceeding under Part VII of the Bankruptcy Rules. See Tully Constr. Co. v. Cannonsburg Envtl. Assocs., Ltd. (In re Cannonsburg Envtl. Assocs., Ltd.), 72 F.3d 1260, 1264-65 (6th Cir. 1996); In re Zolner, 249 B.R. 287, 292 (N.D. Ill. 2000) ("unless the party is able to demonstrate prejudice by the failure to file an adversary proceeding, a court will find the error [in filing a motion] constitutes harmless error"); In re Orfa Corp. of Philadelphia, 170 B.R. 257, 275 (E.D. Pa. 1994) (quoting In re Command Services Corp., 102 B.R. 905, 908 (Bankr. N.D.N.Y. 1989) ("Nevertheless, in some cases where a matter was improperly initiated by motion as a contested matter, 'courts have concluded that where the rights of the affected parties have been adequately presented so that no prejudice has arisen, form will not be elevated over substance and the matter will be allowed to proceed on the merits as originally filed.' ")) . See also Fed. R. Bankr. P. 9005, incorporating Fed. R. Civ. P. 61 on "Harmless Error."
Discussion
1. The Interpretation of Supersedeas Bonds
Rule 62 of the Federal Rules of Civil Procedure provides that "[i]f an appeal is taken, the appellant may obtain a stay by supersedeas bond . . . See Fed. R. Bank. P. 7062 (incorporating Fed. R. Civ. P. 62(d)). Because "Rule 62(d) is a purely procedural mechanism to preserve the status quo during a stay pending appeal of a district court decision" only a federal question is involved in determining liability upon the Bond. Bass v. First Pac. Networks, Inc., 219 F.3d 1052, 1055 (9th Cir. 2000). Further, Bankruptcy Rule 9025 states that "[w]henever the Code or these rules require or permit the giving of security by a party . . . in the form of a bond . . . with one or more sureties, each surety submits to the jurisdiction of the court, and liability may be determined . . . ." Fed. R. Bank. P. 9025. Therefore, the interpretation of the supersedeas Bond posted by CIC on behalf of Wenrick in the present case is to be interpreted under federal law. Hall v. Consol. Freightways Corp., 142 Fed. Appx. 875, 877-78 (6th Cir. 2005) (quoting Tullock v. Mulvane, 184 U.S. 497, 512-13 (1902)). However, there are no federal standards for interpreting supersedeas bonds, and so this court is to look to state law for guidance. Id. at 878 (citing United States ex rel. Miss. Road Supply Co. v. H.R. Morgan, Inc., 542 F.2d 262, 267 (5th Cir. 1976)).
Under Ohio law a supersedeas bond, as a surety contract, is construed using the same principles of construction used to interpret all written agreements. Id. (citing State ex. rel. Herbert v. Inland Bonding Co., 46 N.E.2d 623, 626 (Ohio Ct. App. 1942), rev'd on other grounds, 51 N.E.2d 710 (Ohio 1943)). See also Cusack v. McGrain, 23 N.E.2d 633, 635 (Ohio 1939) ("A bond is a contract and, in the absence of some controlling statute, is to be construed according to the fair import of the language used."). First and foremost, under Ohio law the parties are presumed to have intended to contract in the manner and form in which they did contract, and "[t]hey are presumed to have intended to have given to the language of the contract the ordinary and usual meaning given to such language." First Nat. Bank of Van Wert v. Houtzer, 117 N.E. 383, 407 (Ohio 1917). Therefore, "[c]ommon, undefined words appearing in a contract 'will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents' of the agreement." Sunoco, Inc. (R & M) v. Toledo Edison Co., 953 N.E.2d 285, 292-93 (Ohio 2011) (quoting Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, syllabus (Ohio 1978)).
Notwithstanding the presumption that the intent of the parties resides in the language employed in the agreement, "[a] court will resort to extrinsic evidence in its effort to give effect to the parties' intentions . . . where the language is unclear or ambiguous, or where the circumstances surrounding the agreement invest the language of the contract with a special meaning." Slone v. Dirks (In re Dirks), 407 B.R. 442, 2009 WL 103606 at *5 (B.A.P. 6th Cir. 2009) (table) (quoting Kelly v. Med. Life Ins. Co., 509 N.E.2d 411, 413 (Ohio 1987) (internal citation omitted)). Yet even then, although the court may look beyond the four corners of the document to clarify a contract's meaning, "evidence can not be introduced to show an agreement between the parties materially different from that expressed by clear and unambiguous language of the instrument." Latina v. Woodpath Dev. Co., 567 N.E.2d 262, 264 (Ohio 1991) (quoting Blosser v. Enderlin, 148 N.E. 393, syllabus (Ohio 1925)). The court finds that it need not walk this fine line, as the intent of the parties is evident from the language of the Bond.
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When the meaning of the words is unclear, "[t]he general rule of statutory interpretation for contracts is that ambiguities must be construed against the drafter of the agreement." Holderman v. Huntington Leasing Co., 483 N.E.2d 175, 177-78 (Ohio 1984) (citing Monnett v. Monnett, 17 N.E. 659 (Ohio 1888)). This axiom holds particularly true in the interpretation of surety contracts. When the surety in question is a compensated surety (e.g., a surety or bonding company), "any doubtful language in the contract of surety must be construed strongly against the surety, and in favor of indemnity, which the creditor has reasonable ground to expect." Solon Family Physicians, Inc. v. Buckles, 645 N.E.2d 150, 152 (Ohio Ct. App. 1994).
2. The Wenrick-CIC Supersedeas Bond
In response to the Trustee's motion to enforce judgment against it, CIC points to the language in the Bond that voided its obligation "upon the final determination of said appeal, and other such conditions as the United States District Court may provide" to argue that its Bond terminated when the District Court reversed this court's 2003 judgment (doc. 447 at p.3). The Trustee, on the other hand, asserts that the phrase "final determination" refers not to the decision by the District Court, but to the doctrine of res judicata. That is, the Trustee contends that the Bond remains in full force and effect because "final determination" means that the Bond obligations expire only when the issue has made its way up the entire chain of appeal and may not be adjudicated any further, resulting in a final, nonappealable judgment. For the reasons discussed below, this court finds that the Bond did not terminate when the District Court reversed this court's 2003 judgment, and remains in full force and effect.
Were the plain language analysis to be limited to an isolated consideration of the phrase itself, the precise significance of "final determination of said appeal" as it appears in the Bond would be difficult to ascertain. As the Ninth Circuit has noted:
[T]he term "final determination" is susceptible to two different meanings, depending on the intent of the user and the context in which it is used. The first, more customary, and more general, meaning is a final decision from which no appeal can be taken. Under that meaning, the term "final" retains its ordinary connotation—"last" or "ultimate." The other, less common, narrower, meaning is a decision of a particular body or official that meets the finality requirements for purposes of an appeal or petition for review from that body or official to the next.Padash v. INS, 358 F.3d 1161, 1169-70 (9th Cir. 2004). So, too, here. On the one hand, as the Trustee argues, CIC's use of the adjective "final" to modify "determination" suggests that the parties contemplated a determination beyond the initial decision of the District Court (doc. 454 at p.4). On the other hand, CIC's narrower interpretation of "final determination" would be consistent with the phrase as it has been used by the Ohio Supreme Court and the most recent edition of Black's Law Dictionary. See, e.g., Sinnott v. Aqua-Chem, Inc., 876 N.E.2d 1217, 1222 (Ohio 2007) ("As a final determination of the provisional remedy, the [trial court's] order finding that a prima facie showing had been made was adverse to appellants and satisfied the requirement of R.C. 2505.02(B)(4)(a)."); Determination, Black's Law Dictionary (9th ed. 2009) ("A final decision by a court or administrative agency.").
However, when the analysis is expanded to include the context in which the phrase "final determination of said appeal" appears, the meaning comes into sharper focus. The relevant sentences read:
NOW, THEREFORE, the condition of the above obligation is that if [Wenrick] shall abide by and perform the order and judgment of the United States District Court, and pay in full all monies, costs and damages which may be required of or awarded against [Wenrick] upon the final determination of said appeal, and such other conditions as the United States District Court may provide, then this obligation shall be void. On the other hand, if such judgment is for the payment of money and if said judgment is not paid upon the final, non-appealable order of the United States District Court, including a stay of the execution of said United States District Court determination pending further appeal, then this obligation shall be and remain in full force and effect, and judgment in the appropriate amount may be entered against the surety hereon.(doc. 374, Exh. A) (emphasis added). The significance of the first sentence is twofold. First, it renders the Bond void upon Wenrick's payment of any judgment against him. Second, it establishes an endpoint for the Bond: the "final determination" of Wenrick's appeal.
The significance of the second sentence, however, is threefold. First, it conditions CIC's liability upon the Bond on the issuance of a money judgment. Second, it provides a second condition for CIC's liability upon the Bond: nonpayment of the judgment by Wenrick. Third, it defines "final determination." A final determination is not simply the initial judgment reached by the District Court, it is "the final, non-appealable order" determining the ultimate rights of the parties, which may or may not include a stay of execution of the District Court's initial judgment.
It is clear from Wenrick's subsequent appeal to the Sixth Circuit that the original District Court order was not the final, non-appealable order. See, e.g., Detroit Fire Fighters Ass'n, Local No. 344, I.A.F.F. v. Dixon, 572 F.2d 557, 559 (6th Cir. 1978) (acknowledging a "final, non-appealable order" only after a decision had been reached by the Michigan Employment Relations Commission, Labor Relations Division and affirmed by the Michigan Court of Appeals with no further recourse to appeal). Instead, the final, non-appealable order in this adversary proceeding is the Sixth Circuit mandate which reversed the District Court's original judgment and affirmed this court's 2003 judgment (doc. 441 at p.21; Dist. Ct. Case No. 3:01-cv-00481-WHR, doc. 121). See, e.g., Westside Mothers v. Olszewski, 454 F.3d 532, 538 (6th Cir. 2006) (noting the law of the case doctrine and the mandate rule preclude reconsideration of an issue decided by an appellate court unless one of three "exceptional circumstances" exists). The final determination of the District Court then did not exist until the Sixth Circuit rendered its final, nonappealable judgment, which resulted in a judgment "for the payment of money," making the Bond remain in full force and effect until paid and allowing judgment to be rendered "in the appropriate amount . . . against the surety . . . ." (doc. 374, Exh. A). Therefore, the Bond did not terminate after the original District Court judgment in 2012.
This result is consistent with the long history of bond interpretation and enforcement. Thus, in In re RMAA Real Estate Holdings, LLC, the court suggested that "a stay pending appeal from a bankruptcy court's order should stay in effect until the appeal has fully run its course." 2010 Bankr. Lexis 3153 at *6 (Bankr. E.D. Va. Sept. 10, 2010) (citing Gleasman v. Jones, Day, Reaves & Pogue (In re Gleasman), 111 B.R. 595, 599 (Bankr. W.D. Tex. 1990)). In addition, in Senn v. Lackner, the court held that "[t]he supersedeas bond filed to stay execution . . . is effective until all remedies of the adverse party are exhausted and the appeal is finally determined," refusing to release the bond because the appellee still had the opportunity to appeal to the Ohio Supreme Court. 100 N.E.2d 432, 432 (Ohio Ct. App. 1951). See also Fed. R. Civ. P. 62; Final Determination, Black's Law Dictionary (4th ed. 1951) ("The final settling of the rights of the parties to the action beyond all appeal.").
Finally, to the extent that the meaning of "final determination" may still be considered ambiguous after examining the phrase in context, the issue is settled by the related principles of Ohio law requiring ambiguity in a contract to be construed against the drafter, and ambiguity in a surety contract to be construed against the compensated surety. See Solon Family Physicians, Inc., 645 N.E.2d at 152; 52 Ohio Jur.3d Guaranty and Suretyship § 52 (2013). It is clear both that CIC drafted the Bond, and that CIC is a compensated surety. Therefore, any ambiguity regarding whether or not the Bond remains in full force and effect should be construed against CIC.
For all these reasons, the motion for judgment on the surety bond is granted.
IT IS SO ORDERED.
Copies to:
Anne Frayne, electronically served Sue Seeberger, electronically served Thomas R. Noland, electronically served Stephen D. Brandt, electronically served Paul Shaneyfelt, electronically served Tiffany Strelow Cobb, electronically served Marcel C. Duhammel, electronically served Erin B. Moore, electronically served John J. Petro, electronically served Roger E. Luring, 314 West Main Street, Troy, Ohio 45373