Opinion
CIVIL ACTION NO. 3:00-CV-2321-X
February 20, 2001
MEMORANDUM OPINION AND ORDER
Before the Court are Plaintiff's Motion for Summary Judgment, filed November 29, 2000; Defendants' Response, filed January 8, 2001; and Plaintiff's Reply, filed January 22, 2001 After considering the briefs, facts, and law, this Court finds that Plaintiff's Motion should be GRANTED.
I. BACKGROUND
On March 31, 2000, Plaintiff and third-party MART entered an equipment lease agreement. Plaintiff, however, knowing of MART's financial condition, required a guaranty on the lease payments. After a failed attempt to obtain a guaranty with another surety company, MART secured Defendants' services. The parties entered into a Lease Performance Bond (the "Guaranty") on April 26, 2000, whereby Defendants bonded MART's performance under the lease. Soon afterwards, MART defaulted, and on July 20, 2000, Plaintiff requested payment of the $4,728,420 penal sum. Defendants denied the request on October 18, 2000, and Plaintiffs filed suit on October 20, 2000.
II. ANALYSIS
A. Standard for Summary Judgment
Summary judgment is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, the summary judgment record demonstrates that no genuine issue of material fact exists, and therefore, the moving party is entitled to judgment as a matter of law. Once the movant has met this threshold, the burden shifts to the nonmovant to establish, with significant probative evidence, that a material issue of fact exists. A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." The nonmovant may not rest upon the pleadings, conclusory allegations or unsubstantiated assertions, it "must do more than simply show that there is some metaphysical doubt as to the material facts." The nonmovant must "set forth specific facts showing that there is a genuine issue for trial."
See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986).
See Kansa Reinsurance Co., Ltd. v. Congressional Mortgage Corp. of Tex., 20 F.3d 1362, 1371 (5th Cir. 1994).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
Liberty Lobby, 477 U.S. at 256.
B. Grounds for Summary Judgment
1. Defendants' Express Waiver of a Fraud Defense
Plaintiff argues that the express language of the Guaranty compels summary judgment against Defendants, since they expressly waived fraud as a defense to its performance. Defendants, citing Douglas v. Tonigan, respond that such waivers violate Illinois public policy. A closer reading of that, and other, Illinois cases contradicts Defendants' claim. The Tonigan plaintiffs alleged securities fraud, a claim that the defendant argued they had waived. The court rejected the waiver argument, as the defendant both committed the fraud and included the boilerplate waiver language within the contested guaranty agreement. The court declined to permit a defrauding party to immunize itself by drafting a waiver of fraud defenses. The present matter is easily distinguishable. Plaintiff specifically negotiated the waiver, Defendants had clear notice of its possible effect, and the main allegations of fraud lie against MART and its parent, American Eco.
See Plaintiff's Appendix, 6. "The Sureties are responsible to Obligee for the individual underwriting of the lessee, including but not limited to, all related credit matters, issues of fraud, bankruptcy and the accurate and timely performance by any subservicer designated by Sureties and Sureties shall assert no defenses to any claim under this Bond as a result of any of the foregoing." (emphasis added).
830 F. Supp. 457 (N.D.Ill. 1993).
Defendants' unsuccessful allegations of fraud by Plaintiff will be discussed later in this opinion.
Because Defendants cite no cases where a court voided an express waiver of fraud due to fraud by the principal, this Court follows well-established precedents enforcing the express language found in guaranty agreements. No ambiguity exists here, and without competent summary judgment evidence substantiating allegations of Plaintiff's fraud or misrepresentation, the express waiver of the fraud defense is valid, and Plaintiff is entitled to summary judgment.
There is a narrow exception under the Restatement (Third) of Suretyship and Guaranty, but Defendants have not shown that Plaintiff had reason to know of either MART or American Eco's misrepresentations.
See BA Mortgage and Int' Realty Corp. v. American Nat'l Bank and Trust Co., 706 F. Supp. 1364, 1376 (N.D.Ill. 1989) (holding that Illinois courts consistently enforce waivers in a guaranty whenever they are clear and unambiguous); Morris v. Columbia National Bank of Chicago, 79 B.R. 777, 782 (N.D.Ill. 1987); DuQuoin State Bank v. Daulby, 115 Ill. App.3d 183, 185 (5th Dist. 1983).
2. Plaintiff's Duty to Disclose Material Information
Defendants also contend that because Plaintiff failed to disclose material facts concerning MART's financial condition, their guaranty is voidable. Defendants have requested more discovery, claiming that it will reveal this misrepresentation. Plaintiff replies that Defendants' failure to ask it for any information entitled Plaintiff to reasonably assume that they already knew the relevant information. As a result, Plaintiff denies that it had any duty to disclose material information, and Defendants remain bound by the guaranty.
Rest.3d Sur. § 12 (1995).
Indeed, some evidence suggests that Defendants did have some awareness of MART's financial state. See Plaintiff's Supplemental Appendix, 4-5.
Under Illinois law, guarantors are obligated to inquire into all circumstances that are relevant to their risk as guarantors. In Tranchitella v. Bank of Illinois in DuPage, the court discussed the circumstances when a creditor is under a duty to disclose information to a guarantor. Drawing upon Everett, the court held that without evidence of either concealment of information by the creditor or a request for information on possible risks by the debtor, the creditor could reasonably assume that the debtor knew such information. Accordingly, it held that the creditor's failure to disclose material information did not breach its duty of good faith and fair dealing or release the guarantor of its obligations. The facts in the present case are indistinguishable.
See Continental Bank v. Everett, 760 F. Supp. 713, 718 (N.D.Ill. 1991); St. Charles Nat'l Bank v. Ford, 39 Ill. App.3d 291 (1976).
199 B.R. 658, 666 (N.D.Ill. 1996).
Notwithstanding the Defendants' specific assumption of fraud risk and their explicit waiver of the fraud defense, they also fail to offer any competent summary judgment evidence showing that they requested necessary information from Plaintiff Their brief and affidavits are replete with language about how Plaintiff "did not disclose," or how they "were not aware" of material facts. Missing, however, is any mention of how they "asked for information" or how Plaintiff "denied and refused the requests." Absent such facts, this Court concludes that Plaintiff reasonably assumed Defendants' awareness of the relevant information. Defendants remain bound by the guaranty.
3. Attorney's fees.
Plaintiff contends that Texas Civil Practice and Remedies Code, Chapter 38.001 entitles it to attorney's fees, as the contested agreement was entered into in Texas. Defendants have not given any response. Accordingly, this Court finds that Plaintiff is entitled to attorney's fees.
III. CONCLUSION
Although factual disputes remain, none involve material facts. Defendants have shown no evidence of fraud by Plaintiff, such that their express waiver of the fraud defense is voidable. Likewise, as Defendants give no evidence of ever having requested information from Plaintiff, it reasonably assumed they had sufficient information. No duty to disclose has been breached.
Defendants' unfortunate lack of necessary diligence does not suffice to shift the costs of MART's default upon Plaintiff or to conscript this Court into rewriting a more favorable agreement. Defendants were well-compensated for providing this guaranty; they are not relieved of it simply because their luck has changed. Plaintiff s motion for summary judgment is GRANTED, and Plaintiff is entitled to the fill penalty sum. Plaintiff shall submit a bill of costs within 20 days.
It is so ORDERED.