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Branch Banking and Trust Co. v. Jarrett

United States District Court, D. Nevada

June 9, 2014

BRANCH BANKING AND TRUST COMPANY, a North Carolina banking corporation, Plaintiff,
MICHAEL E. JARRETT, an individual; D. GERALD BING, JR., an individual; D. GERALD BING, JR., Trustee of the D. GERALD BING, JR. TRUST dated January 17, 2000; and DOES 1 through 10, inclusive, Defendants.


ROBERT C. JONES, District Judge.

This case arises out of a default on a commercial loan and the failure of three guarantors to honor a guarantee on the loan. Plaintiff Branch Banking and Trust Company has moved for: (1) partial summary judgment as to the applicability of certain defenses, (ECF No. 34); (2) leave to file excess pages, (ECF No. 35); and (3) summary judgment on its claim for breach of the guarantee and damages in the amount of $3, 488, 129.29, (ECF No. 53). For the reasons stated herein, the Court grants each of Plaintiff's motions and awards damages in the amount requested.


The following facts are undisputed. Colonial Bank, N.A. ("Colonial") loaned Clock Tower Center, LLC ("Clock Tower") $3, 400, 000 in exchange for a promissory note (the "Note"). (Compl. ¶ 12, May 07, 2013, ECF No. 1). Clock Tower's obligations were secured by a deed of trust (the "Deed of Trust"), which collateralized real property located in Gardnerville, Nevada (the "Property"). ( Id. ¶ 14). Clock Tower's indebtedness was further secured by an unconditional guarantee (the "Guarantee"), executed by three guarantors: Defendants Jarrett, Bing, and the Bing Trust (collectively, "Defendants" or "Guarantors"). ( Id . ¶ 15). Guarantors Jarrett and Bing hold a combined 67.5% interest in Clock Tower, LLC. (Am. Statement of Financial Affairs, ECF 25-1, at 10).

In the Guarantee, Guarantors waived several rights, including: (1) "any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal." (Guarantee § 5(e), ECF No. 20-1, at 4); and (2) "all rights and defenses arising out of an election of remedies by Lender, " ( id. at § 5(d)). Guarantors further agreed that any bankruptcy proceeding involving Clock Tower would not affect their unconditional promise of repayment. ( Id. at § 7). Finally, Guarantors agreed that their obligations would not be released until the full indebtedness was paid:

Lender's rights hereunder shall not be exhausted by its exercise of its rights or remedies or by any such action or by any number of successive actions until and unless all indebtedness and obligations, the payment and performance of which are hereby guaranteed, have been paid and fully performed.

( Id. at § 11).

Colonial's interest in the loan was ultimately acquired by Plaintiff Branch Banking and Trust Company ("BB&T"). (Compl. ¶¶ 18-21, ECF No. 1). When the Note matured in April 2011, neither Clock Tower nor the Guarantors honored their promises under the Note and Guarantee (Nikonchuk Decl. ¶ 6, ECF No. 26). Instead, on November 16, 2011, Clock Tower petitioned for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Nevada. (Lukas Decl. ¶4, ECF No. 34-2). BB&T participated in the bankruptcy as Clock Tower's largest creditor. ( Id. ). Guarantors Bing and Jarret also participated in the proceedings. Jarret, as Clock Tower's manager, verified the contents of Clock Tower's plan and disclosure statement, signed Clock Tower's bankruptcy petition and monthly operating reports, and provided live testimony. (Debtor's Plan, ECF No. 43-3, at 23; Summ. of Financial Status, ECF No. 54-1; Debtor's Disclosure Statement, ECF No. 54-2; Tr. of Proceedings, ECF No. 54-3; Voluntary Pet., ECF No. 54-4). And, as explained below, Bing submitted a critical declaration. ( See Bing Decl., ECF No. 43-7).

During the bankruptcy proceedings, Clock Tower did not dispute the validity or amount of its debt to BB&T. Instead, it asserted that BB&T possessed a Class 1A secured claim "in the approximate unpaid principal sum of $3, 400, 000, plus accruing interest at the contractual rate" as well as an unsecured claim. (Debtor's Plan, ECF No. 43-3, at 12). Clock Tower also argued that BB&T had a viable third-party source of recovery through the Guarantee. Specifically, and with Guarantors' participation, Clock Tower successfully separated BB&T's claims from the other creditors' claims in order to obtain the voting necessary to confirm its plan over BB&T's objection. ( See Reply to Objection to Confirmation, ECF No. 43-6, at 6-7, 9-11; Debtor's Ballot Summary, ECF No. 54-5). The other creditors were largely related to the Guarantors-e.g., Bing Materials, Jarrett Construction, Jerry Bing, Niki Jarrett, (Debtor's Plan, ECF No. 43-3, at 24). To separate BB&T's claims, Clock Tower argued that BB&T belonged to a different class than the other creditors because it could recover under the Guarantee:

In the present case, BB&T's claim is personally guaranteed to be paid by Michael Jarrett, D. Gerald Bing, Jr. ("Bing") and D. Gerald Bing, Jr., Trustee of the D. Gerald Bing, Jr. Trust dated January 17, 2000 ("Bing Trust"), which Guaranty is dated January 25, 2008, and is attached hereto as Exhibit A and incorporated herein by that reference.... None of the Class 3 unsecured creditors possess these personal guarantees or security instruments to enforce payment on their claims. Although Michael Jarrett's personal guaranty is essentially of no value because he possesses no non-exempt assets, the other guarantors, Bing and the Bing Trust, possess non-exempt assets valued in excess of $1, 000, 000.00. See the Declaration of D. Gerald Bing attached hereto as Exhibit C, which attests to the fact that his current non-exempt real and personal property assets are valued in excess of $1, 000, 000.00.

(Reply to Objection to Confirmation, ECF No. 43-6, at 6). Clock Tower further asserted that "with the attached Declaration of D. Gerald Bing, [it] ha[d] shown that BB&T ha[d] a viable source of payment for the unsecured portion of its claim from third-party sources." ( Id. at 7). It repeated this contention at a hearing before the bankruptcy court. (Tr. of Proceedings, ECF No. 54-7, at 4-5). The bankruptcy court agreed and emphasized the significance of Bing's declaration: "[T]he classification of BB&T's unsecured claim as a Class 1B unsecured claim separate from Class 3 unsecured claims was appropriate under the circumstances, because of the significance of the guaranty of D. Gerald Bing." (Order Confirming Plan of Reorganization ¶ 27, ECF No. 43-1, at 9). Clock Tower's other creditors voted to approve the plan. (Debtor's Ballot Summ., ECF No. 54-5).

On April 3, 2013, the bankruptcy court entered an order confirming Clock Tower's plan for reorganization (the "Bankruptcy Plan"). (Order Confirming Plan of Reorganization, ECF No. 43-1). The relevant elements of the Bankruptcy Plan are as follows: (1) BB&T has a reduced secured claim for $2, 960, 000, which reflects the decreased value of the Property; (2) BB&T has an unsecured deficiency claim for $297, 045, which represents the difference between Clock Tower's indebtedness to BB&T at the time it filed for bankruptcy and the decreased value of the Property; (3) both claims are payable over six years, from March 2013 to February 2019, in monthly payments; (4) Clock Tower is not liable for any interest accruing after the filing of its 2011 petition; (5) Clock Tower is presumed to be able to comply with the bankruptcy plan without default, liquidation, or further financial reorganization; and (6) BB&T retains its lien rights against the property but cannot enforce those rights unless Clock Tower defaults under the plan. ( Id. ¶¶ 7, 9, 16, 22, 6(A)). Accordingly, under the Bankruptcy Plan, Clock Tower retains title to and possession of the Property and will make monthly payments on its reduced debt (now $3, 257, 045 instead of the agreed $3, 400, 000 and associated interest) until February 2019. During that time, the plan freezes BB&T's ability to collect interest or foreclose on the Deed of Trust.

On May 7, 2013, BB&T filed this action to enforce the Guarantee, arguing that because Clock Tower has failed to satisfy its obligations under the Loan Documents, the Guarantors are jointly and severally liable for the entire amount originally due on the Note. (Compl. ¶ 28, ECF No. 1). The parties do not dispute that the total underlying debt is presently $3, 488, 129.29. ( See Reply, ECF No. 65, at 3).

On October 22, 2013 this Court entered an order granting Guarantors' motion for an evidentiary hearing pursuant to NRS § 40.495(4) and denying Guarantors' motion for partial summary judgment as to BB&T's claim for attorney fees and costs for its efforts in the bankruptcy proceedings. (Order, ECF No. 3, at 11). On October 25, 2013, prior to the evidentiary hearing, BB&T filed the pending motion for partial summary judgment, seeking (1) summary judgment as to all affirmative defenses arising from Defendants' argument that Clock Tower's bankruptcy plan modified their obligations as guarantors and (2) a determination that NRS § 40.495(4) does not apply to this case. ( See generally ECF No. 34). At the scheduled evidentiary hearing, the Court concluded that it would wait to take evidence on the NRS § 40.495(4) issue until after BB&T's partial motion for summary judgment was fully briefed and decided. (Hr'g, Nov. 25, 2013, at 10:24 a.m.). The partial motion is now fully briefed, and BB&T has also filed a motion for summary judgment on its claim for breach of the Guarantee, (ECF No. 53), which is likewise fully briefed. The Court now considers the pending motions.


In reviewing a motion for summary judgment, the court construes the evidence in the light most favorable to the nonmoving party. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996). Pursuant to Fed.R.Civ.P. 56, a court will grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Material facts are "facts that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

The moving party bears the initial burden of identifying the portions of the pleadings and evidence that the party believes to demonstrate the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party asserting that a fact cannot be or is genuinely disputed must support the assertion by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials" or "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1)(A)-(B). Once the moving party has properly supported the motion, the burden shifts to the nonmoving party to come forward with specific facts showing that a genuine issue for trial exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252. The nonmoving party cannot defeat a motion for summary judgment "by relying solely on conclusory allegations unsupported by factual data." Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Matsushita, 475 U.S. at 587.

III. BB&T's Partial Motion for Summary Judgment (ECF No. 34)

BB&T contends that it is entitled to summary judgment on (1) all of Guarantors' affirmative defenses that arise out of the bankruptcy proceedings and (2) Guarantors' claim that, pursuant to NRS § 40.495(4), any recovery against them must be offset by the fair market value of the Property as of the commencement of this action. The Court agrees with BB&T.

A. Affirmative Defenses Related to the Bankruptcy Plan

Guarantors have asserted twenty-four affirmative defenses to BB&T's claims. (Answer, ECF No. 9, at 5-7). Most of these are mere boilerplate and give little hint of their underlying factual basis. ( See id. ). However, at least three of these defenses are premised on the proposition that the Guarantors' own obligations were modified by Clock Tower's Bankruptcy Plan. ( See, e.g., Affirmative Defenses 19-21, Answer, ECF No. 9, at 7). This proposition is not only inconsistent with the plain terms of the Guarantee, (Guarantee § 7, ECF No. 20-1, at 5 ("The obligations of Guarantor under this Guarantee shall not be altered, limited or affected by any proceeding, voluntary or involuntary involving the bankruptcy... of Borrower, or by any defense which Borrower may have by reason of any order... resulting from any such proceeding.")), it is also incorrect as a matter of well-settled law, Star Phoenix Min. Co. v. W. Bank One, 147 F.3d 1145, 1147 n.2 (9th Cir. 1998) ("It is also well-established that the discharge of the principal debtor in bankruptcy will not discharge the liabilities of codebtors or guarantors.... This court has held that, under Section 524(e), a bankruptcy court does not have the power to discharge the liabilities of a bankrupt's guarantor." (internal citations omitted)). In fact, Guarantors concede this point in multiple filings. ( See, e.g., Opp'n to Mot. Summ. J., ECF No. 65, at 5 ("[I]t has been repeatedly recognized that bankruptcy courts do not directly affect independent guarantee agreements.")). Accordingly, the Court grants summary judgment as to any affirmative defense premised on the proposition that the Bankruptcy Plan somehow modified Guarantors' obligations.

B. Applicability of NRS § 40.495(4)

Guarantors' principal defense to this action is that, despite their promises in the Guarantee and BB&T's inability to realize the value of the Property through foreclosure, NRS § 40.495(4) prohibits this Court from rendering a judgment for more than "the amount by which the amount of indebtedness exceeds the fair market value of the property as of the date of the commencement of the action." (Demand for Hr'g, ECF No. 10, at 3 (citing NRS § 40.495(4))). While the Court acknowledges that it applied NRS § 40.495(4) in its order scheduling ...

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