Charles J. Sauter v. Robert Brack (mem. dec.) ( 2020 )

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any Aug 31 2020, 9:40 am
court except for the purpose of establishing CLERK
the defense of res judicata, collateral Indiana Supreme Court
Court of Appeals
and Tax Court
estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Richard B. Gonon Julie A. Camden
Indianapolis, Indiana Camden & Meridew, P.C.
Fishers, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Charles J. Sauter, August 31, 2020
Appellant-Plaintiff, Court of Appeals Case No.
20A-MI-751
v. Appeal from the Marion Superior
Court
Robert Brack, The Honorable David J. Dreyer,
Appellee-Defendant. Judge
Trial Court Cause No.
49D10-1907-MI-27247
Bailey, Judge.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 1 of 10
Case Summary
[1] Charles J. Sauter (“Sauter”) sued Robert Brack (“Brack”), alleging that Brack—
as the guarantor of debt—was liable for unpaid sums. Sauter now appeals (1)
the denial of his motion for summary judgment and (2) the grant of Brack’s
motion for summary judgment, claiming entitlement to a judgment in his favor.
[2] We affirm.
Facts and Procedural History
[3] At the heart of this action is debt incurred by Telecom LLC (“Telecom”). 1 The
undisputed facts are that Telecom purchased assets from Midwest Telephone
Co Inc (“Midwest”). As a part of that transaction, Telecom—through its
managing member, Brack—executed a promissory note (the “Note”) in the
amount of $250,000 (the “Junior Debt”) in May 2018. Under the Note,
Telecom promised to pay Midwest quarterly installments beginning on March
31, 2019. The Note provides for an event of default “whenever any payment
due . . . is not paid within fifteen (15) days following the due date of that
payment,” so long as Telecom receives notice and an opportunity to cure. App.
Vol. 2 at 43. The Note also contains an acceleration clause, specifying that
Telecom would pay the balance of the Junior Debt upon an event of default.
1
Telecom does business as Priority Communications and is at times referred to as “Priority” in documents
below. As this matter relates to the prioritization of payments, we use “Telecom” to avoid any confusion.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 2 of 10
[4] When the Note was executed, Brack separately signed a personal guaranty (the
“Guaranty”), which specifies that Brack’s obligations under the Guaranty
follow any assignment of the Note. In the Guaranty, Brack promises that, “[i]n
the event that [Telecom] fails at any time to pay any part or all of the Note
balance guaranteed when due,” he will “pay the unpaid balance of the Note, in
the same manner as if it constituted” his “direct and primary obligation[.]” Id.
at 48. The Guaranty also permits modifications to the terms of the Note,
specifying that Midwest and Telecom may “[c]hange the terms of . . . any debts
or liabilities of [Telecom] to [Midwest]” without notice to Brack. Id. at 49.
[5] Prior to the Midwest–Telecom transaction, Telecom had lines of credit and a
loan (the “Senior Debt”) from Lake City Bank (“Lake”). Contemporaneously
with the execution of the Note and Guaranty, the interested entities—Lake,
Midwest, and Telecom—entered into an agreement concerning the Junior Debt
and the Senior Debt (the “Subordination Agreement”). Section 2 and Section 4
of the Subordination Agreement address Telecom’s payment obligations under
the Note. Section 2 generally provides that, “[e]xcept as permitted in Section 4
below, the Junior Debt shall not be payable . . . unless and until the Senior Debt
has been paid in full.” Id. at 55. Section 4 specifies that, “[n]otwithstanding the
provisions of Section 2 above, [Midwest] may receive the regularly scheduled
quarterly payments of principal plus regular interest . . . until [Lake] provides
written notice of [Telecom’s] [d]efault” as to the Senior Debt. Id. (emphasis
added). Section 4 further provides that, “[a]fter [Lake] has sent to [Midwest] a
[n]otice of [d]efault, no payments permitted under this Section 4 may be made
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 3 of 10
by [Telecom] or received or recovered by [Midwest] or any other party . . . until
(a) [Lake] has provided written notice that such payments may be made; or (b)
[Telecom] has paid the Senior Debt in full.” Id. (emphasis added).
[6] On May 9, 2019, Midwest assigned its rights under the Note to Sauter. A few
weeks later, Lake sent Sauter a notice of default. There is no dispute that, as a
result, Telecom “is prohibited from making payments to [Sauter] at this time,
and has been since [Lake] issued the [n]otice of [d]efault.” Id. at 63.
[7] In July 2019, Sauter filed the instant action against Brack.2 Sauter alleged that
Telecom defaulted on the Note by failing to make any installment payments
and that Brack, as guarantor, was liable to Sauter for the balance of the Junior
Debt. Sauter and Brack filed motions for summary judgment. Brack argued
that—inter alia—“there was no payment due” after Lake issued the notice of
default. Id. at 72. (emphasis removed). Following a hearing, the trial court
resolved the pending motions in favor of Brack, granting summary judgment.
[8] Sauter now appeals.
Discussion and Decision
[9] Pursuant to Trial Rule 56(C), summary judgment is proper “if the designated
evidentiary matter shows that there is no genuine issue as to any material fact
2
Sauter also sued Lake and Telecom, although those parties were eventually dismissed from the action.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 4 of 10
and that the moving party is entitled to a judgment as a matter of law.” We
review de novo the trial court’s ruling on a motion for summary judgment.
Perkins v. Mem’l Hosp. of S. Bend, 141 N.E.3d 1231, 1234 (Ind. 2020).
[10] The dispositive issue in this case is whether contracts associated with the Junior
Debt permit Sauter to recover on the claim against Brack. The facts bearing on
this issue are not in dispute, and we therefore need only interpret and apply the
pertinent contract provisions. As to those provisions, the meaning of a contract
is a pure question of law. Heraeus Med., LLC v. Zimmer, Inc., 135 N.E.3d 150,
152 (Ind. 2019). “Our goal in contract interpretation is ‘to determine the intent
of the parties at the time that they made the agreement.’” Care Grp. Heart Hosp.,
LLC v. Sawyer, 93 N.E.3d 745, 752 (Ind. 2018) (quoting Citimortgage, Inc. v.
Barabas, 975 N.E.2d 805, 813 (Ind. 2012)). To the extent that the language of a
contract is unambiguous, we give the language “its plain and ordinary meaning
in view of the whole contract, without substitution or addition.” Id.
[11] Here, the Note obligates Telecom to pay quarterly installments. Critically,
Section 4 of the Subordination Agreement adds a condition to that obligation—
i.e., when Lake has issued a notice that Telecom is in default on the Senior
Debt. At that point, installments are not payable “until (a) [Lake] has provided
written notice that such payments may be made; or (b) [Telecom] has paid the
Senior Debt in full.” Id. at 55. Notably, the issuance of notice broadly
suspends Telecom’s obligation to pay Sauter—even suspending an obligation
to make past-due payments: “After [Lake] has sent . . . a [n]otice of [d]efault,
no payments permitted under this Section 4 may be made by [Telecom.]” Id.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 5 of 10
[12] Sauter disagrees that the Subordination Agreement changed the structure of
Telecom’s obligations under the Note. Sauter asserts that, under Indiana law,
“a subordination agreement only arranges lien priorities between creditors of a
single debtor” and “doesn’t transmute a debtor’s underlying debt obligations[.]”
Reply Br. at 6. However, regardless of the scope of a typical subordination
agreement, we must apply the specific terms contained in the instant agreement.
This agreement modifies the payability of the Note, conditioning payability on
whether Lake has issued a notice of default. See App. Vol. 2 at 55 (providing in
Section 2 that, “[e]xcept as permitted in Section 4 below, the Junior Debt shall
not be payable”). Moreover, it is not as though—as Sauter suggests—Lake has
been improperly empowered to “unilaterally chang[e] payment due dates in a
promissory note that neither [Brack] nor the bank [was a party to] and that
neither [Brack] nor the bank has authority to amend.” Reply Br. at 6. Rather,
the suspension of the payment obligation arises through the plain terms of the
Subordination Agreement—a trilateral bargain struck between Lake, the
principal obligor, and the original payee of the Note. Cf. State v. Int’l Bus. Machs.
Corp., 51 N.E.3d 150, 160 (Ind. 2016) (“Indiana courts zealously defend the
freedom to contract.”). We therefore decline to adopt Sauter’s proffered
reading of the interplay between the Subordination Agreement and the Note.
[13] Ultimately, there is no dispute that Lake issued a notice of default. As earlier
discussed, that notice suspended Telecom’s obligation to pay Sauter on the
Note. Moreover, there is also no dispute that Telecom’s obligation to pay has
not been revived. Thus, Telecom’s obligation to pay remains suspended.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 6 of 10
[14] Despite the suspension of Telecom’s obligation, Sauter seeks to recover from
Brack through the Guaranty. Sauter argues that Brack’s obligation to pay
under the Guaranty is not affected by the Subordination Agreement, to which
Brack is not a party. According to Sauter, Brack “receives no cover” from the
Subordination Agreement. Br. of Appellant at 12. Sauter largely focuses on
language in the Guaranty specifying that Brack “unconditionally and absolutely
guarantees the full and prompt payment and performance when due of the
unpaid balance of [the Note.]” App. Vol. 2 at 48. Sauter directs us to caselaw
discussing the effect of an absolute or unconditional guaranty,3 arguing that any
condition to payment in the Subordination Agreement does not apply to Brack.
[15] A guaranty is “[a] promise to answer for the payment of some debt, or the
performance of some duty, in case of the failure of another who is liable in
the first instance.” Guaranty, Black’s Law Dictionary (11th ed. 2019)
(emphasis added). We interpret a guaranty as we interpret any other contract;
thus, “a guarantor cannot be made liable beyond the terms of the guaranty.”
Broadbent v. Fifth Third Bank, 59 N.E.3d 305, 311 (Ind. Ct. App. 2016) (quoting
TW Gen. Contracting Servs., Inc. v. First Farmers Bank & Tr., 904 N.E.2d 1285,
1288 (Ind. Ct. App. 2009), reh’g denied), trans. denied. Of course, “the terms of a
guaranty should neither be so narrowly interpreted as to frustrate the obvious
intent of the parties, nor so loosely interpreted as to relieve the guarantor of a
3
In this context, “absolute” is synonymous with “unconditional.” See generally Guaranty, Black’s Law
Dictionary (11th ed. 2019) (defining, inter alia, “absolute guaranty” and “conditional guaranty”).
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 7 of 10
liability fairly within [the] terms.” Id. (quoting TW Gen. Contracting Servs., Inc.,
904 N.E.2d at 1288). As to an absolute or unconditional guaranty, this type of
guaranty imposes liability regardless of whether the obligee first attempted to
collect from the principal obligor. Kruse v. Nat’l Bank of Indianapolis, 815 N.E.2d
137, 141 n.2 (Ind. Ct. App. 2004) (“An absolute guaranty, unlike a conditional
one, casts no duty upon the creditor or holder of the obligation to attempt
collection from the principal debtor before looking to the guarantor” (quoting
McEntire v. Ind Nat’l Bank, 471 N.E.2d 1216, 1225 (Ind. Ct. App. 1984), reh’g denied
& trans. denied)); cf. Guaranty, Black’s Law Dictionary (11th ed. 2019) (defining
“conditional guaranty” as a guaranty that “requires the performance of some
condition by the creditor before the guarantor will become liable”).
[16] Sauter selectively quotes from the Guaranty. The Guaranty is unconditional in
the sense that Sauter may attempt to collect from Brack without first attempting
to collect from Telecom. That much is plain from the terms of the Guaranty.
See App. Vol. 2 at 48 (“Guarantor hereby both unconditionally and absolutely
guarantees the full and prompt payment and performance when due of the
unpaid balance of [the Note.]”) & 51 (“This is a continuing guaranty of
payment and performance, not a guaranty of collection” 4). Yet, regardless of
the exhaustion of remedies against Telecom, Brack’s obligations still flow from
4
A guaranty of collection is a conditional guaranty, in that it “is conditioned on the creditor’s having first
exhausted legal remedies against the principal debtor before suing the guarantor.” Guaranty, Black’s Law
Dictionary (11th ed. 2019). In contrast, a guaranty of payment is one “not conditioned on the creditor’s
exhausting legal remedies against the principal debtor before suing the guarantor.” Id. (emphasis added)).
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 8 of 10
Telecom’s obligations. Indeed, the Guaranty specifies that Brack must “pay the
unpaid balance of the Note . . . in the same manner as if it constituted [his]
direct and primary obligation[.]” Id. at 48. The Guaranty also specifies that
Brack “shall remain liable until all terms of the [o]bligations are fully performed
by [Telecom.]” Id. at 49. By referring to Telecom’s primary obligations, the
Guaranty plainly secures the performance of those very obligations—no more,
no less. Therefore, Brack’s obligations track Telecom’s obligations, i.e., Brack is
liable only if Telecom has a ripe financial obligation under the Note.
[17] Before Lake issued the notice of default, Telecom was obligated to make regular
payments on the Note. However, the notice suspended Telecom’s obligation to
pay even past-due payments. Thus, regardless of the amount owed to Sauter,
the amount is not due and payable at this time. That is, the amount is not
“subject to immediate collection.” Due and Payable, Black’s Law Dictionary
(11th ed. 2019) (defining “due and payable” as “owed and subject to immediate
collection because a specified date has arrived or time has elapsed, or some
other condition for collectibility has been met”). Because Telecom is not
presently obligated to pay Sauter, Brack is not presently obligated to pay Sauter.
Thus, the claim is not ripe because the debt is not due and payable. See id.5
[18] Sauter suggests that allowing Brack’s obligations to track Telecom’s obligations
would “threaten the fundamental purpose” of a personal guaranty and “various
5
We therefore find inapposite Sauter’s reliance on Hamilton v. Meiks, 4 N.E.2d 536 (Ind. 1936). In that case,
unlike in this case, the principal obligor failed to pay an amount that was due and payable. See id. at 611-12.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 9 of 10
commercial transactions made possible by them.” Reply Br. at 18. We
disagree. The purpose of a guaranty is to ensure payment of due and payable
amounts. See, e.g., Guaranty, Black’s Law Dictionary (11th ed. 2019) (stating
that a guaranty is “[a] promise to answer for the payment of some debt, or the
performance of some duty, in case of the failure of another who is liable in
the first instance” (emphasis added)). Where, as here, an amount is not due
and payable, we discern nothing unusual about an obligee’s inability to collect.6
[19] For the foregoing reasons, we conclude that the trial court did not err by ruling
in favor of Brack on the competing motions for summary judgment.7
[20] Affirmed.
Vaidik, J., and Baker, Sr. J., concur.
6
It is also unsurprising that a transaction would be structured to prevent the managing member of the
principal obligor from paying on the junior debt as a guarantor. Structuring the deal in this manner protects
the senior creditor’s ability to later obtain or enforce a meaningful personal guaranty from that same person.
7
Having resolved the case on the grounds set forth above, we need not address the parties’ other arguments
concerning, inter alia, (1) whether Telecom actually defaulted as to the Note and (2) notice to Brack.
Court of Appeals of Indiana | Memorandum Decision 20A-MI-751 | August 31, 2020 Page 10 of 10