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Sterling Sav. Bank v. Emerald Dev. Co.

Court of Appeals of Oregon

October 15, 2014

STERLING SAVINGS BANK, by and through, NORTHWEST LENDING PARTNERS, LLC, Assignee, Plaintiff-Appellant,
v.
EMERALD DEVELOPMENT CO, an Oregon corporation; LILY MIRTORABI; JASON HOSSEIN SAMANI; JAVAD JOHN MIRTORABI; MEHDI MIRTORABI; and HABIB MATIN, Defendants-Respondents, And MERIDIAN VILLAGE NO. 1, LLC, an Oregon limited liability company; et al, Defendants

Argued and Submitted May 6, 2013

Resubmitted en banc June 3, 2014.

Washington County Circuit Court. C094420CV. Donald R. Letourneau, Judge.

Michael D. Montag, argued the cause for appellant. With him on the briefs were A. Richard Vial and Vial Fotheringham LLP.

Andrew T. Reilly argued the cause for respondents. With him on the brief was Black Helterline LLP.

Before Haselton, Chief Judge, and Armstrong, Wollheim, Ortega, Sercombe, Duncan, Nakamoto, Hadlock, Egan, DeVore, Lagesen, and Tookey, Judges, and Schuman, Senior Judge. Duncan, J., dissenting. Haselton, C. J., and Wollheim, J., join in this dissent.

OPINION

Page 720

[266 Or.App. 314] NAKAMOTO, J.

During litigation of this collection action brought by plaintiff Sterling Savings Bank (Sterling) against the principal obligor and coguarantors of a promissory note, Northwest Lending Partners, LLC (Northwest) purchased the note and the guaranty agreements from Sterling. In conjunction with

Page 721

the purchase, Sterling settled with some of the coguarantors; subsequently, the trial court entered a limited judgment on the debt and a supplemental judgment awarding Sterling its attorney fees against the principal obligor and the remaining, nonsettling coguarantors. As proceedings to enforce the judgments were underway, however, the remaining coguarantors sought and obtained relief from the judgments under ORCP 71 B(1)(e).

Standing in Sterling's shoes,[1] Northwest assigns error to (1) the trial court's decision to grant the nonsettling guarantors' motion for relief from the limited and supplemental judgments under ORCP 71 B(1)(e) and (2) the court's consequent entry of a general judgment vacating those judgments as against the nonsettling guarantors and dismissing with prejudice all claims against them. We conclude that the trial court erroneously concluded that the note and judgments had " been satisfied, released, or discharged" when Northwest purchased the promissory note from Sterling and, therefore, that the trial court erred by granting the motion for relief from the judgments under ORCP 71 B(1)(e) and by entering the general judgment. Accordingly, we reverse and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

We begin by summarizing the facts, most of which are procedural and undisputed. To the extent that there were relevant factual disputes before the trial court, we note the trial court's express findings, if any, and discuss any implicit findings necessary for the trial court's legal conclusions and the evidence relevant to such facts.

[266 Or.App. 315] A. The initial promissory note and the guaranty agreements

In or about 2003, two companies, Oak Brook Financial Corporation (Oak Brook) and Emerald Development Co. (Emerald) formed a joint venture called Meridian Village No. 1, LLC (Meridian) to develop a condominium project in Beaverton. Meridian then sought and obtained a $200,000 line of credit with Sterling, which was reflected in a promissory note.

Meridian was the primary obligor on the note, and Sterling also obtained guaranties for repayment of the loan. In total, the Sterling loan was guarantied by 10 people or entities: Oak Brook and its members Steven Hanson and Thomas Shauklas (collectively, the Oak Brook defendants); Emerald and its members Arya Nasorllah Matin and Habib Matin (collectively, the Matin defendants); and Lili Mirtorabi, Jason Hossein Samani, Javad John Mirtorabi, and Mehdi Mirtorabi (collectively, the Mirtorabi defendants).

The coguarantors executed individual guaranty agreements in 2003. Each guaranty agreement contained the following provisions relevant to this appeal:

" AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
" CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, [Guarantor] absolutely and unconditionally guarantees and promises to pay to Sterling Savings Bank (" Lender" ) or its order, * * * the Indebtedness (as that term is defined below) of MERIDIAN VILLAGE NO. 1, LLC (" Borrower" ) to Lender on the terms and conditions set forth in this Guaranty. Under this Guaranty, the liability of Guarantor is unlimited and the obligations of Guarantor are continuing.
" INDEBTEDNESS GUARANTEED. The Indebtedness guaranteed by this Guaranty includes any and all of Borrower's indebtedness to Lender and is used in the most comprehensive sense and means and includes any and all of Borrower's liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs, debts, overdraft indebtedness, credit card indebtedness, lease [266 Or.App. 316] obligations, other obligations, and liabilities of Borrower, or any of them * * *.

Page 722

" DURATION OF GUARANTY. This Guaranty will take effect when received by Lender * * * and will continue in full force until all Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full. * * * Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. * * *
" GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender * * * (D) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; * * * (G) to sell, transfer, assign or grant participations in all or any part of the Indebtedness; and (H) to assign or transfer this Guaranty in whole or in part.
" GUARANTOR'S WAIVERS. * * *
" * * * * *
" Guarantor also waives any and all rights or defenses arising by reason of * * * (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness."

B. The Oak Brook defendants' $700,000 payment and the 2008 note

Sterling extended the original line of credit to $1.7 million in 2004, and a new promissory note was created to reflect that extension. In April 2008, in an effort to renegotiate the terms of Sterling's loan to Meridian, the Oak Brook defendants proposed to make a payment of $700,000 on the loan in exchange for an indemnity agreement from their coguarantors and two related parties.[2] [266 Or.App. 317] The indemnity agreement was executed in April 2008 and provided, in part:

" On the condition that Group A [Oak Brook, Hanson, and Shauklas] makes the $700,000 paydown described above, the members of Group B [Emerald, Emerald Engineers and Constructors, Inc., Javad Mirtorabi, Giti Mirtorabi, Hossein (Jason) Samani, Lili Mirtorabi, Seid (Mahdi) Mirtorabi, and Habib Matin] hereby unconditionally, and jointly and severally within the group, agree to defend, indemnify and hold harmless the members of Group A from and against any claim made under their guarantees of the Loan or to otherwise collect the Loan from them. Each member of Group B further agrees that if Sterling Bank makes a demand on any member of Group A for payment of the Loan, the Group B members shall promptly, upon notice of the demand, pay the amount so demanded, directly to the bank. If the Group A member receiving the demand pays to Sterling Bank part or all of the demand, then the Group B members shall reimburse the Group A member who has made such payment, immediately upon demand.
" Group A may pay the Loan on demand by the bank, without any obligation to contest in any way, or raise any defenses to payment of the Loan or under the guarantees."

In June 2008, the Oak Brook defendants made the $700,000 payment to reduce the amount owed on the line of credit. The payment brought the total amount owing on the Sterling loan to just over $1 million.

Concomitantly, Sterling and Meridian executed a new promissory note. The note provided that Meridian promised to pay Sterling the principal amount of $1,010,273.50, together with interest on the unpaid principal balance from June 9, 2008, until paid in full. That payment was due on July 5, 2009. The 2008 note provided that default would occur if, among other things, Meridian failed to make any payment due under the note. On appeal, the parties do not dispute that the guaranties that the coguarantors executed in 2003 applied to the 2008 note.

Page 723

In March 2009, Sterling declared Meridian in default for failure to make the monthly interest payments required under the 2008 note. In June 2009, Sterling sent [266 Or.App. 318] Meridian a demand for payment of the entire unpaid principal balance and accrued interest under the note, but Meridian failed to make the payment. Sterling also sought payment from the coguarantors, who also failed to pay.

C. The litigation and partial settlement

In July 2009, Sterling initiated this action in Washington County Circuit Court to collect full payment of the note, naming both Meridian and all of the coguarantors as defendants. Various defendants filed cross-claims.

After Sterling filed its action, the Oak Brook defendants initiated a separate action in September 2009 against the Matin and Mirtorabi defendants and the additional indemnitors to enforce the indemnity agreement. That action, filed in Multnomah County Circuit Court due to the forum-selection clause contained in the indemnity agreement, was stayed pending the outcome of the Washington County case.

In June 2010, Sterling filed a motion for summary judgment against all defendants. The trial court held a hearing on the motion on October 25, 2010. During the hearing, the Oak Brook defendants reported that they had reached a settlement agreement with Sterling, and Sterling notified the court that it was withdrawing its motion for summary judgment as to those three defendants.

The settlement documents between Sterling and the Oak Brook defendants had been executed several days before the October summary judgment hearing. The settlement agreement stated that it was between Sterling and Oak Brook, Hanson, and Shauklas--the Oak Brook defendants--as the " Settled Guarantors." The agreement provided that the Settled Guarantors, contemporaneously with the settlement agreement, would execute a judgment by confession in the amount of $800,000, including principal and interest, and that Sterling would not submit the judgment " except as set forth under the Statement Confessing Judgment (executed contemporaneously herewith) and the Covenant Not to Execute Judgment." Under a section entitled " Termination and Revocation of Personal Guaranties," the settlement agreement stated:

[266 Or.App. 319] " Upon either entry of the Judgment by Confession, or return of the Judgment of Confession to the Settled Guarantors, any and all Personal Guaranties, Continuing Guaranties, Commercial Guaranties, or other guarantee executed by Settled Guarantors in favor of Sterling shall be forever terminated, revoked, null and void."

On the same day that Sterling settled with the Oak Brook defendants, Sterling executed a " Note Purchase and Sale Agreement" with Northwest in which Sterling agreed to sell, convey, and assign the 2008 note, a deed of trust, and the commercial guaranties to Northwest in exchange for $800,000. Northwest agreed to make two $400,000 payments within six months of the agreement.

Among the terms of the sale of the note, Sterling agreed to assign its right to attorney fees and costs and, upon payment of the $800,000 purchase price, to deliver to Northwest the judgment by confession that the Oak Brook defendants had signed:

" h. Assignment of Litigation. Sterling agrees to assign all its rights and interest including any claims for costs and/or attorney fees in the lawsuit currently filed in Circuit Court, Washington County, State of Oregon, Case No. C094420CV (the 'Litigation'). Settled Guarantors', as defined below, counsel shall prepare all necessary pleadings to effect such assignment. * * *
" j. Judgment by Confession. Upon receipt of full payment of the Purchase Price as specified in Paragraph 1 above, Seller shall deliver to Buyer the unrecorded original Judgment by Confession executed by Oak Brook Financial Corporation and Steven F. Hanson and Thomas C. Shauklas (collectively 'Settled Guarantors') ...

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