Commercial Loan Guaranties: Drafting and Enforcing Corporate and - - PowerPoint PPT Presentation

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Commercial Loan Guaranties: Drafting and Enforcing Corporate and - - PowerPoint PPT Presentation

Dec 26, 2022 134 likes •511 views

Presenting a live 90-minute webinar with interactive Q&A Commercial Loan Guaranties: Drafting and Enforcing Corporate and Personal Guaranties and Non-Recourse Carve-Outs Best Practices for Lenders and Guarantors In and Outside Bankruptcy

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Commercial Loan Guaranties: Drafting and Enforcing Corporate and Personal Guaranties and Non-Recourse Carve-Outs

Best Practices for Lenders and Guarantors In and Outside Bankruptcy

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, AUGUST 11, 2015

Presenting a live 90-minute webinar with interactive Q&A Sharon C. Jett, Esq., CPA, Shareholder, Higier Allen & Lautin, Addison, Texas Jason T . Rodriguez, Higier Allen & Lautin, Addison, Texas

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Sharon C. Jett & Jason T. Rodriguez HIGIER ALLEN & LAUTIN, PC

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 What is a Guaranty?  Guaranty vs Surety  Guaranty vs Warranty  Types of Guaranties

  • Absolute Guaranty
  • Collateral Guaranty
  • Conditional Guaranty
  • Continuing Guaranty
  • General Guaranty
  • Special Guaranty
  • Validity Guaranty

Higier Allen & Lautin, PC 5

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Sham Guaranty

Lake of Consideration

Unfair and Deceptive Business Practice

Against Public Policy

Invalidity of Waivers

Offset

Mutual Mistake

Unilateral Mistake

Accord and Satisfaction

Cancellation of Indebtedness

Payment

Illegality

Unjust Enrichment

Ambiguity

Change in Obligation / Material Alt

Estoppel

  • Equitable Estoppel
  • Judicial Estoppel
  • Quasi-Estoppel

Higier Allen & Lautin, PC 6

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 Material Alteration

  • Citibank, N.A., v. Automart International, Inc., Cherng-

Chyang Liou, and Bee June Cheng, 54 F.Supp.3d 977 (N.D. Illinois, 2014)

 Unjust Enrichment

  • Geneva JPM 2003-PM1, LLC, v. Geneva FSCX I, LLC, et al.,

843 N.W.2d 263 (Minn.App.2014)

 Offset Rights

  • Hometown 2006-1 1925 Valley View, L.L.C., v. Prime

Income Asset Management, L.L.C., 595 Fed.Appx. 306 (5th Cir.2014)

Higier Allen & Lautin, PC 7

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 Waiver / Estoppel

  • Roberts v. Community & Southern Bank, 331Ga.App. 364

(Ga.App. 2015)

  • Pulaski Bank v. Nantucket Partners, L.C., a Missouri

limited liability company, and Julian Hess, and Keith Barket, 428 S.W.3d 729 (Mo.App.E.D. 2014)

  • Arizona Bank & Trust v. James R. Barrons Trust, et al.,
  • No. 1 CA-CV 13-0096 (Az.App.Div1 2015)
  • First Dakota National Bank v. David Graham, Justin

Graham, Donald Graham, and Dennis Glatt, 864 N.W.2d 292 (S.D. 2015)

Higier Allen & Lautin, PC 8

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 Lack of Consideration

  • Rogene I. Armstrong, individually, and Rogene I.

Armstrong, as Personal Representative of the Estate

  • f J. Robert Armstrong, Deceased v. Richard C.

Armstrong and Jean O. Armstrong, 714 F.Supp. 451 (1989)

 Failure of consideration is a defense against any person without rights of holder in due course  If one co-maker receives consideration, then other co- maker may not allege lack or failure of consideration as a defense

Higier Allen & Lautin, PC 9

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 Sham Guaranties

  • California law - Lenders may pursue guarantors,

but only true guarantors

  • Courts may find sham guaranties where lender

structures a transaction to avoid anti-deficiency protections, even when borrower is properly formed entity that observes necessary formalities

  • A defense of sham guaranty will generally not be

held up when there is adequate legal separation between the borrower and guarantor

Higier Allen & Lautin, PC 10

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 Sham Guaranties

  • CADC/RAD Venture 2011-1 LLC, v. Richard J.

Bradley, et al., (2015)235 Cal.App.4th 775

  • California Bank & Trust, etc., v. David Lawlor, et al.,

(2013)222 Cal.App.4th 625

Higier Allen & Lautin, PC 11

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 Unconditional, irrevocable, and absolute  Include Waivers

  • Anti-deficiency statutes (if allowed by law)
  • Claims
  • Offsets
  • Defenses
  • Invalidity, Illegality, or Unenforceability of

documents executed in connection with guaranty

  • Obligations withstand any defense of Borrower

Higier Allen & Lautin, PC 12

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 Guarantors to acknowledge all amendments

and ratify and affirm all obligations and waivers

 Guarantor to sign separate guaranties for new

loans

Higier Allen & Lautin, PC 13

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 Make sure Trust can expressly guaranty the

debt of another

 Spendthrift Provisions

Higier Allen & Lautin, PC 14

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 What Just Happened?

  • It depends on who filed bankruptcy.

 The Bankruptcy Code provides for a number of

modifications to the debtor creditor relationship that effect a guaranty contract.

 If the guarantor is not a debtor, then the

bankruptcy code and court have less of an effect.

 However, that is not without exception.

15 Higier Allen & Lautin, PC

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 State law has a big place in Bankruptcy Court when it

comes to claims.

 Generally speaking, state law will govern a creditors

right to a claim under a contract.

 Thus, is some ways, the analysis of a guarantor

  • bligation is similar inside and outside of bankruptcy.

 On top of the non-bankruptcy code law on claims,

the Bankruptcy Code provides for a number of provisions which might work in tandem with non- bankruptcy rights and some which simply trump those rights.

Higier Allen & Lautin, PC 16

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 The automatic stay under 11 U.S.C. § 362.  Section 362 of the Bankruptcy Code acts as an

extremely broad injunction from acts to collect a debt (among other acts) from the debtor.

 An important limitation of the otherwise broad

scope of the automatic stay is that it does not preclude collection against non-debtors.

 Because of this, the Lender’s strategy is often to

immediately file a lawsuit on the guaranty.

Higier Allen & Lautin, PC 17

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 Bad Boy or Springing Guaranty issues in

Bankruptcy.

 What are they?  Issue – who is the debtor?

Higier Allen & Lautin, PC 18

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 Are Bad Boy provisions enforceable in

Bankruptcy?

 The majority of cases find the Bad Boy

Provisions to be enforceable.

Higier Allen & Lautin, PC 19

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 A few Examples:  FIFTH CIRCUIT: U.S. Bank, Nat. Ass'n v.

Kobernick, 454 F. App'x 307, 311 (5th Cir. 2011).

 SECOND CIRCUIT: In re S. Side House, LLC, 470

B.R. 659 (Bankr. E.D.N.Y. 2012).

 SIXTH CIRCUIT: 111 Debt Acquisition Holdings,

LLC v. Six Ventures Ltd., 413 F. App'x 824, 826 (6th Cir. 2011).

 FOUR CIRCUIT: F.D.I.C. v. Prince George Corp., 58

F.3d 1041, 1044 (4th Cir. 1995).

Higier Allen & Lautin, PC 20

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 NINTH CIRCUIT – AZ. JPMCC 2007-C1

Grasslawn Lodging, LLC v. Dix, No. CV-11- 00017-TUC-CKJ, 2013 WL 1340039, at *6 (D.

  • Ariz. Apr. 1, 2013).

 SECOND CIRCUIT: CSFB 2001-CP-4 Princeton

Park Corporate Ctr., LLC v. SB Rental I, LLC, 410 N.J. Super. 114, 980 A.2d 1 (App. Div. 2009).

Higier Allen & Lautin, PC 21

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 The Cherryland case in Michigan.  Insolvency Provision and its Application

Against the Guarantors after Foreclosure.

 The Legislative Response - the NMLA.  So far, the reaction to Cherryland has been

limited to Michigan and Tennessee.

Higier Allen & Lautin, PC 22

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 When is a guaranty a sham?  The sham guaranty defense is an important

issue to both lenders and guarantors because it serves as a complete defense to an action to collect a deficiency.

 This primarily a California issue.

Higier Allen & Lautin, PC 23

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 California has an anti-deficiency statute

which limits recovery from a borrower.

 If the guarantor is really the borrower,

lenders are limited to the security for their recovery and no deficiency claim exists.

Higier Allen & Lautin, PC 24

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 Determination of a Sham Guaranty is on a

case by case basis.

 A Seven Factor Test.  9th Cir. Ruling in BK case - In re Koo, No. BAP

CC-12-1558, 2013 WL 5460138, at *2 (B.A.P. 9th Cir. Oct. 1, 2013).

Higier Allen & Lautin, PC 25

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 Claim in Bankruptcy is broadly defined.  Lenders have a claim in BK against the Borrower

regardless of the guarantor.

 Lenders will also have a claim if the Guarantor

files bankruptcy.

 Guaranty of Payment vs. Guaranty of Collection in

BK.

 Who is the Debtor?

Higier Allen & Lautin, PC 26

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 The Automatic stay.  Ipso Facto Clauses.  Injunction during the Bankruptcy Case.

Higier Allen & Lautin, PC 27

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 Issues of “related to” jurisdiction and scope of

a bankruptcy order.

 Where will the guarantor suit be heard?

Higier Allen & Lautin, PC 28

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 Use of a Chapter 11 Plan to Prohibit

Collection from Guarantor.

 Section 105 vs. Section 524.  The Circuits are Split.

Higier Allen & Lautin, PC 29

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 A Claim Arising from a Lease Termination.  Lease Termination Damages Cap under

Section 502.

 The Rejection Claim and the Non-Bankrupt

Guarantor.

 The Rejection Claim and the Bankrupt

Guarantor.

Higier Allen & Lautin, PC 30

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 Chapter 15, Generally.  Imposing International Law Releasing

Guarantors in the US.

Higier Allen & Lautin, PC 31

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 Fraudulent Transfer in Bankruptcy, Generally.  When Does a Fraudulent Transfer Claim Come up

for Guaranty issues?

 Delivering the Guaranty – Is it a Fraudulent

Transfer?

 ELEVENTH CIRCUIT: The TOUSA bankruptcy Case.  FIFTH CIRCUIT: The Fairchild case.

Higier Allen & Lautin, PC 32

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 Preference Claims in Bankruptcy, Generally.  The Guarantor as a Debtor.  The Guarantor as a Non-Debtor.

Higier Allen & Lautin, PC 33

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 Recharacterization of Debt to Equity.  Claim Subordination Under § 510(b).  FIFTH CIRCUIT: Templeton v O’Cheskey (In

the Matter of: American Housing Foundation), case no. 14-10563.

 Claim Subordination Under § 510(c).

Higier Allen & Lautin, PC 34

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 For the Guarantor – Serving two Masters.  The Creditor Deemed an Insider.  Lender Aiding and Abetting Breach of

Fiduciary Duty.

Higier Allen & Lautin, PC 35

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QUESTIONS ?

Higier Allen & Lautin, PC

Sharon C. Jett

sjett@higierallen.com

Jason T. Rodriguez

jrodriguez@higierallen.com

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