Opinion ID: 1058593
Heading Depth: 2
Heading Rank: 2

Heading: Post-Bankruptcy Proceedings Against Nizan

Text: After the bankruptcy court lifted the stay in February 2005, proceedings in the circuit court under Wells Fargo's motion for judgment recommenced. [8] Nizan sought additional discovery from Wells Fargo in the circuit court regarding the UBS Settlement. He maintained that Wells Fargo was barred from obtaining a double recovery from both him and UBS for the same damages represented by payments on the Lee Hall Loan. Nizan contended further discovery was necessary to determine whether, or to what extent, Wells Fargo had already received payment in the UBS Settlement for the same damages that Wells Fargo sought to recover from him under the Guaranty for the Lee Hall Loan. In response, Wells Fargo filed a motion for a protective order and made an oral motion in limine so as to bar further discovery. Wells Fargo contended that the date for concluding discovery had passed prior to Nizan's bankruptcy and that the details of the UBS Settlement were irrelevant to its claims against Nizan. Wells Fargo asked the circuit court to adopt the rationale articulated in an order entered by the United States Bankruptcy Court for the Southern District of Texas, In re Cyrus II Partnership, No. 05-39857 (Bankr.S.D.Tex.2005) ( Cyrus ). In Cyrus, the bankruptcy court held the UBS Settlement was irrelevant to resolving Wells Fargo's claims against another guarantor for another loan that was part of the same securitized mortgage loan pool as the Lee Hall Loan. While Nizan was not a party in Cyrus, Wells Fargo contended the issue was the same and involved a similarly-situated guarantor on a similar loan that was part of the same loan package UBS sold to the REMIC Trust that included the Lee Hall Loan. Wells Fargo argued the bankruptcy court's analysis was precisely on point and resolved any claim presented by Nizan as to the Lee Hall Loan by virtue of the UBS Settlement. Wells Fargo cited the following portion of the Cyrus opinion: When the Debtors signed the loan documents, they became obligated to the holders of the debt. [UBS] was never a maker of the note. UBS allegedly breached an independent obligation that it had to Orix. When it settled its breach by the payment of $19.4 million, UBS could have negotiated that it would have paid more to Orix for the transfer of the note to UBS. Or, UBS could have paid less and left the note with Orix. [UBS's] breach was independent of the Debtors' payment obligation. If UBS had acquired the note as part of its settlement (i.e., UBS had paid $19.4 million and received the note from Orix), the Debtors would have no conceivable argument that the Debtors would be entitled to a credit for UBS's payment. The transaction that occurred was wholly independent of the Debtors' obligation to pay on the note. Because [UBS] paid less and left the note with Orix, the Debtors allege that they are entitled to a credit. Logic dictates that the amount owed by the Debtors should not be affected by the structure of a settlement between third parties. Cyrus, slip op. at 3. After a hearing, the circuit court granted the protective order and barred further discovery by Nizan as to the UBS Settlement by an order entered April 14, 2006 (the Protective Order). At the time of the ruling, the circuit court stated that additional discovery was not necessary for the parties to adequately argue their positions regarding the relevance of the UBS Settlement, and Nizan's defense of double recovery. During a later pre-trial conference, the circuit court indicated that it had reviewed Cyrus more thoroughly and was persuaded by its reasoning. However, the court permitted the parties to submit an additional brief limited to why the reasoning and the bankruptcy case of [ Cyrus ] does not apply here and if it can be distinguished how the Virginia law would change that rationale. The parties submitted further briefs and at a hearing on that limited issue, the circuit court reiterated its belief that Cyrus was persuasive, and concluded: This suit by Wells Fargo against UBS was because of their misrepresentation of the value of those loans. That's a separate issue [than Nizan's liability as a guarantor.] UBS or the guarantors did not have any common liability to Wells Fargo. Consistent with this ruling, the circuit court entered an amended final order (the Amended Final Order) on May 3, 2006, which stated: The UBS settlement and the manner in which the proceeds of such settlement were allocated are not relevant to Nizan's obligation as Guarantor to repay the entire amount due on the Lee Hall Loan, and Wells Fargo's recovery under the Guaranty does not constitute or operate as a double recovery. Finding no further issues remaining in the case, the circuit court entered judgment in favor of Wells Fargo, and held Nizan liable in the amount of $6,619,005.86 as of September 23, 2002 in addition to interest at a rate of 13.2 percent per year. We awarded Nizan this appeal.