Opinion ID: 1390576
Heading Depth: 3
Heading Rank: 2

Heading: The reasonable efforts provision

Text: Winget contends that JPMorgan's inspection rights as set forth in § 11(d) of the Winget Guaranty are subject to the reasonable efforts provisions of the Winget Pledges, P.I.M. Guaranty, and Venco Guaranty. He advances this contention by arguing that the district court misapplied the legal standard applicable to a judgment on the pleadings. According to Winget, [u]nder 12(c), this Court must accept as true [his] allegation that [JPMorgan] failed to use `all reasonable efforts' to obtain payment of the Guaranteed Obligations from the other collateral. Winget also claims that in the context of [JPMorgan's] Rule 12(c) motion, the district court was required to accept as true, given the state of the pleadings, that [JPMorgan] was contractually barred from taking action that would affect the rights of Venco and P.I.M. We conclude that Winget's argument is both a misapprehension of the proper analysis under Rule 12(c) and an incorrect interpretation of the language of the Winget Guaranty. Although all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, Southern Ohio Bank, 479 F.2d at 480, Winget's assertion that JPMorgan was contractually barred from exercising its inspection rights until it satisfied the reasonable efforts provision is a legal conclusion, not a factual allegation. Accordingly, we are not required to accept Winget's argument as true. Mixon, 193 F.3d at 400. Winget repeatedly asserts that the district court erred because it failed to accept his contention that JPMorgan had not used all reasonable efforts before seeking to exercise its inspection rights. In fact, the district court made no such error, because the court actually concluded that the reasonable efforts provision was inapplicable to JPMorgan's inspection rights as Agent. The proper interpretation of a contract is a question of law. Archambo v. Lawyers Title Ins. Corp., 466 Mich. 402, 646 N.W.2d 170, 174 (Mich.2002). Thus, whether the reasonable efforts provisions of the P.I.M. Guaranty and the Venco Guaranty are applicable to the Agent's inspection rights under the Winget Guaranty is a legal question that may be decided on a motion for judgment on the pleadings. According to Winget, § 3(iii) of the P.I.M. and Venco Guaranties limit JPMorgan's inspection rights under § 11(d) of the Winget Guaranty. Section 3(iii) provides that JPMorgan shall not exercise any rights or remedies under this Guaranty until all reasonable efforts shall have been made by it to collect the Guaranteed Obligations from other collateral held by the Administrative Agent. Winget argues that because JPMorgan has failed to demonstrate that it has made all reasonable efforts to collect from other collateral, it cannot exercise its inspection rights as Agent. The numerous, interrelated contracts governing the relationship between Winget and JPMorgan are undoubtedly complex, and JPMorgan's ability to seek certain forms of relief is circumscribed by the provisions of the various agreements. For example, § 3 of the Winget Guaranty provides that [n]o action for money judgment shall be commenced by the Administrative Agent arising from any alleged covenants contained in Section 11(d) until the completion of collection and liquidation efforts (as described in Section 5.2 of the Pledge Agreement of Guarantor as to PIM), unless there is a good faith allegation of material and irreparable harm. If JPMorgan were seeking a money judgment based on Winget's response to its request to inspect the financial records, this provision makes clear that JPMorgan must first complete the collection and liquidation efforts set forth in § 5.2 and make a good-faith allegation of material and irreparable harm. The language related to JPMorgan's inspection rights, in contrast, is consistent, unambiguous, and not circumscribed by any similar limitation. The Winget Guaranty, the P.I.M. Guaranty, and the Venco Guaranty each unequivocally state that, with respect to the inspection rights, an action for specific performance and/or injunctive relief can be brought at any time following an alleged violation. Winget argues that we must look to the intention of the parties, and that the intention of the parties is clear from the contractual language. He specifically relies on § 3(iii) of both the P.I.M. and Venco Guaranties, where the parties state that they intended that this Guaranty and the collateral provided by the Pledge Agreement from the Guarantor . . . shall be realized upon by the Administrative Agent only as a last resort. In other words, Winget contends that JPMorgan may seek recovery from P.I.M. and Venco only if no other assets are reasonably available. But JPMorgan is not seeking recovery from P.I.M. and Venco. Rather, JPMorgan is simply seeking to exercise its right to inspect the financial records of those two companies, a right that it may exercise through an action for specific performance at any time following an alleged violation. Here the alleged violation is Winget's denial of JPMorgan's request, sent by letter in September of 2005, to inspect the financial records of P.I.M. and Venco. Moreover, the Winget Guaranty, upon which the instant action is based, contains no reasonable efforts provision and no reference to recovery as a last resort. The absence of a reasonable efforts provision is a compelling indication that the parties did not intend that any of JPMorgan's inspection rights under the Winget Guaranty would be circumscribed by such a requirement. This interpretation is consistent with the stated intention of the P.I.M. and Venco Guaranties that recovery must first be sought from other assets owned or controlled by Winget. Because the last sentence of § 3 of the Winget Guaranty explicitly permits JPMorgan to exercise its inspection rights under § 11(d)(i) at any time following an alleged violation, we conclude that the reasonable efforts provisions are inapplicable to such rights. JPMorgan was thus entitled to a judgment on the pleadings on this issue.