Court Opinion

ID: 203201
Source: CourtListenerOpinion
Date Created: 2011-02-07 06:10:48+00
Date Added: 2024-06-11T17:27:34.946473
License: Public Domain

United States Court of Appeals
                        For the First Circuit
No. 07-1992

                           D. BRUCE WHEELER,

                         Plaintiff, Appellee,

                                  v.

                           RYAN T. BLUMLING,

                         Defendant, Appellant,

             PARSONS 4E, LLC; TERRY EBELS; FRANK ZARRELLI;
                RABON WOLFORD, SR.; THOMAS G. POLANSKY,

                              Defendants.

             APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF MASSACHUSETTS

               [Hon. Rya W. Zobel, U.S. District Judge]

                                  Before
                        Torruella, Circuit Judge,
                 John R. Gibson, Senior Circuit Judge,*
                       and Lipez, Circuit Judge.

          Mitchell J. Rotbert, with whom Rotbert Law Group, LLC,
was on brief for appellant.
          Laurence M. Johnson, with whom Davis, Malm & D'Agostine,
P.C., was on brief for appellee.

                            March 25, 2008

     *
         Of the Eighth Circuit, sitting by designation.
          JOHN R. GIBSON, Senior Circuit Judge.    Ryan T. Blumling

appeals from the district court's entry of summary judgment against

him in favor of D. Bruce Wheeler, on Wheeler's claim for breach of

a guaranty agreement.    Blumling contends that he has two defenses

to liability on the guaranty:       frustration of purpose of the

contract and modification of the guaranty by oral agreement.     We

affirm the judgment of the district court.

          Blumling is a loan broker. In March 2004, Frank Zarrelli

of Parsons 4E, LLC, contacted Blumling for help in finding a short-

term loan to supply money Parsons needed to buy a financial

guaranty bond from Allianz, A.G. Parsons needed the bond to enable

it to get bank financing for coal mining operations in Kentucky.

Blumling went to work and located Wheeler as a possible lender for

the short-term loan.     The note was to be secured by a security

interest in various coal properties and by guaranties from the

principals of Parsons, but Wheeler insisted on getting a guaranty

from Blumling as well.   Blumling states that he told Wheeler,

     I did not think that it was appropriate for me to
     guarantee the Note, as I was merely a broker for the
     loan, but Mr. Wheeler insisted that, unless I guaranteed
     the loan, he would not lend to Parsons 4E . . . .

     Without any alternative, and being under pressure to
     perform quickly to satisfy the reported needs of Allianz,
     I advised Mr. Wheeler that I would execute a guarantee,
     provided that Mr. Wheeler understood and agreed that I
     would not thereby become liable for an amount greater
     than the principal amount loaned and that I would not be
     called upon to pay any amounts before Mr. Wheeler had
     exhausted   his   remedies   under  the   assignment   by
     foreclosing on his security interest as stated in the

                                 -2-
     Collateral Assignment I had arranged. Mr. Wheeler agreed
     . . . . In reliance on Mr. Wheeler's representations,
     I signed the guaranty.

            The note itself called for a rather breathtaking interest

rate--the loan was for $625,000 to be disbursed on March 12, 2004,

to be repaid with interest for a total of $1.4 million due on April

24, 2004.    Though the parties dared not name the interest rate at

oral argument, we calculate it at over 1000% per annum.          The

guaranty Blumling signed, however, did not make him liable for that

rate of interest, but instead provided:

     [I]n no event shall the amounts due Lender under this
     Guaranty exceed the sum of $625,000 plus interest from
     the date hereof until paid in full at 2% per month (or
     such lesser amount as shall be the maximum amount allowed
     by law) plus reasonable attorneys fees and expenses in
     connection with enforcement of this Guaranty . . . .

            There were several other clauses in the guaranty of

particular interest in this litigation:

     (1) The guaranty recited that Blumling had a personal interest

in the success of Parsons, that Wheeler would not make the desired

loan to Parsons without Blumling's guaranty, and that the guaranty

was executed to induce Wheeler to make the Parsons loan.

     (2) The guaranty also said that Wheeler might "at [his]

option, proceed against [Blumling] without ever commencing any

action, or ever obtaining any judgment against [Parsons] or any

collateral for the obligations guaranteed hereunder."        A later

clause similarly provided, "This Guaranty . . . is in no way

                                 -3-
conditioned upon any requirement that [Wheeler] first attempt to

collect or enforce any of the obligations under the Note from or by

[Parsons] or any other party primarily or secondarily liable with

respect thereto, or resort to any security or other means of

obtaining payment or satisfaction of any of the obligations of

[Parsons] to [Wheeler]. . . ."

     (3) "No provision of this Guaranty may be changed, waived or

discharged except by an instrument in writing signed by [Wheeler]

and [Blumling] and expressly referring to the provision of this

Guaranty to which such instrument relates . . . ."

     (4)    The   guaranty   stated    that    it   would   be   governed   and

construed in accordance with the law of Kentucky.

            Upon execution of the note and the guaranties, Wheeler

disbursed   the   $625,000   as   Parsons      directed,    including   wiring

$562,500 directly to Parsons' bond broker Wayne Price, who was

supposed to be arranging the purchase of the bond from Allianz.

Blumling states that although the "Allianz bond was issued in April

2004, . . . it was not financed . . . [and] Allianz and its

subsidiaries would not recognize it as a legitimate instrument

issued by one or more of them."             Wayne Price and his associates

were indicted in the Southern District of New York on charges of

conspiracy and wire fraud.        In particular, they were accused of

appropriating for themselves moneys their clients had paid to

obtain bonds from a subsidiary of Allianz, A.G.                  Parsons tried

                                      -4-
without success to obtain the return of its premium.

            As a result of its bond fiasco, Parsons defaulted on its

obligation to pay Wheeler $1.4 million on April 24, 2004.                   In

December    2004,    the    various    parties    and    guarantors    to   the

Parsons/Wheeler      note   executed    a    "Forbearance    Agreement."     In

exchange for an extension of time to pay, Parsons acknowledged its

indebtedness on the note and, in Section 3 of the Forbearance

Agreement, agreed to waive any possible defenses on the note or

counterclaims.       Although the body of the Forbearance Agreement

related only to Parsons's obligations, Blumling signed an attached

signature page with the following statement: "The undersigned

consents to the foregoing, joins in the release under Section 3

above, and agrees that his Guaranty remains in full force and

effect."    Parsons did not make any of the payments in accordance

with the terms of the Forbearance Agreement.

            Wheeler brought this suit against Parsons, the other

guarantors,    and   Blumling.        Parsons    and   the   other   guarantors

settled, but Blumling did not.2        Wheeler moved for summary judgment

against Blumling, which the district court granted.

            We review de novo the district court's grant of summary

judgment.     Plumley v. S. Container, Inc., 303 F.3d 364, 369 (1st

Cir. 2002).

     2
      Blumling stated, both in an affidavit and in his brief to
this court, that Wheeler has not executed in any way on the
judgment he obtained against Parsons and the other guarantors.

                                       -5-
           Blumling contends that under the applicable Kentucky law,

he should be excused from performing his obligations under the

guaranty because the misappropriation of the proceeds by the bond

broker   frustrated   the   purpose   of   the   contract   or    rendered

impossible Blumling's performance. Blumling's argument is properly

characterized as one of frustration of purpose rather than of

impossibility,3 for he argues that the value to him of the loan

secured by the guaranty was destroyed by the defalcations of the

bond broker.

           Actually, the value of the loaned money was not affected,

but the proceeds of the loan were lost by the borrower.          Suffice it

to say, none of the authorities cited by Blumling stands for the

rule that a borrower's (or his guarantor's) obligation to repay

borrowed money depends on the success of the venture on which he

spent the money.      The only precedential Kentucky case on which

Blumling relies, Frazier v. Collins, 187 S.W.2d 816 (Ky. 1945),

     3
           The doctrine[s] of commercial frustration and
           impracticability [i.e., impossibility] both
           concern    the    effect     of    supervening
           circumstances upon the rights and duties of
           the   parties;   however,    with   commercial
           frustration, performance remains possible, but
           the expected value of performance to the party
           seeking to be excused has been destroyed by
           the fortuitous event which supervened to cause
           an actual, but not literal, failure of
           consideration.

30 Richard A. Lord, Williston on Contracts § 77.95, at 596 (4th ed.
2004).

                                  -6-
rejected the frustration defense in the case before it and held

that "when a party engages without qualification to do an act, his

performance      is     not   excused    because       it    becomes   onerous     or

unprofitable.         It is deemed his own fault if he does not expressly

provide     against         contingencies       and     exempt      himself      from

responsibility        in   certain    events."        Id.    at   818-19   (internal

quotation marks omitted).             The district court did not err in

rejecting Blumling's frustration of purpose defense.

            Second,        Blumling   argues    that    he    and   Wheeler   orally

modified their contract, including the provision in the contract

that required modifications to be in writing. He contends that the

modified terms were that "Blumling would not be liable on his

guaranty until such time as Wheeler had executed against Parsons

4E's assets" and that "in any event, Blumling would not be liable

for more than the principal amount that Wheeler had loaned to

Parsons."        The problem with this theory is that there is no

evidence    of    a    modification     after    the   guaranty      was   executed.

Blumling's own affidavit alleges that he negotiated these two

conditions with Wheeler before executing the guaranty:

     I advised Mr. Wheeler that I would execute a guarantee,
     provided that Mr. Wheeler understood and agreed that I
     would not thereby become liable for an amount greater
     than the principal amount loaned and that I would not be
     called upon to pay any amounts before Mr. Wheeler had
     exhausted   his  remedies    under  the  assignment   by
     foreclosing on his security interest as stated in the
     Collateral Assignment I had arranged. Mr. Wheeler agreed
     . . . . In reliance on Mr. Wheeler's representations, I
     signed the guaranty.

                                         -7-
However, the guaranty as executed contradicts both the conditions,

expressly providing that Blumling's liability did not depend on

Wheeler first proceeding against the debtor, any other guarantor,

or the collateral, and that Blumling would be liable for the

principal     amount   plus   two    percent   interest     and     reasonable

attorneys'    fees.     Blumling's     affidavit    says    that    he   later

"reconfirmed" the two putative conditions with Wheeler's agent, but

he steadfastly contends that those were the terms negotiated before

the contract was memorialized, rather than being changes negotiated

afterwards.       Moreover,    his   affidavit     only    states    that   he

"reconfirmed" his understanding of the contract, not that Wheeler's

agent agreed to any change.

            Thus, Blumling's evidence does not support a modification

of the agreement, but rather consists of assertions of prior oral

negotiations that contradict the written instrument he executed.

The parol evidence rule is a rule of substantive law under which,

     [w]here the parties put their engagement in writing             all
     prior negotiations and agreements are merged in                 the
     instrument, and each is bound by its terms unless               his
     signature is obtained by fraud or the contract                   be
     reformed on the ground of fraud or mutual mistake, or           the
     contract is illegal.

Childers & Venters, Inc. v. Sowards, 460 S.W.2d 343, 345 (Ky.

1970).      Blumling does not argue that the whole contract was

obtained by fraud or that the parties meant it as a sham contract;

instead, he only wants to contradict particular terms of a contract

which has already been performed on Wheeler's side and of which

                                     -8-
Blumling has already enjoyed the benefits (fleeting though they

were).   This is exactly what the parol evidence rule forecloses.

See Lewis v. Owens, 338 F.2d 740, 742 (6th Cir. 1964) (Kentucky

law).

          Since   we   conclude    that   Blumling's   defenses   are

unavailing, we need not consider the arguments regarding whether he

waived such defenses in the Forbearance Agreement.

          We AFFIRM the judgment of the district court.

                                  -9-