Court Opinion

ID: 2971235
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:31:28.676255+00
Date Added: 2024-06-11T11:43:34.767290
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206            2    Multimedia 2000 et al. v. Attard et al.      No. 03-5033
    ELECTRONIC CITATION: 2004 FED App. 0206P (6th Cir.)
                File Name: 04a0206p.06                                        _________________
                                                                                   COUNSEL
UNITED STATES COURT OF APPEALS
                                                          ARGUED: Christopher E. Thorsen, BOULT, CUMMINGS,
              FOR THE SIXTH CIRCUIT                       CONNERS & BERRY, Nashville, Tennessee, for Appellant.
                _________________                         Robert L. Sullivan, LOEB & LOEB, Nashville, Tennessee,
                                                          for Appellee. ON BRIEF: Christopher E. Thorsen, Thor Y.
MULTIMEDIA 2000, INC.,            X                       Urness, BOULT, CUMMINGS, CONNERS & BERRY,
                       Plaintiff, -                       Nashville, Tennessee, for Appellant. Robert L. Sullivan,
                                   -                      LOEB & LOEB, Nashville, Tennessee, for Appellee.
                                   -  No. 03-5033
FINOVA MEZZANINE CAPITAL, -                                 GILMAN, J., delivered the opinion of the court in which
INC.,                               >                     GUY, J. (p. 11), concurred in the decision to reverse the grant
                                   ,                      of summary judgment to the defendants, but for the reasons
            Plaintiff-Appellant, -
                                                          set forth in his separate concurrence/dissent. COOK, J.
                                   -                      (p. 12), filed a separate dissenting opinion.
            v.                     -
                                   -                                          _________________
TAMARA L. ATTARD , PAUL G. -
                                   -                                              OPINION
ATTARD , and MULTICOM
                                   -                                          _________________
PUBLISHING , INC.,                 -
         Defendants-Appellees. -                            RONALD LEE GILMAN, Circuit Judge. To secure a loan
                                   -                      to their company—Multicom Publishing, Inc.—Tamara and
                                  N                       Paul Attard granted a security interest in all of their Multicom
      Appeal from the United States District Court        stock to the lender, Finova Mezzanine Capital, Inc. (FMC).
    for the Middle District of Tennessee at Nashville.    The Attards also executed a guaranty agreement promising to
    No. 00-01182—Aleta A. Trauger, District Judge.        absolutely assign their stock to FMC free of all claims in the
                                                          event of Multicom’s default, failing which they agreed to be
                 Argued: April 29, 2004                   personally liable for the debt. When FMC subsequently
                                                          notified the Attards that Multicom was in default and
            Decided and Filed: July 1, 2004               demanded the assignment of their stock, the Attards signed
                                                          the appropriate assignment form, but included a letter stating
 Before: GUY, GILMAN, and COOK, Circuit Judges.           that the assignment was executed under duress.
                                                            FMC filed suit, claiming that, by virtue of the duress letter,
                                                          the Attards had not unconditionally assigned their stock and
                                                          were therefore personally liable for the balance of the

                            1
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Multicom debt pursuant to the guaranty agreement. The                 In the event that the Attards failed to comply with Section
district court granted summary judgment in favor of the             Five’s absolute assignment of Multicom stock, the Guaranty
Attards. For the reasons set forth below, we REVERSE the            provided that they would become personally obligated, both
judgment of the district court and REMAND for further               jointly and severally, for Muticom’s debt to FMC. Section
proceedings consistent with this opinion.                           Six of the Guaranty specifically stated that “[s]hould either of
                                                                    the Attards fail to comply fully with their obligations in . . .
                    I. BACKGROUND                                   Section 5 above, . . . the Attards hereby jointly and severally
                                                                    guarantee to lender the timely payment and performance of all
A. Factual background                                               of the obligations.”
  The Attards founded Multicom, a multimedia publishing                FMC sent a letter to the Attards on November 11, 1997,
company, in 1994. Multicom entered into a $3 million loan           advising them that Multicom had defaulted on its obligations
agreement with a predecessor of FMC in 1996. As part of the         to FMC and demanding “the immediate, absolute conveyance
loan transaction, Multicom granted FMC a security interest in       of the Pledged Stock to [FMC].” The letter also stated that if
substantially all of Mutlicom’s assets.                             the Attards failed to convey the pledged stock by November
                                                                    18, then they would become personally liable for Multicom’s
  As further security for the loan, the Attards signed a Stock      obligations. FMC followed up on November 12 with a form
Pledge Agreement (Pledge Agreement) on October 3, 1997              titled “Absolute Assignment of Stock.” On November 17, the
that granted FMC a security interest in their Multicom stock,       Attards tendered to FMC the completed Absolute Assignment
which was perfected by FMC’s possession of the stock                of Stock form, but accompanied the signed form with a letter
certificates. The Attards also executed a Conditional               from their counsel expressly reserving certain of the Attards’
Continuing Guaranty and Assurance (Guaranty), wherein they          rights against FMC. The letter stated, in pertinent part:
agreed that if Multicom defaulted on its obligations to FMC,
the Attards would “absolutely assign” all of their Multicom             Please be advised that my clients forward this document
stock to FMC within two days following a written demand by              under duress, in order to mitigate their damages, and with
FMC. Section Five of the Guaranty provided that the Attards             full and absolute reservation of all of their rights at law
                                                                        and in equity. These rights include, without any
  agree that if a Designated Default occurs, then, within               limitation whatsoever, the right to challenge as null and
  two (2) calendar days following the written demand of                 void the underlying documents pursuant to which [FMC]
  Lender, the Attards shall absolutely assign to Lender or              purports to proceed; the right to challenge the alleged
  its designee, pursuant to ordinary instruments of                     default asserted by [FMC]; and the right to challenge the
  assignment to be prepared by Lender, all of the stock of              activities of [FMC] and Multicom in pursuing
  Borrower [Multicom] that is then [] pledged to Lender to              foreclosure of the subject shares of stock . . . .
  secure the Obligations. This conveyance will vest title in
  the transferee free of any claim of the Attards and free of         FMC initially responded with a letter dated November 18,
  any other encumbrance, and without reduction in the               1997, informing the Attards that FMC was also reserving all
  Obligations that Borrower then owes to Lender.                    of its rights against them. The next significant event was on
                                                                    February 2, 1998, when FMC sold all of the assets of
                                                                    Multicom to Multimedia 2000, Inc. for $2 million. Eight
No. 03-5033      Multimedia 2000 et al. v. Attard et al.     5    6    Multimedia 2000 et al. v. Attard et al.      No. 03-5033

days later, on February 10, 1998, FMC wrote the Attards to        B. The effect of the duress letter on the assignment of the
inform them that the duress letter caused their assignment of        Attards’ stock to FMC
Multicom’s stock to not be free of all claims, thus subjecting
them to personal liability under the Guaranty.                       On appeal, the key issue is whether the Attards fully
                                                                  complied with their obligations under the Guaranty to
B. Procedural background                                          “absolutely assign” all of the stock that they had pledged to
                                                                  FMC under the Pledge Agreement. The Guaranty explicitly
   In April of 2001, FMC sued the Attards for breach of           states that “[t]his conveyance will vest title in the transferee
contract based upon the Attards’ refusal to pay FMC the           free of any claim of the Attards and free of any other
balance of Multicom’s loan obligations according to the terms     encumbrance . . . .” (Emphasis added.) FMC argues that the
of the Guaranty. FMC moved for summary judgment on its            Attards’ claim of duress in their November 17, 1997 letter, in
breach-of-contract claim in February of 2002. The district        addition to their “full and absolute reservation of all their
court denied FMC’s motion and sua sponte granted summary          rights at law and equity,” does not represent an assignment
judgment to the Attards. After the district court denied          “free of any claim of the Attards.” The Attards respond that
FMC’s motion for reconsideration or, in the alternative, to       the Guaranty did not include or require any disclaimer of
alter or amend the judgment, FMC appealed.                        duress or other legal or equitable rights. They also contend
                                                                  that the November 17 letter did not create an “adverse claim”
                      II. ANALYSIS                                rendering the assignment ineffective.
A. Summary judgment standard                                        The Guaranty states, and the parties do not contest, that it
                                                                  shall be interpreted in accordance with Tennessee law. Under
   We review a district court’s grant of summary judgment de      Tennessee law, “[a] contract signed under economic duress is
novo. Therma-Scan, Inc. v. Thermoscan, Inc. 295 F.3d 623,         voidable by the victim, not void.” Cumberland & Ohio Co. of
629 (6th Cir. 2002). Summary judgment is proper where             Texas v. First Am. Nat’l Bank, 936 F.2d 846, 850 (6th Cir.
there exists no genuine issue of material fact and the moving     1991); United States Fidelity & Guar. Co. v. Cassel Bros.,
party is entitled to judgment as a matter of law. Fed. R. Civ.    Inc. (In re McNeil), 22 B.R. 408, 414 (Bankr. E.D. Tenn.
P. 56(c). In considering a motion for summary judgment, the       1982) (“A contract or other instrument is voidable under
district court must construe all reasonable inferences in favor   Tennessee law on the basis of duress . . . .”) “A voidable
of the nonmoving party. Matsushita Elec. Indus. Co. v.            contract is one where one or more parties have the power, by
Zenith Radio Corp., 475 U.S. 574, 587 (1986). The central         a manifestation of election to do so, to avoid the legal
issue is “whether the evidence presents a sufficient              relations created by the contract, or by ratification of the
disagreement to require submission to a jury or whether it is     contract to extinguish the power of avoidance.” Restatement
so one-sided that one party must prevail as a matter of law.”     (Second) of Contracts § 7 (1981).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52
(1986).                                                             The district court recognized that by claiming duress, the
                                                                  Attards had informed FMC that the Assignment was voidable
                                                                  under Tennessee law. According to the district court,
                                                                  however, merely asserting duress, as opposed to actually
                                                                  rescinding the Assignment, did not constitute a claim on the
No. 03-5033       Multimedia 2000 et al. v. Attard et al.           7   8     Multimedia 2000 et al. v. Attard et al.       No. 03-5033

stock that made the Assignment invalid. We respectfully                 adverse claim appears to describe the instant situation. The
disagree. By claiming that they executed the Assignment                 Official Comment plainly states that an adverse claim may be
under duress, the Attards put FMC on notice that they were              based upon the right “to rescind a transaction in which
retaining the right to rescind the assignment of their stock.           securities were transferred.” This is precisely what happened
Their letter in effect materially modified the terms of the             in the present case. By claiming that they completed the
Assignment. See Restatement (Second) of Contracts,                      Absolute Assignment of Stock under duress, the Attards have
§ 202(2) (1981) (“A writing is interpreted as a whole, and all          reserved their right to rescind the transaction. Accordingly,
writings that are part of the same transaction are interpreted          under UCC § 8-102(a)(1), their claim of duress impinged
together.”).                                                            upon FMC’s freedom to alienate the stock, because the
                                                                        existence of an adverse claim means “that it is a violation of
  FMC supports its argument that the Attards’ letter                    the rights of the claimant for another person to hold, transfer,
constituted a claim in violation of the Guaranty by relying             or deal with the financial asset.” UCC § 8-102(a)(1).
upon the definition of an “adverse claim” in Tenn. Code Ann.
§ 47-8-102(a)(1) (hereinafter referred to as UCC § 8-                       The Attards’ duress letter thus clouded title to the stock that
102(a)(1)). Section 8-102(a)(1) defines an adverse claim as             they purported to transfer absolutely to FMC, contrary to the
“a claim that a claimant has a property interest in a financial         Guaranty’s requirement that the stock be assigned “free of
asset and that it is a violation of the rights of the claimant for      any claim of the Attards and free of any other encumbrance
another person to hold, transfer, or deal with the financial            . . . .” Even though FMC could have theoretically given good
asset.” The Official Comment to this section explains that the          title to a “protected purchaser” of the Attards’ stock by not
definition of an adverse claim is comprised of two parts:               disclosing their claim of duress, see UCC § 8-303 (defining
                                                                        the term “protected purchaser”), FMC would have been
  First, the term refers only to property interests. Second,            unable to warrant that the stock was being conveyed free of
  the term means not merely that a person has a property                all claims. And a truthful disclosure of the Attards’ claim
  interest in a financial asset but that it is a violation of the       would of course have prevented any buyer from having
  claimant’s property interest for the other person to hold             protected-purchaser status. FMC’s contractual right to the
  or transfer the security or other financial asset. . . . The          stock free and unencumbered was therefore thwarted by the
  term adverse claim is not, of course, limited to ownership            Attards’ duress letter.
  rights, but extends to other property interests established
  by other law. . . . An adverse claim might . . . be based             C. The Attards’ personal liability
  upon principles of equitable remedies that give rise to
  property claims. It would, for example, cover a right                   As previously set forth, Section Six of the Guaranty
  established by other law to rescind a transaction in                  provided that the Attards’ failure to assign their Multicom
  which securities were transferred.                                    stock free and clear of all claims would result in the Attards
                                                                        becoming personally liable for the Multicom debt. Their
(Emphasis added.)                                                       action in clouding title may well have been an unwise
                                                                        decision on their part, because FMC had the right to sell all of
  Although FMC has not cited any cases—and we have                      Multicom’s assets under a separate security agreement that
found none—that apply § 8-102(a)(1) to a factual situation              was not dependent upon the Attards’ personal guaranty. This
analogous to the present case, the very definition of an                in fact was precisely what FMC did on February 2, 1998.
No. 03-5033      Multimedia 2000 et al. v. Attard et al.      9    10   Multimedia 2000 et al. v. Attard et al.    No. 03-5033

  Perhaps an earlier sale of Multicom’s stock would have              “It is a well established rule in Tennessee that the party
yielded no more than the $2 million that FMC eventually            injured by the wrongful act of another has a legal duty to
received from the sale of Multicom’s assets in February of         exercise reasonable and ordinary care under these
1998. But the Attards knew that they had a choice under the        circumstances to prevent and diminish the damages. One is
Guaranty to either assign their stock free of all claims or, by    not required, however, to make extraordinary efforts. The
not doing so, become personally liable for the balance due         burden of showing that losses could have been avoided by the
FMC. The fact that they may have made a poor choice is not         plaintiff by a reasonable effort to mitigate damages after
a basis to disregard the contractual consequences of their         defendant's breach of contract is on the defendant who
action. Courts are not permitted to rewrite contracts, Perez v.    breached the contract.” ACG, Inc. v. Southeast Elevator, Inc.,
Aetna Life Ins. Co., 150 F.3d 550, 557 (6th Cir. 1998), and        912 S.W.2d 163, 169 (Tenn.App. 1995); see also 24 Samuel
each party must be given the benefit of his bargain. Bucyrus-      Williston and Richard A. Lord, Williston on Contracts
Erie Co. v. General Products Corp., 643 F.2d 413, 421 (6th         § 64:27 (4th ed. 2002) (“[T]he principle of mitigation of
Cir. 1981).                                                        damages . . . frequently involves a determination as to
                                                                   whether the [injured party] acted reasonably under the
   In sum, I believe that the Attards are bound by the bargain     circumstances. . . . What is a reasonable effort to avoid the
they made and the actions they took. Thus, in my opinion,          injurious consequences of a breach is a question of fact.”).
they are personally liable to FMC for the balance of the           The application of these principles and of any other defenses
Multicom debt, subject to any affirmative defenses available       that the Attards might have to their personal liability,
to them. This conclusion, however, is not shared by either of      including waiver and estoppel, is left for development in the
my judicial colleagues, and therefore is not the holding of this   district court upon remand.
court.
                                                                                      III. CONCLUSION
D. Potential affirmative defenses
                                                                     For all of the reasons set forth above, we REVERSE the
   My conclusion that the Attards have exposed themselves to       judgment of the district court and REMAND for further
personal liability for Multicom’s debt does not preclude their     proceedings consistent with this opinion.
right on remand to present any affirmative defenses that may
be available to them. FMC, for example, had a duty to
mitigate its damages. The record evidence shows that the
Attards sent the Absolute Assignment of Stock form,
accompanied by the duress letter, in November of 1997.
FMC waited until February of 1998, however, to advise the
Attards that their assignment of the Multicom stock was not
“sufficient performance” and that FMC was exercising “its
right to declare the Attards to be personally jointly and
severally liable for all obligations of Multicom.” Whether
this delay constituted a failure on the part of FMC to mitigate
its damages is an open question that has yet to be developed.
No. 03-5033        Multimedia 2000 et al. v. Attard et al.           11    12    Multimedia 2000 et al. v. Attard et al.      No. 03-5033

  _____________________________________________                                                  ______________

  CONCURRING IN PART, DISSENTING IN PART                                                            DISSENT
  _____________________________________________                                                  ______________

  GUY, Circuit Judge, concurring in part and dissenting in                   COOK, Circuit Judge, dissenting. Because I disagree with
part. I concur in the decision to reverse the summary                      the conclusion that the Attards failed to assign their stock“free
judgment that was entered in favor of the defendants. I do not             of all claims,” I respectfully dissent. The Attards signed the
believe on the record that was before the district judge that it           stock assignment exactly as Multimedia drafted. The letter
was appropriate to rule, as a matter of law, that the Attards              the Attards sent with the assignment, complaining that they
did not breach the guaranty agreement. I also believe,                     were executing the assignment under conditions of economic
however, for the same reason, that it is inappropriate for this            duress, does not meet any legal definition of a “claim” against
court to decide the breach issue in favor of the plaintiffs at             the stock. Thus, the district court correctly concluded that the
this juncture. Once that decision is made the Attards are                  Attards fulfilled their contractual obligations to Multimedia.
limited to affirmative defenses that would impact only the
amount of the judgment plaintiffs might obtain.1                             I would therefore affirm the district court’s judgment, for
                                                                           the reasons stated in that court’s memoranda of April 26,
   By holding that the letter accompanying the assignment did              2002 and May 23, 2002.
not constitute a breach of the duty to make the assignment
free of all claims, the district court apparently felt no need to
consider other defenses the Attards may have that would
impact upon their liability including waiver by the plaintiffs
to proceed under the assignment. As the record now stands
before this court, it appears the plaintiffs proceeded to realize
all of the monetary value possible from the failed company by
the sale of its assets and now seeks what amounts to a
deficiency judgment for the balance of the debt. By relying
on the claim that the Attards breached the assignment
agreement, the plaintiffs arguably put themselves in a better
position than they would have been had there been an
unqualified assignment. This seems to me to be anomalous,
and I would remand for further development of the record and
trial if necessary.

    1
      I agree with Judge Gilman’s conclusion that the Attards may assert
affirmative defenses on remand. I do not agree, however, that they are
limited to defenses o nly as to damag es.