Midwest Regional Bank v. Caribou Energy Corp., No. 18–cv–1217, 2020 WL 4535228 (E.D. Mo. Aug. 6, 2020).
In a matter involving claims by out–of–state loan guarantors that the Missouri District Court lacked personal jurisdiction and that the lender failed to mitigate its damages, the U.S. District Court for the Eastern District of Missouri (“Court”) granted the lender’s motion for summary judgment as to both claims.
In April 2016, Caribou Energy Corporation (“Caribou”) executed a Note under which Midwest Regional Bank (“Midwest”) agreed to loan Caribou $1,923,000 (the “Loan”) to be repaid in monthly installments with interest. The terms of the Loan required that Midwest give prior written consent to any change in Caribou’s ownership and that individual defendants Robert Williamson and Christopher Scott Yenzer (the “Defendants”), the sole shareholders, directors, and officers of Caribou, personally guarantee repayment of the Loan. Caribou subsequently defaulted on the Loan due to (i) missing monthly payments and (ii) the Defendants transferring their ownership interest in and to Caribou without Midwest’s prior written consent. Midwest declared Caribou in default of the Loan and accelerated the balance due under the Loan. After neither Caribou nor the individual Defendants paid the amount due on the Loan, Midwest filed a complaint against Caribou and the individual Defendants. Caribou neither answered nor otherwise appeared in response to the complaint and a default judgment was entered against the Caribou. The individual Defendants appeared pro se arguing that (i) the Court lacked personal jurisdiction because they were not Missouri residents, did not conduct business in Missouri, or otherwise have connections to the state and (ii) Midwest failed to mitigate its damages.
A federal court’s personal jurisdiction over nonresident defendants requires satisfaction of the forum state’s long–arm statute and the Due Process Clause. The Court here found that the relevant Missouri statute, § 506.500 RSMo (which permits jurisdiction over defendants who “transact any business within this state” or make “any contract within this state”), authorizes the exercise of jurisdiction to the full extent allowed under the Due Process Clause, which requires defendants have such “minimum contacts” with the forum state that the exercise of jurisdiction over the defendant does not offend “traditional notions of fair play and substantial justice.” Henry Law Firm v. Cuker Interactive, LLC, 950 F.3d 528, 532 (8th Cir. 2020) (quoting World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291–92 (1980)). The Court relied on the five–factor test set out in Fastpath, Inc. v. Arbela Techs. Corp., to assess the sufficiency of the Defendants’ contacts. The factors include: (1) the nature and quality of the contacts; (2) the quantity of the contacts; (3) the relationship of the cause of action to the contacts; (4) the interest of the forum state in providing a forum for its residents; and (5) the convenience or inconvenience of the parties. Fastpath, 760 F.3d 816, 821 (8th Cir. 2014).
The Court granted Midwest’s motion for summary judgment on the issue of personal jurisdiction, analyzing the five factors set out above to determine whether the Defendants, as guarantors, owners, and directors of Caribou, had sufficient minimum contacts with Missouri. Additionally, in its analysis, the Court noted that a mere guarantee of an obligation to a foreign corporation is not sufficient to exercise jurisdiction; instead, the Court may exercise jurisdiction when guarantors and the corporation are substantively identical or there is evidence that the lender would not have agreed to the loan without the guaranty. Arkansas Rice Growers Co–op. Ass’n v. Alchemy Indus., Inc., 797 F.2d 565, 573–74 (8th Cir. 1986).
Examining the case at hand, the Court found all factors favored the Court’s exercise of jurisdiction over the Defendants. First, the Court found that the Defendants purposefully directed business to contacts in Midwest’s Missouri office by knowingly contracting for a loan from a Missouri bank, including signing a security agreement with a choice of venue clause specifically submitting Caribou to jurisdiction in Missouri courts. Additionally, the Defendants had direct and continued communication with Midwest’s employees in Missouri by phone and email, including email communications regarding payment of the Loan with a Midwest employee who listed Midwest’s Missouri address in her email signature line. The Defendants’ signed personal guarantees were also on Midwest stationery identifying the bank’s Missouri address. Furthermore, the Court found that the cause of action directly related to the Defendants’ contacts with Missouri, Missouri had an interest in providing a forum to Midwest (a Missouri corporation), and related documents and witnesses were in Missouri. The Court also found that Midwest would not have made the Loan without the Defendants’ personal guarantees because they were the sole shareholders, directors, and officers of the company.
The Court similarly granted Midwest’s motion for summary judgment regarding the claim that Midwest failed to mitigate its damages. The Defendants argued that Midwest failed to mitigate its damages by refusing third–party SEER Corp.’s offer to cure the Loan, which would have resulted in full repayment of the Loan. The Court concluded that the Defendants’ waived most mitigation defenses in their respective guarantees; however, it was not clear that Midwest’s refusal to accept SEER Corp.’s offer was covered by the mitigation waivers. The Court held that even assuming the defense was not waived, the Defendants vague and conclusory description of the SEER offer did not create a dispute of material fact. The Court noted that the Defendants did not include any details about the circumstances surrounding the offer, such as SEER Corp.’s financial stability, the timing of the offer, or the offer’s specific terms. As a result, the Defendants description of the offer was not sufficient to withstand summary judgment. Additionally, the Court found Midwest was not obligated to accept third–party offers to pay off the Loan and, in fact, was entitled under the Loan and the guarantees to reject unacceptable offers and seek payment from the Defendants. As a result, Midwest’s motion for summary judgment was granted and Defendants were held to be personally liable for the outstanding debt.
By: Michael Robson (Greenberg Traurig LLP)