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Still v. Cunningham (07/09/2004) sp-5825
Still v. Cunningham (07/09/2004) sp-5825
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
VERN T. STILL and WANDA STILL, )
) Supreme Court Nos. S-
10680/10719
Appellants and )
Cross-Appellees, )
) Superior Court No.
v. ) 4FA-00-1298 CI
)
LLOYD CUNNINGHAM, as Assignee ) O P I N I O N
of Northrim Bank, )
)
Appellee and ) [No. 5825 - July 9, 2004]
Cross-Appellant. )
)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Mary E. Greene, Judge.
Appearances: Thomas V. Van Flein, Clapp,
Peterson & Stowers, LLC, Anchorage, for
Appellants and Cross-Appellees. Gregory L.
Youngmun, John D. Harjehausen, Delisio Moran
Geraghty & Zobel, P.C., Anchorage, for
Appellee and Cross-Appellant.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
Vern Still was held liable on a personal guaranty, but
his wife Wanda was exonerated on the grounds that the obligee
violated the Stills' civil rights by requiring Wanda to sign a
guaranty. She was awarded partial rather than full attorney's
fees for her successful defense.
These appeals present four main contentions. First,
Vern contends that the guaranty did not cover the debt in
question. Second, Lloyd Cunningham, assignee of the obligee,
contends that Wanda should not have been exonerated from
liability. Third, Vern contends that he should have been
exonerated from liability because his civil rights were also
violated. Fourth, Wanda contends that she was entitled to full
rather than partial attorney's fees. We conclude that the first
three contentions lack merit, but that the fourth is correct.
II. FACTS AND PROCEEDINGS
A. Facts
Premier Homes is an Alaska corporation, founded by Vern
Still, Lute Cunningham, and Hank Bartos, to import and sell
modular homes in the North Pole area. As of 1996, Bartos's
shares were in the process of being reacquired and there were
four stockholders: Vern Still owned twenty-five percent of the
shares, his son Mark also owned twenty-five percent, and Lute
Cunningham and his wife Marilyn together owned the remaining
fifty percent of the shares. Lute was the president.
On June 5, 1996, Vern and Wanda signed separate but
identical guaranties, guarantying the payment of all present and
future indebtedness of Premier Homes to Northrim Bank. Although
the guaranties referred to a specific loan in a shaded area -
Loan 103 - they expressly covered all of Premier's present and
future indebtedness to Northrim. Language directly below the
shaded area stated that "[r]eferences in the shaded area are for
Lender's use only and do not limit the applicability of this
document to any particular loan or item." The guaranties
contained a clause authorizing the lender, either before or after
revocation, to extend the time for payment of an indebtedness
without reducing the guarantor's liability.1
In 1996 Northrim made ten separate loans to Premier,
each financing separate modular units. All but one had been sold
as of March 12, 1997. On that date Premier borrowed $203,022
from Northrim in a transaction referred to as Loan 200. The note
for Loan 200 was signed by Lute as president. The Northrim loan
authorization for Loan 200 lists as guarantors the Cunninghams
and the Stills.2 Specific collateral for Loan 200 included a
deed of trust covering a modular housing unit owned by Premier, a
deed of trust covering real property owned by Lute and Marilyn,
and a real estate contract payable to the Cunninghams under which
$125,000 was receivable. The purposes of the loan were (1) to
provide season start-up costs for Premier; (2) to pay off the
$132,000 balance on an earlier loan from Key Bank; and (3) to pay
original shareholder Frank Bartos a sum to complete the
reacquisition of his shares.
On March 20, 1997, eight days after Loan 200 was made,
Northrim issued a line of credit to Premier not to exceed
$750,000. The proceeds were to be used for the purchase and
transportation of modular units. Each loan was to be secured by
a first deed of trust on a modular unit placed on a lot and by
the guaranties of all of the stockholders in Premier. In 1997
some twelve units were financed by Northrim under this line of
credit. All of them were placed in Stillmeyer Estates, a
subdivision owned by Vern. Five of the units were purchased by
Lute and Marilyn as rentals or for resale. It is not clear if
these purchases were made from Premier or directly from the
manufacturer.
On October 1, 1997, Vern wrote Northrim, revoking the
guaranty. The letter stated: "I am writing concerning the
guarantee I have signed for Premier Homes of North Pole, Inc.
Effective immediately, I am revoking my guarantee. I will not be
responsible for any new loans made through the company, unless I
personally appear to sign any documents."
Although Northrim had financed approximately twenty
units as of Vern's October 1, 1997 revocation, apparently only
Loan 200 ultimately proved troublesome. On March 24, 1998, the
note was extended to May 25, 1998. On June 26, 1998, the note
was extended to October 20, 1998. This extension was
accomplished by a document entitled "Change in Terms Agreement,"
which was signed by Lute as president and Vern as vice-president.
Meanwhile, on May 5, June 11, and August 19, 1998, Vern executed
new guaranties identical in terms to the June 5, 1996 guaranty
that he had revoked, except for references in the shaded areas.
A third extension extended repayment to June 30, 1999.
On January 18, 2000, Northrim notified Premier, the
Cunninghams, and the Stills that Loan 200 was in default.
Eventually the note was purchased by Lute's brother Lloyd. Lloyd
paid the balance of the loan, $90,039.26, and took an assignment
of Northrim's rights as to collateral and the guaranties.
B. Proceedings
Lloyd, as Northrim's assignee, brought this action
against the Stills under the guaranties of June 5, 1996, to
collect the outstanding balance of Loan 200. Lloyd also made a
claim against Vern under the guaranties that Vern executed in
1998. Vern and Wanda answered, denying liability. They
interposed a third-party complaint against Lute and Marilyn for
fraudulently diverting funds from Premier for their own uses, and
for breach of their fiduciary duties as officers and shareholders
of Premier. The Stills also counterclaimed against Lloyd for
civil conspiracy "to set up a sham proceeding in order to bilk
Vern and Wanda Still." Lloyd's complaint was alleged to be "in
furtherance of this conspiracy." In an amended answer Vern pled
another counterclaim against Lloyd, alleging that Vern had done
construction work for Lloyd and had not been fully paid.
After some discovery was conducted, Lloyd moved for
summary judgment against the Stills based on the June 5, 1996
guaranties and against Vern based on the three guaranties given
in 1998. Vern and Wanda opposed the motion on two grounds. They
claimed, first, that the guaranties did not cover Loan 200, and
second, that Northrim violated federal and state law by refusing
to extend credit to Vern, who was independently creditworthy,
without first requiring Wanda's guaranty. The Stills also
contended that the three extensions of Loan 200 voided their
obligation as guarantors. In reply, Lloyd argued that the
guaranties explicitly covered all the indebtedness, including
extensions or modifications of the indebtedness. Lloyd also
contended that Northrim had a legitimate basis for requesting a
guaranty from Wanda. The Stills cross-moved for summary
judgment, claiming that Northrim had discriminated against them
based on their marital status.
The superior court first considered Lloyd's motion for
summary judgment. The court ruled from the bench that the 1996
guaranties were continuous in nature and that their terms were
not ambiguous.3 So the language is sufficient to take it out
of that . . . kind of case where there's a voiding by the fact of
extensions. The court declined to find that extrinsic evidence
of conversations between Vern and Gary Roderick of Northrim
changed the meaning of the guaranties. The court concluded that
Vern's revocation was not effective as to Loan 200 because the
revocation was made after the loan. The court also ruled that
the extensions did not void the guaranties because the guaranties
provided that extensions would not terminate them. But the court
reserved decision on the Stills' civil rights claims.
Subsequently, the superior court ruled on the Stills'
cross-motion for summary judgment. The court held that the
Stills' state and federal discrimination claims were time barred,
but that discrimination could be raised as an affirmative defense
to the enforcement of the guaranties or as a counterclaim for
recoupment. The court ruled that Wanda's guaranty was void, but
that Vern's guaranty was enforceable.
The parties settled the Stills' third-party claims
against Lute and Marilyn. These were dismissed with prejudice in
April 2001. A year later the court ruled that Vern could not
assert a claim against Lloyd as a constructive co-guarantor
standing in the shoes of his brother Lute. The case then
proceeded to a bench trial on Vern's counterclaim for unpaid
construction work against Lloyd. The court found in favor of
Lloyd and dismissed the counterclaim. The court entered a final
judgment in favor of Lloyd against Vern for the full principal
amount paid by Lloyd to Northrim for the note plus interest.4
Both Lloyd and Wanda moved for attorney's fees. The
court awarded Lloyd reasonable actual attorney's fees, as
provided in the guaranty, of $28,912.50. Wanda argued that she
was also entitled to an award of reasonable actual attorney's
fees as a prevailing civil rights litigant. The court determined
that Wanda was not entitled to actual fees as a prevailing civil
rights claimant, and awarded her partial attorney's fees pursuant
to Civil Rule 82. Vern and Wanda appeal and Lloyd cross-appeals.
III. DISCUSSION
A. Standard of Review
This court reviews an order of summary judgment de
novo.5 Summary judgment is only appropriate where there is no
dispute as to material facts, and the moving party is entitled to
judgment as a matter of law.6 "Once the moving party has
established a prima facie case, the non-movant is required, in
order to prevent the entry of summary judgment, to set forth
specific facts showing that he could produce admissible evidence
reasonably tending to dispute or contradict the movant's
evidence, and thus demonstrate that a material issue of fact
exists."7 On appeal from the grant of summary judgment, this
court will construe factual evidence in favor of the opposing
party.8
B. Did the Trial Court Err in Ruling that Vern's
Guaranty Applied to Loan 200?
Vern's first argument is that the superior court erred
when it decided that his June 1996 guaranty was applicable to
Loan 200. He claims that the court should have considered the
evidence of the parties' intent and practice rather than ruling
that there must be an ambiguity before extrinsic evidence can be
considered: "the trial court refused to consider the substantial
extrinsic evidence showing the parties' intent, at the time of
the June 5, 1996 guaranty, that the guaranty was applicable only
to Loan No. 103 and not Loan No. 200." He contends that "the
Court should have ruled that the guaranty was not applicable to
Loan 200, or that at the very least the guaranty, when viewed in
context with the extrinsic evidence, was reasonably susceptible
to both asserted meanings, requiring a jury trial."
Vern also argues that if this court determines that the
guaranty was continuing in nature, "a genuine issue of fact
exists regarding unilateral mistake and fraud." He contends that
Roderick of Northrim told him that his June 5, 1996 guaranty
would only apply to the particular loan identified in the shaded
area of the guaranty and contends that he would not have signed
any of the guaranties if he had been told that they were
continuing in nature.
In opposition to the motion for summary judgment, Vern
filed an affidavit. The allegations critical to his claim that
extrinsic evidence affected the meaning of the guaranties and his
claims of mistake and misrepresentation are contained in the
following paragraph of the affidavit:
Based on my conversation with Gary at
the bank, I was led to understand that some
loans needed a guaranty and others didn't, in
fact, most didn't, because they were fully
secured by the modular units. Gary never
told me that the bank thought if I signed
just one guaranty I was promising my personal
money for every loan the bank would issue to
Premier Homes, no matter how large the
amount, no matter what the interest rate was,
and no matter whether I approved a particular
loan. I would not have agreed to that if
they did tell me that. When the time came to
guarantee some loans, Gary would call me down
and I would sign - except for Loan No. 200,
which I did not consent to. If you look at
the second page of the guaranties, you will
see the loan number that the guarantee
applies to. This is how Gary explained it to
me. Each guaranty was for a particular loan
and that was my understanding based on the
bank's practice with me.
1. The terms of the guaranty cannot be
altered by the extrinsic evidence offered by Vern.
Under the terms of the parol evidence rule an
integrated written contract cannot be varied or contradicted by
prior negotiations or agreements. We explained the operation of
this rule in Alaska Diversified Contractors, Inc. v. Lower
Kuskokwim School District as follows:
The parol evidence rule is a rule of
substantive law which holds that an
integrated written contract may not be varied
or contradicted by prior negotiations or
agreements. Before the parol evidence rule
can be applied, three preliminary
determinations must be made: (1) whether the
contract is integrated, (2) what the contract
means, and (3) whether the prior agreement
conflicts with the integrated agreement.
Alaska Northern Dev., Inc. v. Alyeska
Pipeline Serv. Co., 666 P.2d 33, 37_40
(Alaska 1983), cert. denied, 464 U.S. 1041,
104 S. Ct. 706, 79 L.Ed.2d 170 (1984).
Extrinsic evidence may always be received on
the question of meaning. Alyeska Pipeline
Serv. Co. v. O'Kelley, 645 P.2d 767, 771 n. 1
(Alaska 1982). Once the meaning of the
written contract is determined, however, the
parol evidence rule precludes the enforcement
of prior inconsistent agreements. Alaska
Northern, 666 P.2d at 37.
. . . .
This is not to say that the parol
evidence rule is easy to apply. There is an
obvious tension between using extrinsic
evidence of a prior agreement for the purpose
of determining the meaning of an integrated
contract, and barring the use of a prior
agreement to change an integrated contract
once its meaning is determined. The evidence
which is consulted to determine meaning may
be the same evidence which is later excluded,
or rendered irrelevant, by the parol evidence
rule. However, this apparent conflict is
made manageable in most cases by various
practical rules. For example, while
extrinsic evidence should be consulted in
determining the meaning of a written
contract, nonetheless "after the transaction
has been shown in all its length and breadth,
the words of an integrated agreement remain
the most important evidence of intention."
Restatement (Second) of Contracts 212
comment b. Further, questions of
interpretation of the meaning of written
documents are treated as questions of law for
the court except where they are dependent for
their resolution on conflicting extrinsic
evidence. O'Kelley, 645 P.2d at 771 n. 2;
Restatement (Second) of Contracts 212,
comments d, e. The question of the meaning
of a written contract, including a review of
the extrinsic evidence to determine whether
any of the extrinsic evidence is conflicting,
is a preliminary question for the court.
Where there is conflicting extrinsic evidence
the court, rather than the jury, must
nonetheless decide the question of meaning
except where the written language, read in
context, is reasonably susceptible to both
asserted meanings. Alaska Northern, 666 P.2d
at 39.[9]
In the present case there is no question but that the
guaranty was integrated. Further, although Vern's affidavit
concerning his conversations with Gary Roderick can be consulted
on the question of the meaning of the guaranty, ultimately the
language of the guaranty is such that it is not reasonably
susceptible to the meaning advocated by Vern. It clearly was not
limited to a particular loan, rather it was continuous and
applied to all indebtedness incurred by Premier before it was
revoked. The superior court correctly decided that the extrinsic
evidence referred to by Vern was ineffective to change the
meaning of the guaranty.
2. Were issues of mistake and
misrepresentation raised as defenses to summary
judgment?
Vern argues that Gary Roderick told him that the
guaranty would only apply to the particular loan identified in
the shaded area of the guaranty. He now claims that this was a
misrepresentation rendering the guaranty void and that it gave
rise to a material mistake on his part that also rendered the
guaranty void. A guaranty is voidable if it is induced by a
fraudulent or material misrepresentation by the obligee.10
Similarly, a contract may be voidable because of a mistake of one
party as to a basic assumption when the mistake is known to the
other party or is due to the fault of the other party.11 Here
Vern's mistake and misrepresentation claims are both based on
Roderick's alleged misrepresentation. The parol evidence rule
does not apply when the remedy of rescission or reformation is
sought as a result of misrepresentation, or mistake.12 Thus these
defenses are not precluded by the parol evidence rule.
But there are two questions that must be resolved in
connection with these defenses. First, is Vern's affidavit
sufficiently specific to support a claim that Roderick
misrepresented the nature of the guaranty? Second, assuming that
the affidavit is sufficiently specific to show factual
misrepresentation, did Vern nonetheless fail to raise, and
preserve for purposes of appeal, the defenses of mistake or
misrepresentation? We turn to a discussion of these points.
a. Is the affidavit sufficiently specific?
In reviewing grants of summary judgment, we view the
evidence submitted in opposition to a summary judgment motion in
the light most favorable to the opponent, "resolving all
reasonable implications that can be drawn from such evidence in
favor of the opponent."13 But we are also justified in
disregarding parties' statements made during litigation as to
their subjective impressions or intent at the time of a
transaction "unless the party in some way expressed or manifested
his understanding at the time of contract formation."14
Vern's affidavit, quoted supra page 9, contains several
statements that are properly considered as nonprobative
expressions of his subjective impressions and intent. His
statement that he was "led to understand" that only some loans
needed a guaranty and his statement that he would not have agreed
to a continuing guaranty, fall in this category. Also, his
reference to the guaranties subsequent to the June 5, 1996
guaranty are of doubtful probative effect as to what took place
at the signing of the first guaranty, because the subsequent
guaranties were signed after he had revoked the first guaranty.
But the statement in the penultimate sentence - "this is how Gary
explained it to me" - may be an averment of a communication made
during the 1996 transaction. It can be interpreted as saying,
when considered most favorably to Vern, that Roderick actually
told Vern that the guaranty only applied to the loan number
listed on the guaranty. As so construed, the affidavit makes a
specific claim that Roderick misrepresented the nature of the
guaranty.
b. Did Vern raise the defenses of
mistake and misrepresentation in opposition
to the motion for summary judgment?
Even though Vern's affidavit could have supported
defenses that the 1996 guaranty should be rescinded or reformed
based on mistake or misrepresentation, these defenses were not
asserted in Vern's memorandum in opposition to the motion for
summary judgment. Instead, he relied on his civil rights defense
and on his claim that the guaranties "do not cover the one loan
that was in default - Loan No. 200." His memorandum in
opposition to the motion for summary judgment extensively
develops, for some thirty-seven pages, what appears to be all of
his defenses to the motion. Yet at no point does it claim that
the guaranty is unenforceable because of misrepresentation or
mistake. Indeed, "misrepresentation" or "mistake" are not even
mentioned in the memorandum.
Issues that are not raised in the superior court are
waived and cannot be asserted on appeal as grounds for
overturning a judgment.15 Here Vern's affidavit was relevant to a
defense to the motion for summary judgment that was raised - the
coverage of the guaranty - and to two that were not raised -
mistake and misrepresentation. The fact that the affidavit could
have supported defenses that were not raised is not, in our view,
sufficient to raise them.
Alaska Civil Rule 56(c) sets out the obligations of a
party opposing a motion for summary judgment. It states in
relevant part:
The adverse party in accordance with Rule 77
may serve opposing affidavits, a concise
"statement of genuine issues" setting forth
all material facts as to which it is
contended there exists a genuine issue
necessary to be litigated, and any other
memorandum in opposition to the motion.
Vern did not file a document entitled "Statement of Genuine
Issues," but his memorandum stated his defenses in detail. Civil
Rule 77, referred to in Civil Rule 56(c), requires an opponent to
a motion to file "a brief, complete written statement of the
reasons in opposition to the motion, which shall include an
answering brief of points and authorities."16 An opposing
memorandum thus must include all of a party's defenses to a
motion. Neither the trial court nor the movants should be
required to guess whether factual evidence might support defenses
that are not identified or relied on. Here, since Vern did not
assert as reasons in opposition to the motion for summary
judgment the defenses of mistake or misrepresentation, these
defenses are waived and cannot be asserted on appeal.
C. Neither the Revocation Nor the Extensions
Discharged Vern's Liability.
Vern argues that his revocation in October 1997 of the
June 1996 guaranty discharged him from liability for Loan 200.
This claim is without merit for Loan 200 was made some eight
months before the revocation. The guaranty states that it will
"continue to bind Guarantor for all Indebtedness incurred by
Borrower or committed by Lender prior to receipt of Guarantor's
written notice of revocation, including any extensions, renewals
or modifications of the Indebtedness." Even without such
language, it is established that "upon termination of a
continuing guaranty, the continuing guarantor remains a secondary
obligor with respect to obligations of the principal obligor
incurred prior to termination."17
Vern also argues that the three extensions without his
written consent, as guarantor,18 voided any obligation that he had
under the guaranty. This argument is also without merit. The
guaranty explicitly included extensions.19 A guarantor's consent
to future extensions expressed in a guaranty is binding.20
D. Did the Court Err in Failing To Prorate the Debt
to All Co-Guarantors?
Citing the general rule that co-sureties between
themselves should share the cost of performance of their
obligations according to their respective contributive shares,
Vern claims that Lloyd should be able to recover from him only
twenty-five percent of the amount Lloyd paid in satisfaction of
Loan 200. His theory is that Lloyd was the agent of Lute and
that if Lute had paid off the entire obligation he would only be
entitled to a contribution of twenty-five percent from Vern.
The primary difficulty with this argument is that Vern
did not establish that Lloyd was acting as an agent for Lute when
he acquired the note. As the trial court ruled, "Lloyd
Cunningham stands in the shoes of Northrim, the principal," and
the applicable rule is that "the principal's entitled to recover
the entire amount of the guaranty from [Vern]. After [Vern] paid
that, he would have a right of contribution from co-guarantors.
That's his suit. That's not this suit." Thus while Vern may
have claims against Lute and Marilyn for their contributive
shares,21 he did not establish a factual basis for asserting such
claims against Lloyd.
E. Civil Rights Claims
1. The opinion of the superior court
The superior court granted the Stills' civil-rights-
based motion for summary judgment. It held that Northrim
violated the Stills' rights by requiring Wanda to sign a guaranty
without a legitimate justification. The court voided Wanda's
guaranty because of this violation, but not Vern's. These
decisions are challenged in the current appeal and cross-appeal.
In the process of ruling on the Stills' summary
judgment motion the court wrote a thorough opinion. We set out
portions of it here in order to establish the legal context for
the claims presented:
A. Did Northrim violate state and/or
federal law when it required Mrs. Still
to sign a guaranty for the loan to her
spouse's business?
1. State law claim
The Stills argue that requiring Wanda Still to sign the
guaranty before approving the loan to her spouse's business
violated Alaska civil rights laws, specifically AS 18.80.200, AS
18.80.210, and AS 18.80.250. Discrimination on the basis of
marital status violates public policy in Alaska. Under AS
18.80.210, the opportunity to obtain credit and financing without
discrimination based on marital status is a civil right. It is
unlawful under AS 18.80.250 for a financial institution extending
credit to permit one of its employees (a) to discriminate against
a loan applicant because of marital status in a condition to
obtaining credit, except to the extent allowed by federal law
applicable to the same type of transaction, or (b) to refuse to
extend credit to a married loan applicant who is otherwise
creditworthy. The Alaska Supreme Court has held that AS
18.80.250 creates a private right of action allowing the
aggrieved party to sue for damages for violation of the statute.
Alaska's civil rights statutes have been given a high priority in
the past and have been construed broadly to further the goal of
eradicating discrimination. In general, contract provisions that
violate state law are unenforceable. Thus, if Mrs. Still's
guaranty violated Alaska civil rights law, it normally would be
unenforceable.
AS 18.80.250, unlike other provisions in AS 18.80, expressly
excludes any practice permitted by federal law:
(a)(1) . . . , except to
the extent of a federal
statute or regulation
applicable to a
transaction of the same
character
(b) Notwithstanding the
provisions of (a) of this
section, any practice
permitted by federal
statute or regulation
applicable to financial
or credit transactions of
the same character as
those covered by this
section does not
constitute discrimination
under this section.
The federal Equal Credit Opportunity Act (15 U.S.C. 1601 et
seq.) and Regulation B (12 C.F.R. Pt. 202) apply to all credit
transactions without regard to the nature or type of credit or
creditor. Therefore, federal law must be analyzed first to
determine whether Northrim's requirement of Mrs. Still's guaranty
was permitted by federal law.
2. Did federal law permit Northrim to
require Mrs. Still to sign a guaranty before
approving a loan to her spouse's business?
The Stills argue that Northrim violated the Equal Credit
Opportunity Act (ECOA), 15 U.S.C.A. 1691(a)(1) and federal
regulations. Regulation B states:
a creditor shall not
require the signature of
an applicant's spouse
. . . on any credit
instrument if the
applicant qualifies under
the creditor's standards
of creditworthiness for
the amount and terms of
the credit requested.
Federal regulations concerning the signature of a spouse or other
person for extensions of credit are found at 12 C.F.R.
202.7(d). The regulations are intended to assure that qualified
applicants are able to obtain credit in their own names. In
general, the creditor may not require the signature of a spouse
or other person unless the creditor relies upon the future income
of the spouse or jointly owned property or the creditworthiness
of the spouse or other person. The creditor may require the
spouse's signature if the applicant requests unsecured credit and
the guaranty relies upon property owned jointly with the spouse
to satisfy the creditor's standards of creditworthiness. But the
creditor may require the signature only on the instruments
reasonably believed to be necessary to enable the creditor to
access the property in the event of the death or default of the
applicant, and provided that the creditor does not routinely
require non-applicant joint owners to sign an instrument that
would result in forfeiture of the non-applicant's interest.
Moreover, the spouse's signature, which was sought because of
property owned jointly, cannot be used to impose personal
liability on the spouse for the entire debt.
When an applicant applies for individual credit but does not
qualify alone, the creditor may require a cosigner or guarantor
but cannot require that the cosigner or guarantor be the spouse.
Specifically with respect to spousal guarantees, the official
interpretation of 12 C.F.R. 202.7(d) states that "although a
creditor may require all officers of a closely held corporation
to personally guarantee a corporate loan, the creditor may not
automatically require that spouses of married officers also sign
the guarantee."
One federal district court rejected a creditor's argument
that the bank's requirement of guaranties showed that the bank
did not consider the debtor to be creditworthy. The court noted
that the record contained no evidence that the debtor-spouse was
not individually creditworthy in the bank's eyes. Similarly, in
this case, the record contains no evidence that Vern Still was
not independently creditworthy.
(Citation footnotes omitted.)
2. The court did not err in refusing to
invalidate Vern's guaranty.
Vern argues that since the trial court held that his
right to obtain credit individually was violated when Northrim
required Wanda to act as a guarantor the court should have
invalidated his guaranty along with Wanda's. He argues that as a
general proposition contracts made in violation of law should be
considered void and that this remedy is appropriate in this case
in order to vindicate the violation of his civil rights.
Although he cites general authority holding that a contractual
provision may be invalidated if it is illegal or in violation of
public policy, he cites no authority that has invalidated a
guaranty that was permissibly required under equal rights lending
laws.
A number of cases decided under Regulation B of ECOA
have held that while a guaranty that was impermissibly required
should be voided, it is not appropriate to void a guaranty that
was permissibly required in the same transaction. In general,
the reasons for this result are that the civil rights violation
caused the impermissibly required guaranty to be signed. But
even if the lender had complied with the civil rights law, the
permissibly required guaranty still would have been executed.
Even though the permissibly bound guarantor must honor his
guaranty, he may rely on statutory damage remedies for
vindication, assuming the statute of limitations has not run, and
assuming that he has suffered damages.
A leading case expressing this reasoning is Integra
Bank/Pittsburgh v. Freeman.22 There the court stated:
I conclude, therefore, that while an ECOA
violation should not void the underlying
credit transaction an offending creditor
should not be permitted to look for payment
to parties who, but for the ECOA violation,
would not have incurred personal liability on
the underlying debt in the first instance.
This rule places a creditor in no worse
position than if it had adhered to the law
when the credit transaction occurred. A
creditor may not claim to have relied
factually upon a guarantor's assets if it has
never requested nor received financial
information regarding them. Further, a
creditor may not claim legal reliance on a
signature that was illegally required in the
first instance.
With regard to other credit applicants
involved in a tainted credit transaction -
the primary credit seeker and permissibly
required sureties or guarantors for example -
I conclude that the purpose of the ECOA would
not be furthered by permitting them to assert
an alleged ECOA violation as a defense to
liability on the underlying debt. These
parties' liability for the underlying debt
exists independent of the alleged ECOA
violation. Congress did not enact the ECOA
to permit permissibly bound debtors to escape
contractual liability when called upon to
perform. To allow an ECOA defense to
liability in such circumstances would not
advance Congress' stated intent to allow
creditworthy applicants to enter into credit
transactions without regard to their marital
status.
In stating that permissibly bound debtor
parties may not assert an ECOA violation to
escape liability on the underlying debt it
does not follow that these parties cannot
suffer an injury cognizable under the ECOA.
A cognizable injury to such a party may occur
if - as an objectively qualified loan
applicant or guarantor - the party is
nonetheless impermissibly required to secure
a spouse's or other party's signature
pursuant to a loan transaction. The ECOA
affords these parties an affirmative cause of
action for their actual "actual damages
sustained" under 15 U.S.C. 1691e(a).[23]
Other cases employing similar reasoning include Silverman v.
Eastrich Multiple Investor Fund24 and FDIC v. Medmark, Inc.25
We agree with these authorities both as interpretations
of ECOA and as analogous authority concerning how state law
should be applied. If Northrim Bank had fully complied with ECOA
and its state law counterparts, Vern would still be liable under
the 1996 guaranty. Ordering the forfeiture of a permissibly
required guaranty that was obtained along with an impermissibly
required one does not seem necessary to deter lending
institutions from illegal conduct. The array of other potential
sanctions, including compensatory damages,26 punitive damages in
egregious cases,27 injunctive relief,28 criminal sanctions,29 and
the voiding of the impermissibly required guaranty along with
actual attorney's fees to the party whose guaranty was
impermissibly required,30 all serve to deter forbidden conduct.
F. Did the Trial Court Err by Granting Summary
Judgment in Favor of Wanda?
On cross-appeal Lloyd argues that the superior court
should not have granted summary judgment in favor of Wanda. He
argues that Wanda had the burden of establishing that Premier,
rather than Vern, was independently creditworthy. He also
contends that there was no evidence that Northrim required Wanda
to sign a guaranty for the impermissible reason that she was
Vern's spouse and that there were questions of fact as to whether
the bank required her guaranty because it was relying on joint
property owned by the Stills or on Wanda's annual wages of some
$54,000.
Lloyd's first point - that the relevant inquiry was
whether Premier Homes rather than Vern was independently
creditworthy - is without merit. The applicable regulation is 12
C.F.R. 202.7(d) (2004). It provides:
Signature of spouse or other person -
(1) Rule for qualified applicant.
Except as provided in this paragraph, a
creditor shall not require the signature of
an applicant's spouse or other person, other
than a joint applicant, on any credit
instrument if the applicant qualifies under
the creditor's standards of creditworthiness
for the amount and terms of the credit
requested.
Under the regulations, both Premier and Vern were applicants.31
But since Wanda is the spouse of Vern, not Premier, the
"applicant" whose standard of creditworthiness is at issue in the
present context is Vern.
Concerning Lloyd's argument that Wanda failed to
produce evidence that Northrim discriminated against her based on
marital status, the actual legal question that must be addressed
need not be stated in those broad terms. The applicable
regulation is 12 C.F.R. 202.7(d)(1), set forth above. Under
this regulation, requiring the signature of an applicant's spouse
is prohibited if the applicant qualifies under the creditor's
standards of creditworthiness for the amount and terms of the
credit requested. As to this question the evidence presented by
the Stills showed that Vern was independently creditworthy, that
his creditworthiness did not depend on jointly owned property,
and that Northrim did not require Wanda to sign a guaranty
because of her income.
The superior court discussed these points as follows:
Vern Still states in his affidavit that
he was creditworthy without his wife. Mr.
Cunningham contends that this is a self-
serving statement made during litigation that
does not raise an issue of fact. The bank's
documents, however, note that Mr. Still was
the owner of StillMeyer Corp., which owned a
large subdivision, and the Valley Water
Company. A 1998 report discusses Mr. Still's
financial condition and makes no mention of
Mrs. Still. Because the Stills filed joint
tax returns, Mr. Still's tax return
necessarily included income information about
his wife. But, the joint tax return does not
show whether or not Northrim relied on Mrs.
Still's income. Moreover, Mr. Roderick
stated in his deposition that Mrs. Still's
signature was of little importance to the
loan transaction, thus seemingly admitting
that Premier Homes would have been able to
obtain the line of credit without Mrs.
Still's guaranty.
Lloyd Cunningham argues that the Stills
have failed to show that there are no factual
issues regarding whether Mr. Still was
creditworthy on his own. A March 5, 1997,
internal report states that "[f]inancial
strength and depth of Premier Homes lay with
Vern and Wanda Still" and "[t]heir 2/97
statement shows a Net Worth of $4.9 million."
The same report, however, attributes this net
worth to the Valley Water Company and the
real estate holdings of StillMeyer. Wanda
Still had no interest in either company. The
W-2 form indicates that the reported wages
for the Stills were solely those of Wanda
Still, who was employed by Valley Water
Company. Mr. Cunningham argues that Northrim
may have been justified in obtaining Mrs.
Still's signature on a guaranty, because the
presence of information about her in the loan
file shows that the bank might have used the
joint finances of Vern and Wanda Still,
particularly her salary, in the decision
about Premier Homes' loan. There is no
evidence to support this speculation. The
loan was to be paid primarily in one large
balloon payment approximately a year after
the date on the note. Even the gross amount
of Mrs. Still's salary was only about 1/4 of
the total principal owed when the note
matured. No juror could reasonably believe
that the relatively small amount of cash that
might be available from Mrs. Still's salary
was important to Northrim's decision on loan
No. 200 to Premier Homes. The Stills' $4.9
million net worth (all or most of which came
from Mr. Still's companies) noted in the
bank's report was many times greater than
Mrs. Still's salary. Nothing in Northrim's
loan files has been brought to this court's
attention from which an inference could be
made that Vern Still was not sufficiently
creditworthy individually to guarantee the
loans to Premier Homes along with the other
shareholders and officers of the company.
Mr. Roderick stated in his deposition that he
believed Wanda Still was of no importance to
the credit transaction.
(Citation footnotes omitted.) We agree with the court's analysis
and with its conclusion that "Vern Still was independently
creditworthy without Wanda Still's salary or her interest in
jointly owned property. No jury could reasonably find
otherwise."
G. Should Wanda Have Been Awarded Attorney's Fees
under a Reasonable Actual Fee Standard?
The superior court ruled that Wanda was the prevailing
party and awarded her attorney's fees of $1,992.15. This award
was made under Civil Rule 82(b)(2), which provides for a partial
award of attorney's fees of twenty percent of reasonable and
actual fees to a prevailing party who does not recover a money
judgment in a case that is resolved short of trial. The trial
court found that Wanda's reasonable actual fees were $9,960.75
and awarded her twenty percent of this sum.
Section 1691e(d) of ECOA provides for the recovery of a
reasonable attorney's fee "in the case of any successful action
under subsection (a), (b) or (c) of this section . . . ."
Subsection (c) provides for a grant of "such equitable and
declaratory relief as is necessary to enforce the requirements
imposed under this subchapter."32 "A reasonable fee" in section
1691e(d) means a reasonable actual fee rather than a reasonable
partial fee as would be awarded under Civil Rule 82.33 Wanda
argues that the court should have applied section 1691e(d) and
awarded her actual fees.
In reply, Lloyd contends that a prerequisite to an
award of fees under section 1691e(d) is that the litigant
requesting such fees must have filed an action. Lloyd relies on
North Carolina Department of Transportation v. Crest Street
Community Council, Inc.,34 where the United States Supreme Court
held that an independent action seeking attorney's fees under 42
U.S.C. 198835 could not be maintained. Instead, such fees may
only be sought in litigation in which a party seeks to enforce
the civil rights laws listed in section 1988.36 We do not regard
the North Carolina case as closely analogous authority. The
Supreme Court did not rule that attorney's fees under section
1988 would not be available in an action in which the prevailing
party sought to enforce one of the applicable civil rights laws
as an affirmative defense or a setoff.
Whether section 1691e(d) authorizes an award of
attorney's fees to a litigant who is not a plaintiff is a
question of federal law. But so far as we can tell, no federal
or state court has held that section 1691e(d) either permits or
precludes fee awards to prevailing defendants. The parties have
brought no authoritative decisions on the issue to our attention
and we have found none.37
Our case of Hayer v. National Bank of Alaska presents a
close analogy.38 The Hayer case arose when the bank sued the
Hayers for a debt. They defended claiming that the bank had
violated the federal Truth in Lending Act, 15 U.S.C. 1601-65.
They claimed that they were entitled to a partial offset for
statutory penalties because of the bank's violations. The trial
court found that the debt was owed and that the Hayers were
entitled to a partial offset because the bank had violated the
federal act. The court made no award of costs or fees to the
Hayers. They appealed claiming, in part, that they were entitled
to an award of attorney's fees under 15 U.S.C. 1640(a)(3),
which "provides that a creditor violating the Truth-in-Lending
Act is liable `in the case of any successful action to enforce
[rights under the act for] the costs of the action, together with
a reasonable attorney's fee as determined by the court.' "39 We
held that the Hayers were entitled to attorney's fees under this
provision, even though their claim was asserted as a setoff:
It might be argued that the rationale
behind such an award of attorney's fees is
inapplicable where the debtor is the
defendant instead of the plaintiff and
asserts the Truth-in-Lending violation as a
setoff to a suit on the underlying debt. We
see no reason to make such a distinction. At
least one case holds that attorney's fees are
to be awarded where the debtor prevails on a
counterclaim, Robert Levitan & Sons, Inc. v.
Francis, 88 Misc.2d 125, 387 N.Y.S.2d 35
(1976), and we can see no significant
difference between a setoff and a
counterclaim in this context. Because of the
Hayers' assertion of their Truth-in-Lending
Act claim, the appellee, a large state-wide
bank, had been alerted to its non-compliance
with the federal act and will presumably take
steps to ensure future compliance. The
congressional policy of enforcement through
private litigation will thus have been
furthered by assertion of the Hayers' claim.
We believe therefore that the court should
have awarded them a reasonable attorney's
fee.[40]
We believe that this rationale applies as strongly to
ECOA violations as to Truth-in-Lending Act violations. We
conclude therefore that the court should have awarded Wanda
reasonable actual attorney's fees. On remand the superior court
should award Wanda a fee of $9,960.75 for her successful
assertion of her entitlement to equitable relief under 15 U.S.C.
1691e(c).
IV. CONCLUSION
The award of attorney's fees to Wanda Still is
REVERSED. On remand the court should award her $9,960.75. In
all other respects, the judgment of the superior court is
AFFIRMED.
_______________________________
1Lute and Marilyn Cunningham also signed identical guaranties in
favor of Northrim on June 5, 1996.
2Back-up documentation indicates that this is a reference to Vern
and Wanda, not Vern and Mark.
3The court stated, in part:
the language is as clear as any that one sees
in any of the case law about what the meaning
of the guaranty was. And the Stills signed
them without question in 1996.
The times that other guaranties were
required was after . . . Mr. Still revoked
that guaranty. And so the conduct is in a
different kind of context. And I don't think
it . . . can be used to raise an ambiguity
about what the document said.
. . . the course of conduct that is
actually relevant is the fact that there were
no guaranties that were required until Mr.
Still revoked his guaranty. That course of
conduct says that it was a continuing
guaranty and everybody knew it.
. . . I also find that Mr. Still's
letter . . . terminating his guaranty wasn't
effective with respect to loan number 200
. . . .
. . . .
. . . the other issue that was raised
had to do with the extensions. And certainly
there are some . . . times that extensions
can void a guaranty. But in these particular
guaranties, there were provisions
specifically in the guaranties themselves
that . . . cover[] extensions.
4The Stills' conspiracy counterclaim was evidently considered
resolved favorably to Lloyd, although the briefs do not describe
the procedural mechanism by which this occurred.
5West v. Umialik Ins. Co., 8 P.3d 1135, 1137 (Alaska 2000).
6Alaska R. Civ. P. 56(c).
7Philbin v. Matanuska-Susitna Borough, 991 P.2d 1263, 1265-66
(Alaska 1999) (quotations omitted).
8West, 8 P.3d at 1137.
9778 P.2d 581, 583-84 (Alaska 1989) (footnotes omitted).
10Restatement (Second) of Contracts 5 153 (1981);see Restatemen
11Restatement (Second) of Contracts 153 (1981); see Restatement
(Third) of Suretyship and Guaranty 12(3).
12Diagnostic Imaging Ctr. Assocs. v. H&P, 815 P.2d 865, 867
(Alaska 1991).
13Norville v. Carr-Gottstein Foods Co., 84 P.3d 996, 1003 (Alaska
2004).
14Id.; see also Peterson v. Wirum, 625 P.2d 866, 870 (Alaska
1981):
Differences of opinion among the parties as
to their subjective intent, expressed during
the litigation, do not establish an issue of
fact regarding the parties' reasonable
expectations at the time they entered into
the contract, since such self-serving
statements are not considered to be
probative. Rather, the court must look to
the express manifestations of each party's
understanding of the contract in attempting
to give effect to the intent behind the
agreement.
(Footnotes omitted.)
15Hagans, Brown & Gibbs v. First Nat'l Bank of Anchorage, 783 P.2d
1164, 1166 n.2 (Alaska 1989) ("Issues not properly raised or
briefed at trial are not properly before this court on appeal.").
16Alaska R. Civ. P. 77(c)(1)(ii).
17Restatement (Third) of Suretyship and Guaranty 16 (1996).
18He consented to the second extension in his capacity of vice
president of Premier. See supra page 4.
19The guaranty provided in relevant part:
DURATION OF GUARANTY. This Guaranty . . .
will continue in full force until all
Indebtedness incurred or contracted before
receipt by Lender of any notice of revocation
shall have been fully and finally paid and
satisfied and all other obligations of
Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do
so in writing. . . . Written revocation of
this Guaranty will apply only to advances or
new Indebtedness created after actual receipt
by Lender of Guarantor's written
revocation. . . This Guaranty will continue
to bind Guarantor for all Indebtedness
incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written
notice of revocation, including any
extensions, renewals, substitutions or
modifications of the Indebtedness. All
renewals, extensions, substitutions, and
modifications of the Indebtedness granted
after Guarantor's revocation, are
contemplated under this Guaranty and,
specifically will not be considered to be new
Indebtedness. . . . Release of any other
guarantor or termination of any other
guaranty of the Indebtedness shall not affect
the liability of Guarantor under this
Guaranty.
20See Restatement (Third) of Suretyship and Guaranty 48(1).
21See id. 55, 57.
22839 F. Supp. 326 (E.D. Pa. 1993).
23Id. at 329-30 (citation omitted).
2451 F.3d 28 (3d Cir. 1995).
25897 F. Supp. 511 (D. Kan. 1995); see also, Southwestern
Pennsylvania Reg'l Council, Inc. v. Gentile, 776 A.2d 276, 282
(Pa. Super. 2001); Eure v. Jefferson Nat'l Bank, 448 S.E.2d 417,
421 (Va. 1994).
26See AS 22.10.020(i); Loomis v. Schaeffer, 549 P.2d 1341, 1343
(Alaska 1976).
27Id.
28Id.
29AS 18.80.270.
30See infra pages 26-29.
3112 C.F.R. 202.2(e) (2004).
3215 U.S.C. 1691e(d) provides as follows:
Recovery of costs and attorney's fees
In the case of any successful action
under subsection (a), (b), or (c) of this
section, the costs of the action, together
with a reasonable attorney's fee as
determined by the court, shall be added to
any damages awarded by the court under such
subsection.
33See Hayer v. Nat'l Bank of Alaska, 663 P.2d 547 (Alaska 1983).
34479 U.S. 6 (1986).
3542 U.S.C. 1988 states in relevant part: "In any action or
proceeding to enforce a provision of . . . Title VI of the Civil
Rights Acts of 1964 . . . , the court, in its discretion, may
allow the prevailing party, other than the United States, a
reasonable attorney's fee as part of the costs."
36North Carolina, 479 U.S. at 11.
37Courts in two cases, in dicta, have stated or implied that a
prevailing defendant may not rely on that statute for an award of
attorney's fees. Integra Bank/Pittsburg v. Freeman, 839 F. Supp.
326 (E.D. Pa. 1993) (implying in dictum that attorney's fees
would not be available under statute to defendant seeking
recoupment); Durdin v. Cheyenne Mountain Bank, 2004 WL 352089, at
6 (Colo. App., Feb. 26, 2004) (stating in dictum that fees are
not available under this statute to defendants).
38619 P.2d 474 (Alaska 1980).
39Id. at 476.
40Id.
