AVB Bank v. Robert Hancock

1 Defendants/Appellants Robert and Laura Hancock appeal from summary judgment entered in favor of Plaintiff/Appellee AVB Bank in Bank's foreclosure action against the Hancocks and Defendant Design Mark Builders, Inc. The Hancocks were guarantors on a note and mortgage on which Design Mark defaulted. The undisputed material facts show Bank was entitled to judgment against the Hancocks as a matter of law and we affirm.

�2 In its December 16, 2009 foreclosure petition, Bank alleged that Design Mark had defaulted on a note for $1,294,257.25, which was secured by a mortgage on property in Tulsa County. Bank alleged that the Hancocks had each individually signed guaranties of payment of the notes. Bank alleged the notes and mortgage had been deferred and extended multiple times, and that the full principal amount remained owing along with interest.

�3 The Hancocks and Design Mark denied Bank's claims. The Hancocks denied the guaranties were their promise to pay the debt of another. They alleged that instead the guaranties were their promise to pay their own debt because they were the sole members and only partners in Design Mark, which they described as an "alter ego limited liability company that acted as a mere instrumentality for their personal building operations." The Hancocks asserted they were the primary obligors on the note and were therefore entitled to the anti-deficiency protection of 12 O.S.2001 �686.

�4 Bank filed its second Motion for Summary Judgment April 8, 2011. Bank asserted 28 statements of undisputed facts.1

�5 In their May 2, 2011 Objection, the Hancocks included a list of nine unresolved fact issues.2 Bank filed a reply May 13, 2011.

�6 Following a hearing held July 15, 2011, the trial court entered its Journal Entry of Judgment, in which it granted summary judgment to Bank, August 29, 2011. The court found the Hancocks were liable as guarantors and that they had waived their rights under the anti-deficiency statute. The trial court entered judgment against the Hancocks and Design Mark and ordered foreclosure of the mortgaged property.

�7 The Hancocks appeal. Summary judgment proceedings are governed by Rule 13, Rules for District Courts, 12 O.S.2001, Ch. 2, App.1. Summary judgment is appropriate where the record establishes no substantial controversy of material fact and the prevailing party is entitled to judgment as a matter of law. Brown v. Alliance Real Estate Group, 1999 OK 7, 976 P.2d 1043, 1045. Summary judgment is not proper where reasonable minds could draw different inferences or conclusions from the undisputed facts. Id. Further, we must review the evidence in the light most favorable to the party opposing summary judgment. Vance v. Fed. Natl. Mortg. Assn., 1999 OK 73, 988 P.2d 1275.

�8 The parties do not dispute the material facts that Design Mark defaulted on the note, the mortgaged property was subject to foreclosure, and the Hancocks had signed guaranties which included express waivers of their rights under the anti-deficiency statute. The Hancocks' sole argument below and on appeal is that they are not true guarantors because they are the sole members of Design Mark, so that the guaranties were "sham guaranties" and that Bank knew as much when the documents were executed. The Hancocks contend that as a result, they were the principal debtors on the note and mortgage and therefore the waivers of the anti-deficiency statute protection in the guaranties were not effective.3

�9 A search of all states shows that only California courts have adopted the sham guaranty defense offered by the Hancocks.4 Broadly, the California courts addressing this issue have found that where a lender directs the primary obligor to create a shell entity to be the borrower and requires the individual borrower to be the guarantor, with the purpose of avoiding the protections of anti-deficiency legislation, then the guaranty is a "sham" and therefore any waiver of the anti-deficiency statutes in such guaranties will not be effective.

�10 Oklahoma has a well-developed line of authority affirming a guarantor's right to waive most statutory protections, pursuant to the parties' freedom to contract as they wish. See Founders Bank, supra; JP Morgan Chase Bank v. Specialty Restaurants, Inc., 2010 OK 65, 243 P.3d 8.5 We are not prepared to adopt a rule from another state which would mark an abrupt departure from Oklahoma authority.

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See: http://www.oscn.net/applications/oscn/deliverdocument.asp?cite=2012+OK+CIV+APP+68

11 The Hancocks agree they signed the guaranties containing waivers of the anti-deficiency statute. As required by JP Morgan, we look to "the plain, clear, unmistakable, unambiguous, and unequivocal language of the" guaranties and find they included an express waiver of the anti-deficiency statute. We have noted above that such a waiver is permitted by Oklahoma law. The only disputes of fact alleged by the Hancocks relate to their claimed sham guaranty defense to their waiver of the anti-deficiency statute.6 Because we reject their contention that such a defense exists under Oklahoma law, it is clear that the undisputed material facts in the record show that Bank was entitled to judgment as a matter of law and we AFFIRM.