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Idaho Independent Bank v. Frantz

Supreme Court of Idaho

July 10, 2017

IDAHO INDEPENDENT BANK, an Idaho Corporation, Plaintiff-Respondent,
MARTY D. FRANTZ, an individual, and CINDY M. FRANTZ, an individual, Defendants-Appellants.

         Boise, June 2017 Term

         Appeal from the District Court of the First Judicial District of the State of Idaho, in and for Kootenai County. Hon. Rich Christensen, District Judge.

         The judgment of the district court is affirmed.

          Cindy M. Frantz and Marty D. Frantz argued in their own behalf. [1]

          Sheila R. Schwager, Hawley Troxell Ennis & Hawley LLP, Boise, argued for respondent.

          EISMANN, Justice.

         This is an appeal out of Kootenai County from a judgment in favor of the lender against the guarantors of construction loans made to the guarantors' closely held corporation. We affirm the judgment of the district court.


         Factual Background.

         Marty and Cindy Frantz executed a series of commercial guaranties so that Idaho Independent Bank ("Bank") would lend money to Eagle Ridge on Twin Lakes, Inc. ("Eagle Ridge"), a closely held corporation in which the Frantzes held a majority interest and Mr. Frantz was the president. Eagle Ridge executed in favor of Bank a promissory note dated December 14, 2006, in the principal sum of $3, 750, 000, with a maturity date of April 14, 2008; a renewal promissory note dated July 11, 2007, in the principal sum of $4, 500, 000, with a maturity date of April 14, 2008; an agreement dated April 17, 2008, changing the maturity date of the renewal note to June 15, 2008; a second renewal promissory note dated June 18, 2008, in the principal sum of $4, 500, 000, with a maturity date of December 17, 2008; a third renewal promissory note dated January 21, 2009, in the principal sum of $4, 500, 000, with a maturity date of January 15, 2010; and an agreement dated March 11, 2010, extending the maturity date to April 15, 2010. In order to induce Bank to extend credit to Eagle Ridge, the Frantzes executed five commercial guaranties in which they unconditionally guaranteed the full and punctual payment and satisfaction of all indebtedness of Eagle Ridge to Bank. They executed their last guaranties on March 11, 2010.

         On July 19, 2010, Bank filed this action against the Frantzes to recover on their commercial guaranties. The Frantzes filed an answer in which they admitted the material allegations in the complaint, but asserted affirmative defenses and counterclaims against Bank. They later amended their answer to include a third-party claim against Eagle Ridge.

         In October 2011, the Frantzes filed a petition under chapter 11 of the bankruptcy code the day before Mr. Frantz's deposition was to occur. The petition stayed this action. Bank was the Frantzes' largest creditor. On April 23, 2013, the Frantzes' bankruptcy was converted to a liquidation case under chapter 7, and a trustee was duly appointed for the estate. On August 23, 2013, Bank filed an adversary complaint alleging causes of action under 11 U.S.C. §§ 523(a)(2) and (a)(6) seeking both a judgment for damages for all sums owed the Bank by the Frantzes and a ruling that such damages, plus interest, attorney fees and costs, were nondischargeable. Less than two weeks before the trial on Bank's adversary proceeding in the bankruptcy case, the Frantzes filed a voluntary waiver of discharge under 11 U.S.C. § 727(a)(10), and on May 20, 2015, the bankruptcy court filed an order approving the waiver. As a result, the bankruptcy court was deprived of jurisdiction to hear the adversary proceeding, and it dismissed it without prejudice. However, the court did award sanctions in the sum of $49, 477.46 against the Frantzes and their attorney, jointly and severally, for their conduct during the course of the adversary proceeding. The court found that their conduct constituted misuse of litigation tactics to cause economic injury to an opponent and its counsel in the form of increased litigation costs.

         On May 27, 2015, Bank filed in this case a notice that because of the waiver of discharge, the automatic stay was terminated. On September 21, 2015, Bank filed a motion for summary judgment. In its supporting memorandum it argued that it was entitled to a judgment against the Frantzes based on the guaranties that they had signed, that there was no merit to the Frantzes' affirmative defenses, and that their counterclaims should be dismissed because they were owned by the trustee in bankruptcy.

         On October 6, 2015, the Frantzes filed a motion for partial summary judgment, seeking a ruling that Bank was estopped from enforcing the guaranties and that there was an accord and satisfaction. The claimed accord and satisfaction was based on Bank giving the bankruptcy trustee a $20, 000 check that Bank had received from the Frantzes, where the check was marked payment in full. After receiving briefing and hearing the oral arguments of the parties, the district court granted Bank's motion for summary judgment and denied the Frantzes' motion.

         The district court entered a judgment against the Frantzes "in the amount of $9, 193, 546.50, plus pre-judgment interest at the rate of $2, 475.02 per diem from September 16, 2015, until the date this Judgment is entered." Because the Frantzes had filed a third-party claim against Eagle Ridge that was yet unresolved, the court certified the judgment as final pursuant to Rule 54(b) of the Idaho Rules of Civil Procedure. The Frantzes filed a motion for reconsideration, and the court denied that motion. They then timely appealed.


         Did the District Court Err in Denying the Frantzes' Affirmative Defenses Based upon the Breach of an Alleged Oral Contract?

         When reviewing on appeal the granting of a motion for summary judgment, we apply the same standard used by the trial court in ruling on the motion. Infanger v. City of Salmon, 137 Idaho 45, 46-47, 44 P.3d 1100, 1101-02 (2002). We construe all disputed facts, and draw all reasonable inferences from the record, in favor of the non-moving party. Id. at 47, 44 P.3d at 1102. Summary judgment is appropriate only if the evidence in the record and any admissions show that there is no genuine issue of any material fact regarding the issues raised in the pleadings and that the moving party is entitled to judgment as a matter of law. Id. If the evidence reveals no disputed issues of material fact, then only a question of law remains, over which this Court exercises free review. Id.

         The Frantzes state as the issue on appeal, "Did the district court err by dismissing the Frantzes'affirmative defenses for lack of privity?" In order to put that argument in its factual context as to why the district court ruled that the Frantzes lacked privity, it is necessary to address other litigation between the parties.

         On June 27, 2014, Eagle Ridge filed a lawsuit against Bank ("Eagle Ridge lawsuit") in which Eagle Ridge alleged that in 2008 Bank made a "2008 Loan Commitment." The Frantzes held a majority interest in Eagle Ridge, and Mr. Frantz was its president. As stated in the complaint, the agreement to lend additional money was between Eagle Ridge and Bank. The complaint stated:

Under the 2008 Loan Commitment IIB agreed to lend the construction funds to Eagle Ridge under the same loan terms as the then existing loan between IIB and Eagle Ridge, so long as Frantz (the guarantor) remained credit worthy and an appraisal of IIB's collateral would justify the loan amount (IIB stated that the loan amount could not exceed 65% loan to as completed value). IIB further required that Eagle Ridge would raise additional capital, approximately $1m, and invest it into the project over the next year increasing Eagle Ridge's "skin in the game." Then, in 2009 a new appraisal would be obtained and a loan issued pursuant to the aforementioned constraints (appraisal justification and creditworthiness).

         In the Eagle Ridge lawsuit, Eagle Ridge sought: (a) to recover damages for breach of the oral contract to lend additional money to Eagle Ridge, (b) to obtain a declaratory judgment that Eagle Ridge was not liable for late charges and penalty fees, (c) to obtain damages for tortious interference with an economic relationship caused by Bank wrongfully suing Marty Frantz, (d) to obtain damages for unjust enrichment for the additional time and capital that Eagle Ridge invested in the development project, and (e) to recover damages for breach of the covenant of good faith and fair dealing. Bank filed a counterclaim against Eagle Ridge and a third party claim against the Frantzes in which it sought foreclosure of its mortgage on certain real property. On September 21, 2015, Bank filed a motion for summary judgment, which was granted, and Bank obtained a decree of foreclosure and later a deficiency judgment.

         In the Eagle Ridge lawsuit, Eagle Ridge and the Frantzes, through their counsel, alleged in a document filed with the court that "Marty Frantz was Eagle Ridge on Twin Lakes, Inc.'s primary agent. All of the interactions between Marty ...

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