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Sheth v. PremierBank

United States District Court, W.D. Wisconsin

August 22, 2016



          BARBARA B. CRABB District Judge.

         This case arises out of a personal guaranty that plaintiff Kamlesh Sheth gave with respect to financing provided by defendant PremierBank for a hotel. After the borrower defaulted, a third party stepped in to buy the property, but a deficiency remained after the sale, so the bank sued both the borrower and plaintiff in state court to make up the difference. Plaintiff never made an appearance in the case, so the state court entered judgment in the bank's favor, in the amount of approximately $200, 000. The bank then began collection proceedings in both Illinois and Wisconsin, eventually recovering the money it says that plaintiff owed.

         Now plaintiff is suing not only the bank, but also the bank's executive vice president, Roy Budlong, and the bank's lawyer, Mark Olm, contending that they violated his rights in various ways. (Plaintiff identified "Olm & Associates" as a separate defendant in his complaint, but I have amended the caption because it is undisputed that Olm & Associates is not a separate legal entity, but simply a name under which Mark Olm does business. Olm PFOF ¶ 5, dkt. #93.) Plaintiff contends that the bank's lawsuit in state court was a violation of a "settlement agreement" that the parties had and that the bank lulled him into believing that he did not need to participate in the state court lawsuit because the bank had no intention of enforcing the deficiency judgment against him. In addition, plaintiff contends that defendant Olm violated the law by representing the bank despite his previous representation of plaintiff on related matters in the past.

         Plaintiff is asserting claims for breach of contract (against the bank), fraud (against all defendants), tortious interference with a contract (against Budlong and Olm), breach of fiduciary duty (against Olm), violation of Wis.Stat. § 134.01 (against all defendants), common law conspiracy (against all defendants) and malpractice (against Olm). The bank has asserted a counterclaim against plaintiff, contending that it is entitled under the guaranty to receive reimbursement for all costs and fees it incurred in this case as well as in the state court collections cases.

         Because plaintiff is asserting state law claims only, he must show that jurisdiction is present under 28 U.S.C. § 1332, which requires diversity of citizenship between plaintiff and defendants and an amount in controversy more than $75, 000. In an order dated August 8, 2016, I asked the parties to provide supplemental materials showing diversity jurisdiction. Dkt. #107. Having reviewed the parties’ supplemental materials, along with the parties’ proposed findings of fact, I am persuaded that there is diversity of citizenship (plaintiff is a citizen of Illinois and all defendants are citizens of Wisconsin) and the amount in controversy is more than $75, 000 (because plaintiff is seeking damages well over that amount).

         Several motions are before the court: (1) a motion for summary judgment filed by defendants PremierBank and Budlong, dkt. #58; (2) a motion for summary judgment filed by defendant Olm, dkt. #54; (3) plaintiff’s motion for partial summary judgment on the bank’s counterclaim, dkt. #65; (4) plaintiff’s motion for sanctions against the bank and defendant Budlong, dkt. #88; (5) plaintiff’s objection to Magistrate Judge Stephen Crocker’s May 27, 2016 order, dkt. #89; and (6) defendant Olm’s “motion in limine” to bar plaintiff from introducing expert testimony at trial, dkt. #45.

         For the reasons explained below, I am (1) granting the motion for summary judgment filed by the bank and defendant Budlong, except as it relates to the bank’s counterclaim; (2) granting defendant Olm’s motion for summary judgment except as it relates to plaintiff’s claim for breach of fiduciary duty; (3) granting plaintiff’s motion for partial summary judgment with respect to the bank’s counterclaim; (4) denying plaintiff’s motion for sanctions; and (5) overruling plaintiff’s objection to Magistrate Judge Crocker’s May 27, 2016 order. Finally, because defendant Olm’s motion in limine relates solely to plaintiff’s malpractice claim and I am granting Olm’s motion for summary judgment as to that claim, I am denying the motion in limine as moot.

         With respect to plaintiff’s breach of fiduciary duty claim, I am denying defendant Olm’s summary judgment motion because I am rejecting the two arguments he raised, that a lawyer owes no duty of loyalty to a former client and that the statute of limitations has expired on this claim. However, I am directing plaintiff to show cause why that claim should not be dismissed on the ground that plaintiff cannot show that he suffered any damages or that Olm breached whatever duty he had.

         From the parties’ proposed findings of fact and the record, I find that the following facts are undisputed.


         A. Plaintiff’s Interest in Whitewater Hotels

         Plaintiff Kamlesh Sheth has owned various business since 1980. In 1989, he acquired an ownership interest in a hotel. In 1993, he formed Whitewater Hotels, Inc. with two partners. To date, plaintiff has owned or managed seven different hotels and he has executed approximately 20 guarantees related to those hotels. Between 2002 and 2007, he was involved in seven different lawsuits.

         In the 1990s, plaintiff began banking with defendant PremierBank. (Because no other banks are relevant to the pending motions, I will refer to defendant PremierBank simply as “the bank” for the remainder of the opinion.) Over the years, plaintiff obtained financing from the bank several times.

         From 1997 to 2007, defendant Mark Olm acted as plaintiff’s lawyer in various commercial transactions, including some involving the bank and some involving his ownership interest in Whitewater Hotels.

         In 2002, plaintiff executed a stock purchase agreement under which 98% of the stock for Whitewater Hotels was transferred to Munish Singh and Sonya Singh. Plaintiff did not own any portion of the company after the sale.

         B. Plaintiff Signs a Guaranty for the Hotels

         In 2006, Whitewater Hotels obtained $1, 050, 000 in financing from the bank. As a condition for the loan, plaintiff signed the following personal guaranty:

For value received, and to induce PremierBank ("Lender "), to extend credit or to grant or continue other credit accommodations to Whitewater Hotels, Inc. ("Debtor"), the undersigned ("Guarantor, " whether one or more) jointly and severally guarantees payment of the Obligations defined below when due or, to the extent not prohibited by law, at the time any Debtor becomes the subject of bankruptcy or other insolvency proceedings. 'Obligations' means all loans, drafts, overdrafts, checks, notes, and all other debts, obligations and liabilities of every kind and description, whether of the same or a different nature, arising out of credit previously granted, credit contemporaneously granted or credit granted in the future by Lender to any Debtor, to any Debtor and another, or to another guaranteed or endorsed by any Debtor. Obligations include interest and charges and the amount of payments made to Lender or another by or on behalf of any Debtor which are recovered from Lender by a trustee, receiver, creditor or other party pursuant to applicable federal or state law, and to the extent not prohibited by law, all costs, expenses and attorneys' fees at any time paid or Incurred before and after judgment in endeavoring to collect all or part of any of the above, or to realize upon this Guaranty, or any collateral securing any of the above, including those Incurred in successful defense or settlement of any counterclaim brought by Debtor or Guarantor or incident to any action or proceeding involving Debtor or Guarantor brought pursuant to the United States Bankruptcy Code.
* * *
ENTIRE AGREEMENT. This Guaranty is intended by Guarantor and Lender as a final expression of this Guaranty and as a complete and exclusive statement of its terms, there being no conditions to the full effectiveness of this Guaranty. This Guaranty may not be supplemented or modified except in writing. This Guaranty includes additional provisions on the reverse side.

(Plaintiff does not say why he chose to guarantee a loan when he had no ownership interest in the property.) Plaintiff did not seek advice from defendant Olm regarding whether to sign this guaranty and Olm did not represent plaintiff in this transaction.

         In late 2006, the bank hired defendant Olm to perform work on its collections and foreclosures. In 2007, Olm informed plaintiff that he would no longer be representing plaintiff or his businesses.

         In 2007, pursuant to the guaranty, the bank required plaintiff to assign his interest in his life insurance policies to the bank. During the time that Olm represented him, plaintiff did not give Olm any confidential information about his life insurance policies.

         C. Whitewater Hotels Defaults

         In December 2009, the bank notified plaintiff that Whitewater Hotels had defaulted on its loan. In response, plaintiff met with defendant Roy Budlong, an executive vice president for the bank who was in charge of the Whitewater Hotels account. After the meeting, plaintiff agreed either to assume the loan or otherwise make the bank whole in the event of a sheriff's sale.

         On January 4, 2010, the bank initiated foreclosure proceedings against Whitewater Hotels. Defendant Olm was the bank's lawyer in those proceedings. On January 12, 2010, plaintiff asked the bank to release him from his guaranty, but the bank refused. On February 15, 2010, defendant Budlong gave plaintiff an estimate of $961, 437 to pay off the loan. Around the same time, plaintiff asked again to be released from his guaranty, but the bank refused again.

         On February 19, 2010, Whitewater Hotels, plaintiff and the bank agreed to modify the loan. (Oddly, none of the parties identify what the modifications were, but neither side suggests that there were any changes to plaintiff’s guaranty. Rather, plaintiff admits that the bank still would be looking to him to cover a deficiency in the event of a default. Plt.’s Resp. to Dft.’s PFOF ¶ 33, dkt. #96.) As a result of the modified agreement, the bank suspended its prosecution of the foreclosure action. In August 2010, the bank dismissed the case.

         D. The Parties Negotiate after Whitewater Hotels Defaults Again

         In late 2010, the bank informed plaintiff that Whitewater Hotels had defaulted on the modified loan. In February 2011, plaintiff and the bank began negotiating a resolution. The bank retained defendant Olm to prepare a draft of a settlement agreement. Between February 2011 and May 2011, plaintiff and the bank continued to exchange drafts of an agreement, all of which Olm prepared. Olm had no communication with plaintiff during that time.

         In March 2011, plaintiff and the bank discussed the possibility of Whitewater Hotels’ agreeing to a receiver and plaintiff’s taking responsibility for operating the hotel and covering any deficiency that remained after a sheriff’s sale. However, Whitewater Hotels rejected this option.

         On March 25, 2011, in an email, defendant Budlong stated that the “current pay off of the loan was $926, 649.37 with a per diem of $132.18.” In addition, Budlong stated that the bank had legal fees of less than $2000 and that “the lien releases will take another $2100.” Dkt. #83-3 at 30.

         On March 31, 2011, the bank initiated a new foreclosure action against Whitewater Hotels. Defendant Olm again represented the bank. The complaint included a statement that the bank was waiving its right to a deficiency judgment. On April 5, 2011, in an email, Budlong told plaintiff that Olm “can’t move any further until he receives the signed settlement agreement.” On April 13, 2011, the bank amended its complaint to add plaintiff as a defendant. In the amended complaint, the bank removed the waiver and asserted its right to a deficiency judgment. (The parties do not identify the reason for the change.)

         On May 18, 2011, plaintiff met with Jim Schafer, a trust officer for the bank with whom plaintiff had a long relationship. Schafer provided plaintiff a copy of the amended complaint and asked plaintiff to sign an admission of service form. (Plaintiff signed the form on June 1, 2011.) Also on May 18, 2011, in an email to defendant Budlong, Schafer reported that he had asked plaintiff to sign the settlement agreement.

         On May 19, 2011, plaintiff signed the latest version of the settlement agreement (called “Agreement by Guarantor”), which he had reviewed with a lawyer. Under that agreement, the bank would dismiss plaintiff from the foreclosure action, waive its right to a deficiency judgment and release plaintiff from his guaranty if he “bid $1.00 higher than [the bank’s] opening bid [at the sheriff’s sale] in order to buy the property from [the bank], which will bid its principal, interest, late charges, receivership costs, other related costs, real estate taxes and costs and attorney’s fees.” However, “if [plaintiff] fail[ed] to bid at the Sheriff’s Sale, or if the balance of the Sheriff’s Sale purchase [was] not paid to the Clerk of Court within 10 days . . ., then [the bank had] the right to sue [plaintiff] for the difference” between the bank’s total costs and the price it received at the sale. In addition, the agreement included the following provision:

SHETH understands and acknowledges that ATTORNEY MARK T. OLM drafted this Agreement for PREMIER even though he has represented SHETH in past transactions. By signing this Agreement SHETH consents to MARK T. OLM representing PREMIER in this matter and acknowledges and agrees that MARK T. OLM is not representing SHETH’S interests in this matter.

         Finally, the agreement included a provision that “[n]o amendments or additions to this Agreement will be binding upon the parties unless reduced to writing and signed by them.”

         After signing the agreement, plaintiff returned it to the bank through a fax machine, using the number that Schafer had provided. (It is disputed whether plaintiff called Schafer to confirm that Schafer had received it.) Neither Budlong nor anyone else at the bank signed the agreement. (Defendants say this was because they were not aware that plaintiff had returned the agreement to them.) Plaintiff never asked defendants for a signed copy of the agreement and he did not ask them whether they had signed the agreement. For their part, defendants did not ask plaintiff whether he had returned the agreement and they never made another request for him to sign it.

         On June 21, 2011, the bank filed a motion in the foreclosure action for a default judgment against both plaintiff and Whitewater Hotels. On June 28, 2011, the state circuit court entered a default judgment against all defendants. (The parties did not submit any proposed findings of fact addressing the question whether plaintiff received a copy of the motion or judgment.)

         On August 1, 2011, in an email to plaintiff, defendant Budlong suggested that they meet to discuss the procedure for the sheriff’s sale and an appropriate price.

         On August 18, 2011, plaintiff met with defendant Budlong and Schafer to discuss pending offers on the hotel property. On August 25, 2011, in an email to plaintiff, Budlong wrote the following:

We discussed the offer of $950, 000 for the purchase of the Whitewater Hotel and it was agreed by you and the bank to decline the offer. I contacted Munish Singh by email the next day and informed him of the decision to decline the offer. I restated to him that the bank is seeking a price of $1, 100, 000.
It is your position that your group is at the $1, 050, 000.00 mark for the purchase of the motel. If a price higher than that amount comes in, we are in agreement to accept it. We will continue discussions regarding any deficiency at that time. . . .
The sheriff sale is scheduled for October 6. It was agreed that, prior to the sheriff sale if no other buyer is accepted, we will finalize in writing the offer from your group so we know what amount to bid at the sheriff sale.

         In August 2011, plaintiff met with Ronak Patel for the purpose of marketing the hotel property.

         On September 2, 2011, in an email to plaintiff regarding the $950, 000 offer, Budlong wrote, “Since you are guarantor on the loan, I need your confirmation regarding the agreement to decline the offer made on the motel.”

         In September 2011, the bank reached an agreement with Patel’s company, SAI Hospitality, to sell the hotel for $1.1 million. They also agreed that the bank would bid that amount at the sheriff’s sale and then the bank would transfer the title to SAI for the same amount. (The parties do not explain why they chose that procedure.)

         On September 20, 2011, in an email, defendant Budlong informed plaintiff of the offer and asked for his consent to it. Plaintiff agreed to accept the offer, but neither Budlong nor plaintiff raised the issue of a potential deficiency.

         E. The Sheriff’s Sale and Request for a ...

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