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Grace Capital, LLC v. Mills

Court of Appeals of Minnesota

May 13, 2013

Grace Capital, LLC, Plaintiff,
v.
Wayne W. Mills, et al., Defendants, Barry Benowitz, Respondent, Locksley Shae Trust, et al., Respondents, Henry Fong, Appellant.

UNPUBLISHED OPINION

Hennepin County District Court File No. 27-CV-08-4767

Jack Y. Perry, Paul J. Hemming, Briggs and Morgan, P.A., Minneapolis, Minnesota (for respondent Barry Benowitz)

Marc A. Al, Stoel Rives, LLP, Minneapolis, Minnesota (for respondents Locksley Shae Trust and Gretchen and Robert Strandell)

Carl E. Christensen, Daniel M. Eaton, Kevin Lampone, Christensen Law Office PLLC, Minneapolis, Minnesota (for appellant)

Considered and decided by Hooten, Presiding Judge; Cleary, Judge; and Chutich, Judge.

CLEARY, Judge

Appellant Henry Fong challenges the district court's order entering judgments against him, arguing that the judgments exceeded the amount that he was responsible for under a personal guaranty; that the district court erred by holding that the judgment entered under a settlement agreement did not apply toward the limit under the guaranty; that the district court erred by failing to hold that the settlement agreement resolved all claims under the guaranty; that the district court erred by enforcing the settlement agreement and holding that the settlement agreement had no effect on respondent Barry Benowitz's claims; and that the court erred by failing to submit a dispute over the terms and effect of the settlement agreement to mediation. We affirm.

FACTS

In March 2007, Fong personally guaranteed several promissory notes made by FastFunds Financial Corporation (FFFC) to various parties totaling $1.825 million. Fong's guaranty expressly limited his liability to an aggregate sum of $1 million. In 2007, FFFC defaulted on the promissory notes, and the aggrieved parties filed a complaint, attempting to collect on the personal guaranty issued by Fong.

The district court granted summary judgment in favor of the plaintiffs, determining that Fong's affirmative defense of fraudulent inducement failed as a matter of law, and Fong appealed to this court. See Grace Capital, LLC v. Mills, No. A09-1857, 2010 WL 3396817, at *1–2 (Minn.App. Aug. 31, 2010), review denied (Minn. Nov. 16, 2010). This court affirmed in part, reversed the district court's exclusion of certain affidavits, and remanded for further proceedings. Id. at *6.

Respondents Locksley Shae Trust, Gretchen Strandell, and Robert Strandell (settling respondents) settled their claims in September 2011 following mediation. Under the terms of the settlement agreement, Fong agreed to pay the settling respondents $162, 000 according to a payment schedule and to transfer to them 350, 000 common shares of stock. If Fong breached the settlement agreement in any way, the agreement stated that "judgment shall be entered in favor of [the settling respondents] . . . as follows: $562, 500 in favor of Locksley Shea Trust and $437, 500 in favor of Gretchen and Robert Strandell." The parties also agreed to release "any and all claims, causes of action, suits and/or other liabilities between and among them of any nature whatsoever."

After the settling respondents and Fong reached the settlement agreement, Fong informally sought to dismiss all of the non-settling parties' claims due to failure to prosecute. The court denied Fong's informal request. The non-settling parties, with the exception of Benowitz, declined to pursue their claims. Benowitz informed the court that he intended to proceed with his claim. In October 2011, Fong's counsel withdrew, and Fong obtained new counsel. As scheduling for trial proceeded, questions about the validity, enforceability, and scope of the settlement agreement were raised by Fong's new counsel.

In December 2011, Fong filed a motion to enforce the settlement agreement or, in the alternative, to vacate the settlement agreement. In January 2012, the settling respondents filed a motion to enforce the settlement agreement and for entry of judgment. Benowitz filed a response to Fong's motion. In February 2012, the court issued an order denying Fong's motion, granting in part and denying in part the settling respondents' motion, ordering Fong to become current on all payment obligations under the settlement agreement, and stating that, if Fong failed to become current on all payment obligations, judgment would be entered in favor of the settling respondents. The court held that the settlement agreement was valid and enforceable and that Benowitz's claims were not affected by the settlement agreement. The court also stated that, because it never issued a direct order compelling Benowitz to participate in the mediation, it refused to hold that Benowitz had "forfeited his claims by failing to appear at the mediation."

Fong failed to become current on the payment obligations under the settlement agreement. In March 2012, Fong submitted a request for leave to bring a motion to reconsider. The district court denied the request and ordered entry of judgment in favor of the settling respondents. The court also noted "for purpose of clarification" that "under the [the February 2012] Order any amounts paid by Fong to the [settling respondents] under the Settlement Agreement shall not serve to reduce his potential liability to Benowitz under the Guaranty."

In April 2012, the court held a hearing during which Fong waived his remaining defense to Benowitz's claims. In May 2012, the court issued an order directing entry of final judgment on all claims and held that "Benowitz has alleged and proven entitlement to recover on Fong's guarantee of a promissory note with a principal outstanding sum due of $1, 000, 000 plus interest and legal fees. ...


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