State v. Huttenbauer

301 Or.App. 332

456 P.3d 340

STATE of Oregon, BY AND THROUGH its BUSINESS DEVELOPMENT DEPARTMENT, Plaintiff-Appellant,

v.Samuel HUTTENBAUER, Jr., an individual, Defendant-Respondent.

Samuel Huttenbauer, Jr., an individual, Third Party Plaintiff,

v.Oregon State University and Robert McGorrin, Third Party Defendants.

A167342

Court of Appeals of Oregon.

Argued and submitted May 17, 2019.

December 18, 2019

Christopher Page, Assistant Attorney General, argued the cause for appellant. Also on the briefs were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

Shayna M. Rogers, Salem, argued the cause for respondent. Also on the brief were J. Michael Keane and Garrett Hemann Robertson PC.

Before Armstrong, Presiding Judge, and Tookey, Judge, and Shorr, Judge.

ARMSTRONG, P. J.

Plaintiff, State of Oregon, through its Business Development Department, loaned money to defendant’s company, High Pressure Research, LLC (HPR).¹ Defendant personally guaranteed the loan as the sole member of HPR. Plaintiff brought this action against defendant to enforce defendant’s guaranty after HPR defaulted on the loan. The parties subsequently filed cross-motions for summary judgment. Defendant argued in his motion that the action was time barred, because the guaranty is a negotiable instrument under ORS 73.0104 and, therefore, plaintiff’s claim to enforce the guaranty was subject to the limitation periods in ORS 73.0118,² which had run. The trial court granted defendant’s motion after concluding that the guaranty was a negotiable instrument, that the ORS 73.0118 limitation periods applied to plaintiff’s claim, and that plaintiff’s action was therefore time barred. The court accordingly also denied plaintiff’s motion for summary judgment and entered a judgment that dismissed plaintiff’s guaranty claim.

Plaintiff appeals the judgment of dismissal, assigning error to the trial court’s rulings granting defendant’s motion for summary judgment and denying plaintiff’s motion. Plaintiff also appeals a subsequent supplemental judgment awarding defendant attorney fees and costs.

Plaintiff contends that the trial court erroneously concluded that the guaranty is a negotiable instrument. As a matter of first impression, we agree with plaintiff that the guaranty is not a negotiable instrument as defined in ORS 73.0104 and is therefore not subject to the limitation periods in ORS 73.0118. We also conclude that the trial court erred in denying plaintiff’s motion for summary judgment, because there was no dispute of material fact on plaintiff’s claim, and defendant failed to establish that there was a triable issue of fact on defendant’s affirmative defense of fraud in the inducement. Consequently, plaintiff was entitled to judgment as a matter of law. Hence, we reverse and remand.

The Business Development Department makes loans to start-ups, early-stage companies, and small businesses. See ORS 285B.053. In 1998, plaintiff loaned $69,500 to HPR to purchase equipment for HPR to use to preserve and package foods using high-pressure treatment. To document that loan, plaintiff and HPR executed a promissory note and a loan agreement. The loan agreement stated that the equipment would be stored at Oregon State University (OSU). Defendant signed both the promissory note and the loan agreement in his capacity as the chief financial officer of HPR. Under the terms of the promissory note and the loan agreement, HPR was to make 48 consecutive monthly payments beginning one month after the loan funds were disbursed and to pay any remaining balance on April 30, 2002. The promissory note specified that, in the event of default, "the entire unpaid principal balance of, and all unpaid accrued interest on, this Note may be declared to be immediately due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement."

As a condition precedent to the disbursement of funds under the loan, the loan agreement required defendant to sign a "continuing, unconditional guaranty" of the HPR loan. Another clause in the loan agreement provided that "[n]o failure on the part of Lender to exercise, and no delay in exercising, any right, power, or privilege under this Agreement shall operate as a waiver thereof."

As required by the loan agreement, defendant signed a guaranty agreement guarantying "payment of the existing and future indebtedness" of HPR to plaintiff. The guaranty expressly referenced the loan agreement in its recitals. The guaranty further stated:

"Guarantor guarantees prompt repayment when due of all amounts advanced in the past, or to be advanced in the future, by Creditor to Debtor, including but not limited to all amounts advanced or to be advanced under the Loan Agreement and the other Loan Documents. If Debtor defaults in the payment of any such indebtedness, Guarantor will pay to Creditor or its order on demand, in any coin or currency that is legal tender in the United States at the time of payment, the amount(s) due.

"Guarantor also guarantees prompt and satisfactory performance by Debtor of all of the terms and conditions of the Note, Loan Agreement or other Loan Documents. If Debtor defaults in performance of its obligations under said Note, Loan Agreement or other Loan Documents, Guarantor shall pay to Creditor, in addition to the outstanding loan balance owed to Creditor by Debtor plus all unpaid accrued interest thereon, all damages, costs, and expenses that Creditor is entitled to recover from Debtor by reason of such default(s).

"Guarantor also shall pay to Creditor or its order on demand reasonable attorney fees and all costs and other expenses incurred by it in collecting the guaranteed indebtedness from Debtor or in enforcing this guaranty against Guarantor."

The guaranty also included a clause stating that defendant would not be released from liability due to "[a]ny neglect, delay, omission, failure, or refusal of [plaintiff] to take or prosecute any action for the collection of the Note."

HPR made no payments on the loan before the dissolution of HPR in 2002. Defendant, in his personal capacity, made payments to plaintiff of $200 each in December 2002 and January 2003.

Plaintiff brought this action in May 2017 to enforce the guaranty against defendant. In his answer, defendant admitted that HPR had failed to make any payments on the loan, but he alleged that he was not obligated to pay plaintiff under his guaranty because OSU had assumed the loan obligation by taking control of the equipment and refusing to allow HPR to use it. Defendant also alleged that plaintiff’s claim was barred by the limitation periods in ORS 73.0118.³

In addition, defendant raised the affirmative defense of fraud in the inducement as a defense to plaintiff’s action, alleging that plaintiff had loaned HPR the money as part of a fraudulent scheme to get defendant to buy the equipment for OSU. That is, defendant alleged that plaintiff had made the loan to HPR as part of a fraudulent scheme to induce defendant to agree to the guaranty and thereby make him personally responsible to pay for equipment acquired for OSU rather than for HPR.

Plaintiff moved for summary judgment on its guaranty claim, noting that defendant had conceded that HPR had defaulted on its loan obligations and that defendant had personally guaranteed payment of those obligations in the event of a default. In response, defendant raised two defenses: Defendant contended (1) that plaintiff’s action was time barred, and (2) that defendant had been fraudulently induced to enter the agreement.

Defendant also filed a cross-motion for summary judgment on his defense that the action was time barred. Defendant contended that the guaranty—either by itself or as a part of a single agreement consisting of all the loan documents considered together—was a negotiable instrument and therefore was subject to the limitation periods in ORS 73.0118(1). Plaintiff, in its response to defendant’s cross-motion, argued that statutes of limitation generally do not apply to the state and that the limitation periods in ORS 73.0118(1) —which defendant identified in his motion as applying to the guaranty—did not apply to bar plaintiff’s claim in this case because the guaranty was not a negotiable instrument. In addition, plaintiff argued that ORS 73.0118(1) did not bar the claim because, even if those limitation periods could apply to plaintiff, defendant had waived that defense under the terms of the guaranty.

The trial court concluded that the guaranty was a negotiable instrument and that the limitation periods in ORS 73.0118 operated to bar plaintiff’s claim. Accordingly, it granted defendant’s motion for summary judgment and denied plaintiff’s motion. The court did not address the fraud defense that defendant had also raised in response to plaintiff’s motion for summary judgment because the court concluded that the issue was moot as a result of the court’s ruling in defendant’s favor on the limitations issue, and the court was "not prepared * * * to say whether or not there is a dispute of material" fact regarding the fraud defense. This timely appeal followed.

On review of cross-motions for summary judgment, when there are no disputes of fact, we review the trial court’s rulings to determine whether either party is entitled to judgment as a matter of law. Bergeron v. Aero Sales, Inc. , 205 Or. App. 257, 261, 134 P.3d 964, rev. den. , 341 Or. 548, 145 P.3d 1109 (2006).

Because it would be dispositive, we begin by considering whether the trial court correctly concluded that the action was time barred, which was the ground on which the trial court both granted defendant’s motion for summary judgment and denied plaintiff’s motion. As defendant acknowledges, "general statutes of limitations do not run against the government unless the statute" expressly provides otherwise. Shasta View Irrigation Dist. v. Amoco Chemicals , 329 Or. 151, 159, 986 P.2d 536 (1999) ; ORS 12.250.⁴ Defendant contends...