United States District Court, E.D. Kentucky
GUANGZHOU CONSORTIUM DISPLAY PRODUCT COMPANY, LTD., et al., PLAINTIFFS
PNC BANK, NATIONAL ASSOCIATION, et al., DEFENDANTS
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For Guangzhou Consortium Display Product Company, Ltd., Consortium Companies, Incorporated, Plaintiffs: Todd J. Flagel, LEAD ATTORNEY, Allison Bisig Oswall, James Papakirk, PRO HAC VICE, Flagel & Papakirk LLC, Cincinnati, OH; Gregory W. McDowell, Gregory W. McDowell, P.S.C, Florence, KY.
For Steven M. Oberst, Lynda S. Oberst, Clinton S. Oberst, Susan J. Oberst, Plaintiffs: Allison Bisig Oswall, LEAD ATTORNEY, Flagel & Papakirk LLC, Cincinnati, OH; Gregory W. McDowell, Gregory W. McDowell, P.S.C., Florence, KY.
For Roger C. Schreiber, Plaintiff: Allison Bisig Oswall, LEAD ATTORNEY, Flagel & Papakirk LLC, Cincinnati, OH; Kevin R. Feazell, Cors & Bassett, LLC - Cincinnati OH, Cincinnati, OH.
For PNC Bank, National Association, Defendant: Byron E. Leet, Christopher Tyson Gorman, Cornelius E. Coryell, II, Rania Marie Basha, Wyatt, Tarrant & Combs, LLP - Louisville, Louisville, KY.
For Standard Charter Bank (China) Limited, Defendant: Alex Hood, Karl Geercken, Matthew Decker, LEAD ATTORNEYS, PRO HAC VICE, Alston & Bird LLP - NY, New York, NY; John Shannon Bouchillon, LEAD ATTORNEY, P. Blaine Grant, Hayden Craig & Grant PLLC, Louisville, KY.
For PNC Bank, National Association, Cross Claimant: Byron E. Leet, Christopher Tyson Gorman, Cornelius E. Coryell, II, Rania Marie Basha, Wyatt, Tarrant & Combs, LLP - Louisville, Louisville, KY.
For Standard Charter Bank (China) Limited, Cross Defendant: Alex Hood, Karl Geercken, Matthew Decker, LEAD ATTORNEYS, PRO HAC VICE, Alston & Bird LLP - NY, New York, NY; John Shannon Bouchillon, LEAD ATTORNEY, P. Blaine Grant, Hayden Craig & Grant PLLC, Louisville, KY.
For PNC Bank, National Association, Counter Claimant: Byron E. Leet, Christopher Tyson Gorman, Cornelius E. Coryell, II, Rania Marie Basha, Wyatt, Tarrant & Combs, LLP - Louisville, Louisville, KY.
For Consortium Companies, Incorporated, Guangzhou Consortium Display Product Company, Ltd., Counter Defendants: Todd J. Flagel, LEAD ATTORNEY, James Papakirk, Flagel & Papakirk LLC, Cincinnati, OH; Gregory W. McDowell, Gregory W. McDowell, P.S.C, Florence, KY.
For Clinton S. Oberst, Lynda S. Oberst, Steven M. Oberst, Susan J. Oberst, Counter Defendants: Gregory W. McDowell, Gregory W. McDowell, P.S.C., Florence, KY.
For Roger C. Schreiber, Counter Defendant: Kevin R. Feazell, Cors & Bassett, LLC - Cincinnati OH, Cincinnati, OH.
David L. Bunning, United States District Judge.
OMNIBUS MEMORANDUM OPINION AND ORDER
I. PROCEDURAL HISTORY AND POSTURE
This is primarily a breach of contract action brought by a Kentucky corporation, Plaintiff Consortium Companies, Incorporated (" Consortium USA" ), its wholly-owned Chinese subsidiary, Guangzhou Consortium Display Product, Ltd (" Consortium China" ), and several individual guarantors  (" the Guarantors" ) against Defendant PNC Bank, National Association.  Plaintiffs allege that PNC failed to wire funds to Consortium China as required by a document entitled " Capital Contribution Authorization."  Based on PNC's conduct, Plaintiffs' First Amended Complaint asserts claims for breach of contract, breach of fiduciary duty, tortious interference with contract, and breach of implied duty of good faith and fair dealing (Counts 1 - 4, respectively). It also asserts miscellaneous claims in Counts 5 through 8. In response, PNC filed a counter-claim for breach of contract against Consortium USA seeking reimbursement for two of its debt obligations to PNC. PNC has also filed a counter-claim against the Guarantors seeking to enforce Guaranty Agreements in which they promised to repay Consortium USA's debt obligations.
This matter is currently before the Court on the cross motions for summary judgment on Plaintiffs' First Amended Complaint filed by PNC and Consortium USA (Docs. # 104 & 128), the cross motions for summary judgment on PNC's
counter-claim against Consortium USA (Docs. # 128 & 133), and the cross motions for summary judgment on PNC's counterclaim against the Guarantors (Docs. # 126, 127, & 135). All motions are fully briefed and thus ripe for review.
Because Plaintiffs cannot demonstrate that the Capital Contribution Authorization satisfies the statute of frauds, and because they have not carried their burden as to their remaining claims, the Court will grant summary judgment for PNC on Plaintiff's First Amended Complaint (Doc. # 104). In addition, because Consortium USA has failed to reimburse PNC for two of its debt obligations, the Court will grant summary judgment as to liability for PNC on its counter-claim against Consortium USA (Doc. # 133). However, the Court will deny PNC summary judgment as to damages on its counter-claim because material issues of fact remain in dispute regarding the proper amounts owed. Finally, the Court will grant summary judgment for the Guarantors (Docs. # 126 & 127) on PNC's counter-claim against them because the Guaranties at issue are unenforceable under K.R.S. § 371.065.
Plaintiff Consortium USA, a Kentucky corporation, is a manufacturer of point of purchase displays and a designer of product packaging. Consortium China, a company organized under Chinese law and engaged in the same line of business, is Consortium USA's wholly-owned subsidiary. In 2007, PNC successfully solicited Consortium USA's business. Consortium USA switched its entire domestic and international banking relationship from the Bank of Kentucky to PNC. PNC also introduced both Consortium Companies to Standard Bank, and ultimately, Consortium China switched its existing line of credit with China Merchants Bank to a new line of credit with Standard Bank.
A. The Standby Letter of Credit
Upon establishing this new line of credit, Consortium China entered into a loan agreement with Standard Bank for over $1 million. To secure the loan, Standard Bank required Consortium China to procure a standby letter of credit. Consortium USA, acting on Consortium China's behalf, applied to PNC for the standby letter of credit. PNC approved the application and issued the " Irrevocable Standby Letter of Credit" (Doc. # 25-5) in August of 2007, naming Standard Bank as the beneficiary. Contemporaneous with the issuance of the Standby Letter of Credit, PNC and Consortium USA signed a " Reimbursement and Security Agreement," which provided the terms under which the Letter would be issued, including Consortium USA's obligation to reimburse PNC for any amounts drawn under the Standby Letter of Credit. (Doc. # 133-2).
B. The Problem with the Standby Letter of Credit
As early as 2008, Standard Bank became concerned that Consortium China did not have enough capital to meet Chinese regulatory requirements. Accordingly, Standard Bank asked Consortium USA to sign a letter of undertaking promising to inject additional capital into Consortium China. Consortium USA agreed and executed a Letter of Undertaking in 2008. Nevertheless, by early 2010, Consortium China remained undercapitalized. Around this time, Plaintiffs learned that Consortium China's insufficient capital might cause a serious problem.  Standard Bank informed
Plaintiffs that under Chinese regulations, it could not convert U.S. dollars to Chinese Renmibi on behalf of a company that was undercapitalized. This meant that any payment PNC made to Standard Bank under the Letter could not be converted into Chinese currency and would therefore be ineffective to pay off Consortium China's loan. 
Around the same time, PNC notified Consortium USA that it would not renew the Standby Letter of Credit, which was set to expire in July of 2010. Plaintiffs knew that before the Letter expired, Standard Bank would demand payment under it. They also knew that if PNC attempted to make such a payment, it would be ineffective due to the currency conversion problem, and Consortium China would default on its loan.
C. The Solution: the Capital Contribution Authorization
Plaintiff Consortium USA and Defendant PNC attempted to avert the currency conversion issue by executing a document entitled " Capital Contribution Authorization." (Doc. # 23-1) (hereinafter " the CCA" ). This document was signed by both parties and provided that:
It is hereby acknowledged that under the authorization of Consortium Companies, Inc. and the credit facility and letter of credit previously established for Consortium Companies, Inc., PNC Bank, National Association is wiring funds on behalf of Consortium Companies, Inc. of USD 1,600,000 to Guangzhou Consortium Display Product Company Ltd. which Consortium Companies, Inc. advises it intends as capital.
(Doc. # 23-1).
Plaintiffs allege that the CCA was a contract by which PNC agreed to loan money to Consortium China. Consortium China would use the money to pay off its loan from Standard Bank. With the loan paid off, Standard Bank would not attempt to draw funds under the Standby Letter of Credit. The currency conversion problem would be avoided.
D. PNC's Alleged Failure to Follow the Capital Contribution Authorization
However, for reasons explained below, PNC never wired the funds to Consortium China. With Consortium China's loan unpaid, and the Standby Letter of Credit expiring, Standard Bank demanded payment from PNC under the Letter in the amount of $1,760,000. PNC complied, making payment on July 9, 2010. As anticipated, due to the currency conversion problem, Standard Bank never effectively received this payment. Consortium China not only defaulted on its loan, but was exposed to double liability, since it now owed $1,760,000 to PNC as well. Plaintiffs contend that these events effectively shut down their Asian operations. The instant litigation ensued.
E. The Instant Litigation
By their First Amended Complaint, Plaintiffs claim that by failing to make the
alleged loan, PNC breached the CCA, breached its implied duty of good faith and fair dealing, breached its duty to act as their fiduciary, and tortuously interfered with their Asian business relationships.
By the instant Motion for Summary Judgment (Doc. # 104) on Plaintiffs' First Amended Complaint, Defendant PNC argues that the CCA does not satisfy the statute of frauds and is therefore not an enforceable contract. PNC also disputes Plaintiffs' characterization of the CCA as a loan intended to avoid a draw under the Standby Letter of Credit. It explains that the parties always anticipated a draw request, and the CCA was merely a letter characterizing the funds drawn under the Letter in such a way as to comply with Chinese financial regulations. In addition, PNC denies any liability under Plaintiffs remaining causes of action, for reasons explained more fully below. By their Response (Doc. # 117), Plaintiffs claim the CCA satisfies the statute of frauds through documentary evidence. The Court now turns to evaluate that evidence.
III. ANALYSIS OF THE CROSS MOTIONS FOR SUMMARY JUDGMENT ON PLAINTIFFS' FIRST AMENDED COMPLAINT FILED BY PNC AND CONSORTIUM USA (DOCS. # 104 & 128)
A. Standard of Review
Pursuant to Federal Rule of Civil Procedure 56(a), summary judgment is appropriate if " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In considering a motion for summary judgment, the court must view the evidence and draw all reasonable inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The " moving party bears the burden of showing the absence of any genuine issues of material fact." Sigler v. Am. Honda Motor Co. , 532 F.3d 469, 483 (6th Cir. 2008). The moving party may meet this burden by demonstrating the absence of evidence concerning an essential element of the nonmovant's claim on which it will bear the burden of proof at trial. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant has satisfied its burden, the nonmoving party must " do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co., 475 U.S. at 586, it must produce specific facts showing that a genuine issue remains. Plant v. Morton Int'l, Inc., 212 F.3d 929, 934 (6th Cir. 2000). If, after reviewing the record in its entirety, a rational fact finder could not find for the nonmoving party, summary judgment should be granted. Ercegovich v. Goodyear Tire & Rubber Co., 154 F.3d 344, 349 (6th Cir. 1998).
Moreover, the trial court is not required to " search the entire record to establish that it is bereft of a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80 (6th Cir. 1989). Rather, the " nonmoving party has an affirmative duty to direct the court's attention to those specific portions of the record upon which it seeks to rely to create a genuine issue of material fact." In re Morris, 260 F.3d 654, 655 (6th Cir. 2001).
B. Count 1: Breach of Contract Regarding the Capital Contribution Authorization
Kentucky's statute of frauds requires that agreements or contracts be in writing and signed by the party to be charged. K.R.S. § 371.010(9). " Separate
writings may form the memorandum of contract required by the Statute of Frauds." Lonnie Hayes & Sons Staves, Inc. v. Bourbon Cooperage Co., 777 S.W.2d 940, 942 (Ky. Ct. App. 1989) (citations omitted). However, the writings must refer to each other without the use of parol evidence. See, e.g., Nicholson v. Clark , 802 S.W.2d 934, 938 (Ky. Ct. App. 1990). The writings must also set forth the contract's essential terms without resort to parol evidence. Id.
Plaintiffs claim that the statute of frauds is satisfied by three sources: (1) the CCA itself; (2) e-mails exchanged in April 2010 between Consortium USA's Chief Financial Officer, Roger Schreiber, and PNC representative, Thomas Dodd; and (3) a draft term note dated May of 2010.
Plaintiffs argue that these documents supply the essential terms of the alleged loan. The April 2010 e-mails show Schreiber and Dodd negotiating these essential terms, they claim. These terms were then supposedly memorialized in the draft term note. According to Plaintiffs, all of these documents are connected for statute of frauds purposes by the CCA, which purportedly refers to both the e-mails and the draft term note by using the single phrase " existing credit facility." 
This argument is flawed in three ways. First, none of these documents refer to each other, as required by the statute of frauds. The e-mails and the draft term note do not mention the CCA at all. Similarly, the CCA makes no mention of the e-mails or the draft term note. Indeed, Plaintiffs never explain how the CCA's use of the term " existing credit facility" can be understood as referring to the e-mails and draft term note.
Second, as PNC correctly argues, these documents do not relate to the CCA at all; they relate to an entirely different transaction. That transaction had to do with how Consortium USA would repay PNC once Standard Bank demanded payment under the Standby Letter of Credit. Thus, in April of 2010, fully expecting the Standby Letter of Credit to be exercised within 60 days, the parties discussed a plan to add Consortium USA's new debt to its existing term note with PNC.
For instance, in one of the April 2010 e-mails, Schreiber wrote to Dodd: Tom,
We received the attached invoice/statement today for the PNC note maturing on 4/30.
As I recall our discussion, since we fully expect the [Standby Letter of Credit] to be exercised within the next 60 days , you and I did not intend to go through a formal process of note renewal for the < 60 day window. I understood our plan is to basically have this considered a month-to-month auto renewal for the next 60 days and continue to make the $20K/mo principle plus interest (total approx $25K).
In the meantime, you were working to align approval for the terms of the new note ;
1. New [Standby Letter of Credit] amount to match actual exercised amount up to a max of $1.7MM.
2. This plus the current note balance (approx $.9MM) would be the new note total.
3. Requested $40K/mo principle payment plus applicable interest payment....
(Doc. # 117-26 at 2-3) (emphasis added). This e-mail shows that the parties " fully expect[ed] the [ Standby Letter of Credit ] to be exercised within the next 60 days," and that they planned to add the " actual exercised amount" under the Letter to the " current note balance." (Id.). Thus, the April 2010 e-mails had nothing to do with the CCA; instead, they were concerned with how to repay the soon-to-be-incurred Standby Letter of Credit debt.
Third, the timing of these e-mails demonstrate that they had nothing to do with the CCA. The April 2010 e-mails were exchanged two months before the CCA was even contemplated. It was not until June 14, 2010, that Schreiber pitched the idea for the CCA to PNC's Thomas Dodd. On that date, Schreiber e-mailed Dodd, explaining the currency conversion problem, and proposing two options: (a) a loan outside the Standby Letter of Credit, or (b) a letter characterizing the funds paid under the Standby Letter of Credit as a capital infusion (i.e., the solution that became known as the CCA):
2. (Where I need your cooperation) We are working to have the $1.6 million go to China and be able to meet Chinese regulatory requirements as a " capital infusion" [sic] All China arrangements have been made to accomplish this on our end. To have the $1.6 M infused as capital to then repay the debt is significantly different for the ongoing capital structure and success of our China operation. In order for it to be verified in China as a capital infusion, funds need to come from [Consortium USA] ...