July 31, 2015

Borrower in Aircraft Purchase Transaction Not an Indispensable Party in Suit Against Guarantor

Holland & Knight Aviation Law Blog
Marc L. Antonecchia

An Ohio district court has rejected an attempt by a guarantor of a borrower in an aircraft purchase transaction to dismiss claims for breach of contract on the basis that the aircraft purchaser was an “indispensable party.” In PNC Equipment Finance v. Mariani, No. 1:14-cv-663, 2015 WL 4464810 (S.D. Ohio July 21, 2015), plaintiff lender financed the purchasing of aircraft for re-sale by the borrower with a series of loans guaranteed by two individuals. The guarantors absolutely and unconditionally guaranteed the performance of any and all obligations owed by borrower to the lender. One guarantor moved to dismiss the claim against him for breach of contract, arising from his failure to make payments, on several grounds, including that the lender had failed to include the borrower as an indispensable party. The guarantor argued that the lender had “no cause of action of standing against the defendants” without first establishing the borrower’s liability.

Under the federal rules of civil procedure, a person is an indispensable party if: (1) the absence of the person to be joined impairs the court’s ability to grant relief; (2) the person to be joined claims an interest in the subject matter of the action and not joining the person would impede the person’s ability to protect that interest; or (3) the person to be joined claims an interest in the subject matter of the action and not joining the person would leave one or more of the parties vulnerable to incurring multiple or inconsistent obligations, regarding the claimed interest.

Plaintiff argued, and the court agreed, that suing only the guarantor did not offend the “complete relief” envisioned by the rules of procedure because the guarantor had waived any right to require the lender to proceed against the borrower or to proceed against or exhaust any security held from the borrower. The court noted that the “complete relief” provision did not affect the ability of the guarantors from later pursuing indemnification or contribution claims that they may have against the borrower. Thus, whether a guarantor will seek contribution or indemnification from another entity is not a justifiable basis for dismissal of the claims against the guarantor.

As many aircraft transactions are laden with guaranty agreements, it is important to consider what was implied but not expressly stated in the decision. The real key here is that the guaranty at issue was one for payment of a debt as opposed to collection of the debt. The former permits direct recourse against the guarantor; the latter requires, at minimum, reasonable enforcement efforts against the primary obligor before seeking recourse against the guarantor. Had the guaranty at issue in the Ohio action been a guaranty of collection only, the outcome likely would have been much different and lender’s collection efforts frustrated significantly. And while the enforceability of a guaranty of payment directly against the guarantor may be uniform across all jurisdictions, creditors should take note that the laws (both statutory and case law) that govern important issues covered by many guaranty agreements, including those involving assignability and revocation, are not necessarily uniform from jurisdiction to jurisdiction.

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