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A federal jury last week awarded more than $4.1 million to a King of Prussia, Pa. company that said it was stiffed on a series of bills despite being given a written guaranty by the corporate parent of one of its customers. The verdict is a victory for attorneys Walter H. Flamm and Robert E. Walton of Blue Bell, Pa. firm Flamm, Boroff & Bacine in Blue Bell, who represented Garden State Tanning Inc. After a four-day trial before U.S. Magistrate Judge Jacob P. Hart, the jury deliberated just two hours before finding that the guaranty applied to all of the subsidiary’s outstanding debts — those incurred both before and after the subsidiary was sold to another company. GST sells leather used in automobile manufacturing. For many years, it sold leather to Mitchell Manufacturing Group Inc., a wholly-owned subsidiary of the Mitchell Corp. of Owosso. During 1997, MMG became increasingly delinquent in paying its bills to GST. As a result of pressure from GST, Owosso issued GST a guaranty for any sums not paid by MMG. The guaranty was put in writing in September 1997. GST also put MMG on a COD delivery basis. Following the guaranty and the change in the payment method, MMG began to bring its account current, and by March 1998 the delinquency was almost eliminated. In February and March of 1998, Owosso informed GST that it was selling MMG to a third corporation, Lamont. Specifically, GST was told that “Mitchell Corporation of Owosso is in the process of closing on the sale of Mitchell Manufacturing Group Inc. to a minority group.” At the time, Owosso requested that MMG be taken off the COD delivery status. In the same letter, it reiterated the guaranty of September 1997 in exactly the same words. GST complied with the request to remove MMG from COD status. Prior to the date of the sale on April 22, 1998, MMG ran up $2.8 million in additional debt that was unpaid at the time of the sale. After the sale, Lamont MMG ordered more goods, and, on the basis of its belief that Owosso’s guaranty still applied, GST continued to supply the goods. The debt grew by $1.3 million. Soon after the sale, Lamont MMG became insolvent, and the bills were never paid. In its suit, GST brought contract and quasi-contract claims, as well as claims of quantum meruit, fraud and RICO. In July 1999, Senior U.S. District Judge Marvin Katz dismissed the fraud claims, and GST agreed to drop the RICO claim. But Katz refused to dismiss the contract claims, finding that GST had evidence that showed the guaranty was intended to cover all debts incurred by MMG, whether incurred before and after the sale or before and after the guaranties were signed. Owosso’s lawyer, Erik G. Chappell of McHugh, DeNune & McCarthy in Sylvania, Ohio, argued that the guaranties it signed were not intended to cover any debts except those already owed at the time the guaranties in question were drafted, meaning that no post-guaranty invoices presented are owed by Owosso. He also argued that even if the court were to adopt an expansive interpretation of the guaranties’ language, GST’s misconduct in extending credit and failing to notify Owosso that bills were not being paid should release Owosso from its guaranties as to amounts incurred after the sale. Even if the court rejected that argument, Chappell insisted that the guaranties did not cover any shipments that became due after the sale to Lamont because the guaranties referred only to Owosso’s “wholly owned subsidiary.” But Katz ruled that a jury should decide. “There are too many ambiguities pertaining to the guaranties and the resulting transactions for the court to rule in defendants’ favor,” Katz wrote. The language of the guaranties, Katz said, made it impossible for the court to form any firm conclusions. The guaranty of Sept. 8, 1997, came in a letter from Helen Malik, MMG and Owosso’s treasurer, to Jeff Cowin, GST’s credit manager. It said:
“We, Mitchell Corporation of Owosso, the parent company of Mitchell Manufacturing Group Inc., do promise to pay in full all monies owed to you for goods received in the event Mitchell Manufacturing Group Inc. do not pay. This letter is renewable in one year if needed.”

Katz found that the guaranty, and another that followed, “seem to suggest that Owosso was taking responsibility for ‘any’ debts that were not paid by MMG.” The language did not limit the guaranties to the amounts owed at the time the guaranties were signed, Katz noted, so the court could not conclude as a matter of law that they were intended to apply only to past due debts. Owosso insisted that it never intended to guarantee anything except what was due at the time of signing, but Katz found that there was “an abundance of testimony from parties at GST suggesting that the intent of the parties was much broader.” Flamm argued that it made no sense to interpret the guaranty to cover only past due debts because the debts of MMG were very small at the time the second guaranty was signed. In its verdict, the jury specifically found that Owosso entered into a guaranty to pay MMG’s debts to GST from February through April 1998 and that it owed $2,783,391.10 on that claim. It also found that Owosso’s guaranty covered purchases made by MMG after the sale to Lamont and that it should pay $1,365,619.82 on that claim. Judge Hart entered judgment in favor of GST for $4,149,010.92. In an interview after the verdict, Flamm said the judgment will swell somewhat when he petitions the court for pre-judgment interest.

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