SW Legal studies in Business

Guarantors of Loan to LLC Must All Make Good on Guarantees to Bank
Description

Four doctors who owned an LLC that received a loan from a bank, which received personal guarantees from each doctor, fell into dispute and two doctors left. The court held that every doctor had to make good on the guarantee made on behalf of the LLC before they could proceed with claims against each other.

Topic Business Organization
Key Words

LLC; Guarantees; Subrogation; Indemnity

C A S E   S U M M A R Y
Facts

Four surgeons conducted their medical practices through an LLC they created and owned. The LLC obtained a $1.5 million line of credit from Emprise Bank to fund operations. It was secured by personal guarantees of the four doctors, each in the amount of $200,000, plus an additional joint $375,000. Later, due to various problems, two doctors moved to another practice. Emprise moved to enforce the personal guarantees by the two remaining doctors and won a judgment. During the litigation, the doctors were suing each other for contribution owed to Emprise and contended that one doctor abused the LLC for personal gain. The doctors who remained in the LLC contended that they had the right to sue the doctors who left for subrogation (contribution to payment to Emprise). The matter was appealed.

Decision

The guarantors did not release their right to be subrogated to the bank’s position with respect to the debt incurred by the LLC. The guarantors had no claim of subrogation, however, without first paying judgments on the guaranties—Emprise collects first. The four guarantors have no claim for contribution from their co-guarantors without having paid the bank’s judgments ordered by the court. Some of the doctors contend that one of the doctors used the LLC improperly for his personal benefit. That may be so, but that issue will not be addressed until after each guarantor makes good on his guarantee.

Citation Emprise v. Rumisek, ---P.3d--- (2009 WL 2633649, Ct. App., Kan., 2009)

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