Background
Merchants Bank of Indiana made two loans totaling more than $22 million to entities that purchased assisted-living facilities in Arkansas and Tennessee. The borrowers executed notes and mortgages, while David L. Craik, Jason Craik, and Stephen Suske executed continuing guaranties that broadly guaranteed the borrowers’ obligations and purported to waive suretyship, anti-deficiency, and election-of-remedies defenses.
After the borrowers defaulted, Merchants sued the guarantors in federal court and later began separate foreclosure proceedings in Arkansas and Tennessee state courts. The guarantors argued that Indiana Code § 32-30-10-10, Indiana’s “One Action” statute, prohibited Merchants from simultaneously pursuing the foreclosure and guaranty actions. The district court sua sponte granted summary judgment to the guarantors, holding that the statute applied and that the contractual waivers were unenforceable as against public policy.
The Court’s Holding
The Seventh Circuit did not decide whether the One Action statute applies to guaranties or whether the guarantors validly waived its protections. It found Indiana law genuinely uncertain because no controlling Indiana decision defines whether a separate guaranty action concerns the “same debt or matter” as the mortgage debt, and decisions from other states interpreting similar statutes do not reflect a consensus.
The court therefore certified two questions to the Indiana Supreme Court: whether § 32-30-10-10 prohibits a mortgage lender from foreclosing while simultaneously suing in a separate proceeding on guaranties securing the mortgage, and, if so, whether guarantors may waive the statute’s protection. It stayed resolution of the merits of the consolidated appeals pending the Indiana Supreme Court’s decision.
Key Takeaways
- The Seventh Circuit made no merits ruling on whether Indiana’s One Action statute reaches separate suits on mortgage guaranties.
- The Indiana Supreme Court was asked to decide both the statute’s scope and, if it applies, whether its protection may be contractually waived.
- The district court’s summary judgment ruling remains subject to appellate review after the state court answers the certified questions.
Why It Matters
The answers will determine whether lenders governed by Indiana law may pursue guarantors and mortgage foreclosure simultaneously in separate proceedings. They also may clarify how much weight Indiana law gives sophisticated commercial parties’ contractual waivers when those waivers implicate statutory mortgage remedies.
Until the Indiana Supreme Court responds, the Seventh Circuit’s opinion should not be read as adopting either side’s interpretation or as affirming or reversing the district court’s judgment.