Background
Matthew Christopher, Inc. (MCI), a wedding-dress company, obtained SBA loans and a line of credit from Centrust Bank. David Marchi and Robert Goodrich, MCI minority shareholders and directors, provided personal guarantees for certain loans. After MCI defaulted in 2018, Centrust took control of the collateral-disposition process and ultimately sold MCI’s assets in a private UCC sale for $775,000.
Centrust sued MCI, Marchi, and Goodrich for loan-related claims, including breach of the guarantees, fraud in the inducement, civil conspiracy, and tortious interference. Marchi separately sued derivatively for MCI, alleging breach of fiduciary duty, interference with business relationships, and improper collateral disposition. Following a bench trial, the circuit court ruled for Marchi and Goodrich on Centrust’s claims, ruled for Centrust on the derivative claims, and entered default judgment against MCI.
The Court’s Holding
The appellate court affirmed the finding that Centrust’s Article 9 sale was not commercially reasonable. The trial court permissibly considered the sale process, limited marketing, customer-payment redirection, financing of the buyer’s full purchase price, competing expert opinions, and sharply divergent asset valuations; it did not improperly rely on price alone. Because Centrust did not rebut the statutory presumption concerning proceeds from a commercially reasonable sale, it could not recover a deficiency from Marchi and Goodrich under their guarantees.
The court also upheld judgment for Marchi and Goodrich on Centrust’s fraud, civil-conspiracy, and tortious-interference claims. Centrust did not establish that they knowingly made false representations to induce the loans, that Goodrich’s stated ownership percentage affected the lending decision, or that they agreed to an unlawful scheme or improperly induced MCI’s default. On the cross-appeal, the court upheld the denial of damages for improper disposition because Marchi and Goodrich did not prove damages with reasonable certainty. It dismissed their challenge to MCI’s default judgment because they lacked standing to appeal a judgment entered against the separate corporate entity.
Key Takeaways
- A secured creditor bears the burden to prove that every aspect of a post-default collateral sale was commercially reasonable.
- An unreasonable sale can bar deficiency recovery unless the creditor proves what a commercially reasonable sale would have realized.
- Proof that financial information was inaccurate does not alone establish fraud in the inducement without evidence of knowing falsity, intent, and reliance.
- Shareholders generally cannot appeal a default judgment entered solely against the corporation.
Why It Matters
The order underscores that lenders pursuing guarantors after liquidating collateral must be able to substantiate the entire disposition process, not merely defend the ultimate sale price. Evidence about marketing, conflicts, financing, asset valuation, and treatment of customer receivables can all bear on commercial reasonableness.
It also reinforces the separate-entity rule in corporate litigation: shareholders’ interests in a company do not, without more, give them appellate standing to challenge a judgment against the corporation.