OPINION
RONALD LEE GILMAN, Circuit Judge.
Through a series of transactions between 1999 and 2002, JPMorgan Chase Bank and its predecessor served as agent for a number of lenders that had advanced credit to Venture Holding Company LLC, a company owned by Larry J. Winget and the Larry J. Winget Living Trust (hereafter collectively referred to as Winget). JPMorgan, on the basis of the various agreements between the parties, sought to inspect the financial records of two other companies owned by Winget after Venture filed for bankruptcy. The district court granted JPMorgan's request for specific performance of the bank's inspection rights, a decision that Winget has appealed. For the reasons set forth below, we
I. BACKGROUND
In October of 2002, JPMorgan and Winget entered into the Eighth Amendment of the Credit Agreement between the lenders and Venture. A guaranty of payment (Winget Guaranty) was executed pursuant to the Eighth Amendment, which memorialized Winget's personal guarantee of Venture's obligations under the Credit Agreement. Winget also entered into two pledge agreements (Winget Pledges) in conjunction with the Winget Guaranty,
Venture and a number of Winget's other companies later filed for bankruptcy. Following the sale of various assets of the bankrupt companies, Venture's outstanding debt under the Credit Agreement stood at approximately $350 million. On September 21, 2005, JPMorgan, through its counsel, sent a letter to Winget requesting inspection of his personal financial records and the financial records of P.I.M. and Venco pursuant to the terms of the Winget Guaranty. Winget, on October 5, 2005, denied JPMorgan's request.
At issue in this appeal is the inspection covenant set forth in § 11(d)(i) of the Winget Guaranty. This section provides in pertinent part as follows:
This inspection covenant is one of a series of covenants that govern the actions that may be taken with respect to Winget's companies, including P.I.M. and Venco. These covenants include restrictions on (1) the declaration and payment of dividends (§ 11(d)(ii)), (2) the incurring of indebtedness (§ 11(d)(iii)), (3) mergers and consolidations (§ 11(d)(iv)), (4) investments and acquisitions (§ 11(d)(v)), (5) the creation of liens (§ 11(d)(vi)), and (6) transactions with specific affiliated entities (§ 11(d)(vii)). The Winget Guaranty states that Winget "will cause the Guarantor Controlled Companies to comply with each of the . . . covenants."
Another portion of the Winget Guaranty that is relevant to this appeal is § 3, which sets out the limits on JPMorgan's potential recovery under the Credit Agreement:
Although § 3 of the Winget Guaranty references only the P.I.M. Pledge, § 5.2 of both the P.I.M. Pledge and Venco Pledge contain identical language regarding any
The "other collateral" that must first be pursued by JPMorgan is not defined in the Winget Guaranty, but the pledged stock of P.I.M. and Venco are explicitly excluded from the contemplated "other collateral." An almost identical "reasonable efforts" provision appears in § 3(iii) of both the P.I.M. and Venco Guaranties. Finally, pursuant to § 10 of the Winget Pledges, Winget can obtain a release of the P.I.M. and Venco stock by paying JPMorgan "not less than $50,000,000" to satisfy each pledge.
In Count I of the Complaint, JPMorgan requests an order for specific performance under the Winget Guaranty, requiring Winget to comply with the inspection requests outlined in its September 21, 2005 letter. Winget filed both an Answer, raising affirmative defenses, and a Counterclaim, which was subsequently amended. JPMorgan moved to dismiss the amended Counterclaim. The district court eventually dismissed the Counterclaim without prejudice and permitted Winget to assert those claims in a new, related case, which Winget did.
JPMorgan then moved for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. In its motion, JPMorgan sought to have Winget's affirmative defenses stricken and requested a final judgment as to its request for specific performance. The district court granted JPMorgan's request for specific performance and ruled that the affirmative defenses would be litigated as part of the companion case initiated on the basis of Winget's former Counterclaim.
At the request of the district court, both parties submitted proposed orders that would implement the specific performance of JPMorgan's inspection right. JPMorgan's proposed order was adopted, which the district court subsequently modified to protect Winget's right to assert his Fifth Amendment privilege against self incrimination in other proceedings. The district court also entered a protective order that restricts the use of any confidential material produced during the inspection process. On appeal, Winget argues that the district court erred by (1) failing to apply the "reasonable efforts" provision to JPMorgan's inspection rights, and (2) granting an overly broad order of specific performance.
II. ANALYSIS
We review de novo a judgment on the pleadings granted pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, using the same standard as applies to a review of a motion to dismiss under Rule 12(b)(6). Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 389 (6th Cir.2007). "For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment." Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir.1973). But we "need not
Jurisdiction in the present case is based on diversity of citizenship. "In diversity cases such as this, we apply state law in accordance with the controlling decisions of the state supreme court." Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir.2001). Accordingly, we apply Michigan state law to the interpretation of the parties' agreements and the district court's order of specific performance.
Winget contends that JPMorgan's inspection rights as set forth in § 11(d) of the Winget Guaranty are subject to the "reasonable efforts" provisions of the Winget Pledges, P.I.M. Guaranty, and Venco Guaranty. He advances this contention by arguing that the district court misapplied the legal standard applicable to a judgment on the pleadings. According to Winget, "[u]nder 12(c), this Court must accept as true [his] allegation that [JPMorgan] failed to use `all reasonable efforts' to obtain payment of the Guaranteed Obligations from the other collateral." Winget also claims that "in the context of [JPMorgan's] Rule 12(c) motion, the district court was required to accept as true, given the state of the pleadings, that [JPMorgan] was contractually barred from taking action that would affect the rights of Venco and P.I.M."
We conclude that Winget's argument is both a misapprehension of the proper analysis under Rule 12(c) and an incorrect interpretation of the language of the Winget Guaranty. Although "all well-pleaded material allegations of the pleadings of the opposing party must be taken as true," Southern Ohio Bank, 479 F.2d at 480, Winget's assertion that JPMorgan was contractually barred from exercising its inspection rights until it satisfied the "reasonable efforts" provision is a legal conclusion, not a factual allegation. Accordingly, we are not required to accept Winget's argument as true. Mixon, 193 F.3d at 400. Winget repeatedly asserts that the district court erred because it failed to accept his contention that JPMorgan had not used all "reasonable efforts" before seeking to exercise its inspection rights. In fact, the district court made no such error, because the court actually concluded that the "reasonable efforts" provision was inapplicable to JPMorgan's inspection rights as Agent.
The proper interpretation of a contract is a question of law. Archambo v. Lawyers Title Ins. Corp., 466 Mich. 402, 646 N.W.2d 170, 174 (Mich.2002). Thus, whether the "reasonable efforts" provisions of the P.I.M. Guaranty and the Venco Guaranty are applicable to the Agent's inspection rights under the Winget Guaranty is a legal question that may be decided on a motion for judgment on the pleadings. According to Winget, § 3(iii) of the P.I.M. and Venco Guaranties limit JPMorgan's inspection rights under § 11(d) of the Winget Guaranty. Section 3(iii) provides that JPMorgan "shall not exercise any rights or remedies under this Guaranty until all reasonable efforts shall have been made by it to collect the Guaranteed Obligations from other collateral held by the Administrative Agent." Winget argues that because JPMorgan has failed to demonstrate that it has made "all reasonable efforts" to collect from other collateral, it cannot exercise its inspection rights as Agent.
The language related to JPMorgan's inspection rights, in contrast, is consistent, unambiguous, and not circumscribed by any similar limitation. The Winget Guaranty, the P.I.M. Guaranty, and the Venco Guaranty each unequivocally state that, with respect to the inspection rights, "an action for specific performance and/or injunctive relief can be brought at any time following an alleged violation." Winget argues that we must look to the intention of the parties, and that the intention of the parties is clear from the contractual language. He specifically relies on § 3(iii) of both the P.I.M. and Venco Guaranties, where the parties state that they "intended that this Guaranty and the collateral provided by the Pledge Agreement from the Guarantor . . . shall be realized upon by the Administrative Agent only as a last resort."
In other words, Winget contends that JPMorgan may seek recovery from P.I.M. and Venco only if no other assets are reasonably available. But JPMorgan is not seeking recovery from P.I.M. and Venco. Rather, JPMorgan is simply seeking to exercise its right to inspect the financial records of those two companies, a right that it may exercise through an action for specific performance "at any time following an alleged violation." Here the alleged violation is Winget's denial of JPMorgan's request, sent by letter in September of 2005, to inspect the financial records of P.I.M. and Venco.
Moreover, the Winget Guaranty, upon which the instant action is based, contains no "reasonable efforts" provision and no reference to recovery as a last resort. The absence of a "reasonable efforts" provision is a compelling indication that the parties did not intend that any of JPMorgan's inspection rights under the Winget Guaranty would be circumscribed by such a requirement. This interpretation is consistent with the stated intention of the P.I.M. and Venco Guaranties that recovery must first be sought from other assets owned or controlled by Winget.
Because the last sentence of § 3 of the Winget Guaranty explicitly permits JPMorgan to exercise its inspection rights under § 11(d)(i) "at any time following an alleged violation," we conclude that the "reasonable efforts" provisions are inapplicable to such rights. JPMorgan was thus entitled to a judgment on the pleadings on this issue.
Winget has also raised a number of arguments related to the propriety of specific performance as a remedy for JPMorgan's alleged injury, and he challenges the scope of the district court's order. In particular, he claims that (1) JPMorgan failed to properly plead irreparable harm and "clean hands," (2) JPMorgan has not
Winget asserts that "Michigan law is settled that specific performance of a contract requires the plaintiff to allege and prove that it will suffer irreparable harm from a breach such that damages are not an adequate remedy." Because JPMorgan failed to plead irreparable harm, Winget argues, specific performance cannot be granted. This argument, however, misstates the elements of specific performance under Michigan law.
An inadequate remedy at law, not irreparable harm, is what must be alleged and proven in a claim for specific performance. Laker v. Soverinsky, 318 Mich. 100, 27 N.W.2d 600, 601 (1947) ("Specific performance will not be decreed where there is an adequate remedy at law."). Although one of the cases cited by Winget, Barbers Local 552 v. Sealy, 368 Mich. 585, 118 N.W.2d 837, 839 (1962), uses the term "irreparable harm," it uses the term as synonymous with the more commonplace "inadequate remedy at law." See Lamar v. Detroit Apartments Corp., 237 Mich. 206, 211 N.W. 643, 645 (1927) (explaining that specific performance "rests on the incompleteness or inadequacy of the remedy at law as applied to the contract sought to be specifically enforced under the facts shown").
JPMorgan's Complaint in this case states that
In his Answer, Winget's complete response to the above paragraph is: "Denied as untrue." Winget once again argues that the district court improperly applied the standard for judgment on the pleadings with respect to JPMorgan's assertion and Winget's blanket denial. According to Winget, the district court erred when it "ignor[ed] Winget's denial [and] made the factual finding that specific performance was the `only way' for the Agent to enforce its `audit rights.'"
Winget has again misapprehended the proper analysis under Rule 12(c). The issue of whether JPMorgan has an adequate remedy at law that would make specific performance inappropriate is a legal conclusion, not a factual determination. The facts underlying JPMorgan's request for specific performance are generally undisputed. Section 11(d) of the Winget Guaranty contains a number of negative covenants that restrict the actions that can be taken by P.I.M. and Venco during the existence of the Winget Guaranty. JPMorgan is also granted inspection rights in § 11(d) in order to ensure proper compliance with the covenants.
In the alternative, Winget argues that any possible harm to JPMorgan arising from a breach of the Guaranty can be remedied through an award of monetary damages. But the only plausible remedy for Winget's failure to allow inspection is to order such inspection. The inspection rights are essential to permit enforcement of the negative covenants listed in § 11(d) of the Winget Guaranty. These covenants govern the collateral pledged by Winget, in the form of guaranties by P.I.M. and Venco, and restrict the actions that can be taken with respect to those entities.
Thus, contrary to Winget's assertion that "the sole right of [JPMorgan] under those documents is to enforce its security interest and apply the proceeds to satisfaction of the Guaranteed Obligations," JPMorgan has an explicit right to inspect the financial records of Winget and the companies he controls in order to ensure that there is sufficient collateral to satisfy Winget's debt if JPMorgan needs to enforce its security interest at a later time. We therefore conclude that JPMorgan lacks an adequate remedy at law to enforce its inspection rights under the Winget Guaranty.
Winget also asserts that specific performance is inappropriate because JPMorgan has failed to demonstrate its "clean hands" in seeking specific performance. In support of this argument, Winget cites to Rust v. Conrad, 47 Mich. 449, 11 N.W. 265, 267 (1882), which states that equitable relief is unavailable
Thus, "one who seeks the aid of equity must come in with clean hands." Rose v. National Auction Group, Inc., 466 Mich. 453, 646 N.W.2d 455, 463 (2002) (quoting Stachnik v. Winkel, 394 Mich. 375, 230 N.W.2d 529, 532 (1975)).
Winget included specific allegations of unclean hands in both his Answer and in his amended Counterclaim. In his Answer, Winget baldly asserts that "Plaintiff's claims are barred based on unclean hands." The allegations of unclean hands in his amended Counterclaim relate to JPMorgan's actions during the bankruptcy of Venture. As such, these allegations cannot be said to be "willful act[s] concerning the cause of action" presently before the court. Stachnik, 230 N.W.2d at 534 (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 815, 65 S.Ct. 993, 89 L.Ed. 1381 (1945)). Winget argues that the district court erred in ignoring these allegations in granting judgment on the pleadings, but we conclude that Winget has not actually raised the issue of unclean hands with respect to
Another argument briefly raised by Winget is that JPMorgan has not alleged that Winget has any legal right to any of the financial information belonging to P.I.M. and Venco. We find this argument meritless, if not disingenuous. Although Winget is correct in asserting that § 11(d) provides that he will "cause" certain information to be produced, there is no requirement that JPMorgan prove that Winget can actually produce the information. Winget entered into an agreement wherein he promised to cause the production of the requested information from entities that are explicitly referred to as "Guarantor Controlled Companies." The language of the contract speaks for itself. Winget cannot avoid the promise he made by arguing that before receiving judgment on the pleadings, JPMorgan is required to prove that Winget can actually deliver on that promise.
Winget further contends that the order entered by the district court impermissibly involves the court in supervision of the inspection process. Under Michigan law, "[s]pecific performance will not be decreed where enforcement of the decree would require continuous judicial supervision." Edidin v. Detroit Econ. Growth Corp., 134 Mich.App. 655, 352 N.W.2d 288, 291 (Mich.Ct.App.1984). But the inspection requested by JPMorgan and ordered by the district court does not involve continuous judicial supervision of the kind disfavored by the Michigan courts. For example, Michigan courts have refused to order specific performance of a long-term joint commercial venture, id., or the continued performance of laundry services throughout the term of a lease and its renewal, Laker v. Soverinsky, 318 Mich. 100, 27 N.W.2d 600, 601 (Mich.1947). But the inspection in the instant case is more analogous to the limited discovery process commonly undertaken in the district courts. In the cases cited by Winget, moreover, the trial court determined that its own resources would not be taxed by the relief requested. Similarly, the district court here is in the best position to determine whether it can properly supervise the inspection of the records it has ordered.
An order has already been entered outlining the procedure for production and inspection of the records. The district court has also entered a protective order designed to alleviate Winget's concerns about the misuse of confidential financial data. After carefully reviewing these orders, we conclude that they do not impermissibly embroil the district court in the kind of continuous judicial supervision disfavored by the Michigan courts.
Finally, Winget argues that the district court's order is "vain" because Winget can release the pledged P.I.M. and Venco stock at any time through the payment of $50 million for each pledge. The Michigan Supreme Court has stated that specific performance should not be granted where "one of the parties might nullify its action through the exercise of a discretion which the contract or the law invests him with." Rust, 11 N.W. at 267. This standard has been explained as follows:
Plastray Corp. v. Cole, 324 Mich. 433, 37 N.W.2d 162, 166 (Mich.1949).
JPMorgan requested the order of specific performance but, unlike the plaintiff in Lowe's, it does not have the discretion to avoid performing under the Guaranty. Id. Rather, the present case is more analogous to Plastray. 37 N.W.2d at 166. JPMorgan provided a significant initial capital outlay in anticipation of future repayment by Winget. Moreover, Winget's exercise of his partial buyout option by paying $50 million per pledge "might not leave the parties in status quo ante." See id. In order to not "work a hardship . . . result[ing] in an injustice," we conclude that the specific-performance order is not "vain." See id.
III. CONCLUSION
For all of the reasons set forth above, we
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