Merchants Bank of Indiana v. David Craik

In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 25-1798 & 25-1799 MERCHANTS BANK OF INDIANA, Plaintiff-Appellant, v. DAVID L. CRAIK, et al., Defendants-Appellees. ____________________ Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division Nos. 1:22-cv-01800 & 1:22-cv-01803 — Matthew P. Brookman, Judge. ____________________ ARGUED FEBRUARY 24, 2026 — DECIDED AUGUST 19, 2026 ____________________ Before RIPPLE, KOLAR, and MALDONADO, Circuit Judges. MALDONADO, Circuit Judge. Merchants Bank of Indiana (“Merchants”) wishes to collect on guaranties that secure its mortgage loans while simultaneously foreclosing on the un- derlying mortgaged properties in separate state court actions. The district court granted summary judgment sua sponte to the Guarantors (David Craik, Jason Craik, and Stephen Suske), finding that Merchants could not collect against them while the foreclosure actions were still pending. The court 2 Nos. 25-1798 & 25-1799 reasoned that Indiana Code § 32-30-10-10 (Indiana’s so-called “One Action” statute)—which limits a lender’s ability to sim- ultaneously pursue separate actions to collect on a mortgage loan—applies to collections on guaranties. And though the court found the Guarantors waived the protections of this statute, it deemed those waivers unenforceable as a matter of public policy. Indiana courts have not yet clarified whether § 32-30-10- 10 reaches guaranties, and we find the statute ambiguous on the question. Whether Indiana public policy permits waiver of the statute’s protections is also uncertain. We therefore cer- tify these important, dispositive questions of Indiana law to the Indiana Supreme Court pursuant to Circuit Rule 52 and Indiana Appellate Rule 64. I. Factual Background In June 2018, Merchants extended the two loans at issue to Avenir Memory Care @ Fayetteville LP in the amount of $8,640,000, and to Avenir Memory Care @ Knoxville LP in the amount of $14,030,000 (collectively, the “Borrowers”). With the loans, the Borrowers purchased two assisted living facili- ties, one in Fayetteville, Arkansas, and one in Knoxville, Ten- nessee (the “Properties”). Both Borrowers executed promis- sory notes (the “Notes”) in the principal amounts of each loan, payable to Merchants. At Borrowers’ requests, Merchants ex- tended the maturity dates of the Notes several times, setting a final maturity date of July 1, 2022, for each Note. The loans were also secured through mortgages and guar- anties. Each Borrower executed a mortgage on the Properties as collateral. On the same day, the Guarantors each executed a Continuing Guaranty (the “Guaranties”) in favor of Nos. 25-1798 & 25-1799 3 Merchants for each Note. Under the Guaranties, the Guaran- tors agreed “[w]ithout limitation,” to “absolutely, uncondi- tionally and irrevocably” guarantee to Merchants the “full, prompt and complete performance of each and every obliga- tion of Borrower” under the Notes. The Guaranties contained several additional provisions relating to Merchants’ rights under the Guaranties. Specifi- cally: • Merchants may “proceed directly against Guaran- tor without exercising and/or exhausting any right or remedy against” the Property, the Borrower, or any other Guarantor; • Merchants’ rights are not affected by its “taking, suffering or omitting to take any of the actions re- ferred to or permitted to be taken”; • the Guaranties are not affected by the “failure, omission, delay or lack of diligence on the part of [Merchants] to enforce, assert or exercise any right, power or remedy”; and • Merchants’ enforcement “of any security for Bor- rower’s obligations under or in connection with the Loan shall not . . . preclude the exercise of any right or remedy available to [Merchants].” Last, in a section entitled “Waiver of Suretyship Defenses,” the Guarantors agreed to waive “all defenses based on sure- tyship or impairment of collateral”; “all rights Guarantor may have under any anti-deficiency statute or other similar pro- tections”; and “[a]ny defense based upon an election of rem- edies by [Merchants].” 4 Nos. 25-1798 & 25-1799 The Borrowers defaulted on their Notes in July 2022, so Merchants initiated actions in federal and state courts to re- cover on the loans. First, in September 2022, Merchants sued to collect against the Guarantors and Borrowers on the Guar- anties and Notes, respectively. See Merchants Bank of Indiana v. David Craik, et al., 1:22-cv-01800 (N.D. Ill.); Merchants Bank of Indiana v. David Craik, et al., 1:22-cv-01803 (N.D. Ill.) (the “Guaranty Actions”). A few months later, Merchants volun- tarily dismissed the Borrowers from the actions to pursue money judgments against the Guarantors alone. Then, in March 2023, while the Guaranty Actions were pending in federal court, Merchants initiated foreclosure ac- tions on each Property in Arkansas and Tennessee state courts. See Merchants Bank of Indiana v. Avenir Memory Care @ Fayetteville LP, et al., Case No. 72CV-23-592 (Wash. Cnty. Cir. Ct.); Merchants Bank of Indiana v. Avenir Memory Care @ Knox- ville LP, et al., Case No. M-23-206407 (Knox Cnty. Ch. Ct.) (the “Foreclosure Actions”). In response to the Foreclosure Ac- tions, the Borrowers filed for Chapter 11 bankruptcy in the District of Arizona. But after months of unsuccessfully trying to sell both Properties, the Borrowers voluntarily dismissed the bankruptcy actions on December 29, 2023. At that point, because the Properties were still operational, Merchants and the Borrowers agreed to appoint receivers (the “Receivers”) for the Properties in the Foreclosure Actions to ensure that the default did not affect patient care. The Receiv- ers have managed and operated the Properties since 2023, paying management fees and submitting monthly operating reports to the state courts, but to date, they have not turned over any funds to Merchants. In fact, Merchants has not re- ceived any funds in connection with the loans, beyond some Nos. 25-1798 & 25-1799 5 court-ordered bankruptcy-related payments from the Bor- rowers. As of August 2024, the outstanding balances of the loans, including other recoverable expenses, totaled $11,039,569.40 for Fayetteville and $17,571,920.51 for Knox- ville. II. Procedural History In September 2024, Merchants moved for summary judg- ment in the Guaranty Actions in federal court, asserting that the Guarantors had breached the Guaranties by failing to pay the full loan amounts and had waived any right to assert af- firmative defenses to liability under the terms of the Guaran- ties. The Guarantors countered that under Indiana Code § 32- 30-10-10, Indiana’s so-called “One Action” rule, Merchants was prohibited from simultaneously foreclosing on the Prop- erties and suing under the Guaranties. After soliciting responses from the parties, the district court sua sponte entered summary judgment for the Guaran- tors. The court reasoned that § 32-30-10-10 prohibits a lender from foreclosing while “prosecuting any other action for the same debt or matter that is secured by the mortgage” and con- cluded that the amounts owed under the Guaranties consti- tuted the “same debt” as the amounts owed under the Notes. See Ind. Code § 32-30-10-10(1). The court also determined that though certain provisions of the Guaranties prevented the Guarantors from asserting § 32-30-10-10 as a defense, those waiver provisions were void as a matter of Indiana public pol- icy. Merchants appeals these rulings, which are consolidated before us, asking us to interpret Indiana’s One Action statute to exclude guaranties or to find that the Guarantors waived 6 Nos. 25-1798 & 25-1799 the statute’s protections. In the alternative, Merchants re- quests that we certify these questions to the Indiana Supreme Court. III. Discussion Certification is appropriate where the certified questions are outcome determinative and involve important issues of public concern; where there is no clear guidance from the state supreme court; and where the issue is likely to recur. Cutchin v. Robertson, 986 F.3d 1012, 1028 (7th Cir. 2021). We conclude that the questions before us today largely satisfy these considerations, so we give the Indiana Supreme Court the opportunity to weigh in. A. Background: Indiana Code § 32-30-10-10 At common law, a creditor may foreclose on mortgaged property and, simultaneously or separately, collect on the un- derlying note. See, e.g., Hensicker v. Lamborn, 13 Ind. 468, 469 (1859). But Indiana is one of many states that has enacted leg- islation limiting the remedies available to a mortgage credi- tor. These laws are often referred to as “One Action” statutes, and they, in short, prohibit a creditor who is pursuing one remedy to collect on a defaulted mortgage loan from simulta- neously pursuing another action to collect on the same debt or matter. Indiana’s “One Action” statute is entitled “Mutually ex- clusive actions” and is housed within a chapter entitled “Mortgage Foreclosure Actions.” The text reads, in relevant part: “A plaintiff may not: (1) proceed to foreclose the mortgagee’s mortgage: Nos. 25-1798 & 25-1799 7 (A) while the plaintiff is prosecuting any other action for the same debt or matter that is secured by the mortgage; . . . [or] (2) prosecute any other action for the same matter while the plaintiff is foreclosing the mortgagee’s mortgage or prosecuting a judgment of foreclosure.” Ind. Code § 32-30-10-10. The statute—or rather, its predecessor statute featuring the same language—has been on the books since at least the 1850s. See Hensicker, 13 Ind. at 469. But we have little Indiana case law applying it since Cross v. Burns, 17 Ind. 441 (1861) considered the predecessor statute. There, the Indiana Su- preme Court understood the statute as “intended . . . to pre- vent suits in the nature of actions at law, and in chancery, from being prosecuted at the same time, and as distinct pro- ceedings.” Id. at 441. The court found the statute did not, how- ever, bar bringing both claims in one proceeding. Id. B. Application of § 32-30-10-10 to Guaranties In light of the scarcity of Indiana case law clarifying the scope of § 32-30-10-10, the parties each present differing inter- pretations of the statute as it pertains to guaranties. Each party wields supporting canons of statutory interpretation and offers, in our view, a sound reading of the law. But with- out input from Indiana courts to guide our analysis, we are hesitant to elect one interpretation over the other. For its part, Merchants challenges the district court’s con- clusion that the amounts owed under the Guaranties are the “same debt” as the amounts owed under the Notes. 8 Nos. 25-1798 & 25-1799 Merchants contends that the Guarantors were not parties to the loan and have different legal obligations than the Borrow- ers. And guaranties are wholly different debts than mort- gages, resting on different legal theories, prescribing different obligations, and including different defenses than the under- lying notes. Merchants also questions why a statute embed- ded within a chapter called “Mortgage Foreclosure Actions” would extend to guaranties and maintains that the Guaran- tors’ interpretation does not align with the statute’s purpose, which Merchants views as protecting mortgage borrowers— not guarantors—from multiple, simultaneous suits. The Guarantors advance a more expansive interpretation of the statute. With broad language such as “any other action for the same debt or matter that is secured by the mortgage,” they say a faithful interpretation of the plain text would ex- tend to guaranties coextensive with the borrowers’ obliga- tions under the notes. As for the statute’s purpose, the Guar- antors say the only direction we have is that announced by the Indiana Supreme Court in Cross, which spoke to the stat- ute’s general aim in preventing multiple, simultaneous suits. Further, the Guarantors contend, the language in the under- lying mortgage and Guaranty agreements—each executed on the same day, with references to one another—suggests the parties contemplated that the Guaranties were part of the “same debt” or “same matter” or transaction as the Notes. See Loudermilk v. Casey, 441 N.E.2d 1379, 1383 (Ind. Ct. App. 1982) (guaranties, promissory notes, and sale agreement that “refer to each other and bear the same date of execution . . . should be construed as a single contract”). As far as we can tell, no Indiana state court has interpreted what constitutes “any other action for the same debt or matter Nos. 25-1798 & 25-1799 9 that is secured by the mortgage” under § 32-30-10-10. We also looked to other states’ interpretations of similar statutes, but we gleaned no real consensus. Compare TBS Enters., Inc. v. Grobe, 494 N.Y.S.2d 716, 717 (N.Y. App. Div. 1985) (applying New York one-action law to guaranties), with Machock v. Fink, 137 P.3d 779, 783–84 (Utah 2006) (declining to apply Utah’s one-action law to guarantors). In short, on this issue, we are uncertain which interpretation Indiana courts would adopt. C. Enforceability of Waivers That takes us to a second question, for which we have sim- ilarly sparse guidance: whether any waiver of the statute’s protections is enforceable under Indiana public policy. Indiana courts decline to enforce private agreements on public policy grounds in three situations: “(i) agreements that contravene statute; (ii) agreements that clearly tend to injure the public in some way; and (iii) agreements that are other- wise contrary to the declared public policy of Indiana.” Cont’l Basketball Ass’n, Inc. v. Ellenstein Enters., Inc., 669 N.E.2d 134, 139–40 (Ind. 1996) (citing Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1130 (Ind. 1995)). The issue here implicates the first and third categories. If a contract is found to contravene a statute, “the court’s responsibility is to declare the contract void[.]” Id. at 140. But when the agreement is “alleged to contravene pub- lic policy,” the court applies a five-factor balancing test to de- termine whether it should be enforced. Fresh Cut, 650 N.E.2d at 1130 (emphasis added). We start with the first category. Because Indiana courts “value the freedom to contract so highly,” they “will not find that a contract contravenes a statute unless the language of the implicated statute is clear and unambiguous that the 10 Nos. 25-1798 & 25-1799 legislature intended that the courts not be available for either party to enforce a bargain made in violation thereof.” Cont’l Basketball, 669 N.E.2d at 140. In Continental Basketball, for ex- ample, the Indiana Supreme Court found the statute at issue did not bar the contravening contract because the statute did not explicitly state that offending contracts would be “void” or “voidable.” Instead, the statute provided a remedy for when a contract violated its provisions. Id. The statute here has no remedial provision as in Continen- tal Basketball, but nor does it deem any kind of contravening contract (or waiver provision) “void” or “voidable.” And where the legislature wishes to include language voiding waiver, it does so. See, e.g., Ind. Code § 32-31-8-4 (“A waiver of the application of this chapter by a landlord or tenant, by contract or otherwise, is void.”); see also Wright v. City of Gary, 963 N.E.2d 637, 649–50 (Ind. Ct. App. 2012) (declining to void a contract where “clear and unambiguous language” was ab- sent from the statute, despite no remedial provision). We see no “clear and unambiguous” language suggesting the Indi- ana legislature intended for § 32-30-10-10 to render a waiver void, suggesting that the Guarantors’ waivers are enforceable. See Cont’l Basketball, 669 N.E.2d at 140. But the Guarantors could still prevail if the waivers violate Indiana’s public policy. We thus employ the balance of inter- ests test to assess whether an agreement to waive the protec- tions of § 32-30-10-10 (to the extent such an agreement exists here) is enforceable. See Cont’l Basketball, 669 N.E.2d at 140. We weigh: “(i) the nature of the subject matter of the contract; (ii) the strength of the public policy underlying the statute; (iii) the likelihood that refusal to enforce the bargain or term will further that policy; (iv) how serious or deserved would Nos. 25-1798 & 25-1799 11 be the forfeiture suffered by the party attempting to enforce the bargain; and (v) the parties’ relative bargaining power and freedom to contract.” Id. (citing Fresh Cut, 650 N.E.2d at 1130). The first (subject matter of the contract (i.e., guaranties)) and the last (relative bargaining power) factors weigh in favor of Merchants’ policy argument. To start, Indiana courts rou- tinely enforce guaranty agreements. See e.g., Shoaff v. First Merchs. Bank, 201 N.E.3d 646, 653–54 (Ind. Ct. App. 2022). And the parties are sophisticated commercial actors who entered into a complex transaction with legal representation. The fourth factor (how serious or deserved the forfeiture) weighs in favor of the Guarantors. As the district court observed, Merchants had multiple pathways available to recover, none of which would have implicated § 32-30-10-10—it could have attempted to sell the Properties, completed foreclosure, or pursued the Guaranties alone. Merchants instead chose to pursue separate and simultaneous actions against the Guar- antors and the Borrowers, thus bringing this result upon it- self. As for the second and third factors, in large part because of the ambiguity with respect to § 32-30-10-10’s purpose as it relates to guaranties in the first place, it is less clear which way these factors cut. D. Certification We are thus left with a statute that may or may not pro- hibit Merchants from pursuing its Guaranty Actions along- side its Foreclosure Actions; and with contract provisions, purporting to waive the Guarantors’ protection from suit, which may or may not be void under Indiana’s public policy. Returning to the relevant considerations for certification, we note first that the answers to whether Indiana law 12 Nos. 25-1798 & 25-1799 prohibits a lender from simultaneously and separately pursu- ing mortgage guaranties and foreclosure, and if not, whether that statutory limitation may be waived, are outcome deter- minative. Second, these questions of lending and financial regulation are important to Indiana homeowners, commercial entities, and lending institutions. Third, we have sparse, let alone controlling, case law on § 32-30-10-10. True, the absence of case law on a question does not make certification neces- sary if “state law is easy to parse,” see Daniels v. FanDuel, Inc., 884 F.3d 672, 674 (7th Cir. 2018), but we do not think these questions are easily parsed without Indiana state court inter- pretation. Finally, although the absence of relevant Indiana case law might weigh against the issue’s likeliness to recur with frequency, we observe that other states have already ad- dressed similar questions under their own statutes, so we sus- pect these questions will reappear in Indiana as well. At the end of the day, the decision to certify is an exercise of discretion, and the most important consideration is whether we are “genuinely uncertain” about the correct an- swers. Circle Block Partners, LLC v. Fireman’s Fund Ins. Co., 44 F.4th 1014, 1024 (7th Cir. 2022). Here, our lack of certainty and our deference to Indiana on the interpretation of its own stat- ute leads us to agree with Merchants that certification is ap- propriate. IV. Conclusion For the reasons articulated above, we respectfully certify the following questions to the Indiana Supreme Court: 1. Does Ind. Code § 32-30-10-10 prohibit a mortgage lender from foreclosing on a mortgage while Nos. 25-1798 & 25-1799 13 simultaneously, in a separate proceeding, suing on guaranties securing the mortgage? 2. If the answer to the above is yes, may guarantors waive the protection of this statute? Nothing in this opinion should be construed to limit the Indiana Supreme Court’s inquiry, and we welcome the Jus- tices reformulating the questions to suit their review. The questions are CERTIFIED, and resolution of the mer- its of this appeal is STAYED pending the decision of the Indi- ana Supreme Court.