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Citizens Bank & Trust v. LPS Nat'l Flood, LLC

United States District Court, N.D. Alabama, Middle Division

September 25, 2014

CITIZENS BANK AND TRUST, Plaintiff,
v.
LPS NATIONAL FLOOD, LLC, Defendant

Page 1158

For Citizens Bank and Trust, a corporation, Plaintiff: Jeffrey R McLaughlin, Lea Mosley Hicks, MCLAUGHLIN & EDMONDSON LLC, Guntersville, AL.

For LPS National Flood, LLC, Defendant: Joseph E Stott, LEAD ATTORNEY, SCOTT SULLIVAN STREETMAN & FOX PC, Birmingham, AL.

Page 1159

MEMORANDUM OPINION

KARON OWEN BOWDRE, CHIEF UNITED STATES DISTRICT JUDGE.

Defendant, LPS National Flood, LLC, removed this matter to this court based on diversity jurisdiction. The Plaintiff, Citizens Bank and Trust, asserts breach of the contract between it and LPS for a flood zone determination and requests indemnity for losses resulting from an incorrect flood zone determination. This case now comes before the court on " Defendant LPS National Flood, LLC's Motion for Summary Judgment" (doc. 18); " Plaintiff's Motion for Summary Judgment" (doc. 21); and " Defendant LPS National Flood, LLC's Motion to Strike" (doc. 26). The parties filed responses (docs. 24 & 25) and replies (docs. 27 & 28) to the dispositive

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motions, and a response (doc. 29) and a reply (doc. 30) to the motion to strike; these motions have received thorough briefing.

For the reasons stated in this Memorandum Opinion, the court FINDS that both motions for summary judgment are due to be GRANTED IN PART and DENIED IN PART. More specifically, the Defendant LPS's motion is due to be DENIED as to the breach of contract claim in Count I and GRANTED as to the claim for indemnification in Count II; Plaintiff Citizens Bank's motion is due to be GRANTED as to the breach of contract claim in Count I and DENIED as to the claim for indemnification in Count II.

Further, the court FINDS that the motion to strike is due to be GRANTED IN PART and DENIED IN PART; the court WILL GRANT the motion as to the Lloyds of London quote and the 2010 Payne Appraisal, but WILL DENY the motion as to the affidavits of Patterson and Alred, and the Coate emails.

I. MOTION TO STRIKE

Because the motion to strike affects which facts are included in the fact section of this opinion regarding the dispositive motions, the court first addresses the motion to strike.

A. Affidavits of Patterson and Alread

In the motion, Defendant LPS asserts that the court should strike the affidavit of Stanley Patterson (doc. 22-2), who is Senior Executive Vice-President and Senior Lender of Citizens Bank, and the affidavit of Michael W. Alred (doc. 22-3, at 37-38), who is President and CEO of Citizens Bank. It asserts that these affidavits " directly contradict[] the position that Citizens Bank has continually asserted in its Complaint, Amended Complaints, and throughout the entire course of litigation to this point." (Doc. 26, at 2). LPS acknowledges that the pleadings in this case and the affidavits are consistent to this extent: they all state that Citizens Bank would not have issued the loan if it had known that the property subject to the loan was in a flood zone. The alleged contradiction, as LPS sees it, is the difference between Citizens Bank having an absolute policy against loans on flood plain property versus considering such loans with extreme caution given the risks.

The Second Amended Complaint states that Citizens Bank " is extremely reluctant to issue loans for homes in flood zones based on the risk it poses to the bank," but does not specifically state that it had a hard-and-fast policy of never issuing such loans. Rather it states: " Had Citizens initially known the property was in a flood zone in 2007, [it] would have been aware there would be a significantly higher insurance premium which would affect the cash flow of the borrower, as well as potentially lowering the property value and limiting the number of interested buyers." (Doc. 5, at 5). This same language was also in the original Complaint (doc. 1-1, at 6) and Amended Complaint (doc. 1-1, at 17).

The affidavits of both Patterson and Alred note that they have veto power over any Bank loan, and state that had Citizens Bank received a report indicating that the property subject to the loan was in a flood zone, both men would have declined to approve the loan. Both affidavits contain the following language: " Citizens Bank would not normally make a loan on a single family Investment Property located in a flood zone outside of Citizens' normal service area, or footprint, which is North Alabama and does not include the Gulf Coast." (Doc. 22-2, at 4 & Doc. 22-3, at 37).

Page 1161

The court sees no direct contradiction in the language of the pleadings versus the language of the affidavits. The pleadings speak of Citizens Bank being " extremely reluctant" to issue loans in flood plans and the affidavits state that the Bank would " not normally" issue loans on property located in a flood zone in areas such as the Gulf Coast. While the wording used is slightly different, difference does not always result in contradiction, and it does not do so here; all of the documents indicate that Citizens Bank has no absolute rule against such loans but that it disfavors them and would not normally agree to issue them. " Normally" does not mean " never." Even if the Bank did not have a hard-and-fast rule against loans on property in flood zones, however, the Bank officers may certainly testify that they had veto power over loans and, if they had known that the property in question--a single family Investment property located outside the normal service area on the Gulf Coast--was in a flood zone, they would not have approved it.

Further, LPS argues that the officers' declarations directly conflict with deposition testimony regarding Citizens Bank's lending practices. LPS points to Patterson's testimony that the Bank has issued loans in Baldwin County for properties located in a flood zone, and thus, given that history, it argues he cannot testify that he would not have considered approving the loan here. LPS also points to Patterson's testimony that he could not, " right off the top of my head," name any loan other than the loan in question that the Bank turned down because the property was located in a flood zone. (Doc. 22-2, at 42, p. 144).

A careful reading of Patterson's testimony reveals no conflict. Rather, his testimony--made off the top of his head without a review of bank loan records--is that the Bank had probably issued loans for property in flood zones in North Alabama where Bank employees were familiar with the property and the risk. Further, he also testified that the Bank had probably issued beach condo loans, but he consistently stated that, other than the loan in question, which was not originally designated as property in a flood zone, he did not believe that the Bank had ever made a loan on a single family Investment property in Gulf Shores in a flood zone, and he would have declined this one had he known that it was located in a flood zone. See Doc. 22-2, at 41-42, pp. 139-40 & 142.

Finding no inherent inconsistency among the pleadings and the affidavits, the court FINDS that the motion to strike is due to be DENIED as to the affidavits of Patterson and Alred. See Latimer v. Roaring Toyz, Inc., 601 F.3d 1224, 1237 (11th Cir. 2010) (stating that the sham affidavit rule " is applied sparingly because of the harsh effect it may have on a party's case" and that a court must " find some inherent inconsistency between the affidavit and a deposition before disregarding the affidavit." ).

B. 2010 Payne Appraisal & Lloyd's of London Insurance Quote

Defendant argues that Weldon Payne's 2010 Appraisal and Lloyd's of London Insurance Quote should be stricken because those documents represent inadmissible hearsay and are unauthenticated. The Plaintiff relies on the business records exception to hearsay, arguing that the Bank received and maintained these documents in the ordinary course of business. Defendant replies that these documents do not fall into that hearsay exception, because the documents remain unauthenticated and no affiant or declarant states that these documents were received

Page 1162

and preserved in the regular course of business.

In U.S. v. Langford, 647 F.3d 1309 (11th Cir. 2011), the Eleventh Circuit addressed admissibility under the business records exception, stating that a proper foundation for a business record existed where an affiant or declarant identified the document, and stated " that it was made and preserved in the regular course of business." The Court found that the business records exception applied where a custodian of records at the bank testified, identifying documents as authentic and stating that although the bank had not created the documents, the bank had gathered the documents from other businesses and had kept them routinely in the normal course of the bank's business. The court has broad discretion to determine whether such evidence is admissible. Id. at 1327.

In the instant case, the court rejects the Defendant's argument that a bank cannot authenticate as a business record a document originally created by a third party; banks and other businesses do so routinely, as the Court recognized in Langford. However, just because a document created by a third party can become the Bank's business record does not mean that Citizens Bank has established that the documents challenged here are its business records. That authentication would not be arduous, and the testimony of a Bank employee familiar with what records are kept in the ordinary course of business could certainly serve that purpose. Here, Citizens Bank has not provided such testimony. Citizens Bank points the court to testimony of Patterson, a Bank officer, in which he presumably addresses the Lloyd of London quote. The court notes that the deposition testimony refers to Exhibit 7 but no exhibits are attached to the deposition filed with the court to ensure that Exhibit 7 is the same Lloyd's of London quote filed separately with the court as Exhibit T to the Bank's motion for summary judgment; Exhibit T has no Exhibit 7 sticker attached. Although Exibit T is the only Lloyds of London quote in the submitted evidentiary material, the court cannot assume that this document is a true and correct copy with no testimony to that effect. In Patterson's testimony regarding Exhibit 7, he stated that he assumed it was the quote somebody got on the property when the company learned the property was in a flood zone. (Doc. 22-2, at 43-44 & 47, pp. 148-47 & 164).

The court agrees with the Defendant that this testimony does not authenticate the Lloyds of London quote (doc. 22-4, at 68-69) and does not establish that Citizens Bank kept it in the normal course of the bank's business. For these reasons, the court FINDS that the motion to strike is due to be GRANTED as to the Lloyds of London insurance quote.

As to the 2010 Payne Appraisal, LPS asserts that it is also unauthenticated and inadmissible hearsay. Citizens Bank points the court to no testimony authenticating the document, and the court agrees that simply placing an unauthenticated document in an evidentiary submission does not transform it into admissible evidence.

However, even though no party points the court to it, Patterson's affidavit refers to the appraisal and purports to have personal knowledge about it. The affidavit states: " In conjunction with its standard foreclosure procedure, Citizens obtained an appraisal on the [Kelley] Property. This appraisal, dated March 15, 2010, indicated the property was worth $230,000, and that it was in a flood zone." (Doc. 22-2, at 3 ¶ 11). The affidavit does not attach the appraisal or refer to its number, but the evidentiary submission includes only one appraisal dated March 15, 2010 on the

Page 1163

Kelley property in Gulf Shores, and the appraisal is by Weldon Payne evaluating the property for $230,000 and clearly stating that the property is in a FEMA Special Flood Hazard Area. However, for all the court knows, this document inserted into the evidentiary submission could be a doctored copy of the appraisal; no one declares or testifies that it is a true and correct copy of the appraisal kept in the ordinary course of the Bank's business. Accordingly, the court FINDS that Exhibit K to Citizens Bank's motion for summary judgment entitled " Exterior--Only Inspection Residential Appraisal Report" is not authenticated and no testimony established that it is a " business record" of the Bank; therefore, the motion to strike is due to be GRANTED as to the appraisal.

Despite that ruling, the court also FINDS that this ruling does not bar Patterson's testimony that the Bank received an appraisal on the Kelley property dated March 15, 2010 indicating that the property was worth $230, 000 and that it was in a flood zone; he can testify that the Bank received such an appraisal as an officer of the Bank professing personal knowledge about receiving that appraisal regardless of whether he has authenticated the Exhibit K appraisal. The court notes, however, that its ruling does not mean Patterson can testify to the truth of the matters asserted in the unauthenticated appraisal.

C. Coate Emails

Defendant originally argued that the emails to and from Realtor Virginia Coates offered by the Bank, represented inadmissible hearsay. The Bank attached Coates's affidavit (doc. 28-1, at 2-3, in turn attaching emails as an exhibit at 4-6) to its reply brief supporting the Bank's motion for summary judgment, and asserted that her affidavit ...


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