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Wiggins v. FDIC

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

January 15, 2015

ROBERT L. WIGGINS, JR., et al., Plaintiffs,
v.
FDIC, as Receiver of Superior Bank, Defendant

For Robert L Wiggins, Jr, Individually, Wolf Pup, LLC, by and through Robert L Wiggins, Jr., Plaintiffs: Dennis G Pantazis, WIGGINS CHILDS PANTAZIS FISHER & GOLDFARB LLC, Birmingham, AL; J Chris Cochran, W Lee Pittman, PITTMAN DUTTON & HELLUMS, Birmingham, AL; Rocco Calamusa, Jr, WIGGINS CHILDS QUINN & PANTAZIS LLC, Birmingham, AL.

For FDIC, as Receiver of Superior Bank, Defendant: John Dearman Herndon, LEAD ATTORNEY, HUIE FERNAMBUCQ & STEWART LLP, Birmingham, AL.

MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

STACI G. CORNELIUS, UNITED STATES MAGISTRATE JUDGE.

The above-captioned civil action is before the undersigned on the motion to dismiss[1] filed by defendant. (Doc. 4). Plaintiffs, Robert L. Wiggins, Jr., and Wolf Pup, LLC, by and through Robert L. Wiggins, Jr., commenced this action by filing a complaint against FDIC, as Receiver of Superior Bank (FDIC-R). (Doc. 1). In broad strokes, this case arises from a construction loan originally secured by plaintiffs and owned by Superior Bank. The loan was later assumed by Character Counts, LLC and its 99% owner, Frank P. Ellis, IV--non-parties to this lawsuit as currently pled. Plaintiffs also allege Ellis individually purchased the loan from Superior Bank, which financed the purchase.

The complaint alleges causes of action for a declaratory judgment to release a surety pursuant to Ala. Code § 8-3-13 (Count One); a declaratory judgment to discharge sureties due to unauthorized modifications and extensions of a contract (Count Two); breach of the implied duty of good faith and fair dealing (Count Three); money paid and civil conspiracy (Counts Four and Five)[2]; and conversion (Count Six).

The undersigned notes at the outset that plaintiffs have contested the previously assigned magistrate judge's conversion of the motion to dismiss to a motion for summary judgment, asserting that plaintiffs are unable to properly respond to the motion without first conducting discovery. (Doc. 9 at 5-8). In apparent agreement with plaintiffs' position regarding the conversion of the motion, FDIC-R has tailored its response by withdrawing some of the grounds asserted in its motion, reserving those arguments for a later point in the litigation. (Doc. 12).

FDIC-R's motion originally asserted five grounds for dismissal. FDIC-R has withdrawn three of its arguments without prejudice to its ability to reassert the arguments at a later date: (1) plaintiffs' claims are due to be dismissed because plaintiffs failed to present their claims to FDIC-R first in their request for administrative review; (2) federal law deprives the court of jurisdiction to grant injunctive relief against FDIC-R as Receiver, requiring Counts One and Two to be dismissed for want of subject matter jurisdiction; [3] and (3) Counts Four through Six are due to be dismissed because the alleged claim of wrongful seizure was not included in the administrative claim.

This leaves two grounds for dismissal still pending: (1) that plaintiffs failed to add necessary parties, mandating dismissal of Counts One and Two; and (2) that Alabama law does not impose a duty of good faith on commercial contracts, mandating dismissal of Count Three. The two remaining issues have been addressed by the parties without reference to any evidentiary materials. Therefore, the motion filed by defendant is now being considered as a motion to dismiss.

I. Motion to Dismiss Standard

When considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court construes the complaint in the light most favorable to the plaintiff and accepts all well-pled facts alleged in the complaint as true. Although it must accept well-pled facts as true, a court is not required to accept a plaintiff's legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (noting " the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions"). In evaluating the sufficiency of a plaintiff's pleadings, a court can make reasonable inferences in the plaintiff's favor, but is " not required to draw plaintiff's inference." Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F.3d 1242, 1248 (11th Cir. 2005). Similarly, " unwarranted deductions of fact" in a complaint are not admitted as true for the purpose of testing the sufficiency of plaintiff's allegations. Id.; see also Iqbal, 556 U.S. at 681(stating conclusory allegations are " not entitled to be assumed true").

A complaint may be dismissed if the facts as pled do not state a claim for relief that is plausible on its face. See Iqbal, 556 U.S. at 679 (explaining " only a complaint that states a plausible claim for relief survives a motion to dismiss"); Bell A. Corp. v. Twombly, 550 U.S. 544, 561-62, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (retiring the prior " unless it appears beyond doubt that the plaintiff can prove no set of facts" standard). In Twombly, the Supreme Court emphasized a complaint " requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. Factual allegations in a complaint need not be detailed but " must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555 (internal citations and emphasis omitted).

In Iqbal, the Supreme Court reiterated that, although Rule 8 of the Federal Rules of Civil Procedure does not require detailed factual allegations, it does demand " more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. A complaint must state a plausible claim for relief, and " [a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The mere possibility that the defendant acted unlawfully is insufficient to survive a motion to dismiss. Id. The well-pled allegations must nudge the claim " across the line from conceivable to plausible." Twombly, 550 U.S. at 570.

II. Facts

A. Allegations in the Complaint

Plaintiffs allege Wolf Pup, LLC (" Wolf Pup"), owned a 62-unit development named Wolf Bay Landings which was financed through a loan with Superior Bank for $17, 500, 000. The loan was secured by the personal guaranties of the individual owners of Wolf Pup, which included Robert L. Wiggins, Jr. (Doc. 1 at 1). Wiggins's guaranty specifically stated his guaranty applied only to the indebtedness of Wolf Pup on the loan. (Id.).

Wolf Pup subsequently agreed to sell Wolf Bay Landings to Frank Ellis, IV, acting through Character Counts, LLC (" CCLLC"), and to allow Ellis and CCLLC to finance the purchase by assuming Wolf Pup's construction loan with Superior Bank in the approximate amount of $17, 500, 000. Ellis owns 99% of CCLLC. (Id.). CCLLC purchased Wolf Bay Landings from Wolf Pup on October 5, 2007, by executing a Loan Assumption and Modification Agreement with Superior Bank. Ellis and CCLLC acknowledged and agreed that all references to the " Borrower" under the loan documents would be deemed to refer to CCLLC. Ellis and CCLLC also executed a parallel agreement which further defined the " Borrowers" as Frank Ellis, IV, and Character Counts, LLC. (Id. at 1-2). The complaint alleges that, upon entering the Loan Assumption and Modification Agreement with Superior Bank, CCLLC became the " Borrower" and principal obligor of the loan and Wolf Pup became a secondary surety by operation of law. (Id. at 2).

Prior to CCLLC's assumption of the loan, Wiggins posted with Superior Bank a Certificate of Deposit in the amount of $1, 500, 000, plus accrued interest, as an accommodation for Wolf Pup's original loan for the construction of Wolf Bay Landings. Ellis and CCLLC executed a Repayment Agreement which required Ellis and CCLLC to " immediately repay" to Wiggins any portion of his Certificate of Deposit or accrued interest that Superior Bank might seize or apply to Ellis's and CCLLC's indebtedness for the purchase of Wolf Bay Landings. (Id. at 2).

Wolf Pup provided an interest reserve in an amount exceeding $560, 000 as further collateral for Wolf Pup's original loan for the construction of Wolf Bay Landings. As part of the Repayment Agreement, Ellis and CCLLC also agreed to immediately repay any portion of the interest reserve seized by Superior Bank or applied to Ellis's and CCLLC's indebtedness for the purchase of Wolf Bay Landings. (Id. at 2).

Wolf Pup claims it never executed a guaranty for any aspect of the loan[4] or Loan Assumption and Modification Agreement. It alleges that, to the extent Wolf Pup may have become a surety by operation of law, it has never entered into any agreement with any person or entity that would waive Wolf Pup's rights to be protected from impairment of its interest as a surety or to be discharged from liability in the event that the time or manner of payment of the loan assumed by CCLLC was altered without Wolf Pup's knowledge or consent. (Id. at 2-3).

On December 23, 2010, Superior Bank seized the Certificate of Deposit and interest reserve account and applied the funds to reduce the principal indebtedness of Ellis and CCLLC to Superior Bank pursuant to the Loan Assumption and Modification Agreement. Simultaneously, via a Loan Sale Agreement signed by Ellis in his individual capacity, Superior Bank sold Ellis the loan CCLLC had assumed. Ellis, the 99% owner of CCLLC, thereby became the creditor of CCLLC on that loan. To finance the purchase of CCLLC's loan with Superior Bank, Ellis borrowed $16, 046, 575.20 from Superior Bank in his individual name pursuant to the Loan Sale Agreement. This agreement split the original debt between a recourse " Note A" in the amount of $10, 700, 000.00 and a non-recourse " Note B" in the amount of $5, 346, 575.20, for which Ellis is apparently not personally liable. (Id. at 4-5). Wiggins and Wolf Pup claim they did not know about or consent to the Loan Sale Agreement between Ellis and Superior Bank. (Id. at 3). Plaintiffs were first notified that Ellis had bought Superior Bank's loan to CCLLC on January 28, 2011. (Id.).

Superior Bank and Superior Bank, N.A.[5] were served with a written demand by the sureties (Wiggins and Wolf Pup), pursuant to ALA. CODE § 8-3-13, that an action be brought against the principal debtor, CCLLC, for repayment of CCLLC's loan. (Id. at 3). On October 18, 2011, Superior Bank, N.A. responded to the demand by stating: " Any claims or demands you may have concerning the Wolf Pup Loan should be made directly to Mr. Frank P. Ellis, IV, the owner of such loan." Superior Bank N.A. also stated:

As you are aware, the Wolf Pup Loan was sold by Superior Bank, federal savings bank, to Frank P. Ellis, IV, on December 23, 2010. Also, and as you are aware, Superior Bank financed the purchase of such Loan by Frank P. Ellis, IV (the " Ellis Loan") and, in connection with the Ellis Loan, took back a security interest in the documents evidencing and securing the Wolf Pup Loan.

Superior Bank and Superior Bank, N.A. failed to bring an action against CCLLC within the 90-day period prescribed by Ala. Code § 8-3-13. (Doc. 1 at 3-4).

Plaintiffs contend the discharge of Wolf Pup as surety for the loan assumed by CCLLC simultaneously discharged Wiggins as surety for Wolf Pup on the loan, inasmuch as Wiggins only guaranteed the obligations of Wolf Pup under the original loan and the guaranty clearly states that it applies only to the " indebtedness of Wolf Pup, LLC." (Id. at 4). Plaintiffs also assert the Loan Assumption and Modification Agreement between CCLLC and Superior Bank had a defined Maturity Date for CCLLC to repay the loan in full and contained no provision for unilateral extensions or modifications. Nevertheless, on several occasions Ellis, CCLLC, and Superior Bank unilaterally extended the loan embodied in the Loan Assumption and Modification beyond the agreed upon Maturity Date for repayment of the loan. Plaintiffs allege the extensions of the loan beyond the maturity date, which are explained in more detail below, discharged Wiggins and Wolf Pup as sureties on the loan by operation of law. (Id. at 4).

The complaint further asserts Superior Bank owed the duty to Wiggins and Wolf Pup not to interfere with or modify their rights as sureties without their authorization and consent. Ellis and Superior Bank's Loan Sale Agreement unilaterally imposed new terms that allowed Ellis to decide when and if CCLLC would have to repay the loan it assumed. Superior Bank and Ellis unilaterally extended the time for repayment of the " Note B" amount of $5, 346, 575.20 for four years until December 23, 2015, and unilaterally extended the time for repayment of the " Note A" amount of $10, 700, 000 until January 10, 2033--an additional 22 years beyond what Wiggins and Wolf Pup agreed to in the Loan Assumption and Modification Agreement and a related Pledge Agreement of October 5, 2007. Under the extension, only monthly payments are due on the principal of Note A during the 22-year period. (Doc. 1 at 5). The modifications were put into effect without the knowledge or consent of Wolf Pup or Wiggins. (Id.). Plaintiffs contend Superior Bank's decision to extend the time and manner of repayment of the loan without Wiggins's or Wolf Pup's knowledge or consent impaired the plaintiffs' ability to protect themselves as sureties. (Id.). In addition, a related amendment to the loan increased the interest rate to a minimum of 4% without the knowledge or consent of Wiggins or Wolf Pup. (Id.).

The Loan Assumption Agreement and Modification Agreement between CCLLC and Superior Bank that Wiggins and Wolf Pup agreed to states " [i]t shall be a condition of the Loan that . . . CCLLC at all times . . . shall incur no other debt other than the Loan and the subordinate debt to [Wolf Pup, LLC] set forth herein." (Doc. 1 at 5). Plaintiffs allege Superior Bank altered this condition without the knowledge or consent of Wiggins or Wolf Pup by providing five additional loans that were secured by the same collateral already pledged to secure CCLLC's assumption of the original loan and CCLLC's related note to Wolf Pup to purchase Wolf Bay Landings. At the same time, Superior Bank agreed to increase the unit release price of such collateral without the knowledge or consent of Wiggins or Wolf Pup. (Id. at 5-6). Wiggins and Wolf Pup did not know about or consent to the additional debt which Ellis and CCLLC undertook. Wiggins and Wolf Pup did not consent to securing the additional debt with the collateral already pledged to secure CCLLC's note to Wolf Pup for the purchase of Wolf Bay Landings. (Id. at 6).

Plaintiffs allege that Superior Bank further impaired Wiggins's and Wolf Pup's rights as secondary obligors or sub-sureties of the primary obligor (CCLLC) when, as part of the loan sale to Ellis, Superior Bank released Ellis as a guarantor of the debt without the knowledge or consent of Wiggins or Wolf Pup. Ellis individually bought the original loan assumed by CCLLC for Wolf Bay Landings, along with the separate note secured by the same collateral. Superior Bank canceled Ellis's guaranty on both of these notes without the knowledge, consent, or ratification of Wiggins or Wolf Pup. (Doc. 1 at 6). Plaintiffs assert the unilateral modifications and extensions of the time for repayment of the loan operated to discharge Wiggins and Wolf Pup as sureties. This argument is based on the rule of law that a surety is " discharged from liability" whenever an extension of the time and manner of payment is given by the mortgagee at the instance of the assuming debtor, but the original maker as a surety is not a party to the extension agreement and has not consented to or ratified the same. (Id.).

The Loan Sale Agreement dated December 23, 2010, materially altered Wiggins's guaranty contracts and also materially altered his underlying obligations in relation to the original loan. Because these alterations were made without Wiggins's knowledge and consent, Wiggins asserts he should be discharged from further liability under his guaranty contracts. (Id. at 6-7).

B. State Court Proceedings

Pursuant to Rule 201, Fed. R. Evid., the undersigned takes judicial notice of records of proceedings in the Circuit Court of Jefferson County initiated by Wiggins against Ellis and CCLLC, and by Wolf Pup and Wiggins against Ellis, CCLLC, Superior Bank, N.A., and Cadence Bank (successor by merger to Superior Bank). On June 5, 2012, Wiggins filed a complaint against Ellis and CCLLC in the Circuit Court of Jefferson County, alleging Ellis and CCLLC contracted to repay the $1, 800, 000 seized from the Certificate of Deposit posted by Wiggins as an accommodation for the original loan for Wolf Bay Landings but failed to do so. Wiggins v. Ellis, et al., Case No. CV-2012-901749.00.

On June 20, 2012, Wolf Pup and Wiggins filed suit in the Circuit Court of Jefferson County against Ellis, CCLLC, Superior Bank, N.A., and Cadence Bank. Wolf Pup, LLC, et al. v. Ellis, et al., Case No. CV-2012-901930.00. In that case, the complaint presents substantially the same allegations as in the instant case, and the plaintiffs asked the state court to enter an order releasing them from the guaranties in question and reimbursing them for the Certificate of Deposit and Interest Reserve account.

Both actions are still pending in the Jefferson County Circuit Court. The undersigned notes both of the state court actions were filed prior to the filing of this action on August 14, 2012.

III. Discussion

A. Failure to Add Necessary Parties

FDIC-R asserts that Counts One and Two, seeking a declaratory judgment that plaintiffs' guaranties are discharged or released, are due to be dismissed because plaintiffs failed to name as defendants Frank P. Ellis, IV, the owner of the note and guaranties, and CCLLC, the debtor. FDIC-R asserts the owner of the note and guaranties and the debtor are not only necessary parties but are the only parties to which a binding order can be made regarding the enforceability of the guaranties. Because Superior Bank sold the note and assigned the guaranties before its failure and the FDIC-R's appointment as receiver, FDIC-R argues there is no case or controversy between plaintiffs and the FDIC-R. Therefore, the motion argues any resulting order in this case would at best be an advisory opinion. FDIC-R contends that, since it does not own the note, it is not a proper party to defend a declaratory judgment action relating to the note guaranties.

Rule 19, Fed.R.Civ.P., provides in relevant part:

(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:
(I) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.
* * * * *
(c) Pleading the Reasons for Nonjoinder. When asserting a claim for relief, a party must state:
(1) the name, if known, of any person who is required to be joined if feasible but is not joined; and
(2) the reasons for not joining that person.

Fed. R. Civ. P. 19.

Plaintiffs contend the wrongs complained of are based on unilateral actions of Superior Bank. However, plaintiffs also contend the proper remedy for a failure to join necessary parties is not dismissal. Instead, plaintiffs assert, in the event necessary parties have not been joined, a court should direct a plaintiff to amend the complaint, citing English v. Seaboard Coast Line R.R. Co., 465 F.2d 43, 47 (5th Cir. 1972).[6] Dismissal is appropriate only if it is shown that a necessary party cannot be joined and it is inequitable to allow the case to proceed without that party. See id. at 47-48.

In this case, rather than dismissing the action for failure to join Ellis and CCLLC, the better course is to order plaintiffs to amend their complaint to add Ellis and CCLLC as additional defendants. This would obviate any problem with a determination whether the actions of Ellis and CCLLC, in conjunction with Superior Bank, discharged plaintiffs as sureties on the original loan.

The undersigned notes the existence of the state court actions complicates the addition of Ellis and CCLLC as defendants in this action, inasmuch as similar relief is being sought by Wiggins and Wolf Pup in the instant lawsuit. If plaintiffs are ordered to add Ellis and CCLLC as defendants in this action, it could be asserted that the claims for discharge of plaintiffs as sureties would be duplicative of the claims in the second state court action and, therefore, subject to dismissal without prejudice in favor of the first-filed action. See Merrill Lynch, Pierce, Fenner & Smith v. Haydu, 675 F.2d 1169, 1173-74 (11th Cir. 1982) (" In absence of compelling circumstances, the court initially seized of a controversy should be the one to decide the case. Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403 (5th Cir. 1971). It should make no difference whether the competing courts are both federal courts or a state and federal court with undisputed concurrent jurisdiction."). Another possible outcome of joinder of Ellis and CCLLC in this action would be a stay of this action pending a ruling by the state court on the similar claims for discharge of Wiggins and Wolf Pup as sureties, or the possibility that the state court may reach a different determination on the issue than this court. Further, while plaintiffs could attempt to bring the claims in this action against FDIC-R in the context of the state court action, FDIC-R would likely remove the state court action to federal court. See 28 U.S.C. § 1442; but see 12 U.S.C. § 1819.

Nevertheless, as stated above, the better course is to order plaintiffs to add Ellis and CCLLC as defendants with respect to Counts One and Two, rather than to dismiss those counts from this action. By this course of action, a complete determination may be made of plaintiffs' claims for declaratory judgment to release a surety pursuant to ALA. CODE § 8-3-13 and for a declaratory judgment to discharge sureties due to unauthorized modifications and extensions of a contract.

B. Duty of Good Faith in Commercial Contracts

FDIC-R seeks dismissal of Count Three of the complaint, asserting the law does not recognize a claim for breach of the duty of good faith and fair dealing in commercial contracts. The motion argues there is not an independent duty of good faith and fair dealing absent an underlying contract. FDIC-R contends plaintiffs have not alleged that there was a breach of any specific provision of the loan contract between plaintiffs and Superior Bank.

FDIC-R cites Tanner v. Church's Fried Chicken, Inc., 582 So.2d 449 (Ala. 1991). In Tanner, the plaintiffs entered into a contract with Church's, providing Church's would pay the plaintiffs a finder's fee relating to new franchisees. The contract contained a provision expressly requiring Church's to act in good faith. The plaintiffs alleged Church's failed to act in good faith in making payments pursuant to the contract. The trial court granted summary judgment of the claim, stating:

plaintiffs [cannot] maintain a contract claim, since the failure to act in good faith in the performance or enforcement of contracts does not state a claim for relief that may be granted in Alabama. Government Street Lumber Co. v. AmSouth Bank, 553 So.2d 68, 72 (Ala. 1989). The good faith clause in the present Contract has the same effect and operation as the obligation of good faith that is implied in all contracts under common law and in sales contracts under Alabama's UCC. Such good faith obligations are directive rather than remedial and are not actionable absent an identifiable breach in the performance of specific terms of the contract.

Id. at 451. The Alabama Supreme Court affirmed the trial court's dismissal of the claim. In doing so, it held the express term of the contract at issue imposed no higher duty than the implied obligation of good faith embodied in Ala. Code § 7-1-203.[7] The court further held that § 7-1-203's imposition of a duty of good faith in connection with a contract is directive, not remedial; therefore an action will not lie for breach of such a duty. The court concluded by holding that " in order to prove a breach of the purchase agreement on the part of [a defendant], the plaintiffs must prove that [the defendant] expressly breached some other specific term of the . . . agreement." Id. at 452.

FDIC-R also cites Government St. Lumber Co., Inc. v. AmSouth Bank, Inc., 553 So.2d 68 (Ala. 1989), in which a borrower and guarantor brought an action against a bank. The trial court granted the bank's motion for summary judgment on plaintiffs' claims for breach of the duty of good faith and fair dealing. The court held that Ala. Code § 7-1-203 does not create a substantive cause of action in tort or in contract in the State of Alabama because the statute is directive rather than remedial. Id. at 72.

Plaintiffs have cited Shoney's LLC v. MAC East, LLC, 27 So.3d 1216 (Ala. 2009), in which the Alabama Supreme Court stated:

" There is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract; . . . in every contract there exists an implied covenant of good faith and fair dealing." (quoting Sellers v. Head, 261 Ala. 212, 73 So.2d 747, 751 (1954))[ ]. See also Restatement (Second) of Contracts § 205 (1981) ('Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.')." Hunter v. Wilshire Credit Corp., 927 So.2d 810, 813 n.5 (Ala. 2005) (quoting Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth., 837 So.2d 253, 267 (Ala. 2002)).

Id. at 1220 n.5 (punctuation omitted).

Shoney's involved a certified question from the Eleventh Circuit Court of Appeals regarding " whether an assignor's reservation in an assignment agreement of the power to withhold consent to an assignee's proposed sublease in the assignor's 'sole discretion' is subject to any mitigating standard, such as a commercial-reasonableness standard, when the applicable provision in the agreement does not contain a limitation that such consent will not be unreasonably withheld." Id. at 1218-19. The Alabama Supreme Court answered the question in the negative. Id. at 1223. However, the cases cited in the footnote to Shoney's specifically state:

Where a contract fails to specify all the duties and obligations intended to be assumed, the law will imply an agreement to do those things that according to reason and justice the parties should do in order to carry out the purpose for which the contract was made. . . . There is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract; . . . in every contract there exists an implied covenant of good faith and fair dealing.

Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth., 837 So.2d 253, 267 (Ala. 2002) (quoting Sellers v. Head, 261 Ala. 212, 73 So.2d 747, 751 (1954)).

Nevertheless, because the later cases cited by FDIC-R discuss both the implied common-law covenant of good faith and fair dealing and Ala. Code § 7-1-203, the requirement that there be an underlying alleged breach of contract in order to state a claim for breach of the duty of good faith and fair dealing applies no matter which vehicle plaintiffs are using to allege such a claim.

In opposition, Plaintiffs contend Count Three pleads an " implied-in-law duty of good faith and fair dealing that were part of the loan documents and other agreements and understandings connected therewith." (Doc. 9 at 33) (citing Paragraph 43 of the complaint) (emphasis omitted). Plaintiffs point to Paragraphs 6-7, 13, and 20-24 of the complaint, which were referred to and incorporated into Count Three in Paragraph 42, as pleading the specific terms of the contract which gave rise to the implied duty of good faith and fair dealing. (Doc. 9 at 33). Plaintiffs assert these contractual obligations include Superior Bank's failure to notify or obtain the consent of Superior Bank's sureties (Wiggins and Wolf Pup), which allegedly breached the duty of good faith and fair dealing implied in Alabama contracts. Plaintiffs assert they have properly pled a breach of contract claim in Count Three. (Id.).

In reply, FDIC-R contends the complaint fails to identify a breach of a specific provision in the contract between plaintiffs and Superior Bank. FDIC-R avers paragraphs six and seven of the complaint refer to the contract between Wiggins and Ellis/CCLLC to repay Wiggins/Wolf Pup if certain collateral is seized, and there is no allegation Superior Bank was a party to that contract. FDIC-R also avers that paragraph 13 contains allegations about the extensions and modifications of the loan agreement between CCLLC and Superior Bank and plaintiffs' assertion that the extensions and modifications allow plaintiffs to be discharged from the guaranty agreements but fails to allege any breach of the contract between plaintiffs and Superior Bank. (Doc. 12 at 8-11). Paragraphs 20 through 24 refer to the Loan Assumption and Modification Agreement between CCLLC and Superior Bank and allege that the additional loans extended by Superior Bank to CCLLC discharged plaintiffs from acting as sureties. FDIC-R contends, however, that there is no allegation of a breach of the contracts between plaintiffs and Superior Bank. FDIC-R also argues that the December 23, 2010 Loan Sale Agreement between Ellis and Superior Bank releases plaintiffs from their guaranty obligations but, again, there is no allegation of a breach of any contract between plaintiffs and Superior Bank. Finally, FDIC-R points out that there is no separate claim for breach of contract in the complaint, only the allegation that Superior Bank wrongfully failed to notify or obtain the consent of Wiggins and Wolf Pup before its dealings with Ellis and CCLLC.

The problem with defendant's argument is that a review of the Loan Assumption and Modification Agreement executed October 5, 2007, reflects that the agreement was " by and among SUPERIOR BANK . .., WOLF PUP, LLC . .., and CHARACTER COUNTS, LLC, . .., with the consent of . . . Robert L. Wiggins, Jr., and Frank P. Ellis, IV, as guarantors." (Doc. 10-2 at 40).[8] The Loan Assumption and Modification Agreement is signed by Robert L. Wiggins, Jr., on behalf of Wolf Pup. (Id. at 51). Further, a " Consent and Joinder of Guarantor, " signed by Wiggins, individually, was also signed on the same date as the Loan Assumption and Modification Agreement. That " Consent and Joinder of Guarantor" specifically provides that Wiggins " consents to the above modification of the Loan, [and] joins in the above agreement as a signatory thereto, . . . ." (Id. at 56). Therefore, plaintiffs are parties to the Loan Assumption and Modification Agreement and may maintain an action for breach of the terms of that contract.

The portions of the complaint referenced in plaintiffs' opposition allege that, as part of the Loan Assumption and Modification Agreement executed by CCLLC and Wolf Pup for CCLLC's purchase of Wolf Bay Landings, Ellis and CCLLC executed a Repayment Agreement. The Repayment Agreement required Ellis and CCLLC to repay Wiggins for any portion of his Certificate of Deposit or accrued interest or any portion of the interest reserve provided by Wolf Pup that Superior Bank might seize or apply to Ellis's or CCLLC's debt to Superior Bank for the purchase of Wolf Bay Landings. (Doc. 1 at 2). The complaint also alleges that the Loan Assumption and Modification Agreement contained a defined maturity date but no provision for unilateral extensions or modifications. Nonetheless, Ellis, CCLLC and Superior Bank unilaterally extended the maturity date several times. (Id. at 4). The complaint asserts that the Loan Assumption and Modification Agreement between CCLLC and Superior Bank, to which Wiggins and Wolf Pup agreed, provided that CCLLC would incur no debt other than the loan to buy Wolf Bay Landings and subordinate debt to Wolf Pup. In spite of this provision, the complaint further alleges that Superior Bank extended five additional loans secured by the same collateral already pledged to secure CCLLC's assumption of the original loan and the related note to Wolf Pup to purchase Wolf Bay Landings. Plaintiffs did not know about or agree to the additional debt, not did they agree to that debt being secured by collateral already pledged to secure CCLLC's note to Wolf Pup. (Id. at 5-6).

The complaint alleges that Superior Bank impaired plaintiffs' rights as secondary obligors or sub-sureties of CCLLC when Superior Bank released Ellis as the guarantor of the debt for Wolf Bay Landings, without the knowledge or consent of plaintiffs. (Id. at 6).

The provisions of the contract which plaintiffs allege were breached by Ellis, CCLLC and Superior Bank were all consented to by plaintiffs. The provisions which were designed to protect Wiggins and Wolf Pup, and the collateral originally pledged for the loan for Wolf Bay Landings, would have been included to induce their agreement and at their behest. Further, Wolf Pup is a signatory to the Loan Assumption and Modification Agreement at issue. The alleged breach of these contract provisions, without the knowledge or consent of plaintiffs, who either signed or consented to the contract, caused monetary harm to plaintiffs. Therefore, Wiggins and Wolf Pup may maintain a cause of action for breach of the implied duty of good faith and fair dealing connected to the alleged breach of provisions in the Loan Assumption and Modification Agreement.

IV. Conclusion

Based on the foregoing, it is RECOMMENDED that FDIC-R's Motion to Dismiss as to Counts One and Two of the complaint, based solely on the failure to join Frank P. Ellis, IV, and CCLLC as defendants in this action, be DENIED. However, it is further RECOMMENDED that plaintiffs be ordered to amend their complaint to join Frank P. Ellis, IV, and CCLLC as defendants as to Counts One and Two. It is further RECOMMENDED that FDIC-R's Motion to Dismiss as to Count Three be DENIED.

Notice of Right to Object

The parties are DIRECTED to file any objections to this Report and Recommendation within a period of fourteen (14) days from the date of entry. Any objections filed must specifically identify the findings in the magistrate judge's recommendation objected to. Frivolous, conclusive, or general objections will not be considered by the district court.

Failure to file written objections to the proposed findings and recommendations of the magistrate judge's report shall bar the party from a de novo determination by the district court of issues covered in the report and shall bar the party from attacking on appeal factual findings in the report accepted or adopted by the district court except on grounds of plain error or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. Unit B 1982). See Stein v. Reynolds Securities, Inc., 667 F.2d 33 (11th Cir. 1982). See also Bonner v. Prichard, 661 F.2d 1206 (11th Cir. 1981) ( en banc ), adopting as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.


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