United States District Court, S.D. Alabama, Southern Division
WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on the Motion for Summary Judgment (doc. 205) filed by defendant Regions Bank, the Motion for Summary Judgment (doc. 211) filed by defendant George Jones, and the Motion to Strike Declaration of Stephen S. Peterson (doc. 230). All three Motions have been exhaustively briefed, to the tune of nearly 250 pages of briefing and approximately 4, 200 pages of exhibits.
I. Nature of the Case.
Despite the volume of paper it has generated, at its core this case is not particularly complex, either factually or legally. In December 2007, plaintiff, Allstate Insurance Company, purchased $12.3 million in infrastructure bonds to finance a real estate project called the Town of SaltAire, on the western shore of Mobile Bay in Mobile County, Alabama. Most of the bond proceeds were initially held in trust pending authorization by Allstate to release the funds. For its part, Allstate was unwilling to provide the green light until defendant Regions Bank had committed the sum of $16 million to the project. Although Regions Bank never affirmatively said so, Allstate understood that Regions Bank had already invested $14.5 million in SaltAire. Regions Bank knew that Allstate was operating under that (mistaken) premise, yet made no attempt to correct it. In late January 2008, Regions Bank issued a commitment letter for an additional $2 million to the project, in reliance on which Allstate authorized release of the remaining bond proceeds. Ultimately, the Town of SaltAire project failed and Allstate lost millions of dollars that it had invested in the bonds.
In this lawsuit (originally filed on July 18, 2013), Allstate contends that defendants, Regions Bank and George Jones (the developer's agent), hatched a fraudulent scheme to induce Allstate to release the bond proceeds because the project was faltering and desperate for an infusion of cash to remain afloat. Specifically, Allstate brings common-law claims of fraudulent/negligent misrepresentation against both defendants, on the theory that "Defendants falsely represented, through Regions' January 30, 2008 commitment letter, that Regions was obligated to lend an additional $2 million to [the project's owner], purportedly raising its total commitment to SaltAire to $16.5 million." (Doc. 113, ¶¶ 27, 33.) Allstate also brings a claim of fraudulent concealment/suppression, centered on the allegation that "Defendants concealed from Allstate that Regions had not funded a $14.5 million acquisition and development loan or line of credit to SaltAire in December of 2007." ( Id., ¶ 39.) Finally, Allstate brings a civil conspiracy cause of action, alleging that Regions Bank and Jones had agreed and conspired to defraud Allstate in the above-described manner. ( Id., ¶ 48.)
Both defendants now move for summary judgment. In its Motion (doc. 205), Regions Bank contends that it is entitled to dismissal of Allstate's claims because (i) the January 2008 commitment letter contained no misstatements of fact, (ii) Regions Bank owed no duty to Allstate to disclose the true amount of its loan commitment to SaltAire as of December 2007, (iii) Allstate did not justifiably rely on any material misrepresentations or omissions by Regions Bank, (iv) Regions Bank's alleged conduct did not proximately cause Allstate's losses, (v) the negligent misrepresentation claim fails under an Illinois variant of the "economic loss" rule known as the Moorman doctrine, (vi) the civil conspiracy claim fails in the absence of an underlying tort, (vii) Allstate's claims are barred by the applicable limitations period, and (viii) Allstate's alter ego extinguished the bond debt by making full credit bids, such that Allstate has already received the one satisfaction to which it was entitled for the subject losses. Meanwhile, defendant Jones, proceeding pro se, filed his own Motion for Summary Judgment (doc. 211) seeking dismissal of plaintiff's claims against him on the grounds of, inter alia, untimeliness and nonoccurrence of any fraud.
II. Factual Background.
A. The Town of SaltAire.
Regions Bank's involvement in the SaltAire development commenced in December 2006, when it loaned $325, 000 on a short-term, temporary basis to Mobile Bay Investments LLC ("MBI"), the owner of the land being used in the project. (Doc. 226, Exh. 11.) By December 2007, Regions Bank had lent a total of $6.5 million to MBI through a series of such short-term operating loans. (Doc. 226, Exh. 15; Arendall Dep., at 52, 113, 366.) Those loans to MBI were secured through a second mortgage on the SaltAire property, which mortgage was behind a $7.5 million first mortgage held by a private investor called Bay Mortgage Investors. (Arendall Dep., at 94; doc. 221, Exh. 16.) To underscore the temporary, transitory nature of Regions Bank's loans on the project, by the terms of the applicable Promissory Note dated December 11, 2007, Regions Bank's loan to MBI was to mature just four months later, in April 2008. (Doc. 226, Exh. 15.) This was short-term operating financing, not long-term development financing.
Defendant George Jones was the manager of an entity called SaltAire Development Group, LLC ("SDG"). (Jones Decl. (doc. 206, Exh. 3, ¶ 1.) SDG was the developer of the SaltAire project. ( Id. ) Jones (along with others at SDG and MBI) worked to form the Belle Fontaine Improvement District (the "District") in August 2007. The District was a type of entity known as an Alabama Improvement District, formed to facilitate financing of public infrastructure improvements for SaltAire via tax-exempt bonds to be issued by the District. (Jones Dep. 11/18/14, at 118-20, 126; doc. 221, Exh. 20.) SDG and Jones selected a company called Gardnyr Michael Capital, Inc. ("Gardnyr Michael") to serve as the bond underwriter for the District, through which its responsibilities included structuring and selling the bonds. (Doc. 222, Exh. 23; Hunt Dep., at 20.) Gardnyr Michael approached Allstate as a potential buyer in the fall of 2007. (Hunt Dep., at 27; Peterson Dep., at Exh. 182.) Materials provided to Allstate by Gardnyr Michael reflected that the Phase I bond issue was to encompass $12.8 million of tax-exempt, non-rated bonds with a 30-year maturity, and that such bonds were to be used to construct public infrastructure ( i.e., roads, bridges, landscaping, water/sewer utilities, boardwalks, a marina club, etc.) for the SaltAire project. (Peterson Dep., at Exh. 182.)
B. Allstate Agrees to Purchase the Bonds.
Allstate's decision maker, an Illinois-based portfolio manager named Steve Peterson, had numerous conversations with Gardnyr Michael representatives, as well as SDG representatives. According to Peterson, "at every point, at every conversation, " he discussed what he viewed as "the decisive point" or the "crux of the deal, " which was "the character of the capital structure." (Peterson Dep., at 118.) It was represented to Peterson (by whom, he does not recall) that Regions Bank had provided $14.5 million in financing for the project. ( Id. at 118, 171-72.) Peterson was emphatic that he "would not have pursued the deal to that point without that representation, " that he "never would have gone forward" without that representation, and that if he had ever encountered a representation "that cast doubt on that $14.5 million, the deal would have stopped right there." ( Id. at 171-72, 176.) There is no indication in the record, and no evidence from which a reasonable finder of fact could find, that Regions Bank directly made such a representation to Peterson or anyone else at Allstate. Whatever and whoever the source of that initial representation was, it was not Regions Bank. It was also not accurate. As stated supra, the facts were that Regions Bank had loaned just $6.5 million for the SaltAire project, and that money was not development financing, but rather was in the form of short-term loans to MBI, the owner (not SDG, the developer).
Notwithstanding the assurances from unknown quarters that "Regions Bank had made a loan to the developer for $14.5 million" ( id. at 175), Peterson's assessment was that a $14.5 million commitment was insufficient to provide Allstate the necessary comfort level to purchase the bonds. Peterson was thus "emphatic" in all conversations with Gardnyr Michael personnel that "the $14.5 million that was represented to be in the deal from the developer needed to be $16 million, " and that "the deal would not go forward unless that $16 million from Regions Bank was in the deal to the developer." ( Id. at 118.) As Peterson put it, "My understanding was the developer had a $14.5 million loan with Regions, and my requirement in order to close the deal was a $16-million loan from Regions." ( Id. at 258.) The $16 million figure was not arbitrary, but instead reflected Peterson's professional risk assessment that this was an appropriate amount of capital given the circumstances attendant to the SaltAire deal. ( Id. at 258-59.) Peterson communicated that requirement to SDG and Gardnyr Michael. ( Id. at 259.)
To accommodate Allstate's prerequisite that Regions Bank must have loaned $16 million to the developer, Gardnyr Michael's solution was to orchestrate an agreement between SDG and the bond trustee "that will not allow the developer to draw more than $1 million out of the Construction Fund UNTIL he has received a binding commitment or actual funding from Regions Bank totaling $16 million." (Doc. 223, Exh. 37.) Such an agreement, commonly described throughout the parties' filings as the "Side Agreement, " was indeed prepared and executed by SDG and the bond trustee, with Allstate's joinder and consent, on December 26, 2007. Regions Bank was not a signatory to the Side Agreement.
The recitals of the Side Agreement included the following: (i) the District was issuing $12.3 million in Special Assessment Capital Revenue Bonds dated as of December 1, 2007; (ii) Allstate would purchase the bonds from Gardnyr Michael and would be the beneficial owner of same; (iii) SDG "currently has an acquisition and development loan... controlled by Regions Bank... with respect to [SaltAire] which is currently limited to a fifteen million dollars ($14, 500, 000) line of credit;" and (iv) SDG "is currently seeking a commitment from the Bank... to increase the Loan's available line of credit to sixteen million dollars ($16, 000, 000) and expects to get such Commitment from the Bank shortly after the Bonds are issued." (Doc. 206, Exh. 1, at 1.) The Side Agreement further specified that Allstate "is purchasing the Bonds upon reliance of the acknowledgments and covenants contained in this Agreement by the Developer." ( Id. at ¶ 2.) By its terms, the Side Agreement would forbid the bond trustee from releasing more than $1 million in bond proceeds to SDG until such time as Allstate notified the bond trustee that Regions Bank had satisfactorily committed to increase the loan to $16 million. ( Id. at ¶¶ 3-5.)
Peterson accepted the Side Agreement in this form. (Doc. 223, Exh. 41.) George Jones executed that Agreement on behalf of SDG. ( Id. ) The Side Agreement was thus finalized and approved on December 20, 2007. With the Side Agreement in place, Allstate moved forward with the purchase of the $12.3 million in bonds on December 26, 2007. (Doc. 223, Exh. 42.) In connection with that closing, Jones executed a "Certificate of Developer" on behalf of SDG, wherein he certified that all information SDG had provided to Gardnyr Michael and Allstate in connection with the bond issuance "is true and correct in all material respects and does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which they were made, not misleading." (Doc. 223, Exh. 44, ¶ 3.)
C. Allstate Releases the Bond Proceeds.
In accordance with the Side Agreement, only $1 million in bond proceeds were released to SDG after the December 26, 2007 bond closing. (Doc. 223, Exh. 45.) The bond trustee continued to hold the remaining construction funds - consisting of the $11.3 million in bond proceeds less various sunk costs and money set aside for certain purposes (Hunt Dep., at 479-81) - in trust pending authorization from Allstate that the funding conditions specified in the Side Agreement had been satisfied. (Peterson Dep., at 353.)
Allstate's evidence is that the SaltAire project was experiencing significant cash-flow difficulties during this time period. An e-mail exchange between Jones and John Arendall at Regions Bank dated January 22, 2008 includes dire statements such as (i) Jones telling Arendall "[w]e are in need of $1mm on Friday - that buys another month and some, " (ii) Arendall relating to Jones that Johnny Walton (presumably a contractor) "will not do any more work until he is paid, " (iii) Arendall notifying Jones that a contemplated "participant" to loan the project $5.4 million had declined, and (iv) Arendall telling Jones that "I made a call yesterday to our worst case scenario guy." (Doc. 223, Exh. 46.) E-mails dated January 24 and 30 reflect that SDG had overdrafted its accounts in amounts exceeding $30, 000, leaving Jones scrambling to apologize and cover the shortfall. ( Id., Exhs. 47 & 48.)
Faced with these pressing financial woes, Jones and Arendall were keenly aware of the remaining bond funds being held in trust, and the Side Agreement's restrictions on their release. By January 22, 2008, Jones proposed to Arendall that Regions Bank buy out a $7.5 million loan held by another investor called MCS, and "up your second to $9.5mm - that gets us past the $16mm threshold for release of AID funds." (Doc. 223, Exh. 46.) Arendall responded, "Not a bad idea." ( Id. ) (It appears that no MCS loan buyout occurred in early 2008.) On January 28, 2008, Jones requested a meeting with Arendall "to run a plan by you that I think will unlock the AID." (Doc. 224, Exh. 51.) The following morning, Jones sent an e-mail to Arendall reading, in pertinent part (with all typos unchanged), as follows:
"To brief you on the plan: I told All State I was after a $2mm to $3mm increase n the Regions line, which would boost the total commitment from Regions to $16mm . That is the measure of the caviat in the bond funding. Therefore, I believe if you simply give us a letter stating you are increasing our line by X$, or something to that affect we can get those $ unleashed? If you are at $9.5mm MCS then we are effectivly at or over the $16mm threshold - you would not have to fund until we get everything else done but, in truth, you have agreed to increase our line and we are over the mark. With the AID released we have sufficient time to put everything else together!"
(Doc. 222, Exh. 22.)
The very next day, Arendall sent an e-mail to Jones attaching a six-page proposed commitment letter, with the message, "Call me with any questions." (Doc. 224, Exh. 52.) The commitment letter was on Regions letterhead, addressed to Jones at Mobile Bay Investments (again, the landowner for the SaltAire project) and identifying MBI as the borrower. The letter stated, "We hereby commit to make a loan to you" for development of the Town of SaltAire in an amount of "[u]p to $2, 000, 000, but not to exceed 80% LTV." ( Id., at 2.) The commitment letter included an assortment of terms and conditions on which the loan was predicated, including (among others) (i) the loan was subject to appraisal, survey, and environmental site assessment requirements in form and substance acceptable to Regions Bank; (ii) closing was contingent upon execution of documentation deemed satisfactory to Regions Bank; (iii) MBI was not to place additional encumbrances on the collateral (which was to be a first-priority security interest in SaltAire property), alter its ownership or management, and so on while the loan was pending; (iv) MBI was to provide a satisfactory opinion letter from its counsel covering various specified topics; and (v) Regions Bank was not required to close in the event of a material adverse change. (Doc. 224, Exh. 52.) By its terms, "[t]his commitment shall be null and void if not closed by February 29, 2008." ( Id. at 7.)
Upon receipt of Arendall's proposed commitment letter, Jones forwarded it to Gardnyr Michael with a request to "[p]lease check this and let me know if it will pass muster." ( Id. at 1.) After the underwriter and bond trustee approved the commitment letter and it was signed by Jones and Arendall (doc. 224, Exh. 59), it was forwarded to Allstate on or about February 4, 2008. Steve Peterson reviewed the commitment letter on Allstate's behalf. (Peterson Dep., at 288-89, 295-96, 356-57.) Although Peterson's recollection was foggy at the time of his deposition, he testified to a "general memory" that his "mental process" as to the commitment letter was, first, to recognize the loan amount sufficed to meet Allstate's requirements; second, to observe that Regions Bank (and not some smaller, lesser known lender lacking a significant local presence) was making the loan; and third, that while the commitment letter reflected that the $2 million loan was being made to MBI (the owner) rather than SDG (the developer), in contrast to Allstate's requirements, this was only a "small issue." ( Id. at 358.) Peterson explained his thought process as follows: "as I thought about it, the $2 million is going into the project, whether it goes to an entity which is closely related to the developer, that, to me, struck - that struck me as - as - not as significant as the $2 million from Regions." ( Id. at 358-59.)
On February 5, 2008, Peterson (on behalf of Allstate) signed a letter to the bond trustee reflecting Allstate's determination that the Side Agreement conditions had been satisfied and that the remaining bond proceeds could be released. (Doc. 224, Exh. 61.) Peterson approved the commitment letter because it was entirely in line with what he had expected to receive, to-wit: "a fully executed, binding commitment letter from Regions that contained what appeared to be standard terms and conditions." (Peterson Decl. (doc. 224, Exh. 65), ¶ 8.) Jones notified Arendall of this development, with a note that "[h]opefully, we can now move to fully capitalize MBI and SDG." (Doc. 224, Exh. 62.) The remaining construction funds ( i.e., bond proceeds) were released by the bond trustee to SDG in short order thereafter.
Unfortunately for all concerned, Regions Bank never funded the $2 million commitment specified in the letter to George Jones/MBI dated January 30, 2008. (Jones Dep. II, at 267.) By the plain terms of that commitment letter, Regions Bank's commitment was to become "null and void if not closed by February 29, 2008." (Doc. 206, Exh. 2, at 7.) Neither party's summary judgment briefs point to any witness testimony or documents showing that any explanation (official or unofficial) was ever given for why the $2 million commitment went unfunded. For his part, Jones testified that Arendall never supplied "any reason at all for not funding that two million dollar commitment letter." (Jones Dep. II, at 268.)
Allstate's theory for why the commitment letter was never funded is that it was nothing but a "sham" from its inception. (Doc. 227, at 24.) In addition to previously-described facts, Allstate relies on evidence of the following: (i) Regions Bank requires written or documented internal approval for commitment letters (Burgess Dep., at 247, 251); (ii) Regions Bank has no documentation that Arendall ever obtained such approval for the $2 million SaltAire commitment letter ( id. at 294-95); (iii) Regions Bank did not even have a copy of the commitment letter or an accompanying credit file in its possession, such that it was unable to produce same in discovery ( id. at 249-50); (iv) Arendall lacked authority under Regions Bank policy to approve loans in excess of $500, 000 (Arendall Dep., at 35-36); (v) although Regions Bank claims that a credit officer named Michele Manry approved the commitment letter (doc. 225, Exh. 71 at # 6-7), Regions Bank has no record of any such approval (doc. 225, Exh. 72 at #10); and (vi) Manry does not recall ever approving (or even seeing) such a commitment letter, and denies ever giving oral approval for same (Manry Dep., at 151-56, 160).
D. The Project Fails and Allstate Learns of Its Potential Claims.
During February 2008, Jones expressed concern to Arendall that either the loan should close in a timely manner or a revised commitment should be prepared because "[w]e had given Allstate a commitment to satisfy a condition in the bond and it was getting ready to expire." (Jones Dep. II, at 245-46.) Neither of those events happened. When the January 30 commitment letter expired on February 29, 2008 without being funded, Jones did not notify Allstate or, apparently, anyone else. (Jones Dep. II, at 264.) For its part, Allstate acknowledges that it never investigated whether Regions Bank had actually funded that commitment or not. (Doc. 206, Exh. 5 at #16.) Nonetheless, Peterson expected that Jones would "immediately" provide notice to Allstate or the bond underwriter if there were a problem in closing the $2 million loan described in the commitment letter. (Peterson Dep., at 311-12.)
Allstate continued to monitor the SaltAire project, and even conducted another site visit in June 2008. (Jones Dep. II, at 263.) During 2009, Allstate became aware that Regions Bank had withdrawn its loan commitment, that vendors had filed millions of dollars in liens on the project, and that MBI had filed for bankruptcy. (Rust Dep., at 152-55 & Exh. 331.)
As circumstances at SaltAire continued to spiral downward and SaltAire landowners failed to pay assessments, the District foreclosed on SaltAire property in October 2011 and August 2012. (Doc. 225, Exhs. 77 & 78.) The District formed a separate entity, Belle Fontaine Holdco, LLC ("Holdco"), to own, manage and maintain the property for the benefit of the District (and, by extension, Allstate as bondholder). (Doc. 225, Exh. 80.) The District assigned to Holdco its rights to credit bid on the property at the foreclosure auctions. ( Id. ) Holdco was the high bidder at both auctions. (Doc. 225, Exhs. 77 & 78.) The bids made by Holdco were in an amount exceeding the past due assessments plus remaining principal on the bonds, and no cash changed hands. Nonetheless, Holdco's successful bids at those foreclosure sales did not cancel or pay off Allstate's bonds, which remained outstanding for the full amount. (Bloom Dep., at 80-81; Anderson Dep., at 73; Quinn Dep., at 163.) When Holdco ultimately sold the SaltAire property in ...