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SE Property Holdings, LLC v. Bank of Franklin

Supreme Court of Alabama

February 15, 2019

SE Property Holdings, LLC, f/k/a Vision Bank
v.
Bank of Franklin

          Appeals from Mobile Circuit Court (CV-09-900083 and CV-09-900085)

          SELLERS, JUSTICE.

         SE Property Holdings, LLC ("SEPH"), appeals from a summary judgment entered by the Mobile Circuit Court in favor of Bank of Franklin ("BOF") on BOF's claim demanding specific performance of a contractual provision.[1] We reverse and remand.

         Facts and Procedural History

         In March 2005, Vision Bank, a Florida banking corporation, loaned Bama Bayou, LLC, formally known as Riverwalk, LLC ("the borrower"), $6, 000, 000. Multiple individuals allegedly personally guaranteed repayment of the loan ("the guarantors").

         In June 2008, pursuant to a "participation agreement," Vision Bank conveyed to BOF a 25 percent interest in the loan ("the participation interest"). The participation agreement provides that Vision Bank "sells, grants, transfers, assigns, and conveys to [BOF], without recourse, and [BOF] ... agrees to purchase and acquire from [Vision Bank], an undivided interest in [Vision Bank's] right, title and interest" in the loan. Vision Bank conveyed additional participation interests in the loan to other banks.

         The borrower and the guarantors allegedly defaulted on their obligations with respect to the loan, and in January 2009 Vision Bank filed suit against them. That action was assigned case number CV-09-900085. The borrower and the guarantors asserted counterclaims against Vision Bank and brought BOF into the action as an additional counterclaim defendant.

         In April 2009, Vision Bank foreclosed on a mortgage securing the loan. Vision Bank was the highest bidder at the foreclosure sale and thereafter executed foreclosure deeds in favor of BOF and the other participating banks.

         In or around January 2012, Vision Bank sold its operating assets to Centennial Bank and relinquished its Florida bank charter. Shortly thereafter, Vision Bank and SEPH entered into an "agreement and plan of merger," whereby Vision Bank merged "with and into" SEPH. The merger agreement provided that SEPH was to be the surviving entity and, consistent with applicable merger law, that "the separate existence of Vision Bank shall cease." See generally Fla. Stat. Ann. § 607.1106 ("When a merger becomes effective ... [e]very other corporation party to the merger merges into the surviving corporation and the separate existence of every corporation except the surviving corporation ceases ...."); Ohio Rev. Code Ann. § 1701.82 ("When a merger or consolidation becomes effective, ... [t]he separate existence of each constituent entity other than the surviving entity in a merger shall cease....").[2]

         SEPH, as was Vision Bank before it, is a wholly owned subsidiary of Park National Bank. The merger was voluntary and was not the result of a judicial or quasi-judicial action. There is no indication that any governmental authority ordered Vision Bank to participate in the merger. The record before the Court suggest that, as a result of the merger, SEPH acquired Vision Bank's nonperforming loans. After the merger, SEPH, as successor to Vision Bank, became a party to this litigation.

         In October 2016, the trial court entered an order setting aside the foreclosure sale and declaring the foreclosure deeds void. The record indicates that the trial court's order was entered in case number CV-09-900083, with which case number CV-09-900085 was apparently consolidated. In any event, the order setting aside the foreclosure sale and declaring the foreclosure deeds void is not at issue in this appeal.

         In July 2017, BOF filed a cross-claim against SEPH. Among other things, BOF asserted in its cross-claim that SEPH had an obligation to repurchase BOF's participation interest in the loan. In support, BOF pointed to the participation agreement between BOF and SEPH's predecessor, Vision Bank.[3] Paragraph 13 of the participation agreement provides:

"Participating Bank [BOF] shall ... have the unilateral right (but not the obligation) to sell to Originating Bank [Vision Bank], regardless of self-imposed lending limits of Originating Bank, its Participation Interest up to the amount that Originating Bank is permitted to purchase without violating regulatory lending limit requirements, for an amount equal to the aggregate of all principal, interest, fees ...

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