Wiggins v. FDIC, as Receiver of Superior Bank

          MEMORANDUM OPINION AND ORDER REGARDING THE FDIC’S MOTION TO STRIKE AND MOTION FOR SUMMARY JUDGMENT ^[1]

          STACI G. CORNELIUS U.S. MAGISTRATE JUDGE.

         This case is before the court on defendant Federal Deposit Insurance Corporation’s (“FDIC”) (1) motion to strike the declaration of Robert L. Wiggins, Jr. (Doc. 271) and (2) motion for summary judgment on Plaintiffs’ Second Amended Complaint (Doc. 224). The FDIC moves this court to enter an order dismissing all claims against it pursuant to Rule 56 of the Federal Rules of Civil Procedure. (Id.). The motions are fully briefed and ripe for review. (Docs. 224, 225, 265, 270, 271, 300, 304). After careful consideration of the parties’ briefing and for the reasons discussed below, the court finds the FDIC’s motion to strike, construed as objections to evidence disputing summary judgment, ^[2] is due to be sustained in part and overruled in part, and the FDIC’s motion for summary judgment is due to be granted.

         I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

         This action arises from a long series of loans and real estate transactions between the parties. Plaintiffs, Robert L. Wiggins, Jr. (“Wiggins”), and Wolf Pup, LLC (“Wolf Pup”), (collectively, “Plaintiffs”), financed the purchase and construction of a real estate development in Baldwin County, Alabama through a loan with Superior Bank (“Superior”). Plaintiffs then sold the property to defendant Character Counts, LLC (“CCLLC”), a single asset entity owned by defendant Frank P. Ellis, IV (“Ellis”), and Joseph Scott Raley (“Raley”). CCLLC purchased the property from Plaintiffs by assuming their loan with Superior. Superior later sold the loan to Ellis, who financed his purchase of the loan with a personal loan from Superior. In connection with selling the original loan to Ellis, Superior paid down the outstanding balance on the loan by seizing money from accounts funded by Wiggins and Wolf Pup. Superior Bank failed, and the FDIC was named as its receiver.^[3]

         A. Superior Bank’s Loan to Wolf Pup

         Wolf Pup owned a 62-unit real estate development named Wolf Bay Landings in Baldwin County, Alabama (the “Property”), which was financed through a loan with Superior. (Doc. 94 at ¶ 1). Wolf Pup’s loan with Superior involved several transactions in September and December 2005, and Wolf Pup’s entire indebtedness to Superior was approximately $17.5 million (the “Loan”). (Doc. 94 at ¶ 1; Doc. 90-5 at 1). The Loan was secured by a mortgage on the Property and also by continuing guaranties from Wiggins and other people associated with Wolf Pup. (Doc. 90-5 at 1; Doc. 94 at ¶ 1).

         B. CCLLC’s Purchase of the Property and Assumption of the Loan

          In 2007, Wolf Pup sold the Property to CCLLC, allowing Ellis and CCLLC to purchase the Property by assuming the Loan. (Doc. 94 at ¶ 2; Doc. 90-5). In connection with the sale of the Property, Wolf Pup, CCLLC, and Superior Bank executed a Loan Assumption and Modification Agreement (the “Modification Agreement”), which was dated October 5, 2007. (Doc. 94 at ¶ 3; Doc. 48-3).^[4] The Modification Agreement states in part:

It is the intent of this instrument, and [Wolf Pup], [Superior], and CCLLC agree, that [Wolf Pup] shall remain liable under the Note and the other Loan Documents, and upon the occurrence of an Event of Default by CCLLC under the Note or the other Loan Documents, and in addition to [Superior]’s right to enforce the Loan Documents and pursue its remedies against CCLLC, [Superior] may enforce the terms of the Note against and collect the indebtedness evidenced by the Note from [Wolf Pup], all to the same extent as if this instrument had never been executed.

(Doc. 48-3 at 5). The Modification Agreement required Ellis to be added as a guarantor of the Loan, and Wiggins also agreed to remain a guarantor of the Loan. (Id. at 5-6, 9-10, 18-19).

         The Modification Agreement also required Wolf Pup to establish an interest reserve account at Superior Bank in an amount not less than $560, 000 (the “Interest Reserve Account”) and gave Superior the right to debit the Account to make monthly interest payments and payment of Loan expenses under the Loan. (Doc. 48-3 at 7). Under the terms of the Modification Agreement, if Superior debited the Interest Reserve Account for payment of Loan interest and expenses, CCLLC had an obligation to deposit funds into the Interest Reserve Account within ten days to restore the balance of the Account to $560, 000. (Id.).

         Additionally, the Modification Agreement required that a $1.5 million certificate of deposit funded by Wiggins and assigned to Superior (the “Wiggins CD”) would continue to secure the Loan. (Doc. 48-3 at 7). Under the Modification Agreement, Superior had the right to apply funds from the Wiggins CD toward payment of the Loan in the event of a default that had not been cured within thirty days after notice of the default to CCLLC and Wolf Pup. (Id.).

         C. Ellis’s Purchase of the Loan

         After CCLLC assumed the Loan, Superior and CCLLC unilaterally extended the Loan’s maturity date by entering into a Fourth Amendment to the loan documents. (Doc. 94 at ¶ 17). Plaintiffs did not know about or consent to the amendment to the Loan. (Id.).

         Then, on December 23, 2010, Superior sold the Loan to Ellis and assigned the loan documents to Ellis without notifying Plaintiffs of the sale. (Id. at ¶ 18; Doc. 106 at 127-141). Ellis financed his purchase of the Loan with a personal loan from Superior (the “Ellis Loan”). (Doc. 94 at ¶ 21). In connection with Ellis’s purchase of the Loan, and without informing Plaintiffs, Superior seized funds from the Interest Reserve Account and the Wiggins CD and applied the funds to pay down the indebtedness on the Loan. (Id. at ¶¶ 24 & 26).

         D. Superior Taken Over by the FDIC

         After Superior sold the Loan to Ellis, Superior failed, and the FDIC was appointed as receiver. (Doc. 94 at ¶ 34). The FDIC assigned all of Superior’s rights and interests in the Ellis Loan to a new entity, Superior Bank, N.A., and that entity was purchased by and merged with defendant Cadence Bank on November 11, 2011. (Id.).

         E. Plaintiffs’ Claim to the FDIC

         Wiggins submitted a claim to the FDIC as receiver for Superior Bank. (Doc. 28-2). The Proof of Claim Wiggins submitted states in full as follows:^[5]

The undersigned, Robert Wiggins, individually and as majority member of Wolf Pup and on its behalf, [] says that Superior Bank, Birmingham, now in liquidation is justly indebted to Wolf Pup[, ] LLC and Robert Wiggins upon the following Claim:

This claim includes a claim that Superior Bank suppressed and actively concealed material information that it had a duty to disclose for the purpose of depriving Wiggins and his interests of critical information concerning defaults in agreements between Wiggins and his interests, on the one hand, and Ellis and his interests, on the other hand. These agreements are set out in the attached package of documents from October 2007. This suppression and concealment occurred at times unknown in the course of attempts to perform and workout a loan to Wolf Pup, LLC. By withholding information, either on its own initiative, but more likely in conspiracy with Frank Ellis, Wiggins, as guarantor of the loan, together with his interests was not provided timely information concerning the application of collateral for purposes of servicing the loan, which application of the collateral had, in fact, triggered obligations of Ellis and his interests to Wiggins and his interests.

In 2005, [] Superior Bank closed loans in the total amount of approximately $17, 500, 000.00 to Wolf Pup, LLC for purchase of land and the construction of a development containing sixty-two (62) units to be constructed in Orange Beach, Alabama, known as Wolf Bay Landing. The last of these loans closed on December 22, 2005. Wolf Pup, LLC was formed for the purpose of developing Wolf Bay Landing. Beowulf, LLC has an 80% ownership interest in Wolf Pup. The members of Beowulf, LLC are Robert Wiggins and Ann Wiggins. These loans were guaranteed by Robert Wiggins, and three other persons who had interests, either direct or indirect, in Wolf Pup, namely Linda Peacock, Kelly Schuck, and Scott Raley. Wiggins individually pledged some $1.5 million in deposits to secure the Wolf Pup loan. Additionally, an interest reserve account of some $560, 000 was created at Superior Bank. In the fall of 2007, “purchased” [sic] Wolf Bay Landings Condominiums, less Units A301 and A110, by assuming the loans previously made by Superior Bank to Wolf Pup, LLC. At that time, it has been said that Character Counts had as its members Frank P. Ellis, IV (80% ownership) and Scott Raley (20% ownership). Frank P. Ellis, IV guaranteed the loans jointly and severally.

In connection with the Character Counts transaction, a series of documents were executed, attached hereto, that provided a number of remedies to Wiggins and his interests should Frank P. Ellis, IV and Character Counts, LLC fail to perform. As an example, and not by complete recital, they provided that Ellis and Character Counts shall “take all steps necessary to ensure such interest reserve and pledged collateral are not seized or drawn upon by Superior Bank or otherwise applied to the indebtedness” (para. 1); and that Ellis and Character Counts agreed “to immediately repay to Wolf Pup any portion of the $560, 000.00 interest reserve posted by Wolf Pup to Superior Bank to secure the indebtedness . . . to the extent same is seized or drawn upon by Superior Bank or otherwise applied to such indebtedness.” (para. 2)

Superior Bank, upon information and belief, knew of the existence of the obligations of Ellis and Character Counts under these agreements, and the remedies that could flow from their breach. When Superior did seize or draw on the interest reserve, at times unknown, it either negligently, recklessly, wantonly or intentionally suppressed and concealed its actions from Wiggins and his interests, including the original borrower Wolf Pup, LLC, thereby preventing the exercise of remedies by Wiggins and his interests, including Wolf Pup, LLC, against Ellis and his interests. The value of the remedies declined as time passed.

Since Wiggins does not know when these interest reserves were applied, Wiggins is currently unable to state precisely the extent of his damages as relates to the remedies. Superior has refused, despite repeated requests, to account for the various applications of the interest reserve or other collateral, simply providing untimely balances remaining in the accounts. This being a fraud claim, it will require discovery of the internal documents of Superior Bank relating to the application(s) of the interest reserve and other breaches of the agreements of October 5, 2007 to precisely define the damages suffered.

(Doc. 28-2 at 1-2) (last paragraph omitted). The FDIC received the Proof of Claim on July 19, 2011. (Id. at 1).

The FDIC disallowed Plaintiffs’ claim based on the following findings:

Claimants have failed to present any basis other than allegations contained in their Proof [of] Claim to show that Superior owed them a legally cognizable duty to notify Claimants of CCLLC’s defaults or Superior’s draw on the Interest Reserve Account. Claimants waived all notice under the original loan documents and the documents of assumption and Claimants have not shown that Superior had any independent duty to advise them of CCLLC’s default.

(Doc. 48-7 at 2). The FDIC notified Plaintiffs of its decision disallowing their claim on June 15, 2012. (See Doc. 48-7 at ...