United States District Court, N.D. Alabama, Southern Division
ROBERT L. WIGGINS, JR., et al., Plaintiffs,
v.
FDIC, as Receiver of Superior Bank, et al., Defendants.
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 ...