Opinion
No. 3:10–cv–0302.
2011-07-13
RENASANT BANK, Plaintiff, v. Eric ERICSON, Defendant,andEric Ericson, Counter–Plaintiff,andTricia Ericson, Additional Claimant, v. Renasant Bank, Counter–Defendant.
James Russell Kelley, Stephen M. Montgomery, Neal & Harwell, Nashville, TN, for Plaintiff and Counter–Defendant. Charles Malone, Robert Jackson Walker, Steven E. Anderson, Walker Tipps & Malone, Nashville, TN, for Defendant and Counter–Plaintiff/Claimant.
James Russell Kelley, Stephen M. Montgomery, Neal & Harwell, Nashville, TN, for Plaintiff and Counter–Defendant. Charles Malone, Robert Jackson Walker, Steven E. Anderson, Walker Tipps & Malone, Nashville, TN, for Defendant and Counter–Plaintiff/Claimant.
MEMORANDUM
KEVIN H. SHARP, District Judge.
In this action, Renasant Bank (“Renasant”) seeks to recover from Eric Ericson unpaid principal and interest from a loan for the construction of a home in Florida. In the amended answer (Docket Entry No. 42), Eric Ericson and his wife, additional claimant Tricia Ericson (collectively, “the Ericsons”), have filed multiple counterclaims against Renasant arising out of the loan transaction. Renasant has filed two motions for partial summary judgment. (Docket Entry Nos. 11 and 52.) With respect to the first motion, the Ericsons have filed an opposition (Docket Entry No. 24), Renasant has replied (Docket Entry No. 34), and, after first obtaining leave from the Court, the Ericsons have filed a surreply (Docket Entry No. 43). With respect to the second motion, the Ericsons filed their opposition (Docket Entry No. 55), and no reply was filed.
FACTUAL BACKGROUND
In 2005, Mr. Ericson began working full-time in real estate building and development.
That same year, he and his wife purchased a lot in the Watersound development near Rosemary Beach, Florida. During the summer of 2006, the Ericsons began communicating with Mary Bennie Wilson, then-senior vice-president of Renasant, about obtaining financing to construct a home on the lot.
Unless otherwise noted, the facts are drawn from the parties' statements of material facts (Docket Entry Nos. 13, 28, 54, and 57) and related declarations and exhibits. Although facts are drawn from submissions made by both parties, on a motion for summary judgment, all inferences are drawn in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir.2000).
Although the Ericsons originally sought a loan of $3.8 million, Ms. Wilson suggested they increase the loan amount to $4 million. As a condition of lending that amount, Renasant insisted on an additional $1 million of collateral. Mr. Ericson's mother knew Rick Hart, president of Renasant's Tennessee operations, and agreed to put up this extra collateral as a certificate of deposit.
At the time of the original loan negotiations, Ms. Wilson worked for Capital Bank and Trust. Renasant acquired Capital Bank and Trust in 2007. For the sake of consistency, the Court will refer to “Renasant” throughout this memorandum.
Ms. Wilson further informed the Ericsons that Renasant wanted to add a participating bank to the loan. Renasant decided to place the participation piece of the loan with Silverton Bank (“Silverton”), where Mr. Hart sat on the board of directors at the time.
Silverton and Renasant negotiated a Participation Agreement which stated that, in the event of default and the banks' inability to reach a mutually agreeable course of action within ten business days, the decision of the participating bank (Silverton) would control. (Docket Entry No. 25–4, Ex. 14.) Renasant did not tell the Ericsons about this provision of the Participation Agreement.
At certain relevant times, Silverton Bank was known instead as The Banker's Bank. For the sake of consistency, the Court will refer to “Silverton” throughout this memorandum.
Originally, Ms. Wilson and Mr. Ericson agreed that Mr. Ericson would manage the disbursement of funds in conjunction with Renasant. A few days before the loan closing, however, Ms. Wilson informed Mr. Ericson that, as a condition of the loan, Broadlands Financial, LLC (“Broadlands”) would have to manage the construction process. Ms. Wilson described Broadlands as the construction manager that Silverton regularly used. Under this arrangement, construction draws would be wired directly from the banks to the contractor when Broadlands completed a site inspection report. Mr. Ericson was upset by this condition because it would turn him into a “spectator” in the construction process. (Docket Entry No. 26 ¶ 5.) He wanted to have control over the payments to contractors to ensure timely construction of the house. Nonetheless, he acquiesced under the time constraints.
On September 21, 2006, Mr. Ericson entered into a Construction Loan Agreement (“Agreement”) with Renasant for a principal amount of four million dollars. Mr. Ericson executed a promissory note in favor of Renasant, and the note was secured by a mortgage. The Agreement states in bold typeface, “THIS AGREEMENT SHALL BE GOVERNED BY FLORIDA LAW.” (Docket Entry No. 14–1, at 26.) The promissory note and mortgage contain similar provisions concerning the applicability of Florida law.
The construction on the Watersound property did not go smoothly. Broadlands failed to timely provide the inspection reports necessary for funding the contractor's draw requests. Mr. Ericson communicated his displeasure about Broadlands' performance to Renasant. For example, a February 8, 2007 email from Ms. Wilson to Jim Ramage, senior vice-president of Silverton, explains that Mr. Ericson was “very concerned over the length of time this process is taking to get funds to his contractor” and “d[id] not have a comfort level with all of this.” (Docket Entry No. 25–4, Ex. 17.) Shortly thereafter, Ms. Wilson and Mr. Ericson met with Mr. Ramage, who revealed that the Watersound property was the first project where Silverton had used Broadlands as construction manager.
In the summer of 2007, Jason McClimans, a senior vice-president of Renasant, took over as Renasant's primary contact for the Ericsons' loan. Mr. Ericson emailed Mr. McClimans in late September 2008 to inquire about an unpaid draw request. Explaining that the loan had matured, Mr. McClimans proposed that the parties negotiate a sixty-day extension of the loan to pay the pending draw request and then consider a one-year renewal. Mr. McClimans told Mr. Ericson to come to the bank and sign a document (“First Modification”) to effectuate the 60–day extension. Mr. McClimans was not present when Mr. Ericson signed the First Modification.
Immediately above the signature line, the First Modification includes the following language:
BORROWER WAIVES ALL KNOWN AND UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS OR COUNTERCLAIMS AGAINST THE PAYMENTS OF THE NOTE AND LENDER OR ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS AS OF THE DATE OF THIS AGREEMENT. BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS AGREEMENT.
CAUTION: IT IS IMPORTANT THAT YOU THOROUGHLY READ THIS AGREEMENT BEFORE YOU SIGN IT. (Docket Entry No. 14–2, Ex. B, at 3.) Mr. McClimans, the only Renasant employee to deal with Mr. Ericson on the sixty-day extension, testified that the intent of the extension was to fund the draw but not to have Mr. Ericson release his claims. (Docket Entry No. 25–1, at 93:21–94:8.) The Ericsons did not become aware that the First Modification contained a release provision until the present dispute between the parties arose in late 2009.
After negotiating the sixty-day extension, Renasant and the Ericsons executed a one-year renewal of the construction loan, effective November 21, 2008 (“Second Modification”). (Docket Entry No. 14–3.) Although the First and Second Modifications do not contain their own choice-of-law provisions, they expressly incorporate the terms and conditions of the original loan documents. In conjunction with the First and Second Modifications, Renasant and Silverton negotiated additional participation agreements containing control provisions identical to the original Participation Agreement.
In May 2009, the Office of the Comptroller of the Currency seized Silverton and named the Federal Deposit Insurance Corporation (“FDIC”) as its receiver. Mr. Hart testified that he became aware of Silverton's financial distress as early as late 2008 (Docket Entry No. 25–7, at 32:22–33:1), and, shortly after the seizure, Mr. McClimans emailed colleagues that “[i]t's no shock that [Silverton is] in the situation they're in” because of his personal experience with Silverton's failure to control its expense accounts (Docket Entry No. 25–2, Ex. 4). Once Silverton had been closed down, Mr. Ericson learned for the first time that Silverton held the controlling interest in the loan in the event of default when Mr. McClimans “made a vague reference” to Silverton's interest in a conversation about the impact of Silverton's closure. (Docket Entry No. 26 ¶ 15.) Although Mr. Ericson asked for more detail about Silverton's controlling interest, Mr. McClimans “refused to elaborate,” and Renasant did not provide Mr. Ericson with a copy of the Participation Agreement. ( Id. ¶¶ 15–16.) Mr. Ericson then began to put together a group to attempt to purchase Silverton's piece of the loan from the FDIC. He abandoned this plan after Renasant communicated that it had the first right to buy Silverton's piece of the loan, would exercise its best efforts to do so, and would give him full credit for any discount that it obtained. ( Id. ¶ 17.)
After internal deliberations, Renasant submitted an $801 thousand bid for Silverton's piece of the loan. The FDIC rejected this bid and auctioned the loan on DebtX. Renasant submitted a DebtX bid for $901 thousand and lost the bidding to an out-of-state bank. When Mr. Ericson learned in November 2009 about the outcome of the bidding, he concluded that Renasant's bid was not in good faith and, along with his parents, threatened to file a lawsuit against Renasant. (Docket Entry No. 26 ¶ 21.) The following month, Renasant decided to purchase the Silverton piece of the loan from the out-of-state bank for $1.525 million.
The loan matured on November 21, 2009. The Ericsons did not repay the sums due. Renasant filed the complaint in this action on March 26, 2010 to recover the unpaid principal balance of $4 million plus accrued interest. (Docket Entry No. 1.) The Ericsons filed their answer and counterclaims on April 30, 2010. (Docket Entry No. 4.)
At the completion of document production in September 2010, the Ericsons discovered an email chain from the prior year involving a Renasant employee, his spouse, and a Florida realtor. ( See Docket Entry No. 51–1, Ex. A.) Steve Moody, a Renasant employee, emailed his wife, a Tennessee realtor, asking her to locate a real estate agent in Florida who could obtain information on comparable home values because the bank was considering foreclosure on a property in the Watersound development. Ms. Moody forwarded her husband's email (“Moody email”) to Keith Flippo, a realtor with The Premier Property Group in Walton County, Florida. The Moody email included Ms. Moody's own comments that Renasant had a “possible foreclosure property” in Watersound. She further explained that Renasant was “currently trying to decide what to bid for this property, at the foreclosure auction” and needed expert advice on the property's current market value. She provided the address of the property and identified Mr. Ericson as the owner. Mr. Flippo emailed his reply the next day, copying Mr. Moody, stating that he would try to look at the house that day and follow up with a valuation. Mr. Flippo did not discuss the contents of the Moody email or any aspect of the house, including the possibility of a foreclosure, with anyone other than Ms. Moody. (Docket Entry No. 51–1 ¶¶ 4–5.) Mr. Flippo viewed the exterior of the house but was unable to set up a meeting with the listing agent to view the interior of the house.
Mr. McClimans testified that the Ericsons were caught up on their loan payments when Mr. Flippo received the Moody email in September 2009. (Docket Entry No. 25–1, at 131:6–9.) In January 2010, Mr. Ericson received a $2.0 million offer to purchase the Watersound home through a listing agent in Mr. Flippo's group. (Docket Entry No. 58 ¶ 5.) The offer was less than half of the list price and just over half of a $3.75 million offer that the same agent had communicated to the Ericsons in May 2009. Based on the Moody email and other information learned during discovery, the Ericsons obtained leave of court and filed an amended answer with additional counterclaims on December 7, 2010. (Docket Entry No. 42.)
STANDARD OF REVIEW
A party may obtain summary judgment if the evidence establishes there are not any genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Covington v. Knox Cnty. Sch. Sys., 205 F.3d 912, 914 (6th Cir.2000). The moving party bears the initial burden of satisfying the Court that the standards of Rule 56 have been met. See University of Pittsburgh v. Townsend, 542 F.3d 513, 522 (6th Cir.2008); Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir.1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact that is disputed. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Covington, 205 F.3d at 914 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). If so, summary judgment is inappropriate.
To defeat a properly supported motion for summary judgment, the nonmoving party must set forth specific facts showing that there is a genuine issue of material fact for trial. See Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The nonmoving party's burden of providing specific facts demonstrating that there remains a genuine issue of material fact for trial is triggered once the moving party shows an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. A genuine issue exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In ruling on a motion for summary judgment, the Court must construe the evidence in the light most favorable to the nonmoving party, drawing all justifiable inferences in its favor. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, the Court “is not required to speculate on which portion of the record the nonmoving party relies, nor is it obligated to wade through and search the entire record for some specific facts that might support the nonmoving party's claim.” InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir.1989).
ANALYSIS
Renasant's first motion argues that summary judgment is appropriate because the Ericsons waived every counterclaim and defense to payment by executing the First Modification with its release provision and by failing to repudiate the loan documents promptly upon discovering their claims. Renasant's second motion specifically seeks summary judgment on the Ericsons' counterclaims for breach of fiduciary duty, violation of the Tennessee Financial Records Privacy Act, and intentional interference with business relationships.
A. First Motion
1. Execution of First Modification
When Mr. Ericson executed the First Modification on September 21, 2008, it included a waiver of “all claims, defenses, setoffs, or counterclaims against the payment of the note and lender ... as of the date of this agreement” (emphasis omitted). Renasant asks the Court to enforce this waiver provision to negate all of the Ericsons' affirmative defenses against payment of the note and counterclaims against Renasant, the lender.
As an introductory matter, the Court must determine what law governs the interpretation of the loan documents. The original Agreement, note, and mortgage each contain a choice-of-law clause applying Florida law. Although the First Modification and Second Modification do not contain any choice-of-law provision, both incorporate by reference the unmodified terms of the original loan documents. Accordingly, the Court finds that Florida law governs the interpretation of the loan documents, including the First Modification.
Under Florida law, “[a] party is bound by, and a court is powerless to rewrite, the clear and unambiguous terms of a voluntary contract. It is not the role of the courts to make an otherwise valid contract more reasonable from the standpoint of one contracting party.” Med. Ctr. Health Plan v. Brick, 572 So.2d 548, 551 (Fla.Dist.Ct.App.1990) (citations omitted). This rule applies to the construction of waiver and release provisions. E.g., Churchville v. GACS Inc., 973 So.2d 1212, 1216 (Fla.Dist.Ct.App.2008). Nonetheless, in this case, the Ericsons argue that a mutual mistake resulted in the inclusion of the waiver provision in the First Modification. Florida law defines “mutual mistake” as the parties “ ‘agree[ing] to one thing and then, due to either a scrivener's error or inadvertence, express[ing] something different in the written instrument.’ ” L & H Constr. Co. v. Circle Redmont, Inc., 55 So.3d 630, 634 (Fla.Dist.Ct.App.2011) (quoting Providence Square Ass'n v. Biancardi, 507 So.2d 1366, 1372 (Fla.1987)). Mutual mistake is a valid defense to the enforcement of a release. See CJM Fin., Inc. v. Castillo Grand, LLC, 40 So.3d 863, 864 (Fla.Dist.Ct.App.2010). “If it is alleged that the language did not reflect the actual intent of the parties [or] that a party executed the document by mistake, ... then the trial court may consider other facts related to the execution of the document in determining its scope and meaning.” McKeever v. Rushing, 41 So.3d 920, 923 (Fla.Dist.Ct.App.2010). Specifically, where one party to the agreement seeks reformation of the waiver provision (as the Ericsons seek in this case), “parole evidence is admissible under those circumstances to determine the true intent of the parties.” Abernethy v. Nat'l Union Fire Ins. Co., 717 So.2d 196, 198 (Fla.Dist.Ct.App.1998).
Here, the Ericsons submit sufficient parole evidence to create a triable question of fact as to whether the waiver provision in the First Modification was included by a mutual mistake. Mr. Ericson's affidavit states that the parties did not intend to include a release in the First Modification. The deposition of Mr. McClimans, Renasant's senior vice-president and Mr. Ericson's primary contact at Renasant when the First Modification was executed, confirms Mr. Ericson's understanding. Mr. McClimans testified that he did not tell Mr. Ericson about the waiver provision in the First Modification. When asked if the parties intended for Mr. Ericson to release his claims as part of the sixty-day extension, he testified, “on my part, absolutely not.”
Before the Court can enforce the waiver in the First Modification, the Court must adjudicate the Ericsons' counterclaim for reformation of the First Modification, which calls for the removal of the waiver provision from the agreement. Factual disputes surrounding the reformation claim preclude a grant of summary judgment based on the waiver language in the First Modification.
Along with its reply brief, Renasant includes the affidavit of Mitch Waycaster, a senior vice-president who testifies concerning the custom forms that Renasant uses for loan renewals, extensions, and modifications. ( See Docket Entry No. 36–1.) The Ericsons point out that Renasant did not identify Mr. Waycaster as a person with knowledge of discoverable facts, either in its Rule 26(a)(1) disclosures or in its responses to the Ericsons' written discovery requests. Mr. Waycaster's testimony essentially confirms the factual dispute whether the release was included in the First Modification by mutual mistake. Although the Court has some concern about the admissibility of Waycaster's testimony for failure to disclose the witness, the Court need not resolve that issue here.
Even if the Court were ultimately to find that the waiver is enforceable, it does not necessarily bar all of the Ericsons' counterclaims. As set forth in Scarborough Associates v. Financial Federal Savings & Loan Association of Dade County (a case cited by Renasant), language waiving counterclaims as of the date of an agreement “does not discuss any claims which might arise on the basis of events occurring after” the stated date, “nor does the clause contain a promise not to raise defenses based on events which might occur” after the stated date. 647 So.2d 1001, 1003 (Fla.Dist.Ct.App.1994).
2. Ratification of Loan Documents
If the Ericsons did not waive their affirmative defenses and counterclaims by virtue of the waiver language in the First Modification, Renasant argues that the Ericsons waived those defenses and counterclaims by their conduct in ratifying the loan documents, entering agreements to modify the loan, and accepting loan advances, rather than promptly repudiating the loan documents after learning of their claims. Again applying Florida law, “ ‘[t]he elements of waiver are: (1) the existence at the time of the waiver of a right, privilege, advantage, or benefit which may be waived; (2) the actual or constructive knowledge of the right; and (3) the intention to relinquish the right.’ ” Zurstrassen v. Stonier, 786 So.2d 65, 70 (Fla.Dist.Ct.App.2001) (quoting Leonardo v. State Farm Fire & Cas. Co., 675 So.2d 176, 178 (Fla.Dist.Ct.App.1996)). The party waiving its claim “must possess all of the material facts in order to constitute waiver,” although the waiver of a fraud claim “can occur where a party should have discovered the fraud through ordinary diligence.” Id. “Waiver does not arise from forbearance for a reasonable time, but may be inferred from conduct or acts ‘putting one off his guard and leading him to believe that a right has been waived.’ ” County of Brevard v. Miorelli Eng'g, Inc., 703 So.2d 1049, 1052 n. 4 (Fla.1997) (Anstead, J., concurring and dissenting) (quoting Gilman v. Butzloff, 155 Fla. 888, 22 So.2d 263, 265 (1945)); accord Costello v. The Curtis Bldg. P'ship, 864 So.2d 1241, 1244 (Fla.Dist.Ct.App.2004) (explaining that “the party's conduct must establish clear relinquishment”). In the context of negotiable instruments, one who renews a note “with knowledge at the time of a partial failure of the consideration for the original note, or false representations by the payee, etc., waives such defense, and cannot set it up to defeat a recovery on the renewal note[.]” Capital Bank v. MVB, Inc., 644 So.2d 515, 522 (Fla.Dist.Ct.App.1994). A party renewing the note is also bound if the knowledge of the available defenses could have been discovered through the exercise of ordinary diligence. Id.
Waiver based on ratification of the loan documents is an inappropriate basis for summary judgment in this case because there are triable questions of fact concerning the timing of the Ericsons' actual and constructive knowledge of their rights. For example, the Office of the Comptroller of the Currency did not close Silverton until May 2009, well after the execution of the loan modifications. After the closure, Mr. Ericson then learned from Mr. McClimans about Silverton's controlling interest in the loan in the event of default. Ericson also did not know about Renasant's initial failure to purchase Silverton's piece of the loan from the FDIC until November 2009, the same month in which the loan matured. Furthermore, when Ericson learned the details of Renasant's attempts to purchase Silverton's piece of the loan, he and his parents threatened to file a lawsuit against Renasant. The Ericsons' knowledge of the claims based on these facts all followed after the execution of the loan modifications, with some even coming after the loan itself had matured. Other claims, such as the alleged violation of the Tennessee Financial Records Privacy Act and intentional interference with business relationships, arise from an email that the Ericsons discovered at the