DJ Mortg., LLC v. Synovus Bank
| Citation | 750 S.E.2d 797,325 Ga.App. 382 |
| Decision Date | 22 November 2013 |
| Docket Number | No. A13A1046.,A13A1046. |
| Parties | DJ MORTGAGE, LLC et al. v. SYNOVUS BANK. |
| Court | United States Court of Appeals (Georgia) |
Bondurant, Mixson & Elmore, H. Lamar Mixson, Fredric Joseph Bold Jr., Jill Pryor, Bret Reed Hobson, for Appellants.
Nelson, Mullins, Riley & Scarborough, Richard Blum Herzog Jr., S. Wade Malone, Jeffrey Lyle Mapen, for Appellee.
DJ Mortgage, LLC obtained a line of credit from Synovus Bank d/b/a Bank of North Georgia to fund its business of making short-term "hard money" loans to real estate investors. This action arises out of the breakdown in that relationship. Central to the issues before us are four claims by DJ of breach of contract by the bank. The trial court granted summary judgment in favor of the bank as to all four claims, and we reverse as to three. First, DJ claims that the bank was not to record the security interests assigned to it except in the event of a default by DJ. As to this claim the contract documents are inconsistent, the ambiguity created by that inconsistency cannot be resolved as a matter of law, and the claim must go to a jury. Second, DJ claims that the bank breached a duty to "endeavor" to timely review loan requests. We reject the bank's contention that this obligation is meaningless and find that the question of breach must go to a jury. Third, DJ claims that the bank breached a duty to cooperate with DJ in foreclosing on properties securing its underlying loans. Again we reject the bank's contention that it had no such duty and find that the question of breach must go to a jury. Finally, DJ contends that the bank breached the contract when it stopped advancing DJ money. But as to this fourth claim, we agree with the trial court. The bank was entitled to cut off funding in certain circumstances and undisputed evidence establishes at least one such circumstance.
John Smithgall, one of DJ's principals, personally guaranteed the bank's loan to DJ. The bank subsequently stopped allowing DJ to draw on the line of credit, citing DJ's violation of certain covenants in its loan agreement with the bank. DJ and Smithgall brought an action alleging the four breach of contract claims against the bank summarized above. They sought declarations concerning their obligation to perform under the loan agreement, the enforceability of Smithgall's personal guaranty, and how the collateral securing the loan should be credited to the amounts, if any, that they owed the bank under the loan agreement. They also sought attorney fees and costs of litigation. The bank counterclaimed, inter alia, that DJ and Smithgall breached the loan agreement and that Smithgall breached the guaranty, and sought attorney fees and costs of litigation. The trial court granted summary judgment to the bank on all claims, and DJ and Smithgall appeal.
As detailed below, genuine issues of material fact preclude summary judgment on DJ's and Smithgall's claim that the bank breached the loan agreement by recording assignments, failing to review requests for advances, and refusing to cooperate in foreclosure efforts. Accordingly, we reverse the grant of summary judgment on those claims. But no genuine issues of material fact exist as to their claim that the bank breached the loan agreement by ceasing to fund DJ, and we affirm the grant of summary judgment to the bank on that claim.
The existence of genuine issues of material fact as to whether the bank breached the loan agreement drives our resolution of the remaining claims of error. We reverse the grant of summary judgment to the bank on the claims and counterclaims related to whether the bank could enforce the loan agreement or Smithgall's guaranty of the loan, because genuine issues of material fact exist as to whether the bank breached the loan agreement and, if so, whether it acted with gross negligence or wilfulness. We also reverse the grant of summary judgment to the bank on the claims for declaratory relief regarding how collateral should be credited to the amount, if any, owed to the bank under the loan agreement; the trial court based its ruling on this issue on its erroneous determination that the bank was entitled to summary judgment on all of the claims of breach of contract.
Finally, given our determination that the bank was not entitled to summary judgment on all of the breach of contract claims, we vacate the trial court's award of attorney fees and costs of litigation to the bank and reverse the grant of summary judgment to the bank on the claim for attorney fees and costs brought by DJ and Smithgall. We remand the case for further proceedings not inconsistent with this opinion.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." OCGA § 9–11–56(c). "We review the grant or denial of a motion for summary judgment de novo, and we must view the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the nonmovant." Woodcraft by Macdonald v. Ga. Cas. & Surety Co., 293 Ga. 9, 10, 743 S.E.2d 373 (2013) (citation and punctuation omitted).
So viewed, the evidence showed that DJ was in the business of extending short-term "hard money" loans (the "underlying loans") to real estate investors. DJ's manager described its business as "providing capital to real estate investors, to purchase and renovate properties and sell them or refinance." Hard money loans typically are closed within two weeks of the borrowers' request for a loan.
To finance its operations, in 2007 DJ obtained a line of credit from the bank (the "loan"). It would request the bank to approve advances on the line of credit to make specific underlying loans. The notes and deeds to secure debt associated with the underlying loans secured the bank's loan to DJ, and the parties memorialized these arrangements in agreements that included a loan agreement and a collateral assignment agreement. The collateral assignment agreement provided that certain "transfer documents," which included the deeds to secure debt on the underlying loans, would be assigned to the bank, which would in turn hold the assignments in escrow and record them only if DJ defaulted on the loan.
Two years later, in 2009, DJ and the bank entered into negotiations to renew the loan. Smithgall's son, who worked at DJ as Smithgall's "eyes and ears," participated in the negotiations, during which the bank informed him that it was going to require the assignments of the deeds to secure debt on the underlying loans to be recorded. Smithgall's son objected, stressing to the bank that such action would impede DJ's ability to foreclose on the properties securing the underlying loans.
At a closing on October 27, 2009, the parties entered into a new loan agreement and a new collateral assignment agreement, and Smithgall executed a guaranty of the loan. Shortly thereafter, despite DJ's objections, the bank began requiring that at least some of the security deed assignments be recorded, and DJ's closing attorney began recording some of the assignments, following closing instructions provided by DJ at the bank's direction. The recording of the assignments impeded DJ's ability to pursue foreclosure remedies against borrowers who defaulted on the underlying loans by transferring to the bank DJ's interest in the properties securing the underlying loans.
DJ sought help from the bank to resolve this foreclosure problem, requesting that, when underlying loans went into default, the bank either reassign to DJ the security deeds on those underlying loans or foreclose on the properties itself. Although the bank repeatedly promised to "fix" the foreclosure problem, it did not cooperate with DJ's requests or efforts to do so but instead gave DJ what Smithgall described as the "runaround."
The bank also did not timely act on some of DJ's requests for advances from its line of credit, which affected DJ's ability to act quickly on its borrowers' hard money loan requests. DJ's financial situation deteriorated.
On May 17, 2011, counsel for the bank sent a letter notifying DJ that it was in default of the 2009 loan agreement on account of, among other things, several loan covenant breaches. Therein, the bank stated that, until the default was cured, it would no longer provide advances to DJ under the 2009 loan agreement. The bank's counsel sent another letter on October 6, 2011, noting that the default had not been cured and demanding repayment of the loan.
DJ and Smithgall alleged in their complaint that the bank breached the 2009 loan agreement in four ways: (1) by recording the assignments of the security deeds on the underlying loans, (2) by failing to timely review DJ's requests for advances from the line of credit, (3) by withholding cooperation from DJ in its foreclosure efforts, and (4) by ultimately ceasing to fund DJ. The trial court, in granting summary judgment to the bank, construed the 2009 loan agreement to require that the assignments be recorded; to impose no requirement upon the bank either to advance funds or to respond to DJ's funding requests in any specific time period; and to authorize the bank to cease funding DJ entirely due to DJ's violations of certain loan covenants. As detailed below, we find that the trial court erred in construing the 2009 loan agreement, that genuine issues of material fact exist as to whether the bank breached the agreement in three of the four ways alleged by DJ and Smithgall, and that genuine issues of material fact also exist as to whether the alleged breaches damaged DJ and Smithgall.
DJ and Smithgall argue that the trial court misapplied the rules of contract construction.
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