Bancorpsouth Bank v. Kleinpeter Trace, L. L.C.

• Decision Date: 01 October 2014
• Docket Number: No. 2013 CA 1396.,2013 CA 1396.
• Parties: BANCORPSOUTH BANK v. KLEINPETER TRACE, L.L.C., Charles Wallace Gladney, Jr., and James G. Tanner, III.
• Court: Court of Appeal of Louisiana — District of US

155 So.3d 614

BANCORPSOUTH BANK
v.
KLEINPETER TRACE, L.L.C., Charles Wallace Gladney, Jr., and James G. Tanner, III.

No. 2013 CA 1396.

Court of Appeal of Louisiana, First Circuit.

Oct. 1, 2014.
Rehearing Denied Oct. 23, 2014.

155 So.3d 617

H. Alston Johnson, III, Shelton Dennis Blunt, Amanda W. Messa, Taylor S. Carroll, Paul LeBlanc, Michael D. Hunt, Baton Rouge, LA, for Plaintiff/Appellant, BancorpSouth Bank.

Brett P. Furr, Brian M. Chustz, and Mary Olive Pierson, Baton Rouge, LA, for Defendants/Appellees, Kleinpeter Trace, L.L.C., and Charles Wallace Gladney, Jr.

155 So.3d 618

Amanda W. Messa, Baton Rouge, LA, for Defendant/Appellee, Larry Denison.

John W. Joyce, New Orleans, LA, for Defendant/Appellee, Federal Insurance Co.

Christine Lipsey, Baton Rouge, LA, for Defendant/Appellee, Axis Insurance Co.

Heather N. Sharp, Baton Rouge, LA, for Defendant/Appellee, St. Paul Mercy Insurance Company.

Robert E. Torian, Lafayette, LA, for Defendant/Appellee, American Casualty Company of Reading, Pennsylvania.

William J. Nielson, Jennifer W. Wall, Birmingham, AL, for Defendant/Appellee, Arch Insurance Company.

Before WHIPPLE, C.J., KUHN, PETTIGREW, WELCH, and CRAIN, JJ.

Opinion

WHIPPLE, C.J.

In this suit to enforce obligations arising out of four promissory notes, the plaintiff, BancorpSouth Bank, appeals three judgments rendered in connection with discovery disputes that ultimately resulted in the trial court dismissing BancorpSouth's claims, striking its defenses to a reconventional demand, and awarding attorney fees and expenses in the amount of $225,000.00. We affirm in part, reverse in part, vacate in part, and remand.

FACTS AND PROCEDURAL HISTORY

The subject promissory notes are payable to BancorpSouth by Kleinpeter Trace, L.L.C., an entity formed by Charles Wallace Gladney and James G. Tanner, III, and are more particularly identified as follows: (1) Bank Loan No. 260000417336 for the principal sum of $1,999,100.00 and bearing interest at a variable rate (“note one”); (2) Bank Loan No. 260000422082 for the principal sum of $1,999,900.00 and bearing interest at a variable rate (“note two”); (3) Bank Loan No. 260000542208 for the principal sum of $799,767.82 and bearing interest at a variable rate (“note three”); and (4) Bank Loan No. 260000481694 for the principal sum of $2,010,250.00 and bearing interest at a variable rate (“note four”). The promissory notes were secured by multiple indebtedness mortgages on tracts of immovable property owned by Kleinpeter Trace. In addition to the mortgages, Gladney guaranteed the repayment of notes one, two, and three, and Tanner guaranteed the repayment of all four notes.

BancorpSouth filed this proceeding against Kleinpeter Trace, Gladney, and Tanner on October 12, 2010, seeking to collect the amounts owed under notes three and four, to foreclose on the mortgages securing those notes by ordinary process, and to enforce the guaranty obligations of Gladney and Tanner.¹ Kleinpeter Trace and Gladney responded to the bank's petition by filing an answer, exceptions, and a reconventional demand, all of which were subsequently supplemented and amended.² Tanner has not filed any responsive pleadings.

While the claims and defenses in this litigation are extensive, Gladney and Kleinpeter Trace essentially contend that they are not liable for notes three and four because Tanner, BancorpSouth, and the bank's president, Larry Denison, engaged in fraudulent acts with regard to those notes. They claim that the bank, with the

155 So.3d 619

assistance and agreement of Denison, permitted Tanner to draw money on note three for his personal use without any consideration or benefit to Kleinpeter Trace. They also allege that note four originated without their knowledge in an unauthorized attempt by BancorpSouth to collateralize unrelated Tanner loans in the amount of $2,000,000.00 that involved another project (referred to herein as “the Bluffs”) which had no connection to Kleinpeter Trace. According to the allegations, BancorpSouth and Tanner used Kleinpeter Trace's property as collateral for the unrelated Tanner loans with the expectation that a pending sale of Kleinpeter Trace's property would result in sufficient funds to pay Tanner's loans for both the Bluffs and note four. When the anticipated sale did not occur, Gladney eventually discovered the allegedly fraudulent transaction. In addition to denying any liability for notes three and four for those reasons, Gladney and Kleinpeter Trace are pursuing claims for damages against BancorpSouth, Tanner, Denison, and the bank's insurers.

Our review of the procedural history in this litigation will focus on the discovery motions that are central to this appeal. On May 25, 2012, Kleinpeter Trace and Gladney filed a motion to compel discovery responses and a motion to impose sanctions in connection with interrogatories and requests for production of documents sent to BancorpSouth on October 20, 2010, November 19, 2010, and October 28, 2011. The defendants asserted that BancorpSouth had destroyed or suppressed relevant evidence and had persistently refused to fully answer discovery and make deponents available. For support, Gladney and Kleinpeter Trace cited the belated production of a March 28, 2007 email from Tanner to Denison requesting a $2,000,000.00 loan in the name of Kleinpeter Trace to pay off or restructure various debts of Tanner with the bank involving the Bluffs project (the “Tanner/Denison email”). Kleinpeter Trace and Gladney alleged that they were not aware of the Tanner/Denison email until the deposition of Denison on January 12, 2012, and although the document was within the scope of the original October 20, 2010 discovery request, they were not provided a copy of the email until the day following the Denison deposition.

As additional support for their motions, Gladney and Kleinpeter Trace relied upon the late production of Denison's “desk file” on April 3, 2012, which was after Denison's deposition and less than 24 hours before the scheduled depositions of several bank employees, including Mark Bagwell, the loan officer who administered the Kleinpeter Trace loans. The parties were left with no alternative but to continue the depositions, and the bank allegedly failed to cooperate in rescheduling the depositions. The defendants further cited the bank's failure to produce any electronic emails and its failure to preserve electronic data, even though BancorpSouth knew as early as July of 2010 that litigation over notes three and four was imminent. The motions also asserted the bank's failure to produce relevant documentation concerning the subject loans, contending that the bank was relying on the allegedly baseless proposition that the documents were privileged and protected under LSA–R.S. 6:333(I)(2).

The defendants also pointed out in their motions the bank's destruction of Melissa Abreo's daily work file (the “Abreo file”). Abreo was an assistant to Bagwell, and her affidavit, which referenced documents in her file, was offered by BancorpSouth in support of a motion for summary judgment filed on February 22, 2012. After the summary judgment motion was filed, the bank notified the defendants that the Abreo file had been inadvertently destroyed.

155 So.3d 620

Additionally, Gladney and Kleinpeter Trace asserted that the bank had refused to provide a copy of its insurance policies on the basis that it would not provide the information until the trial court ruled on its peremptory exception raising the objection of prescription.

On the same date the defendants filed their motions, May 25, 2012, BancorpSouth filed a motion seeking a protective order prohibiting Kleinpeter Trace and Gladney from discovering documents reflecting the bank's internal evaluation, analysis or review of any loans, extensions of credit or related collateral, including the bank's internal evaluation, analysis or review of the loan transactions at issue in this case. BancorpSouth claimed that it was entitled to the protective order because the information was not discoverable or admissible in evidence pursuant to LSA–R.S. 6:333(I)(2). The bank also sought an order requiring Kleinpeter Trace and Gladney to return any documents protected under LSA–R.S. 6:333 that had inadvertently been produced during the course of discovery.

A hearing on the parties' motions was held on September 10, 2012. The trial court issued an oral ruling that same day that was reduced to a written judgment signed on October 23, 2012 (“October judgment”). The October judgment denied the bank's motion for protective order and granted the defendants' motion to compel, awarding costs and fees to Kleinpeter Trace for the preparation and filing of the motion to compel in the amount of $750.00. The judgment further ordered BancorpSouth to produce the following documents and information:

1. The identity and policies for [BancorpSouth's] insurance carriers;

2. Any and all documents previously withheld or redacted by [BancorpSouth] under La. R.S. 6:333(I)(2) ;

3. The

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