AgGeorgia Farm Credit v. Carter LLC (In re Carter)

• Decision Date: 05 June 2018
• Docket Number: Case No. 17–70277–JTL Administratively Consolidated,Adversary Proceeding No. 17–07014–JTL
• Citation: 586 B.R. 360
• Parties: IN RE: Jerald Walt CARTER, Carter and Sons, LLC, Debtors. AgGeorgia Farm Credit, ACA, Plaintiff, v. James F. Carter, Jerald Walt Carter, and Carter and Sons Farms, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

586 B.R. 360

IN RE: Jerald Walt CARTER, Carter and Sons, LLC, Debtors.AgGeorgia Farm Credit, ACA, Plaintiff,

v.James F. Carter, Jerald Walt Carter, and Carter and Sons Farms, LLC, Defendants.

Case No. 17–70277–JTL Administratively Consolidated

Adversary Proceeding No. 17–07014–JTL

United States Bankruptcy Court, M.D. Georgia, Valdosta Division.

Signed June 5, 2018

John T. McGoldrick, Jr., Martin Snow, LLP, Macon, GA, for Plaintiff.

John Edward Dalton, Jr., Coleman Talley LLP, Valdosta, GA, Gregory D. Taylor, Stone & Baxter, LLP, Macon, GA, for Defendants.

MEMORANDUM OPINION ON AgGEORGIA AND JAMES F. CARTER'S CROSS MOTIONS FOR SUMMARY JUDGMENT

John T. Laney, III, United States Bankruptcy Judge

This case is before the Court on cross Motions for Summary Judgment filed by AgGeorgia Farm Credit, ACA, the Plaintiff ("AgGeorgia"), and James F. Carter, a defendant. Defendants J. Walt Carter (herein "Walt Carter")¹ and Carter and Sons Farms, LLC did not oppose AgGeorgia's Motion for Summary Judgment.² The Court heard oral arguments on this matter on May 9, 2018.

Having carefully considered the arguments set forth in the parties' briefs and in oral argument, the Court has determined the matter before it is ultimately a question of law and there is no dispute of material fact. Therefore, the Court GRANTS summary judgment in favor of the Plaintiff.

I. Facts

On March 18, 2013, Carter and Sons LLC ("Carter and Sons"), an entity solely owned by Walt Carter, purchased 5.02 acres of real estate in Echols County from James Carter. (Compl. (AP No. 1) ¶ 11; Admitted in James Carter's Answer (AP No. 11) ¶ 11). That $1.675 million purchase (the "Packing Shed Purchase") was financed through two notes. James Carter extended a $900,000 unsecured loan to Walt Carter. AgGeorgia also extended a $605,770 loan (the "2013 Loan") to Carter and Sons, which Walt Carter guaranteed. (Plaintiff's Statement of Uncontested Material Facts as Required by M.D. LBR 7056 (AP No. 35) [herein "7056 Statement"] ¶ 1; Admitted by failure to explicitly deny in James Carter's Reply to 7056 Statement (AP No. 40) ¶ 1).

The 2013 Loan was secured by various conveyances of collateral. First, Walt Carter and Carter and Sons granted a security interest in the purchased real estate. (Compl. ¶ 13; Admitted in Walt Carter's Answer ¶ 13). Additionally, to facilitate the financing of the transaction, James Carter granted a security interest in two tracts of property located in Lowndes County. (7056 Statement ¶ 4; Admitted by failure to explicitly deny in James Carter's Response to 7056 Statement ¶ 4). James Carter's grant of a security interest was not eleemosynary. The proceeds of the Packing Shed Purchase offset James Carter's prior obligation to AgGeorgia. (7056 Statement ¶ 2; James Carters' Response to 7056 Statement ¶ 2). Further, the property James Carter pledged to finance the Packing Shed Purchase was the same property pledged in his prior obligation to AgGeorgia. (Oral Arg. (AP No. 42) at 59:37).

James Carter memorialized his grant of this security interest in two documents. First, he executed a deed to secure debt (the "Deed to Secure Debt"). In addition to securing the funds financing the Packing Shed Purchase, the Deed to Secure Deed contained an "open-end clause." (7056 Statement; Admitted by failure to explicitly deny in James Carter's Response to 7056 Statement ¶ 4). That clause extended the security interest to "all additional loans and advances that may subsequently be made to [Walt Carter] (or to any one or more of the parties designated as Undersigned or Borrower, with the written consent of the remainder of said Undersigned or Borrower) by [AgGeorgia.]" (James Carter's Brief in Response to Plaintiff's Motion for Summary Judgment (AP No. 39) [herein "James Carter's Brief"] Ex. 4 Pg. 2). The Deed to Secure Debt was recorded in the Lowndes County real estate records on March 19, 2013. (Id. )

Second, James Carter signed a hypothecation agreement dated March 18, 2013 (the "Hypothecation Agreement"). (James Carter's Brief Ex. 5, Pg. 1) In the agreement, James Carter again granted a security interest in the same separately owned tracts in Lowndes County to secure Walt Carter's obligations under the 2013 Loan. Like the Deed to Secure Debt, the Hypothecation Agreement contained an open-end clause. That clause provided: "[James Carter] agrees with the Lender that, to secure payment of the Liabilities (hereinafter defined), the Lender shall have a lien upon, security title to, and a security interest in [property owned by James Carter.]" (Id. ) The agreement defined "Liabilities" as "all obligations of [Walt Carter] to the Lender, however incurred or evidenced... now or hereafter existing, or due or to become due. " (Id. ) (emphasis added). Further, the agreement stated James Carter "waives notice of the existence or creation of all or any of the Liabilities." (Id. ) The Hypothecation Agreement was recorded on March 19, 2013. (Id. )

Between 2013 and 2016 Walt Carter obtained additional loans from AgGeorgia. In 2014 Walt Carter obtained an operating loan from AgGeorgia. The record is unclear as to exactly when Walt Carter incurred that debt and the exact amount of the loan; however, the parties each acknowledged the existence of the loan in oral argument. (See Oral Arg. at 54:50–56:13 and 1:01:03–1:02:58). The parties also acknowledged AgGeorgia did not seek James Carter's consent to extend the 2014 security interest to this new loan. (Id. ). In 2015, Walt Carter obtained additional financing from AgGeorgia of approximately $802,000. For that loan, AgGeorgia did seek and obtain James Carter's consent. (James Carter's Brief, Ex. 6 and James Carter's Dep. Pgs. 49–52³ ).

In 2016, Walt Carter obtained a $1 million loan from AgGeorgia ("the 2016 Note"). (Compl. ¶ 17 and Walt Carter's Ans. ¶ 17). James Carter did not consent to the 2016 Note nor is there any evidence he was even aware of the loan. (James Carter's Resp. to 7056 Statement ¶ 6). Nevertheless, AgGeorgia contends the security interests extend to the 2016 Note by operation of the open-end clauses in the Deed to Secure Debt and Hypothecation Agreement (together "the Open–End Clauses").

II. Jurisdiction⁴

28 U.S.C. § 2201 grants federal courts the authority to enter a judgment that declares "the rights and other legal relations of any interested party" in any "case of actual controversy within [the court's] jurisdiction."⁵ AgGeorgia seeks an order determining the Open–End Clauses extend James Carter's grant of a security interest to the 2016 Note, which, of course, pertains to the "rights" or "legal relations" between the parties. Whether a case presents an "actual controversy" is a question pertaining to federal courts' constitutional jurisdiction. See Lake Carriers' Ass'n v. MacMullan , 406 U.S. 498, 506, 92 S.Ct. 1749, 32 L.Ed.2d 257 (1972) (holding a federal court must determine there is "a substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.") (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co. , 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941) ). A federal court only has jurisdiction where the plaintiff establishes it:

(1) suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc. , 528 U.S. 167, 180–81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000). Further, "a plaintiff seeking only... declaratory relief must prove not only an injury, but also a real and immediate threat of future injury in order to satisfy the injury in fact requirement." Koziara v. City of Casselberry , 392 F.3d 1302, 1305 (11th Cir. 2004). Federal Courts in this and other districts have determined that a "real and immediate threat of future injury" may arise when the rights of the parties could be conclusively determined in imminent litigation. See, e.g. , Bayer CropScience, LP v. Booth , 2005 WL 2138759, 2005 U.S. Dist. LEXIS 19411 (M.D. Ga. 2005) ; 800–Flowers, Inc. v. Intercontinental Florist, Inc. , 860 F.Supp. 128, 132 (S.D. N.Y. 1994).

Here, it is clear that the declaratory judgment the plaintiff seeks pertains to the parties' current rights and obligations under the Deed to Secure Debt and Hypothecation Agreement and that an interpretation of those rights would concretely change the parties' contractual obligations. Therefore, AgGeorgia clearly has standing to assert the action. Further, although the bankruptcy proceedings cannot terminate AgGeorgia's liens as they relate to James Carter's property, the proceeding will alter Walt Carter's obligations to AgGeorgia. This will create a default under the terms of the note and will entitle AgGeorgia to seek enforcement of its security interest. Should AgGeorgia initiate a foreclosure proceeding, it would need to determine the lien's extent. James Carter's challenge to Open–End Clause therefore creates a real and immediate threat of future injury because a successful challenge would significantly reduce AgGeorgia's collateral securing the 2016 Note.

This Court's jurisdiction over the matter, therefore, is the only remaining issue. The bankruptcy court through referral from the district court⁶ has jurisdiction over all civil proceedings "arising in or related to a case under title 11."⁷ 28 U.S.C. § 1334(b). A case is sufficiently "related to" the Bankruptcy Code "if the proceeding could conceivably have any effect on the estate being administered in bankruptcy." Estate of Jackson v. Schron (In re Fundamental Long term Care, Inc.) , 873 F.3d 1325, 1336 (11th Cir. 2017) (quoting Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) ) (emphasis in original). Therefore,...