Aliant Bank v. Four Star Invs., Inc.
| Decision Date | 05 May 2017 |
| Docket Number | 1150823,1150822,1150824 |
| Parties | Aliant Bank, a Division of USAmeribank v. Four Star Investments, Inc., et al. Aliant Bank, a Division of USAmeribank v. Wrathell, Hunt & Associates, LLC, and Pfil Hunt Aliant Bank, a Division of USAmeribank v. Engineers of the South, LLC, and Tim Harbison |
| Court | Alabama Supreme Court |
Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter.
Appeals from St. Clair Circuit Court
Aliant Bank, a division of USAmeribank ("Aliant"), sued various individuals and business entities involved in a failed effort to develop the Twelve Oaks subdivision in Odenville, alleging that, as a result of those defendants' conspiracy and wrongful actions, Aliant's security interest in the property upon which the Twelve Oaks subdivision was to be built had been rendered worthless. The St. Clair Circuit Court ultimately entered a number of orders either dismissing Aliant's claims or entering a summary judgment in favor of the various defendants. Aliant has filed three appeals; we affirm in part and reverse in part in appeals no. 1150822 and no. 1150823 and affirm in appeal no. 1150824.
On August 15, 2007, Aliant closed a $2.3 million loan ("the Aliant loan") with Four Star Investments, Inc., a corporation that owned 197 acres of land in Odenville that Four Star Investments' president, Bobby R. Smith, Jr. ("Smith"), planned to develop into a subdivision to be known as Twelve Oaks. The proceeds of the Aliant loan were used both to pay off a previous loan on the Twelve Oaks property and to finance construction of the infrastructure for the subdivision. The Aliant loan was secured by a first-priority mortgage on the Twelve Oaks property and was also personally guaranteed by Smith, a contractor who had experience developing several other subdivisions in the St. Clair County area. Another company owned and operated by Smith, Twelve Oaks Properties, Inc., thereafter operated as the entity developing Twelve Oaks.
During this same time frame, Smith was also seeking additional financing from other sources for the development of Twelve Oaks. He eventually came into contact with Pfil Hunt, a Mobile-based investment banker with experience setting up public-private partnerships between municipalities and developers. Hunt advised Smith that one option was to create,pursuant to the Alabama Improvement District Act, § 11-99A-1 et seq., Ala. Code 1975, a type of public corporation known as an "improvement district" for which bonds could be issued and sold, thus providing immediate revenue for the construction of improvements benefiting the Twelve Oaks property. Those bonds would later be repaid by the end purchasers of the developed lots, who would be responsible for paying an annual assessment that ran with the property until the bonds were repaid. Smith ultimately elected to pursue that route, and throughout the fall of 2007 he worked with Hunt and Hunt's management company Wrathell, Hunt & Associates, LLC ("WHA"), to complete the planning of Twelve Oaks and to prepare a petition requesting that the Odenville town council formally create an improvement district that encompassed the Twelve Oaks property. As part of that process, Hunt directed Smith to Tim Harbison, an engineer with the engineering firm Engineers of the South, LLC ("EOS"), who, in November 2007, created an engineer's report detailing the feasibility of the planned Twelve Oaks subdivision. That report, based on figures provided by Smith, stated that it would cost $5,618,000 to complete the Twelve Oaks infrastructure, including roads, sidewalks, signage, street lighting, landscaping and irrigation, earthwork and aseries of lakes, water and sewage systems, a clubhouse and a swimming pool, park areas, and walking trails.
Smith thereafter petitioned the Odenville town council to create the planned improvement district, and, on January 14, 2008, the Odenville town council adopted a resolution granting the petition and creating the Twelve Oaks Improvement District ("the District"). The District's board of directors consisted of Smith; Smith's brother Billy Smith, who was the partner with Smith in B&B Construction, Inc., a construction company that had worked on the Twelve Oaks property; and Fran Mize, a real-estate broker and another business partner of Smith's responsible for marketing Twelve Oaks (hereinafter referred to collectively as "the Board members"). The District subsequently hired WHA to manage the District and EOS as the official engineer for the District, and they thereafter worked toward preparing a bond issue and finding a buyer for the to-be-issued bonds. Ultimately, Allstate Insurance Company ("Allstate") agreed to purchase $4,395,000 worth of bonds issued by the District.
In April 2008, the District petitioned the Odenville town council to adopt a resolution approving the assessments that would be used to secure and pay the bonds to be issued by theDistrict. In support of that petition, the District submitted the engineer's report prepared by Harbison and a methodology report prepared by WHA, which concluded that the $4,395,000 face value of the bonds would require a special assessment of $12,557.14 to be levied upon each of the 350 lots planned for Twelve Oaks, which assessment WHA recommended be payable at the rate of $1,318.67 per year for a 10-year period. The methodology report noted that the $4,395,000 bond issue would raise only $2,959,821 that would be available for the development of Twelve Oaks, because $993,870 of the bond proceeds would be set aside for capitalized interest and a debt-service reserve fund and the remainder of the bond proceeds would be paid out as costs and fees associated with the issuance of the bonds, which would be underwritten by another firm affiliated with Hunt -- Gardnyr Michael Capital. The methodology report also noted that an additional $2,658,179 would still be needed to finish the estimated $5,618,000 of infrastructure improvements needed to complete Twelve Oaks; however, the methodology report did not indicate where those funds would come from. The Odenville town council thereafter adopted a resolution setting the assessments at therequested level, and the District then adopted its own resolution authorizing the issuance of the bonds.
On June 6, 2008, the District filed a bond-validation petition in the St. Clair Circuit Court pursuant to § 11-81-221, Ala. Code, which "allows a public corporation to 'determine its authority to issue ... obligations and the legality of all proceedings had or taken in connection therewith,' and 'the validity of the tax or other revenues or means provided for the payment thereof.'" Houston Cty. Econ. Dev. Auth. v. State, 168 So. 3d 4, 21 (Ala. 2014) (quoting § 11-81-221). On July 2, 2008, the trial court entered a final judgment confirming the validity and enforceability of the bonds and the assessments securing them. No appeal was filed, and it was thus established that the bonds and the assessments providing for their payment could "never be called in question in any court in this state." § 11-81-224, Ala. Code 1975.
On July 14, 2008, Smith met with Doug Williamson, the Aliant officer responsible for the Aliant loan, and informed him that the bonds were ready to be issued but that the District could not proceed until Aliant executed a "mortgagee special assessment acknowledgment" that would subordinate Aliant's interest in the Twelve Oaks property to the interestsof the bondholders; Aliant alleges that this was the first time it was informed that it would be asked to subordinate its interest in the Twelve Oaks property. Williamson alleges that Smith and the District's attorney made various representations to him during that meeting and over the course of the next several days regarding the viability of Twelve Oaks and the controls that would be placed upon the use of the bond proceeds and that, based upon those and other representations made by Smith, as well as upon written representations made in the engineer's report prepared by Harbison and other materials prepared by WHA, he agreed to execute the mortgagee-special-assessment acknowledgment on behalf of Aliant, doing so on July 24, 2008.
On July 31, 2008, the bonds were issued, and the bond proceeds were split into a series of trust accounts maintained by U.S. Bank, N.A., which, pursuant to the District's agreement with Allstate, had been selected to serve as trustee of those accounts. Pursuant to the terms of the trust indenture, the District could access the $2,959,821 available for the construction of improvements only upon filing a request for reimbursement and providing appropriate documentation describing the work that had been completed andthe costs that had been incurred; such requests then had to be signed and approved by both a District board member and Harbison or another EOS engineer. Unbeknownst to Aliant, however, Odenville had, on November 26, 2007 -- before the District had even been officially created -- adopted a resolution authorizing Twelve Oaks Properties, Inc., to be reimbursed from the future bond proceeds for improvements made to the Twelve Oaks property before the bonds were issued. In accordance with that resolution, Smith filed a request for reimbursement on behalf of Twelve Oaks Properties on August 8, 2008 -- eight days after the bonds were issued -- seeking $1,181,962 from the bond proceeds for work completed before the bonds were issued. Smith approved the request on behalf of the District, and, after Harbison approved the request as District engineer, the requested payment was...
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