And v. First Bank (In re Sisson)

• Decision Date: 14 November 2013
• Docket Number: Case No. 11-12502,Adv. Proc. No. 12-5027
• Parties: In re DENTIS SISSON and CATHY SISSON, Debtors. DENTIS SISSON and, CATHY SISSON, Plaintiffs, v. FIRST BANK, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

In re DENTIS SISSON and CATHY SISSON, Debtors.DENTIS SISSON and, CATHY SISSON, Plaintiffs, v. FIRST BANK, Defendant.

Case No. 11-12502

Adv. Proc. No. 12-5027

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TENNESSEE EASTERN DIVISION

November 14, 2013

This Opinion is not intended for full-text publication.

Chapter 11

MEMORANDUM OPINION RE: FIRST BANK'S MOTION TO DISMISS ADVERSARY PROCEEDING PURSUANT TO FED. R. CIV. P. 12(B)(6)

This matter is before the Court on First Bank's motion to dismiss the debtors' adversary complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The Courtconducted a hearing on First Bank's motion to dismiss on September 5, 2013. This memorandum opinion shall serve as the Court's findings of fact and conclusions of law. Fed. R. Bankr. P. 7052.

I. FACTS

The debtors in this case, Dentis and Cathy Sisson ("Debtors"), filed a chapter 11 petition for bankruptcy relief on August 17, 2011. Prior to filing bankruptcy, the Debtors operated an over-the-road trucking business known as Sisson Transportation, Inc. The corporate assets included a fleet of tractor-trailer trucks and the corporation's place of business at 137 Law Road in Jackson, Tennessee ("Law Road Property"). Navistar Financial Corporation ("Navistar") financed the fleet of trucks, while First Bank ("Bank") financed the Law Road Property. The Law Road Property included the real property and the buildings located thereon.

Between 1998 and February 2008, the Debtors executed a total of six master promissory notes in favor of the Bank. The Debtors executed these notes in either their individual names or in the name of the corporations they owned. The notes were secured by the Debtors' personal guaranties and various pieces of collateral including a Kubota tractor, the Law Road Property, accounts receivable, and 33 vehicles and trailers.

In July 2009, Dentis Sisson notified a loan officer at the Bank, Dudley Myracle ("Myracle"), that the Debtors had made the decision to dissolve Sisson Transportation, Inc., and wind down the trucking business. In order to facilitate liquidation of the corporate assets, the Debtors entered into a Forbearance Agreement ("Agreement") with the Bank on August 7, 2009. The relevant factual recitations of the Agreement are as follows:

K. Corporation has represented to Bank that it has closed its business and is in the process of liquidating its assets, which constitutes an event of default on the Notes. Bank has agreed to allow Corporation time to complete an orderly liquidation.

L. The parties desire to provide for payment of the Notes and liquidation of Corporation's assets upon the terms of this Agreement.

M. The Notes and Loan Documents are fully enforceable and not subject to any defense or counterclaim, or any claim of setoff or recoupment.

N. The parties acknowledge that they have been represented by legal counsel of their choice, if desired, that this Agreement represents an arms-length transaction and that each party has acted in good faith in entering into this Agreement.

(Forbearance Agreement ¶¶ K-M, Bankr Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 10-2 at 2-3.)

Pursuant to the terms of the Agreement, the Bank agreed to forbear from exercising its remedies under the six outstanding promissory notes in exchange for three things. First, Sisson Corporation and the Debtors would grant the Bank liens on and security interests in additional collateral. This additional collateral included deeds of trust on the Debtors' residence and farm at 21 Sherman Blankenship Road in Beech Bluff, Tennessee, and a deed of trust on 161 acres of land on Hamlett Road. (Proof of Claim at Parts 8, 9, and 11, Bankr. Case No. 11-12502, Proof of Claim No. 12-1; Second Amended Complaint at 4, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 30.) Second, Sisson Corporation, Inc., would execute a master promissory note for a $175,000 line of credit with the Bank, the proceeds of which were to be used for expenses associated with liquidation of the corporation and its assets. Third, the Debtors and/or Sisson Corporation, Inc., would make quarterly interest-only payments throughout the duration of the forbearance period. (Forbearance Agreement at ¶¶ J, 2(c), and 3, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 10-2 at 2, 4-5.) As of August 2010, the quarterly payments amounted to $16,358.80 every three months. (See Exhibit B to Complaint for Damages and Declaratory Judgment, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 3-3 at p. 20.) The initial forbearance period was the earlier of one year or the occurrence of an event that constituted termination pursuant to the terms of the Agreement.

The Agreement also contained the following recitations:

7. Effectiveness of Loan Documents. This Agreement shall not constitute a novation of any of the Loan Documents and all the Loan Documents shall survive the execution of this Agreement and remainin full force and effect, subject only to the Bank's agreement to forbear as set forth herein. There are no oral representations or assurances from Bank to Corporation or Sissons which survive the execution of this Agreement.

8. Release and Waiver. Corporation and Sissons hereby acknowledge and stipulate that they have no claims or causes of action of any kind whatsoever against Bank. Corporation and Sissons represent that they are entering into this Agreement freely and with the advice of legal counsel if they chose. Corporation and Sissons hereby release Bank from any claims, causes of action, demands and liabilities of any kind, whatsoever, whether direct or indirect, fixed or contingent, liquidated or unliquidated, disputed or undisputed, known or unknown, which Corporation or Sissons have or may acquire in the future relating in any way to any event, circumstance, action or failure to act from the beginning of time to the date of this Agreement. The release by Corporation and Sissons herein, together with the other terms and conditions of this Agreement, are executed by Corporation and Sissons advisedly and without coercion or duress from Bank, Corporation and Sissons having determined that the execution of this Agreement is in the best economic interest of Corporation and Sissons. . (Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 10-2 at 7.)

. . . .

12. Entire Agreement. This Agreement contains the entire agreement of the parties and supercedes any other discussions or agreements relating to the subject of this Agreement.

(Forbearance Agreement at ¶¶ 7, 8, and 12, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 10-2 at 6-8.)

Six days after the Debtors and the Bank entered into the Agreement, the Debtors defaulted on their loan obligations with Navistar. In accordance with the terms of the financing agreements, Navistar repossessed twenty-one of the Debtors' trucks.

After contacting the Bank and requesting a new payment structure in August 2010, the Sissons and the Bank amended the Agreement. (See Complaint for Damages, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 3-3 at ¶ 12). The amendments extended the forbearance period through April 1, 2011, and replaced the quarterly interest-only payments with monthly payments of $2,500.00. The other relevant provisions of the amendments are as follows:

5. All other terms, conditions, covenants and warranties set forth in the Forbearance Agreement shall remain in full force and effect except as amended herein and the prior covenants and warranties are hereby renewed.

6: Corporation and Sissons hereby acknowledge and stipulate that they have no claims or causes of action of any kind whatsoever against Bank. Corporation and Sissons represent that they are entering into this Agreement freely and with the advice of legal counsel if they choose. Corporation and Sissons hereby release Bank from any and all claims, causes of action, demands and liabilities of any kind whatsoever, whether direct or indirect, fixed or contingent, liquidated or unliquidated, disputed or undisputed, known or unknown, which Corporation or Sissons have or may acquire in the future relating in any way to any event, circumstance, action or failure to act from the beginning of time to the date of this Agreement. The release by Corporation and Sissons herein, together with the other terms and conditions of this Agreement, are executed by Corporation and Sissons advisedly and without coercion or duress from Bank. Corporation and Sissons having determined that the execution of this Agreement is in the best economic interest of Corporation and Sissons.

(Amendment to Forbearance Agreement, Bankr. Case No. 11-12502, Adv. Proc. No. 12-5027, ECF No. 10-2 at 2.)

On July 20, 2011, Navistar filed suit against the Debtors based on their default on the tractor-trailer notes. Navistar sought damages from the Debtors in the amount of $470,110.95 plus interests, costs, and attorneys fees.

A short time prior to filing for bankruptcy relief, the Debtors defaulted on their payments to the Bank under the Agreement and the Bank foreclosed on the Law Road Property. That property was sold at a public auction and resulted in a deficiency balance of $400,000.00. The Bank then gave notice of its intent to foreclose on the Debtors' residence and farm, both of which had been pledged as additional collateral under the Agreement.

Before the Bank could foreclose on the additional collateral, however, the Debtors filed for bankruptcy relief. Thereafter, the Debtors sought permission from this Court to employ an attorney and pursue a cause of action against the Bank for lender liability and other issues related to execution of the Agreement. The Court granted the Debtors' motion on September 19, 2011, and on January 17, 2012, the Debtors filed a "Complaint for Damages and Declaratory Judgment" against the Bank in the Chancery Court for Henderson County, Tennessee. The Debtors sought recovery from the Bank under legal theories of bad faith...