Bank Meridian, N.A. v. Ultra Holdings, LLC (In re Earth Structures Inc.)

Decision Date29 February 2012
Docket NumberAdversary Proceeding Number: 09-80118-hb,Case Number: 09-03768-hb
CourtU.S. Bankruptcy Court — District of South Carolina
PartiesIn re: Earth Structures, Inc. Debtor. Bank Meridian, N.A. and SCBT, N.A., as successor in interest to BankMeridian, Plaintiffs, v. Ultra Holdings, LLC, Earth Structures, Inc., Steven R. Wicker, Timothy Bailey, First Citizens Bank and Trust Co., Inc., and the United States of America by and through its Agency the Department of the Treasury, Internal Revenue Service, Defendants.
SUMMARY JUDGMENT ORDER

The relief set forth on the following pages, for a total of 15 pages including this page, is hereby ORDERED.

FILED BY THE COURT
February 28, 2012

___________________________

US Bankruptcy Judge

District of South CarolinaCase No. 09-03768-B

Chapter 11

Adv. Pro. No. 09-80118-hb

SUMMARY JUDGMENT ORDER

THIS MATTER came before the Court pursuant to SCBT, N.A.'s Motion for Summary Judgment (Doc. No. 103) (the "Motion") and responses thereto.1 SCBT, N.A. ("SCBT") seeks judgment as matter of law in its favor on each of its causes of action and for judgment with regard to the counterclaims and defenses asserted by Defendants Earth Structures, Inc. ("ESI" or "Debtor") and Steven R. Wicker ("Wicker").2 After reviewing the pleadings and considering thearguments presented by the parties at the hearing, the Court concludes that SCBT's Motion should be granted in part.

I. SUMMARY OF THE FACTS3

In the remaining causes of action presented by this lawsuit, Plaintiff SCBT seeks a judgment against Defendants to collect on certain loans made to and/or guaranteed by Defendants.4 Defendants raised certain legal and equitable defenses challenging the enforceability of the loan documents.5 Defendants also counterclaimed asserting various causes of action alleging that Plaintiff BankMeridian, N.A. ("BankMeridian") breached its own contracts and committed fraud with regard to representations made about the loan documents.6

Beginning in late 2006, Plaintiff BankMeridian began a banking relationship with Ultra Holdings, LLC ("Ultra Holdings"). Wicker and Defendant Timothy Bailey both held an ownership interest in ESI and Ultra Holdings and are guarantors of loans issued by BankMeridian to their companies. BankMeridian extended several loans to these Defendants, secured byproperties and accounts receivable. In the June 2008, Wicker signed mortgages encumbering two parcels of real estate owned by Ultra Holdings for cross collateralization with ESI's line of credit. Additionally, in July 2008, BankMeridian and ESI entered into an Addendum to previous loan documents. The Addendum permitted BankMeridian to apply 75% of ESI's accounts receivable to certain obligations. The other 25% of ESI's accounts receivable was available for ESI's operating expenses. Defendants allege that they were induced into executing the cross collateralization and Addendum, and that BankMeridian's conduct before and after these agreements were signed was improper and resulted in damages to the Defendants.

Defendants allegedly defaulted on the obligations to BankMeridian and it initiated a lawsuit in state court for recovery. Thereafter, ESI filed a voluntary petition for Chapter 11 relief on May 29, 20097 , and portions of the state court action were removed to this Court, initiating this adversary proceeding.8

This case has been slowed and complicated by a number of unusual factors, including the filing of a Chapter 7 bankruptcy case in this Court by Defendant Bailey after this adversary was well underway. Thereafter, the matter was scheduled for trial; however, Plaintiff BankMeridian—the sole named Plaintiff at that time—was closed on July 29, 2011, by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (the "FDIC") was appointed as receiver.9

In relation to the failure of BankMeridian, SCBT acquired certain assets—including but not limited to the loan documents at issue in this matter—from the FDIC pursuant to the terms andconditions set forth in a purchase and assumption agreement.10 SCBT was thereafter granted permission from the FDIC to assert certain special powers in defense to Defendants' counterclaims and in response to their defenses.11 By Order entered Oct. 25, 2011, SCBT, N.A., as successor in interest to BankMeridian, was added as an additional Plaintiff.12

II. DISCUSSION

The Defendants, in their Amended Answers and Counterclaims, as well as the Response to SCBT's Motion for Summary Judgment, have taken the position that SCBT stands in the shoes of BankMeridian for the purposes of the defenses and counterclaims originally asserted by the Defendants against BankMeridian. SCBT disagrees and asserts that it is entitled to summary judgment in its favor on all causes of action, defenses, and counterclaims.

A. STANDARD OF REVIEW

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).13 "[S]ummary judgment should be granted in those cases in which it is perfectly clear that no genuine issue of material fact remains unresolved and inquiry into the facts is unnecessary to clarify the application of the law." Hyman v. Ford Motor Co., 142 F. Supp. 2d 735, 738 (D.S.C. 2001). "In deciding a summary judgment motion, the court must look beyond the pleadings and determine whether there is a genuine need for trial." Wilson Group, Inc. v. Quorum Health Res., Inc., 880 F. Supp. 416, 420 (D.S.C. 1995) (citing Matsushita Electric Indus. Co. Ltd.v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986)). If the moving party carries its burden of showing there is an absence of evidence to support a claim, then the non-moving party must demonstrate by affidavits, depositions, answers to interrogatories or admissions on file that there is a genuine issue of material fact for trial. Id. (citation omitted).

An issue of fact is "genuine" if the evidence is such that a reasonable finder of fact could return a verdict for the non-moving party. Id. "An issue of fact concerns 'material' facts only if establishment of the fact might affect the outcome of the lawsuit under governing substantive law." Id. "A complete failure of proof concerning an essential element of a cause of action necessarily renders all other facts immaterial." Id. Further, the presentation of a "mere scintilla of evidence" in support of an essential element will not forestall summary judgment. Id.

One of the purposes of summary judgment is to determine whether the parties can provide evidentiary support for their version of the facts, and if a party has credible evidence for its position, it must make the existence of such evidence known, because summary judgment cannot be defeated by the vague hope that something may turn up at trial. E. P. Hinkel & Co., Inc. v. Manhattan Co., 506 F.2d 201 (D.C. Cir. 1974). Summary judgment is intended to avoid a pointless trial in cases where it is unnecessary and would only cause delay and expense. See Morgan v. Havir Mfg. Co., 887 F. Supp. 759 (E.D. Pa. 1994).

B. COUNTERCLAIMS

Defendants assert various counterclaims14 that all arise from alleged acts and/or omissions of BankMeridian employees. Specifically, Defendant Wicker's deposition testimony indicates that Defendants' Counterclaims are based on alleged oral representations made by BankMeridianemployees in June of 2008.15

SCBT is a separate and distinct entity from the former entity that operated as BankMeridian, N.A.16 Defendants have failed to present any evidence, by way of affidavit or otherwise, that would suggest any act or omission on the part of SCBT that would give rise to the Defendants' counterclaims. After a review of the pleadings filed herein, examination of the relevant facts, and consideration of the arguments presented, the Court finds that SCBT is entitled to summary judgment on each of the counterclaims raised in the Defendants' Amended Answers and Counterclaims.17 Defendants' attempt to hold SCBT responsible for alleged acts or omissions of BankMeridian employees has not been supported by portions of the record or applicable legal authorities.

Further, in the Order entered in this matter on October 25, 2011, (Doc. No. 96), the Court noted that this adversary cannot continue at this time against BankMeridian. "The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ('FIRREA') provides an administrative process for claims against the assets of failed banks held by the FDIC as receiver." Id. Section 1821(d) of FIRREA, "sets forth a detailed series of rules under which all claims involving an insolvent institution are received and handled." Brady Dev. Co. v. Resolution Trust Corp., 14 F.3d 998, 1003 (4th Cir. 1994) (citing 12 U.S.C. § 1821(d)). Accordingly, the administrative claims process affords the Defendants a means by which to assert their claims against BankMeridian's assets. Whether or not the Defendants choose to participate in that claimsprocess is left to them; however, the Defendants cannot proceed in this matter against BankMeridian until the administrative claims process is exhausted. Id. at 1006 (interpreting 12 U.S.C. § 1821(d)(13)(D) as a jurisdictional bar until the administrative process is exhausted and holding that litigants who have a case pending against a financial institution when it is subsequently placed in receivership must exhaust FIRREA's administrative claims process in order to continue their action in federal court).18

C. DEFENSES

The Court now turns to the defenses raised in the Defendants' Amended Answers to SCBT's causes of action.19 The failure of original Plaintiff BankMeridian on July 29, 2011, and the appointment of the FDIC as receiver caused a fundamental change in this lawsuit. "The world changes when a bank goes into receivership." FDIC v. Shain, Schaffer & Rafanello, 944 F.2d 129, 134 (3d Cir. 1991). Along...

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