Caploc, LLC v. McCord

Decision Date03 March 2020
Docket Number17 Civ. 5788 (AT)
PartiesCAPLOC, LLC, Plaintiff, v. RON McCORD, and FIRST MORTGAGE COMPANY, LLC, Defendants. FIRST MORTGAGE COMPANY, LLC, Third-Party Plaintiff, v. ELI GLOBAL, LLC, Third-Party Defendant.
CourtU.S. District Court — Southern District of New York

ANALISA TORRES, District Judge:

Plaintiff, CapLOC, LLC ("CapLOC"), brings this action alleging that Defendants, Ron McCord and First Mortgage Company, LLC ("FMC"), breached their agreements and committed fraud when FMC and McCord transferred millions of dollars in unauthorized mortgage loans to CapLOC and caused CapLOC to fund these unwanted loans. Compl. at 1-2, ECF No. 41. FMC subsequently filed a separate action against Third-Party Defendant, Eli Global, LLC ("Eli Global"), a private equity firm that allegedly owns CapLOC. See No. 17 Civ. 7335. The Court consolidated the separate action with this case. ECF No. 64.

Now before the Court are CapLOC's motion for summary judgment, ECF No. 227, Eli Global's motion for summary judgment, ECF No. 230, and FMC and McCord's motion for partial summary judgment, ECF No. 233. For the reasons stated below, each of these motions is GRANTED in part and DENIED in part.

I. Procedural History

On July 31, 2017, CapLOC commenced this action by filing a complaint against FMC, McCord, American Southwest Mortgage Corp. ("ASMC"), American Southwest Mortgage Funding Corp. ("ASMFC"), Citizens State Bank ("Citizens"), SpiritBank ("Spirit"), and CBB, Inc. ("CBB"). ECF No. 1. CapLOC moved by order to show cause for a prejudgment attachment against FMC. ECF No. 17. On August 22, 2017, CapLOC moved for a temporary restraining order and a preliminary injunction against FMC. ECF No. 36. The Court denied CapLOC's applications for a prejudgment attachment and preliminary relief. ECF No. 44. On August 28, 2017, CapLOC sought, and the Court granted, voluntary dismissal of all claims against ASMC, ASMFC, Citizens, and Spirit. ECF Nos. 40, 42. That same day, CapLOC filed an amended complaint against FMC, McCord, and CBB. Compl., ECF No. 41. CapLOC voluntarily dismissed all claims asserted against CBB on October 4, 2017. ECF No. 62.2

On September 21, 2017, McCord and FMC filed counterclaims against CapLOC, alleging breach of contract, breach of the duty of good faith and fair dealing, and tortious interference.Counterclaims, ECF No. 59 ¶¶ 204-235. On October 25, 2017, FMC filed a third-party complaint against Eli Global, alleging fraud, tortious interference, and breach of the duty of good faith and fair dealing. ECF No. 73 ¶¶ 59-97. CapLOC moved to dismiss McCord and FMC's counterclaims, ECF No. 77, and Eli Global moved to dismiss FMC's third-party complaint, ECF No. 103.

On June 12, 2018, the Court granted CapLOC's motion to dismiss FMC's counterclaims, and dismissed all of FMC's causes of action against Eli Global except for its claim of breach of the duty of good faith and fair dealing. June 12, 2018 Opinion at 24, ECF No. 137.

II. Facts

The facts discussed in this opinion are undisputed except where otherwise noted. The Court has drawn all reasonable inferences in favor of the nonmovant. See Costello v. City of Burlington, 632 F.3d 41, 45 (2d Cir. 2011).

CapLOC, a North Carolina-based warehouse lender,3 provided loan funding to FMC, an Oklahoma-based mortgage lender, which is owned and operated by McCord. CapLOC 56.1 ¶ 1, ECF No. 220-1; FMC 56.1 ¶¶ 1-3.4

Non-parties, ASMC and ASMFC, are FMC's former warehouse lenders, and provided FMC funding through their parent companies, Spirit and Citizens, respectively. CapLOC 56.1 ¶ 2. Non-party CBB conducted the operations of ASMC and ASMFC on behalf of Citizens and Spirit. FMC 56.1 ¶ 11.5

CapLOC alleges that FMC entered into warehouse lending agreements with ASMC and ASMFC on August 3, 2000 and September 5, 2013, respectively. Compl. ¶¶ 12-16; see also CapLOC 56.1 ¶ 6 (ASMC functioned as FMC's former warehouse lender). Pursuant to those lending agreements, CBB allegedly acted as the manager and custodian agent for ASMC and ASMF, and that CBB received a fee for every loan each company funded. Compl. ¶ 20. Richard Carrington, CBB's owner, was also an officer and board member of both ASMC and ASMFC, as well as a decades-long friend of McCord. CapLOC 56.1 ¶ 4.

FMC's head of accounting testified that FMC experienced financial difficulties in the fall of 2016 and was undertaking "cash management triage." CapLOC 56.1 ¶ 10; Melinda Bisarek Dep. 71:14-74:10, Markham Decl. Ex. 18, ECF No. 221-3.6 CapLOC asserts, and FMC disputes, that FMC began taking payments it received from borrowers and using the money to cover operational expenses rather than remitting the payments to ASMC or ASMFC. CapLOC 56.1 ¶ 11; Richard Carrington Dep. 85:6-88:2, 100:4-106:19, Markham Decl. Ex. 6, ECF No. 221-3; Bisarek Dep. 73:1-75:19, 76:20-79:25.7

By the end of 2016 or early 2017, ASMC internally classified various FMC loans, collectively worth millions of dollars, as "out of trust."8 CapLOC 56.1 ¶¶ 12-13. In addition tothe out-of-trust loans, ASMC and ASMFC identified certain undesirable or less valuable loans on Spirit's mortgage warehouse line with ASMC. Id. ¶ 14. At the end of 2016, ASMC made resolution of the out-of-trust loans a priority. Id. ¶ 15. ASMC gave notice that it would cease funding FMC loans by the end of March 2017. Id. ¶ 16.

Meanwhile, as of late 2016 or early 2017, FMC, McCord, and Eli Global began negotiating a deal in which Eli Global would acquire FMC. Compl. ¶ 29; Third-Party Compl. ¶¶ 28-33, 39, ECF No. 99. On January 4, 2017, Eli Global and McCord signed a letter of intent regarding Eli Global's potential acquisition of FMC. CapLOC 56.1 ¶ 18. Specifically, the letter of intent set forth aggregate purchase price for FMC, based on a valuation of $55,434,000, as well as the plan for FMC to terminate its existing relationships with warehouse facilities, and instead form an exclusive warehouse lending agreement with an affiliate designated by Eli Global. Letter of Intent ¶¶ 1-3, ECF No. 59-3. McCord would also be hired by Eli Global in this contemplated deal. Id. ¶ 2.

Eli Global agreed to fund, through the designated affiliate, FMC loans with a warehouse line of credit. Compl. ¶ 39; Third-Party Compl. ¶ 48. CapLOC, the designated affiliate, was formed on March 14, 2017. CapLOC 56.1 ¶ 25.9 CapLOC asserts that, at that time, it was unaware of that some of FMC's loans with its prior warehouse lenders were out of trust. Id. ¶ 22.

On March 30, 2017, CapLOC and FMC signed a Master Repurchase Agreement ("MRA"), which finalized the warehouse facility agreement—that is, the terms by which CapLOC would fund FMC loans. CapLOC 56.1 ¶ 27; MRA, ECF No. 99-1; Third-Party Compl. ¶¶ 41, 43; Compl. ¶¶ 42-43. CapLOC alleges that FMC's warehouse lending agreements withASMC and ASMFC ended as of March 30, 2017, the day FMC and CapLOC entered into the MRA. Compl. ¶ 49. The MRA identifies CBB as the loan custodian, FMC Counter 56.1 ¶ 24, ECF No. 224-1, which CapLOC alleges is analogous to the position CBB held in the agreements between FMC and ASMC and ASMFC, Compl. ¶ 50.

On the same day the MRA was executed, CapLOC, CBB, and FMC entered into a Service Agreement. Service Agreement, ECF No. 19-5. Pursuant to the agreement, CapLOC agreed to use CBB and Carrington as warehouse lending agents while CapLOC built its operations. CapLOC 56.1 ¶ 32; FMC Counter 56.1 ¶ 25; Compl. ¶ 35.

Also that same day, McCord signed a guaranty with CapLOC, in which he "agree[d] to guarantee [FMC]'s obligations under the [MRA]." McCord Guaranty at 1, ECF No. 99-5.

Within 30 days of the parties' execution of the MRA, CBB sent funding requests to CapLOC amounting to approximately $34 million, payable to Spirit and Citizens, which CapLOC fulfilled by authorizing wire transfers. CapLOC 56.1 ¶ 38; FMC Counter 56.1 ¶ 31. CapLOC claims that this payment of $34 million went toward loans that turned out to be undesirable and out-of-trust. CapLOC 56.1 ¶ 38.10 These loans (the "Disputed Loans") are at the heart of the parties' dispute in this litigation. About half of the $34 million went toward the purchase of out-of-trust loans (the "Out-of-Trust Loans"). FMC Counter 56.1 ¶ 32. Either ASMC or ASMFC was the previous owner of the Out-of-Trust Loans, FMC Counter 56.1 ¶ 28, and the Disputed Loans were originated by FMC during its warehouse lending agreements with ASMC and ASMFC. CapLOC 56.1 ¶ 44. Thus, in fulfilling various funding requests sent by CBB, CapLOC purchased, from either ASMC or ASMFC, $34 million worth of Disputed Loans, $17 million of which were Out-of-Trust Loans.

Shortly after its purchase of the Disputed Loans, CapLOC sought additional information from FMC regarding the Disputed Loans. CapLOC 56.1 ¶ 40.11

The MRA defines an "Eligible Mortgage Loan" as a mortgage loan that "(a) is an Approved Mortgage Product, (b) complies with the representations and warranties set forth [i]n Schedule 1 hereto, (c) is not a Defective Mortgage Loan, and (d) is not a Delinquent Mortgage Loan." MRA § 2 (emphasis omitted). The MRA also requires FMC to notify CapLOC "[a]s soon as reasonably possible," if "any Purchased Mortgage Loan has become a Defective Mortgage Loan." Id. § 12(c)(ii)(F); see also id. § 2 (defining "Defective Mortgage Loan); id. § 13(n) (stating that an "Event of Default" occurs when a loan becomes "[d]efective" and is not repurchased within one business day).

On June 6, 2017, CapLOC ceased all funding for FMC loans. CapLOC 56.1 ¶ 49. On June 21, 2017, CapLOC issued a Notice of Default to FMC. FMC Counter 56.1 ¶ 30.

On July 21, 2017, CapLOC accelerated the balance that it claimed FMC owed. CapLOC 56.1 ¶ 48. CapLOC asserts that, between March 30, 2017 and June 6, 2017, CapLOC funded 2,513 loans, totaling more than $468 million. CapLOC 56.1 ¶ 37.12

Meanwhile, negotiations between Eli Global and FMC stretched into summer 2017, but were ultimately unsuccessful, and Eli Global did not purchase FMC. Counterclaims ¶¶ 165-170. FMC...

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