Coleman's Service Center, Inc. v. F.D.I.C.

• Decision Date: 18 December 1996
• Docket Number: No. CA,CA
• Citation: 935 S.W.2d 289,55 Ark.App. 275
• Parties: COLEMAN'S SERVICE CENTER, INC., Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Southern Inns Management, Inc., and Audubon Federal Savings & Loan Association, Appellees. 95-819.
• Court: Arkansas Court of Appeals

Page 289

935 S.W.2d 289

55 Ark.App. 275

COLEMAN'S SERVICE CENTER, INC., Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Southern Inns Management, Inc., and Audubon Federal Savings &amp Loan Association, Appellees.

No. CA 95-819.

Court of Appeals of Arkansas,

Division III.

Dec. 18, 1996.

Robert J. Donovan, Mariana, for Appellant.

James H. Penick, III, Little Rock, Ann S. Duross Asst. Gen. Counsel, Richard H. Osterman, Jr. Senior Counsel, E. Whitney Drake, Washington, D.C., for Appellees.

ROBBINS, Judge.

This is the second appeal in this action. In Coleman's Service Center, Inc. v. Southern Inns Management, Inc., 44 Ark.App. 45, 866 S.W.2d 427 (1993), we dismissed the first appeal. This appeal follows the Monroe County Circuit Court's entry of judgment for appellee Federal Deposit Insurance Corporation (FDIC) against appellant Coleman's Service Center, Inc., in the amount of $123,135.29 as the result of Coleman's breach of a lease. For the reasons expressed below, we affirm the circuit judge's decision.

Royce Lee, J.M. Denton, Jr., Darrell Larker, and James McGowin decided to build a motel, truck stop, and convenience-store complex near the intersection of U.S. Highway 49 and Interstate 40 in Brinkley, Arkansas. Messrs. Lee, Larker, and McGowin incorporated D'Jer, Inc., for this purpose. D'Jer and Messrs. Lee, Larker, and McGowin borrowed over $4 million from Audubon Federal Savings & Loan Association on May 4, 1984, to finance the project. The note was secured by a deed of trust executed that same date which conveyed to Audubon a lien on two parcels of realty (one contained 15 acres and the other, 1.159 acres) and D'Jer's leasehold interest dated June 24, 1971, in a contiguous one-acre tract. Also, on that date, D'Jer separately assigned to Audubon all of its interest in the one-acre lease. In October 1984, D'Jer leased the entire project to appellant. Separate leases were executed for the motel, the truck center, and the convenience store. On February 21, 1985, D'Jer assigned its interest in the convenience-store sublease to Audubon as additional security. The 1984 assignment of the 1971 lease and the February 1985 assignment of the sublease were recorded in Monroe County.

The project experienced serious financial difficulties, and no payments were made on the 1984 note. In the summer of 1985, Audubon instituted foreclosure proceedings against D'Jer in Monroe County. Later, rather than pursuing foreclosure, Audubon agreed to restructure the financing on the project and entered into a purchase and sale agreement with Messrs. Lee and Denton, Troy Coleman (appellant's principal stockholder), Dr. Glen Wegener, and Dr. Herme Plunk. That agreement, dated December 31, 1985, provided that Audubon would provide enough money to permit completion of the project and that the individuals would assume the project indebtedness. This agreement also provided that the transaction was made subject to the terms, liens, and other encumbrances created by the original deed of trust, the 1984 one-acre lease assignment, and the 1985 assignment of the convenience-store lease. Although Mr. Coleman and Dr. Plunk withdrew from the project, the others completed the plan.

D'Jer transferred all interest it had in the project to Audubon on February 19, 1986. On March 12, 1986, Audubon conveyed the real and personal property involved in the project to Messrs. Lee and Denton and Dr. Wegener. At the same time, Messrs. Lee and Denton and Dr. Wegener delivered a promissory note in the amount of $5,500,000 to Audubon. This note represented the original principal plus accrued and unpaid interest. Messrs. Lee and Denton and Dr. Wegener, and their spouses, executed to Audubon a mortgage on the 15-acre and 1.159-acre parcels. The next day, these individuals conveyed the property to Hercoleed, Inc., an Arkansas corporation formed by Messrs. Lee and Denton and Dr. Wegener. On June 19, 1986, another promissory note in the amount of $100,000 was executed by Messrs. Lee and Denton and Dr. Wegener to Audubon in consideration for additional funds. On June 20, 1986, the Federal Home Loan Bank Board put Audubon into receivership. The debtors made no payments on the May 4, 1984, or the March 12, 1986, notes. The Federal Savings & Loan Insurance Corporation (FSLIC), Audubon's receiver, filed a foreclosure proceeding in federal district court on November 18, 1987; that case was ultimately settled. The FDIC succeeded the FSLIC as Audubon's receiver in 1989.

On June 1, 1989, Hercoleed, through Mr. Lee, and appellant, through Mr. Coleman, entered into a written amendment to the convenience-store lease, which substantially reduced appellant's obligation for rent. This was apparently done without any approval from, or notice to, Audubon or its receiver, even though all of the rents and profits under the lease had been assigned to Audubon.

In 1989, Marbella & Company of Arkansas, Inc., unsuccessfully tried to purchase the FDIC's interest in the project. However, in December 1989, Marbella did acquire all of the stock of Hercoleed and D'Jer and, in March 1990, acquired the fee simple interest in the one-acre parcel of land.

In 1990, the FDIC sued in federal district court for foreclosure of the deed of trust. On June 11, 1990, the federal court appointed Southern Inns Management, Inc. (SIMI), as receiver for the property. Appellant was included as a defendant in the federal court foreclosure action. In its third amended complaint, the FDIC included the following allegations against appellant:

27. As part of D'Jer's original agreement under the construction loan agreement with Audubon on the Quality Inn project, D'Jer was to assign as additional collateral any and all leases which were entered into by D'Jer on the property. On October 3, 1984 D'Jer and defendant Coleman Service Centers, Inc. entered into, inter alia, two (2) leases, one covering the convenience store facility on the subject property, and another conveying the truck repair facility on the subject property. Both leases were filed of record on November 5, 1984, and subsequently assigned to Audubon on February 21, 1985, with said assignments being filed on March 28, 1985 in the real estate records of Monroe County, Arkansas. Copies of said leases, with attached Assignments, are attached hereto as Exhibits "H" and "I", and made a part hereof. A portion of the property conveyed under the lease and assignment attached as Exhibit I, is also conveyed under the June 24, 1971 lease, and therefore is actually a sublease from D'Jer to Coleman Service Center, Inc.

28. During the later part of 1985, the parties to the transaction realized the project was not going to survive under its existing structure, and the parties agreed to restructure the project, with Audubon providing additional funds. First, D'Jer agreed to convey all of its right, title and interest in and to the real property, personal property, and leasehold to Audubon, subject to the June 13, 1984 Deed of Trust and assignments of February 21, 1985 and June 13, 1984, with Audubon agreeing to reconvey the said property to a new ownership group, while maintaining its lien priority on the real property and leasehold, by not terminating or releasing the June 13, 1984 Deed of Trust, and assignment of leasehold, or the February 21, 1985 assignments. Further, the lien created by the Assignment of Leasehold pursuant to Exhibit "G," was also preserved by a subsequent complete Assignment of Lease dated February 19, 1985, and filed of record in the Monroe County real estate records on July 28, 1986, a copy of said assignment is attached hereto as Exhibit "J", and made a part hereof. The clear intention of all parties was to maintain the June 13, 1984 lien priority on the real property, personal property, and leasehold to secure the $5,500,000 and $100,000 notes of March 12, 1986 and June 19, 1986 (referred to in paragraphs 5 and 10 hereinabove).

29. The March 13, 1986 conveyance from D'Jer to Audubon, was by Warranty Deed, with the specific exception that the transfer was made "subject to " the Deed of Trust in favor of Audubon which had been filed in Mortgage Record Book 107, Page 278 of the records of Monroe County, Arkansas. A copy of said deed is attached hereto as Exhibit "K", and made a party hereof.

30. In the alternative, as admitted on several occasions throughout the deposition of Troy Coleman, principal owner of Defendant, Coleman's Service Center, Inc. Plaintiff's decision to restructure the financing on the Quality Inn Project, in lieu of foreclosure, was made in reliance on representations and warranties made by Defendant's Royce Lee and Coleman's Service Center, Inc., through it's [sic] agent Troy Coleman, that the convenience store lease attached hereto as an exhibit to Exhibit "I" to the Complaint, was in full force and affect [sic], and that no modifications or amendments had been made thereto. As provided in the March 12, 1986 mortgage attached hereto as Exhibit "B", Plaintiff retained its lien on the leasehold including rents and profits, and a complete and full assignment of any and all interest of the lessor in and to the unmodified lease. As a result of said pledge of rents and profits, and the full and complete assignment of the leasehold, and the full knowledge of Defendant Coleman's Service Center, Inc. of said pledge and assignment, there is privity of contract between the Plaintiff and the Defendant Lessee, Coleman's Service Center, Inc., and, Plaintiff is a third party beneficiary of the convenience store lease which is the subject of this dispute.

31. Notwithstanding said representations and warranties of the Defendant's Coleman's Service Center, Inc. and Royce Lee, and Coleman's full knowledge of the pledge and assignment, without any notice whatsoever to Plaintiff, some time after Plaintiff's mortgage was filed on March 13, 1986, Defendants Coleman's Service Center, Inc. and Hercoleed, Inc. (successor...