Fentriss v. Gateway Bank FSB
| Decision Date | 27 March 2018 |
| Docket Number | CASE NO. 8:15-cv-2675-T-23MAP |
| Parties | LAURENCE FENTRISS, Plaintiff, v. GATEWAY BANK FSB, et al., Defendants. |
| Court | U.S. District Court — Middle District of Florida |
Before her imprisonment for conspiring to defraud Gateway Bank, former Gateway president Poppi Metaxas persuaded Laurence Fentriss to solicit partners for Gateway's "Quick$ale" program. Under the program, a mortgage lender sold a recent mortgage to Gateway, which promptly re-sold the mortgage to Fannie Mae, Freddie Mac, or another institution. In some instances, rather than selling the mortgage outright Gateway sold a participation to another institution. The part-sale arrangement freed a mortgagee's capital and permitted the mortgagee to lend money to another consumer. In theory, Gateway profited from Quicksale by collecting servicing fees and interest during Gateway's brief ownership of the mortgage. Gateway contracted with a third party, Cenlar, to service Gateway's mortgages.
By prohibiting Gateway's ownership of too many mortgages at the same time, federal regulations administered by the Office of the Comptroller of the Currency complicated Gateway's effort to rapidly expand Quicksale. To expand the program, Metaxas searched for more banks to buy or to participate in the Quicksale mortgages. (The more participants in the program, the quicker Gateway could sell a mortgage). In 2003, Metaxas approached Anderson & Strudwick, Fentriss's former employer, about Fentriss's soliciting new Quicksale partners. In a March 6, 2003 agreement, A&S agreed to solicit banks for the Quicksale program, and Gateway agreed to pay two-tenths of a percent of the "average balance outstanding to banks referred by A&S." (Doc. 93-9 at 2) The one-paragraph agreement mentions nothing about cancellation.
When Fentriss left A&S in 2008 to open a consulting firm (CBIA Advisors, which changed its name to Tier One Partners), A&S assigned the contract to Fentriss. (Doc. 16-2) The record shows that Gateway knew about, and acquiesced in, the assignment. From 2008 until October 2013, Gateway continued to pay Fentriss for finding Quicksale partners. On some occasions, Gateway paid Tier One Partners at Fentriss's instruction. (Doc. 75 at 3-4)
Gateway's finances deteriorated after 2008. In October 2011 Gateway and the OCC agreed to a consent order, which required, among other items, that Gateway raise money. To raise money, Gateway prepared a stock offering for June 2013. In anticipation of the offering, Gateway prepared in September and December 2012 two "private placement memorandums" (Doc. 94-9), which showed an accumulated deficit of $11,686,207 for the fiscal year ending June 30, 2012. Despite the bank'sunprofitability, the board believed that stringent management could return the bank to profitability, but Gateway's fundraising effort initially generated little money.
Gateway attributes the difficulty in raising money to Fentriss's presence on Gateway's board. In addition to serving as a Gateway director, Fentriss served on the board of Progress Bank of Florida, which failed in 2010. In October 2013, the FDIC sued Fentriss and Timothy Anonick (a Gateway director and Fentriss's business partner) to recoup more than $6.3 million in losses sustained by the FDIC as a consequence of Progress Bank's failure. Case no. 8:13-cv-2692-RAL (M.D. Fla. Oct. 18, 2013). But before suing Fentriss, the FDIC threatened to assert a "cross-guaranty" against Gateway. When two banks share the same management or ownership, in some circumstances a cross-guaranty permits the FDIC to recoup from one bank's assets the losses resulting from the other bank's failure. Unsurprisingly, the impending prospect of a cross-guaranty deterred investors from buying Gateway's shares.
Although Fentriss insists that the FDIC could not lawfully impose on Gateway a cross-guaranty based on Progress Bank's failure, Gateway feared that challenging the cross-guaranty would require lengthy and costly litigation. Jim Keefe, Gateway's current chairman and a Gateway director since 2010, believes that suing the FDIC over the cross-guaranty "would have led . . . to the immediate closure of Gateway Bank." (Keefe Depo. at 105) The FDIC offered Gateway an opportunity to avoid the cross-guaranty: If Gateway removed Fentriss and Anonickfrom the board or persuaded Fentriss and Anonick to resign, the FDIC would waive the cross-guaranty.
Sometime in 2012, Gateway asked Fentriss to resign as a director. Fentriss alleges that, in exchange for Fentriss's resignation, Gateway agreed to modify the A&S contract to increase Fentriss's pay. The parties exchanged several e-mails about modifying the contract, and the record includes several draft agreements. (Doc. 91-1 at 169-180) Protracted negotiations failed to produce a written agreement about Fentriss's compensation for soliciting a Quicksale partner, but Fentriss alleges that Gateway orally agreed to pay Fentriss at least $12,000 a month under an "automatically renewing" one-year contract. Fentriss resigned as a director on July 13, 2012. In November 2013, the month after the FDIC sued Fentriss, Gateway cancelled the arrangement and stopping paying Fentriss. (Doc. 94-7) In April 2015, Gateway ended the Quicksale program.
Fentriss and Gateway both profess a willingness to sign a written contract and blame the other for the failure to reduce the purported agreement to writing. Neither Fentriss nor Gateway is without some support in the record. Jim Baxter, a Gateway director, instructed Jeff Cheung (Gateway's former CEO) to tell Fentriss and Anonick (Doc. 93-14 at 53) Anonick states that Gateway "was trying to hide the agreement from the FDIC and so that's why they were hesitant tosign it or never did sign it." (Anonick Depo. at 25) Conversely, Cheung states that Fentriss refused to sign a written agreement. (Cheung Depo. at 32-33)
Fentriss sues (Doc. 16) Gateway, Keefe, and Cheung for $3.168 million based on Gateway's failure to pay money allegedly owed under the oral contract. Fentriss calculated the demand by multiplying $12,000 times Fentriss's life expectancy in months. (Fentriss Depo. at 134) Based on his "good health," Fentriss estimates that he will live for another twenty-two years (or two-hundred and sixty-four months). (Fentriss Depo. at 134) Additionally, Fentriss claims that Gateway's oral promise of a $12,000 monthly payment fraudulently induced Fentriss to resign from the board.
Finally, Fentriss claims "fraud in the sale of securities." In June 2013 Fentriss bought $250,000 of Gateway stock; in late 2013 or early 2014, an audit of Gateway's finances showed that Cenlar, the third party that serviced Gateway's mortgages, owed Gateway about $1.1 million less than Gateway originally believed. In 2014, Gateway re-stated its finances to adjust for the accounting error.
Counter-claiming (Doc. 74) for rescission of both the oral contract and the 2003 contract, Gateway alleges that the agreements violate 12 C.F.R. § 160.130, which prohibits a bank director's receipt of "any commission, fee, or other compensation in connection with the procurement of any loan made by the savings association." Additionally, Gateway alleges that a majority of disinterested directors failed to approve the contracts, which failure purportedly renders the contracts voidable under the California Corporations Code. Asserting that the paymentsunjustly enriched Fentriss and Tier One, Gateway impleads (Doc. 74) Tier One, to which Fentriss directed payments from Gateway, and requests re-payment of at least $208,126.59 that Gateway paid Tier One at Fentriss's request between February 2009 and July 13, 2012.
Both parties analyze the breach-of-contract claim under both Florida and California law, but neither party argues for the application of a particular state's law. Florida's choice-of-law adopts the law applicable at the place the parties executed the contract.1 Lanoeu v. Rizk, 987 So. 2d 724, 727 (Fla. 3d DCA 2008) (); see also Sturiano v. Brooks, 523 So. 2d 1126 (Fla. 1988) (). Although no Florida decision appears to decide the place of execution for an oral contract, the execution of a written contract occurs "where the last act necessary to make a binding agreement takes place." D.L. Peoples Grp., Inc. v. Hawley, 804 So. 2d 561, 563 (Fla. 1st DCA 2002) (collecting decisions).
The final act necessary to create a contract was Fentriss's acceptance of Gateway's proposal, but time and circumstance have caused uncertainty about the place of acceptance. Fentriss and Keefe discussed modifying the 2003 contract while dining at a San Francisco restaurant (Doc. 103-5 at 9), but both parties agree that the dinner discussion yielded no agreement.2 According to Fentriss, the parties finalized the oral contract during the July 13, 2012 board meeting. Although Gateway's office is in Oakland, California, several directors lived elsewhere, and "most people attended by telephone." (Fentriss Depo. at 59-60) Fentriss resided in Florida on the day of the meeting and attended telephonically but cannot remember where "[he] was on that day." (Fentriss Depo. at 60)
No party presents a flight itinerary, a hotel reservation, or other documentation to establish Fentriss's location during the July 13, 2012 meeting. Because nothing in the record shows that Fentriss participated in the meeting from outside Florida or otherwise defeats the inference that Fentriss remained at home during the call, Florida law applies. Even if the choice-of-law analysis suggested...
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