First S. Bank v. Rosenberg

• Decision Date: 03 August 2016
• Docket Number: Opinion No. 5437,Appellate Case No. 2015–000035
• Court: South Carolina Court of Appeals
• Parties: FIRST SOUTH BANK, Respondent, v. John E. ROSENBERG and Philip J. Brust, Defendants, Of whom the Estate of Philip J. Brust is the Appellant.

418 S.C. 170

790 S.E.2d 919

FIRST SOUTH BANK, Respondent,

v.John E. ROSENBERG and Philip J. Brust, Defendants,Of whom the Estate of Philip J. Brust is the Appellant.

Appellate Case No. 2015–000035

Opinion No. 5437

Court of Appeals of South Carolina.

Heard May 9, 2016

Filed August 3, 2016

Robert Ernest Sumner, IV and E. Brandon Gaskins, both of Moore & Van Allen, PLLC, of Charleston, for Appellant.

Jeffrey L. Silver and Taylor Anthony Peace, both of Tyler Jackson Peace & Silver, LLC, of Columbia, for Respondent.

WILLIAMS, J.

The estate of Philip J. Brust¹ appeals the circuit court's grant of summary judgment in favor of First South Bank (First South) as well as its denial of Brust's motion to amend his answer and counterclaim. Brust argues the court erred in (1) granting First South's motion for summary judgment because it ignored questions of fact regarding the scope of authority granted under a specific limited power of attorney (the POA), Brust's knowledge of a guaranty's scope, the effect of subsequent loan modifications, and Brust's proposed counterclaims against First South; and (2) denying Brust's motion to amend because it incorrectly relied upon the doctrine of res judicata rather than deciding the motion under Rule 15, SCRCP. We affirm as modified.

FACTS/PROCEDURAL HISTORY

This appeal arises from a loan (the Loan) between First South and Ecological Investments, LLC (Ecological), for which First South obtained separate personal guaranties from Brust (the Guaranty) and John Rosenberg. Brust and Rosenberg were both members of Ecological. In 2005, Ecological owned 82.68 acres in Jasper County (the Property), an area that Ecological intended to convert into a "Butterfly Kingdom" for the conservation of butterflies. Prior to becoming involved with First South, Ecological obtained a loan from a separate bank in 2001.² First South offered to refinance Ecological's existing loan in 2005, providing a $2.6 million interest-only loan with a two-year term.

On January 9, 2006, First South issued a letter (the Commitment Letter) to Rosenberg and Brust, explaining First South was "pleased to commit to Ecological ... a loan commitment." The Commitment Letter set forth pertinent information related to liabilities and the Loan, including that "[p]ayment of the Loan shall be unconditionally guaranteed, jointly and severally by [Rosenberg and Brust]." The Commitment Letter further stated that, upon its acceptance, it "shall become an integral part of the Loan documents." Rosenberg and Brust signed the Commitment Letter in their individual capacities.

Brust executed the POA on January 25, 2006, appointing Finger or Rosenberg as his true and lawful attorney and granting Finger and Rosenberg the authority

to execute any and all documents, and to perform any lawful act or to execute or amend any document, instrument, or thing, which may be involved in the financing of [the Property], including, but not necessarily limited to, the power to execute ... any document, instrument, contract, [n]ote, [m]ortgage, agreement, assignment, affidavit, disclosure, etc[etera] ... or to execute any such other documents as may be necessary to close the [L]oan with First South Bank in the original principal sum of $2,600,000.00.

First South and Ecological closed the Loan on February 2, 2006. At the closing, Rosenberg executed his personal guaranty as well as the Guaranty, signing as Brust's attorney-in-fact.³ The Guaranty, executed to induce First South to make loans to Ecological, stated the following:

[Brust] absolutely and unconditionally guarantees [First South] the full and prompt payment when due ... of the debts, liabilities[,] and obligations as follows:

....

[Brust] guarantees to [First South] the payment and performance of each and every debt, liability[,] and obligation of every type and description [that Ecological] may now or at any time hereafter owe to [First South] (whether ... now exist[ing] or ... hereafter created or incurred ...).

....

The liability of [Brust] shall not be affected or impaired by ... any one or more extensions or renewals of [i]ndebtedness (whether ... for longer than the original period) or any modification of the interest rates, maturities[,] or other contractual terms applicable to any [i]ndebtedness ....

Ecological defaulted under the Loan on November 30, 2012. On March 8, 2013, First South filed a summons and complaint against Rosenberg and Brust, claiming the guaranties induced it into making the Loan, and Rosenberg and Brust were in default under their respective guaranties. First South requested judgment against Brust and Rosenberg for the remaining amount due under the terms of the Loan.⁴

Brust filed an answer to the complaint and asserted, in pertinent part, the following affirmative defenses:

20. [First South's] claim is barred, in whole or in part, because [its] alleged losses are the result of [its] failure to follow its own policies and procedures and negligence in the underwriting, approval[,] and administration of the [L]oan ....

....

23. [Defendant] Brust should be released from any obligations under the Guaranty ... to the extent [First South] breached its duty of good faith and fair dealing to ... Brust and to the extent [First South] had knowledge or should have known that ... Brust was being deceived by ... Rosenberg regarding the [L]oan and collateral or that ... Brust had been induced to enter into the Guaranty in ignorance of facts that materially increased his risks under the Guaranty.

Thereafter, First South filed a motion for summary judgment as to Brust on all claims. Brust filed a memorandum in opposition to First South's motion, claiming (1) no apparent or implied authority existed because First South did not rely upon the POA, and (2) no ratification occurred because Brust had no knowledge of the Guaranty's terms and never affirmatively acted to accept the Guaranty.

Brust later deposed Finger and Patrick Wright, First South's vice president, who stated it was unnecessary for the Guaranty to cover "continuing" and "unlimited" debts, liabilities, and obligations. Additionally, Wright stated he did not attend the closing or review the Guaranty prior to the closing.

Subsequently, Brust filed a motion to amend his answer pursuant to Rule 15(a), SCRCP, claiming the amendments neither raised novel legal issues nor prejudiced First South. With the motion, Brust attached his proposed amended answer, in which he sought to assert the following counterclaims against First South:

90. First South breached [its duty to act reasonably and comply with standard banking practices] by failing to adhere to its own policies and procedures, and failing to comply with the standard banking practices for the underwriting, closing[,] and administration of the loans in question.

....

95. First South has breach[ed] any contractual obligations that exist pursuant to the Guaranty or otherwise by failing to adhere to the specific contractual obligations set forth in the Guaranty and for breaching the covenant of good faith and fair dealing ....

Four days after Brust filed his motion to amend, the circuit court held a hearing on First South's motion for summary judgment.⁵ At the hearing, First South contended the POA was unambiguous, Rosenberg had the authority to bind Brust under the Guaranty, and Brust was responsible for the debt. Brust asserted the following arguments in response: Rosenberg did not have actual authority to bind Brust under the Guaranty because the Guaranty's terms exceeded the scope permitted by the POA, and the POA was required to specifically grant authority to execute a Guaranty; no apparent authority existed because First South did not rely upon the POA; the Guaranty unconditionally guaranteed any future debts, which was not permitted by the POA; First South did not know of the POA's existence or that Rosenberg signed the Guaranty on behalf of Brust until after the closing, showing it did not rely upon the POA; any reliance by First South was unreasonable because it failed to follow standard banking procedures in determining Rosenberg's authority; and material modifications and "changes" to the Loan released Brust from liability under the Guaranty.

According to Brust, most of these issues involved questions of fact that should not be determined at the summary judgment stage. Brust also stated, "[W]e did raise affirmative defenses ... [a]nd so we decided to re-style it as a counterclaim .... So all of those allegations were pled ... [, and w]e intend to re-style them as counterclaims as soon as the court can hear us on th[e motion to amend]." The circuit court took the matter under advisement.

The circuit court subsequently issued an order granting First South's motion for summary judgment. The court found, inter alia , Brust's proposed counterclaims were identical to two of his original defenses, the POA vested in Rosenberg the authority to sign the Guaranty on Brust's behalf, and Ecological defaulted under the Loan. The court concluded (1) the POA was clear and unambiguous and granted Rosenberg actual authority to sign the Guaranty on Brust's behalf, (2) Rosenberg had apparent authority to bind Brust under the Guaranty, (3) First South relied upon Brust's representations when it closed the loan, (4) Brust ratified the Guaranty by enjoying the Loan's benefits and not repudiating the Guaranty, (5) First South breached no duty, (6) no renewal or modification released Brust from liability under the Guaranty, and (7) the proposed counterclaims "contain[ed] the same material allegations as the defenses set forth in the [original answer] ... and shall be treated as the defenses contained in the [original a]nswer and disposed of."

Thereafter, the circuit court held a hearing on Brust's motion to amend. Brust then filed a motion to alter or amend the order granting summary judgment, alleging a multitude of errors in the court's order. The court issued an order denying the motion to amend, ruling the...