Griffin v. State Bank of Cochran

• Decision Date: 17 October 2011
• Docket Number: Nos. A11A1466,A11A1467.,s. A11A1466
• Parties: GRIFFIN et al. v. STATE BANK OF COCHRAN.State Bank of Cochran v. Mal Rentals, LLC et al.
• Court: Georgia Court of Appeals

11 FCDR 3257

312 Ga.App. 87

718 S.E.2d 35

GRIFFIN et al.

v.STATE BANK OF COCHRAN.State Bank of Cochran

v.Mal Rentals, LLC et al.

Nos. A11A1466

A11A1467.

Court of Appeals of Georgia.

Oct. 17, 2011.

Smith Conerly, Charles Samuel Conerly, Randall Cade Parian, Carrollton, for appellant.

Kilpatrick, Townsend & Stockton, Burleigh Lavisky Singleton, John Robert Gibson, Atlanta, for appellee.

MILLER, Presiding Judge.

State Bank of Cochran d/b/a First Laurens Bank (“FLB”) filed suit against MAL Rentals, LLC and Loretta M. Griffin to collect on a promissory note. In their answers to the complaint, MAL Rentals and Griffin raised several defenses, including estoppel. Griffin also asserted a counterclaim, alleging fraudulent inducement and securities fraud in violation of the former Georgia Securities Act of 1973. FLB filed a motion for summary judgment as to its collection claims and the counterclaim. The trial court denied FLB's motion as to its collection claims, but granted the motion as to the counterclaim. These cross-appeals then ensued.

In Case No. A11A1466, Griffin contends that the trial court erred in granting FLB's motion for summary judgment as to her counterclaim. In Case No. A11A1467, FLB contends that the trial court erred in denying its motion for summary judgment as to its collection claims alleging breach of the promissory note and guaranty and entitlement to attorney fees. For the reasons that follow, we affirm the grant of summary judgment in FLB's favor as to the counterclaim in Case No. A11A1466; we reverse the denial of summary judgment in FLB's favor as to its collection claims in Case No. A11A1467.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9–11–56(c). A de novo standard of review applies to an appeal from a grant or denial of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant.

(Footnote omitted.) Baxter v. Fairfield Financial Svcs., 307 Ga.App. 286, 287, 704 S.E.2d 423 (2010).

So viewed, the record evidence shows that in 2002, Griffin began serving as a member of the board of directors of Community Bank of West Georgia (“CBWG” or “the bank”) and its holding company, Community Bancshares of West Georgia, Inc. (“Community Bancshares”) (collectively, “the boards”). Griffin regularly attended the board meetings, served as the chairperson of several of the board's committees, and made it a practice to know about the financial positions of CBWG and Community Bancshares. While serving on the boards in 2003, Griffin made an investment by purchasing common stock in Community Bancshares.

In 2006, the boards decided to hire a consultant, Charles Stevens, to advise them regarding CBWG and Community Bancshares operations and to assist in their efforts to sell the CBWG bank. Stevens provided consultancy services to the boards through his company, Stevens & Company. In addition to operating his consulting company, Stevens also served as a member of the advisory board of FLB.

At some point while Stevens was serving as the boards' consultant, Stevens informed the boards' members that a sale of CBWG was imminent and that interested purchasers had been performing due diligence in anticipation of buying CBWG. Pending a potential sale, however, additional capital was necessary to fund CBWG's continuing operations. According to Griffin, Stevens advised the boards' members to purchase additional shares of stock in order to generate the necessary capital. Griffin followed Stevens's recommendation and purchased additional Community Bancshares stock in 2007 and 2008.

Griffin gave deposition testimony that she obtained a loan from FLB in order to make her 2007 and 2008 stock purchases.¹ Thereafter, Griffin transferred the stock into the name of MAL Rentals, a company that she owned and operated.

In May 2009, FLB agreed to refinance Griffin's original loan. The refinanced loan was placed in the name of MAL Rentals as the debtor. On behalf of MAL Rentals, Griffin executed a promissory note (“the Note”) that set forth the terms of the refinanced loan. Griffin also executed a security agreement that pledged the stock as collateral securing the refinanced loan. In addition, Griffin signed a personal guaranty (“the Guaranty”) accepting unconditional liability for repayment of the loan, including “all principal, accrued interest, attorneys' fees and collection costs[.]”

Pursuant to the terms of the Note, FLB made MAL Rentals a loan in the amount of $249,542.50. The loan was to be repaid on May 11, 2010, with interest accruing at a rate of 6.000 percent per annum. “After maturity or acceleration [of the Note], interest ... accrue[d] on the unpaid [p]rincipal balance ... at 18.000 percent until paid in full.” The Note further defined several conditions of default, including in pertinent part, MAL Rentals's “fail [ure] to make a payment in full when due” and FLB's “determin[ation] in good faith that the value of the [collateral] has declined or is impaired.” In the event of a default, the Note authorized FLB to accelerate the Note, making all or any part of the amount owed immediately due. Upon default, FLB was also authorized to recover all expenses related to collection of the debt, including “attorneys' fees, court costs, and other legal expenses.” The Note specified that the amount of attorney fees owed would be “15 percent of the [p]rincipal and interest owing[.]” The Note further contained an “Integration” clause, stating that “th[e] Note and the other Loan Documents [were] the complete and final expression of the agreement” between the parties. The Guaranty contained a similar “Integration” clause.

In June 2009, CBWG was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation was named as receiver. In light of CBWG's closure, FLB determined that the stock collateral securing the debt was rendered worthless, and thus, a condition of default had occurred pursuant to the terms of the Note. On July 28, 2009, FLB sent Griffin a letter notifying her that a default had occurred since “the collateral decline[d] in value.” The letter required Griffin to provide substitute collateral within ten days and advised her that FLB would honor the repayment terms of the Note, conditioned upon her substitution of collateral meeting the margin requirements of the security agreement. Griffin and MAL Rentals failed to provide substitute collateral, as requested. On September 1, 2009, FLB sent Griffin a second letter, again requesting that MAL Rentals cure the default within ten days by substituting adequate collateral. The second letter further advised that the debt had been accelerated so as to render the debt immediately due and payable and that upon failure to cure the default or to pay the accelerated balance, FLB would pursue its legal remedies, including collection of the unpaid balance, late fees, attorney fees, collection costs, and interest.

When MAL Rentals and Griffin still failed to provide substitute collateral or repay the indebtedness, FLB filed the instant collection lawsuit to enforce the terms of the Note and the Guaranty. FLB's complaint alleged claims for breach of the Note, breach of the Guaranty, and entitlement to attorney fees. MAL Rentals and Griffin raised several defenses, including estoppel. Griffin also asserted a counterclaim, alleging fraudulent inducement and securities fraud in violation of the former Georgia Securities Act of 1973. FLB filed a motion for summary judgment. The trial court denied FLB's motion as to its collection claims, but granted the motion as to Griffin's counterclaim.

Case No. A11A1466

1. Griffin contends that the trial court erred in granting summary judgment in FLB's favor as to her counterclaim for fraudulent inducement and securities fraud. We discern no error.

(a) “The tort of fraud has five elements: a false representation by a defendant, scienter, intention to induce the plaintiff to act or refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff.” (Citations and punctuation omitted.) Fuller v. Perry, 223 Ga.App. 129, 131(1), 476 S.E.2d 793 (1996). To survive a motion for summary judgment, Griffin was required to present some evidence of each element of the fraud tort. See id. The grant of summary judgment was proper if one essential element of the claim was eliminated. See id.

Here, Griffin's fraud claim was based, in part, upon Stevens's alleged misrepresentation that CBWG was going to sell, which purportedly induced Griffin to obtain the loan for her purchase of additional stock used to fund CBWG's continued operations pending a potential sale. Griffin's claim in this regard, however, was legally inactionable.

Regardless of whether Stevens's alleged misrepresentation could be attributed to FLB,² “[i]t is axiomatic that a false representation made by a defendant, to be actionable, must relate to an existing fact or a past event. Fraud cannot consist of mere broken promises, unfilled predictions or erroneous conjecture as to future events. Representations concerning expectations and hopes are not actionable.” (Citations and punctuation omitted.) Fuller, supra, 223 Ga.App. at 131(1), 476 S.E.2d 793. Griffin's deposition testimony acknowledged that she was aware that no final sale of CBWG had occurred at the time of the alleged misrepresentation and when she obtained the loan. The evidence reflected that Stevens's alleged prediction that CBWG was going to sell amounted to mere prospect, expectation or erroneous conjecture. As such, the representation was not actionable. See id.

“It is true that claims of fraud arising from a representation of a future event made with knowledge that it is false or intention not to perform may be actionable.” (Citation omitted.) Fuller, supra, 223 Ga.App. at 131–132(1),...