Gwinnett Cmty. Bank v. Arlington Capital, LLC

• Citation: 757 S.E.2d 239,326 Ga.App. 710
• Decision Date: 28 March 2014
• Docket Number: No. A13A2397.,A13A2397.
• Parties: GWINNETT COMMUNITY BANK v. ARLINGTON CAPITAL, LLC et al.
• Court: United States Court of Appeals (Georgia)

326 Ga.App. 710

757 S.E.2d 239

GWINNETT COMMUNITY BANK

v.ARLINGTON CAPITAL, LLC et al.

No. A13A2397.

Court of Appeals of Georgia.

March 28, 2014.

Ron Charles Bingham II, Robert D. Douglass, Atlanta, Stites & Harbison, J.D. Humphries III, for Appellant.

Gerald Davidson, Jr., Andrew Dorsey Stancil, Mahaffey Pickens Tucker, Steven Arnold Pickens, Lawrenceville, for Appellees.

ELLINGTON, Presiding Judge.

Gwinnett Community Bank (“GCB”) filed suit on a note and certain guaranties and asserted claims of fraud and breach of fiduciary duty against, inter alia, the debtor, Arlington Capital, LLC, and the guarantor, Richard Tucker. In an earlier order, the trial court granted summary judgment against GCB on its claims on the note and guaranties, and GCB's subsequent appeal was dismissed, which thereby established the trial court's order as the law of the case. On remittitur, the trial court granted summary judgment against GCB on its claims of fraud and breach of fiduciary duty and denied summary judgment to GCB on three counterclaims filed by Arlington. GCB appeals these two rulings. We affirm the trial court's grant of summary judgment to Arlingtonand Tucker on GCB's claims for fraud and breach of fiduciary duty. We also hold, however, that the “law of the case” rule requires that we reverse the trial court's denial of summary judgment to GCB on three of Arlington's counterclaims. Accordingly, we affirm in part and reverse in part.

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). We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant. Home Builders Assn. of Savannah v. Chatham County, 276 Ga. 243, 245(1), 577 S.E.2d 564 (2003). Because this opinion addresses cross motions for summary judgment, we will construe the facts in favor of the appellant, GCB, in Division 1, and, in Division 2, in favor of the appellees, as appropriate.

Construed in favor of GCB, the record shows that in August 2004, Arlington Capital, LLC, whose business provides “mezzanine financing” by borrowing money from banks and lending that money to real estate clients, established a line of credit with GCB by executing a one-year, $4 million promissory note in favor of GCB (the “Arlington Note”), guaranteed by Arlington's principal, Richard Tucker. The Arlington Note was renewed annually each year through and including August 2008; each renewal was subject to a commercial security agreement. From at least 2006 forward, each security agreement provided that GCB would have a security interest in specified property that Arlington “owns or has sufficient rights in which to transfer an interest, now or in the future” including “the assignment of promissory notes and deeds to secure debt made payable to [Arlington].”

With each renewal, Arlington and Tucker also provided new financial statements and executed new notes. In each annual promissory note signed by Tucker on behalf of Arlington, Arlington warranted that “the financial statements and information I provide to you are or will be accurate, correct and complete.” In early 2009, GCB discovered for the first time that Tucker's financial statements associated with the 2007 and 2008 renewals failed to reflect that Tucker had disposed of real estate valued at approximately $6 million and that the real estate was sold for inadequate consideration, thereby depleting Tucker's net worth to a material degree.

Meanwhile, on November 21, 2006, Arlington loaned $2.5 million to non-party Shiloh Woods, LLC and, in exchange, took a $2.5 million promissory note from Shiloh Woods secured by a second priority deed to secure debt on certain property, as well as certain guaranties (the “Shiloh Woods Note and Deed”). Apparently on that same day, in exchange for a $2 million advance on the GCB line of credit, which advance was used to help fund the loan to Shiloh Woods, Arlington assigned the Shiloh Woods Note and Deed to GCB to secure further its line of credit with GCB; Arlington drafted the two assignments. During the recession, the Shiloh Woods Note and Deed, as well as the first priority position on the Shiloh Woods Deed, went into default, and in 2009, Arlington defaulted on the Arlington Note.

In May 2010, GCB filed suit on the Arlington Note and Tucker guaranties against Arlington, Tucker, and others who are not parties to this appeal. During the litigation and faced with the possible foreclosure of the first priority secured position on the Shiloh Woods Deed, which could have eliminated GCB's second priority security position, GCB agreed with Shiloh Woods to exchange/sell the Shiloh Woods Note and Deed for a form of security more acceptable to GCB, including new secured property, a new promissory note payable to GCB, and new guaranties benefitting GCB. Although GCB had met with Arlington and Shiloh Woods regarding a “settlement” of some sort, GCB failed to give Arlington and Tucker the specific notice of disposition of the Shiloh Woods collateral required by OCGA § 11–9–611(b)¹ of the Secured Transactions provisions of the Georgia Uniform Commercial Code. As a consequence, Arlington and Tucker amended their defenses and added counterclaims to assert that GCB failed to give Arlington proper notice of the sale as required by the UCC.

Specifically, in Counterclaim I, Arlington and Tucker sought damages under the UCC for alleged lost surplus value, i.e., the extent to which the Shiloh Woods Note and Deed exceeded the value of the balance due on the Arlington Note at the time that GCB sold the Shiloh Woods Note and Deed. In Counterclaims II and III, Arlington and Tucker raised claims of conversion and breach of the 2008 security agreement, respectively, and sought damages for the same alleged lost surplus value sought in Counterclaim I, as well as punitive damages arising out of the conversion. Finally, in Counterclaim VIII, Arlington and Tucker claimed that GCB breached federal privacy laws and an online “privacy statement” when GCB communicated with Shiloh Woods regarding the sale/exchange of the Shiloh Woods Note and Deed.²

Later, Arlington and Tucker moved for summary judgment on Counts I and II of GCB's complaint on two grounds: (1) that the exchange of the Shiloh Woods Note and Deed constituted a sale of a promissory note for purposes of the UCC and, pursuant to OCGA §§ 11–9–608(b)³ and 11–9–615(e),⁴ GCB was precluded as a matter of law from seeking a deficiency judgment against either Arlington or Tucker; and (2) that GCB's failure to provide notice of the Shiloh Woods sale as required by OCGA § 11–9–611 raised a presumption that the sale satisfied Arlington's contractual debt to GCB. In its first summary judgment order, the trial court cited both theories and concluded that “the creditor loses not merely the right to recover a personal judgment against the debtor, but also the right to recover the deficiency.” Accordingly, the trial court granted summary judgment to Arlington and Tucker on Counts I and II of GCB's complaint.

GCB appealed the ruling to this Court and argued that there was an issue of fact about whether it had rebutted the presumption mentioned above; neither Arlington nor Tucker cross-appealed.⁵ In response, Arlington and Tucker moved to dismiss the appeal and argued that GCB's appeal was moot because GCB failed to challenge the trial court's grant of summary judgment under OCGA §§ 11–9–608(b) and 11–9–615(e). This Court granted the motion and dismissed GCB's appeal, and the Supreme Court denied certiorari. Following the remittitur, GCB and Arlington/Tucker voluntarily dismissed some of their remaining claims and cross-claims and filed cross-motions for summary judgment or to dismiss all claims remaining between them except for Counterclaim I (UCC damages for lost surplus value).

The trial court granted summary judgment in favor of Arlington and Tucker on GCB's four remaining claims: Count V (breach of fiduciary duty against Tucker), Count VI (fraud against Tucker), Count VII (punitive damages against Tucker), and Count VIII (attorney fees against Arlington and Tucker). These four claims arose out of GCB's allegation that leading up to the 2007 and 2008 renewals of the Arlington Note, Tucker, on behalf of Arlington and himself, failed to disclose asset transfers valued at approximately $6 million, which reduced Arlington and Tucker's ability to meet their financial obligations, and that GCB would not have agreed to the 2007 and 2008 renewals had it known the truth. In its first enumeration of error, GCB appeals the grant of summary judgment as to GCB's remaining claims. In its second enumeration, GCB contends the trial court erred by denying GCB summary judgment on Counterclaims II, III, and VIII.

1. GCB contends the trial court erred by concluding that the court's earlier ruling on Counts I (breach of the Arlington Note) and II (breach of Tucker's guaranties) barred GCB from recovering on its breach of fiduciary duty claim (Count V), its fraud claim (Count VI), or its punitive damages and attorney fee claims (Counts VII and VIII). GCB also contends that the trial court erred in concluding that it cannot prevail on the tort claims because there is no evidence of a fraudulent misrepresentation or evidence that Tucker owed a fiduciary duty to GCB.

(a) Pretermitting whether the trial court properly concluded that GCB's sale of collateral in 2010 constituted a full and final satisfaction of all debts it was owed by Arlington and Tucker and, thus, eliminated any damages that GCB may have suffered from their alleged fraud, the trial court did not err in concluding that GCB presented no evidence of any material misrepresentation by Arlington or Tucker and, as a result, cannot prevail on its fraud claim.

First, as to GCB's claim that Tucker fraudulently failed to notify it that he had transferred the “River...