Horizon Financial, FA v. Hansen

• Decision Date: 11 February 1992
• Docket Number: Civ. A. No. 1:88-CV-2471-JOF.
• Parties: HORIZON FINANCIAL, F.A., Plaintiff, v. E. Lewis HANSEN and Hurt, Richardson, Garner, Todd and Cadenhead, Defendants.
• Court: U.S. District Court — Northern District of Georgia

791 F. Supp. 1561

HORIZON FINANCIAL, F.A., Plaintiff, v. E. Lewis HANSEN and Hurt, Richardson, Garner, Todd and Cadenhead, Defendants.

Civ. A. No. 1:88-CV-2471-JOF.

United States District Court, N.D. Georgia, Atlanta Division.

February 11, 1992.

COPYRIGHT MATERIAL OMITTED

Spencer J. Krupp, Spix, Krupp & Reece, Atlanta, Ga., David L. Braverman, Robert C. Seiger, Gary P. Lightman, Roger A. Brush, Klehr, Harrison, Harvey, Branzburg & Ellers, Philadelphia, Pa., for plaintiff.

Homer Lamar Mixson, Cathleen Mary Mahoney, Bondurant, Mixson & Elmore, Atlanta, Ga., for defendants.

ORDER

FORRESTER, District Judge.

This matter is before the court on defendant E. Lewis Hansen and defendant Hurt, Richardson, Garner, Todd and Cadenhead's motion for summary judgment and motion for leave to file an affidavit in support of their reply brief. This order follows oral argument and supplemental briefing. The court orally granted in part and denied in part the motion for leave a to file supplemental affidavit, stating that it would consider the affidavit of defendant Hansen only for the purposes of authenticating documents.

Plaintiff Horizon Financial, F.A. (Horizon), is a federally chartered savings and loan association with its principal place of business in Pennsylvania. Horizon is now managed by the Federal Deposit Insurance Corporation on behalf of the Resolution Trust Corporation, the receiver for Horizon Financial. Hurt, Richardson, Garner, Todd and Cadenhead (HRGT & C) is a Georgia general partnership engaged in the practice of law. Defendant E. Lewis Hansen is a HRGT & C partner who was the senior attorney rendering legal services to Brokers South, Inc. (Brokers), and other previously dismissed defendants. Brokers is a Georgia corporation with its principal place of business in Atlanta, Georgia.

I. FACTS

Defendants Hansen and HRGT & C represented Brokers in a series of three loan transactions with Horizon through which Horizon loaned Brokers approximately $23 million. Some of the proceeds of each loan were used by Brokers to purchase three portfolios of accounts receivable from Horizon. The parties executed a series of security agreements, promissory notes and related documents with each transaction. The notes were guaranteed by James Gresham, the President of Brokers, and various related corporations. As a prerequisite to closing each loan agreement, HRGT & C provided Horizon with an opinion letter concerning the transaction.

The three agreements provide that the agreements and the other loan documents, unless specifically stated to the contrary in such document, "shall be governed by and interpreted in accordance with the laws of the state of Georgia." Each agreement also provides,

All representations, warranties, covenants and agreements contained herein or in any of the other Loan Documents, or otherwise made in writing by the Company to the Bank shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of the advances.

The term "Loan Documents" refers to the

Agreement, the Notes, the Security Agreement, the Deeds to Secure Debt, and said guarantor's Security Agreements, and all other documents and agreements evidencing or relating to any and all of the Obligations or evidencing any and all security or collateral arrangement with respect to any or all of the Obligations are collectively hereinafter referred to as the "Loan Documents."

The first agreement, dated October 31, 1985, set forth the terms of a first and a second mortgage term loan and established the terms of a revolving loan. The second agreement was titled "Loan Agreement dated October 31, 1985 as amended and restated on December 6, 1985." It incorporated the terms of the first promissory note, increased the amount available under the revolving loan, and provided for an additional term loan. The third agreement was titled "Amended and Restated Loan Agreement as of July 3, 1986." It also incorporated the terms of the prior promissory notes and provided for additional loans.

Sometime after the third loan agreement was closed, several disputes arose between the parties. Plaintiff claimed that Brokers was unable to meet its obligations under the agreement. Defendants claimed that plaintiff had misrepresented the quality and payment history of the loan portfolios that Brokers purchased from Horizon. To resolve the dispute, Brokers and Horizon negotiated a "Restated Term Loan Agreement" (Restated Agreement) which consolidated the loans made under the previous agreements into three new "Credit Facilities" identified as the Real Estate Loan, the Portfolio Loan, and the Brokers Term Loan. Horizon agreed to repurchase a loan portfolio from Brokers and credited Brokers with payment of $4.8 million, leaving an outstanding balance of approximately $19 million.¹ Sandra Chitwood was substituted for James Gresham as guarantor of the debt. The parties also executed a "Mutual Release Agreement" on September 4, 1987. Neither Hansen nor anyone from HRGT & C was a signatory to the Mutual Release Agreement. As a prerequisite to the Restated Term Loan Agreement, HRGT & C again issued an opinion letter concerning the loan transaction.

Each of the first three opinion letters stated that they were furnished as a prerequisite under the loan agreement. As noted above, they also state that they are "rendered solely for the benefit of the addressee hereof in connection with the loans." HRGT & C states that it has,

relied upon the representations made by Borrower and Guarantors and the Loan Documents and ... have made no independent investigation to verify the accuracy of such representations; however, in the course of our representation of Borrower and Guarantors as hereinabove described, nothing has come to our attention which would prevent our reliance thereon.

The three letters also represent that, "nothing has come to our attention in the course of our representation of Borrower or Guarantors as herein above described which would lead us to believe that the Borrower or any of the Guarantors has committed any fraud against the bank."

The opinion letter issued with the 1987 Restated Agreement again recited that HRGT & C had relied on representations made by Brokers and the guarantors and that in the course of HRGT & C's representation, "nothing has come to our attention which would prevent our reliance thereon." HRGT & C also represented that "we have questioned Borrower and Guarantor about the accuracy and validity of such representations." One difference from the previous letters is the omission of the paragraph representing that nothing had come to HRGT & C's attention that would lead HRGT & C to believe that its clients had committed any fraud against plaintiff.

Gene Artrip and Sandra Chitwood, both former clients of defendants, participated in the negotiations leading up to the Restated Agreement. Sandra Chitwood was the sole shareholder of Brokers and served as its Secretary and Treasurer. Gene Artrip worked as a consultant for Brokers, and he and his wife, Margaret, are allegedly the sole shareholders, officers and directors of Southeast Auto Finance, Inc., an affiliated corporation. Robert Hatfield is the president of Brokers and allegedly received 100 shares of a new class of Brokers stock. James Gresham was formerly Brokers' president. He is also Margaret Artrip's brother.

Artrip has testified that he kept Hansen "informed of everything at Brokers South from the little things all the way to the big things — such as transactions with Horizon Financial...." Chitwood also conducted negotiations with Allen Hammer, an officer of Horizon, concerning the restructuring and release. Chitwood testified that there was no discussion about releasing the attorneys. When asked what her intention was, she stated, "the attorneys were not included in the release. There was no reason to include the attorneys in the release."

Chitwood testified that she, Hansen, and David Eldridge, another lawyer then associated with HRGT & C, "discussed at length the release and went over it very carefully." Chitwood further testified that she met with Hansen to go over the specifics of the final draft.

Mr. Hansen explained to me that the release covered all the employees of Brokers South and, Gene Artrip, as a consultant of Brokers South. His concern and the reasons he added Jim Clark's name was that Jim Clark was neither consultant or an employee; therefore, he might possibly not be included, and that's why his name was added individually and Mr. Gresham's was there individually.

Chitwood also testified that Hansen never indicated to her that he felt he or his law firm was included within the ambit of the release. She stated that she did not intend to release Horizon's attorney and that it was her understanding that Hansen was not released by Horizon under the document. Hammer testified that he believed Horizon released the Brokers, its principals, and one or two other individuals, but not Hansen or HRGT & C. Hansen himself has testified that he did not release Horizon in connection with the transaction and that he was not aware of any release given Horizon by HRGT & C.

The record contains an affidavit by Artrip in which he states that at the preliminary meetings held to prepare the documents for closing the Restated Agreement, David Eldridge,

specifically demanded a release of the HRGT & C law firm, including a release of the earlier opinion letters, delivered by HRGT & C law firm to Horizon Financial and the prior loan closings for Brokers South. The attorney for Horizon specifically refused to allow any release of the Hurt Richardson law firm from any obligation. The undersigned specifically remembers David Eldridge becoming visibly, almost violently, upset which the undersigned reported to E. Lewis Hansen and Sandra Chitwood.

Artrip states that he remembers Hansen coming to the closing to discuss the matter of the release with...