Landcastle Acquisition Corp. v. Renasant Bank

• Decision Date: 08 June 2020
• Docket Number: Civil Action No. 2:17-CV-275-RWS
• Citation: Landcastle Acquisition Corp. v. Renasant Bank, 465 F.Supp.3d 1329 (N.D. Ga. 2020)
• Parties: LANDCASTLE ACQUISITION CORP., Plaintiff, v. RENASANT BANK, Defendant.
• Court: U.S. District Court — Northern District of Georgia

465 F.Supp.3d 1329

LANDCASTLE ACQUISITION CORP., Plaintiff,

v.RENASANT BANK, Defendant.

Civil Action No. 2:17-CV-275-RWS

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

Signed June 8, 2020

Benjamin Edwards Reed, David C. Newman, Edward D. Burch, Jr., Smith Gambrell & Russell, LLP, Atlanta, GA, for Plaintiff.

Michael Paul Kohler, Miller & Martin, PLLC, Atlanta, GA, Robert Foust Parsley, Miller & Martin, PLLC, Chattanooga, TN, for Defendant.

ORDER

RICHARD W. STORY, United States District Judge

This case comes before the Court on both parties' Motions for Summary Judgment[Dkts. 76, 77] as well as Defendant Renasant Bank's Motion for Appeal under Section 1292(b)[Dkt. 59].After carefully reviewing the record, the Court enters the following Order.

TABLE OF CONTENTS

BACKGROUND...1336

FactualBackground...1336

1.MHS's CorporateStructure...1336

2.Hardwick's Transactions with CrescentBank...1337

3.Crescent's Takeover by the FDIC...1338

4.Default, Liquidation, and Dispute...1338

ProceduralHistory...1338

DISCUSSION...1339

I.Legal Framework: SummaryJudgment...1339

A. LegalStandard...1339

B. GoverningLaw...1339

C. Conversion...1340

D.Breach of Contract...1340

II.Threshold Arguments Concerning Successors in Interest...1341

A. D'OenchDoctrine...1341

1.D'Oench and § 1823(e)...1341

2.Application when Agent LackedAuthority...1342

B. Anti-AssignmentProvision...1344

III.Whether Hardwick Had Authority to Pledge the CD...1345

A. Hardwick's Authority under O.C.G.A. § 14-11-301(b)...1346

1.Whether Hardwick's Pledge was "Apparently Carrying on in the Usual Way the Business and Affairs" of MHS...1347

2.Whether Crescent Knew Hardwick LackedAuthority...1349

B.Whether the CD Belonged to the Firm...1350

IV.Additional Arguments ConcerningConversion...1350

A.Conversion of a CD...1350

B.Statute of Limitations...1352

V.Attorney'sFees...1352

VI.InterlocutoryAppeal...1353

A. LegalStandard...1353

B. Applicability to Order Striking ApportionmentDefense...1353

C. Applicability to CurrentOrder...1354

CONCLUSION...1355

BACKGROUND

In this case, two financial institutions—both successors in interest to the original parties—lay claim to money that Nathan Hardwick entrusted to the bank as collateral for a personal loan it extended him.According to Plaintiff Landcastle, the money did not belong to Hardwick; it belonged to his old law firm, Morris Hardwick Schneider.After Hardwick defaulted on his loan, Defendant Renasant Bank liquidated the account and claimed the money for itself.The case here concerns whether it was entitled to do so.

Factual Background

Below are the relevant facts.Because this case concerns Hardwick's authority to act as an agent, the Court begins with the firm's corporate structure.

1.MHS's Corporate Structure

In 2009, Nathan Hardwick was a named partner at Morris Hardwick Schneider, LLC("MHS"), a law firm established in 2005 through the merger of two predecessor law firms: Hardwick and Jackson, LLC, and Morris & Schneider, P.C.The firm was incorporated in Georgia as an LLC; Hardwick was a manager—one of three (along with Morris and Schneider) who were vested with authority to manage the firm's business.But the three partners did not own the firm, at least not directly.Instead, MHS's sole member (i.e., owner) was another entity, a corporation called MHSLAW, P.C., which in turn was owned by the three partners as shareholders.Hardwick owned 50% of the corporation, and Schneider and Morris owned 25% each.The shareholders also acted as directors, with Hardwick serving as president.

Various agreements governed the process by which a firm asset could be pledged.MHS's operating agreement explained that "no Manager shall cause or commit the Company" to guarantee the obligation of a person "without the affirmative vote of the Members holding a Majority Interest."[Dkt. 77-10, Exhibit 1, at Section 5.5(emphasis added) ].Because MHSLAW, P.C. was the sole member, that meant MHSLAW, P.C. would need to act to pledge an asset.MHSLAW, P.C.'s by-laws contained a nearly identical limitation: "No director shall cause or commit the Company" to guarantee the obligation of a person "without the affirmative vote of the majority of the votes entitled to be cast by the shareholders. "[Id., Exhibit 2, at Section 3.7(emphasis added) ].

Thus, consistent with the governing agreements, Hardwick could not unilaterally pledge MHS's assets to guarantee his own personal obligation; the company would need to vote, and at least one other partner would need to vote along with him in support.It is undisputed that no such vote took place for the transactions at issue here.

2.Hardwick's Transactions with Crescent Bank

In late 2009, Hardwick entered a pair of simultaneous transactions with Crescent Bank.First, he took out a personal loan, giving Crescent a promissory note in which he agreed to pay back the loan amount—just over $630,000¹ —along with interest.[Dkt. 77-6].

But the bank required Hardwick to secure the loan with some collateral.Thus, the second transaction: the bank established a time deposit account, into which was deposited the same amount as the loan: $630,000.In exchange, the bank issued a certificate of deposit, guaranteeing it would hold the money for a definite period of time and pay it back, along with interest.Though some CDs can be negotiable instruments, this one was expressly "Non-negotiable and Non-Transferable."[Dkt. 77-5].Hardwick also executed a Collateral Security Agreement to confirm that the Deposit Account was intended to secure the loan.

While it is unusual to take out a loan for the same amount as a deposit made at the same time, with the same bank, the key is this: unlike the personal loan, Hardwick was not the official depositor for the CD.Instead, it was issued to:

MORRIS HARDWICK SCHNEIDER LLC

AKA JACKSON AND HARDWICK LLC LEGACY ACCT

[Dkt. 77-5].In other words, Hardwick deposited money belonging (apparently) to MHS and then obtained a loan for himself.

Because the CD was owned by MHS, rather than Hardwick, Crescent required MHS to execute three documents (in addition to those executed by Hardwick) ensuring the pledge would be upheld.There was a Hypothecation Agreement[Dkt. 77-7] and an Assignment[Dkt. 77-9], both of which purported to grant the bank a security interest in the deposit account.In addition, there was a Resolution [Dkt 77-10], which purported to show that Hardwick, along with MHS's CFO Robert Driskell, was authorized by MHS to open deposit accounts.²All three agreements were executed in the name of "Morris Hardwick Schneider LLC AKA Jackson and Hardwick LLC."³

All three documents were signed by Hardwick as "Managing Member."

3.Crescent's Takeover by the FDIC

A few months after the transactions, in 2010, the Georgia Department of Banking and Finance closed Crescent Bank and appointed the FDIC as Receiver.At the same time, Defendant Renasant entered into an agreement with the FDIC in which it assumed certain of Crescent's assets and liabilities, including those related to Hardwick's transactions.At the time of the takeover, all the agreements concerning the transaction were included among the bank's records.However, none of MHS's or MHSLAW, P.C.'s governance documents were included, nor was there any record of any vote by the shareholders regarding the transactions.

4.Default, Liquidation, and Dispute

Hardwick subsequently defaulted on the loan when he failed to make the required payments.Then, in late 2014, when news of Hardwick's resignation and misdeeds began to emerge, Renasant liquidated the CD and applied the proceeds to offset the amount that Hardwick owed on the loan.At the time of liquidation, the CD had through interest grown to just over $640,000.⁴Renasant did not contact MHS beforehand, but it did notify the firm afterwards by mail.

MHS did not immediately respond to Renasant's letter.Instead, it assigned its claim to Landcastle Acquisition Corporation, the Plaintiff here.Landcastle then began the process of recovering the CD.It sought administrative remedies from the FDIC, which were denied.And then, in late 2017, it demanded the return of the CD.When Renasant refused to return it, Landcastle sued.

Procedural History

In its complaint, Landcastle sought to recover the CD under three alternative theories: conversion, breach of contract, and money had and received.Landcastle also brought a claim for expenses of litigation under O.C.G.A. § 13-6-11.

Renasant moved to dismiss the Complaint, and the Court dismissed the claim for money had and received, but denied the motion as to the remaining claims, noting specifically that some of Renasant's arguments were better suited for summary judgment.[Dkt. 25].Renasant then answered the complaint, asserting its various defenses.

Among those defenses was one for apportionment under O.C.G.A. § 51-12-33.Renasant argued that, if the case went to trial, the jury ought to be able to apportion some of the liability to Hardwick, the alleged bad actor.Landcastle moved to strike that defense, arguing that it was incompatible with the statute.The Court agreed and struck the defense.[Dkt. 53].Renasant has now asked the Court to certify its order striking the defense for interlocutory appeal.[Dkt. 59].

While that motion was pending, discovery concluded, and both parties have now brought Motions for Summary Judgment[Dkts. 76, 77].

DISCUSSION

The Court begins with the Motions for Summary Judgment.Landcastle believes that it has proven its claims as a matter of law because it is undisputed that, per the agreements, Hardwick lacked authority to pledge the assets as collateral.Renasant disagrees that Hardwick lacked authority.And, in addition, it raises certain affirmative defenses that it believes preclude any recovery.

Accordingly, the Court proceeds as follows: Part I presents the legal framework for summary judgment and the claims alleged;Part II addresses two of Renasant's affirmative defenses which raise threshold issues;Part III...