LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC
| Decision Date | 31 March 2014 |
| Docket Number | Civil Action No. 1:12–CV–2545–AT. |
| Citation | 17 F.Supp.3d 1289 |
| Parties | LSREF2 BARON, LLC, Plaintiff, v. ALEXANDER SRP APARTMENTS, LLC, Defendant/Third–Party Plaintiff, Hudson Americas LLC, Third–Party Defendant. |
| Court | U.S. District Court — Northern District of Georgia |
Lisa Fivars Harper, Taylor, Feil, Harper, Lumsden & Hess, PC, Atlanta, GA, for Plaintiff.
Andrew Mabon Beal, Beal Law Group, Nicholas Prince Smith, Nicholas P. Smith, Attorney at Law, Atlanta, GA, for Defendant/Third–Party Plaintiff.
This case arises out of Defendant Alexander SRP Apartments, LLC's (“Alexander”) default on a nearly $17 million loan from Regions Bank (“Regions”) to fund the development of the Odyssey Lake Apartments in Brunswick, Georgia (“Apartment Complex” or “Property”). Plaintiff LSREF2 Baron, LLC (“LSREF”), Regions's putative successor in interest, foreclosed on the property with the assistance of Hudson Americas LLC (“Hudson”) and purchased the real and personal property at the foreclosure sale. LSREF then brought this action arguing that, by virtue of Alexander's default, it is also entitled to about $370,000 worth of rents collected after default and before foreclosure. Alexander disagreed and countered with a wrongful foreclosure claim against LSREF and Hudson Americas LLC (“Hudson”), alleging that LSREF and Hudson's conduct at the foreclosure sale chilled the bidding, resulting in a grossly inadequate sales price of $25,000 for personal property worth substantially more than that.
LSREF and Hudson have moved for summary judgment. [Doc. 54].1 For the reasons that follow, the Court finds that a genuine issue of fact exists as to whether LSREF is entitled to the disputed rents and thus DENIES LSREF and Hudson's motion to the extent it seeks summary judgment on its claim for declaratory relief. In addition, a reasonable jury could conclude, based on the evidence in the record, that LSREF's conduct at the foreclosure sale chilled the bidding in violation of LSREF's duty to exercise the foreclosure sale fairly. However, the record contains insufficient evidence to attribute this wrongful foreclosure liability to Hudson. For these reasons, the Court GRANTS IN PART and DENIES IN PART LSREF and Hudson's Motion for Summary Judgment seeking to dismiss Alexander's wrongful foreclosure claim and DISMISSES this claim against Hudson, only.
LSREF initiated this suit seeking a post-foreclosure declaratory judgment on July 23, 2012. (Compl., Doc. 1.) LSREF sole substantive claim was that it was entitled to the rents collected from the time Alexander went into default until the foreclosure sale (the “Rents”), totaling about $370,000. (Id. Count I.) LSREF asserted that, by virtue of being assigned the interest in an “Assignment of Leases and Rents” (“ALR”), the Rents automatically and unconditionally became its property at the moment of default. (Id. ¶ 41.) Alternatively, LSREF maintained that the Rents became part of the foreclosure estate and thus, it purchased the Rents when it bought the property at the foreclosure sale. (Id. ¶ 42.)
In response, Alexander filed an Answer, Counterclaim against LSREF and a Third–Party Claim against Hudson on August 24, 2012. (Answer and Countercl., Doc. 7.) Alexander challenged LSREF's assertion that the ALR entitled it to possession of the Rents and disputed LSREF's contention that it properly foreclosed on the Rents. (Answer ¶¶ 41–42.)
It also lodged a wrongful foreclosure claim against LSREF and Hudson, arguing that the two violated their statutory duty to exercise the power of sale fairly by employing a confusing foreclosure notice and then splitting the estate in two lots, selling the personal property to LSREF for a grossly inadequate price. (Countercl. ¶¶ 43–55.)
LSREF and Hudson moved to dismiss the Counterclaim, (Doc. 14), and on February 12, 2013, the Court granted LSREF and Hudson's motion (Feb. 13, 2013 Ord., 15 F.Supp.3d 1295, at 1306, 1308, 2013 WL 8335728, Doc. 42). The Court held that the foreclosure notice as published was not confusing and thus its publication could not be the basis for Alexander's wrongful foreclosure sale. (Feb. 13, 2013 Ord., 15 F.Supp.3d at 1306.) The Court also dismissed Alexander's wrongful foreclosure claim because Alexander failed to allege a causal connection between LSREF and Hudson's conduct at the Foreclosure Sale and the purportedly chilled or depressed final price. (Id. at 1306–07.) In particular, the Court noted that Alexander had not alleged whether other parties were present and ready to bid on the personal property or that any party actually relied on LSREF's bid in deciding not to offer a higher one. (See id. )
Despite these deficiencies in the Counterclaim, the Court granted Alexander leave to amend based on additional facts asserted in Alexander's response brief that could support a wrongful foreclosure claim premised on bid-chilling. (Id. at 1306–09.) The Court highlighted several such allegations including LSREF and/or Hudson's last-minute decision to split the property into two lots and its failure to indicate the allegedly substantial value of the personal property before announcing a surprisingly low opening bid of $25,000 given the assets sold. (Id. ) The Court noted, however, that as currently pled, it was unclear what role Hudson played in the foreclosure. (Id. at 1308 n. 15.) Accordingly, the Court instructed Alexander to expressly identify the facts that would give rise to claims against Hudson for actions conducted the day of the sale. (Id. )
On February 28, 2013, Alexander filed its Amended Counterclaim and Third–Party Complaint (“Amended Counterclaim”). In Alexander's Amended Counterclaim, it primarily alleged that LSREF's and, to some extent, Hudson's wrongful conduct at the foreclosure sale chilled the bidding and thus resulted in a grossly inadequate sales price for the personal property. (Id. )
Alexander subsequently filed another motion for leave to amend the Counterclaim and Third–Party Complaint, this time seeking to add a wrongful foreclosure claim based on Alexander's allegation that LSREF was not properly assigned the authority to foreclose. (Mot. Am. Countercl., Doc. 51.) Alexander explained that the loan and associated documents had been assigned from the original lender, Regions, to LSREF2 Baron 2011 Trust (the “Trust”), but the subsequent assignments from the Trust to Wells Fargo Bank, N.A. (“Wells Fargo”) and then from Wells Fargo to LSREF were invalid. According to Alexander, these last two assignments were executed by Hudson, purportedly on behalf of the lender, but in fact Hudson had no authority to bind the lender, rendering the assignments ineffective.
The Court denied Alexander's motion as futile, relying on Montgomery v. Bank of America, 321 Ga.App. 343, 740 S.E.2d 434, 438 (2013), cert. denied, No. S13C1177 (Ga. Sept. 9, 2013). (Oct. 1, 2013 Ord., 15 F.Supp.3d 1351, 1353–54, 2013 WL 8335731, Doc. 66.) In Montgomery, the Georgia Court of Appeals held that a wrongful foreclosure plaintiff has no standing to challenge the assignment of a security deed or promissory note where the plaintiff was not a party to the assignment. Montgomery, 740 S.E.2d at 438. As this Court expressly noted, however, Montgomery only addressed a plaintiff's right to challenge an assignment within the context its own wrongful foreclosure claim. (Id. at 1354 n. 1.) “The Court does not read Montgomery as affecting the ability of a debtor to challenge assignments in defense to an action to collect a debt....” (Id. ). Thus, the Court left open the possibility that Alexander could challenge LSREF's affirmative claim for relief to the extent it relied on a valid assignment of the Rents to LSREF.
On May 22, 2013, LSREF and Hudson filed the instant Motion for Summary Judgment. (Mot. Summ. J., Doc. 54.) LSREF urges the Court to enter judgment in LSREF's favor on its affirmative declaratory judgment claim regarding its asserted ownership of the Rents by virtue of the ALR's automatic revocation provision or, alternatively, by virtue of LSREF's purchase of the property at the foreclosure sale. (LSREF & Hudson Br. Supp. Mot. Summ. J., Doc. 54–1.) LSREF and Hudson also argue for dismissal of Alexander's wrongful foreclosure claim against LSREF and Hudson. (Id. )
The Court distills the dispositive issues in this case as follows: (1) whether on the record before the Court, Hudson undoubtedly had the authority to assign the ALR to LSREF, thus entitling LSREF to immediate possession of the Rents upon default; and (2) whether a reasonable jury could conclude that LSREF or Hudson's conduct chilled the bidding at the foreclosure sale, resulting in an inadequate sales price.
The facts described below are derived from evidence in the record, viewed in the light most favorable to Alexander as the non-movant. Although this factual background does not constitute actual findings of fact, the Court notes that the facts of this case are largely undisputed.
In 2008, Alexander SRP Apartments, LLC's (“Alexander”) borrowed about $17 million from Regions to finance the development of the Odyssey Lakes Apartments in Brunswick, Georgia (“Apartment Complex”). (See Alexander Resp. Statement Undisputed Facts ( ) ¶ 1, Doc. 57.) Alexander executed a promissory note (the “Note”) in favor of Regions and granted Regions a secured interest in the Apartment Complex. Pursuant to the terms of the “Deed to Secure Debt and Security Agreement” (“Security Deed”), the lender has the authority to foreclose on the Apartment Complex securing the Loan in the event of a default. (Alexander Resp. SUF ¶ 3; see also Pl. Mot. Summ. J. Ex. B, Doc. 54–4 (“Security Deed”).) The Security Deed contains a provision authorizing the holder of the deed to sell the property “in one or more parcels or in...
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In re Morgan
...at 621 n.6. The debtor's ability to raise the validity of an assignment as a defense was examined in LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC , 17 F.Supp.3d 1289 (N.D. Ga. 2014). There, the court found that the defendant debtor in a declaratory action could challenge an assignment......