New England Co. v. Bank of Gwinnett County, Civ. A. No. 1:95-CV-92-FMH.

• Decision Date: 13 July 1995
• Docket Number: Civ. A. No. 1:95-CV-92-FMH.
• Citation: 891 F. Supp. 1569
• Parties: The NEW ENGLAND COMPANY, Plaintiff, v. The BANK OF GWINNETT COUNTY, f/k/a Button Gwinnett National Bank, Defendant.
• Court: U.S. District Court — Northern District of Georgia

891 F. Supp. 1569

The NEW ENGLAND COMPANY, Plaintiff, v. The BANK OF GWINNETT COUNTY, f/k/a Button Gwinnett National Bank, Defendant.

Civ. A. No. 1:95-CV-92-FMH.

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

July 13, 1995.

COPYRIGHT MATERIAL OMITTED

Dana Brent Miles and Michael Charles McGoff, Miles & Reese, Atlanta, GA, for plaintiff.

Thomas T. Tate, Andersen, Davidson & Tate, Lawrenceville, GA, for defendant.

ORDER

HULL, District Judge.

This matter is before the Court on Defendant's Motion to Dismiss 4-1. The Court accepts Plaintiff's allegations as true for purposes of reviewing Defendant's Motion to Dismiss.

I. FACTS

Plaintiff New England Company is in the business of providing lease financing to its customers. To facilitate this business, Plaintiff obtained a $500,000 line of credit from Button Gwinnett National Bank in 1991. Under that credit agreement, Plaintiff could write indirect and direct leases up to a total of $500,000 for the direct lease transactions. For the direct leases, the only requirement of Plaintiff was that the lease have a 10% equity with the first two payments being made in advance by Plaintiff's customers.

Each time Plaintiff financed a direct lease, Plaintiff would draw down the line of credit to fund the lease. At the same time Plaintiff would execute a note in favor of Button Gwinnett for the amount of that draw and would assign Button Gwinnett a security interest in the underlying lease from Plaintiff's customers. These lease payments were calculated to equal or exceed the amount that Plaintiff owed on the notes to Button Gwinnett. Plaintiff would receive those lease payments directly from its customers and forward to Button Gwinnett only the amounts owed on the line of credit.

During 1993, Button Gwinnett merged with the Bank of Gwinnett County and the surviving entity became known as the Bank of Gwinnett County ("the Bank"), Defendant herein. Chris Fluehr was the first loan officer at Button Gwinnett who was responsible for Plaintiff's line of credit. Before leaving the employment of Button Gwinnett in February of 1992, Mr. Fluehr came to Plaintiff's offices with Andy Pourchier, another Bank officer, to acquaint him with the terms of the line of credit agreement and to review the history of the Bank's dealings with Plaintiff. Mr. Fluehr also introduced Plaintiff's President to Pete Coley, another officer at the Bank, and again reviewed the terms of the agreement and the history of the dealings on the line of credit.

At all times during the existence of the line of credit agreement, Plaintiff made all payments in a timely fashion and fully performed all other obligations. Despite the Plaintiff's full, good faith performance under the line of credit, Button Gwinnett refused to allow Plaintiff further draws on this line of credit beginning in September, 1992. From September, 1992 until February, 1993, Plaintiff continued to submit draw requests for its new lease customers, but these requests were deferred or declined with the explanation that Button Gwinnett was going through a merger, or that the credit risk of the proposed lessee was high. Neither of these reasons is contained as a condition in the line of credit agreement with Plaintiff.

After being denied access to the line of credit for new leases, Plaintiff's President attempted to contact senior officers at the Bank to discuss this matter, but was rebuked by loan officer Pete Coley for pressing the issue. Instead, Mr. Coley reiterated that Plaintiff should be patient because of the pending merger. In late February, 1993, Glenn White, President of the Bank, called a meeting with Plaintiff's President to discuss the line of credit. At the meeting, Mr. White advised Plaintiff's President that Plaintiff's line of credit was a risky loan and that Plaintiff would not be entitled to draw on that line of credit unless each lease had 25% equity and the lease customer was located in Gwinnett County. Additionally, Plaintiff was told that no further withdrawals would be made on the line of credit unless Brian Clark, Plaintiff's President, and his wife, Tracy Clark, personally guaranteed Plaintiff's payment of the line of credit and provided the Bank with a security interest in their home.

Prior to this ultimatum, Plaintiff had never been advised by Button Gwinnett or the Bank that its loan was classified as risky. Moreover, Plaintiff has never been advised that any of its payments were late or that Plaintiff had defaulted in any way on its line of credit. Prior to this ultimatum, Plaintiff had never been given notice that the Bank was going to change the terms of its line of credit agreement, nor had Plaintiff been given reasonable opportunity to secure alternate financing elsewhere before the new credit conditions were imposed. Because Button Gwinnett refused further advances on the line of credit beginning in September, 1992, Plaintiff lost a number of new lease opportunities.

Beginning in 1992, the Bank began contacting Plaintiff's customers and, among other things, encouraged them to tender early payoffs of their outstanding lease obligations to Plaintiff. These contacts were made without the knowledge or consent of Plaintiff and Plaintiff alleges that these contacts interfered with Plaintiff's business relationships with its customers. As a result of these contacts, at least one of Plaintiff's customers called to inquire whether Plaintiff was in financial trouble and to seek early termination of its lease obligation. At that point, Plaintiff's president called Pete Coley, a loan officer with the Bank, to inquire why Plaintiff's customers were being contacted by the Bank and encouraged to tender early payoffs. Mr. Coley only placed pressure on Plaintiff to accept the early payoffs. As a direct result of the Bank's contacts, and the pressure from Mr. Coley to accept the early payoff, Plaintiff lost profits on at least one lease that paid off early to the benefit of Defendant and the detriment of Plaintiff. Because Defendant refused to honor the terms of the credit agreement with Plaintiff, Plaintiff took steps to mitigate its damages and secure alternate financing elsewhere.

Plaintiff was successful in replacing $300,000 of its $500,000 line of credit with another financial institution, but Plaintiff has been unable to secure the additional $200,000 needed to run its business at the previous level.

On January 13, 1995, Plaintiff filed this Complaint under the anti-tying provision of the Bank Holding Company Act, 12 U.S.C. § 1972(1)(C) (1994). Plaintiff alleged, inter alia, that the Bank impermissibly conditioned the further extension of credit to Plaintiff on Plaintiff's President and his wife's personally guaranteeing any extension of credit. Plaintiff also filed several state law causes of action.

On February 24, 1995, the Bank filed a Motion to Dismiss 4-1, contending that Plaintiff's allegations do not state a claim upon which relief can be granted under the Bank Holding Company Act ("BHCA"). The Bank also requests that once Plaintiff's BHCA claim is dismissed, the Court should dismiss Plaintiff's remaining state law claims for lack of subject matter jurisdiction.

II. DISCUSSION

A. THE BANK HOLDING COMPANY ACT

The anti-tying provision of the BHCA proscribes banks from tieing the extension of credit to a potential debtor's provision of an unrelated service or product to the bank, as follows:

(1) A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the forgoing, on the condition or requirement —

. . . . .

(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service....

12 U.S.C. § 1972(1)(C) (1994). In order to state a cause of action under the anti-tying provision of the BHCA, Plaintiff must prove three elements: (1) the Bank has engaged in an unusual practice; (2) that the Bank's actions were anti-competitive; and (3) that the actions were to the benefit of the Bank. Parsons Steel v. First Alabama Bank of Montgomery, 679 F.2d 242, 246 (11th Cir. 1982). In essence, the Bank argues that Plaintiff has failed to allege that the Bank has engaged in any anti-competitive acts.

In interpreting the language of the BHCA, courts repeatedly have noted that it was not Congress's intent to federalize the regulation of the banking industry. Bieber v. State Bank of Terry, 928 F.2d 328, 330 (9th Cir. 1991) ("Congress did not intend to `interfere with the conduct of appropriated traditional banking practices.'" (citation omitted)); Palermo v. First Nat'l Bank & Trust Co., 894 F.2d 363, 368 (10th Cir.1990) ("It seems clear that Congress did not intend to `federalize' large segments of existing commercial or banking law....") (quoting Freidco v. Farmers Bank, 499 F.Supp. 995, 1001 (D.Del. 1980)); Davis v. First Nat'l Bank of Westville, 868 F.2d 206, 208 (7th Cir.1989) (noting that the statute is only concerned with arrangements traditionally targeted by the antitrust laws). Quite the contrary, the language of the Act itself excepts from its ambit conduct "related to and usually provided in connection with a loan...." 12 U.S.C. § 1972(1)(C) (1994). Congress did not intend to "interfere with the conduct of appropriate traditional banking practices." Parsons Steel, 679 F.2d at 245 (quoting S.Rep. No. 91-1084, 91st Cong., 2d Sess., reprinted in 1970 U.S.C.C.A.N. 5519, 5535 (1970)). Congress was concerned that regulation of the banking industry under the BHCA not be overly expansive, but rather limited to anticompetitive acts by banks related to the extension of credit. Palermo, 894 F.2d at 368; Amerifirst Properties v. FDIC, 880 F.2d 821, 826 (5th Cir.1989); Davis, 868 F.2d at 208; Parsons Steel, 679 F.2d at 245; McCoy v. Franklin Savings Ass'n, 636 F.2d 172, 175 (7th Cir.1...