OMP v. Security Pacific Business Finance, Inc., Civ. A. No. WC 86-132-D-D.

• Decision Date: 14 April 1988
• Docket Number: Civ. A. No. WC 86-132-D-D.
• Citation: 716 F. Supp. 239
• Parties: OMP, a Mississippi General Partnership and Lasercraft, Ltd., a Mississippi Limited Partnership, Plaintiffs, v. SECURITY PACIFIC BUSINESS FINANCE, INC., a Delaware Corporation, Defendant. SECURITY PACIFIC BUSINESS FINANCE INC., a Delaware Corporation, Counterplaintiff, v. Pryor Spencer BAILEY, as General Partner of OMP; Leslie Banks Brasell, as General Partner of OMP; O.A. Cleveland, Jr., as General Partner of OMP; Lasercraft, Ltd., a Mississippi Limited Partnership; and Robert F. McMillan, Counterdefendants.
• Court: U.S. District Court — Northern District of Mississippi

716 F. Supp. 239

OMP, a Mississippi General Partnership and Lasercraft, Ltd., a Mississippi Limited Partnership, Plaintiffs, v. SECURITY PACIFIC BUSINESS FINANCE, INC., a Delaware Corporation, Defendant.

SECURITY PACIFIC BUSINESS FINANCE INC., a Delaware Corporation, Counterplaintiff, v. Pryor Spencer BAILEY, as General Partner of OMP; Leslie Banks Brasell, as General Partner of OMP; O.A. Cleveland, Jr., as General Partner of OMP; Lasercraft, Ltd., a Mississippi Limited Partnership; and Robert F. McMillan, Counterdefendants.

Civ. A. No. WC 86-132-D-D.

United States District Court, N.D. Mississippi, W.D.

April 14, 1988.

James L. Bonner, Olive Branch, Miss., J.P. Coleman, Ackerman, Miss., Briggs Smith, Smith, Phillips & Mitchell, Batesville, Miss., Eugene Greener, Jr., Henry C. Shelton, III, Schneider & McQuiston, Memphis, Tenn., for plaintiffs and counterdefendants.

John Dunbar, Holcomb, Dunbar, Connell, Chaffin & Willard, Oxford, Miss., for defendant and counterplaintiff.

MEMORANDUM OPINION

DAVIDSON, District Judge.

This cause is presently before the court on the defendant/counter-plaintiff's motion for summary judgment as to plaintiffs' claim and for partial summary judgment as to the counterclaim. Having reviewed the parties' briefs, the motion papers on file, and being otherwise fully advised in this matter, the court finds that the defendant's motion for summary judgment and for partial summary judgment should both be sustained. The court also considers the plaintiffs' motion for reconsideration of its motion to amend and the defendant's motion to strike certain affidavits not well taken and denies both.

I. FACTUAL BACKGROUND

This is an action related to possession and title to a certain piece of property located in Oxford, Mississippi. The property, presently known as the University Inn ("the Inn"), has gone through a series of owners over the past five years. The thrust of the present action is to confirm ownership and quiet title in the defendant/counterplaintiff, Security Pacific Business Finance, Inc. ("Security Pacific"), and to ascertain whether the plaintiffs/counterdefendants, OMP, Lasercraft, Ltd. ("Lasercraft"), Pryor Spencer Bailey ("Bailey"), Leslie Banks Brasell ("Brasell"), O.A. Cleveland ("Cleveland") and Robert F. McMillan ("McMillan") are entitled to any injunctive or monetary relief from Security Pacific.

In 1983 Thunder Corporation ("Thunder") acquired title to the Inn, obtaining money to buy the Inn by executing and delivering in Dallas, Texas a certain promissory note secured by a deed of trust and dated October 19, 1983 in the principal amount of $1,847,144 payable to the order of Security Pacific. The deed of trust conveyed the Inn in trust to Security Pacific. At that time, Thunder also executed a subordinate purchase money note to Lasercraft in the amount of $543,200.00. To secure the Lasercraft note, Thunder executed a second deed of trust, subordinate to the deed of trust in favor of Security Pacific.

By the summer of 1985, Thunder was in bankruptcy. For a substantial period of time, the original note to Security Pacific had been in default. Relief from the automatic bankruptcy stay was obtained by Security Pacific and Lasercraft to foreclose. A valid foreclosure in 1985 by Security Pacific, however, would have extinguished all subordinate interests in the Inn, including Lasercraft's interests.

In June 1985, Security Pacific made a $175,000 loan, secured by the 6.5 acre tract of land adjacent to the Inn, on a note (the "adjacent note") made by Brasell, Bailey and McMillan. See Exhibits K and L to defendant's answer. This $175,000 was to be utilized to pay operating expenses of the Inn and for refurbishing the Inn. Lasercraft then foreclosed on its security interest in the property and transferred the property to OMP.

Later in the summer of 1985, OMP took possession of the premises and began operating the Inn. At this time, the balance owing on the $1,847,144 loan by Thunder to Security Pacific included accrued interest, costs of collection and other items aggregating approximately $436,398.25, along with unpaid taxes with penalty and interest totalling $63,051.42 which Security Pacific had paid on behalf of the Inn.

OMP sought to continue operations of the Inn and apparently desired to attempt revitalizing the property with the hope of obtaining a national franchise. Thus, from June 1985 through October 1985, OMP and Security Pacific conducted lengthy negotiations which resulted in the execution of a Settlement Agreement dated October 9, 1985. See Exhibit A to plaintiff's complaint. The Settlement Agreement recited and memorialized, inter alia, the following events, terms and instruments negotiated by the parties:

1. Lasercraft had foreclosed and conveyed its right, title, and interest to OMP, which had repossessed the Inn and had begun to operate it.

2. Security Pacific agreed to extend the outstanding loans of Thunder in exchange for OMP, Bailey, Brasell, and Cleveland, jointly and severally, executing and delivering a promissory note (or "extension note") in the principal amount of $1,847,144.00. See Exhibit A to Defendant's Answer.

3. Security Pacific loaned an additional $90,000 to be used as operating funds and for refurbishing of the Inn, and OMP, Bailey, Brasell, and Cleveland, jointly and severally, executed and delivered a promissory note (or "operating note") in favor of Security Pacific. See Exhibit B to Defendant's Answer.

4. Bailey, Brasell and Cleveland on behalf of OMP, executed and delivered a non-recourse promissory note (or "tax note") in the amount of $63,051.42 for the 1983 and 1984 taxes owing on the Inn and previously paid by Security Pacific. See Exhibit C to Defendant's Answer.

5. Bailey, Brasell and Cleveland, on behalf of OMP, executed and delivered to Security Pacific another non-recourse promissory note (or "deficiency note") in the amount of $436,398.55 for the amount of unpaid, accrued interest on the note owing from Thunder and for costs and expenses of collection incurred up to the date of closing of the Settlement Agreement. See Exhibit D to Defendant's Answer.

6. In addition to the earlier deed of trust executed to secure the $175,000 loan, another deed of trust and a security agreement were executed and delivered on behalf of OMP to Security Pacific to secure the extension note, the operating note, the tax note and the deficiency note. See Exhibits E and I to Defendant's Answer.

7. Security Pacific agreed to forebear from foreclosing unless and until such time as OMP defaulted on the notes.

OMP allegedly entered into the Settlement Agreement and executed the above-referenced notes under threat of foreclosure from Security Pacific. The affidavits of Bailey and Brasell aver that they were each "told ... that unless I signed the agreements and did so immediately, that I knew what was going to happen, meaning the Security Pacific loan ... would be foreclosed and the property would be disposed of." No factual basis for these assertions is given in the respective affidavits. The court notes, however, that foreclosure by Security Pacific, as mentioned above, would have extinguished OMP's interest in the Inn.

After the parties executed the Settlement Agreement, there was apparently some discussion of obtaining a franchise from Days Inn on the Inn. In May 1986, a representative of Days Inn inspected the property and a representative of Security Pacific also conferred with the OMP partners regarding the possibility of obtaining a Days Inn franchise. None of these negotiations involving a franchise, however, were set to writing by the parties, although plaintiffs now contend that Security Pacific represented that additional funds would be made available for OMP to refurbish the Inn if OMP obtained a Days Inn franchise. OMP also paid a $3,000 application fee for the purpose of obtaining a Days Inn franchise; it appears that the application never resulted in a Days Inn franchise because Security Pacific later foreclosed on the property and this lawsuit was then filed.

According to Security Pacific's records and the affidavit of Ray Thousand, Senior Credit Administrator for the Loan Division of Security Pacific, the following defaults occurred after the Settlement Agreement was executed.¹

1. Monthly payments of $10,000 each on the extension note were past due and payable for December 1985, January 1986, February 1986, and March 1986.

2. Taxes for 1985 were past due and payable.

3. No monthly financial reports, which were required under the loan documents, were filed by OMP or its partners.

4. Security Pacific accelerated and proceeded to foreclose on April 30, 1986.

5. Shortly before April 30, 1986, Security Pacific accepted $50,000 in past due interest on the extension note. Security Pacific agreed to forebear from foreclosing and gave OMP and its partners until year-end to pay the 1985 taxes.

6. By July 1986, the extension note was in default again, along with the operating note and the adjacent note. A $10,000 payment due July 15, 1986 on the extension note was not made. Semi-annual interest payments for January 1, 1986 and July 1, 1986 were due and payable on the operating note. An $87,500 payment due June 13, 1986 on the adjacent note was due and payable.

7. Security Pacific's records show only the following payments prior to foreclosure:

                   Amount    Date Received
                   $10,000     10/31/85
                   $10,000     12/10/85
                   $50,000      5/2/86
                   $10,000      6/3/86
                   $10,000      6/4/86
                

All of these sums received were applied against the interest accrued under the extension note.

8. After notifying the debtors, Security Pacific again accelerated the notes and proceeded to foreclosure scheduled for August 19, 1986. On August 18, 1986, Security Pacific again agreed to forebear from foreclosing and to reinstate the notes if the debtors would cure the outstanding defaults.

9. Finally, another foreclosure was initiated in September 1986.

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