Planters and Citizens Bank v. Home Ins. Co.

• Decision Date: 19 February 1992
• Docket Number: No. CV: 490-283.,CV: 490-283.
• Citation: 786 F. Supp. 977
• Parties: PLANTERS AND CITIZENS BANK and Resolution Trust Corporation as Receiver for Great Southern Federal Savings & Loan Association, Plaintiffs, v. The HOME INSURANCE COMPANY, and Pennsylvania Millers Mutual Insurance Company, Clark Wiggins, Jr., David L. Beecher, Darrell Crosby and Cameron Crummey, Defendants, and PENNSYLVANIA MILLERS MUTUAL INSURANCE COMPANY, Defendant and Third Party Plaintiff, v. E. Mills TARVER and Hugh Oliver, Third Party Defendants.
• Court: U.S. District Court — Southern District of Georgia

786 F. Supp. 977

PLANTERS AND CITIZENS BANK and Resolution Trust Corporation as Receiver for Great Southern Federal Savings & Loan Association, Plaintiffs, v. The HOME INSURANCE COMPANY, and Pennsylvania Millers Mutual Insurance Company, Clark Wiggins, Jr., David L. Beecher, Darrell Crosby and Cameron Crummey, Defendants, and PENNSYLVANIA MILLERS MUTUAL INSURANCE COMPANY, Defendant and Third Party Plaintiff, v. E. Mills TARVER and Hugh Oliver, Third Party Defendants.

No. CV: 490-283.

United States District Court, S.D. Georgia, Savannah Division.

February 19, 1992.

Ashley M. Hodges, Adams, Gardner & Ellis, Wendy Woods Williamson, Oliver, Maner & Gray, Savannah, Ga., Brian Daniel Solomon, Frederick Leo Bateman, Jr., Pennington, Wilkinson, Dunlap, Bateman & Camp, Tallahassee, Fla., for plaintiffs.

Samuel Powel Inglesby, Jr., Inglesby, Falligant, Horne, Courington & Nash, Savannah, Ga., for intervenor-plaintiff.

Kenneth August Hindman, Drew, Eckl & Farnham, Atlanta, Ga., John Milton Tatum, Miller, Simpson & Tatum, Savannah, Ga., Robert Spencer Bomar, Kevin Allan Wangerin, Atlanta, Ga., for defendants.

ORDER

EDENFIELD, Chief Judge.

This action arises out of the financial collapse of the Mascot Pecan Company ("Mascot Pecan"), and contains allegations of fraudulent business operations, negligent government inspections, parsimonious insurance practices, and reckless lending procedures. To date, the parties have filed six summary judgment motions and three motions to dismiss, as well as numerous other miscellaneous motions. The Court already has resolved most of these motions.

In this Order, the Court will address the motion of The Home Insurance Company ("Home Insurance") for summary judgment against Plaintiffs Planters & Citizens Bank ("P & C Bank) and the Resolution Trust Corporation ("RTC"). As a threshold matter, the Court DENIES the Plaintiffs' motion to strike Home Insurance's reply brief. Although there is no express provision for reply briefs in the Local Rules of the Southern District of Georgia, the Court customarily accepts and considers reply briefs.

The Court also will consider P & C Bank's motion for summary judgment against Pennsylvania Millers Mutual Company ("Pennsylvania Millers"), and Pennsylvania Millers's motion for summary judgment against both P & C Bank and RTC. The Court DENIES the Plaintiffs' motion to strike Pennsylvania Millers' summary judgment motion. Given the Court's extension of the discovery period, and the ambiguity in the minute order resulting from the status conference, the Court finds that Pennsylvania Millers' motion for summary judgment is timely.

BACKGROUND

This Court already has entered several orders in this litigation, describing the underlying facts of the case in each order. Because the Court assumes that the reader is familiar with the outline of this case, this Order sets forth only those facts that are necessary to address the motions before the Court. These facts are drawn from the parties' Local Rule 6.6. submissions, and from the briefs and depositions tendered by the parties.

During the relevant period, Mascot Pecan purchased, shelled and sold pecans. Mascot Pecan owned and operated various Glennville, Georgia warehouses, which stored pecans and other agricultural commodities. Georgia law required Mascot Pecan, a public warehouseman, to procure a performance bond to secure its obligations under the Georgia State Warehouse Act. O.C.G.A. § 10-4-12 (1989). On June 20, 1975, Mascot Pecan, as principal, and Pennsylvania Millers, as surety, executed a warehouseman's bond in the amount of $100,000. In 1983, the parties increased the sum of the bond from $100,000 to $150,000. The bond required Mascot Pecan to "Perform and fulfill all of its duties as a public warehouseman, qualified under the Georgia Warehouse Law, and the rules and regulations promulgated thereunder...." The bond clearly states that, "The Surety shall not be liable for any default on the part of the Principal hereunder unless such default occurs during the term of this bond." The bond remained in effect from 1975 until it was terminated on April 22, 1988. The reasons for termination are unclear.

To obtain financing for its operations, Mascot Pecan entered into a series of loan transactions with P & C Bank and Great Southern Federal Savings Bank ("Great Southern"). On September 7, 1988, Mascot Pecan executed promissory notes in the aggregate amount of $1.6 million to Great Southern. Mascot Pecan pledged warehouse receipts covering a substantial portion of its inventory, as collateral, to Great Southern. RTC, as receiver for Great Southern, now holds three warehouse receipts, one covering 250,000 pounds of shelled pecans, a second covering 230,000 pounds of in-shell pecans, and a third covering 274,000 pounds of in-shell pecans.

On December 18, 1988, Mascot Pecan executed a $299,904.09 promissory note, secured by one warehouse receipt for 500,000 pounds of in-shell pecans and a second warehouse receipt for 158,000 pounds of shelled pecans, to P & C Bank. P & C Bank still holds these two warehouse receipts.

In connection with the loans, Mascot Pecan purchased a casualty insurance policy from the Defendant, Home Insurance. Home Insurance insured Mascot Pecan from January 1, 1988 until December 6, 1989, when Home Insurance canceled the insurance policy. The insurance policy was a multi-peril policy which covered the real and personal property (including 100% of the pecan stock) located on Mascot Pecan's premises. The initial policy, effective January 1, 1988, provided for $5,343,506 of personal property coverage. A renewal policy, extending from January 1, 1989 to January 1, 1990, provided for $4,325,000 of personal property coverage.

Mascot Pecan's activities as a public warehouseman and an agricultural producer were subject to regulation and inspection by the Georgia Department of Agriculture ("GDOA")¹. The Consumer Protection Division of the GDOA inspected the pecans stored in Mascot Pecan's warehouses for compliance with the Georgia Food Act, O.C.G.A. § 26-2-20 et seq. (1982 & Supp.1991), and the Warehouse Division of the GDOA performed inspections pursuant to the Georgia State Warehouse Act, O.C.G.A. § 10-4-1 et seq. (1989).

Over the years, the GDOA's Consumer Protection Division detected many problems with the pecans stored at Mascot Pecan. In 1984, the GDOA discovered a large quantity of adulterated product, and placed a "withhold from sale" on approximately 1.8 million pounds of pecans. The GDOA tagged some of the lots of adulterated pecans with "stop sale" tags. For many of the adulterated pecans, however, the GDOA merely placed either "stop sale" tags or withhold forms on the doors to the freezers in which the pecans were stored. According to the GDOA, Mills Tarver requested a delay in the destruction of those pecans so he could explore alternatives to destruction. The GDOA complied with this request, and many of the pecans that the GDOA condemned in 1984 were still stored at Mascot Pecan in 1988.

The GDOA reports show that from July 1984 to August 1988, less than 50,000 pounds of the embargoed pecans were released for voluntary destruction, while approximately 25,000 pounds were released for reconditioning and sale. Mills Tarver stated that he destroyed 120,000 pounds of pecans, independent of the GDOA destructions. The federal Food and Drug Administration seized 148,000 pounds of the embargoed pecans. There are no records documenting the disposition of the remaining one million pounds of pecans.

The Consumer Protection Division discovered smaller amounts of adulterated product over the following years. On March 2, 1987, the GDOA issued a voluntary destruction certificate for the destruction of 6,077 pounds of pecans at Mascot Pecan Company. On September 14, 1987, 4,680 pounds of pecans were destroyed. On June 28, 1988 and August 10, 1988 the GDOA inspected Mascot Pecan and discovered 34,340 pounds of pecans that were part of the 1984 embargo.

The approximately 866,898 pounds of pecans that are the subject of this action were discovered by the GDOA, and voluntarily destroyed by Mascot Pecan, between July 1988 and December 1989. In July 1988, the GDOA found 32 containers of adulterated product that could not be traced to the 1984 embargo. On September 12, 1988 the Consumer Protection Division reinspected the premises and discovered additional adulterated product, unrelated to the 1984 embargo. On September 22, 1988, Clarke Wiggins, District Supervisor of the Consumer Field Forces of the Consumer Protection Division, wrote to Mills Tarver, the president of Mascot Pecan and informed him that the pecans Tarver had identified as "reject stock"—pecans that Tarver planned either to use as oil stock or to reprocess—were "seriously damaged" and "unfit for human consumption." On December 6, 1988, the GDOA placed a withhold from sale on 573,640 pounds of pecans, and took 23 samples from this batch of pecans for further testing. Mascot Pecan received the test results on May 1, 1989. The test results required Mascot Pecan to destroy voluntarily the pecans or to ship them to a non-food processor. Mascot Pecan destroyed this first batch of pecans, weighing 573,640 pounds, between May 16, 1989 and June 23, 1989. On July 6, 1989, the GDOA placed a withhold from sale on another 241,920 pounds of pecans. Mascot Pecan destroyed this second batch of pecans between October 16, 1989 and October 19, 1989.²

By letter dated July 24, 1989, Mascot Pecan notified Palmer & Cay Carswell, the local insurance agency representing Home Insurance, of the loss of the first batch of pecans. On July 26, 1989, Mascot Pecan notified the insurance agency of the loss of the second batch of pecans. Subsequently, Mascot Pecan filed two proof of loss forms, one on October 11, 1989, claiming a loss of $1,500,000, and one on June 5, 1990, claiming a loss of $1,748,196.00. After Home Insurance investigated these claims,...