PMF Enters., Inc. v. Southcrest Bank

• Decision Date: 01 June 2015
• Docket Number: Civil Action No. 5:14–CV–339 MTT.
• Citation: 531 B.R. 881
• Parties: PMF ENTERPRISES, INC., Appellant, v. SOUTHCREST BANK, Appellee.
• Court: U.S. District Court — Middle District of Georgia

531 B.R. 881

PMF ENTERPRISES, INC., Appellant

v.SOUTHCREST BANK, Appellee.

Civil Action No. 5:14–CV–339 MTT.

United States District Court, M.D. Georgia, Macon Division.

Signed June 1, 2015.

Wesley J. Boyer, Macon, GA, for Appellant.

Robert Brian Wooldridge, Newnan, GA, for Appellee.

ORDER

MARC T. TREADWELL, District Judge.

Before the Court is an appeal from the United States Bankruptcy Court for the Middle District of Georgia.The Bankruptcy Court, Judge James P. Smith presiding, overruled AppellantPMF Enterprises, Inc.'s objection to a proof of claim filed by Appellee SouthCrest Bank.For the following reasons, the Bankruptcy Court's decision is AFFIRMED.

I.STANDARD OF REVIEW

The Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a).In reviewing the decision of a bankruptcy court, a district court functions as an appellate court.Williams v. EMC Mortg. Corp.(In re Williams),216 F.3d 1295, 1296(11th Cir.2000)(per curiam).This Court must accept the bankruptcy court's findings of fact unless those facts are clearly erroneous.United States v. Mitchell(In re Mitchell),633 F.3d 1319, 1326(11th Cir.2011).The Court may not make independent factual findings of its own.Equitable Life Assurance Soc'y v. Sublett(In re Sublett),895 F.2d 1381, 1384(11th Cir.1990).Conclusions of law, however, including a bankruptcy court's interpretation and application of the Bankruptcy Code, are reviewed de novo.SeeNordberg v. Arab Banking Corp.(In re Chase & Sanborn Corp.),904 F.2d 588, 593(11th Cir.1990).This Court, therefore, owes no deference to the Bankruptcy Court's interpretation of the law or its application of the law to the facts.Goerg v. Parungao(In re Goerg),930 F.2d 1563, 1566(11th Cir.1991).

II.FACTUAL BACKGROUND

Debtor–AppellantPMF Enterprises, Inc.(“PMF”) operated a convenience store in Perry, Georgia.To purchase the convenience store and gas station, KPB Enterprises, LLC(“KPB”) took out a loan from Century Security Bank, the predecessor in interest to Creditor–Appellee SouthCrest Bank, and executed a promissory note in favor of Century Security Bank.KPB also executed a security deed on the real property and a security agreement on the inventory in favor of Century Security Bank to secure the loan.¹Pierre Beauchamp, the sole owner of both KPB and PMF, guaranteed the loan from Century Security Bank.

PMF obtained insurance coverage on the convenience store property through Catawba Insurance Company.Despite having record title to the real property, KPB was not listed as an insured.Century Security Bank, however, was named as a mortgagee/loss payee under the policy.The policy included the following coverage limits: $400,000 for the building; $100,000 for the canopy; $1,160,000 for fuel pumps and tanks; and $280,000 for personal property and contents.The policy also included coverage for business income, which encompassed normal operating expenses.

On November 28, 2008, a fire occurred at the convenience store and caused substantial damage.Catawba paid out the $400,000 coverage limit for damage to the building and $76,526.93 for damage to the pumps and tanks.Catawba refused to make any more payments under the policy.As a result, Century Security Bank applied some of the insurance proceeds to the monthly mortgage payments.The remainder was paid to BGN Restoration, LLC, which Beauchamp hired to rebuild the store.No further payments were made on the note, and the note went into default.Additionally, BGN had to cease work on the property because the insurance proceeds were insufficient to cover the entire restoration cost.

PMF filed suit against Catawba in Fulton County State Court in November 2009² to recover amounts it claimed were due under the policy.³(Doc. 3–4).Specifically, PMF claimed Catawba breached the insurance policy by failing to make the monthly mortgage payments KPB owed to Century Security Bank, which PMF contended were encompassed by the policy coverage for normal operating expenses.PMF alleged that Catawba's refusal to make the monthly payments caused the mortgage to go into default and that Catawba was therefore liable for the entire mortgage debt.

On May 24, 2011, SouthCrest, which by this point was the holder of Century Security Bank's claim against KPB, sued Catawba in Gwinnett County State Court for amounts it claimed were due under the insurance policy.(Doc. 3–10).SouthCrest sought $927,949.80 in damages, alleged to be “the deficiency owed to [SouthCrest] on its mortgage on the property.”(Doc. 3–10, ¶ 21).The Fulton County suit that PMF filed against Catawba was still pending.

On March 16, 2012, SouthCrest and Catawba settled the Gwinnett County suit for $150,000.(Doc. 3–3).This settlement agreement forms the basis for PMF's objection to SouthCrest's claim.PMF contends this agreement settled the entire mortgage debt and not merely SouthCrest's claims against Catawba.The terms are discussed in detail below.

About two weeks after the Gwinnett County case settled, the Fulton County case between PMF and Catawba went to trial.The jury returned a verdict for PMF and awarded $155,000.00 for contents; $266,256.00 for net income lost; $22,800.00 for continuing normal operating expenses; $28,000.00 for debris removal; $60,000.00 for a bad faith penalty; and $41,825.65 for attorneys' fees.(Doc. 3–12).The verdict expressly excluded “mortgage expenses” from the amount for continuing normal operating expenses.Post-verdict, PMF, Catawba, Beauchamp, and KPB⁴ entered into a settlement agreement whereby Catawba agreed to pay PMF's Chapter 7 estate $550,000.00.⁵

As a result of the settlement, the trustee in PMF's bankruptcy case filed a motion to compromise the Fulton County case in the Bankruptcy Court.SouthCrest objected to the following language in the Fulton County settlement agreement, which referenced SouthCrest's settlement with Catawba:

Said settlement satisfied and released all claims which SouthCrest Bank had filed in the bankruptcy cases of PMF Enterprises, Inc. and KPB Enterprises, LLC.To the extent any bankruptcy claims or other interest of SouthCrest Bank were assigned to Catawba they are hereby waived and released.

(Docs. 1 at 114–16; 3–2 at 8).SouthCrest contended its settlement with Catawba did not release its bankruptcy claims.

Ultimately, the parties agreed to strike the above paragraph and insert “assigned or otherwise” into another paragraph of the agreement:

Catawba Insurance Company agrees that all claims and demands that the Company has or could have had or may have had assigned or otherwise against either of the Claimants, PMF Enterprises, Inc. or Pierre Beauchamps,⁶ individually, or KPB Enterprises, LLC, with respect to the herein-described dispute are satisfied, discharged, and settled by this agreement.

(Doc. 3–2at 5)(emphasis added).This was the version approved by the Bankruptcy Court.

III.PROCEDURAL BACKGROUND

PMF and KPB each filed Chapter 7cases in the Bankruptcy Court on February 1, 2010.After the Bankruptcy Court granted SouthCrest relief from the automatic stay, SouthCrest foreclosed on the convenience store property and confirmed the sale in state court.SouthCrest then filed proofs of claim in the amount of $927,949.80 in both cases, which reflected the amount of KPB's debt minus the proceeds from the foreclosure sale.SouthCrest later amended its claims to $777,949.80, reflecting the settlement with Catawba.

PMF and KPB filed objections to SouthCrest's claims, contending, as PMF does on appeal, that the SouthCrest/Catawba settlement agreement settled any claims SouthCrest had for the mortgage deficiency.The Bankruptcy Court held a hearing on the claim objections on September 10, 2013, but deferred ruling on the objections until resolution of the trustee's motion to consolidate the PMF and KPB cases.On January 15, 2014, the Bankruptcy Court substantively consolidated the cases under PMF's heading.

In its memorandum opinion on the claim objection, the Bankruptcy Court first found that paragraph 9 of the SouthCrest/Catawba settlement agreement was ambiguous.That paragraph provides:

SouthCrest accepts Catawba's payment of $150,000, made pursuant to the mortgagee clause of the policy of insurance Catawba Insurance Company issued, policy number CBO4086029 for the policy period September 5, 2008 to September 5, 2009 to PMF Enterprises, Inc. d/b/a Super Food Mart, 517 N. Perry Parkway, Perry, Georgia 31069 with an effective date of September 5, 2008, as full payment and satisfaction of SouthCrest's claim pursuant to the mortgagee clause, including, but not limited to, the mortgage debt, for the $927,949.50 owed to SouthCrest concerning the mortgage on 517 N. Perry Parkway, Perry, Georgia 31069, and including all claims for inventory and contents and personalty at the premises.

(Doc. 3–3, ¶ 9)(emphasis added).Specifically, the court found the combination of the phrases “satisfaction of SouthCrest's claim pursuant to the mortgagee clause” and “including, but not limited to, the mortgage debt” was ambiguous because “there is a question as to whether the parties settled only SouthCrest's claim against Catawba under the insurance contract, or whether they also settled the mortgage debt itself, i.e., SouthCrest's claim against KPB.”(Doc. 1at 320).

To resolve this ambiguity, the Bankruptcy Court looked to extrinsic evidence, including the insurance policy issued to PMF and testimony presented at the claim objection hearing.As interpreted by the Bankruptcy Court, the “mortgagee clause” referenced in the settlement agreement was Section F.2. of the insurance policy:

2.Mortgage Holders

a. The term “mortgage holder” includes trustee.

b. We will pay for covered loss of or damage to buildings or structures to each mortgage holder shown in the Declarations in their order of precedence, as interests may appear.

c. The mortgage holder has the right to receive loss payment even if the mortgage holder has started foreclosure or similar action on

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