Premier Farm Credit, Pca v. W-Cattle, LLC
|05 October 2006
|155 P.3d 504
|PREMIER FARM CREDIT, PCA, Plaintiffs-Appellees and Cross-Appellants, v. W-CATTLE, LLC; Ronny D. Wisdom; and Lenee Y. Wisdom, Defendants-Appellants and Cross-Appellees.
|Colorado Court of Appeals
Block, Markus & Williams, LLC, Steven R. Rider, Denver, Colorado, for Plaintiffs-Appellees and Cross-Appellants.
Appel & Lucas, P.C., Gary R. Appel, Denver, Colorado, for Defendants-Appellants and Cross-Appellees.
Opinion by Judge J. JONES.
This is a lender liability case. Plaintiff, Premier Farm Credit, PCA (Premier), prevailed on its claim on a promissory note executed by defendants, W-Cattle, LLC; Ronny D. Wisdom; and Lenee Y. Wisdom. Defendants appeal various judgments and orders of the district court rejecting their defenses, counterclaims, and third-party claims, and Premier cross-appeals a judgment of the district court disposing of certain of its claims. We affirm.
Ronny Wisdom and Lenee Wisdom are the owners of defendant W-Cattle, LLC, a ranching and feedlot operation near Fleming, Colorado. In 1998, the Wisdoms applied for a loan from Premier, an agricultural lender incorporated under the Farm Credit Act, 12 U.S.C. § 2001, et seq. (FCA), for the stated purpose of funding W-Cattle's operations. In the financial statements the Wisdoms submitted, they represented that they had a net worth of over $4 million, and that W-Cattle's feedlot operations were very large and profitable. However, those operations were not nearly as large or profitable as represented. Further, the Wisdoms failed to disclose a liability to another lender in the amount of $1,298,031.85. Premier agreed to make the loan in reliance on the Wisdoms' representations.
On December 21, 1998, the Wisdoms, both in their individual capacities and on behalf of W-Cattle, executed a loan agreement, a promissory note, and a security agreement with Premier. Pursuant to the loan agreement, Premier issued a $6,001,000 revolving line of credit to W-Cattle. The express terms of the loan agreement required W-Cattle to use the line of credit to pay off an existing debt in the amount of $3,100,000, and to pay for expenses associated with operating the feedlot (for example, purchasing cattle, feed grain, and the like).
As collateral for the line of credit, defendants pledged large amounts of cattle, feed grain, farm machinery, equipment, and crops (both harvested and growing). The loan agreement required W-Cattle to maintain pledged liquid assets valued at 125% of the balance of the loan. In order to assure W-Cattle's compliance with this requirement, the loan agreement also required W-Cattle to submit "borrowing base" reports on a monthly basis. These borrowing base reports were to list cattle inventory, weight, and market value per pound; crop inventory; and other short-term liquid assets.
The lending relationship continued for several years. W-Cattle continued to draw on the revolving line of credit, and Premier, relying on the accuracy of the information contained in the monthly borrowing base reports (most of which Ronny Wisdom certified as accurate) and financial statements periodically submitted by the Wisdoms, continued to increase the amount available under the line of credit. Each year the parties executed a new loan agreement, each of which contained the borrowing base requirements contained in the initial loan agreement. By March 2002, the line of credit had been increased to $13 million. W-Cattle continued to draw on this growing line of credit, purportedly to pay for additional cattle, feed grain, and other operating expenses.
In the spring of 2003, Premier became concerned about potential discrepancies between the actual value of the collateral owned by W-Cattle and the Wisdoms and the value they had reported in the monthly borrowing base reports. Despite Premier's concerns about the value of the collateral, on April 11, 2003, the parties executed a new loan agreement, promissory note, and security agreement, whereby Premier agreed to increase W-Cattle's line of credit to $14 million. As collateral for the April 11, 2003 loan, defendants granted Premier a security interest in all crops grown, growing, or to be planted or produced on the land described in the security agreement; all feed, grain, and harvested crops; all accounts and general intangibles; all prepaid expenses and supplies; all livestock; and all farm and ranch machinery and equipment.
As with the prior loan agreements, the April 11, 2003 loan agreement required that W-Cattle maintain pledged liquid assets valued at no less than 125% of the outstanding balance of the loan. The loan terms also included new reporting requirements for W-Cattle, including a requirement that W-Cattle submit monthly balance sheets prepared by an accountant.
Over the next several months, Premier became increasingly concerned about its collateral position. On November 4, 2003, Ronny Wisdom and third-party defendant Melvin C. Fritzler, Premier's president, met to discuss W-Cattle's financial situation. During that meeting, Ronny Wisdom agreed to allow Premier to conduct an onsite audit of the personal property collateral.
The audit was conducted on November 6, 2003, at W-Cattle's feedlot. The auditor prepared a report that day, which he submitted to Premier. The report indicated that W-Cattle owned somewhere between 1,300 and 1,700 head of cattle, far less than the 12,000 to 14,200 head W-Cattle had represented in its most recent borrowing base reports and financial statements. Based on the inspection report, Premier concluded that W-Cattle had been using loan proceeds for purposes other than those allowed under the loan agreements, and that the Wisdoms had been misrepresenting the value of collateral W-Cattle actually owned and the amount of grain it had purchased with the loan proceeds.
Because of Premier's concerns about the security for the line of credit, the Wisdoms agreed to execute deeds of trust on all real estate they owned to add value to the collateral base. On November 7, 2003, the Wisdoms came to Premier's office and executed an addendum to the April 11, 2003 security agreement (adding additional items to the collateral base) and two deeds of trust. One week later, the Wisdoms returned to Premier's office to execute a third deed of trust.
Defendants allege that on November 6, 2003, following the audit revealing the deficiency, at a meeting on the W-Cattle feedlot, Ronny Wisdom said to Fritzler: Fritzler allegedly responded: The following day, at the meeting at Premier's office, Fritzler told Ronny Wisdom: Based on these statements, defendants claim they assumed that the lending relationship between Premier and W-Cattle would continue, and that Premier was going to forbear from calling the loan due. They assert that, in reliance on those discussions, they executed the deeds of trust on November 7 and 14.
On November 12, 2003, W-Cattle submitted a balance sheet to Premier showing that W-Cattle owned $2,015,260 worth of cattle. This figure represented a decrease of over $11 million in the value of the cattle W-Cattle had claimed in its financial statements prepared in September 2003 and in its most recent borrowing base and inventory reports. W-Cattle failed to account for this discrepancy.
On November 17, 2003, Premier filed a complaint against defendants, asserting claims for breach of the promissory note, fraudulent misrepresentation, fraudulent concealment and conversion of collateral. It sought damages, replevin of the personal property collateral, the appointment of a receiver, and an accounting. The fraud claims were based on the allegation that the Wisdoms had misrepresented their financial status in originally applying for the loan in 1998. On the same day, Premier also filed a motion to appoint a receiver pursuant to C.R.C.P. 66 and provisions of the deeds of trust. The court granted the motion following an ex parte hearing on November 17.
Premier later filed an amended complaint against defendants, asserting the same claims and seeking the same relief sought in its original complaint, but alleging additional facts. Defendants filed an answer, as well as counterclaims against Premier and third-party claims against Fritzler. The counterclaims included claims for fraud, breach of contract, negligence, and breach of fiduciary duty and for a declaratory judgment that the deeds of trust and other documents executed in November 2003 were void. Fritzler was named as a third-party defendant on the tort claims. The fraud and declaratory judgment claims (as well as many of W-Cattle's and the Wisdoms' defenses to Premier's claims) were based on the central allegation that Fritzler deceived the Wisdoms into signing the deeds of trust. The other claims were based on allegations that Premier failed to perform inventories or keep accurate records of the collateral as required by the loan agreements and the parties' course of dealing, and that Premier had negligently failed to accurately keep track of draws and payments on the line of credit. According to defendants, these failures led them to borrow too much money.
Defendants also filed a motion to discharge the receiver, or alternatively, to restrict the receiver's powers, arguing that Premier had not presented any evidence that the collateral was in danger of being lost or impaired and that the deeds of trust, which contained receivership provisions, were void because of Premier's fraud. In response, Premier argued that evidence had been presented that thousands of head of cattle were unaccounted for, C.R.C.P. 66 authorized the receivership independent of the deeds...
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