Regions Bank v. Thomas

• Decision Date: 11 September 2013
• Docket Number: No. W2011–02320–COA–R3–CV.,W2011–02320–COA–R3–CV.
• Citation: 422 S.W.3d 550
• Parties: REGIONS BANK v. THOMAS D. Thomas, et al.
• Court: Tennessee Court of Appeals

422 S.W.3d 550

REGIONS BANK

v.THOMAS D. Thomas, et al.

No. W2011–02320–COA–R3–CV.

Court of Appeals of Tennessee.

Dec. 12, 2012 Session.

March 4, 2013.

Application for Permission to Appeal Denied by Supreme Court Sept. 11, 2013.

Richard E. Charlton, Memphis, Tennessee, and Kirk L. Clements, Goodlettsville, Tennessee, for the appellants, Thomas D. Thomas, Helen L. Thomas and The Thomas Family Living Trust.

David R. Evans, Chattanooga, Tennessee, and Stephen Leffler, Memphis, Tennessee, for the appellee, Regions Bank.

OPINION

DAVID R. FARMER, J., delivered the opinion of the Court, in which ALAN E. HIGHERS, P.J., W.S., and J. STEVEN STAFFORD, J., joined.

DAVID R. FARMER, J.

Plaintiff Bank accelerated a loan secured by an aircraft after Borrower failed to maintain insurance on the aircraft as required by the loan documents. Bank filed an action to collect amounts due; took possession of and disposed of the aircraft; and sought a judgment for the deficiency. The trial court entered judgment in favor of Bank. Defendant Loan Guarantors appeal. We affirm in part; reverse in part, finding that Bank did not provide sufficient notice as required by Tennessee Code Annotated § 47–9–611; and remand for further proceedings.

This appeal arises from a judgment entered in favor of Plaintiff/Lender Regions Bank (Regions) against Defendant Loan Guarantors in an action to collect amounts due on a loan accelerated by Regions following Borrower's alleged default for failure to maintain insurance on an aircraft pledged as collateral. Following a hearing on May 9–11, 2011, the Circuit Court for Shelby County found that Borrower LGT Aviation, Inc. (“LGT”) had breached the loan agreement executed with Regions' predecessor in interest, Union Planter's Bank (“Union Planter's”) by failing to provide insurance coverage on the collateral, a 1981 Hawker HS 125–700A aircraft (“the aircraft”) during the term of the loan as required by the loan documents; that the failure to provide insurance coverage constituted default; that Regions had taken possession of and sold the aircraft in a commercially reasonable manner; and that Regions was entitled to a judgment in the amount of $1,642,771.91, plus interest at the applicable per diem interest rate in the amount of $945.15 per day for 859 days. The trial court dismissed LGT's complaint against Regions and Defendants' counter-complaint and third-party complaints. Defendant Loan Guarantors, Thomas D. Thomas, Helen L. Thomas, and the Thomas Family Living Trust (collectively, “Defendants” or “Appellants”) filed a timely notice of appeal to this Court. We affirm in part, reverse in part, and remand for further proceedings.

Issues Presented

Appellants present twelve issues for our review. The issues presented by this appeal, as we consolidate and re-word them, are:

(1) Whether the trial court erred by finding that a material breach of the loan agreement had occurred.

(2) Whether the trial court erred by declining to find that Regions' repossession of the aircraft was not in good faith and fair dealing in violation of the Uniform Commercial Code.

(3) Whether the trial court erred by failing to find that the alleged default was not waived or cured by Regions' conduct.

(4) Whether the trial court erred by awarding Regions a judgment for deficiency where LGT and Defendants were not given notice of the sale of the aircraft.

(5) Whether the trial court erred by finding that Regions' repossession, repair and sale of the aircraft was commercially reasonable.

(6) Whether, under Tennessee Rules of Civil Procedure 15.02, the trial court erred by not awarding interest at the contract rate as pled in Regions' complaint.

Standard of Review

We review the trial court's findings of fact de novo on the record, with a presumption of correctness, and will not reverse those findings unless the evidence preponderates against them. Tenn. R.App. P. 13(d); Berryhill v. Rhodes, 21 S.W.3d 188, 190 (Tenn.2000). Insofar as the trial court's determinations are based on its assessment of witness credibility, we will not reevaluate that assessment absent clear and convincing evidence to the contrary. Jones v. Garrett, 92 S.W.3d 835, 838 (Tenn.2002). Our review of the trial court's conclusions on matters of law, however, is de novo with no presumption of correctness. Taylor v. Fezell, 158 S.W.3d 352, 357 (Tenn.2005). We likewise review the trial court's application of law to the facts de novo, with no presumption of correctness. State v. Thacker, 164 S.W.3d 208, 248 (Tenn.2005).

Background and Procedural History

The background facts relevant to the issues raised on appeal are largely undisputed. Defendant/Appellant Thomas D. Thomas (Mr. Thomas) is the sole shareholder and President of LGT, a Delaware corporation. In August 2004, LGT obtained a loan in the amount of $2,351,700 (“the loan”) from Regions Bank's predecessor in interest, Union Planter's Bank (“Union Planters”). ¹ The loan documents executed by Mr. Thomas, as president of LGT, included a business loan agreement; a promissory note in the amount of $2,351,700 secured by a 1981 Hawker 700–A twin engine aircraft (“the aircraft”); an aircraft security agreement; an agreement to provide insurance; and a notice of insurance requirements. The loan was guaranteed jointly and severally by Mr. Thomas, Helen L. Thomas (Ms. Thomas), and the Thomas Family Living Trust (“the Trust”), all residents of California. Paragraph (k) of the security agreement required Borrower LGT to “keep the [a]ircraft and the [c]ollateral fully insured, with a company and under a form of policy acceptable to the Bank, against all risks and hazzards.” The loan documents recited a maturity date of August 5, 2009. Principal and interest payments were payable in 59 monthly installments in the amount of $21,200, plus one irregular final balloon payment in the amount of $1,467,919.03. Interest was calculated at prime rate less one quarter of one percent; the initial interest on the loan was four percent.

In August 2006, LGT allowed the insurance policy on the aircraft to lapse. On August 22, 2006, Regions contacted Mr. Thomas by e-mail, informing him that it had received a notice of cancellation of insurance for non-payment of premium and that the loan documents required him to maintain insurance in the amount of the outstanding loan balance. Mr. Thomas responded on August 23, stating that he had been unhappy with the rates and coverage offered by the insurance carrier, that he was “having coverage placed with another carrier,” and that the aircraft was in maintenance and would not be moved until insurance coverage was in place. Mr. Thomas also stated that he hoped to have insurance coverage on the aircraft by the end of that week. Regions sent Mr. Thomas a verification report to be completed by Mr. Thomas and on September 2 e-mailed Mr. Thomas requesting return of the verification report and stating, “[w]e need for you to provide insurance coverage as called for in the contract for [the aircraft].” Regions e-mailed Mr. Thomas again on September 19, stating that it had not received confirmation of insurance and advising that insurance “[was] required in order for [the] loan to continue to be in good standing.” On November 14, Michael Skillern (Mr. Skillern), Regions' vice president for equipment finance, e-mailed Mr. Thomas advising him that he had failed to obtain insurance or to respond to the previous e-mails of September 2 and 19, despite requesting assistance on another matter on November 6. Mr. Skillern requested that Mr. Thomas forward proof of insurance and information on the aircraft as previously requested.

On June 11, 2007, Regions' legal counsel, Ellen Dover (Ms. Dover), sent written correspondence to Mr. Thomas and LGT advising that Regions had not received information or confirmation of insurance on the aircraft. Ms. Dover stated that Mr. Thomas had failed to respond to inquiries from Regions, and that the failure to maintain insurance coverage and to provide Regions with proof of coverage constituted a default under the loan agreement, security agreement, and promissory note. Ms. Dover demanded proof of insurance of the aircraft and information regarding the condition of the aircraft by June 29, 2007. She further advised that the failure to comply would “force Regions to take other steps to enforce its rights and protect its remedies under the Agreements, including, without limitation, the possible acceleration of all obligations due under the Loan Agreements[.]” Ms. Dover again wrote to Mr. Thomas on August 23, 2007, again informing him that the failure to provide proof of insurance constituted a default of the loan agreements. Ms. Dover advised Mr. Thomas that Regions “hereby accelerate[d] all of LGT's obligations” and demanded immediate repayment of amounts due, totaling $2,032,044.87, plus $450.87 per diem and attorney's fees, by August 30, 2007. Ms. Dover stated, “[f]ailure to pay all amounts owed by such date will result in Regions pursing all available remedies available to it under the loan agreements.” Mr. Thomas did not respond to Ms. Dover's correspondence and LGT did not repay the loan.

On October 9, 2007, Regions Bank (“Regions”) filed an action against Mr. Thomas, Ms. Thomas, and the Trust in the Circuit Court for Shelby County. In its complaint, Regions alleged that LGT had breached its obligation to maintain insurance coverage on the aircraft; that notice of default had been given by letter dated June 11, 2007; that notice of acceleration had been given by letter dated August 23, 2007; and that LGT had failed and refused to repay the loan. Regions prayed for a judgment for the principal sum of $2,021,212.45; accrued interest in the amount of $10,819.08; interest from and after the date of filing at the maximum rate allowed by law; costs and attorney's fees. However, service was not effected on Ms. Thomas until January 8, 2008, or on Mr. Thomas or the Trust until April...