Renasant Bank v. Ericson, 3:10-cv-0302
| Decision Date | 27 February 2012 |
| Docket Number | No. 3:10-cv-0302,3:10-cv-0302 |
| Parties | RENASANT BANK, Plaintiff, v. ERIC ERICSON, Defendant, AND ERIC ERICSON, Counter-Plaintiff, and TRICIA ERICSON, Additional Claimant, v. RENASANT BANK, Counter-Defendant. |
| Court | U.S. District Court — Middle District of Tennessee |
Plaintiff Renasant Bank ("Renasant" or "Plaintiff") seeks a judgment against Defendant Eric Ericson ("Ericson or "Defendant") for the unpaid principal balance of a note for a construction loan, plus accrued interest and the costs of collection. Ericson denied liability in the amount of $4 million on the note and asserted counterclaims for breach of contract; fraud, negligent misrepresentation, and promissory estoppel; breach of fiduciary duty; negligence; andviolation of the Tennessee Consumer Protection Act.1 Ericson's wife, Tricia Ericson ("Mrs. Ericson"), joined in the assertion of counterclaims. The Court has diversity jurisdiction. 28 U.S.C.A. § 1332(a)(1) (2006).
The Court held a bench trial in this action from August 9-12, 2011, after which the parties were instructed to file proposed findings of fact and conclusions of law. These proposed findings and conclusions were filed on October 3, 2011. With leave of court, the parties filed their reply briefs on October 11, 2011.
Having reviewed the parties' proposed findings and conclusions, the record, the exhibits received in evidence, and the testimony of the witnesses, after considering their interests and demeanor, the Court enters the following Findings of Fact and Conclusions of Law. Except where the Court discusses different testimony on a specific issue, any contrary testimony on a specific matter has been rejected in favor of the specific fact found. Further, the Court omits from its recitation facts which it deems to be immaterial to the issues presented.
1. In July 2005, Eric and Tricia Ericson purchased a lot in the Watersound development near Rosemary Beach, Florida. The lot was titled in Mrs. Ericson's name for estate planning purposes.
2. With a loan on the property from Wachovia Bank set to expire in September 2006, the Ericsons sought a construction loan to build a high-quality house on the property for
resale. Ericson sought a loan totaling approximately $3,750,000 in order to pay off the existing mortgage on the property and finance the construction.
3. The loan was originally made by Capital Bank & Trust Company ("Capital"). Capital was acquired by Renasant on July 1, 2007. References to Renasant for periods prior to July 1, 2007, will mean Capital Bank & Trust Company.
4. At the encouragement of colleagues and acquaintances, Ericson sought the construction loan from Mary Bennie Wilson, a senior vice-president of Renasant who specialized in construction lending. Additionally, Ericson's mother, Janice Wendell, had a preexisting relationship with Rick Hart, who was the President of Renasant at the time. Ericson began discussing the construction financing with Wilson in July 2006.
5. Wilson advised Ericson that the loan amount should be increased to $4,000,000 based on the appraised value of the property. Ericson agreed to Wilson's recommendation.
6. The construction loan request was considered by Renasant's loan committee at least twice. The loan committee put two conditions on the loan. First, a participating bank would take $2,000,000 of the $4,000,000 risk. Second, $1,000,000 of additional collateral would be provided. On September 5, 2006, Mr. Ericson signed the commitment letter accepting these conditions.
7. Renasant placed the participation piece of the loan with The Bankers Bank, a correspondent bank based in Atlanta where Hart sat on the board of directors. Subsequently, The Banker's Bank changed its name to Silverton Bank ("Silverton"). All references herein will be made to Silverton.
8. Ericson obtained the additional $1,000,000 of collateral by getting his mother and step-father, Mr. and Mrs. Wendell (collectively, "Wendells") to purchase a $1,000,000 certificate of deposit at Renasant that was pledged to secure the construction loan.
9. Silverton conditioned its purchase of the participation interest on the use of Broadlands Financial, LLC ("Broadlands") for construction management and inspection services on the project. All construction draws would be subject to Broadlands's approval and completion of its inspections.
10. The parties closed the loan on September 21, 2006. The relevant documents included the Construction Loan Agreement, Promissory Note, and Line of Credit, executed by Ericson and Renasant; the Mortgage, executed by Mrs. Ericson and Renasant; and the Certificate of Deposit and Pledge Agreement, executed by the Wendells.
11. That same day, Renasant executed a Participation Agreement with Silverton concerning Ericson's loan.
12. Paragraph 16(e) of the Participation Agreement contains the following provision:
Upon becoming actually aware of a default by Borrower(s) . . . , Originating Bank [Renasant] immediately shall notify Participating Bank [Silverton] of such default or event, and Originating Bank and Participating Bank shall mutually agree upon a course of action within ten (10) business days. If, within ten (10) business days a mutually agreeable course of action can not be decided, then, so long as either (i) the Participation Interest . . . equals or exceeds a majority of the then outstanding principal balance of the Loan, or (ii) the Participating Bank holds any Participation Interest as a result of the Originating Bank's inability to purchase that retained portion of the Participation Interest due to regulatory lending limits considerations . . . , the decision of the Participating Bank shall control.
The uncontradicted testimony is that the provision giving control to Silverton (the participating bank) in the event of default was very unusual in the banking industry. No Renasant employeetestifying (whether live or by deposition) claimed knowledge of how this provision ended up in the Participation Agreement.
13. No one at Renasant informed the Ericsons or the Wendells of this language in the Participation Agreement. Ericson requested a copy of the Participation Agreement at or before the closing of the construction loan, but Renasant did not provide a copy.
14. On August 10, 2006, Ericson had entered a contract with Ray Jackson Construction, LLC ("RJC") to build the house. Construction actually began in November 2006. The contract estimated the house would be complete within fourteen months of the start date and held RJC responsible for costs associated with delay beyond sixteen months.
15. There was a great deal of testimony about the role played by Broadlands in delaying the progress of the construction from the loan closing through March 2007. Ericson met with Hart in March 2007 to discuss Broadlands. After that meeting, Broadlands no longer approved the project funding, and its performance of inspections was no longer a precondition to funding.
16. Ericson visited the house in August 2007 and discovered construction defects. Ericson terminated the contract with RJC and immediately hired Consolidated Builders ("Consolidated") to resume construction. Correspondence from Ericson's counsel to RJC held RJC's "obvious failure to supervise and manage this project and the resulting construction defects" responsible for "caus[ing] the entire construction to fall substantially behind schedule."
17. Consolidated did not finish the house within the originally contemplated sixteenth-month timeline. Construction on the house continued throughout 2008.
18. The loan matured on September 21, 2008. More than 90% of the loan had been funded by that time.
19. After Wilson left her employment at Renasant in July 2007, Jason McClimans took over as the Renasant loan officer in charge of Ericson's construction loan.
20. Consolidated submitted a draw request for approximately $33,000 after the loan had matured. On September 29, 2008, Ericson emailed Renasant to inquire about the status of the draw. McClimans responded that Renasant could not fund the draw because the construction loan had matured.
21. During a subsequent telephone call, McClimans and Ericson agreed to do an administrative renewal of the loan, i.e., to execute a sixty-day extension so the draw could be funded while Renasant and Ericson worked out a longer-term extension.
22. McClimans testified that the purpose of the administrative renewal was to get the loan renewed so the pending draw request could be funded, and that it was not his personal intent for the renewal agreement to waive any claims Ericson had.
23. To accomplish the administrative renewal, McClimans's assistant submitted paperwork to Renasant's central processing area in Tupelo, Mississippi. The central processing area prepared a renewal agreement and sent it to Nashville.
24. At McClimans's invitation, Ericson went to the bank to sign the renewal agreement. McClimans was not present when Ericson signed the renewal agreement.
25. The renewal agreement is a two-page document that includes a written waiver of claims. On the second page of the renewal agreement, just above Ericson's signature, is the following language in all capital letters:
26. Ericson testified that he read the self-described "business points" of the renewal agreement but did not acknowledge reading the written waiver or the notice that he should read the entire agreement.
27. Mitch Waycaster, a Renasant senior...
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