RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC

Decision Date12 June 2014
Docket NumberNo. 13–6034.,13–6034.
Citation754 F.3d 380
PartiesRL BB ACQUISITION, LLC, Plaintiff–Appellee, v. BRIDGEMILL COMMONS DEVELOPMENT GROUP, LLC, et al., Defendants, Starr Stone Dixon, Defendant–Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED:Thomas E. Ray, Samples, Jennings, Ray & Clem, PLLC, Chattanooga, Tennessee, for Appellant. Samuel B. Zeigler, Taylor English Duma LLP, Atlanta, Georgia, for Appellee. ON BRIEF:Thomas E. Ray, Samples, Jennings, Ray & Clem, PLLC, Chattanooga, Tennessee, for Appellant. Samuel B. Zeigler, Taylor English Duma LLP, Atlanta, Georgia, for Appellee.

Before: MERRITT, MOORE, and CLAY, Circuit Judges.

OPINION

CLAY, Circuit Judge.

In this action for breach of guaranty, Defendant Starr Stone Dixon (Starr) appeals the district court's holding that she cannot assert a violation of the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. § 1691 et seq., and its implementing regulation, Regulation B, 12 C.F.R. § 202.1 et seq.,12 C.F.R. § 1002.1 et seq.,1 as an affirmative defense. Starr also appeals the court's grant of summary judgment in favor of Plaintiff RL BB Acquisition, LLC. We hold that a violation of ECOA and Regulation B can be asserted as an affirmative defense of recoupment, and therefore REVERSE in part, VACATE in part, and REMAND.

BACKGROUND

Starr's husband, Defendant H. Bernard Dixon (Bernard), spent a lifetime making his fortune as a franchisee for numerous fast food chains. In 2005, Bernard decided to invest millions in two residential developments in the Atlanta exurbs—one named Bridgemill Commons and the other named Mabry Farms. His timing could have been better. In the wake of the global financial crisis of 2008, these investments were left nearly $10 million in debt. Bernard sought to refinance this debt on more flexible terms.

To accomplish this refinancing, Bernard approached John Bryan, a loan officer at the Cleveland, Tennessee branch of BB & T Bank, where Bernard had been a customer and borrower since the early 2000s. Bernard initially hoped to refinance the outstanding debt on both developments. The Mabry Farms development owed approximately $3.2 million to United Community Bank (the “UCB Loan”). The Bridgemill Commons development owed $6.4 million to Regions Bank (the “Regions Loan”). The listed borrower on the Regions Loan was Defendant Bridgemill Commons Development Group, LLC (BCDG), a Georgia company owned by Bernard that had been created to purchase the Bridgemill Commons development. Bernard gave BB & T a personal financial statement in support of his loan application, detailing his and Starr's financial circumstances as of March 31, 2008. BB & T also appraised the Bridgemill Commons development, valuing it as $5.65 million.

Based on this information, BB & T concluded that Bernard and BCDG were not independently creditworthy for a loan large enough to refinance both the Regions Loan and the UCB Loan. Bryan informed Bernard of this conclusion, but suggested that BB & T could refinance the Regions Loan, so long Bernard could find additional collateral. Bernard agreed to pledge nearly 40,000 shares of BB & T stock and a corporate debenture. Starr agreed to pledge the same number of BB & T shares, which she owned individually. Including these new pledges, Bernard had over $8.8 million of collateral supporting his loan application. Based on BB & T's underwriting policies, the bank determined that it could issue a loan of approximately $6.1 million—still less than the Regions Loan.

To shore up the application, Bernard executed a personal guaranty, meaning that he would be personally liable in the case of a default by the borrower, which would be BCDG. Starr also executed a guaranty—and it is this agreement that gives rise to the appeal now before us.

The parties dispute how Starr came to execute her guaranty. Bryan asserts that he initially discussed the possibility of Bernard's daughters—who had apparently received a good deal of the family fortune—providing some collateral or a guaranty to support the loan. Bryan asserts that Bernard suggested that Starr act as guarantor instead. For his part, Bernard insists that Bryan demanded that Starr provide a guaranty. One piece of documentary evidence lends credence to Bernard's version of events. BB & T produced a summary of the requirements for the loan, which Bryan gave to Bernard on May 2, 2008. Item one in the summary reads: [Starr] will be required to co-sign the notes with her future release subject to negotiation.” (R. 68–1, Bryan Aff., at 389.) Bryan counters that this summary simply reflects Bernard's own suggestion that his wife execute a guaranty. Starr herself concedes that she never spoke with Bryan or anyone from BB & T; rather, Bernard told her that BB & T required her signature. Starr claims she felt tremendous pressure to sign a guaranty, although she admits that the pressure did not come directly from BB & T.

The loan transaction closed on June 4, 2008. On that date, BCDG issued a note for $6.4 million, plus interest, to BB & T (the “BCDG Note”). Bernard and Starr executed three security agreements related to the BCDG Note. They also each executed a guaranty, which made them individually liable for the amount owed on the BCDG Note. That note came due by its own terms on June 5, 2010. The district court found that by that date, Defendants had paid down less than $2 million of the principal. On February 25, 2011, BB & T transferred the BCDG Note and the guarantees to Rialto Real Estate Fund, LP. Rialto in turn transferred the BCDG Note and guarantees to Plaintiff on July 27, 2011.

On August 12, 2011, Plaintiff filed suit in the U.S. District Court for the Eastern District of Tennessee on the basis of diversity jurisdiction. Plaintiff asserted five causes of action, including breach of guaranty against Starr. Defendants answered on December 12, 2011. In the answer, Starr asserted that her guaranty was unenforceable since it violated ECOA and Regulation B—specifically, Regulation B's prohibition on requiring spouses to guarantee loans. See12 C.F.R. § 202.7(d), 12 C.F.R. § 1002.7(d). Starr later moved for summary judgment on this ground, while Plaintiff filed its own motion for summary judgment on the merits of its breach-of-guaranty claim. The district court held that Starr could not raise violations of ECOA and Regulation B as an affirmative defense. The court also held that Plaintiff had proven that Starr was liable under her guaranty, but the amount of damages remained to be resolved. After the parties stipulated to the amount of damages, the district court entered a final judgment. Starr's appeal timely followed.2

DISCUSSION
I. ECOA and Regulation B

Congress enacted ECOA in 1974 “to eradicate credit discrimination waged against women, especially married women whom creditors traditionally refused to consider for individual credit.” Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 876 (6th Cir.2002) (quotation marks omitted). In Congress' judgment, one's marital status—along with race, religion, and other traits, which were added to the statute in 1976—generally “are, and must be, irrelevant to a credit judgment.” S.Rep. No. 94–589, at 3 (1976), reprinted in 1976 U.S.C.C.A.N. 403, 405; see also Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 406 (6th Cir.1998). ECOA thus makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction [ ] on the basis of ... sex or marital status,” among other things. 15 U.S.C. § 1691(a).

Congress mandated that the agency charged with overseeing ECOA—first the Federal Reserve, now the Consumer Financial Protection Bureau—promulgate regulations “to carry out the [statute's] purposes.” 15 U.S.C. § 1691b(a). Regulation B is the result of Congress' directive. Like ECOA, Regulation B aims “to promote the availability of credit to all creditworthy applicants without regard to ... sex [or] marital status [and other factors] ... [and] prohibits creditor practices that discriminate on the basis of any of these factors.” 12 C.F.R. § 202.1(b), 12 C.F.R. § 1002.1(b). This case focuses on a portion of Regulation B that we will refer to as the “spouse-guarantor rule,” which prohibits a creditor from requiring an applicant's spouse to guarantee a credit instrument, even if the creditor requires someone to execute a guaranty. See12 C.F.R. § 202.7(d)(5), 12 C.F.R. § 1002.7(d)(5). “The applicant's spouse may serve as an additional party [supporting the application], but the creditor shall not require that the spouse be the additional party.” 3Id.

Creditors who violate ECOA or Regulation B may be sued for actual damages, punitive damages, and attorneys' fees. See15 U.S.C. § 1691e. But only “applicants” have the ability to sue for ECOA violations. See id. ECOA's definition of “applicant” does not explicitly include guarantors. See15 U.S.C. § 1691a(b). Regulation B, however, contains its own definition of “applicant,” and that definition allows guarantors to sue for violations of the spouse-guarantor rule. See12 C.F.R. § 202.2(e), 12 C.F.R. § 1002.2(e).

This appeal raises two issues of first impression concerning ECOA's statutory and regulatory scheme. First, we must determine whether Regulation B's definition of “applicant,” which differs from the definition in ECOA, is entitled to deference such that guarantors may raise ECOA claims. Second, we must decide if a spouse-guarantor can assert a violation of Regulation B—and therefore of ECOA—as an affirmative defense. We review these questions of statutory and regulatory interpretation de novo. See Metro. Hosp. v. U.S. Dep't of Health & Human Servs., 712 F.3d 248, 255 (6th Cir.2013); Bowling Green v. Martin Land Dev. Co., 561 F.3d 556, 558 (6th Cir.2009).

II. Regulation B's Definition of “Applicant” Is Entitled to Deference

ECOA's protections and remedies apply to “applicants” for credit, whom the statute defines as ...

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