First South Bank v. Bank of the Ozark

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 9:11-cv-02587-RMG Copies to all parties and the district court/agency. [999220843].. [12-2154, 12-2185]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-2154

FIRST SOUTH BANK,
Plaintiff – Appellee,
v.
BANK OF THE OZARKS,
Defendant – Appellant.

No. 12-2185

FIRST SOUTH BANK,
Plaintiff – Appellee,
v.
BANK OF THE OZARKS,
Defendant – Appellant.

Appeals from the United States District Court for the District
of South Carolina, at Beaufort.
Richard M. Gergel, District
Judge. (9:11-cv-02587-RMG)

Argued:

September 17, 2013

Decided:

Before KING, SHEDD, and THACKER, Circuit Judges.

October 18, 2013

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Affirmed by unpublished per curiam opinion.

ARGUED: John Coffman Lindley, III, JOHNSTON, ALLISON & HORD, PA,
Charlotte, North Carolina, for Appellant.
Alice F. Paylor,
ROSEN, ROSEN & HAGOOD, LLC, Charleston, South Carolina, for
Appellee. ON BRIEF: Elizabeth J. Palmer, ROSEN, ROSEN & HAGOOD,
LLC, Charleston, South Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
Bank of the Ozarks appeals the district court’s judgment in
favor of First South Bank in this breach of contract action.
For the following reasons, we affirm.
I.
In June 2010, Woodlands Bank agreed to issue a $7.1 million
development loan to Lakeside Development, LLC (the Borrower or
Lakeside).

Seeking

another

bank

to

help

fund

the

loan,

Woodlands approached First South Bank, and the banks eventually
entered into a Participation Agreement (the Agreement), whereby
First South Bank agreed to fund up to $4.15 million of the
development

loan.

During

negotiations,

First

South

Bank

demanded that Woodlands be responsible for all expenses arising
from servicing the loan and would not have entered into the
Agreement without this promise.
To

that

end,

the

Agreement

specifically

discussed

handling of expenses, providing as follows in Paragraph 4:
4. EXPENSES. Seller [Woodlands] may at its discretion
make additional advances for taxes, insurance premiums
and other items deemed necessary by [Woodlands] to
collect, enforce, or protect the Loan and any Property
securing the Loan including, but not limited to,
attorneys’
fees,
court
costs
and
disbursements
(Expenses).
Purchaser’s
[First
South
Bank’s]
percentage of Expenses is:
A. {X} No Shared Expenses.
expenses.

3

[Woodlands] will bear all

the

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B.
{} Shared Expenses. _______ percent of Expenses,
or if no percentage is indicated, that percentage of
Expenses which [First South Bank’s] unreimbursed
investment is of the principal amount of the Loan
outstanding on the date Expenses are incurred.
All
Expenses will be shared in the proportion indicated on
the date Expenses are incurred.
[First South Bank]
will pay to [Woodlands] on demand [First South Bank’s]
share of Expenses.
[Woodlands] will remit to [First
South
Bank’s]
share
of
Expenses
recovered
by
[Woodlands].
(J.A. 25).

The banks selected option A, indicating by marking

with an X that Woodlands was responsible for all expenses.
In

addition

“Payments,”

to

expenses,

providing

in

the

Paragraph

Agreement
3

that

also

addressed

“[Woodlands]

will

receive all Payments and apply them to Borrower’s account,” and
that “[First South Bank’s] percentage of all Payments is . . .
[First South Bank] First Out: 100 percent of Payments before
Default

until

such

time

as

[First

South

Bank]

has

received

[First South Bank’s] Investment plus interest thereon.”
25).

“Payments”

are

defined

in

Paragraph

9

as

(J.A.

“principal,

interest, and other charges received by [Woodlands] with respect
to the Loan from whatever source derived.”

(J.A. 26).

Finally, Paragraph 19 addressed what would happen in the
event Lakeside defaulted on the underlying development loan:
19. DEFAULT AND LIQUIDATION OF LOAN. Notwithstanding
any payment terms to the contrary, in the event of
default, or if [Woodlands] in its sole discretion
should otherwise accelerate and liquidate the Loan,
all Payments collected and received by [Woodlands]
will be applied ratably as follows: first, to
Expenses; second, to the unpaid principal amount of
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the Loan in proportion to the respective unpaid
investments of [Woodlands] and [First South Bank] in
the Loan at the time of Default; and third, to the
respective accrued interest and other charges of
[Woodlands] and [First South Bank].
Upon Borrower’s
Default, all Payments and Borrower Fees received from
Borrower, whether designated for repayment of the loan
or undesignated, will be deemed intended for the
repayment of the Loan in accordance with this
Agreement.
(J.A.

26).

Paragraph

19

does

not

define

“payment

terms,”

Woodlands

entered

“Payments,” or “Expenses.”
Shortly

after

receivership

under

and

Bank

of

signing
the

the

the

Federal

Ozarks

Agreement,
Deposit

purchased

Insurance
the

loan

Corporation,
to

Lakeside

Development and became Woodlands’ successor in interest to the
Agreement.

Thereafter, Lakeside defaulted on the loan.

Bank of

the Ozarks began collecting the loan from Lakeside’s assets,
including liquidating one of Lakeside’s trust accounts that had
secured the initial loan.

Bank of the Ozarks then deducted all

of its expenses—$81,452.39—before paying First South Bank its
58.041% share of the remaining assets.
First South Bank responded by suing Bank of the Ozarks in
federal

district

court,

alleging

breach

of

contract

for

deducting expenses before paying First South Bank’s share of the
recovery.

Bank

of

the

Ozarks

moved

for

judgment

on

the

pleadings, attaching the Agreement and arguing that Paragraph 19
permitted it to deduct expenses incurred after a default.

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First

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South Bank filed a cross-motion for summary judgment, arguing
that Paragraph 4 unambiguously required Bank of the Ozarks to
bear

all

expenses.

The

district

court

denied

both

motions,

concluding “as a matter of law that the Participation Agreement
is ambiguous with regard to the issue raised in this action.”
(J.A. 53-54).

Thereafter, the court held a bench trial during

which both parties presented extrinsic evidence regarding their
understanding of the Agreement.

At the close of evidence, the

court ruled in favor of First South Bank and ordered Bank of the
Ozarks to pay $47,275.78.
Ozarks,

2012

WL

3597665

First South Bank v. Bank of the

(D.S.C.

Aug.

12,

2012).

The

court

expounded upon its earlier ruling concerning the ambiguity of
the Agreement, explaining that “[w]hile Paragraph 4 plainly and
without qualification states that [Bank of the Ozarks] is to
bear all Expenses, paragraph 19 appears to permit [Bank of the
Ozarks], after default, to pay Expenses out of the proceeds that
it receives.”

Id. at *6.

The court found that it could not

“reconcile these two provisions” and that the Agreement was thus
ambiguous.

Id.

By separate order, the court later granted

attorneys’ fees and costs in the amount of $41,668.95.

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II.
Bank of the Ozarks now appeals, contending that the court
erred in denying its motion for judgment on the pleadings. *

We

review this ruling de novo, Butler v. United States, 702 F.3d
749, 751-52 (4th Cir. 2012).

Under South Carolina law, which

applies here, an agreement is ambiguous if it is “susceptible to
more than one interpretation or its meaning is unclear.”
v. Miles, 711 S.E.2d 880, 883 (S.C. 2011).

Miles

“Whether a contract

is ambiguous is to be determined from the entire contract and
not from isolated portions of the contract.”
Co.,

218

ambiguous

S.E.2d
because

inconsistency,
meaning.”

431,
of

or

Crystal

433

(S.C.

1975).

“indefiniteness

inclusion
Pines

of

of

“words

Homeowners

Farr v. Duke Power
A

contract

expression,”
that

Ass’n

have

v.

may

be

internal
a

double

Phillips,

716

S.E.2d 682, 685 (S.C. Ct. App. 2011) (internal quotation marks
omitted).
Bank of the Ozarks argues that the Agreement, specifically
Paragraph

19,

unambiguously

provides

*

that,

in

event

of

a

Because Bank of the Ozarks is only appealing this pretrial
order, we requested that the parties file supplemental briefs
addressing whether, under Varghese v. Honeywell Int’l, Inc., 424
F.3d 411, 420-23 (4th Cir. 2005), Bank of the Ozarks was
precluded from arguing that the contract was unambiguous.
Having reviewed the supplemental briefs and the responses of the
parties at oral argument, we are satisfied that, under the
particular facts of this case, Bank of the Ozarks preserved its
argument.

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default, expenses are shared.

Bank of the Ozarks rests its

argument on the first sentence of Paragraph 19, which provides
“[n]otwithstanding any payment terms to the contrary, in the
event of default” Bank of the Ozarks could apply all “Payments”
first to “Expenses.”

(J.A. 26).

In Bank of the Ozarks’ view,

Paragraph 4, which defines expenses, is a “payment term” swept
aside by Paragraph 19.

And, because Paragraph 19 permits Bank

of the Ozarks to apply recovered sums first to expenses, Bank of
the

Ozarks

contends

that

it

was

authorized

to

deduct

its

expenses prior to paying First South’s share.
In response, First South Bank contends that “payment terms”
in

Paragraph

“Payments.”
no

19

refer

only

to

Paragraph

3,

which

addresses

First South Bank notes that, while Paragraph 4 has

limiting

language

suggesting

that

expenses

are

handled

differently in the event of a default, Paragraph 3 specifically
mentions that First South Bank is entitled to “100 percent of
Payments before default.”

(J.A. 25).

Thus, in First South

Bank’s view, Paragraph 19 simply reaffirms what is stated in
Paragraph 3 regarding what occurs to “payments” after default
and has no impact on Paragraph 4 and Bank of the Ozarks’ duty to
shoulder all expenses.
We

agree

ambiguous.
Paragraph

with

As
19

are

the

district

First

South

Bank

not

defined

by
8

court

that

notes,
the

the

contract

“payment

contract,

and

is

terms”

in

they

can

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be

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read

as

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limited

to

Paragraph

3.

Under

that

reading, Paragraph 19 simply reinforces the reference to default
in Paragraph 3.

“Payment terms” certainly could encompass a

broader section of the Agreement, but, critically, the fact that
the phrase could be read in such a way confirms its ambiguity.
Because

“payment

manners,

Bank

unambiguously

terms”

of

the

sweeps

could

be

Ozarks

aside

is

read

in

several

incorrect

Paragraph

4’s

that

rule

different

the

for

phrase

expenses.

Accordingly, we agree with the district court that the Agreement
is internally inconsistent and thus ambiguous.
III.
For the foregoing reasons, we affirm the district court’s
denial

of

Bank

of

the

Ozarks’

motion

for

judgment

on

the

pleadings.
AFFIRMED

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