Federal Deposit Insurance Corporation v. Harry Brown & Co., LLC, et al

Filing 178

MEMORANDUM OPINION AND ORDER denying 159 MOTION for Summary Judgment. Signed by Honorable Judge W. Harold Albritton, III on 12/10/2015. (Attachments: # 1 Civil Appeals Checklist) (wcl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
THE FEDERAL DEPOSIT INSURANCE
CORPORATION,
Plaintiff,
v.
HARRY BROWN & CO., LLC;
STEWARDSHIP INVESTMENTS, LLC;
HARRY I. BROWN, JR.; and JOHN M.
BROWN, as personal representative of the
ESTATE OF HARRY I. BROWN, SR.,
Defendants.
HARRY BROWN & CO., LLC;
STEWARDSHIP INVESTMENTS, LLC;
HARRY I. BROWN, JR.; and JOHN M.
BROWN, as personal representative of the
ESTATE OF HARRY I. BROWN, SR.,
Counterclaimants,
v.
THE FEDERAL DEPOSIT INSURANCE
CORPORATION,
Counterclaim–
Defendant.

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Civ. Action No. 2:13-cv-350-WHA
(WO)

MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This cause is before the court on a Motion for Summary Judgment (Doc. #159), filed with
leave of court by the Defendants, Harry I. Brown, Jr.; Harry Brown & Co., LLC; Stewardship
Investments, LLC; and John M. Brown, as personal representative of the Estate of Harry I. Brown,
Sr.

This case began in Alabama state court in April 2012 as a suit by Frontier Bank against
Harry I. Brown, Jr. (“Brown, Jr.”); Harry Brown & Company, LLC (“Brown & Co.”); and
Stewardship Investments, LLC. Harry Brown, Sr. died on May 22, 2012. Letters Testamentary
were issued by the state probate court to Brown, Jr. on June 5, 2012 (Doc. #159-6 at p.12). An
Amendment to the Complaint by Frontier Bank on January 22, 2013 in state court added Harry
Brown, Jr. as Personal Representative of the Estate of Harry Brown, Sr. (Doc. #1-9).

Letters

testamentary were issued to John Marshall Brown on February 22, 2013. (Doc. #33-2). Frontier
Bank failed, and the Federal Deposit Insurance Corporation (“FDIC”) became the Receiver for
Frontier Bank. The case was removed to federal court on the basis of FDIC’s status on May 22,
2013.
The parties filed a Joint Motion to Stay on August 19, 2013, stating that they had agreed to
have the Defendants submit claims to the FDIC and noting that the Estate of Harry Brown, Sr. had
not been served with a summons and complaint and had agreed to accept service in accordance
with Fed. R. Civ. P. 4(d). (Doc. #17).
The Defendants in the removed case submitted counterclaims to FDIC administratively.
FDIC then filed a Second Amended Complaint on February 14, 2014, expanding claims against
the Estate of Harry I. Brown, Sr. (“the Estate”), but still naming Harry I. Brown, Jr. as the personal
representative of the Estate. (Doc. #30). The Defendants moved to dismiss, noting within the
motion that naming Harry I. Brown, Jr. as personal representative of the estate was in error and that
the Estate had agreed to accept service. (Doc. #33). In response to an Order of this court on the
Motion to Dismiss, the FDIC filed a new Amended Complaint on May 28, 2014, adding John M.
Brown as personal representative of the Estate of Brown, Sr. By Order of this court, service of the

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Amended Complaint on counsel was deemed sufficient service. (Doc. #38).
The court has ruled on numerous motions for summary judgment filed by FDIC.

The

court has granted in part a Motion for Summary Judgment by FDIC on the following affirmative
defenses:

the statute of limitations defense asserted with respect to contract claims, the

collateral and payment defense to the extent that is based on an allegation of collateral other than
the foreclosure deed, the applicable interest rate, standing, and offset. (Doc. #138). The court
also denied the Motion for Summary Judgment in part as to the affirmative defense of the statute
of limitations as to the conspiracy to commit fraud and breach of fiduciary duty claims.
The instant motion is a Motion for Summary Judgment by the Defendants.

The initial

grounds for summary judgment are based on FDIC’s failure to comply with certain deadlines,
which the court finds more appropriately addressed in the context of the filings as to which FDIC
was alleged to have been untimely.

The other grounds for summary judgment will be discussed

below, and for the reasons discussed, the Motion for Summary Judgment is due to be DENIED.

II. SUMMARY JUDGMENT STANDARD
Summary judgment is proper "if there is no genuine issue as to any material fact and

...

the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986).
The party asking for summary judgment "always bears the initial responsibility of
informing the district court of the basis for its motion,@ relying on submissions Awhich it believes
demonstrate the absence of a genuine issue of material fact." Id. at 323. Once the moving party
has met its burden, the nonmoving party must Ago beyond the pleadings@ and show that there is a
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genuine issue for trial. Id. at 324.
Both the party Aasserting that a fact cannot be,@ and a party asserting that a fact is genuinely
disputed, must support their assertions by Aciting to particular parts of materials in the record,@ or
by Ashowing that the materials cited do not establish the absence or presence of a genuine dispute,
or that an adverse party cannot produce admissible evidence to support the fact.@ Fed. R. Civ. P.
56 (c)(1)(A),(B). Acceptable materials under Rule 56(c)(1)(A) include Adepositions, documents,
electronically stored information, affidavits or declarations, stipulations (including those made for
purposes of the motion only), admissions, interrogatory answers, or other materials.@
To avoid summary judgment, the nonmoving party "must do more than show that there is
some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). On the other hand, the evidence of the nonmovant must be
believed and all justifiable inferences must be drawn in its favor. See Anderson v. Liberty Lobby,
477 U.S. 242, 255 (1986).
After the nonmoving party has responded to the motion for summary judgment, the court
shall grant summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).

III. FACTS
The submissions of the parties establish the following facts, construed in a light most
favorable to the non-movants:
The debts at issue, as previously identified, are Notes 1 and 2, which are debts of Brown &
Co.; Brown, Jr.; and the Brown, Sr. Estate, and Note 3, which is a debt of Stewardship
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Investments, LLC and Brown, Jr.
Before the FDIC became a party and the case was removed to this court, the Circuit
Court of Coosa County, Alabama entered summary judgment in favor of Frontier Bank as
follows:
1. As of September 19, 2012, Stewardship Investments, LLC was indebted to Frontier
Bank in the amount of approximately $468,553.50, which is $445,947.71 in principal
and $22,595.79 in interest, and $10.00 in late fees plus a reasonable attorney’s fee.
Interest is accruing at $74.32 per day.
2. As of September 19, 2012, Harry Brown & Co., LLC was indebted to Frontier Bank
in the amount of $1,100,627.68, which is $1,056,220.14 in principal, $43,431.28 in
interest, and $976.26 in late charges, plus a reasonable attorney’s fee. Interest
continues to accrue at the rate of $176.04 per day.
3. As of September 19, 2012, Harry I. Brown, Jr., as guarantor of the Brown & Co. and
Stewardship debts, was indebted to Frontier Bank in the amount of $1,569,181.18
plus a reasonable attorney’s fee. Interest continues to accrue at the rate of $250.36
per day.
(Doc. #1-5 at p. 149). The Order was entered without prejudice to Brown, Jr.; Stewardship
Investments; or Brown & Co. asserting affirmative defenses and counterclaims to reduce or
eliminate the indebtedness. (Doc. #1-5 at p. 150).
Collateral securing the notes of Harry Brown & Co., LLC was sold at auction for
$707,000.00 on October 26, 2012. (Doc. #65-4).
The facts underlying these loan transactions are that Brown & Co. was a limited liability
company of Brown, Jr., who was also a director of Frontier Bank.
guaranteed by Brown, Jr.

Notes 1 and 2 were

When the loans were renewed, they were also guaranteed by Brown,

Sr., who was Brown, Jr.’s father. Brown, Sr.’s guaranty was limited to $600,000.

Steve

Townson (“Townson”), the CEO of Frontier Bank, approved a release of Brown, Sr.’s limited
guaranty of the loans in April of 2011.

FDIC contends that the release was not authorized and

also that it was not disclosed during subsequent Board of Directors meetings of Frontier Bank.

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IV. DISCUSSION
The Defendants have moved for summary judgment on FDIC’s claims against the Estate
arguing that the claims are time-barred, and also on the grounds that there is no evidence of breach
of contract, fraud, or breach of fiduciary duty by the Estate or Harry I. Brown, Jr. The court
begins with the timeliness arguments.
Timeliness of FDIC’s Claims
The Defendants have two grounds for their argument that summary judgment is due to be
granted because FDIC’s fraud and breach of fiduciary duty claims against the Estate are untimely:
the claims were not timely presented to the probate court and they were not filed in the circuit court
or this court within the applicable statute of limitations. More specifically, the Defendants argue
that FDIC’s claims against the Estate for fraud and breach of fiduciary duty were commenced in
this court on May 28, 2014, when the Estate was served, but FDIC only had six months from June
5, 2012, when Harry I. Brown, Sr.’s will was admitted to probate, to bring a claim against the
Estate in probate court for its alleged torts, and FDIC had only two years from April 29, 2011, the
release of Harry I. Brown, Sr., to file tort claims.
FDIC responds that all of its claims are timely because Frontier Bank filed a Verified
Statement of Claim in the probate court on December 3, 2012, that its claims fall within the
two-year statute of limitations, and that instead of the Alabama statute, a three-year statute of
limitations applies and did not begin to run until March 2012 when FDIC was appointed receiver,
citing 12 U.S.C. §1821(d).
Regarding the applicable statute of limitations, the court first notes that the Eleventh
Circuit has explained the operation of 12 U.S.C. § 1821(d)(14)(A) & (B). “The district court must
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first determine whether the claims being brought by the RTC were viable under the applicable state
statute of limitations at the time the RTC was appointed receiver. If the state statute has not yet run,
the period provided by 12 U.S.C. § 1821(d)(14)(A) then begins to run.” Resolution Trust Corp. v.
Artley, 28 F.3d 1099, 1101 (11th Cir. 1994) (quotation omitted). “Thus, a claim that accrued
before the FDIC–R's appointment is timely only if it was both viable at the time of appointment
and filed before the running of the extender statute.” F.D.I.C. v. Cameron, 986 F. Supp. 2d 1337,
1340 (N.D. Ga. 2013). Therefore, the court must address whether Frontier Bank’s claim against
the Estate was timely under state law.
The court has previously addressed the application of Alabama’s two-year statute of
limitations to the fraud and breach of fiduciary duty claims in this case, albeit in the context of the
FDIC’s Motion for Summary Judgment (Doc. #138). This court previously concluded that
summary judgment could not be granted to FDIC on the Defendants’ statute of limitations defense
because there were questions of fact precluding a determination as a matter of law as to when the
case commenced and when the claims accrued. (Doc. #138 at p.8).
The Defendants’ instant motion raises a new timing issue:

the non-claim statute.

Alabama has a statute of non-claim which bars claims asserted against an estate more than six
months from the date that letters testamentary are issued. Ala. Code §43-2-350. There is an
exception to the non-claim statute for contingent claims. Edgehill Corp. v. Hutchens, 213 So. 2d
225 (1968). Within the concept of a “contingent claim” is the idea that “there may be claims not
within its operation, because they do not accrue, until the doing of some act by another, after the
grant of administration.” McDowell v. Jones, 58 Ala. 25, 32 (1877). One judge of this court, in
addressing whether a claim could be brought in state court, reasoned that where a cause of action
for fraud did not accrue until after the decedent’s death, a plaintiffs' fraud claim against the estate
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was akin to “contingent claim” under Edgehill, so that Ala. Code § 43–2–350 did not bar the claim.
See Morgan v. Cook, 180 F. Supp. 2d 1301, 1305 (M.D. Ala. 2001). In the context of another
non-claim statute for claims against a county, the Alabama Court of Civil Appeals analogized the
case to one applying a fraud discovery rule and determined that “accrual” under the non-claim
statute occurred when a reasonable person would have been on notice that the county did not
intend to comply with an agreement. Jacks v. Madison Cnty., 741 So. 2d 429, 431 (Ala. Civ. App.
1999).
The reasoning of these cases persuades this court that a claim which had not accrued within
6 months of the issuance of letters testamentary is not barred by the non-claim statute. Accrual
analysis also applies to the applicable statute of limitations. See Liberty Nat’l Life Ins. Co. v.
McAllister, 675 So. 2d 1292, 1297 (Ala. 1995) (statute of limitations does not begin to run until the
plaintiff discovers or should have discovered fraud).

The court, therefore, turns to

commencement and accrual analysis as applied to both timing defenses.
To aid in its analysis, the court sets out the following timeline with the parties’ respective
positions as to accrual of the claims at issue and commencement.
Brown Sr.’s Release

April 2011

Defendants’ Accrual of Claims Date

William Logan Affidavit

November 2012

Plaintiff’s Accrual of Claims Date

Brown Estate Named

January 22, 2013

Plaintiff’s Commencement Date

Brown Estate Served

May 28, 2014

Defendant’s Commencement Date

Beginning with the commencement of the case issue first, the court must again conclude,
as it did in ruling on FDIC’s motion, that questions of fact preclude summary judgment on this
issue. Letters Testamentary were issued to Brown, Jr. on June 5, 2012 (Doc. #159-6 at p.12). An
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Amendment to the Complaint by Frontier Bank on January 22, 2013 in state court added Harry
Brown, Jr. as Personal Representative of the Estate of Harry Brown, Sr. (Doc. #1-9).

Letters

testamentary then were issued to John Marshall Brown on February 22, 2013. (Doc. #33-2).
Frontier Bank failed, FDIC was appointed receiver, and the case was removed to federal court.
On August 19, 2013, the parties filed a Joint Motion for Stay in which they stated that the Estate
had not been served with a summons and complaint and had agreed to accept service in accordance
with Rule 4(d). (Doc. #17). FDIC then filed a Second Amended Complaint, expanding claims
against the Estate of Harry I. Brown, Sr. (“the Estate”), but still naming Harry I. Brown, Jr. as the
personal representative of the Estate. (Doc. #30). The Defendants moved to dismiss, noting
within the motion that naming Harry I. Brown, Jr. as personal representative of the estate was in
error, and also stating that it had agreed to accept service. (Doc. #33 at p.3 n.2). By order of the
court, a new Amended Complaint was filed and service was deemed effective on May 28, 2014.
These facts could lead to the conclusion that there was a bona fide intent to have the
complaint served at the time the Amended Complaints were filed. See Dunnam v. Ovbiagele, 814
So. 2d 232, 237 (Ala. 2001) (stating that the mere date of filing a complaint does not commence an
action for purposes of the statute of limitations, but instead the complaint must be filed and there
must be a bona fide intent to have it immediately served).
As to the fact that the wrong representative of the Estate was named in an Amended
Complaint, the court is persuaded by FDIC’s relation back argument. Under Federal Rule of
Civil Procedure 15(c), relation back applies when the basic claim must have arisen out of the
conduct set forth in the original pleading; the party to be brought in must have received such notice
that it will not be prejudiced in maintaining its defense; that party must or should have known that,
but for a mistake concerning identity, the action would have been brought against it; and the
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second and third requirements are fulfilled within the prescribed period provided for serving the
summons and complaint. See F.D.I.C. v. Conner, 20 F.3d 1376, 1385 (5th Cir. 1994) (applying
Rule 15 where FDIC as receiver sought to amend a complaint to bring claims on additional loans).
In this case, John Brown was a replacement of the previous Estate representative, Harry Brown, Jr.
The issue of the circumstances under which Brown, Sr.’s guaranty was released, including
allegations of fraud, were raised in the Amendment to the Complaint filed in state court by Frontier
Bank on January 22, 2013 (Doc. #1-9). The representative of the Estate had notice of the
Amended Complaint, since the Estate had agreed to waive service at some point prior to August
19, 2013 (Doc. #17), and was given a Waiver of Service of Summons form for the Second
Amended Complaint filed by FDIC on February 14, 2014, so may have had notice of the claims
against it within the relevant period. See Krupski v. Costa Crociere S. p. A., 560 U.S. 538, 555
(2010) (stating that relation back “depends on what the party to be added knew or should have
known, not on the amending party's knowledge or its timeliness in seeking to amend the
pleading.”). The court cannot conclude otherwise as a matter of law at this point in the
proceedings.
As to the new issue of commencement raised by the Defendants based on the argument that
FDIC has failed to present its claims to the probate court for purposes of the non-claim statute, the
court agrees that the verified claim did not bring a claim for breach of fiduciary duty or fraud.
However, the “filing of a suit in circuit court within the six-month limitation period obviates the
need of filing a claim in the probate court as required by the nonclaim statute.” Ivory v.
Fitzpatrick, 445 So. 2d 262, 264 (Ala. 1984). The court concludes, therefore, the January 22,
2013 filing of claims in state court for fraud and breach of fiduciary duty to invalidate the release
can also satisfy the non-claim statute, if the claims are ultimately found to have been commenced
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on that date.
The remaining issue before the court as to timeliness, therefore, is whether the claims
accrued within the relevant time period preceding the filing of the Amended Complaint. When
the court ruled on FDIC’s previously-filed Motion for Summary Judgment (Doc. #138), the court
concluded that FDIC did not sufficiently support its motion and there were questions of fact as to
when the fraud claims accrued. (Doc. #138 at p. 7-9).
Now that the case is before the court on the Defendants’ Motion for Summary Judgment,
the court must reach the same conclusion. The Defendants have based their argument for accrual
of the claims on an April 2011 date, which is the date of Brown, Sr.’s release.

FDIC does not

dispute that the release was signed on April 29, 2011, but FDIC argues that Frontier Bank was not
aware of any fraud or that the release had not been appropriately approved at that time. FDIC
states that the Defendants have no evidence that Townson told Logan that the Board had been
polled until shortly before Logan signed his affidavit in November of 2012. The court cannot
make a determination as a matter of law as to when the claim accrued, but there is at least a
question of fact as to whether it accrued on a date other than, and later than, the date supported by
the Defendants’ evidence. The date pointed to by FDIC, November 2012, falls within 6 months
and also within 2 years prior to the filing of the January 22, 2013 Amended Complaint.
In summary, there are questions of fact which preclude a determination as a matter of law,
but could support a finding that the fraud and breach of fiduciary duty claims against the Estate
accrued in November 2012 and were commenced on January 22, 2013. Therefore, the court must
conclude that the Motion for Summary Judgment by Defendants, like the previous one of FDIC,
must be DENIED as to the statute of limitations.
Substantive Arguments
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In addition to the statute of limitations arguments, the parties have also advanced
substantive arguments. One of those arguments by FDIC is that it is entitled to summary
judgment of the merits of its claims. FDIC, however, did not seek and was not given leave to file
an out-of-time motion; therefore, the court has not considered that argument.
The Defendants’ remaining arguments in their Motion for Summary Judgment are based
primarily on the availability of evidence at trial. FDIC’s response does not address the specific
aspects of the Defendants’ arguments, but instead cites the court to multiple exhibits in the record
without comment. As noted earlier, during the pendency of this case, the court has addressed
numerous dispositive motions filed by FDIC.

This late-filed motion is the first time the

Defendants have placed FDIC’s claims at issue in a motion. While the court allowed the motion
because it had concerns about the timeliness of FDIC’s claims, as discussed above, the court
cannot conclude that the Defendants are entitled to judgment on that issue. It appears to the court
that the better approach to the remaining arguments is to deny the Motion for Summary Judgment,
but, to deny it without prejudice to the Defendants raising these arguments in a motion for
judgment as a matter of law after presentation of admissible evidence at trial.
V. CONCLUSION
For the reasons discussed, it is hereby ORDERED that the Defendants’ Motion for
Summary Judgment (Doc. #159) is DENIED.

Done this 10th day of December, 2015.
/s/ W. Harold Albritton
W. HAROLD ALBRITTON
SENIOR UNITED STATES DISTRICT JUDGE

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