Shewmake v. Anderson et al

Filing 36

MEMORANDUM OPINION. Signed by Judge R David Proctor on 10/30/2012. (AVC)

FILED
2012 Oct-30 PM 02:44
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
JACK SHEWMAKE,

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Plaintiff,
v.
BRYAN ANDERSON, et al.,
Defendants.

Case No.: 2:09-CV-2208-RDP

MEMORANDUM OPINION
This matter is before the court on Defendant's Motion for Summary Judgment (Doc. # 26).
The motion has been fully briefed. (Docs. # 27, 29, 33).
I.

Background
Oscar Wilde is credited with the saying, "A man cannot be too careful in his choice of

enemies." Of course, the same can be said of one's selection of business partners. This case involves
a collision between these two otherwise parallel ideals.
Plaintiff Jack Shewmake is an experienced home builder. (Doc. # 28-1 at 33-34). He has
completed a number of significant developments. (Doc. # 28-1 at 39-48). Shewmake met Bryan
Anderson ("Anderson") and Derek Weaver ("Weaver") in 2004, when a realtor introduced Anderson
and Weaver to Shewmake as "young investors … who wanted to build some houses." (Doc. # 28-1
at 56-57). Weaver and Anderson were already members of two LLCs, in which Shewmake did not
become a member: Blazer Group, LLC ("Blazer Group"); and 360 Properties, LLC ("360
Properties"). (Doc. # 28-1 at 62-63, 78-79).
When Shewmake met Anderson and Weaver, Anderson was an investment counselor or
stockbroker with Metropolitan Life. (Doc. # 28-1 at 57-58). Anderson and Weaver told Shewmake

that they had invested in the development of an apartment building project in Bessemer and had
some real estate experience. (Doc. # 28-1 at 58). Anderson and Weaver were in their thirties and
considerably younger than Shewmake. (Doc. # 28-1 at 59-60).
Anderson and Weaver asked Shewmake to build a house for them to sell under a partnership
arrangement. (Doc. # 28-1 at 60). Anderson and Weaver purchased two lots in the Chestnut Ridge
subdivision through 360 Properties. (Doc. # 28-1 at 61-62). Despite Shewmake's opinion that the
lot choices were "terrible," Shewmake entered into a contract with Anderson and Weaver to build
the two houses on a fee-basis. He was to receive twenty-five percent of the profit on the sale of the
houses. (Doc. # 28-1 at 62-63). Shewmake developed the two homes, which sold in 2005, but
Shewmake did not receive any profit on the sales. (Doc. # 28-1 at 64). Shewmake does not know
whether Anderson and Weaver made a profit on the two houses. He asked Anderson for information
on the sales price on the homes, but Anderson did not provide the information. (Doc. # 28-1 at
64-65).
In early 2005, Shewmake met with Anderson and Weaver several times about a development
plan Shewmake had created for a piece of property owned by his father, which ultimately became
the Sterling Lakes subdivision. (Doc. # 28-1 at 67-68). On July 28, 2005, Shewmake, Anderson and
Weaver formed ASW Development, LLC ("ASW") to develop Sterling Lakes. Anderson and
Weaver each received a thirty-three percent interest in the company, and Shewmake received a
thirty-four percent interest. (Doc. # 28-1 at 247; Doc. # 28-6 Ex. 34).
Shewmake was to oversee development of the Sterling Lakes property. (Doc. # 28-1 at 68,
246; Doc. # 28-6 Ex. 34). All three members of ASW were to provide an initial contribution of
$100,000.00, which none of them ever did. (Doc. # 28-1 at 247-48; Doc. # 28-6 Ex. 34).
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The Operating Agreement for ASW provided in relevant part:
Each member is an agent of the Company for the purpose of its business or affairs,
and the act of any Member, including, but not limited to, the execution in the name
of the Company of any instrument, for apparently carrying on in the usual way the
business or affairs of the Company, binds the Company, unless the Member has no
authority to act for the Company in the particular matter and the person with whom
the Member is dealing has or should have had knowledge of the fact that the Member
has no such authority.
(Doc. # 28-1 at 103, Ex. 6). The Operating Agreement names Anderson as the President of ASW
and Weaver as its Secretary-Treasurer. (Doc. # 28-3 Ex. 6). The Operating Agreement further
provides:
13.2 Vote of Members. This Agreement may not be amended as to matters which
would (i) change adversely any Member's rights and interests in the income,
expenses, gains, losses or income tax allocations of the Company, or (ii) change any
Member's rights respecting liquidation of the Company without the unanimous
affirmative vote of the Members.
(Doc. # 28-3 Ex. 6).
On July 29, 2005, two landowners who owned property adjacent to the property owned by
Shewmake's father, Samuel T. Shewmake, conveyed those properties to him. (Doc. # 28-6 Exs. 31,
32). The same day, Blazer Group purchased one hundred thirty-seven acres from Samuel T.
Shewmake which became the "Sterling Lakes property". (Doc. # 28-6 Ex. 33). Shewmake
orchestrated this purchase. (Doc. # 28-1 at 231, 235).
Phase I of Sterling Lakes contained sixty-four lots and had a target date of completion of
September 2006. (Doc. # 28-1 at 95-96). Although Shewmake did not plan to develop the Sterling
Lakes property in phases, he learned that was the plan when he signed loan closing documents at
CapitalSouth Bank. (Doc. # 28-1 at 89-90).

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CapitalSouth Bank ("CapitalSouth") is a failed bank that was chartered by the Alabama State
Banking Department. CapitalSouth was declared insolvent on August 29, 2009, and the Federal
Deposit Insurance Corporation (the "FDIC") (the remaining Defendant in this case) was appointed
Receiver. (Doc. # 28-10 Ex. E).
CapitalSouth initially declined to finance the Sterling Lakes development because Anderson
and Weaver did not have the development experience it was looking for. Therefore, Anderson and
Weaver set up an interview for Shewmake with CapitalSouth. (Doc. # 28-1 at 72, 311). At one
meeting, David Williamson of CapitalSouth told Shewmake that a condition of CapitalSouth funding
the Sterling Lakes project was Shewmake's involvement in it. (Doc. # 28-1 at 312).
In April 2006, Blazer Group conveyed to ASW a portion of the Sterling Lakes property in
exchange for $1,112,341.00. (Doc. # 28-1 at 256, 259; Doc. # 28-3 Ex. 3; Doc. # 28-6 Ex. 35). That
same day, all three members of ASW executed a number of loan documents. (Doc. # 28-1 at 83,
134-39, 142-44; Doc. # 28-3 Ex. 7; Doc. # 28-4 Exs. 11, 13 - 15; Doc. # 28-5 Exs. 16 - 18). They
executed an Acquisition and Development Loan Agreement with CapitalSouth for $1,891,000.00
(the "Acquisition Loan"). (Doc. # 28-1 at 83; Doc. # 28-4 Ex. 11). They also signed a second
Acquisition and Development Loan Agreement with CapitalSouth for $1,468,000.00 (the "Second
Acquisition Loan"). (Doc. # 28-1 at 138-39; Doc. # 28-5 Ex. 16).
In August 2006, Anderson executed a Commercial Loan Agreement on behalf of ASW, by
which ASW borrowed $89,250.00 from CapitalSouth (the "Commercial Loan"). (Doc. # 28-1 at
154, 156; Doc. # 28-5 Exs. 20, 21). In September 2006, Anderson and Weaver executed a Note
Modification Agreement on behalf of ASW increasing the Commercial Loan amount to $579,360.00
(the "Commercial Loan Modification"). (Doc. # 28-1 at 161, Doc. # 28-6 Ex. 23). Shewmake was
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asked to sign a $579,000 note and mortgage, but he refused to do so. (Doc. # 28-1 at 161-62).
Shewmake did not believe the Commercial Loan increase would proceed without his signature,
although no one from CapitalSouth told him that was the case. (Doc. # 28-1 at 331-32).
In September 2006, Anderson and Weaver signed a Promissory Note on behalf of ASW
pledging repayment of the $579,360.00. (Doc. # 28-1 at 167-68; Doc. # 28-6 Ex. 25). Anderson and
Weaver also signed a Mortgage Modification Agreement on behalf of ASW, which increased the
amount of the Acquisition Mortgage from $1,891,000.00 to $2,470,360.00 (the "Mortgage
Modification"). (Doc. # 28-1 at 165-66; Doc. # 28-6 Ex. 24). Anderson and Weaver also executed
an Accommodation Guaranty on behalf of Blazer Group as further security for the Modified
Commercial Loan. (Doc. # 28-1 at 173; Doc. # 28-6 Ex. 28).
ASW held a meeting in November 2006, which Shewmake did not attend. (Doc. # 28-1 at
112-14). On that date, Anderson and Weaver executed a Resolution which states in part that "Derek
L. Weaver, Member and Bryan W. Anderson, Members of the Company be and are hereby
authorized and directed to do any and all things deemed necessary or advisable and in the best
interests of the Company, at their discretion, in connection with a loan in the amount of $579,360.00
from CapitalSouth to ASW DEVELOPMENT GROUP, L.L.C." (Doc. # 28-3 Ex. 9).
In December 2006, Anderson and Weaver also executed a Debt Modification Agreement on
behalf of ASW, which stated that the outstanding, unpaid balance of the Commercial Loan was
$184,369.71. (Doc. # 28-1 at 170-71; Doc. # 28-6 Ex. 26). Anderson and Weaver also signed a
Commercial Loan Agreement on behalf of ASW, authorizing a single advance of $184,369.71 to be
repaid by February 28, 2007. (Doc. # 28-1 at 175; Doc. # 28-6 Ex. 29).

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Despite Shewmake's understanding that ASW was to develop the entire Sterling Lakes
development, Anderson and Weaver developed Phases II and III through the Blazer Group. (Doc.
# 28-1 at 198-99, 201-02).
During the development of the Sterling Lakes subdivision, Shewmake believes that Anderson
and Weaver made costly decisions and failed to follow through on his advice. ((Doc. # 28-1 at
321-22). Further, over the course of a year, Shewmake asked numerous times for an accounting from
Weaver and Anderson, but it was never provided. (Doc. # 28-1 at 116-17, 120, 193-94, 289-91).
At some point, Shewmake suggested that Anderson and Weaver buy out his interest in ASW.
(Doc. # 28-1 at 114-15). Anderson offered to buy Shewmake's interest in ASW in exchange for a
promissory note in the amount of $400,000.00. (Doc. # 28-1 at 115, 121-23). Shewmake declined
the offer. (Doc. # 28-1 at 122).
On or about February 22, 2007, Shewmake filed his original Complaint against Anderson,
and Weaver in the Circuit Court of Jefferson County, Bessemer Division, Alabama (the "State Court
Action"). (Doc. # 28-6 Ex. 30). Shewmake alleged four causes of action against Weaver and
Anderson: fraud, failure to provide an accounting, usurpation of a corporate opportunity, and
conversion. (Doc. # 28-6 Ex. 30).
In March 2007, Shewmake asked CapitalSouth employees to show him CapitalSouth
statements for ASW. They showed him a loan register with the descending balance which reflected
that all loans had been paid in full. (Doc. # 28-1 at 189-92). They refused to show him documents
related to the Blazer Group. (Doc. # 28-1 at 189, 192).
In July 2007, CapitolSouth lent money to Blazer Group related to the development of Phase
II and III of Sterling Lakes. (Doc. # 30-1 Ex. 3).
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On July 31, 2008, Anderson and Weaver filed bankruptcy petitions. (Docs. # 28-8 and 29-9).
After that filing, Shewmake received a Quitclaim Deed for all of the Sterling Lakes property to
which Blazer Group still had title. (Doc. # 28-1 at 270-71; Doc. # 28-6 Ex. 38). Shewmake also
received from ASW a deed conveying its remaining interest in the Sterling Lakes property to
Shewmake individually. (Doc. # 28-1 at 97).
On October 3, 2008, Shewmake amended his Complaint in the State Court lawsuit to name
CapitalSouth as an additional defendant. (Doc. # 28-6 Ex. 39). Shewmake asserts four causes of
action against CapitalSouth: conspiracy, breach of fiduciary duty, fraud, and conversion. (Doc. #
28-6 Ex. 39). Shewmake asserts that the lot sales in the Fall of 2006 totaled
approximately$4,000,000, and that subtracting the Acquisition Loan for $1,891,000, approximately
$2,000,000.00 is unaccounted for from the lot sales. (Doc. # 28-1 at 208, 375).
The FDIC was appointed Receiver of CapitalSouth on August 21, 2009, and succeeded to
all rights, titles, powers and privileges of CapitalSouth pursuant to 12 U.S.C. §1821(c)(3)(A). (Doc.
# 28-10 Exs. C and D). The FDIC removed this case to this court on October 30, 2009. (Doc. # 1).
II.

Summary Judgment Standard
Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to
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 court of the basis for
its motion and identifying those portions of the pleadings or filings which it believes demonstrate
the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the moving party
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has met its burden, Rule 56(e) requires the non-moving party to go beyond the pleadings and by her
own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate
specific facts showing that there is a genuine issue for trial. See id. at 324.
The substantive law will identify which facts are material and which are irrelevant. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All reasonable doubts about the facts
and all justifiable inferences are resolved in favor of the non-movant. See Fitzpatrick v. City of
Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). A dispute is genuine "if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. If the
evidence is merely colorable, or is not significantly probative, summary judgment may be granted.
See id. 249.
"To be admissible in support of or in opposition to a motion for summary judgment, a
document must be authenticated by and attached to an affidavit that meets the requirements of Rule
56(e) and the affiant must be a person through whom the exhibits could be admitted into evidence."
Saunders v. Emory Healthcare, Inc., 360 F. App'x 110, 113 (11th Cir. 2010) (citing 10 A Charles
Allen Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil § 2722,
at 382–84 (3d ed.1998)).
III.

Analysis
After careful review, and for the reasons stated below, the court concludes that Defendant's

Motion for Summary Judgment is due to be granted.
A.

Breach of Fiduciary Duty

Plaintiff's breach of fiduciary duty claim fails as a matter of law. CapitalSouth owed no
fiduciary duty to Plaintiff. Under Alabama law, the relationship of a lender to a borrower generally
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does not impose a fiduciary duty on the lender. K & C Dev. Corp. v. AmSouth Bank, N.A., 597 So.2d
671, 675 (Ala. 1992) ("Courts have traditionally viewed the relationship between a bank and its
customer as a creditor-debtor relationship that does not impose a fiduciary duty on the bank."). This
general rule also applies to the relationship between a mortgagee and mortgagor, Brabham v. Am.
Nat'l Bank of Union Springs, 689 So.2d 82 (Ala.Civ.App. 1996), and where the customer is a
depositor. Baylor v. Jordan, 445 So.2d 254 (Ala. 1984); Reynolds v. McEwen, 416 So.2d 702 (Ala.
1982); Southern Hardware & Supply Co. v. Lester, 166 Ala. 86, 52 So. 328 (1910).
"[W]hen a mortgagee forecloses a mortgage pursuant to a power, the mortgagee becomes a
trustee of the debtor/mortgagor, and is bound to act in good faith and adopt all reasonable modes of
proceeding in order to render the sale most beneficial to the mortgagor." Wood River Dev., Inc. v.
Armbrester, 547 So.2d 844, 847 (Ala. 1989). A foreclosing mortgagee owes that duty because "the
mortgagee is selling the property, and his interest is diametrically opposed to the interest of the
mortgagor, especially if he is the purchaser of the property at the foreclosure sale." Id. However,
even the duty to act in good faith is not a general fiduciary duty. Brabham, 689 So.2d at 88.
Plaintiff argues that his or ASW's status as a depositor is enough to give rise to the fiduciary
relationship. As discussed above, this argument is without merit. Therefore, because CapitalSouth
owed no fiduciary duty to Plaintiff, Defendant is entitled to summary judgment on Plaintiff's breach
of fiduciary duty claim.
B.

Fraud and Deceit

The elements of fraud are:
(1) a false representation (2) of a material existing fact (3) relied upon by the plaintiff
(4) who was damaged as a proximate result of the misrepresentation.

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Coastal Concrete Co. v. Patterson, 503 So.2d 824, 826 (Ala. 1987) (citing Earnest v.
Pritchett–Moore, Inc., 401 So.2d 752 (Ala. 1981). The definition of deceit, set forth in Alabama
Code § 6-5-104, is:
(a) One who willfully deceives another with intent to induce him to alter his position
to his injury or risk is liable for any damage which he thereby suffers.
(b) A deceit within the meaning of this section is either:
(1) The suggestion as a fact of that which is not true by one who does not
believe it to be true;
(2) The assertion as a fact of that which is not true by one who has no
reasonable ground for believing it to be true;
(3) The suppression of a fact by one who is bound to disclose it or who gives
information of other facts which are likely to mislead for want of
communication of that fact; or
(4) A promise made without any intention of performing it.
Ala. Code § 6-5-104.
The problem with Plaintiff's fraud and deceit claim in this case is that it is asserted against
the wrong party. Plaintiff has not alleged any material misrepresentation or suppression made by
CapitalSouth. That CapitalSouth required Plaintiff's participation in a project as a condition of
financing is neither a misrepresentation, nor a suppression of a material existing fact. In essence,
Plaintiff's fraud and deceit claim is premised on his own understanding (or misunderstanding) of his
business relationship with Anderson and Weaver. But Plaintiff has not alleged any conduct by
CapitalSouth that led to his (mis)understanding. The misrepresentations and/or suppressions alleged
by Plaintiff, if any, were made by Anderson and Weaver, who are not defendants here. Therefore,
Defendant is entitled to summary judgment on Plaintiff's fraud and deceit claim

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C.

Conversion

To establish a claim for conversion, a plaintiff must show "a wrongful exercise of dominion
over property in exclusion or defiance of a plaintiff's rights, where said plaintiff has ... the immediate
right to possession." Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 732 F.2d 859, 863
(11th. Cir. 1984) (quoting Empiregas, Inc., of Gadsden v. Geary, 431 So.2d 1258, 1260–61 (Ala.
1983)) (ellipsis in original). This can be shown through "a wrongful taking, an illegal assumption
of ownership, an illegal use or misuse of another's property, or a wrongful detention or interference
with another's property." Southtrust Bank v. Donely, 925 So.2d 934, 939 (Ala. 2005) (quoting
Riscorp, Inc. v. Norman, 915 So.2d 1142, 1152 (Ala. 2005)).
While conversion has long provided a remedy for the recovery of personal property, its
application to money has been "complicated as a result of the evolution of our economic system."
Donely, 925 So.2d at 940. Originally, the rule was that conversion applied only to tangible physical
property, and there "could be no conversion" of money. Id. (citing W. Page Keeton et al., Prossser
and Keeton on the Law Of Torts, § 15, at 91 (5th ed.1984)). The rule was then relaxed to include
money that was specifically identifiable, and that could not—by virtue of being in a container of
some kind—be intermingled with other funds. Id.
Plaintiff's conversion claim appears to be based on his allegation that the proceeds from the
lot sales from Phase I of Sterling Lakes were converted. Initially problematical is the fact that the
funds and property at issue in this case belonged to ASW, not Plaintiff individually. Nonetheless,
Plaintiff claims that the lot sales from Phase I of Sterling Lakes generated approximately $4,000,000.
Plaintiff asserts that subtracting the Acquisition Loan for $1,891,000, from $4,000,000 leaves
approximately $2,000,000.00 unaccounted for. (Doc. # 28-1 at 208; Doc. # 28-2 at 375). Plaintiff
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appears to claim this amount was converted. However, Plaintiff's math does not add up. His
calculations—and his arguments premised thereon—fail to take into consideration all of the loans
taken out by ASW.
The initial Acquisition Loan was in the amount of $1,891,000.00. (Doc. # 28-1 at 83; Doc.
# 28-4 Ex. 11). The second Acquisition and Development Loan was in the amount of $1,468,000.00.
(Doc. # 28-1 at 138-39; Doc. # 28-5 Ex. 16). The August 31, 2006, Commercial Loan was initially
in the amount of $89,250.00 (Doc. # 28-1 at 154, 156; Doc. # 28-5 Exs. 20 and 21), but was
increased to $579,360.00 in September 2006. (Doc. # 28-1 at 161; Doc. # 28-6 Ex. 23). The total
of these three loans is slightly more than $4,000,000. Therefore, if the lot sales indeed generated
approximately $4,000,000, then there were no additional funds. Furthermore, Plaintiff admits he
was shown CapitalSouth's records which showed ASW's loans had been paid in full. Thus, Plaintiff
has failed to show that any funds were converted.
To the extent Plaintiff claims that the increase in the Commercial Loan, to which he did not
agree, was a conversion, that claim is without merit. Although taking an unauthorized loan against
someone else's property may provide a basis for a conversion claim, the conversion action would lie
against the party improperly taking out the loan, not the lender. See Crown Life Ins. v. Smith, 657
So.2d 821, 824 (Ala. 1994). In other words, CapitalSouth did not exercise improper dominion and
control over funds when the allegedly unauthorized loan was taken out. If anyone was at fault for
this allegedly unauthorized loan, it was Anderson and Weaver. Plaintiff takes issue with the fact that
the two other members of ASW, Anderson and Weaver, conducted business on behalf of ASW of
which he did not approve. But again, any claim based upon those facts lies against the individuals
requesting the loan, not CapitalSouth. Furthermore, Plaintiff has not established, within the Rule
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56 record, even his underlying premise, i.e., that Anderson and Weaver's actions of behalf of ASW
were improper. See Commentary to Ala. Code § 10-12-22 (explaining that the statute adopts a
default per capita voting rights rule for Alabama limited liability companies and noting that members
can "provide for more detailed rules" in an "operating agreement.").
The record is devoid of any evidence that any funds or property were misapplied or
converted. Therefore Defendant is entitled to summary judgment on Plaintiff's conversion claim.
D.

Conspiracy

"Civil conspiracy is a combination of two or more persons to accomplish an unlawful end
or to accomplish a lawful end by unlawful means." Keith v. Witt Auto Sales, Inc., 578 So.2d 1269,
1274 (Ala. 1991) (citing Eidson v. Olin Corp., 527 So.2d 1283 (Ala. 1988)). "The gist of an action
alleging civil conspiracy is not the conspiracy itself but, rather, the wrong committed." Keith, 578
So.2d at 1274 (citing Sadie v. Martin, 468 So.2d 162 (Ala. 1985)).
"It is well established that 'liability for civil conspiracy rests upon the existence of an
underlying wrong and [that] if the underlying wrong provides no cause of action, then neither does
the conspiracy.'" Ex parte Alabama Dep't of Transp., 764 So.2d 1263, 1271 (Ala. 2000) (quoting
Jones v. BP Oil Co., 632 So.2d 435, 439 (Ala. 1993)). "There must be an underlying wrong to
support the conspiracy claim." Tillman v. R.J. Reynolds Tobacco Co., 871 So.2d 28, 35 (Ala. 2003).
Plaintiff has failed to establish an underlying wrong involving CapitalSouth.

Therefore,

CapitalSouth is entitled to summary judgment on Plaintiff's conspiracy claim.
IV.

Conclusion
For the reasons stated above, Defendant's Motion for Summary Judgment (Doc. # 26) is due

to be granted. The court will enter a separate order granting the motion.
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DONE and ORDERED this

30th

day of October, 2012.

___________________________________
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE

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