Regions Bank v. Legal Outsource PA et al

Filing 375

ORDER granting in part and denying in part 307 Motion for summary judgment. Plaintiff is entitled to judgment on Counts I, II, III, and IV of its Complaint, and Counterclaim Counts 1, 3, 4, 6, 7, and 9 are DISMISSED with prejudice. Signed by Judge Paul A. Magnuson on 1/31/2017. (ALT)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FT. MYERS DIVISION
Regions Bank,

Civ. No. 2:14-476-FtM-PAM-MRM
Plaintiff,

v.

MEMORANDUM AND ORDER

Legal Outsource PA,
Periwinkle Partners LLC,
Charles Paul-Thomas Phoenix,
and Lisa M. Phoenix
Defendants.
___________________________________________________________
This matter is before the Court on Plaintiff’s Motion for Summary Judgment. For
the following reasons, the Motion is granted in part and denied in part.
BACKGROUND
Beginning in 2005, Defendant Legal Outsource, P.A., had a revolving line of
credit of $450,000 with Plaintiff Regions Bank, renewed on a yearly or semi-yearly basis.
The loan agreement was signed on May 30, 2013, by Legal Outsource and guaranteed by
Defendant Charles Paul-Thomas Phoenix, who is also acting as counsel for all
Defendants here. (Compl. Exs. A, B, D.) The 2013 loan matured in February 2014, and
Legal Outsource did not pay it. On April 4, 2014, Regions demanded full payment under
the loan. (Id. Ex. E.)
In 2011, Regions lent nearly $1.7 million to Periwinkle Partners LLC, for the
purchase of a shopping center on Sanibel Island. (Id. Exs. F-O.) At the time of the loan
transaction, the sole member of Periwinkle Partners was a company owned by Charles

Phoenix’s wife, Lisa Phoenix, called the AT Phoenix Company. Charles Phoenix signed
the promissory note as manager of Periwinkle. (Id. Ex. F.) Charles Phoenix, Lisa
Phoenix, and Legal Outsource all provided guaranties for the Periwinkle loan. (Id. Ex.
M-O.)
Under the terms of the Periwinkle loan, a default of any other loan between the
parties constituted an event of default under the Periwinkle loan. (Id. Ex. F.) After the
Legal Outsource loan default, Regions declared a default of the Periwinkle loan and
sought to accelerate that loan and for full payment of the loan balance. Several months
later, Regions amended its default claims for the Periwinkle loan to include as events of
default that the AT Phoenix Company transferred its interest in Periwinkle to a third party
(1st Am. Answer Ex. 11), and that Periwinkle had failed to pay ad valorem taxes in 2013
(id. Ex. 12).
Defendants claim that Regions decided it wanted the shopping center as collateral
for the Legal Outsource line of credit, and began demanding unreasonable documentation
from Defendants in 2013. They contend that the Legal Outsource credit line had been
renewed yearly since 2005 with no issues, and thus that the “default” in 2014 was a
manufactured default to attempt to force Defendants to collateralize the shopping center.
Defendants do not contend, however, that they are not in default under the Legal
Outsource loan, and cannot dispute that this default constitutes an event of default under
the Periwinkle loan as well.
The Complaint contains six counts. Count I claims breach of the Legal Outsource
note, Count II claims a breach of the guaranties for the Legal Outsource loan, Count III
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claims breach of the Periwinkle note, Count IV claims a breach of the guaranties for the
Periwinkle loan, Count V seeks a foreclosure of the Periwinkle property, and Count VI
seeks a receivership.
Defendants answered the Complaint and interposed numerous counterclaims. As
relevant to Regions’s Motion, Counterclaims 1, 3, 4, and 5 assert breach-of-contract,
constructive fraud, breach of good faith and fair dealing, and breach of fiduciary duty on
behalf of Periwinkle. Counterclaim 6 contends that Charles Phoenix’s signature on the
Legal Outsource loan guaranty is a forgery, and Counterclaim 7 claims constructive fraud
on behalf of Charles Phoenix. Finally, Counterclaim 11 raises a claim for violation of the
Equal Credit Opportunity Act on behalf of Periwinkle Partners and Lisa Phoenix. 1
On July 27, 2016, the Hon. John E. Steele bifurcated the forgery counterclaim
(Counterclaim Count VI) from the remaining claims at issue and determined that a jury
trial is available only as to the forgery counterclaim. (Docket No. 278.)
DISCUSSION
Summary judgment is proper only if there are no disputed issues of material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a);
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

The Court must view the

evidence and the inferences that may be reasonably drawn from the evidence in the light
most favorable to the nonmoving party. Burton v. City of Belle Glade, 178 F.3d 1175,
1187 (11th Cir. 1999).

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Counterclaims 2, 8, 9, 10, and 12 were dismissed by prior Orders. (Docket Nos. 99,
278.)
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The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. O’Ferrell v. United
States, 253 F.3d 1257, 1265 (11th Cir. 2001). When opposing a motion for summary
judgment, the nonmoving party must demonstrate the existence of specific facts in the
record that create a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 256 (1986). A party opposing a properly supported motion for summary judgment
may not rest on mere allegations or denials and must do more than simply 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).
Defendants appear to be confused about the proper standard of review for
summary judgment motions. Defendants insist repeatedly that Regions cannot rely on
any fact other than what is pled in the Complaint. (E.g., Defs.’ Opp’n Mem. (Docket No.
350) at 28 (“The Court should disregard ‘supposedly new factual support and look only
to the factual allegations in the complaint’ subject to the summary judgment motion.”
(quoting Samuels v. Wilder, 871 F.2d 1346 (7th Cir. 1989)).) But the case on which
Defendants rely involved allegations of fraud, which must be pled with particularity
under Rule 9(b). And indeed, in Samuels, the new factual allegations were unrelated to
the fraud claim as pled, leading the court to describe the plaintiff’s conduct as an
“attempted bypass of Rule 9(b).” Samuels, 871 F.2d at 1349-50. The claims here, by
contrast, are breach-of-contract claims that can be pled generally. The failure to include a
fact in the Complaint does not preclude summary judgment.

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A.

Breach of Note/Guaranties
Under Florida law, a claim for breach of a note or breach of a loan guaranty has

the same elements as a claim for breach of contract. Fifth Third Bank v. Alaedin &
Majdi Invs., Inc., No. 8:11-cv-2206, 2013 WL 623895, at *3 (M.D. Fla. Feb. 20, 2013).
To establish that it is entitled to summary judgment on its breach-of-contract claims,
Regions must show that there is no genuine issue of material fact as to (1) the existence
of a valid contract; (2) a material breach of that contract; and (3) damages. Beck v.
Lazard Freres & Co., LLC, 175 F.3d 913, 914 (11th Cir. 1999).
With the exception of their forgery claim, discussed below, Defendants do not
dispute that they were in default under the relevant notes and guaranties.

Rather,

Defendants claim that Regions had an ulterior motive in pursuing default under the
various notes and guaranties. But Regions’s motives are irrelevant to establishing the
elements of its claims. At most, the motive goes only to the relief to which Regions is
entitled. Summary judgment is appropriate on the breach claims (Counts I – IV.)
B.

Foreclosure
Count V seeks to foreclose on the Periwinkle property. But as Defendants note,

foreclosure is an equitable remedy and equity requires clean hands.

Moreover, the

Periwinkle default was a technical default—there is no allegation that Defendants failed
to make their payments under that loan—and it is an open question whether foreclosure
will lie for a technical loan default under Florida law. “[E]quity requires that a defendant
in foreclosure be excused where, as here, the defendant is technically in default . . . , the
default is cured by the defendant . . . , and the default has not resulted in an impairment of
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the security.” Nazzaro v. Moksel, 483 So. 2d 884, 884 (Fla. Dist. Ct. App. 1986); see
also Pezzimenti v. Cirou, 466 So. 2d 274, 276 (Fla. Dist. Ct. App. 1985) (“The general
rule in Florida is that there must be impairment of the security before foreclosure is
granted and foreclosure must not be unconscionable or inequitable.”).
Regions does not address the equitable nature of this remedy, merely arguing that
because it is the undisputed holder of the Periwinkle note and mortgage, and the
Perwinkle loan is in default, it is entitled to foreclose. Florida law requires that Regions
establish that the default impaired the security, something Regions has not done.
Summary judgment on the foreclosure claim is not warranted.
C.

Counterclaims
Defendants’ only argument in response to Regions’s Motion for Summary

Judgment on the Counterclaims is that Regions’s Answer to those Counterclaims was
filed several days too late and should be stricken. But such a drastic remedy for a slightly
late filing is simply not appropriate.
Defendants do not offer any other substantive argument regarding their
Counterclaims, and Regions has established that those Counterclaims have no merit.
Defendants have no evidence that Regions breached the loan agreements, and the breachCounterclaim thus fails. Nor do Defendants have any evidence that Regions breached the
covenant of good faith and fair dealing. Even if such evidence existed, under Florida law
a breach of the covenant of good faith and fair dealing must be founded on a breach of an
express term of the parties’ contract. Ins. Concepts & Design, Inc. v. Healthplan Servs.,
Inc., 785 So. 2d 1232, 1234 (Fla. Dist. Ct. App. 2001). Without evidence of any breach
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of the loan agreements, Defendants have no claim for breach of the covenant of good
faith and fair dealing.
Defendants fiduciary-duty claim fails because there was no fiduciary relationship
here as a matter of law. See Jaffe v. Bank of Am., N.A., 667 F. Supp. 2d 1299, 1319
(S.D. Fla. 2009) (“[I]n an arms-length transaction [] there is no duty imposed on either
party to act for the benefit or protection of the other party . . . .”). And although
Defendants do not even attempt to establish the elements of their claim for constructive
fraud, such a claim fails in any event because there was no confidential or fiduciary
relationship between Defendants and Regions. “Under Florida law, constructive fraud
occurs ‘when a duty under a confidential or fiduciary relationship has been abused or
where an unconscionable advantage has been taken.’”

Am. Honda Motor Co. v.

Motorcycle Info. Network, Inc., 390 F. Supp. 2d 1170, 1179 (M.D. Fla. 2005) (quoting
Levy v. Levy, 862 So. 2d 48, 53 (Fla. Dist. Ct. App. 2003)).
Defendants’ ECOA counterclaim as to Periwinkle Partners is frivolous.

The

ECOA prohibits a creditor from discriminating against an “applicant, with respect to any
aspect of a credit transaction . . . on the basis of . . . marital status.” 15 U.S.C. § 1691.
Periwinkle Partners cannot avail itself of the protections of this Act because it is a
company, not an individual, and it cannot have a marital status. The claim fails as to Lisa
Phoenix as well because, aside from the lack of any evidence to establish any alleged
discrimination on the basis of marital status, she was not an “applicant” for the
Periwinkle loan, she was a guarantor. Defendants contend that a guarantor can be an
applicant under the Federal Reserve’s interpretation of the ECOA, but Judge Steele
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specifically held the opposite in this case: “[T]his Court holds that to the extent that
defendants are asserting their counterclaims for violation of the ECOA in their capacities
as guarantors, those claims are due to be dismissed.” (Order (Docket No. 278) at 10.)
The remaining ECOA counterclaim is dismissed.
Finally, Defendants do not address the substance of their forgery counterclaim,
and Regions has established that this claim is without merit. In his deposition, Charles
Phoenix admitted that the signature he now challenges was his.

(C. Phoenix Dep.

(Docket No. 313) at 104-05.) Moreover, Defendants’ handwriting expert did not opine
that the relevant signature was forged. Rather, she opined that a signature on a different
document altogether was not legitimate. (Hoetzel Decl. (Docket No. 137-2) ¶ 5 (stating
that C. Phoenix’s signature on “Agreement to Waive Garnishment” is a forgery).) In
opposing Regions’s Motion for Summary Judgment, Defendants must come forward with
evidence to establish that there are questions of fact as to their forgery claim. They have
utterly failed to do so.

Summary judgment is therefore granted as to the forgery

counterclaim.
CONCLUSION
Accordingly, IT IS HEREBY ORDERED that:
1.

Plaintiff’s Motion for Summary Judgment (Docket No. 307) is
GRANTED in part and DENIED in part;

2.

Plaintiff is entitled to judgment on Counts I, II, III, and IV of its
Complaint (Docket No. 1); and

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3.

Counterclaim Counts 1, 3, 4, 6, 7, and 9 are DISMISSED with
prejudice.

Dated: January 31, 2017

s/Paul A. Magnuson
Paul A. Magnuson
United States District Court Judge

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