DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch v. McCranie
Filing
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ORDER denying 50 Motion for summary judgment; granting 54 Motion for summary judgment. See order for details. Signed by Magistrate Judge Monte C. Richardson on 8/31/2011. (BEE)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
DZ BANK AG DEUTSCHE ZENTRALGENOSSENSCHAFTSBANK, FRANKFURT
AM MAIN, NEW YORK BRANCH,
Plaintiff,
vs.
Case No. 3:10-cv-222-J-MCR
MICHAEL MCCRANIE a/k/a MICHAEL J.
MCCRANIE,
Defendant.
_____________________________________/
O R D E R1
THIS CAUSE is before the Court on the parties’ Cross Motions for Summary
Judgment. (Docs. 50, 54).
I.
BACKGROUND
On April 17, 2002, Brooke Credit Corporation ("BCC") and Defendant Michael
McCranie executed a Promissory Note (the "Note") and an Agreement for Advancement
of Loan (the "Agreement for Advancement of Loan") (collectively the "Loan''), whereby
BCC agreed to refinance Defendant's previous debts in the amount of $831,407.78,
plus interest. See (Doc. 54-A, Ex. 1). BCC assigned the Loan to Brooke Credit
Funding, LLC ("BCF"), and on February 19, 2008, BCF pledged the Loan to DZ Bank
1
The parties consented to the exercise of jurisdiction by a United States Magistrate Judge.
(Doc. 23).
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and Autobahn Funding Company, LLC ("Autobahn").2 See (Doc. 54-A, ¶ 8). By written
agreement, Autobahn appointed DZ Bank as its agent, authorizing DZ Bank to enforce
its rights under the Loan in DZ Bank's name. See (Id. at ¶ 10). BCF defaulted on its
obligations to DZ Bank. On October 30, 2008, DZ Bank, BCC, and BCF entered into a
Surrender of Collateral, Consent to Strict Foreclosure, Release, and Acknowledgment
Agreement (the "Surrender of Collateral"). See (Doc. 54-A, Ex. 2). The Loan is
included in the Surrender of Collateral. On October 31, 2008, DZ Bank and BCF
entered into an Omnibus Assignment Agreement ("Omnibus Assignment") whereby
BCC further confirmed that DZ Bank has full ownership of BCF's rights as BCC's
assignee under the Loan. See (Doc. 54-A, Ex. 3).
According to Plaintiff, Defendant defaulted under the Loan by failing to make
payments when due.3 On March 11, 2010, DZ Bank filed suit against Defendant for
breach of the Loan. (Doc. 1). On April 27, 2010, Defendant filed his Answer,
Counterclaims, and Affirmative Defenses. (Doc. 8). On July 29, 2010, Defendant filed
an Amended Counterclaim and Request for Declaratory Relief. (Doc. 14). DZ Bank
subsequently filed a Motion to Dismiss. (Doc. 18). On November 16, 2010, this Court
granted DZ Bank's Motion to Dismiss in part, dismissing Defendant's Request for
Declaratory Relief with prejudice and dismissing Defendant's Amended Counterclaims
with leave to amend no later than November 30, 2010. (Doc. 29). Defendant did not
2
BCF's senior secured creditors are DZ Bank and Autobahn. See (Doc. 54-A, ¶ 10).
3
Non-payment is an Event of Default under the Loan. See (Doc. 54-A, Ex. 1).
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file a Second Amended Counterclaim; therefore, Defendant’s counterclaims are
deemed dismissed.
Defendant filed his Motion for Summary Judgment on June 14, 2011, alleging
that Home Federal Loan Savings & Loan Association of Nebraska ("Home Federal") is
the owner and holder of the Loan, not DZ Bank. On July 5, 2011, DZ Bank filed its
response in opposition to Plaintiff’s Motion and Cross Motion for Summary Judgment.
(Doc. 54). On August 1, 2011, Defendant filed its response in opposition to Plaintiff’s
Cross Motion for Summary Judgment. (Doc. 63). On August 17, 2011, after seeking
leave of the Court, Plaintiff filed a Reply to Defendant’s Opposition to Plaintiff’s Cross
Motion for Summary Judgment. (Doc. 70). Accordingly, this matter is now ripe for
judicial review.
II.
ANALYSIS
A.
Standard of Review
Under Rule 56(c) of the Federal Rules of Civil Procedure:
The judgment sought shall be rendered forthwith 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 a judgment as a matter of
law.
Fed. R. Civ. P. 56(c). The moving party "bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of [the record] ...
which it believes demonstrate the absence of a genuine issue of material fact." Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986).
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B.
Applicable Law
“[C]ourts will enforce choice-of-law provisions unless the law of the chosen forum
contravenes strong public policy." Maxcess, Inc. v. Lucent Techs, Inc., 433 F.3d 1337,
1341 (11th Cir. 2005) (internal quotations and citations omitted). Paragraph 38 of the
Loan at issue states, “[t]his Agreement shall be construed and governed by the laws of
the State of Kansas[.]” (Doc. 1-A). Therefore, this Court will apply Kansas law.
However, the parties choice of law provision does not displace the procedural law
of the forum. See Shaps v. Provident Life and Accident Insurance Company, 317 F.3d
1326, 1330 (11th Cir. 2003). Thus, in deciding the instant Motions for Summary
Judgment, the Court will apply the substantive law of the state of Kansas and the
procedural law of the United States District Court for the Middle District of Florida.
C.
Defendant’s Motion for Summary Judgment
Defendant requests the Court enter summary judgment in his favor because
“Plaintiff can not prove he had authority to enforce the Promissory Note at issue in this
matter.” (Doc. 50, p. 1). Specifically, Defendant argues DZ Bank is not the holder of
the Promissory Note because Home Federal is the owner and holder of the Loan. (Id.
at p. 2). In support of his contention, Defendant submitted a letter from Home Federal's
counsel claiming that Home Federal has the right to payments due under the Loan; a
Participation Certificate and Agreement allegedly entitling Home Federal to the
payments due under the Loan; and a business card from Scott A. Haskell, the Executive
Vice President of Home Federal (collectively the "Home Federal Documents"). See
(Doc. 50-A).
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Pursuant to the Kansas Uniform Commercial Code, "a purchaser of an
instrument has priority over a security interest in the instrument perfected by a method
other than possession if the purchaser gives value and takes possession of the
instrument in good faith and without knowledge that the purchase violates the rights of
the secured party." Kan. Stat. Ann. § 84-9-330(d). Knowledge is defined as "actual
knowledge." Kan. Stat. Ann. § 84-1-202(b).
Here, the Court finds that DZ Bank is the holder in due course of the Loan
because it took assignment of the Loan for value paid, in good faith and without notice
of any claim or defense relating to the Loan.4 See Kan. Stat. Ann. § 84-3-302(a).
Defendant argues that DZ Bank did not take the Loan in good faith because it should
have been on notice of possible claims or defenses relating to the Loan for the following
two reasons: (1) a September 2, 2008 letter Defendant sent to BCC requesting to
terminate the Loan; and (2) a case filed on September 1, 2008 by the Bank of New York
Mellon against BCC regarding alleged fraud relating to the Loan committed by BCC.
The Court disagrees with Defendant’s contention because the Loan was pledged to DZ
Bank on August 29, 2006, over two years prior to the letter from Defendant or the claim
filed against BCC by the Bank of New York Mellon. See (Doc. 54-A). Therefore, DZ
Bank could not have had notice of any potential claim or defense relating to the Loan at
the time the Loan was pledged as collateral by BCF to DZ Bank. Thus, the Court finds
DZ Bank took the Loan in good faith and is a holder in due course of the Loan.
4
DZ Bank became the holder in due course of the Loan on August 29, 2006, the date the
Loan was pledged as collateral by BCF.
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While it appears the Loan may have been double pledged, DZ Bank’s possession
of the Loan provides it with a superior security interest than that of Home Federal. See
Kan. Stat. Ann. § 84-9-330(d). Although the Home Federal Documents evidence that
Home Federal may have an interest in the Loan, they do not contradict DZ Bank’s
assertion that it has priority over Home Federal through DZ Bank’s possession of the
Loan documents. See (Doc. 63-B). Because DZ Bank has possession of the original
Loan documents, its security interest in the Loan takes priority over other parties that
perfected their security interests without possession. See Kan. Stat. Ann. §
84-9-330(d). Therefore, as DZ Bank has demonstrated that it is the holder of the Loan,
Defendant’s Motion for Summary Judgment is due to be denied.
D.
Plaintiff’s Motion for Summary Judgment
Plaintiff claims it is entitled to summary judgment on its breach of contract claim.
(Doc. 54, pp. 8-10). In Kansas, a claim for breach of contract requires the following
elements: (1) execution and existence of the contract; (2) sufficient consideration to
support the contract; (3) performance or willingness to perform in compliance with the
contract alleged; (4) the defendant's breach; and (5) damages. Commercial Credit
Com. v. Harris, 510 P.2d 1322, 1325 (Kan. 1973); City of Andover v. Sw. Bell Tel., L.P.,
153 P.3d 561, 565 (Kan. Ct. App. 2007).
Here, the Court finds that the elements of breach of contract have been met.
First, the Loan exists and was executed.5 Second, Defendant was loaned a specific
amount of money to refinance an existing debt and agreed to make payments under the
5
Defendant admits the same. See (Doc. 6, ¶ 5).
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Loan. See (Doc. 54-A, Ex. 1). Because Defendant entered into the Loan and was
provided with the funds in accordance with the Loan, there was sufficient consideration
to support the Loan. See (Doc. 54-A, ¶ 7). Third, DZ Bank performed in compliance
with the Loan. See (Id. at ¶ 20). Fourth, Defendant breached the Loan by failing to
make payments to DZ Bank pursuant to the terms of the Loan. See (Id. at ¶¶ 17-18).
Finally, DZ Bank was damaged as a result of Defendant’s breach of the Loan. See
(Doc. 54-A, Ex. 1; 12-B).
As above analyzed, DZ Bank is the holder in due course of the Loan because it
took assignment of the Loan for value paid, in good faith and without knowledge of any
claim or defense relating to the Loan. See Kan. Stat. Ann. § 84-3-302(a). Additionally,
DZ Bank has a superior security interest in the Loan than that of Home Federal. See
Kan. Stat. Ann. § 84-9-330(d). As the holder in due course of the Loan, DZ Bank is not
subject to any personal defenses Defendant may assert against BCC or BCF. See Kan.
Stat. Ann. § 84-3-305(b). DZ Bank is only subject to the defenses enumerated in
Section 84-3-305(a)(1) of the Kansas Code. See Kan. Stat. Ann.§ 84-3-305(b). These
defenses are: “(A) infancy of the obligor to the extent it is a defense to a simple contract,
(B) duress, lack of legal capacity, or illegality of the transaction which, under other law,
nullifies the obligation of the obligor, (C) fraud that induced the obligor to sign the
instrument with neither knowledge nor reasonable opportunity to learn of its character or
its essential terms, or (D) discharge of the obligor in insolvency proceedings.” Id.
Defendant asserts two affirmative defenses against DZ Bank: (1) impossibility of
performance under the Loan and; (2) that BCC and/or DZ Bank failed to adequately
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preserve the collateral under the Loan. Neither defense asserted is applicable to a
holder in due course as they would not fall into any of the categories enumerated
above. Since DZ Bank is a holder in due course, Defendant’s asserted defenses would
not prevent DZ Bank from enforcing its rights under the Loan.
Even disregarding DZ Bank’s status as holder in due course of the Loan,
Defendant’s alleged affirmative defense of impossibility of performance is without merit.
The general rule regarding impossibility is “when one agrees to perform an act possible
in itself he will be liable for breach thereof although contingencies not foreseen by him
arise which make it difficult, or even beyond his power, to perform and which might have
been foreseen and provided against in the contract.” Sunflower Elec. Co-op., Inc. v.
Tomlinson Oil Co., Inc., 7 Kan. App. 2d 131, 140 (1981). Here, the Loan could have
contained a contingency for the difficulties that Defendant claims lead to his failure to
perform under the Loan, but Defendant failed to request a provision in the Loan to deal
with this issue. Simply because Defendant did not foresee an event that could make
performance under the Loan difficult for him, does not discharge his liability to DZ Bank
for payment on the Loan.
Additionally, Defendant’s affirmative defense asserting that BCC or DZ Bank
failed to preserve collateral under the Loan is without merit. It is unclear whether
Defendant is alleging that BCC or DZ Bank failed to preserve the collateral that was the
subject of the Loan as he provides no analysis on this point. See (Doc. 63). The section
of the Kansas statute cited by Defendant provides that “a secured party must use
reasonable care in the custody and preservation of collateral in his possession.” Kan.
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Stat. Ann. § 84-9-207. DZ Bank never had possession or control over the collateral that
is the subject of the Loan. Further, Defendant failed to allege any facts that would
indicate DZ Bank ever had possession of the collateral. Therefore, Defendant’s
affirmative defenses are without merit and DZ Bank’s Cross Motion for Summary
Judgment is due to be granted.
III.
CONCLUSION
Accordingly, after due consideration, it is
ORDERED:
1.
Defendant’s Motion for Summary Judgment (Doc. 50) is DENIED.
2.
Plaintiff’s Cross Motion for Summary Judgment (Doc. 54) is GRANTED.
Plaintiff shall provide the Court with a proposed judgment within 14 days of entry of the
date of this Order that includes the total amount of Plaintiff’s damages. Plaintiff should
attach records supporting the award.
DONE AND ORDERED in Chambers in Jacksonville, Florida this 31st day of
August, 2011.
MONTE C. RICHARDSON
UNITED STATES MAGISTRATE JUDGE
Copies to:
Counsel of Record
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