SE PROPERTY HOLDINGS LLC v. MCELHENEY et al
AMENDED FINAL JUDGMENT granting 109 Motion for Order of Deficiency Judgment re 161 Proposed Findings of Fact; 162 Proposed Findings of Fact. Signed by JUDGE RICHARD SMOAK on 2/6/2015. (jcw)
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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF FLORIDA
PANAMA CITY DIVISION
SE PROPERTY HOLDINGS, LLC, an
Ohio limited liability company,
CASE NO.: 5:12-cv-00140-RS-CJK
RANDALL A. MCELHENEY, individually,
JAMES T. KEARCE, JR., individually,
RALPH P. RISH, individually, CAPITAL
CITY BANK, a Florida corporation,
CENTENNIAL BANK, an Arkansas banking
Corporation, and PNC BANK, National
Before me are Plaintiff’s Proposed Findings of Fact, Conclusions of Law
and Final Deficiency Judgment (Doc. 162), and the Notice of Filing Proposed
Order Containing Findings of Fact and Conclusions of Law Following Evidentiary
Hearing by Defendant Randall McElheney (Doc. 161). An evidentiary hearing was
held on October 17, 2014 and December 16, 2014, to consider Plaintiff’s February
5, 2014, Motion For Entry Of Deficiency Judgment And Incorporated
Memorandum of Law (Doc. 109), and Defendant Randall McElheney’s “Unclean
Hands” affirmative defense.
The questions to be determined at trial were: (a) what was the fair market
value of the foreclosed property as of April 15, 2013; and (b) whether the Plaintiff
had unclean hands such that any deficiency should be not awarded or reduced.
Having considered: (i) the parties written submissions, (ii) the argument of
counsel, (iii) the live testimony and cross examination of Wayne “Chip” Johnson,
Walt Abbott, Randall McElheney, Scott Robertson, and Ralph P. Rish, and (iv)
other evidence presented at the hearing, I make the following Findings of Fact and
Conclusions of Law.1
The testimony at trial was uncontroverted that the loan that is the subject of
this case went into payment default in 2009.
After the payment default, the
Plaintiff (including its predecessor, Vision Bank) and the Defendants had
numerous meetings starting in early 2010 to try to negotiate a resolution of the
defaulted loan. On May 11, 2012, Plaintiffs filed this lawsuit seeking to foreclose
the relevant mortgage and to recover under the relevant loan documents that
obligated the repayment of the loan. On February 15, 2013, the final judgment of
foreclosure was entered. A foreclosure sale was held on April 15, 2013.
At the evidentiary hearing, the Plaintiff and the Defendant each
commissioned appraisals of the foreclosed property and each presented expert
Due to his pending Chapter 7 Bankruptcy proceedings, this matter is stayed as to Defendant,
Ralph P. Rish (“Rish”) and therefore no relief will be entered as to Rish.
testimony regarding the value of the relevant property on the date of the
foreclosure sale. Wayne Johnson testified as an expert witness on behalf of
Plaintiff. Mr. Johnson is a certified general real estate appraiser in Florida and
Georgia and holds the MAI designation from the Appraisal Institute. Mr. Johnson
conducted his appraisal of the subject property in approximately May of 2013, with
an effective date of April 15, 2013, the date of the relevant foreclosure sale. During
the hearing, Mr. Johnson testified that pursuant to Statement Number 3 of the
Uniform Standards of Professional Appraisal Practice, as well as common industry
standards, data which post-dates the effective date should typically not be
considered by an appraiser in a retrospective valuation. Therefore, he testified that
in his opinion the fair market value of the subject property as of April 15, 2013,
Mr. Walt Abbott testified as an expert witness on behalf of Defendant
Randall McElheney. Mr. Abbott is a Florida certified general appraiser and also
holds the MAI designation from the Appraisal Institute. Mr. Abbott conducted his
appraisal of the subject property in June 2014, more than one year after the
foreclosure sale date and considered comparable sales which occurred after the
effective date. He testified that in his opinion the fair market value of the subject
property as of April 15, 2013, was $513,000.00.
After considering all of the evidence presented, including the opinions of the
respective experts, I find that the fair market value of the mortgaged property as of
the foreclosure sale date was $350,000.00.
Additionally, Defendant McElheney contends that Plaintiff has “unclean
hands” and, therefore, Plaintiff should not be entitled to any deficiency judgment
or, alternatively, the amount of the deficiency judgment should be reduced.
Specifically, McElheney asserts that in early May 2010, he entered into an oral
settlement agreement with Plaintiff, on the following terms:
a. Plaintiff’s predecessor, Vision Bank, would select an MAI appraiser
to conduct an appraisal of the property;
b. McElheney and co-Defendant Rish would be credited with the
appraised value of the property;
c. the amount due on the loan would be calculated based upon note rate
of interest, as opposed to default rate;
d. the loan deficiency liability would be split 50/50 between Ralph Rish
and McElheney (as opposed to jointly and severally); and
Vision Bank would agree to a friendly foreclosure or deed in lieu of
foreclosure of the real property.
Defendant claims that Plaintiff reneged on this oral settlement agreement,
purportedly because a consultant hired by Vision Bank, Bob Myers, was
dissatisfied that the appraisal of the property was too high.
Scott Robertson, who was the loan officer in charge of the banking
relationship with McElheney and Rish, testified as a lay witness. Mr. Robertson
testified that the parties met numerous times over the course of several years and
discussed multiple potential workouts of the subject loan, but that no settlement
agreement was ever reached. Mr. Robertson further testified that during these
meetings, the Defendants were advised that no potential settlement would be
considered effective until it was reduced to writing and signed by the parties.
Although McElheney and Rish both testified that Scott Robertson was not
present at the meeting in early May 2010, at which the alleged oral settlement
agreement was reached, Mr. Robertson testified that even had he not been present
for this alleged meeting, as the loan officer in charge of the banking relationship,
he would have nevertheless been advised of a settlement as he would have been the
person in charge of creating any necessary paperwork. Moreover, at all relevant
times the Plaintiff had systems in place that assured that Robertson was kept
apprised of the status of negotiations associated with the relevant loan. Robertson
further testified that neither of the Defendants complained or contended that a deal
had been reached with the Plaintiff until the defense of unclean hands was raised in
None of the e-mails or other pieces of documentary evidence admitted at
trial by the Defendant corroborated the Defendant’s position that an oral settlement
agreement was reached in May 2010. To the contrary, the documentary evidence
presented by the Defendant showed that the parties continued to discuss proposals,
concepts and ideas as late as October 2012. This indicates that the parties had not
reached an agreement. Moreover, the Defendant did not present any documentary
evidence that embodied the terms of the alleged oral settlement agreement and did
not present any documentary evidence that evinced any complaint or protest by the
Defendant that a binding settlement agreement had been reached at any point in
time. This again indicates that no binding settlement agreement was ever reached.
Under Florida law, “[t]he granting of a deficiency judgment is the rule rather
than the exception.” Lloyd v. Cannon, 399 So. 2d 1095, 1096 (Fla. 1st DCA
1981). Further, “the burden of proof is placed on the defendant asserting the
affirmative defense.” Hough v. Menses, 95 So. 2d 410 (Fla. 1957). “Unclean
hands is an equitable defense that is akin to fraud; it’s ‘purpose is to discourage
unlawful activity.’” Congress Park Office Condos II, LLC v. First-Citizens Bank
& Trust Co., 105 So.3d 602, 609 (4th DCA 2013) (internal citation
unconscientious conduct.” Id. (citation omitted).
Like fraud, the party seeking to apply the unclean hands doctrine must
describe with precision the “egregious facts” that justify application of the
doctrine. Id. at 609-10. A simple of breach of contract does not constitute unclean
hands. Id. at 610. (“A failure to comply with material terms of a loan document
may be a breach of contract, and it may not be nice, but it does not amount to
unclean hands.”). Importantly, Defendants McElheney and Rish admitted that no
workout agreement was ever signed by the parties.
Further, McElheney presented no written evidence memorializing or
corroborating the terms of this alleged settlement agreement. The only evidence
Defendant McElheney presented in support of the assertion that the parties had
agreed to a settlement was Defendants McElheney’s and Rish’s own self-serving
testimony that they attended a meeting and orally agreed to the terms listed above.
However, the three e-mails admitted into evidence by Defendant McElheney in
support of his defense actually undermine his position that the parties agreed to a
settlement in May 2010, containing the five terms listed above.
Those e-mails establish, and the testimony of Scott Robertson confirms, that
the alleged oral settlement agreement advanced by Defendant McElheney is
actually an amalgamation of provisions from three separate conversations spanning
some fifteen months (some which do not even involve Rish). See Defs.’ Exhs. 4,
5, and 6 (dated July 8, 2010, August 6, 2011, and October 3, 2011, respectively).
Thus, the preponderance of the evidence indicates that the parties did not reach a
binding oral settlement agreement because there was no meeting of the minds as to
the relevant material terms.
Moreover, in support of his “unclean hands” defense, the Defendant asserts
that after reaching an agreement in early 2010, Bob Myers, who was a consultant
for the Plaintiff, was dissatisfied with the value of the 2010 appraisals. Therefore,
according to Defendant, the Plaintiff delayed consummation of any settlement
agreement until a new appraisal could be obtained in which the value of the
collateral would decrease.
The Defendant did not present any proof that the
Plaintiff purposely delayed consummation of a binding oral settlement agreement.
In addition to the lack of proof of any deliberate delay, I find that any delay
by the Plaintiff in consummating any agreement would have not in any way
benefitted the Plaintiff and, therefore, this allegation defies logic. The record is
uncontroverted that at the time of the alleged oral settlement agreement the real
estate market was continuing to decline. Therefore, the Plaintiff’s interests would
have been served by reaching an agreement sooner rather than later. The testimony
revealed that at the time of these negotiations, both Defendants Rish and
McElheney were already facing several million dollars in judgments held by other
banks. Therefore, any recovery from Defendants McElheney and Rish personally
on the defaulted note would have been unlikely. Accordingly, Plaintiff’s best
chance at maximizing its recovery would have been to sell the property at a higher,
rather than lower, sale price. Therefore, I find that the Defendant’s argument that
the Plaintiff “dragged its feet” or intentionally delayed to not be supported by
evidence or logic.
Based on the foregoing, I find that Defendant has failed to meet his burden
of proof to establish that: 1) the parties entered into an oral settlement agreement;
or 2) that any of Plaintiff’s actions or inactions justify application of the unclean
hands doctrine. Ocean View Towers, Inc. v. First Fidelity Sav. & Loan Assoc.,
521 So. 2d 325 (Fla. 4th DCA 1988) (noting mortgagor presented no
documentation to support claim of unclean hands and only evidence presented
was its own self-serving testimony).
AMENDED FINAL JUDGMENT
The relief requested in Plaintiff’s Motion For Entry Of Deficiency Judgment
And Incorporated Memorandum of Law (Doc. 109) is GRANTED. Accordingly,
IT IS ORDERED:
1. That this Amended Final Judgment amends and supersedes the February 15,
2013, Final Foreclosure And Money Judgment (Doc. 73) to the extent that it
reduces the amount due to the Plaintiff from Defendant McElheney.
2. That Plaintiff, S.E. Property Holdings, LLC, 50 North Third Street, Newark,
Ohio 43055, shall recover from Borrower Defendant, Randall A. McElheney,
132 Harrison Avenue, Panama City, Florida 32401 the sum of $2,206,424.71,
plus interest at the legal rate defined by 28 U.S.C. § 1961 from April 15, 2013
until paid, all for which let execution issue forthwith.
3. I reserve jurisdiction to consider a motion for an award of costs and attorneys’
fees. Any motion to assess costs and award attorneys’ fees must be filed not
later than February 27, 2015. Notwithstanding the preceding sentence, the
Plaintiff is entitled immediately to pursue all rights and remedies to collect this
amended judgment as provided under applicable law.
ORDERED on February 6, 2015.
/S/ Richard Smoak
UNITED STATES DISTRICT JUDGE
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