PMF ENTERPRISES INC v. SOUTHCREST BANK

Filing 11

ORDER AFFIRMING Bankruptcy Court's decision. Ordered by US DISTRICT JUDGE MARC THOMAS TREADWELL on 6/1/2015. (tlh)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
MACON DIVISION
PMF ENTERPRISES, INC.,
Appellant,
v.
SOUTHCREST BANK,
Appellee.

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CIVIL ACTION NO. 5:14-CV-339 (MTT)

ORDER
Before the Court is an appeal from the United States Bankruptcy Court for the
Middle District of Georgia. The Bankruptcy Court, Judge James P. Smith presiding,
overruled Appellant PMF Enterprises, Inc.’s objection to a proof of claim filed by
Appellee SouthCrest Bank. For the following reasons, the Bankruptcy Court’s decision
is AFFIRMED.
I. STANDARD OF REVIEW
The Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a). In
reviewing the decision of a bankruptcy court, a district court functions as an appellate
court. Williams v. EMC Mortg. Corp. (In re Williams), 216 F.3d 1295, 1296 (11th Cir.
2000) (per curiam). This Court must accept the bankruptcy court’s findings of fact
unless those facts are clearly erroneous. United States v. Mitchell (In re Mitchell), 633
F.3d 1319, 1326 (11th Cir. 2011). The Court may not make independent factual
findings of its own. Equitable Life Assurance Soc’y v. Sublett (In re Sublett), 895 F.2d
1381, 1384 (11th Cir. 1990). Conclusions of law, however, including a bankruptcy

court’s interpretation and application of the Bankruptcy Code, are reviewed de novo.
See Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 593
(11th Cir. 1990). This Court, therefore, owes no deference to the Bankruptcy Court’s
interpretation of the law or its application of the law to the facts. Goerg v. Parungao (In
re Goerg), 930 F.2d 1563, 1566 (11th Cir. 1991).
II. FACTUAL BACKGROUND
Debtor-Appellant PMF Enterprises, Inc. (“PMF”) operated a convenience store in
Perry, Georgia. To purchase the convenience store and gas station, KPB Enterprises,
LLC (“KPB”) took out a loan from Century Security Bank, the predecessor in interest to
Creditor-Appellee SouthCrest Bank, and executed a promissory note in favor of Century
Security Bank. KPB also executed a security deed on the real property and a security
agreement on the inventory in favor of Century Security Bank to secure the loan.1
Pierre Beauchamp, the sole owner of both KPB and PMF, guaranteed the loan from
Century Security Bank.
PMF obtained insurance coverage on the convenience store property through
Catawba Insurance Company. Despite having record title to the real property, KPB was
not listed as an insured. Century Security Bank, however, was named as a
mortgagee/loss payee under the policy. The policy included the following coverage
limits: $400,000 for the building; $100,000 for the canopy; $1,160,000 for fuel pumps
and tanks; and $280,000 for personal property and contents. The policy also included
coverage for business income, which encompassed normal operating expenses.

1

While the Parties agree that Century Security Bank had a security interest in the inventory, the scope of
this agreement is not apparent and it does not appear that the agreement is in the record.

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On November 28, 2008, a fire occurred at the convenience store and caused
substantial damage. Catawba paid out the $400,000 coverage limit for damage to the
building and $76,526.93 for damage to the pumps and tanks. Catawba refused to make
any more payments under the policy. As a result, Century Security Bank applied some
of the insurance proceeds to the monthly mortgage payments. The remainder was paid
to BGN Restoration, LLC, which Beauchamp hired to rebuild the store. No further
payments were made on the note, and the note went into default. Additionally, BGN
had to cease work on the property because the insurance proceeds were insufficient to
cover the entire restoration cost.
PMF filed suit against Catawba in Fulton County State Court in November 20092
to recover amounts it claimed were due under the policy.3 (Doc. 3-4). Specifically, PMF
claimed Catawba breached the insurance policy by failing to make the monthly
mortgage payments KPB owed to Century Security Bank, which PMF contended were
encompassed by the policy coverage for normal operating expenses. PMF alleged that
Catawba’s refusal to make the monthly payments caused the mortgage to go into
default and that Catawba was therefore liable for the entire mortgage debt.
On May 24, 2011, SouthCrest, which by this point was the holder of Century
Security Bank’s claim against KPB, sued Catawba in Gwinnett County State Court for
amounts it claimed were due under the insurance policy. (Doc. 3-10). SouthCrest
sought $927,949.80 in damages, alleged to be “the deficiency owed to [SouthCrest] on

2

Though this lawsuit was filed before PMF’s bankruptcy case, the Bankruptcy Court appointed the same
law firm to prosecute the lawsuit on behalf of the trustee.

3

Beauchamp was originally named as a plaintiff as well, but the court dismissed his claims on summary
judgment.

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its mortgage on the property.” (Doc. 3-10, ¶ 21). The Fulton County suit that PMF filed
against Catawba was still pending.
On March 16, 2012, SouthCrest and Catawba settled the Gwinnett County suit
for $150,000. (Doc. 3-3). This settlement agreement forms the basis for PMF’s
objection to SouthCrest’s claim. PMF contends this agreement settled the entire
mortgage debt and not merely SouthCrest’s claims against Catawba. The terms are
discussed in detail below.
About two weeks after the Gwinnett County case settled, the Fulton County case
between PMF and Catawba went to trial. The jury returned a verdict for PMF and
awarded $155,000.00 for contents; $266,256.00 for net income lost; $22,800.00 for
continuing normal operating expenses; $28,000.00 for debris removal; $60,000.00 for a
bad faith penalty; and $41,825.65 for attorneys’ fees. (Doc. 3-12). The verdict
expressly excluded “mortgage expenses” from the amount for continuing normal
operating expenses. Post-verdict, PMF, Catawba, Beauchamp, and KPB4 entered into
a settlement agreement whereby Catawba agreed to pay PMF’s Chapter 7 estate
$550,000.00.5
As a result of the settlement, the trustee in PMF’s bankruptcy case filed a motion
to compromise the Fulton County case in the Bankruptcy Court. SouthCrest objected to
the following language in the Fulton County settlement agreement, which referenced
SouthCrest’s settlement with Catawba:
4

Even though Beauchamp and KPB were not parties to the Fulton County suit, they were parties to the
settlement agreement.

5

Though not mentioned in the Bankruptcy Court’s opinion, it appears judgment was entered against
Catawba for $698,881.65, accounting for the verdict amount and $125,000 in inventory the trial court
previously ruled that PMF was entitled to on summary judgment. (Docs. 1-1 at 211, 217; 3-11 at 4; 3-2 at
4).

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Said settlement satisfied and released all claims which SouthCrest Bank
had filed in the bankruptcy cases of PMF Enterprises, Inc. and KPB
Enterprises, LLC. To the extent any bankruptcy claims or other interest of
SouthCrest Bank were assigned to Catawba they are hereby waived and
released.
(Docs. 1 at 114-16; 3-2 at 8). SouthCrest contended its settlement with Catawba did
not release its bankruptcy claims.
Ultimately, the parties agreed to strike the above paragraph and insert “assigned
or otherwise” into another paragraph of the agreement:
Catawba Insurance Company agrees that all claims and demands that the
Company has or could have had or may have had assigned or otherwise
against either of the Claimants, PMF Enterprises, Inc. or Pierre
Beauchamps,6 individually, or KPB Enterprises, LLC, with respect to the
herein-described dispute are satisfied, discharged, and settled by this
agreement.
(Doc. 3-2 at 5) (emphasis added). This was the version approved by the Bankruptcy
Court.
III. PROCEDURAL BACKGROUND
PMF and KPB each filed Chapter 7 cases in the Bankruptcy Court on February 1,
2010. After the Bankruptcy Court granted SouthCrest relief from the automatic stay,
SouthCrest foreclosed on the convenience store property and confirmed the sale in
state court. SouthCrest then filed proofs of claim in the amount of $927,949.80 in both
cases, which reflected the amount of KPB’s debt minus the proceeds from the
foreclosure sale. SouthCrest later amended its claims to $777,949.80, reflecting the
settlement with Catawba.

6

At various points in the record, PMF and KPB’s owner is referred to as “Pierre Beauchamp” and “Pierre
Beauchamps.” Because the Parties refer to him as Pierre Beauchamp in their briefs, this is how the Court
refers to him.

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PMF and KPB filed objections to SouthCrest’s claims, contending, as PMF does
on appeal, that the SouthCrest/Catawba settlement agreement settled any claims
SouthCrest had for the mortgage deficiency. The Bankruptcy Court held a hearing on
the claim objections on September 10, 2013, but deferred ruling on the objections until
resolution of the trustee’s motion to consolidate the PMF and KPB cases. On January
15, 2014, the Bankruptcy Court substantively consolidated the cases under PMF’s
heading.
In its memorandum opinion on the claim objection, the Bankruptcy Court first
found that paragraph 9 of the SouthCrest/Catawba settlement agreement was
ambiguous. That paragraph provides:
SouthCrest accepts Catawba’s payment of $150,000, made pursuant to
the mortgagee clause of the policy of insurance Catawba Insurance
Company issued, policy number CBO4086029 for the policy period
September 5, 2008 to September 5, 2009 to PMF Enterprises, Inc. d/b/a
Super Food Mart, 517 N. Perry Parkway, Perry, Georgia 31069 with an
effective date of September 5, 2008, as full payment and satisfaction of
SouthCrest’s claim pursuant to the mortgagee clause, including, but not
limited to, the mortgage debt, for the $927,949.50 owed to SouthCrest
concerning the mortgage on 517 N. Perry Parkway, Perry, Georgia 31069,
and including all claims for inventory and contents and personalty at the
premises.
(Doc. 3-3, ¶ 9) (emphasis added). Specifically, the court found the combination of the
phrases “satisfaction of SouthCrest’s claim pursuant to the mortgagee clause” and
“including, but not limited to, the mortgage debt” was ambiguous because “there is a
question as to whether the parties settled only SouthCrest’s claim against Catawba
under the insurance contract, or whether they also settled the mortgage debt itself, i.e.,
SouthCrest’s claim against KPB.” (Doc. 1 at 320).

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To resolve this ambiguity, the Bankruptcy Court looked to extrinsic evidence,
including the insurance policy issued to PMF and testimony presented at the claim
objection hearing. As interpreted by the Bankruptcy Court, the “mortgagee clause”
referenced in the settlement agreement was Section F.2. of the insurance policy:
2. Mortgage Holders
a. The term “mortgage holder” includes trustee.
b. We will pay for covered loss of or damage to buildings or
structures to each mortgage holder shown in the Declarations in
their order of precedence, as interests may appear.
c. The mortgage holder has the right to receive loss payment even
if the mortgage holder has started foreclosure or similar action on
the building or structure … .
(Doc. 1-1 at 244) (emphasis added). The Bankruptcy Court read the italicized language
to limit SouthCrest’s recovery under the “mortgagee clause” to “covered loss of or
damage to buildings or structures” and thus not to include the mortgage debt or
SouthCrest’s claim against KPB. Further, the court determined that the reference to the
mortgage debt in paragraph 9 of the settlement agreement could only be referring to the
fact that SouthCrest had included a demand for the mortgage debt in its complaint.
The Bankruptcy Court went on to examine the testimony of Kevin Wangerin, the
attorney for PMF and later the attorney for the trustee in the Fulton County case, and
Mike Low, Senior Vice President of SouthCrest Bank. Wangerin testified about a
conversation he had with Richard Tisinger, the attorney who represented SouthCrest in
the Gwinnett County case, because Wangerin wanted to be sure he understood what
the Gwinnet County settlement encompassed as he was negotiating with Catawba in
the Fulton County case. Wangerin further testified that he believed the Gwinnett County

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settlement agreement settled (and assigned to Catawba)7 the claim for the mortgage
debt, but the Bankruptcy Court found Wangerin was unclear about whether Tisinger
actually told him the agreement settled SouthCrest’s claim to the mortgage debt against
KPB.8 The court determined Low, who was in charge of the settlement negotiations on
behalf of SouthCrest, clearly testified SouthCrest did not intend to settle its claim for the
mortgage debt against KPB.9

7

This alleged assignment is discussed in more detail below.

8

The Bankruptcy Court cited the following testimony from the claim objection hearing:
Q Okay. Now, did you talk with [Tisinger] specifically about the Release being applicable
to PMF, for instance?
A Well, you know, I don’t think we talked directly about the Gwinnett County Release in
terms of its terms. I think that we discussed that once that Release, when it discussed the
mortgage debt and the Deficiency Judgment, that that Release was including those
items, meaning including the bank’s claim for that $927,000.

(Doc. 1-1 at 371:10-17).
9

Low testified, in relevant part:
And they tendered a – the insurance company tendered a Settlement Agreement after we
had agreed on a number. And we had advice from the Tisinger firm concerning language
in it. And also, because of their request that we assign our interest in the Note, I had
conversation with my corporate counsel, because of the Loss-Share agreement, we
could not readily assign our interest in the Note without FDIC’ permission, and we didn’t
want to go seek that. So we told the insurance company that that was not something that
we could do, that it was not our intention to release the borrower/guarantor.
…
We couldn’t readily assign our interest and we told the insurance company that we
couldn’t; that we didn’t want to do that, that we would take their money and would not
pursue a claim against them.
Q “Them” being who?
A The insurance company.

(Doc. 1-1 at 392:9-19, 394:12-17).

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Thus, the Bankruptcy Court found the settlement did not release SouthCrest’s
claim against KPB10 and overruled PMF’s objection on July 28, 2014.11 This appeal
follows.
IV. DISCUSSION
PMF contends that the Bankruptcy Court erred in finding an ambiguity in the
SouthCrest/Catawba settlement agreement and that the settlement agreement
unambiguously settles and releases any claim SouthCrest had to the mortgage debt
against KPB. A settlement agreement is a contract and thus subject to the rules of
statutory construction. Peacock v. Spivey, 278 Ga. App. 338, 339, 629 S.E.2d 48, 50
(2006). Pursuant to Georgia law, construction of a contract is a question of law for the
Court. O.C.G.A. § 13-2-1; Savannah Yacht Corp. v. Thunderbolt Marine, Inc., 297 Ga.
App. 104, 109, 676 S.E.2d 728, 732 (2009). If a contract is ambiguous, the rules of
contract construction found in O.C.G.A. § 13-2-2 apply. Savannah Yacht Corp., 297
Ga. App. at 109, 676 S.E.2d at 732. “Ambiguity exists where the words used in the
contract leave the intent of the parties in question.” Nebo Ventures, LLC v. NovaPro
Risk Solutions, L.P., 324 Ga. App. 836, 844, 752 S.E.2d 18, 26 (2013) (quoting Capital
Color Printing v. Ahern, 291 Ga. App. 101, 106, 661 S.E.2d 578 (2008)). However,
“[w]henever the language of a contract is plain, unambiguous, and capable of only one
reasonable interpretation, no construction is required or even permissible, and the
contractual language used by the parties must be afforded its literal meaning.” Urban

10

As discussed above, KPB was the entity that executed the note and security deed, but its bankruptcy
estate was substantively consolidated with PMF’s.
11

PMF does not challenge the Bankruptcy Court’s rejection of its accord and satisfaction, judicial
estoppel, promissory estoppel, and res judicata arguments.

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Servs. Grp., Inc. v. Royal Grp., Inc., 295 Ga. App. 350, 352, 671 S.E.2d 838, 840 (2008)
(quoting First Data POS v. Willis, 273 Ga. 792, 794, 546 S.E.2d 781 (2001)).
The Court finds that the SouthCrest/Catawba settlement agreement
unambiguously settles and releases only claims SouthCrest could have raised against
Catawba under the insurance policy. Paragraph 9 of the settlement agreement states
SouthCrest is accepting payment to settle its “claim pursuant to the mortgagee clause.”
The Parties may disagree about what exactly the “mortgagee clause” refers to,12 but
they both agree this phrase refers to some portion of the insurance policy issued by
Catawba. SouthCrest’s claim against KPB for the mortgage debt is not a claim it has
pursuant to the insurance policy. The basis for that claim would obviously be the loan
documents, i.e., the note and security deed.
The reason the Bankruptcy Court ruled paragraph 9 of the settlement agreement
was ambiguous is because the Bankruptcy Court found the “mortgage debt” mentioned
in paragraph 9 was not something SouthCrest could have recovered pursuant to the
“mortgagee clause” of the insurance policy. But this becomes ambiguous only if the
settlement agreement can be read to somehow suggest KPB’s mortgage debt, as
opposed to SouthCrest’s claims against Catawba, are being settled. It cannot. Reading
the settlement agreement as a whole, it is clear that SouthCrest was settling only claims
it could have asserted against Catawba arising out of damage to the convenience store
property—whatever their likelihood of success. It is equally clear SouthCrest was not
settling any potential claims against KPB or PMF. For instance, paragraph 1 of the
settlement agreement reads:
12

Nothing in the insurance policy is entitled “mortgagee clause.” There is a section under “PROPERTY
GENERAL CONDITIONS” called “Mortgage Holders,” which itself has seven subsections and multiple
sub subsections.

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For and in consideration of the sum of One Hundred and Fifty Thousand
($150,000.00) Dollars made payable to SouthCrest Bank, a division of the
Bank of Upson, as Assignee from the FDIC, as Receiver for Century
Security Bank (“SouthCrest”) the receipt and sufficiency of which is hereby
acknowledged, SouthCrest hereby releases, acquits and forever
discharges Catawba Insurance Company, (“Catawba”) and all past,
present and future officers, directors, stockholders, attorneys, agents,
servants, representatives, employees, subsidiaries, affiliates, partners,
predecessors, heirs, executors, administrators, personal representatives,
successors in interest, assigns and all other persons, firms or corporations
with whom any of the former have been, or now, or may hereafter be
affiliated, from any claims SouthCrest has or may have against Catawba
concerning damage to SouthCrest concerning the above-styled case and
the real and personal property at 517 N. Perry Parkway, Perry, Georgia
31069.
(Doc. 3-3, ¶ 1) (emphasis added). Additionally, paragraph 3 provides, “This Release
shall be a fully binding and complete settlement between SouthCrest and Catawba as to
all issues in the above styled action.” (Doc. 3-3, ¶ 3) (emphasis added). The only
parties to the action and to the settlement agreement were SouthCrest and Catawba.
PMF focuses on language in the settlement agreement discussing the debt KPB
and Beauchamp owed SouthCrest. That language reads, in pertinent part:
SouthCrest and Catawba acknowledge and agree to the following facts:
…
f. On or about August 3, 2010, KPB Enterprises, LLC, as mortgagor
and Pierre Beauchamps as guarantor of the mortgage debt, owed
SouthCrest Financial Group, d/b/a SouthCrest Bank, Successor in Interest
of Century Security Bank, at least $927,949.50 concerning the mortgage
on 517 N. Perry Parkway, Perry, Georgia 31069. The value of the property
acquired at foreclosure for $1,300,000.00 was less than the outstanding
mortgage debt of $2,227,949.80.
(Doc. 3-3, ¶ 8). PMF contends that this language “would be unnecessary if the release
of those two was not intended” and that the “reference to the $927,949.50 would be
unnecessary unless that language was intended to address KPB and Mr. Beauchamp’s
liability.” (Doc. 4 at 20). Regardless of whether this language is strictly “necessary” to

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release SouthCrest’s claims against Catawba, the fact that the settlement agreement
includes details about the mortgage debt and the parties involved does not mean a
release of those parties was intended. KPB and Beauchamp are only mentioned in
paragraph 8, which is simply the factual background SouthCrest and Catawba agree to.
It is clear the agreement does not release any claims SouthCrest may have against
them.
PMF further argues that the “mortgagee clause” referred to in the
SouthCrest/Catawba settlement was the provision of the insurance policy that allowed
Catawba to pay the entire mortgage debt and take assignment of the mortgage debt;
that SouthCrest agreed for Catawba to pay less than the full amount of the mortgage
debt and still be assigned the entire debt; and that Catawba then released the
remainder of the mortgage debt in its settlement with PMF, KPB, and Beauchamp. The
insurance policy reads:
If we pay the mortgage holder for any loss or damage and deny payment
to you because of your acts or because you have failed to comply with the
terms of this policy:
(1) The mortgage holder’s rights under the mortgage will be transferred to
us to the extent of the amount we pay; and
(2) The mortgage holder’s right to recover the full amount of the mortgage
holder’s claim will not be impaired.
At our option, we may pay to the mortgage holder the whole principal on
the mortgage plus any accrued interest. In this event, your mortgage and
note will be transferred to us and you will pay your remaining mortgage
debt to us.
(Doc. 1-1 at 245). According to the insurance policy, Catawba is only assigned the
mortgage debt to the extent of Catawba’s payment and thus is only assigned the entire
debt if it pays the entire debt. The policy also specifies the mortgage holder’s right to

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recover the full amount of the debt is not extinguished. It is undisputed that Catawba
did not pay the entire mortgage debt and that SouthCrest reduced its bankruptcy claim
by the amount of the Catawba settlement. Further, it would not make sense for the
“mortgagee clause” to refer to this provision because SouthCrest had no claim
“pursuant to” this provision. Instead, the provision gave Catawba an option to pay the
mortgage debt and be assigned the debt to the extent of its payment.
Though it is not altogether clear, PMF appears to contend that paragraph 11 of
the settlement agreement also somehow shows SouthCrest agreed to accept the
$150,000 for Catawba to be assigned the entire mortgage debt. Paragraph 11
provides:
Pursuant to the terms of the policy of insurance Catawba Insurance
Company issued, policy number CBO4086029 for the policy period
September 5, 2008 to September 5, 2009 to PMF Enterprises, Inc. d/b/a
Super Food Mart, 517 N. Perry Parkway, Perry, Georgia 31069 with an
effective date of September 5, 2008, SouthCrest shall and hereby does
release and assign SouthCrest’s interest in the policy of insurance to
Catawba.
(Doc. 3-3, ¶ 11). As previously discussed, SouthCrest’s interest in the mortgage debt
does not arise from the insurance policy; rather, it arises from the loan documents.
Thus, assigning SouthCrest’s “interest in the policy of insurance” does not assign
SouthCrest’s interest in the mortgage debt; it simply relinquishes SouthCrest’s interest
in the policy, which is logical given that SouthCrest was settling its claims under the
policy.13 Therefore, PMF’s argument that Catawba was assigned the entire mortgage
debt and then released it in the Fulton County settlement is unavailing.

13

If, on the other hand, SouthCrest had assigned its claim against KPB, that certainly would have
extinguished SouthCrest’s claim against KPB.

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Alternatively, even if there were an ambiguity as to whether SouthCrest and
Catawba intended to settle the entire mortgage debt, the Bankruptcy Court did not
clearly err in finding SouthCrest and Catawba did not so intend. PMF’s counsel
conceded at oral argument that there is no evidence in the record to rebut Low’s
testimony, on which the Bankruptcy Court relied, regarding SouthCrest’s intent in the
settlement.14 Thus, regardless of whether the Bankruptcy Court properly found the
settlement agreement was ambiguous, the Bankruptcy Court correctly determined the
SouthCrest/Catawba settlement agreement did not release any claims against KPB or
PMF.
V. CONCLUSION
The settlement agreement unambiguously settled only SouthCrest’s claims
against Catawba and not its claim to the mortgage debt against any other person or
entity. Thus, the Bankruptcy Court’s ultimate conclusion was correct. Alternatively, the
Bankruptcy Court did not clearly err in finding SouthCrest and Catawba did not intend to
settle the mortgage debt. Accordingly, the decision of the Bankruptcy Court is
AFFIRMED.

SO ORDERED, this 1st day of June, 2015.
S/ Marc T. Treadwell
MARC T. TREADWELL
UNITED STATES DISTRICT COURT

14

In its brief, PMF points to language in the pretrial order entered in the Fulton County case suggesting
Catawba viewed the SouthCrest/Catawba settlement as settling and releasing any claim to the mortgage
debt SouthCrest could have asserted against PMF or KPB. (Docs. 4 at 22; 3-11 at 7). However, as the
Bankruptcy Court points out, the same pretrial order also included language suggesting the settlement
was only for contents and inventory coverage under the policy. (Docs. 1 at 323; 3-11 at 6). Thus, the
Bankruptcy Court did not clearly err in its finding on SouthCrest and Catawba’s intent.

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