Bank of the Ozarks v. Arco Community Outreach Coalition, Inc. et al

Filing 142

ORDER granting 59 Motion for Default Judgment; granting 112 Motion for Summary Judgment; and denying 121 Motion to Strike. Bank of the Ozark's claims against Defendant Ford who is subject to an automatic stay in bankruptcy remain pending. Signed by Chief Judge Lisa G. Wood on 8/20/2013. (csr)

In the lintteb State fli%t&t Court
for the £outhern AtArtet of Otorgm
Jlrunsbick fltbtton
BANK OF THE OZARKS,
Plaintiff,
vs.
ARCO COMMUNITY OUTREACH
COALITION, INC., JOSEPH N.
MCDONOUGH, JOHN M. FORD, MARY
HELEN MOSES, LAURA CROSS, and
SUSAN WAINREGHT,
Defendants.

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CV 212-017

ORDER

The present case illustrates the truth of the old adage "no
good deed goes unpunished." Prior to the downturn in the
economy, Joseph McDonough, Mary Helen Moses, Laura Cross, and
Susan Wainright guaranteed a loan to Arco Community Outreach
Coalition, a charitable institution. Bank of the Ozarks, in the
present suit, seeks to recover for the default of that loan.
The Court has no choice but to hold these well-intentioned
individuals to the promises they made several years ago.
Accordingly, Bank of the Ozarks's Motion for Summary
Judgment, Dkt. No. 112, is GRANTED.

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Defendant Mary Helen

Moses's Motion to Strike the Affidavit Testimony of Amanda
Jones, Dkt. No. 121, is DENIED.

Bank of the Ozarks's

previously-stayed Motion for Default Judgment as to Arco, Dkt.
No. 59, will now be GRANTED.
BACKGROUND
Plaintiff Bank of the Ozarks filed this lawsuit to receive
repayment of a note issued to Defendant Arco Community Outreach
Coalition, Inc. ("Arco") for $750,000. Dkt. No. 90, Ex. 6 91 1.
Joseph McDonough, Mary Helen Moses, Laura Cross, and Susan
Wainright (collectively "Guarantor Defendants")' were members of
Arco's Board of Directors and signed guaranty agreements
regarding the loan. See Dkt. No. 114, Ex. 4, 8:20-22; Dkt. No.
114, Ex. 5, 17:1-25; Dkt. No. 133, 91 3.
The note and the guaranty agreements were executed by Bank
of the Ozarks' predecessor, Oglethorpe Bank. Bank of the Ozarks
acquired the loan documents after Oglethorpe Bank was closed by
the Georgia Department of Banking and Finance. See Dkt. No.
112, Ex. 3 (Purchase and Assumption Agreement). After the
closure, the Federal Deposit Insurance Corporation (FDIC) was
appointed the receiver for Oglethorpe Bank, and Bank of the

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John Ford, a defendant in this case, also allegedly guaranteed the
loan. Ford is subject to an automatic stay in bankruptcy. Dkt. No.
111. Accordingly, Bank of the Ozarks, at this time, has not moved
for summary judgment against him. For purposes of this Order,
"Guarantor Defendants" refers solely to McDonough, Moses, Cross, and
Wainright.
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Ozarks later purchased Oglethorpe Bank's loan documents from the
FDIC. See Dkt. No. 112, Ex. 2, ¶ 14.
Although not a party to the present suit, Nancy Coverdell
also guaranteed the note. Dkt. No. 74, Ex. 1. Oglethorpe Bank
allowed Coverdell to alter her guaranty agreement by crossing
through certain provisions. Dkt. No. 74, Ex. 1. As a result of
those modifications, Coverdell was not liable on any renewals.
Dkt. No. 74, Ex. 1. When the note was renewed on June 11, 2009,
approximately two years after the original note was issued,
Coverdell was released from her obligations as a guarantor
because she had removed the provision from her guaranty
agreement that made her liable on renewals. However, all the
other guarantors who signed unaltered guaranty agreements
remained liable.
Eventually, Arco failed to make payments on the note. Dkt.
No. 112, Ex. 2, ¶I 11-12. The note went into default, and Bank
of the Ozarks brought suit.
LEGAL STANDARD

Under Federal Rule of Civil Procedure 56(a), summary
judgment is appropriate "if the movant shows that there is no
genuine dispute as to any material fact and the movarit is
entitled to judgment as a matter of law." The court must view
the evidence and draw all inferences in the light most favorable
to the nonmovant. Adickes v. S.H. Kress & Co., 398 U.S. 144,
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157-59 (1970). The party seeking summary judgment must first
identify grounds that show the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24
(1986). To discharge this burden, the movant must show the
court that there is an absence of evidence to support the
nonmoving party's case. Id. at 325. The burden then shifts to
the nonmovant to go beyond the pleadings and present affirmative
evidence to show that a genuine issue of fact does exist.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
DISCUSSION

Bank of the Ozarks has demonstrated that it is entitled to
summary judgment. All of the Guarantor Defendants' arguments in
opposition are unavailing.
I. Motion to Strike Jones Affidavit

Moses has moved to strike the Affidavit Testimony of Amanda
Jones ("Jones Affidavit") that Bank of the Ozarks submitted in
support of its summary judgment motion. The parties disagree
about whether a motion to strike is the appropriate vehicle to
challenge the evidence. The arguments could be appropriately
asserted in a challenge to the admissibility of the Jones
Affidavit, rather than as a separate motion to strike. See
Smith v. Life Ins. Co. of N. Am., 466 F. Supp. 2d 1275, 1283
(ND. Ga. 2006) ("A motion to strike is not the proper vehicle
for challenging the admissibility of evidence set forth in an
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affidavit. Rather, plaintiff should have filed a notice of
objection to the challenged testimony."); $66,839.59 v. IRS, 119
F. Supp. 2d 1358, 1359 n.1 (N.D. Ga. 2000) ("Rather than filing
a motion to strike as under Rule 12, the proper method for
challenging the admissibility of evidence in an affidavit is to
file a notice of objection to the challenged testimony.").
Nevertheless, the Court will consider the substance of Moses's
arguments.
Moses contends that the Jones Affidavit is a sham affidavit
because Jones previously testified that she did not have
personal knowledge of the guaranty agreements. See Dkt. No.
121. On September 28, 2012, this Court held a motions hearing
regarding Arco's default. See Dkt. No. 119. Bank of the Ozarks
presented Jones as a witness to testify regarding Arco's
liability. See Dkt. No. 119. Because a default judgment
against Arco would impact the guarantors, Moses's counsel was
allowed to cross examine Jones. Moses's counsel asked Jones
which documents she reviewed to prepare for her testimony at the
hearing. Dkt. No. 119, 18:1-6. Jones responded that she
reviewed "[t]he documents of record in the loan files," which
consisted of "[t]he loan contract, note, the security deed" and
Arco's payment history. Dkt. No. 119, 18:1-10. Although the
hearing concerned Arco's liability, Moses's counsel posed the
following question to Jones: "As far as the guarantees of the
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individuals that are being sued, do you have any personal
knowledge as to those guarantees?" Dkt. No. 119, 24:17-19.
Jones answered that she did not. Dkt. No. 119, 24:20.
Moses's counsel contends that Jones's testimony at the
hearing is inconsistent with the testimony contained in her
affidavit. In her Affidavit, Jones states that the affidavit is
"based on [her] personal knowledge, and through the review of
business records of Bank of the Ozarks." Dkt. No. 112, Ex. 2.
Jones recounts that she is currently employed as a Special
Assets Officer for Bank of the Ozarks and, before that, she was
employed by Oglethorpe Bank. Dkt. No. 112, Ex. 2. Jones states
she is "familiar with the recordkeeping methods of both [Bank of
the Ozarks] and Oglethorpe [Bank]." Dkt. No. 112, Ex. 2. The
Jones Affidavit later states "[o]n May 23, 2007, Mary Helen
Moses ("Moses") guaranteed Arco's repayment and performance
under the Note . . .

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Dkt. No. 112, Ex. 2.

"A district court may disregard an affidavit as a sham when
a party to the suit files an affidavit that contradicts, without
explanation, prior . . . testimony on a material fact." Kernel
Records Oy v. Mosley, 694 F.3d 1294, 1300 n.6 (11th Cir. 2012)
(citations omitted). The Eleventh Circuit has cautioned that
"[t]he sham affidavit rule should be applied sparingly and only
when the earlier . . . testimony consists of clear answers to
unambiguous questions which negate the existence of any genuine
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issue of material fact." Id. (internal citations and quotations
omitted).
The Jones Affidavit clearly does not qualify as a sham.
The responses given by Jones in the motions hearing are
consistent with the statements contained in her affidavit.
Jones has consistently explained that her knowledge of the loan
documents pertinent to the present case is based on her personal
knowledge of Oglethorpe Bank and Bank of the Ozarks's business
practices and her review of the documents in the loan file kept
pursuant to those business practices. It appears entirely
possible, indeed likely, that Jones had not reviewed the
documents relating to the Guarantor Defendants in preparation
for her testimony regarding Arco's liability but has since
reviewed the pertinent documents. The situation would be
different if, for example, Jones had testified that she was not
present when Moses signed the document, but now submitted an
affidavit saying she was present at that time. Moses's argument
that the Jones Affidavit should be disregarded as a sham is
unavailing.

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II. Enforceability of the Second Page of the Moses Guaranty

Moses contends there is a material issue of fact as to
whether she is bound by the second page

of the guaranty

agreement. See Dkt. No. 129. Moses admits that she signed a
document in connection with the loan to Arco and that it is her
signature that appears on the guaranty agreement produced by
Bank of the Ozarks. Dkt. No. 114, Ex. 5, 17:12-25, 18:1. Moses
submitted an affidavit in opposition to summary judgment that
states that '[she] does not recall being given a two-page
document to sign, or there being text on the back of the
document [she] signed." Dkt. No. 129, Ex. 2, ¶ 11. Moses
further states she "do[es] not recall reviewing or initialing a
second page or being asked to do so by an Oglethorpe Bank
employee." Dkt. No. 129, Ex. 2, ¶ 11. Indeed, Moses's initials
do not appear on the second page of the guaranty agreement. See
Dkt. No. 52, Ex. 1.
Moses argues that, because of her testimony and the absence
of her initials on the second page, there is an issue of fact as
to whether Moses is bound by the provisions contained on the
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Moses's briefs in opposition to summary judgment repeatedly reference
the fact that prior to the submission of the Jones Affidavit, Bank of
the Ozarks had not informed Moses that the guaranty agreement was a
one-page double-sided document, rather than a two-page document with
text only on the front side of those pages. Throughout the course of
this suit, Bank of the Ozarks has consistently represented the
guaranty agreements as two pages of text. Whether those pages are on
two physically separate pieces of paper or on reverse sides of a
single physical sheet of paper is not material for purposes of the
Motions before the Court.

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second page of the agreement. See Dkt. No. 129. Moses is bound
by all the provisions of the agreement she signed. Under
Georgia caselaw, it is well-established that a party is bound to
the entire contents of a document signed, whether or not the
party reads the entire document. See Megel v. Donaldson, 654
S.E.2d 656 (Ga. Ct. App. 2007); Charles S. Martin Distrib. Co.
v. Bernhardt Furniture Co., 445 S.E.2d 297 (Ga. Ct. App. 1994);
see also Caves v. Columbus Bank & Trust Co., 589 S.E.2d 670, 675
(Ga. Ct. App. 2003)

("[Guarantor's] failure to read the guaranty

carefully and inform himself about his obligations . . . cannot
discharge him from liability.").
The first page of the guaranty agreement, to which Moses
has admitted signing, contains two references to the additional
page. See Dkt. No. 52, Ex. 1. In bold lettering close to the
signature line the document states: "This guarantee includes the
additional provisions on page 2, all of which are made a part
hereof."

Dkt. No. 52, Ex. 1 (emphasis in original). At the

bottom of the page in italics appears "(page 1 of 2)."

Dkt. No.

52, Ex. 1 (emphasis in original).
The facts of the present case closely resemble those
presented in Charles S. Martin Distribution. In that case, a
personal guarantor signed an addendum to a personal guarantee,
"but claim[ed] he d[id] not recall seeing the guarantee until
after signing the addendum because the papers were not attached
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to each other." 445 S.E.2d at 299. The addendum that the
guarantor signed explicitly referenced the guaranty agreement.
Id. The Court of Appeals of Georgia rejected the guarantor's
argument that he could not be bound by the terms appearing in
the guaranty agreement because he only signed the addendum. Id.
The court stated:
[The guarantor] cannot avoid those terms by claiming
that he failed to see the entire document he signed.
There are few rules of law more fundamental than that
which requires a party to read what he signs and to be
bound thereby. It is well established that a party
who can read must read, or show legal excuse for not
doing so, such as an emergency which excused the
failure to read; or fraud of the other party not
merely as to what is in the document, but by some
trick or device which prevented him from reading it.
The addendum signed by [the guarantor] plainly
incorporated by reference the personal guarantee,
which has a clear and ascertainable meaning. We
conclude that [the guarantor] also had a duty to read
the personal guarantee incorporated by the paper he
signed.
Id. The application of that rule is even more clear in the
present case; the provisions Moses seeks to avoid are not
contained in a separate document but appear on the second page
of the document she admits to signing. The page Moses
admittedly signed twice references the additional page. Moses,
by signing the first page, is bound by all the terms of the
guaranty agreement.

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III. Fraudulent Inducement Based on the Number of Guarantees

The Guarantor Defendants suggest that they were
fraudulently induced into signing the guaranty agreements
because Oglethorpe Bank represented to them that the bank only
needed $500,000 in guarantees. The Guarantor Defendants assert
that they were under the impression that, if more than five
people signed guarantees, the principal amount guaranteed by
each individual would be reduced. See Dkt. No. 132. To support
this argument the Guarantor Defendants reference a "Finance
Committee Report" from Harmony Square, a non-profit organization
with some affiliation with Arco that was sent to Oglethorpe Bank
and contained within the loan file.

Harmony Square's Finance

Committee Report states:
At present, we have 5 board members guaranteeing
$100,000. If additional board members agree to
guarantees, it will lower individual board members
share by dividing the number of guarantors (mm 5)
into $500,000.
Dkt. No. 134, Ex. 1.
While that may have been the Guarantor Defendant's
impression, the guaranty agreements contained no reference to
such an understanding. To the contrary, Paragraph Two of the
agreements states "This is an absolute, unconditional, and
continuing guaranty of payment." Paragraph Four limits the
liability of the Signor to $100,000 but contains no indication
that the amount will be dependent on the number of guarantors.
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The Guarantors cannot claim fraudulent inducement based on an
understanding that was quite clearly renounced by the document
they signed. See Martin v. Centre Pointe Invs., Inc., 712
S.E.2d 638, 641 (Ga. Ct. App. 2011) ("In order to prove the
fourth element of [fraud,] justifiable reliance, a party must
show that he exercised his duty of due diligence.") (citations
omitted).
IV. Fraudulent Inducement Based on Coverdell's Alterations to
Her Guarantee Agreement

In prior motions, the Guarantor Defendants urged that
Coverdell's release constituted a novation and therefore they
were released as well. The Guarantor Defendants now present a
similar argument under the doctrine of fraudulent inducement.
Bank of the Ozarks advances several reasons why this fraudulent
inducement claim must fail, including the D'Oench doctrine and
the guaranty agreement's waiver provision which explicitly
waives the defense of fraud. Setting aside those obstacles, the
Guarantor Defendants' fraudulent inducement claim fails to
satisfy the required elements.
Fraud has five elements (1) a false representation, (2)
scienter, (3) an intention to induce the party to act or refrain
from acting, (4) justifiable reliance, and (5) damage to
plaintiff. Baxter v. Fairfield Fin. Servs., Inc., 704 S.E.2d
423 (Ga. Ct. App. 2010). According to the Guarantor Defendants,

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Oglethorpe Bank misrepresented facts because the 2007 Note to
Arco stated "PERSONAL GUARANTORS OF JOE MCDONOUGH, JOHN FORD,
NANCY COVERDELL, MARY HELEN MOSES, LAURA CROSS, AND SUSAN
WAINRIGHT." Dkt. No. 134. The Guarantor Defendants object that
no reference was made to the fact that Coverdell's guarantee
agreement did not contain all the same terms as the other
guarantee agreements. See Dkt. No. 134. The Court does not
consider that to be a misrepresentation since Coverdell did
personally guarantee the 2007 Note.
The Guarantor Defendants also object to the fact that the
same sentence listing the personal guarantors appeared on the
2009 Note Renewal. Coverdell was listed as a personal
guarantor, even though she was automatically released because
her guaranty agreement did not contain the automatic renewal
language. Thus, the sentence in the 2009 Note Renewal was
indeed inaccurate. However, the Guarantor Defendants cannot
establish that they justifiable relied on that sentence in the
2009 Note Renewal because, subject to the 2007 guaranty
agreements they signed, their guarantees automatically renewed.
Accordingly, Oglethorpe Bank did not fraudulently induce the
Guarantor Defendants into signing the guaranty agreements.

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V. Failure to Foreclose as a Breach of the Duty of Good Faith
and Fair Dealing

In their earlier motions for summary judgment, the
Guarantor Defendants argued that foreclosure was a condition
precedent. This Court rejected that argument given that
Paragraph Eleven explicitly disavowed any such requirement and
because Georgia law does not require foreclosure. Dkt. No. 111.
In opposition to Bank of the Ozarks's Motion for Summary
Judgment, the Guarantor Defendants essentially re-urge that
point but package it slightly differently. The Guarantor
Defendants now contend that Bank of the Ozarks failure to
foreclose on the collateral constitutes a breach of the duty of
good faith and fair dealing in light of the Guarantor
Defendants' status as accommodation makers. However, the
Guarantor Defendants have failed to cite a case or otherwise
articulate why a party violates the duty of good faith and fair
dealing by pursuing a course of action allowed by explicit
contractual right and applicable law.
VI. Adequacy of Consideration

Oglethorpe Bank transferred the funds to Arco, rather than
the Guarantor Defendants personally. As a result, the Guarantor
Defendants contend that the guaranty agreements are
unenforceable due to failure of consideration. That argument is
meritless.
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Under well-established law, '[c]onsideration for a
guarantor's signature is the extension of credit to his
principal." Beard v. McDowell, 331 S.E.2d 104, 106 (Ga. Ct.
App. 1985) (citing Griswold v. Whetsell, 278 S.E.2d 753 (1981)).
Indeed, by statute, Georgia defines a guaranty as a contract
"whereby a person obligates himself to pay the debt of another
in consideration of a benefit flowing to the surety or in
consideration of credit or indulgence or other benefit given to
his principal." O.C.G.A. § 10-7-1. Here, the Guarantor
Defendants promised to guarantee Arco's debt in consideration
for Oglethorpe Bank extending funds to Arco.
The Guarantor Defendants make much of the fact that they
received no personal financial gain from Oglethorpe Bank's
extension of credit. See Dkt. Nos. 129, 134. The Guarantor
Defendants distinguish the cases cited by Bank of the Ozarks by
stating that, in those cases, the guarantor had a financial
stake in the principal corporation. Here, while all the
Guarantor Defendants were board members of Arco, they did not
have a financial interest in Arco's success. Dkt. No. 134, at
27. Their interests were humanitarian. The Court, however,
finds no basis for concluding that there is no consideration if
a guarantor does not have a personal financial benefit in the
extension of credit. The doctrine of consideration is not
limited to financial gain. Growth Properties of Fla., Ltd., IV
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v. Wallace, 310 S.E.2d 715, 717 (Ga. Ct. App. 1983) ("A surety
agreement, to be enforceable, must be supported by adequate
consideration, although such consideration need not be in
monetary form in order to be deemed adequate.") (citations
omitted); see also Hamer v. Sidway, 124 N.Y. 538 (Ct. App. N.Y.
1891) (seminal contract case holding that a nephew's abstention
from alcohol, tobacco, and other activities was adequate
consideration for an uncle's promise). The guaranty agreements
are not invalid for lack of consideration.
VII. Bank of the Ozarks's Motion for Default Judgment against
Arco

Now that the Guarantor Defendant's liability has been
determined, the Court will grant Bank of the Ozarks's Motion for
Default Judgment against Arco. The Court will not certify the
judgment as final at this time because of the claims against
Defendant Ford.
CONCLUSION

For the reasons stated above, summary judgment in favor of
Bank of the Ozarks is warranted. Defendant Moses's Motion to
Strike Affidavit Testimony of Amanda Jones, Dkt. No. 121, is
DENIED.

Bank of the Ozarks's Motion for Summary Judgment, Dkt.

No. 112, is GRANTED.

Bank of the Ozarks's stayed Motion for

Default Judgment as to Arco, Dkt. No. 59, will now be GRANTED.

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Bank of the Ozarks's claims against Defendant Ford who is
subject to an automatic stay in bankruptcy remain pending.

SO ORDERED, this 20th day of August, 2013.

ISA GOD BEY IqOOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA

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