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

Filing 58

ORDER denying 36 Motion to Strike Defenses of Wainwright. Signed by Magistrate Judge James E. Graham on 5/31/2012. (csr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA
BRUNSWICK DIVISION

c
Q_

BANK OF THE OZARKS,
Plaintiff,
vs.

CIVIL ACTION NO.: CV212-017

ARCO COMMUNITY OUTREACH
COALITION, INC.; JOSEPH N.
McDONOLJGH; JOHN M. FORD;
MARY HELEN MOSES; LAURA
CROSS; and SUSAN WAINWRIGHT,
Defendants.

ORDER
This lawsuit arises out of a promissory note allegedly signed by Defendant Arco
Community Outreach Coalition, Inc., and individual guaranties of the note allegedly
signed by Defendant Susan Wainwright' ('Wainwright") and others; all relevant
documents were allegedly signed in favor of Oglethorpe Bank. Plaintiff is allegedly the
holder of the note, the guaranties, and the related loan documents by way of an
assignment of the documents to Plaintiff from the Federal Deposit Insurance
Corporation ("FDIC") after the FDIC became receiver of Oglethorpe Bank. Plaintiff filed
the instant action against Defendants, who are allegedly in default, to recover on the
note and the guaranties.
Plaintiff filed a Motion to Strike Defenses of Wainwright. Wainwright filed a
Response in Opposition. Plaintiff filed a Reply.

evidenced by pleadings filed by this Defendant, her name is Susan Wainright, not Susan Wainwright.
AO 72A
(Rev. 8/82)

Wainwrights Answer included the following defenses:
THIRD DEFENSE
Plaintiffs claim [sic] against this Defendant are barred, in whole or
in part, by the doctrines of failure of consideration, waiver, estoppel,
release and latches.
FOURTH DEFENSE
Plaintiff has failed to exhaust all available remedies prior to filing an
action against this Defendant, and, thus, as to this Defendant, Plaintiffs
action is premature.
FIFTH DEFENSE
Plaintiff's claims against this Defendant are barred, in whole or in
part, by the Plaintiff's breach of duty to properly oversee and monitor the
distribution of monies to the Co-Defendant Arco Community Outreach
Coalition, Inc.
SIXTH DEFENSE
Plaintiff's claims against this Defendant are barred, in whole or in
part, by Plaintiff's modification and/or departure from the terms and
conditions of the original Note to which this Defendant's guaranty relates.
SEVENTH DEFENSE
Plaintiffs claims against this Defendant are barred, in whole or in
part, because the guaranty in issue is void and/or unenforceable inasmuch
as certain of its terms and provisions are violative of Georgia Public
Policy.
EIGHTH DEFENSE
Plaintiff's Complaint fails to include necessary and indispensable
parties.
(Doc. No. 28, pp. 1-3).

Plaintiff asserts that Wainwright's third and fourth defenses

should be stricken under 12 U.S.C. § 1823(e) and the D'Oench doctrine. Plaintiff
asserts that Wainwright's third, fourth, fifth, sixth, seventh, and eighth defenses should
be stricken because Wainwright waived those defenses in the guaranty that she

AO 72A
(Rev, 8'82)

allegedly signed ('The Wainwright Guaranty"). Plaintiff asserts that Wainwright's fourth
defense should be stricken because it is barred by Georgia law.
Federal Rule of Civil Procedure 12(f) states that "[t]he court may strike from a
pleading any insufficient defense or any redundant, immaterial, impertinent, or
scandalous matter." Under that rule, striking an affirmative defense as legally
insufficient "is a drastic remedy disfavored by the courts." Sec. Life of Denver Ins. Co.
v. Shah, 2011 WL 3300320 *1 n.1 (S.D. Ga. Aug. 1, 2011) (citations omitted). "The
Court should only exercise this discretion if 'the matter sought to be omitted has no
possible relationship to the controversy, may confuse the issues, or otherwise prejudice
a party." Frazier v. Dollar Tree Stores, Inc., 2011 WL 709720 *1 (S.D. Ga. Feb. 22,
2011) (citation omitted).
I. Plaintiff's assertion that Wainwright's third and fourth defenses should
be stricken under 12 U.S.C. § 1823(e) and the D'Oench doctrine
The Court of Appeals for the Eleventh Circuit has described the D'Oench
doctrine, 2 derived from D'Oench, Duhme & Co. v. Fed. Deposit Ins. Cor p ., 315 U.S. 447
(1942), and its progeny, as follows:
In a suit over the enforcement of an agreement originally executed
between an insured depository institution and a private party, a private
party may not enforce against a federal deposit insurer any obligation not
specifically memorialized in a written document such that the agency
would be aware of the obligation when conducting an examination of the
institution's records.

The statutory counterpart to the D'Oench doctrine is 12 U.S.C. § 1823(e). However, the issue of
whether a successor to the rights of the FDIC is entitled to the protections of § 1823(e) is unsettled in the
Eleventh Circuit. See, e.g., First Union Nat'l Bank of Fla. v. Hall, 123 F.3d 1374, 1379 n.9 (11th Cir.
1997); Fed. De posit Ins. Corp . v. McCulloug h, 911 F.2d 593, 598 (11th Cir. 1990). This Court will not
base its decision on the language of 12 U.S.C. § 1823(e) because the statute does not clearly apply to
Plaintiff.
AO 72A
(Rev. 8/82)

Baumann v. Savers Fed. Sa y. & Loan Ass'n, 934 F.2d 1506, 1515 (11th Cir. 1991).
Plaintiff argues that under the D'Oench doctrine, Wainwright's "defenses should be
stricken to the extent that they are based on any alleged promises separate from the
Note and Wainwright Guaranty, as well as any conditions or representations relating to
those alleged promises." (Doc. No. 36, pp. 11-12). Specifically, Plaintiff asserts that
Wainwright's third and fourth defenses should be stricken.
Wainwright argues that none of her defenses are based on an agreement,
writing, or document not contained in bank records; she asserts that her defenses flow
out of the loan documents at issue in this case. Wainwright asserts that, as a result, her
defenses are not barred by the D'Oench doctrine. The Court agrees. "Current
application of the D'Oench doctrine 'depends upon whether the purported agreement
relied upon by the private party was ever memorialized in writing or otherwise made
explicit such that . . . the FDIC would have knowledge of the bank's obligations during
an evaluation of the bank's records." Uhlig v. Fed. Deposit Ins. Cor p ., 2012 WL 27572
*2 (S.D. Ga. Jan. 4, 2012) (quoting McCullough, 911 F.2d at 600) (alteration in
original). 3 Wainwright's defenses, that Plaintiffs claims against her are barred by failure
of consideration, waiver, estoppel, release, and laches (third defense) and that Plaintiff
failed to exhaust all available remedies prior to filing an action against her (fourth
defense), are not based on any "secret, unrecorded agreement. ,4 Id. (describing the

Plaintiff pointed out that the Court in flfig held that the claims at issue were barred by the D'Oench
doctrine and states that, as a result, "Wainwright cites authority that does not help her cause." (Doc. No.
55, p. 6). In fljj, the plaintiffs claims against the FDIC as receiver were barred because the claims
were based entirely upon a letter that was not part of the bank records. jflJI 2012 WL 27572 *2_3.
That is not the case with regard to Wainwright's asserted defenses- The standard announced in fljjQ
applies even though it is a factually different case.
Plaintiff asserts that Wainwright has failed "to show how her defenses do not arise from a secret
agreement[.]" (Doc. No. 55, p. 7). Plaintiff has failed to allege the existence of a secret agreement.
AO 72A
(Rev. 8/82

holding in D'Oench). Consequently, the "drastic remedy" of striking an affirmative
defense is not appropriate. 5 Shah, 2011 WL 3300320

*1

n.1.

II. Plaintiff's assertion that Wainwright's third, fourth, fifth, sixth, seventh,
and eighth defenses should be stricken because Wainwright waived those
defenses in the Wainwright Guaranty
Plaintiff argues that "[in the Wainwright Guaranty, Wainwright waived all
defenses to enforcement of the Wainwright Guaranty against her" and that, as a result,
Wainwright's third, fourth, fifth, sixth, seventh, and eighth defenses should be stricken.
(Doc. No. 36, p. 12). Plaintiff states that "Wainwright does not deny execution of the
Wainwright Guaranty[.]" (Doc. No. 36, p. 17). Wainwright asserts that she admitted that
she signed a guaranty with respect to the original indebtedness of Defendant Arco
Community Outreach Coalition, Inc., but that "she has denied that she guaranteed the
Note sued upon," which was a renewal of a prior indebtedness. (Doc. No. 47, p. 10). It
is unclear from the face of Wainwright's Answer which debt she admitted to
guaranteeing. (See Doc. No. 1, pp. 5-7, 10 7 11, 23, 24, 35, and No. 28, pp. 2, 6-7
Sixth Defense and IM 23, 24, 35). Without admitting to the creation of the Wainwright

It should be noted that Plaintiff asserted that "Wainwright has failed to even mention, let alone
distinguish, two important cases on which Ozarks relies on [sic] in its Motion to Strike: Bufman
Organization v. FDIC, 82 F.3d 1020, 1028 (11th dr. 1996) (unjust enrichment claim barred by D'Oerich);
and State Street Ca p ital Corp. v. Gibson Tile, Inc., No. 3:97-CV-1329-P, 1998 U.S. Dist. LEXIS 20104, at
*22 (N.D. Tex. Dec. 16, 1998) (claims and defenses of unclean hands, failure to mitigate damages,
mutual mistake, duress, negligent misrepresentation, and unjust enrichment barred by § 1823(e) and
D'Oench)." (Doc. No. 55, pp. 6-7). In Bufman Or g anization, the claim of unjust enrichment was barred
because "it [was] premised on an unrecorded condition to the repayment of the Bufman note." Bufman
Organization, 82 F.3d at 1028. As previously stated, Wainwright's defenses are not based on an
unrecorded agreement. In State Street Ca p ital Cor p . v. Gibson Tile, Inc., 1998 WL 907027 (N.D. Tax.
Dec. 16, 1998), the claims and defenses were barred based upon Fifth Circuit law, which has applied the
D'Oench doctrine "in a liberal fashion." Id. *6 (citation omitted). The Court is not persuaded by the
decision in State Street Capital.
AO 72A
(Rey . 8/82)

Guaranty, the validity of the Wainwright Guaranty as a whole is in dispute, and the
validity of the purported waiver clause is also in dispute.
"Motions to strike cannot be used to determine disputed fact questions[.]" Brown
v. Joiner Int'l, Inc., 523 F. Supp. 333, 336 (S.D. Ga. 1981) (citation omitted) (denying
defendant's motion to strike from the complaint any claims against it for revocation of
contract of sale and breach of warranties of sale when there existed issues of fact in the
areas of privity between the parties and breach of warranties). Accordingly, because
the validity of the Wainwright Guaranty and its waiver clause are in issue, Wainwright's
third, fourth, fifth, sixth, seventh, and eighth defenses will not be stricken on the basis of
the waiver clause.
III. Plaintiff's assertion that Wainwright's fourth defense should be stricken
because it is barred by Georgia law
''Where by a breach of contract a party is injured, he is bound to lessen the
damages as far as is practicable by the use of ordinary care and diligence." O.C.G.A. §
13-6-5. However, Plaintiff argues, citing REL Dev., Inc., v. Branch Banking & Trust Co.,
699 S.E.2d 779 (Ga. Ct. App. 2010), that "[u]nder binding Georgia precedent . . .
Plaintiff is not obligated to foreclose [on the property securing the loan] before suing on
the Note and Guaranties, and proceeding on the Note and Guaranties before
foreclosure cannot be held as a failure to mitigate damages." (Doc. No. 36, p. 15).
Wainwright argues that the failure to mitigate defense is not necessarily limited to
Plaintiffs failure to foreclose on the property securing the loan and that she should have
an opportunity to uncover more information during discovery. The Court agrees.
Wainwright's failure to mitigate defense has a possible relationship to the controversy,

AO 72A
;Rev. 8/82)

b

will likely not confuse the issues, and will likely not otherwise prejudice a party. Frazier,
2011 WL 709720 *1.

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Plaintiff also argues, citing Branch Banking & Trust Co. v. Licht Bros. Constr.,
Inc.,2011 WL 883912 (N.D. Ga. Mar. 11, 2011), that Wainwright is not permitted to
assert a failure to mitigate defense because the 'Wainwright Guaranty contained an
absolute promise by Wainwright to pay" according to its terms. (Doe. No. 36, p. 17). In

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Lichl Bros., the defendants did not argue that the relevant promissory notes were not
absolute promises to pay and the defendants admitted that they executed the
promissory notes and guaranties at issue. .içj. at *4. Here, Wainwright argues that the
Wainwright Guaranty does not contain an absolute promise to pay; she asserts that
Plaintiff's foreclosure on the property securing the loan is a condition precedent to her
payment obligation. As previously stated, "[m]otions to strike cannot be used to
determine disputed fact questions[.}" Brown, 523 F. Supp. at 336. Consequently,
Wainwright's fourth defense will not be stricken based on Plaintiffs assertion that the
Wainwright Guaranty contained an absolute promise to pay.
Plaintiff's Motion to Strike Defenses of Wainwright (Doc. No. 36) is DENIED.
SO ORDERED, this

Ji y of May, 2012.

APES E. GRAHAM
ITED STATES MAGISTRATE JUDGE

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ev. 8/82)

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