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

Filing 60

ORDER granting in part and denying in part 26 Motion to Strike Defenses of John Ford. Signed by Magistrate Judge James E. Graham on 7/5/2012. (csr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF GEORGIA
BRUNSWICK DIVISION
2011 JUL -5 P11 2:

BANK OF THE OZARKS,
Plaintiff,
vs.

CIVIL ACTION NO.: CV212-017

ARCO COMMUNITY OUTREACH
COALITION, INC.; JOSEPH N.
McDONOUGH; 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 John M. Ford ("Ford") 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 Ford. (Doc. No. 26). The
undersigned ordered Ford to file a response or to otherwise inform the Court of his
decision not to object to Plaintiff's Motion. Ford did neither. However, the Court cannot

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ignore the fact that Ford is proceeding pro se. Because Ford is a pro se litigant, the
Court will not summarily grant Plaintiff's Motion and will, instead, consider the merits of
the Motion.
Ford's Answer includes the following defenses:
SECOND DEFENSE
The Plaintiff has failed to mitigate its damages. Additionally,
Plaintiff has failed to exhaust all available remedies and said Complaint is

premature/not ripe. Also, it is believed that the FDIC has issued an
indemnity or insurance coverage that would reduce Plaintiffs loss to zero.
THIRD DEFENSE
Upon information and belief, Plaintiff's claims may be barred by
reason of failure of consideration, waiver, breach of contract, lack of

mutuality of remedy, breach of duty of good faith and fair dealing, unjust
enrichment and breach of fiduciary duty.

FOURTH DEFENSE
Provisions of the Agreements, Notes, and/or Guaranties relied
upon by Plaintiff are void and/or are unenforceable because they violate
Georgia Public Policy. Additionally, said renewal documents are vague
and inconsistent with original documentation, and said vague and
inconsistent statements make renewal guaranties void, unenforceable and
a nullity.
FIFTH DEFENSE
Upon information and belief, Plaintiff's claims may be barred by
reason of Estoppel, as Robert Strange, President of Oglethorpe Bank,

stated that he would "work with" Defendants until someone could buy the
building. Relying on Plaintiff's predecessor in interest, Defendants lost
their ability to mitigate damages at an earlier point in time.
SIXTH DEFENSE

Plaintiff is being stubbornly litigious under OCGA § 13-6-11 and
names Defendants only to cause unnecessary trouble and expense.

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(Doc. No. 19, pp. 2-3).

Plaintiff asserts that Ford's second, third, fifth, and sixth

defenses should be stricken under 12 U.S.C. § 1823(e), 1825(b)(3), and the D'Oench
doctrine. Plaintiff asserts that Ford's second, third, fourth, fifth, and sixth defenses
should be stricken because Ford waived those defenses in the guaranty that he
allegedly signed ("the Ford Guaranty"). Plaintiff asserts that Ford's second defense
should be stricken because under Georgia law Plaintiff had no duty to mitigate its
damages.
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 Ford's second, third, fifth, and sixth defenses
should be stricken under 12 U.S.C. § 1823(e), 1825(b)(3), and the D'Oench
doctrine
The Court of Appeals for the Eleventh Circuit has described the D'Oench
doctrine,' derived from D'Oench, Duhme & Co. v. Fed. De posit Ins. Corp., 315 U.S. 447
(1942), and its progeny, as follows:
1

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
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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.
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, Ford's "defenses should be stricken to
the extent that they are based on any alleged promises separate from the Note and
Ford Guaranty, as well as any conditions or representations relating to those alleged
promises." (Doe. No. 26, p. 11). Specifically, Plaintiff asserts that Ford's second, third,
and fifth defenses should be stricken.
Ford's second and third defenses are not based on an agreement, collateral
record, or any document found outside of the bank records; instead, those defenses
flow out of the loan documents at issue in this case. As a result, Ford's second and
third defenses are not barred by the D'Oench doctrine. "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." Uhli q v. Fed. De p osit Ins. Corp., 2012 WL 27572 *2 (S.D. Ga. Jan. 4,
2012) (quoting McCullou g h, 911 F.2d at 600) (alteration in original). 2 Ford's second and

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. McCullough, 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.
2
The Court recognizes that the Court in ghlj g held that the claims at issue were barred by the D'Oench
doctrine. However, in Uhlici, 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. QbRg, 2012 WL 27572 *2_
3. That is not the case with regard to Ford's asserted defenses. The standard announced in U h l ig
applies even though it is a factually different case.

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third defenses are not based on any "secret, unrecorded agreement. ,3 Id. (describing
the holding in D'Oench). Consequently, the "drastic remedy" of striking an affirmative
defense is not appropriate. 4 Shah, 2011 WL 3300320 *j n.1.
Ford's fifth defense is based on an alleged verbal agreement between Robert
Strange, President of Oglethorpe Bank, and Defendants. This defense is based on an
alleged "obligation not specifically memorialized in a written document" and the FDIC
would not necessarily have been "aware of the obligation when conducting an
examination of [Oglethorpe's records." Baumann, 934 F.2d at 1515. As a result,
Ford's fifth defense is barred by the D'Oench doctrine. This portion of Plaintiff's Motion
is granted.
Plaintiff argues that Ford's sixth defense should be stricken under 12 U.S.C. §
1825(b)(3), which states:
When acting as a receiver, . . . [t]he [FDIC] shall not be liable for any
amounts in the nature of penalties or fines, including those arising from
the failure of any person to pay any real property, personal property,
probate, or recording tax or any recording or filing fees when due.

Plaintiff has not alleged the existence of a secret agreement.
It should be noted that the cases Plaintiff cites in support of its argument are distinguishable. in Bufman
Org. v. Fed. De posit Ins. Corp., 82 F.3d 1020. 1028 (11th Cir. 1996), the claim of unjust enrichment was
barred by D'Oench because "it [was) premised on an unrecorded condition to the repayment of the
Bufman note." Bufman Org ., 82 F.3d at 1028. As previously stated, Ford's defenses are not based on an
unrecorded agreement. In State St. Capital Cor p. v. Gibson Tile, Inc., 1998 WL 907027 (N.D. Tex. Dec.
16, 1998), the claims and defenses of unclean hands, failure to mitigate damages, mutual mistake,
duress, negligent misrepresentation, and unjust enrichment were barred by § 1823(e) and D'Oench
based upon Fifth Circuit law, which has applied the D'Oench doctrine "in a liberal fashion." Id. at *6
(citation omitted). The Court is not persuaded by the decision in State St. Capital. Finally, Plaintiff cites
Fed. De posit Ins. Cor p . v. Morley, 867 F.2d 1381 (11th Cir. 1989), wherein the Eleventh Circuit approved
a district court's bar of the defenses of estoppel, waiver, ladies, fraud, unclean hands, illegal transfer,
commercial unreasonableness, breach of fiduciary duty, and breach of the obligation of good faith and fair
dealing. The Morley court stated, "Morley's loss of defenses... resulted from his failure to place. . . the
alleged agreements in writing." Id. at 1388. Again, Ford's defenses are not based on an unrecorded
agreement, so Plaintiffs citation of Morley is not persuasive.
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12 U.S.C. § 1825(b)(3). Plaintiff argues that attorneys fees under O.C.G.A. § 13-6-11
are penal in nature and are thus precluded against the FDIC. Plaintiff asserts that
because it acquired its interest in the note and guaranties after any possible liability for
attorneys' fees was extinguished via the FDIC's receivership, "no liability for attorneys'
fees passed to [Plaintiff] and Ford's 'defense' under O.C.G.A. § 13-6-11 should be
dismissed." (Doc. No. 26, p. 14).
The Eleventh Circuit has cited with approval several Georgia cases holding that
an award of expenses of litigation, including attorneys' fees, under O.C.G.A. § 13-6-11
is not penal in nature. Action Marine, Inc. v. Cont'l Carbon Inc., 481 F.3d 1302, 1321
(11th Cir. 2007) (citing Cit y of Warner Robins v. Holt, 470 S.E.2d 238, 240 (Ga. Ct. App.
1996) (holding that the purpose of an award of attorney fees and litigation expenses is
compensatory in nature); Ross v. Hagler, 433 S.E.2d 124, 127 (Ga. Ct. App. 1993)
(noting that an award of attorney fees under § 13-6-11 is not punitive in nature);
Privitera v. Addison, 378 S.E.2d 312, 317 (Ga. Ct. App. 1989) (describing fees awarded
under § 13-6-11 as an element of actual damages)). Plaintiff argues that these Georgia
cases are not controlling because they do not control the federal analysis under 12
U.S.C. § 1825(b)(3). The Court finds the Georgia cases cited by the Eleventh Circuit in
Action Marine to be, at a minimum, very persuasive. The Court recognizes that these
cases were cited within the context of a tort case involving bad faith. However, Plaintiff
was unable to cite to controlling law characterizing fee awards as penal in nature, and
the Court finds Georgia cases, characterizing a Georgia statute, more persuasive than
the cases cited by Plaintiff. The Court will not strike Ford's claim for an award of

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expenses under O.C.G.A. § 13 .6-11 based on Plaintiff's assertion that 12 U.S.C. §
1825(b)(3) bars such a claim.5
II. Plaintiff's assertion that Ford's second, third, fourth, fifth, and sixth
defenses should be stricken because Ford waived those defenses in the Ford
Guaranty
Plaintiff argues that "[i}n the Ford Guaranty, Ford waived all defenses to
enforcement of the Ford Guaranty against him" and that, as a result, Ford's second,
third, fourth, fifth, and sixth defenses should be stricken. (Doc. No. 26, p. 14). Although
Ford did not deny that he executed the Ford Guaranty, Ford has not admitted that he
guaranteed the note. 6 (Doc. No. 1, P. 6 ¶11 17, 18, and No. 19, P. 6 ¶fl 17, 18). Without
admitting to the creation of the Ford Guaranty, the validity of the Ford Guaranty as a
whole is in dispute, and the validity of the purported waiver clause is also in dispute.
Striking defenses based on the waiver clause would signify that the Court finds the Ford
Guaranty valid, which would decide a disputed factual question.
"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

It should be noted that 12 U.S.C. § 1825(b)(3) might not even apply to Plaintiff in this context. As the
plaintiff in this action, Plaintiff is acting for itself and has, with regard to its behavior as a litigant, removed
its "successor to the FDIC as receiver" hat.
6

Ford's Answer, with respect to the creation of the Ford Guaranty, actually states, "The documents speak
for themselves and no answer is required." (Doc. No. 19, p. 6 IM 17, 18). However, because Ford denies
liability to Plaintiff, (Dec. No. 1, pp. 9, 14 ¶32, 65-68, and No. 19, pp. 7, 13 ¶32, 65-68), and because
Ford is a pro se litigant, the Court will construe his Answer to not admit to the creation of the Ford
Guaranty.
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the validity of the Ford Guaranty and its waiver clause are in issue, Ford's defenses will
not be stricken on the basis of the waiver clause.
Ill. Plaintiff's assertion that Ford's second 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. 26, p. 16). The
failure to mitigate defense is not necessarily limited to Plaintiff's failure to foreclose on
the property securing the loan, and Ford should have an opportunity to uncover more
information during discovery. Ford's failure to mitigate defense has a possible
relationship to the controversy, will likely not confuse the issues, and will likely not
otherwise prejudice a party. Frazier, 2011 WL 709720 *1.
Plaintiff also argues, citing Branch Banking & Trust Co. v. Lichty Bros. Constr.,
Inc., 2011 WL 883912 (N.D. Ga. Mar. 11, 2011), that Ford is not permitted to assert a
failure to mitigate defense because the "Ford Guaranty contained an absolute promise
by Ford to pay" according to its terms. (Doc. No. 26, p. 18). In Lichty 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. Id. at *4. Here, Ford has not admitted to executing the Ford

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Guaranty; as a result, the validity of the Ford Guaranty and any absolute promise to pay
contained therein is in dispute. As previously stated, "[motions to strike cannot be used
to determine disputed fact questions[.]" Brown, 523 F. Supp. at 336. Consequently,
Ford's second defense will not be stricken based on Plaintiffs assertion that the Ford
Guaranty contained an absolute promise to pay.
IV. Conclusion
As previously stated, the portion of Plaintiff's Motion seeking to strike Ford's fifth
defense under the D'Oench doctrine is GRANTED. The remainder of Plaintiff's Motion
to Strike Defenses of Ford is DENIED.
SO ORDERED, this

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day of July, 2012.

E. GRAHAM
D STATES MAGISTRATE JUDGE

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