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TD Bank, N.A. v. Carland Tractor and Equip., Inc.

United States District Court, W.D. North Carolina, Asheville Division

March 10, 2017

TD BANK, N.A., Plaintiff,
v.
CARLAND TRACTOR AND EQUIP., INC., ANTHONY E. CARLAND, MAX LOWE CARLAND JR., and ELLEN C. CARLAND, Defendants.

          MEMORANDUM OF DECISION AND ORDER

          Martin Reidinger United States District Judge

         THIS MATTER is before the Court on the Plaintiff's motion for summary judgment as to the counterclaims asserted by Defendant Max Lowe Carland Jr. (herein “Max Carland”), and Defendant Ellen C. Carland (herein “Ellen Carland”). [Doc. 29]. Also before the Court is the Plaintiff's motion for summary judgment as to its claims asserted against Max Carland and Ellen Carland. [Doc. 43].

         The Plaintiff initiated this action on November 9, 2015 against Defendant Carland Tractor and Equip., Inc. (herein “Defendant Company”), Defendant Anthony E. Carland (herein “Anthony Carland”), Max Carland, and Ellen Carland. [Doc. 1]. Max Carland and Ellen Carland filed an Answer and Counterclaims on January 6, 2016. [Doc. 13]. Defendant Company and Anthony Carland failed to answer the Complaint or otherwise plead, and on January 26, 2016, the Clerk made entries of default against them. [Docs. 20, 21]. The Plaintiff now seeks summary judgment in its favor both as to its claims against Max Carland and Ellen Carland and as to the counterclaims those two Defendants filed against it. [Docs. 29, 43].

         BACKGROUND

         This is an action brought by the Plaintiff to recover the deficiencies remaining after the liquidation of assets securing two of its loans. While the two loans at issue closed in 2009, the Defendants' relationship with the Plaintiff (and Plaintiff's predecessors in interest) existed for many years prior to that time. An understanding of the parties' prior financial arrangements - that three earlier extensions of credit were ultimately refinanced into the two loans at issue - is necessary to a proper resolution of this matter.

         I. Incorporation of Defendant Company and Initial Lending.

         In 1989, Ellen Carland incorporated “Carland Ford Tractor and Equip., Inc.” under the laws of the State of North Carolina. [Doc. 31-36 at 3]. In 1996, that entity changed its name to “Carland Tractor and Equip., Inc.” (“Defendant Company”). [Id. at 4]. Defendant Company's initial incorporation documents listed Ellen Carland as secretary-treasurer, her son, Anthony Carland, as president, and her husband, Max Carland, as vice-president. [Id. at 2]. As relevant here, Anthony Carland remained president of Defendant Company throughout its existence and his father, Max Carland, held various positions and became treasurer of Defendant Company in 2008. [Id. at 6-7].

         A. The 3163 Loan.

         On June 2, 2000, Defendant Company obtained a $400, 000 line of credit from Mountainbank[1] (the “3163 Loan”). [Doc. 31-6]. This indebtedness was evidenced by a promissory note executed by Defendant Company, Anthony Carland, Max Carland, and Ellen Carland as individual borrowers.[2] The line of credit was secured a deed of trust on the 2.66 acres of land containing the principal place of business of Defendant Company (the “Company Property”). [Doc. 31-7]. On September 2, 2006, Anthony Carland signed a one-year renewal of the 3163 Loan. [Doc. 31-10]. Ellen Carland and Max Carland each signed personal, unlimited continuing debt guarantees regarding this renewal promissory note. [Docs. 31-11; 31-12]. On December 2, 2007, Anthony Carland signed a second one-year renewal of the 3163 Loan. [Doc. 31-13]. Ellen Carland and Max Carland each signed personal, unlimited continuing debt guarantees regarding this second renewal promissory note. [Docs. 31-14; 31-15]. On February 2, 2009, Anthony Carland as borrower, and Max Carland and Ellen Carland as guarantors, signed a loan modification letter extending the maturity date of the 3163 Loan to May 2, 2009. [Doc. 31-16]. The outstanding balance owed Plaintiff on the 3163 Loan was not satisfied by the May, 2009 maturity date, and this loan went into default.

         B. The 6706 Loan.

         On February 18, 2004, Defendant Company executed a promissory note and security agreement having borrowed from Carolina First Bank the amount of $675, 590.09 (herein the “6706 Loan”). [Doc. 31-21]. The stated maturity date for this loan was February 18, 2009. [Id.]. Ellen Carland and Max Carland each signed personal, unlimited continuing debt guarantees regarding the 6706 Loan. [Docs. 31-22; 31-23]. Ellen Carland and Max Carland also executed a deed of trust pledging approximately 21.21 acres of vacant land as security for the debt (the “21 Acre Tract”). [Doc. 31-24]. On each of February 18, 2009; May 18, 2009; and August 18, 2009; all debtors/guarantors signed loan modification letters ultimately extending the maturity date of the 6706 Loan to November 18, 2009. [Docs. 31-25; 31-26; 31-27].

         C. The 5782 Loan.

         On March 2, 2006, Defendant Company executed a revolving draw promissory note and security agreement securing a loan from Carolina First Bank in the amount of $350, 000.00 (the “5782 Loan”). [Doc. 31-28]. Ellen Carland and Max Carland each signed personal, unlimited continuing debt guarantees regarding the 5782 Loan. [Docs. 31-29; 31-30]. On March 2, 2007, Defendant Company signed a promissory note extending for one year the 5782 Loan. [Doc. 31-31]. On June 3, 2008, Defendant Company signed a promissory note extending for one additional year the 5782 Loan. [Doc. 31-32]. On each of June 3, 2009, and September 3, 2009, all debtors/guarantors signed loan modification letters ultimately extending the maturity date of the 5782 Loan to December 3, 2009. [Docs. 31-33; 31-34].

         II. Refinancing of the 3163, 6706, and 5782 Loans.

         As noted above, the 3163 Loan was not satisfied by the May 2, 2009, maturity date and thereafter was in default. The maturity date of the 6706 Loan was November 18, 2009, and the maturity date of the 5782 Loan was December 3, 2009. On November 16, 2009, the 3163 Loan was refinanced by the execution of a new promissory note by Anthony Carland (herein “Note 1”) and the 6706 and 5782 Loans were consolidated and refinanced by the execution of a new and separate promissory note by Defendant Company (herein “Note 2”). Note 1 was in the face amount of $322, 811.28 [Doc. 1-2], the proceeds of which were disbursed to pay off the 3163 Loan. [Doc. 31-17]. Ellen Carland and Max Carland each signed personal, unlimited continuing debt guarantees regarding Note 1.[3] [Docs. 31-4; 31-5]. To secure Note 1, Anthony Carland executed a deed of trust in favor of Plaintiff providing as collateral the 2.66 acre Company Property that had previously secured the 3163 loan.[4] [Docs. 31-3 at 2; 38-7 at 1 to 9].

         Also on November 16, 2009, Defendant Company executed Note 2, in the face amount of $958, 806.20 [Doc. 1-8], the proceeds of which were disbursed to pay off the 6706 and 5782 Loans. [Doc. 31-35]. Anthony Carland, Ellen Carland, and Max Carland each signed personal, unlimited continuing debt guarantees regarding Note 2. [Doc. 1-9]. Ellen Carland and Max Carland also executed a deed of trust to secure Note 2, providing as collateral the 21 Acre Tract that had previously secured the 6706 loan. [Doc. 38-7 at 36 to 44]. Anthony Carland executed a deed of trust in favor of Plaintiff providing as collateral the 2.66 acre Company Property that had previously secured the 3163 loan and had also been pledged to secure Note 1. [Doc. 38-7 at 10 to 19].

         Ultimately, due to nonpayment, both Note 1 and Note 2 went into default.

         The Plaintiff accelerated Note 1 following default and demanded payment from Anthony Carland, Ellen Carland, and Max Carland by letters dated February 5, 2013. [Doc. 1-5]. Without waiving any of its rights to pursue a possible deficiency [Doc. 1-6 at 3], Plaintiff agreed with Anthony Carland to a “short sale” of the 2.66 acre Company Property. [Doc. 38-7 at 1 to 9]. From the short sale, the Plaintiff received $719, 227.13 as net proceeds. [Doc. 1 at 4]. Plaintiff applied these proceeds to various debts Anthony Carland and Defendant Company owed to the bank, including applying $297, 374.25 to the balance of Note 1, leaving a deficiency balance on Note 1 in the amount of $33, 650.77, consisting of accrued but unpaid interest, late charges, appraisal fees, environmental inspection fees, and legal expenses. [Docs. 1 at 4; 1-7].

         The Plaintiff accelerated Note 2 following default and demanded payment from Anthony Carland, Ellen Carland, and Max Carland by letters dated February 5, 2013. [Doc. 1-5]. On May 11, 2015, the 21 Acre Tract was foreclosed upon and sold at public auction for $371, 000. [Doc. 1-10]. Plaintiff was the purchaser of the collateral at foreclosure. [Doc. 44 at 2]. On March 1, 2016, Plaintiff resold this same vacant land for a gross sales price of $375, 000. [Id. at 3]. Notwithstanding the public auction sales price of $371, 000, the Plaintiff has credited the Defendants with the $375, 000 resale price, rather than limiting the credit to the $371, 000 foreclosure price.[5] [Id.]. After applying the revised credit of $375, 000 to Note 2, the balance of Note 2 as of November 9, 2015, (the date this action was instituted) was $212, 295.32, plus interest at the rate of $32.39 per day thereafter. [Doc. 44-3]. Plaintiff seeks judgment against Ellen Carland and Max Carland for this deficiency amount from Note 2 and the $33, 650.77 deficiency amount from Note 1.

         STANDARD OF REVIEW

         Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it “might affect the outcome of the case.” N&O Pub. Co. v. RDU Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). A “genuine dispute” exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         A party asserting that a fact cannot be genuinely disputed must support its assertion with citations to the record. Fed.R.Civ.P. 56(c)(1). “Regardless of whether he may ultimately be responsible for proof and persuasion, the party seeking summary judgment bears an initial burden of demonstrating the absence of a genuine issue of material fact.” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003). If this showing is made, the burden then shifts to the non-moving party who must convince the court that a triable issue exists. Id. Finally, in considering a party's summary judgment motion, the Court must view the pleadings and materials presented in the light most favorable to the non-moving party, and must draw all reasonable inferences in favor of the non-movant as well. Adams. v. UNC Wilmington, 640 F.3d 550, 556 (4th Cir. 2011).

         DISCUSSION

         I. The Defendants' Counterclaims.

         The Court begins by addressing Plaintiff's first motion, which seeks summary judgment as to the counterclaims asserted by Max and Ellen Carland. [Doc. 29]. In their joint Answer, the Carlands allege four counterclaims against the Plaintiff: (1) Fraud/ Misrepresentation; (2) Fraud in the Inducement; (3) Negligence/Negligent Misrepresentation/Non-Disclosure; and (4) Unfair and Deceptive Trade Practices. [Doc. 13 at 18 to 21]. In support of their counterclaims, the Carlands provide the following forecast of facts.

         Max and Ellen Carland participated in the incorporation of Defendant Company. Max Carland was listed on the books as an “owner.” [Docs. 38-1 at 2; 38-3 at 2]. Despite this, Max and Ellen testified that they had nothing to do with operating Defendant Company. [Id.]. Instead, they aver that they ran a family farm as their main source of income and their son, Anthony Carland, handled all of the day-to-day activities of Defendant Company. [Id.]. Further, Anthony Carland was in charge of all of Defendant Company's finances and records, and according to Max and Ellen, Anthony never shared with them any information related to the financial condition of Defendant Company. [Id.]. Max and Ellen testified that in 2009, Anthony approached them and asked whether they would be willing to execute a deed of trust on the 21 Acre Tract in favor of Plaintiff as collateral for a loan to be given to Defendant Company. [Docs. 38-1 at 3; 38-3 at 3]. Max and Ellen Carland agreed to do so. [Id.].

         Anthony Carland testified consistently with the background that Max and Ellen Carland described, and further explained the discussion he had with his parents ...


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