Opinion
Civil Action No. CV 104-048.
September 26, 2005
ORDER
In the captioned matter, the parties have filed cross-motions for summary judgment seeking a declaration as to whether Plaintiff is entitled to collect on a bond issued by Defendant Hartford Fire Ins. Co. ("Hartford"). Upon consideration of the parties' briefs, oral argument heard on August 23, 2005, and the relevant law, Plaintiff's motion for summary judgment is DENIED and Defendant's motion for summary judgment is GRANTED.
I. FACTUAL BACKGROUND
The facts relevant to the issue before the Court are undisputed. In 1998 Plaintiff Helen W. Accerbi purchased and began operating a floral business in Washington, Georgia. (Pl.'s St. of Mat. Facts, ¶ 1.) The property is zoned residential but has been operated as a floral shop for approximately forty years in a non-conforming commercial manner. (Def.'s St. of Mat. Facts, ¶¶ 2 6.) No one has ever used this property as a residence. Plaintiff financed her purchase with a short-term loan provided by an investor. (Pl.'s St. of Mat. Facts, § 1.) Plaintiff then sought to obtain permanent financing to repay her short-term loan and to provide operating capital for the floral business. (Id. ¶ 4.)Plaintiff met with Sandy Broxton, a representative of Goshen Lending, Inc., to obtain the permanent financing. Goshen Lending does not lend its own funds but rather serves as a broker between mortgage lenders and borrowers such as Plaintiff. Broxton repeatedly assured Plaintiff that she was seeking financing from several lenders on Plaintiff's behalf. (Id. ¶¶ 2-3.) It is undisputed that Broxton often "shopped" Plaintiff's loan to these lenders representing that the property was a single-family residence to be owner-occupied as Plaintiff's principal residence. (Id. ¶ 16.) There is no evidence that Plaintiff prompted or knew about Broxton's misrepresentations to these lenders.
In October of 1999, Broxton advised Plaintiff that she had found a lender and that a loan was ready to be closed. (Id. ¶ 4.) On October 26, 1999, Plaintiff arrived at the loan closing and learned that the loan amount was significantly less than the amount Broxton had told her had been approved by the lender. Plaintiff nevertheless proceeded with the closing. (Id. ¶ 5.) While the closing instructions for the loan describe the property as commercial (Def.'s St. of Mat. Facts, ¶ 10), several closing documents referred to the property as "single-family" or "residential," including the Note and Security Deed, the Loan Disposition Sheet, the Uniform Underwriting and Transmittal Summary, and the Uniform Residential Loan Application (Pl.'s St. of Mat. Facts, ¶ 17). Also, the Foreclosure Disclosure made by Goshen Lending, which warned Plaintiff of the consequences of default on the loan, cites directly to the Georgia Residential Mortgage Act. (Id. ¶ 17.) Plaintiff was told the funds would be disbursed on November 1, 1999. (Id. ¶ 6.)
Thereafter, Broxton told Plaintiff that she could obtain a larger loan from a different lender and convinced her to sign a notice of rescission of the October loan. (Id. ¶ 7.) Plaintiff was informed that the funds would be disbursed on November 17, 1999, but they were not. (Id.) Instead, on November 22, 1999, Goshen Lending delivered a $3,000 check to Plaintiff as an "advance on the loan." (Id. ¶ 9.) The check, however, was returned for insufficient funds. (Id.)
As it turns out, the closing of October 26, 1999 and the loan of November 17, 1999 were shams. Goshen Lending had never obtained a commitment from any lender to approve or fund a loan. (Id. ¶ 6 7.) Plaintiff had to sell her home and move into a rental property to finance her business. (Id. ¶ 8.) Eventually, Plaintiff was forced to forfeit her interest in the floral shop under threat of foreclosure from the holder of the short-term financing on the property. Plaintiff subsequently filed for personal bankruptcy. (Id. ¶ 10.)
Plaintiff filed suit against Goshen Lending in Superior Court of Richmond County in Helen Accerbi v. Sandy Broxton Goshen Lending, Inc. (Case No. 1999-RCCV-90). Following a jury trial in the state case, Plaintiff obtained a $90,000 judgment based upon Defendants' fraud, including an award of $10,000 in punitive damages. (Id. ¶ 11.)
Following entry of judgment in the state case, Broxton filed personal bankruptcy and Goshen Lending surrendered its broker license to the Georgia Department of Banking and Finance, claiming to have no assets to satisfy the judgment. (Id. ¶ 12.) On February 19, 2004, Plaintiff filed the instant law suit in Superior Court of Richmond County to recover on a bond issued to Goshen Lending by Defendant Hartford in partial satisfaction of the state court judgment. Hartford had provided the bond to Goshen Lending in the amount of $50,000 pursuant to state law in order for Goshen Lending to become licensed to act as a mortgage broker. (Def.'s St. of Mat. Facts, ¶ 17.) Defendant removed the case to this Court on March 19, 2004.
On June 29, 2005, Broxton pled guilty to one count of wire fraud, a violation of 18 U.S.C. § 1343, arising out of an unrelated scheme to defraud a mortgage lender. Broxton has been sentenced by this Court to 14 months imprisonment and ordered to pay $117,454.51 to the mortgage lender in restitution.
Defendant filed a motion for summary judgment, seeking a declaration that the surety bond is not applicable to the underlying transaction between Goshen Lending and Plaintiff. Plaintiff filed a cross-motion for summary judgment, seeking a declaration that the bond is due to be paid to her.
II. SUMMARY JUDGMENT STANDARD
The Court should grant summary judgment only if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Facts are "material" if they could affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court must view the facts in the light most favorable to the non-moving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986), and must draw "all justifiable inferences in [its] favor," United States v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991) (en banc) (internal punctuation and citations omitted).
The moving party has the initial burden of showing the Court, by reference to materials on file, the basis for the motion.Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). How to carry this burden depends on who bears the burden of proof at trial. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). If the movant bears the burden of proof at trial, that party "must show that, on all the essential elements of its case, . . . no reasonable jury could find for the non-moving party." Four Parcels, 941 F.2d at 1438. On the other hand, if the non-movant has the burden of proof at trial, the movant may carry the initial burden in one of two ways — by negating an essential element of the non-movant's case or by showing that there is no evidence to prove a fact necessary to the non-movant's case. See Clark v. Coats Clark, Inc., 929 F.2d 604, 606-08 (11th Cir. 1991) (explaining Adickes v. S.H. Kress Co., 398 U.S. 144 (1970) and Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). Before the Court can evaluate the non-movant's response in opposition, it must first consider whether the movant has met its initial burden of showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. Jones v. City of Columbus, 120 F.3d 248, 254 (11th Cir. 1997) (per curiam). A mere conclusory statement that the non-movant cannot meet the burden at trial is insufficient. Clark, 929 F.2d at 608.
If — and only if — the movant carries its initial burden, the non-movant may avoid summary judgment only by "demonstrat[ing] that there is indeed a material issue of fact that precludes summary judgment." Id. Again, how to carry this burden depends on who bears the burden of proof at trial. If the movant has the burden of proof at trial, the non-movant may avoid summary judgment only by coming forward with evidence from which a reasonable jury could find in its favor. Anderson, 477 U.S. at 249. If the non-movant bears the burden of proof at trial, the non-movant must tailor its response to the method by which the movant carries its initial burden. If the movant presents evidence affirmatively negating a material fact, the non-movant "must respond with evidence sufficient to withstand a directed verdict motion at trial on the material fact sought to be negated." Fitzpatrick, 2 F.3d at 1116. If the movant shows an absence of evidence on a material fact, the non-movant must either show that the record contains evidence that was "overlooked or ignored" by the movant or "come forward with additional evidence sufficient to withstand a directed verdict motion at trial based on the alleged evidentiary deficiency."Id. at 1116-17. The non-movant cannot carry its burden by relying on the pleadings or by repeating conclusory allegations contained in the complaint.See Morris v. Ross, 663 F.2d 1032, 1033-34 (11th Cir. 1981). Rather, the non-movant must respond by affidavits or as otherwise provided by Fed.R.Civ.P. 56.
The Clerk has given the non-moving parties notice of the summary judgment motions and the summary judgment rules, of the right to file affidavits or other materials in opposition, and of the consequences of default. [Doc. Nos. 21 26.] Therefore, the notice requirements of Griffith v. Wainwright, 772 F.2d 822, 825 (11th Cir. 1985) (per curiam), are satisfied. The time for filing materials in opposition has expired, and the motions are ripe for consideration.
III. LEGAL ANALYSIS
The Georgia Residential Mortgage Act requires any applicant for a license to conduct business as a mortgage broker to provide a $50,000 surety bond. O.C.G.A. § 7-1-1003(c)(2)(1999). Specifically, the statute provides:
The bond shall be in a form satisfactory to the department and shall run to the State of Georgia for the benefit of any persons damaged by noncompliance of a licensee with any condition of such bond. Such bond shall be continuously maintained thereafter in full force. Such bond shall be conditioned upon the applicant or the licensee conducting his or her licensed business in conformity with this article and all applicable laws. Any person who may be damaged by noncompliance of a licensee with any condition of such may proceed on such bond against the principal or surety thereon, or both, to recover damages.Id. (emphasis added). To obtain its license as a mortgage broker, Goshen Lending obtained this required bond from Defendant Hartford. The bond that was issued provides as follows:
Because the bond was issued in 1999, that year's version of the law is cited.
NOW, THEREFORE, the condition of the foregoing obligation is such that if the principal obligor shall comply with the provisions of said Georgia Residential Mortgage Act, all regulations duly promulgated thereunder, and all other laws applicable to the conduct of its business, and shall pay any and all monies that may become due and owing any person due to the violation of any such laws and regulations by the principal through its own acts or the acts of any agent of the principal, then this obligation will be void: otherwise the same will remain in full force and effect.
This obligation is issued under and is governed by Section 7-1-1003(c) (2) of "the Code" and the obligations of the surety shall be those therein set forth.
(Aff. of Francis Bogdan, Ex. A (emphasis added).)
Because the bond was issued in accordance with the Georgia Code, it is a statutory bond. Under Georgia law, the interpretation and application of the bond is governed by the provisions of the statute itself. This rule of construction has been called a "read in — read out rule" and has been stated by the Georgia Supreme Court as follows: "Whatever is included in the bond, and is not required by law, must be read out of [the bond], and whatever is not expressed, and ought to have been incorporated, must be read as if inserted into [the bond]." Campbell v. Benton, 122 S.E.2d 223, 226 (Ga. 1961). Thus, the bond can provide no more protection than that which is required by statute, in particular, the Georgia Residential Mortgage Act.
To restate the statutory protection offered, the licensee must conduct its "licensed business" in conformity with the Georgia Residential Mortgage Act "and all applicable laws." See O.C.G.A. § 7-1-1003(c) (2). The "licensed business" of Goshen Lending is that of "mortgage Act, meaning "any person who the Georgia Residential Mortgage Act, meaning "any person who directly or indirectly solicits, processes, places, or negotiates mortgage loans for others. . . ." O.C.G.A. § 7-1-1001(11). A "mortgage loan" is specifically defined as a loan secured by a security interest or lien upon an interest in "residential property." Id. § 1001(13). "Residential property" is further defined as "real property used or occupied, or intended to be used or occupied, as the principal residence of a natural person." Id. § 1001(16).
Based upon these definitions, Defendant Hartford points out that the scope of the protection offered by its bond, issued under the Georgia Residential Mortgage Act, is limited to only those transactions involving residential property. Because the subject property in the instant case is indisputably not residential, Defendant Hartford contends that its bond does not provide protection to Plaintiff for Goshen Lending's fraudulent conduct.
In response, Plaintiff first claims that the protection of the bond was invoked because Goshen Lending treated the loan as a residential transaction by representing to lenders that the property was residential and using residential mortgage documents in the sham closing. Thus, Plaintiff contends that Goshen Lending's conduct precludes Hartford from disavowing the applicability of the Georgia Residential Mortgage Act. To adopt Plaintiff's reasoning, however, this Court would have to admit coverage into the bond based upon Goshen Lending's misrepresentations that is not there. Under the read in — read out rule, the Court cannot extend the coverage of the bond based upon extrinsic conduct, as suggested by Plaintiff.
Faced with the applicability of the read in — read out rule, Plaintiff next argues that this Court does not have to read anything into the bond that is not already there to provide the requested coverage. Plaintiff explains that the statute provides that the licensee must conduct its business not only in compliance with the Georgia Residential Mortgage Act but in conformity with "all applicable laws." The statute provides for protection from non-compliance to "any person" damaged and is not limited to only those persons involved with residential transactions. Plaintiff explains further that the Hartford bond's protection is in accordance with the statute because it too provides that the obligor must comply not only with the Georgia Residential Mortgage Act but with "all other laws applicable to the conduct of its business." The bond also provides protection to "any person" harmed by the obligor's violation of those laws. Plaintiff concludes that both the statute, O.C.G.A. § 7-1-1003(c)(2), and the bond require the licensee's compliance with laws outside of the Georgia Residential Mortgage Act and its protection runs to all persons harmed by any non-compliance of the licensee. Plaintiff further points out that Goshen Lending used its mortgage broker license to perpetuate the fraud upon Plaintiff, and by doing so, invoked the protection of the Georgia Residential Mortgage Act.
Plaintiff's argument is appealing, particularly in a case in which Plaintiff was duped by intentional fraudulent conduct of the obligor on the bond and has suffered unrecoverable financial loss and certain emotional distress attendant to that loss as a result. Plaintiff reads the statute to broadly, however. The statute provides protection against mortgage brokers who violate the law while conducting their "licensed business." The "licensed business" to which the statute applies is that of mortgage broker. As stated previously, a mortgage broker is a defined term, meaning a person who deals with mortgage loans secured by a security interest or lien in "residential" property. In other words, the statute applies only to regulate the business of mortgage brokers of loans secured by residential property. There is no room in the statutory definition of mortgage loan within which to fit "loans secured by commercial property represented to be residential." To extend the definition in this way would provide coverage for activity not addressed by the statute. Also, if Plaintiff's definition is accepted under the facts of this case, it would create precedent for the scrupulous to label residential property as commercial property in closing documents simply to escape the applicability of the Georgia Residential Mortgage Act and the coverage of a bond.
Accord Wooten v. G.M.H. Auto Sales, Inc., 370 S.E.2d 165 (Ga.App. 1988) (refusing to read appellant into a statutory definition of a class protected by a statutory bond).
In short, Plaintiff cannot escape the fact that the mortgage loan was for commercial property which is not a business transaction of the "licensed business" covered by the Georgia Residential Mortgage Act or the Hartford bond.
For these reasons, Plaintiff is not entitled to collect on the Hartford bond. Consequently, Plaintiff is also not entitled to any bad faith refusal to pay penalty or attorney's fees.
IV. CONCLUSION
Upon the foregoing, Defendant's motion for summary judgment (doc. no. 17) is GRANTED. Plaintiff's motion for summary judgment (doc. no. 22) is therefore DENIED. The Clerk is directed to ENTER JUDGMENT in favor of Defendant, CLOSE this case, and assess costs against Plaintiff.
ORDER ENTERED at Augusta, Georgia, this 26th day of September, 2005.