Opinion
Civil Action No. 2:17-CV-275-RWS
2020-06-08
LANDCASTLE ACQUISITION CORP., Plaintiff, v. RENASANT BANK, Defendant.
Benjamin Edwards Reed, David C. Newman, Edward D. Burch, Jr., Smith Gambrell & Russell, LLP, Atlanta, GA, for Plaintiff. Michael Paul Kohler, Miller & Martin, PLLC, Atlanta, GA, Robert Foust Parsley, Miller & Martin, PLLC, Chattanooga, TN, for Defendant.
Benjamin Edwards Reed, David C. Newman, Edward D. Burch, Jr., Smith Gambrell & Russell, LLP, Atlanta, GA, for Plaintiff.
Michael Paul Kohler, Miller & Martin, PLLC, Atlanta, GA, Robert Foust Parsley, Miller & Martin, PLLC, Chattanooga, TN, for Defendant.
ORDER
RICHARD W. STORY, United States District Judge
This case comes before the Court on both parties' Motions for Summary Judgment [Dkts. 76, 77] as well as Defendant Renasant Bank's Motion for Appeal under Section 1292(b) [Dkt. 59]. After carefully reviewing the record, the Court enters the following Order.
TABLE OF CONTENTS
BACKGROUND...1336
Factual Background...1336
1. MHS's Corporate Structure...1336
2. Hardwick's Transactions with Crescent Bank...1337
3. Crescent's Takeover by the FDIC...1338
4. Default, Liquidation, and Dispute...1338
Procedural History...1338
DISCUSSION...1339 I. Legal Framework: Summary Judgment...1339
A. Legal Standard...1339
B. Governing Law...1339
C. Conversion...1340
D. Breach of Contract...1340
II. Threshold Arguments Concerning Successors in Interest...1341
A. D'Oench Doctrine...1341
1. D'Oench and § 1823(e)...1341
2. Application when Agent Lacked Authority...1342
B. Anti-Assignment Provision...1344
III. Whether Hardwick Had Authority to Pledge the CD...1345
A. Hardwick's Authority under O.C.G.A. § 14-11-301(b)...1346
1. Whether Hardwick's Pledge was "Apparently Carrying on in the Usual Way the Business and Affairs" of MHS...1347
2. Whether Crescent Knew Hardwick Lacked Authority...1349
B. Whether the CD Belonged to the Firm...1350
IV. Additional Arguments Concerning Conversion...1350
A. Conversion of a CD...1350
B. Statute of Limitations...1352
V. Attorney's Fees...1352
VI. Interlocutory Appeal...1353
A. Legal Standard...1353
B. Applicability to Order Striking Apportionment Defense...1353
C. Applicability to Current Order...1354
CONCLUSION...1355
BACKGROUND
In this case, two financial institutions—both successors in interest to the original parties—lay claim to money that Nathan Hardwick entrusted to the bank as collateral for a personal loan it extended him. According to Plaintiff Landcastle, the money did not belong to Hardwick; it belonged to his old law firm, Morris Hardwick Schneider. After Hardwick defaulted on his loan, Defendant Renasant Bank liquidated the account and claimed the money for itself. The case here concerns whether it was entitled to do so.
Factual Background
Below are the relevant facts. Because this case concerns Hardwick's authority to act as an agent, the Court begins with the firm's corporate structure.
1. MHS's Corporate Structure
In 2009, Nathan Hardwick was a named partner at Morris Hardwick Schneider, LLC ("MHS"), a law firm established in 2005 through the merger of two predecessor law firms: Hardwick and Jackson, LLC, and Morris & Schneider, P.C. The firm was incorporated in Georgia as an LLC; Hardwick was a manager—one of three (along with Morris and Schneider) who were vested with authority to manage the firm's business. But the three partners did not own the firm, at least not directly. Instead, MHS's sole member (i.e., owner) was another entity, a corporation called MHSLAW, P.C., which in turn was owned by the three partners as shareholders. Hardwick owned 50% of the corporation, and Schneider and Morris owned 25% each. The shareholders also acted as directors, with Hardwick serving as president.
Various agreements governed the process by which a firm asset could be pledged. MHS's operating agreement explained that "no Manager shall cause or commit the Company" to guarantee the obligation of a person "without the affirmative vote of the Members holding a Majority Interest." [Dkt. 77-10, Exhibit 1, at Section 5.5 (emphasis added) ]. Because MHSLAW, P.C. was the sole member, that meant MHSLAW, P.C. would need to act to pledge an asset. MHSLAW, P.C.'s by-laws contained a nearly identical limitation: "No director shall cause or commit the Company" to guarantee the obligation of a person "without the affirmative vote of the majority of the votes entitled to be cast by the shareholders. " [Id., Exhibit 2, at Section 3.7 (emphasis added) ].
Thus, consistent with the governing agreements, Hardwick could not unilaterally pledge MHS's assets to guarantee his own personal obligation; the company would need to vote, and at least one other partner would need to vote along with him in support. It is undisputed that no such vote took place for the transactions at issue here.
2. Hardwick's Transactions with Crescent Bank
In late 2009, Hardwick entered a pair of simultaneous transactions with Crescent Bank. First, he took out a personal loan, giving Crescent a promissory note in which he agreed to pay back the loan amount—just over $630,000 —along with interest. [Dkt. 77-6].
The precise amount, throughout, is $631,276.71.
But the bank required Hardwick to secure the loan with some collateral. Thus, the second transaction: the bank established a time deposit account, into which was deposited the same amount as the loan: $630,000. In exchange, the bank issued a certificate of deposit, guaranteeing it would hold the money for a definite period of time and pay it back, along with interest. Though some CDs can be negotiable instruments, this one was expressly "Non-negotiable and Non-Transferable." [Dkt. 77-5]. Hardwick also executed a Collateral Security Agreement to confirm that the Deposit Account was intended to secure the loan.
While it is unusual to take out a loan for the same amount as a deposit made at the same time, with the same bank, the key is this: unlike the personal loan, Hardwick was not the official depositor for the CD. Instead, it was issued to:
MORRIS HARDWICK SCHNEIDER LLC
AKA JACKSON AND HARDWICK LLC LEGACY ACCT
[Dkt. 77-5]. In other words, Hardwick deposited money belonging (apparently) to MHS and then obtained a loan for himself.
Because the CD was owned by MHS, rather than Hardwick, Crescent required MHS to execute three documents (in addition to those executed by Hardwick) ensuring the pledge would be upheld. There was a Hypothecation Agreement [Dkt. 77-7] and an Assignment [Dkt. 77-9], both of which purported to grant the bank a security interest in the deposit account. In addition, there was a Resolution [Dkt 77-10], which purported to show that Hardwick, along with MHS's CFO Robert Driskell, was authorized by MHS to open deposit accounts. All three agreements were executed in the name of "Morris Hardwick Schneider LLC AKA Jackson and Hardwick LLC."
Notably, the check box for "Depository Account" is not actually checked in the agreement.
The Hypothecation Agreement and Assignment do not include "Legacy Acct." The Resolution does.
All three documents were signed by Hardwick as "Managing Member."
3. Crescent's Takeover by the FDIC
A few months after the transactions, in 2010, the Georgia Department of Banking and Finance closed Crescent Bank and appointed the FDIC as Receiver. At the same time, Defendant Renasant entered into an agreement with the FDIC in which it assumed certain of Crescent's assets and liabilities, including those related to Hardwick's transactions. At the time of the takeover, all the agreements concerning the transaction were included among the bank's records. However, none of MHS's or MHSLAW, P.C.'s governance documents were included, nor was there any record of any vote by the shareholders regarding the transactions.
4. Default, Liquidation, and Dispute
Hardwick subsequently defaulted on the loan when he failed to make the required payments. Then, in late 2014, when news of Hardwick's resignation and misdeeds began to emerge, Renasant liquidated the CD and applied the proceeds to offset the amount that Hardwick owed on the loan. At the time of liquidation, the CD had through interest grown to just over $640,000. Renasant did not contact MHS beforehand, but it did notify the firm afterwards by mail.
The precise amount claimed by Landcastle as damages is $641,867.55.
MHS did not immediately respond to Renasant's letter. Instead, it assigned its claim to Landcastle Acquisition Corporation, the Plaintiff here. Landcastle then began the process of recovering the CD. It sought administrative remedies from the FDIC, which were denied. And then, in late 2017, it demanded the return of the CD. When Renasant refused to return it, Landcastle sued.
Procedural History
In its complaint, Landcastle sought to recover the CD under three alternative theories: conversion, breach of contract, and money had and received. Landcastle also brought a claim for expenses of litigation under O.C.G.A. § 13-6-11.
Renasant moved to dismiss the Complaint, and the Court dismissed the claim for money had and received, but denied the motion as to the remaining claims, noting specifically that some of Renasant's arguments were better suited for summary judgment. [Dkt. 25]. Renasant then answered the complaint, asserting its various defenses.
Among those defenses was one for apportionment under O.C.G.A. § 51-12-33. Renasant argued that, if the case went to trial, the jury ought to be able to apportion some of the liability to Hardwick, the alleged bad actor. Landcastle moved to strike that defense, arguing that it was incompatible with the statute. The Court agreed and struck the defense. [Dkt. 53]. Renasant has now asked the Court to certify its order striking the defense for interlocutory appeal. [Dkt. 59].
While that motion was pending, discovery concluded, and both parties have now brought Motions for Summary Judgment [Dkts. 76, 77]. DISCUSSION
The Court begins with the Motions for Summary Judgment. Landcastle believes that it has proven its claims as a matter of law because it is undisputed that, per the agreements, Hardwick lacked authority to pledge the assets as collateral. Renasant disagrees that Hardwick lacked authority. And, in addition, it raises certain affirmative defenses that it believes preclude any recovery.
Accordingly, the Court proceeds as follows: Part I presents the legal framework for summary judgment and the claims alleged; Part II addresses two of Renasant's affirmative defenses which raise threshold issues; Part III addresses the substantive question of Hardwick's authority as an agent of MHS; Part IV addresses other arguments specific to the conversion claim; and Part V addresses the claim for expenses of litigation.
Finally, after deciding the Motions for Summary Judgment, in Part VI, the Court considers Renasant's request for an interlocutory appeal.
I. Legal Framework: Summary Judgment
A. Legal Standard
The standard for summary judgment is well-established. Summary judgment must be granted "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 suit under the governing law." BBX Capital v. Fed. Deposit Ins. Corp, 956 F.3d 1304, 1314 (11th Cir. 2020) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A dispute over such a fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
At summary judgment, the court's function is not "to weigh the evidence and determine the truth of the matter," but rather "to determine whether there is a genuine issue for trial." Sears v. Roberts, 922 F.3d 1199, 1205 (11th Cir. 2019) (citing Anderson, 477 U.S. at 249, 106 S.Ct. 2505 ). Accordingly, the Court must "consider the record and draw all reasonable inferences in the light most favorable to the non-moving party." Blue v. Lopez, 901 F.3d 1352, 1357 (11th Cir. 2018).
The standard for cross-motions for summary judgment does not differ from the standard applied when only one party files a motion. "In practice, cross motions for summary judgment may be probative of the nonexistence of a factual dispute, but this procedural posture does not automatically empower the court to dispense with the determination whether questions of material fact exist." Georgia State Conference of NAACP v. Fayette Cty. Bd. of Comm'rs, 775 F.3d 1336, 1345 (11th Cir. 2015) (internal quotations omitted). Rather, the Court applies the standard outlined above to each party's Motion.
B. Governing Law
"A federal court sitting in a diversity action applies state law using the choice of law rules of the forum state, in this case Georgia." Travelers Prop. Cas. Co. of Am. v. Moore, 763 F.3d 1265, 1270 (11th Cir. 2014). The parties do not dispute that, as a general matter, under Georgia choice of law rules, Georgia substantive law governs all the claims in this case: conversion, breach of contract, and a claim for litigation expenses, including attorney fees.
Notably, however, one of the defenses asserted by Renasant—the D'Oench doctrine—is derived from federal law. Thus, the Court applies federal law when analyzing that defense; everywhere else, Georgia law governs.
C. Conversion
In Georgia, "conversion consists of an unauthorized assumption and exercise of the right of ownership over personal property belonging to another, in hostility to his rights; an act of dominion over the personal property of another inconsistent with his rights; or an unauthorized appropriation." Gryder v. Conley, 352 Ga.App. 891, 836 S.E.2d 120, 124–25 (2019) ; see also O.C.G.A § 51-10-1 ("The owner of personalty is entitled to its possession. Any deprivation of such possession is a tort for which an action lies."). Georgia courts have recognized the legitimacy of conversion claims when funds from certificates of deposit are at issue. See, e.g., Parker v. Kennon, 242 Ga.App. 627, 530 S.E.2d 527, 530 (2000).
Decisions of the state's intermediate appellate courts are considered binding "absent some persuasive indication" that the state supreme court would decide otherwise. Wellons, Inc. v. Lexington Ins. Co., 566 F. App'x 813, 822 (11th Cir. 2014) (citing Provau v. State Farm Mut. Auto. Ins. Co., 772 F.2d 817, 820 (11th Cir. 1985) ).
To state a claim for conversion, a plaintiff must normally allege four elements: "(1) title to the property or the right of possession, (2) actual possession in the other party, (3) demand for return of the property, and (4) refusal by the other party to return the property." Pierce v. Clayton Cty., Georgia, 717 F. App'x 866, 872 (11th Cir. 2017) (citing City of Atlanta v. Hotels.com, L.P., 332 Ga.App. 888, 775 S.E.2d 276, 279 (2015) ). Georgia courts have recognized, however, that "demand and refusal are not required where a person comes into possession of the property unlawfully." Carter v. Butts Cty., Ga., 821 F.3d 1310, 1324 (11th Cir. 2016) (citing Williams v. Nat'l Auto Sales, Inc., 287 Ga.App. 283, 651 S.E.2d 194, 197 (2007) ). Instead, "[w]here a defendant comes into the possession of the property unlawfully, the plaintiff can establish conversion by showing that the defendant disposed of the property without authority and retained the proceeds." Kahn v. Britt, 330 Ga.App. 377, 765 S.E.2d 446, 459 (2014).
Here, there is no dispute that Renasant disposed of the CD by liquidating it. The only question is whether it was authorized to do so.
D. Breach of Contract
A similar dispute underlies the breach of contract claim. Under Georgia law, "[a] certificate of deposit," like the one at issue here, "creates a contractual relationship of debtor and creditor between a bank and its depositor." Spurlock v. Commercial Banking Co., 138 Ga.App. 892, 227 S.E.2d 790, 796 (1976), aff'd sub nom., 238 Ga. 123, 231 S.E.2d 748 (1977). The parties do not dispute whether such an agreement exists, or whether Renasant acted contrary to its terms by liquidating the CD. Instead, Renasant argues that it was entitled to liquidate the deposit to satisfy Hardwick's debt.
Thus, the contract claim largely depends on the same underlying issue as the conversion claim: whether Hardwick had authority to pledge the CD as collateral. See Nat'l City Bank of Rome v. Busbin, 175 Ga.App. 103, 332 S.E.2d 678, 681 (1985) (acknowledging that the same conduct that underlies a conversion claim may also give rise to a claim for breach of contract).
II. Threshold Arguments Concerning Successors in Interest
Before reviewing the merits of Landcastle's claims, the Court turns to two of Renasant's threshold defenses. Renasant argues that Landcastle's claims must fail due to the circumstances by which each of the parties in this case succeeded respectively to the interests of the parties to the CD (that is, Crescent and MHS). Though Renasant raises legitimate issues, ultimately, neither defense prevails.
A. D'Oench Doctrine
First, Renasant argues that Landcastle's claim is barred by the D'Oench doctrine because Renasant purchased the assets at issue—including the CD and related agreements—from the FDIC, which became receiver when Crescent Bank failed. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). For the reasons below, the Court disagrees.
1. D'Oench and § 1823(e)
The D'Oench doctrine provides that "[i]n 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." Lindley v. FDIC, 733 F.3d 1043, 1051 (11th Cir. 2013) (citing Baumann v. Savers Fed. Sav. & Loan Ass'n, 934 F.2d 1506, 1515 (11th Cir. 1991) ). The doctrine also protects entities to whom the FDIC, acting in its capacity as receiver, has transferred assets formerly belonging to a failed bank. First Union Nat. Bank of Fla. v. Hall, 123 F.3d 1374, 1379 n.8. (11th Cir. 1997).
Under D'Oench and its statutory counterpart, 12 U.S.C. § 1823(e), "courts have protected the FDIC [and its successors] from secret non-payment agreements, assertions of unwritten arrangements allegedly breached by the bank rendering the debt voidable, and—perhaps most significantly—claims that the creation of the debt was fraudulently induced by the bank." Vernon v. Resolution Trust Corp., 907 F.2d 1101, 1105 (11th Cir. 1990). The rationale for the fraud defense comes from the Supreme Court's decision in Langley v. FDIC, in which the Court concluded that a claim of fraud in the inducement—because it rests upon a warranty of truthfulness—depends on the sort of unwritten side "agreement" barred by the rule. 484 U.S. 86, 93, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987).
"Courts have found the aims of section 1823(e) and D'Oench identical and thus have construed defenses premised upon section 1823(e) and D'Oench in tandem." Lindley, 733 F.3d at 1051–52.
Not all fraud claims are prohibited, though: "fraud in the factum—that is, the sort of fraud that procures a party's signature to an instrument without knowledge of its true nature or contents ... would take the instrument out of § 1823(e), because it would render the instrument entirely void ... thus leaving no ‘right, title or interest’ that could be ‘diminish[ed] or defeat[ed].’ " Id. at 93–94, 108 S.Ct. 396 (citing § 1823(e) ); see also Vernon, 907 F.2d at 1106 n. 4 (noting that D'Oench does not bar defense "when the borrower is a nonnegligent victim of fraud in the factum."). Simply stated, fraud in factum avoids D'Oench, but fraud in the inducement does not. Bank of the Ozarks v. Khan, 903 F. Supp. 2d 1370, 1377 (N.D. Ga. 2012).
2. Application when Agent Lacked Authority
In this case, the bank records contain written, executed agreements that purport to give Renasant a security interest in the CD. If those agreements are enforceable, then Landcastle's claim fails.
At issue here is whether D'Oench bars Landcastle's defense that the agent who executed the written agreement which the FDIC (or its successor) seeks to enforce did so fraudulently because he lacked authority. No binding authority has answered the question. See FDIC for Gulfsouth Private Bank v. Amos, 704 F. App'x 791, 796 n. 4 (11th Cir. 2017) (assuming without deciding that "an instrument that is void for lack of actual authority is not subject to the § 1823(e) requirements"). So, the Court turns to the text of the rule, the Supreme Court's rationale for distinguishing between types of fraud in Langley, and the few other authorities that have applied the doctrine in this and analogous cases.
First, the text of § 1823(e) and the current formulation of the D'Oench doctrine make clear that only attempts to enforce an unwritten obligation against the FDIC are barred—it does not mean that the FDIC's attempt to enforce a written obligation in its favor takes free of all defenses. See Bufman Org. v. FDIC, 82 F.3d 1020, 1029 (11th Cir. 1996) ("That § 1823(e)(1) does not apply to every conceivable defense is evident from the terms of the statute, which applies only to claims or defenses that are based on an agreement that does not meet the requirements of that section."). The statute says that "[n]o agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it ... shall be valid" against it unless the secrecy requirements are met. 12 U.S.C. § 1823(e) (emphasis added). And under the federal common law formulation, "a private party may not enforce against a federal deposit insurer any obligation ..." that does not meet the secrecy requirements. Lindley, 733 F.3d at 1051 (emphasis added). It thus centers on preventing enforcement of unwritten agreements to the FDIC's detriment, rather than mandating enforcement of written ones to its benefit.
The Eleventh Circuit has identified a handful of other circumstances by which a claimant might avoid D'Oench: when the defense is apparent on the face of the obligation to be enforced, Vernon, 907 F.2d at 1106 n. 4 (11th Cir. 1990) ; or when the claimant asserts a tort claim unrelated to regular banking activities. Lindley, 733 F.3d at 1052.
Read against the text alone, it seems clear that a case involving an agent who purportedly lacked authority does not involve an unwritten obligation against the Corporation; it rather involves a direct challenge to an obligation the Corporation hopes to enforce. Indeed, the agreement at issue does not "ten[d] to diminish or defeat the interest of the Corporation"; it favors it.
For the same reason, this kind of case falls outside of the Supreme Court's extension of the doctrine to bar fraud defenses in Langley. In the case of fraud in the inducement, as noted above, the bar does not directly prohibit the Corporation's attempt to enforce the written agreement in its favor; rather, D'Oench is implicated because the fraud defense raises the possibility of a separate, unwritten agreement—a warranty of truthfulness—which the claimant seeks to enforce against the Corporation's interest, thus running afoul of the rule. See Langley, 484 U.S. at 93, 108 S.Ct. 396.
But in a case involving an agent's lack of authority, the nature of the defense is different because the claim is that the parties never actually agreed in the first place. It is axiomatic in contract law that "there must be parties able to contract." Cogas Consulting, LLC v. Aeterna Zentaris Inc., 2018 WL 7253597, at *6 (N.D. Ga. Aug. 27, 2018) (citing O.C.G.A. § 13-3-1 ). The aggrieved principal's claim is that, due to a lack of authority and the associated fraud, there were no such parties, and, as a result, no agreement.
Though not a perfect analogue, this kind of claim more closely resembles "fraud in the factum," which avoids the bar, than "fraud in the inducement," which does not, because it alleges "the sort of fraud that procures a party's signature to an instrument without [the party's] knowledge of its true nature or contents." Langley, 484 U.S. at 93, 108 S.Ct. 396. By comparison, the claim of an agent acting beyond his authority is not unlike a claim of outright forgery—different only in degree, rather than in kind—which a court in this circuit found fell under the ambit of fraud in the factum and so avoided the D'Oench bar. See FDIC ex rel. Rockbridge Commercial Bank v. CGS Partners, II, LLC, 2011 WL 1790800, at *2 (N.D. Ga. May 9, 2011). This Court finds that comparison persuasive here.
Misconduct by an agent acting outside the scope of his authority does not map precisely onto either category because "fraud"—in the usual meaning of the defense to an agreement—refers to acts by the opposing party, rather than a third party. See Solymar Invs., Ltd. v. Banco Santander S.A., 672 F.3d 981, 994 (11th Cir. 2012). For this reason, Renasant's contention that a failure of authority would render a contract voidable rather than void is unavailing, because Renasant relies on the Georgia statute for the fraud defense, O.C.G.A. § 13-5-5. Without opining on whether Georgia, rather than federal law ultimately governs, it suffices to note that "fraud" in this context does not encompass the acts of an agent, which is governed by a separate body of law. See O.C.G.A. § 14-11-301, discussed in Part III, Section A, below.
Both the text of the rule and the Langley decision point to the key inquiry: whether the challenge relies on an unwritten side agreement. In this case, they also point to the answer: a claim involving a challenge to the agent's authority does not involve a side agreement. Instead, it strikes at the heart of the purportedly executed written agreement itself.
Admittedly, this conclusion departs from that of the handful of other courts who have considered the question—the forgery analogue above notwithstanding. In both FDIC v. First One Grp., LLC, 2014 WL 12742162, at *5 (N.D. Ga. Apr. 25, 2014), and First City, Texas-Beaumont, N.A. v. Treece, 848 F. Supp. 727, 737 (E.D. Tex. 1994), the courts held that defense of an agent's lack of authority failed under D'Oench because it depended on an agreement not contained in the bank's records—namely, the corporate records of the challenger. Renasant likewise argues that the operating agreement here, which outlines the agent's authority for the LLC, constitutes a side "agreement." But this Court is not persuaded.
As the Supreme Court noted in Langley, "agreement" in § 1823 retains its usual meaning from contract law: it is defined as "the bargain of the parties in fact as found in their language or by implication from other circumstances." 484 U.S. at 91, 108 S.Ct. 396 (citing U.C.C. § 1-201(3) ). But the corporate governance documents of an LLC in no way constitute a "bargain of the parties"; they merely define the entity status of a party that seeks to bargain. Further, that such documents are beyond contemplation of the statute can be inferred from the statute's other requirements: for even if the corporate governance documents were included in the bank's records, as Renasant suggests, still they could not meet the statute's requirement that they be executed contemporaneously with the agreement. Those records do not constitute an "agreement" under D'Oench, so they do not invoke its bar.
For this reason, the Court need not consider Landcastle's argument about the statute of frauds and the equal dignity principles.
Of course, in this case, the stand-in document that might have served that purpose was the resolution. But to probe the validity of the resolution in this context is no different than to probe the agreement itself, because they both rely on Hardwick's underlying authority to bind the corporation, which in turn depends on the corporate governance documents. And in any event, even assuming it was valid and properly filled out, the resolution appears only to grant Hardwick authority to manage the deposit account, not to pledge it as collateral for a personal debt. [See Dkt. 77-10].
Accordingly, the Court holds that when an agent executes an agreement on behalf of a principal for which he purportedly lacks authority, the principal's challenge to the validity of that agreement is not barred by D'Oench. Cf. Amos, 704 F. App'x at 796 n. 4 (assuming without deciding that "an instrument that is void for lack of actual authority is not subject to the § 1823(e) requirements"); CGS Partners, II, LLC, 2011 WL 1790800, at *2 (N.D. Ga. May 9, 2011) (fraud in the factum defense was not barred by D'Oench when signature on guarantee was forged by third party). And so Landcastle's claims are not barred here.
B. Anti-Assignment Provision
Renasant next argues that the anti-assignment provisions of the Deposit Account terms sheet bar Landcastle's claims, because MHS, the entity that was party to the CD, could not assign it to anyone else. For its part, Landcastle disputes whether the terms sheet was incorporated in the CD in the first place but contends that, even if it were, and the provision were valid so as to prevent the assignment of the CD itself, it would not prevent the assignment of the claim, referred to as the "chose in action" under Georgia law. As it were, Landcastle need not have staked out so narrow a position, for the CD itself could be assigned, despite the provision.
In Georgia, a party who has performed its duties under a contract can typically assign its rights to it regardless of an anti-assignment provision:
[O]nce a party to the contract performs its obligations thereunder so that the contract is no longer executory, its right to enforce the other party's liability under the contract may be assigned without
the other party's consent even if the contract contains a non-assignment clause . This principle has been codified in OCGA §§ 44–12–22 and 44–12–24, which have been read to provide that "the assignment of a chose in action arising out of contract ... [is] within the public policy of Georgia, prohibiting only the assignment of a right of action for personal torts or for injuries arising from fraud.
Although § 44-12-22 contains an exception for negotiable instruments, the CD at issue here is non-negotiable.
McLarens Young Int'l, Inc. v. Am. Safety Cas. Ins. Co., 334 Ga.App. 819, 780 S.E.2d 464, 467 (2015) (emphasis added). Such an assignment might well give rise to a claim for breach by the assigning party, but it "does not render the assignment ineffective." Spears Mattress Co., Inc. v. Innovative Mattress Sols., LLC, 2016 WL 11544408, at *26 (N.D. Ga. Mar. 1, 2016).
The Court need not determine whether such a claim might arise here; nor must it resolve whether MHS's assignment to Landcastle involved merely the transfer of the chose in action instead of the CD itself.
In the case of a note for a deposit account, the depositing party fulfills its part of the agreement at the outset by depositing the money—the contract therefore is no longer merely executory. Thus, even assuming (without deciding) that the terms sheet was properly incorporated into the CD agreement, as Renasant suggests, it would not prevent the assignment as a matter of Georgia contract law.
Perhaps for this reason, Renasant attempts to shoehorn the issue into the D'Oench doctrine, equating the term sheet's notice and record preconditions with D'Oench's secrecy requirements. Renasant aims to cast the assignment from MHS to Landcastle as a sort of side agreement barred by D'Oench because it was not included in the bank's own records. But that argument is a non-starter.
As noted in the discussion above, D'Oench prohibits side agreements between the parties. It does not bear on the assignment of claims from one party to a third party. Thus, the assignment of the CD remains subject to state contract law; and here, Georgia allows the assignment.
Accordingly, because neither defense bars Landcastle's claims, summary judgment for Renasant is not warranted on this basis. With that decided, the Court now turns to the merits of the claims.
III. Whether Hardwick Had Authority to Pledge the CD
The core issue underlying both the conversion claim and the alternative contract claim is whether Nathan Hardwick had the authority to pledge the CD as collateral for his personal loan. If he did, Renasant's decision to liquidate the CD when Hardwick defaulted on the loan would be valid.
Initially, Landcastle correctly points to the governing documents of MHS, as well as those of its sole member, MHSLAW, P.C., to explain that Hardwick lacked actual authority to pledge the property of the LLC. See Guarantee Co. of N. Am. v. Gary's Grading & Pipeline Co., 746 F. App'x 831, 835 (11th Cir. 2018) (looking to the LLC's operating agreement to determine agent's authority to bind the LLC). Renasant does not dispute the content of those documents, and so the Court need not relate again how they preclude Hardwick's actual authority to pledge the LLC's property. [See the Background, Section 1, above; or Renasant's Response to Landcastle's Statement of Material Facts, Dkt. 82, at ¶¶ 16–20]. It suffices to say that they do, and that there is no genuine dispute of fact about that issue.
However, that does not end the inquiry, for two reasons. First, as a legal matter, the manager's act must still be measured against the Georgia statute governing a manager's authority. See O.C.G.A. § 14-11-301. And second, Renasant argues that the question of agency is beside the point because, as a factual matter, "[t]he money that funded the MHS CD belonged to Hardwick," not to the firm. [Dkt. 82 at ¶ 5.]. These are addressed in turn below.
A. Hardwick's Authority under O.C.G.A. § 14-11-301(b)
The authority of a manager to bind a manager-managed LLC is governed by O.C.G.A. § 14-11-301(b), (c), and (d). Thus, even when an operating agreement purports to restrict an agent's authority, the manager's act must still be measured against the statute itself. Ly v. Jimmy Carter Commons, LLC, 286 Ga. 831, 691 S.E.2d 852, 852–53 (2010).
The statute states in relevant part:
(b) If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
* * *
(2) Every manager is an agent of the limited liability company for the purpose of its business and affairs, and the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument for apparently carrying on in the usual way the business and affairs of the limited liability company of which he or she is a manager, binds the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom he or she is dealing has knowledge of the fact that the manager has no such authority.
(c) An act of a manager ... that is not apparently for the carrying on in the usual way the business or affairs of the limited liability company does not bind the limited liability company unless authorized in accordance with a written operating agreement at the time of the transaction or at any other time.
(d) No act of a manager ... in contravention of a restriction on authority shall bind the limited liability company to persons having knowledge of the restriction.
O.C.G.A. § 14-11-301.
The Eleventh Circuit appears not to have adopted this approach in Guarantee Co. of N. Am., 746 F. App'x at 835. While the court looked to O.C.G.A. § 14-11-301, it appears to have done so only because the operating agreement called for it. Even if that is the case, unpublished Eleventh Circuit opinions do not bind this Court; thus, the Court adopts the approach of the Supreme Court of Georgia in Ly, which addresses the statute regardless of the terms of the operating agreement.
The statute begins with the general rule for when a manager can bind the LLC: "the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument for apparently carrying on in the usual way the business and affairs of the limited liability company of which he or she is a manager, binds the limited liability company." O.C.G.A. § 14-11-301(b)(2) (emphasis added). That is because "every manager is an agent" of the LLC "for the purpose of its business and affairs." Id. This general rule describes what is commonly called the agent's apparent authority. Guarantee Co. of N. Am., 746 F. App'x at 836.
Next, the statute sets out an exception: the general rule of apparent authority does not apply if "the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom he or she is dealing has knowledge of the fact that the manager has no such authority. " O.C.G.A. § 14-11-301(b)(2) (emphasis added); see also O.C.G.A. § 14-11-301(d) ("No act of a manager ... in contravention of a restriction on authority shall bind the limited liability company to persons having knowledge of the restriction."); Ly, 691 S.E.2d at 852–53.
Accordingly, as Renasant correctly notes, to prove that Hardwick lacked authority under O.C.G.A § 14-11-301, Landcastle must demonstrate that either (1) Hardwick was not "apparently carrying on in the usual way the business and affairs" of MHS; or (2) Crescent had knowledge of the fact that Hardwick lacked authority under the operating agreement. These are addressed in turn below.
1. Whether Hardwick's Pledge was "Apparently Carrying on in the Usual Way the Business and Affairs" of MHS
Before turning to the particular facts, the Court must resolve a dispute between the parties about the application of the statutory provision in this context. According to Landcastle, this is a categorical issue: an agent who obtains a personal loan by pledging company collateral is not carrying on the business and affairs in the usual way as a matter of law. But according to Renasant, it is necessarily a fact-intensive, case-specific inquiry—moreover, because Landcastle has presented no specific facts to establish MHS's "usual way" of business, Renasant contends it has failed as a matter of law to create a genuine dispute of fact. (For purposes of defeating Landcastle's Motion, Renasant also points to several possible factual issues that would preclude summary judgment.) Both positions find support in Georgia case law.
Landcastle points to an older case, one which predates the statute, but which relates several principles relevant to this discussion, to explain its reading of what it means to be "apparently carrying on in the usual way the business and affairs" of the company. In D. A. D., Inc. v. Citizens & S. Bank of Tucker, 227 Ga. 111, 179 S.E.2d 71, 73 (1971), the Supreme Court of Georgia explained that "an officer of a corporation has no authority to use its funds or securities to pay his private obligations or as collateral for his personal loans." Thus, "one taking such a note is bound to take cognizance that the agent of the corporation in thus seeking to bind the corporation, might have been acting not in its interest and for its benefit, but for the benefit of himself." Id. at 74. Accordingly, the Court held that, in a legal challenge to the transaction, "[t]he burden is upon the holder of such a note to show that it is in fact the contract of the corporation." Id. In light of that burden, the court reversed the trial court's judgment in favor of the bank. Id. at 75. Landcastle argues that D. A. D. establishes conclusively that an officer taking out a personal loan is outside the "usual way" of business.
For its part, Renasant points only to the general principle that "[t]he existence of agency and the extent of the agent's authority are questions of fact." Brooks Peanut Co. v. Great S. Peanut, LLC, 322 Ga.App. 801, 746 S.E.2d 272, 279 (2013). But its position is bolstered by what appears to be the only case to have applied the specific language of the statute. In Fielbon Dev. Co., LLC v. Colony Bank of Houston Cty., 290 Ga.App. 847, 660 S.E.2d 801, 805 (2008), the court upheld a transaction that benefitted the agent personally because "nothing in [the agent's] actions in connection with the loan was so dissimilar from the acts the corporation had authorized him to perform as to make them ‘not apparently for the carrying on in the usual way the business or affairs’ of the corporation." Indeed, the agent was explicitly authorized by agreement to make that exact sort of loan and to draw down on it for personal expenses, and he had done so previously. Id.; see also Guarantee Co. of N. Am., 746 F. App'x at 836 (citing Fielbon ) (noting that bond company believed agent had made a similar transaction previously, which was evidence of "usual way"). Thus the court held that the company remained bound by the transaction. Fielbon, 660 S.E.2d at 806. And while the court in Fielbon did not explicitly set out its approach to the statute, its conclusion is instructive: the unique facts of the case precluded a categorical determination that such a transaction was inherently beyond the reach of the statute. Renasant would likewise have the Court inquire into the facts here.
Although the Eleventh Circuit briefly addressed of the statutory language, it really did not have the occasion to analyze it in earnest. The court noted at the outset that "there is no question" the agent acted with apparent authority under the statute. Guarantee Co. of N. Am., 746 F. App'x at 836. And the court below explained that the parties in fact agreed that he was acting in the "usual way." Guarantee Co. of N. Am. v. Gary's Grading & Pipeline Co., 2016 WL 4386082, at *4 (M.D. Ga. Aug. 16, 2016).
Finding each party's position has merit, the Court seeks to reconcile their positions. Reading D. A. D. and Fielbon in harmony, the Court finds that there is neither a conclusive presumption of irregularity nor an ordinary factual inquiry with the burden on the company raising the defense. Rather, in the case of a personal loan obtained by an agent's pledging collateral of the company, there is a rebuttable presumption that the agent was not "apparently carrying on in the usual way the business and affairs of the limited liability company of which he or she is a manager, binds the limited liability company." O.C.G.A. § 14-11-301(b)(2).
Renasant protests that the statute abrogated the common law principles under D. A. D. While that is true with respect to the discussion of the exception in Section 2, below, here, the principles still help explain what it means to be "apparently carrying on ...."
That means that, once the company establishes that the transaction was for the agent's personal purpose, it need not also establish what is the "usual way" of its business and how the agent's conduct departed from that; rather, the burden shifts to the bank to establish that, as a factual matter, the agent was "apparently carrying on in the usual way the business and affairs." There is no prescribed way to make this showing; though one relevant factor could be the bank knew that the agent had acted similarly in the past. See Fielbon, 660 S.E.2d at 805.
Here, there is no dispute that the loan was made to Hardwick personally; thus, assuming the pledged CD did in fact belong to the firm (as discussed in Section B, below), it is incumbent on Renasant to rebut the presumption of irregularity and show the transaction was done "apparently carrying on in the usual way the business and affairs."
When responding to Landcastle's Motion, Renasant need only raise a factual issue; but to warrant summary judgment in its favor, it must prove it as a matter of law.
Renasant points to three such facts. [Dkt. 83 at 20–24]. It contends that (1) all three managers of LLC (who were also shareholders and directors of the LLC's only member, MHSLAW, P.C.) failed to follow corporate formalities; (2) the managers also routinely commingled their personal finances with those of the company; and (3) Crescent Bank was familiar with MHS—because each was a client of the other—and with Nathan Hardwick individually.
In response, Landcastle argues that these facts are irrelevant because they reflect internal rather than external affairs, that they rely on inadmissible hearsay, and that, to the extent that Crescent relied on Hardwick's own assertions, those were insufficient to establish the "usual way" of business, because an agent's own representations cannot establish his own apparent authority. [Dkt. 87 at 5 (citing Addley v. Beizer, 205 Ga.App. 714, 423 S.E.2d 398, 401 (1992) ) ]. The Court disagrees.
Renasant's evidence—in particular, the managers' use of firm funds to pay off Hardwick's personal debts—does raise a factual issue concerning MHS's "usual way" of business, even if it does not conclusively prove it. And the evidence is competent for the Court's consideration. Though much of the evidence comes from the managers' testimony at Hardwick's criminal trial, the evidence does not run afoul of the summary judgment hearsay rule because it does not contradict the managers' sworn statements, and because the managers could be called as witnesses at trial here. See, e.g., Lewis v. Residential Mortg. Sols., 800 F. App'x 830, 834 (11th Cir. 2020) (explaining when hearsay evidence can be used at summary judgment). Finally, the relevant evidence is not limited to Hardwick's own representations to Crescent, but concerns the statements and conduct of the firm's other managers as well. Thus, Landcastle's objections are unavailing.
Accordingly, Renasant has successfully rebutted the presumption of irregularity and created a genuine factual dispute about whether Hardwick was "apparently carrying on in the usual way the business and affairs" of MHS under O.C.G.A. § 14-11-301(b)(2).
2. Whether Crescent Knew Hardwick Lacked Authority
The next consideration under the statute is whether Crescent in fact knew that Hardwick lacked authority under the operating agreement. O.C.G.A. § 14-11-301(b)(2) ; Ly, 691 S.E.2d at 853.
Importantly, the exception is limited to the contracting party's actual knowledge; the statute does not impose a due diligence requirement. See Guarantee Co. of N. Am., 746 F. App'x at 837 ("[W]e decline to read a due diligence requirement into § 14-11-301(b)(2) that does not appear in the text of the statute."). This stands in contrast to the earlier common law requirement outlined by the court in D. A. D., 179 S.E.2d at 73, that the bank "is bound to inquire as to the authority of the officer."
Here, Landcastle has presented no evidence to suggest that Crescent Bank knew that Hardwick lacked actual authority under the operating agreement. It concedes that the corporate governance documents were not made a part of the bank's records at the time of agreement. [Dkt. 80-4 at ¶ 16–18]. By contrast, Crescent's loan officer testified that he believed Hardwick did have authority to pledge the CD. [Dkt. 82-2 at ¶ 6].
Accordingly, based on the current record, it is beyond dispute that Crescent Bank did not know that Hardwick lacked authority to pledge the CD.
B. Whether the CD Belonged to the Firm
Renasant raises a third factual question independent of the operation of the Georgia LLC statute. It argues that the money used to fund the CD "likely" belonged to Hardwick (through his old firm, Hardwick and Jackson LLC), not to MHS. Of course, if the CD itself belonged to Hardwick, rather than the firm, then Hardwick's pledge of it would be authorized.
Renasant points to a variety of evidence supporting its position, [see Dkts. 82 at ¶ 5, 84 at 23–25], to which Landcastle does not directly respond. However, all of Renasant's evidence stands against the most basic fact—namely, the transaction documents themselves. On its face, the CD lists the depositor as:
MORRIS HARDWICK SCHNEIDER LLC
AKA JACKSON AND HARDWICK LLC LEGACY ACCT
[Dkt. 77-5]. And the same is true of the Assignment and Hypothecation Agreements. [See Dkts. 77-7, 77-9]. The CD also states that the "ownership type" is a "limited liability company."
Even if the money did belong to Hardwick, as it suggests, Renasant has not cited any legal authority suggesting that means the account would belong to him also, despite the fact that it is listed in the name of the LLC. It is true that the Security Agreement lists the CD as Hardwick's Property [See Dkt. 77-8]. But Renasant does not explain why, if the money belonged to Hardwick the individual, he would still need to execute the Assignment and the Hypothecation Agreement on behalf of the firm in addition to the Security Agreement on his own behalf.
Of course, to avoid summary judgment, all Renasant needs to do is create a factual dispute. Because the Court has already identified a factual issue concerning Mr. Hardwick's authority, it need not decide about the ownership of the account at this stage. This is an issue of fact for a jury to decide at trial.
Because there is a factual issue concerning Hardwick's apparent authority to pledge the CD under O.C.G.A. § 14-11-301(b)(2), summary judgment is not warranted for either party on this basis. Therefore, because Landcastle cannot establish its claims as a matter of law, its Motion for Summary Judgment [Dkt. 76] is DENIED . And because Renasant has no remaining arguments concerning the claim for breach of contract, its Motion for Summary Judgment [Dkt. 77] is DENIED as to that claim.
IV. Additional Arguments Concerning Conversion
Renasant raises arguments that Landcastle must be limited to a breach of contract claim, rather than a conversion claim—arguments which mostly were discussed by the Court in its Order addressing Renasant's Motion to Dismiss. [See Dkt. 25]. For similar reasons, they do not prevail here.
A. Conversion of a CD
Renasant first argues that Landcastle cannot proceed with its tort claim because (1) Renasant owed Landcastle no independent duty outside of the CD's agreement terms, rendering the conversion claim surplusage to the contract, and (2) title in the funds transferred to the bank at the time of deposit. As an initial matter, Renasant concedes, as it must, that Georgia law recognizes that a certificate of deposit can be converted. That alone suffices to defeat the latter contention. As to the former, however, Renasant contends that the facts of this case do not support such a claim. But here too Renasant misapprehends Georgia law.
Renasant's citation to Eleison Composites, LLC v. Wachovia Bank, N.A., 267 F. App'x 918, 924 (11th Cir. 2008) is inapposite because that case concerned a third-party buyer's security interest in proceeds from an account receivable, rather than a depositor's claim to its own deposit.
The availability of a conversion claim does not depend on the availability of a contract claim. Renasant points to the court's finding in Parker v. Kennon that because the alleged converter did not exceed its authority under the contract, the tort of conversion was available even when an action of breach of contract was not. 242 Ga.App. 627, 530 S.E.2d 527, 530 (2000). But Renasant misses the point. Just because conversion and breach of contract do not necessarily overlap does not mean they are mutually exclusive. By contrast, Georgia courts have held that there are cases of a bank's liquidation of a deposit account where both actions will lie. See Nat'l City Bank of Rome v. Busbin, 175 Ga.App. 103, 332 S.E.2d 678, 681 (1985). Simply pointing out that a breach of contract action is available does not necessarily preclude a conversion claim as well.
Instead, the key difference where conversion is not available is that the money claimed is not yet the identifiable property of the claimant, but is merely due to the claimant under a contract. Thus, for example, in LaRoche Indus., Inc. v. AIG Risk Mgmt., Inc., 959 F.2d 189, 192 (11th Cir. 1992), upon which Renasant relies, the Eleventh Circuit held that conversion would not lie for a claim for the interest amounts owed on a deposit account, which the bank had agreed to pay out quarterly. The court went on to draw a helpful distinction between the interest and the deposited money itself:
An illustrative analogy can be found in the depositor who places a certain sum of money into a checking account and receives a promise from the bank that it will pay a certain amount of interest on those funds. If the bank misappropriates the depositor's money in such a way that the depositor loses the benefit of her funds, this could constitute conversion. However, if the bank merely fails to pay out the depositor's interest, the bank has not committed the tort of conversion justifying punitive damages. Instead, the bank has breached the contract in which it promised to pay the checking account interest—justifying compensatory damages.
Id. (emphasis added); see also WESI, LLC v. Compass Envtl., Inc., 509 F. Supp. 2d 1353, 1361 (N.D. Ga. 2007) ("The claimant is not seeking to recover some specific money, either in certain bills or coins to which she had title, but instead seeks to recover a certain amount of money generally."). That distinction highlights the basis for the duty preceding the tort—a duty that can correspond to the one imposed by the agreement.
Landcastle's claim concerns the specific money that comprised the MHS Deposit Account at the time it was liquidated—not just money owed to it under a contract. Accordingly—consistent with the Court's finding in its prior Order, [see Dkt. 25 at 11]—Georgia law allows it to proceed with its claim of conversion.
B. Statute of Limitations
Renasant next argues that the statute of limitations bars Landcastle's conversion claim. The Court previously ruled that the conversion claim is not barred by the statute of limitations because the claim accrued when Renasant liquidated the CD, not when Hardwick purported to assign it to Crescent Bank. [Dkt. 25 at 8–10]. Renasant asks the Court to revisit its ruling—not because any new facts or governing authority has come to light—but because it believes the cases cited by the Court are distinguishable from this one. In effect, Renasant wants to re-argue the previous Motion.
Even if the Court were so inclined, it is not clear that the distinction Renasant identifies carries any legal significance. Renasant contends that the cases cited by the Court involve claims where the initial transfer of property was lawful, followed by a subsequent conversion, whereas in this case, the claim is that the initial transfer of the security interest to the bank was void and therefore unlawful. But it cites no authority holding that such a distinction warrants a different conclusion concerning the statute of limitations. Cf. First Nat. Bank of Chattooga Cty. v. Rapides Bank & Tr. Co., 145 Ga.App. 514, 244 S.E.2d 51, 53 (1978), overruled on other grounds by Travelers Indem. Co. v. Tr. Co. Bank, 228 Ga.App. 893, 495 S.E.2d 296 (1997) (conversion occurred when bank liquidated deposits after purportedly unlawful assignment).
Renasant endeavors to distinguish Rapides by arguing that despite the court's repeated references to "conversion," the case really involves a bank's knowingly abetting a breach of fiduciary. But the Court is not persuaded.
The Court thus declines to reconsider its prior Order. The crux of its ruling was that the statute of limitations for conversion "begins to run when the damage from the tortious act is actually sustained by [the] plaintiff[ ]." Stewart v. Warner, 257 Ga.App. 322, 571 S.E.2d 189, 190 (2002). And here, that damage was sustained when Renasant liquidated the account. See Chep USA v. Mock Pallet Co., 138 F. App'x 229, 238 (11th Cir. 2005) ; E.F. Hutton & Co. v. Weeks, 166 Ga.App. 443, 304 S.E.2d 420, 422 (1983). At that time, the account still existed intact, despite the purportedly unlawful assignment years earlier. Thus, at that time, Renasant held what MHS (and subsequently Landcastle) claimed as its property, liquidated it, and kept the proceeds. Regardless of what came before, that was the purportedly "unauthorized appropriation" that forms the basis of this claim. Gryder v. Conley, 352 Ga.App. 891, 836 S.E.2d 120, 124–25 (2019). Because Landcastle sued within four years of the liquidation, the statute of limitations does not bar Landcastle's claim.
Because neither issue bars Landcastle's conversion claim, summary judgment for Renasant is not warranted on this basis. Accordingly, its Motion for Summary Judgment [Dkt. 77] is DENIED as to the claim of conversion.
V. Attorney's Fees
Renasant moves for summary judgment on Landcastle's claim for attorney's fees under O.C.G.A. § 13-6-11. Because an issue of fact remains as to the underlying conversion claim, the only question is whether O.C.G.A. § 13-6-11 applies here. Landcastle contends that the claim is available for every intentional tort; Renasant argues that, because this is a bona fide dispute, the Court must look to the facts of the underlying transaction. Landcastle has the better argument.
Under Georgia law, when a claim for conversion survives summary judgment, a properly pled claim for costs under O.C.G.A. § 13-6-11 survives as well. The Supreme Court of Georgia explained:
The statute authorizes an attorney fee award even when nominal damages are recovered. And every intentional tort invokes a species of bad faith that entitles a person wronged to recover the expenses of litigation including attorney fees. Moreover, generally the question of bad faith is for the jury, to be determined from its consideration of the facts and circumstances in the case.
Tyler v. Lincoln, 272 Ga. 118, 527 S.E.2d 180, 183–84 (2000) (internal quotations omitted). This question—as the statute makes clear—is for the jury, not the Court.
Accordingly, Renasant's Motion for Summary Judgment [Dkt. 77] is DENIED as to the claim for attorney's fees.
VI. Interlocutory Appeal
Having found that an issue of fact precludes summary judgment in Renasant's favor, the Court now turns to its other Motion. In a prior Order [Dkt.53], the Court granted Landcastle's Motion to Strike Renasant's apportionment defense. Renasant has now asked the Court to certify that Order for interlocutory appeal under 28 U.S.C. § 1292(b). [Dkt. 59].
A. Legal Standard
Normally, only this Court's final orders—and certain categories of interlocutory orders—are appealable. However, under 28 U.S.C. § 1292(b), the Court can certify any interlocutory order for appeal if it believes the order meets certain criteria:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.
28 U.S.C. § 1292(b). The burden of showing that a question of law satisfies § 1292(b)'s requirements falls squarely on the petitioning party. McFarlin v. Conseco Servs., LLC, 381 F.3d 1251, 1264 (11th Cir. 2004).
Once the Court certifies such an order, the Court of Appeals then determines whether to allow the appeal: "The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order." 28 U.S.C. § 1292(b).
B. Applicability to Order Striking Apportionment Defense
Renasant makes a compelling case that the prior Order [Dkt. 53] meets the criteria for an immediate appeal. The Order involved a pure question of Georgia law which could control a significant part of the case. Further, that question was one of first impression and was difficult. Though the Court concluded that the tort of conversion does not involve indivisible fault, that was not because the Supreme Court of Georgia had said so, but rather reflected the Court's "predict[ing] how the highest court would decide." Turner v. Wells, 879 F.3d 1254, 1262 (11th Cir. 2018). Finally, because a reversal on the issue—apportioning damages—could lead to a new trial if determined after the fact, an immediate appeal would materially advance the termination of the litigation.
The Court also notes that, due to the exigencies created by COVID-19, any trial in this case would likely be delayed, [see Dkt. 95], meaning that a stay would not be as disruptive as it otherwise might be.
Accordingly, Renasant's Motion [Dkt. 59] is hereby GRANTED . The Court's prior Order [Dkt. 53] is hereby AMENDED to state that such Order is CERTIFIED for immediate appeal under § 1292(b) for the reasons outlined in the preceding paragraph.
C. Applicability to Current Order
Granting the Renasant's Motion as to the apportionment defense raises the possibility of an immediate appeal. Though a stay is not required by the statute, the Court notes that piecemeal adjudication of disputes is not favored. As such, the Court has considered whether it should also certify the current Order denying summary judgment for appeal. Though the parties have not raised that issue—the request for the appeal occurred before the Motions for Summary Judgment—the Court finds that this Order meets the standard for § 1292(b) as well because of the Court's treatment of Renasant's D'Oench defense in Part II, above.
Here, the D'Oench determination undoubtedly controls the case—indeed, it comprised the majority of Renasant's defense. And the way the Court analyzed the issue above, it involves a pure question of law. Though it is specific to the circumstances here, the Court's explanation applies to a category of cases and does not depend on the factual dispute concerning Hardwick's authority. Further, there are substantial grounds for difference of opinion—the Court explicitly noted that it was departing from the recent finding of another court in this district. See FDIC v. First One Grp., LLC, 2014 WL 12742162, at *5 (N.D. Ga. Apr. 25, 2014). Finally, because the Court already certified its prior Order, certifying this Order would materially advance the litigation by combining the appeals.
Accordingly, this Order is hereby CERTIFIED for immediate appeal under § 1292(b).
As for the content of that appeal, although the Court is aware that "appellate jurisdiction under § 1292(b) applies to the order certified to the court of appeals, and is not tied to the particular question formulated by the district court," Barrientos v. CoreCivic, Inc., 951 F.3d 1269, 1275 (11th Cir. 2020), the Court also notes that the Eleventh Circuit may in its discretion limit the scope of its review. Id. ("We think it appropriate to limit our review to the discrete and abstract legal issue the district court identified."). Thus, insofar as it is helpful, the Court highlights the following discrete questions of law which it believes substantially control this Order:
1. Does D'Oench bar a claim (or defense) that the agent who signed the agreement with the bank purportedly lacked authority to do so?
2. Under O.C.G.A § 14-11-301, who bears the burden to demonstrate whether an agent who pledged company assets for personal use was "apparently carrying on in the usual way the business and affairs" of the LLC, and what is the nature of that burden?
CONCLUSION
For the foregoing reasons, Defendant Renasant's Motion to Certify the Order for Interlocutory Appeal [Dkt. 59] is GRANTED . The Court's prior Order [Dkt. 53] is hereby AMENDED to state that such Order is CERTIFIED for immediate appeal under § 1292(b) for the reasons outlined above.
Further, both parties' Motions for Summary Judgment [Dkts. 76, 77] are DENIED . In addition, this Order is hereby CERTIFIED for immediate appeal under § 1292(b) for the reasons outlined above.
SO ORDERED this 8th day of June, 2020.