MARIANNE ALLENSPACH-BOLLER, et al., Plaintiffs/Counterclaim-Defendants,
v.
UNITED COMMUNITY BANK, Defendant/Counterclaim-Plaintiff.
United States District Court, W.D. Missouri, St. Joseph Division
October 27, 2021
ORDER GRANTING DEFENDANT/COUNTERCLAIM-PLAINTIFF UNITED COMMUNITY BANK'S MOTION FOR SUMMARY JUDGMENT
GREG KAYS, JUDGE, UNITED STATES DISTRICT COURT
This lawsuit arises from Plaintiffs' purchase of a machine-shop business from third-party Todd Rood. Plaintiffs Reliable Machine & Engineering, Inc. (“Reliable Machine”) and its owners/corporate officers Eric Allenspach, and Marianne Allenspach-Boller, borrowed money from Defendant/Counterclaim-Plaintiff United Community Bank (“UCB”) to purchase the business via a Small Business Administration (“SBA”) loan. The Court previously dismissed seven of Plaintiffs'[1] eight claims, ECF No. 133, and three of UCB's counterclaims, ECF No. 172.
Now before the Court is Defendant UCB's motion for summary judgment on its two remaining counterclaims and on Plaintiffs' remaining claim. ECF No. 152. For the reasons stated below, the motion is GRANTED.
Summary Judgment Standard
Summary judgment is appropriate if, viewing all facts in the light most favorable to the nonmoving parties, there is no genuine dispute as to any material fact, and the moving party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Material facts are those facts “that might affect the outcome of the suit under the governing law, ” and a genuine dispute over material facts is one “such that a reasonable jury could return a verdict for the nonmoving part[ies].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment bears the burden of showing this lack of genuine dispute as to any material fact, Celotex Corp., 477 U.S. at 323, and the Court views the facts in the light most favorable to the nonmoving parties and draws all reasonable inferences in those parties' favor. Tolan v. Cotton, 572 U.S. 650, 656 (2014); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588-89 (1986). To survive a motion for summary judgment, the nonmoving parties must nonetheless substantiate their allegations “with sufficient probative evidence [that] would permit a finding in [their] favor based on more than mere speculation, conjecture, or fantasy.” Mann v. Yarnell, 497 F.3d 822, 825 (8th Cir. 2007) (internal quotations omitted).
Undisputed Material Facts[2]
The Court considers the following facts in the light most favorable to Plaintiffs. Reliable Machine is a Missouri corporation. At the time Plaintiffs filed this lawsuit, Reliable Machine had a principal place of business in Polo, Missouri. Eric Allenspach and Marianne Allenspach-Boller are the owners and officers of Reliable Machine. Eric Allenspach serves as President, while Marianne Allenspach-Boller serves as Secretary of Reliable Machine. At the time Plaintiffs filed this suit, the Allenspachs were citizens of Missouri.[3] Defendant United Community Bank
(“UCB”), a Georgia state-chartered bank with its home office in Blairsville, Georgia, is a citizen of Georgia.[4]
UCB's Loan to Plaintiffs to Fund the Purchase of Rood Machine
On October 5, 2015, the Allenspachs offered to purchase Rood Machine & Engineering (“Rood Machine”), a machine shop and warehouse in Polo, Missouri, from Todd Rood (“Rood”). Offer, ECF No. 153-8. The offer was contingent on the Allenspachs receiving a loan to finance their purchase. Id. at ¶ 7. Rood agreed to the sale.
Plaintiffs subsequently applied to UCB for an SBA Section 7a program loan, a type of loan made by a private bank in which a portion of the loan may be guaranteed by the SBA. UCB then applied to the SBA. On December 24, 2015, the SBA agreed to guarantee 75 percent of a $1, 744, 000 loan to Reliable Machine. Authorization, ECF No. 153-11. The SBA required Reliable Machine to pay $46, 550 as a guarantee fee. Authorization ¶ A, ECF No. 153-11.
On December 31, 2015, UCB and Reliable Machine entered into an SBA Loan Agreement whereby UCB agreed to loan Reliable Machine $1, 744, 000 (“Loan”). SBA Loan Agreement, ECF No. 49-1. Contemporaneously with that agreement, Reliable Machine and UCB executed a promissory note (“Reliable Note”), which evidences Reliable Machine's obligation to repay the Loan. SBA Loan Agreement § 1.01, ECF No. 49-1; Note, ECF No. 49-2. Reliable Machine and UCB agreed to an adjustable-rate loan with an initial annual interest rate of 5.25 percent and a subsequent annual rate, adjusted quarterly, of two percent above the prime rate. Note ¶ 3, ECF No. 49-2. The parties agreed the note would mature in twenty-one years. Id. The SBA Loan
Agreement and the SBA Loan Authorization govern the terms of the Reliable Note. SBA Loan Agreement ¶ 1.02, ECF No. 49-1 (“All other terms and conditions of the [“Reliable Note”] shall be in accordance with the SBA Loan Authorization and this Loan Agreement.”).
As collateral for the Reliable Note, Reliable Machine granted UCB a security interest in real property and certain personal property included in the purchase of Rood Machine. Deed of Trust art. 2, ECF No. 49-3. Reliable Machine also granted UCB a security interest in the Allenspachs' Georgia residence.[5] SBA Loan Agreement § 7.09, ECF No. 49-1.
Also on December 31, 2015, the Allenspachs each personally and unconditionally guaranteed the loan. Marianne Allenspach-Boller Guarantee, ECF No. 49-4; Eric Allenspach Guarantee, ECF No. 49-5.
After the parties executed the Loan, the closing agent forwarded the SBA Loan Agreement, Reliable Note, personal guarantees, and Deed of Trust to UCB. UCB has maintained possession of these documents since January 6, 2016, and remains the holder of the Reliable Note.[6]
The Reliable Note allows UCB to incur reasonable attorney's fees and costs in order to collect amounts due under the Reliable Note, and to either “demand immediate repayment from [Reliable Machine] or add the expenses to the principal balance.” Note at ¶ 6.B, ECF No. 49-2. Also, the personal guarantees each require the Allenspachs to “pay all expenses [UCB] incurs to enforce th[e] guarantee, including, but not limited to, attorney's fees and costs.” Marianne Allenspach-Boller Guarantee at ¶ 9.A., ECF No. 49-4; Eric Allenspach Guarantee ¶ 9.A, ECF No. 49-5.
The SBA Loan Agreement defines default as occurring “[i]f [Reliable Machine] shall fail to make payment when due of any installment of principal on the [Reliable Note] or interest accrued thereon which failure continues for a period of five (5) days following [Reliable Machine's] receipt of notice thereof.” SBA Loan Agreement § 6.01, ECF No. 49-1. Likewise, the Reliable Note defines default as occurring if Reliable Machine should fail “to do anything required by [the Reliable Note] and other Loan Documents.[7]” Note ¶ 4, ECF No. 49-2. In the event of a default, the SBA Loan Agreement grants UCB the right to demand payment of all unpaid principal and interest. SBA Loan Agreement § 6, ECF No. 49-1. In addition, the Reliable Note grants UCB the right to collect from either Reliable Machine or any guarantor, file suit, and obtain judgment. Note ¶ 5, ECF No. 49-2.
Todd Rood's Fraudulent Misrepresentation Regarding Rood Machine
The Allenspachs began operating Reliable Machine in January 2016. Less than a month later, Plaintiffs discovered that Rood had produced false financial information. The following details of the fraud are drawn directly from Rood's resulting plea agreement:
By altering his bookkeeping, Rood inflated his income by approximately $583, 827 prior the sale. To do this he directed his bookkeeper in 2014 to classify two loans for $121, 327 from CAN Capital as income and in 2015 to reclassify $120, 000 in loans from his parents as income in 2014. Secondly, he created and directed the bookkeeper to record as income seven fictitious sales totaling $342, 500 in 2015. In addition, he also fictionally reduced his liabilities by reclassifying the $120, 000 parent loan and incorrectly classifying the CAN Capital loans as income and in a series of more complicated maneuvers reduced an old liability entitled “loan from shareholder” by $210, 000 with the income from the fictitious sales.
On December 17, 2015, Rood signed a certification that financial statements for August 31, September 30, and October 31 and his taxes for 2012, 2013 and 2014 are true and correct even though he knew the financial statements and tax returns
falsely overstated [Rood Machine's] value. This certification, signed by Rood, was sent to the bank via email on December 22, 2015.
Plea Agreement ¶ 3, U.S. v. Rood, No. 4:17-cr-00365-GAF (W.D. Mo. filed Dec. 12, 2017), ECF No. 7. Rood made these misrepresentations knowingly and willfully “for the purpose of influencing the action of UCB to make a loan to [Plaintiffs]” and to induce Plaintiffs to purchase Rood Machine. Id. “But for Rood's false statements [UCB] would not have made the $1, 744, 000 loan to [Plaintiffs] because [Rood Machine's] value, including its business value and real estate, did not support that loan amount.” Id.
Rood ultimately pled guilty to loan application fraud in violation of 18 U.S.C. § 1014. Id. As part of Rood's sentence, the Honorable Gary Fenner ordered Rood to pay restitution of $1, 085, 608.49 to UCB and $262, 000 to the Allenspachs. J. and Comm. at 5, No. 4:17-cr-00365-GAF, ECF No. 38.
The Loan Modifications
Reliable Machine lost all its working capital during the first four months of operation. As a result, the Allenspachs injected $305, 000 of personal funds into Reliable Machine, cut their own salaries, reduced employee hours, and laid off employees. But Reliable Machine was still not profitable enough to make its payments on the...
