Allstate Ins. Co. v. Regions Bank

ALLSTATE INSURANCE COMPANY, Plaintiff, v. REGIONS BANK, et al., Defendants.

CIVIL ACTION 14-0067-WS-C

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

July 2, 2015

ORDER

This matter comes before the Court on the Motion for Summary Judgment (doc. 205) filed by defendant Regions Bank, the Motion for Summary Judgment (doc. 211) filed by defendant George Jones, and the Motion to Strike Declaration of Stephen S. Peterson (doc. 230). All three Motions have been exhaustively briefed, to the tune of nearly 250 pages of briefing and approximately 4,200 pages of exhibits.¹

I. Nature of the Case.

Despite the volume of paper it has generated, at its core this case is not particularly complex, either factually or legally. In December 2007, plaintiff, Allstate Insurance Company, purchased $12.3 million in infrastructure bonds to finance a real estate project called the Town of SaltAire, on the western shore of Mobile Bay in Mobile County, Alabama. Most of the bondproceeds were initially held in trust pending authorization by Allstate to release the funds. For its part, Allstate was unwilling to provide the green light until defendant Regions Bank had committed the sum of $16 million to the project. Although Regions Bank never affirmatively said so, Allstate understood that Regions Bank had already invested $14.5 million in SaltAire. Regions Bank knew that Allstate was operating under that (mistaken) premise, yet made no attempt to correct it. In late January 2008, Regions Bank issued a commitment letter for an additional $2 million to the project, in reliance on which Allstate authorized release of the remaining bond proceeds. Ultimately, the Town of SaltAire project failed and Allstate lost millions of dollars that it had invested in the bonds.

In this lawsuit (originally filed on July 18, 2013), Allstate contends that defendants, Regions Bank and George Jones (the developer's agent), hatched a fraudulent scheme to induce Allstate to release the bond proceeds because the project was faltering and desperate for an infusion of cash to remain afloat. Specifically, Allstate brings common-law claims of fraudulent/negligent misrepresentation against both defendants, on the theory that "Defendants falsely represented, through Regions' January 30, 2008 commitment letter, that Regions was obligated to lend an additional $2 million to [the project's owner], purportedly raising its total commitment to SaltAire to $16.5 million." (Doc. 113, ¶¶ 27, 33.) Allstate also brings a claim of fraudulent concealment/suppression, centered on the allegation that "Defendants concealed from Allstate that Regions had not funded a $14.5 million acquisition and development loan or line of credit to SaltAire in December of 2007." (Id., ¶ 39.) Finally, Allstate brings a civil conspiracy cause of action, alleging that Regions Bank and Jones had agreed and conspired to defraud Allstate in the above-described manner. (Id., ¶ 48.)

Both defendants now move for summary judgment. In its Motion (doc. 205), Regions Bank contends that it is entitled to dismissal of Allstate's claims because (i) the January 2008 commitment letter contained no misstatements of fact, (ii) Regions Bank owed no duty to Allstate to disclose the true amount of its loan commitment to SaltAire as of December 2007, (iii) Allstate did not justifiably rely on any material misrepresentations or omissions by Regions Bank, (iv) Regions Bank's alleged conduct did not proximately cause Allstate's losses, (v) the negligent misrepresentation claim fails under an Illinois variant of the "economic loss" rule known as the Moorman doctrine, (vi) the civil conspiracy claim fails in the absence of an underlying tort, (vii) Allstate's claims are barred by the applicable limitations period, and (viii)Allstate's alter ego extinguished the bond debt by making full credit bids, such that Allstate has already received the one satisfaction to which it was entitled for the subject losses. Meanwhile, defendant Jones, proceeding pro se, filed his own Motion for Summary Judgment (doc. 211) seeking dismissal of plaintiff's claims against him on the grounds of, inter alia, untimeliness and nonoccurrence of any fraud.

II. Factual Background.²

A. The Town of SaltAire.

Regions Bank's involvement in the SaltAire development commenced in December 2006, when it loaned $325,000 on a short-term, temporary basis to Mobile Bay Investments LLC ("MBI"), the owner of the land being used in the project. (Doc. 226, Exh. 11.)³ By December2007, Regions Bank had lent a total of $6.5 million to MBI through a series of such short-term operating loans. (Doc. 226, Exh. 15; Arendall Dep., at 52, 113, 366.) Those loans to MBI were secured through a second mortgage on the SaltAire property, which mortgage was behind a $7.5 million first mortgage held by a private investor called Bay Mortgage Investors. (Arendall Dep., at 94; doc. 221, Exh. 16.) To underscore the temporary, transitory nature of Regions Bank's loans on the project, by the terms of the applicable Promissory Note dated December 11, 2007, Regions Bank's loan to MBI was to mature just four months later, in April 2008. (Doc. 226, Exh. 15.) This was short-term operating financing, not long-term development financing.

Defendant George Jones was the manager of an entity called SaltAire Development Group, LLC ("SDG"). (Jones Decl. (doc. 206, Exh. 3, ¶ 1.) SDG was the developer of the SaltAire project. (Id.) Jones (along with others at SDG and MBI) worked to form the Belle Fontaine Improvement District (the "District") in August 2007. The District was a type of entity known as an Alabama Improvement District, formed to facilitate financing of public infrastructure improvements for SaltAire via tax-exempt bonds to be issued by the District. (Jones Dep. 11/18/14, at 118-20, 126; doc. 221, Exh. 20.) SDG and Jones selected a company called Gardnyr Michael Capital, Inc. ("Gardnyr Michael") to serve as the bond underwriter for the District, through which its responsibilities included structuring and selling the bonds. (Doc. 222, Exh. 23; Hunt Dep., at 20.) Gardnyr Michael approached Allstate as a potential buyer in the fall of 2007. (Hunt Dep., at 27; Peterson Dep., at Exh. 182.) Materials provided to Allstate byGardnyr Michael reflected that the Phase I bond issue was to encompass $12.8 million of tax-exempt, non-rated bonds with a 30-year maturity, and that such bonds were to be used to construct public infrastructure (i.e., roads, bridges, landscaping, water/sewer utilities, boardwalks, a marina club, etc.) for the SaltAire project. (Peterson Dep., at Exh. 182.)

B. Allstate Agrees to Purchase the Bonds.

Allstate's decision maker, an Illinois-based portfolio manager named Steve Peterson, had numerous conversations with Gardnyr Michael representatives, as well as SDG representatives. According to Peterson, "at every point, at every conversation," he discussed what he viewed as "the decisive point" or the "crux of the deal," which was "the character of the capital structure." (Peterson Dep., at 118.) It was represented to Peterson (by whom, he does not recall) that Regions Bank had provided $14.5 million in financing for the project. (Id. at 118, 171-72.) Peterson was emphatic that he "would not have pursued the deal to that point without that representation," that he "never would have gone forward" without that representation, and that if he had ever encountered a representation "that cast doubt on that $14.5 million, the deal would have stopped right there." (Id. at 171-72, 176.)⁴ There is no indication in the record, and no evidence from which a reasonable finder of fact could find, that Regions Bank directly made such a representation to Peterson or anyone else at Allstate. Whatever and whoever the source of that initial representation was, it was not Regions Bank. It was also not accurate. As stated supra, the facts were that Regions Bank had loaned just $6.5 million for the SaltAire project, andthat money was not development financing, but rather was in the form of short-term loans to MBI, the owner (not SDG, the developer).⁵

Notwithstanding the assurances from unknown quarters that "Regions Bank had made a loan to the developer for $14.5 million" (id. at 175), Peterson's assessment was that a $14.5 million commitment was insufficient to provide Allstate the necessary comfort level to purchase the bonds. Peterson was thus "emphatic" in all conversations with Gardnyr Michael personnel that "the $14.5 million that was represented to be in the deal from the developer needed to be $16 million," and that "the deal would not go forward unless that $16 million from Regions Bank was in the deal to the developer." (Id. at 118.) As Peterson put it, "My understanding was the developer had a $14.5 million loan with Regions, and my requirement in order to close the deal was a $16-million loan from Regions." (Id. at 258.) The $16 million figure was not arbitrary, but instead reflected Peterson's professional risk assessment that this was an appropriate amount of capital given the circumstances attendant to the SaltAire deal. (Id. at 258-59.) Peterson communicated that requirement to SDG and Gardnyr Michael. (Id. at 259.)

To accommodate Allstate's prerequisite that Regions Bank must have loaned $16 million to the developer, Gardnyr Michael's solution was to orchestrate an agreement between SDG and the bond trustee "that will not allow the developer to draw more than $1 million out of the Construction Fund UNTIL he has received a binding commitment or actual funding from Regions Bank totaling $16 million." (Doc. 223, Exh. 37.) Such an agreement, commonly described throughout the parties' filings as the "Side Agreement," was indeed prepared and executed by SDG and the bond trustee, with Allstate's joinder and consent, on December 26, 2007. Regions Bank was not a signatory to the Side Agreement.

The recitals of the Side Agreement included the following: (i) the...