Colo. Bankers Life Ins. Co. v. Acad. Fin. Assets

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COLORADO BANKERS LIFE INSURANCE COMPANY, et al., Plaintiffs, v. ACADEMY FINANCIAL ASSETS, LLC, Defendant.

No. 5:20-CV-474-D

United States District Court, E.D. North Carolina, Western Division

August 19, 2024

ORDER

JAMES C. DEVER III, UNITED STATES DISTRICT JUDGE

On September 3,2020, Colorado Bankers Life Insurance Company (“Colorado Bankers”), Southland National Insurance Corporation (“Southland National”), and Bankers Life Insurance Company (“Bankers Life”) (collectively, “plaintiffs”) filed a complaint against Academy Financial Assets, LLC (“AFA”) alleging breach of contract concerning an Interim Amendment to Loan Agreements (“IALA”) [D.E. 1]. On September 30, 2020, AFA answered the complaint and filed a counterclaim against Colorado Bankers, Southland National and Bankers Life alleging that the court must reform the IALA to reflect the parties' intent to include certain promissory notes in a list of non-interest bearing loans [D.E. 11]. On November 20, 2020, plaintiffs moved to dismiss the counterclaim for failure to state a claim upon which relief can be granted [D.E. 17]. On December 8, 2020 plaintiffs moved to consolidate this case with 25 related cases concerning alleged breaches of the IALA [D.E. 19], On July 20, 2021, this court denied plaintiffs' motion to dismiss the counterclaim and motion to consolidate [D.E. 26]. On August 3, 2021, plaintiffs answered the counterclaim [D.E 28].

On May 5,2023, the court consolidated the cases for dispositive motions practice and trial under case number 5:20-CV-474 [D.E. 77]. On November 15, 2023, AFA voluntarily dismissed without prejudice AFA's counterclaims against Southland National [D.E. 84].

On November 17,2023, 22 of the 24 consolidated defendants moved for partial summary judgment on plaintiffs' breach of contract claim [D.E. 85] and filed a memorandum, statement of material facts, and appendix in support [D.E. 86-88]. On November 20, 2023, plaintiffs moved for summary judgment on liability for their breach of contract claim, on defendants' counterclaims, and to foreclose collateral [D.E. 89] and filed a memorandum, statement of material facts, and appendix in support [D.E. 90-93]. On December 18 2023, plaintiffs responded in opposition to defendants' motion for partial summary judgment and responded to defendants' statement of material facts [D.E. 98-99]. The same day, defendants responded in opposition to plaintiffs' motion for summary judgment and responded to plaintiffs' statement of material facts [D.E. 100, 101]. On January 2,2024, defendants and plaintiffs replied [D.E. 105,106,107]. On January 29, 2024, defendants filed a notice of decision in related cases [D.E. 109]. On March 15, 2024, plaintiffs filed a supplemental declaration in support of their motion for summary judgment [D.E. 113, 114]. As explained below, the court grants plaintiffs' motion for summary judgment concerning defendants' liability for breach of contract and defendants' counterclaims, denies plaintiffs' request to foreclose on collateral, and denies defendants' motion for partial summary judgment.

I.

The court understands the relationship between the parties in these cases. See Colo. Bankers Life Ins, Co, v. Acad. Fin, Assets, LLC, No. 5:20-CV-185, 2021 WL 6064843, at *1-2 (E.D. N.C. Dec. 22, 2021) (unpublished), afFd, 60 F.4th 148 (4th Cir. 2023). Colorado Bankers, Southland National, and Bankers Life are licensed North Carolina domestic life and accident and health insurers that Greg Lindberg (“Lindberg”) owns. See Plaintiffs' Statement of Material Facts (‘TSMF”) [D.E. 91] ¶ 1; Defendants' Opposing Statement of Material Facts (“DOSMF”) [D.E. 101] ¶ 1. Lindberg is the sole shareholder of Global Growth Holdings, Inc., and Lindberg or Global Growth Holdings, Inc. own other insurance companies and hundreds of other noninsurance companies (the “affiliates”). See PSMF ¶ 2; DOSMF ¶ 2. Under Lindberg's control, plaintiffs provided over $1.2 billion to the affiliates through various loans and other debt and equity financing arrangements. See PSMF ¶ 7; DOSMF ¶ 7.

During an audit, the North Carolina Department of Insurance (“DOI”) became concerned that plaintiffs may not be able to meet obligations to policyholders due to the concentration of affiliated company debt. See PSMF ¶ 9; DOSMF ¶ 9. On October 18,2018, after unsuccessfully attempting to develop remediation plans to address the DOI's concerns, plaintiffs consented to the DOI's administrative supervision. See PSMF ¶ 10; DOSMF ¶ 10. When the DOI's administrative supervision did not adequately resolve the concentration of affiliated debt, plaintiffs consented to rehabilitation, a form of insurance receivership under Chapter 58 of the North Carolina General Statutes. See PSMF ¶ 13; DOSMF ¶ 13.

The appointed rehabilitator attempted to restructure plaintiffs' debts and obligations to enable plaintiffs to return to going-concern status. See N.C. Gen. Stat. § 58-30-85(c); PSMF ¶ 16; DOSMF ¶ 16. On June 27, 2019, plaintiffs executed three interconnected agreements with Lindberg and the affiliates: a Memorandum of Understanding (“MOU”), a Revolving Credit Agreement (“Revolver”), and the IALA. See PSMF ¶ 17; DOSMF ¶ 17. The MOU restructured Lindberg's affiliates and placed the affiliates under the control of an independent board in order to protect the policyholders' interests. See PSMF ¶ 19; DOSMF ¶ 19. The Revolver between Colorado Bankers and AFA provided a $40 million revolving credit facility to AFA to help prevent affiliates from defaulting before restructuring. See PSMF ¶ 20; DOSMF ¶ 20.

This court already entered judgment on two breach of contract claims against AFA concerning the Revolver. See Colo. Bankers Life Ins, Co., 2021 WL 6064843, at *3-7, aflPd, 60 F.4th 148 (4th Cir. 2023). This order concerns alleged breaches of the IALA.

The IALA amended the payment terms of the debt that the affiliates owed to plaintiffs and other insurance company lenders. See PSMF ¶ 21. The IALA included short-term debt relief to the affiliates by deferring interest for six months, reducing interest rates on the underlying debt, and extending the loan terms. See id.; DOSMF ¶ 21.

The IALA identified all debt that the affiliates owed to plaintiffs and grouped the debt into seven tranches: (1) senior loans, (2) junior loans, (3) preferred equity, (4) Agera financing documents, (5) PB Life and Annuity Code, Ltd. (‘TBLA”) loans, (6) loans excluded from North Carolina Insurance Companies (“NHC”), and (7) insurance hold co-related debt. See PSMF ¶¶ 34-35; DOSMF ¶¶ 34-35. The IALA included amendments to the seven tranches of debt's repayment terms. See PSMF ¶ 38; DOSMF ¶ 38. The IALA's exhibits explain the terms and modifications of any particular loan or affiliated debt instrument. See PSMF ¶ 39; DOSMF ¶ 39. The IALA reduced the interest rate on some of the tranches of affiliated debt and eliminated the payment of interest on other tranches. For example, the IALA deferred interest on the senior loan tranche for six months and reduced the interest to 5% per year. See PSMF ¶ 45; DOSMF ¶ 45. For the Agera loans, the PBLA loans, and the insurance hold co-related debt, the IALA eliminated accrual and payment of interest during the IALA's term. See PSMF ¶ 46; DOSMF ¶ 46. Thus, if a loan was scheduled in the insurance hold co-related debt in IALA Exhibit G, no interest would accrue or be payable on it during the IALA's term. See PSMF ¶ 46; DOSMF ¶ 46.

These consolidated cases concern loan agreements that Exhibit A to the IALA identifies as senior loans. See PSMF ¶ 47; DOSMF ¶ 47. Section One of the IALA describes the amendments to the repayment terms of the senior loans. See PSMF ¶ 52; DOSMF ¶ 52. In relevant part, Section One states:

(a) for the first six (6) month period following the Amendment Effective Date (the “Senior Loan Deferral Period”), each of the Senior Loans shall accrue interest at the Base Interest Rate as set forth herein, but the accrued interest on each Senior Loan shall not be payable and instead shall be added to the principal of the applicable Senior Loan upon the end of the Senior Loan Deferral Period; (b) after the Senior Loan Deferral Period, such capitalized interest shall bear interest along with the principal amount of such loan at the Base Interest Rate; (c) beginning February 1,2020, interest on the Senior Loans shall be payable quarterly in cash at the Base Interest Rate as set forth herein; (d) from and after the Amendment Effective Date, any prepayment penalties in the Senior Loans shall equal zero percent (0%); and (e) the maturity date of each Senior Loan shall be December 31, 2029.

[D.E. 94] 63-64; see PSMF ¶ 52; DOSMF ¶ 52. On June 27,2019, the IALA took effect, and the senior loan deferral period began on July 1, 2019. See PSMF ¶ 57; DOSMF ¶ 57. The IALA included a “Representations and Warranties” clause where the parties represented and warranted the accuracy of the Recitals in the IALA and its exhibits. See PSMF ¶ 40; DOSMF ¶ 40. The relevant senior loans state that failure to pay interest when due is an “Event of Default.” PSMF ¶ 65; see DOSMF ¶ 65. Upon an event of default, all obligations under the loans may be declared immediately due and payable. See PSMF ¶ 66; DOSMF ¶ 66.

On February 1, 2020, no defendants had made an interest payment. Compare PSMF ¶ 64, with DOSMF ¶ 64. On March 13,2020, on behalf of plaintiffs, special deputy rehabilitator Mike Dinius (“Dinius”) sent each borrower a letter providing notice of default based on the failure to make the interest payment due on February 1, 2020 and demanded payment of the amount owed within five business days to cure the default. See PSMF ¶ 67; DOSMF ¶ 67. Dinius, however, did not declare all obligations immediately due and payable. See PSMF ¶ 67; DOSMF ¶ 67. ...