Cre Venture 2011-1, LLC v. First Citizens Bank of Ga.

326 Ga.App. 133

756 S.E.2d 225

CRE VENTURE 2011–1, LLC

v.FIRST CITIZENS BANK OF GEORGIA.

No. A13A1888.

Court of Appeals of Georgia.

March 12, 2014.

Morris, Manning & Martin, John A. Lockett III, for Appellant.

Joyce, Thrasher, Kaiser & Liss, Matthew M. Liss, Atlanta, Teven Keith Leibel, for Appellee.

ELLINGTON, Presiding Judge.

CRE Venture 2011–1, LLC (“Venture”) appeals from an order of the Superior Court of Fulton County granting the interlocutory injunction sought by First Citizens Bank of Georgia (“Citizens”). This suit concerns a loan participation agreement among multiple lenders, a dispute over which lender has the right to administer the loan and to foreclose on the real property securing the loan, and the effect of the loan having passed through Federal Deposit Insurance Corporation (“FDIC”) receivership. Finding no manifest abuse of discretion in the court's decision to grant the interlocutory injunction, we affirm.

When deciding whether to issue an interlocutory injunction, a trial court should consider whether: (1) there is a substantial threat that the moving party will suffer irreparable injury if the injunction is not granted; (2) the threatened injury to the moving party outweighs the threatened harm that the injunction may do to the party being enjoined; (3) there is a substantial likelihood that the moving party will prevail on the merits of her claims at trial; and (4) granting the interlocutory injunction will not disserve the public interest. The decision whether to grant a request for interlocutory injunctive relief is in the discretion of the trial court according to the circumstances of each case, and we will not disturb the injunction a trial court has fashioned unless there was a manifest abuse of discretion. The purpose for granting interlocutory injunctions is to preserve the status quo, as well as balance the conveniences of the parties, pending a final adjudication of the case. Stated otherwise, an interlocutory injunction is a device to keep the parties in order to prevent one from hurting the other whilst their respective rights are under adjudication.

(Citations and punctuation omitted.) Grossi Consulting v. Sterling Currency Group, 290 Ga. 386, 387–388(1), 722 S.E.2d 44 (2012).

The relevant facts are as follows. In March 2010, Citizens entered into a contract entitled “Participation Certificate and Agreement” (the “Agreement”) with Crescent Bank & Trust Company (“CBT”). Pursuant to the Agreement, Citizens purchased an 11 percent undivided interest—a “share”—in an $8.5 million loan (the “Loan”) that CBT originated and made to The Plaza at Suwanee Station, LLC (the “Borrower”). Citizens paid over $900,000 for its share in the Loan. Prior to any default by the Borrower, Citizens was entitled to receive payments under the Agreement from CBT on a “first out” basis until its investment plus interest had been satisfied. Paragraph 12 of the Agreement, entitled “Administration,” provides in relevant part:

A. Loan Servicing. Seller may administer the Loan and any related security and guaranties as though it were the sole owner and holder thereof. Except as provided below, Seller will make all decisions concerning the servicing of the Loan, and any related security and guaranties, acceleration, foreclosure, acquisition of other security or guaranties, deficiency judgments, purchase at foreclosure sales, and administration and disposition of acquired security. Seller will not, without Purchaser's written consent, reduce principal or interest with respect to the Loan or release or allow for the substitution of any Property, outside the normal course of dealing with Borrower so as to substantially reduce the possibility of repayment of the Loan. Seller will not, without Purchaser's written consent, renew, extend, or consent to the revision of the provisions of any note or security documents covered or waive any claim against Obligor.

B. Seller's Duty to Purchaser. Seller will use the same degree of care in servicing and collecting the loan as it would for its own accounts. Seller will not be liable to Purchaser for any action taken or omitted or for any error in judgment, except for bad faith and willful conduct.

The Agreement contemplated multiple participants in the Loan, and two other lenders (who are not parties to this action) purchased shares of the Loan by executing participation certificates and agreements. Covenant Bank & Trust (“Covenant”) purchased a 16 percent interest, and First Commerce Community Bank (“FCCB”) purchased an 18 percent interest.CBT retained a majority interest in the Loan.

In late July 2010, the Georgia Department of Banking & Finance closed CBT, and the FDIC was appointed receiver for CBT's assets. In August 2011, the FDIC sold CBT's interest in the Loan to Venture.¹ Prior to the filing of the instant lawsuit, Covenant and FCCB were also declared insolvent and closed by regulators, and the FDIC was appointed receiver for both. The FDIC sold Covenant's interest in the Loan to Stearns Bank N.A. (“Stearns”). It sold FCCB's interest in the Loan to Community & Southern Bank (“C & S”). Thus, of those currently holding shares in the Loan, Citizens is the only remaining original participant to the Agreement.

The Loan is secured in part by commercial real property in Gwinnett County, and the Borrower is in default. In January 2012, a few months after Venture acquired its interest in the Loan from the FDIC, Citizens learned that Venture intended to foreclose on the property, and it filed a prior action to enjoin the sale. At that time, the parties attempted to negotiate a settlement, and Citizens dismissed the suit without prejudice. In mid–2012, Venture, C & S, and Stearns agreed that foreclosing on the property was the best way of maximizing their recovery on their investment in the Loan. Only Citizens objected to foreclosure, arguing that, based on its analysis, that the best way to recover on the Loan would be to work with the Borrower to improve the property and to lease the commercial space, thereby facilitating the Borrower's ability to repay and increasing the value of property.

In October 2012, Venture began advertising a foreclosure sale of the property scheduled for November 2012. Venture asserted that it had the exclusive right, pursuant to the Agreement and as successor-in-interest to CBT, to administer the Loan and to make all decisions concerning foreclosure. On October 25, 2012, Citizens filed the instant suit against Venture and sought to enjoin Venture's efforts to foreclose. In support of its motion for declaratory and interlocutory injunctive relief, Citizens submitted an affidavit stating that, if the foreclosure went forward, Citizens would lose most of its interest in the loan and would be forced to account for the sale “in a manner that [would] do serious and irreparable harm to [Citizens'] finances and business prospects.” According to Citizens, unlike Stearns and C & S, it has not entered into a loss-sharing agreement with the federal government. Moreover, Citizens argues that Venture purchased the Loan at a significant discount and would not suffer the same loss, and it may even profit from a quick sale of the property.

On the day of the hearing on its motion for a temporary restraining order, Citizens amended its complaint to allege that CBT's insolvency triggered an “ipso facto” ² provision in the Agreement that authorized the removal of CBT as administrator of the Loan. Paragraph 20(A) of the Agreement, entitled “Removal of Seller as Administrator,” provides that the Seller may be removed as administrator under the following circumstances:

A. Qualifying Events. Upon the occurrence of any of the following events, Purchaser may notify Seller and assume the administration of the Loan and related guarantees and security agreements as well as demand any documentation or writings reasonably necessary to evidence proof of Purchaser's security interest and perfection.

(1) Seller fails to comply with Seller's fiduciary, contractual or legal obligations as provided under this Agreement or by state or federal law.

(2) Seller petitions for or becomes subject to bankruptcy.

(3) Seller commits any act of insolvency.

(4) Seller is declared insolvent, is taken over, or otherwise closed by a governmental regulatory agency which has jurisdiction over Seller.

Paragraph 20(B) of the Agreement sets out the procedure to be followed in the event the administrator is removed and there are multiple participants in the Loan.

Multiple Participants. In the event of multiple participants in the Loan, the participating lender with the then largest share will have the option to assume administration. If any participant possessing this option does not exercise its right upon the demand of the other participants, the option will then pass to the participant with the next largest share. Unless otherwise agreed, participants possessing equal shares in the Loan will share equally in administration.

Paragraph 20(C) of the Agreement also provides, in relevant part, that “[u]nless otherwise agreed, all remaining terms of the agreement will survive Seller's removal as administrator until Purchaser's investment is satisfied in full or the Loan is repurchased by Seller as provided in this agreement.”

At the hearing on Citizens' motion for a temporary restraining order, counsel for Citizens argued that, since the original administrator of the Loan (CBT) and the other two original participants (Covenant and FCCB) had all been closed by regulators, Citizens, as the only original participant remaining, was entitled to administer the Loan pursuant to the Agreement. The superior court found Citizens' reasoning persuasive and entered a temporary restraining order on November 2, 2012, enjoining Venture from foreclosing on the Property and setting a hearing on Citizens' Motion for Interlocutory Injunction for December 7, 2012. After hearing additional arguments, the...