Wall Guy, Inc. v. Fed. Deposit Ins. Corp.

655 F.Supp.3d 445

The WALL GUY, INC., Jeffrey Frye, and JR Contractors, Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) as Receiver for the First State Bank, Defendant.

CIVIL ACTION NO. 3:20-0304

consolidated with 3:20-0305

United States District Court, S.D. West Virginia, Huntington Division

Signed February 7, 2023

Steven T. Cook, Cook Law Offices, Barboursville, WV, for Plaintiffs.

B. Amon James, Nicholas Katsonis, Federal Deposit Insurance Corporation, Arlington, VA, Benjamin L. Bailey, Christopher D. Smith, Bailey & Glasser, Charleston, WV, for Defendant Federal Deposit Insurance Corporation (FDIC).

Benjamin L. Bailey, Christopher D. Smith, Bailey & Glasser, Charleston, WV, for Defendant The First State Bank.

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS, UNITED STATES DISTRICT JUDGE

This action and the consolidated companion case, FDIC v. Frye, Civ. Act. No. 3:20-305, pose complicated legal issues against a unique procedural backdrop. Plaintiffs The Wall Guy, Inc., Jeffrey Frye, and JR Contractors (collectively referred to as "Borrowers") and Defendant Federal Deposit Insurance Corporation, as Receiver (FDIC-Receiver) for The First State Bank, have filed competing motions pursuant to Rule 59 of the Federal Rules of Civil Procedure, challenging a judgment and remittitur entered by a state trial court that this Court adopted as its own following removal. See Wall Guy, Inc. v. FDIC, 3:20-304, 2021 WL 838889 (S.D. W. Va. 2021) (adopting and entering at its own the Cabell County Circuit Court's Order Denying Defendant's Renewed Motion for Judgment as a Matter of Law, Granting, in part, Defendant's Motion for Remittitur or New Trial, and Denying Plaintiffs' Motion to Award Interest on Judgment Pursuant to W. Va. Code 56-6-31). For the following reasons, the Court finds the remittitur was improper, the jury's verdict was excessive, Borrowers' claim against the FDIC-Receiver is barred, and judgment must be entered in favor of the FDIC-Receiver in case 3:20-0304.

I.FACTUAL AND PROCEDURAL BACKGROUND

Essential to the resolution of the current motions is the backdrop upon which these consolidated actions rest. Mr. Frye is a businessman who operates JR Contractors, a West Virginia sole proprietorship, and The Wall Guy, Inc., a West Virginia Corporation. Most of Mr. Frye and his companies' ventures involve building large-scale retaining walls. The First State Bank, Inc. (First State) also was a West Virginia corporation that had a long-standing banking relationship with Mr. Frye and his companies. However, when the relationship between Borrowers and First State fell apart, these actions ensued.

On January 15, 2016, The Wall Guy, Inc. filed an action against First State, alleging, inter alia, that Jackie Cantley, a bank executive, illegally added amounts to loan accounts that were never disbursed to it. The Wall Guy, Inc. v. The First State Bank, Civ. Act. No. 16-C-027, sub nom. The Wall Guy, Inc. v. FDIC, Civ. Act. No. 3:20-0304 (referred to hereinafter as "Case One"), Compl. ¶¶16, 24, ECF No. 6, at 5-6.¹ After Mr. Cantley and First State parted ways, Plaintiff Frye asserts he met with P. Andrew Vallandingham, another bank officer, who "pressured [him] into signing over nearly $500,000 of construction equipment" and pledging certain property referred to as "Booten Creek" to secure a Business Loan Agreement in the amount of $280,000, often referred to as the "Consolidation Loan." Id. ¶¶17-20; see Business Loan Agreement (Dec. 13, 2012), ECF No. 6-1, at 52-56; Errors and Admissions Agreement (Dec. 13, 2012), ECF No. 6-1, at 57-58; Promissory Note (Dec. 13, 2012), ECF No. 6-1, at 50-51; Deed of Trust (Dec. 13, 2012), ECF No. 6, at 11-17;² Agricultural Security Agreement (describing equipment used as collateral) (Dec. 13, 2012), ECF No. 6-1, at 59-63. The Deed of Trust for Booten Creek was made amongst Mr. Frye for The Wall Guy, Inc. and Mr. Frye as Guarantor and First State, as Lender, and P. Andrew Vallandingham and Samuel Vallandingham, as "Trustee," and recorded at that Cabell County courthouse on January 22, 2013. Deed of Trust, at 1. The Business Loan Agreement for $280,000, the Errors and Omissions Agreement, and the Promissory Note were all made between Mr. Frye and First State. The Agricultural Security Agreement provides it was made between the Wall Guy, Inc. and First State. The $280,000 Business Loan Agreement, the Errors and Omissions Agreement, the Promissory Note, the Deed of Trust, and the Agricultural Security Agreement all bear Jeffrey Frye's name,³ but none were signed by the bank.

At some point, it appears that Mr. Frye began having financial difficulty, which resulted in him filing Chapter 13 bankruptcy in 2014. In Re: Jeffrey Allen Frye, 3:14-bk-30113 (S.D. W. Va. 2014). Thereafter, in or about December of 2015, The Wall Guy, Inc., which was not in bankruptcy, received a Notice of Trustee Sale of the Booten Creek property scheduled for January 19, 2016. Aff. of Jason D. Koontz ¶¶2, 3,⁴ ECF No. 6, at 18. To stop the sale, The Wall Guy, Inc. filed Case One against First State, seeking both a temporary restraining order and injunctive relief. Additionally, the Complaint alleged claims for Breach of Fiduciary Duty, Negligence, and Breach of Contract against First State. Compl. ¶¶23-38.⁵ Neither Mr. Frye nor JR Contactors were named as Plaintiffs in Case One when it was filed. It is not clear from the record whether the state court ever took up the injunction request, but First State proceeded with the foreclosure and obtained title to Booten Creek on March 24, 2016. See Mem. of Law in Supp. of Mot. of FDIC to Reconsider and Amend J., at 3, ECF No. 20. Nevertheless, the remainder of The Wall Guy, Inc.'s action continued against First State.

In the meantime, the bankruptcy court dismissed Mr. Frye's bankruptcy case on April 15, 2016, on a motion by the bankruptcy court Trustee for "fail[ing] to respond to or otherwise cure the matters raised in the Trustee's motion to dismiss." In re: Jeffrey Allen Frye, 3:14-bk-30113, Order Dismissing Pet. (Apr. 15, 2016), ECF 6-1, 28. Soon thereafter, on May 13, 2016, First State filed its own action against Mr. Frye, The Wall Guy, Inc., and the Wall Guy, Inc. d/b/a JR Contractors to collect on $385,169.35 in loans that were included in the dismissed bankruptcy case. See Compl., The First State Bank v. Frye, Civ. Act. No. 16-C-341, sub nom FDIC v. Frye, 3:20-305, ECF No. 6-1, at 23-27 (referred to hereinafter as "Case Two"). First State alleged Mr. Frye and his companies were in default, but they refused to assist in the peaceful repossession of the collateral used to secure the loans. Id. Therefore, First State sought an injunction to execute the orderly repossession of the collateral. Id. ¶9.

Shortly thereafter, the state court entered an Order in Case Two finding Mr. Frye, The Wall Guy, Inc., and JR Contractors had defaulted on various loans in the amount of $385,169.35. Order, Civ. Act. No. 16-C-341 (May 27, 2016), ECF No. 6-1, at 41-44. The state court also found that Mr. Frye, The Wall Guy, Inc., and JR Contractors had no equity in the collateral securing those loans and that they had refused a peaceful repossession of the same. Id. Therefore, the state court directed that the collateral be peacefully surrendered to First State. Id.

There was no further substantive activity in Case Two. However, on August 4, 2018, The Wall Guy, Inc., Jeffrey Frye, and The Wall Guy, Inc. d/b/a/ JR Contractors as "Plaintiff/Counterclaim Defendants"⁶ filed a motion in Case One to set aside the Order in Case Two under Rule 60(b) of the West Virginia Rules of Civil Procedure.⁷ The state court in Case One denied the motion, finding (1) it was untimely because the May 2016 Order had remained unchallenged for over two years, (2) the allegation First State did not fund or credit loan proceeds in the amount of $151,718.96 was not "newly discovered evidence" but, rather, based on records admittedly produced over a year earlier, and (3) no exceptional circumstances existed warranting setting the Order aside. Order, Civ. Act. No. 16-C-27 (Aug. 22, 2018); 3:20-304, ECF No. 6-5, at 9-13. As a result, the state court also granted First State's Motion in Limine in Case One collaterally estopping any challenge to the earlier finding that the loans in Case Two were in default and/or suggesting that First State wrongfully repossessed the collateral at issue in Case Two. Order, Civ. Act. No. 16-C-27 (Aug. 21, 2018), ECF No. 6-4, at 101-05. Additionally, the state court excluded in Case One any evidence that the foreclosure and repossession in Case Two resulted in any damages. Id., at 103.

Prior to the trial in Case One, the state court granted First State's Motion for Summary Judgment on the Breach of Fiduciary Duty and Negligence claims. Order, Civ. Act. No. 16-C-27 (Aug. 22, 2018), ECF No. 6-5 at 14-19. Thus, the only remaining claim for trial was the Breach of Contract claim. This claim focused on two separate loans: the Consolidation Loan for $280,000 and a separate SBA loan in the amount of $230,000. At trial, Borrowers offered a copy of the Note for the SBA loan, an Unconditional Guarantee for the loan, an Errors and Omissions Agreement, a Commercial Security Agreement, and an Equal Credit Opportunity Notice. However, as with the Consolidation Loan, First State did not sign any of these documents. ECF No. 42-6, at 20-37. Following a three-day trial, the jury returned a verdict finding First State had breached both loans and awarded The Wall Guy, Inc., Mr. Frye, and JR Contractors a lump-sum of $1,500,000. Verdict Form, at 1-3 (Aug. 23, 2018), ECF No. 6-5, at 31-33.

On September 14, 2018, First State filed a Renewed Motion for Judgment Notwithstanding the Verdict, Remittitur, or a New Trial. ECF No. 6-5, at 69-97. On March 14, 2019, the state court entered an Order rejecting First State's argument that, under Jones v. Kessler, 98 W.Va. 1, 126 S.E. 344 (1925), Borrowers could not recover...