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Community & Southern Bank v. Clear Creek Props.

Court of Appeals of Georgia

July 16, 2015


Cert. applied for.

Contract. Cherokee Superior Court. Before Judge Harris.

Busch White Norton, Bryan E. Busch, Shane P. Stogner, Laura H. Mirmelli, Tawana B. Johnson, for appellant.

Chilivis, Cochran, Larkins & Bever, Thomas D. Bever; Spears & Robl, Michael D. Robl; Mitchell & Shapiro, William R. Joiner, for appellees.


Page 753

McMillian, Judge.

Community & Southern Bank (the " Bank" ) appeals after a jury returned a verdict in favor of Garry Haygood (" Haygood" ) and Haygood Family Investments, LLC (" HFI" ) in the Bank's contract action against them. For the reasons set forth below, we reverse.

" On appeal following a jury verdict and judgment, this Court must construe the evidence with every inference and presumption in favor of upholding the verdict, and after judgment, the evidence must be construed to uphold the verdict even where the evidence is in conflict." (Citation and punctuation omitted.) One Bluff Drive, LLC v. K. A. P., Inc., 330 Ga.App. 45, 45 (766 S.E.2d 508) (2014).

So viewed the evidence shows that HFI and Haygood, along with Clear Creek Properties, LLC (" Clear Creek" ), Legacy Mountain Properties, LLC (" Legacy" ), A. S. Dover Development, Inc. (" A. S. Dover" ), Dover-Pfister, LLC n/k/a Dover Development, LLC (" Dover Development" ), and Alan S. Dover (" Dover" ), executed nine promissory notes and numerous commercial guaranties in favor of Gilmer County Bank (" GCB" )[1] in connection with real estate development projects, including a project known as " Falling Waters." Haygood and Dover both held a percentage ownership interest in Legacy and Clear Creek, and both men participated in borrowing money to finance Falling Waters.[2] Ultimately, Clear Creek, HFI, Legacy, A. S. Dover, Dover Development, Haygood, and Dover all defaulted on their repayment obligations under their respective promissory notes and guaranties. The Georgia Department of Banking and Finance closed GCB in March 2010,[3] and the loans were assigned and transferred to the Bank pursuant to a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation (" FDIC" ).

At the pertinent time, Dover was a real estate developer and a director at GCB, serving on the loan committee. Dover originally purchased the land for the Falling Waters project for around $36 million in August 2006. He borrowed the money for this purchase from GCB and did not put up any of his own money to fund the transaction. Dover was the largest borrower at GCB, and his loan [333 Ga.App. 281] requests were routinely approved. Additionally, he was sometimes present at loan committee meetings in which his loans were

Page 754

approved, although he did not vote on his own loans. Dover did not provide his financial information to GCB in connection with his loan applications, and GCB did not maintain any financial information on him.

Nevertheless, GCB routinely renewed Dover's loans over a period of 13 years. Over time, as Dover's loans approached or exceeded legal lending limits, GCB sold portions of the loans to other banks pursuant to participation agreements. As one former GCB loan officer explained, federal banking laws provide that a single borrower can only borrow a certain percentage of a bank's capital. If the borrower exceeds that limit, the bank must divest itself of the loans. Once GCB divested itself of some of Dover's loans, it could then lend him additional funds.

Haygood also was involved in real estate development and construction during the relevant period.[4] At issue in this appeal is a $3 million loan GCB extended to Haygood individually on September 21, 2007 in connection with the Falling Waters project (the " Haygood Loan" ). (See Addendum " A" for a list of the other promissory notes and guaranties at issue at trial, hereinafter referred to collectively as the " Other Notes." ) Haygood testified that he was solicited by Dover to invest money in Falling Waters in or around September 2007. Dover first suggested that Haygood buy a 49 percent interest in the project, but Haygood had " no interest in that at all." Dover later suggested that Haygood buy 25 percent of the project for $5.2 million. Haygood was hesitant; he did not have much cash at the time because he had recently paid off all of his debt. Nevertheless, he told Dover that he could raise about $2 million to invest. Dover knew that Haygood owned real property on Rackley Road in Hall County (the " Rackley Road Property" ) debt-free, and he suggested that Haygood use the property as collateral to apply for a loan at GCB. Haygood ultimately agreed to the $5.2 million investment, if he could borrow $3 million from GCB on the Rackley Road Property.

In connection with the Haygood Loan, GCB ordered an appraisal on the Rackley Road Property at Haygood's expense. That appraisal, dated September 13, 2007, set the value for the Rackley Road Property at $2,640,000, which was not high enough to support the loan as GCB required an 85 percent loan-to-value ratio. GCB subsequently ordered another appraisal, from the same appraiser, which reflected a value for the Rackley Road Property of $3,510,000 as of [333 Ga.App. 282] September 20, 2007. Because Dover needed the funds quickly, the Haygood Loan closed the next day, and Haygood was not provided a copy of either appraisal, although GCB's policy was to give the borrower an appraisal three days before closing. Also in connection with the Haygood Loan, Haygood signed a Security Deed and Agreement dated September 21, 2007, which contained a dragnet clause providing that any subsequent debt incurred by Haygood could be consolidated under its terms, allowing foreclosure on the Rackley Road Property in connection with such debt. Haygood gave Dover the proceeds of the Haygood Loan and $2.2 million in cash to fund his $5.2 million investment in Falling Waters.[5]

In December 2008, Adam Teague, chief loan officer at GCB, informed Haygood of a problem with the loans relating to Falling Waters, and he scheduled a meeting to discuss the matter with Haygood, Dover, GCB president Tracy Newton and Joseph C. Hensley, a member of the GCB board of directors, who served on GCB's Audit Committee. Hensley, a CPA, also worked for Dover. At the meeting, GCB informed Haygood that Unity Bank had entered into a participation agreement with regard to a portion of ...

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