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Cadence Bank, N.A. v. Alpha Trust

Court of Appeals of Tennessee, Jackson

February 25, 2015


Session November 12, 2014

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Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed and Remanded. Direct Appeal from the Chancery Court for Shelby County. No. CH-12-0654-3. Kenny W. Armstrong, Chancellor.

Kevin A. Snider, Germantown, Tennessee, for the appellants, The Alpha Trust; The M.S.U. Family Trust; The D.S.U. Family Trust; Marvin V. Uthe; Shirley A. Uthe; Sandra L. Uthe; and David B. Uthe.

T. Robert Abney, Memphis, Tennessee, for the appellee, Cadence Bank, N.A.

BRANDON O. GIBSON, J., delivered the opinion of the Court, in which ARNOLD B. GOLDIN, J., joined. J. STEVEN STAFFORD, P.J., W.S., filed a separate opinion dissenting in part.


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In this action to collect on a promissory note, the trial court granted summary judgment to the bank. Appellants appeal the trial court's decisions regarding whether the bank was properly doing business in the State of Tennessee and whether the Appellants' two contract-based counter-claims fail as a matter of law. Discerning no error regarding the trial court's finding that the bank was properly doing business in the State, we affirm the trial court's ruling in that regard. We also affirm the trial court's finding that the bank was entitled to summary judgment on the contract-based counterclaims.



On April 4, 2001, the Alpha Trust, the M.S.U. Family Trust, and the D.S.U. Family Trust,[1] (collectively, " the Trusts" ), through their authorized representatives[2] (together with the Trusts, " Appellants" ) executed a Promissory Note in the principal amount of $476,000.00 in favor of Enterprise National Bank, later known as Cadence Bank, N.A. (" Cadence Bank" or " the Bank" ) for the purchase of real property located in Cordova, Tennessee. The Note was secured by a Deed of Trust. The Note stated that it would commence on May 10, 2001 and provided for fifty-nine installments in the amount of $4,097.00 each at an interest rate of 8.25 percent. The parties' agreement also contained a balloon payment scheduled to mature on April 10, 2006. The Note was initialed on every page and signed on the final page by each trustee, Marvin V. Uthe and Shirley A. Uthe, as Trustees for the M.S.U. Family Trust, and as Trustees for the Alpha Trust; and Sandra L. Uthe and David B. Uthe, Trustees for the D.S.U. Family Trust (hereinafter " the Trustees" ). The Trustees also executed Trust Secretary's Certificates. Additionally, the Trustees, in their individual capacities, each executed a Guaranty that by its terms guaranteed payment of the Note.

Despite the provision in the Note providing that the final balloon payment would mature on April 10, 2006, according to Appellants, they were repeatedly assured by Cadence Bank that they would be able to refinance the debt so long as they continued to make timely payments. On May 10, 2006, the parties entered into a Modification Agreement. The Modification Agreement indicates that it is made between Appellants and " CADENCE BANK, N.A., a national banking association (formerly Enterprise National Bank)." [3] The agreement further provides that the principal balance remaining from the original Note was $423,220.70. Accordingly,

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this amount was refinanced at 8.00 percent interest payable in fifty-nine installments of $4,073.49 each. The Modification Agreement further provided for another balloon payment scheduled on April 10, 2011. The Modification Agreement was signed by all four trustees and was accompanied by four Trust Secretary's Certificates executed by each of the four trustees.[4] According to Appellants, Cadence Bank representatives indicated that Appellants would be able to refinance the debt again when the balloon payment matured.

On June 24, 2011, the parties executed a Change in Terms Agreement. The record indicates that Cadence Bank sent at least seven letters (January 21, March 2, April 8, April 21, May 4, May 12, and June 13, 2011) to Appellants before it was able to collect enough financial information from Appellants to execute the new Change in Terms Agreement. Four of the letters contain a provision stating: " Cadence Bank has not obtained an appraisal since 2001. In order to consider a renewal we will also need to order an appraisal at your expense." Despite this statement, however, an appraisal was not completed prior to the execution of the June 24, 2011 Change in Terms Agreement. The Change in Terms Agreement extended the maturity date of the loan to September 10, 2011. The principal balance at that time was $331,057.20. The Change in Terms Agreement provided for payment in " two regular payments of $4,073.49 each and one irregular last payment of $328,596.14." Again, the four representatives of the three trusts signed the Change in Terms Agreement.

Disputes arose regarding efforts to refinance the debt again prior to the scheduled September 10, 2011 balloon payment. Appellants contend that, prior to September 10, 2011, Cadence Bank again assured Appellants that they would be able to refinance the debt to avoid paying the balloon payment. Specifically, an affidavit later submitted by David B. Uthe, Trustee of the D.S.U Family Trust, states: " Leonard McKinnon . . .[, Executive Vice President for Cadence Bank,] made misleading statements to me by telling me that it was okay for the [Appellants] to renew the loan with no questions asked provided that said [Appellants] provide him with tax returns for the year 2010, wherein there was neither any follow up by said Mr. McKinnon nor was the loan renewal and/or refinance being processed." Appellants contend that they reasonably relied on this representation. Shortly thereafter, Cadence Bank ordered an appraisal and claimed that it revealed that the property was only worth $350,000.00. Appellants allege Cadence Bank refused or failed to provide a copy of the appraisal to Appellants.

Cadence Bank does not deny that there were discussions leading up to the September 2011 maturity date regarding Appellants' desire to again refinance the debt. The Bank contends, however, that it fulfilled its obligation to Appellants and that Appellants refused to agree to new or additional terms, which were based on the appraisal of the property. According to Cadence Bank, on January 18, 2012, Leonard McKinnon (hereinafter " Mr. McKinnon" ), Cadence Bank's Executive Vice President, sent a letter to Appellants offering to refinance the remaining balance. David Uthe testified at his deposition that he believed that this letter was hand delivered to him by Mr. McKinnon. In the letter, Cadence Bank offered to refinance a principal balance of $297,500.00, which

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represents eighty-five percent of the appraised value of $350,000.00. Thus, Appellants, had they accepted the new terms, would have been required to immediately reduce their existing balance of $334,472.25. Uthe testified that, upon receipt of the letter, he told Mr. McKinnon: " I said, this is what you're offering after this period of time, that you want me to come up with another 50 grand on a note? You could have restructured the note rather than doing this." Uthe stated that Mr. McKinnon replied, " Well this is all I have."

Several weeks later, on February 10, 2012, Cadence Bank sent another letter offering the same terms. The Bank asserts that Appellants neither accepted any of the new terms in the letter nor made any counteroffers regarding refinancing the debt. Moreover, Appellants did not obtain their own appraisal for the value of the property. Accordingly, counsel for Cadence Bank sent Appellants a letter on February 27, 2012, notifying them of the default and demanding repayment.

Procedural History

On April 16, 2012, Cadence Bank filed its Complaint against the Appellants based on a sworn affidavit of account. Cadence Bank alleged that Appellants owed a debt totaling $348,843.07, including an additional sum added for payment of lapsed insurance, plus accrued interest and late charges. Cadence Bank also asserted that interest was accruing at a rate of $71.327 per day.

Appellants filed their Answer and Counter Complaint against Cadence Bank on June 29, 2012. The Counter Complaint alleged that Cadence Bank " repeatedly assured" the Appellants over the years that their short-term notes would be refinanced " as long as they timely made payments on the note etc." Appellants also alleged that they detrimentally relied on these representations. The Counter Complaint also asserted that Cadence Bank's actions and omissions breached the implied covenant of good faith and fair dealing. Cadence Bank answered the Counter Complaint on August 15, 2012.

A few months later, on October 18, 2012, Appellants filed a motion to dismiss. In their motion, Appellants alleged that Cadence Bank was not properly doing business in the State of Tennessee and that it accordingly could not maintain a lawsuit in the State. Appellants observed that, in Cadence Bank's complaint, it stated that it is " a national banking association, organized and existing under the laws of the United States of America, [] it is authorized to do business in the State of Tennessee, and [] it maintains a principal business office at 6075 Poplar Avenue, Suite 120, Memphis, Shelby County, Tennessee." Appellants also noted that, according to Cadence Bank's website, it operates " more than 100 branch locations in Alabama, Florida, Georgia, Mississippi, Tennessee, and Texas." Appellants claimed that Cadence Bank was required to obtain a certificate of authority prior to transacting business in this State and that the Bank was required to maintain a registered agent and/or office in this State pursuant to Tennessee law. Appellants attached " screen shots" to their motion that demonstrated an online query for " Cadence Bank, N.A." using the Tennessee Secretary of State's website. The search produced no results for Cadence Bank, N.A. as a registered corporation in Tennessee.

Cadence Bank responded to Appellant's Motion to Dismiss on October 26, 2012, and disputed Appellants' assertion that it was not properly doing business in the State of Tennessee. The Bank argued that it is a national bank subject to the National Bank Act and that the National Bank Act, 12 U.S.C.A. § 24, preempts

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State law in the regulation of national banks. Specifically, Cadence Bank claimed that the National Bank Act, as codified at 12 U.S.C.A. § 24, authorizes it " [t]o sue and be sued, complain and defend, in any Court of law and equity, as fully as natural persons." Accordingly, the Bank claimed that " [t]he federal government has preempted the issue of national banks doing business within the several States including Tennessee."

Cadence Bank filed a Motion for Summary Judgment on January 4, 2013, including a Statement of Undisputed Facts and the affidavit of Mr. McKinnon. In his affidavit, Mr. McKinnon swore that the three trusts and their four representatives were liable to Cadence Bank for the principal balance of $334,472.25, accrued interest totaling $34,264.82, and contractually provided late charges totaling $100.00. In its motion for summary judgment, the Bank argued that no dispute of material fact existed as to whether the Appellants had defaulted on the loan. Cadence Bank also argued that Appellants' assertions of unclean hands, estoppel, lack of good faith and fair dealing, intentional misrepresentation, detrimental reliance, and failure to mitigate damages on behalf of the Bank were without merit. The Bank's motion for summary judgment also refuted Appellants' assertion that the Bank was not properly doing business in the State of Tennessee. The Bank submitted the affidavit of Jerry W. Powell, an Executive Vice President and Secretary for Cadence Bank, who stated that the Office of the Comptroller of the Currency of the United States of America had issued Cadence Bank's Certificate of Corporate Existence.

Appellants responded to the motion for summary judgment on February 13, 2013, and again argued that Cadence Bank was improperly doing business in the State of Tennessee. Appellants also argued that a genuine dispute of material fact existed as to Appellants' claims of estoppel, the implied duty of good faith and fair dealing, intentional misrepresentation, detrimental reliance, and the mitigation of damages.

On February 19, 2013, the trial court entered a written order granting summary judgment in favor of Cadence Bank, finding that there were no genuine issues of material fact as to the liability of Appellants on the Note or its modifications. Despite Appellants' contention that Cadence Bank failed in its promise to refinance the debt, the trial court specifically found that: " Cadence did extend an offer to modify the Promissory Note to the [Appellants], but that [Appellants] did not execute another modification agreement and did not accept the terms of this offer by Cadence[.]" The trial court also ruled that there " does not appear to be any real possibility that the [Appellants] can prove facts to substantiate either their defense to liability upon the Note and their Guaranties, or their claims against Cadence in their Counter-Complaint." This ruling effectively dismissed the claims appealed to this Court by Appellants, including the issues of preemption, the implied duty of good faith and fair dealing, and promissory estoppel. On April 2, 2014, the trial court entered a Final Order Granting Summary Judgment in favor of Cadence Bank in the amount of $427,434.83.[5] This Final Order Granting Summary Judgment in favor of Cadence Bank also dismissed Appellants' Counter-Complaint.

On May 1, 2014, Appellants filed a Motion to Alter or Amend the trial court's

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judgment, arguing that the trial court failed to address the issue of whether Cadence Bank was properly doing business in the State of Tennessee. On May 20, 2014, the trial court entered an order finding that Cadence Bank was properly doing business in Tennessee as a national bank and could properly bring a lawsuit against Appellants. Appellants timely filed their appeal on June 20, 2014.

Issues Presented

Appellants raise three issues for our review, as we ...

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