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WM Capital Partners, LLC v. Thornton

Court of Appeals of Tennessee, Nashville

December 29, 2016


          Session November 18, 2015

         Appeal from the Chancery Court for Davidson County No. 1493I Claudia Bonnyman, Chancellor

          A secured creditor filed suit against a trucking company and two guarantors seeking a deficiency judgment after disposition of the collateral securing payment of the debt. The trial court granted the secured creditor summary judgment in the amount of the deficiency. On appeal, the trucking company and the guarantors argue that (1) the delay in repossessing the collateral rendered its disposition commercially unreasonable and (2) the secured creditor failed to present sufficient evidence of the amount of its damages. We conclude that the requirement of a commercially reasonable disposition found in Tennessee Code Annotated § 47-9-610 only applies once the secured party has actual or constructive possession of the collateral. The secured creditor's refusal to repossess the collateral at the trucking company's request did not amount to actual or constructive possession. Nonetheless, in light of the challenge to the time aspect of the disposition, the secured creditor failed to meet its burden of production on summary judgment. Therefore, we reverse the grant of summary judgment.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed

          Eugene N. Bulso, Jr., Steven A. Nieters, and Paul J. Krog, Nashville, Tennessee, for the appellants, Anthony W. Thornton, Elizabeth Thornton, and Bowling Green Freight, Inc.

          Samuel P. Funk and W. Scott Sims, Nashville, Tennessee, for the appellee, WM Capital Partners, LLC.

          W. Neal McBrayer, J., delivered the opinion of the Court, in which Andy D. Bennett and Richard H. Dinkins, JJ., joined.



         I. Factual Background

         The facts are largely undisputed.[1] Anthony and Elizabeth Thornton owned and operated Bowling Green Freight, Inc., a trucking company that derived significant income from transporting parts to General Motors Corporation's Corvette plant in Bowling Green, Kentucky. See F.D.I.C. v. Thornton, 595 F.App'x 513, 515 (6th Cir. 2014). Over time, Tennessee Commerce Bank (the "Bank") made several loans to Bowling Green Freight. In connection with these loans, Bowling Green Freight granted the Bank a security interest in, among other things, equipment. Mr. and Mrs. Thornton also unconditionally guaranteed payment of the loans to the Bank.

         General Motors' financial difficulties during the last decade put corresponding financial pressure on Bowling Green Freight. Id. After defaulting on its loans to the Bank, Bowling Green Freight and the Bank entered into a forbearance agreement, in which Bowling Green Freight acknowledged that it was in default and that it had no claims or defenses to the Bank's right to pursue its legal and contractual remedies. In return, the Bank agreed not to exercise its rights if Bowling Green Freight cured its default by February 28, 2011. When Bowling Green Freight was unable to do so, the Bank and Bowling Green Freight entered into amended forbearance agreements, which ultimately extended the forbearance period to July 5, 2011.

         Because Bowling Green Freight had lost the General Motors business and Mr. Thornton realized that Bowling Green Freight could no longer make payments on the loans, he asked the Bank to repossess Bowling Green Freight's collateral, sell it, and apply the proceeds to the outstanding loans. When this request was made on June 23, 2011, the value of the collateral exceeded the outstanding balance of the loans. Despite this fact, the Bank declined the offer and instead directed Bowling Green Freight to continue to use the collateral, including the equipment. Subsequent requests to repossess the collateral were made, but in each instance, the Bank declined.

         On August 17, 2011, the Bank demanded payment in full of the loans, and in January 2012, the Bank filed suit against Bowling Green Freight and the Thorntons. Id. at 516. But, the same day it filed suit, the Bank, facing financial difficulties of its own, was placed into a receivership with the Federal Deposit Insurance Corporation ("FDIC"). Id.

         While the suit was pending, on August 9, 2012, the FDIC, as receiver for the Bank, sold three of the loans involved, identified as Notes 184900, 18107, and 18224, to WM Capital Partners, LLC ("WMCP"). WMCP moved and received leave to intervene in the suit originally filed by the Bank. Id. at 517. By this point, the case had been removed to federal district court, and the FDIC had been substituted as plaintiff for the Bank. Id.

         Unfortunately for WMCP, the suit originally filed by the Bank did not include a claim against the Thorntons for breach of their guaranty relative to Note 184900, the loan with the largest outstanding balance. Id. WMCP moved to add the claim to the suit, but the district court denied the motion. Id. The district court did permit WMCP to dismiss its other claims without prejudice, which led to the present action. Id.

         At some point, WMCP finally repossessed the collateral securing all three of the loans. WMCP sold the collateral at auction on July 11, 2013. WMCP applied the net proceeds of the sale to the principal owed on Note 184900.

         II. Procedural History

         The following year in the Chancery Court for Davidson County, Tennessee, WMCP filed suit against the Thorntons seeking a deficiency judgment based on their personal guarantees. WMCP later amended its complaint to add a breach of contract claim against Bowling Green Freight.

         WMCP moved for summary judgment. In support of its motion, WMCP submitted a statement of undisputed material facts and the affidavit of Jim Barr Coleman. Mr. Coleman recounted the history of the loans, the purchase of the loans from the FDIC, and WMCP's repossession and sale of the collateral securing the loans. He explained the application of the net proceeds from the sale to the debt ...

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