Wilkinson v. Redd Green Investments, LLC ( 2021 )

THE STATE OF SOUTH CAROLINA
In The Court of Appeals
Stephen Wilkinson, as Trustee of George B. Buchanan,
Jr. Irrevocable Family Trust Dated the 15th day of July,
2001, Respondent,
v.
Redd Green Investments, LLC, Anderson North Augusta,
LLC, Herbert Anderson, Jr., A. Bruce Green, Herbert
Keith Anderson, and L. Cliff Redd, Defendants,
Of which Redd Green Investments, LLC, A. Bruce
Green, and L. Cliff Redd are Appellants.
Appellate Case No. 2018-001388
Appeal From Saluda County
R. Knox McMahon, Circuit Court Judge
Opinion No. 5880
Heard March 3, 2021 – Filed December 15, 2021
AFFIRMED
Wallace K. Lightsey and William Marvin Wilson, III,
both of Wyche Law Firm, of Greenville; and M. Alan
Peace, of Harrell, Martin, & Peace, P.A., of Chapin, all
for Appellants.
John T. Moore, Allen Mattison Bogan, and Nicholas
Andrew Charles, all of Nelson Mullins Riley &
Scarborough, LLP, of Columbia; and Erik Tison Norton,
of Harrell, Martin, & Peace, P.A., of Chapin, all for
Respondent.
LOCKEMY, C.J.: In this action to enforce a guaranty agreement, Redd Green
Investments, LLC, A. Bruce Green, and L. Cliff Redd (collectively, Guarantors)
appeal the trial court's grant of a directed verdict in favor of Stephen Wilkinson as
Trustee of the George B. Buchanan, Jr. Irrevocable Family Trust dated the 15th of
July, 2001 (the Trust). Guarantors argue the trial court erred in finding that as a
matter of law the Trust's violation of section 15-39-720 of the South Carolina Code
(2005)1 could not operate as a defense to its enforcement of the guaranty
agreements. We affirm.
FACTS
In 2001, George B. Buchanan, Jr. (Buchanan), created and funded the Trust for the
benefit of his children. On November 18, 2009, the Trust entered into a loan
agreement with Springs North Augusta, LLC, in which the Trust agreed to loan it
$7,590,000 to purchase 1,420 acres of real property in Aiken County (the
Property). Springs North Augusta executed a promissory note agreeing to repay
the loan in full with interest of 15% per annum and executed a mortgage on the
Property in favor of the Trust to secure the loan. On November 16, 2010, Springs
North Augusta and the Trust signed an amendment to the loan agreement, which
capitalized the interest to the principal, bringing the new principal to $8,728,500.
Springs North Augusta also signed a modification to the promissory note and
agreed to repay the new balance of the loan plus 15% interest per annum.
The loan agreement named Herbert Anderson, Jr., Herbert Keith Anderson, A.
Bruce Green, William Otha Bodie, L. Cliff Redd, Redd Green Investments, LLC,
and Anderson North Augusta, LLC, as guarantors, and they signed two separate
guaranty agreements guaranteeing repayment of the loan. The guaranty
agreements gave the Trust the right to obtain payment from Guarantors to satisfy
any unpaid debt of Springs North Augusta. Redd Green Investments, LLC and
Anderson North Augusta, LLC, signed one agreement; Herbert Anderson, Jr.,
Herbert Keith Anderson, A. Bruce Green, William Otha Bodie, and L. Cliff Redd
signed the other. Redd Green Investments, LLC, and Anderson North Augusta,
1
Section 15-39-720—also referred to as the "bidding" statute—provides that a
"mortgagee or his representative" is permitted to bid only once at a judicial
foreclosure sale.
LLC, owned Springs North Augusta, which they formed to hold title to the
Property. A. Bruce Green and L. Cliff Redd formed Redd Green Investments,
LLC to hold their ownership interest in Springs North Augusta.2 The guaranty
agreements contained a "Waiver of Appraisal Rights" provision,3 which stated:
TO THE FULLEST EXTENT PERMITTED BY
LAW AND AS A MATERIAL INDUCEMENT FOR
LENDER TO MAKE THE LOAN, GUARANTOR
HEREBY WAIVES AND RELINQUISHES THE
STATUTORY APPRAISAL RIGHTS WHICH
MEANS THE HIGH BID AT THE JUDICIAL
FORECLOSURE SALE WILL BE APPLIED TO
THE DEBT REGARDLESS OF ANY APPRAISED
VALUE OF THE MORTGAGED PROPERTY.
Springs North Augusta defaulted under the terms of the Note, and the Trust filed
an action to foreclose its lien on the Property. The Trust named Springs North
Augusta—the only other party to the mortgage—as the sole defendant in the
action. Springs North Augusta failed to answer, and the circuit court entered an
order of default and mandatory order of reference. The master-in-equity entered an
order of foreclosure and sale, ordering the Property to be sold at auction and the
proceeds applied to the outstanding principal and interest totaling $9,450,622.50.
On September 4, 2012, the Trust bid $6.6 million at the foreclosure sale. The
master held the sale open for thirty days for upset bids. The master held the
deficiency sale on October 4, 2012, and Second Avenue Holdings, LLC (Second
Avenue)—of which Buchanan was the sole member and manager—was the
successful bidder in the amount of $7,160,000 and made a deposit of $500,000
towards the bid. Second Avenue and the Trust then "reached an agreement"
pursuant to which Second Avenue assigned the bid back to the Trust "for value
received." The master entered an order of deficiency against Springs North
Augusta for $2,484,163.95 on October 26, 2012, which was amended on February
13, 2013, to $2,753,192.70, plus 15% annual interest.
2
Herbert Anderson Jr. and Herbert Keith Anderson owned Anderson North
Augusta, LLC. The Andersons and their company are not parties to this appeal.
3
See S.C. Code Ann. § 29-3-680 (2007) (providing "a defendant against whom a
personal judgment may be taken on a real estate secured transaction may waive the
appraisal rights as provided by this section").
Thereafter, the Trust brought this action to collect the deficiency judgment from
Guarantors. Guarantors asserted several defenses and counterclaims. First, they
claimed Second Avenue was created six days after the Trust entered its bid, that it
was created for competitive bidding on behalf of the Trust, and that the Trust
controlled it. Guarantors alleged the Trust's claims were barred by the equitable
doctrines of laches and unclean hands, equitable estoppel, judicial estoppel, and
waiver because the Trust violated the provisions of section 15-39-720 by bidding
through a "straw man" at the second foreclosure sale. In addition, Guarantors
alleged counterclaims for civil conspiracy, constructive fraud, and fraud and deceit.
After the trial court denied the Trust's motions to dismiss and for summary
judgment, the case proceeded to a jury trial on September 5, 2017. At trial,
Guarantors withdrew their counterclaims "as counterclaims, but not as the factual
basis for the defenses."
Stephen Wilkinson, who took over as the trustee of the Trust in August 2013,
testified Buchanan established the Trust, which was an irrevocable trust, to put
aside assets for his children and to eliminate estate taxes. He stated Buchanan
could give him financial advice concerning the Trust as needed and could add
funds to the Trust but had no other control of the Trust. Wilkinson explained that
as of the time of trial, the Property was actively on the market but the Trust had not
received any written offers to purchase.
Green testified that when Springs North Augusta first acquired the Property it was
worth $30 million. He agreed Springs North Augusta was unable to pay off the
loan because the real estate values had been "tanking" and they had no means to
repay the loan as a result. Green testified that when the Trust filed the foreclosure
action, he assumed the value of the land satisfied the Trust and he believed that he,
Redd, and Redd Green Investments were "clear." Redd testified that if asked the
same questions, his testimony would be the same as Green's.
Buchanan maintained he formed Second Avenue three or four years before the
foreclosure sale. He acknowledged, however, that Second Avenue filed its articles
of incorporation with the State of South Carolina on September 10, 2012.
Buchanan testified he met with the trustee after the foreclosure sale and the trustee
stated he would like to have the Property back as a long-term investment for the
Trust. Second Avenue therefore assigned the bid back to the Trust, and in
exchange, the Trust repaid Second Avenue the amount of the $500,000 deposit.
At the conclusion of the testimony, the Trust moved for a directed verdict, arguing
(1) Guarantors could not collaterally attack the foreclosure sale, (2) whether the
Trust violated the bidding statute was a question of law, (3) a violation of the
statute did not excuse the debt, (4) such a violation would only result in an offset,
which Guarantors had not established, and (5) at best, the jury could conclude a
subsequent breach occurred after the Guarantors were already in default of the
guaranty agreement, which would not excuse their performance. Although the trial
court initially noted that viewing the evidence in the light most favorable to
Guarantors, the jury could infer a violation of section 15-39-720 occurred, the trial
court concluded a violation of section 15-39-720 was not a defense on a guaranty
of a debt. It therefore directed a verdict in favor of the Trust for $4,781,882.65.4
Guarantors filed a motion for a new trial, which the trial court denied. This appeal
followed.
ISSUE ON APPEAL5
Did the trial court err in ruling that as a matter of law a mortgagee's violation of
section 15-39-720 in a prior foreclosure action cannot serve as a defense to a
subsequent action for breach of guaranty when the guarantor was not a party to the
prior foreclosure action?
STANDARD OF REVIEW
"In reviewing a motion for directed verdict, the appellate court applies the same
standard as the circuit court. The court must view the evidence and the inferences
that can reasonably be drawn in the light most favorable to the nonmoving party."
Coake v. Burt, 391 S.C. 201, 205-06, 705 S.E.2d 453, 455 (Ct. App. 2010) (citation
omitted). "Motions for directed verdict or JNOV should be denied if the evidence
yields more than one reasonable inference or its inference is in doubt." Allegro,
Inc. v. Scully, 418 S.C. 24, 32, 791 S.E.2d 140, 144 (2016). "An appellate court
will reverse only whe[n] there is no evidence to support the trial judge's ruling, or
whe[n] the ruling was controlled by an error of law." Ecclesiastes Prod. Ministries
v. Outparcel Assocs., LLC, 374 S.C. 483, 491, 649 S.E.2d 494, 498 (Ct. App.
2007).
4
This figure accounted for the additional $2,028,689.85 in interest that had
accrued since the foreclosure sale.
5
Guarantors' stated issues on appeal are virtually identical; thus, we address both
issues as one.
LAW AND ANALYSIS
Guarantors argue the Trust breached the implied obligation of good faith and fair
dealing when it violated section 15-39-720, thereby precluding the Trust from
collecting a deficiency from Guarantors. They assert section 15-39-720 protects
borrowers by permitting a mortgagee to bid only once, on the first day of the
foreclosure auction, and by forbidding the mortgagee or anyone acting on its behalf
from bidding a second time or offering an upset bid at the final auction.
Guarantors contend the Trust's violation of the statute deprived them of the Trust's
high bid. Guarantors therefore argue the trial court erred in concluding section
15-39-720 did not provide a defense to a suit to collect a payment obligation on the
guaranty. We disagree.
Section 15-39-720 states:
In all judicial sales of real estate for the foreclosure of
mortgages and sales in execution the bidding shall not be
closed upon the day of sale but shall remain open until
the thirtieth day after such sale, exclusive of the day of
sale. Within such thirty day period any person other than
the highest bidder at the sale or any representative
thereof in foreclosure and execution suits may enter a
higher bid upon complying with the terms of sale by
making any necessary deposit as a guaranty of his good
faith, and thereafter within such period any person, other
than such highest bidder at the sale or any representative
thereof, in foreclosure suits may in like manner raise the
last highest bid, and the successful purchaser shall be
deemed to be the person who submitted the last highest
bid within such period and made the necessary deposit or
guaranty. But the mortgagee or his representative shall
enter such bid as he desires at the time the sale is made,
and he and all persons acting in his behalf shall be
precluded from entering any other bid in any amount at
any other time except the single or last bid made by him
or in his behalf at the sale. . . .
The bidding shall be reopened by the officer
making the sale on the thirtieth day after the sale,
exclusive of the day of the sale, at eleven o'clock in the
forenoon and the bidding shall be allowed to continue
until the property shall be knocked down in the usual
custom of auction to the successful highest bidder
complying with the terms of sale. The sales officer shall
announce the sales about to be closed and shall receive
the final bids in such sales in the order determined by
him.
(emphases added).
We decline to address the question of whether the Trust violated section 15-39-720
because the trial court acknowledged evidence existed from which the jury could
find a violation. Nevertheless, we conclude the trial court did not err in ruling
Guarantors could not assert a violation of the statute as a defense to the Trust's
action to enforce the guaranty. The Guarantors' attempt to challenge the amount of
the deficiency judgment is barred by res judicata and even assuming a violation of
the statute, Guarantors failed to show such violation prejudiced them such that they
should be relieved from their responsibilities under the guaranty agreement.
"The doctrine of res judicata provides that final judgment on the merits of an action
precludes the parties or their privies from relitigating claims that were or could
have been raised in that action." Venture Eng'g, Inc. v. Tishman Constr. Corp. of
S.C., 360 S.C. 156, 162, 600 S.E.2d 547, 550 (Ct. App. 2004) (quoting In re S.N.A.
Nut Co., 215 B.R. 1004, 1008 (1997)); see also Pye v. Aycock, 325 S.C. 426, 432,
480 S.E.2d 455, 458 (Ct. App. 1997) ("To establish res judicata, three elements
must be shown: (1) the identities of the parties is the same as a prior litigation; (2)
the subject matter is the same as the prior litigation; and (3) there was a prior
adjudication of the issue by a court of competent jurisdiction."). "The concept of
privity rests not on the relationship between the parties asserting it, but rather on
each party's relationship to the subject matter of the litigation." Yelsen Land Co. v.
State, 397 S.C. 15, 22, 723 S.E.2d 592, 596 (2012). "The term 'privy,' when
applied to a judgment or decree, means one so identified in interest with another
that he represents the same legal right. One in privity is one whose legal interests
were litigated in the former proceeding." Roberts v. Recovery Bureau, Inc., 316
S.C. 492, 496, 450 S.E.2d 616, 619 (Ct. App. 1994).
"A guaranty of payment is an absolute or unconditional promise to pay a particular
debt if it is not paid by the debtor at maturity. Under an absolute guaranty of
payment, the creditor may maintain an action against the guarantor immediately
upon default of the debtor." Citizens & S. Nat'l Bank of S.C. v. Lanford, 313 S.C.
540, 543, 443 S.E.2d 549, 550 (1994) (citation omitted).
A guaranty is a contract and is to be construed by the
principles governing contracts. The construction of a
guaranty calls for a reasonable interpretation of the
language used in the instrument, and a court has the duty
to ascertain the intention of the parties at the time the
contract was made. The intention of the parties as
expressed in the guaranty should guide the court.
Peoples Fed. Sav. & Loan Ass'n v. Myrtle Beach Ret. Grp., Inc., 300 S.C. 277, 280,
387 S.E.2d 672, 673 (1989) (citation omitted).
This action and the foreclosure action involved the same subject matter: Springs
North Augusta's debt to the Trust and the foreclosure sale. In addition, both
actions arose from Springs North Augusta's default on the note and mortgage. The
master held a foreclosure sale, and no one challenged the foreclosure proceedings.
Following the sale, the master entered the deficiency judgment, which determined
Springs North Augusta's remaining debt to the Trust. Therefore, the master
decided the issue of the amount of the unpaid debt in the prior foreclosure action.
Although the Trust did not name Guarantors in the foreclosure action, Guarantors
were privies with Springs North Augusta. Both parties had a shared interest in
obtaining the lowest deficiency judgment possible because Guarantors were
responsible for any unpaid debt of Springs North Augusta. See Lanford, 313 S.C.
at 543, 443 S.E.2d at 550 ("A guaranty of payment is an absolute or unconditional
promise to pay a particular debt if it is not paid by the debtor at maturity."). Green
and Redd owned Redd Green Investments, and Redd Green Investments was one
of two companies that owned Springs North Augusta. Moreover, Green
acknowledged he was aware that Springs North Augusta defaulted on the loan and
that there was a pending foreclosure action. As direct or indirect owners of
Springs North Augusta, Guarantors had notice of the foreclosure action yet failed
to participate in those proceedings. Guarantors could have challenged Second
Avenue's participation in the bidding process in the prior action but did not do so.
Res judicata bars Guarantors' attempt to challenge the process by way of a defense
in this action. Because Guarantors cannot collaterally attack the foreclosure sale,
we conclude the trial court did not err in directing the verdict in favor of the Trust.
Further, even assuming a violation, Guarantors have failed to show the alleged
violation of the bidding process prejudiced them when no evidence shows what the
winning bid would have been had Second Avenue not placed the highest bid.
Guarantors concede they did not challenge the amount of the judgment in the
foreclosure suit and do not seek to undo the sale. The express terms of the
guaranty provided it was an absolute guaranty of payment and that Guarantors
waived their right to an appraisal. See Peoples Fed. Sav. & Loan Ass'n, 300 S.C. at
280, 387 S.E.2d at 673 ("A guaranty is a contract and is to be construed by the
principles governing contracts. The construction of a guaranty calls for a
reasonable interpretation of the language used in the instrument, and a court has
the duty to ascertain the intention of the parties at the time the contract was made.
The intention of the parties as expressed in the guaranty should guide the court."
(citation omitted)). Although Green testified the Property was worth about $30
million in 2009, there is no evidence—other than the amount of the highest bid at
the foreclosure sale—of the fair market value of the Property at the time of the
foreclosure sale. Guarantors argue evidence shows the Trust valued the Property at
$15 million following the foreclosure sale and it was therefore reasonable to
conclude the Trust would have bid the full debt amount of $9.5 million if it had
acted in compliance with the bidding statute. Guarantors mentioned this $15
million figure during the parties' pretrial discussions with the trial court, but no
evidence in the record supports this value. The original loan was for $7,590,000,
which Springs North Augusta used to purchase the Property. The winning bid of
$7,160,000 demonstrated no party was willing to bid more than $7,160,000 for the
Property and there was no evidence Guarantors would have been in a better
position had a third party purchased the Property. See Peoples Fed. Sav. & Loan
Ass'n v. Myrtle Beach Ret. Grp., Inc., 302 S.C. 223, 234 n.1, 394 S.E.2d 849, 855
n.1 (Ct. App. 1990) (Cureton, J., concurring) (noting "it is assumed that because a
third party did not buy the property at the foreclosure sale no one else was
interested in purchasing the property at the price paid by the lender"). Even
assuming the Trust violated the statute, Guarantors failed to demonstrate the sale
price would have been higher but for Second Avenue's actions and thus failed to
show the alleged violation prejudiced them. We therefore conclude the trial court
did not err in determining that even assuming the Trust violated section 15-39-720,
such violation could not serve as a defense to the enforcement of the guaranty.
Thus, the trial court did not err in granting the Trust's motion for a directed verdict.
CONCLUSION
For the foregoing reasons, we affirm the trial court's grant of a directed verdict in
favor of the Trust.
AFFIRMED.
HUFF and HEWITT, JJ., concur.