PNC Bank, National Association v. Branch Banking and Trust Company

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
FEBRUARY 13, 2012
No. 11-10296
________________________ JOHN LEY
CLERK
D.C. Docket No. 8:08-cv-00610-JDW-AEP
PNC BANK, NATIONAL ASSOCIATION,
Plaintiff - Appellee,
versus
BRANCH BANKING AND TRUST COMPANY,
as acquirer of certain assets of Colonial Bank,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(February 13, 2012)
Before BARKETT, PRYOR and KRAVITCH, Circuit Judges.
PER CURIAM:
This lawsuit arises out of a loan participation agreement between Colonial
Bank, the predecessor-in-interest of Branch Banking and Trust Company, and
Mercantile Mortgage Company, the predecessor-in-interest of PNC Bank.
Colonial administered a loan to The Hammocks Cape Haze, LLC, which obtained
the loan to develop and construct condominium units. After trial, the district court
ruled that Colonial breached the loan participation agreement when it unilaterally
(1) permitted Cape Haze to build in excess of 92 condominium units at one time
and (2) accepted “release prices” of less than $74,060 for 52 units. Branch
Banking appeals the judgment entered in favor of PNC Bank. We affirm in part,
reverse in part, and remand for further proceedings consistent with this opinion.
I. BACKGROUND
Cape Haze planned to develop and construct 234 condominium units in 30
buildings in Southwest Florida and applied for a loan to finance the project.
Colonial agreed to lend Cape Haze $34,864,174, and the two parties signed a loan
agreement. Cape Haze offered as collateral the condominiums, an assignment of
rents and leases, and an unconditional guaranty of payment and performance.
Colonial agreed to disburse the loan proceeds in two portions. The first
portion consisted of $13,864,174 for the initial improvements to the property, and
the second portion consisted of a $21 million revolving line of credit for
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constructing condominiums. Because the second portion was a revolving line of
credit, the sums advanced could be repaid and re-advanced.
The loan agreement required Colonial to release its lien on a condominium
unit upon payment of a minimum “release price.” The release price was to equal
the greater of 90 percent of the gross list price of the condominium unit or 100
percent of the net proceeds from the sale of the condominium unit, but the release
price could not be less than 125 percent of the cost to construct the unit. Colonial
agreed to apply part of the “Release Price [payment] . . . to the . . . balance of [the
first portion of the loan], but in no event less than Seventy-Four Thousand Sixty
Dollars per Unit ($74,060.00).”
Colonial and Mercantile later entered a loan participation agreement, in
which Mercantile purchased a 42.6345 percent interest in the loan. The parties
agreed that Florida law would govern the enforcement and interpretation of the
participation agreement. Colonial retained authority to collect payments of
principal, interest, and fees and was required to remit to Mercantile its share of the
proceeds. Colonial also accepted liability for any material breaches of the
participation agreement, but the parties agreed that Colonial assumed no
“responsibility for the financial condition of [Cape Haze], for the security value of
any collateral the sufficiency thereof, or for the performance of any obligations of
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[Cape Haze].” Mercantile and Colonial agreed to add an additional requirement to
the loan agreement which provided that “[i]n no event shall [Cape Haze] have in
excess of ninety-two (92) Units under construction at any one time without the
Lender’s prior written consent.” The parties agree that “Lender” referred to
Colonial. Mercantile and Colonial also agreed as follows to limit the discretion of
Colonial to modify unilaterally the obligations of Cape Haze under the loan
agreement: “[Colonial] may not, without [the] prior written consent [of
Mercantile] . . . make . . . any . . . modification or . . . alteration in any of the
material obligations, covenants or agreements of [Cape Haze] . . . under any of the
Loan Documents . . . .”
After Colonial and Mercantile executed the participation agreement,
Colonial loaned Cape Haze funds to construct more than 92 condominium units at
one time. Each month Cape Haze submitted to Colonial requests for loan
proceeds and included information about the number of units under construction.
Colonial signed and approved those requests and advanced loan proceeds for those
units. As of September 12, 2006, Cape Haze had 140 units under construction.
As of November 20, 2006, Cape Haze had 162 units under construction.
Colonial released its lien on at least 52 condominium units even though
Cape Haze had paid Colonial release prices of less than $74,060. Colonial did not
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receive consent from Mercantile to accept release prices below $74,060.
In autumn of 2007, John Long, the Vice President of Mercantile, agreed to
extend the maturity date of the loan, although Long knew that Colonial had
released units in exchange for payments less than $74,060.
When Cape Haze defaulted on the new maturity date, Long complained to
Colonial about how it had administered the loan. On December 7, 2007, Long
sent to James Hogan, a Senior Credit Officer of Colonial, a letter that accused
Colonial of willful mismanagement and stated that Colonial had breached the
participation agreement. Long demanded that Colonial repurchase the
participation interest in the loan owned by Mercantile, but Colonial refused.
After Cape Haze defaulted on the loan, PNC Bank became the successor-in-
interest to Mercantile and filed a complaint against Colonial. PNC Bank alleged
that Cape Haze had (1) failed to pay the minimum release prices for condominium
units before Colonial released the units from the mortgage lien and (2) constructed
more than 92 units at one time. PNC Bank complained that Colonial had breached
its obligations under the participation agreement, which forbade Colonial from
modifying the material obligations of Cape Haze without the consent of
Mercantile. Branch Banking became the successor-in-interest to Colonial and
answered that Colonial had not breached the participation agreement. Branch
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Banking also argued that Mercantile had waived its objection to any alleged
breach because Long had extended the maturity date of the loan after he had
learned that Colonial had allowed Cape Haze to pay release prices less than
$74,060.
After a bench trial, the district court ruled in favor of PNC Bank. The court
ruled that Branch Banking owed $7,298,600 to compensate PNC Bank for the
construction of more than 92 units; $711,716 to compensate PNC Bank for the
release of units for less than the minimum release price; prejudgment interest of
$1,736,614.08; and post-judgment interest calculated at the federal statutory rate
II. STANDARD OF REVIEW
We review findings of fact for clear error and conclusions of law de novo.
Sea Byte, Inc. v. Hudson, 565 F.3d 1293, 1300 (11th Cir. 2009). We review a
damages award for “clear error” and “afford considerable deference to the district
court.” Hiatt v. United States, 910 F.2d 737, 742 (11th Cir. 1990). Under Florida
law, “[w]hether waiver has occurred is generally a question of fact, reviewed for
competent, substantial evidence.” Johnson v. Harrell, 922 So. 2d 1056, 1057–58
(Fla. Dist. Ct. App. 2006). An appellate court will reverse a waiver determination
“only if there is no competent substantial evidence to support the finding.” Hill v.
Ray Carter Auto Sales, Inc., 745 So. 2d 1136, 1138 (Fla. Dist. Ct. App. 1999).
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III. DISCUSSION
Branch Banking presents four issues on appeal. First, Branch Banking
argues that Colonial did not breach the participation agreement when it permitted
Cape Haze to construct more than 92 condominium units at one time. Second,
Branch Banking argues that Colonial did not breach the participation agreement
by releasing condominium units for a release price of less than $74,060. Third,
Branch Banking argues that the district court clearly erred when it determined that
Long’s decision to extend the maturity of the loan did not waive the right of
Mercantile to object to the alleged breaches of the participation agreement.
Fourth, Branch Baking argues that the district court clearly erred when it
calculated the damages award. We discuss each issue in turn.
A. Colonial Did Not Breach the Participation Agreement When it Permitted Cape
Haze to Build in Excess of 92 Units at a Time.
The district court erred when it found that Colonial breached the
participation agreement when it permitted Cape Haze to build in excess of 92 units
at one time. The loan agreement allowed Cape Haze to obtain permission from
Colonial before it built more than 92 units: “In no event shall Borrower [Cape
Haze] have in excess of ninety-two (92) Units under construction at any one time
without Lender’s prior written consent.” Because PNC Bank and Branch Banking
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agree that “Lender” refers to Colonial, Cape Haze fulfilled its obligation under the
loan agreement when it obtained written permission from Colonial to build more
than 92 units; Colonial did not “modify” the obligations of Cape Haze when
Colonial granted this permission to Cape Haze. We must give meaning to each
and every word in an agreement, see Equity Lifestyle v. Fla. Mowing, 556 F.3d
1232, 1242 (11th Cir. 2009), and any other interpretation ignores the phrase,
“without Lender’s prior written consent.”
Nothing in the agreement required Colonial to obtain the consent of
Mercantile before granting Cape Haze permission to build additional units. When
the parties to the participation agreement added the requirement of written consent
to build more than 92 units, Mercantile could have required that Cape Haze obtain
permission from both Colonial and Mercantile, but Mercantile executed an
agreement that required Cape Haze to obtain permission only from Colonial.
B. Colonial Breached the Participation Agreement When it Accepted Release
Prices Less Than the Minimum Price Specified by the Loan Agreement.
Branch Banking offers three arguments for why Colonial did not breach the
participation agreement by releasing 52 units for less than $74,060: (1) the loan
agreement granted Colonial the discretion to accept release prices less than
$74,060; (2) Colonial could not comply with the terms of the loan agreement; and
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(3) the decision of Colonial to accept lower release prices was reasonable under
the circumstances. These arguments fail.
Branch Banking argues that Colonial had the sole discretion to determine
the release prices because section 16(g) of the participation agreement forbade
Colonial from releasing “any security for the loan other than releases made in
connection with the sale of the units to third party purchasers” without the
permission of Mercantile. Branch Banking argues that, because Colonial could
release a condominium unit from the mortgage lien without the permission of
Mercantile, Colonial could also determine the conditions of that release, but this
argument fails.
Colonial breached section 16(a) of the participation agreement when it
failed to obtain permission from Mercantile to waive the requirement of payment
of a minimum release price. Section 16(a) of the participation agreement stated
that Colonial could not modify the material obligations of Cape Haze under the
loan agreement without first obtaining consent from Mercantile, and the loan
agreement obliged Cape Haze to pay Colonial a release price of at least $74,060
for each unit. This obligation was material because the acceptance of a lower
release price increased the riskiness of the loan.
Branch Banking defends its release of units for less than the release price on
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the ground that it was impossible to calculate the cost of constructing each
condominium unit, but this argument fails. Although the loan agreement required
Colonial to accept no less than 125 percent of the cost to construct the
condominium unit, the agreement also provided that Cape Haze had to pay
Colonial at least $74,060 per unit. As the district court found, Colonial released
52 units for less than $74,060.
Branch Banking also argues that the reasons Colonial accepted lower
release prices were reasonable, but the soundness of that business decision is not
at issue. Section 16(a) of the participation agreement forbade Colonial from
unilaterally modifying the material repayment obligations of Cape Haze. The
requirement of a minimum release price was material because it was intended to
ensure that a sufficient amount of the loan would be paid from the closing of each
unit.
C. Mercantile Did Not Waive the Right to Object to an Alleged Breach of the
Participation Agreement.
Branch Banking argues that Mercantile waived the right to object to an
alleged breach of the participation agreement when Long agreed to extend the loan
with knowledge that Colonial had mismanaged the loan, but this argument fails
too. Under Florida law, waiver is “the voluntary and intentional relinquishment of
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a known right.” Sacred Family Invs., Inc. v. Doral Supermkt, Inc., 20 So. 3d 412,
415 (Fla. Dist. Ct. App. 2009) (internal quotation marks omitted). Long did not
“voluntar[ily] and intentional[ly] relinquish[]” the right to object when he
extended the maturity of the loan because he “raised ‘serious problems’ with how
the loan had been handled” and “wrote a blistering letter to Hogan [of Colonial],
accusing Colonial of mismanagement and putting Colonial on notice that
[Mercantile] considered Colonial to be in default of the participation agreement.”
In the light of this evidence, the district court was entitled to find that Long’s
decision to extend the loan maturity date as an “accommodation to [Cape Haze] . .
. [in] a declining market,” did not waive the right of PNC Bank, as successor to
Mercantile, to sue Colonial for breach of the participation agreement.
D. The District Court Did Not Clearly Err When it Calculated Damages.
Branch Banking alleges that the district court erred in three ways when it
calculated damages. First, Branch Banking argues that PNC Bank was not entitled
to damages because Colonial and Mercantile agreed to share the risk that Cape
Haze would default on the loan. Second, Branch Banking argues that the district
court made too many assumptions in calculating the damages arising from the
acceptance of insufficient release prices. Third, Branch Banking challenges the
award of prejudgment interest to PNC Bank. Each of these contentions fail.
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The participation agreement provided that Colonial was liable for its material
breaches of the agreement, and the district court found that the damages PNC
Bank suffered were caused by the breach of the participation agreement, not by
bad market conditions that neither party could have foreseen. PNC Bank is
entitled to damages because Colonial transformed a “prudently underwritten loan .
. . into an entirely reckless act” when it unilaterally altered the “fundamental terms
and conditions of the loan.” Penthouse Int’l LTD v. Dominion Fed. & Sav. Loan
Ass’n, 855 F.2d 963, 981 (2d Cir. 1988).
Branch Banking fails to explain how the district court clearly erred in its
calculation of damages based on the acceptance of insufficient release prices. The
district court determined that Colonial breached the participation agreement when
it accepted release prices below $74,060 for 52 units. The district court then
considered the shortfall for each of the 52 units and multiplied the total shortfall
by the loan participation percentage owned by Mercantile and arrived at $711,716.
Branch Banking argues that PNC Bank “doubl[y] recover[ed]” when it
received prejudgment interest from October 20, 2007, through December 20,
2007, but this argument is based on the erroneous assumption that PNC Bank
received contractual interest payments from Cape Haze during the prejudgment
period. The district court found that Cape Haze failed to pay any contractual
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interest during the prejudgment period, and Branch Banking does not challenge
that finding. In its reply brief, Branch Banking argues that PNC Bank will recover
interest payments and late fees from Cape Haze in the future, but an argument
made for the first time in a reply brief is waived. United States v. Dicter, 198 F.3d
1284, 1289 (11th Cir. 1999).
IV. CONCLUSION
We AFFIRM the judgment against Branch Banking for the award of
damages of $711,716 based on the breach of section 16(a) of the loan participation
agreement by Colonial. We REVERSE the judgment against Branch Banking for
the award of damages of $7,298,600 based on the decision of Colonial to permit
Cape Haze to construct more than 92 units simultaneously. We REMAND for
further proceedings consistent with this opinion.
We AFFIRM in part, REVERSE in part, REMAND for further
proceedings consistent with this opinion.
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