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Biel REO, LLC v. Lee Freyer Kennedy Crestview, LLC

Supreme Court of Mississippi

March 1, 2018

BIEL REO, LLC
v.
LEE FREYER KENNEDY CRESTVIEW, LLC AND LEE FREYER KENNEDY

          DATE OF JUDGMENT: 08/11/2016

         HARRISON COUNTY CIRCUIT COURT HON. LISA P. DODSON

          TRIAL COURT ATTORNEYS: RICHARD D. MITCHELL, RICK ANDREW La TRACE, JEFFREY LOEWER HALL, JEFFREY MONROE WILLIAMS.

          ATTORNEY FOR APPELLANT: RICK ANDREW La TRACE.

          ATTORNEYS FOR APPELLEES: JEFFREY MONROE WILLIAMS RICHARD D. MITCHELL.

          BEFORE RANDOLPH, P.J., KING AND BEAM, JJ.

          KING, JUSTICE.

         ¶1. In this case involving two default commercial notes, Biel REO, LLC ("Biel REO"), filed a breach of contract and guaranty action in the Harrison County Circuit Court. Note 1 was secured by property in Okaloosa County, Florida. While the Mississippi case remained pending, Biel REO foreclosed on the collateral property located in Florida and obtained a deficiency judgment against Lee Freyer Kennedy Crestview, LLC ("LFK Crestview"), in the Okaloosa County Circuit Court. Biel REO now appeals the Harrison County Circuit Court's finding that because Biel REO had obtained a judgment pursuant to Note 1 in Florida solely against LFK Crestview and because Biel REO's pleadings requested relief based on Note 1 itself, Note 1 no longer existed. Thus, the Continuing Guaranty signed by Lee Freyer Kennedy ("Kennedy") individually had nothing left to guarantee as to Note 1.[1] Therefore, Kennedy was not personally liable on any obligations relating to Note 1.

         ¶2. The Kennedy Defendants cross-appeal the trial court's finding that LFK Crestview was liable under Note 2 and that the Guaranty Agreement unambiguously encompassed Note 2. The Kennedy Defendants also appeal the trial court's decision to award Biel REO attorneys' fees and pre- and post-judgment interest in the amount of Note 2's stated default rate of eighteen percent.

         FACTS AND PROCEDURAL HISTORY

         ¶3. On March 14, 2007, LFK Crestview executed and delivered a Commercial Note ("Note 1"), numbered 4449, with Whitney National Bank ("Whitney Bank"), in which it agreed to pay the principal amount of $4, 100, 000, plus interest.[2] Note 1 was secured by approximately 287 acres of real estate property in Okaloosa County, Florida. Upon default, LFK Crestview agreed to pay reasonable attorneys' fees and costs of collection incurred by the holder of the note. The terms provided for a four-percent interest rate if any payment on the note was sixteen or more days late. Upon default, the interest rate increased to eighteen percent.

         ¶4. On the same day, Kennedy executed and delivered to Whitney Bank a Guaranty Agreement entitled "Continuing Guaranty, " also numbered 4449, in which Kennedy promised to repay all of the outstanding indebtedness of LFK Crestview, whether then existing or thereafter incurred, together with reasonable attorneys' fees and costs incurred in attempting to collect said indebtedness. The Guaranty Agreement stated:

Guarantor jointly, severally, and unconditionally guarantees to Bank the prompt payment in full of all obligations and liabilities of Borrower to Bank, direct or contingent, due or to become due, now existing or hereafter arising, including, without limitation, all future advances, with interest, attorneys' fees, expenses of collection and costs, and further including, without limitation, obligations to Bank on promissory notes, checks, overdrafts, letter-of-credit agreements, loan agreements, security documents, endorsements and continuing guaranties (collectively, the "Obligations"). . . .

         ¶5. On November 27, 2007, LFK Crestview executed and delivered a Promissory Note ("Note 2"), numbered 5726, with Whitney Bank, in which it agreed to pay the principal amount of $500, 000, plus interest.[3] Upon default, LFK Crestview agreed to pay reasonable attorneys' fees and costs of collection incurred by the holder of Note 2.[4] Again, the terms provided for a four-percent interest rate if any payment on the note was sixteen or more days late and, upon default, the interest rate increased to eighteen percent. Note 2 was unsecured.

         ¶6. On January 24, 2011, Whitney Bank assigned Note 1, Note 2, and the Continuing Guaranty to Biel Loan Co. III-A, LLC ("Biel Loan Co.").

         ¶7. On June 2, 2011, in the Circuit Court of Harrison County, Mississippi, Biel Loan Co. filed suit against LFK Crestview, LFK Alabama, Factory Hill, and Kennedy.[5] Biel Loan Co. alleged that Note 1 had matured and that LFK Crestview was in default under the terms of Note 1 for failure to make payments. Biel Loan Co. alleged that, as of March 8, 2010, LFK Crestview owed a principal balance of $3, 800, 000, accrued interest in the amount of $27, 866.67, late charges of $200, and reasonable (15%) attorneys' fees totaling $574, 210, with interest accruing at the per diem rate of $1, 873.97. The total amount owed as of March 8, 2010, was $4, 402, 276.67.

         ¶8. Additionally, Biel Loan Co. alleged that LFK Crestview was in default under the terms of Note 2. As of March 8, 2010, LFK Crestview owed $276, 868.56, consisting of a principal balance of $239, 731.94, accrued interest of $984.85, late charges of $38.48, and reasonable (15%) attorneys' fees in the amount of $36, 113.29, with interest accruing at the per diem rate of $111.80. In total, Biel Loan Co. in its First Cause of Action alleged that, as of March 8, 2010, LFK Crestview was indebted pursuant to Note 1 and Note 2 in the total amount of $4, 679, 145.23, with a collective per diem rate of $1, 985.77.

         ¶9. Biel Loan Co.'s Fourth Cause of Action alleged that, pursuant to the Continuing Guaranty, Kennedy was individually liable for those amounts. The defendants answered, each entity admitting the execution of the notes and/or guaranty agreements but denying all other allegations.

         ¶10. Thereafter, Biel Loan Co. moved the trial court to substitute as a party Biel REO and attached allonges as exhibits in support. Additionally, an Assignment and Assumption of Mortgage, Assignment of Leases and Rents and Loan Documents ("Assignment") was attached. This Assignment stated that on January 19, 2011, Tandy Loanco, LLC, a Delaware limited liability company, as Trustee for Biel Loanco Grantor Trust I, assigned and transferred to Biel REO the Real Estate Mortgage and Security Agreement dated March 14, 2007. The trial court granted the unopposed motion and substituted Biel REO as plaintiff.

         ¶11. Biel REO then moved the court to dismiss the causes of action in the complaint against LFK Alabama and Factory Hill and the causes of action against Kennedy that pertained to either LFK Alabama or Factory Hill. The trial court granted the motion, leaving as defendants only LFK Crestview and Kennedy.

         ¶12. While the Harrison County action was pending, Biel REO filed a judicial foreclosure action against LFK Crestview in the Circuit Court of Okaloosa County, Florida. Kennedy individually was not named as a party to the action. The Florida court then entered a Final Summary Judgment in the judicial foreclosure action, finding LFK Crestview liable to Biel REO for the amount of $5, 980, 469.46, with interest accruing at the rate of 4.75% per annum.

         ¶13. On May 10, 2013, the Clerk of Court held a judicial foreclosure sale of the mortgaged property, approximately 264.94 acres in Crestview, Florida. In an auction open for approximately two minutes, Biel REO purchased the property for $100. Subsequently, Biel REO filed a motion seeking a deficiency judgment in the Florida court. Biel REO's expert concluded that the best use of the property was as future residential development and valued the foreclosed property at $2, 300.87 per acre, for a total value of $610, 000. In contrast, LFK Crestview's expert valued the property "as is with [Planned Unit Development (PUD)] zoning in place" to be $10, 700, 000. LFK Crestview's expert additionally opined that the property "as-is with PUD zoning and with [Community Development Districts (CDDs) in place" had a potential value of $16, 900, 000. The property "as-is with PUD zoning, CDD bond is funded and Development Order is in place" was valued at $17, 900, 000.

         ¶14. On October 2, 2014, in Mississippi, the circuit clerk filed a Motion to Dismiss for Want of Prosecution. Biel REO responded, asserting that a related judicial foreclosure action was pending in the Circuit Court of Okaloosa County, Florida.[6]

         ¶15. On December 1, 2014, the trial court in Mississippi issued an order that required the parties to provide the court with a proposed Scheduling Order within forty-five days. The parties had a telephonic hearing with the trial court, after which the court entered a second order finding that a Scheduling Order was necessary in order to expedite and conclude the matter. The trial court set trial for November 30, 2015.

         ¶16. On July 17, 2015, the trial court in the Florida litigation entered a Final Deficiency Judgment against LFK Crestview in the amount of $5, 965, 485.24. The Florida court found the property value to be $610, 000. It then entered a final judgment against Crestview in the amount of $5, 965, 485.24.[7]

         ¶17. In Mississippi, Biel REO requested a continuance of the trial setting, stating that the trial court in the Florida litigation had entered a Final Deficiency Judgment against LFK Crestview in the amount of $5, 965, 485.24, and that Biel REO's Motion to Tax Attorneys' Fees and Costs remained pending in the Florida court. Biel REO argued that once it obtained a final judgment in the Florida litigation, the Harrison County case would be ripe for summary judgment. It also attached the post-foreclosure deficiency judgment in the Florida litigation.

         ¶18. The Kennedy Defendants argued that Biel REO's motion should be denied, because Kennedy was not a party in the Florida action and Biel REO was attempting either to deprive Kennedy of her right to a bench trial or to delay the Mississippi trial to avoid potentially inconsistent rulings as to whether Biel REO was entitled to a deficiency judgment. The Kennedy Defendants argued in the alternative that Biel REO endeavored to delay the trial so that it could argue res judicata before the Mississippi court. Biel REO argued instead that: "A continuance of the trial setting . . . serves the following important interests: the efficient use of judicial resources, preservation of the integrity of prior judgments and facilitation of the parties' reliance thereon, fostering respect for the rendering court, avoidance of inconvenience and harassment of the litigants and piecemeal litigation." It argued that, pursuant to Mississippi Code Section 11-7-303, a foreign judgment had the same effect as a judgment of a Mississippi circuit court and may be enforced the same as a domestic judgment.[8]

         ¶19. The trial court denied Biel REO's motion to amend the scheduling order, finding that "any amending of deadlines would be prejudicial and would delay the Trial in this cause."

         ¶20. Trial began on April 19, 2016, and concluded on April 20. The parties did not dispute that Note 1, Note 2, and the Guaranty Agreement were executed and that both Notes 1 and 2 were in default.[9] At trial Biel REO asserted that, because a final judgment had been entered in Florida, Note 1 no longer existed. Under Florida law, the note had merged into the final judgment. Therefore, it entered into evidence the Florida judgments and requested that the trial court consider the documents as evidence of Kennedy's obligation pursuant to the Continuing Guaranty.

         ¶21. After a bench trial, the trial court issued a judgment, stating:

as to Crestview, Biel already had a judgment related to the amounts claimed due under Note 1. It is not entitled to a second judgment on the same note for the same amounts. Biel has a judgment which it has previously indicated that it would "domesticate." It certainly has every right to enroll the Florida judgment in Mississippi should it choose to do so. It has not done so in this cause or otherwise.

         The trial court then expressed concern over why Kennedy had not been named as a party in the Florida litigation and held that the Florida judgment did not appear to be binding on Kennedy individually. It found that by Florida law, Note 1 was cancelled at the time that the foreclosure was allowed in Florida and that it no longer existed. It stated:

Had Biel proceeded with this cause first and obtained its judgment and then proceeded with the Florida foreclosure, the result would be different. However, it chose to proceed in Florida first and obtain its judgment there. Nor did Biel ever seek to amend its Complaint in this cause to proceed as to the Florida judgment rather than as to Note 1. There were no claims for recovery made based on the Florida judgment. Biel merely submitted the Florida documents as exhibits and made arguments about them, but never sought to amend to either change its claims or add claims. Biel cannot now proceed on Note 1 as Note 1 no longer exists. Nor can it proceed a second time against Crestview on the same claim. Further, as Note 1 no longer exists as a viable note, the Guaranty as related to Note 1 has nothing left to guarantee. The claims for recovery under Note 1 and for recovery under the Guaranty as it relates to Note 1 must be dismissed.

         As to Note 2, the trial court found that Biel REO clearly was entitled to a judgment against LFK Crestview in the principal amount of $226, 699.90, plus accrued interest through April 19, 2016, in the amount of $243, 931.72, and late fees of $2, 021.52, for a total of $472, 653.14. In addition, the trial court found the Guaranty Agreement applied to Note 2 and that Kennedy was liable individually for the amounts due.

         ¶22. Biel REO filed a motion for attorneys' fees. The Kennedy Defendants objected, arguing first that they were not liable for attorneys' fees that Biel Loan Co. had incurred. Second, they argued that all attorneys' fees associated with Biel REO were unnecessary and solely related to Biel REO's failure to move the case forward. And, in the alternative, the Kennedy Defendants argued that the amount sought was excessive in relation to the work performed, the hourly rate charged by the attorneys and paralegals who worked on the case was excessive, and that Biel REO may not recover attorneys' fees incurred from the Florida deficiency suit.

         ¶23. The trial court held that the Kennedy Defendants were not liable for attorneys' fees related to the Florida litigation, but were liable for attorneys' fees in the Mississippi litigation. It approved Biel REO's request for prejudgment and postjudgment interest at the rate of eighteen percent.

         ISSUES ON APPEAL

         I. Whether the trial court erred in its finding that the Florida judgments were not sufficient evidence of Kennedy's ...


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