Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Branch Banking and Trust Co. v. Market Logistics, Inc.

United States District Court, D. South Carolina, Greenville Division

June 2, 2016

Branch Banking and Trust Company, Plaintiff,
v.
Market Logistics, Inc., Michael G. Cale, and Mildred J. Cale, Defendants.

          OPINION & ORDER

          HENRY M. HERLONG, Jr., Senior District Judge.

         This matter is before the court on Branch Banking and Trust Company's ("BB&T") motion for default judgment against the Defendants, pursuant to Rule 55 of the Federal Rules of Civil Procedure. For the reasons stated below, the court grants BB&T's motion.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         On January 29, 2016, BB&T filed this action against Market Logistics, Inc. ("MLI" or "Market Logistics"), which was a borrower on a line of credit extended by BB&T, and against Michael and Mildred Cale, who were guarantors of MLI's obligations owed to BB&T. (Compl., ECF No. 1.) In the complaint, BB&T seeks: (1) enforcement against its security for the line of credit (first cause of action)[1]; (2) recovery on the line of credit against MLI (second cause of action); (3) recovery against the guarantors for their personal guarantees on the line of credit (third cause of action); (4) recovery against MLI and Michael Cale for violation of the Racketeer Influenced Corrupt Organization ("RICO") Act (fourth cause of action); and (5) recovery against MLI and Michael Cale for willful violation of the South Carolina Unfair Trade Practices Act ("SCUTPA") (fifth cause of action). The complaint sets forth a sum certain that was due on the line of credit, $4, 887, 745.87 as of January 27, 2016. This amount has been updated with collections by BB&T applied to reduce the amount claimed, plus interest, collection expenses, and attorney's fees added to the amount owed.

         BB&T served the summons, complaint, and BB&T's answers to Local Rule 26.01 interrogatories on Defendants MLI and Michael Cale on February 4, 2016, and on Defendant Mildred Cale on February 5, 2016. (Acceptance of Service, ECF No. 6.) Defendants failed to answer, move, or otherwise defend within the deadline for filing a response after service of process. On March 4, 2016, the Clerk of Court entered default. (Entry of Default, ECF No. 8.) The instant motion for default judgment is now before the court, and is ripe for consideration.

         II. DISCUSSION OF THE LAW

         A. Standard of Review

         Rule 55(b)(2) of the Federal Rules of Civil Procedure provides for the entry of default judgment by the court against a party in default. When a defendant defaults, the court is to accept as true the well-pleaded factual allegations in the complaint as to defendant's liability. See Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001). If the court determines that liability is established, it must then determine the appropriate amount of damages. Unlike allegations of fact, the court does not accept allegations regarding damages as true, but rather makes its own independent determination. E.g., Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 154 (2d Cir. 1999). In this regard, "[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed.R.Civ.P. 54(c).

         In this matter, the Defendants are in default. Therefore, BB&T's allegations in the complaint are deemed admitted and it is entitled to a default judgment against the Defendants pursuant to Rule 55(b)(2). Accordingly, the Defendants are liable on each of the well-pleaded causes of action.

         B. Findings of Fact and Conclusions of Law

         1. Findings of Fact

         1. On or about April 6, 2004, BB&T's and MLI's predecessors entered into a Loan and Security Agreement whereby BB&T agreed to provide a revolving loan of up to three million dollars ($3, 000, 000.00) for which BB&T would fund up to the loan amount of, among other things, 85 percent of MLI's eligible receivables as defined in the Loan and Security Agreement. (Compl. ¶ 8, ECF No. 1.)

         2. In conjunction with the Loan and Security Agreement, Defendants Michael and Mildred Cale each signed a personal and unlimited Guaranty on or about April 6, 2004, for the debts of MLI, including any future debts incurred by MLI. (Id. ¶ 10, ECF No. 1.)

         3. The loan documents were often amended, restated, reaffirmed, or otherwise modified and updated. However, in all instances where the loan documents were updated, the line of credit remained an asset based loan in that BB&T (or its predecessor) would advance to MLI up to 80 or 85 percent of MLI's eligible receivables, and MLI was obligated to accurately report those receivables to BB&T in order to secure advances under the line of credit. (Id. ¶ 11, ECF No. 1.)

         4. The most recent amended loan agreement and Note Modification Agreement were executed on or about September 20, 2013, by which BB&T provided MLI a revolving line of credit of seven million dollars ($7, 000, 000.00), to be funded up to the loan amount by bank advances of up to 85 percent of certain eligible accounts of the Borrower. (Id. ¶ 12, ECF No. 1.)

         5. The Guaranty Agreements of Michael and Mildred Cale were last updated on October 31, 2014, in conjunction with a Loan Modification, Extension, and Forbearance Agreement. (Id. ¶ 13, ECF No. 1.)

         6. Market Logistics was obligated to submit to BB&T certain reports accurately reflecting their business operations so that BB&T could determine the limit of the credit line advances and could analyze its collateral for the line of credit. At the direction of Defendant Michael Cale, Market Logistics submitted weekly and/or monthly reports to BB&T by United States Mail, electronic mail, and other means. These documents were authenticated by the actual or electronic signatures of Michael Cale and on occasion by the controller or chief financial officer of Market Logistics. (Compl. ¶ 14, ECF No. 1.) Overall, Michael Cale exercised control over Defendant Market Logistics. (Id. ¶ 46, ECF No. 1.)

         7. BB&T based its decisions to continue lending and to increase Market Logistics' credit line over the course of the borrowing relationship upon the purported accuracy of reports submitted by Market Logistics on its business operations (the "borrowing base reports"). Based upon the company's increased assets, primarily accounts receivable, BB&T increased the credit line incrementally, until it reached the seven million dollars ($7, 000, 000.00) limit. (Id. ¶ 15, ECF No. 1.)

         8. By way of examples of the borrowing base reports, on or about July 2, 2015, MLI submitted to BB&T a Loan Base Report that showed an accounts receivable balance of $7, 818, 950.68 and a loan balance of $5, 657, 918.88. On or about August 24, 2015, MLI submitted to BB&T a Loan Base Report for August 13-24 that showed an accounts receivable balance of $6, 341, 770.41 and a loan balance of $6, 065, 603.56. (Id. ¶ 16, ECF No. 1; Pl. Mot. Def. J. Ex. 2 (Lioy Aff. ¶ 9), ECF No. 10-2.)

         9. On or about August 31, 2015, BB&T conducted a field exam of Market Logistics' books and records. Through verification of all outstanding accounts receivable as reported by Market Logistics during the field exam, BB&T was able to determine that Market Logistics, under Michael Cale's direction and control, had falsified the August 24 Loan Base Report by significantly overstating Market Logistics' eligible receivables upon which Market Logistics could borrow from BB&T. Instead of $6.4 to $7.8 million in eligible receivables recently reported by Market Logistics, Market Logistics had less than $1.0 million in eligible receivables upon which to borrow up to 85 percent on its line of credit from BB&T. Therefore, instead of BB&T having a loan fully secured by Market Logistics' eligible accounts receivable, BB&T's loan was significantly under-secured by the collateral, which resulted in BB&T's ultimate loss of almost $5 million. (Compl. ¶ 17, ECF No. 1.)

         10. Market Logistics' borrowing base reports for the several months prior to August 2015 consistently showed eligible receivables to be at approximately the same overstated and inaccurate level in order to induce BB&T to continue advancing money on the line of credit. Even through the date of the field exam, Market Logistics' general ledger and accounts receivable agings' records continued to inaccurately support the amount reported in the falsified borrowing base reports. (Id. ¶ 18, ECF No. 1.)

         11. Based upon the false borrowing base reports and other fraudulent information which was submitted by Defendants MLI and Michael Cale, BB&T agreed to continue lending to Market Logistics and increased the amount of money it loaned to Market Logistics. Market Logistics and Michael Cale intentionally and fraudulently led BB&T to believe that the loans were fully secured by what should have been liquid collateral of MLI's eligible receivables. (Id. ¶ 41, ECF No. 1.)

         12. Upon discovery of the falsified borrowing base reports, Grant Thornton, LP ("Grant Thornton") was engaged to conduct a forensic analysis of MLI's financial records. (Pl. Mot. Def. J. Ex. 2 (Lioy Aff. ¶ 2), ECF No. 10-2.) Based on the analysis of the available data, Grant Thornton identified a "lapping scheme" perpetrated by MLI, and further identified the disbursement by MLI of over $10, 000, 000 directly to or for the benefit of Michael Cale from 2004 to 2015, including $9, 146, 292 in a five-year period between 2005 and 2009. (Id. Ex. 2 (Lioy Aff. ¶ 11), ECF No. 10-2.)

         13. In connection with the lapping scheme and by way of example, Grant Thornton identified fourteen wire payments in May and June, 2015, paid to MLI from MLI's customer Victory Wholesale Grocers ("Victory") where MLI misapplied the payment to older, already paid invoices. For example, on May 12, 2015, MLI received a wire from Victory in the amount of $35, 549.40. The customer instructed MLI to apply the payment to invoices 147471, 147452, 1474651. However those invoices were not credited with the payment and were reported as outstanding balances due to MLI (valid collateral) in the July 2, 2015 Loan Base Report. MLI applied the payment to older invoices 147248, 147081, 147256, and 146921. The fourteen payments misapplied by MLI in just the two-month period of May and June, 2015, totaled $551, 767.45, thereby inaccurately inflating the eligible receivables upon which MLI could borrow by that amount for just one of MLI's customers. (Id. Ex. 2 (Lioy Aff. ¶ 13), ECF No. 10-2.)

         14. Defendants MLI and Michael Cale engaged in a pattern of behavior over the course of Market Logistics' borrowing relationship with BB&T in furtherance of Market Logistics' fraudulent ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.