Opinion ID: 2756545
Heading Depth: 3
Heading Rank: 6

Heading: Post-Loan Activities

Text: 9 Case: 13-15677 Date Filed: 12/02/2014 Page: 10 of 49 By the spring of 2007, a dispute arose between H&H and the Bank regarding whether H&H could use the interest and the principal of the bonds to make the quarterly loan payments (“interest plus”), thereby “cannibalizing” the collateral, or whether, as the Bank contended, H&H could use only the interest from the bonds to make the payments. Although the Bank consented to H&H making its April 2007 payment using interest plus, the Bank decided that H&H would be required to make the July 2007 payment with interest only and communicated this decision to H&H. On June 26, 2007, Teers, Mock, and Hulse joined a conference call to discuss the issue with the representatives of the Bank, including its president and CEO, Douglas Thiessen. In an effort to convince the Bank to allow H&H to use the principal of the bonds to make the next loan payment, Hulse claimed that he was on the “front door” of refinancing the loan in a transaction with another lender that would pay the Bank off in full. Hulse also stated that “he had never cannibalized a pledged account of the hundreds that he had had,” prompting Teers to state, “well, not hundreds, but several.” At the conclusion of the conference call, the Bank agreed to entertain a proposal by H&H to make an interest plus payment on July 1, so long as the proposal specified the status of the possible refinancing and itemized how the loan 10 Case: 13-15677 Date Filed: 12/02/2014 Page: 11 of 49 proceeds had already been used. The parties also agreed that H&H would disclose the potential refinancing lender if the Bank executed a non-disclosure agreement. Accordingly, that same day, Mock faxed to the Bank a proposed nondisclosure agreement, and on June 27, 2007, CEO Thiessen signed and faxed the non-disclosure agreement back to H&H (“June 2007 non-disclosure agreement”). Then, on June 28, 2007, Mock sent a letter with exhibits to the Bank, signed by Hulse, confirming that H&H was completing a new loan transaction with Wells Fargo’s Energy Division2 and that H&H had used the loan proceeds only to purchase properties and develop properties and to further develop H&H affiliated organizations (“June 2007 letter”). The explanation of H&H’s use of the loan proceeds gave no indication that the proceeds actually had been used to purchase the bonds that were pledged as collateral. The Bank rejected the proposal, refusing to accept an interest plus payment for July 1. Within days, civil litigation commenced.