Court Opinion

ID: 4117424
Source: CourtListenerOpinion
Date Created: 2017-01-20 19:01:11.347349+00
Date Added: 2024-06-11T07:45:48.067689
License: Public Domain

Case: 15-14904    Date Filed: 01/20/2017    Page: 1 of 36

                                                              [DO NOT PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                       FOR THE ELEVENTH CIRCUIT
                         _______________________

                                No. 15-14904
                          ________________________

                   D.C. Docket No. 6:12-cv-00785-PGB-GJK

SENTINEL CAPITAL ORLANDO, LLC,

                                                         Plaintiff-Appellant,

                                     versus

CENTENNIAL BANK,
as successor-in-interest to Old Southern Bank
by asset acquisition from the FDIC as Receiver for Old
Southern Bank,

                                                        Defendant-Appellee.

                          ________________________

                  Appeal from the United States District Court
                      for the Middle District of Florida
                        ________________________

                               (January 20, 2017)
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Before WILLIAM PRYOR and ROSENBAUM, Circuit Judges, and UNGARO, *
District Judge.

PER CURIAM:

       This lawsuit arises out of a loan participation agreement that was entered

into between The Bankers Bank NA, the predecessor-in-interest of Appellant-

Plaintiff, Sentinel Capital Orlando, LLC, and Old Southern Bank, the predecessor-

in-interest of Appellee-Defendant, Centennial Bank. After a three-day bench trial,

the district court ruled that Sentinel failed to establish by competent evidence

Centennial defaulted under the terms of the participation agreement. Therefore,

Sentinel was not entitled to enforce a repurchase option in the agreement that

required Centennial to buy back Sentinel’s ownership in the loan under certain

circumstances. While the evidentiary record amply supports the district court’s

findings of fact and we agree with the ultimate decision in favor of Centennial, we

differ as to the legal conclusions applicable to such facts. Therefore, we affirm on

other grounds than those set forth in the district court’s order.

                                    I. BACKGROUND

    A. The Participation Agreement

*
  Honorable Ursula Ungaro, United States District Judge for the Southern District of Florida,
sitting by designation.
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     In 2007, The Bankers Bank, NA (“The Bankers Bank”) and Old Southern

Bank agreed to jointly loan approximately $15,000,000 to Ocoee Golf, LLC (the

“Borrower”) for the development of a residential community in Ocoee, Florida.

On September 26, 2007, The Bankers Bank and Old Southern Bank executed the

Participation Agreement (the “Participation Agreement” or the “Agreement”),

which sets forth the terms of the joint ownership of the Loan (the “Loan”).

      As defined in the Participation Agreement, The Bankers Bank was the

“Participating Bank,” or “Participant,” and the majority interest owner, responsible

for loaning 56.13% of the Loan principal. Old Southern Bank was the

“Originating Bank” and the minority interest holder, responsible for loaning

43.87% of the Loan principal.

      On December 30, 2009, Club Docks, LLC assumed The Bankers Bank’s

interest and became the Participating Bank. Centennial Bank (“Centennial”)

became the Originating Bank on March 12, 2010, in place of Old Southern Bank.

Sentinel Capital Orlando, LLC (“Sentinel”) did not acquire its interest in the

Participation Agreement from Club Docks until May 26, 2011. It is noteworthy for

the purposes of evaluating Sentinel’s claims that when Sentinel purchased its

interest, the Loan had been in default since before Club Docks had purchased the

majority interest and foreclosure proceedings were being prosecuted by

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Centennial; most of the conduct that Sentinel complains of in this case occurred

prior to its acquisition of the participation interest.

    B. The Borrower’s Default on the Loan

       On October 4, 2008, the Borrower defaulted on the Loan by failing to make

the first payment. At that time, The Bankers Bank and Old Southern Bank were

the Participating Bank and Originating Bank, respectively, and a total amount of

$5,612,425.26 in loan proceeds had been disbursed to the Borrower. 1 The

Borrower never made a payment under the Loan.

    C. Foreclosure Action and Borrower’s Offers

       On July 1, 2010, approximately four months after acquiring its interest in the

Participation Agreement, Centennial initiated a foreclosure action on the Loan. In

November 2010, the Borrower and the guarantors presented a settlement offer to

Centennial. It is unclear whether this offer was conveyed to Club Docks.

Centennial rejected the offer.

       On December 6, 2011, a mediation session was held in the foreclosure

action between Centennial and the Borrower and the guarantors. Centennial did

not inform Sentinel of the mediation, and Centennial did not advise Sentinel that

the Borrower made settlement offers that Centennial rejected during the mediation.

1
 The Participating Bank had disbursed $3,150,254.30, and the Originating Bank had disbursed
$2,462,170.96. No additional monies were disbursed to the Borrower.
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The Borrower also offered Centennial a deed in lieu of foreclosure. Centennial

rejected the Borrower’s offer without advising Sentinel of the offer or its decision.

   D. Third-Party Offers

      Centennial also received various third-party offers to purchase the Loan that

it rejected. Encore Housing made an offer on May 18, 2010 to purchase the note

or property for $3.8 million, with an expiration date on the offer’s face of ten (10)

calendar days. It is unclear whether this offer was conveyed to Club Docks. On

July 19, 2010, Centennial received an offer from Ryan Homes for $3.25 million,

which Centennial did not communicate to Club Docks. Three months later, on

October 20, 2010, the offer was retransmitted by Ryan Homes to Centennial, but it

also was not conveyed to Club Docks.

      On June 27, 2011, Centennial received a third offer from Embassy Homes

for $3.8 million, which Centennial rejected. At that point, Sentinel had acquired its

majority interest. Centennial did not convey this offer to Sentinel.

   E. Interest Rate

      The Loan documents provide that the interest rate on the Loan may be raised

to a default interest rate equal to the maximum allowed under Florida law, which

was 25%. Specifically, the note provides that the standard interest rate “shall” be

raised to the default interest rate at “the bank’s discretion.” Under the note, the

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“Bank” was defined as Old Southern Bank, which was Centennial’s predecessor-

in-interest.

       While the foreclosure action was pending, on November 4, 2011, Centennial

sent a proposed payoff amount based on 3.75%, the standard interest rate. On

November 8, 2011, Sentinel sent correspondence to Centennial asking Centennial

why the default interest rate was not utilized in calculating the proposed payoff

amount. Thereafter, on November 9, 2011, Centennial sent a proposed payoff

amount based on the 25% default interest.

       The interest rate issue was not raised again until May 6, 2013, when the

parties were finalizing a high-bid sale of the foreclosure judgment, presumably for

the purpose of establishing the amount of the deficiency judgment against the

Borrower and the guarantors. At that time, Sentinel directed Centennial to charge

the 25% default interest rate, but Centennial refused.

       Notwithstanding the disagreement as to the interest rate, on May 9, 2013,

Sentinel warned Centennial that time was of the essence and directed Centennial to

move forward with the foreclosure transaction with Sentinel’s full reservation of

rights of all claims. To facilitate resolution of the Loan foreclosure litigation,

Sentinel and Centennial entered into a Stipulation, Non-Waiver, and Consent

Agreement that preserved all claims, notwithstanding the high-bid sale. The

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Stipulation, Non-Waiver, and Consent Agreement preserved the claims between

the parties.

       F. Foreclosure Settlement

       The foreclosure action was ultimately settled through a forbearance

agreement with the Borrower and the guarantors, which provided for entry of a

stipulated foreclosure final judgment to be sold at a high-bid sale. The final

judgment of foreclosure calculates interest at the Loan’s standard interest rate of

3.75%. The stipulated judgment was entered on June 17, 2013. The high-bid sale

resulted in a total payment to Centennial and Sentinel of $6.5 million. On January

29, 2014, stipulated final summary judgments of deficiency were also entered in

the amounts of $1,290,751.89 against the Borrower and the guarantors, but these

judgments are uncollectible.

                          II. PROCEDURAL HISTORY

       On April 23, 2012, Sentinel filed its Complaint in Florida state court against

Centennial, asserting a claim for specific performance. As the basis for its claim,

Sentinel sought to enforce Section 13 of the Participation Agreement, also known

as the Repurchase Clause (“Repurchase Clause” or “Repurchase Option”), alleging

a number of defaults by Centennial and its predecessor-in-interest. On May 23,

2012, Centennial removed the case to the United States District Court for the

Middle District of Florida based upon the district court’s diversity jurisdiction.

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      Sentinel filed an Amended Complaint, and then a Second Amended

Complaint and added allegations based on facts developed in discovery.

Centennial then moved to dismiss Sentinel’s Second Amended Complaint. While

the Second Amended Complaint and the motion to dismiss were pending,

Centennial filed a motion for summary judgment as to each of the claims in

Sentinel’s Second Amended Complaint. The district court granted Centennial’s

summary judgment motion as to Counts I and II, which were claims alleging

breaches by Centennial’s predecessor-in-interest, because the court determined that

those claims were barred by the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (“FIRREA”). However, the district court denied

Centennial’s motion as to Count III – the breach of contract claim against

Centennial – because the court found FIREEA was inapplicable to the alleged

breaches by Centennial itself. Sentinel filed its own motion for summary judgment

as to Count III. The district court denied Sentinel’s motion as to Count III,

concluding that disputed issues of fact precluded summary judgment for Sentinel.

      Additional discovery regarding Count III followed, and Sentinel then filed a

Third Amended Complaint. Centennial answered and raised a number of

affirmative defenses. Centennial also asserted a counterclaim against Sentinel

based on Sentinel’s alleged breach of the Participation Agreement in failing to pay

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its pro rata share of loan administration expenses for the loan. Sentinel answered

the counterclaim and raised defenses.

      In February 2015, the district court held a three-day bench trial on Count III

of Sentinel’s Third Amended Complaint and Centennial’s counterclaim. The

district court issued its Memorandum Opinion and Order on October 1, 2015 and

ordered that judgment be entered in favor of Centennial on Count III in Sentinel’s

Third Amended Complaint. The court also ordered that judgment be entered in

favor of Centennial on Centennial’s counterclaim. The Clerk of Court entered

judgment as directed for $24,381.60 in favor of Centennial and assessed

$12,366.88 for costs at Centennial’s request. Sentinel then filed this appeal.

                          III. STANDARD OF REVIEW

      On appeal of a district court order from a bench trial, we review the district

court’s conclusions of law de novo and its findings of fact for clear error. Crystal

Entm’t & Filmworks, Inc. v. Jurado, 643 F.3d 1313, 1319 (11th Cir. 2011). We

will not upset a district court’s finding of fact unless it is “clearly erroneous.” Fed.

R. Civ. P. 52(a); see Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223, 1230

(11th Cir. 2009). By that standard, we may review the district court’s findings of

fact if, after viewing all the evidence, we are “left with the definite and firm

conviction that a mistake has been committed.” HGI Assocs., Inc. v. Wetmore

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Printing Co., 427 F.3d 867, 873 (11th Cir. 2005) (citing United States v. United

States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).

                                 IV. DISCUSSION

      We agree with the district court that Sentinel failed to establish that

Centennial defaulted under the terms of the Participation Agreement, and

therefore, Sentinel cannot invoke the Repurchase Clause, or Put Option, set forth in

Section 13.

      Upon de novo review of the district court’s conclusions of law, we do not

agree with the district court’s construction of the Participation Agreement to the

extent that the district court found Sentinel was required to prove that it had

incurred a loss due to the Originating Bank’s lack of commercially reasonable

conduct, negligence, or willful misconduct as a predicate for enforcement of the

Repurchase Option provided for in Section 13. We also do not agree that Section

10 is inapplicable post-default insofar as it requires Centennial, in its reasonable

judgment, to keep Sentinel fully informed as to any and all information that it has

or receives relating to the Loan, the value of the collateral securing the Loan, and

the Borrower.

      However, in applying our construction of the relevant provisions, we reach

the same ultimate conclusion as the district court that Sentinel failed to prove a

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breach sufficient to trigger the Repurchase Option in Section 13. Therefore, and

for the reasons stated herein, the district court’s ruling will be affirmed.

   1. The District Court Erred in its Construction of the Participation
      Agreement.

      On appeal, Sentinel argues that the district court erred in its construction of

Sections 4, 10, 11, 13, and 16 of the Participation Agreement. Specifically,

Sentinel argues that the district court erred in refusing to enforce the Repurchase

Option because it erred in concluding that: (1) Sections 4, 10, and 11 did not

require Centennial to convey every piece of information that it had or received

relating to the Loan or the Borrower; and (2) Section 16 did not allow Sentinel to

control the course of conduct by requiring Centennial to employ the default interest

rate after the Borrower’s default. We separately address the relevant provisions of

the Agreement.

      A. Section 13 of the Participation Agreement

      Because Sentinel ultimately seeks to enforce the Repurchase Clause set forth

in Section 13, we begin our analysis with this provision of the Participation

Agreement. Section 13 of the Participation Agreement is entitled, “Breach by

Originating Bank,” and provides as follows:

             Participating Bank shall, in addition to all other remedies
             available to it at law or in equity, have the unilateral right (but
             not the obligation) to sell to Originating Bank, regardless of
             self-imposed lending limits of Originating Bank, its
             Participation Interest up to the amount that Originating Bank is
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              permitted to purchase without violating regulatory lending limit
              requirements, for an amount equal to the aggregate of all
              principal, interest, fees and other sums due with respect to its
              Participation Interest or the portion that is being sold, if:

                      a. Originating Bank shall fail to cure any default by the
                      Originating Bank under this Agreement within thirty (30)
                      days after notice from Participating Bank specifying the
                      default[.]

       Under the terms of the Agreement, before Sentinel is permitted to invoke the

Repurchase Clause in Section 13, Sentinel must establish: (1) Centennial

committed a “default” under the terms of the Participation Agreement; and (2)

Sentinel provided notice to Centennial of this “default,” which Centennial failed to

cure within thirty (30) days of receiving such notice. 2

       As the district court observed, the term “default” is not expressly defined

within this section, or within any other section of the Agreement. Under Georgia

law, “the whole contract should be looked to in arriving at the construction of any

part.” O.C.G.A. § 13-2-2(4). Therefore, we must construe the Participation

Agreement as a whole to ascertain the duties that Centennial, as the Originating

Bank, owed to Sentinel, as the Participating Bank.

2
  Because we do not find that Centennial committed a default under the terms of the Participation
Agreement, our analysis throughout this opinion does not consider whether Sentinel provided
adequate notice to Centennial, which is a condition precedent that must be satisfied prior to
invoking Section 13.
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      B. Sections 4, 10, and 11 of the Participation Agreement

      Sentinel insists that in reading Sections 4, 10, and 11 together, the parties

intended for Centennial to be completely open in communications with Sentinel,

and Centennial was prohibited from withholding any information from Sentinel

that related to the Loan, the collateral, and the Borrower, and that its failure to

observe this standard is a breach allowing it to exercise the Repurchase Option in

Section 13.

      In support of its position, Sentinel heavily relies upon the Middle District of

Georgia’s decision in Sun American Bank v. Fairfield Financial Services, 690 F.

Supp. 2d 1342 (M.D. Ga. 2010), where the district court analyzed provisions in a

loan participation agreement identical to those in this case and concluded the

originating bank was required to keep the participating bank fully informed of all

matters relating to the loan, the value of the collateral securing the loan, and the

borrower.

      In this case, the district court did not directly address Sections 4 and 11 of

the Agreement in its order; but the court did conclude that Centennial was required

to comply with Section 10. The court further found that Section 10 only applies up

until the time the Borrower defaults. The district court concluded Centennial was

no longer required to convey pertinent information to Sentinel once the Borrower

defaulted on the Loan.

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      On appeal, Sentinel argues the district court’s analysis was incomplete

because it failed to address or give any weight to Sections 4 and 11 prior to

reaching its conclusion that Centennial did not owe a duty to Sentinel pursuant to

Section 10 to convey every piece of information relating to the Loan, the collateral,

or the Borrower. Sentinel complains the district court’s analysis was contrary to

the district court’s analysis in Sun American, which construed Sections 4, 10, and

11 as a whole. Sentinel further insists that the district court erred in determining

that Centennial was no longer required by Section 10 to inform Sentinel about

settlement offers from the Borrower or third parties after the Borrower defaulted.

      We agree with the district court’s finding that Sections 4 and 11 are not

directly applicable to the claims made in this case. However, we consider Sections

4 and 11 to be relevant to the proper construction of Section 10, and for that

matter, the entire Agreement. We also do not agree that Section 10 only required

Centennial to convey information prior to the Borrower’s default. And, we find

the facts of Sun American are distinguishable from the facts of this case.

            i.     Sections 4 and 11 of the Agreement

      Section 4 is entitled “Credit Condition of the Borrower(s): Access to Credit

Information,” and states,

             It is understood and agreed that Participating Bank, and not
             Originating Bank, is responsible for making the ultimate credit
             decision through the Participating Bank’s own review of
             information pertaining to the Loan. Consequently, credit
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             evaluation performed by Originating Bank must be
             independently verified and supplemented by Participating
             Bank’s review of individual Borrower(s) information with
             respect to each Loan, sufficient for Participating Bank to make
             its own credit decision with respect to its purchase of a
             Participation Interest in the Loan and to monitor the Loan on an
             ongoing basis. In the event Originating Bank decides to
             terminate its credit relationship with a Borrower, or materially
             downgrades its relationship with a Borrower, Originating Bank
             promptly will provide written notice of such determination to
             Participation Bank.

      Section 11 is entitled “Files and Records,” and provides, in pertinent part, as

follows:

             Originating Bank shall keep and maintain at its offices, such
             files and records of matters pertaining to the Loan, including all
             such documentation, actions, and information as is set forth in
             Participating Bank’s commitment letter, if any, which is
             expressly incorporated by reference herein, as it would were the
             Loan made solely by Originating Bank. All such files and
             records shall be available for inspection by Participating Bank
             or its agent during normal business hours.

      Sections 4 and 11 do not have any direct relevance to this case. With respect

to Section 4, we agree with Centennial that this provision placed an affirmative

burden on Sentinel, not Centennial, to review every piece of information pertaining

to the Loan. This section only required the Originating Bank to give notice to the

Participating Bank if it was terminating or downgrading its credit relationship with

the borrower; however, this case does not involve any allegation that Centennial

failed to notify Sentinel of a decision to terminate or downgrade its credit

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relationship with the Borrower. Therefore, Section 4 does not directly apply to

Sentinel’s claims.

       As for Section 11, this section required Centennial to make certain records

available to Sentinel. Once again, we do not find Centennial had any affirmative

obligation in Section 11 to convey every piece of information to Sentinel that it

had in its possession or received. In any event, there is no allegation that

Centennial refused Sentinel the right to review files or records pertaining to the

Loan. There is also no allegation that Centennial failed to keep and maintain files

or records in accordance with Section 11. Accordingly, we do not agree with

Sentinel that Section 11 imposed an affirmative duty upon Centennial to convey

any and all information relating to the Loan or the Borrower, or that Centennial

breached Section 11 and is therefore entitled to the enforcement of the Repurchase

Option.

       However, we do agree with Sentinel that Section 10 should be construed in

light of the intent of the original parties that the Participating Bank be privy to

sufficient information to be the master of its credit risk. The problem here is that

the loan was known to be substandard and in foreclosure when Sentinel acquired

its majority interest.

           ii.     Section 10 of the Agreement

       Section 10, entitled “Default by Borrower,” states,

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             Originating Bank shall promptly, after Originating Bank’s
             having knowledge thereof, inform Participating Bank of any
             circumstances (a “default”) which in Originating Bank’s
             reasonable judgment: (a) constitute a material default under the
             Loan Documents and of the salient facts known to Originating
             Bank concerning such default; or (b) could have a material,
             adverse affect [sic] on the loan or the value of the Collateral
             securing the Loan.

      Section 10 further reads, “Originating Bank shall keep Participating Bank

fully informed with respect to such circumstances, and any actions taken by

Originating Bank in connection therewith.”

      In interpreting Section 10, the district court determined that this section

imposes the following two obligations: (1) the Originating Bank must inform the

Participating Bank of any circumstances which, in the Originating Bank’s

reasonable judgment, constitute a “material default” under the Loan Documents

along with the facts known to the Originating Bank; and (2) the Originating Bank

must inform the Participating Bank of information relative to the Borrower which,

in the Originating Bank’s reasonable judgment, may pose a material, adverse effect

on the Loan or the value of the collateral.

      We agree with the district court’s finding that because Sentinel was aware

the Loan was in default when it acquired its interest in the Participation Agreement

on May 26, 2011, the only part of this section relevant to the issues in dispute was

Centennial’s duty to promptly inform Sentinel of circumstances which in

Centennial’s “reasonable judgment . . . could have a material, adverse affect [sic]
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on the loan or the value of the Collateral securing the loan.” Thus, under the terms

of Section 10, Centennial was only obligated to convey information to Sentinel,

which in its reasonable judgment, may have had a material, adverse effect on the

Loan, the value of the collateral securing the Loan, or the Borrower.

      We conclude the district court went one step too far in its analysis, however,

when it determined Section 10 only applied to pre-default conduct, and once the

Borrower defaulted on the Loan, the Originating Bank was not required to provide

additional information that might have a material, adverse effect on the Loan or the

value of the collateral securing the Loan. The Agreement simply does not support

such a construction in the event of, for instance, a post-default loan modification.

      Thus, in reading the last sentence of Section 10, we find that under some

conditions, Centennial had a continuing obligation to keep Sentinel fully informed

of any subsequent circumstances and any actions relevant to the Borrower’s default

on the Loan. That is not to say that Centennial’s continuing obligation was without

limits, however. In complying with its continuing obligation, Centennial was still

permitted to use its “reasonable judgment” when conveying information to

Sentinel, and Centennial was only required to convey such information if, in

Centennial’s reasonable judgment, it was capable of having a “material, adverse

effect” on the Loan or the collateral securing the Loan.

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          iii.     Sun American is not Applicable to the Facts of this Case.

      Sentinel insists that a reading of Sun American Bank v. Fairfield Financial

Services, 690 F. Supp. 2d 1342 (M.D. Fla. 2010) supports its construction that

Centennial was required by Sections 4, 10, and 11 to inform Sentinel and its

predecessors-in-interest of any and all information relative to the Loan and that its

failure to do so requires the enforcement of the Repurchase Clause in Section 13.

In its order, the district court considered Sentinel’s citation to and reliance upon

Sun American. In one paragraph, the court concluded that Sun American was not

analogous to the instant case because Sun American involved an originating bank’s

default under Section 10 when it failed to inform the Participating Bank of a

downgrade in the borrower’s credit rating at a time when the Participating Bank

may have been able to back out of the deal. We agree with the district court’s

distinction, but we more fully set out our reasoning below.

      Similar to this case, Sun American involved an action alleging a breach of a

participation agreement due to an originating bank’s failure to convey information

that related to the status of an underlying loan to a participating bank. 690 F. Supp.

2d at 1344. Specifically, it was alleged that the originating bank failed: (1) to

convey information relating to changes in the borrower’s credit status, under

section 4 of the participation agreement; (2) to convey circumstances that may

have had a material, adverse effect on the loan, under section 10 of the

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participation agreement; and (3) to make its loan file available to the participating

bank, under section 11 of the participation agreement. Id. at 1346-1347.

      It is clear from Sun American that the originating bank was engaging in

deceptive conduct to ensure that the participant would remain committed to the

loan. Id. at 1361. The loan at issue called for the total sum to be disbursed to the

borrower in installments over time; therefore, it was highly material that the

adverse information was withheld from the participating bank until the final

installment was paid. Id. at 1344. And, the evidence showed that the originating

bank had intentionally withheld information relevant to the borrower’s

creditworthiness before all of the draws were funded in order to induce the

participating bank to continue making advances on the loan. Id. at 1367.

      At the summary judgment stage, the participating bank established that had

the information been conveyed by the originating bank, the participant would not

have entered the participation agreement in the first place; may not have funded

future construction draws; may have insisted on additional collateral; may have

required that future construction draws were drawn directed by vendors; and/or

may have prevented the originating bank from making a new loan to the borrower.

Id. Based upon these facts, the district court enforced the repurchase clause of the

participation agreement. Id.

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      The participant in Sun American acquired its interest prior to a default, and

continued to make advances on the loan in reliance on the creditworthiness of the

borrower because the originating bank failed to convey material, adverse

information. Id. at 1367. As the district court in this case correctly emphasized,

the failure to convey information in Sun American occurred “at a time when the

Participating Bank could have backed out of the deal.” Here, however, there is no

evidence that Centennial engaged in deceptive conduct or attempted to mislead

Sentinel or its predecessors-in-interest before or after the Borrower’s default. The

Loan was nonperforming at the time the offers discussed below were received, and

as explained herein, it cannot be said that any of the offers would have had a

“material, adverse effect” on the Loan.

      C. Section 16 of the Participation Agreement

      Sentinel further argues that it is entitled to the enforcement of the

Repurchase Option in Section 13 because Centennial breached Section 16, which

in subsection (b), required Centennial to consult Sentinel and have Sentinel

consent in writing before Centennial made or consented to any modification,

amendment, or termination of any material term or condition of the Loan

documents, including the post-default interest rate. Further, according to Sentinel,

once Centennial became aware of the Borrower’s default, Centennial was required

by Section 16(e) to notify and consult with Sentinel to agree on a course of action.

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Sentinel argues that once Centennial and Sentinel failed to agree on a course of

action, Centennial breached Section 16(e), pursuant to which Sentinel, as the

majority interest holder, should have had the sole right to control the course of

action.

      In analyzing Section 16, the district court concluded that Section 16(e)’s

meet-and-confer requirement was a one-time event, which was triggered upon the

Borrower’s initial default of the Loan. The court reasoned that “[t]his section does

not allow a Participating Bank who sits on its hands for ten days to later dictate the

course of action to be undertaken by the Originating Bank.” In addition, the

district court determined that any breach of the Participation Agreement by

Centennial was limited by Section 16(d), which would allow Sentinel to recover

only for damages or exercise the Repurchase Option in the event it could prove it

sustained losses due to Centennial’s lack of commercially reasonable conduct,

negligence, or willful misconduct. Therefore, the court found the limitation on

liability in Section 16(d) also extended to any breach of Section 10.

      We disagree with the district court’s construction of Section 16 to the extent

that it concluded: (1) the “meet-and-confer” requirement necessarily addressed the

initial default only; and (2) the limitation of liability in Section 16(d) is a limitation

on the circumstances under which Sentinel is entitled to exercise the Repurchase

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Option. Nonetheless, we affirm the district court because Sentinel failed to

establish a breach as required by Section 13.

      i.     Section 16(b): Consult and Obtain Written Consent

      Section 16 is entitled, “Administration of Loan” and sets forth Centennial’s

obligations as the Originating Bank in administering the loan and in the event of a

Borrower’s default. Section 16(b) states,

             Participating Bank shall, in all events be consulted and must
             consent, in writing, for Originating Bank to: (i) make or consent
             to any modification, amendment, or termination of any of the
             material terms or conditions of the Loan Documents (without
             limiting the foregoing, a “material” term includes the interest
             rate, the specific collateral pledged, guaranties made, scheduled
             term and maturity date, required covenants, and like
             provisions)[.]

      As the district court correctly noted in analyzing Section 16(b), Centennial

was required to consult and obtain Sentinel’s written consent before undertaking

certain conduct, such as modifying, amending, or terminating any of the material

terms or conditions of the Loan documents, including the interest rate. Thus, in

determining whether Centennial breached its duty under Section 16(b), as

discussed below, the question is whether Centennial intended to “modify, amend,

or terminate” the interest rate.

      ii.    Section 16(e): Meet and Confer

      Section 16(e) states,
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             Upon becoming actually aware of a default by Borrower(s)
             under any of the Loan Documents or with respect to the
             Collateral, or any event which, with the giving of notice or
             passage of time or both, would constitute a default thereunder,
             Originating Bank immediately shall notify Participating Bank
             of such default or event, and Originating Bank and Participating
             Bank shall mutually agree upon a course of action within ten
             (10) business days. If, within ten (10) business days a mutually
             agreeable course of action can not be decided, then, so long as
             either: (i) the Participation Interest, together with any other
             interests held by other participants in agreement with the course
             of action proposed by Participant, equals or exceeds a majority
             of the then outstanding principal balance of the Loan, or (ii) the
             Participating Bank holds any Participation Interest as a result of
             the Originating Bank’s inability to purchase that retained
             portion of the Participation Interest due to regulatory lending
             limits considerations as provided in paragraph 13 above, the
             decision of the Participating Bank shall control.

      The district court found Section 16(e) provided one opportunity to “meet and

confer” regarding an agreed course of action following the Borrower’s default.

The court acknowledged that if the parties had modified the terms of the Loan

post-default, and the Borrower again defaulted, then Section 16(e) would have

provided the parties with an opportunity to amicably determine the course of

conduct relative to that particular default. However, the court determined that in

the absence of a modification, the language of Section 16(e) expressly required the

meet and confer to take place within ten (10) days of the parties becoming aware of

the Borrower’s initial default. In reaching this conclusion, the district court

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rejected Sentinel’s position that a ten-day “meet and confer” was required by

Section 16(e) every time some activity occurred relative to the Loan.

      We disagree with the district court’s construction of Section 16(e), in part.

As Sentinel correctly argued on appeal, the district court’s reasoning is flawed

because under the terms of the Agreement, the Borrower can technically default

every month that a payment is missed, every time a principal payment is missed,

and for every tax bill that goes unpaid. In applying the district court’s reasoning,

the majority owner of the Loan would be stripped of the opportunity to ever

control the course of action after the Borrower’s first initial default. From then on,

the minority owner and servicer would be able to make decisions without

consulting the majority owner, without any regard to changed circumstances, and

without any regard for the majority owner’s economic interests.

      Nonetheless, Sentinel was still required to identify the specific “default” by

the Borrower that triggered the ten-day “meet-and-confer” requirement, and

Sentinel was still required to prove that it timely exercised its right to “meet and

confer” in good faith in order to establish a breach of Section 16(e).

      iii.   Section 16(d): Limitation of Liability

      Section 16(d) contains a limitation of liability clause, which limits the

Originating Bank’s liability as follows:

             Originating Bank agrees to exercise the same degree of care in
             administering Participating Bank’s Participation Interest in the
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              Loan that Originating Bank, customarily exercises in handling
              similar loans for its own account; however, Originating Bank
              shall be liable to Participating Bank only for losses due to
              Originating Bank’s lack of commercially reasonable conduct,
              negligence, or willful misconduct.

      The district court concluded that if Centennial breached any of its Section 16

duties, such as by modifying the loan without the Participating Bank’s consent or

failing to “meet and confer” in the event of the Borrower’s default, Sentinel was

without a remedy unless Sentinel could prove that it incurred a loss due to

Centennial’s commercially unreasonable conduct, negligence, or willful

misconduct. The district court further concluded that because the term “default” is

undefined throughout the Participation Agreement, the term should be given the

same meaning throughout the Agreement, and therefore, Sentinel could not

exercise its Repurchase Option in the event of any breach without proof of a loss

due to Centennial’s commercially unreasonable conduct, negligence, or willful

misconduct.

      We agree with the district court that insofar as the duties related to loan

administration set forth in Section 16 are concerned, Sentinel lacks any remedy in

the absence of a proof of loss attribute to Centennial’s misconduct. Through its

structure and plain language, the Agreement clearly provides so.

      We disagree, however, that the limitation of liability in Section 16(d)

restricts the enforcement of the Repurchase Option for breaches unrelated to loan
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administration. The Participation Agreement imposes numerous duties on the

Originating Bank apart from its responsibility for loan administration. Certain of

those duties are concerned with the ability of the Participating Bank to manage its

credit risk and therefore require the Originating Bank to exercise reasonable

judgment in disclosing material, adverse information regarding the Borrower to the

Participating Bank on an ongoing basis. And because, as between the Participating

Bank and the Originating Bank, the Participating Bank has the greatest financial

exposure and the least access to information, Section 13 makes clear that in the

event of a material breach of such duties, the Participating Bank can shift the risk

back to the Originating Bank regardless of a demonstrable loss by exercising the

Repurchase Option, that option is “in addition to all other remedies available to it

at law or in equity.”

   2. Centennial did not Default under the Terms of the Agreement.

      We now turn to consider Sentinel’s alleged defaults within the context of the

construction of the Participation Agreement set forth above.

      At trial and on appeal, Sentinel argues that Centennial defaulted in the

following ways: (1) in failing to keep Sentinel fully informed about the Loan, the

value of the collateral securing the Loan, and the Borrower; and (2) in defaulting

on its obligation to follow Sentinel’s directives regarding the course of action

against the Borrower. Specifically, Sentinel argues that Centennial concealed third-

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party offers to buy the Loan, concealed the Borrower’s post-default settlement

offers, and refused to abide by Sentinel’s directives to apply the Loan’s “default

interest rate” against the Borrower after the Borrower defaulted.

      A. Failure to Convey Offers by the Borrower and Third Parties

      Sentinel insists that Centennial had an obligation pursuant to Sections 4, 10,

and 11 of the Participation Agreement to convey to Sentinel every piece of

information that Centennial received or possessed relating to the Loan. As

addressed above, we do not find Sections 4 and 11 are directly applicable to this

case; therefore, we will consider Sections 4 and 11 only to the extent they bear on

the issue of whether Centennial’s failure to convey the settlement offers by the

Borrower and third parties violated Section 10.

      i.     Offers by the Borrower

      Sentinel argues that Centennial violated Section 10 when Centennial failed

to convey a settlement offer that it received from the Borrower to Sentinel’s

predecessor-in-interest in November 2010. The district court ruled that Sentinel

failed to establish by a preponderance of the evidence that the offer by the

Borrower in November 2010 was not communicated to the Participating Bank,

which at the time was Sentinel’s predecessor-in-interest. At trial, the precise terms

of the Borrower’s offer were not disclosed, and aside from ambiguous testimony

given by Centennial’s Vice President of Special Asset Department, there was no

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testimony that the offer was not communicated. We have no basis to disturb this

finding.

      We also agree with the district court that there is nothing in the record to

suggest Centennial failed to use its reasonable judgment in deciding whether to

communicate such an offer to Sentinel. It is undisputed that the Loan was already

in default at the time Centennial received the November 2010 offer from the

Borrower. As testified to by Centennial’s Vice President of Special Asset

Department at trial, Centennial would not forward offers to Sentinel unless

Centennial deemed those offers to be “viable.” While Sentinel may disagree with

Centennial’s decision, Centennial was permitted by the plain language of Section

10 to use its “reasonable judgment” in deciding what information should be

conveyed to Sentinel, and Sentinel did not show that Centennial failed to use its

reasonable judgment in doing so.

      Moreover, there is nothing in the record to establish how this offer may have

had a material, adverse effect on the Loan or the value of the collateral securing the

Loan, as is required by the language of Section 10. Aside from a conclusory

argument that “[o]ffers to buy the note . . . are critically important because when a

loan is nonperforming, the primary goal is to minimize risk exposure,” Sentinel

fails to establish how the November 2010 offer would have amounted to a

“material, adverse effect on the Loan or the value of the collateral” in light of the

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fact that no payment had ever been made on the Loan, the Loan had been in default

for nearly two years, and foreclosure proceedings were pending.

      Sentinel also argues that Centennial’s failure to inform Sentinel of the deed

in lieu of foreclosure offered by the Borrower and failure to invite Sentinel to

mediation amounted to a violation of Section 10. Centennial admitted that it

rejected the Borrower’s offers without seeking the Participant’s approval.

Centennial further admitted that it did not invite Sentinel to participate at

mediation, and it failed to inform Sentinel of the offers that it received and rejected

at mediation.

      We agree with the district court that Centennial’s failure to convey the offer

of the deed in lieu of foreclosure and failure to invite Sentinel to participate at

mediation are not defaults under the terms of the Participation Agreement. There

is simply nothing in the record to establish that Centennial failed to use its

reasonable judgment in making such determinations. Similarly, there is nothing in

the record to substantiate that the Borrower’s offer of a deed in lieu of foreclosure

and any offers received at mediation had or could have a “material, adverse” effect

on a non-performing Loan. To the contrary, it is undisputed that the Ocoee Golf

Development ultimately sold at a foreclosure sale for $6.5 million, and the highest

third-party offer prior to the foreclosure sale was $3.8 million as the district court

pointed out. Any offer whatsoever on a non-performing loan would prove to have

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at least somewhat of a positive effect on the Loan, as opposed to a material,

adverse effect.

      However, we do not agree with the district court’s finding that even

assuming Centennial failed to convey any of the Borrower’s offers to Sentinel’s

predecessor-in-interest, Sentinel’s argument would still fail because it did not

sustain a loss as defined in Section 16(d). As addressed above, it is not necessary

for Sentinel to prove Centennial sustained a loss as defined in Section 16(d) prior

to invoking the Repurchase Option in Section 13.

      In reaching our conclusion that Centennial did not default under Section 10

when it failed to disclose the Borrower’s offers and failed to invite Sentinel to

mediation, we construed Section 4, 10, and 11 as a whole. However, we do not

find that the parties’ intent underlying Sections 4 and 11 – that the Participating

Bank have sufficient information to make decisions concerning its credit risk –

alters our conclusion. Under Georgia law, “[t]he cardinal rule of construction is to

ascertain the intention of the parties. If that intention is clear and it contravenes no

rule of law and sufficient words are used to arrive at the intention, it shall be

enforced[.]” O.C.G.A. § 13-2-3. Here, Sentinel was already privy to the potential

risks that it might encounter because at the time it acquired its majority interest, the

Loan was already non-performing and in foreclosure. We therefore cannot agree

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with Sentinel that our consideration of Sections 4, 10, and 11 together conflicts

with the district court’s finding.

      ii.    Third-Party Offers

      The record is undisputed that Centennial received third-party offers to

purchase the Loan in May 2010 for $3.8 million, in July 2010 for $3.5 million, and

in July 2011 for $3.8 million. It is also undisputed that these offers were not

conveyed to Sentinel. The district court ruled that under the express terms of the

Participation Agreement, Section 10 did not require Centennial to communicate

these offers to Sentinel. The district court then turned to Section 16(d) and found

that Sentinel’s argument failed because it was unable to establish that it sustained a

loss under section 16(d) due to the failure of Centennial to convey this offer, or any

other offer for that matter.

      As stated, we do not believe that the limitation of liability set forth in

Section 16(d) applies to the analysis under Section 10. However, as with the

foregoing offers that were not communicated to Sentinel, we believe the record

lacks any evidence that Centennial failed to use reasonable judgment when it chose

not to convey these offers. Sentinel also failed to establish that such offers may

have had a “material, adverse effect” on the Loan and/or the collateral.

      For the same reasons addressed above, we do not find that our construction

of Sections 4, 10, and 11 together alter our conclusion.

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      B. Sentinel’s Right to Control the Course of Action

      On appeal, Sentinel contends that the district court erred in concluding

Sentinel did not have the right as the majority owner to dictate the application of

the default interest rate after the Borrower’s initial default and after the

commencement of the foreclosure proceedings. Sentinel argues that 16(b) and

16(e) together provided Sentinel with the rights to be consulted, to control the

course of action, and to make decisions regarding material items such as interest

rates, foreclosure and modification of the Loan. Therefore, when Centennial

refused Sentinel’s directive to set the Loan interest rate at the default interest rate

of 25%, rather than the standard interest rate of 3.75%, Sentinel insists that

Centennial materially breached this provision of the Participation Agreement and

that this breach triggered its rights under Section 13’s Repurchase Option.

      The district court recognized that Centennial unilaterally elected to obtain a

final judgment using the 3.75% standard interest rate, as opposed to the 25%

default interest rate, over the objection of Sentinel in violation of Section 16(b).

However, in considering the limitation on liability set forth in Section 16(d), the

court found the element of “loss” was lacking relative to the failure to utilize the

25% interest rate because the evidence was undisputed that any deficiency

judgment against the Borrower and the guarantors was uncollectable. Because a

default consists of conduct, which violates a duty imposed under Section 16(b),

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coupled with a loss pursuant to Section 16(d), there was no “default” to trigger the

Repurchase Option under the facts of this case.

      As an initial matter, we take issue with the district court’s finding that

Centennial violated Section 16(b). Section 16(b) requires Centennial to consult

and obtain the written consent of Sentinel prior to any “modification, amendment,

or termination” of any “material terms” in the Loan documents. While it is

undisputed that in the Final Judgment of Foreclosure, Centennial refused Sentinel’s

demand that it charge the default interest rate, we fail to see how that amounted to

a “modification, amendment or termination.” Under the terms of the Loan,

whenever the Borrower defaulted, the Note provided “to the extent permitted by

law, the Rate of Interest on the unpaid balance shall be increased at Bank’s

discretion up to the maximum rate allowed by law.” While the district court noted

that the “Bank” was defined to be both the Participating Bank and the Originating

Bank, the record does not support this. Rather, the Loan documents define only

Old Southern Bank as the “Bank” in this case. Therefore, it follows that

Centennial, as Old Southern Bank’s predecessor-in-interest, had the discretion to

charge the 25% interest rate, but this was not an obligation. The fact that it

exercised its discretion not to charge the 25% cannot be somehow re-characterized

as a “modification, amendment, or termination” of the Loan documents, and

therefore, we do not find that Centennial violated Section 16(b).

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      Even assuming Centennial violated Section 16(b), we find that Sentinel

failed to demonstrate that it had the right pursuant to Section 16(e) to require

Centennial to apply the default interest rate. Sentinel failed to present evidence

that its predecessor-in-interest exercised its rights under Section 16(e) after the

Borrower defaulted in October 2008, and failed to identify any subsequent default

that would have resuscitated the “meet-and-confer” requirement, which are the

conditions precedent, which would allow the Participating Bank to control the

post-default course of conduct.

      Finally, even if Sentinel had proven that Centennial breached Section 16(b),

Section 16(b) is part of the Section entitled, “Administration of Loan,” and

pursuant to Section 16(d), liability for breaches attributable to the loan

administration are limited to losses due to the Originating Bank’s lack of

commercially reasonable conduct, negligence, or willful misconduct. Because

Sentinel’s ultimate objective was to exercise the Repurchase Option, it produced

no evidence sufficient to satisfy this standard.

   3. Centennial Prevails on its Counterclaim.

      Because we rule in favor of Centennial on its breach of contract claim, we

also find in favor of Centennial on its counterclaim.

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                              V. CONCLUSION

      For the reasons set forth in this Opinion, we AFFIRM the judgment in favor

of Centennial.

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