Hamilton State Bank - Brings Suit Against Borrower Entity and Individual Guarantors to Collect Note in Default

Challenge

Hamilton State Bank, a Georgia bank with 24 branches, brought suit against a borrower entity and individual guarantors to collect on a note in default. Hamilton acquired the loan from the FDIC after it closed First State Bank in 2012. The debt was secured by an airport Comfort Inn. Defendants denied liability on the debt and brought lender liability counterclaims alleging that Hamilton had intentionally caused its default. The case was complicated by a flood that damaged 60 percent of the hotel and resulted in the bank managing the disbursement of more than $1 million in insurance proceeds. Defendants claimed Hamilton had withheld insurance money and committed other acts of fraud so it could cause default and collect the debt from the FDIC pursuant to Hamilton’s loss-sharing agreement.

Approach

Faced with allegations and apparent evidence that Hamilton engineered the defendants’ default, the AGG team first obtained documents from the defendants and took depositions from corporate representatives to pin down the allegations. The team then conducted extensive non-party discovery of defendants’ construction contractors and suppliers, insurer and franchisor. This discovery provided crucial testimony and documents contradicting defendants’ allegations. The discovery yielded evidence that defendants had altered key documents, withheld other documents and generally tried to manufacture evidence of the bank’s bad acts. AGG filed a motion for summary judgment on the bank’s claims, a motion for summary judgment on the counterclaims, a motion to appoint a receiver, and a motion for sanctions based on discovery abuse.

Result

After the first day of a two-day hearing on the pending motions, during which the Judge made it clear that harsh sanctions against the defendants and possibly their counsel were likely, the defendants agreed to all terms demanded by the bank, including a consent judgment of more than $4 million, which included the full amount of the note, attorneys’ fees, and taxes paid on the collateral by the bank; the appointment of a receiver; and the dismissal of all counterclaims.