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Fentriss v. Gateway Bank FSB

United States District Court, M.D. Florida, Tampa Division

March 27, 2018

LAURENCE FENTRISS, Plaintiff,
v.
GATEWAY BANK FSB, et al., Defendants.

          ORDER

          STEVEN D. MERRYDAY UNITED STATES DISTRICT JUDGE.

         Before her imprisonment for conspiring to defraud Gateway Bank, former Gateway president Poppi Metaxas persuaded Laurence Fentriss to solicit partners for Gateway's “Quick$ale” program. Under the program, a mortgage lender sold a recent mortgage to Gateway, which promptly re-sold the mortgage to Fannie Mae, Freddie Mac, or another institution. In some instances, rather than selling the mortgage outright Gateway sold a participation to another institution. The part-sale arrangement freed a mortgagee's capital and permitted the mortgagee to lend money to another consumer. In theory, Gateway profited from Quicksale by collecting servicing fees and interest during Gateway's brief ownership of the mortgage. Gateway contracted with a third party, Cenlar, to service Gateway's mortgages.

         By prohibiting Gateway's ownership of too many mortgages at the same time, federal regulations administered by the Office of the Comptroller of the Currency complicated Gateway's effort to rapidly expand Quicksale. To expand the program, Metaxas searched for more banks to buy or to participate in the Quicksale mortgages. (The more participants in the program, the quicker Gateway could sell a mortgage). In 2003, Metaxas approached Anderson & Strudwick, Fentriss's former employer, about Fentriss's soliciting new Quicksale partners. In a March 6, 2003 agreement, A&S agreed to solicit banks for the Quicksale program, and Gateway agreed to pay two-tenths of a percent of the “average balance outstanding to banks referred by A&S.” (Doc. 93-9 at 2) The one-paragraph agreement mentions nothing about cancellation.

         When Fentriss left A&S in 2008 to open a consulting firm (CBIA Advisors, which changed its name to Tier One Partners), A&S assigned the contract to Fentriss. (Doc. 16-2) The record shows that Gateway knew about, and acquiesced in, the assignment. From 2008 until October 2013, Gateway continued to pay Fentriss for finding Quicksale partners. On some occasions, Gateway paid Tier One Partners at Fentriss's instruction. (Doc. 75 at 3-4)

         Gateway's finances deteriorated after 2008. In October 2011 Gateway and the OCC agreed to a consent order, which required, among other items, that Gateway raise money. To raise money, Gateway prepared a stock offering for June 2013. In anticipation of the offering, Gateway prepared in September and December 2012 two “private placement memorandums” (Doc. 94-9), which showed an accumulated deficit of $11, 686, 207 for the fiscal year ending June 30, 2012. Despite the bank's unprofitability, the board believed that stringent management could return the bank to profitability, but Gateway's fundraising effort initially generated little money.

         Gateway attributes the difficulty in raising money to Fentriss's presence on Gateway's board. In addition to serving as a Gateway director, Fentriss served on the board of Progress Bank of Florida, which failed in 2010. In October 2013, the FDIC sued Fentriss and Timothy Anonick (a Gateway director and Fentriss's business partner) to recoup more than $6.3 million in losses sustained by the FDIC as a consequence of Progress Bank's failure. No. 8:13-cv-2692-RAL (M.D. Fla. Oct. 18, 2013). But before suing Fentriss, the FDIC threatened to assert a “cross-guaranty” against Gateway. When two banks share the same management or ownership, in some circumstances a cross-guaranty permits the FDIC to recoup from one bank's assets the losses resulting from the other bank's failure. Unsurprisingly, the impending prospect of a cross-guaranty deterred investors from buying Gateway's shares.

         Although Fentriss insists that the FDIC could not lawfully impose on Gateway a cross-guaranty based on Progress Bank's failure, Gateway feared that challenging the cross-guaranty would require lengthy and costly litigation. Jim Keefe, Gateway's current chairman and a Gateway director since 2010, believes that suing the FDIC over the cross-guaranty “would have led . . . to the immediate closure of Gateway Bank.” (Keefe Depo. at 105) The FDIC offered Gateway an opportunity to avoid the cross-guaranty: If Gateway removed Fentriss and Anonick from the board or persuaded Fentriss and Anonick to resign, the FDIC would waive the cross-guaranty.

         Sometime in 2012, Gateway asked Fentriss to resign as a director. Fentriss alleges that, in exchange for Fentriss's resignation, Gateway agreed to modify the A&S contract to increase Fentriss's pay. The parties exchanged several e-mails about modifying the contract, and the record includes several draft agreements. (Doc. 91-1 at 169-180) Protracted negotiations failed to produce a written agreement about Fentriss's compensation for soliciting a Quicksale partner, but Fentriss alleges that Gateway orally agreed to pay Fentriss at least $12, 000 a month under an “automatically renewing” one-year contract. Fentriss resigned as a director on July 13, 2012. In November 2013, the month after the FDIC sued Fentriss, Gateway cancelled the arrangement and stopping paying Fentriss. (Doc. 94-7) In April 2015, Gateway ended the Quicksale program.

         Fentriss and Gateway both profess a willingness to sign a written contract and blame the other for the failure to reduce the purported agreement to writing. Neither Fentriss nor Gateway is without some support in the record. Jim Baxter, a Gateway director, instructed Jeff Cheung (Gateway's former CEO) to tell Fentriss and Anonick “not to email this stuff any more. Just remind [Fentriss and Anonick] that if this ever comes down to something that's investigated, we're going to have to look through all these emails.” (Doc. 93-14 at 53) Anonick states that Gateway “was trying to hide the agreement from the FDIC and so that's why they were hesitant to sign it or never did sign it.” (Anonick Depo. at 25) Conversely, Cheung states that Fentriss refused to sign a written agreement. (Cheung Depo. at 32-33)

         Fentriss sues (Doc. 16) Gateway, Keefe, and Cheung for $3.168 million based on Gateway's failure to pay money allegedly owed under the oral contract. Fentriss calculated the demand by multiplying $12, 000 times Fentriss's life expectancy in months. (Fentriss Depo. at 134) Based on his “good health, ” Fentriss estimates that he will live for another twenty-two years (or two-hundred and sixty-four months). (Fentriss Depo. at 134) Additionally, Fentriss claims that Gateway's oral promise of a $12, 000 monthly payment fraudulently induced Fentriss to resign from the board.

         Finally, Fentriss claims “fraud in the sale of securities.” In June 2013 Fentriss bought $250, 000 of Gateway stock; in late 2013 or early 2014, an audit of Gateway's finances showed that Cenlar, the third party that serviced Gateway's mortgages, owed Gateway about $1.1 million less than Gateway originally believed. In 2014, Gateway re-stated its finances to adjust for the accounting error.

         Counter-claiming (Doc. 74) for rescission of both the oral contract and the 2003 contract, Gateway alleges that the agreements violate 12 C.F.R. § 160.130, which prohibits a bank director's receipt of “any commission, fee, or other compensation in connection with the procurement of any loan made by the savings association.” Additionally, Gateway alleges that a majority of disinterested directors failed to approve the contracts, which failure purportedly renders the contracts voidable under the California Corporations Code. Asserting that the payments unjustly enriched Fentriss and Tier One, Gateway impleads (Doc. 74) Tier One, to which Fentriss directed payments from Gateway, and requests re-payment of at least $208, 126.59 that Gateway paid Tier One at Fentriss's request between February 2009 and July 13, 2012.

         DISCUSSION

         I. Breach of oral contract

         Both parties analyze the breach-of-contract claim under both Florida and California law, but neither party argues for the application of a particular state's law. Florida's choice-of-law adopts the law applicable at the place the parties executed the contract.[1] Lanoeu v. Rizk, 987 So.2d 724, 727 (Fla. 3d DCA 2008) (“Florida adheres to . . . lex loci contractus, ” which “looks to [] where the contract was executed.”); see also Sturiano v. Brooks, 523 So.2d 1126 (Fla. 1988) (rejecting a “significant relationship” test to determine the governing law in an action based on the breach of an insurance contract). Although no Florida decision appears to decide the place of execution for an oral contract, the execution of a written contract occurs “where the last act necessary to make a binding agreement takes place.” D.L. Peoples Grp., Inc. v. Hawley, 804 So.2d 561, 563 (Fla. 1st DCA 2002) (collecting decisions).

         The final act necessary to create a contract was Fentriss's acceptance of Gateway's proposal, but time and circumstance have caused uncertainty about the place of acceptance. Fentriss and Keefe discussed modifying the 2003 contract while dining at a San Francisco restaurant (Doc. 103-5 at 9), but both parties agree that the dinner discussion yielded no agreement.[2] According to Fentriss, the parties finalized the oral contract during the July 13, 2012 board meeting. Although Gateway's office is in Oakland, California, several directors lived elsewhere, and “most people attended by telephone.” (Fentriss Depo. at 59-60) Fentriss resided in Florida on the day of the meeting and attended telephonically but cannot remember where “[he] was on that day.” (Fentriss Depo. at 60)

         No party presents a flight itinerary, a hotel reservation, or other documentation to establish Fentriss's location during the July 13, 2012 meeting. Because nothing in the record shows that Fentriss participated in the meeting from outside Florida or otherwise defeats the inference that Fentriss remained at home during the call, Florida law applies. Even if the choice-of-law analysis suggested California law, Gateway concedes that the California courts consider California's statute of frauds procedural, not substantive, a concession that compels applying Florida's statute of frauds. (Doc. 91 at 10 n.2)

         The parties disagree whether Fentriss's breach-of-oral-contract claim is barred by Florida's statute of frauds, which prohibits an action on an oral agreement not susceptible to performance within one year.[3] Fentriss describes the contract as “a one-year agreement” that “would be renewed by the board at the end of each year automatically.” (Fentriss Depo. at 52) Fentriss insists that this “evergreen” provision required Gateway to automatically renew the contract every July and prohibited terminating the contract for any reason. (Fentriss Depo. at 49-56) Asked to identify a circumstance in which Gateway could lawfully end the agreement, Fentriss responded, “I don't know of any.” (Fentriss Depo. at 56)

         Fentriss correctly argues that the statute of frauds excludes a contract susceptible to performance within one year even if the contract includes no definite term. For example, in Browning v. Poirer, 165 So.3d 663 (Fla. 2015), the parties orally agreed in 1993 to split the prize from a winning lottery ticket. In 2007, the defendant won $1 million but refused to share the prize, and the plaintiff sued for breach of the oral contract. Browning holds that the statute of frauds creates no bar to recovery because the parties could perform within a year. 165 So.3d at 666 (“If [a party] purchased a winning lottery ticket and they split the proceeds before the expiration of one year, the agreement would have been fully performed.”).[4]

         Gateway submits a compelling argument that the parties could not perform the oral agreement alleged by Fentriss within one year. A perpetual “one-year” contract requiring the defendant's mechanical renewal every July is not susceptible to performance within one year, a fact confirmed by Fentriss's deposition. Fentriss asserts that Gateway breached the oral contract not only by failing to pay Fentriss from November 2013 through July 2014 but also by failing to pay Fentriss from July 2014 to July 2015; from July 2015 to July 2016; and from July 2016 to July 2017. More troubling, Fentriss requests damages for Gateway's prospective failure to pay Fentriss from July 2017 until at least July 2036. No. Florida decision - and for that matter, no reported decision in any other state - permits a plaintiff to recover two decades of payments for the defendant's breach of an “automatically” or perpetually renewing, one-year, oral contract. The statute of frauds prohibits Fentriss's claiming that the one-year term exempts the oral contract from the statute of frauds while simultaneously (but irreconcilably) demanding damages for twenty-two years of prospective payments.

         Although the statute of frauds precludes Fentriss's recovering under the oral contract for the expected remainder of his life, the statute of frauds is inapplicable to a single renewal of a one-year contract. In Grossman v. Levy, 81 So.2d 752 (1955), the defendant contracted on October 12, 1952, to hire the plaintiff for one year under a contract that permitted renewal. On October 12, 1953, the parties renewed the contract for one year, but the defendant laid-off the plaintiff on December 29, 1953. Because the parties could perform within one year of the contract's commencement, the plaintiff could recover the money owed for the remaining months of the plaintiff's employment. Grossman, 81 So.2d at 752; accord Rubenstein v. Primedica Healthcare, Inc., 755 So.2d 746 (Fla. 4th DCA 2000) (holding that a plaintiff stated a claim for breach of a renewed one-year oral contract). In this instance, nothing in the statute of frauds appears to prohibit Fentriss's recovering damages for the missed payments between November 2013 and July 2014.

         At least one genuine dispute of material fact precludes summary judgment for either party on the breach-of-contract claim. Fentriss testifies that Gateway agreed to pay a minimum of $12, 000 monthly under a one-year oral contract that renewed in July 2013. Conversely, Keefe and Gateway deny agreeing to the $12, 000 monthly payments. Although Cheung recalls (vaguely) a tentative agreement in which Gateway would pay Fentriss a minimum of $12, 000 monthly (Cheung Depo. at 23-28), Cheung testifies that the agreement required a written contract and that Gateway paid the monthly minimum on an interim basis only as a gesture of “good faith.” (Cheung Depo. at 24-25, 29) Additionally, Noel Kullavanijaya (a former Gateway director) testifies that he never approved an oral agreement between Gateway and Fentriss. ...


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