Bank Ag Deutche Zentral-Genossenschaftsbank v. Mccranie

720 F.App’x 576 (2018)

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Nature of the Case

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Facts

This case involves a number of contracts related to the purchase of an insurance agency, the resale of that agency as a franchise, loans and security agreements related to the franchisee's purchase of the agency, loans from outside lenders to the franchisor, and grants of security interests to these outside lenders (loans and security agreements to which the franchisee was not a party, but for which the franchisee's loan was pledged as collateral). D argues the underlying contracts were part of one integrated agreement under which his obligation to pay the Note was conditioned upon the success of the franchise endeavor and the absence of a breach by any of the parties to the various contracts. P argues the Note is a stand-alone instrument enforceable without reference to the success or failure of the franchise endeavor and without reference to the breach of other agreements. D purchased a Brooke agency franchise in Florida in October 2000. He entered into two agreements with Brooke: a Franchise Agreement and an Agreement for Sale of Agency Assets. At the same time, he entered into four agreements with Brooke Credit: a large promissory note to fund the purchase of agency assets, a smaller promissory note to fund initial operating expenses, a Security Agreement, and an Agreement for Advancement of Loan ('Advancement Agreement'). D is an experienced insurance agent who previously had bought and sold 'many independent [insurance] agencies,' was represented by counsel during negotiation and execution of these agreements. D purchased agency assets from Brooke, and pursuant to the Security Agreement, he immediately pledged those assets to Brooke Credit as collateral to secure the two October 2000 promissory notes. D entered into another promissory note in the amount of $831,407.78 to refinance his earlier loans. The Note contains text in a box indicating, 'This note is separately secured by . . . Security Agreement dated October 30, 2000.' The Note states, 'ADDITIONAL TERMS: See Agreement for Advancement of Loan dated October 30, 2000.' D paid on the original two promissory notes for two years and on the Note for approximately six years. By mid-2008, he had reduced the principal balance on the Note to under $500,000. P agreed to extend a line of credit to Brooke Funding and take a security interest in the loans Brooke Funding was purchasing from Brooke Credit. Brooke Credit was the seller and servicer of the loans, Brooke Funding was the purchaser, Brooke served as the Master Agent and as a guarantor, and P served as the lender. P filed UCC financing statements in Delaware and Kansas as to Brooke Funding and Brooke Credit. Four days later, Brooke Credit entered into a 'Participation Certificate and Agreement' with a different entity: Home Federal Savings and Loan ('Home Federal') purporting to sell to Home Federal a 99.74% interest in the Note. Home Federal did not search UCC filings for prior claims on the Note nor did Home Federal file any UCC statements regarding its purported rights to the Note. Two years later in August 2006, Brooke Credit, Brooke Funding, Brooke, and DZ Bank entered into updated versions of their 2004 agreements: an Amended and Restated Sale and Servicing Agreement, and an Amended and Restated Credit and Security Agreement. Brooke and P included the Note as collateral for their funding transactions. On June 19, 2008, P terminated its line of credit with Brooke Funding. Brooke failed to forward commission payments to D. D demanded payment, notified Brooke that he could not meet his obligations to Brooke Credit, and notified Brooke that he was terminating the Franchise Agreement. D claimed that Brooke's failure to pay commissions served as a material breach of the Franchise Agreement. Neither Brooke nor Brooke Credit took steps to make D agent of record with the underlying insurers. D received a notice from P to make future loan payments to P rather than to Brooke Credit, citing the transfers. D also received a similar but competing demand for payment from Home Federal. Home Federal. Brooke filed for bankruptcy and P, Brooke Credit, and Brook Funding entered into an agreement to perfect the transfer of ownership of collateral (including the Note) to P. P filed the present action claiming D was liable to P on the Note for an outstanding balance of $484,425.42. Eventually, P provided evidence of title to the Note, and the district court ruled in P's favor, entering judgment against D. D appealed. D argues that Brooke's breach of the Franchise Agreement excuses his breach of the Note. D argues that the Note is not a negotiable instrument and that P is not a holder in due course.