MEMORANDUM OPINION AND ORDER
This matter is before the Court on PBI Bank's Motion for Summary Judgment [DN 89]. Also before the Court is PBI Bank's Motion to Strike, Exclude or Limit the Opinion of Great American's Expert [DN 87]. Fully briefed, this matter is ripe for decision. For the following reasons, PBI Bank's motion for summary judgment is GRANTED in part and DENIED in part. Moreover, PBI Bank's motion to strike, exclude, or limit is GRANTED in part and DENIED in part.
This case involves various claims of fraud and misrepresentation asserted by Great American, an insurance company that writes surety bonds for commercial construction contractors, against PBI Bank and others. According to Great American, PBI Bank provided sham loans to Anthony Poynter to allow him to state that his company, Poynter Construction, had met certain capital requirements and induce Great American to issue bid, performance, and payment bonds on behalf of the company. As discussed in more detail below, Great American asserts that it relied on Poynter Construction's capital position, which was misrepresented with PBI Bank's assistance, and that this reliance induced it to issue various surety bonds. Great American further asserts that its issuance of these bonds led to significant losses when Poynter Construction later became insolvent.
1. Great American's Bonding of Poynter Construction
Anthony Poynter owned and operated Poynter Homes, Inc., a small-time spec home building company. In the early 2000s, he decided to transition his business into commercial construction. To assist with this transition, Poynter enlisted the help of Jerry Hardison, his long-time friend. Hardison was the principal of Glasgow Insurance Agency. Soon thereafter, in 2005, Hardison began shopping Poynter Construction to various surety companies. This was done in an attempt to determine whether Poynter Construction would be bondable in the surety market.
In 2007, Hardison submitted Poynter to Mark McDaniel, a bond-writer for Great American. When a party requests bonding from Great American, McDaniel generally requests three years of financial records. However, McDaniel testified that in the case of Poynter Construction, he instead heavily relied on the company's December 31, 2007 financial statement since Poynter Construction was a new company transitioning into the commercial construction business. (Mark McDaniel Dep. [DN 94-1] 16.) Poynter Construction's December 31, 2007 financial statement shows that there was $503,565.00 in the company's bank account at the year's end. Importantly, this amount includes the proceeds of a loan from PBI Bank in the amount of $500,000.00.
2. PBI Bank's December 2007 Loan
On December 4, 2007, Poynter delivered a letter to PBI Bank's loan officer, Dennis Wilcutt, requesting a $500,000.00 loan. This request stated as follows:
This letter is a personal written request from Dewayne Poynter in the amount of $500,000.00. I need to personally inject this amount into Poynter Constructions account which will allow me bonding capacity of 5 million for 2008. Accounts maybe locked while this money is injected into the account as a security measure. My Bonding Agent says this transaction only has to show on the books as of December 31, 2007. Also, notes now in Poynter Constructions name need to be moved to Poynter Homes in order for there to be a zero balanced owed by Poynter Construction at year end.
(Letter from Dewayne Poynter [DN 90-5].) Consistent with this request, PBI Bank loaned Poynter $500,000.00 on December 31, 2007. The note evidencing this loan was set to mature on January 2, 2008. PBI Bank deposited the loan proceeds in a secure account where they could not be unilaterally withdrawn by Poynter or Poynter Construction. Those same proceeds were then used to pay off the note on January 2, 2008. Wilcutt testified that he was aware that the loan was being used to inject capital into Poynter Construction so that it could obtain bonds. (Dennis Wilcutt Dep. [DN 94-5] 86.) On Poynter Construction's year-end ledger, the loan was listed as a note payable to PBI Bank.
The accountant who prepared Poynter Construction's December 31, 2007 financial statement was concerned about the $500,000.00 loan that appeared on the company's ledger. When she asked Poynter about the transaction, however, she was told that the $500,000.00 was capital. Poynter then presented the accountant with a letter written by Wilcutt. The letter, dated January 2, 2008, stated:
This letter is to verify and confirm that DeWayne Poynter, injected $500,000.00 into Poynter Construction Account and that Poynter Construction has no debt at PBI Bank-Glasgow. (Letter from Dennis Wilcutt [DN 94-4].) In her deposition, the accountant stated that based on these representations, she re-classified the note payable as additional paid-in-capital. McDaniel then relied on the accountant's December 31, 2007 financial statement in issuing bonds. For example, in April of 2008, Great American issued bonds for the Barren/Metcalfe County EMS project.
Thereafter, McDaniel received Poynter Construction's interim financial statement dated June 30, 2008. This statement indicated that there had been a capital distribution and that the $500,000.00 "injection" was no longer in the company. However, instead of refusing to issue additional bonds, McDaniel continued to issue them with the expectancy that the $500,000.00 would be placed back into the company. McDaniel stated that he believed it would not be an issue for Poynter to replace the $500,000.00, as he believed that Poynter personally had the $500,000.00 on December 31, 2007 and that this money was subsequently distributed to him from Poynter Construction's account prior to June 30, 2008. (Aff. of Mark McDaniel [DN 94-8] ¶ 10.)
On November 10, 2008, McDaniel approved the issuance of a bid bond for the City of Oak Grove Project. He approved the final bonds on that project about December 1, 2008. McDaniel stated that when he approved those bonds, it was represented to him that Poynter agreed to capitalize Poynter Construction in the amount of $500,000.00 before the year-end of 2008. (Id. ¶ 9.)
3. PBI Bank's December 2008 Loan
On December 2, 2008, McDaniel met with Poynter, Hardison, and Poynter Construction's new accountant. At that meeting, McDaniel informed the parties that Poynter Construction would need to be capitalized with $1 million due to its requested bonding requirements for 2009. McDaniel agreed that it was acceptable to capitalize using a loan instead of paid-in capital. But McDaniel told the parties that he would require the loan to be payable by Poynter personally, for a period of thirteen months. He also told the parties that he would require Poynter's interests in being repaid by Poynter Construction to be subordinated to Great American's right to receive payment. After this meeting, Wilcutt called McDaniel to discuss the terms to be included in the note. McDaniel stated that Wilcutt represented that the loan could, and would, be issued under those terms. (Id. ¶ 15.)
Despite this representation to McDaniel, Wilcutt prepared a loan application which showed the term as being until January 26, 2009, less than one month after the loan was to be issued. Further, he stated that the loan was intended to be prepared in the same manner as the December 2007 loan, with the proceeds placed in a blocked account until they were used to pay off the loan. (Dennis Wilcutt Dep. [DN 94-5] 91--92.) In his deposition, Wilcutt acknowledged that the loan was approved on the basis of it being paid off in one month. (Id. at 82, 93--94.) Nevertheless, the promissory note indicates that the loan's maturity date is January 26, 2010, which reflects the term requested by McDaniel. The loan was, in fact, paid back on January 20, 2009.
At the year's end, Poynter Construction's accountant prepared a financial statement for the company, showing a long-term $1 million note payable with a term of thirteen months. The financial statement indicates that Poynter Construction had cash or cash equivalents exceeding $1 million and was thus consistent with the arrangement that McDaniel discussed with Wilcutt. On April 20, 2009, McDaniel approved a bid bond for the Caverna Elementary Project. Two days later, he received the December 31, 2008 financial statement. Soon thereafter, on July 30, 2009, McDaniel issued the final bonds on the Caverna Elementary Project.
Poynter Construction subsequently defaulted on several construction projects, forcing Great American to make payments. The payments included: $7,001.00 on the Barren/Metcalfe County EMS Project Bond; $644,017.01 on the City of Oak Grove Project Bond; and $145,906.50 on the Caverna Elementary Project Bond. Great American now seeks recovery for these losses. PBI Bank has filed a motion for summary judgment, as well as a motion to strike, exclude, or limit the opinion of Great American's expert, W. Timothy Finn, II. These motions are discussed below.
II.PBIBANK'S MOTION FOR SUMMARY JUDGMENT [DN89]
Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247--48 (1986).
Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence . . . of a genuine dispute[.]" Fed. R. Civ. P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson, 477 U.S. at 252.
In its summary judgment motion, PBI Bank effectively makes four arguments: 1) neither PBI Bank nor Wilcutt had actual knowledge of Poynter's fraud; 2) neither PBI Bank nor Wilcutt made any misrepresentations to Great American upon which it relied; 3) Great American is imputed with knowledge regarding the loans' true nature because Hardison had such knowledge and was its agent; ...