IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA
BANSHARES, INC. Successor in
to First Community Bank of
Case No. 2003CV70543
DEFENDANT’S PRO SE ANSWER TO PLAINTIFF’S
CLAIMS, AFFIRMATIVE DEFENSES, COUNTERCLAIMS AND REQUEST FOR A JURY TRIAL
On May 30, 2003 Plaintiff filed a suit against Defendant with no notice that such suit was being anticipated and despite the fact that there were both disputes and clear legal irregularities in the matter. In a prior conversation with Plaintiff attorney, Bill Holland on August 11, 2002, (This was an error, August 1, 2002 is correct- Court Notified by fax 8/2/2003) Defendant was told that Bank and Counsel were recommending to the USDA, the Federal guarantor to the loan, that they not proceed with a claim against Defendant.
On June 3, 2003 Plaintiff had papers served to 4523 Runnemede Rd, Atlanta, Georgia. Defendant was out of town when he received word that papers had been served.
Beginning on June 9, 2003 Defendant began contacting
several law firms. The response from those firms were in sharp contrast to
the Plaintiff’s counsel offered the court that the case is a simple and
straightforward claim. The
fact, as disclosed on July 25 to the Defendant by Plaintiffs counsel that
the Bank is suing the USDA for non-payment of their guarantee portion
tells volumes about the complexity of the case.
As this complexity has increased so has the number of hours which
will be required to prepare for trial, along with projected attorney fees,
the Defendant is without the financial means to retain legal
representation before the Court. The
Defendant appreciates the opportunity to relate details
On June 12, Defendant contacted the Court and requested the procedure to get approval from the Court for an extension to file an answer as extensive business travel was scheduled for June. Defendant explained the situation was told to contact Court Counsel, Alycia Anderson when she returned from vacation.
On June 19, Defendant caused a request for an extension to be sent to the Court by certified mail requesting a 30 day extension until August 3rd.
On June 27 Defendant spoke with the Court’s office and found that the paperwork had been received but was deficient as no motion for the order had been included. In clarifying the date required to answer, Defendant was told the date received by the Court was June 13 and that should be the date to be used to calculate answer filing requirements.
On July 2nd Defendant contacted the Justice Center and requested that they contact the Plaintiff to arrange a face-to-face meeting as soon as possible to discuss arbitration. Contact information was sent to the email address that was given.
On July 3rd, at the request of a potential legal counsel, Defendant called the Office of Inspector General for the USDA and spoke with Charles Reese. Defendant asked if Reese could fax paperwork needed by the counsel and he said that he would search for the paperwork and if he could find it he would send it out. This paperwork was never faxed or sent to the Defendant. Reese also indicated that their office did not wish to release the physical documents, however the Defendant could come and copy the requested files.
On July 3rd, while on travel, Defendant prepared a revised request including a motion for the order and mailed by it overnight mail with notice to the Plaintiff.
On July 7th, while still on travel, Defendant contacted Jeremy Cole at the Justice Center, who said that the email Defendant was given was incorrect and had Defendant send it again.
On July 9th, while still on travel, Defendant was told by the Justice Center that the Plaintiff Counsel saw no need to meet to discuss arbitration and told the Justice Center to have the Defendant call her. Defendant called but was unable to reach Plaintiff’s counsel and left a voice mail offering to have a acquaintance, Bill O'keefe, familiar with USDA programs and Georgia’s USDA Director, speak to counsel while Defendant was out of town and see if he could help resolve what was appearing to be a complex case.
On July 10th, O’Keeffe, spoke with the Bank’s Counsel, Candice Smith, at length and asked for a meeting to help resolve the situation. He reported that she asked to see a power of attorney but that no meeting was scheduled. No mention was given of the extension request.
On or about July 17th, while still on travel, Defendant contacted court’s counsel, Alycia Anderson, who said that a hearing could be conducted for the extension request but offered that typically the extension request was negotiated with opposing counsel. The Defendant was unaware that thus was the normal procedure and relayed that he would call personally Smith since a face to face meeting was not possible until the last week in July.
On or about July 17th, while still on travel, Defendant contacted Smith and requested that an extension until August 13th, which would allow Defendant to get back and copy selected files from the USDA and prepare an answer. Smith said she would check with the Bank. Smith never contacted the Defendant with an answer to this request. Defendant also told Smith that her firm was conflicted in the case should withdraw since the Defendant had financial activities with members of the firm including, Martin Elgison and Charles Waters in two firms founded by Defendant and that the two individuals had access to confidential company information.. This and other activities by a senior partner had compromised their law firm’s position.
On July 21th, while still on travel, Defendant sent a request to Michael Ricketson, President of the Bank, to request a meeting and determine any course of action that would be equitable. No response came from that request.
On July 25th, while still on travel, Defendant contacted Alycia Anderson and asked for a time that the Court could approve to file an answer given the circumstances of the case and was told that the Court had approved an extension until August 1, 2003.
On July 25th, Defendant called the Bank but was unable to reach the Plaintiff’s CEO, Mike Ricketson and left a message that the filing would take place on August 1st. Furthermore, that the Answer would include a request to disqualify the Bank’s counsel since it appeared that involvement by attorneys at the firm had compromised the firm.
On July 25th, Defendant called Smith and notified her of the Court’s decision. Smith told the Defendant that she had gotten a copy of the letter he sent to Ricketson and that she did not understand the Defendants attempts to settle since the USDA had refused to honor and pay the government’s guaranteed portion of the loan and the Bank and already filed suit against the USDA. This was the first time that the Defendant had been told that the USDA had refused to honor its guarantee and that the Bank was in litigation with the USDA.
Answer to Complaint
Answering Breach of Contract Claim
Answering Claim for Attorneys’ fees
1-4 Bank Demands: Defendant denies that Bank is entitled to any judgment or award from the Court related to all the Banks claims.
WHEREFORE, having fully answered plaintiff’s Complaint, the Defendant request the following:
Background Briefing and Authorities
Marty Elgison, a highly respected senior partner of
Alston bird contacted Defendant within an hour of signing an equity
purchase agreement and writing a check for SAI equity to say that another
senior partner at the firm had received a call from a knowledgeable party
providing details of the unannounced and confidential Elgison and Charlie
Water’s investment and was given confidential information concerning SAI’s
third party audit that had not been released to SAI management.
The two attorneys of Alston Bird had simultaneously invested in
WorldWideTesting (WWT), another firm founded by the Defendant and Elgison
served on WWT Advisory Board for two years and offered advice and counsel
to the Defendant who was CEO and Chairman of WWT. While the attorney’s
are not working on this case, the Alston Bird has demonstrated unique
access to the most private and confidential information of SAI and
therefore should be removed from the case.
The Plaintiff has presented the case to the Court as a simple loan.
With a reasonable amount of discovery, the Court will begin to see
one of the most unique and complex cases of our time.
SAI was incorporated in May 1995, after receiving verbal
notification that the team of researchers, which had come together to
commercialize a technology developed in part at Georgia Institute of
Technology, would be approved for an equity investment from the USDA. The
formal approval letter was issued in July of 1995. SAI raised $300,000 in matching funding and was given
$300,000 by the Alternative Agricultural Research and Commercialization
Agency AARC within the USDA. This
government owned venture fund’s task was to develop new non-food uses
for agricultural products while helping to rebuild rural America.
Its received direct Congressional funding to be invested in new
companies such as SAI.
After SAI began construction of a small facility
for producing and demonstrating the technology, it was approached by Bruce
Crain, Executive Director of AARC. In
this meeting, Crain discussed that the AARC board was looking to support
its existing investments and would look favorably on an expanded
investment in SAI. Crain also notified the members in attendance that
Congress had granted SAI and other board members preferential set aside
status for their products. Crain
presented an offer that AARC would invest additional funds and that they
would offer SAI a marketing agreement to sell its preferential set-aside
products through a professional third party marketing company to the
Federal government and that a five (5%) percent commission would be earned
by AARC and go back into the venture fund for other investments. It was a
no-brainer. As we discussed
the size and capacity of our construction, Crain offered that the USDA
would look favorably on a loan to allow us to expand to serve the large
government sales opportunity.
Crain put us in touch with Ed Bell, a B&I loan
packager, familiar with AARC companies and the USDA.
A loan package was put together and Bell had it approved by
Harborton Insurance Company of California. A request to allow our current
bank, First Federal Savings Bank (FFSB) of Donaldsonville, to act as the
servicing agent was approved by Harborton. At this same time, Robert
McDaniel of First Community Bank (FCB) asked if he could submit the
package to his board for approval, which was approved at terms more
favorable to SAI. The
Defendant told McDaniel he would go with FCB, if FFSB could share in the
loan. A verbal
agreement was reached and the loan processing began in earnest.
The USDA was a multi faceted partner in helping to fund the
start-up, to marketing the company’s products, to help in arranging loan
financing, to assisting in research and development of new applications of
SAI’s products. The
synergies and collaborations seemingly were excellent until 1999 when SAI
was finishing construction of its manufacturing operations and were
notified that Congress had terminated funding for AARC and its marketing
efforts. The Defendant had
been developing a concept for a new company in support of analytical
testing of chemical commodities being sold through automated brokerages
and delivery of quality transaction data into the global exchanges. As
allowed under SAI operating agreements, Defendant was allowed to develop
separate interest and companies.
While not required, the Defendant gifted 50% of his
ownership in a new company, WorldWideTesting, Inc. (WWT) to SAI. Within 14
months the company had grown to almost 50 employees and had investment
valuations up to $45 million. Required
to resign from participation and management in SAI by the WWT board, SAI
began to seek to sell some of its WWT stock to raise needed cash.
By middle of 2000, SAI had negotiated a sale of $1 million of its
WWT stock back to WWT. As the
sale closed, those funds went into a lockbox managed by the Plaintiff.
The Defendant does not have access to the paperwork showing how the
funds were dispersed, but after the funds had been applied mostly to
interest, the Defendant discovered that the many current bills and
obligations were not paid, though the interest and obligations to the Bank
had been brought current. This preferential payment arrangement by the holder of the
funds, succeeded in reducing debt to the bank but unsecured creditors debt
grew dramatically, and the construction company, Days Industrial
Construction Company, Inc, which had agreed to build the plant at cost,
was owed many hundreds of thousands of dollars.
This lead to the halt of projects oriented to allow
SAI to sell higher value added specialty lines.
The company sought support from the Bank for funding but was
declined, and the Defendants parents and CFO borrowed on land and other
assets to raise funding to bring in a buyer.
The Bank declared the company in default and the unsecured
creditors requested bankruptcy protection so that a buyer for SAI could be
found. About this time a meeting was arranged with the Bank and USDA Rural
Development. In that meeting,
the Howard Franklin, the USDA B&I program manager told the Bank and
the Defendant and Doug Erwin, that the AARC marketing Agreement was used
to issue the credit approval for the company.
Defendant asked Franklin to relate how much the AARC agreement was
relied upon in order to issue the loan guarantee.
He replied that the approval was based entirely on the AARC
Agreement. He said, “You did not have a plant. You did not have any
customers. You had no sales. You had no prior experience.
We relied entirely on the AARC marketing to sell your product (to
potential buyer was located and a contract was extended to test plant
capabilities. A few days
after September 11, 2001 World Trade Center Disaster, a phone call
notified SAI that the purchase consideration was being shelved.
The admission that the USDA and the Bank relied on
the performance of an internal agency and wholly owned corporation of the
US government to perform, and when Congress cut funding for the AARC
program, the house of cards fell, revealing a web of conflicts of interest
that could never be allowed under normal banking laws.
The largest cash investor in SAI (AARC), was able to influence the credit decision of a bank and the
national guarantee banking program by offering a contract of performance.
A member of AARC sat on the USDA National Office Executive Loan
Committee which voted not only on the approval for the loan guarantee but
also recommendation by the State Director, Laura Meadows, for an exemption
to Rural Development regulations which took the guarantee from 80% to 90%
of the total amount. The
Committee voted to extend a guarantee which violated its own rules for
conflicts of interest (see Exhibit A, RD Instruction
4279-b, 4279.114 (q), Effective 12-23-1996) which defines loan
guarantees for ineligible purposes:
(q) The guarantee of loans where there may be,
directly or indirectly, a conflict of interest or an appearance of a
conflict of interest involving any action by the Agency. An example of a
conflict of interest would be where guaranteed funds are used to finance a
Federal office building where one of the tenants leasing the space is a
USDA agency or organization.
The Bank and the USDA violated the regulations
through joint negligence and perhaps unwitting participation with AARC to
create a loan guarantee for ineligible purposes.
This action by AARC, NOEL Committee, USDA Rural Development and the
Bank violated the USDA regulations and allowed a conflict of interest loan
and loan guarantee to be created which rested on the performance of AARC.
This action placed the USDA in the commercial position of creating
a contract with the Bank which contained no clauses of relief in the case
of non-appropriations yet was dependent of the continued funding by
Congress. Furthermore the USDA negotiated contract terms with the
Defendant in active participation of the loan document and guarantee. (see
Exhibit B) When Congress cut funding for AARC it created actual
economic damages for the Defendant and a host of small rural investors in
which they lost retirement funds, incurred debts, and suffered harm from
the actions. Furthermore that
action prevented performance by AARC of its obligations to SAI, Defendant
and other agencies within the USDA, including Rural Development which
relied on AARC’s performance to protect the USDA’s 90% guarantee. As
such, the Defendant has filed a third party complaint against the USDA and
AARC, a copy is attached hereto.
First Community Bank breached the terms of the loan agreement and
increased the risk to the Guarantor and Defendant without his consent.
Under OCGA § 10-7-22, "[a]ny act of the creditor . . . which injures
the surety or increases his risk or exposes him to greater liability shall
discharge him.” At the loan closing, the Bank signed an agreement in
which they agreed to participate 50% of the loan to another lender. The
Defendant had agreed to utilize First Community Bank loan services only if
the bank participated the loan to a bank chosen by the Defendant and under
commercially reasonable terms. The
Defendant wanted participation of a bank with whom SAI shareholders
already had a working loan relationship and which had experience in
managing a USDA guarantee loan. This additional bank would also offer a
greater pool of funding available for the company. In consideration of the
sizable fees the Bank earned upfront,Robert McDaniel, signed the agreement
at the loan closing for the Bank and a copy was forwarded to First Federal
Savings Bank of Southwest Georgia. (FFSB).
It is interesting that the Bank did not include this paperwork in
its filing to the Court. FFSB had provided construction loans prior to the
Plaintiff’s loan and even with notice to the Plaintiff, this agreement
was never fulfilled. At a
midpoint in the loan, the Defendant approached Diane Thomas of FFSB and
asked about their participation. She
indicated that the Bank had not complied with that agreement and that her
bank was interested and would like to participate. The Bank never
participated the loan to FFSB and never contacted the Guarantor, SAI nor
FFSB to renegotiate the terms of the loan.
This breach put a small Bank in southwest Georgia as the sole
supplier of credit to SAI. This
action significantly increased the risk to the Defendant, reduced SAI’s
ability to obtain additional credit that would have allowed it flexibility
as AARC’s funding was cut by Congress and ultimately affected SAI’s
ability to repay the loan. The failure to honor the contract is a material
breach of the terms of the loan by the Bank and significantly increased
the risks to the Guarantor without his approval. A copy of this document
can be found through discovery in the files of the USDA auditors, as well
as the Bank and FFSB.
First Community Bank did not adequately secure the assets of the
company. The 90% loan
guarantee offered by the USDA required that the Bank secure all assets of
the borrower. The bank
did not include security in the intellectual property of the borrower.
SAI had been flown by dealers to meet buyers in Chile, and had
prospective licensors come from South Africa, Australia, and Syria. The
technology was not allowed to be sold to companies in Iran due to its
sensitive nature. SAI held licensable trade secrets and other intellectual
property (IP) which were demonstrated in parts of the manufacturing
systems and would have significantly increased the value of the property
if it could have been sold with the equipment.
Unfortunately the bank could not sell the equipment for its true
value since they had not secured intangible property as part of the loan.
The Bank never requested to license the technology, which would
have been viewed favorably by the management of the company and its
investors. Instead, even
after SAI filed suit to protect its IP, the Bank ignored this important
component of the market value of the assets.
One of its appraisers had many years of experience in the field yet
the Bank made no request to include his evaluation of the value of the
technology if the Bank had licensed it from the borrower.
As such, his appraisal returned a value for the plant that
estimated the cost of removing all equipment, resulting in a negative
The Defendant contested the valuation methods at
the confirmation of the sale by offering expert testimony in process
technologies by Dr. James F. Benzel Professor Emeritus of the Georgia
Institute of Technology. He
presented his opinions to the Court detailing that it was a unique and
valuable technology and certain heavy industries such as steel processing
could utilize the IP and equipment. These are industries accustomed to
paying millions of dollars for technologies that can improve the bottom
line. While the Court ruled in favor of the real estate confirmation after
almost 3 months of deliberation, its did not dispute the basic tenets that
the value was in the IP. The Bank was negligent in not including IP in its
establishment of liens necessary to recovery value in a commercially
A suit was filed by SAI in December 2001, requesting the Court
grant recognition and protection to SAI IP and trade secrets, which had
been protected by extensive confidentiality agreements from contractors,
site visitors, and employees. This IP was an asset, which could have
benefited all creditors including the bank and which the Bank negligently
ignored. This may have been in order to dismiss any claim other creditors
may have had in a major portion of the value of the company or to continue
on with a path that would allow them to dispose of the assets and move
against the guarantee offered by the USDA.
In any case the result was a public disclosure which caused a
serious loss in value (A*) to all assets of SAI.
The property right in a trade secret ceases to exist after the secret has
become public property through general disclosure. If a trade secret is
patented there is no further right to secrecy. The patent is a legal
disclosure with the right to a limited, temporary monopoly granted as the
reward for disclosure. Sandlin v. Johnson, 141 F.2d 660 (8th Cir. 1944);
Newport Industries, Inc. v. Crosby Naval Stores, Inc., 139 F.2d 611, 612
(5th Cir. 1944). See Grant v. Raymond, 31 U.S. 218, 242, 8 L. Ed. 376
The Bank on August 1, 2003 at 10 am began the auction of the assets of SAI.
The instructions to the potential auction buyers, held on site at 255 N Bay St. was announced by the Bank’s auction company taking several minutes.
As Defendant listened to the instructions, they did not include any reference to assets owned by Southwest Georgia Regional Development Center (SWGRDC) which had a loan secured by many assets in and on the property. Defendant approached the Bank president Jeff Hanson & Bill Holland and asked had they arranged for a purchase agreement with SWGRDC to sell their assets as those specific assets were not part of the SAI assets covered by the Bank loan and the bank had given lien waver’s to SWGRDC which had separate liens.
The auction had already begun and had climbed to 110k… As Defendant and Plaintiff were talking the amount raised to 120K. Holland consulted the auctioneer.
The auctioneer, paused and announced a special separate instruction to the bidders, saying “There is another lender who has equipment on the property. We are only selling today those items that the bank actually owns.” A prior bidder asked “Do we know what those items are?” The Plaintiffs attorney shook his head, No.
Another bidder asked: “How can we bid if we do not know what we are buying?”
Auctioneer shrugged his shoulders but continued the auction.
“This is nuts!” replied the bidder “How can you bid on something that you don’t know what you’re buying.” The team of the auction company was soliciting bids but no bidders were interested in bidding for what they did not know they were getting for their purchase..
At that point, the Defendant gave verbal notice to Bill Holland & Jeff Hanson, who stood in front of a group of bidders, and told them that the sale was being conducted in a commercially unreasonable manner.”
This verbal notice was never responded to by the Plaintiff or their counsel, nor did the Bank arrange to halt the auction until a list of equipment which SWGRDC had financed could be faxed to the sale.
The plaintiff never corrected the error nor tried even the simplest method of calling the SWGRDC or its counsel and getting a copy of their equipment and pausing the sale for an hour.
INDUSTRIES CREDIT CORPORATION v. LUNCEFORD
Ga. App. 445; 333 S.E.2d 373; 1985 Ga. App. LEXIS 2116; 42 U.C.C. Rep.
Serv. (Callaghan) 602
plaintiff never inspected nor arranged for the inclusion of those assets
at the sale therefore compromising the completeness of the system that
would be viewed by potential buyers.
The Bank did not adequately discover the value of the collateral.
ENTERPRISE FINANCIAL CORPORATION v. GEORGIA NUT & BOLT COMPANY
212 Ga. App. 459; 441 S.E.2d 908; 1994 Ga. App. LEXIS 315; 94 Fulton County DR 1237
The secured party must
also prove the value of the collateral at the time of repossession and
that the value of the goods does not equal the value of the debt."
Richard v. Fulton Nat. Bank, 158 Ga. App. 595, 595-596 (281 S.E.2d 338)
(1981)."When a creditor forecloses on secured property without the
statutorily required notice to the debtor, or when the creditor conducts a
commercially unreasonable sale, a rebuttable presumption is created that
the value of the collateral is equal to the indebtedness. The creditor may
rebut the presumption by introducing (1) evidence of the fair and
reasonable value of the secured property, and (2) evidence that the value
of the collateral was less than the debt. If the creditor rebuts the
presumption, he may maintain an action against the debtor or guarantor for
the deficiency (the difference between the fair and reasonable value of
the collateral and the amount of the debt)." Business Dev. Corp. of
Ga. v. Contestabile, 261 Ga. 886 (413 S.E.2d 447) (1992). "If the
creditor conducts a commercially unreasonable sale and does not rebut the
presumption . . ., he loses the right to recover the deficiency against
the debtor and the guarantor." (Emphasis deleted.) Id. at 886-887.
"Proof of the value of the collateral is required to be the value at
the time of repossession. Granite Equipment Leasing Corp. v. Marine Dev.
Corp., 139 Ga. App. 778 (230 S.E.2d 43) (1976).] " First Nat. Bank v.
Rivercliff Hardware 161 Ga. App. 259, 260 (287 S.E.2d 701) (1982).
The defendant gifted ½ of his equity ownership in the company to SAI which which then further became an asset securing the banks loan. The Defendant resigned from SAI in 1999 as required by the Worldwidetesting board.
DEMAND FOR JURY TRIAL
Defendant hereby demands a jury trial as to all issues triable by a jury.
DANNY M DAY
4523 Runnemede Road
Atlanta, GA 30327
404/228-8687 • Fax 208/247-2475