MURFREESBORO, Tenn. -- The owners of Coconut Bay Café are expected to learn soon whether a multimillion-dollar lawsuit alleging Wilson Bank & Trust wrongly foreclosed on their loans will go to trial in Rutherford County Circuit Court later this year.
Coconut Bay owners Amanda Gallagher and her father, Tony Hinson, are seeking $10 million in punitive damages over allegations that Stan Hayes, a former Rutherford County branch president, altered mortgage documents without their permission to the detriment of their company.
Following an Aug. 23 hearing, Ben Cantrell, a retired Tennessee Court of Appeals judge appointed to oversee the case, refrained from issuing a decision on whether to side with Wilson Bank and dismiss the lawsuit.
Noting this case could have far-reaching consequences due to the complex legal issues up for debate, Cantrell indicated that his decision would likely not come for at least a few weeks.
Wilson Bank is being accused of foreclosing on the Coconut Bay restaurant in Manchester, Tenn., despite the history of documented forgeries allegedly committed by Hayes, who served as president of the Murfreesboro branch from 2004 through June 2008.
In the lawsuit, one of the claims being made is that Hayes unlawfully changed the terms of the loan and deed of trust associated with the Manchester property to include the original Coconut Bay restaurant, which is located on Stones River Mall Boulevard in Murfreesboro.
And while it includes other allegations against Hayes, attorneys from both sides have focused much of their arguments on whether a customer should be required to pay back a loan if bank officials change the terms of the collateral, which in this case is a deed of trust, without permission.
During the two-hour hearing in Murfreesboro, Wilson Bank attorneys strongly denied any wrongdoing and specifically lashed out at Gallagher, at one point insinuating she filed the lawsuit for questionable reasons.
“There is a lot of chatter about Wilson Bank and Hayes,” said Nashville attorney Charles Cook, one of the lawyers from Adams and Reese LLP who is representing Wilson Bank in the lawsuit. “But, there is not any evidence that these rumors are true in connection with this particular lawsuit.”
Gallagher and Hinson “enjoyed the benefits of their bargain for a number of years” and should not “be allowed to void their existing obligations now that they are unable to fulfill those obligations,” he added.
Fellow Wilson Bank attorney Brad Lampley also argued Gallagher has no reason to file a lawsuit because she lacks first-hand knowledge as to whether Hayes actually committed forgery.
Even if Hayes did change the terms of the collateral, Lampley said, a deed does not “fall under the same federal and state regulations as financial instruments.”
“Protest as they may, the plaintiffs must concede that Wilson Bank loaned them all amounts due under the applicable loan agreements,” Lampley said, noting that regardless of the circumstances, any alleged forgeries “never affected the terms of the loans.”
“Despite the allegations, the only property that Wilson Bank has actually foreclosed on to date is the one in Manchester,” he said, “so we believe the plaintiffs were never harmed and this lawsuit is frivolous.”
However, Murfreesboro attorney Ken Burger countered that a deed of trust is a financial instrument because “without the collateral, there would have been no loan.”
“All of these documents are a part of the mortgage, so it is a type of financial instrument,” said attorney Ken Burger, who is representing Gallagher in the lawsuit. “My client agreed to a certain set of terms for the loan, but those were changed without her knowledge. Under Tennessee law, if any contract or financial instrument, including a deed of trust, is changed without authorization, it becomes void.”
According to the lawsuit, Hayes approved the $400,000 loan to purchase the Manchester property in September 2006. A few weeks later, the original Coconut Bay restaurant was unlawfully added to the deed of trust, which initially only listed the Manchester property.
Unaware of what had taken place, Gallagher began the process of seeking an additional $150,000 in January 2007 to renovate the Manchester property.
Ten months later, Hayes combined both loans into one package, bringing her total line of credit to $550,000 at an 8 percent interest rate, and used a Greerson Drive rental property as collateral.
Only this time, Burger said, the loan included revised terms stipulating, “in the event of a default of any payment, the bank is permitted to increase the annual interest rate to 18 percent.”
From October 2007 through late 2011, Gallagher paid the monthly $6,900 installment on time.
It was not until she learned that Wilson Bank directed more than $80,000 from those payments to pay down accrued interest resulting from an 18 percent default rate did she question the irregularities, according to the lawsuit.
Eventually, Burger said, bank officials admitted that various documents pertaining to both loans were riddled with mistakes and the interest rate had been improperly computed.
Though they did not publicly blame Hayes, Wilson Bank officials offered to rework the loans as long as Gallagher agreed to put up an extensive amount of collateral, such as the original Coconut Bay location in Murfreesboro.
Gallagher responded to the offer by stopping all payments because she felt the deal was unfair, he said.
“My clients paid on time and never missed a payment for several years,” he said. “(Gallagher) quit making payments on the note because bank executives refused to answer her questions and address those issues about the deed of trust, as well as the incorrect interest rate that she was charged for more than four years.”
Given the situation, Burger said, Gallagher and Hinson should never have lost their property because they did not owe Wilson Bank any money for the loan.
“The moment that loan was altered,” he said, “it released my clients from any and all obligation to repay the loan.”
Though the case has been pending in court for almost a year, the proceedings come only a few months after a jury sided with Ken Howell in his lawsuit against Wilson Bank.
Howell is the real estate developer who successfully argued Wilson Bank failed to prevent, and subsequently resolve, financial issues that arose as a result of Hayes allegedly forging documents and illegally modifying loans pertaining to Stones River Homes and Richmond’s Retreat LLC.
As with the Howell lawsuit, allegations levied in this lawsuit also raise questions as to how Wilson Bank managed lending when it first entered the Rutherford County market.
“This bank has been guilty of fraud by another Rutherford County jury for the exact same facts,” Burger said. “Many people who do not know each other all claim the exact same thing – Hayes committed fraud. Yet, Wilson Bank never did anything to address the issues for years, and that is why it should be held accountable.”