Judge Billy Ray (Photo: John Disney/ALM)

The Georgia Court of Appeals has reversed a grant of summary judgment to a bank holding a guarantor personally liable to repay a nearly $5 million loan for a shopping center that went under during the Great Recession.

Judge Billy Ray II, who earlier this month was confirmed to a lifetime appointment on the U.S. District Court for the Northern District of Georgia, wrote the opinion released Tuesday. Ray was joined by Judges Christopher McFadden and Brian Rickman.

The judges delivered a victory to Peter Bowers, who signed for a $4.96 million loan and put an additional $1.44 million of his and his wife's investments into a Clayton County shopping center that opened in 2006—at the height of the real estate bubble that would soon burst. Leasing did not go well. A few years later, the anchor tenant, a grocery store, closed up, and Bowers was unable to find a replacement, according to the opinion.

Meanwhile, the lender, GMAC Commercial Mortgage Bank, had assigned the loan to Wells Fargo Bank, as trustee for Holders of Credit Suisse First Boston Mortgage. Bowers went to Wells Fargo and explained that he had lost his own investment in the shopping center, was unable to continue making loan payments and wanted to hand over the property to the bank, Ray said. In 2012, Wells Fargo filed a receivership proceeding against Bowers and asked him to sign a consent agreement, which he did. The bank then sent him a notice of default, Ray said. In 2013, Wells Fargo sold the loan at auction to Today's Bank, formerly known as First State Bank of Northwest Arkansas.

“Guarantor contends that the trial court erred in holding that he became personally liable as guarantor when the shopping center became an asset in the receivership proceeding filed by Wells Fargo,” Ray said. “We agree.”

Bowers was represented by Kathie McClure of McClure & Kornheiser in Atlanta.

“This appeal presents a case of first impression in Georgia interpreting the scope of a so-called 'Bad Boy' guaranty of a nonrecourse loan secured by commercial real property,” McClure said by email Friday. “We are pleased that the Court of Appeals construed the terms of the conditional guaranty in accordance with well-established principles of contract construction.”

Today's Bank was represented by Kevin Ward, J. Zachary Zimmerman and Tyler Keenan of Schulten Ward Turner & Weiss in Atlanta.

“While I respect the Court of Appeal's decision, I think the trial court correctly interpreted the language of the loan agreement,” Zimmerman said Friday by email. “For this reason, my client is reviewing its options regarding further appeal. This is an important issue for lenders since it relates to their ability to rely on the plain language of the contracts that provide the very foundation of their businesses.”

Ray's opinion reversed Clayton County Superior Court Judge Robert Mack's grant of summary judgment to the bank.

“In a receivership proceeding filed by the lender, Borrower is not interposing other creditors potentially ahead of the lender. To the contrary, filing a receivership proceeding and getting a receiver appointed is a way for the lender to protect its security interest,” Ray said.

“It is clear that a voluntary insolvency proceeding is one commenced by Borrower and an involuntary insolvency proceeding is one commenced against Borrower,” Ray said. “It would make no sense to interpret the loan agreement to put personal liability on Borrower because it cooperated with Wells Fargo. Borrower's consent to the receivership order, at Wells Fargo's request, does not convert what would otherwise be an involuntary proceeding into a voluntary proceeding.”

Thus, Ray concluded, Bowers as borrower and guarantor “did not become personally liable when the shopping center became an asset in the receivership proceeding filed by Wells Fargo.”

The case is Bowers v. Today's Bank, No. A18A1348.