Sentinel Capital Orlando, LLC v. Centennial Bank
676 F. App'x 910
| 11th Cir. | 2017Background
- In 2007 a Participation Agreement split a ~$15M loan: Participating Bank (majority) and Originating Bank (minority). Sentinel acquired the majority participation interest in May 2011, after the loan had already been in default and foreclosure was pending.
- Borrower defaulted October 2008 and never made payments; foreclosure proceeded and a stipulated final judgment (using the standard 3.75% rate) led to a high-bid sale producing ~$6.5M.
- Sentinel sued Centennial (successor to Originating Bank) seeking to invoke a Repurchase Clause (Section 13) based on alleged breaches: failure to convey borrower and third‑party offers, refusal to invite Sentinel to mediation, and refusal to apply a 25% default interest rate.
- District court found Sentinel did not prove Centennial defaulted under the Agreement and entered judgment for Centennial; Sentinel appealed.
- Eleventh Circuit affirmed on different grounds: agreed facts supported no default, construed Sections 10 and 16 (disclosure, administration, limitation of liability), and held Sentinel failed to establish a breach triggering the Repurchase Option.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Originating Bank’s failure to convey offers/mediation info violated disclosure duties (Sections 4,10,11) | Sentinel: Sections require disclosure of all loan-related information; failure to disclose borrower/third-party offers and mediation violates Section 10 and triggers repurchase right | Centennial: Section 10 requires disclosure only of matters that, in Originating Bank’s reasonable judgment, may have a material adverse effect; Sections 4 and 11 do not impose blanket disclosure; no evidence offers were material or that reasonable judgment was abused | Held: Section 10 obligates disclosure of items reasonably judged to be materially adverse; Centennial did not breach—offers and mediation conduct were not shown to be materially adverse or withheld unreasonably |
| Whether Section 16(b)/(e) gave Participating Bank control to impose default interest or otherwise direct post-default conduct | Sentinel: Section 16 requires consultation/consent for material modifications (including interest rate) and a meet‑and‑confer that allows majority to control course of action, so Centennial’s refusal to apply 25% rate breached the Agreement | Centennial: The Note defined the "Bank" role such that charging default interest was discretionary; decline to charge was not a modification; no timely meet‑and‑confer was shown | Held: Refusal to charge default rate was not a prohibited modification and Sentinel failed to show timely exercise of Section 16(e) rights; no default under Section 13 resulted |
| Whether Section 16(d) limitation requires proof of loss before repurchase remedy | Sentinel: Repurchase option should be enforceable for material breaches of disclosure or administration duties without additional loss showing | Centennial: Section 16(d) limits remedies for loan‑administration breaches to losses from commercially unreasonable conduct, negligence, or willful misconduct | Held: Limitation (Section 16(d)) applies to loan‑administration duties—such breaches require proof of loss from specified misconduct; it does not bar repurchase for unrelated material breaches of disclosure duties |
| Whether the district court’s finding of no default was clearly erroneous | Sentinel: Factual record (undisclosed offers, mediation, interest decision) supports a default finding | Centennial: Trial record lacks proof that any withheld information was material or that Originating Bank abused reasonable judgment; Sentinel acquired interest post-default and had notice of risks | Held: Findings of fact by district court are not clearly erroneous; Sentinel failed to prove Centennial defaulted under the Agreement, so repurchase not triggered |
Key Cases Cited
- Crystal Entm’t & Filmworks, Inc. v. Jurado, 643 F.3d 1313 (11th Cir. 2011) (standard of review for bench trial findings and legal conclusions)
- Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009) (review of factual findings for clear error)
- HGI Assocs., Inc. v. Wetmore Printing Co., 427 F.3d 867 (11th Cir. 2005) (explaining "clearly erroneous" standard)
- United States v. United States Gypsum Co., 333 U.S. 364 (1948) (formulation of "definite and firm conviction" test for clear error)
- Sun American Bank v. Fairfield Fin. Servs., 690 F. Supp. 2d 1342 (M.D. Ga. 2010) (distinguished; involved pre-default withholding of material information that induced continued funding)