United States District Court, D. Connecticut
FOUNDATION CAPITAL RESOURCES, INC., Plaintiff and Counter Defendant,
PRAYER TABERNACLE CHURCH OF LOVE, INC., Defendant and Counter Claimant.
RULING GRANTING IN PART AND DENYING IN PART
PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING
DEFENDANT'S MOTION TO VACATE RECEIVERSHIP ORDER
JEFFREY ALKER MEYER UNITED STATES DISTRICT JUDGE.
Foundation Capital Resources, Inc. (“Foundation
Capital”) is a religiously affiliated financial company
that lent millions of dollars for a major church construction
project in Bridgeport, Connecticut. Unfortunately, the church
entity that received the funds-defendant Prayer Tabernacle
Church of Love, Inc. (“the Church”)-defaulted on
the loans. Foundation Capital has filed this lawsuit to
foreclose on the Church, and the Church has responded with
defenses and counterclaims alleging in essence that
Foundation Capital engaged in predatory lending and fraud.
Foundation Capital now moves for summary judgment. I will
grant in part and deny in part the motion for summary
judgment. I also grant the Church's motion to vacate the
parties in this case tell two very different stories. For
Foundation Capital, this is the story of a straightforward
foreclosure action due to the Church's failure to pay
back loans. For the Church, this is the story of a predatory
lending scheme, featuring multiple misrepresentations and
tactics that induced the Church to take on debt it could not
pay. I will first recount Foundation Capital's version of
events before relating the Church's version.
Capital describes a sequence of several loans and forbearance
agreements from 2007 through 2009. The first loan was
executed in December 2007 and provided the Church with $6.1
million in construction financing at an interest rate of
8.375%. Doc. #87-2 at 5-6 (¶¶ 21-22, 26-27). The
loan was secured by a mortgage on fifteen parcels of property
owned by the Church in Bridgeport, Connecticut. Id.
at 6-8 (¶ 29).
construction project incurred numerous cost overruns and
change orders, leading to the parties' agreement to enter
into a bridge loan for more financing to complete the
project. Id. at 10 (¶¶ 39, 43). Foundation
Capital issued the Church a bridge loan in December 2008 for
an additional $1.175 million at an interest rate of 10.5%.
Id. at 11 (¶¶ 47-48).
spring of 2009, the Church was delinquent in repaying its
loans, and the parties negotiated forbearance agreements and
other arrangements designed to cure any default. Id.
at 13-22. In March and June 2009, the parties entered into
forbearance agreements with respect to the 2007 and 2008
loans. Id. at 13-14. The June 2009 forbearance
agreement provided for a higher interest rate of 13.375%
until the arrearage had been cured. Id. at 14
few months later, the parties executed a third loan, of $850,
000 at an interest rate of 11.5% in September 2009.
Id. at 15 (¶¶ 71-72). They also entered
into a separate interest rate agreement in November 2009
stipulating to an interest rate of 11.5%. Id. at 16
October 2009, the parties entered into another forbearance
agreement with respect to the three prior loan notes of 2007,
2008, and 2009. Id. at 16 (¶ 79). This October
2009 forbearance agreement contained a clause acknowledging
the validity of the prior notes and disclaiming and waiving
any defenses to their enforcement. Ibid. (¶
80). In addition, the October 2009 forbearance agreement
provided that “[t]his document contains the entire
agreement between the parties hereto and there are not oral
representations or agreements which are not set forth
herein.” Id. at 17 (¶ 81).
September 2010, the Church's leader (Bishop Kenneth
Moales, Sr.) passed away. Id. at 18 (¶ 88). The
parties thereafter agreed in April 2011 that $1.7 million in
life insurance for Bishop Moales would be paid to Foundation
Capital, such that all three of the outstanding loans from
2007, 2008, and 2009 were made current in payments, and the
interest rates on the notes were reset to 6.25%. Id.
at 18-19 (¶¶ 90-92).
Church, however, fell behind by about $200, 000 in payments
again by late February 2012. Id. at 19 (¶¶
95-96). In March 2012, the parties entered into modification
agreements for the 2007, 2008, and 2009 notes, with an
interest rate of 6.25% and a maturity date of May 1, 2014.
Id. at 21-22 (¶¶ 102-108). The Church was
represented by counsel in connection with these modification
agreements. Id. at 22 (¶ 109). In anticipation
of that agreement, the Church's officers and voting
trustees executed a certification and resolution authorizing
the Church to enter into these modification agreements.
Id. at 20 (¶ 98). The certification and
resolution acknowledged the Church's cumulative debt of
about $7.2 million under the 2007, 2008, and 2009 notes.
Ibid. (¶ 100).
again, the Church fell behind in its payments, and on May 16,
2013, Foundation Capital sent demand letters to the Church
and accelerated all amounts due and owing under each loan.
Id. at 23 (¶¶ 112-13). The Church has not
made any payments on the notes since January 2013.
Ibid. (¶ 115).
Church does not dispute the foregoing facts. It contends
instead that there are additional facts involving fraudulent
oral misrepresentations that led to the Church's
incurring of debt and inability to repay its loan
obligations. This defense relies in principal part on the
deposition testimony of Pastor Kenneth Moales, Jr., who was
the son of Bishop Moales and is currently the Senior Pastor
and CEO of the Church. Pastor Moales had previously served as
the youth pastor for the Church while his father was leading
the Church. Id. at 23 (¶ 118).
Moales was involved in the execution of all the notes,
mortgages, and forbearance agreements between the parties.
Id. at 24 (¶ 120). As an advisor at that time
to the Church's board of trustees, his role also included
“bookkeeping, creating business models, negotiating
with vendors and dealing with lawyers, and doing my internal
bookkeeping, and review of the [Church's
accountant's] audits.” Id. at 23-24
(¶ 119). Pastor Moales' background includes a
college degree in accounting as well as ten years working in
the field of accounting for organizations including the New
York Times, Deloitte and Touche, and Mercedes Benz; he was
also lead tax accountant for Pepperidge Farm for four years.
Ibid. (¶¶ 121-22).
to Pastor Moales, the Church first decided to move from its
previous location in Bridgeport to build a new, larger church
facility, sometime in 2005 or 2006. Doc. #92-3 at 9- 10
(deposition transcript). The planned construction project
would consist of two phases: Phase One, consisting of a new
church building and a new location for the church's
affiliated religious school, and Phase Two, consisting of
numerous additional amenities including a dining room,
gymnasium, four basketball courts, an auditorium, a bowling
alley, a swimming pool, and additional classrooms for the
school. Id. at 11.
Church initially acquired a mortgage from the Evangelical
Christian Credit Union (“ECCU”) for a $5 million
line of credit at an interest rate of 7.693%. Id. at
46-47. But after the architect on the construction project
determined that Phase One alone would cost $6.5 million,
id. at 19-20, and that the entire project combined
would cost $13.5 million, id. at 64, the Church
realized it would need additional construction financing
beyond the mortgage from ECCU. The Church's accountant,
Samuel Wilson, then put the church in touch with seven
potential lenders, including the Assemblies of God Loan Fund
(“AGLF”). Id. at 36-37.
a part of the Assemblies of God (“AG”), a
Protestant Christian denominational group. Doc. #92-14 at 14.
AGLF was created in 1994, and then placed under the auspices
of the newly-formed Assemblies of God Financial Services
Group (“AGFSG”) in 1998. Ibid.
also controls a real estate investment trust called
Foundation Capital Resources, Inc., the plaintiff in this
case. During the relevant period, from 2007 to 2009, AGFSG
owned roughly 99% of Foundation Capital's stock,
“either directly or through entities it
controls.” Id. at 36, 53. Foundation Capital
paid “dividends quarterly in an amount that
approximates its taxable income, ” and was
“consolidated into the financial statements of
AGFSG.” Ibid. AGFSG, AGLF, and Foundation
Capital are all in the business of making construction loans
to church groups. Id. at 15.
Capital was one of three potential lenders to make the Church
a formal loan offer. Doc. #92-3 at 37. According to Pastor
Moales, Foundation Capital offered a “verbal
commitment” to fund both Phases One and Two in their
entirety. Id. at 38. Kregg Hood, one of Foundation
Capital's officials, stated that “God told him to
fund the project.” Ibid. “He said the
Lord had led him to our city and to our church.”
Id. at 40.
to Pastor Moales, Hood, along with Johnnie Baker and Larry
Russell, repeatedly told the Church that the loan from
Foundation Capital would take place in several increments.
The Church would receive $6.1 million immediately, and would
then receive a second installment based on the pledge totals
from a capital campaign to raise funds from church membership
that would be supervised by Foundation Capital. Id.
at 60. Ultimately, both the initial construction loan and the
subsequent bridge loan would be converted to a single,
“traditional” mortgage, with an interest rate
between 4% and 6%. Id. at 60, 69-72, 75-76.
Moales testified that he understood that the Church would
receive enough financing from Foundation Capital to conduct
the entire construction project, and that the capital
campaign would only be intended to pay off the resulting
mortgage, not to pay for the construction itself.
Id. at 69, 99-100. He also testified that part of
Foundation Capital's pitch was the guarantee that it
would make sure that all of the construction workers and
subcontractors were paid on time so that there were no delays
in construction. Doc. #92-4 at 49.
verbal commitment, however, was not reflected in the first
loan agreement, which simply provided for a loan of $6.1
million at an interest rate over 8%. Doc. #92-3 at 76.
According to Pastor Moales, throughout his dealings with
Foundation Capital “80 percent of what they did for us
was not in writing.” Ibid. In fact, Pastor
Moales advised the Church's board of trustees not to sign
the 2007 loan documents precisely because of these
discrepancies. Id. at 76-77. But Hood, Russell, and
Baker assured Bishop Moales and the board of trustees that
the documents were “just a formality.”
Id. at 77. After the closing of the first mortgage,
Hood, Russell, and Baker repeatedly represented that the
loans would eventually be converted into a traditional
mortgage with an interest rate under 6%; these
representations spanned from 2007 all the way to 2012.
Id. at 71-72. This promised lower interest rate
to Pastor Moales, by February 2008 he knew that the project
was on pace to run out of money by the summer. Id.
at 92. He began pressing Foundation Capital for the money
from the bridge loan, which he understood to be a second
disbursement from the initial loan, once the pledge total
from the capital campaign had come in. Id. at
128-33. But Larry Russell responded that the Church would
need to fill out certain new forms concerning the capital
campaign that had never been presented to the Church.
Id. at 129-30. Pastor Moales stated that he received
an ever-shifting narrative from Kregg Hood and Foundation
Capital's other officials about ...