BECKLEY – A Virginia-based bank is asking a federal judge to hold off on a request by the network of businesses owned by Gov. Jim Justice’s family to seal the case.
Carter Bank & Trust also says it will move to dismiss or transfer the case filed November 10 by the Justice companies that alleges the bank of illegally blocking them from doing business with other lenders.
In response to the initial Justice complaint and the subsequent motion to seal, Carter Bank attorney Booth Goodwin filed a motion in opposition to the motion to seal as well as a motion for bifurcated Rule 12 briefing.
Booth Goodwin
| Courtesy photo
Carter Banks also says the Justice companies filed a redacted complaint in an attempt to “stave off the confession of judgment proceedings pending against them” in Martinsville, Va., Circuit Court.
The Justice companies maintain sealing the case is necessary to protect them from “superfluous litigation,” but they also say a 2021 non-disclosure agreement is unenforceable because of Carter Bank’s actions against them.
“Seeking to have their cake and eat it too, plaintiffs attempted an end run around the fact that the unredacted complaint violates the NDA by asking this court to seal it pending an advisory opinion as to its enforceability,” the bank’s November 16 response in opposition to the motion to seal states. “But plaintiffs fail to demonstrate that any compelling reason supports sealing the unredacted complaint.”
The bank says relying on the NDA and its alleged potential to expose the Justice companies to legal liability as grounds for sealing the unredacted complaint is “an unusual reason to seal a pleading.”
“In the same breath, however, they boldly proclaim that the NDA is unenforceable because it was obtained by ‘economic duress’ and is ‘patently overbroad,’” the bank argues. “Make no mistake about it. The NDA is fully enforceable. … The public certainly has an interest in this dispute.”
Carter Bank also says the NDA provides that any dispute arising from it is governed by the laws of the Commonwealth of Virginia and that the parties agree any judicial proceeding related to the NDA would be filed in federal court in Virginia or in Martinsville Circuit Court.
“The court needs to consider and address whether venue is proper in this court and whether the court can exercise personal jurisdiction over all the Defendants in this matter,” the bank says in a November 20 memorandum, referring to the individual members of the bank’s board of directors who all live in Virginia.
The Justice companies say the complaint was filed in West Virginia because that is where most of the collateral in the case is located.
The bank’s November 20 filing also says the plaintiffs signed about 350 documents over a six-year period that contains the forum-selection clause, the most recent one being signed in February.
In a follow-up supplemental response filed November 20, the bank asks the court to consider postpone ruling on the motion to seal until it files either a motion to dismiss the complaint or a motion to transfer venue.
Carter Bank also says the Justice companies’ claims are nearly identical to a 2021 lawsuit that was dismissed.
The governor, his wife, his son and 15 Justice family companies filed the complaint November 10 accusing Carter Bank & Trust and related companies of illegally blocking them from doing business with lenders other than that bank. The complaint says the defendants violated the federal Bank Holding Company Act and other laws.
The plaintiffs and the bank already have a long history that includes other court actions. In fact, there is a hearing scheduled for November 15 in a Martinsville, Va., court about more than $300 million in confessed judgment claims by Carter Bank against the Justice family and companies.
The complaint details the relationship from its start in 2001 when Justice and Worth Carter met. It also details how the partnership soured less than a month after Carter died in April 2017.
“For more than 16 years, from 2001 through 2017, plaintiffs enjoyed a remarkably productive partnership with Defendant Carter Bank & Trust,” the complaint states. “Over that time, Carter became the primary lender for plaintiffs’ myriad businesses, generating millions of dollars a year in interest and profits for the bank and allowing it to grow from a small institution to a significant regional presence in south and southwest Virginia.
“Central to the parties’ success was the close business relationship between the Justice family and Carter founder Worth Carter, who recognized early on the opportunity to grow his bank by doing business with plaintiffs.”
The 36-page complaint is heavily redacted citing a 2021 confidentiality and nondisclosure agreement the plaintiffs say Carter banks made them sign. The plaintiffs say it broadly prohibits them from discussing Carter Bank’s statements and actions even in a judicial proceeding brought to assert plaintiffs rights.
“The NDA is plainly unenforceable, but in an abundance of caution, plaintiffs have provisionally redacted this public version of their complaint and will move for leave to file the unredacted version under seal,” the complaint states.
When Carter died in 2017, the plaintiffs say the initial $4.5 million real estate loan in 2001 had grown into a $740 million portfolio in loans to Justice’s coal, agriculture and hospitality businesses. Interest on those loans generated provided most of the banks profit, according to the complaint.
“After Mr. Carter’s death, the Justice family could have moved their business to another bank,” the complaint continues. “But the bank’s new management swiftly moved to cut off that option, effectively seizing control of the Justice businesses and making it impossible for plaintiffs ever to fully pay off their loans, with the goal of securing for the bank a permanent stream of tens of millions of dollars in annual revenue.”
The plaintiffs say Carter has pursued that goal “relentlessly and unlawfully ever since.”
“Earlier this year, in fact, Carter unlawfully (copy redacted), preventing plaintiffs from moving to a new lender,” the complaint alleges. “Carter’s bad faith, breach of contract and tortious and unlawful conduct represent the continuation of a scheme that defendants have been carrying out since 2017, and they give rise to this action.”
The complaint lists a few examples.
“Within weeks of Mr. Carter’s death, Carter reneged on an agreement with plaintiff Oakhurst to fully fund an approximately $64 million development of a world-class golf course and associated facilities and residences,” the complaint states. “Oakhurst had already borrowed $26 million from Carter to begin the project before Carter breached its agreement to provide the remaining funding.
“After the breach, Oakhurst lacked the means to finish the project or pay off the $26 million it had borrowed, ensuring that Carter would continue to receive interest on that debt indefinitely.
“Shortly thereafter, in September 2017, Carter agreed to defer a monthly payment of approximately $1.9 million, then reneged on that agreement on the eve of the payment’s due date, purposely inducing a technical default by plaintiffs. Carter then exploited that technical default to force plaintiffs into new loan terms vastly different from the ones that had been negotiated with Mr. Carter.
“This included, for some loans, replacing the loans’ 20-year maturities with very short maturities that maximized Carter’s control over plaintiffs and made it impossible for plaintiffs to operate their businesses effectively. Carter also increased plaintiffs’ interest rates and demanded sweeping releases of liability in an attempt to insulate itself from liability for its misconduct.”
It also said The Greenbrier Resort settled litigation in 2020 with several insurance companies for damage from the 2016 Greenbrier Valley floods.
“With no legal or contractual basis, Carter demanded that it receive the proceeds of that settlement, depriving plaintiffs and their affiliates of cash that they intended to use to expand their businesses, which would have allowed them to generate revenue or new financing pay off their Carter loans,” the complaint alleges.
“Because of Carter’s significant control over their businesses, plaintiffs have had little choice but to endure Carter’s oppression until they can escape it by paying off their loans. Through its actions, the bank has conditioned its extension or servicing of credit to plaintiffs upon their not obtaining other credit or services from a competitor and has violated the laws of West Virginia and Virginia. As a result of these and other unlawful actions by the bank since September 2021, plaintiffs demand damages of not less than $1 billion.”
The complaint details how Carter Bank “sprang its trap” on October 3, 2017, when it sent several notices of defaults for almost $268 million and demanding repayment within 10 days.
“Armed with this ‘default,’ manufactured by its own deception, Carter Bank refused to give plaintiffs an opportunity to cure,” the complaint alleges. “Instead, the following day, October 4, 2017, Carter Bank sent plaintiffs a demand requiring that plaintiffs agree to the addition of cross-default provisions with respect to some of the Carter Bank loans to Plaintiffs, cross-collateralization of all the loans, additional guarantees, acceleration provisions and delivery of sweeping release and reaffirmation agreements.
“Moreover, Carter Bank required that certain loans undergo wholesale alterations from long-term 20-year notes to various forms of extremely short-term notes, including in some instances demand notes. In addition, Carter Bank obtained for itself full access to plaintiffs’ books and records, the right to receive all information with respect to potential alternative financing sources and proposals, and the right to be paid from the proceeds of a sale of assets by Justice-owned entities that were not obligors, guarantors, or pledgors of any Carter Bank debt.”
The plaintiffs say these demands put them “between a rock and a hard place.”
“Facing an acceleration of over $200 million in debt as a result of the technical default and fearful of alienating their near-exclusive financing provider, plaintiffs had no choice but to acquiesce to the oppressive demands,” the complaint states. “The parties’ two-decade long relationship was fundamentally changed in the matter of a few days, all for failure to pay a $1.9 million loan payment …
“Under the severe duress caused by defendants’ tortious, surprising, and unfair conduct, and with no other option available within such a short time period, plaintiffs (and the Justices) had no choice but to execute every security pledge, forbearance agreement, guarantee and release that Carter Bank demanded from them.
“Carter Bank’s deceptive treatment had succeeded. After pulling the rug of trust and confidence right out from under plaintiffs, defendants had the ultimate upper hand.”
The plaintiffs accuse the bank of numerous similar actions since then.
“On April 21, 2023, defendants obtained confessed judgments against Governor Justice, Cathy Justice and Jay Justice in the Circuit Court of Martinsville, Virginia, based on those individuals’ personal guaranties of plaintiffs’ loans,” the complaint states. “Defendants knew or should have known that this action would risk destroying (copy redacted), and, upon information and belief, defendants took this action for the purposes of (copy redacted) and of damaging plaintiffs businesses and reputations. Among other things, the confessed judgments obtained by defendants included a claim for 16.5% default interest and more than $6 million in attorney fees for Carter Bank, allegedly as the result of a default that had occurred less than one week earlier.
“That same day, April 21, 2023, Plaintiffs (copy redacted). Carter Bank nonetheless subsequently sued Jay Justice for purportedly violating its communication protocol, which defendants have sought to impose so that they can commit tortious and unlawful acts in secret, and attack plaintiffs’ businesses and reputations with impunity. Upon information and belief, defendants filed that action for the purposes of concealing their misconduct, gaining bargaining power in negotiations regarding plaintiffs’ loans, and destroying (copy redacted).”
These confessed judgments name Jim Justice, wife Cathy Justice and son Jay Justice, who oversees the family's coal businesses. The confessed judgments involve loans to 12 of the 15 business plaintiffs listed in the new federal complaint.
The plaintiffs say the defendants’ “predatory, unlawful conduct” has caused “enormous” damages.
“Faced with defendants’ bad-faith conduct, plaintiffs have no choice but to bring this lawsuit to remedy the ongoing and future harm to their businesses that defendants have caused,” the complaint states. “Defendants have violated clear federal prohibitions against imposing anticompetitive exclusivity requirements for banking services, contrary to the obligations of a bank to engage in good faith and honest dealing with its customers.”
The Justice companies filed a similar lawsuit against Carter Bank in 2021, but the claims were withdrawn later in the year after Justice announced the matter had been resolved and "all defaults have been dropped."
The complaint accuses the defendants of violating the Bank Holding Company Act, breach of contract, breach of fiduciary duty and tortious interference with business relations.
The plaintiffs say they shouldn't be held responsible for the confessed judgments at the heart of this week's Martinsville court hearing.
"The confessions of judgment violate due process in that they allow defendants to obtain judgments without affording plaintiffs an adequate opportunity to present their valid defenses," the complaint states. "The confessions should therefore be declared void as contrary to public policy."
The plaintiffs seek direct and consequential damages of more than $1 billion, punitive damages, court costs, interest, expenses, attorney fees, pre- and post-judgment interests and other relief. They also seek a declaratory judgment in their favor.
The Justice family companies listed as plaintiffs are Greenbrier Hotel Corporation, James C. Justice Companies Inc., Twin Fir Estates LLC, Wilcox Industries Inc., Justice Low Seam Mining Inc., Players Club LLC, Justice Family Group LLC, Greenbrier Medical Institute LLC, Greenbrier Golf & Tennis Club Corporation, The Greenbrier Sporting Club Development Co. Inc., The Greenbrier Sporting Club Inc., Tams Management Inc., Bellwood Corporation and Oakhurst Club LLC. The defendants are Carter Bank & Trust, Carter Bankshares Inc. and Carter Bank CEO Litz H. Van Dyke, Senior VP Phyllis Q. Karavatakis and Board of Director members Michael R. Bird, Kevin S. Bloomfield, Robert Bolton, Gregory W. Feldmann, James W. Haskins, Jacob A. Lutz III, E. Warren Matthews, Catharine L. Midkiff, Curtis E. Stephens and Elizabeth Lester Walsh.
The plaintiffs are being represented by Michael W. Carey, Steve Ruby, Raymond S. Franks II and David R. Pogue of Carey Douglas Kessler & Ruby in Charleston. Carter Bank and the other defendants are being represented by Goodwin of Goodwin & Goodwin in Charleston.
U.S. District Court for the Southern District of West Virginia case number 5:23-cv-00731
