Facts

Gateway Bank ("Gateway") is a community bank, which entered into a warehouse facility with Capital Alliance Advisors Inc. ("CAA") in connection with CAA's extension of loans secured by real property.

Plaintiffs contended that Gateway wrongfully converted the loan portfolio, which was pledged as collateral for Gateway's loans to CAA. Plaintiffs further contended that Gateway committed fraudulent and/or negligent misdeeds.

Gateway Bank asserted a cross-complaint for breach of contract and money lent.

Gateway denied that it converted or otherwise breached the parties' agreements and asserted approximately $4.4 million in damages due to plaintiff's failure to repay the loan when due.

DEFENDANT'S CONTENTIONS:
Gateway denied all liability in the case.

In defense of the complaint, Gateway contended that pursuant to the express terms of the parties' written agreements, CAA had defaulted under the applicable loan agreements prior to any performance being due from Gateway.

Additionally, in its affirmative defense of unclean hands, Gateway contended that CAA had misled or misrepresented the status of various loans which were pledged as collateral by, among other things, making payments on the underlying borrowers' behalf in order to conceal defaults by the underlying borrowers. In the event the underlying borrowers were in default more than 61 days, CAA was required to repurchase each such loan in full.

Settlement Discussions

Immediately prior to trial, plaintiffs contended their claims were in excess of $12 million, and demanded in excess of $7 million.

Result

Gateway prevailed in the defense of each of the claims of Capital Alliance Advisors Inc., Capital Alliance Realty Fund, LLC and Capital Alliance Institutional Mortgage Fund LLC, on which plaintiffs sought in excess of $12 million. The court determined, based upon uncontroverted evidence, that Gateway Bank had established the underlying facts necessary to establish its cross-claim for money lent. The case settled after verdict in favor of Gateway in the liability phase, but prior to the commencement of the Phase II damages portion of the case where Gateway's damages (which it alleged exceeded $4.4 million) was to proceed.

Other Information

FILING DATE: Dec. 31, 2009.

Deliberation

eight days

Poll

10-2 (breach of contract), 11-1 (conversion), 11-1 (fraud), 11-1 (negligent misrepresentation), 12-0 (rejecting unclean hands)

Length

seven weeks