Lawyer says can’t be sued because banks merged

November 18, 2016

empty pockets image: bankruptcy or debt settlement?A lawyer in Chapter 11 bankruptcy tried to nip in the bud a lawsuit filed against him by Wells Fargo Bank. Attorney Linwood Lovett’s underlying argument stemmed from the fact that following the financial crisis of 2008, Wachovia Bank merged with Wells Fargo.

Bankruptcy Judge John T. Laney rejected Lovett’s arguments and ruled that Wells Fargo had standing to sue.

Wells Fargo Bank N.A. v. Lovett (In re Linwood and Carole Lovett), No. 14-52614-JTL, 2016 WL 6662248 (Bankr. M.D. Ga. Nov. 2, 2016).

Wells Fargo Bank filed the suit seeking a determination that the $78,500 debt it was owed by Lovett could not be discharged in the bankruptcy case. Wells Fargo alleged that Lovett obtained from Wachovia Bank three cash advances totaling $78,500 through false pretenses, false representations, or actual fraud. If that was so, the debt would be nondischargeable pursuant to Section 523(a)(2)(A) of the Bankruptcy Code.

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Before Wells Fargo’s lawsuit could be tried, Lovett challenged Wells Fargo’s standing to pursue the nondischargeability action. The cash advances predated the March 20, 2010 Wachovia merger with and into Wells Fargo Bank. Lovett asserted that any claim of fraud that Wachovia may have had against him regarding the cash advances was not assignable under Georgia law.

Wells Fargo acknowledged that claims of fraud are not assignable under Georgia law but argued that its lawsuit was not dependent on assignment. Judge Laney agreed.

Under the National Banking Act, 12 U.S.C. Section 215a.(e), and Section 7-1-536 of the Official Code of Georgia Annotated regarding the merger of banks, existing or pending claims of banks participating in a merger survive the merger and may be prosecuted by the successor bank. All of Wachovia’s claims, including its fraud claim against Lovett, became claims of Wells Fargo by operation of the merger.

Assignability of the fraud claim was not determinative.