In GTAS Asset Solutions, LLC v. African Methodist Episcopal Church, Case No. 1:11-CV-1148-RWS, 2012 WL 3637452 (N.D. Ga. Aug. 22, 2012), the court ruled that there was a genuine issue of fact as to whether the African Methodist Episcopal Church (AME) and Morris Brown College (MBC) were alter egos of each other and, thus, whether AME can hold a lien on MBC's property.
The North Georgia Conferences of the African Methodist Episcopal Church of the United States of America founded MBC. MBC's purpose was to conduct an institution of higher learning "under Christian influence embodying the tenets and precepts" of the AME. Without receiving consideration in exchange, AME made numerous investments in MBC, for example, by taking out a $2.5 million line of credit for MBC, executing an Unconditional Guarantee of Payment and Performance on the line of credit, paying the salary of MBC's chief administrator, annually contributing over $500,000 to MBC and making a 2005 loan of $1 million to MBC not reflected as such on MBC's audited financial report. AME also paid off bond issuances to MBC totaling roughly $7 million using an attorney jointly representing MBC and AME. MBC did not list the payoff as a debt to AME and never made a payment to AME. AME did notice foreclosure on one of the MBC facilities, but quickly retracted it.
The plaintiff was a holding company for bonds which acquired the so-called "1996 bonds" benefiting MBC with a principal outstanding between $10.7–$13 million. U.S. Bank, as trustee for the plaintiff, filed suit against MBC for breach of its 1996 bond obligations. The bishop of the AME, chief administrator of MBC and a member of the holding company negotiated a forbearance agreement. In the process, the first two were allegedly "squirrely" about who owned the 2005 notes and purportedly never advised the plaintiff that AME owned them. The plaintiff allegedly did not learn that AME owned the 2005 notes until just before executing a subordination agreement in furtherance of the previously signed forbearance agreement. MBC again defaulted, whereupon the plaintiff sued AME, inter alia, to declare its liens superior to AME's and for fraud.
The court dismissed the plaintiff's fraud and conspiracy counts because of its actual notice that AME owned the 2005 notes before it executed the subordination agreement. But the court agreed with the plaintiff that there is an issue of fact as to whether AME's security interests in the 1970 or 2005 notes were extinguished because MBC did not list them as debts and never repaid them; whether AME "owns or controls" MBC for alter ego purposes"; whether AME abused the corporate form and took priority security interests over third-party creditors in an effort to shield MBC's assets from foreclosure to assure that the property remained with MBC and AME; and whether MBC was insolvent when AME purchased the notes.