Dreamstreet Investments, Inc. v. MidCountry Bank

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 1:14-cv-00521-CCE-JEP. [999977919]. [15-2104]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-2104

DREAMSTREET INVESTMENTS, INC., d/b/a DS Builders, a North
Carolina Corporation,
Plaintiff - Appellant,
v.
MIDCOUNTRY BANK, a Federal Savings Bank,
Defendant - Appellee.

Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro. Catherine C. Eagles,
District Judge. (1:14-cv-00521-CCE-JEP)

Argued:

October 25, 2016

Decided:

November 30, 2016

Before WILKINSON, KING, and HARRIS, Circuit Judges.

Affirmed by published opinion. Judge Harris wrote the opinion,
in which Judge Wilkinson and Judge King joined.

ARGUED: Rachel Marie Stevens, DREAMSTREET INVESTMENTS, INC.,
Raleigh, North Carolina, for Appellant.
Robert Eli Levin,
HAYWOOD, DENNY & MILLER, L.L.P., Durham, North Carolina, for
Appellee.
ON BRIEF: Matthew Ivan Van Horn, LAW OFFICE OF
MATTHEW I. VAN HORN, PLLC, Raleigh, North Carolina, for
Appellant.

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PAMELA HARRIS, Circuit Judge:
This case arises from a “seller holdback” agreement between
Dreamstreet Investments, Inc., which was selling a vacant lot
for home construction, and MidCountry Bank, which was financing
the lot’s purchase by a third party.
of

the

retained

purchase
by

price

owed

MidCountry,

to

Under the agreement, part

Dreamstreet

pending

completion

instead

would

of

home

the

be
and

subject to certain conditions.
On

June

16,

2009,

Dreamstreet

contacted

MidCountry,

challenging the propriety of the seller holdback agreement and
threatening to sue.

Over four years later, Dreamstreet made

good on its threat.

In a complaint filed on June 28, 2013,

Dreamstreet alleged that MidCountry fraudulently induced it to
enter into the seller holdback agreement, in violation of North
Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”).
A

subsequent

amendment

added

a

claim

under

the

common-law

doctrine of constructive fraud.
The district court granted summary judgment to MidCountry.
Dreamstreet’s UDTPA claim, the court held, was barred by the
applicable

four-year

statute

of

limitations.

And

on

the

undisputed record facts, the court concluded, Dreamstreet could
not establish the necessary elements of a constructive fraud
claim.

We agree, and for the reasons given below, we affirm the

district court’s decision.
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I.
A.
At

issue

commercial

this

entities:

corporation;
agreement

in

and

are

case

an

Dreamstreet,

MidCountry,

not

is

a

agreement

a

real

contested.

bank.
What

is

between

estate

The

investment

terms

disputed

two

of

is

that

how

the

agreement came to be, and whether MidCountry has lived up to its
obligations to Dreamstreet. 1
The

case

began

when

Jason

Pittman,

through

his

company

Dreamstreet Investments, entered into a purchasing agreement to
sell an unimproved lot to Carl Ingraham for $115,000.

Ingraham

hoped to build a home on the property, and to fund his purchase,
he applied for an owner-builder loan from MidCountry.

An owner-

builder loan would allow Ingraham to borrow the purchase price
of the lot, and then, acting as his own general contractor, to
make additional draws on the remaining loan amount to fund the
construction of his home.
Under
required

to

MidCountry’s
make

a

underwriting

down-payment

qualify for the loan.

of

standards,

Ingraham

approximately

$43,000

was
to

But Ingraham was unable to meet this

1

On review of a grant of summary judgment to MidCountry, we
view the facts in the light most favorable to Dreamstreet, as
the non-moving party.
See Henry v. Purnell, 652 F.3d 524, 531
(4th Cir. 2011) (en banc).

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requirement, and so Dreamstreet and MidCountry entered into the
seller

holdback

agreement

(the

“Agreement”)

at

issue

here.

Under the Agreement, Dreamstreet would forgo immediate receipt
of $43,200 of the purchase price of the lot.
would

be

retained

by

MidCountry,

That money instead

ensuring

–

according

to

MidCountry – that there would be sufficient funds to complete
construction of Ingraham’s home.

Upon completion of the home,

the money would be released to Dreamstreet.
Additional conditions of the Agreement were memorialized in
an email sent and signed by Pittman on June 12, 2008, which the
parties agree establishes the terms of their agreement.

Under

those terms, the $43,200 would not be disbursed to Dreamstreet
if

Ingraham

defaulted

on
on

his
his

MidCountry
home.

loan

or

Specifically,

failed
the

to

complete

construction

email

stated:

“I [Dreamstreet] understand that the only reason the

holdback would not be available was if [Ingraham] was in default
or unable to complete construction on the home and at that point
MidCountry

would

use

those

construction on the home.”
After

sending

the

remaining

funds

to

complete

J.A. 80.

June

12

email,

Pittman

contacted

his

attorney, his banker, and a real estate appraiser to discuss the
seller holdback agreement because it did not “sound right” to
him.

J.A. 195.

Pittman concluded that he would complete the

transaction and sell the Dreamstreet lot to Ingraham only if
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Ingraham

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provided

him

with

Pg: 5 of 15

a

promissory

note

to

cover

holdback, secured by a deed of trust on the property.

the

On June

19, 2008, Ingraham and Dreamstreet executed a promissory note
for $49,450, secured by a deed of trust, and closed on the sale
of the lot.
A year later, shortly before the promissory note was due
and after several unsuccessful attempts to contact MidCountry,
Dreamstreet

sent

a

lengthy

email

to

MidCountry

demanding

immediate return of what it now viewed as the improper $43,200
holdback.

According to the June 16, 2009 email, Pittman had

consulted with his attorney, and it was their view that the
holdback

actually

had

“nothing

to

d[o]”

with

ensuring

the

availability of funds for Ingraham’s construction project, and
“never should have been held back in the first place.”

J.A. 86.

Pittman

North

Carolina

lawsuit

against

Banking

promised

to

Commission

MidCountry:

“[I]

report
and
have

MidCountry

also

to

already

to

file

paid

my

the
a

attorney

$1,000

to

initiate this process,” and “[w]e will be sending out complaints
via certified mail on the 26th.”

Id.

For over four years, Dreamstreet failed to follow through
on its threat.
with

During that time, Ingraham defaulted on his loan

MidCountry.

On

February

25,

2010,

MidCountry

notified

Ingraham that his mortgage loan had come due on September 19,
2009; that his failure to make payments on the loan in December
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2009 and January and February 2010 had put him in default; and
that MidCountry
At

around

the

intended
same

to

time,

commence
on

foreclosure

December

10,

proceedings.

2009,

the

county

inspection department certified the construction on Ingraham’s
land as compliant with building and zoning regulations. 2
March

30,

Although

2012,

MidCountry

Dreamstreet’s

foreclosed

promissory

note

on

And on

Ingraham’s

against

home.

Ingraham

was

secured by a deed of trust on the property, it appears that
Dreamstreet did not assert any security interest in connection
with the foreclosure.

B.
Dreamstreet
MidCountry

on

finally
June

28,

filed
2013. 3

the

promised

Alleging

suit

that

against

MidCountry

fraudulently induced it to enter into the Agreement and never
intended
claims

to
under

release
North

the

$43,200

Carolinaʹs

holdback,
Unfair

Dreamstreet

and

Deceptive

raised
Trade

2

Whether the Certificate of Compliance received by Ingraham
demonstrated completion of Ingraham’s home for purposes of the
Agreement is disputed by the parties.
We may assume for
purposes of this appeal that the home was completed on December
10, 2009.
3

Dreamstreet originally filed suit in North Carolina state
court against Carl Ingraham and his wife, as well as MidCountry.
After Dreamstreet
voluntarily
dismissed
the
Ingrahams
as
defendants, MidCountry removed the action to federal district
court, invoking diversity jurisdiction. See 28 U.S.C. § 1332.

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Practices Act and for common-law constructive fraud.

MidCountry

moved

claim,

it

statute

of

for

asserted,

summary
was

judgment.

barred

by

And

the

limitations.

Dreamstreet’s

the

applicable

constructive

UDTPA

four-year
fraud

claim

failed,

MidCountry argued, because as a matter of law, Dreamstreet could
not

show

the

required

element

of

a

fiduciary

relationship

between the parties.
The district court granted MidCountry’s motion for summary
judgment in an oral ruling.

It agreed with MidCountry that the

four-year statute of limitations barred the UDTPA claim.
constructive
deciding

fraud

that

claim,

there

the

was

MidCountry and Dreamstreet.

district

court

a

fiduciary

assumed

relationship

On the
without
between

But because Ingraham defaulted on

his loan, the court concluded, the Agreement’s conditions on
release of the holdback were not satisfied, and thus MidCountry
did

not

breach

Dreamstreet.

any

fiduciary

duty

it

may

have

owed

to

Dreamstreet timely appealed.

II.
We review de novo the district court’s grant of summary
judgment.

Durham v. Horner, 690 F.3d 183, 188 (4th Cir. 2012).

Summary judgment is appropriate only if no material facts are
disputed

and

the

moving

party

is

7

entitled

to

judgment

as

a

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matter of law.

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Henry v. Purnell, 652 F.3d 524, 531 (4th Cir.

2011) (en banc).
A.
Dreamstreet’s

first

contention

on

appeal

is

that

the

district court erred in holding that its UDTPA claim is timebarred.

Under North Carolina law, UDTPA claims are governed by

a four-year statute of limitations, and that limitations period
begins to run when an alleged violation occurs.
Stat.

§

75-16.2

(setting

out

limitations

See N.C. Gen.

period);

Hinson

v.

United Fin. Servs., Inc., 473 S.E.2d 382, 386–87 (N.C. Ct. App.
1996) (applying UDTPA limitations period).

And when, as in this

case, a UDTPA claim is based on alleged fraudulent conduct, then
the violation occurs – and the limitations clock starts running
– “at the time that the fraud is discovered or should have been
discovered with the exercise of reasonable diligence.”

Rothmans

Tobacco Co., Ltd. v. Liggett Grp., Inc., 770 F.2d 1246, 1249
(4th Cir. 1985) (citing Wilson v. Crab Orchard Dev. Co., 171
S.E.2d 873, 884 (N.C. 1970)).
The

parties

do

not

dispute

this

governing

framework. 4

Instead, they disagree as to whether Dreamstreet discovered or

4

Dreamstreet does suggest that it is “perhaps more
appropriate” to analogize its action to one for breach of
contract, in which case the limitations period would begin to
run at the time of the breach.
Appellant Br. at 22; see Ring
Drug Co. v. Carolina Medicorp Enters., Inc., 385 S.E.2d 801, 804
(Continued)
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should have discovered the fraud of which it complains more than
four years before it filed suit on June 28, 2013.

According to

Dreamstreet, the earliest date on which it could have discovered
or

been

expected

to

discover

MidCountry’s

alleged

fraud

was

December 10, 2009 – within the four-year limitations period –
when

Ingraham

home.

It

MidCountry

received

was
was

not

the

certificate

until

required

to

then,
make

of

compliance

Dreamstreet
good

on

the

on

argues,

his
that

Agreement

by

releasing the holdback to Dreamstreet, and thus not until then
that Dreamstreet could have known that MidCountry did not intend
to honor the Agreement.
What that position fails to account for is the undisputed
fact that on June 16, 2009 – approximately two weeks outside the
four-year limitations period – Dreamstreet itself announced that
it planned to sue MidCountry on the same theory it advances in
this litigation: that the seller holdback was a sham.
June

16

email,

Dreamstreet

explained

that

the

In its
extensive

(N.C. Ct. App. 1989) overruled on other grounds by Crossman v.
Moore, 459 S.E.2d 715 (N.C. 1995). Like the district court, we
disagree.
In both its complaint and its brief before this
court, Dreamstreet makes clear that its claim “is based on
deceptive statements made by MidCountry” in order to induce
Dreamstreet to enter into a “sham seller holdback scheme.”
Appellant Br. at 22; see also J.A. 437 (district court
explaining that “all the conduct the plaintiff is contending
constitutes the [UDTPA violation] occurred back in 2008, in the
inducement to enter into” the Agreement).

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documents it had shared with its attorney – “all emails from
[MidCountry] during the initial closing, along with my note,
deed

of

trust,

regarding
convince

Carl
both

and

a

budget

Ingraham’s
Dreamstreet

spreadsheet

house
and

budget”

its

from
–

counsel

[MidCountry]

were

that

enough

the

to

holdback

funds were not intended for Ingraham’s construction budget and
“never should have been held back in the first place.”
By

June

attorney

16,

were

2009,

privy

in

to

other

words,

information

J.A. 86.

Dreamstreet

that

led

it

to

and

its

accuse

MidCountry of fraud and threaten to “get a judge . . . to force
the release of those funds.”
that

it

lacked

“capacity

Id.

and

Dreamstreet cannot now claim

opportunity

to

discover”

that

fraud, Grubb Props., Inc. v. Simms Inv. Co., 400 S.E.2d 85, 88
(N.C. Ct.

App.

1991),

until

six

months

received a certificate of compliance.

later,

when

Ingraham

The limitations period on

Dreamstreet’s UDTPA claim began running by June 16, 2009, see,
e.g., Newton v. Barth, 788 S.E.2d 653, 662 (N.C. Ct. App. 2016)
(UDTPA claim triggered when party discovers or should discover
facts constituting alleged fraud), more than four years before
Dreamstreet filed suit.

With respect to the UDTPA claim, the

district court properly granted summary judgment to MidCountry
on statute of limitation grounds.

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B.
We turn next to Dreamstreet’s constructive fraud claim, on
which

the

district

MidCountry.

court

also

granted

summary

judgment

to

Under North Carolina law, the key to a constructive

fraud claim is a fiduciary relationship between plaintiff and
defendant.

It is that relationship of “special confidence” that

gives rise to a special duty to “act in good faith and with due
regard to the interests of the one reposing confidence.”

Branch

Banking & Trust Co. v. Thompson, 418 S.E.2d 694, 699 (N.C. Ct.
App.

1992)

(internal

quotation

marks

and

citation

omitted).

When such a fiduciary relationship exists – and only when it
exists – a plaintiff need not bear the “exacting” burden of
proving actual fraud, but may instead rely on a presumption of
constructive fraud that arises under equity “when the superior
party obtains a possible benefit.”

Cash v. State Farm Mut.

Auto. Ins. Co., 528 S.E.2d 372, 380 (N.C. Ct. App. 2000); see
also White v. Consol. Planning, Inc., 603 S.E.2d 147, 156 (N.C.
Ct.

App.

2004)

(constructive

fraud

plaintiff

need

not

prove

intent to deceive).
MidCountry

argues

that

Dreamstreet

relationship in this case, and we agree.
law,

fiduciary

relationships

are

cannot

show

such

a

Under North Carolina

characterized

by

“confidence

reposed on one side, and resulting domination and influence on
the other.”

Dallaire v. Bank of America, N.A., 760 S.E.2d 263,
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266 (N.C. 2014) (internal quotation marks and citation omitted).
Lawyers and their clients, for instance, or trustees and their
beneficiaries,

share

such

relationships,

with

a

“heightened

level of trust” matched with a corresponding duty to “maintain
complete loyalty.”
like

the

Agreement

Id.

By contrast, parties to a contract –

between

MidCountry

and

Dreamstreet

–

generally do not become each other’s fiduciaries; what they owe
each other is defined by the terms of their contracts, with no
special duty of loyalty.

Branch Banking, 418 S.E.2d at 699; see

also Dallaire, 760 S.E.2d at 267 (borrowers and lenders, unlike
fiduciaries, “are generally bound only by the terms of their
contract and the Uniform Commercial Code”).

As a matter of law,

there can be no fiduciary relationship between “parties in equal
bargaining positions dealing at arm’s length, even though they
are

mutually

interdependent

businesses.”

Strickland

v.

Lawrence, 627 S.E.2d 301, 306 (N.C. Ct. App. 2006).
On

the

record

in

this

case,

it

is

clear

that

the

relationship between MidCountry and Dreamstreet was no more than
the standard one between two commercial entities negotiating a
contract at arm’s length.
Dreamstreet
Banking,

418

“reposed
S.E.2d

any

There is nothing to suggest that

at

sort
699,

of
in

special

confidence,”

MidCountry;

on

the

Branch

contrary,

skeptical of MidCountry’s proposal, Pittman consulted with an
attorney,

a

banker,

and

a

real
12

estate

appraiser

about

the

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holdback

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before

closing

on

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the

sale

of

the

lot.

Such

consultation with outside experts, North Carolina courts have
held, is inconsistent with a claim of fiduciary relationship or
constructive fraud.

See id. (no fiduciary relationship where

complaining party consulted with banker and accountant before
entering into agreement); see also Sullivan v. Mebane Packaging
Grp., Inc., 581 S.E.2d 452, 462 (N.C. Ct. App. 2003) (evidence
that

complaining

party

obtained

outside

counsel

rebuts

presumption of constructive fraud).
Nor is there any indication that Dreamstreet was in the
kind of unequal bargaining position that might qualify as an
indication of a fiduciary relationship under North Carolina law.
Dreamstreet emphasizes that it was MidCountry that devised the
holdback arrangement and then proposed it to Dreamstreet.

But

the fact that one party proposes or advocates for a transaction
is

not

enough

to

establish

fiduciary relationship.

unequal

bargaining

power

and

a

North Carolina law makes clear, for

instance, that borrowers ordinarily do not enjoy a fiduciary
relationship or the protection of a special duty of loyalty when
it comes to their lenders, even when those lenders encourage
them to borrow.
by

bank

lender

debtor-creditor

See Dallaire, 760 S.E.2d at 266-67 (assurances
regarding

mortgage

relationship

into

loan

do

not

fiduciary

turn

ordinary

relationship);

Branch Banking, 418 S.E.2d at 699 (reliance on representations
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creditor

fiduciary

Filed: 11/30/2016

does

not

turn

relationship).

Pg: 14 of 15

debtor-creditor
Dreamstreet

was

relationship
in

a

into

position

to

consult with an attorney before agreeing to MidCountry’s terms.
If Dreamstreet had concerns, then it could have declined the
holdback proposal and forgone the sale of its lot – or it could
take steps to protect itself, as it did, by insisting on a
promissory note with Ingraham, secured by a deed of trust.
We do not doubt, as Dreamstreet argues, that a fiduciary
relationship does not depend in every case on the existence of a
formal legal relationship like that between attorney and client
or

trustee

and

beneficiary.

See

Bumgarner

v.

Tomblin,

306

S.E.2d 178, 183 (N.C. Ct. App. 1983) (finding issue of fact as
to

fiduciary

relationship

where

plaintiffs

had

long-term

and

regular dealings with defendant with special legal skills and
real estate expertise).

But it is clear that more is required

than a “mutually interdependent” business relationship between
two parties to a commercial contract.

Strickland, 627 S.E.2d at

306; see Branch Banking, 418 S.E.2d at 699.

The undisputed

facts of this case reveal an ordinary contractual relationship,
with

nothing

relationship.

that
And

could

give

because

rise
the

to

a

existence

special
of

a

fiduciary
fiduciary

relationship is a necessary element of constructive fraud, the

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district court properly granted summary judgment to MidCountry
on this claim, as well. 5

III.
For the foregoing reasons, we affirm the judgment of the
district court.
AFFIRMED

5

As noted above, the district court assumed the existence
of a fiduciary relationship for purposes of its decision, and
granted summary judgment on the ground that Dreamstreet could
show no breach of any fiduciary duty it was owed. See Governors
Club, Inc. v. Governors Club Ltd. P’ship, 567 S.E.2d 781, 787–88
(N.C. Ct. App. 2002) (constructive fraud plaintiff must show
existence of fiduciary duty and breach of that duty).
Because
we hold that Dreamstreet cannot show the necessary fiduciary
relationship as a matter of law, we need not address the
district court’s alternative holding.

15