Fifth Third Bank v. Double Tree Lake Estates LLC et al
Filing
242
OPINION, MEMORANDUM, AND ORDER: GRANTING Matneys 185 MOTION for Summary Judgment; GRANTING in part and DENYING in part Fifth Third Banks 183 MOTION for Summary Judgment against Kenneth Matney as set forth in order; denying as MOOT 195 , 199 , 204 , 209 and 216 Motions to Strike. Plaintiff/Counter-Defendant Fifth Third Bank will have until 8/8/2014 to file an amended complaint. Signed by Chief Judge Philip P Simon on 7/23/14. (mc)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
FIFTH THIRD BANK,
Plaintiff,
v.
DOUBLE TREE LAKE ESTATES, LLC,
et al.,
Defendants.
____________________________________
KENNETH MATNEY,
Counter-Plaintiff,
v.
FIFTH THIRD BANK,
Counter-Defendant.
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) NO: 2:11-cv-0233-PPS-PRC
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OPINION, MEMORANDUM, AND ORDER
This matter is before the court on Fifth Third Bank and Kenneth Matney’s CrossMotions for Summary Judgment. This case arises out of a real estate transaction gone
wrong. In 2004, Kenneth Matney and some partners bought a residential real estate
development called Double Tree Lake Estates in Crown Point, Indiana. The purchasers
borrowed money from Fifth Third Bank to complete the transaction, and, as part of the
deal with the bank, Matney personally guaranteed repayment of the loan. Over the
next couple of years, Double Tree continued to borrow money from Fifth Third, and
Matney continued to guarantee repayment. Unfortunately, the development never
really took off as the partners had hoped, and Double Tree defaulted on the loans in
2011.
Fifth Third Bank filed this lawsuit attempting to recover on the promissory notes
issued by Double Tree, as well as the guaranties signed by Matney and his business
partners, specifically the guaranties each partner signed in 2004. In return, Matney has
filed counterclaims against Fifth Third Bank more-or-less alleging that the bank is
responsible for Matney’s fall-out with his partners. He claims the bank is liable to him
under various theories including negligence and breach of contract.
Matney has filed a motion for summary judgment in which he argues that he is
not liable under the 2004 guaranty agreement because that agreement was superseded
and replaced by other, later, guaranty agreements (DE 185). Fifth Third acknowledges
that this is true, but has moved for summary judgment on the grounds that Matney is
liable to the bank under a 2006 guaranty agreement (DE 183). Fifth Third has also
moved for summary judgment with respect to Matney’s counterclaims.
For reasons I’ll elaborate below, I agree with Matney that he cannot be liable
under the 2004 guaranty. On the other hand, I agree with Fifth Third that Matney’s
counterclaims are insufficient as a matter of law. Accordingly, Matney’s motion for
summary judgment (DE 185) is GRANTED. Fifth Third’s motion for summary
judgment (DE 183) is also GRANTED.
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BACKGROUND
In May 2004, Kenneth Matney, along with Anthony Meyer and Randy Minas,
bought a residential real estate development known as Double Tree Lake Estates from
developer David Lasco (DE 157 ¶¶ 6-8). The three partners formed Double Tree Lake
Estates, LLC (“Double Tree”), and Fifth Third Bank lent the new company the funds
needed to finance the purchase (DE 157 ¶¶ 6-8; DE 184-4; DE 187-2 at 2). In return,
Double Tree gave the bank a promissory note in the amount of $12,254,000.00 (DE 1844). I will refer to this as “Note One.” To secure repayment of Note One, Matney and
the partners each executed a personal Guaranty of Payment and Completion dated May
7, 2004 (DE 187-2 at 2-3; DE 184-5). I'll refer to Matney’s guaranty as the “2004
Guaranty.” In the 2004 Guaranty, Matney unconditionally and irrevocably guaranteed
full repayment of Note One (DE 184-5).
The partners couldn't finance the entire purchase price of the development by
themselves, so, in addition to the bank loan, Matney also entered into a side-deal with
David Lasco (the seller) (DE 187-2 at 3). Matney personally borrowed nearly $2 million
from Lasco to make up the difference between the development’s purchase price and
what Double Tree was able to borrow from Fifth Third. Id. Lasco, Matney, and the bank
entered into a Subordination and Stand-by Agreement under which Lasco agreed to
subordinate $1.5 million of the total owed him by Matney to the repayment of Note One
(DE 187-5). The agreement provided that Lasco could not demand or receive from
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Matney any part of the $1.5 million that Matney owed to Lasco until Double Tree paid
off all of its obligations to the Bank. Id.
As the partners tried to get Double Tree up and running, Fifth Third made
additional loans. In February and October 2005, Fifth Third and Double Tree amended
their original loan agreement by adding term loans of $600,000.00 and $1,960,000.00 (DE
187-8 - DE187-10). On May 8, 2006, Double Tree borrowed another $3.8 million from
Fifth Third to purchase more land, executing a mortgage note for that amount (“Note
Two”) (DE 187-2 at 4; DE 184-2 at 2). To secure the note, Matney executed another
guaranty agreement (“May 2006 Guaranty”), guaranteeing Double Tree’s repayment of
Note Two (DE 184-7).
On August 3, 2006, Double Tree borrowed additional money in the form of a
$2,945,000.00 development loan (“Note Three”) and a $730,000.00 acquisition loan
(“Note Four”) (DE 184-8; 184-10). This time, the loan agreement consolidated all of the
previous agreements into one agreement, which the parties have called “the Amended
and Restated Loan Agreement” (DE 188-8). In turn, Matney signed an Amended and
Restated Unlimited Continuing Guaranty (“August 2006 Guaranty”), which
consolidated all of his previous guaranties into one. Importantly, the consolidated
agreement expressly superseded all previous agreements between Fifth Third and
Matney (DE 184-9). Here is what it says: “This Guaranty supersedes all previous
agreements and commitments made by Lender and Guarantor with respect to
Obligations and all other subjects of the Guaranty, including, without limitation, any
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oral or written proposals or commitments made by or issued by Lender.” Id. at ¶ 17.
Under the terms of the August 2006 Guaranty, Matney unconditionally and irrevocably
guaranteed the repayment of all four notes owing to Fifth Third. Id. at ¶ 1.
Although Matney had originally been put in charge of the Double Tree’s day-today operations, he and his partners eventually had a falling out, and at some point,
Matney was forced out of the company. The circumstances of the split are disputed.
Matney says he was removed from the management of Double Tree in September 2005
(DE 187-2 at 4). Yet that is belied by the fact that he signed the August 2006 Guaranty.
What is also curious about the August 2006 guaranty is that during that same month –
specifically, on August 15, 2006 – Matney took steps to end the relationship with Double
Tree by sending Letters for Dissolution Event to Minas and Meyer (187-2 at 5; DE 1896). Why Matney signed the 2006 Guaranty only to turn around and dissolve the
business relationship that the guaranty relates to is completely unclear. In any event, the
August 15, 2006 letters notified the partners that Matney intended to resign his
membership interest in Double Tree and a related corporation, and that this constituted
a “Dissolution Event” under the operating agreement (DE 189-6). After that, Matney
entered into settlement negotiations with Randall Minas in order to wind down his
share of the development (DE 187-2 at 6). The parties finally reached a settlement in
April 2009 (DE 157 ¶ 56).
The bank does not go into the specifics of Matney’s exit, except to say that
Matney had "terminated his relationship" with Double Tree some time before June 27,
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2007 (DE 184-2 at 3). June 2007 was when Double Tree engaged in another round of
borrowing from Fifth Third. Matney was not involved in that transaction, so the bank
claims that, at some unspecified time before June 2007, Matney left Double Tree and
revoked his Guaranty, renouncing personal liability for any portion of the Loans made
after his withdrawal from Double Tree. Id. As such, Fifth Third is not seeking to recover
from Matney any of the debt Double Tree incurred after June 2007.
At some point, David Lasco breached the Subordination and Stand-by
Agreement by suing Matney to recover the money Matney owed him. Lasco had
obtained a $2,295,434.56 judgment against Matney by the time Matney and Minas
settled their dispute on April 9, 2009 (DE 157-5 at 6).
After Matney's exit, Double Tree still soldiered on under the leadership of
Randall Minas. Between June 2007 and June 2010, Double Tree and the bank entered
into seven loan modification agreements. Id. at 3-4. Among other things, Double Tree
borrowed more money, increasing the amount outstanding under Note One by
$2,190,00.30. Double Tree and the Bank also entered into a forbearance agreement that
extended the maturity dates of Notes One, Two, Three, and Four to January 5, 2011.
Whether due to mismanagement or the collapsing economy, Double Tree could
not make its payments when January 5, 2011 rolled around, and the loans went into
default.
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Procedural Background
Fifth Third filed this suit in June 2011 against Double Tree, the three partners and
two related corporations DoubleTree Golf, LLC, and DBL Residential, L.P. (DE 1). The
complaint alleged that Double Tree was liable under eight promissory notes and the
partners liable under their 2004 guaranties. Fifth Third also sought to foreclose their
security interests in the Double Tree property. Id. Plaintiff amended its complaint in
February 2012 to correct some typos, but the substance of the claims remained the same
(DE 78). What is puzzling is that Fifth-Third never amended its complaint against
Matney to include a breach of the August 2006 Guaranty. Yet that is the last guaranty
signed by Matney and it specifically superseded all previous guaranties. In other
words, it is the only operative guaranty that is actionable by Fifth Third against Matney.
Matney filed a counterclaim in March 2012 (DE 86). In it, he alleged claims
against Fifth Third for 1) breach of good faith and fair dealing, 2) tortious interference
with a contract, and 3) civil conspiracy. Id. In September 2012, Matney sought to amend
his counterclaim. The proposed amended counterclaim withdrew the conspiracy and
breach of good faith claims and added claims of constructive fraud, negligence, and
breach of contract (DE 134-1). Magistrate Judge Cherry issued an order granting
Matney leave to amend, but setting certain limitations (DE 154). In the order, Judge
Cherry denied, on grounds of futility, Matney’s attempt to add a constructive fraud
claim (DE 154 at 17-18). The negligence claim was allowed only to the extent Matney
alleged negligent misrepresentation. Id. at 22 -23. Judge Cherry gave leave to add the
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breach of contract claim, but only to the extent Matney alleged Fifth Third breached the
Subordination and Stand-by Agreement. Id. at 25-26. Finally, Judge Cherry allowed the
tortious interference claim to stand with respect to the breach of Matney’s settlement
agreement with Double Tree, but denied it to the extent it alleged interference with the
Subordination and Stand-by Agreement. Id. at 27. In each case, he granted Matney
leave to amend to allege additional facts supporting the rejected claim. Id. at 28.
In response, Matney filed a second amended counterclaim in February 2013 (DE
157), and this is the operative pleading. As I’ll explain in more detail later on, Matney
has not bothered to explicitly state his legal claims in this counterclaim. As far as I can
tell, Matney has alleged Fifth Third is liable for breach of contract, tortious interference
with a contract, negligence, negligent misrepresentation, and constructive fraud.
Matney is essentially the last man standing at this point in the litigation. Minas
filed for bankruptcy, and the case has been stayed against him since January 2012 (DE
66). Anthony Meyer settled with Fifth Third and was dismissed in July 2013 (DE 177).
And a court-appointed receiver has been overseeing the mortgaged assets of the
corporate defendants since February 2012 (DE 85).
Presently before the court are cross-motions for summary judgment brought by
Matney and Fifth Third, along with a slew of motions to strike (DE 195, 199, 204, 209,
216). At Matney’s request, I held oral argument on the motions for summary judgment
on March 6, 2014 (DE 223).
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DISCUSSION
Summary judgment is proper “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A genuine dispute about a material facts exists only “if the
evidence is such that a reasonable jury could return a verdict for the non-moving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In making this
determination, I must construe all facts and draw all reasonable inferences from the
record in the light most favorable to the nonmoving party. See id. at 255. Both parties
have moved for summary judgment on Fifth Third’s claim that Matney is liable under
the 2004 Guaranty. I am going to address that issue first. After that, I’ll address Fifth
Third’s motion for summary judgment with respect to Matney’s counterclaims.
A.
Matney’s 2004 Guaranty
Matney has moved for summary judgment on Fifth Third’s claim based on the
2004 Guaranty. He argues that the 2004 Guaranty was superseded and replaced by the
2006 Guaranty. If that’s true, Matney isn’t liable to Fifth Third, at least under that
particular contract. Fifth Third does not dispute this: “Matney and the Bank agree that
the [2006 Guaranty] was a novation of prior guaranties executed by Matney . . . ” (DE
194 at 1). Instead, Fifth Third claims they are entitled to summary judgment because
Matney is liable under the 2006 Guaranty. The problem is that Fifth Third’s amended
complaint specifically alleges that Matney is liable under the 2004 Guaranty (DE 78 ¶¶
25, 58-66). And this is a significant hitch.
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Fifth Third claims that it doesn’t matter. Even though the complaint alleged
Matney was liable under the 2004 Guaranty, they argue that the complaint gave Matney
sufficient notice of the claim under the 2006 Guaranty. According to Fifth Third, the
notice was sufficient because the complaint alleged that Matney was liable for all of the
loans Double Tree took out prior to June 2007 (DE 194 at 14). They argue that it is
sufficient that Matney knew what he was allegedly liable for even if he didn’t know
precisely why. This is not enough. Guaranties are contracts and are governed by the
same rules and principles applicable to the other contracts. TW Gen. Contracting Servs.,
Inc. v. First Farmers Bank & Trust, 904 N.E.2d 1285, 1288 (Ind. Ct. App. 2009); Loudermilk
v. Casey, 441 N.E.2d 1379, 1383 (Ind. Ct. App. 1982). To put a plaintiff on notice of a
breach of contract claim, the Plaintiff, at the very least, has to allege the existence of the
contract that is supposed to have been breached. DeliverMed Holdings, LLC v.
Schaltenbrand, 743 F.3d 616, 626 (7th Cir. 2013) (a plaintiff asserting a breach of contract
claim must plead and prove the existence of the contract); See Giddings v. Principal Fin.
Group, Inc., 07-cv-370, 2009 WL 742681, at *7 (E.D. Wis. Mar. 18, 2009) (holding that a
plaintiff had not put defendants on notice of a contract claim when the complaint
alleged liability under a different contract than the one asserted at summary judgment);
Winder v. D.C., 555 F. Supp. 2d 103, 110-11 (D.D.C. 2008) (holding breach of contract
theory introduced in summary judgment briefing was beyond the scope of the
complaint) aff’d sum nom. Winder v. Erste, 566 F.3d 209 (D.C. Cir. 2009). Fifth Third’s
complaint only alleges liability under the 2004 Guaranty (DE 78 ¶¶ 25, 58, 60, 63, 66). It
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does not even allude to any other guaranty. Fifth Third is not entitled to summary
judgment on a breach of contract claim when it hasn’t even alleged the existence the
contract that was supposedly breached.
Matney, on the other hand, is entitled to summary judgment on this claim. Fifth
Third cannot stave off summary judgment by pointing to a new basis for their claim. It
is well-settled that a plaintiff cannot amend the complaint through briefs in opposition
to summary judgment. See Blubaugh v. Am. Contract Bridge League, 117 F. App’x 475, 477
(7th Cir. 2004) (citing Shanahan v. City of Chicago, 82 F.3d 776, 781 (7th Cir. 1996)). That is
essentially what Fifth Third is trying to do here, introducing a new claim based on a
new contract in their briefs for summary judgment. This won’t work. See Giddings, 2009
WL 742681, at 6; Bassiouni v. CIA, No. 02 C 4049, 2004 WL 1125919, at *8 (N.D. Ill. Mar.
31, 2004) (“A plaintiff cannot create a genuine issue of material fact, thereby precluding
summary judgment, by raising facts for the first time in response to defendant’s motion
for summary judgment which were not raised in the complaint.”). So I am going to
GRANT Matney’s motion for summary judgment [185].
The next question is whether Fifth Third should be given leave to amend its
complaint. The Federal Rules of Civil Procedure harbor a strong preference for
decisions based on the merits rather than on technicalities. See Foman v. Davis, 371 U.S.
178, 181 (1962). As a result, leave to amend a complaint is to be freely given absent bad
faith, undue delay, or undue prejudice to the opposing party. See Fed. R. Civ. P. 15(a);
Cannon v. Washington, 418 F.3d 714, 720 (7th Cir. 2005). Whether to grant a leave to
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amend is left to the discretion of the trial court. For example, in Eastern Natural Gas Corp.
v. Aluminum Co. of America, 126 F.3d 996, 999 (7th Cir. 1997), the district court allowed
leave to amend a complaint 11 days before trial to add a claim of fraud. The Seventh
Circuit held that granting leave to amend under those circumstances was not an abuse
of discretion. Id. at 1000. To be sure, there are cases that go the other way. See Carroll v.
Stryker, Corp., 658 F.3d 675, 684 (7th Cir. 2011); Sanders v. Venture Stores, Inc., 56 F.3d 771,
774-75 (7th Cir. 1995). But this only goes to show that the issue is generally left to the
discretion of the district judge.
Here, there has unquestionably been a long delay in this case. The current
amended complaint was filed back in February 2012. But delay is only a sufficient basis
for denial of leave to amend if the delay has caused the amending party undue
prejudice. See Textor v. Bd. of Regents of N. Ill. Univ., 711 F.2d 1387, 1391 (7th Cir. 1983).
Delay is most likely to result in undue prejudice when the delay is unexplained, there
has not been any change in facts since the filing of the complaint, or when the soughtafter amendment will introduce new theories that require additional discovery. See J.P.
Morgan Chase Bank, N.A. v. Drywall Service & Supply Co., Inc., 265 F.R.D. 341, 347 (N.D.
Ind. 2010).
At the hearing, Fifth Third explained that they didn’t move to amend the
complaint because it assumed that the complaint implicitly covered all guaranties that
Matney signed and not just the first one that was later superceded. So Fifth Third
believed that amending the complaint was unnecessary. It is undisputed that Matney
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signed the 2006 Guaranty, so Fifth Third thought the motion for summary judgment
would dispense with the case. As I just explained, they were wrong, but I do not see
any reason to suspect that Fifth Third was acting in bad faith. A favorable ruling on
summary judgment would have saved Fifth Third, Matney, and the court, the extra
time the amendment process would have taken. See Textor, 711 F.2d at 1391 (no undue
prejudice when party waited until the court ruled on original complaint before seeking
leave to amend).
I also see little chance of prejudice here. The amendment will not change the
theory of the case – Fifth Third is still alleging Matney is liable for breaching a guaranty
agreement. The fact that Matney signed this guaranty has been known to the parties for
some time. Generally, when a previously unasserted claim is based on facts already
known to the parties, no prejudice is likely to exist. See Reichelt v. U.S. Army Corps of
Engineers, 969 F. Supp. 519, 523-24 (N.D. Ind. 1996). Finally, there is no reason to believe
that the amendment is likely to be futile. See Townsel v. DISH Network L.L.C., 668 F.3d
967, 969 (7th Cir. 2012) (holding the standard for futility is the same standard of legal
sufficiency that applies under Federal Rule of Civil Procedure 12(b)(6)). Here, it is
apparent that Fifth Third can sufficiently allege a claim under the 2006 Guaranty.
I am skeptical whether allowing the amendment will require much additional
discovery. Nonetheless, at the hearing Matney’s attorney made the argument that, if
leave to amend were granted, he would need discovery to ascertain Fifth Third’s state
of mind when it filed the suit against Matney. I am dubious of the relevance of this
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information. But out of an abundance of caution I will reopen discovery and give
Matney 90 days to take whatever additional discovery he needs on Fifth Third’s
forthcoming amended complaint.
Therefore, Fifth Third will have until August 8, 2014 to file and amended
complaint correcting the deficiency.
COUNTERCLAIMS
Matney has asserted a number of counterclaims against Fifth Third, and Fifth
Third has moved for summary judgment on these claims. I use the word “number”
advisedly. Each iteration of Matney’s counterclaim has become progressively more
ambiguous to the point where it is genuinely difficult to determine what claims Matney
is alleging. Gone are separate, numbered counts of Matney’s initial counterclaim (DE
86). Gone too are the allegations setting out the elements of each claim found in
Matney’s proposed amended counterclaim (DE 134-1). Instead, the operative
counterclaim consists of seventy-two numbered paragraphs that simply recount Fifth
Third’s alleged misdeeds in a freewheeling, narrative style without any attempt at
organization. Matney occasionally mixes legal phrases such as “the above is
negligence” in with the narrative, and one can only assume that this is to remind the
reader that, somewhere amidst all the verbiage, legal claims are being advanced. This
step-wise descent into pleading chaos is so striking that I can’t help but suspect that the
effect is deliberate: by making a host of fragmentary “claims,” Matney has enough
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wiggle room to be able to argue, half-plausibly, on behalf of new claims as others are
dismissed.
If that was the intention, Matney has now run out of room. I read the
counterclaim as making eight claims: 1) Fifth Third breached the Subordination and
Stand-by Agreement; 2) Fifth Third breached the loan agreements with Double Tree; 3)
Fifth Third was negligent in its dealings with Double Tree; 4) Fifth Third is liable for
negligent misrepresentation; 5) Fifth Third tortiously interfered with the Settlement
Agreement between Minas and Matney; 6) Fifth Third tortiously interfered with the
Double Tree Operating Agreement; 7) Fifth Third tortiously interfered with the
Subordination and Stand-by Agreement; and 8) Fifth Third committed constructive
fraud. As I am about to explain, all eight claims fail - some as a matter of law, the others
because Matney has not been able to come forward with evidence to support them. In
his reply brief, Matney also argues he stated a claim for aiding and abetting breach of
fiduciary duty. This claim, too, is insufficient as a matter of law, and I’ll address it as
well. Therefore Fifth Third’s motion for summary judgment is GRANTED with respect
to Matney’s counterclaims.
A.
Breach of Contract
Matney alleges Fifth Third breached two contracts. First, it breached the
Subordination and Stand-by Agreement between Matney, David Lasco, and Fifth Third
by not preventing Lasco from obtaining a judgment against Matney (DE 157 ¶¶ 58-63).
Next, Fifth Third breached the loan agreements between Fifth Third and Double Tree.
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Id. at ¶¶ 18-36. These breach of contract claims suffer from some rather basic
shortcomings.
With respect to the Subordination Agreement, Matney can’t actually point to a
provision of the agreement that Fifth Third breached. The Subordination Agreement
provides that Lasco “shall not demand or receive from” Matney “any part of the
moneys now owing [Lasco]” until all of Matney and Double Tree’s indebtedness to
Fifth Third has been paid in full (DE 187-5 ¶ 1). Matney hasn’t been able to point to any
language requiring Fifth Third to do anything, let alone requiring it to prevent Lasco
from demanding payment from Matney. In fact, the agreement expressly provides that
the only consequence of Lasco’s breach would be that Matney’s debt to the bank would
be accelerated. Id. at ¶ 6. As the non-moving party, Matney has the burden of coming
up with evidence showing that there is a genuine issue for trial. See Anderson, 477 U.S. at
252. Here, he has not come forward with any evidence showing Fifth Third breached
the Subordination and Stand-by Agreement.
The second breach of contract claim, breach of the loan agreements, suffers from
an even more basic flaw: Matney is not even a party to the contracts. Matney claims
that Fifth Third breached the loan agreements between it and Double Tree by a) not
applying proceeds from lot sales to the payment of principal and interest balances on
the outstanding loans and b) by helping Minas gain control of Double Tree at everyone
else’s expense (DE 157 ¶ 33). Under Indiana law, generally only parties to a contract
have rights under the contract. See Deckard v. Gen. Motors Corp., 307 F.3d 556, 561 (7th
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Cir. 2002) (citing OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 (Ind. 1996)). The
parties to the loan agreements are Fifth Third and Double Tree (DE 184-3; DE 188-2; DE
188-8). Matney is not a party to the agreements. Nor has he pled, or come forward with
any evidence suggesting, that he was a third party beneficiary of the loan agreements.
Accordingly, he has no rights under the loan agreements, and his breach of contract
claim fails as a matter of law.
B.
Negligence
Matney also claims Fifth Third is liable for negligence, though it is genuinely
difficult to puzzle out from the counterclaim what action of Fifth Third’s constituted
negligence. From what I can tell, Matney alleges that Fifth Third allowed Minas to enter
into loan amendments and modifications without input from Matney despite the fact
that Minas did not have authority to do so (DE 157 ¶¶ 48-52). In the end, the details do
not matter much because Matney’s negligence claim is barred by the economic loss
doctrine. As Judge Cherry ably explained in the order denying Matney leave to allege a
negligence claim, Indiana’s economic loss rule precludes tort liability for pecuniary loss
unaccompanied by any property damage or personal injury. (DE 154 at 21-22);
Indianapolis-Marion Cnty. Pub. Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 726
(Ind. 2010) (“[A] defendant is not liable under a tort theory for any purely economic loss
caused by its negligence.”). Matney specifically alleges that the Fifth Third’s negligence
caused him to suffer “pecuniary losses” (DE 157 ¶ 52). Therefore, his negligence claim
is barred by the economic loss doctrine.
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C.
Negligent Misrepresentation
The economic loss rule does not apply to claims of negligent misrepresentation,
so the negligent misrepresentation claim is not barred. See Indianapolis-Marion Cnty.,
Pub. Library, 929 N.E.2d at 741 (“Negligent misrepresentation may be actionable and
inflict only economic loss.”). However, Matney waived the claim by failing to cite to
any evidence supporting it in his brief.
In the counterclaim, Matney alleges that Fifth Third and Minas misrepresented
the number of lots in the Double Tree subdivision and misrepresented the scope and
duration of Matney’s Guaranty (DE 157 ¶¶ 37, 55). Matney did not make any argument
in his brief or point to any evidence in support of this claim. When a party makes only
a perfunctory argument and fails to cite any record evidence in support of a claim,
summary judgment can and should be granted. See Davis v. Carter, 452 F.3d 686, 691-92
(7th Cir. 2006) (perfunctory arguments without proper cites to the record are deemed
waived); Ienco v. Angarone, 429 F.3d 680, 684 (7th Cir. 2005) (finding that plaintiff
waived claims by failing to develop them in response to defendant's motion for
summary judgment); E.E.O.C. v. U.S. Bell, 2:03-cv-237-PRC, 2005 WL 1683979, at *19
(N.D. Ind. Jul. 19, 2005) (issues raised in the motion for summary judgment that are not
properly responded to by the non-moving party are deemed waived). The reasoning
behind this type of waiver is that claimants must point the Court to evidence that
supports their claims. It is the litigant’s responsibility to find the evidence; it is not up
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to the judge to scour the record to find it. See Pourghoraishi v. Flying J, Inc., 449 F.3d 751,
754, n. 1 (7th Cir. 2006). Unfortunately, Matney has abdicated that responsibility.
To be sure, Matney did make an argument in his brief for a negligent
misrepresentation claim, it’s just that it wasn’t the claim he alleged in his counterclaim.
In his response brief, Matney argues that Fifth Third committed negligent
misrepresentation when, in May 2008 and January 2011, it issued Notices of Default to
Double Tree and Matney regarding Double Tree’s obligations to the bank (DE 192 at
42). When Fifth Third sent the notices, Matney argues, they should have known that he
was no longer liable under the August 2006 Guaranty because that guaranty had been
superseded by another, later guaranty. Id. at 42-43. This is a fine theory, but Matney did
not allege any of it in his counterclaim. As I pointed out above, a party cannot amend
the pleadings through briefs in opposition to summary judgment. See Shannahan, 82
F.3d at 781.
D.
Tortious Interference
Matney also alleges three tortious interference claims. First he alleges that Fifth
Third induced the breach of the Subordination and Stand-by Agreement with Lasco (DE
157 ¶62, 69-72). Next, he alleges Fifth Third interfered with the Settlement Agreement
between Matney and Minas. Id. at ¶¶ 56-72. Finally, he alleges Fifth Third interfered
with Double Tree’s Operating Agreement. Id. at ¶¶ 18-27, 69-72.
Matney has waived the first two claims. In his Response brief, Matney only
addressed the interference with the Operating Agreement claim (DE 192 at 36-38).
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Since he hasn’t come forward with any argument or evidence supporting the other two
claims, they are waived. See Ienco, 429 F.3d at 684 (plaintiff waived claims by failing to
develop them in response to defendant's motion for summary judgment).
That leaves the claim that Fifth Third induced the breach of the Double Tree’s
Operating Agreement. Matney argues that Fifth Third tortiously interfered with the
Operating Agreement in June 2007 when it accepted a Certificate of Resolution of
Operating Authority from Double Tree (DE 157 ¶¶ 18-27, 69-72). The Certificate, which
Matney claims is fraudulent, stated that Minas’s corporation, MDRM, LLC, had
complete authority to negotiate and execute loans with Fifth Third (DE 191-1). Before
this, MDRM presumably had required permission from KA Enterprises, the corporation
that had been controlled by Matney and Meyer, to enter into loans. I say presumably
because Matney did not bother to spell this part of the claim out. This leads to the first
problem with this claim — Matney has not come forward with any evidence or
argument explaining what provision of the Operating Agreement was breached, and
how Fifth Third’s acceptance of Minas’s certificate caused the breach. Again, it is not
my function to “scour the record in search of evidence.” Bombard v. Fort Wayne
Newspapers, Inc., 92 F.3d 560, 562 (7th Cir. 1996). Summary judgment is the “put up or
shut up” moment in the lawsuit, when a litigant must show what evidence it has to
convince a trier of fact to accept its version of events. Johnson v. Cambridge Indus., Inc.,
325 F.3d 892, 901 (7th Cir. 2003). Matney, once again, has neglected to produce evidence
supporting key parts of his claim.
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Another problem with this claim is, as with the loan agreements, Matney was not
a party to the Double Tree Lake Estates Operating Agreement (DE 187-7). Only parties
to a contract have rights under the contract. See Deckard, 307 F.3d at 561. The parties to
the Operating Agreement and the addendum to the Operating Agreement are MDRM,
LLC and KA Enterprises, LLC (DE 187-6 at 1; DE 187-7 at § 2.1, Ex. A). Matney
managed KA Enterprises with Meyer (DE 187-2 at 2), but he has brought this claim on
behalf of himself, not as a representative of KA.
Finally, Matney hasn’t come forward with sufficient evidence showing Fifth
Third’s actions were unjustified. In order to make a tortious interference claim, Matney
has to prove that Fifth Third acted without justification. See Bragg v. City of Muncie, 930
N.E.2d 1144, 1147 (Ind. Ct. App. 2010). This means he must establish that Fifth Third
acted intentionally, without a legitimate business purpose, and the breach is malicious
and exclusively directed to the injury and damage of another. See Id. at 1147-48 (citing
Bilimoria Computer Sys., LLC v. Am. Online, Inc., 829 N.E.2d 150, 156-57 (Ind. Ct. App.
2005)). A legitimate reason for the defendant’s actions provides the necessary
justification to avoid liability. See Id. at 1148. Matney has not come forward with any
evidence at all suggesting that Fifth Third actions were “exclusively directed to the
injury and damage” of Matney. Id. Moreover, Fifth Third has advanced a legitimate
business reason for its actions: they were acting to prevent Double Tree from defaulting
on the loans (DE 184-2 at 6). And Matney basically concedes this is correct, arguing
“[a]s long as the Bank continued to make money, it chose to play along with Minas’
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scheme . . . ” (DE 192 at 38) (emphasis mine). Since Matney has failed to produce
evidence of a genuine issue of fact for his tortious interference, Fifth Third is entitled to
judgment.
E.
Constructive Fraud
Matney also alleged a constructive fraud claim. Constructive fraud arises by
operation of law when there has been a course of conduct which, if sanctioned by law,
would secure an unconscionable advantage. See Mullen v. Cogdell, 643 N.E.2d 390, 401
(Ind. Ct. App. 1994). For our purposes here, what’s important is that a party alleging
the existence of constructive fraud “must prove a fiduciary or fiduciary-like
relationship.” In re Rueth Dev. Co., 976 N.E.2d 42, 52 (Ind. Ct. App. 2012) (quoting Cash
in a Flash, Inc. v. McCullogh, 853 N.E.2d 533, 538 (Ind. Ct. App. 2006)). The law is clear
that an arms-length contractual relationship, like that between a lender and a borrower,
does not create any special relationship. See Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d
1042, 1047 (Ind. Ct. App. 2003); Huntington Mortgage Co. v. DeBrota, 703 N.E.2d 160, 167
(Ind. Ct. App. 1998); Block v. Lake Mortgage Co., Inc., 601 N.E.2d 449, 452 (Ind. Ct. App.
1992) (“A fiduciary relationship does not exist between a lender and a borrower unless
certain facts exist which establish a relationship of trust and confidence between the
two.”).
A fiduciary-like special relationship between a lender and borrower only exists if
(1) confidence is reposed by one party in another with resulting superiority and
influence exercised by the other; (2) the party reposing the confidence must also be in a
22
position of weakness, inequality, dependence or lack of knowledge; and (3) it must also
be shown that the dominant party wrongfully abused this confidence by improperly
influencing the weaker so as to obtain an unconscionable advantage. See Bruno v. Wells
Fargo Bank, N.A., 850 N.E.2d 940, 946-47 (Ind. Ct. App. 2006).
Matney argues that these circumstances are present here because he was in a
position of weakness and dependence on Fifth Third, and Fifth Third abused this
dependence by failing to notify Matney of the Bank’s intention to enter into new loan
and credit agreements with Double Tree (DE 157 ¶¶ 53-54). However, Matney’s
argument is foreclosed by two Indiana Court of Appeals decisions that are almost
exactly on-point. In Kruse v. National Bank of Indianapolis, a guarantor, Kruse, sued a
bank alleging constructive fraud after the bank extended the loan’s maturity date
without the guarantor’s consent and failed to notify the guarantor of the borrower’s
noncompliance with the loan’s reporting requirements. 815 N.E.2d 137, 140 (Ind. Ct.
App. 2004). The court found that the bank did not have a fiduciary relationship with
the guarantor because, as an experienced businessman, Kruse was not in a position of
weakness or unequal bargaining power. See id. at 148. Moreover, Kruse had signed an
unconditional, continuing guaranty agreement, so the bank had no duty to inform him
of the borrower’s condition or before extending the loan. See id. Likewise, Bruno v. Wells
Fargo Bank, N.A., featured another unconditional guarantor suing a bank for
constructive fraud after the borrower took out too much money and defaulted on the
loan. 850 N.E.2d 940, 943-944 (Ind. Ct. App. 2006). Again the court held that the bank
23
had no special duty because the guarantor was an experienced businessman and had
signed a continuing, unlimited guaranty that authorized the borrower to take out
additional loans without notice. See id. at 947. In this case, too, we have an ordinary
lender-borrower relationship without the special circumstances creating a fiduciary
relationship. Matney was an experienced businessman, experienced enough to be put
in charge of day-to-day operations at Double Tree. He also signed an unconditional,
continuing guaranty that didn’t require his consent to, or notice of, modifications and
additions to the loans. Accordingly this claim fails.
F.
Aiding and Abetting Breach of Fiduciary Duty
In a last ditch effort to salvage something of his counterclaim, Matney argues in
his response brief that he also made a claim for aiding and abetting breach of fiduciary
duty. Indiana courts have not yet recognized aiding and abetting breach of fiduciary
duty as a cause of action. DiMaggio v. Rosario, 950 N.E.2d 1272, 1276 (Ind. Ct. App.
2011). But I believe they probably would because, as the Seventh Circuit has pointed
out, aiding and abetting liability is not a standalone tort, but, rather, a theory of liability.
See Hefferman v. Bass, 467 F.3d 596, 601 (7th Cir. 2006). And Indiana recognizes aiding
and abetting liability for other torts, so there’s reason to believe that Indiana would
recognize it for a breach of fiduciary duty claim. See, e.g., Hellums v. Raber, 853 N.E.2d
143, 146-47 (Ind. Ct. App. 2006) (applying derivative liability rules to negligence claim.).
To succeed on his claim, Matney will have to prove that Minas breached a
fiduciary duty owed to Double Tree; that Fifth Third knowingly and substantially
24
assisted the breach; and that Fifth Third was aware of its role when it provided the
assistance. See Hefferman, 467 F.3d at 601; Restatement (Second) of Torts § 876.
The first problem with Matney’s claim is that it’s not at all clear that Matney
actually pled it. Federal Rule of Civil Procedure 8(a) requires that the plaintiff make “a
short plain statement of the claim” in order to state a claim for relief. Fed. R. Civ. P.
8(a)(2). The purpose of Rule 8 is to put defendants on notice. Defendants must be able
to understand whether a valid claim is alleged and, if so, what it is. See Vicom, Inc. v.
Harbridge Merchant Servs., Inc., 20 F.3d 771, 775 (7th Cir. 1994); Matney’s counterclaim
failed to put Fifth Third, and the Court, on notice that he was alleging this claim. As I
noted above, Matney’s Second Amended Counterclaim is not short and is the farthest
thing from plain. After reading through it many times, I cannot conceive of how a
Defendant could have waded through the morass of scatter-shot allegations and picked
out an aiding and abetting breach of fiduciary duty claim. There is no allegation that
Minas ever owed a fiduciary duty to Double Tree or anyone else. No allegation that
Minas ever breached a fiduciary duty, or how he breached it, or when. No allegations
explaining how the bank assisted in the breach or how they knew of it.
Now, it is true that if you are searching for a breach of fiduciary duty claim in the
complaint, you could probably find enough facts to support one. Matney alleged Minas
and the bank engaged in a lot of bad acts. If you plucked an allegation from one page,
and then another a few pages later, and then another after that, you could probably
cobble enough facts to support a claim. But that is not good enough. “Rule 8(a)
25
requires parties to make their pleadings straightforward, so that judges and adverse
parties need not try fish a gold coin from a bucket of mud.” United States ex rel. Garst v.
Lockheed-Martin Corp., 328 F.3d 374, 378 (7th Cir. 2003); Gilmour v. Gates McDonald and
Co., 382 F.3d 1312, 1315 (11th Cir. 2004) (“liberal pleading does not require that, at the
summary judgment stage, defendants must infer all possible claims that could arise out
of facts set forth in the complaint.”). Matney failed to adequately plead an aiding and
abetting breach of fiduciary duty claim in the Second Amended Counterclaim.
Even putting aside the pleading problem, Matney’s claim still fails because
Matney has not come forward with evidence to support it. Matney has to show that
Fifth Third “substantially assisted” Minas’s breach of fiduciary duty. Hefferman, 467
F.3d at 601. In his response brief, Matney argues that Fifth Third assisted Minas’s
breach by drafting Double Tree’s “fraudulent” Third Amendment to the Operating
Agreement. In support of his claim, Matney’s points to the draft agreement itself [DE
192-4] and an affidavit from a Fifth Third employee that was filed in the arbitration
between Matney and Minas (DE 192-19). In the affidavit, the Fifth Third employee
simply states that he is waiting on Matney to sign the amended Operating Agreement
before he approves a loan to Fifth Third. Id. at 3. That’s it. There is no evidence that
Fifth Third had anything at all to do with drafting any agreement. That theory is just
Matney’s speculation, and speculation is not enough to survive summary judgment. Bell
v Dupperault, 367 F.3d 703, 707 (7th Cir. 2004) (The nonmoving party is not entitled to
the benefit of "inferences that are supported by only speculation or conjecture”).
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CONCLUSION
Defendant/Counter-Plaintiff Matney’s motion for summary judgment (DE 185)
is GRANTED.
Plaintiff/Counter-Defendant Fifth Third Bank will have until August 8, 2014 to
file an amended complaint.
Plaintiff/Counter-Defendant Fifth Third Bank’s motion for summary judgment
(DE 183) is GRANTED IN PART and DENIED IN PART. Fifth Third Bank’s motion
is GRANTED with respect to Matney’s counterclaims. The motion is DENIED with
respect to Fifth Third’s claim against Matney.
The Motions to Strike (DE 195, 199, 204, 209, 216) are DENIED AS MOOT.
SO ORDERED.
ENTERED: July 23, 2014
s/ Philip P. Simon
Philip P. Simon, Judge
United States District Court
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