Synovus Bank v. Coleman
Filing
66
MEMORANDUM OF DECISION AND ORDER granting 58 Motion to Dismiss; granting in part and denying in part 60 Motion to Dismiss. IT IS FURTHER ORDERED that the parties shall conduct an initial attorneys' conference withi n fourteen (14) days of the entry of this Order and shall file a Certificate of Initial Attorneys' Conference within seven (7) days thereafter. (SEE ORDER FOR DETAILS) Signed by District Judge Martin Reidinger on 8/15/12. (nll) Modified on 8/15/2012 (nll).
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:11cv66
SYNOVUS BANK,
Plaintiff,
vs.
PATRICK COLEMAN,
Defendant/
Third-Party Plaintiff,
vs.
SYNOVUS FINANCIAL CORP. d/b/a
NATIONAL BANK OF SOUTH
CAROLINA, et al.,
Third-Party Defendants.
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MEMORANDUM OF
DECISION AND ORDER
THIS MATTER is before the Court on the Third Party Defendant
Synovus Financial Corp.’s Motion to Dismiss Defendant’s Second Amended
Third Party Claims [Doc. 58] and the Plaintiff Synovus Bank’s Motion to
Dismiss the Defendant’s Second Amended Counterclaims [Doc. 60].
I.
PROCEDURAL BACKGROUND
In August 2007, the Defendant Patrick Coleman borrowed money from
the National Bank of South Carolina (“NBSC”) to finance his purchase of an
undeveloped lot in a residential development known as the Seven Falls Golf
& River Club (“Seven Falls”) in Henderson County, North Carolina. On April
1, 2011, after the Defendant failed to repay the loan, the Plaintiff Synovus
Bank -- the successor-in-interest through name change and merger with
NBSC -- initiated this action. [Doc. 1].1
The Defendant filed an Answer/Counterclaim and Third Party Complaint
on June 1, 2011, naming Synovus Financial Corp., as well as the developer
of Seven Falls, Keith Vinson (“Vinson”), and other related Seven Falls
corporate entities as third party defendants.2 [Doc. 7]. The Defendant filed
an Amended Answer/Counterclaim and Third Party Complaint on August 2,
2011 [Doc. 18] and a Second Amended Answer/Counterclaim and Third Party
1
Synovus Bank is a Georgia state chartered bank. [Id. at ¶ 1]. Synovus Bank and
NBSC will be referred to herein as “the Bank.”
2
The Defendant alleges that Third-Party Defendant Keith Vinson was the
principal in multiple companies purportedly formed for the purpose of developing Seven
Falls, including Seven Falls, LLC; Seven Falls Real Estate, LLC; Seven Falls Realty,
LLC; Seven Falls Golf Club, LLC; Seven Falls Golf & River Club, LLC; Seven Falls Club
Amenities, LLC; Seven Falls Lodging, LLC; Seven Falls Ventures, LLC; Seven Falls
Property Owners Association, Inc.; Mountain Development Company, LLC; and Zeus
Investments, LLC. [Second Amended Counterclaim/Third Party Complaint
(“Counterclaim”), Doc. 53 at ¶ 5].
2
Complaint on December 7, 2011 [Doc. 53].
Synovus Bank and Synovus
Financial Corp. now move to dismiss the Defendant’s Counterclaims and
Third Party Claims, as amended.
[Docs. 58, 60].
The Defendant has
responded to the Motions to Dismiss [Docs. 62, 63], and Synovus Bank and
Synovus Financial Corp. have filed Replies [Docs. 64, 65].
Having been fully briefed, this matter is ripe for disposition.
II.
STANDARD OF REVIEW
In reviewing a motion to dismiss filed pursuant to Rule 12(b)(6), the
Court is guided by the Supreme Court’s instructions in Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). As
the Fourth Circuit has noted, “those decisions require that complaints in civil
actions be alleged with greater specificity than previously was required.”
Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012).
In order to survive a motion to dismiss pursuant to Rule 12(b)(6), “a
complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678, 129 S.Ct.
1937 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). To be
“plausible on its face,” a plaintiff must demonstrate more than “a sheer
3
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678, 129
S.Ct. 1937.
In reviewing the complaint, the Court must accept the truthfulness of all
factual allegations but is not required to assume the truth of “bare legal
conclusions.” Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4th Cir. 2011). “The
mere recital of elements of a cause of action, supported only by conclusory
statements, is not sufficient to survive a motion made pursuant to Rule
12(b)(6).” Walters, 684 F.3d at 439.
To survive a Rule 12(b)(6) motion, “a complaint must state a ‘plausible
claim for relief.’”
Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937).
Determining whether a complaint states a plausible claim for relief is “a
context-specific task,” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.
2009), which requires the Court to assess whether the factual allegations of
the complaint are sufficient “to raise a right to relief above the speculative
level,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. As the Fourth Circuit has
recently explained:
To satisfy this standard, a plaintiff need not forecast
evidence sufficient to prove the elements of the claim.
However, the complaint must allege sufficient facts to
establish those elements. Thus, while a plaintiff does
not need to demonstrate in a complaint that the right
to relief is probable, the complaint must advance the
4
plaintiff’s claim across the line from conceivable to
plausible.
Walters, 684 F.3d at 439 (citations and internal quotation marks omitted).
III.
FACTUAL BACKGROUND
Viewing the allegations of the Second Amended Counterclaims and
Third-Party Complaint as true, the following is a summary of the relevant
facts.
On August 15, 2007, the Defendant entered into a Reservation for
Purchase and Sale Agreement (“Purchase Agreement”) with Seven Falls, LLC
(“the Developer”) for the purchase of Lot 52 in the Seven Falls subdivision.
[Purchase Agreement, Doc. 61-1].3 The Purchase Agreement identifies the
Developer as the “Seller” of the Lot and the party promising to “convey
marketable title” to the Defendant. [Id. at Preamble and Part II ¶ 5]. The
Purchase Agreement further states that the Developer was obligated to
complete paved roads, utility infrastructure, and various recreational facilities,
including a golf course. [Id. at Part II ¶ 12]. The Defendant specifically
acknowledged that the “Seller [Seven Falls, LLC] shall be the sole party
3
The exhibits submitted with the Bank’s Motion are “integral to and explicitly
relied on in” the Defendant’s Counterclaim/Third Party Complaint and the authenticity of
such exhibits is not challenged. See Am. Chiropractic Ass’n v. Trigon Healthcare, Inc.,
367 F.3d 212, 234 (4th Cir. 2004). Therefore, the Court will consider these exhibits, but
such consideration does not convert this to a motion for summary judgment.
5
responsible for the performance of Seller’s obligation under this Agreement.”
[Id. at Part II ¶ 16]. Additionally, the Defendant acknowledged
that no other person, firm or entity, including, without
limitation, any entity affiliated with Seller, shall have
any obligation or liability under this Agreement.
Purchaser, therefore, waives all claims against all
companies and persons affiliated with Seller for any
loss, cost or damage arising out of Seller’s
performance or non-performance of its obligations to
Purchaser in connection with this Agreement . . . .
[Id.].
To finance his purchase of the Lot, on August 28, 2007, the Defendant
executed a promissory note (“Note”) in favor of NBSC in the principal amount
of $225,000, secured by a Deed of Trust on the Lot. [Note and Deed of Trust,
Docs. 61-2 and 61-3]. The Defendant executed a Renewal Note on May 22,
2009. [Renewal Note, Doc. 61-4].
The Defendant contends that he was “fraudulently induced into investing
in Seven Falls” [Counterclaim, Doc. 53 at ¶ 1] by an “aggressive marketing
scheme” in which the Bank participated with the Developer. [Id. at ¶ 12]. He
specifically alleges that the Bank entered into a joint venture with the
Developer which included nearly $90,000,000 in development loans,
participation by the Bank in marketing activities, the promotion of the Bank as
the primary or preferred lender for lot purchase loans, and other similar
6
conduct. [Id. at ¶ 11]. The Defendant further asserts that the Bank failed,
inter alia, to ensure that the Developer had “appropriate experience,
competence, and capitalization” and to inspect the progress of construction,
while continuing to approve construction draws. [Id. at ¶¶ 26, 27].
The Defendant also accuses the Bank of “aggressive lending practices,”
allegedly promoting low-quality loans to inflate short-term profits and increase
release fees.4 [Id. at ¶ 23]. According to the Defendant, the Bank “was
attempting to take advantage of the rapid increase in inflation adjusted real
estate prices that occurred in the United States from 2003 through 2007,
which time period has been widely described as a real estate boom....” [Id.].
He then alleges damages based on the Bank’s decision to cancel
$63,000,000 “of its publicly recorded financial commitment to Seven Falls,”
supposedly because it “never intended to fully fund” the $90,000,000 pledged,
and because it “preferred to take TARP 5 benefits from the federal government
instead of ensuring that these funds went to the benefit of Seven Falls.” [Id.
at ¶ 22].
4
The Defendant apparently uses the term “release fees” to refer to payments
made by the Developer to the Bank upon the sale of a lot to an individual purchaser.
[See Counterclaim, Doc. 53 at ¶ 23 and ¶ 8].
5
“TARP” refers to the Troubled Asset Relief Program, a federal program enacted
in 2008 pursuant to which the federal government purchases assets and equity from
struggling financial institutions. See generally http://www.federalreserve.gov.
7
IV.
ANALYSIS
A.
Synovus Bank’s Motion to Dismiss
1.
Plausibility of Defendants’ Counterclaims
Synovus Bank first moves to dismiss the Defendant’s Second Amended
Counterclaims on the ground that they fail to meet the plausibility standards
of Twombly and Iqbal. Specifically, the Bank argues that the basic premise
of the Defendant’s Counterclaims -- that a bank would collude with a
developer to induce individuals to buy lots at inflated prices and that a bank
would knowingly accept the overvalued land as collateral for loans -- is so
contrary to the Bank’s long-term business interests as to be implausible as a
matter of law. [Doc. 61 at 5-8].
In support of this argument, the Bank relies on numerous district court
decisions, including Feeley v. Total Realty Management, 660 F.Supp.2d 700
(E.D. Va. 2009), Goldstein v. Bank of America, No. 1:09cv329, 2010 WL
1252641 (W.D.N.C. Jan. 10, 2010) (Howell, M.J.), and Bank of America v.
Lykes, No. 1:09cv435, 2010 WL 2640454 (W.D.N.C. May 20, 2010) (Howell,
M.J.), which dismissed similar claims against lenders as implausible. In each
of these cases, however, the court determined that the plaintiffs had failed to
allege specific facts to support their claims and had failed to make plausible
8
allegations to support the theory that a lender would be willing to collude or
conspire with a developer to make under-collateralized loans to borrowers to
the detriment of the lender’s own financial interests.
See Feeley, 660
F.Supp.2d at 708; Goldstein, 2010 WL 1252641, at *5; Lykes, 2010 WL
2640454, at *6. By contrast, in the present case, the Defendant’s allegations,
when assumed to be true, establish a plausible reason (i.e., the desire for
short-term profitability) for the Bank’s willingness to knowingly make an undercollateralized loan to the Defendant, even if such loan may have been, as
argued by the Bank, contrary to the Bank’s long-term financial interests. As
such, the Court finds that Feeley, Goldstein, and Lykes are distinguishable
from the case at bar.
As this Court recently explained in a similar case:
As the events of the recent economic crisis have
demonstrated, financial institutions do not always
make the most prudent business decisions, and they
may accept what would otherwise appear to be
unreasonable economic risks for the sake of
immediate, short-term profitability. Thus, while the
Bank’s conduct, as alleged by the Defendant[ ], may
not appear to have been the most prudent course of
action for the Bank to take in terms of its long-term
business interests, that certainly does not mean that
such conduct is not plausible as a matter of law.
Indeed . . . Synovus Bank would not be the first
corporation in the history of modern economics to
undertake an action that carried substantial risk to its
9
long term financial viability in order to increase short
term profits or revenue.
Synovus Bank v. Karp, No. 1:10cv172, slip op. at 20 (W.D.N.C.) (citation and
quotation marks omitted). Construing the well-pled factual allegations of the
Counterclaims and Third Party Claims in the light most favorable to the
Defendant, the Court concludes that the Defendant’s theory of liability is not
so implausible as to warrant dismissal of his claims. For these reasons, the
Bank’s Motion to Dismiss the Defendant’s Counterclaims as implausible is
denied.
2.
Federal Claim under ILSA
Synovus Bank moves to dismiss the Defendant’s counterclaim under the
Interstate Land Sales Full Disclosure Act (“ILSA”). [Doc. 61 at 11-13]. The
ILSA creates a private right of action against “developers” and “agents of
developers” in connection with sales or leases made in violation of its
provisions. 15 U.S.C. § 1709. The Act “is designed to prevent false and
deceptive practices in the sale of unimproved tracts of land by requiring
developers to disclose information needed by potential buyers.” Flint Ridge
Dev. Co. v. Scenic Rivers Ass’n of Okla., 426 U.S. 776, 778, 96 S.Ct. 2430,
2433, 49 L.Ed.2d 205 (1976). “The Act also requires sellers to inform buyers,
prior to purchase, of facts which would enable a reasonably prudent individual
10
to make an informed decision about purchasing a piece of real property.”
Burns v. Duplin Land Dev., Inc., 621 F.Supp.2d 292, 301 (E.D.N.C. 2009). A
“developer” is defined under the ILSA as “any person who, directly or
indirectly, sells or leases, or offers to sell or lease, or advertises for sale or
lease any lots in a subdivision . . . .” 15 U.S.C. § 1701(5). An “agent” is
defined as “any person who represents, or acts for or on behalf of, a
developer in selling or leasing, or offering to sell or lease, any lot or lots in a
subdivision. . . .” 15 U.S.C. § 1701(6).
Lending institutions acting in the ordinary course of their business are
generally not considered developers within the meaning of the ILSA. See
Cumberland Cap. Corp. v. Harris, 621 F.2d 246, 251 (6th Cir. 1980);
Kenneally v. Bank of Nova Scotia, 711 F.Supp.2d 1174, 1191-92 (S.D. Cal.
2010) (collecting cases); Hammar v. Cost Control Mktg. and Sales Mgmt. of
Va., Inc., 757 F.Supp. 698, 702 (W.D. Va. 1990). “It is only where a financial
institution acts beyond its ordinary course of dealing as a lending institution
and participates in the actual development, marketing or sale of property that
liability may arise under ILSA.” Thompson v. Bank of Am., No. 7:09-CV-89-H,
2011 WL 1253163, at *1 (E.D.N.C. Mar. 30, 2011) (citations omitted).
11
In arguing for dismissal of this claim, the Bank cites to Magistrate Judge
Howell’s Memorandum and Recommendation in Synovus Bank v. Karp, No.
1:10cv172 (W.D.N.C. Oct. 5, 2011), which was recently adopted by this Court,
in which Judge Howell recommended dismissing the defendants’ ILSA
counterclaims against Synovus Bank.
The Karp case, however, is
distinguishable from the case at bar. In Karp, the defendants alleged that a
Bank employee appeared at off-site sales events, made statements regarding
the quality of the lots as investments, and made one statement that the Bank
was one of the major funders of the development. The Magistrate Judge
concluded that these allegations did not rise to the level of showing that the
Bank “was so involved in advertising the lots for sale that it went beyond its
function as a commercial bank and could be considered a developer under
the ILSA.” Karp, No. 1:10cv172, slip op. at 18.
By contrast, the Defendant in the present case alleges that the Bank cohosted a series of marketing events which were designed to promote the sale
of lots in Seven Falls and to convince potential purchasers of the
development’s financial viability. [Counterclaim, Doc. 53 at ¶¶ 13, 14, 16, 18,
20, 21]. The Defendant further alleges that the Bank provided financing for
a series of DVDs produced by the Developer which marketed Seven Falls to
12
consumers. [Id. at ¶ 13]. These allegations, when taken as true, create a
plausible basis for the Defendant’s claim that the Bank’s activities constitute
“a level of involvement and participation in the development activities . . . that
goes beyond the ordinary course of dealing of commercial banks.” Hammar,
757 F.Supp. at 703.
While denying the Plaintiff’s motion to dismiss as to this claim, the Court
notes that the Defendant’s allegations in support of his ILSA claim are rather
thin. Beyond alleging the “hosting” of several sales events and the “financing”
of promotional DVDs, the Defendant offers little meaningful detail regarding
the Bank’s involvement in the marketing and sale of the Seven Falls
development. While these allegations are meager, the Court is mindful that,
despite the somewhat more stringent pleading standards now required under
Iqbal, surviving a Rule 12(b)(6) motion remains a relatively low bar. A party
must allege sufficient facts to state a only a plausible claim for relief, and for
the reasons stated above, the Court concludes that the Defendant has done
so in this case. Of course, it remains to be seen whether the Defendant can
present a forecast of evidence to establish that the Bank’s participation in the
development, marketing, and sale of Seven Falls rises to the level such that
13
liability can be imposed under the ILSA, and the Court expresses no opinion
on that issue at this time.
In sum, the Defendant’s allegations are sufficient to establish a plausible
claim that the Bank stepped outside of its ordinary course of business such
that liability could be imposed under the ILSA. Having argued no other basis
for the dismissal of this claim, the Bank’s motion to dismiss the Defendant’s
claim under the ILSA must be denied.
3.
State Law Claims
a.
Choice of Law
As a federal court sitting in diversity, this Court must apply the
substantive law of the forum state, including its choice of law rules. Colgan
Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir. 2007). Because
North Carolina courts apply different choice of law rules depending on the
type of claim asserted, the Court first must first characterize the nature of the
asserted claims. See Simms Inv. Co. v. E.F. Hutton & Co., 688 F.Supp. 193,
197 (M.D.N.C. 1988) (“In a conflict of laws situation, a court must determine
at the outset whether the problem presented to it for resolution relates to torts,
contracts, property, or some other field, or to a matter of substance or
14
procedure, in order to refer to the appropriate law.”) (quoting 16 Am.Jur.2d
Conflict of Laws § 3 (1979)).
For contractual claims, North Carolina courts generally apply the law of
the place where the contract was made. See Norman v. Tradewinds Airlines,
Inc., 286 F.Supp.2d 575, 584 (M.D.N.C. 2003). Further, where the contracting
parties have agreed “that a given jurisdiction’s substantive law shall govern
the interpretation of the contract, such a contractual provision will be given
effect.” Tanglewood Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655,
656 (1980).
Here, the Promissory Note at issue states that “[a]ny legal
questions in this agreement will be decided by South Carolina law.” [Note,
Doc. 61-2 at 3]. The parties appear to be in agreement that this choice of law
provision makes South Carolina law applicable to the Defendant’s
counterclaim for breach of contract.
The parties differ, however, on the appropriate law to be applied to the
non-contractual counterclaims. The Bank contends that the law of South
Carolina is applicable to these claims, as South Carolina is the Defendant’s
state of residence and thus should be considered the site of his alleged
financial injury. The Defendant contends, on the other hand, that the law of
North Carolina governs these state law claims. [Doc. 63 at 1]. In arguing for
15
the application of North Carolina law, the Defendant relies upon the choice of
law provision in the Promissory Note. The Defendant argues that application
of South Carolina choice of law rules pursuant to this contractual choice of law
provision would require the Court to apply North Carolina law to his claims,
because the relevant acts occurred in North Carolina and the property is
located here. [Doc. 63 at 1].
The Defendant’s argument that the choice of law provision in the
Promissory Note is determinative of this choice of law issue is misplaced. A
choice of law provision in a contract generally requires use of a certain state’s
substantive law, not the state’s conflict of laws principles. See e.g., Johnston
County v. R.N. Rouse & Co., 331 N.C. 88, 92, 414 S.E.2d 30, 33 (1992) (“[A]
choice of law provision[ ] names a particular state and provides that the
substantive laws of that jurisdiction will be used to determine the validity and
construction of the contract, regardless of any conflicts between the laws of
the named state and the state in which the case is litigated.”). Further, the
scope of the choice of law provision contained in the Note is limited to
disputes arising under the terms of that specific document. It does not dictate
the choice of law applicable to all disputes between the parties. See ITCO
Corp. v. Michelin Tire Corp., Commercial Div., 722 F.2d 42, 49 n.11 (4th Cir.
16
1983) (holding that choice of law provisions in contract did not apply to claims
arising out of tort and where claims did not involve any issue of contractual
construction, interpretation, or enforceability).
In North Carolina, courts traditionally apply the rule of lex loci delicti to
tort claims. See Boudreau v. Baughman, 322 N.C. 331, 335, 368 S.E.2d 849,
853-54 (1988) “For actions sounding in tort, the state where the injury
occurred is considered the situs of the claim.” Id. at 335, 368 S.E.2d at 854.
Similarly, in cases involving claims for unfair or deceptive trade practice, North
Carolina courts have applied the law of the state where the injuries were
sustained. See ITCO, 722 F.2d at 49 n.11; Lloyd v. Carnation Co., 61 N.C.
App. 381, 387-88, 301 S.E.2d 414, 418 (1983); United Va. Bank v. Air-Lift
Assoc., 79 N.C. App. 315, 321, 339 S.E.2d 90, 94 (1986).
In cases involving financial injuries, courts have considered the injury
to be sustained “where the economic loss was felt.” Clifford v. Am. Int’l
Specialty Lines Ins. Co., No. 1:04CV486, 2005 WL 2313907, at *8 (M.D.N.C.
Sep. 21, 2005). While the economic loss may be suffered in the state of the
plaintiff’s residence or principal place of business, courts routinely have
rejected applying a bright line rule in determining the situs of the injury. See
Harco Nat’l Ins. Co. v. Grant Thornton LLP, 206 N.C. App. 687, 697, 698
17
S.E.2d 719, 725-26 (2010) (“[A] significant number of cases exist where a
plaintiff has clearly suffered its pecuniary loss in a particular state, irrespective
of that plaintiff’s residence or principal place of business. In those cases, the
lex loci test requires application of the law of the state where the plaintiff has
actually suffered harm.”); see also United Dominion Indus. v. Overhead Door
Corp., 762 F.Supp. 126, 130 (W.D.N.C. 1991) (noting that in commercial
actions, “determining the place that the injury occurred is not especially selfevident”).
Applying these principles to the present case, the Court concludes that
North Carolina law is applicable to the Defendant’s claims.
While the
Defendant is a resident of South Carolina, his alleged pecuniary losses were
clearly suffered in North Carolina, as the real estate at issue is located here
and the purchase transaction was completed here. See United Dominion
Indus., 762 F.Supp. at 130-31 (holding that Texas law applied to unfair and
deceptive trade practice claim because closing of sale took place in Texas);
United Va. Bank, 79 N.C. App. at 321, 339 S.E.2d at 94 (holding that Virginia
law applied where bank’s wrongful sale of collateral occurred in Virginia).
Accordingly, the Court will apply North Carolina law to the Defendant’s noncontractual counterclaims.
18
b.
Joint Venture and Apparent Agency Theories
Synovus Bank argues that, to the extent that the Defendant’s
Counterclaims rely upon a theory of a joint venture or apparent agency, such
claims are not supported by well-pled factual allegations and thus fail as a
matter of law. [Doc. 61 at 8-11].
To establish a joint venture under North Carolina law, “there must be (1)
an agreement, express or implied, to carry out a single business venture with
joint sharing of the profits, and (2) an equal right of control of the means
employed to carry out the venture.” Southeastern Shelter Corp. v. BTU, Inc.,
154 N.C. App. 321, 326, 572 S.E.2d 200, 204 (2002) (citation and internal
quotation marks omitted) (emphasis in original). In the present case, the
Defendant’s allegations of a joint venture between the Bank and the
Developer are legally insufficient with respect to both elements. As to the first
element, the Defendant’s factual allegations establish, at most, that the
relationship between the Bank and the Developer was that of a lender and
borrower. [See, e.g., Counterclaim, Doc. 53 at ¶ 11(a) (loans to Developer),
¶ 11(c) (joint promotion of NBSC as primary or preferred lender)]. Such a
relationship between a bank and developer standing alone is insufficient to
establish a joint venture as a matter of law. See Edwards v. Northwestern
19
Bank, 39 N.C. App. 261, 276, 250 S.E.2d 651, 661 (1979). As the Edwards
Court noted, to find a joint venture based on the existence of a mere
debtor/creditor relationship “would seriously disrupt the carefully constructed
system of secured financing.” Id. at 277, 250 S.E.2d at 662.
Further, the Defendant’s conclusory allegation, made “upon information
and belief,” that the Bank and Developer shared profits [Id. at ¶ 11(h)], is
contradicted by other allegations, which make clear that the “shared profits”
were actually release fees paid to the Bank on specific lot purchases. [Id. at
¶¶ 8, 23]. The fact that the Bank may have received release fees when the
Developer closed a sale on a lot, as a matter of law, does not amount to a
sharing of profits with the Developer. See Reeve & Assocs., Inc. v. United
Carolina Bank, No. 96 CVS 4695, 1997 WL 33446634, at *3 (N.C. Bus. Ct.
Oct. 6, 1997) (concluding that repayment of debt owed by debtor to lender
does not constitute the “sharing of profits” for purposes of a joint venture).
The Defendant also fails to make adequate factual allegations to support
a finding of an equal right of control between the parties. The Defendant
specifically fails to make any allegation that the Developer had any right to
exercise control over the actions of NBSC. While he alleges that NBSC had
“control of the money disbursed to Developer and thereby control of the
20
implementation of the project” [see Counterclaim, Doc. 53 at ¶ 11(k)], this
allegation, without more, is not sufficient to support a joint venture. See
Andrews v. Primus Telecomms. Group, Inc., 107 F. App’x 301, 306 (4th Cir.
2004) (per curiam) (applying Virginia law; rejecting argument that control
element was established when one party’s financial investment in the other
party was necessary for the continuing viability of the other party).
The
Defendant’s
joint
venture
allegations
are
also
expressly
contradicted by the terms of the Purchase Agreement, which acknowledged
that the Developer was “the sole party responsible for the performance of
Seller’s obligation under this Agreement ,” and by which the Defendant waived
“all claims” against “all companies and persons affiliated with” the Developer
for “any loss, cost or damage” arising out of the Developer’s failure to
complete the construction of infrastructure and amenities at Seven Falls.
[Purchase Agreement, Doc. 61-1 at Part II ¶ 16]. For all of these reasons, the
Court concludes that the Defendant’s theory of a joint venture between the
Bank and the Developer must fail.
The Defendant also alleges that the Bank is liable for any action of the
Developer under a theory of apparent agency, agency by estoppel, or
estoppel to deny joint venture. [See Counterclaim, Doc. 53 at ¶¶ 83-86].
21
Apparent agency, which is also known as agency by estoppel, is a type
of equitable estoppel. Deal v. N.C. State Univ., 114 N.C. App. 643, 645, 442
S.E.2d 360, 362, disc. rev. denied, 336 N.C. 779, 447 S.E.2d 419 (1994).
“Equitable estoppel arises when one party, by his acts, representations, or
silence when he should speak, intentionally, or through culpable negligence,
induces a person to believe certain facts exist, and that person reasonably
relies on and acts on those beliefs to his detriment.” Id. When estoppel is
applied in the agency context, the rule provides that “[w]here a person by
words or conduct represents or permits it to be represented that another
person is his agent, he will be estopped to deny the agency as against third
persons who have dealt, on the faith of such representation, with the person
so held out as agent, even if no agency existed in fact.” Id. (quoting Hayman
v. Ramada Inn, Inc., 86 N.C. App. 274, 278, 357 S.E.2d 394, 397, disc. review
denied, 320 N.C. 631, 360 S.E.2d 87 (1987)).
In
the
present
case,
the
Defendant
has
not
identified
any
representations made by the Bank that purportedly induced him into believing
that the Bank and the Developer were in either a joint venture or an agency
relationship. Additionally, the express terms of the Purchase Agreement
make clear that only the Developer had any duty to finish the infrastructure
22
and amenities, thus negating any claim that the Defendant reasonably
believed the Bank was in a joint venture with the Developer to develop the
subdivision. For these reasons, the Court concludes that the Defendant’s
reliance on a theory of apparent agency or estoppel to allege any claims
against the Bank based on the conduct of the Developer must fail.
c.
Breach of Fiduciary Duty and Constructive Fraud
Synovus Bank moves to dismiss the Defendant’s counterclaims for
breach of fiduciary duty and constructive fraud, arguing that these claims must
fail because the Bank owed no fiduciary duty to him. [Doc. 61 at 13-14].
Under North Carolina law, it is well-established that “[a] fiduciary duty
arises when there has been a special confidence reposed in one who in equity
and good conscience is bound to act in good faith and with due regard to the
interests of the one reposing confidence.” Branch Banking & Trust Co. v.
Thompson, 107 N.C.App. 53, 60, 418 S.E.2d 694, 699 (internal quotation
marks omitted), disc. review denied, 332 N.C. 482, 421 S.E.2d 350 (1992).
“However, an ordinary debtor-creditor relationship generally does not give rise
to such a special confidence: [t]he mere existence of a debtor-creditor
relationship between [the parties does] not create a fiduciary relationship.” Id.
at 61, 418 S.E.2d 694, 418 S.E.2d at 699 (alterations in original) (internal
23
quotation marks omitted). Nevertheless, the North Carolina Court of Appeals
has noted that “[t]his is not to say ... that a bank-customer relationship will
never give rise to a fiduciary relationship given the proper circumstances.” Id.
Here, the Defendant has failed to allege sufficient facts to establish a
fiduciary relationship with the Bank. While he alleges that the Bank gave him
“investment advice” and that he “placed special confidence and trust” in the
Bank [Counterclaim, Doc. 53 at ¶ 44], such allegations are merely conclusory
and fail to provide any specific plausible facts to support his claim. At most,
the Defendant’s factual allegations establish a normal debtor-creditor
relationship between the parties.
Accordingly, the Defendant’s claim for
breach of fiduciary duty must fail.
The lack of a fiduciary relationship is likewise fatal to the Defendant’s
claim for constructive fraud. See Terry v. Terry, 302 N.C. 77, 83, 273 S.E.2d
674, 677 (1981) (“Constructive fraud . . . arises in circumstances where a
confidential relationship exists.”). Accordingly, the Defendant’s counterclaim
for constructive fraud is dismissed.
24
d.
Negligence/Gross Negligence Claims
Synovus Bank next moves to dismiss the Defendant’s counterclaims for
negligence and gross negligence, arguing that the Bank had no duty to the
Defendant beyond those set forth in the loan agreement. [Doc. 61 at 15].
“To state a claim for common law negligence, a plaintiff must allege: (1)
a legal duty; (2) a breach thereof; and (3) injury proximately caused by the
breach.” Stein v. Asheville City Bd. of Educ., 360 N.C. 321, 328, 626 S.E.2d
263, 267 (2006). “An act or conduct rises to the level of gross negligence
when the act is done purposely and with knowledge that such act is a breach
of duty to others, i.e., a conscious disregard of the safety of others.” Yancey
v. Lea, 354 N.C. 48, 53, 550 S.E.2d 155, 158 (2001). When a claim for
negligence or gross negligence has been asserted, the Court must first
determine, as a matter of law, whether the defendant owed a duty of care to
the plaintiff. “If no duty exists, there logically can be neither breach of duty nor
liability.” Harris v. Daimler Chrysler Corp., 180 N.C. App. 551, 555, 638
S.E.2d 260, 265 (2006).
In the present case, the Defendant asserts counterclaims for negligence
and gross negligence against the Bank, arguing that a duty of care arose
between the Bank and the Defendant: (1) as a result of the “investment advice
25
and additional services” offered; (2) as a result of its relationship with the
Developer and its “intimate knowledge” of Seven Falls; and (3) as a result of
the “customer covenant” made by the Bank, pledging to treat every customer
“with the highest levels of sincerity, fairness, courtesy, respect and gratitude”
and to provide “the finest personal service and products” to each customer.
[Counterclaim, Doc. 53 at ¶ 53]. None of these allegations, however, are
sufficient to establish a duty of care beyond those duties set forth in the
parties’ loan agreement. The Defendant offers no specific factual support for
his conclusory allegation that the Bank provided him “investment advice and
additional services” which gave rise to such a duty. Further, the Defendant’s
allegation that the Bank had some duty to oversee the development of Seven
Falls on his behalf is without merit. See Camp v. Leonard, 133 N.C. App. 554,
560, 515 S.E.2d 909, 913 (1999) (“a lender is only obligated to perform those
duties expressly provided for in the loan agreement to which it is a party”).
Finally, the Defendant offers no legal authority to support his contention
that the Bank’s “customer covenant”6 created a duty of care on the part of the
Bank beyond those duties created by the parties’ loan agreement. The Court
6
In another section of his brief, the Defendant argues that this “customer
covenant” was included in some unspecified document that was provided to him along
with the Note. [Doc. 63 at 19].
26
declines to hold that the Bank had a duty of care arising from what appears
to be, at most, an aspirational pledge of quality customer service that was not
even included in the parties’ contract.
In short, the Defendant has offered no legal or factual basis on which
the Court could impose any duty on the Bank beyond those duties expressly
provided for in the parties’ loan agreement. The Defendant’s counterclaims
for negligence and gross negligence are therefore dismissed.
e.
Breach of Contract Claim
In his counterclaim for breach of contract, the Defendant alleges that the
Bank is vicariously liable by virtue of its joint venture with the Developer for
the Developer’s breach of the Purchase Agreement in failing to build
infrastructure and amenities as purportedly promised. [Counterclaim, Doc. 53
at ¶¶ 63-64, 67]. Because the Court has concluded that the Defendant has
failed to allege a plausible claim for joint venture, this aspect of the
Defendant’s breach of contract claim must fail.
The Defendant further asserts that the Bank is liable for breaching the
Note by failing to adhere to the “customer covenant” discussed above. [Id. at
¶ 61]. While conceding that this “customer covenant” was not part of the
Note, the Defendant nevertheless argues that “the document that included this
27
language was provided to Defendants [sic] along with the note.” [Doc. 63 at
19]. The Defendant, however, has not produced a copy of the separate
document or even alleged what the document was.
Furthermore, the
Defendant has not alleged any facts to support the conclusory allegation that
the parties intended to incorporate the terms of that document into the Note.
The Note itself makes no reference to the “customer covenant” contained in
this separate document. See Stevens Aviation, Inc. v. DynCorp Int’l LLC, 394
S.C. 300, 307-08, 715 S.E.2d 655, 659 (S.C. Ct. App. 2011) (“the contract
must explicitly, or at least precisely, identify the written material being
incorporated and must clearly communicate that the purpose of the reference
is to incorporate the referenced material into the contract”) (citation and
internal quotation marks omitted). Even if this unidentified document were
incorporated into the parties’ agreement, the Defendant cannot claim a breach
of a contract based on a general statement of aspirational policy. See Scott
v. Merck & Co., No. L-09-3271, 2010 WL 4941994, at *6 (D. Md. Nov. 30,
2010) (“[g]eneral or aspirational policies not susceptible of precise application
in individual cases . . . cannot constitute binding contractual terms”). For all
of these reasons, the Defendant’s counterclaim for breach of contract is
dismissed.
28
f.
Tortious Interference with Contract Claim
In his counterclaim for tortious interference with contract, the Defendant
asserts that the Bank is liable for tortiously interfering with his Purchase
Agreement with the Developer, specifically by “failing to properly fund [the]
Developer and thereby causing [the] Developer not to perform” its contractual
obligation to the Defendant to complete the development’s infrastructure and
amenities. [Counterclaim, Doc. 53 at ¶¶ 75-78]. Notably absent from the
Defendant’s allegations, however, is any plausible claim that the Bank
intentionally acted to procure the breach of the Defendant’s contract with the
Developer. See Bassett Seamless Guttering, Inc. v. GutterGuard, LLC, 501
F.Supp.2d 738, 742 (M.D.N.C. 2007) (holding that plaintiff asserting claim for
tortious interference must allege intentional procurement of breach by third
party).
The Defendant further claims, “upon information and belief,” that the
Bank undertook this course of action so it could obtain TARP funds. [Id. at ¶
78].
In order to state a claim for tortious interference, however, the
Defendant must allege that the Bank’s conduct was unjustified. As the North
Carolina Court of Appeals has explained:
A person acts without justification in inducing the
breach of contract . . . if he has no sufficient lawful
29
reason for his conduct. A plaintiff must show that the
defendant was acting not in the legitimate exercise of
his own right, but with a design to injure the plaintiff or
gain some advantage at his expense.
MLC Auto., LLC v. Town of S. Pines, 702 S.E.2d 68, 79 (N.C. Ct. App. 2010)
(internal citations and quotation marks omitted), disc. rev. denied, 365 N.C.
211, 710 S.E.2d 23 (2011). Here, the factual allegations set forth in support
of the Defendant’s Amended Counterclaims fail to establish that the Bank’s
action was unjustified or otherwise improper such that it would support a claim
for tortious interference. For these reasons, the Defendant’s counterclaim for
tortious interference with contract is dismissed.
g.
Violation of Anti-Deficiency Statute Claim
The Defendant asserts that the Bank violated North Carolina’s AntiDeficiency Judgment Statute, N.C. Gen. Stat. § 45-21.38. [Counterclaim,
Doc. 53 at ¶¶ 79-82].
The Anti-Deficiency Judgment Statute, however,
applies only to purchase money mortgage transactions wherein the seller of
the property finances the buyer’s purchase. It does not apply to transactions,
such as the one at bar, in which a buyer receives financing from a third-party
lender. See Childers v. Parker’s, Inc., 274 N.C. 256, 263, 162 S.E.2d 481,
485-86 (1968).
30
The Defendant argues that the Anti-Deficiency Judgment Statute
nevertheless applies in this case because the Bank was a joint venturer with
the seller of the property (i.e., the Developer).
[Doc. 63 at 22]. For the
reasons already discussed, the Court concludes that the Defendant has not
alleged a plausible claim asserting a joint venture between these parties, and
thus, his argument that N.C. Gen. Stat. § 45-21.38 somehow “constructively”
applies to the present transaction is without merit.
The Defendant’s
counterclaim for violation of the North Carolina Anti-Deficiency Judgment
Statute is therefore dismissed.
h.
Unfair and Deceptive Trade Practices Claim
In his Second Amended Counterclaim/Third Party Complaint, the
Defendant alleges that the Bank’s “actions and false representations” in
connection with the sale of lots to consumers, including the Defendant,
constitute unfair or deceptive trade practices in violation of the South Carolina
Unfair Trade Practices Act, S.C. Ann. Code § 39-5-10, et seq. (“SCUTPA”).
[Counterclaim, Doc. 53 at ¶¶ 47-51]. Having determined that North Carolina
law governs any claim that the Defendant may have for the Bank’s unfair and
deceptive trade practices, the Defendant’s claim under SCUTPA must be
dismissed.
31
The Defendant contends that his claim is nevertheless viable as a
Chapter 75 claim under North Carolina law. [Doc. 63 at 14]. In order to
establish a violation of Chapter 75, however, a party must show: “(1) an unfair
or deceptive act or practice, (2) in or affecting commerce, and (3) which
proximately caused injury” to that party. Gray v. N.C. Ins. Underwriting Ass’n,
352 N.C. 61, 68, 529 S.E.2d 676, 681 (2000).
Here, the Defendant’s
Counterclaim/Third Party Complaint fails to specify what acts of the Bank he
contends constituted unlawful trade practices. While the Defendant asserts
generally that the Bank engaged in unfair or deceptive acts relative to the
“sale of lots to consumers” [Counterclaim, Doc. 53 at ¶ 49], the Defendant’s
allegations fail to demonstrate that the Bank sold the lot to the Defendant or
how his decision to purchase the lot from the Developer was caused by the
Bank’s conduct.
The Defendant further alleges that the Bank’s “false
representations” constituted unfair or deceptive trade practices. [Id. at ¶ 50].
The Defendant fails to allege, however, any specific misrepresentations that
were made to him or how he suffered any actual damages in reliance on
these alleged misrepresentations.
In his opposition to the Motion to Dismiss, the Defendant cites three
categories of conduct described in the Second Amended Counterclaim/Third
32
Party Complaint that constitute unfair or deceptive trade practices by the
Bank: (1) the Bank’s withdrawal of funding for the project without notice after
previously showing its support for the development; (2) the Bank’s engaging
in “improper internal procedures”; and (3) the Bank’s making of “false
representations” that induced the Defendant to buy his lot. [Doc. 63 at 14-16].
These categories of conduct, however, fail to describe any unfair or deceptive
acts. The Bank’s decision to cancel the funding for the development was not
unfair or deceptive as to the Defendant.
As stated in the Purchase
Agreement, it was the obligation of the Developer to build the development,
not the Bank.
The Defendant makes only general, conclusory allegations regarding
“improper internal procedures” and “false representations” and utterly fails to
identify any specific misrepresentations made to him or any other specific
conduct which he contends constitutes an unlawful trade practice. Because
it is supported by only conclusory allegations, the Defendant’s claim for unfair
and deceptive trade practices must be dismissed.
i.
Equitable Estoppel Claim
The Defendant asserts that the Bank “should be equitably estopped”
from enforcing the Note. [Counterclaim, Doc. 53 at ¶ 74]. According to the
33
Defendant, the Bank “made misleading representations to and concealed
material facts from [him] in order to entice [him] to enter into both the contract
to purchase real property in Seven Falls and the promissory note at issue in
this litigation.” [Id. at ¶ 69].
The Defendant has not alleged a basis for estoppel because he has
failed to allege with any specificity the false representations or concealment
of material fact that the Bank purportedly made, or to describe how he
reasonably relied on them to his detriment. See Deal, 114 N.C. App. at 645,
442 S.E.2d at 362. As such, the Defendant’s counterclaim for equitable
estoppel is dismissed.
B.
Synovus Financial Corp.’s Motion to Dismiss
Third Party Defendant Synovus Financial Corp. moves to dismiss the
claims as stated in the Defendant’s Second Amended Third Party Complaint
on the ground that such claims fail to state a claim upon which relief may be
granted against Synovus Financial Corp. [Doc. 58].
The Defendant asserts claims throughout his Counterclaims and Third
Party Complaint against Synovus Bank, NBSC, and Synovus Financial Corp.
without differentiating between these corporate entities. Thus, to the extent
that the Court has concluded that the counterclaims against Synovus Bank
34
should be dismissed, the Court likewise concludes that the third party claims
against Synovus Financial Corp. should be dismissed as well.
Additionally, however, the Court concludes that the Defendant has failed
to state any plausible basis for imposing liability on Synovus Financial Corp.
In the Second Amended Counterclaim/Third Party Complaint, the Defendant
alleges that Synovus Financial Corp. is just one of “many names” under which
the Plaintiff Synovus Bank does business. [See Counterclaim, Doc. 53 at ¶
4]. Notably, the Defendant does not allege any specific actions by Synovus
Financial Corp. in relation to the Defendant or any of his claims beyond those
actions allegedly committed by Synovus Bank/NBSC.
In opposition to the Motion to Dismiss, the Defendant argues that
Synovus Financial Corp. was added as a party to this action because “it is
unclear who now owns NBSC” and thus “it is difficult for Defendants [sic] to
discern the proper party.” [Doc. 62 at 2]. The Defendant’s Second Amended
Counterclaim/Third Party Complaint, however, does not allege any legal or
factual basis to hold Synovus Financial Corp. derivatively liable for the alleged
actions of NBSC. To the extent that the Defendant attempts to assert liability
on the basis of Synovus Financial Corp.’s possible ownership of NBSC, the
Defendant fails
to
make
any allegation
35
in
the
Second
Amended
Counterclaim/Third Party Complaint regarding Synovus Financial Corp.’s
alleged ownership. Even if such allegation had been asserted, however, it
would not be sufficient to state a claim against Synovus Financial Corp., as
mere ownership is not sufficient to render a parent corporation liable for the
acts of its subsidiary. See Fischer Inv. Corp., Inc. v. Catawba Dev. Corp., 200
N.C. App. 644, 650, 689 S.E.2d 143, 147 (2009) (holding that to pierce
corporate veil under the instrumentality rule requires showing, among other
things, of “complete domination” of corporate entity such that the entity had
“no separate mind, will, or existence of its own”) (citation omitted). Having
failed to allege any plausible basis for imposing liability on Synovus Financial
Corp. for the conduct of NBSC, the Defendant’s third party claims against
Synovus Financial Corp. are dismissed.
ORDER
IT IS, THEREFORE, ORDERED that the Third Party Defendant
Synovus Financial Corp.’s Motion to Dismiss Defendant’s Second Amended
Third Party Claims [Doc. 58] is GRANTED, and the Defendant’s Second
Amended Third Party Claims against Synovus Financial Corp. are hereby
DISMISSED WITH PREJUDICE.
36
IT IS FURTHER ORDERED that the Plaintiff Synovus Bank’s Motion to
Dismiss the Defendant’s Second Amended Counterclaims [Doc. 60] is
GRANTED IN PART and DENIED IN PART. Specifically, the Bank’s Motion
to Dismiss the Defendant’s ILSA claim is DENIED. In all other respects, the
Bank’s Motion to Dismiss is GRANTED, and all of the Defendant’s
Counterclaims, with the exception of his ILSA claim, are DISMISSED WITH
PREJUDICE.
IT IS FURTHER ORDERED that the parties shall conduct an initial
attorneys’ conference within fourteen (14) days of the entry of this Order and
shall file a Certificate of Initial Attorneys’ Conference within seven (7) days
thereafter.
IT IS SO ORDERED.
Signed: August 15, 2012
37
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