Synovus Bank v. Okay Properties, LLC et al

Filing 17

ORDER denying as moot 7 Plaintiff Synovus Bank's Motion to Dismiss Counterclaims and 8 Third Party Defendant Synovus Financial's Motion to Dismiss Third Party Claims; granting 11 Plaintiff Synovus Bank's M otion to Dismiss Amended Counterclaims; and 12 Third Party Defendant SynovusFinancial Corp.'s Motion to Dismiss Amended Third Party Claims. (SEE ORDER FOR FURTHER DETAILS). Signed by District Judge Martin Reidinger on 08/27/2012. (thh)

THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:11cv330

SYNOVUS BANK,
Plaintiff,
vs.
OKAY PROPERTIES, LLC and
WILLIAM O’DONNELL, JR.,
Defendants.

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MEMORANDUM OF
DECISION AND ORDER

THIS MATTER is before the Court on the Synovus Bank’s Motion to
Dismiss Counterclaims [Doc. 7]; Synovus Financial Corp.’s Motion to Dismiss
Third Party Claims [Doc. 8]; Synovus Bank’s Motion to Dismiss Amended
Counterclaims [Doc. 11] and Synovus Financial Corp.’s Motion to Dismiss
Amended Third Party Claims [Doc. 12].
I.

PROCEDURAL BACKGROUND
In August 2007, the Defendant Okay Properties, LLC (“Okay

Properties”) borrowed money from the National Bank of South Carolina
(“NBSC”) to finance the purchase of an undeveloped lot in a residential
development known as the Seven Falls Golf & River Club (“Seven Falls”) in

Henderson County, North Carolina. The Defendant William O’Donnell, Jr.
(“O’Donnell”) executed a guaranty of that loan. On December 8, 2011, after
the Defendants failed to repay the loan, the Plaintiff Synovus Bank -- the
successor-in-interest through name change and merger with NBSC
(hereinafter referred to as the “Bank”) -- initiated this action. [Doc. 1].
The Defendants filed their original Answer, Affirmative Defenses, and
Counterclaims (“Answer”) on March 16, 2012. [Doc. 6]. The Answer names
Synovus Financial Corp. (“Synovus Financial”), as well as Seven Falls, LLC
and Keith Vinson (collectively, the “Developer”), as additional “defendants” to
the action and purports to assert “counterclaims” against them. The Answer,
however, does not identify these newly added parties as third party
defendants, nor is a third party complaint clearly asserted anywhere in the
pleading. [Id.]. Despite these deficiencies, Synovus Financial filed a “Motion
to Dismiss the Defendants’ Third Party Claims” on April 3, 2012. [Doc. 8]. On
that same date, the Bank filed a Motion to Dismiss the Defendants’
Counterclaims. [Doc. 7].
Within the time for responding to these motions, the Defendants filed an
Amended Answer, Affirmative Defenses, and Counterclaims (“Amended

2

Answer”) on April 20, 2012. [Doc. 10].1 In light of this amended pleading, the
Motions to Dismiss were rendered moot. See Fed. R. Civ. P. 15(a)(1)(B).
Thereafter, on May 4, 2012, the Bank and Synovus Financial renewed
their motions to dismiss with respect to the Defendants’ amended pleading.
[Docs. 11, 12]. It is these motions that the Court shall now address.
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.

1

This amended pleading again names Synovus Financial Corp., Seven Falls,
LLC, and Keith Vinson as parties, while also adding Seven Falls Golf and River Club,
LLC. Like the Defendant’s original pleading, however, the Amended Answer fails to
identify these newly added “defendants” as third-party defendants, nor is a third party
complaint clearly asserted anywhere in the amended pleading.
3

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
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.
4

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
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 Amended Answer and Counterclaim as

true, the following is a summary of the relevant facts.
The Seven Falls Development is a subdivision located in Henderson
County, North Carolina that originally consisted of approximately 1,600 acres
of undeveloped land. [Am. Answer, Doc. 10 at ¶ 39]. Sometime around 2006,
the Bank loaned the Developer funds to purchase the land that would become
the Seven Falls Development. [Id. at ¶ 41]. In exchange, the Bank received
special rights to act as the primary or exclusive lender for investors who
wished to finance their lot purchases. [Id.].
Okay Properties is a limited liability company organized under the laws
of the State of Delaware and conducting business in North Carolina.
[Complaint, Doc. 1 at ¶ 2; Am. Answer, Doc. 10 at ¶ 2]. Okay Properties has
two members: Defendant O’Donnell, a resident of Illinois, and non-party Kent

5

E. Smith, a resident of North Carolina. [Complaint, Doc. 1 at ¶ 3; Am. Answer,
Doc. 10 at ¶ 3].
In 2007, Okay Properties entered into a contract with the Developer to
purchase a lot at Seven Falls for $375,000. [Am. Answer, Doc. 10 at ¶ 59].
On August 9, 2007, Okay Properties executed a promissory note (“Note”) in
favor of Bank in the principal amount of $375,000, secured by a Deed of Trust
on the property. [Note, Doc. 1-2; Deed of Trust, Doc. 1-3].2 At that time,
O’Donnell executed a guaranty agreement to the Bank in which he individually
promised to pay the Note if Okay Properties failed to do so. [Guaranty, Doc.
1-4]. On September 11, 2009, Okay Properties executed a promissory note
renewing its obligation under the Note. [Renewal Note, Doc. 1-5]. At that
time, O’Donnell renewed his guaranty agreement. [Renewal Guaranty, Doc.
1-6].
The Defendants allege that the Bank entered into a joint venture with the
Developer to market and sell the Seven Falls Development, which included
nearly $90,000,000 in development loans, participation by the Bank in

2

The exhibits submitted with the Bank’s Motion are “integral to and explicitly
relied on in” the Defendant’s Answer 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.
6

marketing activities, the promotion of the Bank as the primary or preferred
lender for lot purchase loans, and other similar conduct. [Id. at ¶ 52].
The Defendants allege that at the time that the promissory notes and
guaranties were executed, they were advised by representatives of the Bank
and Seven Falls that given the special financing options made available by the
Bank, “this was a short term investment that was guaranteed to outperform
the market given the prices being obtained for lots, the improvements that
were being constructed, the banking of [the Bank] to complete the
improvements, and the anticipated future re-sale prices.” [Id. at ¶ 59].
The Defendants further assert that the appraisals obtained by the Bank
and the Developer “were intentionally and selectively done to create artificially
inflated values in order to substantially increase the comparable lot sale prices
for future sales in the Seven Falls Development.” [Id. at ¶ 62]. They allege
that these inflated sales prices “generated windfall cash flows” for the Bank
and the Developer. [Id.]. They further allege that the Bank extended these
“excessively large land loans” in order to substantially increase its lending
volume, and the resulting fees and interest, so as to increase its short-term
profits. By focusing its sales and lending efforts on “high-worth individuals”
and obtaining guaranties related to the property sales, the Defendants allege

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that the Bank thereby ensured a “fall-back scenario” where it would incur no
risk from its involvement in the lot value inflation scheme. [Id.].
Despite receiving millions of dollars from purchasers, the Developer
made no material improvements to Seven Falls. [Id. at ¶ 53]. Due to the lack
of roads and other infrastructure, lot purchasers could not access their
properties or receive construction permits to build residences. [Id. at ¶ 58].
Vinson is currently facing numerous state and federal criminal charges for his
conduct related to the Seven Falls Development, and many of his affiliated
companies have filed for bankruptcy. [Id. at ¶¶ 53, 54]. Based upon the
complete absence of material improvement to the Seven Falls Development,
the criminal charges pending against Vinson, and the “outrageous amount of
funds which have essentially disappeared into the hands of the [Developer]
and [the Bank],” the Defendants allege that the Developer never intended to
construct any of the improvements, and that the Bank “actually or
constructively ratified this intent with its complicit actions in supporting and
enabling the Seven Falls Defendants’ actions.” [Id. at ¶ 55]. Specifically, the
Defendants allege that the Bank ratified and affirmed the Developer’s conduct
by “continuing to encourage the sale of lots by the [Developer] and renew lot
purchaser’s loans in 2008 and 2009 based on outdated appraisals which the

8

bank knew or should have known were impossible and fraudulent....” [Id. at
¶ 56].
The Defendants contend that the Bank contributed to the failure of the
Seven Falls Development by failing to comply with its own internal lending
standards in: (1) failing to undertake any reasonable due diligence in
investigating Vinson’s background and experience; (2) failing to properly
inspect and oversee the Seven Falls construction efforts; and (3) directing its
lending representatives to press potential purchasers to obtain 100%
financing loans and to emphasize the soundness of an investment in Seven
Falls. [Id. at ¶ 64].
The Defendants further allege that as the lack of construction and
imminent failure of Seven Falls became clear to the Bank in 2008 and 2009,
it began offering refinancing loans to some purchasers, including the
Defendants.

The Defendants contend that in the course of refinancing

negotiations, the Bank failed to inform them that it had cancelled and
withdrawn loans to the Seven Falls Development, instead assuring the
Defendants that “development at Seven Falls . . . would be completed, even
if [the Bank] had to hire a new developer to complete construction and
amenities....” [Id. at ¶ 65].

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IV.

ANALYSIS
A.

The Bank’s Motion to Dismiss
1.

The

Plausibility of Defendants’ Counterclaims

Bank first moves to

dismiss

the

Defendants’ 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 Defendants’ 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. 11-1 at 4-10].
The Court recently addressed a similar argument in Synovus Bank v.
Coleman, No. 1:11cv66 (W.D.N.C. Aug. 15, 2012), in which the Court stated
as follows:
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 W L 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
10

plaintiffs had failed to allege specific facts to support
their claims and had failed to make plausible
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 under-collateralized 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.
Coleman, No. 1:11cv66, slip op. at 8-9. This Court recently explained in
another 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 Defendants, 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

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long term financial viability in order to increase short
term profits or revenue.
Synovus Bank v. Karp, No. 1:10cv172, slip op. at 19-20 (W.D.N.C. Aug. 15,
2012) (internal citation, quotation marks, and footnote omitted). The Court
finds the rationale of both Coleman and Karp to be equally applicable to the
present case.

Thus, construing the well-pled factual allegations of the

Counterclaims in the light most favorable to the Defendants, the Court
concludes that the Defendants’ theory of liability is not so implausible as to
warrant dismissal of their claims. For these reasons, the Bank’s Motion to
Dismiss the Defendants’ Amended Counterclaims as implausible is denied.
2.

Federal Claim under ILSA

The Bank moves to dismiss the Defendants’ counterclaim for violation
of the Interstate Land Sales Full Disclosure Act (“ILSA”). [Doc. 11-1 at 16-17].
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,
12

prior to purchase, of facts which would enable a reasonably prudent individual
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).

13

In the present case, the factual allegations in the Amended
Counterclaims fail to support a claim that the Bank was so involved in the
marketing or sale of the Seven Falls Development that it went beyond its
function as a commercial bank that it could be considered a “developer” within
the meaning of the ILSA. While the Defendants allege that the Bank and the
Developer “engaged in joint marketing efforts,” their allegations at most
establish that the parties engaged in joint advertising of their respective
services (sales and financing) and that Bank representatives were present at
various Seven Falls marketing events. [Am. Answer, Doc. 10 at ¶¶ 44, 45].3
The Amended Counterclaims, however, contain no factual allegations
sufficient to support a finding that these activities constituted the type of
involvement by the Bank in the sale, offer to sell, or advertising for sale of
property such that the Bank would fall within the purview of the ILSA.
In sum, the allegations in the Amended Counterclaims are insufficient
to demonstrate that the Bank shed its role as an ordinary lending institution
and actively participated in the marketing or sale of the lots at Seven Falls

3

In evaluating the sufficiency of the Defendants’ allegations made in support of
this claim, the Court disregards all of the conclusory allegations made by the
Defendants, such as the allegations that the Bank’s “role in these marketing and sales
efforts far exceeded that of an arm’s length financing institution” and that the Bank “was
acting as a ‘Developer’ under the [ILSA].” [Am. Answer, Doc. 10 at ¶ 46].
14

such that liability could be imposed pursuant to the ILSA. Accordingly, the
Court will grant the Bank’s Motion to Dismiss the Defendants’ ILSA claim.
3.

State Law Claims
a.

Joint Venture Theory

The Bank argues that, to the extent that the Defendants’ Counterclaims
rely upon a theory of a joint venture between the Bank and the Developer,
such claims are not supported by well-pled factual allegations and thus fail as
a matter of law. [Doc. 11-1 at 10-12].
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
Defendants’ 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 Defendants’ well-pleaded factual allegations establish, at most,
that the relationship between the Bank and the Developer was that of a lender
and borrower.

[See, e.g., Am. Answer, Doc. 10 at ¶ 52(a) (loans to

15

Developer) and ¶ 52(e) (joint promotion of the Bank 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 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 allegation that the Bank and Developer shared
profits is supported only by conclusory allegations. [Id. at ¶ 52(c) (alleging
“[u]pon information and belief” that NBSC received more than $3,000,000 in
proceeds from lot sales in the development”)]. In any event, the fact that the
Bank may have received some kind of fee 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 Defendants also fail to make adequate factual allegations to support
a finding of an equal right of control between the parties. The Defendants

16

specifically fail to make any plausible allegation that the Developer had any
right to exercise control over the actions of the Bank.

The Defendants’

conclusory allegation that the Developer “directed the actions of [the Bank] via
inducements of lavish gifts and vacations, as well as promises of
extraordinary loan volume for [the Bank] and its incumbent fees and interest”
[Id. at ¶ 50] is not sufficient.

Further, while the Defendants allege that the

Bank exerted financial control over the Development [see Am. Answer, Doc.
10 at ¶¶ 51, 52(d)], such allegations, without more, are 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).
For all of these reasons, the Court concludes that to the extent that any
of the Defendants’ counterclaims rest on a theory of a joint venture between
the Bank and the Developer, such counterclaims must fail.
b.

Claim for Rescission of Conveyance

The Defendants contend that they are entitled to rescission of the
purchase and transfer of the Seven Falls lot, as their assent to the purchase

17

and transfer of the property was induced by a fraudulent or material
misrepresentation by agents of the Developer and of the Bank. [Am. Answer,
Doc. 10 at ¶¶ 67-71].
At the outset, the Court notes that the Defendants’ characterization of
their first two causes of action as “claims for rescission” is inaccurate.
Rescission itself is not a cause of action; it is a remedy to be sought where a
party alleges to have been fraudulently induced into entering into a contract.
See, e.g., Collier v. Bryant, 719 S.E.2d 70, 82 (N.C. Ct. App. 2011) (noting
that party claiming fraud must elect between remedy of repudiating contract
and seeking rescission or remedy of affirming contract and seeking damages).
In any event, to the extent that the Defendants attempt to assert a claim
against the Bank for rescission of the conveyance of the subject property,
such claim must be dismissed. The Defendants do not allege that the Bank
was a party to the conveyance which the Defendants seek to rescind. To the
contrary, the Defendants allege that the Seven Falls lots were owned, and
subsequently sold, by the Developer. [See Am. Answer, Doc. 10 at ¶ 34
(alleging that “the substantial majority of the Seven Falls development was
owned by Seven Falls, LLC and Seven Falls Golf and River Club, LLC”); ¶ 56
(alleging that the Bank “encourage[d] the sale of lots by the Seven Falls

18

Defendants”)]. As such, the Defendants may assert this rescission “claim”
only against the Developer. Because the Defendants cannot seek, as against
the Bank, rescission of a purchase contract or deed to which the Bank was
not a party, the Defendants’ “claim” for rescission must be dismissed.
c.

Claims for Rescission of Promissory Note and for
Fraudulent Misrepresentation

The Defendants further contend that they are entitled to rescission of the
financing agreements executed by the Defendants and the Bank, as their
assent to

these

financing

agreements

was

induced

by fraudulent

misrepresentations of the Bank. [Am. Answer, Doc. 10 at ¶¶ 72-76]. In the
alternative, the Defendants seek damages arising from the Bank’s fraudulent
misrepresentations. [Id. at ¶¶ 93-97]. The Bank moves to dismiss both
claims, arguing that the grounds alleged by the Defendants are insufficient to
state claims as a matter of law.
As noted above, the Defendants’ “claim” for rescission is in fact a claim
for fraud for which the Defendants seek the remedy of rescission. Thus, in
order to seek rescission of the financing agreement, the Defendants must
state a plausible claim for fraud. In order to state a claim for fraud under
North Carolina law, a party must allege a false representation or concealment
of a material fact that: (1) was reasonably calculated to deceive; (2) was made
19

with the intent to deceive; (3) did in fact deceive the plaintiff; and (4) resulted
in damages to the party. Anderson v. Sara Lee Corp., 508 F.3d 181, 189 (4th
Cir. 2007). Additionally, the party must demonstrate any reliance on the false
representations was reasonable. See id.
Where a party’s allegations sound in fraud, the allegations must satisfy
the heightened pleading standards of Rule 9 of the Federal Rules of Civil
Procedure. Cozzarelli v. Inspire Pharmaceuticals Inc., 549 F.3d 618, 629 (4th
Cir. 2008). Rule 9(b) provides that when “alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person's mind may be
alleged generally.” Fed. R. Civ. P. 9(b). Rule 9 applies not only to claims
asserting common law fraud, but to all claims where the allegations have the
substance of fraud.

Cozzarelli, 549 F.3d at 629.

A claim is subject to

dismissal under Rule 12(b)(6) for failure to state a claim if it does not comply
with Rule 9(b). Harrison v. Westinghouse Savannah River Co., 176 F.3d 776,
783 n.5 (4th Cir.1999).
Here, a review of the Defendants’ Amended Counterclaims reveals that
the Defendants make broad and conclusory assertions of allegedly fraudulent
statements made “by [Bank] and Seven Falls representatives” without

20

identifying: the person who made each of the alleged fraudulent statements;
the recipient of each statement; or the time and place where each alleged
fraudulent statement occurred. These general, conclusory allegations are
insufficient to comport with the requirements of Rule 9(b). See Lasercomb
Am., Inc. v. Reynolds, 911 F.2d 970, 980 (4th Cir. 1990) (requiring complaint
to “specifically allege the time, place and nature of the fraud”). Thus, the
Court concludes that these counterclaims should be dismissed.
Even if the Defendants’ allegations were sufficient to withstand scrutiny
under Rule 9(b), such allegations fail to state a cognizable claim for relief. For
example, it is alleged that unidentified NBSC and Seven Falls representatives
advised the Defendants that the purchase of the Seven Falls lot “was a short
term investment that was guaranteed to outperform the market....”

[Am.

Answer, Doc. 10 at ¶ 59]. Such assertion, however, constitutes nothing more
than the expression of opinion. “A representation which is nothing more than
an opinion as to the value of property, absent something more, does not
constitute actionable fraud.” Hall v. T.L. Kemp Jewelry, Inc., 71 N.C. App.
101, 106, 322 S.E.2d 7, 11 (1984). And while North Carolina law recognizes
that “a statement purporting to be opinion may be the basis for fraud if, at the
time it is made, the maker of the statement holds an opinion contrary to the

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opinion he or she expresses, and the maker also intends to deceive the
listener,” Leftwich v. Gaines, 134 N.C. App. 502, 509-10, 521 S.E.2d 717,
723, disc. rev. denied, 351 N.C. 357, 541 S.E.2d 713 (1999), the Defendants
fail to make any plausible allegations that the maker of these statements held
such a contrary opinion and intended to deceive the Defendants by making
such statements.
The Defendants further allege that in the course of refinancing
negotiations, NBSC never informed the Defendants that a “curtailment” had
been required of the Developer or that NBSC had cancelled and withdrawn
loans to the Developer which could have been used to complete the Seven
Falls Development. [Am. Answer, Doc. 10 at ¶ 65]. The Defendants fail to
explain, however, how such information was material to their decision to
refinance their preexisting obligations to the Bank. Further, the Defendants
allege that “NBSC assured Okay Properties and other lot owners that
development at Seven Falls Defendants [sic] would be completed.” [Id.].
Such statements, however, are clearly based upon predictions of future
actions or outcomes and are therefore not actionable as fraud, absent some
plausible allegation that the speaker held an opinion to the contrary and made

22

such statements with the intent to deceive. See Leftwich, 134 N.C. App. at
508-10, 521 S.E.2d at 722-23.
Even if the Defendants had properly alleged a claim for fraud, they
would have to allege a sufficient factual basis to claim entitlement to
rescission of the contract. “As a general rule, a party is not allowed to rescind
where he is not in a position to put the other in statu quo by restoring the
consideration passed.” Opsahl v. Pinehurst, Inc., 81 N.C. App. 56, 65, 344
S.E.2d 68, 74 (1986) (quoting Bolich v. Ins. Co., 206 N.C. 144, 156, 173 S.E.
320, 327 (1934)). Here, the Defendants make no allegation that they are in
a position to repay the loan received from the Bank.4 The Defendants’ failure
to allege that they are in a position to return the consideration passed by the
Bank precludes the Defendants from seeking rescission of the parties’
contract.
For all of these reasons, the Defendants’ claims for rescission of the
parties’ financing agreement and/or for damages arising from the Bank’s
fraudulent misrepresentation are dismissed.

4

Presumably, if the Defendants were in a position to repay the loan, they would
not be in default.
23

d.

Claim for Breach of Duty of Good Faith and Fair
Dealing/Negligent Non-Disclosure

In their Fourth Claim for Relief, the Defendants assert a claim arising
from the Bank’s failure to disclose certain facts to the Defendants in the
course of extending and continuing the Bank’s financing of the Seven Falls lot.
[Am. Answer, Doc. 10 at ¶¶ 85-92]. Specifically, the Defendants allege that
the Bank failed to disclose material information regarding “the financial
condition of the Seven Falls Development, Vinson, and his related entities, as
well as the fraudulent inflation of land prices involved in the sale of the Seven
Falls Lot.” [Id. at ¶ 87]. The Bank seeks the dismissal of this counterclaim,
arguing (1) that the Defendants have failed to identify any contractual
provision which the Bank failed to perform in good faith and (2) that the Bank
had no duty to disclose the information alleged by the Defendants.
A bank owes a borrower only those duties that are specified in the loan
agreement. 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”); see also Angell v.
Kelly, 336 F.Supp.2d 540, 550-51 (M.D.N.C. 2004) (“North Carolina courts are
reluctant to impose extra-contractual fiduciary obligations even though parties
to an arms-length transaction may have placed confidence in one another.
24

It is also well-settled that a debtor-creditor relationship does not give rise to
a fiduciary duty.”) (citations omitted). The Defendants have not identified any
cases construing North Carolina law that recognize an extra-contractual duty
arises simply because misrepresentations are made before loan agreements
are executed.

At least one case in which prior representations were

apparently made, Branch Banking & Trust Company v. Thompson, did not
mention such a distinction. See 107 N.C. App. 53, 61, 418 S.E.2d 694, 699
(noting misrepresentation by BB&T officers prior to execution of loan
documents but concluding that “[t]he record does not reveal any facts
suggesting that the [defendants] reposed any sort of special confidence in
BB&T which would serve to give rise to a fiduciary relationship.”), disc. rev.
denied, 332 N.C. 482, 421 S.E.2d 350 (1992).
While acknowledging the general rule that a debtor-creditor relationship
does not give rise to a fiduciary relationship, the Defendants argue that North
Carolina courts have recognized in some instances that a creditor may owe
a duty of disclosure to a guarantor.

In support of this argument, the

Defendants cite Gant v. NCNB Nat’l Bank of N.C., 94 N.C. App. 198, 379
S.E.2d 865, disc. rev. denied, 325 N.C. 706, 388 S.E.2d 453 (1989). The
Gant case, however, relates to a lender’s obligation to disclose to a guarantor

25

material information regarding the borrower. Id. at 199-200, 379 S.E.2d at
868. Gant does not stand for the proposition that a lender is obligated to
disclose to a guarantor information regarding the status of the development
of the property securing the loan. The Defendants’ reliance on Gant and other
similar cases, therefore, is unavailing.
The Defendants have failed to identify any contractual provision which
the Bank failed to perform in good faith. Further, the Defendants’ allegations
do not support a finding of any type of special relationship between the Bank
and the Defendants beyond that of the typical lender-borrower relationship so
as to impose any extra-contractual duties upon the Bank. Accordingly, the
Defendants’ claim for the breach of duty of good faith and fair
dealing/negligent non-disclosure must be dismissed.
e.

Chapter 75 Claim

In their Sixth Claim for Relief, the Defendants assert that the Bank’s
“misconduct” constitutes unfair or deceptive acts or practices in or affecting
commerce, in violation of N.C. Gen. Stat. § 75-1.1, et al. (“Chapter 75”).
In order to establish a violation of Chapter 75, 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

26

Ass’n, 352 N.C. 61, 68, 529 S.E.2d 676, 681 (2000). Here, the Defendants’
Amended Answer and Counterclaim fails to specify what acts of the Bank they
contend constituted unlawful trade practices. While the Defendants assert
generally that the Bank “fail[ed] to comply with its own internal lending
standards” [Am. Answer, Doc. 10 at ¶ 64], the Defendants’ allegations fail to
demonstrate what such standards were or how the Bank deviated from those
alleged standards.

Further, while it is generally alleged throughout the

Amended Answer and Counterclaim that the Bank made false representations
to the Defendants, they have failed to allege with the requisite specificity what
misrepresentations that were made to them or how they suffered any actual
damages in reliance on these alleged misrepresentations.
Because it is supported by only conclusory allegations, the Defendants’
claim for unfair and deceptive trade practices must be dismissed.
B.

Synovus Financial’s Motion to Dismiss

Synovus Financial moves to dismiss the claims stated against it in the
Defendants’ Amended Answer and Counterclaim on the grounds that such
claims fail to state a claim upon which relief may be granted. [Doc. 12].
To the extent that the Court has concluded that the counterclaims
against Synovus Bank should be dismissed, the Court likewise concludes that

27

the claims against Synovus Financial should be dismissed as well.
Accordingly, Synovus Financial’s Motion to Dismiss is also granted.
C.

Defendants’ Request to Amend

On the last page of their responsive brief, the Defendants argue that
should it be determined that their allegations are insufficient to withstand the
Rule 12(b)(6) motions, the Court should not grant any dismissal with prejudice
but instead should permit the Defendants leave to amend their pleading.
[Doc. 13 at 19].
The Defendants’ request to amend is in violation of this Court’s Local
Civil Rule 7.1(C)(2),which requires all motions to be set forth as separately
filed pleadings and not included in responsive briefs. On this basis alone, the
Defendants’ request for leave is denied.
Even if the Court were to consider the Defendants’ request as a properly
filed motion, however, the Court would still deny the requested relief. First,
the Defendants do not offer any proposed amended pleading or specify in
what manner they could supplement their pleadings to withstand Rule 12(b)(6)
scrutiny. Second, the request to amend was made in a dilatory and improper
fashion. The Defendants had twenty-one days from the filing of the Bank’s

28

motion to dismiss to file amended counterclaims as of right.5 Despite having
the unilateral right to do so, the Defendants failed to amend their
Counterclaims within the time required, thus requiring the Court to rule on the
Motion to Dismiss. By seeking leave to amend only in the event that the Court
determines that their claims cannot pass muster under Rule 12(b)(6), the
Defendants’ counsel essentially asks the Court to do his job for him by
providing an advisory ruling regarding the sufficiency of the Defendants’
pleading. Counsel’s request not only misapprehends the purpose of a Rule
12(b)(6)motion, it fundamentally misconstrues the role of this Court.
For all of these reasons, the Defendants’ request for leave to amend
their pleading is denied.
D.
As

Show Cause Regarding the Seven Falls Defendants
noted

previously,

the

Defendants’

Amended

Answer

and

Counterclaim also names Seven Falls, LLC, Seven Falls Golf and River Club,
LLC, and Keith Vinson as additional “defendants” to the action but fails to
identify these newly added parties as third-party defendants. In fact, no third

5

A party may amend its own pleading once as a matter of course within twentyone days after service of a responsive pleading or twenty-one days after service of a
motion under Rule 12(b), (e), or (f), whichever is earlier. Fed. R. Civ. P. 15(a)(1)(B). In
all other cases, a party may amend only with the consent of the opposing party or with
leave of Court. Fed. R. Civ. P. 15(a)(2).
29

party complaint is clearly asserted anywhere in the Defendants’ pleading.6
In light of these pleading deficiencies, the Defendants are directed to show
cause in writing why Seven Falls, LLC, Seven Falls Golf and River Club, LLC,
and Keith Vinson should not be dismissed from this action.

ORDER
IT IS, THEREFORE, ORDERED that the Plaintiff Synovus Bank’s
Motion to Dismiss Counterclaims [Doc. 7] and Third Party Defendant Synovus
Financial’s Motion to Dismiss Third Party Claims [Doc. 8] are DENIED AS
MOOT in light of the Defendants’ Amended Answer.
IT IS FURTHER ORDERED that the Plaintiff Synovus Bank’s Motion to
Dismiss Amended Counterclaims [Doc. 11] is GRANTED, and the
counterclaims asserted against Synovus Bank are hereby DISMISSED WITH
PREJUDICE.
IT IS FURTHER ORDERED that the Third Party Defendant Synovus
Financial Corp.’s Motion to Dismiss Amended Third Party Claims [Doc. 12] is

6

Because the Defendants did not clearly file a third party complaint or identify any
third parties in their pleading, the Clerk’s Office has declined to issue summonses, and
thus these parties have not been served.
30

GRANTED, and all third party claims asserted against Synovus Financial
Corp. are hereby DISMISSED WITH PREJUDICE.
IT IS FURTHER ORDERED that the Defendants’ request for leave to
amend their pleading is DENIED.
IT IS FURTHER ORDERED that the Defendants shall show good cause
in writing within fourteen (14) days of service of this Order why Seven Falls,
LLC, Seven Falls Golf and River Club, LLC, and Keith Vinson should not be
dismissed from this action.
IT IS FURTHER ORDERED that failure of the Defendants to respond in
writing within fourteen (14) days shall result in a dismissal without prejudice
of the Defendants’ claims against Seven Falls, LLC, Seven Falls Golf and
River Club, LLC, and Keith Vinson.
IT IS SO ORDERED.
Signed: August 27, 2012

31