Tort/Negligence – Banks & Banking – Real Property – Mortgages – Note & Guaranty — Breach of Fiduciary Duty Claim

Wells Fargo Bank, N.A. v. VanDorn (Lawyers Weekly No. 12-15-0096, 8 pp.) (James L. Gale, J.) 2012 NCBC 6

Holding: The plaintiff bank seeks to collect on a note and guaranties executed by defendants. In their counterclaim, defendants allege nothing more than an ordinary — albeit longstanding — lender-borrower relationship; defendants have failed to allege a fiduciary relationship with the bank.

The bank’s motion to dismiss defendants’ counterclaims is granted.

Defendants contend that, because of their longstanding relationship with the bank, the bank should have determined their ability to repay a contemplated loan and warned them of the risks inherent in their intended real estate investment.

However, the bank played no role in selecting the lot or in defendants’ decision to buy it. The bank first became involved when defendant Brian Cook approached the bank to secure financing.

The bank was a preferred lender for the Lauralmor development and was familiar with the representations being made by the developer in connection with the sale of lots.

In an ordinary lender-borrower relationship, the lender does not owe any duty to its borrower beyond the terms of the loan agreement. Defendants contend, however, that the lending relationship here was transformed by virtue of Cook’s status as a customer of the bank’s Wealth Management Division and the alleged domination and influence exerted by the bank in connection with the financing of the Lauralmor lot.

Defendants’ conclusory allegations do not allege facts adequate to establish the domination and influence over the lot transaction required to establish a fiduciary relationship. Defendants’ allegations indicate that the bank became involved in the lot transaction only after defendants had located the lot, formed the intent to purchase the lot, formed defendant Brimark, LLC to facilitate the purchase, and approached the bank about financing the transaction.

While defendants state the conclusion that they relied on the bank in connection with the lot transaction, in actuality, defendants’ allegations do no more than describe the typical lender-borrower relationship from which no fiduciary relationship arises.

There is no basis to impose on the lender the duty to assess the investment risk defendants elected to undertake in purchasing the resort lot.

Defendants also fail to state a claim for negligence.

Defendants have not alleged any particularized facts that would justify imposing liability on the lender for an improper appraisal. They do not allege that they ordered the appraisal, spoke to the bank’s selected appraiser, saw the appraisal, or participated in the appraisal process in any way. Generally, a lender’s inspection of the premises to be mortgaged is made only to determine whether the property has sufficient value to secure the loan, and is for the benefit of the lender only.

Defendants have likewise failed to demonstrate any duty owed by a lender to assure the borrower’s understanding of the full legal effect of loan and guarantee documents which the borrower had a full opportunity to review before executing.

This is yet another case where investors in resort development property have suffered substantial losses following the economic downturn. There is, however, no demonstrable basis here for shifting that loss to the lender.

Motion granted.