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Contract – Duty of Good Faith & Fair Dealing – Banks & Banking – Promissory Note – Real Property

Diamond Falls Estates, LLC v. Nantahala Bank & Trust Co. (Lawyers Weekly No. 15-04-0876, 55 pp.) (Martin Reidinger, J.) 2:14-cv-00007; W.D.N.C.

Holding: Assuming the defendant-bank’s loan officer told plaintiff Shirley Buafo, “If you get Steve Gravett to develop the land, I will finance it for you,” this would be insufficient to establish that the hiring of Gravett was, as plaintiffs argue, a “mandatory condition” of the loan. Plaintiffs have failed to make out a prima facie case that the bank breached its duty of good faith and fair dealing.

The bank’s motion for summary judgment is granted, both on plaintiffs’ claims against the bank and on the bank’s counterclaims against plaintiffs.

Even if the bank had conditioned the loan on plaintiffs hiring Gravett, plaintiffs have not shown that Gravett did anything wrong or caused injury to plaintiffs.

While plaintiffs assert that the bank breached its duty of good faith and fair dealing by approving draw requests that were improper, it is undisputed that the bank funded the draws at the request of plaintiff Diamond Falls Estates, LLC’s (DFE’s) manager and agent, Gravett, and that such requests were authorized by plaintiffs. Therefore, plaintiffs have failed to demonstrate that any of the draw approvals were improper.

In addition to the allegedly improper draw requests, plaintiffs also alleged that Gravett used the money from the draw requests improperly. It is undisputed, however, that all of the funds from the draw requests – with the exception of a few draw requests paid directly to subcontractors at the direction of DFE – were deposited by the bank into a checking account held in the name of DFE. Although Gravett prepared the checks, the Buafos signed every check written out of that account.

Plaintiffs’ claim of a breach of the duty of good faith and fair dealing fails.

Plaintiffs’ breach of fiduciary duty claim also fails. Plaintiffs have not shown that the bank owed them a fiduciary duty.

Ms. Buafo was a sophisticated investor who had been developing the property in question for more than a year before she hired Gravett and before the bank made the initial refinance loan to DFE. There is no forecast of evidence that the bank knowingly accepted plaintiffs’ purported trust and confidence so as to support the finding of a fiduciary relationship. In any event, however, plaintiffs have failed to present a forecast of evidence that they were dominated and influenced by the bank.

The fact that Gravett, as agent for DFE, may have selected some subcontractors with a familial relationship to the loan officer, without more, does not support a claim of domination and control. At most, it supports an inference that Gravett trusted the loan officer’s recommendations or simply that Franklin, North Carolina, is a small town.

Since plaintiffs have failed to show any fiduciary relationship between them and the bank, their breach of fiduciary duty and constructive fraud claims fail.

Plaintiffs assert that the bank fraudulently represented that it would renew plaintiffs’ “Development Loan” if certain additional collateral was pledged. The record, however, does not contain any forecast of evidence that such a statement was actually made to plaintiffs. Even assuming that such a statement was made, it is nevertheless not actionable because it is merely a promissory representation. Plaintiffs’ fraud claim fails.

Plaintiffs’ alternative claim for negligent misrepresentation also fails. Plaintiffs have failed to present a forecast of evidence that the bank negligently supplied information for the guidance of plaintiffs.

The bank is entitled to judgment as a matter of law as to all of plaintiffs’ claims.

In support of its counterclaims, the bank has shown that DFE defaulted on its note and that the Buafos have defaulted on their guaranties.

The court will enter judgment in favor of the bank against plaintiffs, jointly and severally, as follows: the amount of $2,725,989.42 through and including March 27, 2015, with interest continuing to accrue at a rate of $366.53 per day beginning on March 28, 2015, and interest accruing at the legal rate after entry of the judgment, plus attorney fees in an amount to be determined but in any event not to exceed 5 percent of the outstanding loan amount at the time the original answer and counterclaims were filed on March 7, 2014.

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