Woodsville Guaranty Savings Bank v. Passumpsic Savings Bank, 100216 NHSUP, 215-2014-CV-18

Docket Nº:215-2014-CV-18
Opinion Judge:Richard B. McNamara Presiding Justice.
Party Name:Woodsville Guaranty Savings Bank v. Passumpsic Savings Bank
Case Date:October 02, 2016
Court:Superior Court of New Hampshire
 
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Woodsville Guaranty Savings Bank

v.

Passumpsic Savings Bank

No. 215-2014-CV-18

Superior Court of New Hampshire, Merrimack

October 2, 2016

NOT FOR PUBLICATION

ORDER

Richard B. McNamara Presiding Justice.

This case arises out of a 2008 loan made to Isaacson Structural Steel, Inc. ("Isaacson") by Woodsville Savings Bank ("Woodsville"), Passumpsic Savings Bank ("Passumpsic"), and Ledyard Savings Bank ("Ledyard"). Pursuant to the terms of a Loan Participation Agreement ("LPA"), Passumpsic, Woodsville, and Ledyard loaned Isaacson $10 million. Passumpsic loaned $5 million; Woodsville loaned $3 million; and Ledyard loaned $2 million. Under the LPA, Passumpsic was the Lead Bank. Arnold Hanson and Steven Griffin, respectively the President and CFO of Isaacson, falsified Isaacson's financial data in order to obtain the loan. Isaacson subsequently defaulted on the loan. David J. Driscoll ("Driscoll"), the principal of Driscoll & Co., an accounting firm, was a member of Passumpsic's Board of Trustees and was also the outside accountant for Isaacson. Woodsville has sued Passumpsic, alleging that it is liable for its losses. Its Complaint contains seven counts; Count I alleges a Breach of Warranty; Count II alleges Gross Negligence in Passumpsic's execution of its duties under the LPA; Count III alleges Breach of Contract; Count V alleges Intentional or Negligent Misrepresentation by Passumpsic; Count VI alleges a breach of the Implied Covenant of Good Faith and Fair Dealing; and Count VII alleges Breach of Fiduciary duty owed to Woodsville by Passumpsic as a result of the LPA.1

Passumpsic has moved for summary judgment on Counts I, II, III, VI, and VII of the Complaint. Woodsville has objected on the grounds that genuine issues of material fact exist. For the reasons stated in this Order, the Court GRANTS Passumpsic's Motion for Summary Judgment with respect to Count VI, the Implied Covenant of Good Faith and Fair Dealing, because this claim is subsumed in the breach of contract claim, and Count VII, Breach of Fiduciary Duty, and DENIES the Motion with respect to all other Counts.

I. Background Facts

To prevail on a motion for summary judgment, the moving party must "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." RSA 491:8-a, III. In order to defeat summary judgment, the non-moving party "must put forth contradictory evidence under oath, sufficient . . . to indicate that a genuine issue of fact exists so that the party should have an opportunity to prove the fact at trial . . . ." Phillips v. Verax, 138 N.H. 240, 243 (1994) (quotation omitted). A fact is material if it affects the outcome of the case under the applicable substantive law. Palmer v. Nan King Rest., Inc., 147 N.H. 681, 683 (2002). In considering a party's motion for summary judgment, the evidence must be considered in the light most favorable to the non-moving party, together with all reasonable inferences therefrom. Sintros v. Hamon, 148 N.H. 478, 480 (2002).

Discovery in this case is apparently not yet complete; for example, Driscoll's deposition has not been taken. The New Hampshire Superior Court Rules do not require the party to submit statements of agreed and disputed facts and it is very difficult to understand, from the papers, exactly what is genuinely disputed. The Court considers the evidence in the light most favorable to Woodsville, the nonmoving party.

The LPA, which is attached as Exhibit A to Passumpsic's Motion for Summary Judgment, between Passumpsic, Woodsville, and Ledyard, set forth the rights and obligations of the parties. It provided that "Passumpsic, as Lead Bank, shall act for the benefit of Woodsville to the extent of Woodsville's undivided interest in the [loan]." (LPA ¶ 15.) Passumpsic was required to collect the payments, interest, and other charges and fees on the loans for the benefit of itself and the other lenders. (LPA ¶ 18.) In addition, the LPA provided: Passumpsic shall . . . (ii) endeavor to exercise the same care as [it] exercises in the care of loans in which it alone is interested . . .

***

Passumpsic, in performing obligations hereunder, will endeavor to exercise the same care that it exercises in the making and handling of loans and security for its own account, but Passumpsic does not assume any further responsibility.

(LPA ¶¶ 17, 33.)

Passumpsic also affirmatively represented that as of the date of execution of the agreement there was no default existing under any of the loan documents or under the terms of any other credit relationship now existing between Passumpsic and the Borrower or the Guarantors, nor was Passumpsic aware of any facts or circumstances that constitute or would result in such a default. (LPA ¶ 14.) The LPA acknowledged that each participant "reasonably relied on information furnished to it by Passumpsic regarding the Borrower, the Guarantors and the collateral." (LPA ¶ 35.) Passumpsic expressly agreed to: [I]ndemnify and hold harmless each of the Participants for any loss or damage, costs and expenses (including reasonable attorneys fees) resulting directly or indirectly from Passumpsic's gross negligence or willful misconduct in administering, servicing or enforcing the Participated Loan and Passumpsic agrees that in performing such duties it shall be acting on behalf of each of the Participants as well as itself. Passumpsic will use reasonable efforts to ascertain the occurrence of any default under the Loan Documents and will take such other actions as are reasonably necessary in order to monitor and administer the Participated Loan.

(LPA ¶ 17.)

Frank Stiegler ("Steigler"), Vice President and Commercial Loan Officer at Woodsville, testified that as a participating bank, Woodsville had no direct contact with the customer except through the lead bank, Passumpsic.

In April 2011, Passumpsic reported to Woodsville that there were significant and material irregularities and inconsistencies in Isaacson's financial statements. Isaacson's business was to fabricate steel commercial construction. This involved entering into construction contracts both to supply and to erect the steel. These contracts often involved changes. Change orders were a substantial portion of the value of Isaacson's business. Because change orders were eventually paid, they were accounted for as assets in Isaacson's financials. Traditionally, the change orders were listed as work in process ("WIP"). In 2006, however, Isaacson started to count change orders as inventory. The decision to account for change orders as inventory was made with the knowledge of Hanson, Griffin, and Driscoll. Based on Driscoll's oversight as Isaacson's outside accountant, Passumpsic believed that this change was consistent with Generally Accepted Accounting Principles ("GAAP").

In 2007, Issacson started to use this accounting change as a way to falsely inflate Isaacson's financial data. It began to treat the change orders as assets twice by listing them both as WIP and inventory. Additionally, Griffin would occasionally overstate the value of a...

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