Am. Bank Ctr. v. Wiest
| Decision Date | 23 December 2010 |
| Docket Number | No. 20100027.,20100027. |
| Citation | 2010 ND 251,793 N.W.2d 172 |
| Parties | AMERICAN BANK CENTER, Plaintiff and Appellant v. David L. WIEST, Defendant, Third Party Plaintiff and Appellee v. Howard Palmer, Third Party Defendant and Appellee and Louis Burckhardsmeier, Third Party Defendant. |
| Court | North Dakota Supreme Court |
Richard P. Olson (argued) and Wanda L. Fischer (on brief), Minot, N.D., for plaintiff and appellant.
Joseph A. Turman (argued) and Katrina A. Turman Lang (on brief), Fargo, N.D., for defendant, third party plaintiff and appellee.
David J. Hogue (appeared), Minot, N.D., for third party defendant and appellee.
[¶ 1] American Bank Center ("Bank") appeals from a district court judgment rescinding a $250,000 loan the Bank made to David L. Wiest and requiring Wiest to repay part of a $200,000 loan the Bank made to Wiest for a line of credit. The Bank argues the district court erred in rescinding the $250,000 loan because the court improperly imputed the fraud of the Bank's loan officer, Howard Palmer, to the Bank. The Bank also argues the court erred in finding Palmer had a fiduciary relationship with Wiest and in not ordering repayment of the entire $200,000 loan. We conclude the district court did not clearly err in imputing Palmer's fraud to the Bank, did not abuse its discretion in granting Wiest equitable rescission of the $250,000 loan, and did not clearly err in finding Palmer had a fiduciary relationship with Wiest and in ordering only partial repayment of the $200,000 loan. We affirm.
[¶ 2] At all relevant times, the Bank operated as two separate banks. Bank Center First, with its principal office in Bismarck, and American State Bank and Trust, with its principal office in Dickinson and a branch office in Minot. Palmer was employed by the Bank as a commercial loan officer and vice president, originally working at the Bank's Bismarck location and subsequently working in Minot. Louis Burckhardsmeier owned Burckhardsmeier Financial Solutions and had worked as a car and truck salesman. He had operated as a venture capitalist and financial consultant since 1998 and had a number of customers affiliated with the trucking business. Wiest is an orthopedic surgeon and had known Burckhardsmeier for approximately fifteen years.
[¶ 3] In this case, the Bank seeks to collect on a $250,000 loan and a $200,000 loan made through Palmer to Wiest in connection with interrelated businesses involving Wiest and other business associates, including Glass Blast Media, Inc. According to Wiest, Burckhardsmeier facilitatedWiest and his business associates in procuring the loans through Palmer at the Bank. The issues in this lawsuit involve the business relationships of Wiest, Burckhardsmeier, Palmer, and the Bank. After Wiest defaulted on the two loans, the Bank sued him to collect on the loans. Wiest answered, seeking dismissal of the Bank's complaint and alleging he was fraudulently induced to enter into the $250,000 loan by statements and actions by Palmer and Burckhardsmeier. Wiest also brought a third-party complaint against Palmer and Burckhardsmeier, alleging deceit and seeking damages to the extent the Bank recovered from him. Wiest alleged Palmer and Burckhardsmeier induced him to enter into the loan transactions with the Bank by suggesting and asserting untrue facts, suppressing facts they were bound to disclose and making promises without any intention of performing.
[¶ 4] After a bench trial, the district court made extensive findings, recognizing Burckhardsmeier had an established business relationship with Palmer. The court found that Burckhardsmeier had arranged over $12 million of loans through Palmer for various Burckhardsmeier-associated entities. The court found Burckhardsmeier, with Palmer's assistance, was a promoter, under a scheme for raising funds, where Burckhardsmeier arranged for investors in his various business enterprises to pay obligations made to prior investors. The court found that Burckhardsmeier enticed banks to make loans to him or the various companies he represented and that repayment of the "invested" sums required Burckhardsmeier to find other investors or financing to cover the debts. The entire enterprise collapsed when no additional "investors" could be found. Under the "scheme," Burckhardsmeier pledged trucks and trailers as collateral that either were not owned by the entity pledging them or had already been pledged as collateral on other obligations.
[¶ 5] The court found that in August 2005, Burckhardsmeier needed additional capital to keep various business entities afloat and loans at the Bank current. Both Burckhardsmeier and Palmer met with Wiest to discuss a short-term loan for $250,000, proposing that Wiest would borrow $250,000 from the Bank and that the loan proceeds would go to Glass Blast to purchase trucks and equipment, which Burckhardsmeier represented were vital to its continued operation.
[¶ 6] In November 2005, Wiest executed a note with the Bank for a $250,000 loan. Although Wiest did not execute a written authorization for disbursement of the $250,000 in proceeds, he orally authorized deposit of the funds in Glass Blast's account to purchase trucks and trailers which Burckhardsmeier and Palmer represented would be his collateral for the loan. The next day Palmer drove to Bismarck to deposit the loan proceeds in Glass Blast's checking account. However, the loan proceeds were used to cover overdrafts in Glass Blast's checking account and were not used to purchase trucks and equipment. The court found that Burckhardsmeier and Palmer were "scrambling to raise additional capital" to continue to service the large debt of Burckhardsmeier's other related companies at the Bank and that both Palmer and Burckhardsmeier knew the proceeds would not be used to purchase trucks and equipment. The court found Wiest's specific instructions were that the proceeds were for Glass Blast's purchase of vehicles as collateral for the loan. The court also found that Palmer never informed Wiest that Palmer had not obtained the titles from Burckhardsmeier on the $250,000 loan, and that neither Palmer nor Burckhardsmeier informedWiest and his business associates of all of Glass Blast's loans.
[¶ 7] The district court found Palmer also fabricated a story about Wiest's involvement in a large trucking enterprise to the Bank's loan committee for the $250,000 loan. The court found Palmer's presentation to the Bank loan committee was "devoid of almost any truthful statement." The court found that Palmer continued to tell Wiest that he was working on a loan application to refinance Glass Blast's debt and that Wiest did not know the actual extent of Glass Blast's indebtedness. Palmer represented it was critical there be no "red flags" that could endanger SBA financing, so it was important that all of Glass Blast's obligations be current. In March 2006, Palmer convinced Wiest to authorize use of funds on his separate $200,000 line of credit at the Bank to cover Glass Blast's overdrafts, as well as to make payments on loans for Burckhardsmeier's related entities. In May 2006, Palmer again had Wiest authorize advances, which the court found were for payments on various loans at the Bank for Burckhardsmeier's related entities.
[¶ 8] In July 2006, Palmer resigned his position at the Bank, and subsequent audits revealed most of Palmer's loans were not properly secured. The court found that the Bank ended up charging off most of Palmer's loans and that those loans were affiliated with Burckhardsmeier or companies he purported to represent. The court granted the Bank judgment for $76,678.65 against Wiest, representing part of the $200,000 loan for a line of credit, and completely denied collection on the $250,000 loan.
[¶ 9] The Bank argues the district court erred in rescinding the $250,000 loan contract because the court improperly imputed Palmer's fraud to the Bank. The Bank also argues the court erred in finding Palmer had a fiduciary relationship with Wiest and in denying the Bank recovery of the entire $200,000 loan.
[¶ 10] Under North Dakota law, a valid contract requires parties capable of contracting, consent, a lawful object, and sufficient consideration. N.D.C.C. § 9-01-02; see Erickson v. Erickson, 2010 ND 86, ¶ 7, 782 N.W.2d 346. Section 9-03-01, N.D.C.C., requires the parties' consent to be free, mutual, and communicated by each to the other. Erickson, at ¶ 7. "A party's apparent consent is not free when it is obtained through fraud, and fraud can be either actual or constructive." Id. In Erickson, we explained the application of actual or constructive fraud necessary to invalidate a contract:
2010 ND 86, ¶ 8, 782 N.W.2d 346.
[¶ 11] Section 9-03-08, N.D.C.C., defines actual fraud:
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