Arnesen v. Rivers Edge Golf Club & Plantation, Inc.
| Decision Date | 18 December 2015 |
| Docket Number | No. 375A14.,375A14. |
| Citation | 781 S.E.2d 1,368 N.C. 440 |
| Court | North Carolina Supreme Court |
| Parties | Kenneth ARNESEN, Kristen Chaney, Steve Chaney, Deborah Charuk, William Charuk, Maria Curatolo, Kathleen Jordan, Thomas Jordan, Tanner Markley, John Merritt, Barry McGoff, Joel Schenkel, John Swan, Linda Swan, Audrey Varnum, Richard Varnum, Alan Walbaum, Camille Walbaum, and Lucas Wilson v. RIVERS EDGE GOLF CLUB & PLANTATION, INC., Rivers Edge Golf Club & Plantation, LLC, Coastal Communities, Inc., Mark A. Saunders, Donald Howarth, Mas Properties, LLC, The Mortgage Company of Brunswick, Inc., Brendan Gordon, James Powell, James Powell Appraisals, LLC, Lynn Rabello, Branch Banking and Trust Company, BB & T Collateral Service Corporation, Baxleysmithwick PLLC, and Douglas Baxley. |
Hodges & Coxe, P.C., by C. Wes Hodges, II, Wilmington, and Sarah R. Buzzard, for plaintiff-appellants.
Teague, Campbell, Dennis & Gorham, LLP, Raleigh, by Jacob H. Wellman and Natalia K. Isenberg, for defendant-appellees James Powell, James Powell Appraisals, LLC, and Lynn Rabello.
Poyner Spruill LLP, by J. Nicholas Ellis, Rocky Mount and Caroline P. Mackie, Raleigh, for defendant-appellees Branch Banking and Trust Company and BB & T Collateral Service Corporation.
In this case we consider whether plaintiffs, individual investors in undeveloped real estate, may recover against a bank and its appraisers for their alleged participation in a scheme to defraud investors by artificially inflating property values in the years preceding the national real estate crisis. Plaintiffs allege, essentially, that they would not have purchased certain real property but for faulty appraisal information and that, in any event, the bank should have discovered and disclosed the inflated appraised property values to them. The complaint reveals that plaintiffs did not view, receive, order, or even inquire about an appraisal before purchasing the property, nor that their purchases were contingent upon an appraisal, faulty or not. Because no legal duty exists at law between a debtor and creditor, or between a bank's appraisers and a purchaser, plaintiffs' claims, as pled, fail. Moreover, because plaintiffs fail to sufficiently allege justifiable reliance upon the faulty appraisal information, or lack thereof, or that plaintiffs' injuries were proximately caused by either the bank or the appraisers, dismissal is proper.
Plaintiffs are purchasers of undeveloped real property located in one of several planned residential communities in Brunswick County, North Carolina, developed and marketed by defendant Mark A. Saunders (collectively, Coastal Communities).1 Like many others throughout the nation, plaintiffs invested in real property shortly before the collapse of the real estate market. Taking the well-pled allegations in plaintiffs' complaint as true, the record reveals the following:
In 2004 Saunders, a real estate developer, began marketing lots in the Coastal Communities. Saunders purchased unimproved real property through his company, MAS Properties, LLC, subdivided the property into lots, and then deeded the parcels to various corporate entities for sale to investors. During the "pre-development stage" of the proposed subdivisions, Saunders marketed the undeveloped lots with plans to improve them within two years after purchase.
On 8 August 2005, Saunders, acting through MAS Properties, purchased approximately one hundred acres of land in Shallotte Township, Brunswick County, North Carolina. Eleven days later, MAS Properties transferred the property to Rivers Edge Golf Club & Plantation, Inc. (Rivers Edge),2 which became the basis for the investments at issue here. Rivers Edge recorded various subdivision plats thereafter, continuing through 2006.
Saunders marketed the Rivers Edge property to potential investors through various promotional materials and sales events, including invitation packages, brochures, community maps, and artistic representations. These artistic renditions included maps and sketches of planned community amenities, like "a southern style clubhouse," "pool, outdoor hot tub, [and] fitness center," "walking/nature trails and sidewalks," and "other recreational amenities." Saunders invited investors to special predevelopment marketing events designed to drive sales. For example, he hosted a "big tent" event with food and music to kick off the Rivers Edge development and implemented a lottery system to give interested investors priority selection over lots. "[P]rospective purchasers were urged to execute a ‘Homesite Reservation’ and submit a ‘Reservation Deposit’ amounting to up to 10% of the purchase price of the property selected in order to have their names placed in the Priority Selection drawings." According to the Homesite Reservation document, the ten-percent deposit would be applied toward an earnest-money down payment for the purchase of the underlying property.
Saunders offered various financial incentives to promote business, including "pre-development pricing," payment by the developer of two years of interest on lot financing, "and $400 to $500 toward closing costs." Saunders furnished prospective investors a detailed "HUD Property Report" and additional materials that disclosed a variety of details including the development plans, construction guidelines, and estimated timelines. All of these documents were provided in a large binder containing several hundred pages. A series of property reports included the current status of construction and amenities and many of these documents disclosed significant delays. Investors were asked to sign a document acknowledging "that they had received a copy of the Property Report and [had been] given an opportunity to read the Property Report before signing any contract or agreement." Plaintiffs state that they purchased the vacant properties from Saunders, marketed for their "good investment potential," and relied on his representations that the undeveloped properties were "a financially sound investment that offered little risk."
Plaintiffs characterize Saunders's marketing strategies as creating a "false sense of urgency for potential buyers to purchase the undeveloped property with seemingly little risk." Plaintiffs assert that Saunders's agents and employees "encouraged the Plaintiffs and other prospective buyers to purchase more than one lot" and that Saunders marketed the invitation events as "exclusive," when in reality "hundreds, if not thousands," were invited. Plaintiffs allege Saunders "pushed" his sales assistants "to go out in teams and pretend to be sales agents and interested buyers during sales events and property showings" and that Saunders "required [his sales assistants] to drive Range Rovers or other expensive Sports Utility Vehicles."
From 2004 to 2007, defendant Branch Banking and Trust Company (BB & T)3 served as primary lender for the majority of Saunders's real estate investors who sought bank financing, including plaintiffs. As Saunders's business grew, he established The Mortgage Company of Brunswick, Inc. (TMC), a private mortgage brokerage, to help facilitate the lending process. TMC thereafter assisted Saunders's investors through the loan application process and referred them to BB & T, which then paid TMC a fee for each referral. Internally, BB & T engaged a local firm, James Powell Appraisals, LLC (the Appraisers),4 to prepare appraisals on some of the properties. The bank did not require full appraisals on the early lot sales with transaction values less than $250,000. Of the limited number of appraisals that BB & T did obtain, the bank used them for its own internal underwriting purposes.
From May 2005 through the summer of 2006, each plaintiff reserved one or more properties during a sales event at Rivers Edge and executed a sales contract. After executing the sales contract and obligating themselves to purchase the property, each plaintiff financed his or her investment with a loan through BB & T. Plaintiffs received a full Property Report sometime during the transaction but deny having the opportunity to read it before signing a sales contract. Rivers Edge provided plaintiffs financial incentives consisting of payments for two years of interest and $400 to $500 credits at closing.
On 26 March 2010, two years after the collapse of the national real estate market and four to five years after their initial investment, plaintiffs commenced this action asserting eighteen claims against Saunders, his various companies, BB & T, and the Appraisers.5 Each of plaintiffs' claims as stated incorporates by reference and is based in part upon the following allegations:
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