Beritelli v. Wells Fargo Bank, N.A., CIVIL CASE NO. 1:11-cv-000179-MR

Decision Date30 September 2013
Docket NumberCIVIL CASE NO. 1:11-cv-000179-MR
CourtUnited States District Courts. 4th Circuit. Western District of North Carolina

THIS MATTER is before the Court on the Defendant Wells Fargo Bank, N.A.'s Motion to Dismiss [Doc. 94].


This civil action was brought originally by 50 purchasers of subdivision lots in a failed real estate development known as the River Rock subdivision in Jackson County, North Carolina ("River Rock"). [Amended Complaint, Doc. 39 at ¶1]. These purchasers brought suit against Wells Fargo Bank, N.A., the successor in interest to Wachovia Bank, N.A. ("Wells Fargo" or "the Bank"), Elizabeth Madden, AndreaMurphy, Kerry Langley, Nancy Decker, and Marilyn McCoy Woods, asserting claims for violations of the Interstate Land Sales Act, 15 U.S.C. § 1703(a)(2) ("ILSA"), violations of the North Carolina Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, et seq. ("Chapter 75"), negligent misrepresentation, negligence, and fraud, arising from the Defendants' alleged involvement in a scheme to artificially inflate the value of the lots in River Rock. [Id.].

On June 6, 2012, the Court entered an Order questioning whether all of the Plaintiffs were properly joined in this action pursuant to Rule 20 of the Federal Rules of Civil Procedure and ordering the parties to show cause why the Plaintiffs should not be severed in this case and why the purchasers of each individual lot should not be required to prosecute their cases separately. [Doc. 77]. After receiving the responses of the parties, the Court ordered the severance of all of the Plaintiffs, and directed the Plaintiffs to file separate complaints setting forth their individual causes of action. [Doc. 83].

On August 20, 2012, the Plaintiffs Thomas J. Beritelli and Sharon A. Beritelli ("Beritellis") filed their Amended Complaint in compliance with the Court's Order, bringing suit against Defendants Wells Fargo and KerryLangley ("Langley").1 [Doc. 85]. Wells Fargo now moves to dismiss this action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. [Doc. 94].


In reviewing a motion to dismiss filed pursuant to Rule 12(b)(6), the Court is guided by the Supreme Court's instructions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). As the Fourth Circuit has noted, "those decisions require that complaints in civil actions be alleged with greater specificity than previously was required." Walters v. McMahen, 684 F.3d 435, 439 (4thCir. 2012).

In order to survive a motion to dismiss pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). To be "plausible on its face," a plaintiff must demonstrate more than "a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678.

In reviewing the complaint, the Court must accept the truthfulness of all factual allegations but is not required to assume the truth of "bare legalconclusions." Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4thCir. 2011). "The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6)." Walters, 684 F.3d at 439.

To survive a Rule 12(b)(6) motion, "a complaint must state a 'plausible claim for relief.'" Id. (quoting Iqbal, 556 U.S. at 678). Determining whether a complaint states a plausible claim for relief is "a context-specific task," Francis v. Giacomelli, 588 F.3d 186, 193 (4thCir. 2009), which requires the Court to assess whether the factual allegations of the complaint are sufficient "to raise a right to relief above the speculative level," Twombly, 550 U.S. at 555. As the Fourth Circuit has recently explained:

To satisfy this standard, a plaintiff need not forecast evidence sufficient to prove the elements of the claim. However, the complaint must allege sufficient facts to establish those elements. Thus, while a plaintiff does not need to demonstrate in a complaint that the right to relief is probable, the complaint must advance the plaintiff's claim across the line from conceivable to plausible.

Walters, 684 F.3d at 439 (citations and internal quotation marks omitted).


Taking the well-pled factual allegations2 of the Amended Complaint as true, the following is a summary of the relevant facts.

The River Rock subdivision was intended to be a luxury real estate development with numerous amenities, including a Phil Mickelson golf course, near Glenville, North Carolina. The developer was Legasus of North Carolina, LLC. [Amended Complaint, Doc. 85 at ¶1]. The Beritellis purchased Lot 94 (the "Beritelli Lot") in the River Rock subdivision on July 7, 2006 for $349,900. [Id. at ¶74]. At the time that the Beritellis acquired their lot in the development, there were no paved roads to serve those lots and no sewer, water service lines or water wells, no sewage system and no electricity provided. [Id.].

It is alleged that Wachovia Bank had extensive involvement in the development, marketing and sale of lots in the River Rock subdivision by participating in off-site sales presentations with Legasus to sell lots in the River Rock subdivision, including the Summer Sail event at Lake Glenvilleon June 10, 2006 and the Grand Opening sales event in July of 2006 at the Mansion at Lake Glenville. [Id. at ¶¶63, 97].

It is further alleged that the Bank held itself out to be a significant financial backer of the River Rock subdivision. [Id. at ¶97]. For example, the Bank designed a loan program to be offered to the purchasers of lots in River Rock whereby the Bank would finance between ninety and one hundred percent of the purchase price of the lot through short-term one to five year loans at high interest rates, with the majority of the loan terms being for two years. [Id. at ¶11]. The Bank's lot loan program required borrowers to make a down payment of between five and ten percent of the lot purchase price and that down payment was transferred by Legasus into an account at the Bank at the closing of each lot purchase to be used to pay the first eighteen or so interest payments on the Bank's loan to each of the Plaintiffs. [Id. at ¶12]. The Bank developed its loan program for River Rock knowing that the potential purchasers of lots in River Rock were primarily investors from states other than North Carolina who were planning to sell the lots that they purchased before the expiration of their loan term. [Id. at ¶13]. The Bank also knew that many of its eventual borrowers who purchased lots in River Rock had never visited River Rock and had never seen the lots that they were purchasing. [Id. at ¶24].

The Bank designed its loan program at River Rock so that the potential purchasers of lots in River Rock would not have to make payments on their loans for the first approximately eighteen months of the loan term because the Bank knew that this would induce investors to enter into loan agreements with the Bank and purchase lots in River Rock. [Id. at ¶14].

The Bank provided potential lot purchasers at River Rock with a document entitled, "A Special Offer to Our Friends at River Rock." In this document, the Bank stated that this was "Wachovia's Development Lot Loan Program" and that it was for, "clients purchasing or refinancing lots for future development in subdivisions specifically approved by Wachovia." [Id. at ¶18]. "Upon information and belief," the Plaintiffs allege that the Bank "worked with Legasus" to develop the loan program described in this document. [Id. at ¶17].

In this "Special Offer," the Bank highlighted its one, three and five year interest-only balloon loan options. In addition, the Bank asserted that it had an "85% standard Loan-to-Value Ratio with up to 100% LTV Ratio available with qualified asset documentation." [Id. at ¶21]. The Bank promoted its loan program to potential borrowers without explaining to those borrowers the risks associated with such a program or consideringthe ability of borrowers to make mortgage payments beyond the loan term. [Id. at ¶16].

The Beritellis allege that the Bank, particularly through its employee, Kerry Langley, made numerous false statements to induce the Plaintiffs to enter into a loan agreement with the Bank and purchase a lot in River Rock.3 [Id. at ¶4]. For example, it is alleged that from 2006 through 2009, the Bank and its employees promoted River Rock as a luxury resort that would have significant amenities, but that the Bank and its employees knew that Legasus was not constructing the infrastructure and amenities that it had promised to the purchasers of lots in River Rock. [Id. at ¶¶5, 60]. Nevertheless, the Bank and its employees still made numerous representations to the Plaintiffs regarding the quality of Legasus and the value of lots in the River Rock subdivision and continued to loan money to the Plaintiffs and other lot purchasers to purchase lots in the subdivision. [Id. at ¶¶61, 62].

During the loan application process, Langley told lot purchasers at River Rock to indicate on their loan applications that they were purchasingthe lots as second homes, even though he knew that they were purchasing the lots as investments. [Id. at ¶64]. Langley emphasized the speed of closing to borrowers and often set closing dates before loan applications had ever been submitted by borrowers. [Id. at ¶65].

It is specifically alleged that during the loan application process and via interstate telephone communications from Langley's office in North Carolina to Thomas J. Beritelli in Wyckoff, New Jersey, Langley made the following representations:

• that River Rock was a "hot property" in a strong market area and that

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