Caper Corp. v. Wells Fargo Bank, N.A.
| Decision Date | 22 August 2013 |
| Docket Number | No. 7:12-CV-357-D,7:12-CV-357-D |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | THE CAPER CORPORATION, Plaintiff, v. WELLS FARGO BANK, N.A., Defendant. |
On November 26, 2012, the Caper Corporation ("Caper" or "plaintiff") filed a complaint against Wells Fargo Bank ("Wells Fargo" or "defendant") in New Hanover County Superior Court [D.E. 1-1]. On December 27, 2012, Wells Fargo removed the action to this court [D.E. 1]. The action arises out of Caper's dissatisfaction with a loan contract and an associated interest rate swap contract that the parties entered in 2005. In the complaint, Caper alleges fraud, negligent misrepresentation, duress, breach of fiduciary duty, constructive fraud, and unfair and deceptive trade practices, and seeks damages and reformation or rescission of the contracts. On January 30, 2013, Wells Fargo moved to dismiss the complaint [D.E. 12] and filed a supporting memorandum and exhibits [D.E. 13]. See Fed. R. Civ. P. 12(b)(6). Caper responded in opposition [D.E. 19], and Wells Fargo replied [D.E. 20]. As explained below, the court grants Well's Fargo's motion to dismiss.
In March 2005, Caper contacted Wells Fargo's predecessor, Wachovia Bank, and other lending institutions to inquire about a loan Caper wanted in order to acquire an office building ("the property") in Wilmington, North Carolina. Compl. [D.E. 1-1] ¶¶ 12--13. Although Wells Fargo didnot offer the best loan terms, Caper accepted Wells Fargo's offer due to the parties' prior business dealings. Id. ¶ 13. On April 8, 2005, Wells Fargo loaned Caper $3.8 million, secured by a deed of trust to the property. Id. ¶ 14. The seven-year loan included a one-year variable interest rate followed by a six-year fixed interest rate, and required Caper to repay all unpaid principal and interest at maturity. Id. Caper purchased the property, and on July 1, 2005, entered a 7-year lease with a tenant. Id. ¶ 15.
When the tenant notified Caper that it wished to occupy additional portions of the property, Caper sought additional funds to upfit those portions. Id. ¶ 16. Wells Fargo offered a $4.3 million, ten-year loan with a variable interest rate set at the one-month LIBOR rate plus 1.75%, and stated that Caper could obtain a fixed rate through an interest rate swap. Id. ¶¶ 17-18.1
On November 9, 2005, Walter Pancoe ("Pancoe"), Caper's president, contacted Wells Fargo and spoke with Matt Boss ("Boss") regarding an interest rate swap. Id. ¶ 19. Boss sent Pancoe materials that discussed how Caper could hedge against rising interest rates by obtaining a fixed interest rate using an interest rate swap. Id. The materials reflected that the interest rate swap could be matched with the loan's term, interest rate, and principal amount. Id. ¶ 20. Boss also sent Caper an ISDA Master Agreement ("Master Agreement") [D.E. 13-1 ] and a Schedule to the ISDA Master Agreement ("Schedule") [D.E. 13-2] (collectively, "Swap Agreement") that set forth the terms of a proposed swap agreement. Id. ¶ 22.
Boss advised Pancoe that Wells Fargo was offering the Refinance Loan to Caper at market rates. Id. ¶ 51. The term sheet for the Refinance Loan mentioned costs including a 0.25% fee, an appraisal fee, environmental assessment costs, title insurance, and legal fees, but the Swap Agreement did not mention any markup for the bank above interdealer broker market loan rates. Id. ¶¶ 52-53. Based on Caper's prior loans from Wells Fargo, Pancoe believed that Wells Fargo was not charging any additional fees or receiving any additional payments for the Swap Agreement. Id. ¶ 54. Pancoe also believed that Wells Fargo was offering the Refinance Loan and Swap Agreement at interdealer broker market rates without any markup for the bank. Id. ¶ 55. Caper did not have access to information about such market rates, because the interdealer broker market is a closed market open only to large commercial and investment banks; therefore, Caper relied on Wells Fargo's knowledge of such rates. Id. ¶¶ 56-58. Caper did not seek legal advice regarding the Refinance Loan or the Swap Agreement. Id. ¶ 59.
On November 21, 2005, in a telephone call with Boss, Pancoe confirmed an interest rate swap with a notional amount of $4.3 million and a ten-year term, under which Caper would pay interest at a fixed 6.91% rate and would receive variable interest payments at the one-month LIBOR plus 1.70%. Id. ¶ 24. The fixed interest rate of 6.91% was 0.32% higher than the interdealer broker market rate. Id. ¶ 61. The same day, Pancoe signed the Swap Agreement on Caper's behalf. Id. ¶ 25. In December 2005, Caper received a confirmation memorializing the November 21, 2005 phone call, which he signed and returned to Wells Fargo. Id. ¶ 26.
Before finalizing the Refinance Loan, Wells Fargo changed the term it offered on the Refinance Loan from ten years to slightly longer than six years, so that the Refinance Loan would mature at the same time as the original loan. Id. ¶ 27. Thus, the durations of the Refinance Loan and the Swap Agreement became mismatched by more than three years. Id. ¶ 28. Pancoe raised thisdiscrepancy with Wells Fargo vice president Randall Tomsic ("Tomsic"), and said the terms of the loan and the Swap Agreement should be the same. Id. ¶ 29. Tomsic stated that the discrepancy was immaterial, and that Caper would not owe any termination fee or other penalty if it exited the Swap Agreement at or before maturity of the Refinance Loan. Id. In response to Pancoe's questioning, Tomsic reiterated that Caper's obligations under the Swap Agreement would end when its obligations under the Refinance Loan ended. Id. Based on those representations, Pancoe executed a Promissory Note for the Refinance Loan on behalf of Caper on January 23, 2006. Id. ¶ 30.
On February 2, 2006, Caper and Wells Fargo agreed to amend the terms of the Swap Agreement so that the monthly payment dates of the Refinance Loan and the Swap Agreement would be the same. Id. ¶ 31. Wells Fargo also added a provision allowing the bank to terminate the Swap Agreement if the agreement became unsecured at any time after March 12, 2012 (the maturity date of the Refinance Loan). Id. ¶ 32; see Swap Amendment [D.E. 13-4] 1-3. From February 2006 to April 2011, Caper made all payments required under the Refinance Loan and the Swap Agreement. Compl. ¶ 34.
In April 2011, Caper's tenant notified Caper that it would not renew its lease after the lease expired in June 2012. Id. ¶ 35. Caper then asked Wells Fargo for an extension of the Refinance Loan from March 15, 2012, to October 31, 2012, or for a bridge loan. Id. Caper also requested that the Swap Agreement be terminated at the end of the term of the Refinance Loan without any termination fee. Id.
In May 2011, during negotiations regarding a new loan, Wells Fargo asserted that it would hold Caper to the entire term of the Swap Agreement and require the payment of a termination fee if Caper ended the agreement early. Id. ¶ 36. When Caper objected, Wells Fargo indicated that it would consider allowing Caper to terminate the Swap Agreement without paying an earlytermination fee. Id. On October 31, 2011, Caper informed Wells Fargo that it had negotiated an extension of the tenant's lease through November 1, 2012, and requested an extension of the Refinance Loan and that Caper be allowed to terminate the Swap Agreement without paying any fees. Id. ¶ 37. Wells Fargo orally agreed extend the Refinance Loan through November 15, 2012. Id.
Tomsic informed Caper that Wells Fargo had sold the Swap Agreement to a third parry and would lose money if Wells Fargo did not recover all payments due under the agreement, which was worth approximately $620,000. Id. ¶ 38. Wells Fargo, however, actually had not sold the Swap Agreement. Id.
Wells Fargo did not extend the term of the Refinance Loan. Id. ¶ 39. Instead of seeking new financing, in February 2012, Caper decided to sell the property. Id. ¶ 40. Wells Fargo notified Caper that Caper was obligated to continue making payments under the Swap Agreement or to pay a termination fee if the agreement was terminated. Id. Caper responded that it would not pay any termination fee. Id. Wells Fargo then assigned management of the Refinance Loan to James Gragnolati ("Gragnolati"), an employee in Wells Fargo's troubled assets division. Id.
Because the parties had not agreed on a loan extension, the Refinance Loan matured on March 15, 2012. Id. ¶ 41. Pancoe advised Gragnolati that Caper wanted to shorten the Swap Agreement's term to match the term of the Refinance Loan. Id. Shortly thereafter, Gragnolati orally agreed to extend the Refinance Loan to June 15, 2015, the maturity date of the Swap Agreement. Id. No such extension occurred. Instead, on April 11, 2012, Wells Fargo agreed to extend the Refinance Loan until September 30, 2012. Id. ¶ 42.
In May 2012, Caper reached an agreement to sell the property and requested a payoff of the Refinance Loan in preparation for a June 2012 closing date. Id. ¶ 43. Caper requested that WellsFargo terminate the Swap Agreement without a termination fee when the Refinance Loan was repaid. Id. However, Wells Fargo demanded that Caper pay a $585,526 termination fee then owed under the Swap Agreement before Wells Fargo would allow Caper to repay the Refinance Loan and obtain a release of the deed of trust held by Wells Fargo. Id. Wells Fargo's demand forced Caper to choose between breaching the contract for sale of the property and payment of the termination fee. Id. ¶ 44.
On June 28, 2012, Caper closed on the sale of its property and repaid the Refinance Loan. Id. 45. Wells Fargo terminated the Swap Agreement and demanded that Caper pay a $568,337 termination fee. Id. Caper agreed to pay the termination fee to avoid breaching its obligation to deliver a deed free of liens. Id. Wells Fargo asked Caper to release all of its claims against the bank, but Caper refused. Id. Instead, Caper executed...
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