Capital Bank v. MVB, Inc.

• Decision Date: 07 September 1994
• Docket Number: 93-0428 and 93-1249,93-0427,Nos. 93-0408,s. 93-0408
• Citation: 644 So.2d 515
• Parties: 19 Fla. L. Weekly D1853 CAPITAL BANK, a Florida banking corporation, Appellant, v. MVB, INC., a Florida corporation, Appellee, JASMA CORPORATION, a Florida corporation, f/k/a Comare Corporation; MVB, Inc., f/k/a Curls & Conditioners, Inc.; and Anthony Battaglia, Cross-Appellants, v. CAPITAL BANK, a Florida banking corporation, Cross-Appellee.
• Court: Florida District Court of Appeals

Page 515

644 So.2d 515

19 Fla. L. Weekly D1853

CAPITAL BANK, a Florida banking corporation, Appellant, v. MVB, INC., a Florida corporation, Appellee,

JASMA CORPORATION, a Florida corporation, f/k/a Comare

Corporation; MVB, Inc., f/k/a Curls &

Conditioners, Inc.; and Anthony

Battaglia, Cross-Appellants, v. CAPITAL BANK, a Florida banking corporation, Cross-Appellee.

Nos. 93-0408, 93-0427, 93-0428 and 93-1249.

District Court of Appeal of Florida,

Third District.

Sept. 7, 1994.

Rehearing Denied Nov. 23, 1994.

Ullman & Ullman, and Michael W. Ullman, North Miami Beach, Cooper & Wolfe, and Sharon L. Wolfe, and Maureen E. Lefebvre, Miami, for appellant/cross-appellee.

Gilbride, Heller & Brown, and James F. Gilbride, and Dyanne E. Feinberg, Miami, for appellee/cross-appellants.

Before HUBBART, GERSTEN and GODERICH, JJ.

GERSTEN, Judge.

Appellant, Capital Bank (bank), appeals a judgment awarding appellee, MVB, Inc. (MVB), compensatory and punitive damages based on claims of fraud and breach of fiduciary duty. Cross-appellants, Anthony Battaglia, MVB and Comare (hereinafter collectively referred to as "Battaglia"), cross-appeal the denial of their motion to conform the verdict to the jury's intent. MVB and Battaglia, individually, also cross-appeal the adverse judgment on a promissory note and guaranty. We affirm in part, and reverse in part.

This case involves the issue of whether a bank owed and breached a fiduciary duty to its customer. Briefly stated, the facts are as follows.

Anthony Battaglia, his company, Comare, and its subsidiary, MVB, were customers of Capital Bank. Comare was a vendor of hair care products. Tellason Products, Inc. (Tellason), a manufacturer of hair care products, also had a loan relationship with the bank.

Battaglia's loan officer at the bank was James Assalone (Assalone). Assalone engineered MVB's purchase of Tellason's assets when Tellason verged on bankruptcy. The manufacturing equipment MVB purchased from Tellason was defective and continuously broke down. Therefore, products were not produced timely, sales were reduced, and Battaglia's business declined. Consequently, Battaglia sold his companies.

MVB sued the bank for fraud and breach of fiduciary duty. MVB asserted that the bank sought to gain its trust and then induced it to purchase Tellason's worthless assets, so that the bank would not bear the loss of Tellason's non-performing loan.

Comare and Battaglia, individually, also sued the bank for fraud. The bank counterclaimed for the amount of the note and the guaranty executed in connection with the Tellason purchase. The jury found in favor of MVB, Comare and Battaglia on all claims.

The trial court entered judgment for MVB, awarding compensatory and punitive damages in accordance with the jury verdict on the fraud and breach of fiduciary duty claims. The court also entered a judgment notwithstanding the verdict against Comare and Battaglia, individually, on their fraud claims. Neither Comare nor Battaglia have appealed that ruling.

In addition, the trial court entered a judgment notwithstanding the verdict against MVB on the promissory note, and against Battaglia, individually, on the guaranty. Finally, the court denied Battaglia's motion to conform the verdict to the jury's intent.

I

We first conclude that the record supports the jury verdict that the bank owed and breached its fiduciary duty to Battaglia. Fiduciary relationships are either expressly or impliedly created. Those expressly created are either by contract, such as principal/agent or attorney/client, or through legal proceedings, such as trustee/beneficiary and guardian/ward. Denison State Bank v. Madeira, 230 Kan. 684, 640 P.2d 1235 (1982).

Fiduciary relationships implied in law are premised upon the specific factual situation surrounding the transaction and the relationship of the parties. Id. Courts have found a fiduciary relation implied in law when "confidence is reposed by one party and a trust accepted by the other." Dale v. Jennings, 90 Fla. 234, 244, 107 So. 175, 179 (1925). Accord Harkness v. Fraser, 12 Fla. 336 (1868); Harrell v. Branson, 344 So.2d 604, 607 (Fla. 1st DCA), cert. denied, 353 So.2d 675 (Fla.1977).

Generally, the relationship between a bank and its borrower is that of creditor to debtor, in which parties engage in arms-length transactions, and the bank owes no fiduciary responsibilities. Lanz v. Resolution Trust Corp., 764 F.Supp. 176 (S.D.Fla.1991); Barnett Bank of West Florida v. Hooper, 498 So.2d 923 (Fla.1986); Watkins v. NCNB Nat'l Bank of Florida, N.A., 622 So.2d 1063 (Fla. 3d DCA 1993), review denied, 634 So.2d 629 (Fla.1994).

However, fiduciary relationships between lenders and customers have been found to exist in Florida, as well as in other jurisdictions. Hooper, 498 So.2d at 923; Atlantic Nat'l Bank of Florida v. Vest, 480 So.2d 1328 (Fla. 2d DCA 1985), review denied, 491 So.2d 281 (Fla.1986), and review denied, 508 So.2d 16 (Fla.1987). E.g., Brasher v. First Nat'l Bank, 232 Ala. 340, 168 So. 42 (1936); Stewart v. Phoenix Nat'l Bank, 49 Ariz. 34, 64 P.2d 101 (1937); Barrett v. Bank of America, N.T. and S.A., 183 Cal.App.3d 1362, 229 Cal.Rptr. 16 (1986); Credit Managers Ass'n of S. California v. Superior Court for Los Angeles County, 51 Cal.App.3d 352, 124 Cal.Rptr. 242 (1975); Earl Park State Bank v. Lowmon, 92 Ind.App. 25, 161 N.E. 675 (1928); First Nat'l Bank in Lenox v. Brown, 181 N.W.2d 178 (Iowa 1970); Broomfield v. Kosow, 349 Mass. 749, 212 N.E.2d 556 (1965); Pigg v. Robertson, 549 S.W.2d 597 (Mo.Ct.App.1977); Deist v. Wachholz, 208 Mont. 207, 678 P.2d 188 (1984); Walters v. First Nat'l Bank of Newark, 69 Ohio St.2d 677, 433 N.E.2d 608 (1982); Bank of Commerce & Trust Co. v. Dye, 1 Tenn.App. 486 (1926); Hutson v. Wenatchee Fed. Sav. & Loan Ass'n, 22 Wash.App. 91, 588 P.2d 1192 (1978), review denied, 92 Wash.2d 1002 (1979). See Existence of Fiduciary Relationship Between Bank and Depositor or Customer so as to Impose Special Duty of Disclosure Upon Bank, 70 A.L.R.3d 1344 (1976 & Supp.1989).

In Barnett Bank of West Florida v. Hooper, 498 So.2d at 923, the Florida Supreme Court found that a fiduciary relationship arose between a lender and a customer from the parties' established relationship of trust and confidence. Hooper cites to two cases which elaborate criteria for determining the existence of a fiduciary relationship: Klein v. First Edina Nat'l Bank, 293 Minn. 418, 196 N.W.2d 619 (1972) and Tokarz v. Frontier Fed. Sav. & Loan Ass'n, 33 Wash.App. 456, 656 P.2d 1089 (1982).

Klein declared that a fiduciary relationship arises where "the bank knows or has reason to know that the customer is placing his trust and confidence in the bank and is relying on the bank so to counsel and inform him." 196 N.W.2d at 623. Tokarz held that "special circumstances" may impose a fiduciary duty on a bank, including where the lender 1) takes on extra services for a customer, 2) receives any greater economic benefit than from a typical transaction, or 3) exercises extensive control. 656 P.2d at 1094.

Here, the bank initially provided a $100,000 loan and a $300,000 secured line of credit to Battaglia. Then, loan officer Assalone pressured Battaglia to enter into a series of transactions. Assalone first urged Battaglia to enter into a factoring relationship. Battaglia objected, but Assalone urged Battaglia to trust him and promised that Battaglia would benefit. Battaglia then relented, explaining "If you think it's good for us[,] I will try it."

Assalone next pressed Battaglia to place orders with Tellason. Battaglia again protested, but Assalone coaxed, "Do it for us ... You are part of [the] Capital Bank family. You help the bank, we are going to help you."

Thereafter, when Tellason faced bankruptcy, Assalone sought to convince Battaglia to purchase Tellason's assets. Battaglia remonstrated that he lacked knowledge of manufacturing or Tellason's manufacturing equipment. Assalone promised the bank would finance the purchase and operations of Battaglia's expanded business. "If you help us with this one, we will continue on. We are in business together," Assalone declared.

At this time, Assalone knew that Battaglia's business was weak financially, heavily indebted and with little capital. Assalone also knew that Tellason's manufacturing equipment frequently malfunctioned.

To convince Battaglia to purchase Tellason's equipment, Assalone showed him an appraisal he commissioned which listed the equipment's fair market value at $285,000 and the liquidation value at $205,000. Battaglia relied upon this appraisal and agreed to MVB's purchase of Tellason's assets.

However, Assalone failed to disclose that the appraisal was a "walk-thru" appraisal, not a specific appraisal. A walk-thru, or ballpark, appraisal is useless, testified the appraiser at trial. It is not accurate, as is a specific appraisal, which separately describes, lists and assigns specific values to each machine.

Based upon these facts, we find that a fiduciary relationship existed between the bank and Battaglia. First, Assalone expressly invited Battaglia's reliance by urging Battaglia to trust him and by reassuring Battaglia that he was part of the Capital Bank family. See Stewart, 64 P.2d at 101; Broomfield, 212 N.E.2d at 556. Assalone also fostered Battaglia's perception that the bank was his financial advisor, by repeating that the bank's plans would benefit his business. See Stewart, 64 P.2d at 101; Lowmon, 161 N.E. at 675. Furthermore, the bank clearly knew of Battaglia's reliance. See Klein, 196 N.W.2d at 619; Pigg, 549 S.W.2d at 597.

Second, special circumstances transformed this lender/borrower relationship into a fiduciary one. See Tokarz, 656 P.2d at 1089. Assalone's role exceeded that of a lender in a traditional lender/borrower relationship. Not only did the bank advise Battaglia to expand his business and acquire Tellason's assets, but it also orchestrated and finalized the ultimate...