Claus v. Columbia State Bank
| Decision Date | 17 April 2018 |
| Docket Number | Case No.: 03:16-CV-01509-AC |
| Parties | ROBERT JAMES CLAUS and SUSAN CLAUS, Plaintiffs, v. COLUMBIA STATE BANK, Defendant. |
| Court | U.S. District Court — District of Oregon |
Introduction
This suit arises from an ill-fated subdivision development project. Landowner Plaintiffs Robert James Claus and Susan Claus (collectively, the "Clauses") sue their former lender, Defendant Columbia State Bank ("Columbia"), alleging Columbia misrepresented the capitalization and creditworthiness of the project's builder, Signature Homebuilders, LLC ("SHB"), and breached the parties' construction loan contract. Currently before the court are Columbia's motion to dismiss all claims ("Motion"), ECF No. 14, and motion to strike portions of the Clauses' response to the motion to dismiss, ECF No. 24.1 First, because the Clauses' response brief contains materials outside the pleadings, Columbia's motion to strike is granted. Second, because the Clauses' current complaint fails to state their claims under applicable pleading standards, Columbia's motion to dismiss is granted. However, the court also grants the Clauses leave to amend their complaint.2
The following facts, as alleged in the complaint, are taken as true for purposes of the present motion to dismiss. Since the mid-1980s, the Clauses engaged in a business relationship with Columbia and its predecessor organizations, sharing a "long mutually beneficial business and building project history . . . ." (Compl. (ECF No. 1), Ex. 1,¶ 5.) Four years ago, the Clauses decided to develop land they owned in Sherwood, Oregon as a residential subdivision with eight houses. (Compl. ¶ 6.) In July 2013, the Clauses approached Columbia to help finance the project, and the bank issued the Clauses a conditional $900,000 revolving line of credit. (Compl. ¶ 6.)
In the months that followed, Columbia, as the Clauses allege, "controlled the [loan] application process," which included a credit analysis of the Clauses, property appraisal, and project analysis. (Compl. ¶ 7.) As part of the project analysis, Columbia conducted "an extensive confidential review of the proposed builder," SHB, examining its "members, their projects, theirbusiness, and credit." (Compl. ¶ 8.) The information gleaned in the analysis was deemed "trade secret," and thus withheld from the Clauses. (Compl. ¶ 8.)
An employee of Columbia, Kelly White ("White"), "assured [the Clauses] that [Columbia's] commercial loan department had vetted SHB, finding that SHB had strong credit and adequate capitalization." (Compl. ¶ 10.) Columbia also "wanted to use SHB because they were a turnkey builder3 who could get occupancy permits for specified prices with[in] 120 days of starting a house." (Compl. ¶ 10.) Columbia, therefore, "insisted upon" hiring SHB for the job. (Compl. ¶ 8.) Though the Clauses allege they already "had a preferred general contractor," and were approached by at least three others for the project, they agreed to engage SHB as the general contractor for the project. (Compl. ¶¶ 8, 29-30.)
The loan closed in October 2013, secured by a first trust deed on the property in Columbia's favor and executed through a Construction Loan Agreement (the "Loan Agreement" or "Agreement"). (Compl. ¶ 6; See Declaration of Stanley M. Cruse in Support of Def.'s Mot. to Dismiss ("Cruse Decl."), Ex. 1.) The Agreement outlined several scenarios that would constitute default events under the contract, including the Clauses' failure to make loan payments or any "creditor or forfeiture proceedings" against the loan's collateral. (Agreement at 6.)
The parties agreed that Columbia would monitor both the credit line and SHB, to ensure the property remained lien free during construction. (Compl. ¶ 9.) Funds from the loan were to be dispersed to SHB through Columbia's accounting program, and Columbia was responsible for obtaining invoices and proof of payment from SHB as well as preparing on-going lien releases asvarious aspects of the project were completed. (Compl. ¶ 12.)
The project commenced but, in April 2014, fell behind in its intended timeline after SHB failed to deliver on time an occupancy certificate for one home and delayed construction on another. (Compl. ¶ 14.) Additionally, though SHB was required to advance payments on all necessary permits, the Clauses allege they were ultimately forced to make those payments. (Compl. ¶ 14.) Still, the project continued.
The Clauses also claim that on or around April 2017, a construction contract for lot 4 on the property was executed without either of the Clauses' signature. (Compl. ¶ 15.) They allege that SHB, and perhaps also Columbia, "used a forged signature" to execute the contract. (Compl. ¶ 15.)
In July 2014, Columbia informed the Clauses that one of SHB's subcontractors had filed a notice of lien against the property's home lots, claiming it never was paid for supplies delivered. (Compl. ¶ 16.) Three other subcontractors also recorded liens, claiming they, too, had not been paid. (Compl. ¶ 16.) The Clauses later discovered that instead of paying the subcontractors, SHB had "walked away" and kept the Clauses' funds. (Compl. ¶ 21.)
On August 22, 2014, Columbia received a writ of garnishment against the Clauses' Columbia account. (Compl. ¶¶ 17-18.) The writ stemmed from a default judgment entered erroneously against the Clauses in an unrelated legal action due to legal malpractice by the Clauses' then attorney. (Compl. ¶¶ 17-20.) With the help of the Oregon Professional Liability Fund, the default judgment was corrected and set aside in December 2014, but the associated liens "were not removed in a timely manner." (Compl. ¶ 20.) The Clauses allege Columbia "then told [the Clauses] that their construction loan would be frozen until the lien issues were resolved and that [they] would have to make monthly interest payments until resolution," but it is unclear whether the Clauses refer to thesubcontractor liens or the liens associated with the erroneous writ of garnishment. (Compl. ¶ 17.)
In September 2014, the four unpaid subcontractors filed foreclosure actions on their liens. (Compl.¶ 21.) Columbia, also a named party to that suit, filed its own claims against the Clauses, for breach of the Agreement and, based on the liens associated with the writ of garnishment, to foreclose on the Clauses' property that served as collateral for their construction loan. (Compl. ¶ 21.)
As alleged in the Complaint, as a result of SHB's construction delays, the Clauses had to make interest payments on their loan for five more months than they had anticipated, had SHB met its obligations. (Compl. ¶ 14.) Based on either the subcontractor liens or the erroneous garnishment writ liens, the Clauses' construction loan with Columbia was frozen, which "forced them to borrow $150,000 from another source" to finish houses that had been only partially completed. (Compl. ¶ 20.) When SHB walked away from the project, it took with it "more than $85,000 in construction funds" and left the Clauses "as the responsible party" for over $65,600 in "outstanding balances owed to" at least three subcontractors. (Compl. ¶ 21.) The Clauses also allege they incurred legal costs to defend the foreclosure actions and the erroneous writ and "appraised monetary loss from selling the houses in bulk at below-market value." (Compl. ¶ 22.) Robert Claus also claims to have suffered "severe physical and mental pain as a result of having to finish some of the work on the Subdivision homes himself in order to mitigate damages[,]" and "further mental pain due to the anxiety of not being able to provide" financially for his family. (Compl. ¶ 31.)
The Clauses filed suit in state court on June 22, 2016, asserting claims of fraud, negligence, and breach of contract under state law, seeking economic and non-economic damages and equitable relief. (Compl. ¶¶ 23-38.) Specifically, the Clauses allege Columbia fraudulently and negligentlyfalsely represented the creditworthiness and extent of capitalization of SHB, and that they relied on that representation to their detriment. (Compl. ¶¶ 24-36.) They also claim Columbia breached the parties' Loan Agreement by wrongly initiating foreclosure. (Compl. ¶ 38.)
Columbia timely removed to federal court, based on diversity jurisdiction. Columbia now moves to dismiss the Clauses' complaint for failure to state all three claims and, additionally, challenges the fraud claim lacks the required particularity.
Federal Rule of Civil Procedure ("Rule") 8(a) governs pleadings and calls for "a short and plain statement of the claim showing that the pleader is entitled to relief . . . ." FED. R. CIV. P. 8(a). The Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), addressed the pleading standard required to adequately state a claim under the Federal Rules of Civil Procedure. The Court emphasized the need to include sufficient facts in the pleading to give proper notice of the claim and its basis. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555 (brackets omitted). Even so, the court noted that "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and 'that a recovery is very remote and unlikely.'" Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). A court considering a motion to dismiss must draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984).
Since Twombly, the Supreme Court has made clear that the pleading standard announcedtherein is generally applicable to cases...
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