Claus v. Columbia State Bank

Decision Date30 October 2019
Docket NumberCase No. 3:16-cv-01509-AC
PartiesROBERT J. CLAUS, and SUSAN L. CLAUS Plaintiffs, v. COLUMBIA STATE BANK, Defendant.
CourtU.S. District Court — District of Oregon
OPINION AND ORDER

ACOSTA, Magistrate Judge:

Introduction

Plaintiffs Robert James Claus and Susan Claus (collectively, the "Clauses") seek money damages from their former lender, Defendant Columbia State Bank ("Columbia"), for allegedly misrepresenting the capitalization and creditworthiness of Signature Home Builders ("SHB") and for breaching parties' construction loan contract. Before the court are Columbia's Motion to Dismiss and the Clauses' Motion to Accept the Amended Complaint. (Def. Mot. to Dismiss Pl. First Am. Compl., ECF No. 73 ("Def. Mot."); Mot. to Accept the Am. Compl., ECF No. 77.)1

Factual Background

Since the mid-1980s, the Clauses have engaged with Columbia and its predecessor organizations in "a continuous and extensive banking relationship" as "private banking customers." (Am. Compl., ECF No. 73 ("Am. Compl.") ¶ 4.) Due to concerns over costs related to their declining health, the Clauses undertook a development project as an investment that could pay for medical and other expenses. (Id. ¶¶ 7, 8.)

In late 2011, the Clauses sought a loan from West Coast Bank ("West"), a predecessor to Columbia, to develop eight lots in their "McFall subdivision." (Id. ¶ 8.) As part of the loan process, West required the Clauses to sell their Oregon ranch property before issuing the loan, and the Clauses were subject to "an exhaustive review of [their] real estate portfolio and financial situation." (Id. ¶¶ 11, 12.) As alleged by the Clauses, West was aware of the Clauses' ongoing health issues and "voluntarily committed to administering the financial management of the building process." (Id., ¶ 9.) Specifically, West promised it "would monitor the progress of the construction and see that the contractor, subcontractors, and suppliers" were paid, and for doing so, the "Clauses paid $18,000 to [West's successor,] Columbia[,] for administrating and processing the line of credit over the life of the project, with such administration to include builder oversight, disbursement of funds, and contract approval." (Am. Compl. ¶¶ 9, 24.) Moreover, West went so far as to create the initial plan for the McFall subdivision. (Id., ¶ 10.) In April 2013, while theClauses were still securing the loan from West, Columbia purchased West and continued the Clauses' appraisal process. (Id. ¶¶ 13, 15.)

In October 2013, Columbia issued the loan, in the amount of $900,000, secured by a deed of trust on the property. (Decl. of Stanley Cruse, ECF No. 15 ("Cruse Decl."), Ex. 3 at 1.) Among other restrictions, the Loan Agreement specified that only two lots could be built at a time. (Id. ¶ 23.) The Clauses allege Columbia orally promised to assume responsibility for "obtaining the invoices and proof of payment" to SHB and all subcontractors, and its disbursement system, AccuDraw, to oversee the project, disbursement of funds, and contract approval. (Am. Compl. ¶ 24.) But, the terms of the Construction Loan Agreement did not reflect Columbia's promised involvement. (Cruse Decl., Ex. 1.) Instead the Loan Agreement indicated that the Clauses were responsible for managing the project and submitting contractors, plans, builder contracts, and requests for the money disbursements. (Id. at 3.) The Loan Agreement, however, did provide that at its option Columbia could "directly pay the General Contractor . . . sums due . . . [and the Clauses] appoint [Columbia] as the attorney-in-fact to make such payments." (Cruse Decl., Ex 1 at 3.) Moreover, the Loan Agreement indicates it was fully integrated at the time of signing and amendments could be submitted only in writing with parties' consent. (Id. at 7.) The Loan Agreement required that Columbia would have "approved a list of all contractors employed," but no provision of the Loan Agreement provides a selection procedure for a general contractor. (Id. at 2.) Under the Loan Agreement, a creditor or forfeiture proceeding would constitute an event of default unless "there is a good faith dispute" as to the "validity or reasonableness of the claim which is the basis of the . . . proceeding." (Cruse Decl., Ex. 1 at 6.) Additionally, the LoanAgreement contained a maturity acceleration provision in the event the Clauses defaulted. (Id. at 6.)2

As the Clauses allege, Columbia made representations about the Clauses' prior relationship with Columbia's predecessor and about SHB. With respect to the relationship between the Clauses and Columbia, officials at Columbia, who were also former employees at West, assured the Clauses the same services previously provided by West still could be expected through Columbia. (Am. Compl. ¶ 14.) Specifically, Columbia officials told the Clauses it was the "same community bank with a different name," and "nothing had changed with respect to the relationship between the bank and the Clauses." (Id. ¶¶ 14, 15.) However, the Clauses do not allege any assurances were made relating to any specific prior promise. Notably, a predecessor to Columbia, Commercial Bank, performed services for the Clauses that were outside the scope of a normal banking relationship between the 1980s through 1995, such as "property inspections, loan budgeting, project management and investment advice." (Am. Compl. ¶ 5.)

Columbia "mandated" SHB serve as the general contractor on the project, though it was not the Clauses' preferred general contractor, because SHB was a "turnkey builder."3 (Id. ¶ 16.) Kelly White ("White"), a senior loan officer at Columbia, and Juan Mendoza ("Mendoza"), another loan officer at Columbia, allegedly made various misrepresentations about SHB's credit and capitalization. (Id. ¶ 17.)

/ / / / / / Specifically, White and Mendoza made five representations regarding SHB between June and October 2013. (Id. ¶ 17.) First, White assured the Clauses "Columbia's commercial loan department had conducted an extensive review of SHB and its three members, as well as its projects, business history, and creditworthiness." (Id. ¶ 17.) Second, White assured the Clauses there were no issues regarding SHB that "would constitute 'red flags.'" (Id. ¶ 17.) Third, both White and Mendoza represented that Columbia had "thoroughly checked out SHB with the Oregon Secretary of State's office," and confirmed SHB "was appropriately licensed and bonded with the State of Oregon" and with the Oregon Construction Contractors Board ("CCB"). (Id. ¶ 17.) Fourth, White asserted "SHB and its three principals had good credit" and had no outstanding judgments or liens against SHB. (Id. ¶ 17.) Lastly, both White and Mendoza represented that "SHB was a full-service builder, meaning that it was licensed and had the employees necessary to complete all the work on a home without having to hire subcontractors." (Id. ¶ 17.) SHB, however, was not a full-service builder, but rather a "broker-builder," which meant the principals borrowed money from the company "to hire out all the physical work to subcontractors." (Id. ¶ 19.)

Because of the representations made by Mendoza and White, the Clauses relied on the evaluation of SHB's creditworthiness and capitalization. (Am. Compl. ¶ 18.) However, when such representations were made, SHB's members was either "in or had recently emerged from Chapter 7 bankruptcy proceedings," and the SHB member assigned to supervise the development project was not listed as a member on the contractor's license with CCB. (Id. ¶ 19.) Furthermore, White and Mendoza made the representations notwithstanding various negative financial documents from SHB, such as a December 31, 2012 balance sheet that reported a deficit equity of $62,041 and that did not reconcile with an S corporation tax form filed with IRS. (Id. ¶ 20.) The Clauses allege they would not have chosen to proceed with SHB had they known of its precariousfinancial position, but Columbia claimed its evaluation of SHB was a trade secret or confidential when the Clauses requested it for review. (Id. ¶¶ 18, 21.)

Although the sale of the Clauses' ranch had not yet closed and the loan was not yet ready, White nevertheless advised the Clauses to proceed with development of Lot 6. (Id. ¶ 25.) As a result of various delays on part of SHB and SHB's lack of payment for necessary building permits, the Clauses paid more in permit fees and interest payments than if SHB had met its contractual obligations. (Id. ¶¶ 25, 26.)

Thereafter, the Clauses allege Columbia failed to diligently administer the project, as promised, in the following ways: (1) Columbia made disbursements without first ensuring SHB provided adequate supporting documentation, (2) failed to get lien releases from SHB, (3) allowed SHB to list and sell Lot 6 at less than fair market value and without an agreement made by the Clauses, and (4) did not intervene when SHB commenced the development process on Lot 3, despite the Loan Agreement requiring no more than two houses could be developed at a time. (Id. ¶¶ 27, 28, 29.)

In June 2014, SHB left Lots 3, 4, and 5 unfinished in the McFall subdivision. (Am. Compl. ¶ 30.) Though White attempted to find a new general contractor, Columbia could not secure a replacement because it refused to supply a list of subcontractors and suppliers used by SHB to the replacing contractor. (Id. ¶¶ 30, 31.)

In July 2014, Columbia notified the Clauses that Parr Lumber, a supplier for SHB, issued a notice of lien against Lots 1, 2, 3, 4, 5, 8, and 9 for supplies delivered and not paid for. (Id. ¶ 32.) Over the following months, other suppliers and subcontractors filed liens against the properties. (Id. ¶ 32.) Because of oversights and errors, a default judgment and a writ of garnishment entered against the Clauses on August 22, 2014, in the Circuit Court of the State ofOregon for the County of Gilliam. (Id. ¶¶ 33, 34.) Columbia ultimately filed its own liens on Lots 4 and 5, but...

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