Hofer v. Liberty Nat'l Bank

• Decision Date: 28 November 2012
• Docket Number: CIV. 11-4129-KES
• Court: U.S. District Court — District of South Dakota
• Parties: MARWIN E. HOFER; JASON SEURER; MARGO INVESTMENTS, L.L.C.; DANIEL L. FISCHER; TIMOTHY J. HOFER; and G & R DEVELOPMENT, LLC, Plaintiffs, v. LIBERTY NATIONAL BANK, Defendant.

MARWIN E. HOFER; JASON SEURER; MARGO INVESTMENTS, L.L.C.;

DANIEL L. FISCHER; TIMOTHY J. HOFER; and G & R DEVELOPMENT, LLC, Plaintiffs,

v.LIBERTY NATIONAL BANK, Defendant.

CIV. 11-4129-KES

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA SOUTHERN DIVISION

Dated November 28, 2012

ORDER GRANTING DEFENDANT'S

MOTION FOR SUMMARY

JUDGMENT

Plaintiffs, Marwin Hofer, Jason Seurer, Margo Investments, L.L.C., Daniel Fischer, Timothy Hofer, and G & R Development, LLC, allege claims for promissory estoppel and equitable estoppel against defendant, Liberty National Bank. Liberty moves for summary judgment on both claims. Docket 22. Plaintiffs oppose the motion. For the following reasons, Liberty's motion is granted.

BACKGROUND

The pertinent facts viewed in the light most favorable to plaintiffs are as follows:

Plaintiffs are a group of individual and institutional investors who were interested in purchasing a parcel of land located in Sioux Falls, South Dakota. The land was approximately 190 acres, and plaintiffs were considering usingthe land for commercial development. Liberty is a federally chartered bank. This case arose from discussions between plaintiffs and Liberty pertaining to the possibility of plaintiffs receiving financing from Liberty so that plaintiffs could purchase the aforementioned parcel of land.

Plaintiffs had the land appraised on February 10, 2010, in order to gain perspective as to the property's value. The appraisal was requested by Darrel Viereck, a real estate broker, on behalf of Hofer. The appraisal was performed by Dennis Holles of Kaschmitter Appraisals, Inc. In performing the appraisal, Holles did not comply with certain rules and regulations created by the Office of the Comptroller of the Currency (OCC) and the Financial Institutions Reform and Recovery Act of 1989 (FIRREA).¹ An appraisal must comply with FIRREA if a bank relies on it in making a loan. The Kaschmitter appraisal valued the property at $13,192,500.

Plaintiffs first contacted Jacob Stahl, the Senior Vice President at Liberty, in July of 2010 to discuss the possibility of obtaining financing to purchase the property. On July 20, 2010, which was after their initial discussions, plaintiffs provided Stahl with the Kaschmitter appraisal. Plaintiffsclaim that Stahl informed them that Kaschmitter Appraisals, Inc., was on Liberty's approved list of appraisers and that the Kaschmitter appraisal would be acceptable.

The July 2010 discussions with Stahl did not lead to any commitment from Liberty that it would finance plaintiffs' acquisition of the property. Instead, an August 20, 2010, string of emails between plaintiffs and Stahl shows that plaintiffs were still only in the initial stages of obtaining financing. In the August 20 emails, plaintiffs stated that they were "not asking for 100% commitment" from Liberty at that time but wanted to know Stahl's "thoughts" on whether Liberty could put the "deal together[.]" Docket 41-13. Stahl did not respond that Liberty would be able to provide financing but instead indicated that he would have a better idea after further information was received. Id.

Following discussions with Stahl, plaintiffs met with the owner of the land to further discuss purchasing the property. Plaintiffs entered into a purchase agreement with the owner of the property on September 3, 2010, agreeing to a $7.5 million purchase price. The purchase agreement called for a $40,000 payment on September 4, 2010, a $460,000 payment on October 15, 2010, with the remaining balance due on December 1, 2010. The two initial payments, totaling $500,000, were nonrefundable, regardless of whetherplaintiffs obtained financing.² Plaintiffs made the initial two payments on the dates when they were due.

After entering into the purchase agreement, plaintiffs contacted Liberty in October 2010 in an attempt to get a loan commitment letter (LCL). Between October 13, 2010, and October 19, 2010, Liberty sent four versions of a proposed LCL to plaintiffs, making changes as requested through negotiations with plaintiffs. There was a covenant in all four versions of the LCL, including the executed version, that necessitated Liberty be "furnished an appraisal, in form and substance satisfactory to [Liberty], by a qualified appraiser approved by [Liberty], showing the value for the Mortgaged Property . . . acceptable to [Liberty] in value and condition." Docket 30-13 at 5. The LCL further dictated that the loan amount would not exceed 56 percent of the appraised value or $7,320,000, whichever is less. Id. The LCL also contained an integration clause that prescribed that the LCL "constitutes the entire understanding of the parties concerning the subject matter of [the LCL], and supersedes and replaces any and all prior communications, agreements and understandings of the parties, written or otherwise, concerning the subject matter of [the LCL]." Docket 30-13 at ¶ 22. Plaintiffs acknowledge that the LCL replaced any prior oral understandings plaintiffs thought they had with Liberty. Docket 24 at ¶ 48 (admitted in Docket 35 at 6).

Following formation of the LCL, Liberty contacted Holles and asked him to bring the Kaschmitter appraisal up to date. Holles refused.³ Because Holles refused, Liberty hired a different appraisal company, Shaykett Appraisals, to complete an appraisal of the property. The Shaykett appraisal valued the property at $10 million. Thereafter, Liberty informed plaintiffs that it would approve a loan in the amount of $6 million assuming plaintiffs could satisfy the other conditions set forth in the LCL. The terms of the LCL required Liberty to only loan plaintiffs $5.6 million (56 percent of the appraised value).

The $6 million loan amount was $1,320,000 below the amount plaintiffs had wanted to borrow from Liberty. Docket 35 at 9. Although plaintiffs had the financial ability to come up with the additional funds needed to purchase the property, they chose not to put up the funds and did not purchase the property. Id. at 10.

Because the $500,000 payments were nonrefundable, plaintiffs are now seeking damages in that amount from Liberty. Plaintiffs' claims for promissory estoppel and equitable estoppel arise from the statements Stahl allegedly made to plaintiffs prior to their entering into the purchase agreement.

STANDARD OF REVIEW

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgmentas a matter of law." Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) ("[A] party seeking summary judgment always bears the initial responsibility of . . . demonstrat[ing] the absence of a genuine issue of material fact." (internal quotations omitted)). The moving party must inform the court of the basis for its motion and also identify the portion of the record that shows that there is no genuine issue in dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992). Once the moving party has met its initial burden, the "nonmoving party may not 'rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.' " Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cnty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). For purposes of summary judgment, the facts, and inferences drawn from those facts, are "viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).

Both parties relied on South Dakota law in their briefs in support of their motions for summary judgment. Because the parties do not dispute that South Dakota substantive law applies to this cause of action, the court will apply South Dakota law.

DISCUSSION

I. Promissory Estoppel

Plaintiffs claim that they detrimentally relied on the statements made by Stahl when they entered into the purchase agreement and, thus, have a claim for promissory estoppel.⁴ Promissory estoppel can entitle an individual who was unjustly harmed to damages "[e]ven when there is no valid contract between the parties[.]" Minor v. Sully Buttes School Dist No. 58-2, 345 N.W.2d 48, 50-51 (S.D. 1984). Under South Dakota law, promissory estoppel applies when a "promisee alters his position to his detriment in the reasonable belief that a promise would be performed." Canyon Lake Park, L.L.C. v. Loftus Dental, P.C., 700 N.W.2d 729, 739 (S.D. 2005). The starting point of any promissory estoppel claim is the promise itself. Adams v. Rapid City Reg'l Hosp., Inc., Civ. No. 04-5067, 2006 WL 2459483, at *20 (D.S.D. Aug. 23, 2006) (citing Durkee v. Van Well, 654 N.W.2d 807, 815 (S.D. 2002)). Assuming a promise is identified, the elements of promissory estoppel are: (1) the detriment suffered in reliance must be substantial in an economic sense; (2) the loss to the promisee must have been foreseeable by the promisor; and (3) the promiseemust have acted reasonably in justifiable reliance on the promise made. Canyon Lake, 700 N.W.2d at 739.

A. Lack of a Promise

Plaintiffs argue that the "promise" was created solely from Stahl's statements that Kaschmitter was on Liberty's approved list of appraisers and that the Kaschmitter appraisal was acceptable. Plaintiffs readily admit that Stahl's statements did not obligate Liberty to make a loan to plaintiffs nor did the statements obligate Liberty to make use of the Kaschmitter appraisal. Docket 37 at 10. The initial issue is whether Stahl's statements constitute a promise. "A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made." Restatement (Second) of Contracts § 2 (1981); see United States v. Gerth, 991 F.2d 1428, 1434 (8th Cir. 1993) (providing that "[a] promise is an assurance from one par...