Wells Fargo Bank, N.A. v. Windows USA, LLC
| Citation | 484 F.Supp.3d 645 |
| Decision Date | 04 September 2020 |
| Docket Number | Case No. 4:19-cv-00161-SMR-SBJ |
| Parties | WELLS FARGO BANK, N.A., Plaintiff/Counterclaim Defendant, v. WINDOWS USA, LLC, Defendant/Counterclaimant/Third-Party Plaintiff v. Wells Fargo National Bank West, Third-Party Defendant. |
| Court | U.S. District Court — Southern District of Iowa |
Jesse Linebaugh, David Creasey, Kathryn Skilton, Kwesi Atta-Krah, Faegre Drinker Biddle & Reath LLP, Des Moines, IA, for Plaintiff/Counterclaim Defendant/Third-Party Defendant.
Guy R. Cook, Laura Nicole Martino, Michael Darrell Currie, Patrick J. McNulty, Sean M. Corpstein, Grefe & Sidney PLC, Adam D. Zenor, Zenor Kuehner, PLC, Des Moines, IA, Bart Calhoun, Pro Hac Vice, Dustin McDaniel, Pro Hac Vice, Vincent M. Ward, Pro Hac Vice, McDaniel Wolff & Benca PLLC, Little Rock, AR, for Defendant/Counterclaimant/Third-Party Plaintiff.
ORDER ON MOTIONS TO DISMISS
Wells Fargo Bank, N.A. ("Wells Fargo Bank") sued Windows USA, LLC ("Windows USA") for breach of contract and fraud, alleging Windows USA violated the parties’ consumer financing agreement by failing to honor the bank's right of first refusal and promising to abide by that term of the contract without any intention of ever doing so. See [ECF Nos. 1; 50]. Windows USA counter-sued Wells Fargo Bank and Wells Fargo National Bank West ("Wells Fargo National") (collectively, "Wells Fargo") for a declaratory judgment that the right of first refusal is unenforceable and for damages related to Wells Fargo's alleged tortious interference with its business and prospective customer relationships. See [ECF No. 36]. Both parties moved for partial dismissal of the other's complaint.1 For reasons stated below, Wells Fargo's Motion to Dismiss, [ECF Nos. 42; 55], is GRANTED, and Windows USA's Motion to Dismiss, [ECF No. 62], is DENIED.
This lawsuit stems from a customer financing agreement between Windows USA and Wells Fargo.3 Windows USA is an exterior home remodeling company that sells and installs custom vinyl windows. On November 11, 2011, Windows USA and Wells Fargo entered into a General Dealer Agreement ("GDA" or the "Agreement") whereby Wells Fargo would provide Windows USA's customers with financing to purchase home improvement products through the Wells Fargo Home Projects Program. See generally [ECF No. 36-1] (GDA) (sealed). The purpose of the GDA was to provide Widows USA's customers with greater access to credit to purchase its products. If Wells Fargo agreed to provide financing for a Windows USA customer, Wells Fargo would pay to Windows USA the amount invoiced to the customer less "the applicable discount rate" the bank charged for its services. Id. ¶¶ 15–16. In an amendment to the GDA, entered into on December 5, 2011, Windows USA agreed to provide Wells Fargo with a right of first refusal and promised it would not participate in any "consumer financing programs" or "unique credit term plans" other than the Wells Fargo Home Projects Program unless it first submitted the credit application to Wells Fargo and Wells Fargo declined the application. See [ECF No. 36-2 ¶ 3] (sealed) (First Amendment; GDA ¶ 48). Windows USA and Wells Fargo amended the GDA three more times throughout their business relationship, on March 3, 2013 (Second Amendment), December 5, 2014 (Third Amendment), and April 10, 2015 (Fourth Amendment).
In this lawsuit, Wells Fargo alleges Windows USA failed to honor its right of first refusal by submitting financing applications to competing consumer credit companies in violation of the amended GDA. [ECF No. 50 ¶¶ 14–17]. Wells Fargo alleges that in November of 2017, Michael Allbritton, President and CEO of Windows USA, admitted to Wells Fargo representatives that Windows USA was offering its customers consumer financing programs through other companies like Synchrony Financial and GreenSky LLC without first submitting such applications to Wells Fargo. Id. ¶¶ 15–17. Wells Fargo alleges Allbritton also admitted the company had been doing so since at least December of 2011, very shortly after the parties signed the GDA. Id. This constitutes a material breach of the GDA, the bank contends, and it seeks actual and compensatory money damages in excess of $7,000,000.
According to Wells Fargo, this breach of contract also constitutes actionable fraud. Wells Fargo contends that Windows USA's conduct since the inception of the parties’ business relationship demonstrates Windows USA never had any intention to honor the bank's right of first refusal or perform its duty to refrain from presenting consumer credit applications to competing financing companies under the amended GDA. Id. ¶ 19. It also claims the company took active steps to conceal its non-performance by "rebuffing [Wells Fargo]’s questions around whether Windows USA was violating the right of first refusal" and falsely representing its compliance by executing three additional amendments to the GDA. See id. ¶¶ 20–22.
For its part, Windows USA charges Wells Fargo with using its superior position under the GDA to unjustly enrich itself at the home improvement company's expense. Windows USA alleges Wells Fargo drastically increased the "discount rate" charged for its financing services and obliquely enhanced the credit standards for customer-applicants to increase the bank's profit margin and avoid paying Windows USA "growth rebates" and "volume bonuses" available under the second and third amendments to the GDA. [ECF No. 36 ¶¶ 18–23]; see also [ECF Nos. 36-3 ¶¶ 5–6; 36-4 ¶¶ 4–5]. Windows USA also claims Wells Fargo violated the GDA by failing to disburse any "program funds"—a pool of $50,000 set aside for participants in the Wells Fargo Home Projects Program to support and promote the program's financing initiative—to Windows USA. [ECF No. 36 ¶¶ 24-25]. When Windows USA objected to the increased discount rates, the company claims, Wells Fargo immediately terminated the GDA and withheld payments on outstanding invoices totaling $206,000, without any detailed accounting. See id. ¶ 27–29. Windows USA claims Wells Fargo has refused to disburse those funds within one year of ending the agreement as required by the GDA. See id. ; see also [ECF No. 36-1 ¶ 28].
Windows USA counter-sued Wells Fargo after the initiation of this lawsuit. Windows USA seeks to have the right of first refusal provision in the GDA declared invalid and unenforceable, contending Wells Fargo did not offer additional consideration for amending the GDA to support the bank's right of first refusal. Id. ¶¶ 40, 42. The company also sues for breach of contract pertaining to Wells Fargo's refusal to return funds held in the reserve account upon the termination of the GDA, see id. ¶¶ 46–50, and claims the bank unjustly enriched itself by failing to return the balance of that account, id. ¶¶ 52–57. In addition, Windows USA contends Wells Fargo breached the implied covenant of good faith and fair dealing by arbitrarily increasing the applicable discount rate and failing to evaluate the credit applications of the company's customers in good faith. Id. ¶¶ 61-65. Finally, Windows USA alleges Wells Fargo tortiously interfered with its prospective business advantage by denying applications for credit submitted by prospective customers in need of financing, causing Windows USA to lose sales. See id. ¶¶ 67–69.
Presently, both parties seek dismissal of one or more claims contained in the other's pleadings. Wells Fargo moves to dismiss Windows USA's claim for declaratory judgment on the right of first refusal and its claim for tortious interference with prospective business advantage. See [ECF No. 42]. According to Wells Fargo, Windows USA's position that the right of first refusal in the First Amendment to the GDA lacked consideration ignores the modification of the legal relationship between the two entities by restricting Wells Fargo's ability to terminate the GDA. Moreover, the bank points out that the GDA did not grant Windows USA the freedom or discretion to decide whether or not to perform its obligations under the right of first refusal provision of that agreement, and is therefore not illusory or otherwise unenforceable. Wells Fargo also contends Windows USA's claim for tortious interference with prospective business advantage relates to and arises out of the GDA, so Windows USA is not permitted to bring a tort claim for one that sounds in contract. Windows USA fails to allege any prospective contractual relationship necessary to sustain such a claim, the bank continues, and fails to state a claim as a matter of law because the company's allegations imply Wells Fargo interfered with its own contracts—a result not permitted under applicable law.
Windows USA moves to dismiss Wells Fargo's accusation of fraud. See [ECF No. 62]. It argues Wells Fargo has merely re-pleaded its breach of contract claim as one for fraud and has otherwise failed to allege facts demonstrating fraud with the requisite degree of specificity. Windows USA claims any allegations of fraud, even if cognizable, are untimely and barred by the statute of limitations.
The Federal Rules of Civil Procedure require a complaint to present "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Conversely, a complaint is subject to dismissal when it "fail[s] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To meet this standard, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Braden v. Wal-Mart Stores, Inc. , 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). All reasonable inferences must be drawn in the plaintiff's favor, Crooks v. Lynch , 557 F.3d 846, 848 (8th Cir. 2009...
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