Ynovus Bank v. Coleman

• Decision Date: 15 August 2012
• Docket Number: Civil Case No. 1:11cv66.
• Court: U.S. District Court — Western District of North Carolina
• Parties: SYNOVUS BANK, Plaintiff, v. Patrick COLEMAN, Defendant/Third–Party Plaintiff, v. Synovus Financial Corp. d/b/a National Bank of South Carolina, et al., Third–Party Defendants.

887 F.Supp.2d 659

SYNOVUS BANK, Plaintiff,

v.Patrick COLEMAN, Defendant/Third–Party Plaintiff,

v.Synovus Financial Corp. d/b/a National Bank of South Carolina, et al., Third–Party Defendants.

Civil Case No. 1:11cv66.

United States District Court,

W.D. North Carolina,

Asheville Division.

Aug. 15, 2012.

W. Carleton Metcalf, Melissa Lynn English, Richard B. Fennell, Van Winkle, Buck, Wall, Starnes & Davis, P.A., Asheville, NC, for Plaintiff/Third–Party Defendant.

David R. Payne, David R. Payne, PA, Asheville, NC, John Elliott Rogers, II, The Ward Law Firm, P.A., Spartanburg, SC, for Defendant/Third–Party Plaintiff.

MEMORANDUM OF DECISION AND ORDER

MARTIN REIDINGER, District Judge.

THIS MATTER is before the Court on the Third Party Defendant Synovus Financial Corp.'s Motion to Dismiss Defendant's Second Amended Third Party Claims [Doc. 58] and the Plaintiff Synovus Bank's Motion to Dismiss the Defendant's Second Amended Counterclaims [Doc. 60].

I. PROCEDURAL BACKGROUND

In August 2007, the Defendant Patrick Coleman borrowed money from the National Bank of South Carolina (“NBSC”) to finance his purchase of an undeveloped lot in a residential development known as the Seven Falls Golf & River Club (“Seven Falls”) in Henderson County, North Carolina. On April 1, 2011, after the Defendant failed to repay the loan, the Plaintiff Synovus Bank—the successor-in-interest through name change and merger with NBSC—initiated this action. [Doc. 1].¹

The Defendant filed an Answer/Counterclaim and Third Party Complaint on June 1, 2011, naming Synovus Financial Corp., as well as the developer of Seven Falls, Keith Vinson (“Vinson”), and other related Seven Falls corporate entities as third party defendants.² [Doc. 7]. The Defendant filed an Amended Answer/Counterclaim and Third Party Complaint on August 2, 2011 [Doc. 18] and a Second Amended Answer/Counterclaim and Third Party Complaint on December 7, 2011 [Doc. 53]. Synovus Bank and Synovus Financial Corp. now move to dismiss the Defendant's Counterclaims and Third Party Claims, as amended. [Docs. 58, 60]. The Defendant has responded to the Motions to Dismiss [Docs. 62, 63], and Synovus Bank and Synovus Financial Corp. have filed Replies [Docs. 64, 65].

Having been fully briefed, this matter is ripe for disposition.

II. STANDARD OF REVIEW

In reviewing a motion to dismiss filed pursuant to Rule 12(b)(6), the Court is guided by the Supreme Court's instructions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). As the Fourth Circuit has noted, “those decisions require that complaints in civil actions be alleged with greater specificity than previously was required.” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir.2012).

In order to survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). To be “plausible on its face,” a plaintiff must demonstrate more than “a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

In reviewing the complaint, the Court must accept the truthfulness of all factual allegations but is not required to assume the truth of “bare legal conclusions.” Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4th Cir.2011). “The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6).” Walters, 684 F.3d at 439.

To survive a Rule 12(b)(6) motion, “a complaint must state a ‘plausible claim for relief.’ ” Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). Determining whether a complaint states a plausible claim for relief is “a context-specific task,” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.2009), which requires the Court to assess whether the factual allegations of the complaint are sufficient “to raise a right to relief above the speculative level,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. As the Fourth Circuit has recently explained:

To satisfy this standard, a plaintiff need not forecast evidence sufficient to prove the elements of the claim. However, the complaint must allege sufficient facts to establish those elements. Thus, while a plaintiff does not need to demonstrate in a complaint that the right to relief is probable, the complaint must advance the plaintiff's claim across the line from conceivable to plausible.

Walters, 684 F.3d at 439 (citations and internal quotation marks omitted).

III. FACTUAL BACKGROUND

Viewing the allegations of the Second Amended Counterclaims and Third–Party Complaint as true, the following is a summary of the relevant facts.

On August 15, 2007, the Defendant entered into a Reservation for Purchase and Sale Agreement (“Purchase Agreement”) with Seven Falls, LLC (“the Developer”) for the purchase of Lot 52 in the Seven Falls subdivision. [Purchase Agreement, Doc. 61–1].³ The Purchase Agreement identifies the Developer as the “Seller” of the Lot and the party promising to “convey marketable title” to the Defendant. [ Id. at Preamble and Part II ¶ 5]. The Purchase Agreement further states that the Developer was obligated to complete paved roads, utility infrastructure, and various recreational facilities, including a golf course. [ Id. at Part II ¶ 12]. The Defendant specifically acknowledged that the “Seller [Seven Falls, LLC] shall be the sole party responsible for the performance of Seller's obligation under this Agreement.” [ Id. at Part II ¶ 16]. Additionally, the Defendant acknowledged

that no other person, firm or entity, including, without limitation, any entity affiliated with Seller, shall have any obligation or liability under this Agreement. Purchaser, therefore, waives all claims against all companies and persons affiliated with Seller for any loss, cost or damage arising out of Seller's performance or non-performance of its obligations to Purchaser in connection with this Agreement....

[ Id.].

To finance his purchase of the Lot, on August 28, 2007, the Defendant executed a promissory note (“Note”) in favor of NBSC in the principal amount of $225,000, secured by a Deed of Trust on the Lot. [Note and Deed of Trust, Docs. 61–2 and 61–3]. The Defendant executed a Renewal Note on May 22, 2009. [Renewal Note, Doc. 61–4].

The Defendant contends that he was “fraudulently induced into investing in Seven Falls” [Counterclaim, Doc. 53 at ¶ 1] by an “aggressive marketing scheme” in which the Bank participated with the Developer. [ Id. at ¶ 12]. He specifically alleges that the Bank entered into a joint venture with the Developer which included nearly $90,000,000 in development loans, participation by the Bank in marketing activities, the promotion of the Bank as the primary or preferred lender for lot purchase loans, and other similar conduct. [ Id. at ¶ 11]. The Defendant further asserts that the Bank failed, inter alia, to ensure that the Developer had “appropriate experience, competence, and capitalization” and to inspect the progress of construction, while continuing to approve construction draws. [ Id. at ¶¶ 26, 27].

The Defendant also accuses the Bank of “aggressive lending practices,” allegedly promoting low-quality loans to inflate short-term profits and increase release fees.⁴ [ Id. at ¶ 23]. According to the Defendant, the Bank “was attempting to take advantage of the rapid increase in inflation adjusted real estate prices that occurred in the United States from 2003 through 2007, which time period has been widely described as a real estate boom....” [ Id.]. He then alleges damages based on the Bank's decision to cancel $63,000,000 “of its publicly recorded financial commitment to Seven Falls,” supposedly because it “never intended to fully fund” the $90,000,000 pledged, and because it “preferred to take TARP ⁵ benefits from the federal government instead of ensuring that these funds went to the benefit of Seven Falls.” [ Id. at ¶ 22].

IV. ANALYSISA. Synovus Bank's Motion to Dismiss

1. Plausibility of Defendants' Counterclaims

Synovus Bank first moves to dismiss the Defendant's Second Amended Counterclaims on the ground that they fail to meet the plausibility standards of Twombly and Iqbal. Specifically, the Bank argues that the basic premise of the Defendant's Counterclaims—that a bank would collude with a developer to induce individuals to buy lots at inflated prices and that a bank would knowingly accept the overvalued land as collateral for loans—is so contrary to the Bank's long-term business interests as to be implausible as a matter of law. [Doc. 61 at 5–8].

In support of this argument, the Bank relies on numerous district court decisions, including Feeley v. Total Realty Management, 660 F.Supp.2d 700 (E.D.Va.2009), Goldstein v. Bank of America, No. 1:09cv329, 2010 WL 1252641 (W.D.N.C. Jan. 10, 2010) (Howell, M.J.), and Bank of America v. Lykes, No. 1:09cv435, 2010 WL 2640454 (W.D.N.C. May 20, 2010) (Howell, M.J.), which dismissed similar claims against lenders as implausible. In each of these cases, however, the court determined that the plaintiffs had failed to allege specific facts to support their claims and had failed to make plausible allegations to support the theory that a lender would be willing to collude or conspire with a developer to make under-collateralized loans to borrowers to the detriment of the lender's own financial interests. See Feeley, 660 F.Supp.2d at 708;Goldstein, 2010 WL 1252641, at *5;Lykes, 2010 WL 2640454, at *6. By contrast, in the present case, the Defendant's allegations, when assumed to be true, establish a plausible reason (i.e., the desire for short-term profitability) for the Bank's willingness to knowingly make an under-collateralized loan to the Defendant, even if such loan may have...