Do Bankers Ever Have Fiduciary Duties To Their Customers?

If a bartender serves a visibly intoxicated customer with even more alcohol and the customer then causes an accident while driving drunk, the bartender can be liable under North Carolina's Dram Shop Act, N.C. Gen. Stat §18B-120, et seq.  But if a banker showers cash on a borrower to fund a  deal which goes bad, does the borrower have any claim against the banker for not cutting him off?

 The short answer is that bartenders are held to a higher standard than bankers.  A claim against a lending bank for anything other than a violation of the terms of the loan documents -- say such as a claim for breach of fiduciary duty -- is almost always doomed to dismissal  Judge Gale of the Business Court last week did exactly that to the borrower's claim in Wells Fargo Bank, N.A. v. Vandorn, 2012 NCBC 6, saying that “[I]n an ordinary lender-borrower relationship, the lender does not owe any duty to its borrower beyond the terms of the loan agreement[,]” Op. ¶__. (quoting Branch Banking & Trust Co. v. Thompson, 107 N.C. App. 53, 418 S.E.2d 694, 699 (1992)).

Wells Fargo had sued Vandorn, Cook and an LLC formed by the two individuals to collect on a defaulted loan made for the LLC  to buy a lot in a high-end resort development called Laurelmor.  Laurelmor was billed as a 6,000 acre golf resort, with the course designed by PGA great Tom Kite, to be developed in the North Carolina mountains.  The Winston-Salem Journal says that Laurelmor "collapsed under the bad economy and a massive loan."

The three defendants counterclaimed, seeking to avoid liability on their loan.  They alleged that Wells Fargo (then Wachovia) had breached its fiduciary duty to them because it failed to obtain an accurate appraisal on the lot and it also failed to determine that the LLC borrowing the funds was insufficiently capitalized to repay the loan.

The Vandorn Defendants said that Wells Fargo owed them a fiduciary duty to vet the deal because one of the Defendants, Cook, was a client in the Bank's Wealth Management Division.  That's the part of the Bank which handles its wealthiest clients, offering them a "holistic approach" and the advice of a "team of highly experienced specialists." Cook said he relied on the Division  for most of "his banking, investment, and insurance needs, and . . . for advice and counseling regarding a broad spectrum of financial matters." p. Par. 9.  Cook said he had relied upon the Bank to obtain a valid and reliable appraisal on the Laurelmor property and that the Defendants would not have purchased the lot if the Bank had appropriately protected them.

Judge Gale said that the "conclusory allegations" of the Counterclaim didn't have enough heft to establish a fiduciary relationship and he granted Wells Fargo's Motion to Dismiss. He summed up what was lacking this way:

Defendants do not allege Plaintiff or its employees located, identified, or recommended the lot, or that the lot purchase was part of a broader financial plan that Plaintiff had developed for [] Cook or the Defendants. Defendants do not allege that B. Cook or any other Defendant sought investment advice regarding the lot transaction. To the contrary, Defendants’ allegations indicate that Plaintiff became involved in the lot transaction only after Defendants had located the lot, formed the intent to purchase the lot, formed [the LLC] to facilitate the purchase, and approached Plaintiff about financing the transaction.

Op. ¶17

So if the Wealth Management Division had recommended the development to the Defendants, might that have established a fiduciary relationship?  Maybe, but the Vandorn decision is the latest in a series of Business Court decisions where investors in resort  development projects sought unsuccessfully to transfer the burden of their loss to their lenders, See Allran v. Branch Banking & Trust Corp., 2011 NCBC 21 (N.C. Super. Ct. Jul.6, 2011), and  Beadnell v. Coastal Communities,  (N.C. Super. Ct. June 3, 2011).

On a totally different subject, yesterday I checked out http://www.supremecourthaiku.com/, which summarizes US Supreme Court decisions in haiku.  The video explaining it is absolutely hilarious.  If I could write in three line haikus, my blog posts would be much shorter.  But I'm probably better at limericks, but not by much.

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