It is hard to base your case on a breach of fiduciary duty when there is a contract in place between the parties. Contracting parties owe no special duties to each other beyond the terms of the contract. Branch Banking & Tr. Co. v. Thompson, 107 N.C. App. 53, 61, 418 S.E.2d 694, 699
Internal Affairs Doctrine Leads To Dismissal Of An Aiding And Abetting A Breach Of Fiduciary Duty Claim By NC Business Court
A lot of North Carolina court decisions have questioned whether a claim for "aiding and abetting a breach of fiduciary duty" can be made in North Carolina (many of them are cited in ¶16 of the Islet Sciences Opinion referenced below). Most of those decisions have cast doubt on whether that claim is recognized at…
Business Court Awards Rule 11 Sanctions For Baseless Fiduciary Duty Claim
It is probably a good idea for a corporation to avoid making fiduciary duty claims against its employees (unless they are also officers and directors). Clients (or their lawyers) who insist on making such claims are liable to be assessed with the attorneys’ fees of the persons they sue, at least based on the circumstances…
Minority Shareholder Owed No Fiduciary Duty To Other Shareholders In Merger Transaction
Judge Gale’s decision earlier this month in Corwin v. British American Tobacco PLC, 2015 NCBC 74 dismissed all of the claims of the Plaintiff class. If the name Corwin is ringing a bell with you, his case is the shareholder class action over the now completed transaction among Reynolds American, Inc. (RAI), Lorillard, Inc.…
NC Business Court Says That Bank Didn’t Owe A Fiduciary Duty To Its Customer, But Recognizes New Cause Of Action: Breach Of A Duty To Negotiate In Good Faith
Were you thinking that the Business Court might, one day, find that a bank owed a fiduciary duty to its customer? That seemed like it might happen eventually, as the NC Supreme Court seemed to hold out that possibility last year, in Dallaire v. Bank of America, N.A., 367 N.C. 363, 368 (2014), in which it said that:
it is possible, at least theoretically, for a particular bank-customer transaction to give rise to a fiduciary relationship under the proper circumstances.
But on Monday of this week, in RREF BB Acquisitions, LLC v. MAS Properties, LLC, 2015 NCBC 58, Judge McGuire stuck to the long-standing case law in North Carolina that a lender does not owe any fiduciary duties to its customer. At the same time, however, he also recognized a new cause of action which might have ramifications for claims against any type of entity (not just a lender) which decides to break off negotiations with an opposing party.
The Plaintiff RREF had purchased from BB&T two loans totaling $5.275 million which BB&T had made to the Defendants back in 2005. It had purchased the loans from BB&T while they were in default, and shortly after BB&T stopped negotiating a forbearance agreement with the Defendants.
No Fiduciary Duty
The Defendants’ lead argument against RREF’s lawsuit to collect on the loans was that BB&T had violated a fiduciary duty it owed to them. They said that BB&T had breached its duty by failing to disclose its attempts to sell their loans while it was in the midst of negotiating a forbearance agreement with them.
The Defendants claimed that if they had known that BB&T was selling their loans, they would have tried to buy them themselves or had a third party buy the loans on their behalf.
The basis argued by the Defendants for BB&T’s alleged fiduciary duty was that they had a thirty year relationship with a local office, and that they had worked closely with the Bank in developing various residential communities and in selling homes in those communities. Op. ¶41. BB&T responded that it owed no fiduciary duties to the Defendants and that it was simply pursuing the options available to it as the holder of loans that were in default.
As Judge McGuire noted, "[t]here is no reported North Carolina appellate case in which a fiduciary relationship has been found in a borrower-lender transaction." Op. ¶38. Given that one of the hallmarks of a fiduciary relationship is "a duty of the fiduciary to act in the best interests of the other party," Judge McGuire held that "it would seem nearly antithetical to require a commercial lender to put a borrower’s interest ahead of its own in a business transaction." Op. ¶41.
Another reason the Court refused to find a fiduciary relationship lay in the restructuring negotiations themselves. Both the Defendants and the Bank were at this point represented by attorneys and were "negotiating to protect their respective best interests." (Op. ¶43). If there ever had been a fiduciary relationship between them, "such relationship ceased once BB&T declared Defendants in default of the Loans and the positions of the parties became adverse." Op. ¶43.
The New Cause Of Action: Breach Of A Duty To Negotiate In Good Faith
Although it did grant summary judgment on the fiduciary duty claim, the Court nevertheless allowed the Defendants to go forward on a new claim hitherto not formally recognized in North Carolina: breach of a duty to negotiate in good faith.
Continue Reading NC Business Court Says That Bank Didn’t Owe A Fiduciary Duty To Its Customer, But Recognizes New Cause Of Action: Breach Of A Duty To Negotiate In Good Faith
Receiver Appointed To Oversee Sell-Off Of Corporation’s Intellectual Property
When I wrote last week about Americana Development, Inc. v. Ebius Trading & Distributing Co., the Business Court had entered a TRO against the Defendants prohibiting them from disposing of the intellectual property of Defendant Ebius Trading and using the proceeds to pay off debts which had been personally guaranteed by its officers and…
Pro Se Defendant Wins Trial On Breach Of Fiduciary Duty Claims In Business Court
When I was a young pup preparing to go to court against the uncommon adversary who was proceeding without a lawyer, I would joke that "I hope I don’t lose." Luckily, I never did.
But the Plaintiff in Seraph Garrison, LLC v. Garrison, 2014 NCBC 28, didn’t have the same good luck. It…
Real Estate Agents Need To Be Careful About Disclosing Dual Agency
Dual agency is a big deal to real estate agents. It lets them represent both a buyer and a seller in a transaction. Dual agency was the focal point of the Business Court’s opinion last week in BDM Investments v. Lenhil, Inc., 2014 NCBC 6. The Opinion shows the dangers of failing to disclose…
The NC Supreme Court Speaks On Fiduciary Duty And Piercing The Corporate Veil
The best lines in Green v. Freeman, decided last week by the NC Supreme Court, are that "[t]he doctrine of piercing the corporate veil is not a theory of liability. Rather, it provides an avenue to pursue legal claims against corporate officers or directors who would otherwise be shielded by the corporate form." …
What Withdrawing Partners Can Expect
If you are a partner in a limited liability partnership, or if you have clients who are, you’ll want to read Judge Gale’s opinion in Chesson v. Rives, 2013 NCBC 49, decided last week. It provides guidance on the rights of partners withdrawing from LLPs.
Chesson, one of the Plaintiffs, was a partner in…