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Baker Boyer National Bank v. JPF Enterprises, LLC

Supreme Court of North Dakota

March 13, 2019

Baker Boyer National Bank, Plaintiff and Appellee
v.
JPF Enterprises, LLC, Defendant and Appellant

          Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable Daniel S. El-Dweek, Judge.

          Trevor A. Hunter (argued), Williston, ND, and Todd Reuter (on brief), Spokane, WA, for plaintiff and appellee.

          Steven J. Wild, Bowman, ND, for defendant and appellant.

          OPINION

          CROTHERS, JUSTICE.

         [¶1] JPF Enterprises, LLC, appeals from a summary judgment awarding Baker Boyer National Bank $858, 135.47 on its breach of contract claim and dismissing JPF's counterclaim for fraud in the inducement. JPF argues the district court erred in granting summary judgment on the counterclaim for fraud in the inducement. We conclude JPF failed to raise a genuine issue of material fact about the existence of a fiduciary relationship, and affirm the summary judgment.

         I

         [¶2] Baker Boyer loaned money to JPF for the purchase of thirty mobile homes from Jason Sundseth and his company, Vindans LLC, for use as rental housing in western North Dakota. In 2013, Vindans owned the homes and rented them to oil field workers through Greenflex Housing, LLC, and Greenflex's rental manager, Badlands, LLC. Vindans purchased the homes with financing from Baker Boyer.

         [¶3] In the summer of 2013, James Foust, managing owner of JPF, and Sundseth began negotiations for JPF to purchase the homes from Vindans, and JPF sought financing for the purchase from Baker Boyer. According to Foust, Baker Boyer's loan officer, Chris Sentz, obtained rental information from Greenflex Housing indicating the monthly rental proceeds from the thirty homes was $9, 600 and would not service JPF's anticipated monthly payments of about $15, 000 for the loan. Foust also claimed Baker Boyer required JPF to contract with Greenflex Housing to rent the homes to oil field workers and informed him the arrangement would result in a return of $45, 000 per month for the thirty homes. According to Foust, Vindans' loan with Baker Boyer was near foreclosure and Baker Boyer failed to inform him that his purchase of the homes would not be profitable.

         [¶4] On August 20, 2013, Sentz emailed Foust that the requested financing for the purchase was "no longer a viable possibility" and that he would be sending an "official declination letter in the mail." Foust testified in his deposition that the denial was because Sundseth "was absolutely impossible to deal with" and Foust told Sentz he was "out of the deal." Foust also testified the denial had nothing to do with the "soundness of [his] financials." Baker Boyer did not send Foust a declination letter in the mail. On August 26, 2013, Sentz emailed Foust that "things have occurred" to allow Baker Boyer to again consider financing JPF's purchase of the homes. According to JPF, the subsequent development was the availability of Foust's personal guaranty of JPF's loan.

         [¶5] On September 24, 2013, JPF and Vindans executed an asset purchase agreement for JPF to purchase the thirty homes contingent on JPF obtaining financing from Baker Boyer. The purchase agreement stated the purchase price for the homes was a $1, 000, 000 payoff of Baker Boyer's loan to Vindans and a $245, 000 payment to Vindans.

         [¶6] In October 2013, Baker Boyer and JPF executed loan documents for JPF to borrow $1, 077, 600 from Baker Boyer to finance JPF's purchase of the homes from Vindans. The loan documents included a promissory note, a business loan agreement, a commercial guaranty of JPF's loan by Foust, a security agreement listing the mobile homes as collateral for the loan, and financing statements. Foust's personal guaranty stated "that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower."

         [¶7] In November 2015, JPF defaulted on its loan from Baker Boyer, and Baker Boyer sued JPF in North Dakota[1] to enjoin JPF from transferring or disposing of the loan collateral, to take possession of the collateral, for appointment of a receiver, for sale of the collateral and for a money judgment. JPF answered and counterclaimed, admitting payments were not made as agreed and alleging fraud in the inducement. JPF claimed Baker Boyer acted as an intermediary for JPF's purchase of the homes from Vindans and failed to disclose information to JPF about the physical condition of the homes, the financial condition of Vindans, and the uncertain financial viability of the home rentals. JPF sought an order requiring Baker Boyer to refund more than $600, 000 that JPF paid to Baker Boyer in exchange for JPF transferring all right, title and interest in the homes to Baker Boyer.

         [¶8] The district court granted Baker Boyer's motion for summary judgment, ruling Baker Boyer was entitled to judgment as a matter of law on its claim for damages against JPF and awarding Baker Boyer $858, 135.47. The court also concluded Baker Boyer was entitled to judgment as a matter of law on JPF's counterclaim for fraud in the inducement, ruling JPF failed to provide competent admissible evidence establishing a genuine issue of material fact about the existence of a fiduciary relationship between Baker Boyer and JPF. The court said:

"The Defendant relies upon American Bank Center v. Wiest, 2010 ND 251 to support its counterclaim. However, unlike this case, Wiest involves the bank admitting that there was fraud committed by its agent, a loan officer. Also unlike this case, Wiest involves numerous material misrepresentations by the bank's loan officer which induced the debtor to borrow money. Furthermore, it is clear that the loan officer in Wiest was more than just a loan officer. Here, it does not appear that the bank was doing more than a bank loan officer typically would do. Therefore, there is no evidence of [a] fiduciary [ ] relationship between the parties in this matter.
"The Defendant contends that the bank had a duty to disclose that the loan involving these trailers was nonperforming. As a knowledgeable investor, the Defendant had to know that banks sometimes make loans on assets that turn out to be nonperforming. Furthermore, a change in ownership or management of a real estate investment can often turn an unprofitable investment in the right direction. Therefore, the mere fact that the loans on these assets were nonperforming is not something that the bank would necessarily need to disclose. Moreover, as a non-party to the purchase agreement of these trailers, [the] bank had no duty to disclose that the assets were not profitable up to this point.
"The Court also is [ ] persuaded that having a lease agreement in place prior to the loan of $1 million would be part of the normal underwriting process, and not the result of a fiduciary relationship. Having such agreements in place reduce the risk of default, which is a legitimate goal of the lending process. Requiring such an agreement does not create a fiduciary or special relationship between the parties. Because there must be a fiduciary ...

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