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BloomBank v. United Fidelity Bank F.S.B.

Court of Appeals of Indiana

October 26, 2018

BloomBank, Appellant-Plaintiff,
v.
United Fidelity Bank F.S.B., et al., Appellees-Defendants.

          Appeal from the Marion Superior Court The Honorable Heather A. Welch, Judge Trial Court Cause No. 49D01-1606-PL-19471

          Attorneys for Appellant Bryan H. Babb V. Samuel Laurin Christopher S. Roberge Elizabeth A. Roberge Bose McKinney & Evans LLP Indianapolis, Indiana.

          Attorneys for Appellees Andrew W. Hull Jason L. Fulk Hoover Hull Turner LLP Indianapolis, Indiana.

          Bailey, Judge.

         Case Summary

         [¶1] BloomBank, f/k/a Bloomfield State Bank, ("BloomBank"), a participant lender to a real estate developer, sued United Fidelity Bank F.S.B. ("UFB"), the primary lender, and Village Capital Corporation ("Village Capital"), a successive developer and affiliate of UFB, for allegedly fraudulently inducing BloomBank to sell its interest to UFB at a lower-than-market price, breaching the terms of the parties' contract, and gaining unjust enrichment. BloomBank now appeals the trial court's "Order Granting Defendants' Motion to Dismiss [BloomBank's] Third Amended Complaint."

         [¶2] We affirm in part, reverse in part, and remand.

         Issues

         [¶3] BloomBank raises the following four issues:

I. Whether BloomBank sufficiently pled a claim for constructive fraud.
II. Whether BloomBank sufficiently pled a claim for actual fraud.
III. Whether BloomBank sufficiently pled a claim for breach of contract.
IV. Whether BloomBank sufficiently pled a claim for unjust enrichment.

         Facts and Procedural History

         [¶4] The relevant facts, as alleged in BloomBank's Third Amended Complaint and attached exhibits, are as follows.[1]

         [¶5] On May 23, 2007, UFB agreed to loan $7.7 million ("the Loan"), secured by a mortgage on a residential development in Hamilton County called Anderson Hall ("the Property"), to Estridge Development Company, Inc. ("Estridge"). BloomBank and two other banks (collectively forming TriCapital, LLC and collectively referred to as "TriCapital participants"), agreed to provide approximately $3.275 million of the loan amount to UFB in exchange for a 42.5287% interest in the profits and losses associated with the Loan ("the Participatory Interest"). BloomBank held a 40% interest in the TriCapital participation, for which BloomBank paid $1, 309, 883.96. The TriCapital participants and UFB memorialized their transaction in a Participation Agreement, executed on May 23, 2007.

         [¶6] The Participation Agreement (alternately referred to as the "contract") between UFB and the TriCapital participants provided, in relevant part:

ARTICLE IV
ADMINISTRATION OF THE LOAN
4.1 All Loan Documents shall be executed by the Borrower [Estridge] in favor of the Lender [UFB] and shall be held by the Lender as trustee for the Participant [TriCapital participants] to the extent of its Participatory Interest in the Loan. The Lender reserves the right, in its sole and absolute discretion, in such instance upon prior verbal notice, to be subsequently confirmed by written notice to the Participant, to enforce any and all of the obligations and liabilities of Borrower under the Loan or any of the Loan Documents … The Lender agrees that[, ] without the prior written consent of the Participant, which consent shall not be unreasonably withheld or delayed, the Lender shall not … (d) realize on any collateral which may secure the Loan …
** *
4.2 The Lender shall service the Loan in accordance with its usual and customary practice in the ordinary course of its business and will exercise care in the administration of the Loan as if it were an average prudent lender having made the entire Loan by itself. It is expressly understood and agreed that the Lender does not assume nor shall it be deemed to have any responsibility or liability to the Participant, either express or implied, for:
** *
(b) with Participant's written consent, notice of which shall be promptly given, for any failure to realize upon any collateral for the Loan …
** *
The Participant expressly consents, acknowledges and agrees that the Lender shall have no liability to Participant for any actions the Lender takes in accordance with this Agreement with Participant's prior consent.
4.3 … The Lender shall promptly notify the Participant of events of which it has actual knowledge and which might materially adversely affect its interest …
** *
ARTICLE X
MISCELLANEOUS PROVISIONS
** *
10.12 The headings of the Articles in this Agreement are inserted solely for convenience of reference, and are not intended to govern, limit, or aid in the construction of any term or provision hereof.
** *

Appellant's App. Vol. III, pp. 186-87, 193.[2]

         [¶7] Because UFB was the lead lender and mortgagee, the TriCapital participants had no privity of contract with Estridge, no disclosed interest in the Loan, and no interest of public record in the Property. The TriCapital participants relied on UFB to provide them with timely and accurate information regarding the status of the Loan and the collateral securing repayment of the Loan, as contemplated in the Participation Agreement.

         [¶8] Estridge ultimately defaulted on the loan. On February 17, 2012, UFB filed a foreclosure action against Estridge. The participant lenders were required to contribute their pro rata share of all attorney's fees, costs, and expenses incurred by UFB in enforcing the terms of the Loan documents and in realizing on the collateral pledged as security for repayment of the Loan. On May 15, 2013, a final judgment in the foreclosure case was entered in favor of UFB in the amount of $6, 826, 240.93.

         [¶9] On June 4, 2013, UFB filed a praecipe for a sheriff's sale of the Property that was collateral for the Loan. On June 14, 2013, a competing lien holder in the foreclosure action, Marilyn Anderson ("Anderson"), filed a notice of appeal. Anderson did not post a bond or seek a stay of the sheriff's sale. During this same time period, UFB and the TriCapital participants were engaged in negotiations regarding UFB's possible repurchase of the participant lenders' interest in the Loan. On July 9, 2013, UFB offered to repurchase the TriCapital Participatory Interest for a total purchase price of $1, 150, 000.00, i.e., less than one-third of the original purchase price paid to UFB by the Tri-Capital participants for the Participatory Interest.

         [¶10] On July 31, 2013, Pat Pfeifer ("Pfeifer"), a representative of the TriCapital participants, wrote to Donald R. Neel ("Neel"), the President and Chief Executive Officer of UFB and Village Capital, a corporation located in Evansville and an affiliate of UFB. Pfeifer wrote the following regarding the TriCapital participants' potential losses associated with acceptance of the UFB proposal to buy the Participatory Interest:

We had two areas of concern we would like to address:
1. Written disclosure of any negotiations to sell the note/collateral prior to sheriff sale[.]
2. Bid price - UFB has not disclosed what its bid offer [is] to Tri-Capital; however, [i]f a bidder shows up and offers $2.8MM or greater[, ] we would be better off letting it sell to that bidder than taking the offer of $1, 150, 00. If you can please elaborate on your bid price and why.

Appellant's App. Vol. III at 247.

         [¶11] On August 1, 2013, there was a sheriff's sale of the Property. UFB was the successful bidder for the Property in exchange for a judgment bid in the amount of $2, 800, 000.00, a sum millions of dollars lower than the Property's actual value. That afternoon, Neel responded to Pfeifer's inquiry in an email that stated, in relevant part:

We are able to represent that we had not entered into any negotiations to sell the note/collateral prior to the sheriff's sale. We have received calls and inquiries requesting information about parts of the property (developed lots), but[, ] based on the cloud of the Anderson situation[, ] have not attempted to negotiate a sale. Your second item … is now moot given the results of the auction today….

Id. at 246-47.

         [¶12] The following morning, August 2, Pfeifer sent Neel an email that stated in relevant part:

We are seeking full disclosure of any offers, calls and inquiries. The purpose of which is [to] provide satisfaction that a discounted sale of the participation is done with full knowledge of any and all offers which may have caused the participants to reconsider the acceptance of a discount.
** *
Lastly[, ] I will put it this way, if the property were sold to a party for a price that would result in a smaller loss to the participant group and that conversation had begun prior to or during our acceptance of this discounted offer[, ] then we would take issue that [sic] we had not been informed about it.
** *

Id. at 246.

         [¶13] That afternoon, August 2, Neel responded to Pfeifer's inquiry in an email that stated, in relevant part:

I will note below the parties (that we have record of) that have contacted UFB regarding [the Property], and the related litigation. … Only recently did our proposal advance with your group, and a price (that we believe is fair given the ongoing risk) was reached.
1. Due to the pending Anderson appeal, we are not now in a position to sell the entire property as we only have clear title on the eastern portion of the property. Resolution of the Anderson litigation[, ] based on what we anticipate the ...

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