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Birch|Rea Partners, Inc. v. Regent Bank

United States District Court, N.D. Indiana, Fort Wayne Division

May 10, 2019

BIRCH|REA PARTNERS, INC., Plaintiff,
v.
REGENT BANK, STONEGATE BANK, and HOME BANCSHARES, INC., Defendants. REGENT BANK, STONEGATE BANK, and HOME BANCSHARES, INC., Defendants/Counterclaim Plaintiffs,
v.
BIRCH|REA PARTNERS, INC., Plaintiff/Counterclaim Defendant.

          OPINION AND ORDER

          HOLLY A. BRADY JUDGE.

         The Plaintiff in this litigation, Birch|Rea Partners, Inc., is pursuing a single cause of action against the Defendant, Regent Bank, and its successors Stonegate Bank, and Home BancShares, Inc. In a Complaint filed on February 13, 2018, Birch|Rea asserted that Regent Bank committed the tort of malicious prosecution when it initiated and pursued litigation against Birch|Rea in federal court. The Defendants, after answering the Complaint and asserting a Counterclaim that the Complaint was frivolous, filed a Motion for Judgment on the Pleadings Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure [ECF No. 45]. For the reasons set forth in this Opinion and Order, the Motion will be denied.

         STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the pleadings after the parties have filed the complaint and answer, but early enough not to delay trial. “A motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure is governed by the same standards as a motion to dismiss for failure to state a claim under Rule 12(b)(6). A motion to dismiss under Rule 12(b)(6) doesn't permit piecemeal dismissals of parts of claims; the question at this stage is simply whether the complaint includes factual allegations that state a plausible claim for relief.” BBL, Inc. v. City of Angola, 809 F.3d 317, 325 (7th Cir. 2015) (emphasis omitted) (internal quotation marks and citations omitted); see also Bishop v. Air Line Pilots Ass'n, Int'l, 900 F.3d 388, 396 (7th Cir. 2018) (surviving a Rule 12(c) motion requires that the complaint “state a claim to relief that is plausible on its face”) (first quoting Milwaukee Police Ass'n v. Flynn, 863 F.3d 636, 640 (7th Cir. 2017); then quoting Wagner v. Teva Pharm. USA, Inc., 840 F.3d 355, 358 (7th Cir. 2016)).

         In evaluating a motion for judgment on the pleadings, the Court must accept the non-movant's factual allegations as true and draw all reasonable inferences in its favor, but it need not accept as true any legal assertions. Wagner v. Teva Pharm. USA, Inc., 840 F.3d 355, 358 (7th Cir. 2016). The court's review is limited to the pleadings; however, it may also take into consideration documents incorporated by reference into the pleadings and matters properly subject to judicial notice. Flynn, 863 F.3d 636, 640 (7th Cir. 2017). The court cannot consider matters outside these areas without converting the motion into one for summary judgment. See Fed. R. Civ. P. 12(d); Omega Healthcare Investors, Inc. v. Res-Care, Inc., 475 F.3d 853, 856 n.3 (7th Cir. 2007). In addition, a Rule 12(c) motion is appropriate only when “it is clear that the merits of the controversy can be fairly and fully decided in this summary manner.” Wright & Miller, Federal Practice and Procedure, § 1369 (3d ed.).

         THE COMPLAINT ALLEGATIONS

         In 2016, Regent Bank initiated a lawsuit against Birch|Rea under Cause Number 1:16-CV-262-TLS-SLC (the Underlying Litigation). In the Underlying Litigation, Regent Bank accused Birch|Rea of generating an appraisal report (the Report) that contained misrepresentations regarding a certain property (the Property) located in Marion, Indiana. The Report valued the Property as of May 29, 2007. Birch|Rea provided the Report to SunTrust and PNC Bank. On October 19, 2007, the Property sold to an affiliate of SunTrust, and PNC extended the loan (the Mortgage Loan) to SunTrust in connection with the sale of the Property. On December 20, 2010, Regent Bank purchased the Mortgage Loan on the secondary market from PNC Bank.

         Birch|Rea alleges that Regent Bank initiated the Underlying Litigation for negligent misrepresentation, fraud, and breach of contract in a grossly negligent manner and without probable cause until the time it was dismissed with prejudice by Regent Bank with court approval. Regent Bank's malice and improper purpose was to attribute anticipated losses on the Mortgage Loan to Birch|Rea, even though Regent Bank knew that Birch|Rea was not the cause of the loss, and to extract a settlement from Birch|Rea. Regent Bank was, at the time, engaged in discussions with Stonegate Bank to be acquired by merger, and Regent Bank considered the Mortgage Loan to be a bad loan that would have to be charged off. Regent Bank knew the claims it was pursuing were not factually or legally sustainable because the Report was accurate in all material respects and was prepared in full adherence to and compliance with Uniform Standards of Professional Appraisal Practice, as well as using a methodology to value the Property that had been accepted by SunTrust and PNC Bank. In November 2009, Regent Bank itself had requested that Birch|Rea use a capitalization rate in the same range to appraise similar properties. Additionally, given the passage of time and changes in the underlying economic and market assumptions since the valuation in the 2007 Report, Regent Bank's reliance on the Report was contrary to Interagency Appraisal & Evaluation Guidelines promulgated by the Office of the Comptroller of the Currency.

         Birch|Rea is seeking damages for attorney fees it expended in the Underlying Litigation, and for lost revenue from reputational harm the lawsuit caused.

         ANALYSIS

         A malicious prosecution claim involves four elements: (1) the defendant instituted or caused to be instituted an action against the plaintiff; (2) the defendant acted with malice in doing so; (3) the defendant had no probable cause to institute the action; and (4) the original action was terminated in the plaintiff's favor. City of New Haven v. Reichhart, 748 N.E.2d 374, 378 (Ind. 2001). The Defendants argue that Birch|Rea cannot maintain an action for malicious prosecution because it cannot meet two of the required elements. First, the Defendants argue that the original action was not terminated in Birch|Rea's favor. They assert that the Court can take judicial notice of the fact that the parties' agreement that the Underlying Litigation would be voluntarily dismissed with each party bearing its own attorney fees and costs was in settlement of the matter. Second, they claim that Regent Bank had probable cause to sue Birch|Rea because it relied on an expert report.[1]

         A. Was the Underlying Litigation Terminated in Birch|Rea's Favor

In its Complaint, Birch|Rea alleges that the Underlying Litigation ended as follows:
On September 2, 2016, Birch|REA filed a Motion to Dismiss Regent Bank's Complaint in the Underlying Litigation on the ground that Regent Bank was not the intended beneficiary of the Report, and therefore as a matter of law Regent Bank was not entitled ...

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