Filed: Jul. 17, 2014
Latest Update: Mar. 02, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-2152 THE CAPER CORPORATION, Plaintiff - Appellant, v. WELLS FARGO BANK, N.A., as successor by merger to Wachovia Bank, N.A., Defendant – Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. James C. Dever III, Chief District Judge. (7:12-cv-00357-D) Submitted: March 21, 2014 Decided: July 17, 2014 Before KING and THACKER, Circuit Judges, and DAVIS, Senior Circuit
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-2152 THE CAPER CORPORATION, Plaintiff - Appellant, v. WELLS FARGO BANK, N.A., as successor by merger to Wachovia Bank, N.A., Defendant – Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. James C. Dever III, Chief District Judge. (7:12-cv-00357-D) Submitted: March 21, 2014 Decided: July 17, 2014 Before KING and THACKER, Circuit Judges, and DAVIS, Senior Circuit J..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2152
THE CAPER CORPORATION,
Plaintiff - Appellant,
v.
WELLS FARGO BANK, N.A., as successor by merger to Wachovia
Bank, N.A.,
Defendant – Appellee.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. James C. Dever III,
Chief District Judge. (7:12−cv−00357−D)
Submitted: March 21, 2014 Decided: July 17, 2014
Before KING and THACKER, Circuit Judges, and DAVIS, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
S. Leigh Rodenbough, IV, James C. Adams, II, Benjamin R. Norman,
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, LLP, Greensboro,
North Carolina, for Appellant. William L. Esser IV, Matthew H.
Mall, PARKER POE ADAMS & BERNSTEIN LLP, Charlotte, North
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
This case arises from an interest rate swap agreement
and accompanying loan contract between Appellant The Caper
Corporation (“Appellant”) and Appellee Wells Fargo (“Appellee”),
as successor in interest to Wachovia Bank, N.A. The district
court dismissed all ten of Appellant’s causes of action, which
sound in both contract and tort, for failure to state a claim
under Federal Rule of Civil Procedure 12(b)(6). For the reasons
that follow, we affirm.
I.
A. 1
Appellant is a real estate development corporation
organized under Florida law and headquartered in North Carolina.
Beginning in the early 1980s, Appellant financed many of its
commercial and residential development projects through loans
obtained from Appellee and its predecessors-in-interest.
Consistent with this relationship, on April 8, 2005, Appellee
loaned Appellant $3.8 million (the “Original Loan”) so that
Appellant could purchase an office building located in
1
The facts set forth in this section are derived from the
complaint, the “documents incorporated into the complaint by
reference,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551
U.S. 308, 322 (2007), and the documents “attached to the motion
to dismiss” that are “integral to the complaint and authentic,”
Philips v. Pitt Cnty. Mem’l Hosp.,
572 F.3d 176, 180 (4th Cir.
2009).
2
Wilmington, North Carolina (the “Property”). The seven-year
loan agreement, which was secured by a deed of trust to the
Property, included a one-year variable interest rate followed by
a six-year fixed interest rate. Appellant used the loan
disbursement to purchase the Property and, effective July 1,
2005, leased it to a commercial tenant for a term of seven
years.
Several months after executing the Original Loan,
Appellant decided to seek refinancing in order to develop
certain portions of the Property for the tenant’s use. Appellee
responded to Appellant’s inquiry with a term sheet (the “Term
Sheet”) offering a $10.3 million (later reduced by agreement to
$4.3 million), ten-year refinanced loan with a variable interest
rate set at the one-month London Interbank Offered Rate
(“LIBOR”) plus 1.75% (later reduced by agreement to LIBOR plus
1.70%). The proposed refinanced loan, according to the Term
Sheet, would include a 0.25% fee and “[o]ther costs as required
including appraisal fee, environmental assessment, title
insurance and legal fees (if applicable).” J.A. 23. 2 The Term
Sheet further provided that Appellant could obtain a fixed rate
2
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
3
through a separate interest rate swap agreement, which was
“available upon request.” Id. at 13.
As described by the district court, an interest rate
swap agreement
is a standalone interest rate hedging
instrument whereby two parties pay each
other interest based on a notional principal
amount (i.e., an agreed hypothetical
principal amount). The first party pays a
fixed interest rate to the second party,
while the second party pays a variable
interest rate to the first party. If the
first party is a borrower with a variable
interest rate loan, where the loan interest
rate and swap interest rate are the same,
and the notional principal amount is equal
to the loan principal, the loan holder
effectively pays only a fixed interest rate.
Incoming payments under the interest rate
swap offset any interest due under the loan,
leaving a net payment at the fixed interest
rate.
The Caper Corp. v. Wells Fargo Bank, N.A., No. 7:12-CV-357-D,
2013 WL 4504450, at *1 n.1 (E.D.N.C. Aug. 22, 2013) (internal
citations omitted). Notably, the Term Sheet stated that
Appellee would extend any swap agreement at “a market-derived
rate.” J.A. 22. Appellee orally advised Appellant that the
proposed refinanced loan, on the other hand, was being offered
at “market rates.”
Id.
Intent on securing a fixed-rate loan or its
equivalent, Appellant’s president, Walter Pancoe (“Pancoe”),
contacted Appellee about the swap option mentioned in the Term
4
Sheet. Following a brief telephone conversation, Appellee’s
agent, Matt Boss (“Boss”), sent Pancoe a letter (the “Swap
Letter”) proposing an interest rate swap as a way “to hedge
against future interest rate increases on [Appellant’s]
[anticipated] floating rate loan.” J.A. 116. In explaining the
proposed swap, the Swap Letter described, inter alia, the
possibility of “termination fees” if the “swap transaction is
unwound before its stated maturity,” id., and identified some of
the risks involved in executing a swap agreement before closing
on the proposed refinanced loan:
Caper can even use a swap to lock in a fixed
rate in advance of its loan closing. Please
be aware, however, that any swap is a
separate contract and would be an ongoing
obligation whether or not the loan takes
place. The risk of the swap being
unnecessary (because the loan never
materializes or for other reasons) should be
carefully considered by Caper before
entering into a swap to lock in a rate.
Id. at 117 (emphasis supplied); see also
id. at 120. The letter
went on to disclaim any advisory role on the part of Appellee,
repeatedly stating that Appellant “must make its own evaluation
of the proposed transaction . . . and the risks involved.”
Id.
at 120.
Thereafter, on November 21, 2005, Appellant elected to
enter into a ten-year swap agreement with Appellee (the
“Original Swap Agreement”) prior to closing on the proposed
5
refinanced loan. As is typical in such contracts, the Original
Swap Agreement was governed by an International Swap Dealers
Association Master Agreement and Schedule (collectively, the
“Master Agreement”), which set forth the general terms governing
the transaction, and a more particularized Confirmation
containing the specific financial terms. The swap itself was
based on a notional amount of $4.3 million, pursuant to which
Appellant would make payments at a fixed 6.91% interest rate and
Appellee would make payments at a variable interest rate of the
one-month LIBOR plus 1.70%. By its plain language, the Original
Swap Agreement was set to expire on January 15, 2016 (the
“Termination Date”), and one party would be required to pay the
other a variable, market-based termination fee in the event of
an early termination. 3 The Original Swap Agreement further
provided that the parties were obliged to make all “payments
that become due” under the Agreement “whether or not” the terms
of the ultimate loan differed from the Agreement or “the
Termination Date . . . occur[ed] . . . after the maturity date
of any loan.” J.A. 77.
3
The precise amount of the termination fee, and the party
responsible therefor, depended upon the relative positions of
the fixed rate in the Original Swap Agreement and the market
fixed rate for a swap with the same maturity date and structure
remaining under the Agreement at the time of the early
termination.
6
At some point after the execution of the Original Swap
Agreement, Appellee decided to align the term of the proposed
refinanced loan with the term of the Property’s existing lease,
shortening its offered loan term from ten to six years. Pancoe
complained to Appellee that, as a consequence of this
modification, the terms of the proposed refinanced loan and the
Original Swap Agreement no longer matched, i.e., the parties’
obligations under the Original Swap Agreement would outlast
their obligations under the proposed refinanced loan by almost
four years. In response, Appellee’s agent, Randall C. Tomsic
(“Tomsic”), allegedly assured Pancoe, “if [Appellant’s]
obligations under the [proposed refinanced loan] ended, its
obligations under the [Original Swap Agreement] would end at the
same time without any additional payment obligations.” J.A. 17.
Mollified by this representation, Appellant entered into a six-
year refinanced loan agreement with Appellee (the “Refinanced
Loan”) on January 23, 2006, in the principal amount of $4.3
million, with a variable interest rate set at the one-month
LIBOR plus 1.70%. 4 The Refinanced Loan was set to mature on
March 15, 2012.
4
Notably, the executed loan documents contain no mention of
the parties’ alleged oral agreement as to the simultaneous
termination, without an accompanying fee, of the of the Original
Swap Agreement and the Refinanced Loan. Rather, the relevant
promissory note provides, “[a]ll swap agreements . . . between
(Continued)
7
Subsequently, on February 2, 2006, the parties agreed
to amend the terms of the Original Swap Agreement so that the
monthly payments for the Refinanced Loan and the Original Swap
Agreement would fall on the same dates. At this time, the
complaint alleges, Appellee “refus[ed] to amend the [Original
Swap Agreement] to shorten its term” to match that of the
Refinanced Loan “because shortening the term of the Original
Swap would have resulted in a loss to [Appellee] of
approximately $14,000.” J.A. 18. Indeed, the amended
Confirmation ultimately executed by the parties in June 2006
(“Amended Swap Agreement” or “Amendment”) -- which reset the
monthly payment dates for the swap, as the parties agreed --
neither shortened the term of the Original Swap Agreement nor
included any language waiving the early termination fee. To the
contrary, the Amendment actually extended the Termination Date
of the Original Swap Agreement from January 15, 2016, to
February 10, 2016, and added an “Additional Termination Event”
pursuant to which the swap would “terminate and be replaced by
an obligation of one party to make a [termination fee] payment
to the other party” if the Agreement became unsecured after
[Appellant] and [Appellee] . . . are independent agreements
governed by [their] written provisions . . ., which will remain
in full force and effect, unaffected by any repayment [or]
prepayment” of the Refinanced Loan. J.A. 127.
8
March 15, 2012. Id. at 49. The Amendment also incorporated
“[a]ll provisions” of the Master Agreement that were not
“expressly modified” in the Amendment itself.
Id.
For the next four years, Appellant made monthly
payments to Appellee as required by the Refinanced Loan and the
Amended Swap Agreement. In April 2011, the tenant of the
Property decided that it would not renew the lease when it
expired in June 2012. As a result, Appellant asked Appellee for
an extension of the Refinanced Loan or, in the alternative, for
a new short-term loan. Appellant also requested that the
Amended Swap Agreement be terminated when the Refinanced Loan
matured “without any additional payment obligation,” as Appellee
had allegedly promised. J.A. 19. In a series of discussions,
Appellee initially “reconfirmed” Appellant’s understanding as to
the contemporaneous termination of the Amended Swap Agreement
and the Refinanced Loan,
id., but later advised that it intended
to hold Appellant to the terms of the agreement as written. On
April 11, 2012, after much back-and-forth, Appellee agreed to
extend the term of the Refinanced Loan from March 15, 2012, to
September 30, 2012, and the parties executed a loan modification
to that effect.
Prior to the new maturity date of the Refinanced Loan,
Appellant entered into a contract to sell the Property and
requested a “payoff from [Appellee] for the Refinanced Loan in
9
anticipation of a closing.” J.A. 21. Appellee informed
Appellant that it was invoking its contractual right to withhold
the deed of trust to the Property pending repayment of the
Refinanced Loan, termination of the Amended Swap Agreement, and
satisfaction of any termination fee. On June 28, 2012,
Appellant closed on the sale of the Property and repaid the
Refinanced Loan in full, triggering Appellee’s contractual right
to terminate the swap at a cost to Appellant of $568,337 (the
“Termination Fee”). That same day, Appellant paid the
Termination Fee and executed a Confirmation of Termination, to
which it appended language noting that it acted “under duress[]
and with full reservation of rights to contest its liability for
the Termination Fee.” Id. at 139. Appellee then released the
deed of trust on the Property.
B.
Appellant filed a complaint against Appellee in the
Superior Court of New Hanover County, North Carolina, on
November 26, 2012. Appellee removed the case to the Eastern
District of North Carolina on December 27, 2012, invoking the
court’s diversity jurisdiction pursuant to 28 U.S.C. § 1332.
Subsequently, on January 30, 2013, Appellee moved to dismiss
Appellant’s complaint in its entirety for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6). The
10
district court granted Appellee’s motion on August 22, 2013.
Appellant timely filed a notice of appeal.
II.
We review de novo the district court’s grant of
Appellee’s motion to dismiss pursuant to Rule 12(b)(6).
Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 776 (4th Cir.
2013). To survive such a motion, the complaint must contain
facts sufficient “to raise a right to relief above the
speculative level” and “state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S.
544, 555, 570 (2007). Although we must view the facts alleged
in the complaint “in the light most favorable to the plaintiff,”
Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc.,
591 F.3d
250, 255 (4th Cir. 2009), we will not accept “unwarranted
inferences, unreasonable conclusions, . . . arguments,” or
“allegations that offer only naked assertions devoid of further
factual enhancement.” U.S. ex rel. Oberg v. Penn. Higher Educ.
Assistance Agency,
745 F.3d 131, 136 (4th Cir. 2014) (internal
quotation marks omitted).
III.
Appellant’s complaint sets forth ten causes of action:
(1) fraud as to the termination fee; (2) negligent
misrepresentation as to the termination fee; (3) duress as to
the termination fee; (4) fraudulent overcharges; (5) negligent
11
misrepresentation as to the overcharges; (6) breach of fiduciary
duty; (7) constructive fraud; (8) unfair and deceptive trade
practices in violation of N.C. Gen. Stat. § 75-1.1; (9)
rescission or reformation of the swap agreement due to
commercial frustration of purpose and mutual mistake; and (10)
rescission or reformation of the swap agreement due to
unsuitability. We hold that the district court correctly
granted Appellee’s motion to dismiss all ten counts.
A.
As a federal court sitting in diversity, we must apply
the substantive law of the forum state, including its choice of
law rules. Kenney v. Indep. Order of Foresters, 744 F.3d 901,
905 (4th Cir. 2014). The proper choice-of-law analysis in North
Carolina varies depending on how a claim is characterized.
Choice of law in contracts cases is governed by the rule of lex
loci contractus, see Tanglewood Land Co. v. Byrd,
261 S.E.2d
655, 656 (N.C. 1980), and choice of law in torts cases is
governed by the rule of lex loci delicti, see Boudreau v.
Baughman,
368 S.E.2d 849, 854 (N.C. 1988). Further, where the
contracting parties have agreed “that a given jurisdiction’s
substantive law shall govern the interpretation of the contract,
such a contractual provision will be given effect.”
Byrd, 261
S.E.2d at 656.
12
The complaint sets forth ten causes of action, eight
tort claims (Counts One – Eight) and two contract claims (Counts
Nine – Ten). The relevant contracts contain a New York choice
of law provision, and the parties agree that the law of New York
applies to Counts Nine and Ten. See J.A. 73 (“[T]his Agreement
will be governed by and construed in accordance with the law of
the state of New York[.]”). The parties disagree, however, as
to the law to be applied to the tort claims set forth in Counts
One – Eight. Appellee favors New York law, while Appellant
prefers that of North Carolina. Nevertheless, the parties
concede that the approach to interpreting the tort claims is the
same under either legal regime. In the interest of simplicity,
and because it will not affect the outcome of this appeal, we
will analyze the tort claims under the law of North Carolina.
See Okmyansky v. Herbalife Int’l of Am., Inc., 415 F.3d 154, 158
(1st Cir. 2005) (“[W]hen the resolution of a choice-of-law
determination would not alter the disposition of a legal
question, a reviewing court need not decide which body of law
controls.”).
13
Barb.
1.
Counts One and Two:
Fraud and Negligent Misrepresentation (Termination Fee)
In Counts One and Two of its complaint, Appellant
alleges that Appellee fraudulently or negligently misrepresented
that Appellant’s obligations under the Original and Amended Swap
Agreements (collectively, the “Swap Agreement”) would end,
without any financial penalty to Appellant, upon the
satisfaction or termination of the Refinanced Loan. The
district court held that Appellant did not state a claim for
fraud or misrepresentation because its “reliance on such oral
misrepresentations was not reasonable or justifiable in light of
the written contract.” The Caper Corp. v. Wells Fargo Bank,
N.A., No. 7:12-CV-357-D, 2013 WL 4504450, at *7 (E.D.N.C. Aug.
22, 2013). We agree.
To state a claim for actual fraud, the plaintiff must
allege facts plausibly showing that (1) the defendant made a
false representation of a material fact; (2) the defendant made
the representation with the intent to deceive the plaintiff; (3)
the plaintiff relied on the representation and its reliance was
reasonable; and (4) the plaintiff suffered damages because of
its reliance. See Forbis v. Neal, 649 S.E.2d 382, 387 (N.C.
2007). Pursuant to Federal Rule of Civil Procedure 9(b), the
14
plaintiff must plead with particularity “the time, place, and
contents of the false representations, as well as the identity
of the person making the misrepresentation and what he obtained
thereby.” McCauley v. Home Loan Inv. Bank, F.S.B., 710 F.3d
551, 559 (4th Cir. 2013) (internal quotation marks omitted). To
state a claim for negligent misrepresentation, the plaintiff
must allege facts plausibly showing that it “‘[1] justifiably
relie[d] [2] to [its] detriment [3] on information prepared
without reasonable care [4] by one who owed the relying party a
duty of care.’” Dallaire v. Bank of America, N.A., --- S.E.2d -
---,
2014 WL 2612658, at *5 (N.C. 2014) (quoting Raritan River
Steel Co. v. Cherry, Bekaert & Holland,
67 S.E.2d 609, 612 (N.C.
App. 1988)).
The “question of justifiable reliance [for negligent
misrepresentation claims] is analogous to that of reasonable
reliance in fraud actions.” Marcus Bros. Textiles, Inc. v.
Price Waterhouse, LLP, 513 S.E.2d 320, 327 (N.C. 1999) (internal
quotation marks omitted); see also Helms v. Holland,
478 S.E.2d
513, 517 (N.C. 1996) (“Justifiable reliance is an essential
element of both fraud and negligent misrepresentation.”). For
both claims, the recipient of a representation must use
reasonable care to ascertain the truth of that representation in
order to reasonably rely on the same. See Fox v. S. Appliances,
Inc.,
141 S.E.2d 522, 526 (N.C. 1965). A plaintiff, in other
15
words, “cannot establish justified reliance . . . if [it] fails
to make reasonable inquiry regarding the alleged statement.”
Dallaire, 2014 WL 2612658, at *5. Where a plaintiff “could have
discovered the truth [about the misrepresentation] upon inquiry,
the complaint must allege that [the plaintiff] was denied the
opportunity to investigate or . . . could not have learned the
true facts by exercise of reasonable diligence” in order to
survive a motion to dismiss. Pinney v. State Farm Mut. Ins.
Co.,
552 S.E.2d 186, 192 (N.C. App. 2001) (emphasis supplied)
(internal quotation marks omitted); see also Oberlin Capital,
L.P. v. Slavin,
554 S.E.2d 840, 846–47 (N.C. App. 2001); Hudson–
Cole Dev. Corp. v. Beemer,
511 S.E.2d 309, 313 (N.C. App. 1999).
As a corollary of this broader principle, “[a] person
who executes a written instrument is ordinarily charged with
knowledge of its contents and may not base an action for fraud
on ignorance of the legal effect of its provisions.” Int’l
Harvester Credit Corp. v. Bowman, 316 S.E.2d 619, 621 (N.C. App.
1984) (internal citations omitted). A party who signs a written
contract
is under a duty to ascertain its contents,
and in the absence of a showing that he was
wilfully misled or misinformed by the
defendant as to these contents, or that they
were kept from him in fraudulent opposition
to his request, he is held to have signed
with full knowledge and assent as to what is
therein contained.
16
Harris v. Bingham, 97 S.E.2d 453, 454 (N.C. 1957); see also
Davis v. Davis,
124 S.E.2d 130, 133 (N.C. 1962) (“One who signs
a written contract . . . is bound thereby unless the failure to
read is justified by some special circumstance.”). In the
absence of some further misconduct on the part of the defendant,
then, a plaintiff who relies upon a misrepresentation that is
directly contradicted by a subsequent written agreement cannot
establish justifiable reliance sufficient to support a claim of
fraud or negligent misrepresentation as a matter of law. See
Isley v. Brown,
117 S.E.2d 821, 823–24 (N.C. 1961); Cobb v.
Penn. Life Ins. Co.,
715 S.E.2d 541, 549 (N.C. App. 2011);
Sullivan v. Mebane Packaging Group, Inc.,
581 S.E.2d 452, 459
(N.C. App. 2003);
Bowman, 316 S.E.2d at 621. 5
Here, Appellant seeks relief for fraud and negligent
misrepresentation on the grounds that it detrimentally relied on
Tomsic’s assurances that, “if [Appellant’s] obligations under
the [proposed refinanced loan] ended, its obligations under the
5
Notably, the general rule charging “[a] person who
executes a written instrument . . . with knowledge of its
contents” and foreclosing a related action for fraud “do[es] not
apply to situations in which the person making the
misrepresentations stands in a fiduciary relationship to the
signing party.” Bowman, 316 S.E.2d at 621 (citing Vail v. Vail,
63 S.E.2d 202, 206 (N.C. 1951)). Although Appellant seeks to
take advantage of this exception, we conclude, for the reasons
explained in greater detail below, that Appellant has failed to
establish the existence of a fiduciary relationship with
Appellee. Consequently, we will not address this exception.
17
[Original Swap Agreement] would end at the same time without any
additional payment obligations.” J.A. 17. The complaint
alleges that Tomsic made this representation at some point
between November 21, 2005, when the parties executed the
Original Swap Agreement, and January 23, 2006, when the parties
executed the Refinanced Loan. Critically, as reflected in both
the complaint and the accompanying contracts, Appellant executed
the Amended Swap Agreement after this alleged misrepresentation
took place, despite the fact that Appellee “refus[ed] to amend
the [Original Swap Agreement] to shorten its term and address
Appellant’s concerns.” J.A. 19.
The Amendment, by its plain terms, provided that the
Swap Agreement would not terminate until February 10, 2016, well
after the maturation date of the Refinanced Loan, and set forth
a monthly payment schedule through that date. The “Additional
Termination Event” included in the Amendment further stated
that, if the Agreement became unsecured after March 15, 2012 --
the scheduled closing date of the Refinanced Loan -- “all
obligations under this [Amendment] w[ould] terminate and be
replaced by an obligation of one party to make a payment to the
other party” under the provisions of the Master Agreement
covering termination fees. Id. at 49 (emphasis supplied); see
also
id. (“Such payment will be due . . . by the party obligated
to pay that amount under [the Master Agreement].”). Appellant
18
also acknowledged, inter alia, “that the payments due by it
under this [Amendment] shall be due . . . whether or not . . .
the term of any Financing is shorter or longer than the Term of
this [Amendment], or any other terms of any Financing differ
from the terms of this [Amendment].” Id. at 47.
The final clause of the Amendment reads, “[a]ll
provisions contained in or incorporated by reference in the
Master Agreement will govern this [Amendment] except as
expressly modified herein.” J.A. 49 (emphasis supplied). Those
“govern[ing]” terms include a merger clause, which states that
the Master Agreement and any Confirmations “constitute[] the
entire agreement and understanding of the parties . . .
supersed[ing] all oral communication and prior writings with
respect thereto,” and a clause prohibiting oral amendments,
which specifies that “[n]o amendment, modification or waiver . .
. will be effective unless in writing . . . and executed by each
of the parties or confirmed by an exchange of telexes or
electronic messages on an electronic messaging system.” Id. at
64. Finally, in addition to setting forth a detailed process
for calculating termination fees, the Master Agreement states,
[Appellant] . . . understands that the terms
under which any Transaction may be
terminated early are set forth in this
Agreement (including any Confirmation of
such Transaction), and any early termination
of a Transaction other than pursuant to the
provisions of this Agreement (including any
19
such Confirmation) is subject to mutual
agreement of the parties confirmed in
writing, the terms of which may require one
party to pay an early termination fee to the
other party based upon market conditions
prevailing at the time of early termination.
Id. at 75 (emphasis supplied); see also
id. at 77.
As the foregoing provisions exemplify, Appellee’s
alleged oral misrepresentation -- that the Swap Agreement and
the Refinanced Loan would contemporaneously terminate without an
early termination fee –- is directly contradicted by the
unambiguous written terms of both the Amendment and the Master
Agreement. Appellant admits to receiving the Amendment, which
was sent by facsimile, from Appellee. See J.A. 18 (alleging
that Appellee “sent [the Amendment]” to Appellant on June 6,
2006); see also id. at 46-53, 86-92 (executed copies of the
Amendment attached to the complaint and the motion to dismiss,
respectively). The Amendment required Appellant to “confirm
that the foregoing correctly sets forth the terms of our
agreement by executing a copy . . . and returning it to
[Appellee].”
Id. at 50. Pancoe “[a]ccepted and [c]onfirmed”
the Amendment with his signature, the authenticity of which is
unchallenged.
Id.
The complaint does not allege that Appellee
misrepresented the character or terms of the Amendment itself or
otherwise interfered with Pancoe’s ability to read and
20
understand the same. 6 Indeed, the full extent of the
misrepresentation alleged in the complaint is Appellee’s pre-
Amendment oral promise to permit the early termination of the
Original Swap Agreement without an attendant termination fee --
the complaint does not charge Appellee with providing any
assurances as to whether this alleged agreement survived the
parties’ execution of the Amendment. Appellant thus could have
immediately ascertained the truth of its post-Amendment
liability for a termination fee by simply reviewing the plain
language of the Amendment and the Master Agreement, which it had
a duty to read. See Davis, 124 S.E.2d at 133.
The reasonableness of a party’s reliance “is generally
a question for the jury, except in instances in which ‘the facts
are so clear as to permit only one conclusion.’” Dallaire, 2014
WL 2612658, at *5 (quoting Marcus
Bros., 513 S.E.2d at 327). In
6
Although Appellant alleges that Appellee “deceptively”
inserted the Additional Termination Event into the Amendment
without its “prior agreement,” it neither disputes Pancoe’s
execution of the contract as written nor provides any sort of
factual elaboration as to how this alleged “decepti[on]” was
achieved. J.A. 18. This allegation is thus nothing more than a
“‘naked assertion[] devoid of further factual enhancement,’” and
we will not credit it. U.S. ex rel. Oberg v. Penn. Higher Educ.
Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014) (quoting
Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)); see also Nemet
Chevrolet, Ltd. v. Consumeraffairs.com, Inc.,
591 F.3d 250, 255
(4th Cir. 2009) (“[B]are assertions devoid of further factual
enhancement fail to constitute well-pled facts for Rule 12(b)(6)
purposes.”).
21
this case, even accepting as true that Appellee orally
misrepresented Appellant’s obligation to pay a termination fee,
Appellant still cannot establish that it justifiably relied on
that misrepresentation as a matter of law. In terms of the
relevant pleading requirements, because Appellant “could have
discovered the truth [about the misrepresentation] upon
inquiry,” it was required to –- and did not -- allege that “[it]
was denied the opportunity to investigate or . . . could not
have learned the true facts by exercise of reasonable
diligence.” Pinney, 52 S.E.2d at 192 (internal quotation marks
omitted). With respect to the claims’ substantive merit,
Appellant’s reliance on Appellee’s oral misrepresentation was
not reasonable or justifiable as a matter of law because the
misrepresentation was directly contradicted by numerous
provisions of the subsequently-executed Amendment and the
governing Master Agreement. See
Bowman, 316 S.E.2d at 621. On
both fronts, we conclude that Counts One and Two of Appellant’s
complaint fail to state claims for fraud or negligent
misrepresentation under Fed. R. Civ. P. 12(b)(6) and were
properly dismissed.
2.
Count Three: Duress
In Count Three of its complaint, Appellant alleges a
claim of economic duress resulting from Appellee’s refusal to
22
release the deed of trust to the Property until Appellant paid
the termination fee. Pursuant to the Master Agreement, Appellee
was entitled to hold any collateral supporting the Swap
Agreement “[u]ntil such time as all such obligations of
[Appellant] are completely satisfied notwithstanding any
repayment, acceleration, satisfaction, discharge or release of
any . . . loan or other financing.” J.A. 77. The deed of
trust, too, allowed Appellee to hold the deed until Appellant
paid all obligations due under the Swap Agreement. See id. at
104-105 (granting Appellee the Property “in fee simple” to
“secure payment and performance of obligations under” the Swap
Agreement until “all [o]bligations are timely paid and
performed”). Inasmuch as “[a] threat to do what one has a legal
right to do cannot constitute duress,” Bell Bakeries, Inc. v.
Jefferson Std. Life Ins. Co.,
96 S.E.2d 408, 416 (N.C. 1957)
(internal quotation marks omitted), we conclude that the
district court properly dismissed Count Three for failing to
state a claim under Fed. R. Civ. P. 12(b)(6).
3.
Counts Four and Five:
Fraud and Negligent Misrepresentation (Overcharges)
In Counts Four and Five of its complaint, Appellant
alleges that Appellee fraudulently or negligently misrepresented
that Appellant would receive a “market rate” as the fixed rate
23
under the Swap Agreement. In actuality, Appellant alleges, the
6.91% fixed interest rate was approximately 32 basis points
(.32%) above the interdealer broker market rate, resulting in
“overcharges” of at least $97,666. J.A. 24. The district court
dismissed both of these claims, concluding that Appellant
“fail[ed] to plausibly allege that [Appellee] misrepresented
that it offered [Appellant] the interdealer broker market rate.”
Caper Corp., 2013 WL 4504450, at *10. Again, we agree.
The complaint provides scant support for the
conclusion that Appellant was entitled to the interdealer broker
market rate, which Appellant itself admits is “a closed market[]
open to only the largest commercial and investment banks.” J.A.
23. Appellant relies primarily on the following two
allegations: (1) Appellee “represented the interest rate swap
would be extended to [Appellant] at ‘a market-derived rate’” in
the Term Sheet; and (2) “Boss similarly advised Pancoe in
telephone conversations that the Refinanced Loan was being
offered to Caper at market rates.” Id. at 22. Appellant
contends that these two statements, taken together, caused it to
believe that Appellee was offering the Swap Agreement at “market
rates,” i.e., the “interdealer broker market rate” with “no mark
up” for Appellee.
Id. at 23. This understanding was bolstered,
Appellant claims, by the fact that the Term Sheet disclosed the
24
fees Appellee would collect for the proposed refinanced loan but
did not disclose any fees for the proposed swap agreement. Id.
The relevant allegations in the complaint, as set
forth above, consist primarily of a few vague and undated
averments of Appellee’s purported misrepresentations, which are,
in turn, couched in terms of both “market rate” and “market-
derived rate.” J.A. 22 (emphasis supplied). Critically, the
complaint is completely devoid of any allegation that Appellee
ever explicitly offered Appellant the interdealer broker market
rate or even intimated that the interdealer broker market rate
was, in fact, the “market rate” or “market-derived rate” to
which it referred. See, e.g., Caper Corp.,
2013 WL 4504450, at
*10 (observing that “[t]he phrase ‘market-derived rate’ implies
something other than a market rate.”). The complaint further
contains no allegation that Appellant sought any sort of
clarification as to the meaning of “market rate” before
allegedly relying to its detriment on its own definition. See
Dallaire,
2014 WL 2612658, at *5 (“A party cannot establish
justified reliance on an alleged misrepresentation if the party
fails to make reasonable inquiry regarding the alleged
statement.”). Indeed, as described by the district court, the
complaint “state[s] nothing more than conjecture on
[Appellant’s] part that [Appellee’s] offer of a ‘market rate’ or
25
‘market-derived rate’ meant the ‘interdealer broker market
rate.’” Caper Corp., 2013 WL 4504450, at *10.
Even viewing the adequately pleaded facts in
Appellant’s favor and giving it the benefit of all reasonable
inferences, we must conclude Appellant has failed to plausibly
allege that Appellee offered the fixed rate of the Swap
Agreement at the interdealer broker market rate or that
Appellant justifiably relied on such a representation. We thus
agree with the district court that Appellant has failed to state
a claim for fraud or negligent misrepresentation under Fed. R.
Civ. P. 12(b)(6) with respect to Appellee’s alleged
“overcharges.”
4.
Counts Six and Seven:
Breach of Fiduciary Duty and Constructive Fraud
In Counts Six and Seven of its complaint, Appellant
alleges that Appellee breached its fiduciary duty to Appellant
and committed constructive fraud. Both of these claims require
the existence of an antecedent fiduciary relationship between
Appellant and Appellee. See Green v. Freeman, 749 S.E.2d 262,
268 (N.C. 2013) (“‘For a breach of fiduciary duty to exist,
there must first be a fiduciary relationship between the
parties.’” (quoting Dalton v. Camp,
548 S.E.2d 704, 707 (N.C.
2001)));
Forbis, 649 S.E.2d at 388 (“A claim of constructive
26
fraud . . . . arises where a confidential or fiduciary
relationship exists.” (internal quotation marks omitted)). We
conclude, as did the district court, that Appellant has failed
to allege facts sufficient to state a plausible claim of a
fiduciary relationship with Appellee.
As a general rule, “[a] fiduciary relationship . . .
aris[es] when ‘there has been a special confidence reposed in
one who in equity and good conscience is bound to act in good
faith and with due regard to the interests of the one reposing
confidence.’” Dallaire, 2014 WL 2612658, at *3 (quoting
Green,
749 S.E.2d at 268). Such relationships are ordinarily
“characterized by ‘confidence reposed on one side[] and
resulting domination and influence on the other,’” which results
in “a heightened level of trust and the duty of the fiduciary to
act in the best interests of the other party.”
Id. at *3
(quoting
Dalton, 548 S.E.2d at 708). Ordinary borrower-lender
or debtor-creditor relationships, in contrast, are marked by
arm’s length transactions and do not typically give rise to
fiduciary duties. See
id. at *4 (“[B]orrowers and lenders are
generally bound only by the terms of their contract and the
Uniform Commercial Code.” (citation omitted)). Nevertheless, it
remains at least “theoretically” possible for “a particular
bank-customer transaction to ‘give rise to a fiduciary relation
27
given the proper circumstances.’” Id. (quoting Branch Banking &
Trust Co v. Thompson,
418 S.E.2d 694, 699 (N.C. App. 1992)).
Appellant, in short, does not allege in its complaint
any facts that would show Appellee had the “amount of control
and domination required to form a fiduciary relationship outside
that of the normal relationships recognized by law.” S.N.R.
Mgmt. Corp. v. Danube Part. 141, LLC, 659 S.E.2d 442, 451 (N.C.
App. 2008) (internal quotation marks omitted). Appellant’s
longstanding business relationship with Appellee, particularly
Appellee’s role in “author[ing] the terms and details of many of
[Appellant’s] financial transactions,” J.A. 12, is indicative of
nothing more than a typical lender-borrower or debtor-creditor
relationship. See
Thompson, 418 S.E.2d at 699 (The “mere
existence of a debtor-creditor relationship . . . [does] not
create a fiduciary relationship.” (internal quotation marks
omitted)). Similarly, Appellee’s “superior knowledge of the
terms and risks and pricing” of interest rate swap agreements,
J.A. 36, does not give rise to a concomitant duty for Appellee
to put the interests of Appellant, a corporation with equal
bargaining position dealing at arm’s length, ahead of its own.
See S. Atl. Ltd. P’ship of Tenn. L.P. v. Riese,
284 F.3d 518,
533 (4th Cir. 2002) (“[E]ven when parties to an arms-length
transaction have reposed confidence in each other, no fiduciary
duty arises unless one party thoroughly dominates the other.”
28
(citing Tin Originals, Inc. v. Colonial Tin Works, Inc., 391
S.E.2d 831, 833 (N.C. App. 1990))).
The remaining allegations in the complaint with
respect to Appellant’s relationship with Appellee consist
primarily of conclusory recitations of the elements of a breach
of fiduciary duty claim and are entitled to no weight. See
Caper Corp., 2013 WL 4504450, at *8. Consequently, we conclude
that the district court properly dismissed Appellant’s breach of
fiduciary duty and constructive fraud claims pursuant to Fed. R.
Civ. P. 12(b)(6).
5.
Count Eight: Unfair and Deceptive Trade Practices
In Count Eight of its complaint, Appellant alleges
that Appellee engaged in acts or practices prohibited by North
Carolina’s Unfair and Deceptive Trade Practices statute
(“UDTPA”), N.C. Gen. Stat. § 75–1.1. Appellant does not
identify any specific violations of the UDTPA within this count,
but instead incorporates generally all of the complaint’s
preceding allegations. On this count, too, we conclude that
Appellant has failed to allege facts sufficient to state a claim
under Fed. R. Civ. P. 12(b)(6).
To state a claim for unfair or deceptive trade
practices, the plaintiff must allege facts plausibly showing
that “‘(1) [the] defendant committed an unfair or deceptive act
29
or practice, (2) the action in question was in or affecting
commerce, and (3) the act proximately caused injury to the
plaintiff.’” Bumpers v. Comm’y Bank of N. Virginia, 747 S.E.2d
220, 226 (N.C. 2013) (quoting
Dalton, 548 S.E.2d at 711). If
the claim arises from the defendant’s alleged misrepresentation,
the plaintiff must also plausibly allege that it “reasonabl[y]
reli[ed]” on that misrepresentation.
Id. An act is “deceptive”
if it has a tendency or capacity to deceive a reasonable
businessperson, see RD & J Props. v. Lauralea–Dilton Enters.,
LLC,
600 S.E.2d 492, 501 (N.C. App. 2004), and “unfair” if it is
“immoral, unethical, oppressive, unscrupulous, or substantially
injurious to consumers” such that it “amounts to an inequitable
assertion of . . . power or position,” Carcano v. JBSS, LLC,
684 S.E.2d 41, 50 (N.C. App. 2009) (internal quotation marks
omitted). Whether actions are deceptive or unfair within the
meaning of the UDTPA is a question of law.
Dalton, 548 S.E.2d
at 711.
On appeal, Appellant takes the position that
“everything alleged [in the complaint] constitutes an unfair and
deceptive trade practice.” Appellant’s Br. 49. We are
unconvinced. The allegedly unlawful acts or practices
identified in the complaint are either factually unsubstantiated
or well within Appellee’s contractual rights –- none “have the
capacity to deceive a reasonable businessperson,” RD & J Props.,
30
600 S.E.2d at 501, or otherwise qualify as unfair or deceptive
under the UDTPA. In any event, as we have already discussed,
the complaint fails to establish reasonable reliance on
Appellee’s alleged misrepresentations as a matter of law,
precluding Appellant from seeking relief under N.C. Gen. Stat.
§ 75–1.1. See
Bumpers, 747 S.E.2d at 226-27. We therefore
affirm the district court’s dismissal of this count.
6.
Counts Nine and Ten: Rescission or Reformation
In Counts Nine and Ten of its complaint, which are
governed by New York law, 7 Appellant seeks reformation or
rescission of the Swap Agreement on the grounds of commercial
frustration of purpose, mutual mistake, and unsuitability.
Although there is some debate as to whether Appellant preserved
its right to pursue these claims by executing the Confirmation
of Termination “under duress[] and with full reservation of
rights to contest its liability for the Termination Fee,” J.A.
139, we will simply assume, without deciding, that Appellant’s
rights have been preserved.
7
As we have explained, the substantive law governing these
claims is dictated by the New York choice of law provision in
the Swap Agreement. See J.A. 73 (“[T]his Agreement will be
governed by and construed in accordance with the law of the
state of New York[.]”).
31
a.
Frustration of Purpose
Appellant contends that it is entitled to rescission
or reformation of the Swap Agreement because the artificial
depreciation of LIBOR, coupled with the ensuing worldwide credit
crisis that began in October 2008, “dramatically increased the
interest rate risk of [Appellant] as opposed to hedging or
limiting it,” frustrating the purpose of the Swap Agreement.
J.A. 38. We conclude that Appellant has failed to allege facts
sufficient to establish entitlement to the remedies of
rescission and reformation.
The frustration of purpose doctrine is traditionally
employed as an affirmative defense to a contract claim,
operating to discharge a party from its outstanding contractual
obligations due to a supervening frustration. See Restatement
(Second) of Contracts § 265. The defense is applicable where an
unanticipated “‘change in circumstances makes one party’s
performance [under a contract] virtually worthless to the other,
frustrating his purpose in making the contract.’” PPF
Safeguard, LLC v. BCR Safeguard Holding, LLC, 924 N.Y.S.2d 391,
394 (N.Y. App. Div. 2011) (quoting Restatement (Second) of
Contracts § 265 cmt. a). “[T]he frustrated purpose must be so
completely the basis of the contract that, as both parties
understood, without it, the transaction would have made little
32
sense.” Crown It Servs., Inc. v. Koval–Olsen, 782 N.Y.S.2d 708,
711 (N.Y. App. Div. 2004). The doctrine is a “narrow one,”
id.,
and its utility is “limited to instances where a virtually
cataclysmic, wholly unforeseeable event renders the contract
valueless to one party,” United States v. Gen. MacArthur Senior
Village, Inc.,
508 F.2d 377, 381 (2d Cir. 1974).
We note at the outset that it is far from clear
whether the frustration of purpose doctrine, which ordinarily
operates as an excuse for nonperformance, is an appropriate
vehicle for the claim at issue here, i.e., an affirmative cause
of action seeking rescission or reformation of a fully-performed
contract. We need not dwell on this question, however, as
Appellant’s claim -– whether or not appropriately framed –- is
substantively meritless. As detailed in the complaint and the
accompanying contracts, the Swap Agreement was not rendered
“virtually worthless” by the depreciated LIBOR. PPF Safeguard,
LLC, 924 N.Y.S.2d at 394. Pursuant to the plain terms of the
Swap Agreement, Appellant made payments at a fixed interest rate
throughout the entire term of the Refinanced Loan. Appellant
was thus protected from the uncertainty of a variable interest
rate and, indeed, paid precisely “the amount of interest it
agreed to and expected to pay under the Swap Agreement.” Caper
Corp.,
2013 WL 4504450, at *12. To the extent the ultimate
Termination Fee was higher than Appellant may have hoped for or
33
expected, “[i]t is not enough” for the purposes of the
frustration of purpose doctrine “that the transaction has become
less profitable for the affected party or even that he will
sustain a loss.” Rockland Dev. Assoc. v. Richlou Auto Body,
Inc., 570 N.Y.S.2d 343, 344 (N.Y. App. Div. 2004).
We agree with the district court that the purpose of
the Swap Agreement was not frustrated. Appellant’s claim for
relief based on the frustration of purpose doctrine, to the
extent it even states a viable claim, thus fails as a matter of
law.
b.
Mutual Mistake
With respect to Appellant’s mutual mistake claim, a
mutual mistake may be a ground for reforming or rescinding a
contract where “the parties have reached an oral agreement and,
unknown to either, the signed writing does not express that
agreement.” Chimart Assocs. v. Paul, 489 N.E.2d 231, 234 (N.Y.
1986). “The mutual mistake must exist at the time the contract
is entered and must be substantial.” Gould v. Bd. of Educ. of
Sewanhaka Cent. High Sch. Dist.,
616 N.E.2d 142, 146 (N.Y.
1993). More specifically, “[t]he mistake must be ‘so material
that . . . it goes to the foundation of the agreement.’” Simkin
v. Blank,
968 N.E.2d 459, 462 (N.Y. 2012) (quoting Da Silva v.
Musso,
428 N.E.2d 382, 387 (N.Y. 1981)). Court-ordered relief
34
should not be granted on the basis of a mutual mistake except in
“exceptional situations.” Id. (internal quotation marks
omitted).
Here, Appellant alleges that the parties were mutually
mistaken as to whether LIBOR was “a rational and fundamentally
sound choice for [the] floating [interest] rate” to be used in
the Swap Agreement. J.A. 38. The alleged importance of this
understanding to the Swap Agreement, however, is belied by the
contract itself, which makes clear that the parties entered into
the Agreement in order to receive the difference between the
floating and fixed interest rates. See Simkin, 968 N.E.2d at
462 (“The mistake must . . . go[] to the foundation of the
agreement.’” (emphasis supplied) (internal quotation marks
omitted)). The Swap Agreement makes no mention of whether the
parties believed LIBOR to be a fundamentally sound market
indicator, much less whether such an understanding was the basis
for the parties’ selection of a LIBOR-derived variable interest
rate. To the contrary, as the district court noted, “[t]he
complaint shows that the parties chose the one-month LIBOR rate
not for its virtue as a fundamentally sound market indicator,
but in order to match the terms of the [Refinanced Loan].”
Caper Corp.,
2013 WL 4504450, at *11.
Inasmuch as Appellant’s allegedly “foundational”
concern as to the reliability of LIBOR is completely absent from
35
any of the relevant contracts or supporting documentation, this
case does not present one of those “‘exceptional situations’”
warranting reformation or rescission on the basis of a mutual
mistake. Simkin, 968 N.E.2d at 462 (quoting Da
Silva, 428
N.E.2d at 387). This claim, consequently, fails as a matter of
law.
c.
Unsuitability
Finally, Appellant sets forth a claim for rescission
or reformation based on “unsuitability” as “a variation on its
breach of fiduciary duty claim.” Appellant’s Br. 55. We need
not resolve the parties’ dispute as to whether this claim exists
under New York law –- it necessarily fails for lack of a
fiduciary relationship. We therefore affirm the district
court’s dismissal of this claim.
IV.
For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
36
