MARTIN REIDINGER, District Judge.
This action arises from the Plaintiffs' purchase of Lot 135 and Lot 143 (the "Lots") in Grey Rock at Lake Lure ("Grey Rock"), a planned resort community in North Carolina. After meeting with Grey Rock's developer, LR Buffalo Creek, LLC (together with its parent company Land Resource, LLC, "Land Resource") and picking their Lots, the Plaintiffs turned to Bank of America to finance their purchase. Land Resource failed to complete the infrastructure and amenities in Grey Rock and subsequently became insolvent, leaving the Plaintiffs owning land with a value significantly lower than the original purchase price. The Plaintiffs now bring this action against Bank of America, seeking to hold their lender legally responsible for their losses.
The Plaintiffs initially brought suit in one mass action with other borrower-plaintiffs on December 8, 2011, but the Court severed all claims.
Bank of America now seeks summary judgment on the Plaintiffs' remaining claims. For the reasons that follow, the Bank's motion will be granted.
In reviewing a party's motion for summary judgment, this Court is mindful that summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is "material" if it "might affect the outcome of the case."
A party asserting that a fact cannot be genuinely disputed must support its assertion with citations to the record. Fed. R. Civ. P. 56(c)(1). "Regardless of whether he may ultimately be responsible for proof and persuasion, the party seeking summary judgment bears an initial burden of demonstrating the absence of a genuine issue of material fact."
Viewing the forecast of evidence in the light most favorable to the Plaintiffs, the following is a summary of the relevant facts.
The Bards own several heavily-mortgaged investment properties, and had bought and sold undeveloped land prior to purchasing at Grey Rock. [Doc. 44-3, Deposition of Lawrence Bard ("Lawrence Bard Dep.") at 18, 19, 22-23; Doc. 44-4, Bard Responses to Interrogatories at ¶7]. The Bards own three lots at Grey Rock: the two at issue in this lawsuit and a third that they purchased by refinancing a rental property after Bank of America declined to finance an additional loan. [
The Plaintiffs first heard about Grey Rock through a USA Today advertisement they saw in March 2005 when travelling through the Carolinas. [Doc. 44-3, Lawrence Bard Dep. at 30, 31-32]. The next day, they went to the Land Resource sales office to learn more about the property. [
The next day, March 6, 2005, the Plaintiffs returned to the Land Resource sales office and signed a Purchase Agreement. [Doc. 44-4, Plaintiffs' Responses to First Set of Interrogatories at ¶5; Doc. 44-3, Lawrence Bard Dep. at 37]. Under the Purchase Agreement, the Bards agreed to purchase Lot 135 for $129,900. [Doc. 44-6, Purchase Agreement]. The Bards also purchased Lot 143 that day for $119,900. [Doc. 44-3, Lawrence Bard Dep. at 43-44]. Bank of America is not mentioned in the Purchase Agreement, is not a signatory to the Purchase Agreement, and no one from Bank of America was present when the Bards signed the Purchase Agreement. [Doc. 44-7, Plaintiffs' Responses to First Requests for Admission at ¶8; Doc. 44-4, Plaintiffs' Responses to First Set of Interrogatories at ¶5; Doc. 44-3, Lawrence Bard Dep. at 38]. The Plaintiffs were so impressed by Grey Rock that they also purchased two $1,000 certificates that allowed them to purchase additional future lots. [Doc. 44-3, Lawrence Bard Dep. at 37].
The Plaintiffs admit that, prior to entering into the Purchase Agreement, they did not obtain an appraisal of the Lots, do online research, or do anything else aside from visiting the site with the sales agent to investigate the value of the Lots. [Doc. 44-7, Plaintiffs' Responses to First Requests for Admission at ¶4; Doc. 44-3, Lawrence Bard Dep. at 45; Doc. 44-5, Louise Bard Dep. at 19]. Indeed, they had "never heard of Land Resource" before they signed the Purchase Agreement. [Doc. 44-3, Lawrence Bard Dep. at 62].
The weekend the Bards visited Grey Rock, Land Resource gave them contact information for Bank of America loan officer Mindy Johnson, and for a loan officer with SunTrust Bank. [Doc. 44-3, Lawrence Bard Dep. at 35, 54-55]. Ms. Bard did not speak with anyone from Bank of America prior to purchasing the Lots, and Mr. Bard was not clear on whether he spoke with Ms. Johnson or anyone from the Bank before signing the Purchase Agreement. [Doc. 44-5, Louise Bard Dep. at 22-23; Doc. 44-3, Lawrence Bard Dep. at 35-36, 41, 61]. Similarly, the Plaintiffs did not receive anything from Bank of America in writing or attend any marketing events hosted by Bank of America prior to signing the Purchase Agreement. [Doc. 44-3, Lawrence Bard Dep. at 49-50].
Mr. Bard contacted Johnson at some point early in the process. [Doc. 44-3, Lawrence Bard Dep. at 35-36, 41, 61]. Johnson told him that she had done a lot of mortgages at Grey Rock, that Land Resource was a reputable developer, and that she wished that she could buy at Grey Rock. [
Johnson told the Bards that an interest-only five-year term adjustable rate loan with no documentation was available from Bank of America; that buying property in North Carolina was a good value; that Grey Rock was a good place for a retirement home; that the Bards were getting in on the ground floor of a great project and benefitting from pre-development incentives and discounts and that they were not overpaying for their lot; that the developer had plans in place to construct infrastructure and would be moving quickly; that lot prices were reduced in Phase 1 as an incentive to purchase which gave buyers built-in equity to incentivize them to buy as it was a very attractive deal and a nice investment opportunity; that HGTV
On or about April 4, 2005, Mr. Bard executed a note in the amount of $123,405 for the purchase of Lot 135, and Ms. Bard executed a note for $113,905 for the purchase of Lot 143. [Doc. 44-8, Lot 135 Note; Doc. 44-9, Lot 143 Note]. Both notes were secured by deeds of trust. [Docs. 44-10 and 44-11, Lot 135 Deed of Trust; Doc. 44-12, Lot 143 Deed of Trust (collectively, the "Mortgages")].
The Plaintiffs did not engage Bank of America to provide them with investment advice, and Mr. Bard testified that if another lender would have offered a better rate than Bank of America, he probably would have used that lender. [Doc. 44-3, Lawrence Bard Dep. at 59, 61]. The Plaintiffs did not see appraisals of the Lots prior to closing on their loans. [
In 2006, after purchasing Lots 135 and Lot 143, the Bards purchased another Grey Rock property, Lot 98. [Doc. 44-3, Lawrence Bard Dep. at 79]. The Bards reached out to both Bank of America and SunTrust Bank for a loan to purchase Lot 98, but neither would provide financing, telling Mr. Bard that "they were not making lot loans." [
The Bards eventually became dissatisfied with their investment. In 2007, Mr. Bard visited Grey Rock and was dissatisfied with the state of Lot 135 and complained to a Land Resource sales manager. [Doc. 44-3, Lawrence Bard Dep. at 83-85]. In March 2008, the Bards stopped paying their Mortgages because they discovered that Grey Rock "was not going to be completed, that the project was in default, [and] the property value was not [commensurate] with the loan amount." [
As a result, Plaintiffs contacted an attorney regarding their issues with the Lots and eventually decided to sue Land Resource in August 2008. [
As previously noted, the Plaintiffs initiated the present suit as part of a mass action with other borrower-plaintiffs on December 8, 2011.
In the present case, the Plaintiffs assert claims for fraud, violations of Chapter 75, and violations of ILSA. Under North Carolina law, the statute of limitations applicable to fraud claims is three years.
Claims under Chapter 75 are subject to a four-year statute of limitations.
Finally, ILSA claims are subject to a three-year statute of limitations.
Generally, under North Carolina law, the issue of "when fraud should be discovered in the exercise of reasonable diligence is a question of fact for the jury."
Here, viewing the forecast of evidence in the light most favorable to the Plaintiffs, the Court concludes that the undisputed forecast of evidence demonstrates that the Plaintiffs' claims are time barred. The Plaintiffs claim that they were induced to purchase their property through aggressive sales tactics and misrepresentations regarding luxury amenities and development infrastructure. The Plaintiffs were clearly aware of such facts, however, at the time they initiated their lawsuit against the developer in August 2008, as that lawsuit also involves allegations that they were induced to purchase the same property through aggressive sales tactics and misrepresentations regarding the status of the development. At the very least, then, the Plaintiffs' ILSA and fraud claims were barred on or before August 26, 2011, months before the Plaintiffs filed the present lawsuit against the Bank.
The Plaintiffs contend that their knowledge of wrongdoing on the part of the Developer does not equate to knowledge of the Bank's involvement in the alleged fraud. Even assuming that this is true, however, the Plaintiffs have failed to establish that they acted with reasonable diligence to discover the underlying facts supporting any of their claims against the Bank prior to the expiration of the applicable statutes of limitation. The Plaintiffs executed the Purchase Agreement for the Lots on March 6, 2005 and took possession of their Lots upon closing on April 4, 2005, yet they waited over six years to initiate this action. The Plaintiffs have failed to present a forecast of evidence that they did anything in this interim period to discover their causes of action against the Bank, nor have they shown that the Bank committed any affirmative act of fraudulent concealment to frustrate discovery despite their due diligence.
For all of these reasons, the Court concludes that the Plaintiffs' claims are time-barred.
Even assuming that the Plaintiffs' claims are not time-barred, the Plaintiffs' claims under the ILSA are also subject to dismissal because the Plaintiffs have failed to present a forecast of evidence that Bank of America is a "developer" or "agent" within the meaning of the Act or that Bank of America engaged in a scheme to defraud the Plaintiffs during the lot purchase.
The ILSA "is designed to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers."
An individual who purchases a lot may bring a civil action under the ILSA against a "developer or agent" who violates Section 1703(a). 15 U.S.C. § 1709;
Generally speaking, a lending institution acting in the ordinary course of its business is not considered a "developer" within the meaning of the ILSA.
As the United States District Court for the Western District of Virginia has explained:
The Fourth Circuit recently reached a similar conclusion, holding that the anti-fraud provision of the ILSA "encompasses entities that participated in the advertising and promotional efforts leading to a challenged real estate transaction, even if they ultimately were not party to the transaction."
Here, the undisputed forecast of evidence demonstrates that the Bank was not a co-developer with or agent of Land Resource. Bank of America provided no funding for the Grey Rock development. [Doc. 44-14, Affidavit of Jonathan Rainey ("Rainey Aff.") at ¶ 5]. Further, Bank of America did not sell the lots to the Plaintiffs and was not a party to the Purchase Agreement. Indeed, the Plaintiffs have presented no forecast of evidence tending to show that they had any contact with a Bank representative before signing their Purchase Agreement.
To the extent that the Plaintiffs contend that the Bank engaged in marketing activities on behalf of the developer, the Plaintiffs have failed to present a forecast of evidence that the alleged representations went beyond the ordinary course of dealing with a bank selling loan products to interested customers. In fact, the Plaintiffs have not presented any forecast of evidence that Bank of America engaged in any marketing of Grey Rock, as opposed to the loan products it offered to Grey Rock purchasers.
The Plaintiffs also argue that because they never received a HUD property report from Land Resource, as required by the ILSA, they had the right to rescind the Purchase Agreement. The Plaintiffs contend that Johnson's alleged misrepresentations somehow prevented them from subsequently rescinding their Purchase Agreement within the statutory two-year period.
For all of these reasons, the Court concludes that the Bank was not a "developer" or "agent" of Grey Rock within the meaning of the ILSA. Accordingly, the Plaintiffs' claims under the ILSA are dismissed.
In order to state a valid claim for fraud under North Carolina law, a party must allege a false representation or concealment of a material fact that: (1) was reasonably calculated to deceive; (2) was made with the intent to deceive; (3) did in fact deceive the plaintiff; and (4) resulted in damages to the party.
The conversations the Plaintiffs had with Johnson in the course of securing financing for their lot purchase do not support a claim of fraud. First, most of Johnson's representations amount to nothing more than expressions of opinions regarding the value or quality of the property as a potential investment. "A representation which is nothing more than an opinion as to the value of property, absent something more, does not constitute actionable fraud."
To the extent that the Plaintiffs claim to have been misled by Johnson's representations regarding the high demand for Grey Rock lots, the Plaintiffs have failed to present a forecast of evidence that such statements were actually false. Furthermore, to the extent that the Plaintiffs claim to have been misled by Johnson's representations that the lot would increase in value over time and that they would be able to re-sell their lot before the loan period expired, such representations "`are not regarded as fraudulent in law,' since they are not misrepresentations of a `subsisting fact.'"
Even if any of Johnson's statements were actionable, no reasonable fact-finder could infer from the forecast of evidence presented that the Plaintiffs actually relied upon these opinions. The Plaintiffs already had entered into the purchase agreement for the property when they had the conversations with Johnson in which she supposedly made the alleged misrepresentations. Thus, they were already committed to purchasing the lot when Johnson made the alleged misrepresentations. For these reasons, the Court concludes as a matter of law that Johnson's statements could not have been the cause of the Plaintiffs' harm.
Even if reliance by the Plaintiffs could be shown, however, such reliance was unreasonable as a matter of law. "North Carolina courts consistently have held that exaggerated representations by a seller as to property's value are mere `puffery' on which a buyer is not entitled to rely."
As the Fourth Circuit has noted, reliance on "booster statements" of "enthusiastic agents" is unreasonable because such statements "are to be expected."
Further, it was unreasonable for the Plaintiffs to rely on Johnson's opinions when the Purchase Agreement expressly warned the Plaintiffs:
[
Finally, the Plaintiffs' claim of reliance is unjustified because they had ample opportunity to conduct an independent investigation of the property and reach their own conclusions about the development and its risks prior to purchasing the property but failed to do so. As the North Carolina Court of Appeals has explained:
In this respect, this case is easily distinguishable from
By contrast, in the present case, the Plaintiffs have failed to present any forecast of evidence to establish that the Bank held any superior knowledge regarding the wisdom of investing in the undeveloped lots in Grey Rock. Moreover, the Plaintiffs have failed to present anything to indicate that information regarding the development was exclusively in the control of the Bank and could not have been readily verified by the Plaintiffs. Indeed, the Plaintiffs had many means available to them to assess the value and condition of the property at issue, including independent appraisals, comparable sales data, and personal inspections of the property. The Plaintiffs, however, chose to forego any independent investigation of their investment prior to purchase. Under these circumstances, the Bank cannot be held liable for the Plaintiffs' failure to conduct their own due diligence.
Further, the Plaintiffs' asserted reliance was unjustified because their relationship with the Bank was contractual and did not give rise to a fiduciary duty to ensure that the Plaintiffs were making a sound investment.
For all of these reasons, the Court concludes that the Bank is entitled to summary judgment on the Plaintiffs' fraud claim.
To state a claim for unfair and deceptive trade practices under Chapter 75, a party must allege sufficient facts to show "(1) an unfair or deceptive act or practice, or an unfair method of competition, (2) in or affecting commerce, (3) which proximately caused actual injury to the plaintiff or to his business."
To the extent that the Plaintiffs' Chapter 75 claim is derivative of their claims for fraud and violations of the ILSA, such claim also fails for the reasons set forth above.
The Plaintiffs contend that the Bank violated Chapter 75 by "align[ing] itself with the developer, promoting Grey Rock as an investment, and creating loan programs around it." [Doc. 46 at 21]. The Plaintiffs' assertions that the Bank should be held liable for its close association with Land Resource, however, are insufficient to state a claim under Chapter 75 absent a forecast of evidence that the Bank was an actual or apparent agent of the developer.
The Plaintiffs appear to have abandoned their Chapter 75 claim to the extent that such claim was based on a theory that the use of inflated appraisals by the Bank as part of its loan underwriting process constitutes an unfair or deceptive trade practice. Even if the Plaintiffs were to pursue this theory, however, their claims would nevertheless be subject to dismissal as the undisputed forecast of evidence demonstrates that the Plaintiffs' Purchase Agreement was not dependent on the property appraising for any particular value or even any such appraisal being prepared. It was the bank that required the appraisal for its underwriting purposes. As such, the Plaintiffs could not have reasonably relied on the appraisal in proceeding with their lot purchase.
Finally, the Plaintiffs cannot establish an unfair or deceptive act based on the Bank's ostensible failure to prevent them from finalizing their lot purchases during the origination and underwriting process. The Bank's role in this transaction was to provide financing; it had no contractual duties to the Plaintiffs outside of that role.
In sum, the Plaintiffs have not presented any forecast of evidence establishing that the Bank committed any unfair or deceptive action during the Plaintiffs' lot purchase. Accordingly, the Court concludes that the Bank is entitled to summary judgment on the Plaintiffs' claim under Chapter 75.
For the foregoing reasons, the Court finds that there are no genuine disputes of any material fact and that the Defendant is entitled to judgment as a matter of law.
A Judgment consistent with this Memorandum of Decision and Order shall be entered contemporaneously herewith.
15 U.S.C. § 1703(a)(2)(A)-(C).
