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Federal Deposit Insurance Corporation v. Mingo Tribal Preservation Trust

United States District Court, W.D. North Carolina, Statesville Division

April 14, 2015



RICHARD L. VOORHEES, District Judge.

BEFORE THE COURT is Mingo Tribal Preservation Trust ("Mingo"), Jesse W. Horton, Jr., Trustee of Mingo ("Trustee"), and Jesse W. Horton, Jr's., individually ("Horton") Motion to Dismiss.[1] (Doc. 22). Plaintiff Federal Deposit Insurance Company ("FDIC") has filed a Response, (Doc. 27), to which Defendants have replied, (Doc. 28).

This case was originally filed in Caldwell County Superior Court by Parkway Bank on July 28, 2011. The Original Verified Complaint sought to recover a deficiency judgment. However, on March 25, 2013, Parkway Bank amended its Original Verified Complaint and added certain contractual and business tort claims. On April 26, 2013, Parkway was closed by the North Carolina Office of the Commissioner of Banks and the FDIC was appointed as receiver. On August 2, 2013, the FDIC was substituted as Plaintiff in the current action and subsequently removed the action to this Court pursuant to 12 U.S.C. § 1819.


On June 7, 2007, Parkway, Mingo, and Trustee executed a loan commitment letter. (Doc. 2-12, at ¶ 10). The letter provided that Mingo and Trustee would provide Parkway with certain financial information and that the commitment could be deemed breached if there is a material adverse change in the business of Mingo. (Id. ). On June 7, 2007, Parkway made a loan in the amount of $8, 850, 000.00 (the "Loan") to Mingo. (Id. at ¶ 7). The Loan was evidenced by a June 7, 2007, promissory note in the amount of $8, 850, 00.00 (the "Note.").[2] The Note was secured by a Deed of Trust of even date encumbering 1, 368.53 acres in Yadkin County. (Id. at ¶ 11). Jesse W. Horton, Jr. is the sole trustee of Mingo[3] and sole guarantor of the obligations under the Loan. (Id. at ¶ 3). Parkway, FDIC, and Trustee entered into three Loan Modification Agreements and a Forbearance Agreement between June 2007 and November 18, 2010. (Id. at ¶¶ 9, 13). Specifically, the Note was modified on December 7, 2008, March 7, 2009, and December 7, 2009, which ultimately extended the maturity date of the Note to June 7, 2010. (Id. at ¶ 13).

Plaintiff maintains it has eight causes of action arising out of the lending relationship. Specifically, Plaintiff pleads (1) breach of loan contract; (2) breach of guaranty contract; (3) negligent misrepresentation[4]; (4) aggravated breach of contract; (5) breach of the covenant of good faith and fair dealing; (6) fraud; (7) fraudulent transfer; and (8) unfair and deceptive trade practices.

Defendants seek, pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, to dismiss the Third, Fourth, Fifth, Sixth, Seventh, and Eighth causes of action in the Amended Complaint. Defendants are attempting to dismiss all extra-contractual claims from the case while allowing the contractual claim for a deficiency to remain.


A motion filed pursuant to 12(b)(6) of the Federal Rules of Civil Procedure challenges the legal sufficiency of a complaint. Jordan v. Alternatives Res. Corp., 458 F.3d 332, 338 (4th Cir. 2006); Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). While a complaint need not contain detailed factual allegations, the courts require more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (applying Rule 8).

Rule 12(b)(6) protects against meritless litigation by requiring sufficient factual allegations "to raise a right to relief above the speculative level" so as to "nudge[ ] the[ ] claims across the line from conceivable to plausible." Twombly, 500 U.S. at 555, 570; see Iqbal, 556 U.S. at 662. Under Iqbal, the court performs a two-step analysis. First, it separates factual allegations from allegations not entitled to the assumption of truth. Second, it determines whether the factual allegations, which are accepted as true, "plausibly suggest an entitlement to relief." 556 U.S. at 681.

Under a motion to dismiss under 12(b)(6), the court must accept as true all factual allegations in the pleading and all reasonable inferences must be drawn in the non-movants favor. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam); Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). This requirement applies only to facts, not legal conclusions, however. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). Further, district courts do not have to blindly accept "allegations that contradict matters properly subject to judicial notice." Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (under 12(b)(6), it is ordinary for a court to consider matters of which it may take judicial notice). This is seen as a narrow exception to Rule 12(d)'s requirement that matters considered outside of the pleadings will convert the motion to summary judgment. Clatterbuck v. Charlottesville, 708 F.3d 549, 557 (4th Cir. 2013).


A. Do the FDIC's Claims Fall Within the Independent Tort Exception?

1. The General Rule and Its Exception

Defendants have moved to dismiss the entirety of the extra-contractual claims by citing Strum v. Exxon Co., USA, 15 F.3d 327, 329 (4th Cir. 1994), where the Fourth Circuit, applying North Carolina law, refused to allow a plaintiff to pursue tort theories where the dispute was covered by the contract between the parties and the plaintiff did not allege viable independent tort claims. Therein, the Fourth Circuit recognized that there is little to no justification for awarding punitive damages in a breach of contract case. Id. at 330. Tort law is fault based and its purpose is to compensate the victim and punish unreasonable action; however, contract law and its damages seek to uphold the agreement reached between the parties. Id. The very purpose of a contract is to allow parties to determine, allocate, and mitigate perceived risks. Id. Where the parties do so, it is inappropriate to inject the uncertainty of punitive damage awards. Id.

"Only where a breach of contract also constitutes an independent tort' may tort actions be pursued." Id. (quoting Restatement (Second) of Contracts § 355 (1981)). This exception has been "carefully circumscribed" by North Carolina law. Id. at 331. "The independent tort alleged must be identifiable, and the tortious conduct must have an aggravating element such as malice or recklessness before any punitive damages may be recovered." Id. (internal quotations and citations omitted). "The mere failure to carry out a promise in contract... does not support a tort action for fraud." Id. at 331. Further, it is "unlikely that an independent tort could arise in the course of contractual performance, since those sorts of claims are most appropriately addressed by asking simply whether a party adequately fulfilled its contractual obligations." Id. at 333.

2. Application

In Defendants' motion to dismiss, they compare contractual provisions with the alleged improper activities underlying each of the extra-contractual claims.[5] The extra-contractual causes of action all revolve around six subparagraphs which are first presented in Paragraph 37 of the Amended Complaint.

i. Borrower and Guarantor failed to provide contractually required financial information which was ...

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