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French Broad Place, LLC v. Asheville Savings Bank, S.S.B.

Court of Appeals of North Carolina

June 5, 2018


          Heard in the Court of Appeals 2 May 2018.

          Appeal by plaintiff from order entered 30 January 2017 by Judge Robert C. Ervin in Transylvania County Superior Court, No. 11 CVS 692

          Johnston, Allison & Hord, P.A., by Martin L. White and Scott R. Miller, for plaintiff-appellant.

          Long, Parker, Warren, Anderson, Payne & McClellan, P.A., by Ronald K. Payne and Thomas K. McClellan, for defendant-appellee.

          TYSON, JUDGE.

         French Broad Place, LLC ("Plaintiff") appeals the trial court's order granting summary judgment to Asheville Savings Bank, S.S.B. ("Defendant") and dismissing all of Plaintiff's claims. We affirm the trial court's order.

         I. Background

         A. The Project

         Plaintiff initiated development of a mixed-use construction and development project in downtown Brevard, North Carolina, called "French Broad Place" (the "Project") in 2007. The Project was planned as a four-story building, which would include office space, retail space, restaurants, residential condominiums, and an attached parking garage. The project's estimated cost was approximately$19, 000, 000. Plaintiff sought a construction lender to finance the Project, and eventually selected Defendant as a lender.

         Plaintiff alleges Defendant proposed a tiered or "waterfall financing structure" that involved financing the Project in phases of development. Phase 1 allegedly included financing for purchasing the land for the Project, designing and constructing the building, and completion of the building shells of the individual units to the extent that a certificate of occupancy could be obtained. Phase 1 was projected to cost approximately $14, 000, 000.

         Phase 2 was to allegedly include financing for finishing the build-out of the residential units and finishing certain common areas. Phase 2 was projected to cost approximately $5, 000, 000.

         Plaintiff and Defendant executed a loan commitment dated 6 December 2007 (the "Loan Commitment"). The Loan Commitment specified Defendant would loan Plaintiff the sum of $9, 950, 000. Defendant denies that the loan it proposed to Plaintiff was to be phased, tiered, or include "waterfall financing."

         The Loan Commitment included several conditions required to be met before closing. One Loan Commitment condition required Plaintiff to obtain $700, 000 in "pre-sales" funds. The "pre-sales" requirement of the Loan Commitment specifically states,

Prior to any Bank funding Borrower shall provide copies of purchase agreements totaling a minimum of $8, 820, 000 with a minimum of 10% non-refundable deposits. Of these pre-sales a minimum of $4, 300, 000 must be either commercial or office space. All purchase agreements must be reviewed and deemed acceptable by Asheville Savings Bank prior to Bank funding.
Asheville Savings Bank shall be given first right of refusal on all pre-sales or sales to affiliated buyers. On those loans where Bank does not exercise that right, the Bank must receive and approve any and all written takeout commitments as well as any applicable lease agreements.

         Plaintiff alleges that after execution of the Loan Commitment, "Defendant agreed to accept commercial leases with options to purchase in lieu of regular pre-sale contracts, and agreed to count the leases with purchase options toward the 'pre-sale contract requirement'" in the Loan Commitment. Plaintiff purportedly relied upon Defendant's alleged allowing of the lease-option contracts to count towards the Loan Commitment's pre-sales requirement, and it continued development and construction of the Project.

         According to the affidavit of Joshua Burdette, a principal of Plaintiff, on 20 March 2008, several principals of Plaintiff purportedly met with officers of Defendant, to discuss the method by which Defendant would apply the lease-option contracts to meet Plaintiff's pre-sale requirements under the Loan Commitment. At that meeting, Defendant's officers purportedly explained to Plaintiff's principals:

[T]hat the lease option contracts alone could not be counted [towards] the required pre-sales under the Loan Commitment, but that [Defendant] could convert Plaintiff's construction loan into individual "Takeout Loans, " . . . on any commercial units which were secured by a lease option contract, in lieu of a presale, and that the commercial units could simply be retained by Plaintiff as investment property to satisfy the presale requirements of the Loan Commitment.

         Around 10 June 2008, Bradley Hines, a vice-president of Defendant, contacted members of Plaintiff, and informed them that the "Takeout Loans" arrangement would have to change. Plaintiff alleges Defendant instructed it to establish a separate legal entity to purchase the commercial units for which Plaintiff had previously obtained lease-option contracts: (1) the new entity was to establish deposit accounts in an entirely different bank than Defendant; (2) the new entity would enter into purchase agreements with Plaintiff for the commercial units that were subject to lease-option contracts; (3) the new entity would be pre-qualified to obtain take-out loans from Defendant on the commercial units secured by lease-option contracts; and, (4) Plaintiff's guarantors were to seek out and obtain financing term sheets from other banks to demonstrate the marketability of the commercial units.

         Plaintiff followed Defendant's purported recommendations, and several of Plaintiff's officers and guarantors formed LBS Properties, LLC ("LBS") and implemented the steps allegedly proposed by Defendant.

         In addition to the pre-sales requirement, another specific condition of the Loan Commitment provided Defendant was to "seek participant funding for no less than $2, 000, 000 from a participant Bank." Plaintiff alleges it did not understand the $9, 950, 000 loan commitment to be contingent upon Defendant actually obtaining the participation from another bank. Prior to the loan closing, Defendant informed Plaintiff that it had not been able to obtain the participation from another bank, and, as a result, that it would only be funding $7, 750, 000 of the $9, 950, 000 amount specified in the Loan Commitment. Defendant also requested Plaintiff to seek a replacement lender for the un-funded $2, 000, 000 of the loan.

         Plaintiff had commenced construction on the Project well in advance of the loan closing. Plaintiff owed Metromont Corporation ("Metromont"), a subcontractor on the Project, for portions of the Project, which had already been erected. Plaintiff convinced Metromont to subordinate its contractor's lien for $2, 200, 000 for costs incurred in exchange for a secured interest in the Project.

         On 8 August 2008, Plaintiff and Defendant closed on the construction loan agreement (the "Loan Agreement") in the specific amount of $7, 750, 000.00 (the "Loan"). The Loan was evidenced by a promissory note (the "Note") and deed of trust in favor of Defendant. Plaintiff asserts the Loan Commitment required Defendant to loan the sum of $9, 950, 000, but that Defendant required Metromont to provide $2, 200, 000 in order to close. Plaintiff also alleges Defendant underfunded the Loan by approximately $300, 000 at closing on 8 August 2008, and then wrongfully deducted another $300, 000 from a draw Plaintiff sought on the Loan for October 2008.

         In November 2008, Plaintiff submitted a change order request to Defendant in the amount of $725, 801. Defendant approved the request and the parties agreed to a written loan modification (the "First Change in Terms Agreement"), which increased the stated total amount of the Loan outstanding from $7, 750, 000 to $8, 475, 801. Plaintiff alleges Defendant unnecessarily delayed in approving the change order until closing in January 2009.

         By March 2009, three businesses were opening on the ground floor of the Project, several more were being constructed, and initial condominium sales were several months away from closing. Plaintiff alleges that in March 2009, Defendant began to refuse to finance the continued construction of the Project under the alleged phased or tiered funding, or "waterfall financing structure, " as Defendant had allegedly promised. Defendant also refused to provide the allegedly promised takeout loans, which Plaintiff avers ultimately caused the Project to fail due to lack of funding.

         Pursuant to a modification agreement the parties executed on 8 June 2009 (the "Second Change in Terms Agreement"), Defendant waived the required payment of the first $1, 000, 000 in release fees, due to Defendant upon the sale of commercial units in the Project, to help Plaintiff complete the construction on the Project. As required by the Second Change in Terms Agreement, the parties also executed a modification of Plaintiff's note, deed of trust and related loan documents regarding the Project. This Modification was recorded at Book 510, Page 398 of the Transylvania County Registry ("Modification of Note and Deed of Trust").

         According to the express terms of this Modification, as of 8 June 2009:

The total amount of all funds disbursed by Lender to Borrower to date under said Note, CLA [Construction Loan Agreement] and Deed of Trust, as amended by the LMA [Loan Modification Agreement] and Modification of Deed of Trust, included those funds deposited in the Interest Reserve Account, is $8, 475, 801.00. There are presently no Construction Loan funds left to be disbursed.

         B. The Complaint

         Plaintiff filed a verified complaint against Defendant on 28 December 2011. In its complaint, Plaintiff asserts claims for breach of contract, unfair trade practices, and breach of a fiduciary duty. Defendant filed a motion to dismiss, an answer and counterclaim on 12 March 2012. In its counterclaim, Defendant seeks payment in full on the Note and asserts Plaintiff had failed to pay the balance Defendant is owed.

         Upon a joint motion of the parties, the Chief Justice of North Carolina designated the matter as an exceptional case pursuant to Rule 2.1 of the General Rules of Practice of the Superior and District Courts on 1 October 2012.

         Following discovery, Defendant filed a motion for summary judgment on 15 November 2016. Attached to Defendant's motion for summary judgment was an affidavit of Brian Gillespie, an employee of Defendant, and an affidavit of David A. Kozak, an executive vice-president of Defendant. In response to Defendant's affidavits, Plaintiff submitted affidavits of Joshua Burdette and Scott Latell, principals of Plaintiff.

         The trial court entered an order granting summary judgment in favor of Defendant on all of Plaintiff's claims and also granting summary judgment in favor of Defendant on its counterclaim against Plaintiff. Plaintiff filed timely notice of appeal.

         II. Jurisdiction

         Jurisdiction lies in this Court pursuant to N.C. Gen. Stat. § 7A-27(b) (2017) as an appeal from a final judgment of the superior court.

         III. Standard of Review

         Upon ruling on a motion for summary judgment, the court views the evidence in the light most favorable to the non-moving party and engages in a two-part analysis of whether:

(1) the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact; and
(2) the moving party is entitled to judgment as a matter of law.
Summary judgment is appropriate if: (1) the non-moving party does not have a factual basis for each essential element of its claim; (2) the facts are not disputed and only a question of law remains; or (3) if the non-moving party is unable to overcome an affirmative defense offered by the moving party.

Erthal v. May, 223 N.C.App. 373, 377-78, 736 S.E.2d 514, 517 (2012) (citations and quotation marks omitted), disc. review denied, 366 N.C. 421, 736 ...

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