Arnesen v. Rivers Edge Golf Club and Plantation, Inc.
368 N.C. 440
| N.C. | 2015Background
- Plaintiffs bought undeveloped lots in planned Brunswick County subdivisions marketed by developer Mark A. Saunders; many purchases occurred before the 2007–2008 market collapse.
- Saunders marketed lots with promotional events, reservation deposits, and extensive property reports; purchasers often executed contracts and then obtained financing from BB&T.
- BB&T acted as lender for many buyers and engaged James Powell Appraisals (and employee Lynn Rabello) to perform a limited number of appraisals for the bank’s internal underwriting; BB&T did not order appraisals for most small transactions.
- Plaintiffs sued BB&T and the Appraisers alleging a scheme to inflate lot values via fraudulent appraisals and that plaintiffs relied on those appraisals when purchasing; claims included fraud, negligent misrepresentation, UDAP, RICO, unjust enrichment, and violation of the Mortgage Lending Act (MLA).
- The trial court dismissed BB&T and the Appraisers under Rule 12(b)(6); the Supreme Court affirmed the dismissals, holding plaintiffs failed to plead a legal duty, justifiable reliance, or proximate causation as to BB&T and the Appraisers.
- Three-justice concurrence/dissent would have allowed some claims (fraud, negligent misrepresentation vs. appraisers; UDAP and fraud vs. BB&T) to proceed, reasoning plaintiffs sufficiently alleged indirect reliance and that the MLA could apply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BB&T owed a duty to disclose appraisal info (including fiduciary-like duty) | BB&T had a duty (by relationship, good faith, and MLA) to discover and disclose inflated appraisals | Lender duties are contractual; no general duty to prospective purchasers or to disclose appraisals not requested or provided | No duty; dismissal affirmed |
| Whether plaintiffs justifiably relied on appraisals they did not view or request | Plaintiffs relied implicitly because lender acceptance of appraisals enabled loans and closings | Reliance is unreasonable when purchaser made no inquiry and was not prevented from investigating; many contracts were not contingent on appraisal | No justifiable or actual reliance alleged; dismissal affirmed |
| Whether appraisers owed a duty to plaintiffs (nonclient buyers) | Appraisers knew reports would be used in lending and intended for buyers’ benefit, so duty existed | Appraisers’ client was BB&T; no indication they knew plaintiffs would rely; liability limited to known intended users | No duty as pled; negligence and related claims dismissed |
| Whether the MLA applied to these transactions | Plaintiffs: statute covers mortgage loans in residential subdivisions and prohibits misrepresentation or influencing appraisal | Defendants: plaintiffs bought investments, not residential loans, and statute protects personal/residential borrowers only | Majority: MLA inapplicable (purchases were investments/not for personal/family/household use); concurrence would apply MLA to protect buyers |
Key Cases Cited
- Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200 (1988) (limits accountant/appraiser liability to persons the preparer knows and intends will rely and requires actual/justifiable reliance)
- Dallaire v. Bank of Am., N.A., 367 N.C. 363 (2014) (lender duties are generally contractual; justifiable reliance and proximate causation required for negligence claims against lenders)
- Alva v. Cloninger, 51 N.C. App. 602 (1981) (appraiser liability where purchaser conditioned purchase on financing and reasonably assumed appraisal and loan approval related)
- Bumpers v. Community Bank of N. Va., 367 N.C. 81 (2013) (actual reliance required to establish proximate cause for UDAP-type claims against lenders)
- Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 323 N.C. 559 (1988) (reasonable reliance required for actionable fraud)
- Booe v. Shadrick, 322 N.C. 567 (1988) (unjust enrichment requires measurable benefit conferred and accepted)
- Reid v. Holden, 242 N.C. 408 (1956) (proximate cause required for civil conspiracy damages)
- Hoke v. E.F. Hutton & Co., 91 N.C. App. 159 (1988) (actual reliance on predicate act required for RICO/proximate cause)