113 N.E.3d 708
Ind. Ct. App.2018Background
- In 2007 United Fidelity Bank (UFB) made a $7.7M loan to Estridge; TriCapital participants (including BloomBank) purchased a ~42.5% participatory interest (BloomBank paid ~$1.31M for its 40% share).
- Participation Agreement required UFB (as lead lender) to service the loan as a prudent lender, not realize on collateral without participant consent, and promptly notify participants of events materially affecting their interests.
- After Estridge defaulted, UFB obtained a foreclosure judgment and was the successful bidder at the sheriff’s sale on Aug. 1, 2013, with a $2.8M judgment bid; UFB later offered to repurchase the participants’ interests for ~$1.15M and executed a Purchase Agreement for $1.24M (BloomBank’s share ~$496k).
- BloomBank alleges UFB discouraged third‑party bidding at the sheriff’s sale and refused post‑sale offers (e.g., Drees and Gradison), but represented to participants there were no offers/negotiations and that the Anderson appeal chilled the market; the Anderson appeal was settled ~37 days after the Purchase Agreement and title was quitclaimed to UFB affiliate Village Capital, which later sold lots for substantial proceeds.
- BloomBank sued UFB and Village Capital for constructive fraud, actual fraud (fraudulent inducement of the Purchase Agreement), breach of the Participation Agreement, and unjust enrichment; the trial court dismissed the Third Amended Complaint under T.R. 12(B)(6); the Court of Appeals reviews that dismissal de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constructive fraud — duty and nondisclosure | UFB had a duty (by contract and as buyer with superior knowledge) and omitted material facts (discouraging bids, refusing offers) to induce sale | No fiduciary duty from contract; plaintiffs are sophisticated and warranted due diligence | Dismissal reversed in part: no constructive‑fraud claim based on contractual fiduciary duty, but claim viable under buyer/seller superior‑knowledge theory (sufficiently pled under T.R. 9(B)) |
| Actual fraud (fraudulent inducement) | UFB knowingly misrepresented/omitted material facts to induce the Purchase Agreement | Plaintiffs are sophisticated and waived reliance via due‑diligence language | Reversed: alleged facts sufficiently plead falsity, knowledge/reckless ignorance, reliance, and damages; T.R. 9(B) particularity satisfied |
| Breach of Participation Agreement (sections 4.1–4.3) | UFB breached duties to notify and to obtain consent (read as requiring informed consent) by withholding material facts about bidding/offers | Contract limits (Article IV headings) mean provisions address loan servicing only; participants consented/waived via Release | Reversed in part: claims under 4.1/4.3 and for failure to provide information to obtain valid consent survive; claim under 4.2 "usual and customary practices" (as to loan servicing) fails because facts relate to post‑default realization |
| Unjust enrichment (against Village Capital) | Village Capital was enriched by profits from property obtained through UFB’s fraud; restitution appropriate though third parties made payments | Plaintiffs did not directly confer the benefit; Village Capital did not request it | Reversed: unjust‑enrichment claim adequately pled (doctrine permits recovery even when third parties paid defendant for claimant’s property rights) |
Key Cases Cited
- Bellwether Prop., LLC v. Duke Energy Ind., Inc., 87 N.E.3d 462 (Ind. 2017) (Rule 12(B)(6) dismissal reviewed de novo; accept complaint facts)
- Birge v. Town of Linden, 57 N.E.3d 839 (Ind. Ct. App. 2016) (pleadings construed favorably to nonmovant)
- Kapoor v. Dybwad, 49 N.E.3d 108 (Ind. Ct. App. 2015) (fraud pleading under T.R. 9(B); particularity and sensitivity to information asymmetry)
- Rice v. Strunk, 670 N.E.2d 1280 (Ind. 1996) (elements of constructive fraud)
- Tru‑Cal, Inc. v. Conrad Kacsik Instrument Sys., Inc., 905 N.E.2d 40 (Ind. Ct. App. 2009) (fraud in inducement vitiates releases)
- Rapkin Group, Inc. v. Cardinal Ventures, Inc., 29 N.E.3d 752 (Ind. Ct. App. 2015) (constructive fraud definition)
- Harmon v. Fisher, 56 N.E.3d 95 (Ind. Ct. App. 2016) (duty in buyer/seller superior‑knowledge context)
- Am. Heritage Banco, Inc. v. Cranston, 928 N.E.2d 239 (Ind. Ct. App. 2010) (buyer/seller fraud elements and reliance issues)
- Bayh v. Sonnenburg, 573 N.E.2d 398 (Ind. 1991) (unjust enrichment principles)
- Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213 (Ind. 2009) (unjust enrichment elements)