RL Regi North Carolina, LLC v. Lighthouse Cove, LLC
229 N.C. App. 71
N.C. Ct. App.2013Background
- Plaintiff RL REGI North Carolina, LLC sues over defaulted loans originally made by Regions Bank; Regions Bank’s successor sues Connie Yow and related entities over her guaranty.
- Connie S. Yow executed a guaranty in April 2006 tied to loans secured by real estate developed by the Lighthouse Cove entities.
- LC Owners formed Lighthouse Cove, LLC and Lighthouse Cove Development Corp. to acquire ~57 acres in Brunswick County for a residential subdivision.
- Loans closed in March 2006, totaling $4,280,000, guaranteed by the LC Owners and their wives, including Yow, though wives were not owners/officers.
- By 2009–2010 the LC Entities defaulted, a forbearance agreement was executed, and the forbearance terms were subsequently violated.
- In 2010 Regions Bank’s interest was transferred to Plaintiff; trial in May 2012 led to a defense verdict for Yow based on ECOA, which the trial court entered as a defense against Plaintiff’s claims; the court affirmed the defense and entered judgment for Yow.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| ECOA violation proven by guaranty requirement | Regions Bank violated ECOA by requiring spouse guaranty | ECOA permits a spouse guaranty in certain contexts; jury found violation | Yes, Regions Bank violated ECOA (Issue 3) based on jury verdict |
| ECOA violation as an affirmative defense | Violation does not create an affirmative defense for guaranty enforcement | Guarantor may use ECOA violation as affirmative defense | Yes, may be affirmative defense under NC law |
| Waiver of ECOA defense via forbearance | Forbearance clause waives illegality defense | Waiver of illegality defenses not permitted by law | No, forbearance did not waive the ECOA defense |
Key Cases Cited
- Bank of the West v. Kline, 782 N.W.2d 453 (Iowa 2010) (ECOA termination/recoupment considerations cited)
- In re Westbrooks, 440 B.R. 677 (M.D.N.C. 2010) (ECOA as affirmative defense recognized in bankruptcy context)
- Bolduc v. Beal Bank, SSB, 167 F.3d 667 (1st Cir. 1999) (recoupment/affirmative defense approach described)
- Eure v. Jefferson Nat’l Bank, 248 Va. 245, 448 S.E.2d 421 (Va. 1994) (ECOA defense aligned with statutory remedies and anti-discrimination goals)
- Capitol Funds, Inc. v. Marriott Financial Services, Inc., 288 N.C. 122, 217 S.E.2d 551 (NC 1975) (illegal contract exception and penalties interaction with void contracts)
- Covington v. Threadgill, 88 N.C. 186 (NC 1883) (classic illegality of contracts principle applied to void contracts with statutory violation)
- Marriott Financial Services, Inc. v. Capitol Funds, Inc., 288 N.C. 122, 217 S.E.2d 551 (NC 1975) (cited regarding illegality and void contracts)