Stoney Glen, LLC v. Southern Bank & Trust Co.
944 F. Supp. 2d 460
E.D. Va.2013Background
- Plaintiffs agreed to a $3,000,000 settlement to resolve about $9,000,000 in debt with Defendant under a Debt Settlement Agreement (DSA).
- Settlement funding relied on Plaintiffs securing a revolving line of credit from HG Residential Finance II, an affiliate of Harbor Group, with a dry closing set for December 21, 2012.
- Plaintiffs provided financial statements during negotiations; Wright initially omitted a tenancy-by-the-entirety property from his June statement due to a belief it was individually unrecoverable by Defendant.
- After the DSA was signed, Wright updated his personal financial statement to include the jointly owned property, and submitted affidavits and an Affidavit of Best Offer.
- Defendant terminated the DSA on December 21, 2012, claiming misrepresentation/omission in the financial statements under Section 1.03 of the DSA.
- Plaintiffs allege the termination breached the implied duty of good faith and fair dealing in the contract and seek to uphold the breach of contract claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Virginia recognizes an implied duty of good faith in contracts | Wright asserts Virginia recognizes implied covenant in contracts. | Harrison/Defendant contends no implied duty outside UCC contracts. | Yes; Virginia recognizes the implied duty in common law contracts. |
| Whether Plaintiffs adequately alleged a breach of the implied duty | Plaintiffs allege termination was made in bad faith and inconsistent with prudent banking practices. | Defendant argues there was no dishonest conduct and no improper discretion. | Yes; Plaintiffs pleaded breach by alleging improper review and misrepresentation-based termination. |
Key Cases Cited
- Virginia Vermiculite, Ltd. v. W.R. Grace & Co.-Conn., 156 F.3d 535 (4th Cir. 1998) (duty applicable where contract involves discretionary decision-making)
- Charles E. Brauer Co., Inc. v. NationsBank of Va., N.A., 251 Va. 28, 466 S.E.2d 382 (Va. 1996) (explicit contractual rights not breached by exercising rights)
- Mahoney v. NationsBank of Virginia, N.A., 249 Va. 216, 455 S.E.2d 5 (Va. 1995) (bank’s discretionary rights within contract upheld; no breach)
- Greenwood Assocs. Inc. v. Crestar Bank, 248 Va. 265, 448 S.E.2d 399 (Va. 1994) (implied duty outside specific statutory UCC contexts)