BloomBank v. United Fidelity Bank F.S.B.BloomBank v. United Fidelity Bank F.S.B.
Case Information
*1 A TTORNEYS FOR A PPELLANT A TTORNEYS FOR A PPELLEES Bryan H. Babb Andrew W. Hull V. Samuel Laurin Jason L. Fulk Christopher S. Roberge H OOVER H ULL T URNER LLP Elizabeth A. Roberge Indianapolis, Indiana B OSE M C K INNEY & E VANS LLP
Indianapolis, Indiana
I N T H E
COURT OF APPEALS OF INDIANA October 26, 2018 BloomBank, Court of Appeals Case No. Appellant-Plaintiff,
18A-PL-375 v. Appeal from the Marion Superior Court United Fidelity Bank F.S.B., The Honorable Heather A. Welch, et al., Judge
Appellees-Defendants. Trial Court Cause No.
49D01-1606-PL-19471
Bailey, Judge.
Case Summary
[1] BloomBank, f/k/a Bloomfiel d State Bank, (“ BloomB ank”) , a participant lender
to a real estate developer, sue d United Fidelity Bank F.S.B. (“UFB”), the primary lender, and Village Capital Corporation (“Village Capital”) , a successive developer and affiliate of UFB, for allegedly fraudulently inducing BloomBank to sell its interest to UFB at a lower-than-market price, breaching the terms of the parties’ contract, and gaining unjust enrichment. BloomBank now appeals the trial court’s “O rder Granting Defendants’ Motion to D ismiss [ BloomBank’s ] Third Amended Complaint .” We affirm in part, reverse in part, and remand.
Issues BloomBank raises the following four issues:
I. Whether BloomBank sufficiently pled a claim for constructive fraud.
II. Whether BloomBank sufficiently pled a claim for actual fraud.
III. Whether BloomBank sufficiently pled a claim for breach of contract.
IV. Whether BloomBank sufficiently pled a claim for unjust enrichment.
Facts and Procedural History
[4] The relevant facts, as alleged in BloomBank’s Third Amended Complaint and
attached exhibits, are as follows. [1] On May 23, 2007, UFB agreed to loan $7.7 million (“the Loan”) , secured by a
mortgage on a residential development in Hamilton County called Anderson Hall (“the Property”), to Estridge Development Company, Inc. (“Estridge”). BloomBank and two other banks (collectively forming TriCapital, LLC and collect ively referred to as “TriCapital participants”), agreed to provide approximately $3.275 million of the loan amount to UFB in exchange for a 42.5287% interest in the profits and losses associated with the Loan (“the Participatory Interest”). BloomBank held a 40% interest in the TriCapital participation, for which BloomBank paid $1,309,883.96. The TriCapital participants and UFB memorialized their transaction in a Participation Agreement, executed on May 23, 2007. The Participation Agreement (alternately re ferred to as the “contract”) between
UFB and the TriCapital participants provided, in relevant part:
ARTICLE IV
ADMINISTRATION OF THE LOAN 4.1 All Loan Documents shall be executed by the Borrower [Estridge] in favor of the Lender [UFB] and shall be held by the Lender as trustee for the Participant [TriCapital participants] to the extent of its Participatory Interest in the Loan. The Lender reserves the right, in its sole and absolute discretion, in such instance upon prior verbal notice, to be subsequently confirmed by written notice to the Participant, to enforce any and all of the obligations and liabilities of Borrower under the Loan or any of the Loan Documents … The Lender agrees that[,] without the prior written consent of the Participant, which consent shall not be unreasonably withheld or delayed, the Lender shall not … (d) realize on any collateral which may secure the Loan …
* * *
4.2 The Lender shall service the Loan in accordance with its usual and customary practice in the ordinary course of its business and will exercise care in the administration of the Loan as if it were an average prudent lender having made the entire Loan by itself. It is expressly understood and agreed that the Lender does not assume nor shall it be deemed to have any responsibility or liability to the Participant, either express or implied, for:
* * *
(b) with Participant’s written consent, notice of which shall be promptly given, for any failure to realize upon any collateral for the Loan …
* * *
The Participant expressly consents, acknowledges and agrees that the Lender shall have no liability to Participant for any actions the Lender takes in accordance with this Agreement with Participant’s prior consent.
4.3 … The Lender shall promptly notify the Participant of events of which it has actual knowledge and which might materially adversely affect its interest … * * *
ARTICLE X MISCELLANEOUS PROVISIONS
* * *
10.12 The headings of the Articles in this Agreement are inserted solely for convenience of reference, and are not intended to govern, limit, or aid in the construction of any term or provision hereof.
* * *
Appellant’s App. Vol. III, pp. 186-87, 193. [2]
[7] *6 Because UFB was the lead lender and mortgagee, the TriCapital participants
had no privity of contract with Estridge, no disclosed interest in the Loan, and no interest of public record in the Property. The TriCapital participants relied on UFB to provide them with timely and accurate information regarding the status of the Loan and the collateral securing repayment of the Loan, as contemplated in the Participation Agreement. Estridge ultimately defaulted on the loan. On February 17, 2012, UFB filed a
foreclosure action against Estridge. The participant lenders were required to contribute their pro rata share of all attorney’s fees, costs, and expenses incurred by UFB in enforcing the terms of the Loan documents and in realizing on the collateral pledged as security for repayment of the Loan. On May 15, 2013, a final judgment in the foreclosure case was entered in favor of UFB in the amount of $6,826,240.93. On June 4, 2013, UFB filed a praecipe for a s heriff’s sale of the Property that
was collateral for the Loan. On June 14, 2013, a competing lien holder in the foreclosure action, Marilyn Anderson (“Anderson”) , filed a notice of appeal. Anderson did not post a bond or seek a stay of the s heriff’s sale. During this same time period, UFB and the TriCapital participants were engaged in negotiations regarding UFB’s possible repurchase of the participant lenders’ interest in the Loan. On July 9, 2013, UFB offered to repurchase the TriCapital concerning the Borrower and the Loan…” id . at 191, and the Borrower and the Loan itself are not at issue in this case; it is only the sale of the collateral, after default on the Loan, that is at issue.
Participatory Interest for a total purchase price of $1,150,000.00, i.e., less than one-third of the original purchase price paid to UFB by the Tri-Capital participants for the Participatory Interest. On July 31, 2013 , Pat Pfeifer (“Pfeifer”), a representative of the TriCapital
participants, wrote to Donald R. Neel (“Neel”), the President and Chief Executive Officer of UFB and Village Capital, a corporation located in Evansville and an affiliate of UFB. Pfeifer wrote the following regarding the TriCapital participants’ potential l osses associated with acceptance of the UFB proposal to buy the Participatory Interest:
We had two areas of concern we would like to address: 1. Written disclosure of any negotiations to sell the note/collateral prior to sheriff sale[.] 2. Bid price – UFB has not disclosed what its bid offer [is] to Tri-Capital; however, [i]f a bidder shows up and offers $2.8MM or greater[,] we would be better off letting it sell to that bidder than taking the offer of $1,150,00. If you can please elaborate on your bid price and why.
Appellant’ s App. Vol. III at 247. On August 1, 2013, there was a s heriff’s sale of the P roperty. UFB was the
successful bidder for the Property in exchange for a judgment bid in the amount of $2,800,000.00 , a sum millions of dollars lower than the Property’s actual value. That af ternoon, Neel responded to Pfeifer’s inquiry in an email that stated, in relevant part:
We are able to represent that we had not entered into any negotiations to sell the note/collateral prior to the sheriff’s sale. We have received calls and inquiries requesting information about parts of the property (developed lots), but[,] based on the cloud of the Anderson situation[,] have not attempted to negotiate a sale. Your second item … is now moot given the results of the auction today….
Id . at 246-47. The following morning, August 2, Pfeifer sent Neel an email that stated in
relevant part:
We are seeking full disclosure of any offers, calls and inquiries. The purpose of which is [to] provide satisfaction that a discounted sale of the participation is done with full knowledge of any and all offers which may have caused the participants to reconsider the acceptance of a discount.
* * *
Lastly[,] I will put it this way, if the property were sold to a party for a price that would result in a smaller loss to the participant group and that conversation had begun prior to or during our acceptance of this discounted offer[,] then we would take issue that [sic] we had not been informed about it.
* * *
Id . at 246. That afternoon, August 2, Neel responded to Pfeifer’s inquiry in an email that
stated, in relevant part:
I will note below the parties (that we have record of) that have contacted UFB regarding [the Property], and the related litigation. … Only recently did our proposal advance with your group, and a price (that we believe is fair given the ongoing risk) was reached.
1. Due to the pending Anderson appeal, we are not now in a position to sell the entire property as we only have clear title on the eastern portion of the property. Resolution of the Anderson lit igation[,] based on what we anticipate the Anderson’s strategy to be[,] could take several years.
2. By offering a fair price to the participants, UFB is providing an exit strategy for the participants while it takes over the remaining risk of the Anderson appeal and the risks of developing the balance of the lots.
* * *
4. Interest and contacts regarding the property have involved the potential sale of individual or small groups of developed lots to builders….
* * *
Builders that have made inquiries (to confirm, NO OFFERS TO PURCHASE HAVE BEEN RECEIVED) as the pending Anderson appeal has created issues for the title company (I would note that all of the following builders are assuming[,] since we have now been successful at the sheriff’s sale[,] that we hav e clear marketable title which as to the west half of the property is not the case. …):
1. Weekley Homes
2. Gradison Homes
3. Fischer Homes …
4. Drees Homes – bidder at sheriff’s sale 5. Estridge
6. M/I
Id . at 245-46 (emphasis in original). On August 19, 2013, the TriCapital participants and UFB executed a Loan
Participation Purchase and Assumption Agreement (“Purchase Agreement”), pursuant to which the TriCapital participants sold their Participatory Interest to UFB for $1,240,000, of which BloomBank was entitled to 40% ($496,000). The August 1 and 2 emails, above, were attached to and incorporated by reference into the Purchase Agreement. The Purchase Agreement stated, in relevant part:
* * *
1. Agreement to Purchase and Sell . … Seller [TriCapital participants] hereby agrees to sell, assign, transfer and convey to Buyer [UFB] on or before August 21, 2013, (the “Closing Date”), … the Participatory Interest….
* * *
3.3. No Recourse. Buyer is purchasing the Participatory Interest on an “as -is, where- is” bas is, and without recourse. *11 Seller and Buyer have had the opportunity to engage legal counsel and have performed such due diligence that they deem necessary and appropriate in connection with the purchase and assignment contemplated hereunder.
* * *
3.4. Termination of Participation Agreement. The Closing of this transaction and execution and delivery of the Assignment attached hereto as Exhibit C shall constitute a termination of the Participation Agreement.
* * *
5.5. Buyer’s Representations Relating t o Purchase Offer Negotiations and Settlement. Buyer represents to Seller, and Seller, in entering into this Agreement, is relying on this representation, that, except as disclosed in the e-mail of Don Neel dated August 2, 2013, which is attached hereto as Schedule D, that as of the Effective Date [August 19, 2013], Buyer has not (a) engaged in any negotiations with, or entered into any agreement with, any person … with regard to the sale or other transfer … of the real estate secured by the Loan …
* * *
7.2. Release by Seller. In consideration of the execution of this Agreement and the mutual promises contained herein, Seller … hereby irrevocably and unconditionally covenants not to sue and releases and forever discharges Buyer … of and from any and all actions … of any nature whatsoever … from the beginning of time to the date of this Agreement … arising from, resulting from, arising out of, caused by and/or related to the Loan, the Participation Agreement, or related to the facts, origination, *12 servicing, or circumstances of the Loan, Participation Agreement, or the Participatory Interest. This Release shall not release Buyer from its obligations under this Agreement and for the breach of any representations contained in this Agreement.
* * *
Id . at 235-36, 238-39. On September 25, 2013 — approximately thirty-seven days after the Effective
Date of the Purchase Agreement — UFB settled the Anderson appeal. On December 2, 2013, that appeal was dismissed on the joint motion of the parties. The following day, UFB transferred title to the Property to its affiliate, Village Capital, by way of a quitclaim deed executed by Neel. Commencing in December 2013, Village Capital began selling lots within the Property to companies owned by and/or affiliated with Estridge and the Pedcor Companies (“PedCor”) . Village Capital had received gross proceeds for such sales of approximately $9,513,540.00 as of August 31, 2016. After selling its Participatory Interest to UFB, BloomBank discovered that UFB
had actively discouraged one or more third parties from submitting bona fide bids at the s heriff’s sale in excess of the judgment bid submitted by UFB. UFB was aware that certain third parties were interested in acquiring the Property at the s heriff’s sale and were willing to place bids in excess of UFB’s judgment bid in order to purchase the Property. Instead of encouraging bids from such third parties, however, UFB purposefully discouraged such bids to secure UFB’s position as purchaser of the Property at the lowest possible price. BloomBank’s complaint alleges the following as an example. A representative of Drees Homes (“Drees”) was present at the s heriff’s sale, and actively bid for the Property. A representative of UFB discouraged Drees from continuing to bid, however, bas ed upon UFB’s stated intention to outbid Drees regardless of amount. A third party bid in excess of UFB’s judgment bid would have yielded a higher recovery for the participant lenders, but UFB chose to act in direct derogation of the derivative rights of the participant lenders in the collateral securing repayment of the Loan. After selling its Participatory Interest, BloomBank also discovered that,
following the s heriff’s sale, and prior to the execution of the Purchase Agreement, UFB refused to entertain offers from one or more third parties interested in purchasing the Property from UFB. For example, on August 13, 2013 — almost two weeks after the s heriff’s sale and approximately six days before the execution of the Purchase Agreement — Joseph L. Gradison of Gradison Design- Build (“Gradison”) met with Bruce A. Cordingly of Pedcor and stated that he was interested in purchasing the Property. Pedcor is a large group of companies engaged in real estate investment, development, marketing, management, and finance. Pedcor Financial Bancorp is the ultimate parent of UFB. Mr. Cordingly refused to entertain any offer from Gradison, however, informing Gradison that the Property was not for sale. UFB failed to disclose to the TriCapital participants that the only reason UFB had not engaged in any negotiations regarding the sale or transfer of the Property was the fact that UFB refused to do so. On May 26, 2016, BloomBank filed a Complaint for Damages against UFB and
Village Capital [3] . BloomBank subsequently filed two amended complaints. UFB moved to dismiss the Second Amended Complaint for failure to state a claim, and the trial court granted that motion on August 21, 2017. On August 31, BloomBank filed its Third Amended Complaint. In addition to the facts as stated above, the Third Amended Complaint made the following allegations:
66. The refusal to entertain third party offers to purchase the Property following the Sheriff’s sale was in direct derogation of the participant lenders’ derivative rights in the collateral securing repayment of the Loan.
67. UFB never disclosed to the participant lenders that UFB had discouraged bidding at the Sheriff ’ s sale and also refused to entertain third party offers to purchase the Property, despite UFB’ s contractual obligation to secure the participant lenders’ prior consent for not realizing on the collateral securing repayment of the Loan.
68. UFB’ s discouragement of bids at the Sheriff ’ s sale and undisclosed refusal to entertain third party offers to purchase the Property following the Sheriff ’ s sale constituted breaches of the Participation Agreement in multiple respects, i.e., the failure to administer th e Loan consistent with a lender’ s usual and customary practices, failure to secure the participant lenders’ prior consent to not fully realizing on the collateral securing repayment of the Loan, and failure to promptly notify the *15 participant lenders of events materially adversely affecting their interests.
69. In addition, UFB had a duty to not omit to state any material fact when conveying information to the participant lenders regarding the Loan — including during the course of negotiations regarding the potential repurchase by UFB of the participation interest.
70. UFB never informed the participant lenders that UFB had discouraged bids at the Sheriff ’ s sale and subsequently refused to entertain third party offers to purchase the Property despite its contractual duty to do so and de spite the participant lenders’ unequivocal requ est for full disclosure of all “ offers, calls and inquir ies” as a prerequisite to execution of the Purchase Agreement.
71. Instead, UFB knowingly and intentionally provided incomplete and misleading information that caused the participant lenders to believe that the pendency of the Anderson appeal had had a chilling effect on the market for the Property when, in fact, it was UFB’ s own conduct that eliminated any market.
72. By virtue of its status as lead lender, UFB was in possession of information not readily available to the participant lenders regarding the level of third party interest in the Property prior to and at the Sheriff ’ s sale, as well as the handling of “ offers , calls and inquiries” directed solely to UFB following the Sheriff ’ s sale.
73. In undertaking to provide information regarding these matters to the participant lenders, UFB was obligated to provide complete information.
74. UFB, however, knowingly and intentionally misled the participant lenders to believe that there was no current market for the Property, when in fact UFB had actual knowledge to the contrary and had taken affirmative steps to eliminate any third party interest in the Property.
75. Neel’ s communications would lead any reasonable participant lender to believe that title problems allegedly created by the pendency of the Anderson appeal chilled or eliminated any potential market for the Property and that there were no third parties interested in purchasing the Property as a whole. 76. Although UFB’ s representations (incorporated by reference and reaffirmed in the Purchase Agreement) that it had not received any “ off ers” and had not engaged in any “negotiations” may have been literally accurate, such representations were intentionally incomplete, deceptive, and misleading.
77. In addition, UFB’ s representation that UFB had only received inquiries regarding the purchase of individual or small groups of undeveloped lots, rather than the Property as a whole, was false.
78. UFB purposefully created a false picture of the market for the Property and withheld information from the participant lenders in order to induce the participant lenders to execute the Purchase Agreement.
79. Had UFB informed the participant lenders that UFB had not received any “offers” and had not engaged in any “negotiations” based upon UFB’ s refusal to entertain offers or to engage in any negotiations, BloomBank (and likely the other participants) would not have agreed to execute the Purchase Agreement.
80. BloomBank and the other participant lenders reasonably relied on the information being provided by UFB, particularly in ligh t of UFB’ s contractual obligation to refrain from failing to realize on collateral without the participant lenders’ prior consent.
81. The participant lenders were fraudulently induced by UFB into execution of the Purchase Agreement, resulting in substantial damages to BloomBank, and the purported release of UFB and its affiliates, including Village Capital, set forth therein is void.
82. UFB was in exclusive possession of information not possessed by and not readily available to the participant lenders that was material to the participa nt lenders’ decision to execute the Purchase Agreement.
83. UFB’ s failure to disclose that superior knowledge to the participant lenders rendered the transaction represented by the Purchase Agreement inherently unfair.
84. Even in the absence of any fiduciary obligations, UFB had the obligation to not act in a manner inconsistent with the par ticipant lenders’ interests without their prior consent, and had the obligation not to withhold information from, or fail to disclose information to, the participant lenders necessary to make the information that was provided by UFB not misleading or inaccurate.
85. By failing to make full disclosures to the participant lenders, UFB gained an advantage over the participant lenders at their expense.
86. Although UFB had the right to retain and develop the Property for its own benefit after the purchase of the Tri-Capital Participant Group’ s interests, UFB did not have the right to surreptitiously and without disclosure, eliminate the market for the Property by its refusal to entertain offers in order to reduce the purchase price being paid by UFB to the Tri-Capital Participant Group for their interests.
87. UFB’ s undisclosed discouragement of bids at the Sheriff ’ s sale, refusal to entertain third party offers in excess of $2,800,000, and presentation of a misleading and incomplete portrait of the level of third party interest in the Property as a whole, amount to conduct so inherently unjust that BloomBank should be afforded a remedy under a theory of constructive fraud.
88. Finally, after UFB repurchased the participation interest of the Tri-Capital Participant Group at an artificially and wrongfully suppressed repurchase price, UFB transferred title to the Property to its affiliate, defendant Village Capital. 89. Village Capital continued the development and sale of the Property at a substantial profit at the instruction and on behalf of UFB.
90. Village Capital’ s retention of the benefit of having received title to the Property at the expense of BloomBank would be manifestly unjust.
91. BloomBank is therefore entitled to a recovery from Village Capital for unjust enrichment.
Appellant’s App. Vol. III at 179 -183. On October 12, 2017, UFB moved to dismiss BloomBank’s Third Amended
Complaint on the ground that it failed to state a claim upon which relief could be granted, pursuant to Indiana Trial Rule 12(B)(6). Following briefing and oral argument by the parties, the trial court granted the motion to dismiss in an order dated February 12, 2017. BloomBank now appeals.
Discussion and Decision
Standard of Review
BloomBank challenges the trial court’s order dismissing its complaint. A Rule
12(B)(6) motion to dismiss for failure to state a claim tests the legal sufficiency
of the plaintiff’s claim, not the facts supporting that claim.
Bellwether Prop., LLC
v. Duke Energy Ind., Inc.
,
v. Kennedy
,
because Indiana is a notice pleading state and, as such, requires only that a
pleading
[4]
contain (1) a short and plain statement of the claim, and (2) a demand
for relief.
Trail v. Boys & Girls Clubs of Nw. Ind.
,
the exact level of particularity that is required will necessarily differ based on the facts of the case. [W]hile we require a plaintiff claiming fraud to fill in a fairly specific picture of the allegations in her complaint, we remain sensitive to information asymmetries that may prevent a plaintiff from offering more detail.
Id
. at 132 (internal quotations and citations omitted) (quoting
Cincinnati Life Ins.
Co. v. Beyrer
,
(hereinafter, “Complaint”) : breach of contract, constructive fraud, actual fraud,
and unjust enrichment. Its breach of contract claim is subject to notice pleading
requirements. Its actual and constructive fraud claims must meet the more
specific requirements for pleading fraud under Rule 9(B). And, because its
unjust enrichment claim sounds in fraud, it too must meet the Rule 9(B)
pleading requirements.
See Kapoor
,
Effect of the Release BloomBank raises breach of contract claims based on UFB ’s actions and
omissions that allegedly violated certain provisions of the Participation
Agreement. However, the Purchase Agreement into which the parties
subsequently entered contained a “Release by Seller” ( the “Release”) barring
BloomBank from suing UFB for breach of the Participation Agreement.
BloomBank maintains that the Release does not bar its breach of contract
claims because BloomBank was fraudulently induced into executing the
*23
Purchase Agreement containing the Release.
[5]
Tru-Cal, Inc. v. Conrad Kacsik
Instrument Sys., Inc.
,
Constructive Fraud BloomBank asserted in its Complaint that UFB committed constructive fraud
by fraudulently inducing the TriCapital participants (including BloomBank) to
enter into the Purchase Agreement. Appellant’s App. Vol. III at 182.
“ [C]onstructive fraud arises by operation of law from a course of conduct
which, if sanctioned by law, would secure an unconscionable advantage,
irrespective of the existence or evidence of actual intent to defraud.”
Rapkin
Group, Inc. v. Cardinal Ventures, Inc.
,
ways: (1) the existence of a fiduciary relationship; and (2) the case of a buyer
and seller.
Harmon v. Fisher
,
i.e., that UFB violated its duty to BloomBank by making deceptive material misrepresentations of past or existing facts and remaining silent when it had a duty to speak. Although on August 2, 2013, UFB did disclose to BloomBank a list of builders who had “contacted” UFB about the Property or “made inquiries” about the Prop erty, Appellant’s App. Vol. III at 245 -46, BloomBank *26 alleged that UFB falsely represented at the time of the Purchase Agreement that those inquiries were only regarding the purchase of portions of the property rather than the property as a whole. Id . at 181. Yet, BloomBank alleged that it later learned on its own that Drees Homes had bid on the whole Property at the sheriff’s sale, and Gradison had offered to purchase the Property after the sheriff’s sale. Id . at 178-79. BloomBank further alleged that UFB failed to disclose that it had discouraged other bids at the sheriff’s sale and that it had refused to entertain offers for purchase after the sheriff’s sale, and that these omissions gave the TriCapital participants a false view of the marketability and/or value of the Property. Id . BloomBank alleged that these misrepresentations and/or failures to disclose — the truth of which were not within BloomBank’s knowledge at the time— painted a false picture of the market for the Property, thereby inducing BloomBank to sell to UFB at a low price. Moreover, BloomBank sufficiently alleged that UFB fraudulently induced it to
enter into the purchase agreement by providing “incomplete and misleading
information” about the Anderson appeal. Appellant’s App. Vol. III at 180.
UFB’s statement that “[r]esolution of the Anderson litigation[,] based on what
we anticipate the Anderson’s strategy to be[,] could take several years,”
Id
. at
245, could be considered an opinion and, of course, “an action in fraud requires
a misrepresentation of material fact,” not opinion.
BSA Const. LLC v. Johnson
,
and omissions. UFB contends that BloomBan k could not rely upon UFB’s
representations because BloomBank was a “sophisticated business entity” that
gave a “warranty of due diligence” in section 3.3 of the Purchase Agreement.
[8]
Appellee’s Br. at 29 - 30. However, UFB’s contention begs the question of whether UFB fraudulently induced BloomBank to enter into that agreement in
*28
the first place. That agreement did not extinguish UFB ’s alleged duty, in the
buyer/seller context, to provide BloomBank with the material information that
was solely within UFB’s knowledge
before
the parties entered into the Purchase
Agreement, nor did it extinguish BloomBank ’s alleged right to rely on UFB’s
material representations as to such knowledge.
Cranston
,
pleading requirements of Indiana Trial Rule 9(B). It gave specific examples of
UFB’s discouragement of competitive bidding at the sheriff’s sale and its refusal
to entertain offers to purchase after the sale. BloomBank: stated the time,
place, and substance of two events
[10]
that were material and that UFB failed to
disclose to BloomBank; stated which facts UFB failed to disclose regarding
*29
those two events, which led to misrepresentations of the marketability of the
Property; and identified what UFB procured by fraud — i.e., the difference
between the “full value” of the Property and the Participatory Interest and what
UFB paid for them.
[11]
Id
. at 175, 178-83. And, to the extent BloomBank
alleged, but did not give specific examples of, UFB’s non -disclosures , “[non -
disclosure] is not [always] an event that can be pled with specificity ,” especially
where, as here, the buyer is alleged to have superior if not exclusive knowledge
of the facts relating to the expressions of interest in purchasing the Property.
Kapoor
,
BloomBank has stated a claim for constructive fraud, and the trial court erred in
dismissing that claim.
Bellwether
,
Actual Fraud BloomBank also alleged that UFB committed actual fraud to induce the
TriCapital participants to enter into the Purchase Agreement. The elements of
actual fraud are: (i) material misrepresentation of past or existing facts by the
party to be charged (ii) which was false, (iii) which was made with knowledge
*30
or reckless ignorance of the falseness, (iv) which was relied upon by the
complaining party, and (v) which proximately caused the complaining party
injury.
Kapoor
,
material misrepresentations or omissions upon which BloomBank relied and which caused BloomBank injury. We further hold that BloomBank sufficiently alleged that UFB did so with knowledge or reckless ignorance of the falseness of its representations. BloomBank alleged that UFB’s representative was at the sheriff’ s sale and “actively” and “purposely discouraged ” Drees Homes and others from bidding against UFB on the Property as a whole. Appellant’s App. Vol. III at 178. It further alleged that UFB knowingly failed to inform BloomBank of those actions. Thus, BloomBank alleged facts showing that UFB knew that it had discouraged other bidders but knowingly failed to disclose that information to BloomBank in order to induce BloomBank into accepting UFB’s offer to purchase BloomBank’s interest in the Property at a low price. Similarly, BloomBank alleged that UFB knew it was refusing to entertain offers to purchase the Property after the sale, and it gave the specific example of Gradison’s expression of interest in purchasing the Property. BloomBank further alleged that UFB knowingly failed to disclose that information to the TriCaptial participants. Thus, BloomBank alleged UFB’s intent to deceive with enough specificity to meet the pleading requirements of *31 Indiana Trial Rule 9(B), and the trial court erred in dismissing its actual fraud claim. Because BloomBank stated a claim that UFB fraudulently induced BloomBank
to enter into the Purchase Agreement, it has also stated a claim that the Release
contained in that contract is invalid.
Tru-Cal, Inc.
,
Breach of Contract To prevail on a claim for breach of contract, a plaintiff must prove (1) the
existence of a contract, (2) defendant’s breach of that con tract, and (3) damages
from the breach.
E.g.
,
Gerdon Auto Sales, Inc. v. John Jones Chrysler Dodge Jeep
Ram
,
*32 Sections 4.1 and 4.2 Usual and Customary Practices BloomBank alleged in its Complaint that UFB ’s discouragement of bids at the sheriff’s sale of the Property and refusal to entertain third party offers to purchase the Property after the sheriff’s sale violated section 4.2 [13] of the contract by “fail [ing] to administer the Loan consistent with a lender’s usual and customary practices.” Appellant’s App. Vol. III at 179. However, that first sentence of section 4.2, by its express terms, applies only to servicing and administration of “the Loan.” The actions about which BloomBank complains occurred only after default on the Loan and in relation to realization on the collateral. Therefore, accepting BloomBank’s allegations as true, they still do not support the claim for breach of the first sentence of section 4.2 of the contract.
*33 Realization on Collateral BloomBank also alleged that “UFB never disclosed to the participant lenders that UFB had discouraged bidding at the She riff’s sale and also refused to entertain third party offers to purchase the Property, despite UFB’s contractual obligation to secure the participant lenders’ prior consent for not realizing on the collateral securing repayment of the Loan.” Id . BloomBank alleged that those actions violated sections 4.1 and 4.2 [14] of the contract by “ fail[ing] to secure the participant lenders’ prior consent to not fully realizing on the collateral securing repayment of the Loan.” Id . It is clear from the face of the complaint that UFB did “realize on the
collateral” when it sold the Property at a sheriff’s sale and paid $2,800,000 for it, and that BloomBank and the other participants were aware that UFB intended to do so. [15] And BloomBank does not allege that it ever withheld its consent for such a sale. Rather, BloomBank contends that UFB violated the contract by withholding information that was necessary for the TriCapital participants to give “informed” consent to the realization. Appellant’s Br. at 32.
The Complaint did not state that the Participation Agreement required
“informed” consent, and the contract does not define the term “consent” as
meaning “informed consent.” However, a contract need not define every term
in order to state a claim for breach of contract, especially under the rules of
notice pleading. Moreover, “it is a principle of contract interpretation that
specific words and phrases cannot be read exclusive of other contractual
provisions; rather, the parties’ intentions must be determined by reading the
contract in its entirety and attempting to construe contractual provisions so as
to harmonize the agreement.”
Ambrose v. Dalton Const., Inc.
,
facts so as to place the defendant on notice as to the evidence to be presented at
trial.
Shields
,
Section 4.3 BloomBank alleged in its Complaint that, under section 4.3 of the contract,
“UFB was obligated to promptly notify the participant lenders of any event that might materially adversely affect the participant lenders’ interests,” and it attached a copy of the contract containing that language. Appellant’s Ap p. Vol. III at 173. BloomBank further alleged that UFB violated this section by failing to disclose to the participant lenders that UFB had discouraged bidding at the sheriff’s sale and that it had refused to entertain third party offers to purchase the Property. Id . at 179. And BloomBank gave specific examples of the failures to disclose the events that might have materially and adversely affected its interests. Id . at 178- 79 (citing UFB’s discouragement of Drees Homes bidding at the sheriff’s sale and its refusal to entertain any offer from Gradison). Under the standards for notice pleading, BloomBank’s assertions were sufficient to put *36 UFB on notice of the claims against it. The trial court erred in holding that UFB failed to state a claim of breach of section 4.3 of the contract. [16]
Unjust Enrichment Finally, BloomBank alleged a claim of unjust enrichment against Village
Capital, an affiliate of UFB.
A claim for unjust enrichment “is a legal fiction invented by the common law courts in order to permit a recovery ... where the circumstances are such that under the law of natural and immutable justice there should be a recovery ...” Bayh v. Sonnenburg ,573 N.E.2d 398 , 408 (Ind. 1991) (citation omitted). “A person who has been unjustly enriched at the expense of another is required to make restitution to the other.” RESTATEMENT OF RESTITUTION § 1 (1937). To prevail on a claim of unjust enrichment, a claimant must establish that a measurable benefit has been conferred on the defendant under such c ircumstances that the defendant’ s retention of the benefit without payment would be unjust. Bayh ,573 N.E.2d at 408 .
Zoeller v. East Chicago Second Century, Inc.
,
because BloomBank was not the entity that conferred the benefit on Village
Capital and Village Capital did not request the benefit from BloomBank. It is
true that, “[t]o recover under an unjust enrichment claim, a plaintiff must
generally show that he rendered a benefit to the def endant at the defendant’ s
express or implied request … . ”
Reed v. Reid
,
Unjust Enrichment. “If a third person makes a payment to the defendant to which (as between claimant and defendant) the claimant has a better legal or *39 equitable right,[ [18] ] the claimant is entitled to restitution from the defendant as nec essary to prevent unjust enrichment.” R ESTATEMENT (T HIRD ) OF R ESTITUTION AND U NJUST E NRICHMENT : P AYMENT TO D EFENDANT TO W HICH C LAIMANT H AS A B ETTER R IGHT § 48 (A M . L AW I NST . 2018). Similarly, “if a third person makes a payment to the defendant in respect of an asset belonging to the claimant ,[ [19] ] the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment.” R ESTATEMENT (T HIRD ) OF R ESTITUTION AND U NJUST E NRICHMENT : P AYMENT TO D EFENDANT IN R EPECT OF C LAIMANT ’S P ROPERTY § 47 (A M . L AW I NST . 2018) (emphasis added). Here, BloomBank alleged that third person purchasers made payments to Village Capital in respect of the Property which equitably belonged to BloomBank due to U FB’s alleged fraudulent actions resulting in UFB’s purchase of that Property for less than its full value . Appellant’s App. Vol. III at 182-83. And BloomBank alleged that it was therefore entitled to restitution from Village Capital as necessary to prevent unjust enrichment. Id . at 183. Thus, BloomBank stated a claim for unjust enrichment, and the trial court erred in dismissing that claim.
Conclusion BloomBank failed to state a claim for constructive fraud based on UFB’s
alleged fiduciary duty stemming from a contract, i.e., the Purchase Agreement.
Allison
,
fraudulently induced, t he Release in that document does not bar BloomBank’s
breach of contract claims.
Tru-Cal
,
enrichment against Village Capital, that Village Capital was unjustly enriched
by UFB’s fraudulent actions in the purchase of the Property subsequently
transferred to, and sold by, Village Capital.
Zoeller
,
Mathias, J., and Bradford, J., concur.
Notes
[1] We review a dismissal under Rule 12(B)(6) de novo and accept as true the facts alleged in the complaint.
Birge v. Town of Linden
,
[2] BloomBank also points to Article VIII, § 8.1(b), but does not pursue a claim on appeal that UFB violated that provision. Perhaps that is because the body of that section expressly states that it relates to “matters
[3] We refer to UFB and Village Capital, collectively as defendants/appellees, as “UFB.”
[4] “The ‘pleadings’ consist of a complaint and an answer, a reply to any counterclaim, an answer to a cross-
claim, a third- party complaint, … an answer to a third-party complaint [,]” and “ any written instruments
attached to a complaint ….”
Graves v. Kovacs
,
[5] The trial court did not address the issue of the Release in its order of dismissal. However, BloomBank raised the issue in its Complaint, Appellant’s App. Vol. III at 180 -81, and the parties briefed the issue below, Appellant’s App. Vol. IV at 23, 118.
[6] In the usual case, it is the seller who has superior knowledge not possessed by a buyer. However, the opposite may also be true, as it is alleged in this case.
[7] The “statement” may also be an omission t o induce another to sell.
See, e.g.
,
Boots v. D. Young Chevrolet,
LLC
,
[8] In section 3.3, BloomBank agreed that it “performed such due diligence that [it] deem[ed] necessary and appropriate in connection with the purchase and assignment contemplated hereunder.” Appellant’s App. Vol. III at 235.
[9] While the Complaint does not state what the “full value” of the Participatory Interest is, it does state that
UFB purchased the Property for “a sum millions of dollars lower than the Property’ s actual value. ”
Appellant’s App. Vol. I II at 175. Of course, the value of the Property affected the value of the Participatory
Interest. And we reiterate that, at this point in the proceedings — i.e., a dismissal before the parties have even
had an opportunity to conduct discovery — we do not test the sufficiency of the facts, only the legal sufficiency
of the claims.
Bellwether
,
[10] I.e., discouraging Drees Homes from bidding and refusing to entertain an offer to purchase from Gradison.
[11] Thus, this case is different from
Cranston
, cited by the Appellees, in that the plaintiff/buyers in
Cranston
failed to identify what facts were known only by the seller/defendant that would have affected the buyers’
decision to buy, and failed to show that they relied on the seller’s omiss ions.
Cranston
,
[12] There is no dispute that the Complaint alleges damages from a breach of contact. Appellant’s App. Vol. III at 183.
[13] The trial court held that BloomBank failed to state a claim under sections 4.1, 4.2, and 4.3 of the
Participation Agreement because those sections related only to the servicing and administration of the Loan,
and BloomBank’s complaint relates to UFB’s conduct after default on the Loan and foreclosure. Appellant’s
App., Vol. IV, at 187. In support of this holding, the trial court relied upon the heading of Article IV, i.e.,
“Administration of the Loan.”
Id
. However, the trial court failed to consider section 10.12 of the
Participation Agreement, which expressly states that the headings of the ar ticles in the agreement “are not
intended to govern, limit, or aid in the construction of any term or provision hereof.” Appellant’s App. Vol.
III at 193. It is a well-settled principle of contract interpretation that, if the language in the contract is
unambiguous, courts must adhere to the plain meaning of that language.
E.g.
,
Performance Serv., Inc. v.
Hanover Ins. Co.
,
[14] Unlike the first sentence of section 4.2, the relevant language of section 4.1 and subsection (b) of 4.2 does not expressly limit its application to the servicing and administering of the Loan. Id . at 187.
[15] See Pfeifer’s letter dated July 31, 2013, discussing the upcoming sheriff’s sale. Appellant’s App. Vol. III at 247.
[16] We note that the only basis for the trial court’s erroneous holding was its incorrect finding that section 4.3 related only to the administration and servicing of the Loan, as noted in footnote 15, above.
[17] An affiliate is defined as “[a] corporation that is related to another corporation by shareholdings or other means of contro l; a subsidiary, parent, or sibling corporation.” Affiliate , B LACK ’S L AW D ICTIONARY (10th ed. 2014).
[18] “[T]he words ‘better legal or equitable right’ refer to a paramount interest of a kind recognized in law or equity.” R ESTATEMENT (T HIRD ) OF R ESTITUTION AND U NJUST E NRICHMENT : P AYMENT TO D EFENDANT TO W HICH C LAIMANT H AS A B ETTER R IGHT § 48 cmt. a (A M . L AW I NST . 2018).
[19] “Ownership for this purpose may be legal or equitable…” R ESTATEMENT (T HIRD ) OF R ESTITUTION AND U NJUST E NRICHMENT : P AYMENT TO D EFENDANT IN R ESPECT OF C LAIMANT ’S P ROPERTY § 47 cmt. a (A M . L AW I NST . 2018).