COA affirms breach, fraud, unjust enrichment claims brought by bank

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A bank that brought breach of contract, fraud and unjust enrichment claims against its loanee won each of those claims on appeal, but failed to state a claim that the loanee violated the “usual and customary practices” laid out in its participation agreement, according to a Friday opinion from the Indiana Court of Appeals.

In May 2007, United Fidelity Bank F.S.B. agreed to loan $7.7 million secured by a mortgage on a residential development in Hamilton County to Estridge Development Company, Inc. Bloomfield State Bank and two other banks, collectively known as TriCapital participants, agreed to provide approximately $3.275 million of the loan amount to UFB in exchange for a 42.5 percent interest in the profits and losses associated with the loan.

Estridge ultimately defaulted on the loan, so UFB filed a foreclosure action against Estridge in February 2012.  In August 2013, the TriCapital participants and UFB executed a Loan Participation Purchase and Assumption Agreement, pursuant to which the TriCapital participants sold their participatory interest to UFB for $1.24 million, of which BloomBank was entitled to 40 percent.

After selling its participatory interest, BloomBank discovered that, following a sheriff’s sale of the property and prior to the execution of the purchase agreement, UFB refused to entertain offers from one or more third parties interested in purchasing the Hamilton County property. It also found that UFB had actively discouraged the parties from submitting bona fide bids in order to secure its position as purchaser of the property at the lowest possible price. 

In May 2016, BloomBank filed a complaint for damages against UFB and Village Capital Corporation, a UFB affiliate, with three subsequent amended complaints. UFB moved to dismiss BloomBank’s third amended complaint pursuant to Indiana Trial Rule 12(B)(6), and the Marion Superior Court granted the dismissal in February 2017.

On appeal, BloomBank challenged the trial court’s dismissal, raising claims of breach of contract, constructive fraud, actual fraud and unjust enrichment. The appellate court ultimately found that BloomBank stated its constructive and actual fraud claims with enough specificity to satisfy the requirements of Trial Rule 9(B).

“BloomBank did state a claim for constructive fraud based on UFB’s duty as a buyer possessing knowledge not possessed by the seller, BloomBank,” Judge L. Mark Bailey wrote for the court. “BloomBank also stated a claim for actual fraud, as it alleged facts that, if true, show that UFB knew it made false material misrepresentations or omissions in order to induce BloomBank to enter into the Purchase Agreement for the Property.”

It also found BloomBank successfully alleged 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.

However, the appellate court found that BloomBank failed to state a claim that UFB’s actions violated the “usual and customary practices” language of section 4.2, which expressly applied only to the servicing and administration of the loan.

The case was thus affirmed in part, reversed in part, and remanded in BloomBank v. United Fidelity Bank F.S.B., et al., 18A-PL-375.

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