7th Circuit affirms rulings in ‘acrimonious’ dispute over property value assessment

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The 7th Circuit Court of Appeals has affirmed a lower court’s various rulings in “acrimonious” litigation between an appraiser and a bank.

In May 2007, Birch | Rea Partners Inc. was hired by SunTrust Bank to perform a portfolio valuation on a property located in Indiana. Birch | Rea prepared the report and valued the property at $3.23 million.

PNC Bank provided the financing for the mortgage loan, and both PNC and Sun Trust accepted the report. The owner then sold the property in October 2007 to a Sun Trust affiliate subject to a $2.3 million loan PNC extended to Sun Trust.

A few years later, PNC assigned the loan to American Capital Group LLC, which would later sell the loan to Regent Bank.

Regent began questioning the legitimacy of the property’s valuation in 2016. Independent appraisal experts determined that the “go-dark” value of the property was only $200,000.

Thus, Regent employed a law firm and the two hired certified appraiser, John Potter, to examine the Birch report. Potter prepared a report of his findings, which detailed nine deficiencies in the original Birch report.

Specifically, Potter concluded Birch’s report was in “non-compliance with USPAP [Uniform Standards of Professional Appraisal Practice],” and the company had breached its duty of care by failing to apply proper methods used to appraise the property.

Regent sued Birch but quickly withdrew and moved to voluntarily dismiss the case. However, Birch responded with its own suit, alleging malicious prosecution from Regent in its “frivolous” action. Regent counterclaimed for damages under the Indiana frivolous litigation statute.

Regent eventually moved for summary judgment on its malicious-prosecution claim, and Birch moved to strike two affidavits used by Regent. Birch also moved for summary judgment on the issue of attorney fees under Indiana law.

The U.S. District Court for the Northern District of Indiana granted Regent’s motions for summary judgment as to probable cause and malice and Birch’s motion for summary judgment on Regent’s counterclaim. However, it denied Regent’s motion for damages as moot and denied Birch’s motion to strike.

The 7th Circuit affirmed in Birch | Rea Partners, Inc. v. Regent Bank, Stonegate Bank, and Home BancShares, Inc., 21-2118 and 21-2307, first addressing the motions for summary judgment. On that issue, the appellate court found that Regent had probable cause to initiate the underlying action against Birch and that the uncontradicted evidence showed Regent relied on the Potter report to sue.

“Indeed, Regent Bank specifically referred to the report in its complaint for the underlying action,” Circuit Judge Amy St. Eve wrote. “Although Regent Bank withdrew its complaint, ‘the fact that a party is ultimately’ unsuccessful in litigation ‘does not lead to the conclusion [that] the party had no probable cause to file suit.’”

The appellate panel also noted Birch did not provide any legal citations to support its argument that Regent could not rely on its initial report as a matter of federal law. Ultimately, it concluded Regent did not act maliciously in commencing the underlying action.

As for Regent’s claims, the 7th Circuit found that Birch did not file a frivolous, unreasonable or groundless lawsuit. It also found “no evidence that the malicious-prosecution claim was brought to injure Regent Bank.”

“Both parties seem to acknowledge the ‘acrimonious history’ of this litigation, but bitter litigation is not enough by itself. While Birch | Rea ultimately cannot prevail, its actions do not rise to bad-faith litigation,” St. Eve wrote.

Lastly, the 7th Circuit held that the question of whether the district court should have excluded affidavits from Regent was moot.

“Birch | Rea does not contest that the Potter report exists, was turned over as part of discovery, and is relevant for summary judgment. Nor does it challenge the admission of Potter’s deposition,” St. Eve concluded. “And a different, unchallenged affiant stated that Regent Bank relied on the Potter report. Thus, the district court did not err by denying the motion to strike.”

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