LAYNE A. LINDBERG and BARBARA J.
LINDBERG,
Plaintiffs,
v.
FIRST CONSTRUCTION CREDIT, INC.,
and First Mortgage Financial Corporation,
Defendants.
[1999 DSD 22]
United States District Court
District of South Dakota - Western Division
CIV. 98-5034
MEMORANDUM OPINION AND ORDER
Layne A. Lindberg, Pro se
Barbara J. Lindberg, Pro se
Curtis S. Jensen, Frank J. Driscoll
DeMersseman Jensen Lawyers, Rapid City, SD
Attorneys for First Construction Credit
Lonnie R. Braun, Morrill, Thomas, Nooney & Braun, Rapid City, SD
Attorney for First Mortgage Financial
Dated July 21, 1999
Richard H. Battey, Senior District Judge
PROCEDURAL HISTORY
[¶1] On March 31, 1998, this case was removed to this Court from the Seventh Judicial Circuit of South Dakota. Defendants are both Minnesota corporations who are authorized to do business in South Dakota. Plaintiffs are South Dakota residents.
[¶2] On March 15, 1999, plaintiffs moved to amend the complaint. Before the Court could rule on the motion to amend each defendant filed a motion for summary judgment. The Court granted plaintiffs' motion to amend the complaint and directed the defendants to either re-file their summary judgment motions or reassert the previously filed motions. On May 12, 1999, defendant First Mortgage Financial Corp. (First Mortgage) informed the Court in a letter that it was re-asserting its previous motion for summary judgment unchanged. On May 17, 1999, defendant First Construction Credit, Inc. (First Construction) filed a renewed motion for summary judgment. Plaintiffs responded (fn1) on May 28, 1999, and both defendants have filed reply briefs.
FACTS
[¶3] This case involves a failed relationship between a mortgage broker, First Mortgage, a construction loan lender, First Construction, and the borrowers, Layne and Barbara Lindberg (the Lindbergs). First Construction is a Minnesota corporation authorized to conduct business in South Dakota. First Construction's Statement of Material Facts in Support of Motion For Summary Judgment (First Construction's SMF) at 1. Its primary business is "short term construction mortgage financing" and traditionally about 25-30 percent of its mortgage referrals come from First Mortgage. Affidavit of Jay Schoo, First Construction's Exhibit A at 1-2. First Mortgage is also headquartered in Minnesota and licensed to do business in South Dakota. First Construction's SMF at 2. First Mortgage is a mortgage broker which attempts to secure financing for prospective borrowers on the mortgage market. First Mortgage's Statement of Undisputed Facts (First Mortgage's SMF) at 1-2. First Mortgage is paid for its services via a commission once a loan has closed. Id. at 2.
[¶4] The Lindbergs are South Dakota residents and are primary shareholders in Master Log Builders (MLB) with their son, Mike. First Construction's Motion for Summary Judgment (First Construction's Motion) at 3. MLB "constructs log homes and assembles log home packages." Id.
[¶5] According to the amended complaint, the Lindbergs desired to purchase a 40-acre tract of land in the Black Hills of South Dakota. Amended Complaint at 2. They planned to build a home and subdivide the remaining property. Id. In May 1997, the Lindbergs approached Mark Abrams (Abrams) of First Mortgage's Rapid City office to secure financing for the project. Id. With the assistance of Abrams the Lindbergs applied for and received a construction loan through First Construction in the amount of $160,000 for the completion of a log home on the site which was to be used by the Lindbergs as a primary residence. (fn2) Id. Abrams also arranged for financing of the subdivision through National Mortgage Company (National Mortgage) originally for the amount of $177,100. Id. at 2. The loan, or "end financing," from National Mortgage was contingent upon completion of the log home. Id. The Lindbergs knew this when they applied for the end financing from National Mortgage. First Construction's SMF at 5.
[¶6] The construction loan, in the amount of $160,000 was due at the scheduled time of completion of the log home on November 1, 1997. Id. at 3. If all necessary funds were not paid to First Construction by that time a default would result and First Construction had the option of foreclosure. Construction Loan Agreement, Lindberg Depo., Exhibit 14 Art. VII § 7.2. The Construction Loan Agreement also set forth the ability of First Construction to continue to finance the project and/or make the necessary improvements toward completion but this was entirely at the discretion of First Construction. Id. at Article I(d).
[¶7] The Lindbergs did not meet the November 1, 1997, deadline for repaying the loan. In February 1998, First Construction offered to extend the construction loan until April 1,1998. Modification and Extension of Mortgage, Lindberg Depo., Exh. 30. Apparently not satisfied with this the Lindbergs filed a lawsuit in South Dakota state court. First Construction initiated a foreclosure action in South Dakota state court and prevailed on summary judgment therein and subsequent appeals. First Construction's Exhibits in support of motion, Exh. E-G.
SUMMARY JUDGMENT STANDARD
[¶8] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if the movant can "show that there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." In determining whether summary judgment should issue, the facts and inferences from those facts are viewed in the light most favorable to the nonmoving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that such party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 US 574, 106 SCt 1348, 1356-57, 89 LEd2d 538 (1986). Once the moving party has met this burden, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts showing that a genuine issue of material fact exists.
[¶9] In determining whether a genuine issue of material fact exists, the Court views the evidence presented based upon which party has the burden of proof under the underlying substantive law. Anderson v. Liberty Lobby, Inc., 477 US 242, 106 SCt 2505, 2513, 91 LEd2d 202 (1986). The Supreme Court has instructed that "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 US 317, 327, 106 SCt 2548, 2555, 91 LEd2d 265 (1986). The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," and "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita, 106 SCt at 1356.
[¶10] The teaching of Matsushita was further articulated by the Supreme Court in Eastman Kodak Co. v. Image Technical Services, Inc., 504 US 451, 468, 112 SCt 2072, 2083 (1992) where the Court said, "Matsushita demands only that the nonmoving party's inferences be reasonable in order to reach the jury, a requirement that was not invented, but merely articulated, in that decision." The Court expounded on this notion by reiterating its conclusion in Anderson that, "[s]ummary judgment will not lie . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Eastman Kodak, 504 US at 468 n.14, 112 SCt at 2083 n.14 (quoting Anderson, 477 US at 248, 106 SCt at 2510). To survive summary judgment there must be evidence that "reasonably tends to prove" plaintiff's theory; defendant meets the burden under Fed. R. Civ. P. 56(c) when it is conclusively shown that the facts upon which the nonmoving party relied to support the allegations were not susceptible of the interpretation which was sought to give them; only reasonable inferences can be drawn from the evidence in favor of the nonmoving party. Id. (citations omitted).
DISCUSSION
[¶11] The Lindbergs allege several causes of action against both First Mortgage and First Construction. They argue that First Construction and First Mortgage committed the following torts: (1) breach of fiduciary duty; (2) breach of contract; (3) fraud and misrepresentation; (4) intentional, or negligent, infliction of emotional distress. (fn3) Amended Complaint at 2-7.
[¶12] Preliminarily the Court addresses the Lindbergs assertion that First Mortgage and its employees are somehow agents of First Construction. There is no evidence that First Mortgage or its employees ever were agents of First Construction. The nature of the mortgage broker business can lead the untrained eye to perceive an agency relationship between a broker and a financing institution; however, in reality it simply acts as a locator of entities which may be interested in financing a project. In the instant case First Mortgage worked on a commission to be paid by the Lindbergs at the time of the mortgage closing with National Mortgage. Broker Fee Agreement, Lindberg Exh. #6. Additionally, Abrams and an associate from First Mortgage agreed to serve as field inspectors for First Construction on its construction loan with the Lindbergs. Abrams Affidavit at 3. They were to be paid $50 per inspection as well as .5 percent of the paid construction loan. Id. First Mortgage received no fee since First Construction foreclosed. Id. In the end, it was in First Mortgage's best interest to have the deal go as planned. Only at the conclusion of the deal would it receive any remuneration. The Court finds that there was no agency relationship between First Mortgage and First Construction.
[¶13] A. Fiduciary duty
[¶14] The Lindbergs claim that a fiduciary relationship existed in this case runs counter to South Dakota law. Whether a relationship is fiduciary in nature is uniquely a question of law and is therefore ripe for summary judgment. Dinsmore v. Piper Jaffray, Inc., 1999 SD 56, ¶ 9, 593 NW2d 41, 45. A typical debtor-creditor relationship can be transformed into a fiduciary relationship "if the borrower reposes a faith, confidence and trust in the bank which results in dominion, control or influence over the borrower's affairs." Garrett v. BankWest, Inc., 459 NW2d 833, 838 (SD 1990). In addition the borrower must be in a position of "'inequality, dependence, weakness or lack of knowledge.'" Id. (citing Union State Bank v. Woell, 434 NW2d 712, 721 (ND 1989)). One final characteristic denotes a fiduciary relationship -- the fiduciary has the "'duty to act primarily for the benefit' of another." High Plains Genetics Research, Inc. v. J K Mill-Iron Ranch, 535 NW2d 839, 841 (SD 1995) (citing Garrett, 459 NW2d at 837).
[¶15] As in Garrett this case involves a debtor who was educated and presumably knowledgeable of mortgages and their operation. Both the Lindbergs were officers of MLB, a log home construction firm. The Lindbergs were also aware of the nexus between the construction loan and the mortgage from National Mortgage. They were certainly not in a position of weakness or ignorance of the operation of the finances in this case. The most that can be said is that they underestimated the cost of completion of the log house, a factor which cannot be attributed to First Construction or First Mortgage. Nowhere is there evidence that they were dependent on either defendant or that the defendants exerted control over their affairs. Finally, the Lindbergs have presented no evidence that the defendants worked primarily for the benefit of the Lindbergs. First Construction is in the business of executing construction loans and does so in the interest of itself, not the borrowers. First Mortgage serves only as a go-between for potential borrowers and lenders. While both defendants are generally interested in maintaining an amicable and successful relationship with potential customers neither worked for the benefit of the Lindbergs. Having presented no evidence of a fiduciary relationship with either defendant, the breach of fiduciary duty claim fails.
[¶16] B. Breach of contract
[¶17] The Lindbergs contend that First Construction failed to comply with the contract provisions governing conduct after default. Specifically, they argue that First Construction's insistence (fn4) that the Lindbergs continue to work on the house without further financing was in violation of the express terms of the agreement. Response at 24. The Lindbergs expected First Construction to continue to fund the project and recoup its expenses once the mortgage loan had been secured. Id. The Lindbergs chose to "pull back, re group" and attempt to find other financing. Id. at 14.
[¶18] The interpretation of a written contract is generally considered a question of law for courts to determine. Chord v. Reynolds, 1999 SD 1, ¶ 6, 587 NW2d 729, 732. Hence, the Court looks to the contract at issue in this case, the Construction Loan Agreement, to determine the merits of the breach of contract claim.
[¶19] There is no dispute that the Lindbergs failed to comply with the terms of the Construction Loan Agreement. Payment plus interest of the loan was due no later than November 1, 1997, the scheduled completion date. In the event of default First Construction had the option to foreclose. It is true that First Construction could have financed the remaining portions of the project and then attempted to recoup that expenditure from the end financing; however, such a decision was completely discretionary as the contract states that First Construction had "the right, but not the obligation, to take over and complete construction." Construction Loan Agreement Art. 1(d) (emphasis added). The terms of the contract clearly permit First Construction to pursue several options at its discretion, including foreclosure. The fact that First Construction attempted to extend the payment deadline until April demonstrates some effort on its behalf to work with the Lindbergs. They chose not to reciprocate and foreclosure ensued. While the conduct of First Construction, once it became apparent that the project would cost considerably more than originally thought, is not beyond reproach in this case it was not a breach of contract as the Lindbergs contend.
[¶20] C. Fraud/deceit
[¶21] It appears from the complaint that the Lindbergs' fraud or misrepresentation claim emanates from the defendants' insistence that the log home be completed once it became apparent that the loan proceeds were insufficient. (fn5) Amended Complaint at 4. The Lindbergs claim that defendants "pressured" them into completing the home, thereby forcing them to incur more debt at the hands of subcontractors. Id. Since defendants knew that financing was unavailable to close and that the completion date would not be met, the Lindbergs contend that the assurance made by defendants constituted fraud or deceit Id.
[¶22] SDCL 53-4-5 states:
53-4-5. Actual fraud, acts constituting, question of fact. Actual fraud in relation to contracts consists of any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:
(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;
(2) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believe it to be true;
(3) The suppression of that which is true by one having knowledge or belief of the fact;
(4) A promise made without any intention of performing it; or
(5) Any other act fitted to deceive.Actual fraud is always a question of fact.
SDCL 53-4-6 states:
53-4-6. Constructive fraud, acts constituting. Constructive fraud consists:
(1) In any breach of duty which, without any actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him,, by misleading another to his prejudice or to the prejudice of anyone claiming under him; or
(2) In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.
These statutes concern actual fraud and constructive fraud relating to the entering of contracts.
[¶23] The Lindbergs fail to establish the elements of either. There is no evidence that the Lindbergs were induced into entering the Construction Loan Agreement by assertions made to them by First Construction or First Mortgage as is required by SDCL 53-4-5. Rather the Lindbergs question defendants' conduct well after the contract had been signed. As such there exists no claim for fraud under § 53-4-5 because none of the alleged representations made to the Lindbergs by defendants in late 1997 resulted in a new agreement. First Construction's actions at that time were within the parameters of the Construction Loan Agreement.
[¶24] The same holds true for a claim of constructive fraud under § 53-4-6. A critical element of that cause of action is a breach of a duty. Neither defendant had a duty to the Lindbergs other than those set forth in the Construction Loan Agreement. The Lindbergs were not forced to continue with the project, but they were faced with the prospect of foreclosure if they chose not comply with the clear terms of the agreement. When the Lindbergs defaulted under the agreement they knew that foreclosure was one of the options available to First Construction. That First Construction chose foreclosure despite any assurances is not a breach of duty.
[¶25] The Lindbergs also appear to make out a claim sounding in tort for deceit under SDCL 20-10-2. This statute states:
20-10-2. Acts constituting deceit. A deceit within the meaning of § 20-10-1 is either:
(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;
(3) The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or
(4) A promise made without any intention of performing.
[¶26] As with their fraud claims, the Lindbergs fail to appreciate that the factual scenario in this case does not support a deceit claim. First, the Lindbergs offer no evidence in this case that First Construction's actions failed to comply with the Construction Loan Agreement. The Lindbergs' actions, more so than the assertions by First Construction and First Mortgage, resulted in the predicament they faced. First Construction demonstrated good faith by trying to work with the Lindbergs on extending the terms of the agreement to allow completion of the house. Second, it does not appear that the Lindbergs relied upon the statements made by defendants. When the financing became tight they chose to "regroup," a choice which resulted in foreclosure. First Construction acted as would any creditor in the circumstances by first trying to work with the Lindbergs, then opting to foreclose when default occurred and the Lindbergs filed suit. Finally, there again is no evidence that the defendants made statements or promises to the Lindbergs which were knowingly false. Meyer v. Santema, 559 NW2d 251, 254 (SD 1997) (noting that a claim of negligent misrepresentation requires some untruth). By urging the Lindbergs to finish the house defendants hoped the mortgage could be secured and the indebtedness on the construction loan paid. Without completion of the house there was no hope of receiving the mortgage loan. Thus defendants were advocating a plan of action which was entirely justified.
[¶27] D. Infliction of emotional distress
[¶28] In the closing paragraph of the amended complaint the Lindbergs make reference to the "enormous weight and stress" which has "assisted in deterioration of Mrs. Lindberg's health" as a result of the dealings with defendants. Amended Complaint at 7. The Court interprets this statement as an allegation of either intentional infliction of emotional distress or negligent infliction of emotional distress. The Lindbergs fail to establish the necessary elements for either cause of action.
[¶29] In South Dakota a prima facie case of intentional infliction of emotional distress requires plaintiff to show the following elements:
(1) an act by defendant amounting to extreme and outrageous conduct;
(2) intent on the part of the defendant to cause plaintiff severe emotional distress;
(3) the defendant's conduct was the cause in-fact of plaintiff's distress;
(4) the plaintiff suffered an extreme disabling emotional response to defendant's conduct.
Nelson v. WEB Water Dev. Ass'n Inc., 507 NW2d 691, 698 (SD 1993) (citing Tibke v. McDougall, 479 NW2d 898 (SD 1992)). In the instant case, plaintiff has failed to establish any of these elements. First, as mentioned above, defendants' conduct in this case was not extreme or outrageous. Encouragement to finish the home and initiation of foreclosure proceedings were well within the bounds of the agreements reached between defendants and the Lindbergs and do not constitute a typical procedures. Second, plaintiffs demonstrate no intent to harm on behalf of either defendant. Both First Construction and First Mortgage were interested in completing the deal as painlessly as possible. They pursued the necessary avenues to make that happen to no avail. Third, plaintiffs fail to allege any causational link between the defendants' conduct and Mrs. Lindberg's condition. Finally, there is no evidence in the record which supports a characterization of Mrs. Lindberg's ailment as an "extreme disabling emotional response." Accordingly, the intentional infliction of emotional distress claim fails.
[¶30] Negligent infliction of emotional distress does not require the injured party to demonstrate intent to cause emotional distress. However, the emotional distress must be a foreseeable result of conduct on behalf of the defendant. Wright v. Coca Cola Bottling Co. of Central South Dakota, 414 NW2d 608, 609-10 (SD 1987). The court in Wright adopted the interpretation of negligent infliction of emotional distress as outlined in Restatement (Second) of Torts § 313(1) which includes a foreseeability element. § 313(1) states in part:
If the actor unintentionally causes emotional distress to another, he is subject to liability to the other for resulting illness or bodily harm if the actor
(a) should have realized that his conduct involved an unreasonable risk of causing the distress, otherwise than by knowledge of the harm or peril of a third person, and
(b) from facts known to him should have realized that the distress, if it were caused, might result in illness or bodily harm . . . .
Here there is no evidence that Mrs. Lindberg's response to the business practices of the defendants was foreseeable. Such foreseeability presupposes some untoward conduct. The Lindbergs have not demonstrated that the defendants acted in such a manner.
CONCLUSION
[¶31] This case involves a failed financing attempt by the Lindbergs. In their desire to finance the development of a 40-acre tract of land they secured a construction loan from First Construction with the assistance of a mortgage broker, First Mortgage. First Mortgage also assisted the Lindbergs in obtaining a mortgage on the property from National Mortgage. The financing from National Mortgage was contingent upon completion of a log home on part of the development. Once the home was completed the Lindbergs were to use the proceeds from the mortgage to pay off the construction loan. As the project developed it became clear that the amount of the construction loan was going to be inadequate to complete the log home. Both First Construction and First Mortgage encouraged the Lindbergs to complete the home at whatever cost so that the financing from National Mortgage could be secured.
[¶32] In the end the Lindbergs did not complete the project on time and First Construction initiated foreclosure proceedings. First Construction took this step only after it had attempted to extend the pay off date several months to accommodate the Lindbergs. Instead of agreeing to extend the deadline the Lindbergs filed suit against First Construction and First Mortgage alleging various causes of action including breach of contract, breach of fiduciary duty, fraud and misrepresentation, and infliction of emotional distress. The instant motions for summary judgment by First Construction and First Mortgage ensued.
[¶33] The record does not support any of the Lindbergs' claims. The Construction Loan Agreement clearly permitted First Construction to foreclose if the Lindbergs did not pay the entire loan plus interest promptly. While the agreement also permitted First Construction to complete the project on its own this was merely an option and was not mandatory. That First Construction chose the option of foreclosure was not a breach of contract. There was also no evidence of a fiduciary relationship between either of the defendants and plaintiffs. Likewise, critical elements of the Lindbergs' claims of fraud and infliction of emotional distress were missing. In the end the facts do not demonstrate any misconduct by the defendants in this case giving rise to a cause of action.
[¶34] Accordingly, it is hereby
[¶35] ORDERED that First Construction's motion for summary judgment (Docket #44) is granted.
[¶36] IT IS FURTHER ORDERED that First Mortgage's motion for summary judgment (Docket #29) is granted. The case shall hereby be dismissed with prejudice.
Footnotes
1. Plaintiffs' response consists of a 36-page brief and a 16-page addendum. This filing is in clear violation of the local rule concerning brief length which states that "[b]riefs, and any attachments other than documentary evidence attached in accordance with D.SD LR 56.1(a), shall not exceed twenty-five pages, unless prior approval has been obtained from the Court." DSD LR 7.2(B). However, the Court is mindful that plaintiffs are pro se and considers the entirety of the materials filed by them in resolving this motion.
2. The Lindbergs were to move a log home, valued at $91,780, which had been partially completed to the site and finish it. $100,000 of the $160,000 construction loan from First Construction was for the purchase of the 40-acre tract with an additional $60,000 for the completion of the log home. First Construction's SMF at 2. MLB submitted a total construction price of $60,750 to complete the home and this was made part of the construction loan application. Id.
3. In their response to the motions for summary judgment The Lindbergs make numerous additional assertions against the defendants which were not in the amended complaint. The Court has examined the entire record and determines that those claims not addressed in this memorandum opinion are without merit.
4. The Lindbergs frequently cite to alleged verbal assertions made by various parties throughout their filings. According to the terms of the Construction Loan Agreement such attendant statements are superseded by the contract. Art. VIII § 8.1 specifically states:
This Agreement, together with the Mortgage Rider for Construction Loan, embodies the entire Agreement of the parties with regard to the subject matter hereof. There are no representations, promises, warranties, understandings or agreements expressed or implied, oral or otherwise, in relation thereto, except those expressly referred to or set forth herein.
Moreover, South Dakota law does not honor such statements when a contract is reached. SDCL 53-8-5 states: "The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." Accordingly, the Lindbergs' reliance on these statements is misplaced and is not legally significant.
5. In their response, the Lindbergs also assert that First Construction misrepresented whether closing costs of approximately $8,000 would be included in the construction loan amount. The Court need not address this claim since it was not pleaded in the complaint. However, it appears from the language of the contract that closing costs were not included in the loan agreement. The Construction Loan Agreement notes that the loan amount is "to assist in financing the cost of the construction of the Improvements." Construction Loan Agreement at 1. No mention is made of closing costs.
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