American Model Home v. Resource Mortgage ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
AMERICAN MODEL HOME
CORPORATION, a California
corporation; AMHC CORPORATION, a
California corporation,
Plaintiffs-Appellants,
v.
No. 98-1396
RESOURCE MORTGAGE CAPITAL,
INCORPORATED, a Virginia
corporation; NATIONAL MODEL HOME,
INCORPORATED, a Virginia
corporation,
Defendants-Appellees.
AMERICAN MODEL HOME
CORPORATION, a California
corporation; AMHC CORPORATION, a
California corporation,
Plaintiffs-Appellees,
v.
No. 98-1691
RESOURCE MORTGAGE CAPITAL,
INCORPORATED, a Virginia
corporation; NATIONAL MODEL HOME,
INCORPORATED, a Virginia
corporation,
Defendants-Appellants.
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-97-749-3)
Submitted: January 29, 1999
Decided: February 24, 1999
Before ERVIN, MOTZ, and KING, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
Archibald Wallace, III, L. Lee Byrd, SANDS, ANDERSON, MARKS
& MILLER, Richmond, Virginia, for Appellants. Stephen T. Gannon,
David G. Shuford, Alfred J. T. Byrne, Charles M. Sims, LECLAIR
RYAN, P.C., Richmond, Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
American Model Home Corporation and AMHC Corporation (col-
lectively "AMHC"), appeal a district court final order granting sum-
mary judgment to Resource Mortgage Capital, Inc. and National
Model Homes, Inc. (collectively "Resource"). Resource cross-appeals
the court's denial of its motion for attorneys' fees. For the reasons
that follow, we affirm.
AMHC's action concerned on an alleged breach of fiduciary trust.
The corporation was formed in 1993 to engage in the business of pur-
chasing model homes and leasing them back to the home builders for
2
the purpose of removing the home from the home builders' balance
sheets and freeing up capital for paying down debt or other purposes.
In an effort to secure mortgage financing for its model home pur-
chases, AMHC contacted several banks, some of whom were sent an
information memorandum describing AMHC's business plan. Even-
tually, AMHC had discussions with Resource for the purpose of
exploring opportunities to provide AMHC with equity and loan fund-
ing. Resource is a self-managed real estate investment trust.
AMHC contends that it provided Resource with the information
memorandum and requested that it keep the contents confidential. No
one at Resource recalled seeing the memorandum or agreeing to keep
it confidential. The memorandum stated the following on its cover
page:
After signing a confidentiality and non-disclosure, interested
parties are expected to review independently all documents
relating to this memorandum as to the accuracy and com-
pleteness of the information contained herein.
(J.A. at 950). Resource did not sign a confidentiality and non-
disclosure agreement. The memorandum included a summary of
AMHC's business plan, the commitment it was seeking from lenders,
corporate structure and experience of the principals, and several
reprints from trade journals.
On November 5, 1993, AMHC and Resource entered into an agree-
ment whereby Resource agreed to fund up to $50 million in mort-
gages through December 31, 1994, under the terms and conditions set
forth in a letter agreement.1 The letter agreement does not contain a
confidentiality agreement, a non-disclosure agreement, or a covenant
not to compete.
From February 1994 until July 1995, Resource provided AMHC
mortgage financing in excess of $33 million. The funds were used in
sixteen different transactions between AMHC and various home
_________________________________________________________________
1 AMHC refers to this agreement as the Master Agreement. Resource
refers to it as the Preliminary Terms Agreement. We will simply call it
the letter agreement.
3
builders. In connection with all sixteen of these transactions, AMHC
entered into separate loan agreements with Resource to provide mort-
gage financing. Resource also provided AMHC with unsecured lines
of credit in the amounts of $500,000, and $125,000.
Although the letter agreement expired by its own terms on Decem-
ber 31, 1994, Resource continued to provide mortgage financing to
AMHC under essentially the same terms until it ceased funding addi-
tional home purchases in July 1995. Meanwhile, the parties held dis-
cussions about renewing the letter agreement or entering into a joint
venture. However, the letter agreement was not renewed and the par-
ties did not enter into a joint venture.
In September 1995, Resource incorporated National Home Funding
Corporation (later changed to National Model Homes, Inc.) for the
purpose of performing the purchase and lease back of model homes
as performed by AMHC. Thus, Resource, through this subsidiary,
became a direct competitor of AMHC. AMHC contended that it lost
business because Resource used confidential information contained in
the information memorandum to create the business plan and to
underbid AMHC.
In March 1997, AMHC filed a complaint in the United States Dis-
trict Court for the Central District of California against Resource. The
case was transferred to the Eastern District of Virginia under the
forum nonconveniens provisions of 28 U.S.C.A. § 1404(a) (West
1993 & Supp. 1998). The complaint raised the following eight counts:
Count I: Breach of Duty of Confidentiality;
Count II: Misappropriation of Trade Secrets;
Count III: Misappropriation of Confidential Informa-
tion;
Count IV: Common Law Unfair Competition;
Count V: Unfair Competition in Violation of Califor-
nia's Business Practices Act;
4
Count VI: Tortious Interference with Actual Business
Advantage;
Count VII: Tortious Interference with Prospective Busi-
ness Advantage;
Count VIII: Injunctive Relief.
The Defendants filed a motion for summary judgment, and then a
renewed motion for summary judgment, which were provisionally
denied. On February 2, 1998, the Defendants filed a second renewed
motion for summary judgment. On February 4, 1998, AMHC filed a
motion for leave to file an amended complaint, seeking leave to drop
six of the original eight counts and to add claims for breach of fidu-
ciary duty and breach of contract. The Defendants opposed leave to
file an amended complaint on futility grounds. In response, AMHC
argued that the Defendants' opposition was "an ill-disguised motion
for summary judgment" and accused Resource of"essentially restat[-
ing] and recast[ing] their arguments in support of their pending
motion for summary judgment." (J.A. at 885 n.4).
On February 19, 1998, the court heard argument on the two pend-
ing motions. When the court turned its attention to the summary judg-
ment motion, the following colloquy occurred:
Resource counsel: Much of [the motion] obviously spills
over into the new claims as well.
Court: Right.
Resource: So, with the exception perhaps of the contract
claim, I think [the motion] will address virtually everything
that is before the court in some form or another.
Court: I think you can speak to the new counts if they're
added on your motion for summary judgment. Because
they're sort of encompassed within the other counts that he
had pending.
5
(J.A. at 1436). Defendants' counsel proceeded to address all the
claims asserted by AMHC in its original complaint and amended
complaint, including the breach of contract claim. Specifically, coun-
sel stated "[L]et me address the contract claim because I probably was
remiss in not addressing the summary judgment arguments much to
that claim." (J.A. at 1478). AMHC did not object to the court's con-
sideration of the two new claims in the amended complaint.
The district court granted AMHC leave to file an amended com-
plaint, which included an oral motion to retain count five. The
amended complaint contained the following five counts:
Count I: Breach of Fiduciary Duty;
Count II: Breach of Contract;
Count III: Tortious Interference with Actual Business
Advantage;
Count IV: Tortious Interference with Prospective Busi-
ness Advantage;
Count V: Violation of California's Unfair Business Prac-
tices Act.
The court also granted Resource's motion for summary judgment and
dismissed all five counts.
Resource filed a motion for attorneys' fees premised on the lan-
guage in the loan agreements and line of credit notes that provided:
If any dispute arises under this Agreement, the prevailing
party shall be entitled to recover its cost and reasonable
attorneys fees incurred in connection with that dispute.
(J.A. at 364). The court denied the motion, finding that AMHC was
not seeking damages for claims arising from the breach of any of the
particular loan agreements.
6
On appeal, AMHC claims that the court erred in granting summary
judgment on counts I, IV, and V of the amended complaint because
there are factual disputes. AMHC also contends that summary judg-
ment should not have been granted on counts I and II because neither
count was addressed by the summary judgment motion. 2
We will first consider AMHC's procedural challenge. AMHC con-
tends that it was not obligated to defend counts I and II against a sum-
mary judgment motion because these counts did not arise until the
motion for leave to file an amended complaint, which was filed after
Resource filed the second renewed summary judgment motion. Gen-
erally, a non-movant is entitled to notice and an opportunity to be
heard prior to granting summary judgment. See United States Dev.
Corp. v. Peoples Fed. Savs. & Loan Ass'n, 873 F.2d 731, 735 (4th
Cir. 1989). In this instance, AMHC did not receive the full ten-day
notice required by Fed. R. Civ. P. 56(c) as to these two counts. How-
ever, at the hearing, it was clear that Resource was arguing that sum-
mary judgment should be granted as to counts I and II of the amended
complaint. Furthermore, it was also clear that the court was consider-
ing the motion for summary judgment as addressing the new counts.
At no time did AMHC object due to lack of notice.
Issues not raised below are usually not considered by the appellate
court. See Singleton v. Wulff, 428 U.S. 106, 120 (1976). An exception
to this general rule arises if the alleged error is plain and a refusal to
consider it would result in a denial of fundamental justice. See United
States v. Barge Shamrock, 635 F.2d 1108, 1111 (4th Cir. 1980). We
find that the exception does not apply in this case.
The lack of ten days' notice was not an obvious or substantial
error. See United States v. Fant, 974 F.2d 559, 565 (4th Cir. 1992)
(defining plain error). AMHC itself had previously characterized
Resource's response to its motion for leave to amend as, in essence,
a motion for summary judgment. In addition, there was no error in
considering Resource's summary judgment motion as to count I of the
_________________________________________________________________
2 AMHC has abandoned any challenge to the court's dismissal of count
III because it does not contest the dismissal in its appellate brief. See
11126 Baltimore Blvd., Inc. v. Prince George's County, Md., 58 F.3d
988, 993 n.7 (4th Cir. 1995).
7
amended complaint since it was virtually identical to count I of the
original complaint.3 Because we do not find plain error, we will not
review AMHC's procedural challenge to the court's dismissal of
counts I and II.
We now consider AMHC's substantive challenge to the court's dis-
missal of counts I, IV and V.4 We review de novo a district court's
grant of summary judgment. See Henson v. Liggett Group, Inc., 61
F.3d 270, 274 (4th Cir. 1995). Summary judgment is appropriate
when a non-moving party fails to establish, by sworn evidence, an
essential element of the case. See Fed. R. Civ. P. 56(c); Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). When considering motions for
summary judgment, courts must view the facts and the inferences
drawn from facts in the light most favorable to the non-movant. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587
(1986). However, when the evidence from the entire record could not
lead a rational fact finder to find for the non-moving party, no genu-
ine issue for trial exists, and summary judgment is appropriate. See
id.Under California law, the elements of a claim for breach of fidu-
ciary duty are the existence of a fiduciary relationship, its breach, and
damage proximately caused by that breach.5 See City of Atascadero
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 80 Cal. Rptr. 2d 329,
355 (Cal. App. 1998). A fiduciary relationship arises whenever a per-
son places confidence in the integrity and good faith of another and
the latter voluntarily accepts that confidence. The latter may not take
advantage of the other's interest without the other's knowledge or
consent. Id. at 355. The essence of a fiduciary or confidential relation-
ship:
_________________________________________________________________
3 Count I of the original complaint and Count I of the amended com-
plaint both allege a confidential relationship between AMHC and
Resource. The original complaint charged that the confidential relation-
ship was breached. The amended complaint charged that from the confi-
dential relationship, Resource owed a fiduciary duty that was breached.
4 AMHC does not challenge the dismissal of count II on its merits.
5 All parties agree that California law controls AMHC's claims.
8
is that the parties do not deal on equal terms, because the
person in whom trust and confidence is reposed and who
accepts that trust and confidence is in a superior position to
exert unique influence over the dependent party.
Barbara A. v. John G., 193 Cal. Rptr. 422, 431 (Cal. App. 1983).
Generally, an arm's length business relationship does not create a
fiduciary relationship. See Recorded Picture Co. (Productions) Ltd. v.
Nelson Entertainment, Inc., 61 Cal. Rptr. 2d 742, 754 (Cal. App.
1997); Gonsalves v. Hodgson, 237 P.2d 656, 660-61 (Cal. 1951).
AMHC contends that its association with Resource was similar to
three types of circumstances from which fiduciary duties may arise
under California law. The first association is that of a bank and its
customers. A fiduciary relationship arises in this instance only under
special circumstances, such as when there is a long-term relationship
between the bank and the customer and the customer justifiably relies
on the bank for advice concerning financial matters. See Bank of Am.
v. Sanchez, 38 P.2d 787 (Cal. App. 1934). However, under ordinary
circumstances, a fiduciary relationship does not arise in bank-
customer relationships. See Lawrence v. Bank of Am., 209 Cal. Rptr.
541, 545 (Cal. App. 1985); see also Copesky v. Superior Court, 280
Cal. Rptr. 338, 348 n.14 (Cal. App. 1991) (the bank is "in no sense
a true fiduciary" to its customers). We agree with the district court
that AMHC's relationship was nothing more than a traditional arm's
length business relationship. There were no special circumstances that
created a fiduciary obligation.
The second association relied on by AMHC involves the disclosure
of a trade secret to another party for mutual profit. See Thompson v.
California Brewing Co., 310 P.2d 436, 475-76 (Cal. App. 1957).
AMHC's relationship with Resource did not involve a trade secret. A
trade secret is information that has independent economic value, not
generally known to other persons who can obtain economic value
from its use, and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. See Vacco Indus., Inc. v. Van
Den Berg, 6 Cal. Rptr. 2d 602, 611 (Cal. App. 1992). AMHC's idea
to purchase model homes was not original. It had been implemented
by at least two other firms. In addition, the information memorandum
9
contained a substantial amount of public information. Furthermore,
AMHC did not take strides to maintain the memorandum's secrecy.
The third association relied on by AMHC is that of a cooperative
undertaking or joint venture. AMHC's reliance on this type of associ-
ation is without merit. AMHC concedes that there was no joint ven-
ture between it and Resource. In fact, in a deposition, AMHC's
president characterized the relationship as a lender-borrower relation-
ship.
To summarize, we conclude that AMHC failed to sufficiently
establish essential elements necessary to defeat a motion for summary
judgment as to count I of the amended complaint. AMHC's relation-
ship with Resource was an arm's-length business transaction con-
ducted by sophisticated business people and attorneys. None of the
organizations or persons provided with the information memorandum
were required by AMHC to enter into a confidentiality agreement or
an agreement not to compete. As shown by the cover page to the
information memorandum, AMHC was aware of how best to protect
its interests and did not take those steps. Accordingly, summary judg-
ment was appropriate as to this claim.
As for count IV of the amended complaint, AMHC contended that
Resource interfered with a prospective business arrangement by mis-
appropriating AMHC's confidential information when it successfully
bid for a project against AMHC. The court found that there was insuf-
ficient evidence to show that Resource's conduct interfered with an
economic relationship whereby AMHC would be awarded a contract.
Furthermore, the court also found that there was no evidence of
wrongful conduct.
In order to be successful on this claim, AMHC must show a busi-
ness relationship with probable future economic benefit to AMHC of
which Resource was aware. AMHC must also show that Resource
engaged in acts or conduct designed to interfere with the relationship;
that the relationship was actually interfered with; and that Resource's
acts were designed to interfere with this relationship and, in fact, did
so and caused damage to AMHC. See Heller v. Pillsbury Madison &
Sutro, 58 Cal. Rptr. 2d 336, 352 (Cal. App. 1996). Furthermore,
AMHC must show that Resource's conduct was wrongful beyond the
10
fact of the interference itself. See Penna v. Toyota Motor Sales,
U.S.A., Inc., 902 P.2d 740, 751 (Cal. 1995).
Wrongful conduct may arise through a violation of a statute or
other regulation, or a rule of common law, or an established standard
of a trade or profession. This includes "actions which are indepen-
dently actionable, violations of federal or state law or unethical busi-
ness practices." PMC, Inc. v. Saban Entertainment, Inc., 52 Cal. Rptr.
2d 877, 891 (Cal. App. 1996). Other than claimed breach of fiduciary
duty, AMHC has failed to allege any other wrongful conduct by
Resource. Thus, we agree with the district court that because there
was no fiduciary duty, there was an insufficient showing of wrongful
conduct. Thus, this claim must fail.
Count V of AMHC's amended complaint alleges that Resource
engaged in statutory unfair competition, a violation of California's
Unfair Business Practice Act. See Cal. Bus. & Prof. Code § 17203(West 1997). The court found that AMHC failed to show specific evi-
dence that Resource engaged in unfair, fraudulent, or otherwise
unlawful business practices, citing State Farm Fire & Cas. Co. v.
Superior Court, 53 Cal. Rptr. 2d 229, 233 (Cal. App. 1996). An unfair
business practice is a practice that offends an established public pol-
icy or is immoral, unethical, oppressive, unscrupulous, or substan-
tially injurious. See Podolsky v. First Healthcare Corp., 58 Cal. Rptr.
2d 89, 98 (Cal. App. 1996). AMHC fails to suggest any evidence that
Resource engaged in conduct which violates this Act. Accordingly,
we find that summary judgment was appropriately granted on this
claim.
Resource's cross-appeal concerns the court's denial of its motion
for attorneys' fees. Resource contends that the attorney fee provision
contained in the loan agreements shows that the parties intended that
the prevailing party was entitled to attorneys' fees regardless of
whether the dispute sounded in contract or tort. The court concluded
that the relationship between AMHC and Resource went beyond the
loan agreements and AMHC's complaint did not rely on conduct that
arose under any of the loan agreements.
We agree with Resource's contention that the attorney fee provi-
sion would be effective regardless of whether the claim was in con-
11
tract or tort. California law provides for an expansive interpretation
of such provisions. See Xuereb v. Marcus & Millichap, Inc., 5 Cal.
Rptr. 2d 154, 158-59 (Cal. App. 1992). On the other hand, we find
that AMHC's action did not arise under the terms of the loan agree-
ments. AMHC's allegations are independent of the loan agreements.
It cannot be said that were it not for the loan agreements, AMHC
would not have a cause of action. See, e.g., Xuereb, 5 Cal. Rptr. 2d
at 158 ("but for the Purchase Agreement .. . the dispute between the
parties would not have arisen"). In addition, this is not an instance
where AMHC claims it was induced by fraud or misrepresentation to
enter into the loan agreements. See Lerner v. Ward, 16 Cal. Rptr. 2d
486, 489 (Cal. App. 1993) (awarding attorneys' fees based on written
agreement where claim of fraud and misrepresentation to induce party
to enter into agreement arose out of the agreement). The letter agree-
ment, which did not contain an attorney fee provision, defined the
essential elements of the relationship upon which AMHC sued.
Accordingly, we hold that the district court correctly declined to
award attorneys' fees in accordance with the loan agreement's fee
provision.
We affirm the court's orders. We dispense with oral argument
because the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid in the deci-
sional process.
AFFIRMED
12