Northwest Bank v. First IL Natl. Bank ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-3746
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Northwest Bank and Trust Company, *
*
Plaintiff-Appellant, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
First Illinois National Bank, now *
known as The National Bank; *
Christopher L. Bryant, *
*
Defendants-Appellees. *
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Submitted: November 21, 2003
Filed: December 31, 2003
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Before MURPHY, LAY, and BRIGHT, Circuit Judges.
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LAY, Circuit Judge.
Northwest Bank and Trust Company (“Northwest”) alleges that First Illinois
National Bank and its president, Christopher Bryant (collectively, “FINB”), acted
improperly in both procuring Northwest’s participation in, and managing the
servicing of, a loan participation agreement. Northwest asserts claims of: 1)
fraudulent inducement, 2) fraudulent conveyance, 3) breach of fiduciary duty, 4)
breach of contract, and 5) unjust enrichment. The district court entered summary
judgment in favor of FINB on all counts, and Northwest appeals. All parties agree
that Iowa law applies. We affirm in part and reverse in part.
I
This case arises out of a loan participation agreement entered into between
Northwest and FINB, two commercial lending institutions located in the Quad Cities
area of eastern Iowa and western Illinois. At all times relevant to this action, one of
FINB’s most important customers was Thomas Jager, a Quad Cities entrepreneur.
Jager had a successful business as a seller/servicer of Government National Mortgage
Association (“GNMA”) mortgage loans, which he owned and operated under the
name of Whitehall Funding, Inc. (“Whitehall”). Between 1996 and 1998, Whitehall
generated annual revenues of over $2 million, allowing Jager to engage in real estate
speculation, whereby he purchased foreclosed properties and attempted to resell them
at a profit.
Sometime in the fall of 1998, Jager purchased a tool and die business out of
bankruptcy, renaming it New Uchtorff Corporation (“New Uchtorff”). New Uchtorff
needed major cash infusions to refurbish its operation and to buy new tool and die
equipment. Much of this money came in the form of an inter-company loan from
Whitehall. To obtain the remainder, Jager sought out a substantial loan from FINB.
Despite its amicable banking relationship with Jager, FINB was close to its legal
lending limit and therefore unable to advance the entire amount requested. Jager
began looking for a bank that would be willing to purchase a loan participation
agreement from FINB for the additional financing of New Uchtorff.
Northwest expressed interest in acting as a participating lender in a loan to
New Uchtorff with FINB acting as the lead lender. Because New Uchtorff’s financial
position was too precarious to support any lending, FINB proposed that the loan be
made to Whitehall, the only Jager entity with a financial statement and cash flow that
could service any new debt. In order to make a decision, Northwest requested
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additional information about the financial position of Jager and his various corporate
entities. FINB forwarded a package of materials to Northwest, including a Loan
Presentation prepared by FINB and Whitehall’s prior three years of audited financial
statements. After reviewing these and other materials, on December 28, 1998,
Northwest entered into a loan participation agreement with FINB, contributing $1.3
million of a total $3.6 million loan to Whitehall. Sometime in early 2001, Whitehall
declared bankruptcy and stopped making loan payments.
The remainder of the relevant facts are disputed by the parties. Northwest
asserts that the information provided to it by FINB was false and misleading in
several respects, and made for the purpose of inducing Northwest to enter into a loan
participation agreement. Northwest claims that rather than financing New Uchtorff,
the true purpose of the loan was to allow FINB to maintain a satisfactory federal bank
rating necessary to service Whitehall’s GNMA accounts, which represented a
significant portion of FINB’s business. In fact, shortly after receiving the loan,
Whitehall effectively transferred $1.5 million back to FINB. Northwest also asserts
that FINB’s conduct in servicing the loan was improper in several respects, and that
FINB sought to further its own interests to the exclusion of Northwest, improperly
applying loan repayments and failing to inform Northwest of detrimental changes in
Whitehall’s financial position.
For its part, FINB states that the materials it provided to Northwest were
complete and accurate in all respects, and that Northwest was not misled into signing
the loan participation agreement. FINB claims that rather than divert its attention
from the true financial position of Jager and his corporations, FINB granted
Northwest full access to its loan files, and the omissions of which Northwest now
complains could have been discovered by the exercise of ordinary diligence. FINB
also states that the proceeds of the loan were properly applied, as Whitehall used them
to purchase equipment for New Uchtorff, and that FINB acted in complete accord
with its rights and obligations as lead lender.
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Factual disputes such as these are to be expected in the ordinary course of
litigation. As far as a motion for summary judgment is concerned, they are generally
resolved in favor of the non-moving party. This general rule is complicated,
however, when one party disputes whether the “material facts” relied upon by the
other are worthy of that designation. In the present appeal, both Northwest and FINB
dispute the universe of material facts that were before the district court when ruling
on FINB’s motion for summary judgment. Under such circumstances, we must
determine the factual record against which the district court’s entry of summary
judgment is to be evaluated.
II
The instant uncertainty regarding the record stems from the district court’s
application of Local Rule 56.1 of the Local Rules of the United States District Courts
for the Northern and Southern Districts of Iowa to exclude some of the material facts
proffered by Northwest in opposition to FINB’s motion for summary judgment.
Local Rule 56.1 imposes various requirements upon the parties in connection with a
motion for summary judgment. In order to assist the district court in ruling on the
motion, the moving party must file a concise statement of material facts supported by
specific citations to an appendix. L.R. 56.1(a). The party opposing summary
judgment must file a response to the movant’s statement that either “expressly admits,
denies, or qualifies” each of the movant’s material facts. L.R. 56.1(b)(2). A response
to a statement of material fact that is not expressly admitted must be supported by
specific citations to an appendix. L.R. 56.1(b). In addition, the party opposing
summary judgment must file its own concise statement of material facts with
supporting appendix citations. L.R. 56.1(b).
In the present case, FINB filed a Statement of Material Facts in Support of
Motion for Summary Judgment (“Statement of Material Facts”). In opposition,
Northwest filed a Response to Defendants’ Statement of Material Facts (“Response”),
as well as a Statement of Additional Material Facts Precluding Summary Judgment
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(“Statement of Additional Material Facts”). The district court found that Northwest’s
filings did not comport with the Local Rule. See Northwest Bank & Trust Co. v. First
Ill. Nat’l Bank, 221 F. Supp. 2d 1000, 1003-06 (S.D. Iowa 2002). As a sanction for
this noncompliance, the district court ordered that Northwest be deemed to have
admitted all of FINB’s Statement of Material Facts. Id. at 1005. In addition, the
district court limited its consideration of Northwest’s Statement of Additional
Material Facts to those facts that were specifically referenced by Northwest in its
brief in opposition to summary judgment to the extent that they did not contradict
those of FINB. Id. at 1005-06.
We review the district court’s application of its local rules for an abuse of
discretion. See Silberstein v. IRS, 16 F.3d 858, 860 (8th Cir. 1994). The concision
and specificity required by Local Rule 56.1 seek to aid the district court in passing
upon a motion for summary judgment, reflecting the aphorism that it is the parties
who know the case better than the judge. See Waldridge v. Am. Hoechst Corp., 24
F.3d 918, 922 (7th Cir. 1994) (“[D]istrict courts are not obliged in our adversary
system to scour the record looking for factual disputes and may adopt local rules
reasonably designed to streamline the resolution of summary judgment motions.”).
The district court found that Northwest’s voluminous filings were replete with
conclusory allegations and legal argument, obfuscating any concise and specific
statements of material fact that were contained within their pages. Local Rule 56.1
exists to prevent a district court from engaging in the proverbial search for a needle
in the haystack. In fact, although not required to do so by the Local Rules, the district
court exercised some lenity in considering those specific facts referenced by
Northwest in its brief. See Little v. Cox’s Supermarkets, 71 F.3d 637, 641 (7th Cir.
1995). We therefore hold the district court committed no abuse of discretion.
III
Having thus determined the extent of the record on appeal, we review the
district court’s entry of summary judgment de novo, viewing the evidence in the light
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most favorable to the non-moving party. See Putman v. Unity Health Sys., 348 F.3d
732, 733 (8th Cir. 2003). Northwest’s claims against FINB can be divided into two
categories: 1) misconduct occurring prior to the execution of the loan participation
agreement, which encompasses Northwest’s claim of fraudulent inducement; and 2)
misconduct occurring after the execution of the loan participation agreement,
encompassing Northwest’s claims of fraudulent conveyance, breach of fiduciary duty,
breach of contract, and unjust enrichment. We consider each category in turn.
A. Pre-closing Misconduct
A party seeking to establish fraud under Iowa law “must prove several factors
by clear and convincing evidence, including (1) misrepresentation or failure to
disclose when under a legal duty to do so, (2) materiality, (3) scienter, (4) intent to
deceive, (5) justifiable reliance, and (6) resulting injury or damage.” In re Marriage
of Cutler, 588 N.W.2d 425, 430 (Iowa 1999). In its order granting summary
judgment in favor of FINB on Northwest’s claim of fraudulent inducement, the
district court determined that Northwest could not establish justifiable reliance as a
matter of law. In so ruling, it relied upon a disclaimer provision contained within the
loan participation agreement which stated in part:
17. LIABILITY AND DISCLAIMER OF WARRANTIES.
Purchaser [Northwest] acknowledges that it has made an independent
investigation of the Loan, and has satisfied itself with respect to the
credit standing of any Obligor of the Loan, the value of any security for
the Loan, the validity and enforceability of the Loan agreement, the
Promissory Note and any guaranty and security and all other matters in
connection with the Loan. Purchaser acknowledges that it is not relying
upon Seller’s [FINB] judgment, and that Seller has made no warranty of
any kind, express or implied, in connection with the Loan or any of the
foregoing. Unless otherwise agreed, Seller makes no warranties or
representations regarding the legality, perfection, enforceability, or
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priority of any security interests, mortgages, guaranties, or similar
documents issued in connection with the Loan.
The district court interpreted this contractual language to “clearly and
unambiguously express that Northwest [was] not relying on any of FINB’s
information and that FINB ha[d] made no warranty with regards to any information
provided.” Northwest Bank, 221 F. Supp. 2d at 1007-08. Although it noted the
general rule that “misrepresentations amounting to fraud in the inducement of a
contract . . . give rise to a right of avoidance on the part of the defrauded party,” id.
at 1008 (quoting First Nat’l Bank v. Brown, 181 N.W.2d 178, 182 (Iowa 1970)), the
district court stated that this rule was inapplicable where the party claiming fraudulent
inducement was a sophisticated lending institution. It therefore held that “where two
sophisticated lenders enter into a contract where one party specifically disclaims
reliance upon a representation in a contract, that party cannot, in a subsequent action
for fraud, assert it was fraudulently induced to enter into the contract by the very
representation it has disclaimed.” Id.Under Iowa law, contractual disclaimers are ineffective to bar a plaintiff from
asserting a claim for fraudulent inducement. See Hall v. Crow, 34 N.W.2d 195, 199
(Iowa 1948) (“[W]here there is evidence of fraudulent misrepresentations in the
inception of a contract[,] such misrepresentations can be the basis for either an action
to rescind or for damages, despite the limiting provisions of a contract.”) (emphasis
added); see also Robinson v. Perpetual Servs. Corp., 412 N.W.2d 562, 567 (Iowa
1987) (reaffirming the principle laid down in Hall); Int’l Milling Co. v. Gisch, 137
N.W.2d 625, 630 (Iowa 1965) (same). We find no language in these cases to support
the district court’s conclusion that the applicability of this rule turns upon the
sophistication of the contracting parties. Instead, the rule is premised on the principle
that the fraudulent inducement precedes the formation of the contract, and that to give
preclusive effect to language contained therein would allow a party to bind the
defrauded party to the contract through the use of a boilerplate disclaimer. See Hall,
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34 N.W.2d at 199 (“The same public policy that in general sanctions the avoidance
of a promise obtained by deceit strike[s] down[] all attempts to circumvent that policy
by means of contractual devices.”) (quoting Bates v. Southgate, 31 N.E.2d 551, 558
(Mass. 1941); see also Danann Realty Corp. v. Harris, 157 N.E.2d 597, 604-12 (N.Y.
1959) (Fuld, J., dissenting). Thus, we hold that the district court erred in granting
summary judgment in favor of FINB on Northwest’s claim of fraudulent inducement.
We accordingly vacate that portion of the district court’s order and remand for a
plenary trial on Northwest’s claim of fraudulent inducement.
B. Post-closing Misconduct
In sharp contrast to its claim of fraudulent inducement, the remainder of
Northwest’s claims lack factual support and thus do not warrant extended discussion.
Due to the district court’s application of Local Rule 56.1 and concurrent imposition
of sanctions against Northwest, the majority of the acts and omissions of FINB that
Northwest asserts as forming the factual predicate for its claims are not part of the
record on appeal. On this basis alone, the district court was correct to grant summary
judgment in favor of FINB on Northwest’s claims of fraudulent conveyance, breach
of fiduciary duty, breach of contract, and unjust enrichment.
Moreover, we agree with the district court that summary judgment was proper
on Northwest’s claim of fraudulent conveyance on the additional basis that Northwest
failed to set forth the facts underlying such a claim with the requisite particularity.
See Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002)
(affirming the entry of summary judgment where the plaintiff failed to set forth the
basis of a claim of fraudulent misrepresentation with particularity); see also Fed. R.
Civ. P. 9(b). Finally, we believe that the district court correctly discerned that
although never having spoken to the issue, the Iowa Supreme Court would not
recognize the existence of a fiduciary relationship between two sophisticated
commercial lending institutions absent express contractual language to the contrary.
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In reaching this conclusion, the district court thoroughly examined analogous cases
from other jurisdictions, see, e.g., First Citizens Fed. Sav. & Loan Ass’n v. Worthern
Bank & Trust Co., 919 F.2d 510 (9th Cir. 1990), and Northwest offers no compelling
reason to question this analysis.
IV
For the foregoing reasons, the judgment of the district court granting summary
judgment to FINB on Northwest’s claims of fraudulent conveyance, breach of
fiduciary duty, breach of contract, and unjust enrichment is AFFIRMED. The
judgment of the district court granting summary judgment to FINB on Northwest’s
claim of fraudulent inducement is REVERSED and REMANDED.
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