French Broad Place, LLC v. Asheville Sav. Bank , 259 N.C. App. 769 ( 2018 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-1087
Filed: 5 June 2018
Transylvania County, No. 11 CVS 692
FRENCH BROAD PLACE, LLC, Plaintiff,
v.
ASHEVILLE SAVINGS BANK, S.S.B., Defendant.
Appeal by plaintiff from order entered 30 January 2017 by Judge Robert C.
Ervin in Transylvania County Superior Court. Heard in the Court of Appeals 2 May
2018.
Johnston, Allison & Hord, P.A., by Martin L. White and Scott R. Miller, for
plaintiff-appellant.
Long, Parker, Warren, Anderson, Payne & McClellan, P.A., by Ronald K. Payne
and Thomas K. McClellan, for defendant-appellee.
TYSON, Judge.
French Broad Place, LLC (“Plaintiff”) appeals the trial court’s order granting
summary judgment to Asheville Savings Bank, S.S.B. (“Defendant”) and dismissing
all of Plaintiff’s claims. We affirm the trial court’s order.
I. Background
A. The Project
Plaintiff initiated development of a mixed-use construction and development
project in downtown Brevard, North Carolina, called “French Broad Place” (the
FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
“Project”) in 2007. The Project was planned as a four-story building, which would
include office space, retail space, restaurants, residential condominiums, and an
attached parking garage. The project’s estimated cost was approximately
$19,000,000. Plaintiff sought a construction lender to finance the Project, and
eventually selected Defendant as a lender.
Plaintiff alleges Defendant proposed a tiered or “waterfall financing structure”
that involved financing the Project in phases of development. Phase 1 allegedly
included financing for purchasing the land for the Project, designing and constructing
the building, and completion of the building shells of the individual units to the extent
that a certificate of occupancy could be obtained. Phase 1 was projected to cost
approximately $14,000,000.
Phase 2 was to allegedly include financing for finishing the build-out of the
residential units and finishing certain common areas. Phase 2 was projected to cost
approximately $5,000,000.
Plaintiff and Defendant executed a loan commitment dated 6 December 2007
(the “Loan Commitment”). The Loan Commitment specified Defendant would loan
Plaintiff the sum of $9,950,000. Defendant denies that the loan it proposed to
Plaintiff was to be phased, tiered, or include “waterfall financing.”
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The Loan Commitment included several conditions required to be met before
closing. One Loan Commitment condition required Plaintiff to obtain $700,000 in
“pre-sales” funds.
The “pre-sales” requirement of the Loan Commitment specifically states,
Prior to any Bank funding Borrower shall provide copies of
purchase agreements totaling a minimum of $8,820,000
with a minimum of 10% non-refundable deposits. Of these
pre-sales a minimum of $4,300,000 must be either
commercial or office space. All purchase agreements must
be reviewed and deemed acceptable by Asheville Savings
Bank prior to Bank funding.
Asheville Savings Bank shall be given first right of refusal
on all pre-sales or sales to affiliated buyers. On those loans
where Bank does not exercise that right, the Bank must
receive and approve any and all written takeout
commitments as well as any applicable lease agreements.
Plaintiff alleges that after execution of the Loan Commitment, “Defendant
agreed to accept commercial leases with options to purchase in lieu of regular pre-
sale contracts, and agreed to count the leases with purchase options toward the ‘pre-
sale contract requirement’” in the Loan Commitment. Plaintiff purportedly relied
upon Defendant’s alleged allowing of the lease-option contracts to count towards the
Loan Commitment’s pre-sales requirement, and it continued development and
construction of the Project.
According to the affidavit of Joshua Burdette, a principal of Plaintiff, on 20
March 2008, several principals of Plaintiff purportedly met with officers of
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Defendant, to discuss the method by which Defendant would apply the lease-option
contracts to meet Plaintiff’s pre-sale requirements under the Loan Commitment. At
that meeting, Defendant’s officers purportedly explained to Plaintiff’s principals:
[T]hat the lease option contracts alone could not be counted
[towards] the required pre-sales under the Loan
Commitment, but that [Defendant] could convert
Plaintiff’s construction loan into individual “Takeout
Loans,” . . . on any commercial units which were secured by
a lease option contract, in lieu of a presale, and that the
commercial units could simply be retained by Plaintiff as
investment property to satisfy the presale requirements of
the Loan Commitment.
Around 10 June 2008, Bradley Hines, a vice-president of Defendant, contacted
members of Plaintiff, and informed them that the “Takeout Loans” arrangement
would have to change. Plaintiff alleges Defendant instructed it to establish a
separate legal entity to purchase the commercial units for which Plaintiff had
previously obtained lease-option contracts: (1) the new entity was to establish deposit
accounts in an entirely different bank than Defendant; (2) the new entity would enter
into purchase agreements with Plaintiff for the commercial units that were subject
to lease-option contracts; (3) the new entity would be pre-qualified to obtain take-out
loans from Defendant on the commercial units secured by lease-option contracts; and,
(4) Plaintiff’s guarantors were to seek out and obtain financing term sheets from other
banks to demonstrate the marketability of the commercial units.
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Plaintiff followed Defendant’s purported recommendations, and several of
Plaintiff’s officers and guarantors formed LBS Properties, LLC (“LBS”) and
implemented the steps allegedly proposed by Defendant.
In addition to the pre-sales requirement, another specific condition of the Loan
Commitment provided Defendant was to “seek participant funding for no less than
$2,000,000 from a participant Bank.” Plaintiff alleges it did not understand the
$9,950,000 loan commitment to be contingent upon Defendant actually obtaining the
participation from another bank. Prior to the loan closing, Defendant informed
Plaintiff that it had not been able to obtain the participation from another bank, and,
as a result, that it would only be funding $7,750,000 of the $9,950,000 amount
specified in the Loan Commitment. Defendant also requested Plaintiff to seek a
replacement lender for the un-funded $2,000,000 of the loan.
Plaintiff had commenced construction on the Project well in advance of the loan
closing. Plaintiff owed Metromont Corporation (“Metromont”), a subcontractor on the
Project, for portions of the Project, which had already been erected. Plaintiff
convinced Metromont to subordinate its contractor’s lien for $2,200,000 for costs
incurred in exchange for a secured interest in the Project.
On 8 August 2008, Plaintiff and Defendant closed on the construction loan
agreement (the “Loan Agreement”) in the specific amount of $7,750,000.00 (the
“Loan”). The Loan was evidenced by a promissory note (the “Note”) and deed of trust
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in favor of Defendant. Plaintiff asserts the Loan Commitment required Defendant to
loan the sum of $9,950,000, but that Defendant required Metromont to provide
$2,200,000 in order to close. Plaintiff also alleges Defendant underfunded the Loan
by approximately $300,000 at closing on 8 August 2008, and then wrongfully
deducted another $300,000 from a draw Plaintiff sought on the Loan for October
2008.
In November 2008, Plaintiff submitted a change order request to Defendant in
the amount of $725,801. Defendant approved the request and the parties agreed to
a written loan modification (the “First Change in Terms Agreement”), which
increased the stated total amount of the Loan outstanding from $7,750,000 to
$8,475,801. Plaintiff alleges Defendant unnecessarily delayed in approving the
change order until closing in January 2009.
By March 2009, three businesses were opening on the ground floor of the
Project, several more were being constructed, and initial condominium sales were
several months away from closing. Plaintiff alleges that in March 2009, Defendant
began to refuse to finance the continued construction of the Project under the alleged
phased or tiered funding, or “waterfall financing structure,” as Defendant had
allegedly promised. Defendant also refused to provide the allegedly promised take-
out loans, which Plaintiff avers ultimately caused the Project to fail due to lack of
funding.
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Pursuant to a modification agreement the parties executed on 8 June 2009 (the
“Second Change in Terms Agreement”), Defendant waived the required payment of
the first $1,000,000 in release fees, due to Defendant upon the sale of commercial
units in the Project, to help Plaintiff complete the construction on the Project. As
required by the Second Change in Terms Agreement, the parties also executed a
modification of Plaintiff’s note, deed of trust and related loan documents regarding
the Project. This Modification was recorded at Book 510, Page 398 of the
Transylvania County Registry (“Modification of Note and Deed of Trust”).
According to the express terms of this Modification, as of 8 June 2009:
The total amount of all funds disbursed by Lender to
Borrower to date under said Note, CLA [Construction Loan
Agreement] and Deed of Trust, as amended by the LMA
[Loan Modification Agreement] and Modification of Deed of
Trust, included those funds deposited in the Interest
Reserve Account, is $8,475,801.00. There are presently no
Construction Loan funds left to be disbursed.
B. The Complaint
Plaintiff filed a verified complaint against Defendant on 28 December 2011. In
its complaint, Plaintiff asserts claims for breach of contract, unfair trade practices,
and breach of a fiduciary duty. Defendant filed a motion to dismiss, an answer and
counterclaim on 12 March 2012. In its counterclaim, Defendant seeks payment in
full on the Note and asserts Plaintiff had failed to pay the balance Defendant is owed.
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Upon a joint motion of the parties, the Chief Justice of North Carolina
designated the matter as an exceptional case pursuant to Rule 2.1 of the General
Rules of Practice of the Superior and District Courts on 1 October 2012.
Following discovery, Defendant filed a motion for summary judgment on 15
November 2016. Attached to Defendant’s motion for summary judgment was an
affidavit of Brian Gillespie, an employee of Defendant, and an affidavit of David A.
Kozak, an executive vice-president of Defendant. In response to Defendant’s
affidavits, Plaintiff submitted affidavits of Joshua Burdette and Scott Latell,
principals of Plaintiff.
The trial court entered an order granting summary judgment in favor of
Defendant on all of Plaintiff’s claims and also granting summary judgment in favor
of Defendant on its counterclaim against Plaintiff. Plaintiff filed timely notice of
appeal.
II. Jurisdiction
Jurisdiction lies in this Court pursuant to N.C. Gen. Stat. § 7A-27(b) (2017) as
an appeal from a final judgment of the superior court.
III. Standard of Review
Upon ruling on a motion for summary judgment, the court views the evidence
in the light most favorable to the non-moving party and engages in a two-part
analysis of whether:
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(1) the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, show
that there is no genuine issue as to any material fact; and
(2) the moving party is entitled to judgment as a matter of
law.
Summary judgment is appropriate if: (1) the non-moving
party does not have a factual basis for each essential
element of its claim; (2) the facts are not disputed and only
a question of law remains; or (3) if the non-moving party is
unable to overcome an affirmative defense offered by the
moving party.
Erthal v. May, 223 N.C. App. 373, 377-78, 736 S.E.2d 514, 517 (2012) (citations and
quotation marks omitted), disc. review denied, 366 N.C. 421, 736 S.E.2d 761 (2013).
A defendant may show entitlement to summary judgment
by (1) proving that an essential element of the plaintiff's
case is non-existent, or (2) showing through discovery that
the plaintiff cannot produce evidence to support an
essential element of his or her claim, or (3) showing that
the plaintiff cannot surmount an affirmative defense.
Summary judgment is not appropriate where matters of
credibility and determining the weight of the evidence
exist. Once the party seeking summary judgment makes
the required showing, the burden shifts to the nonmoving
party to produce a forecast of evidence demonstrating
specific facts, as opposed to allegations, showing that he
can at least establish a prima facie case at trial. To hold
otherwise . . . would be to allow plaintiffs to rest on their
pleadings, effectively neutralizing the useful and efficient
procedural tool of summary judgment.
Draughon v. Harnett Cty. Bd. of Educ., 158 N.C. App. 208, 212, 580 S.E.2d 732, 735
(2003) (citations and quotation marks omitted), aff’d per curiam, 358 N.C. 131, 591
S.E.2d 521 (2004).
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An order granting summary judgment is reviewed de novo on appeal.
Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 470, 597 S.E.2d 674, 693 (2004). The
trial court’s interpretation of a contract is also reviewed de novo, because it involves
a question of law. Harris v. Ray Johnson Constr. Co., 139 N.C. App. 827, 829, 534
S.E.2d 653, 654 (2000).
IV. Analysis
A. Materials Considered by the Trial Court
Plaintiff argues this Court should not consider documents contained within a
Rule 11(c) supplement to the record on appeal filed by Defendant. Plaintiff contends
Defendant only filed four documents in support of its motion for summary judgment:
(1) the motion, (2) Defendant’s unverified answer, (3) the affidavit of Brian Gillespie,
and (4) the affidavit of David A. Kozak.
Rule 56(c) of the N.C. Rules of Civil Procedure provides that summary
judgment “shall be rendered forthwith if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that any party is entitled to a
judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2017).
The proposed record on appeal was settled by agreement between the parties
on 15 September 2017 and filed with this Court on 2 October 2017. The parties
stipulated that they disagreed on whether numerous documents constituting
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Defendant’s Rule 11(c) supplement are properly part of the record on appeal. Plaintiff
contends, while Defendant served the additional documents contained in and
constituting its Rule 11(c) supplement with its brief in support of its motion for
summary judgment upon opposing counsel and the trial court, Defendant did not offer
the documents into evidence nor file the documents with the clerk of superior court.
Defendant did present a copy to the trial court.
Presuming, arguendo, the trial court did consider the materials attached to
Defendant’s brief submitted to the court, Plaintiff failed to make any timely objection.
Plaintiff argues it did not have to object, because the materials were not “filed” or
“offered into evidence,” even though they were provided in advance to Plaintiff and
attached to Defendant’s brief in support of its motion and were submitted to the trial
court.
To support its assertion that it did not have to object to the documents at issue,
Plaintiff cites the reasoning of Judge Greene’s dissenting opinion in Barnhouse v. Am.
Exp. Fin. Advisors, Inc., 151 N.C. App. 507, 566 S.E.2d 130 (2002), as non-binding,
but persuasive, authority. Barnhouse involved a pre-trial motion to stay proceedings
and compel arbitration. 151 N.C. App. at 507, 566 S.E.2d at 131. The trial court
denied the defendants’ pre-trial motion to stay the proceedings and compel
arbitration. Id. at 507-08, 566 S.E.2d at 130. On the defendants’ motion to stay and
compel arbitration, the trial court had conducted a hearing and the defendants had
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submitted a brief in support of their motion and attached the alleged arbitration
agreement to their brief. Id. at 510, 566 S.E.2d at 133.
The trial court denied the defendants’ motion to stay and compel arbitration.
Id. On appeal, this Court noted there was “no indication that the trial court made
any determination regarding the existence of an arbitration agreement” and the
“dispositive issue is whether the trial court properly denied [the] defendants’ motion
to stay proceedings without first determining whether or not an agreement to
arbitrate existed between the parties.” Id. at 508, 509, 566 S.E.2d at 131-32. This
Court reversed the trial court’s order because the trial court had not made a
determination as to whether or not an agreement to arbitrate existed, and remanded
to the trial court to make that determination. Id. at 509, 566 S.E.2d at 132.
Judge Greene disagreed with the majority’s opinion that the trial court was to
make findings regarding the existence of an arbitration agreement. Id. at 510, 566
S.E.2d at 132 (Greene, J., dissenting). He stated the “dispositive issue is whether
defendants met their burden of showing the existence of a written agreement to
arbitrate.” Id. at 511, 566 S.E.2d at 133.
Although defendants’ attorney attached a copy of the
alleged agreement to the memorandum submitted to the
trial court, the memorandum does not qualify as a Rule
56(e) affidavit for two reasons: it was not sworn to, and it
does not “show affirmatively that [the attorney] is
competent to testify” with respect to the agreement. See
N.C.G.S. § 1A-1, Rule 56(e). Furthermore, the attachment
to the memorandum does not qualify as documentary
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evidence because the memorandum was not filed with the
trial court or otherwise presented into evidence.
Id. at 512, 566 S.E.2d at 134 (footnote omitted). Without reference to any authority,
the dissenting opinion argued,“[b]ecause [the arbitration agreement] was neither
presented into evidence nor filed with the trial court, plaintiff had no obligation to
lodge an objection to its consideration.” Id. at 512, n. 6, 566 S.E.2d at 134, n. 6. Judge
Greene voted to affirm the trial court’s order denying the defendants’ motion to stay
the proceedings and compel arbitration. Id. at 512, 566 S.E.2d at 134.
Judge Greene’s reasoning in Barnhouse is inapplicable to the case at bar for
several reasons. Barnhouse involved a motion to stay the proceedings and to compel
arbitration, not a motion for summary judgment. See id. at 507, 566 S.E.2d at 131.
The majority’s opinion in Barnhouse did not instruct the trial court to disregard the
unverified agreement in determining whether an agreement to arbitrate existed upon
remand, despite the dissenting opinion’s viewpoint that the trial court could not and
properly did not consider the unverified agreement to arbitrate, attached to the
defendant’s memorandum. Id. at 509, 566 S.E.2d at 132.
Plaintiff also cites Gemini Drilling & Found., LLC v. Nat’l Fire Ins. Co. of
Hartford to support its assertion that it did not have to object to Defendant’s
submission of the documents at issue provided for the trial court’s consideration. 192
N.C. App. 376, 665 S.E.2d 505 (2008). Gemini involved a bench trial on the plaintiff’s
contractual claims. Id. at 378-80, 665 S.E.2d at 507-08. On appeal, the defendant
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argued “the trial court erred by rejecting and refusing to consider certain exhibits
that defense counsel had marked as exhibits but did not formally offer into evidence.”
Id. at 386, 665 S.E.2d at 511. This Court noted, “[d]uring the trial, defendant marked
twenty-seven exhibits, but only formally offered into evidence five of them.” Id.
The defendant claimed its trial counsel had used the same language to enter
into evidence the five admitted exhibits as it had eleven of the non-admitted exhibits
“but, ‘without Trial Counsel’s notice, the Court’s manner of reply changed, effectively
denying admission even though the gist of the Court’s response suggested that the
documents were entered as evidence.’” Id. (emphasis omitted). The defendant
asserted the trial judge had made the comment, “All the evidence has now been
presented. Anything which was marked but not offered into evidence is not in
evidence in this particular case[,]” right as the trial judge left the bench, leaving the
defendant no opportunity to request the trial court to consider the exhibits that had
not been formally offered into evidence. Id.
This Court, after reviewing the trial record, concluded the defendant “had
ample opportunity to clarify and rectify the situation[,]” because the trial judge did
not make the comment in question, quoted above, literally as the trial judge was
leaving the bench, but before closing arguments. Id. After the trial judge made the
comment in question, “[b]oth attorneys conversed with [the trial judge] before he
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closed court and [the trial judge] specifically asked defense counsel if there was
‘[a]nything else’ that he wanted the court to consider.” Id. at 387, 665 S.E.2d at 512.
Gemini is easily distinguished from the case at bar and does not support
Plaintiff’s argument. The issue in Gemini regarded the trial exhibits and did not
involve a motion for summary judgment. See id. The exhibits in Gemini had been
presented at trial, and were not documents submitted in support of a pre-trial motion
for summary judgment. See id.
The reasoning of Gemini actually rebuts Plaintiff’s argument. The trial court
in Gemini put the defendant on notice that it would not consider exhibits that had
been marked, but not offered into evidence. Id. On appeal, this Court overruled the
defendant’s assignment of error, because the defendant had “an ample opportunity to
clarify and rectify the situation.” Id.
The materials at issue were not “on file” with the trial court because they had
not been filed with the clerk of court in accordance with Rule 5(d) of the Rules of Civil
Procedure. N.C. Gen. Stat. § 1A-1, Rule 5(d). Plaintiff does not deny the documents
at issue were served upon it and attached to Defendant’s brief in support of
Defendant’s motion for summary judgment in accordance with Rule 5(a1) of the Rules
of Civil Procedure. See N.C. Gen. Stat. § 1A-1, Rule 5 (2017) (requiring briefs or
memoranda in support of summary judgment, and other dispositive motions, to be
served upon each of the parties at least two days before the hearing on the motion).
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Defendant repeatedly referred to material in the documents at issue during the trial
court’s hearing on its motion for summary judgment, in which Plaintiff had ample
opportunity to object to Defendant’s submission of the documents.
Plaintiff has failed to cite any binding authority, which supports its assertion
that it was not required to object to Defendant’s submission of the documents at issue.
Rule 56 of the Rules of Civil Procedure indicates a trial court is to only consider “the
pleadings, depositions, answers to interrogatories, and admissions on file” in deciding
whether to grant or deny summary judgment. N.C. Gen. Stat. § 1A-1, Rule 56
(emphasis supplied).
In other contexts, this Court has repeatedly held that a party’s failure to object
to materials submitted to a trial court, which do not comply with the requirements of
Rule 56, waives that party’s objection. See Yamaha Int’l Corp. v. Parks, 72 N.C. App.
625, 629, 325 S.E.2d 55, 58 (1985) (stating that, “[o]n a motion for summary
judgment, uncertified or otherwise inadmissible documents may be considered if not
challenged by timely objection.”); Whitehurst v. Corey, 88 N.C. App. 746, 748, 364
S.E.2d 728, 729-30 (1988) (stating that “failure to object to form or sufficiency of
pleadings and affidavits waives objection on summary judgment” and an “affidavit
not conforming to Rule 56(e) is subject to motion to strike,” but objection is waived
absent the motion); Crocker v. Roethling, 217 N.C. App. 160, 165, 719 S.E.2d 83, 87-
88 (2011) (holding, in part, that the plaintiff waived ten-day procedural notice
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requirement of Rule 56(c) by participating in summary judgment hearing); N.
Carolina Nat. Bank v. Harwell, 38 N.C. App. 190, 192, 247 S.E.2d 720, 722 (1978)
(stating that “[f]ailure to make a timely objection to the form of affidavits supporting
a motion for summary judgment [under Rule 56] is deemed a waiver of any
objections.” (citations omitted)).
Plaintiff acknowledges the materials were timely served upon it in connection
with Defendant’s brief in support of its motion for summary judgment accordance
with Rule 5(c). N.C. Gen. Stat. § 1A-1, Rule 5(c). Plaintiff had adequate notice of the
materials because of Defendant’s repeated reference to them during the hearing on
the motion for summary judgment. Plaintiff has offered no argument to support its
notion that this Court should treat the disputed materials here any differently than
other materials that do not conform to the requirements of Rule 56, and for which a
party fails to make a timely objection before the trial court. Plaintiff was required to
object to the disputed material’s failure to be filed and failed to do so. See Yamaha,
72 N.C. App. at 629, 325 S.E.2d at 58; Whitehurst, 88 N.C. App. at 748, 364 S.E.2d at
729-30; Crocker, 217 N.C. App. at 165, 719 S.E.2d at 87-88; Harwell, 38 N.C. App. at
192, 247 S.E.2d at 722. Plaintiff’s argument is overruled.
B. Affidavit of Scott Latell
Defendant challenges the trial court’s consideration of the affidavit of Scott
Latell and two attached telephone conversation transcripts submitted by Plaintiff to
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the trial court. Although the trial court ultimately granted summary judgment in
favor of Defendant, Defendant contends the trial court erred in admitting and
considering the affidavit and the two attached transcripts. In light of our holding to
affirm the trial court’s order granting summary judgment to Defendant, it is not
necessary, and we decline, to address Defendant’s objection to the trial court’s
consideration of Scott Latell’s affidavit and the two attached transcripts.
C. Breach of Contract
Plaintiff argues genuine issues of material fact exist in regard to its breach of
contract claim. “The elements of a claim for breach of contract are (1) existence of a
valid contract and (2) breach of the terms of that contract.” Poor v. Hill, 138 N.C. App.
19, 26, 530 S.E.2d 838, 843 (2000).
Plaintiff’s verified complaint alleges Defendant committed several breaches of
the agreements the parties had entered into with regard to financing the Project,
including:
a. failing to provide the required amount of initial
financing;
b. underfunding the loan;
c. delaying change-order requests;
d. refusing to finance the Take-Out Loans as
promised; and
e. violating the covenant of good faith and fair
dealing.
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We analyze each alleged breach in turn.
1. Failure to Provide the Required Amount of Initial Financing
Plaintiff asserts the parties’ Loan Commitment required Defendant to provide
$9,950,000 in funds for initial financing from the Loan Agreement instead of the
$7,750,000 provided and advanced at closing. Viewing the evidence in the light most
favorable to Plaintiff including the loan documents attached to Plaintiff’s complaint,
no genuine issue of material fact exists of whether Defendant failed to provide the
initial amount of financing. When the parties closed on the loan on 8 August 2008,
in addition to the Loan Agreement, they executed a notice of final agreement
containing a merger clause indicating it supersedes the earlier executed Loan
Commitment. Specifically, the notice of final agreement states, in relevant part:
BY SIGNING THIS DOCUMENT EACH PARTY
REPRESENTS AND AGREES THAT: (A) THE WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES, (B) THERE
ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES, AND (C) THE WRITTEN
LOAN AGREEMENT MAY NOT BE CONTRADICTED
BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OR
UNDERSTANDINGS OF THE PARTIES. [Emphasis
supplied].
In addition, the Loan Agreement provides:
RELATIONSHIP TO THE AGREEMENT: The terms and
provisions of this Agreement, the Note and the Related
Documents supersede any inconsistent terms and
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conditions of Lender’s construction loan commitment letter
to Borrower, provided that all obligations of Borrower
under this commitment to pay any fees to Lender or any
costs and expenses relating to the Loan on the commitment
shall survive the execution and delivery of this Agreement,
the Note and the Related Documents. [Emphasis supplied].
The plain language in the Loan Agreement, which Plaintiff does not contest it
executed, indicates the Loan Agreement’s provision for $7,750,000 in financing
supersedes the earlier Loan Commitment’s provision for $9,950,000.
The parties also executed the Second Change in Terms Agreement in June
2009, several months after Plaintiff alleges Defendant had failed to provide the initial
amount of financing. The Second Change in Terms Agreement provides in relevant
part:
13. Ratification of all Loan Documents, as Modified.
Borrower and Lender agree that the Note, Deed of Trust,
CLA [Construction Loan Agreement] and all other Loan
Documents, as modified by the LMA [Loan Modification
Agreement], the Modification of Deed of Trust and this
Modification, are hereby ratified and confirmed to be in full
force and effect and Borrower further confirms and agrees
that there presently exists no defenses, offsets, or other
claims with respect to the same, as modified hereby.
[Emphasis supplied].
Based upon the clear and unambiguous language of the Loan Agreement and
the two Change in Terms Agreements, Defendant was not obligated to provide the
$9,950,000 in financing initially specified by the Loan Commitment. Presuming¸
arguendo, Defendant was obligated to provide the $9,950,000 under the Loan
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
Agreement, Plaintiff waived any claims it may have had for Defendant’s failure to
provide the initial amount of financing in the Second Change in Terms Agreement.
Plaintiff does not dispute they entered into these agreements. No genuine issue of
material fact exists with respect to this alleged breach. Defendant’s argument is
overruled.
2. Underfunding the Loan
Plaintiff also alleges Defendant breached the parties’ loan contracts by
underfunding the Loan. According to the Modification of Note and Deed of Trust
executed by the parties on 18 June 2009, Defendant had disbursed all of the loan
funds it was required to disburse under the parties’ Loan Commitment, Loan
Agreement, and later modifications. The Modification of Note and Deed of Trust both
parties executed specifically provides:
The total amount of all funds disbursed by Lender to
Borrower to date under said Note, CLA [Construction Loan
Agreement] and Deed of Trust, as amended by the LMA
[Loan Modification Agreement] and Modification of Deed of
Trust, including those funds deposited in the Interest
Reserve Account, is $8,475,801.00. There are presently no
Construction Loan funds left to be disbursed.
Plaintiff has failed to produce any writing or agreement contradicting the
Modification of Note and Deed of Trust to indicate Defendant underfunded the loan.
Plaintiff has not alleged Defendant entered into any subsequent modification of the
Loan Agreement after 18 June 2009, which obligated Defendant to loan additional
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
funds beyond the stated amount. Plaintiff’s arguments regarding Defendant’s alleged
underfunding of the loan are overruled.
3. Delaying Change Order Requests
Plaintiff also alleges Defendant breached the parties’ loan agreements by its
delay in approving Plaintiff’s November 2008 change order request for $725,801. The
Loan Agreement does not indicate Defendant was required to loan any more money
at the time Plaintiff submitted its change order request. The Modification of Note
and Deed of Trust executed by the parties and attached to Plaintiff’s verified
complaint specifically states:
WHEREAS, at the request of Borrower, Lender agreed to
lend Borrower an additional $725,801.00 by increasing the
amount of the Construction Loan from $7,750,000 to
$8,475,800.00. To reflect this increase in the amount of the
Construction Loan, Borrower and Lender entered into a
Change In Terms Agreement dated January 23, 2009 (the
“LMA”) increasing the amount of the Construction Loan,
and the principal amount of the Note, from $7,750,000.00
to $8,475,801.00.
As analyzed above, Plaintiff specifically waived claims relating to the parties’
obligations under the Loan Agreement and related documents in the Modification of
Note and Deed of Trust, which states:
Borrower and Lender agree that the Note, Deed of Trust,
CLA [Loan Agreement] and all other Loan Documents, as
modified by the LMA [Change in Terms Agreement], the
Modification of Deed of Trust and this Modification, are
hereby ratified and confirmed to be in full force and effect
and Borrower further confirms and agrees that there
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
presently exists no defenses, offsets or other claims with
respect to the same, as modified hereby.
Plaintiff has specifically waived any claim asserting Defendant has breached
the Loan Agreement and related agreements by its purported delay in funding
Plaintiff’s change order request. The Loan Agreement and related modifications,
which Plaintiff does not deny it executed and which are attached and referenced in
its verified complaint, establish no genuine issue of material fact exists with regard
to Defendant’s alleged breach due to any purported delay in funding Plaintiff’s change
order request. Plaintiff’s arguments are overruled.
4. Refusing to Finance Take-Out Loans
Plaintiff also alleges Defendant breached its loan agreements by failing to
provide take-out financing for the purchase of commercial units by LBS, the
additional ownership entity established by Plaintiff. Nothing in the terms of the Loan
Commitment, Loan Agreement, and any related modifications obligated Defendant
to provide take-out loans to either Plaintiff or LBS.
Brian Gillespie’s affidavit, submitted by Defendant in support of its motion for
summary judgment, states, in relevant part:
18. Shortly after the closing, Bradley Hines, with whom I
worked on this project, and I began to make inquiry of
French Broad Place, LLC as to how it was going with
respect to obtaining loan commitments for the purchases
by LBS. These communications continued over a period of
time and we were constantly told that LBS had a lot of
interest from other lenders to make the “take-out loans” to
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
LBS.
19. Thereafter, an email was sent to Lyle Priest who had
sent two emails requesting loans for take-outs for LBS and
Mr. Priest was informed that certain documentation would
be needed in order for the LBS loan requests to be
considered by Asheville Savings Bank.
20. Subsequent to the request for financial information
sought in an email dated February 17, 2010 from Bradley
Hines, neither LBS nor any of the principals submitted any
of the requested information necessary for Asheville
Savings Bank to determine whether or not such loan could
be approved.
Viewing the evidence in the light most favorable to Plaintiff, nothing in the
record challenges or contradicts Brian Gillespie’s sworn statement that the LBS
financial information requested by Defendant was not provided. Additionally,
Plaintiff has not provided written documents detailing the specific terms of any take-
out loans that Defendant allegedly agreed to make, only an affidavit of Joshua
Burdette, recollecting the essential terms of potential take-out loans discussed
between the parties on 20 March 2008. As discussed supra, when the parties closed
on the construction loan on 8 August 2008, they executed a notice of final agreement
which states, in relevant part:
BY SIGNING THIS DOCUMENT EACH PARTY
REPRESENTS AND AGREES THAT: (A) THE WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES, (B) THERE
ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES, AND (C) THE WRITTEN
LOAN AGREEMENT MAY NOT BE CONTRADICTED
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OR
UNDERSTANDINGS OF THE PARTIES. [Emphasis
supplied].
Plaintiff has failed to produce or indicate the existence of any written
agreement, which obligated Defendant to provide the alleged take-out loans. To the
extent Defendant or its representatives may have orally promised to provide take-out
financing prior to the execution of the Loan Agreement, the notice of final agreement
entered into between the parties expressly disclaims the existence of any oral
agreement or contract obligating Defendant to do so.
Additionally, any commitment to make a commercial loan in excess of $50,000
must be in writing and signed by the parties pursuant to the relevant statute of
frauds. N.C. Gen. Stat. § 22-5 (2017).
Undisputed evidence indicates LBS did not make requests for take-out loans
until February 2010, when it made requests for two loans. Both of these requests
were for take-out loans of $460,000 and $797,000, respectively, well in excess of the
$50,000 limit to trigger the statute of frauds.
Any commitment Defendant would have made to provide take-out loans in
excess of $50,000 was required to be in writing and signed by the parties. Id. Plaintiff
has not produced any such writing nor alleged such a writing exists. Plaintiff has
failed to demonstrate any genuine issue of material fact exists that Defendant
breached an agreement to provide take-out loans.
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
5. Violating the Implied Covenant of Good Faith and Fair Dealing
Plaintiff alleges Defendant breached their loan agreements by violating the
implied covenant of good faith and fair dealing. “In every contract there is an implied
covenant of good faith and fair dealing that neither party will do anything which
injures the right of the other to receive the benefits of the agreement.” Bicycle Transit
Authority v. Bell, 314 N.C. 219, 228, 333 S.E.2d 299, 305 (1985) (citation omitted).
The undisputed terms of the parties’ Modification of Note and Deed of Trust
indicates Defendant had disbursed all of the loan funds it was contractually obligated
to disburse under the parties’ Loan Agreement and related modifications. Defendant
exceeded the initial terms of the parties’ Loan Agreement by agreeing to waive the
first $1,000,000 in release fees owed in order to help Plaintiff. Plaintiff has failed to
demonstrate any genuine issue of material fact that Defendant breached the covenant
of good faith and fair dealing.
D. Unfair or Deceptive Trade Practices
Plaintiff alleges Defendant engaged in unfair or deceptive trade practices
based upon Defendant’s alleged breaches of the loan agreements. “Breach of contract,
even if intentional, can only create a basis for an unfair [or] deceptive trade practices
claim if substantial aggravating circumstances attend the breach.” Rider v. Hodges,
__ N.C. App. __, __, 804 S.E.2d 242, 249 (2017) (citing Watson Elec. Constr. Co. v.
Summit Cos., LLC, 160 N.C. App. 647, 657, 587 S.E.2d 87, 95 (2003)).
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
We decline to address if aggravating circumstances tend to support Plaintiff’s
unfair or deceptive trade practices claim. Plaintiff has failed to demonstrate any
genuine issues of material fact exist that Defendant breached any of the parties’ loan
agreements. See id.
E. Breach of Fiduciary Duty
Plaintiff alleges Defendant owed it a fiduciary duty “to act in good faith and
with due regard to the interests of Plaintiff” and that Defendant breached its
fiduciary duty by: (1) failing to provide the required amount of initial financing; (2)
underfunding the loan; (3) delaying change-order requests; and (4) refusing to finance
take-out loans as promised.
For a breach of fiduciary duty to exist, there must first be
a fiduciary relationship between the parties. Such a
relationship has been broadly defined by this Court as one
in which there has been a special confidence reposed in one
who in equity and good conscience is bound to act in good
faith and with due regard to the interests of the one
reposing confidence . . . [and] it extends to any possible case
in which a fiduciary relationship exists in fact, and in
which there is confidence reposed on one side, and
resulting domination and influence on the other.
Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707-08 (2001) (internal quotation
marks omitted).
To establish a claim for breach of a fiduciary duty, claimants are “required to
produce evidence that (1) defendants owed them a fiduciary duty of care; (2)
defendants . . . violat[ed] . . . their fiduciary duty; and (3) this breach of duty was a
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
proximate cause of injury to plaintiffs.” Farndale Co., LLC v. Gibellini, 176 N.C. App.
60, 68, 628 S.E.2d 15, 20 (2006). In North Carolina, the general rule holds:
Ordinary borrower-lender transactions . . . are considered
arm’s length and do not typically give rise to fiduciary
duties. In other words, the law does not typically impose
upon lenders a duty to put borrowers’ interests ahead of
their own. Rather, borrowers and lenders are generally
bound only by the terms of their contract and the Uniform
Commercial Code.
Dallaire v. Bank of Am., N.A., 367 N.C. 363, 368, 760 S.E.2d 263, 266-67 (2014)
(internal citations omitted); see Sec. Nat’l Bank of Greensboro v. Educators Mut. Life
Ins. Co., 265 N.C. 86, 95, 143 S.E.2d 270, 276 (1965) (“There was no fiduciary
relationship; the relation was that of debtor and creditor.”).
“Nonetheless, because a fiduciary relationship may exist under a variety of
circumstances, it is possible, at least theoretically, for a particular bank-customer
transaction to give rise to a fiduciary relation given the proper circumstances.” Id. at
368, 760 S.E.2d at 267 (internal citations and quotation marks omitted). To establish
a fiduciary relationship in the creditor-debtor context, there “must [be] some
additional fact which tends to elevate the relationship above that of a typical debtor
and creditor.” Lynn v. Federal Nat. Mort. Ass’n, 235 N.C. App. 77, 82, 760 S.E.2d 372,
376 (2014).
A fiduciary duty, in the context of a financing party to a
corporation, arises only when the evidence establishes that
the party providing financing to a corporation completely
dominates and controls its affairs. Edwards v. Bank, 39
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
N.C. App. 261, 277, 250 S.E.2d 651, 662 (1979); Pappas v.
NCNB Nat. Bank of North Carolina, 653 F. Supp. 699, 704
(M.D.N.C. 1987). Further, to justify the imposition of a
fiduciary obligation on a party financing the affairs of a
corporation, it must be shown that the financing party
essentially dominated the will of its debtor. In re Prima
Co., 98 F.2d 952 (7th Cir. 1938), cert. denied, 305 U.S. 658,
83 L. Ed. 426 (1939).
Multifamily Mortg. Tr. 1996-1 v. Century Oaks Ltd., 139 N.C. App. 140, 146, 532
S.E.2d 578, 581-82 (2000) (emphasis supplied).
Here, there is no genuine issue that Plaintiff and Defendant were in a debtor-
creditor relationship, which is not per se a fiduciary relationship. See Dallaire, 367
N.C. at 368, 760 S.E.2d at 266-67. Plaintiff alleges and argues Defendant so
thoroughly dominated the will of Plaintiff with respect to the Project that a fiduciary
relationship existed between them.
Plaintiff asserts the following facts tend to show Defendant dominated and
controlled Plaintiff’s affairs: Defendant’s control of distribution and withdrawals to
members and all buy/sell agreements between the members for membership
interests, Defendant’s giving of legal advice regarding how to set up LBS, Defendant’s
dictating of financing regarding Metromont, Defendant’s promise to make take-out
loans upon which Plaintiff relied, and Plaintiff’s utter dependence on Defendant’s
financing.
“As a matter of law, there can be no fiduciary relationship between ‘parties in
equal bargaining positions dealing at arm’s length, even though they are mutually
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
interdependent businesses.’” Dreamstreet Investments, Inc. v. MidCountry Bank, 842
F.3d 825, 831 (4th Cir. 2016) (quoting Strickland v. Lawrence, 176 N.C. App. 656,
662, 627 S.E.2d 301, 306 (2006)).
Reviewing the evidence in the light most favorable to Plaintiff, nothing tends
to show the relationship between Plaintiff and Defendant was anything other than
an agreement between two sophisticated commercial entities dealing at arm’s length.
Undisputed evidence in the record indicates Plaintiff’s development team members
had accumulated nearly 150-years’ worth of combined experience in commercial real
estate construction and development before entering into the loan agreements with
Defendant.
Additionally, Mark Latell, a principal of Plaintiff, indicated in his deposition
that Plaintiff had retained a consultant, Lyle Preest, to help them find lenders for the
Project. Mr. Latell described Mr. Preest as “very knowledgeable with banking and
lending and borrowing.” Numerous emails submitted to the trial court show
correspondence between Mr. Preest and Bradley Hines, the vice-president of
commercial lending of Defendant, dating from before and after the closing of the Loan
Agreement. These emails discuss several critical matters relating to the loan
agreements, including Plaintiff obtaining third-party financing, obtaining take-out
financing, and the pre-sales of commercial units.
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
Nothing indicates Plaintiff reposed any sort of special confidence in Defendant
to create a fiduciary relationship. Dalton, 353 N.C. at 651, 548 S.E.2d at 707.
Plaintiff’s consultation with Lyle Preest as an outside expert is inconsistent with a
fiduciary relationship. See Branch Banking & Trust Co. v. Thompson, 107 N.C. App.
53, 61, 418 S.E.2d 694, 699 (1992) (finding no fiduciary relationship on action for
summary judgment where party asserting fiduciary relationship with bank consulted
with banker and accountant before entering into agreement); see also Sullivan v.
Mebane Packaging Grp., Inc., 158 N.C. App. 19, 33, 581 S.E.2d 452, 462 (2003)
(finding evidence that complaining party obtained outside counsel rebuts existence of
fiduciary relationship necessary for constructive fraud claim). Furthermore, nothing
in the record indicates Plaintiff was foreclosed from consulting with an attorney, or
other advisors of its choice, prior to executing the Loan Commitment and Loan
Agreement with Defendant.
No evidence tends to show Defendant “essentially dominated the will” of
Plaintiff or “completely dominate[d] and control[led]” Plaintiff’s affairs. Multifamily
Mortg., 139 N.C. App. 140, 146, 532 S.E.2d 578, 581-82 (2012) (citations omitted).
No genuine issue of material facts exists of whether Plaintiff and Defendant
were in a fiduciary relationship. Plaintiff has not produced evidence tending to show
this essential element of a breach of fiduciary relationship claim. The trial court’s
order properly granted Defendant summary judgment on this claim.
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
F. Defendant’s Counterclaim on Promissory Note
Plaintiff argues the trial court erred in granting Defendant’s motion for
summary judgment on Defendant’s counterclaim for payment on the promissory note.
The promissory note was executed by Plaintiff on 8 August 2008 for the principal
amount of $7,750,000.00. This note was modified by the First Change in Terms
Agreement on 23 January 2009, and the principal amount was increased to
$8,475,801.00. On 8 June 2009, Plaintiff executed a Second Change in Terms
Agreement, which altered the formula used to calculate the interest rate.
In support of Defendant’s motion for summary judgment, Defendant submitted
the affidavit of David A. Kozak, executive vice-president of Defendant. David A.
Kozak stated that Defendant was owed $10,491,440.16 along with interest and
attorney’s fees per the parties’ Loan Agreement and that Plaintiff had defaulted.
Plaintiff argues due to Defendant allegedly breaching its obligations under the
loan agreements, Plaintiff is not obligated to pay on the note. The uncontradicted
evidence in the form of the parties’ 18 June 2009 Modification of Note and Deed of
Trust shows Defendant disbursed all funds it was required to loan under the
agreements evidenced by the note. Plaintiff has not presented any evidence to
contradict David A. Kozak’s affidavit stating Plaintiff was in default.
Based upon our holding to affirm the trial court’s determination that
Defendant is entitled to summary judgment on Plaintiff’s breach of contract claims,
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FRENCH BROAD PLACE, LLC V. ASHEVILLE SAVINGS BANK, S.S.B.
Opinion of the Court
no genuine issue of material fact exists with regard to Defendant’s counterclaim for
collection on the stated and uncontested sums in the note with interest and
contractually-agreed attorney’s fees. Plaintiff’s arguments are overruled.
V. Conclusion
Viewing the evidence in the light most favorable to Plaintiff, Plaintiff has failed
to establish any genuine issue of material fact exists with regard to its claims for
breach of contract, unfair or deceptive trade practices, and breach of fiduciary duty.
Plaintiff has also failed to demonstrate any genuine issue of material fact exists with
respect to Defendant’s counterclaim for contribution on the promissory note.
Defendant is entitled to summary judgment as a matter of law with respect to
Plaintiff’s claims and its counterclaim. The trial court’s order granting summary
judgment to Defendant is affirmed. It is so ordered.
AFFIRMED.
Judges ELMORE and ZACHARY concur.
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