Opinion
1 CA-CV 99-0184
Filed January 11, 2000
Appeal from the Superior Court of Maricopa County, Cause No. CV 97-06648.
The Honorable Steven D. Sheldon
AFFIRMED
LEWIS AND ROCA LLP By John P. Frank, Peter Baird, Randy Papetti and Barry Willits, Attorneys for Plaintiff-Counterdefendant-Appellee, Phoenix.
MORRISON HECKER LLP, By Michael C. Manning, James W. Howard and Monty L. Greek, Attorneys for Defendants-Counterclaimants-Appellants, Phoenix.
OPINION
¶ 1 This suit arises out of a $10 million agreement of the Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund and other pension trust funds (collectively "Pension Funds") to finance the Mercado, a Phoenix development of J. Fife Symington, III. Related to this transaction was an interim construction loan in the same amount from First Interstate Bank, now Wells Fargo Bank ("Bank"). The trial court entered summary judgment for the Bank, finding that it owed no fiduciary or contractual duty to the Pension Funds to disclose its knowledge of Symington's deteriorating financial health. For the following reasons, we affirm that judgment.
Involved is not only the Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund but the Arizona Laborers, Teamsters and Cement Masons Local No. 395 Deferred Contribution Pension Trust Fund, the Arizona Operating Engineers Defined Benefit Pension Trust Fund, the Arizona Operating Engineers Defined Contribution Pension Trust Fund, the Arizona State Carpenters Pension Trust Fund, the Arizona Carpenters Defined Contribution Pension Trust Fund, and McMorgan Company, the Managing Agent of the Funds.
FACTUAL AND PROCEDURAL HISTORY
¶ 2 In the fall of 1987, the Pension Funds developed an interest in becoming a lender for Symington's Mercado project. Relying on the proposed value of the Mercado and Symington's financial data, on October 13, 1987, the Pension Funds executed a Permanent Commitment agreeing to a floor loan of $10 million for the development. The Pension Funds conditioned this obligation on their review and approval of Symington's financial statements as shown by the following provisions of the Permanent Commitment:
The borrower was Mercado Developers Limited Partnership, an Arizona limited partnership, the general partner of which was Symington. Symington also was the personal guarantor of the "full repayment and performance of all Borrower obligations under the terms of the loan documents . . . ."
28. FINANCIAL STATEMENTS/CREDIT REPORTS: Within thirty (30) days following the acceptance of this Commitment letter, Borrower and Borrower's partners shall provide Lender with satisfactory and current financial statements and credit reports (dated not more than six (6) months prior to the date hereof) demonstrating to Lender's complete satisfaction the Borrower's financial stability and creditworthiness. . . .
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30. OPERATING/PROFIT AND LOSS/FINANCIAL STATEMENTS: Within ninety (90) days following the close of Borrower's fiscal year end, Borrower shall, at Borrower's sole cost and expense, provide Lender with annual operating statements, profit and loss statements and financial statements of the Borrower (certified by the chief financial officer of Borrower), the principals of Borrower (certified only by each such principal), and the guarantors (except Ann P. Symington, and certified by each such guarantor), showing in reasonable detail the financial condition of the Borrower, the principals of Borrower and the guarantors (except Ann P. Symington). . . .
¶ 3 Having the Permanent Commitment, Symington asked the Bank for a $10 million interim construction loan for the Mercado development. It agreed on the condition that the Pension Funds and Symington execute with it a "Triparty Agreement" to address the obligations of each of the parties and to ensure the Pension Funds' commitment to "take out" the Bank's loan once the Mercado was completed. In this regard, the Triparty Agreement provided:
1.3 Construction Lender, in reliance upon the Permanent Commitment, has agreed to lend the sum of $10,000,000.00 as interim financing (the "Construction Loan") . . . .
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3.5 Upon the Take-Out Date [June 30, 1990], provided all of the terms, conditions and provisions of the Permanent Commitment shall have been satisfied, or Permanent Lender shall have waived satisfaction of such conditions or shall have agreed to fund the Permanent Loan without complete satisfaction of such conditions . . . Permanent Lender shall fund the Permanent Loan by disbursing to Construction Lender the sum necessary to repay the Construction Loan . . . .
¶ 4 Also in the Triparty Agreement, the Bank said that it would furnish the Pension Funds with information about the Mercado during its construction, such as liens, upon the "reasonable request" of the Pension Funds. It further agreed to inform the Pension Funds if Symington defaulted on the interim construction loan and if the Bank intended to foreclose on the Mercado project. Other than such Mercado-related information, however, the Bank affirmatively declared that it had "no obligation" and would not supply to the Pension Funds financial or other information required of Symington by the Permanent Commitment:
5.1 Permanent Lender is not and shall not be a party to the Construction Loan Documents and Permanent Lender shall have no obligations in connection therewith. Construction Lender shall have no obligation to comply with any of the terms, conditions and provisions of the Permanent Commitment but may, at its election, satisfy such requirements on behalf of Borrower in any manner not inconsistent with this Agreement.
Upon these terms, the Triparty Agreement was executed on May 25, 1988.
¶ 5 The value of the Phoenix real estate market subsequently declined and with it Symington's financial success with other real-estate projects. One of his failing projects involved the development of a Mesa shopping center called Alta Mesa Village. The 1986 Alta Mesa project had no connection with the Mercado project, and so it was not mentioned in either the Permanent Commitment or the Triparty Agreement. Rather, Alta Mesa was a separate loan obligation in which the Bank had agreed to a $2.3 million construction loan to Symington's J F Investments I Limited Partnership ("J F").
¶ 6 The Alta Mesa loan matured in March 1989, but J F was unable to pay it off. The Bank extended the loan. Still, J F was unable to pay when the loan ultimately was called. While the project was in default on March 16, 1990, the Bank entered a short-term forbearance agreement until a date after the Mercado project's take-out date of June 30, 1990.
¶ 7 By April 1990, the Pension Funds were expressing a general discomfort with the Mercado to the extent that they indicated that they were going to hold back an undisclosed sum pursuant to the Permanent Commitment. Symington then provided the Pension Funds with an unaudited financial statement which, although certified by him on May 4, 1990, only showed his financial condition as of December 31, 1989. In this financial statement, Symington claimed the same personal equity in the Alta Mesa project that he had claimed in his 1987 financial statement given to the Pension Funds. The statement said nothing about the payment status or maturity date of the Alta Mesa loan.
¶ 8 Just prior to the Mercado closing, the Bank released its deed of trust on the Mercado. Concerned that the figures on Symington's financial statement did not comport with the current value of his assets, the Bank asked the Pension Funds for a subordinated third lien on the Mercado property to secure the projected shortfall. The Pension Funds agreed, but they demanded that Symington extend his guaranty to them for another six years.
¶ 9 At the take-out on June 29, 1990, the Pension Funds paid off only part of the Bank's construction loan. They left Symington owing over $1 million to the Bank.
¶ 10 Approximately three years later, the Pension Funds foreclosed on the Mercado and canceled the Bank's subordinated lien. When Symington then defaulted on his obligation to the Pension Funds, the Pension Funds obtained a default judgment against him in 1995, after which Symington filed for bankruptcy.
¶ 11 In February 1997, the Pension Funds accused the Bank of conspiring with Symington to conceal Symington's deteriorating financial condition as evidenced by the Alta Mesa project so that the Mercado take-out would occur. The Bank responded by filing an action for declaratory judgment, seeking an adjudication that it had honored all of its contractual obligations. The Pension Funds then counter-claimed with allegations of intentional breach of contract and various torts.
¶ 12 On November 7, 1997, the Bank moved for summary judgment, arguing that it had no duty to disclose to the Pension Funds information pertaining to Symington's financial status. The trial court ruled that, because the Bank owed no fiduciary or similar duty to the Pension Funds, it was not liable for damages caused by Symington. The court also held that, given the terms of the Permanent Commitment and the Triparty Agreement, there could be no viable contention by the Pension Funds that they were misled by the Bank. It thus granted the Bank summary judgment and $268,121 in attorneys' fees.
¶ 13 The Pension Funds appealed, raising four issues:
1. Whether the Pension Funds submitted sufficient evidence to allow a jury to conclude that the Bank had committed the intentional torts of civil conspiracy to commit fraud, aiding and abetting common-law fraud, fraudulent concealment and intentional interference with a contractual relationship;
2. Whether the trial court erroneously applied the legal standards governing causes of action for negligence to the Pension Funds' claims for intentional breach of contract and torts;
3. Whether the Pension Funds submitted sufficient evidence to allow a jury to find that the Bank breached a covenant of good faith and fair dealing in contracting with the Pension Funds;
4. Whether the trial court erred in awarding attorneys' fees to the Bank.
¶ 14 The Bank's response is that "[it] made no false statement to the [Pension] Funds; the [Pension] Funds never asked the Bank for the information they now say they would have wanted to know; and the Bank had no duty to volunteer information or to take acts for the purpose of helping the [Pension] Funds." We largely agree with the Bank.
DISCUSSION
A. Standard of Review
¶ 15 On appeal from a summary judgment, we view the facts and draw all reasonable inferences in favor of the party opposing the motion. See Estate of Hernandez v. Board of Regents, 177 Ariz. 244, 247, 866 P.2d 1330, 1333 (1994). Although we examine de novo the proper application of the law and the existence of a genuine issue of material fact, if there is no legitimate factual issue and the moving party is entitled to judgment as a matter of law, we affirm the trial court's decision. See United Bank of Arizona v. Allyn, 167 Ariz. 191, 195, 805 P.2d 1012, 1016 (App. 1990).
B. Bank's Duty to Disclose Symington's Financial Status to Pension Funds
¶ 16 The Pension Funds argue that there was a conspiracy between the Bank and Symington to defraud the Pension Funds. To prove the existence of a conspiracy, two or more persons must be shown by clear and convincing evidence to have agreed to accomplish either a lawful objective by unlawful means or an unlawful objective. See Elliott v. Videan, 164 Ariz. 113, 116, 791 P.2d 639, 642 (App. 1989); Savard v. Selby, 19 Ariz. App. 514, 516, 508 P.2d 773, 775 (1973); see also Williams v. Aetna Finance Co., 700 N.E.2d 859, 868 (Ohio 1998) ("An underlying unlawful act is required before a civil conspiracy claim can succeed." Citations omitted.). The Pension Funds maintain that the Bank and Symington conspired to accomplish an unlawful objective, specifically that the Bank plotted with Symington to deprive the Pension Funds of information regarding the Alta Mesa loan until after the Mercado loan take-out date. The motivation, they allege, was that the Bank would then be sure to recover its interim construction loan proceeds from the Pension Funds' payment of its Mercado commitment.
¶ 17 The Pension Funds cannot prove that Symington and the Bank pursued the unlawful objective of defrauding the Pension Funds. In the argument of their first three issues, the Pension Funds choose to ignore three salient points: First, the Alta Mesa loan was between the Bank and Symington, and entirely independent of the Mercado funding. Second, it was Symington and not the Bank who was obliged by the Permanent Commitment to disclose the existence of the Alta Mesa loan to the Pension Funds on his financial statement, as was made clear by the Triparty Agreement and as Symington did. Third, the Permanent Commitment permitted the Pension Funds to obtain not only from Symington but from the Bank any and all information about the Alta Mesa loan, yet the Pension Funds made no inquiry whatsoever of the Bank. This was despite the fact that Symington provided to the Pension Funds a financial statement in 1990 certified by him to be accurate only as of the end of 1989 and identical in this respect to the one he provided to them in 1987; it had the significant notation that no principal had been paid but no additional mention of the Alta Mesa loan's payment status or maturity date despite a deteriorating real-estate market.
¶ 18 As a general proposition, a bank owes no duty to a third party to disclose its customer's financial circumstances. Kesselman v. Nat'l Bank of Ariz., 188 Ariz. 419, 421, 937 P.2d 341, 343 (App. 1997); see Smith v. American Nat'l Bank and Trust Co., 982 F.2d 936, 944 (6th Cir. 1992) (The fact that a bank lends money does not subject it to any special duty of disclosure.). To the contrary, a bank's duty to its customer is to be silent on such matters. Kesselman, 188 Ariz. at 421, 937 P.2d at 343. Indeed, even when the bank's depositor "does business" with the third party, a bank has no duty to that third party to disclose information regarding a customer. Citizens State Bank, Enderlin v. Schlagel, 478 N.W.2d 364 (N.D. 1991); see Frazier v. Southwest S L Ass'n, 134 Ariz. 12, 17, 653 P.2d 362, 367 (App. 1982).
¶ 19 Clearly an exception lies if there otherwise is an explicit duty to disclose, Kesselman, 188 Ariz. at 421-22, 937 P.2d at 343-44, but, in such a case, there must be a concealment of facts which the party is under a legal obligation to communicate in order to establish an actionable fraud. Schock v. Jacka, 105 Ariz. 131, 133, 460 P.2d 185, 187 (1969); see Smith, 982 F.2d at 943 ("[A] fiduciary relationship cannot be predicated on one party's superior knowledge of the facts surrounding a transaction when the relevant facts are readily available to both parties."), quoting Aschinger v. Columbus Showcase Co., 934 F.2d 1402, 1408 (6th Cir. 1991); Securities and Exchange Comm'n v. Washington Cty. Utility Dist., 676 F.2d 218, 223 (6th Cir. 1982) ("[A] person who does not undertake to furnish any information, and who is not aware of what information has been furnished, is under no duty to disclose material information in his possession."). Specifically, a claim based on allegedly deceitful silence may be actionable only if the defendant otherwise had a duty to disclose or to protect the third party. See, e.g., Banque Arabe v. Maryland Nat'l Bank, 57 F.3d 146, 153 (2d Cir. 1995) ("To establish fraudulent concealment, a plaintiff must [besides proving an intent to mislead] prove that the defendant had a duty to disclose the material information."); Smith, 982 F.2d at 943 (rejecting aiding and abetting liability based on the bank's silence regarding its customer's fraud because "[s]ilence is not actionable" absent a duty to disclose); California Architectural Bldg. Prods. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir. 1987) ("[a]bsent an independent duty, such as a fiduciary duty or an explicit statutory duty, failure to disclose cannot be the basis of a fraudulent scheme."); Frazier, 134 Ariz. at 17, 653 P.2d at 367 (dismissing claims for misrepresentation and concealment because bank simply chose not to speak). But again, as the Permanent Commitment and Triparty Agreement made unmistakable, the Bank owed the Pension Funds no duty to disclose information about Symington's finances, rather the contrary absent the Pension Funds' inquiry.
¶ 20 Otherwise, a duty to disclose material information may only be created in the context of a "special relationship." Kesselman, 188 Ariz. at 422, 937 P.2d at 344; see Mid-Cal Nat'l Bank v. Federal Reserve Bank of San Francisco, 590 F.2d 761, 763 (9th Cir. 1979); Schock, 105 Ariz. at 133, 460 P.2d at 187; Frazier, 134 Ariz. at 17, 653 P.2d at 367. "Special relationships" include ones when there has been a previous definite fiduciary relationship between the parties, when it reasonably appears that one or each of the parties to the contract has expressly reposed trust and confidence in the other, or when the contract is intrinsically fiduciary. Kesselman, 188 Ariz. at 422, 937 P.2d at 344. None of these associations existed, as the Permanent Commitment and Triparty Agreement make evident.
¶ 21 The Alta Mesa loan constituted an independent financial obligation between the Bank and Symington, but the Pension Funds were on notice of the Alta Mesa loan before the Permanent Commitment was signed, and the Permanent Commitment expressly gave the Pension Funds the wherewithal to inquire of and receive from the Bank information regarding that loan. However, by law as well as by the terms of the Triparty Agreement, the Bank had no corresponding obligation to disclose to the Pension Funds the status of the Alta Mesa loan. To assert that the Bank acted with an unlawful objective to hide the status of the Alta Mesa loan ignores that the Bank was acting lawfully to maintain the confidentiality of the financial information of its customer, Symington.
¶ 22 Indeed, the Pension Funds were a party to the Triparty Agreement, which limited the Bank's duty to disclose information. When an express agreement is present, the rights of the parties derive solely from the contract's governing terms, FDIC v. Adams, 187 Ariz. 585, 594, 931 P.2d 1095, 1104 (App. 1996), such that agreements between lenders do not give rise to fiduciary disclosure obligations without "unequivocal contractual language." First Citizens Fed. Savings and Loan v. Worthen Bank and Trust Co., 919 F.2d 510, 513-14 (9th Cir. 1990); see Banque Arabe, 57 F.3d at 158 ("In the case of arm's length negotiations or transactions between sophisticated financial institutions, no extra-contractual duty of disclosure exists."). With no specific contractual provisions stipulating a duty to disclose, an agreement operates as a waiver absolving a party from the responsibility to make affirmative disclosures. See Banco Espanol de Credito v. Security Pac. Nat'l Bank, 973 F.2d 51, 56 (2d Cir. 1992), cert denied, 509 U.S. 903 (1993).
¶ 23 The Bank and the Pension Funds were neither partners nor joint venturers with a fiduciary relationship. Rather, the provisions of the Triparty Agreement were typical of a relationship among equally sophisticated business entities dealing at arm's length. See First Citizens Fed. Savings and Loan, 919 F.2d at 514. Specifically, the Triparty Agreement expressly recited that the Bank had absolutely no obligation to volunteer information regarding Symington's financial well-being. Instead, the Triparty Agreement, which set forth the respective rights and obligations among Symington, the Bank and the Pension Funds, explicitly provided that, although Symington had a duty to provide certain financial information to the Pension Funds, the duty was one pursuant to the Permanent Commitment and not one shared by the Bank. In particular, Paragraphs 3.4 and 5.1 of the Triparty Agreement provided that the Bank had "no obligation" to comply with Symington's obligations under the Permanent Commitment. To argue then that the Bank should have warned the Pension Funds ignores the Bank's lack of legal fiduciary and contractual duties, and denies the Pension Funds' obligation to complete their own due diligence investigation. The Bank had neither a duty to provide the Pension Funds with financial information on behalf of Symington, nor a duty to advise the Pension Funds on Symington's separate real-estate transactions involving the Bank.
¶ 24 Nor did the Triparty Agreement create a "special circumstance." To the contrary, the inherent nature of the relationship between permanent and interim lenders suggests an adversarial relationship between the Pension Funds and the Bank, each of which had a substantial financial self-interest antithetical to that of the other. This is not the kind of circumstance giving rise to an affirmative duty to disclose. See Aaron Ferer Sons, Ltd. v. Chase Manhattan Bank, 731 F.2d 112, 123-24 (2d Cir. 1984).
¶ 25 The Bank's fiduciary and contractual duty was owed to Symington; it owed none to the Pension Funds. Disclosure of information regarding the Alta Mesa loan was permitted only to the extent that the Permanent Commitment allowed the Pension Funds to obtain that information from Symington and the Bank. In short, the Pension Funds' failure to be vigilant in monitoring Symington's financial status cannot be transferred to the Bank with which it had no relationship.
C. Attorneys' Fees
¶ 26 In any action arising out of a contract, the trial court has discretion to award the successful party reasonable attorneys' fees. ARIZ. REV. STAT. ANN. § 12-341.01. The types of actions fitting within this statute include those melding tort and contract. See Marcus v. Fox, 150 Ariz. 333, 334-35, 723 P.2d 682, 683-84 (1986). "[A]s long as the cause of action in tort could not exist but for the breach of contract," a single act intertwining two legal theories does not preclude recovery pursuant to section 12-341.01. Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 543, 647 P.2d 1127, 1141(1982); see Marcus, 150 Ariz. at 335-36, 723 P.2d at 684-85; Ponderosa Plaza v. Siplast, 181 Ariz. 128, 133, 888 P.2d 1315, 1320 (App. 1993).
¶ 27 Despite the fact that most of the Pension Funds' claims alleged intentional tortious conduct for which attorneys' fees may not be awarded, the contractual relationship between the Pension Funds and the Bank was integral to the resolution of the contentions and thus within the purview of section 12-341.01. See Bar J Bar Cattle Co., Inc. v. Pace, 158 Ariz. 481, 486, 763 P.2d 545, 550 (App. 1988). It was within the trial court's discretion to have awarded attorneys' fees to the Bank.
¶ 28 Similarly, we award to the Bank its reasonable attorneys' fees on appeal upon its compliance with Arizona Rule of Civil Appellate Procedure 21.
CONCLUSION
¶ 29 The judgment is affirmed, and we award the Bank its costs and attorneys' fees on appeal.
______________________________ SUSAN A. EHRLICH, Judge
CONCURRING:
____________________________________ CECIL B. PATTERSON, Jr., Presiding Judge
____________________________________ PHILIP E. TOCI, Judge