UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: MACO HOMES, INCORPORATED,

Debtor.

BOB MCLEMORE AND COMPANY,

INCORPORATED; BOB MCLEMORE

HOMES, INCORPORATED; APPLE HOMES,

INCORPORATED; APPLE REALTY 2000,

INCORPORATED; BMI LAND COMPANY,

INCORPORATED; MACO HOMES,

INCORPORATED,

No. 95-2938

Plaintiffs-Appellants,

v.

BRANCH BANKING & TRUST COMPANY;

HOME FEDERAL SAVINGS AND LOAN

ASSOCIATION OF CHARLOTTE,

Defendants-Appellees,

v.

ROBERT V. MCLEMORE,

Third Party Defendant-Appellant.
In Re: MACO HOMES, INCORPORATED,

Debtor.

BOB MCLEMORE AND COMPANY,

INCORPORATED; BOB MCLEMORE

HOMES, INCORPORATED; APPLE HOMES,

INCORPORATED; APPLE REALTY 2000,

INCORPORATED; BMI LAND COMPANY,

INCORPORATED; MACO HOMES,

INCORPORATED,

No. 95-2939

Plaintiffs-Appellants,

v.

BRANCH BANKING & TRUST COMPANY;

HOME FEDERAL SAVINGS AND LOAN

ASSOCIATION OF CHARLOTTE,

Defendants-Appellees,

v.

ROBERT V. MCLEMORE,

Third Party Defendant.

Appeals from the United States District Court

for the Western District of North Carolina, at Charlotte.

Graham C. Mullen, District Judge.

(CA-95-60-3-MU, CA-95-4-3-MU, BK-94-30421)

Argued: April 5, 1996

Decided: September 10, 1996

Before RUSSELL and MOTZ, Circuit Judges, and LAY,

Senior Circuit Judge of the United States Court of Appeals for

the Eighth Circuit, sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Wyatt B. Durrette, Jr., DURRETTE, IRVIN & BRADSHAW, P.C., Richmond, Virginia, for Appellants. Edwin Osborne

Ayscue, Jr., SMITH, HELMS, MULLISS & MOORE, L.L.P., Charlotte, North Carolina, for Appellee Branch Banking; Robert C. Stephens, HORACK, TALLEY, PHARR & LOWNDES, Charlotte,

North Carolina, for Appellee Home Federal. ON BRIEF: William O.

Quirey, Hammarstrom Davies, Durham, North Carolina, for Appellants. Robert H. Pryor, SMITH, HELMS, MULLISS & MOORE,

L.L.P., Charlotte, North Carolina, for Appellee Branch Banking;

G. Robert Turner, III, Zipporah Marie Basile, HORACK, TALLEY,

PHARR & LOWNDES, Charlotte, North Carolina, for Appellee

Home Federal.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Bob McLemore & Co., Inc. ("BMC") and its subsidiary companies

(collectively, the "McLemore group"), brought numerous claims

against Home Federal Savings & Loan Association of Charlotte

("Home Federal") and Branch Bank & Trust Co. ("BB&T"). On the

defendants' motions for summary judgment, the district court dismissed all claims against the defendants because the McLemore

group had previously executed valid, written agreements releasing the

defendants from all such claims. The McLemore group allege that

they entered into those written releases under fraud and duress. We

agree with the district court's finding that no fraud or duress occurred,

and we affirm the judgment of the district court.

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I.

Robert V. McLemore is the president and sole shareholder of

BMC, which is engaged in land development and home construction.

BMC is the corporate parent of BMI Land Co., Inc. ("BMI Land"),

Bob McLemore Homes, Inc. ("BMH"), Apple Homes, Inc. ("Apple

Homes"), Apple Realty 2000, Inc. ("Apple Realty"), and MACO

Homes, Inc. ("MACO Homes"). BMI Land is engaged in the purchase

and development of tracts of land for home construction. BMH and

Apple Homes are engaged in the construction of new homes. To

induce customers to purchase new homes, McLemore created the

"trading places" program; under this innovative program, a person

who signed a construction contract for a new home with BMH or

Apple Homes could trade in his existing home, which the McLemore

group agreed to sell before the completion of the new home. Apple

Realty was created to list and sell the new home buyers' existing

homes. If Apple Realty could not sell the existing home before the

closing of the new home, MACO Homes would purchase the existing

home and manage it as rental property.

Since 1972, the McLemore group worked closely with Home Federal to finance all phases of its construction operations. When the

McLemore group wanted to begin development of a property, Home

Federal would make the initial acquisition and development loan to

BMI Land. When BMH or Apple Homes sold lots to individual home

buyers, Home Federal would make the construction loans to McLemore and use the proceeds of those loans to pay down the initial acquisition and development loan. After construction of the new homes and

upon closing with the home buyers, Home Federal made the permanent mortgage loans to the home buyers and used the proceeds to pay

down the construction loans. If necessary, Home Federal made a second permanent mortgage loan to finance the sale of the customer's

existing home either to a third-party or to MACO Homes. For many

years, the McLemore group and Home Federal enjoyed an extremely

close and very profitable financing relationship.

In 1988, the McLemore group proposed a drastic expansion in the

scope of its business--from three to nineteen residential development

projects. Home Federal approved the financing of the new construc-

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tion, and the McLemore group began purchasing and developing

tracts of land.

In August 1989, however, Congress enacted the Financial Institutions Reform Recovery and Enforcement Act ("FIRREA"), which

necessarily altered the McLemore group's financing relationship with

Home Federal. FIRREA imposed a requirement on thrift institutions

that prevented them from extending more than 15% of its unimpaired

capital to a single borrower. Although a thrift could seek and receive

a waiver from the Office of Thrift Supervision ("OTS"), allowing it

to loan up to 30% of its unimpaired capital to a single borrower, even

the 30% limit restricted Home Federal's ability to continue financing

the McLemore group's activities in the same manner as it had in the

past.

Because Home Federal could no longer meet all of the McLemore

group's financing needs, the McLemore group started doing business

with BB&T, which had actively sought the McLemore group as a client. On March 28, 1990, BB&T executed a commitment to loan the

McLemore group seven million dollars--one million dollars to BMI

Land for land development, five million dollars to BMH and Apple

Homes for homes construction, and one million dollars to MACO

Homes for the purchase of rental homes. On August 7, 1991, BB&T

and the McLemore group executed another commitment agreement

that replaced the March 28, 1990 agreement. The terms of the August

7, 1991 agreement specified that the commitment to lend expired on

September 1, 1992. Between March 1990 and June 1992, BB&T

made loans to the McLemore group in accordance with the terms of

the commitment agreements.

By June 1992, however, BB&T had determined that the financial

condition of the McLemore group was deteriorating. On June 24,

1992, BB&T informed the McLemore group that it would not renew

its commitment to provide financing beyond the September 1, 1992

expiration date of the August 7, 1991 agreement. BB&T and the

McLemore group negotiated a schedule by which the McLemore

group would repay its outstanding debts to BB&T. The parties executed a repayment agreement on October 5, 1992. By December

1992, the McLemore group had defaulted under the terms of the

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repayment agreement. The parties began negotiating a workout agreement for the McLemore group's defaults.

On April 8, 1993, the McLemore group and BB&T executed a

written workout agreement. Under this agreement, BB&T accepted

the deeds to certain properties and released the McLemore group from

its indebtedness on those properties, thus avoiding the need for foreclosure proceedings. BB&T also extended some of the McLemore

group's obligations and loaned additional money to pay certain liens

and interest payments, thus giving the McLemore group an opportunity to work out the defaults on some of the properties. The McLemore group also released BB&T from any and all claims known or

unknown, absolute or contingent, matured or unmatured that the

McLemore group had against BB&T. During the course of the negotiations culminating in the workout agreement, the McLemore group

was represented by counsel.

The McLemore group subsequently defaulted on the terms of the

April 8, 1993 workout agreement, and BB&T foreclosed on the

remaining properties.

Meanwhile, the McLemore group's financial position with Home

Federal had also deteriorated. The McLemore group defaulted on its

Home Federal loans in 1991. As it had done in the past, Home Federal worked with the McLemore group to bring the loans current. By

June 1993, MACO Homes had defaulted on all its loans from Home

Federal, as well as its loans from Southern National Bank of North

Carolina ("Southern National") and United Carolina Bank ("UCB").

After a series of negotiations, the McLemore group, Home Federal,

Southern National, and UCB entered an agreement, in which the three

banks loaned MACO Homes additional funds to bring its loans current.

By July 1993, the McLemore group remained in default on the

acquisition and development loans to BMI Land and the home construction loans to BMH. The McLemore group and Home Federal

negotiated a workout agreement, which the parties executed on

August 20, 1993. Under this agreement, Home Federal granted the

McLemore group a six-month forbearance period on its defaults, giving the McLemore group a chance to sell properties and pay down its

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indebtedness. Home Federal also reduced the interest rate on certain

loans during this forbearance period, and it forgave $390,206 in past

due interest. The workout agreement also included the McLemore

group's release from any claims that the McLemore group had against

Home Federal. The McLemore group was represented by counsel

when it negotiated and signed the workout agreement with Home

Federal.

The McLemore group was unsuccessful in its efforts to sell properties and to pay down its outstanding debt. At the end of the forbearance period, the McLemore group's loans remained in default. Home

Federal informed the McLemore group of its obligation under the

workout agreement to deliver the deeds to Home Federal in lieu of

foreclosure.

In response, the McLemore group filed a complaint against Home

Federal and BB&T in North Carolina state court on February 22,

1994. When three of the McLemore group companies filed for bankruptcy, this action was removed to the United States Bankruptcy

Court for the Western District of North Carolina. In two separate

entries of proposed findings of fact and conclusions of law, the bankruptcy court recommended the entry of summary judgment on all

claims against Home Federal and BB&T because, inter alia, the April

8, 1993 workout agreement and the August 20, 1993 workout agreement released Home Federal and BB&T from all of the claims

brought by the McLemore group. The district court adopted verbatim

the bankruptcy court's proposed findings of fact and conclusions of

law. The McLemore group filed a timely appeal.

II.

We review the district court's grant of summary judgment de novo.

Evans v. Technologies Applications & Serv. Co. , 80 F.3d 954, 958

(4th Cir. 1996). Although the district court asserted several reasons

for dismissing the McLemore group's claims, its primary reason was

the existence of the release provisions in the April 8, 1993 and August

20, 1993 workout agreements. The McLemore group contends that

the district court should not have enforced the release provisions for

two reasons: first, the McLemore group signed the workout agreements under duress, and second, the McLemore group was defrauded

 7
into signing the workout agreements. We consider each argument in

turn.

A. Duress

Under North Carolina law, a person who enters into a contract

under duress can avoid his obligations under that contract. Duress

exists "where one by the unlawful act of another is induced to make

a contract or perform or forego some act under circumstances which

deprive him of the exercise of free will." Adder v. Holman & Moody,

Inc., 219 S.E.2d 190, 194 (N.C. 1975). Although duress may arise

from the wrongful use of physical force or threats of physical force,

it can also arise from the wrongful exertion of economic pressure.

However, not every imbalance in economic power creates a situation

of economic duress. Economic duress arises from the illegitimate use

of economic power outside the bounds of a contract or the law. See

Rose v. Vulcan Materials Co., 194 S.E.2d 521, 536 (N.C. 1973).

Thus, the mere threat by one party to breach a contract, though

wrongful, does not establish economic duress. Id . Economic duress

occurs when a party's wrongful action forces another to make a contractual promise, or else suffer irreparable injury to his business. See

id. In addition, the wronged party must have"no immediate and adequate remedy in the courts" that would enable him to resist the other's

demands. Id.

The McLemore group contends that it signed the workout agreements under duress. We disagree for two reasons. First, neither

BB&T nor Home Federal exerted any undue economic pressure on

the McLemore group. The threat of foreclosure certainly pressured

the McLemore group into signing the workout agreements, but BB&T

and Home Federal had the legal right to threaten foreclosure because

the McLemore group defaulted on its loans. Neither BB&T nor Home

Federal created the McLemore group's weak financial position, thus

forcing it to negotiate workout agreements from a weak bargaining

position.*

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*The McLemore group alleges that Home Federal created artificial

defaults by deliberately misapplying the McLemore group's loan payments: instead of using loan payments first to pay off any interest due

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Second, the undisputed evidence in the record demonstrates that, as

an alternative to signing the workout agreements, the McLemore

group could have sought the protection of the bankruptcy code.

Instead, and with the hopes of saving its business, the McLemore

group chose to enter workout agreements that released BB&T and

Home Federal from any actions it could pursue against them. Because

the McLemore group had an alternative to signing the workout agreements, it cannot argue that it entered those agreements under duress.

B. Fraud

Next, the McLemore group contends that BB&T and Home Federal, on several occasions, represented to it that BB&T and Home

Federal were not planning a merger. The McLemore group alleges

that BB&T and Home Federal began merger negotiations as far back

as 1989, culminating in a merger agreement at the end of 1993. The

McLemore group also alleges that Home Federal represented to the

McLemore group that the OTS had denied Home Federal a 30%

waiver in 1992, when in fact Home Federal never applied for such a

waiver. Furthermore, the McLemore group alleges that Home Federal

misapplied the McLemore group's payments, causing the McLemore

_________________________________________________________________

and then to pay down principal, Home Federal began applying the entire

loan payment to pay down principal, thus allowing the McLemore group

to fall behind on interest payments. The McLemore group has supported

its allegations with verified affidavits, and we do not resolve this factual

dispute at this stage of the proceedings.

Nonetheless, such misconduct, even if it occurred, would not establish

that the McLemore group signed the workout agreement with Home Federal under duress. If Home Federal had misapplied loan payments, the

McLemore group either knew or should have known of this fact before

it signed the workout agreement. Although the McLemore group trusted

Home Federal to handle the accounting of its loan payments, it had a

duty to make at least some inquiries to ensure that Home Federal kept

the books correctly. Certainly by the time Home Federal threatened foreclosure proceedings, the McLemore group should have investigated to

ensure that Home Federal had correctly applied the loan payments to its

debts. By signing the workout agreement, the McLemore group chose to

release Home Federal from its misconduct in exchange for a forbearance

period to cure its loan defaults.

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group to fall behind in its interest payments and to default on its

loans. The McLemore group argues that it would not have signed the

workout agreements if it had known about the defendants' fraud.

Although the McLemore group's allegations may serve as the basis

of fraud actions against BB&T and Home Federal, the McLemore

group released the defendants from such actions in the workout agreements. There is no evidence in the record that BB&T and Home Federal fraudulently induced the McLemore group to sign the release

agreements. With regard to each of the two workout agreements, the

district court found that the McLemore group actively participated in

the negotiations, reviewed drafts of the agreement, and made changes

to the agreement. The McLemore group was represented by counsel

throughout the negotiations and the signing of the agreements. The

district court found that the McLemore group knew that each workout

agreement contained a release provision when it signed the agreement.

Like the district court, we conclude that the undisputed facts demonstrate that the McLemore group was not induced by fraud to enter

into the workout agreements with BB&T and Home Federal.

III.

We agree with the district court that the release provision in the

workout agreements is a valid defense against all of the McLemore

group's claims against BB&T and Home Federal. Therefore, we need

not consider the McLemore group's other arguments. We affirm the

district court's entry of summary judgment in favor of the defendants

on all claims.

AFFIRMED

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