UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF INDIANA

REGENT BANK, ) 

 ) 

 Plaintiff, ) 

 ) 

 v. ) CAUSE NO.: 1:16-CV-262-TLS 

 ) 

BIRCH REA PARTNERS, INC., ) 

 ) 

 Defendant. ) 

OPINION AND ORDER 

This matter is before the Court on the Defendant’s Motion to Dismiss the Plaintiff’s 

Complaint [ECF No. 14], filed on September 2, 2016. On July 7, 2016, the Plaintiff, Regent 

Bank, filed a Complaint [ECF No. 1] against the Defendant, Birch REA Partners, Inc. (Birch 

REA). The Defendant subsequently moved to dismiss the Complaint, pursuant to Federal Rule of 

Civil Procedure 12(b)(6), asserting that the Complaint fails to state a claim upon which relief 

may be granted. On September 28, 2016, the Plaintiff filed its Response to the Defendant’s 

Motion to Dismiss [ECF No. 19]. On October 5, 2016, the Defendant filed its Reply in Support 

of its Motion to Dismiss [ECF No. 20]. With this matter now being fully briefed, the Defendant’s 

Motion to Dismiss is denied for the reasons stated below. 

COMPLAINT ALLEGATIONS 

The Plaintiff is a Florida bank corporation that is the successor in interest to non-party PNC 

Bank. (Compl. ¶¶ 1–2, ECF No. 1.) The Defendant is a Massachusetts corporation that served as 

an appraiser in this case. (Id. ¶¶ 3, 6.) On May 16, 2007, non-party SunTrust Equity Funding, 

LLC (SunTrust), on behalf of itself and PNC Bank, entered into a contract with the Defendant 
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for the purpose of appraising property to assist PNC Bank in establishing the value for a 

mortgage of the property. (Id. ¶¶ 6–8.) 

 On August 17, 2007, the Defendant provided SunTrust and PNC Bank with the Appraisal 

[ECF No. 1-1] that indicated the property’s market value. (Id. ¶ 6.) The cover of the Appraisal 

states that it was “Prepared for: SunTrust & PNC” (Appraisal 3, ECF No. 1-1.)1

 The cover letter, 

appended to the Appraisal,2

 states that “[t]his [enclosed] appraisal will reportedly be used to 

assist SunTrust Bank and PNC Bank in establishing the value for mortgage collateral/asset 

management purposes.” (Id. at 5.) The cover letter also states: 

This confidential report is prepared for the use and benefit of SunTrust Bank and is 

based, in part, upon documents, writings, and information owned and possessed by 

 SunTrust Bank. This report is provided for informational purposes only to third parties 

 authorized to receive it. The appraiser-client relationship is with SunTrust Bank as the 

 client. This report should not be used for any purpose other than to understand the 

 information available to the Bank concerning this property. SunTrust Bank assumes no 

 responsibility if this report is used in any other manner. 

 PNC Bank, National Association, its employees, agents, successors and assigns may 

 rely upon this report in evaluating a request for an extension of credit to be secured by 

 the property (the ‘Mortgage Loan’). This report may also be used and relied upon by 

any actual or prospective purchaser, transferee, assignee, or servicer of the Mortgage 

 Loan (or any portion thereof), any actual or prospective investor (including agent or 

 advisor) in any securities evidencing a beneficial interest in or backed by the Mortgage 

 Loan (or any portion thereof), any rating agency actually or prospectively rating any 

 such securities, any indenture trustee, and any institutional provider(s) from time to time 

 of any liquidity facility or credit support for such financing. In addition, this report or a 

 reference to this report may be included or quoted in any offering circular, private 

 placement memorandum, registration statement or prospectus and Birch REA Partners, 

 Inc. agrees to cooperate in answering questions by any of the above parties in 

 connection with a securitization or transaction involving the Mortgage Loan (or any 

 portion thereof) and/or such securities. This report has no other purpose and should not 

                                                            

1

 The Court will refer to particular page number per the ECF pagination and not the pagination of the 

Appraisal. 

2

 The parties appear to dispute whether the letter appended to the Appraisal is a cover letter to the 

Appraisal or the Appraisal itself. The Defendant quotes sections of this letter as “the Appraisal” (see, e.g., 

Def.’s Br. in Supp. of Mot. to Dismiss 5, ECF No. 15), while the Plaintiff calls the letter “the Birch cover 

letter, which accompanies the Birch Appraisal,” (see, e.g., Pl.’s Resp. 8, ECF No. 19). For the purposes of 

this Order, the Court will refer to the letter as the cover letter, appended to the Appraisal. 
3 

 be relied upon by any other person or entity. 

(Id. at 5–6). Moreover, the letter states, “The value estimates and subsequent appraisal report are 

intended for the information of SunTrust Bank (‘SunTrust’) and PNC Bank (‘PNC’).” (Id. at 6). 

The Appraisal itself states that the Defendant “certif[ies] that, to the best of our knowledge and 

beliefs: we have complied with SunTrust Bank and PNC Bank’s instructions, standards, and 

specifications in conducting the research and analysis, and formulating the value conclusion.” 

(Id. at 161.) Within a section captioned “Purpose & Function of Appraisal,” the Appraisal states: 

“It is intended that this appraisal will serve as a guide to SunTrust Bank and PNC Bank with 

respect to asset management/mortgage collateral purposes.” (Id. at 27.) Within a section 

captioned “Description of Assignment,” the Appraisal states that it “is to serve as a guide to 

SunTrust Bank and PNC Bank with respect to asset management/mortgage collateral purposes.” 

(Id. at 113.) 

 On October 19, 2007, PNC Bank approved the loan, and on December 20, 2010, the 

Plaintiff purchased the Mortgage Loan. (Compl. ¶¶ 11–12.) On February 19, 2016, after the 

Plaintiff received a 2016 appraisal on the property, the Plaintiff determined that the Defendant’s 

Appraisal overstated the value of the property because it concealed a prior sale of the property, 

cherry-picked comparable properties to determine the property’s value when those other 

properties were not similar to the property at issue, and disregarded market conditions of a 

declining population and significant losses of manufacturing companies that support the market 

in which the property is located, inter alia. (Id. ¶¶ 22–27.) 

Consequently, on July 7, 2016, the Plaintiff filed a lawsuit against the Defendant alleging 

four separate causes of action: First, the Plaintiff alleges that the Defendant acted negligently 

because the “Defendant, as a professional appraiser, owed a duty of care” to the Plaintiff, the 
4 

Defendant “breached that duty of care by providing a grossly inaccurate appraisal with inflated 

values” and using methods that did not comply with the Uniform Standards of Professional 

Appraisal Practice (“USPAP”) and Title XI of the Federal Financial Institutions Reform, 

Recovery, and Enforcement Act (“FIRREA”), and therefore caused the Plaintiff damages. (Id. ¶¶ 

30–33.) Second, the Plaintiff alleges that the Defendant’s Appraisal constitutes a negligent 

misrepresentation because the “Defendant failed to disclose material facts to the Plaintiff 

regarding its improper appraisal methods” and “intended that PNC Bank (and its successors and 

assigns) would rely upon and be induced by the misrepresentations to purchase the Mortgage 

Loan.” (Id. ¶¶ 35–39.) Third, the Plaintiff alleges that the Defendant “knowingly and/or 

recklessly engaged in . . . a course of business which operated as a fraud upon Regent Bank. . . .” 

(Id. ¶ 41.) Finally, the Plaintiff alleges that the Defendant breached its contract with SunTrust 

Bank and/or PNC Bank and, as PNC Bank’s successor in interest, the Plaintiff is a third party 

beneficiary who suffered “foreseeable damages on the Mortgage Loan as a direct result of the 

Defendant’s breach of the contract.” (Id. ¶¶ 50–54.) 

STANDARD OF REVIEW 

“A motion to dismiss pursuant to [Rule] 12(b)(6) challenges the viability of a complaint 

by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. 

Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). When reviewing a complaint attacked by 

a Rule 12(b)(6) motion, the Court must accept all of the factual allegations as true and draw all 

reasonable inferences in the light most favorable to the Plaintiff. Erickson v. Pardus, 551 U.S. 

89, 93 (2007). The Complaint need not contain detailed facts, but surviving a Rule 12(b)(6) 

motion “requires more than labels and conclusions . . . . Factual allegations must be enough to 
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raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 

(2007). “A claim has facial plausibility when the pleaded factual content allows the court to draw 

the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 

Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). Because the purpose of a 

Motion to Dismiss “is to test the factual sufficiency of the statement of the claim for relief; the 

motion is not a procedure for resolving a contest between the parties about the facts or the 

substantive merits of the plaintiff’s case.” 5B Charles Alan Wright & Arthur R. Miller, Federal 

Practice and Procedure § 1356 (3d ed.). 

The Court has jurisdiction over this case through diversity jurisdiction, 28 U.S.C. § 1332, 

therefore it “must apply the law of the state as it believes the highest court of the state would 

apply it if the issues were presently before that tribunal.” State Farm Mut. Auto. Ins. Co. v. Pate, 

275 F.3d 666, 669 (7th Cir. 2001). Moreover, “[w]hen the state Supreme Court has not decided 

the issue, the rulings of the state intermediate appellate courts must be accorded great weight, 

unless there are persuasive indications that the state’s highest court would decide the case 

differently.” Id. Here, both parties agree that Indiana law applies. 

ANALYSIS 

A Professional Negligence and Breach of Contract - Third Party Beneficiary (Counts I 

and IV) 

Count IV of the Plaintiff’s Complaint seeks relief against the Defendant for breach of 

contract, pursuant to the Plaintiff’s assertion that it was a third party beneficiary of the contract 

between the Defendant and SunTrust. The Plaintiff must allege the following elements in order 

to plead a third party beneficiary claim: (1) the intent to benefit the Plaintiff in the contract is 

clear, (2) the contract imposes a duty on one of the contracting parties in favor of the Plaintiff, 
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and (3) the performance of the terms necessarily renders to the third party a direct benefit 

intended by the parties to the contract. Bowman v. Int’l Bus. Machs. Corp., 853 F. Supp. 2d 766, 

769 (S.D. Ind. 2012) (citing Indiana law).

 Count I of the Plaintiff’s Complaint seeks relief against the Defendant for professional 

negligence. To demonstrate a claim of negligence under Indiana law, the Plaintiff must allege: 

(1) a duty owed to him/her by the Defendant, (2) breach of that duty by the Defendant, and (3) 

injury proximately caused by the Defendant’s breach of duty. DeSimone v. Noonan, No. 1:09-

CV-1421, 2012 WL 3027998, at *3 (S.D. Ind. July 24, 2012) (citing Kroger Co. v. Plonski, 930 

N.E.2d 1, 6 (Ind. 2010)). Generally, whether a duty exists is a question of law for the Court to 

decide, but, determining whether a duty exists is sometimes dependent upon underlying facts that 

must be resolved by a trier of fact. BSA Const. LLC v. Johnson, 54 N.E.3d 1026, 1029 (Ind. Ct. 

App. 2016) (citing Rhodes v. Wright, 805 N.E.2d 382, 386 (Ind. 2004)). In this case, the Plaintiff 

rests its professional negligence claim in part on its contention that it was a third party 

beneficiary to the Defendant’s contract with SunTrust. (See Pl.’s Resp. 8.) The status of a thirdparty beneficiary to a contract can serve as the basis of a duty in a negligence action, however, 

“in Indiana, a professional owes no duty to one with whom he has no contractual relationship 

unless the professional has actual knowledge that such third person will rely on his professional 

opinion.” BSA Const. LLC, 54 N.E.3d at 1029 (citing Emmons v. Brown, 600 N.E.2d 133, 134–

35 (Ind. Ct. App. 1992)). Put another way, “a professional owes a duty of care only to his client 

plus any third party who the professional knows will see and rely on any opinion he renders.” Id.

at 1030 (citing Decatur Ventures LLC v. Daniel, 485 F.3d 387, 390 (7th Cir. 2007)). 

 Here, the parties dispute whether the Defendant intended to benefit the Plaintiff and had 

actual knowledge that the Plaintiff would rely upon the contract, with each party pointing to a 
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different portion of the Appraisal and even disputing the scope of the contract at issue. The 

Defendant argues that the Appraisal and the engagement letter, attached as an exhibit to the 

Appraisal, expressly provide that the Appraisal is only for the “use and benefit of SunTrust.” 

(Appraisal 5.) Furthermore, even though another part of the Appraisal states that a purchaser of 

the mortgage loan may rely upon the Appraisal, the Defendant contends that Indiana law requires 

that the Plaintiff must have been expressly identified as an intended beneficiary of the Appraisal 

in order to establish third party beneficiary status. See DeSimone, 2012 WL 3027998, at *4; BSA 

Const. LLC, 54 N.E.3d. at 1030, Emmons, 600 N.E.2d at 134. Because the Appraisal does not 

explicitly name the Plaintiff as a beneficiary, the Defendant argues “Birch REA could not have 

had actual knowledge [that Regent Bank would rely upon the Appraisal] as Regent Bank’s name 

does not appear in the Appraisal.” (Mot. to Dismiss 6). 

 The Plaintiff contends that the relationship between the Defendant, SunTrust, and PNC 

Bank, and itself, as PNC’s assign/successor, requires consideration not only of the engagement 

letter, but also of the Appraisal and the cover letter appended to the Appraisal, both of which 

include references to reliance by PNC’s successors and assignees. The Plaintiff argues, “The 

crucial point here [is] that Birch clearly and expressly set forth that the Birch Appraisal was to 

inure to and to be of benefit for PNC Bank, and its assigns/successors.” (Pl.’s Resp. 12.) 

Furthermore, the Plaintiff points out that this case is distinct from the case law relied upon by the 

Defendant because there are numerous references to benefit PNC Bank and its 

assigns/successors, and the Defendant provided PNC Bank with a copy of the Appraisal knowing 

that PNC Bank would review it and rely upon on it before making the decision to loan money. 

As a result, the Plaintiff contends that the Defendant had the requisite actual knowledge to regard 

the Plaintiff as a third party beneficiary. 
8 

 The Court finds that the parties’ arguments require resolution of factual questions as to 

whether the Defendant intended to benefit the Plaintiff and had actual knowledge that the 

Plaintiff would rely upon its Appraisal. These factual questions include the scope of the contract 

between the Defendant, SunTrust, and PNC Bank, including whether the contract at issue is the 

Appraisal, the cover letter appended to the Appraisal, and/or the engagement letter attached as an 

exhibit to the Appraisal. Based on the briefing from the parties, it is unclear whether the parties 

intended for the cover letter and engagement letter to be part of the Appraisal, or whether these 

documents constitute extrinsic evidence informing ambiguities stemming from contradictions 

contained within the Appraisal. See Universal Guar. Life Ins. Co. v. Coughlin, 481 F.3d 458, 464 

(7th Cir. 2007) (“Contradictory language in a contract is classically ambiguous.”). Further, the 

nature of the relationship between the Defendant, PNC Bank, and SunTrust, and the 

circumstances upon which the parties contracted and/or negotiated for the Appraisal, may inform 

the analysis of the parties’ intent to benefit the Plaintiff. Real Estate Support Servs., Inc. v. 

Nauman, 644 N.E.2d 907, 911 (Ind. Ct. App. 1994) (holding that when determining whether a 

party is a third party beneficiary, “The intention of the parties [to the contract] . . . is to be 

determined in light of the surrounding circumstances which existed at the time the contract was 

made.”). These are factual issues necessitating development through discovery. 

 Though the Defendant cites to DeSimone and Emmons, this case presents factual issues in 

order to determine if DeSimone and Emmons are applicable—for instance, the Court in 

DeSimone was able to conclude that “DeSimone lacks evidence of any actual knowledge” 

because the parties at that point had already gone through the discovery process and elicited facts 

concerning actual knowledge and the parties’ intentions. 2012 WL 3024998, at *4 (“It is 

undisputed [from the Record] that Noonan and DeSimone had never spoken nor had any direct 
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communication.”). A similar record has not yet been developed in the instant case. At this 

motion to dismiss stage, the Court is not tasked with resolving factual inquiries. All the Court 

must decide is whether there are enough facts to put the Defendant on reasonable notice as to the 

nature of the Plaintiff’s claims and to allow the Court “to draw the reasonable inference that the 

[D]efendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). The 

Court finds that the Plaintiff’s Complaint does just that. The Plaintiff has plead that the 

Defendant and SunTrust contracted and intended for PNC Bank and its successors/assigns to be a 

beneficiary of the Appraisal, the Defendant owed duties to PNC Bank as a result of that contract, 

and the Defendant provided PNC Bank with a copy of the Appraisal while “fully aware” that 

PNC Bank and its successors/assigns would review and rely upon the Appraisal before making 

the decision to loan money. (Compl. ¶¶ 15–20.) In this manner, the Plaintiff has sufficiently 

plead the requisite elements to claim third party beneficiary status. 

 Specifically in regard to the Plaintiff’s professional negligence claim, the Defendant 

argues that whether a duty exists between itself and the Plaintiff is a question of law for this 

Court to decide. However, as the Defendant also points out, for an appraiser to owe a duty to a 

non-contracting party pursuant to Indiana law, it must be established that the non-contracting 

party is a third party beneficiary of the contract, DeSimone, 2012 WL 3027998, at *4, and the 

appraiser must know that a third person will rely upon its professional opinion, BSA Const. LLC, 

54 N.E.2d at 1029. As this Court has explained, determining whether the Plaintiff is a third party 

beneficiary requires analyzing factual questions concerning the scope of the contract and the 

parties’ intent. Similarly, determining whether the Defendant had actual knowledge that PNC 

and its successors/assigns would rely upon its Appraisal requires analyzing the relationship 

and/or negotiation between the parties. Resolution of these issues may be more appropriate at the 
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summary judgment stage, after development of a factual record, but is inappropriate for 

resolution on this pending Motion to Dismiss. 

B Negligent Misrepresentation and Common Law/Constructive Fraud (Counts II and 

III) 

 

 The Plaintiff seeks recovery in Counts II and III of its Complaint under the theories of 

negligent misrepresentation and fraud. To state a claim for fraud, the Plaintiff must plead the 

following elements: (1) a material misrepresentation of past or existing fact which (2) was 

untrue, (3) was made with knowledge of or in reckless ignorance of its falsity, (4) was made with 

intent to deceive, and (5) detrimental reliance by the complaining party. Rice v. Strunk, 670 

N.E.2d 1280, 1284 (Ind. 1996). Indiana law holds a defendant liable for negligent 

misrepresentation when: (1) the defendant, in the course of her business, profession, or 

employment, or in any other transaction in which she has a pecuniary interest, supplies false 

information for the guidance of others in their business transactions, (2) the defendant fails to 

exercise reasonable care or competence in obtaining or communicating the information, (3) the 

plaintiff justifiably relies upon the information supplied by the defendant, and (4) the plaintiff 

suffers pecuniary loss as a result. U.S. Bank, N.A. v. Integrity Land Title Corp., 929 N.E.2d 742, 

746 (Ind. 2010). 

 The Defendant argues that Indiana courts have held that subjective opinions, such as 

valuations contained within an appraisal, cannot serve as a basis for an action in fraud. Similarly, 

the Defendant argues that the same rationale applies to the Plaintiff’s claim of negligent 

misrepresentation because, as an expression of opinion, an appraisal cannot be considered “false 

information.” Additionally, the Defendant argues that Indiana law requires a party who sues 
11 

pursuant to a theory of negligent representation to plead that the professional had actual 

knowledge that the third party would rely upon the professional’s opinion. 

 The Plaintiff submits that the Defendant’s alleged fraud arises not from opinions 

contained within the Appraisal, but from the Defendant’s omission of material facts, which are 

not opinion-based. These facts include the failure to report that the property was sold previously 

for a different price, the failure to disclose the economic downturn in the area surrounding the 

property, and the misrepresentation that the sale was a market sale as opposed to a leaseback 

sale. Therefore, the Plaintiff does not contest that expressions of opinion are inappropriate for 

actions in fraud or negligence. Instead, the Plaintiff contends that its issues with the Defendant’s 

Appraisal arise from misrepresentations and/or omission of information and not from 

expressions of subjective opinion. The Defendant’s Reply argues that it was not required to 

disclose the sale of the property pursuant to the USPAP, the Appraisal does contain an overview 

of the regional economic decline, and the Appraisal expressly states it was a leaseback sale. In 

this manner, the Defendant disputes the Plaintiff’s version of the facts. 

 Viewed in the light most favorable to the Plaintiff, the Plaintiff’s Complaint is 

sufficiently clear in alleging the requisite elements for the claims of material misrepresentation 

and fraud. The Plaintiff pleads that, “[Birch REA] refused to ascertain and disclose of such facts 

concerning and regarding the Property . . . .” (Compl. ¶¶ 36, 42.) The Plaintiff further alleges that 

the Defendant knew, or should have known, that its representations were false. (Id. ¶¶ 37, 42–

45.) Finally, the Plaintiff alleges that the Defendant intended for the Plaintiff to rely upon the 

misrepresentations, and in fact, the Plaintiff did detrimentally rely upon them. (Id. ¶¶ 38–39. 48.) 

Arguments by the parties concerning whether the Appraisal’s analysis of the economy and 

mention of a leaseback sale are sufficient, and whether an appraiser is required to report a three-
12 

year old sale of a property, are factual disputes inappropriate for resolution in this Motion to 

Dismiss. Accordingly, this Court holds that the Plaintiff’s allegations have put the Defendant on 

reasonable notice as to the nature of the Plaintiff’s negligent misrepresentation and fraud claims 

and allow the Court “to draw the reasonable inference that the [D]efendant is liable for the 

misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). 

CONCLUSION 

Based on the foregoing, the Court DENIES the Defendant’s Motion to Dismiss [ECF No. 

14] the Plaintiff’s Complaint. 

 SO ORDERED on June 14, 2017. 

 s/ Theresa L. Springmann 

 CHIEF JUDGE THERESA L. SPRINGMANN 

 UNITED STATES DISTRICT COURT