Court Opinion

ID: 2777589
Source: CourtListenerOpinion
Date Created: 2015-02-06 16:27:04.358564+00
Date Added: 2024-06-11T11:26:40.869671
License: Public Domain

2015 VT 36

TBF Financial, LLC v. Gregoire
and Gregoire (2013-365)
 
2015 VT 36
 
[Filed 06-Feb-2015]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by
mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont
05609-0801, of any errors in order that corrections may be made before this
opinion goes to press.
 
 

2015 VT 36

 

No. 2013-365

 

TBF Financial, LLC

Supreme Court

 

 

 

On Appeal from

     v.

Superior Court, Washington and
Caledonia Units, Civil Division

 

 

Barrett L. Gregoire and Linda P.
  Gregoire

June Term, 2014

 

 

 

 

Robert
  R. Bent, J.

 

Hans G. Huessy of Murphy Sullivan Kronk,
Burlington, for Plaintiff-Appellee.
 
Christopher J. Smart of Cheney Saudek & Grayck PC, Montpelier,
for Defendants-Appellants.
 
 
PRESENT:   Reiber, C.J., Skoglund and Robinson, JJ., and Morris and Zimmerman, Supr. JJ.
                    
(Ret.), Specially Assigned
 
 
¶ 1.            
ROBINSON, J.   Defendants, Barrett and Linda Gregoire,
sought to amend or set aside judgments of foreclosure in favor of plaintiff
bank based on claims of fraud and misrepresentation.[1]  The trial court denied the
motions.  The bank filed a motion for a finding of default in connection
with a post-foreclosure judgment stipulated order.  The trial court
granted that motion.  On appeal, defendants argue that there was no final
judgment so the order could be amended without resort to post-judgment
proceedings, and even if it was a final order, the court erred in denying their
request for relief and in entering judgment of default.  We affirm.
¶ 2.            
As the trial court noted, the history of these consolidated cases
appealed from Washington and Caledonia Superior Courts is unusual and
convoluted.[2] 
The dispute concerns four multi-family rental properties—three in Washington
County and one in Caledonia County—that were part of
defendants’ rental-property business.  The bank’s loans to defendants were
secured by the properties and were cross-collateralized with each other. 
In March and April 2010, the bank filed foreclosure complaints with respect to
the properties.  The parties executed a forbearance agreement under which
defendants retained control of the properties as landlords, but the tenants
were to pay rent directly to the bank.  
¶ 3.            
In July 2010, the parties stipulated to the appointment of a receiver to
collect rent for the bank.  The stipulation was executed by the parties
and signed by the court.  The stipulation enjoined defendant Barrett
Gregoire from interfering with collecting rent, and required the receiver to
report monthly to the bank and defendants.  It did not expressly require
any supervision by or report to the court.  In August 2010, the parties
stipulated to increase the receiver’s reimbursement apparently because the
receiver was required to collect rents in-person and was responding to more
complaints from tenants about the property than anticipated.
¶ 4.            
In October 2010, the receiver filed with the court a report, which
stated that defendant Barrett Gregoire was renting to new tenants and
collecting rents and security deposits without turning over the funds to the
receiver.[3] 
Shortly thereafter, the bank filed an emergency motion to enforce the
receivership order based on allegations that defendant Barrett Gregoire was
substantially interfering with the receivership and engaging in unscrupulous
conduct.  After a hearing, the court issued a supplemental order,
expanding the receiver’s authority and placing the receiver in full control of
the properties.  
¶ 5.            
In January 2011, the bank notified the court that the forbearance was no
longer in place, and that it would proceed with foreclosure.  The bank
filed the original stipulation to foreclose executed by defendant Barrett
Gregoire on April 23, 2010.  Over the next few months the parties signed
two stipulations resolving various issues arising from defendant Barrett
Gregoire’s alleged transgressions in connection with the rental properties,
including a stipulation in May 2011 pursuant to which Barrett Gregoire agreed
that he would stay 100 feet away from all of the apartment buildings, and that
he and his agents would have no contact with current or prospective tenants.
¶ 6.            
On June 27, 2011, the bank submitted an affidavit of amounts due,
including the receivership fees.  Three days later defendants
“conditionally” opposed the bank’s final accounting, arguing that the bank had
failed to produce all of the underlying documentation.  That same day,
they filed a motion to enforce a subpoena that defendants had issued to the
bank.  In the opposition to the bank’s accounting, defendants further
alleged that the receiver collected excessive fees, noting that the receiver
was unusually expensive, traveling monthly from Montana to Vermont for a few
days for a fee of $6000 per month in addition to monthly travel expenses of
roughly $2000 (which the bank had by that time opted to waive).
 Defendants argued that the bank had paid out over $90,000 in receivership
fees and costs during a time when receivership receipts were not timely applied
to real estate taxes and the bank was asserting that receivership income was
insufficient to meet expenses.  Defendants also claimed that the bank
workout loan officer was unqualified to administer the loans, and had been the
subject of several successful collection actions, most recently in March 2011
in Montana when a judgment was entered against her on allegations of not paying
her rent on a vacation home and removing therefrom personal property belonging
to the owner of the home.  The bank objected to the subpoena and requested
that defendants provide more specific details to support their allegations
against the workout officer and receiver.  
¶ 7.            
In resolution of these various discovery-related issues, in July the
parties agreed that defendants would withdraw all discovery requests, the bank
would provide further information to support its accounting and draft
foreclosure judgment order, and the parties would return to court on August 15,
2011 for a hearing on any objections to expenditures reflected in the bank’s
accounting.  Defendants were required to file any objections by August 8
so that the bank would be able to bring witnesses.  Defendants filed a
host of general objections to the bank’s accounting, arguing, among other
things, that the bank had not produced the required information, and that the
bank underreported collected rents.  
¶ 8.            
At the August 2011 hearing, defendants’ attorney set forth defendants’
allegations of misconduct, including claims that substantial receivership funds
had been paid to a relative of the bank’s loan officer for undocumented
accounting and painting services, and that $5000 had been paid from the
receivership to a company owned by the bank’s loan officer for undefined
consulting services.  In short, defendants argued that they had reason to
be suspicious that someone at the bank was improperly redirecting receivership
funds.
¶ 9.            
The court suspended the hearing to give the parties an opportunity to
negotiate.  The parties reached what the trial court described as a global
settlement of all disputes at that time for the purposes of the
foreclosure.  This agreement, which was signed by the court and entered as
an order (“the August 2011 stipulated order”), contained the following
provisions: defendants agreed to withdraw their objections to the amounts
claimed by the bank in the four cases; the parties agreed that the court could
enter judgment orders and decrees of foreclosure; the parties agreed that
public sale of each property could proceed and be confirmed by the court, with
no challenges to the deficiency amounts; and the parties agreed that the
deficiencies in the four cases would become the basis for a foreclosure of
another mortgaged property in New York. The stipulation specifically preserved
defendants’ ability to challenge the receiver’s actions, stating that the
foreclosure judgments would “have no preclusive effect as to the accuracy of
amounts set forth in the Affidavit of Amounts Due and the expenditures paid by
the receiver which may be challenged in a separate action.”  The court
approved the stipulation and entered a final judgment and decree of foreclosure
by judicial sale on August 25, 2011.[4] 
A certification of nonredemption was issued on October 18, 2011.  
¶ 10.         The
property did not go to auction, however, because in late October the parties
entered into a new stipulated forbearance agreement, which the court signed
(“the October 2011 stipulated order”).  Under this agreement, the public
auctions were stayed for one year and defendants were allowed to manage the
properties, but were required to make monthly payments toward a new long-term
payment schedule.  The agreement specified that if defendants failed to
make scheduled payments then the bank could file a notice of default with the
court and defendants could contest the default by affidavit within seven
days.  If contested, the stipulation provided that the court “shall
determine whether a default occurred and this shall be the only issue to be
determined.”  If no opposing affidavit was filed, or if the court found in
the bank’s favor in the event that default was contested, the stay would be
lifted and the property would go to auction.  If, on the other hand,
defendants avoided default, the foreclosure judgment and certification of
nonredemption would be vacated without prejudice.
¶ 11.         The
stipulation vacated the receivership and defendants regained control of the
properties and reassumed the role of landlord.  The stipulation also
expressly voided the provision of the August 2011 stipulated order in which the
parties had agreed to defer any disputes regarding the accounting, including
receiver expenditures, to a separate action after all of the foreclosures
sales.  Instead, the parties agreed that the foreclosure “shall have
preclusive effect as to the accuracy of the amounts due and the expenditures
paid by the Receiver, and they cannot be challenged in this action or in a
separate action.”  The October 2011 stipulated order thus resolved the
dispute relating to the receiver’s expenditures that had been brewing for
months.
¶ 12.         The
bank filed for default in July 2012, representing that defendants had made only
one payment under the October 2011 stipulated order.  The default was
extended by stipulation, but in January 2013, the bank again
filed for default, alleging that defendants were behind in their payments by
$12,479.72 and were delinquent in payment of taxes.  In response,
defendants did not challenge the fact that they were in default on the debt,
but asserted that there were misrepresentations in the agreement that led to
the stipulation.  In particular, defendants made two assertions, which
they claimed should excuse the default: first, that the bank had represented
that all properties were in good condition with taxes paid, and, in fact, there
were various problems with the properties; and second, that the receiver’s
expenditures were questionable.  
¶ 13.         Defendants
supplemented their allegations with an additional affidavit, which described in
more detail defendants’ allegations that the bank workout officer and the
receiver had colluded to siphon money from the receivership and defraud
defendants and the court.  Defendants then filed a motion to set aside the
foreclosure judgments, the October 2011 stipulated
order, and the order discharging the receiver.  The bank responded that
defendants had failed to make any credible claim in response to the default:
the affidavit did not challenge defendants’ default, and under the October 2011
stipulated order, the allegations of misconduct were waived.  
¶ 14.         The
court issued a lengthy written order in response to defendants’ motions.[5]  The trial court concluded that the
judgment orders and decrees of foreclosure issued pursuant to the August 2011
stipulated order were final judgments.  Treating defendants’ request as a
motion to set aside the August 2011 foreclosure judgment because of fraud, the
court concluded that the motion was untimely pursuant to Vermont Rule of Civil
Procedure 60(b)(3), which states that a motion for relief from judgment based
on fraud must be filed not more than one year after the judgment.  
¶ 15.         Considering
whether the fraud alleged in this case might be the kind of “fraud upon the
court” that would warrant relief from judgment even after one year pursuant to
Rule 60(b)(6), see Godin v. Godin, 168 Vt. 514, 518-19, 725 A.2d 904,
907-08 (1998), the court analyzed in depth the role played by the receiver in
this case.  The court explained that while a receiver is typically a
neutral party and an arm of the court, in this case neither the parties nor the
court treated the receivership as a “true receivership,” and the receiver was
not treated as an officer of the court.  For that reason, the court
rejected defendants’ argument that the alleged fraud could be fairly
characterized as a fraud upon the court.  
¶ 16.         The
court also held that there were no grounds to allow defendants to avoid the
terms of the October 2011 stipulated order.  Pointing to the fifteen-month
delay between the October 2011 stipulated order and
defendants’ resumption of management of the property and defendants’
allegations about the condition of the property and effort to avoid the terms
of that order, the court concluded that any claim for relief from the October
2011 stipulated order was untimely.  If the October 2011 stipulated order
was a final judgment such that Rule 60 controls, defendants were out of time for
the same reasons as with respect to the August 2011 stipulated order. 
Alternatively, if the court considered the October 2011 stipulated order on the
basis of contract law, defendants lost any ability to avoid the contract on the
basis of the bank’s claimed misrepresentations as to the condition of the
properties by engaging in conduct manifesting an affirmance of the agreement
over the course of fifteen months.  See Restatement (Second) of Contracts
§ 380 (1981).  Because defendants had not challenged their default on the
loans pursuant to the terms of the October 2011 stipulated order, the court
found default and entered a writ of possession in favor of the bank.[6]  
¶ 17.         Defendants
filed motions to reconsider, which the court denied.  Defendants then
filed a request for permission to appeal, which was also denied.  This
Court accepted defendants’ request to consider the motions as a notice of
appeal, and subsequently granted defendants’ request for a stay of the
sales.  
¶ 18.         Defendants’
arguments on appeal require us to examine both the August 2011 stipulated order
and ensuing foreclosure judgments and the October 2011 stipulated order. 
With respect to the former, defendants argue that the foreclosure judgments
arising from the August 2011 stipulated orders were not final, and could thus
be revised pursuant to Vermont Rule of Civil Procedure 54(b) without resort to
post-judgment motions.  In the alternative, defendants argue that the
court abused its discretion in denying relief from the foreclosure
judgments.  Finally, defendants argue that even if the court does not
disturb the August 2011 stipulated order and resulting foreclosure judgments,
the court cannot find a default and lift the stay pursuant to the October 2011
stipulated order because that agreement is voidable for fiduciary abuse and/or
duress, and because defendants should have an opportunity to prove that their
performance under that agreement was excused by failures on the part of the bank.  
We consider these arguments in turn.  
I. Finality of Foreclosure Judgments
¶ 19.        
Defendants first argue that the foreclosure judgments were not final and
therefore could be amended pursuant to Rule 54(b).  Whether there was a
final judgment is a question of law, which we consider de novo.  In re Estate of Kurrelmeyer, 2010 VT 20, ¶ 10, 187 Vt. 620,
992 A.2d 316 (mem.) (stating that pure
questions of law are reviewed de novo).  A final order is one that “end[s]
litigation on the merits or conclusively determine[s] the rights of the
parties, leaving nothing further for the court to do but execute the
judgment.”  Town of Randolph v. Estate of White, 166 Vt. 280, 283,
693 A.2d 694, 695 (1997); see V.R.C.P. 54(a) (defining judgment as “any order from
which an appeal lies”).  
¶ 20.         In
evaluating whether the foreclosure judgments arising from the August 2011
stipulated order were final, we bear in mind three considerations particular to
foreclosure judgments.  First, a foreclosure decree is a final judgment
even if a right to redeem exists, and even if further proceedings ancillary to
the foreclosure itself are contemplated.  Mortg.
Lenders Network, USA v. Sensenich, 2004 VT 107A, ¶ 7, 177 Vt. 592, 873 A.2d 892

(mem.).  Second, a party seeking to appeal a foreclosure
judgment must seek permission to appeal within ten days “of the date of the
entry of the judgment or order to be appealed from.”  V.R.C.P.
80.1(m).  Third, as generally reflected by the above authority, we
have recognized a strong legislative policy favoring the finality of
foreclosure judgments.  See Woodbine Condo. Ass’n v.
Lowe, 174 Vt. 457, 458,
806 A.2d 1001, 1003 (2002) (mem.) (explaining
that Rule 60(b) cannot be used to circumvent requirement of seeking permission
to appeal foreclosure decree because of legislative policy promoting finality
of foreclosure judgments).  
¶ 21.         In
light of these considerations, we conclude that the August 2011 foreclosure
orders were final, unappealed judgments.  Citibank,
N.A. v. Groshens, 171 Vt. 639, 640, 768 A.2d 1272, 1273 (2000) (mem.)
(dismissing appeal from court’s denial of motion to
reopen foreclosure judgment because of legislative policy promoting finality of
foreclosure judgments).  
¶ 22.         Defendants
do not dispute the general rule that foreclosure judgments are final,
appealable judgments, but argue that in this case the subsequent October
2011 stipulated order effectively canceled the sales, stayed the actions, and
indicated that the foreclosure judgments might be vacated.  We reject this
argument.  The parties filed the October 2011 stipulated order well after
the expiration of the time for requesting an appeal of the foreclosure
judgments.  By that time, the judgments were final and could only be set
aside pursuant to Rule 60(b).  Although the October 2011 stipulated order
stayed a public auction, and contemplated a future scenario in which a court
might vacate the foreclosure judgments upon the satisfaction of certain
conditions, that stipulated order did not itself vacate the foreclosure
judgments.  In fact, the order expressly contemplated that the foreclosure
judgments would remain in place so that the only remaining issue would be
defendants’ compliance with the new payment plan, and provided that upon
default, the court would lift the stay and the property would go to
auction.  Accordingly, we cannot construe the October 2011 stipulated
order as in any way altering the finality of the August 2011 foreclosure
judgments.
II.  Rule 60(b) Motion
¶ 23.         Because
the foreclosure decrees were final judgments, defendants’ only avenue for
relief from the foreclosure judgments is Rule 60(b).  Defendants argue
that the bank’s fraud—and in particular, the alleged collusion between the
bank’s loan officer and the receiver to redirect receivership assets for
nonreceivership purposes—supports its request for relief.  The trial court
has discretion in determining a request for relief under Rule 60(b), and this
Court will not reverse absent an abuse of that discretion.  Lyddy v. Lyddy, 173 Vt. 493, 497, 787 A.2d 506, 513 (2001)
(mem.).  In evaluating defendants’ claims, we accept as true
defendants’ allegations in their pleadings that the receiver and the bank
workout officer colluded to divert funds to relatives and to enrich themselves
through excessive fees and expenses.  
¶ 24.         Defendants’
request for relief rests on their assertion that the receiver engaged in
fraud.  Among other grounds, a court may grant relief under Rule 60 for “fraud . . . , misrepresentation, or
other misconduct of an adverse party.”  V.R.C.P. 60(b)(3). 
A motion based on fraud must be made within one year after the judgment or
order was entered.  V.R.C.P. 60(b).  Because
defendants’ motion was filed more than a year after the foreclosure judgment
was entered, the court correctly ruled that defendants’ motion based on fraud
under Rule 60(b)(3) was time barred.  See Godin,
168 Vt. at 517, 725 A.2d at 907 (holding that fraud
claim filed six years after date of judgment was time barred).
¶ 25.         Under
Rule 60(b)(6), relief from judgment may also be
granted for “any other reason justifying relief from the operation of the
judgment.”  This rule is designed to “prevent hardship or injustice,” but
the interest of finality limits when relief is available.  Riehle v. Tudhope, 171 Vt. 626, 627, 765 A.2d 885, 887
(2000) (mem.).  Relief under Rule 60(b)(6)
is available only when the proffered basis for relief—in this case fraud—is not
encompassed within the other provisions of the rule.  Pierce
v. Vaughan, 2012 VT 5, ¶ 10, 191 Vt. 607, 44 A.3d 758 (mem.). 
¶ 26.         Although
the general rule bars relief from judgment on account of fraud more than a year
after a final judgment, defendants invoke a narrow exception for when the fraud
in question is fraud upon the court.  Rule 60(b) itself recognizes that
there is no limit to “the power of a court to . . . set
aside a judgment for fraud upon the court.”  V.R.C.P.
60(b).  Fraud upon the court is a narrow doctrine, encompassing
only that fraud, which “does or attempts to[] defile
the court itself, or is a fraud perpetrated by officers of the court so that
the judicial machinery cannot perform in the usual manner its impartial task of
adjudging cases.”  Godin, 168 Vt. at 519, 725
A.2d at 908 (quotation omitted).  It is reserved for “the most
egregious misconduct directed to the court itself” and “must be supported by
clear, unequivocal and convincing evidence.”  Id. (quotation
omitted).
¶ 27.         Even
if we accept defendants’ characterization of their claim as one of fraud upon
the court, we conclude it was untimely filed.  In so doing, we make no
judgment on the merits of the claim itself.  A Rule 60(b)(6)
motion must be brought within a reasonable period of time, and the trial court
has discretion in determining whether the delay was reasonable.  Greenmoss Builders, Inc. v. Dun & Bradstreet, Inc., 149
Vt. 365, 368-69, 543 A.2d 1320, 1323 (1988).  Only extraordinary
circumstances will justify a party’s failure to seek more timely relief. 
See Riehle, 171 Vt. at 630, 765 A.2d at 889. 

¶ 28.         Defendants
first raised questions about the loan officer and receiver in their June 2011
objection to the bank’s accounting.  At the August 2011 hearing,
defendants laid out their allegations in more detail, and specifically argued
that the bank had not provided them the necessary information to investigate
the conduct of the receivership more thoroughly.  The court was prepared
to schedule a hearing on defendants’ objections at that time, but defendants
instead entered into a settlement agreement pursuant to which they stipulated
to the foreclosures, preserving their claims about the alleged malfeasance in
the receivership for resolution at another time and in another forum.  At
the hearing, after the parties’ reached their agreement, the court questioned
defendant Barrett Gregoire, who confirmed that he had a sufficient opportunity
to confer with his lawyer concerning the stipulation and that the compromise
agreement was one that he wanted.  
¶ 29.         Two
months later, defendants relinquished those claims altogether in exchange for a
second chance to manage the properties, with the possibility of resuming
ownership.  Despite notice of the potential malfeasance, and multiple
opportunities in court, defendants pursued neither their objections, nor their
request for discovery to investigate more thoroughly.  Instead, they opted
to give up those claims, and to treat the foreclosure judgments as preclusive
as to the amounts due and expenditures paid by the receiver, in exchange for
terms they apparently found advantageous.  
¶ 30.         Defendants
did not raise or pursue the fraud claims again until January 2013, when the
bank sought to lift the stay on account of defendants’ default on the new loan
terms.  Although defendants provided more detail to support the
allegations at that time, as the trial court noted, “the nature of [defendants’
January 2013] allegations, though more detailed as to the backgrounds of the
workout loan officer and the receiver, all appear to be generally within the
scope of [defendants’] earlier objections.”  In the context of its
contract law analysis, the trial court concluded that, as a matter of law,
defendants “plainly failed to raise [these] issues within a reasonable time.”
 We agree, and conclude that this conclusion applies with equal force to
defendants’ request for relief from judgment.  See Riehle, 171 Vt.
at 627, 765 A.2d at 887 (explaining that Rule 60 is not intended to provide
relief from a party’s “tactical decision or from some other free, calculated,
and deliberate choice of action”). 
¶ 31.         We
reject defendants’ assertion that their delay should be excused because they
were pro se during periods of the receivership.  First, the record reveals
that defendants were represented throughout much of the critical period
involved.  Counsel entered an appearance in February 2011, and represented
defendants throughout the hearings and negotiations leading to the August and
October 2011 stipulations.  Counsel did not withdraw until December
2011.  Further, any period of pro se representation does not alleviate
defendants’ responsibility to bring their claims to the court in a reasonable
time.  See Vahlteich v. Knott, 139 Vt. 588, 590-91, 433 A.2d 287

(1981) (observing that while this Court affords greater flexibility to pro se
litigants, “[t]his does not mean that [they] are not bound by the ordinary rules of civil procedure”).  Defendants had full
knowledge of the alleged improprieties of the receiver and chose, with the full
advice of counsel, to execute stipulations to resolve their disputes with the
bank.  The court did not abuse its discretion in concluding that
defendants were not entitled to relief under Rule 60(b)(6).[7]
III.
October 2011 Stipulated Order and Basis for Default Entry
¶ 32.         Under
the terms of the October 2011 stipulated order, foreclosure sales were stayed
for one year during which defendants were given control over the
properties.  The stipulated order provides that if defendants fail to make
scheduled payments, the bank can file a notice of default and “[t]he Court
shall determine whether a default occurred and this shall be the only issue to
be determined.”  Defendants do not challenge the fact that they failed to
make payments; rather, they claim that the terms of the October 2011 stipulated
order are not enforceable because that agreement was a product of fiduciary
abuse and made under duress.[8] 

¶ 33.         Even
accepting defendants’ allegations at face value, we conclude that defendants
have failed to provide grounds for invalidating the stipulated order. 
Certainly, where fraud or misrepresentation induces entry into a contract, “the
deceived party may seek the remedy of being excused from the contract through
rescission, or [may seek] the damages occasioned by the fraud.”  Negyessy v. Strong, 136 Vt. 193, 194, 388 A.2d 383, 385
(1978) (per curiam).  That power is lost,
however, if the party knows of the mistake and affirms the contract even with
knowledge of the misconduct or misrepresentation.  The Restatement
(Second) of Contracts provides:
  (1) The
power of a party to avoid a contract for incapacity, duress, undue
influence or abuse of a fiduciary relation is lost if, after the
circumstances that made the contract voidable have ceased to exist, [the party]
manifests to the other party [an] intention to affirm it or acts with respect
to anything that [the party] has received in a manner inconsistent with
disaffirmance.
 
  (2) The
power of a party to avoid a contract for mistake or misrepresentation is
lost if after [the party] knows or has reason to know of the mistake or of the
misrepresentation if it is non-fraudulent or knows of the misrepresentation if
it is fraudulent, [the party] manifests to the other party [an] intention to
affirm it or acts with respect to anything that [the party] has received in a
manner inconsistent with disaffirmance.
 
Restatement (Second) of Contracts
§ 380 (emphases added).[9] 

¶ 34.         Here,
the record reflects that defendants had a basis for making claims of
impropriety and fraud by the receiver and the bank’s loan officer prior to
entering the October 2011 stipulated order.  The allegedly fraudulent
actions could not have induced their entry into the contract because defendants
had already flagged the actions in court well before negotiating the October
2011 stipulated order.  Having entered into the contract well aware of the
alleged fraud, defendants retained no power to avoid the contract based on
those allegations.  
¶ 35.         To
the extent that defendants’ claims relate to alleged misrepresentations by the
bank as to the condition of the properties as of October 2011, as opposed to
the bank’s role in the alleged fraudulent conduct of the receivership,
defendants have likewise forfeited their ability to challenge the agreement.
 By taking possession of the properties and managing them pursuant to the
October 2011 stipulated order, defendants thereby affirmed the contract. 
Defendants then failed to assert any impropriety, sitting on their claims for
well over a year after they were undeniably in a position to assess the
properties firsthand. 
¶ 36.         Defendants
assert that their knowledge of the misconduct does not remove their ability to
invalidate the October 2011 stipulated order because the bank was a fiduciary
of defendants and its abuse of that position through the receiver’s actions
meant that any contract had to be approved by the court as fair.  See
Restatement (Second) of Contracts § 173 (explaining that contract between
fiduciary and beneficiary is voidable by beneficiary unless it is fair and
parties “assent with full understanding of their legal rights and of all
relevant facts”).  There is no merit to this argument because any
fiduciary duties the bank may have had at one time to defendants in this case
were terminated prior to the parties’ October 2011 stipulation.  A
borrower-lender relationship is insufficient in itself to create a fiduciary
relationship.  See McGee v. Vt. Fed. Bank, FSB, 169 Vt. 529, 530, 726 A.2d
42, 44 (1999) (mem.) (holding in response to claim that bank breached fiduciary duty by failing to disclose to
mortgagors that insurance required by bank had lapsed,
that “record revealed nothing but a debtor-creditor relationship
between the parties” and fiduciary relationship
was not born of such an arrangement).  A fiduciary relationship results
when the relationship between the parties “ripen[s] into one in which defendants [are] dependent on, and reposed trust and
confidence in, [the bank] in the conduct of their affairs.”  Capital Impact Corp. v. Munro, 162 Vt. 6, 10, 642 A.2d 1175,
1177 (1992).  At the time of the October 2011 stipulation,
defendants had been involved in litigation with the bank for a year and a
half.  The close relationship of trust and confidence necessary to
establish a fiduciary relationship did not exist between the parties.
¶ 37.         In
short, by entering into the contract, and accepting its benefits for well over
a year despite their knowledge of the alleged abuse of fiduciary duty and
duress, defendants forfeited any ability to avoid the contract on those bases.
¶ 38.         Finally,
defendants argue that they should have an opportunity to prove that their lack
of performance under the October 2011 stipulated order was excused by failures
on the part of the bank.  The alleged misrepresentations and breaches of
the agreement by the bank that defendants contend excuse their performance are
the same ones noted above—the alleged fraudulent collusion with the receiver
and the alleged misrepresentations concerning the condition of the properties
at the time of the October 2011 stipulated order.  As explained above, the
alleged fraud was known to defendants before they entered into the October 2011
stipulation; it cannot constitute a failure by the bank to perform under the
agreement that excuses defendants’ default.  Likewise, the bank’s alleged
misrepresentations concerning the condition of the properties before defendants
entered into the October 2011 stipulation might have provided a basis for
avoiding the contract if not for defendants’ subsequent affirmation of the
contract, but they do not constitute a failure by the bank to perform its
duties under the contract and therefore cannot excuse defendants’ lack of
performance.  
Affirmed.
 
 

 

 

FOR THE COURT:

 

 

 

 

 

 

 

 

 

 

 

Associate
  Justice

 

[1] 
The loans financing the properties were held by RBS Citizens, N.A. at the time
the foreclosure actions were filed.  In January 2013, TBF Financial, LLC
was substituted as a party after it purchased the debt from RBS.  Both
entities are referred to as “the bank” in this decision.

[2]
 As set forth in more detail below, the underlying facts, stipulations and
court orders in the Washington and Caledonia Superior Court actions are
substantially intertwined, and the issues on appeal are identical.  For
that reason, we have consolidated the appeals.  V.R.A.P. 3(c)(2).
 

[3]
 The trial court noted that, although this report purports to be from the
receiver, it was signed and submitted to the court by the bank through its own
counsel.  This was true with respect to all reports of the receiver filed
in this case.

[4] 
In the Caledonia County docket, the judgment of foreclosure was entered on
October 5, 2011.  

[5] 
The order was entered in the Washington County dockets.  The Caledonia
County court denied defendants’ motions in a single-sentence order, citing to
the Washington County decision.

[6] 
Separate orders were entered in the three Washington County dockets and the
Caledonia County docket.  

[7]
 Because we affirm the trial court’s judgment on the basis of the
untimeliness of defendants’ motion for relief from the foreclosure judgments,
we need not address the question of whether the receiver in this case could
properly be characterized as an officer of the court.  See Bissonnette
v. Wylie, 166 Vt. 364, 370, 693 A.2d 1050, 1055 (1997) (“We agree with the
trial court’s conclusion, but use a different rationale to reach it.”).
 

[8]
 Defendants’ arguments do not support the primary relief they seek—an
order vacating the foreclosure decrees.  Given the final, unappealed
foreclosure judgments, the only thing standing between defendants and a public
auction is the October 2011 stipulated order reflecting the bank’s forbearance
and staying sale of the properties.  If defendants succeeded in voiding
the October 2011 stipulated order on either of the bases alleged, the
foreclosures would remain intact and the public sales would proceed.  

[9]
 See also id. § 381(1) (“The power
of a party to avoid a contract for incapacity, duress, undue influence or abuse
of a fiduciary relation is lost if, after the circumstances that made it
voidable have ceased to exist, [the party] does not within a reasonable time
manifest to the other party [an] intention to avoid it.”); id.
§ 381(2) (“The power of a party to avoid a
contract for misrepresentation or mistake is lost if after [the party] knows of
a fraudulent misrepresentation or knows or has reason to know of a
non-fraudulent misrepresentation or mistake [the party] does not within a
reasonable time manifest to the other party [an] intention to avoid it.”).