Court Opinion

ID: 3156561
Source: CourtListenerOpinion
Date Created: 2015-11-20 20:01:04.121847+00
Date Added: 2024-06-11T11:59:00.426517
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 14-1853

FIRST SOUTH BANK,

                Plaintiff - Appellant,

           v.

FIFTH THIRD BANK NA, d/b/a Fifth Third Bank, formerly known
as First Charter Bank, formerly known as First Charter
Corporation; FIRST CHARTER BANK; FIRST CHARTER CORPORATION,

                Defendants - Appellees.

                             No. 14-1917

FIRST SOUTH BANK,

                Plaintiff - Appellee,

           v.

FIFTH THIRD BANK NA, d/b/a Fifth Third Bank, formerly known
as First Charter Bank, formerly known as First Charter
Corporation; FIRST CHARTER BANK; FIRST CHARTER CORPORATION,

                Defendants - Appellants.

Appeals from the United States District Court for the District
of South Carolina, at Spartanburg.    Mary G. Lewis, District
Judge. (7:10-cv-02097-MGL)

Argued:   October 28, 2015              Decided:   November 20, 2015
Before NIEMEYER and MOTZ, Circuit Judges, and M. Hannah LAUCK,
United States District Judge for the Eastern District of
Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Robert F. Goings, GOINGS LAW FIRM, LLC, Columbia, South
Carolina, for Appellant/Cross-Appellee.       William H. Hurd,
TROUTMAN SANDERS, LLP, Richmond, Virginia, for Appellees/Cross-
Appellants.   ON BRIEF: Joel W. Collins, Jr., COLLINS AND LACY,
P.C., Columbia, South Carolina, for Appellant/Cross-Appellee.
Frank H. Gibbes, III, GIBBES BURTON, LLC, Spartanburg, South
Carolina; Alan J. Statman, STATMAN HARRIS & EYRICH LLC,
Cincinnati, Ohio, for Appellees/Cross-Appellants.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

      Pursuant to the invitation of a Charlotte, North Carolina,

branch of Fifth Third Bank, ∗ First South Bank, of Spartanburg,

South Carolina, agreed to participate with Fifth Third in the

$11   million    financing    of    a   real     estate    project   in   Lincoln

County,   North      Carolina,     by    providing        $4   million    of   the

financing.      The project, which involved the construction of 204

lots for single family houses, was being developed by Burton

Creek Investment, LLC.

      Fifth Third represented in documents given to First South,

among other things, that 79% of the lots had been prepurchased;

that Burton Creek was required, as a condition of the loan, to

provide   “letters     from   the       applicable      utility   companies      or

governmental authorities confirming that all utilities necessary

for the Improvements [on the 204 lots] [were] available at the

Land in sufficient capacity, together with evidence satisfactory

to Bank of paid impact fees, utility reservation deposits, and

connection    fees   required      to   assure    the     availability    of   such

services”; that the five individual partners of Burton Creek

would guarantee the loan; and that Carlton and Carol Tyson, the

      ∗Fifth Third Bank is the successor by a June 2008 merger
with First Charter Bank, of Charlotte, North Carolina, and
before then, First Charter was the bank involved in the
transactions in this case. For clarity, we refer to Fifth Third
and First Charter collectively as Fifth Third.

                                         3
parents of one of the partners, would provide a limited guaranty

for $2.1 million.          Through a participation agreement between

Fifth Third and First South, Fifth Third, as lead lender, agreed

to   obtain   at     closing   the    executed      guaranty     agreements     and

evidence of the utility approvals.

     The loan closed on March 8, 2007, and the closing documents

represented that Fifth Third received both the utility approvals

and executed guaranty agreements.                Shortly after closing, Fifth

Third disbursed roughly $5 million of the loan to Burton Creek,

and after First South received a package of closing documents,

it disbursed roughly $1.85 million.                While the closing package

did not contain a copy of the Tysons’ Guaranty Agreement, Fifth

Third later provided First South with a copy that was dated and

executed before a notary public on March 8, 2007, the date of

closing.      And while the closing package did not contain the

utility approval letters, Fifth Third indicated on the closing

checklist that they had been received.

      In January 2008, as the national economy began to collapse,

Burton Creek informed Fifth Third that the prepurchasers of the

lots began to back out, stalling the project.                        Also, Burton

Creek   advised    Fifth   Third     that    Lincoln    County      officials   had

reduced the sewer taps available by more than one-half, to 74

lots.      Several    months   later,       in    October   2008,    Fifth   Third

declared Burton Creek in default.

                                        4
        As it turned out, the developer Burton Creek had been told

before closing that because of demands on the Lincoln County

sewer system, the County would have to reduce significantly the

number of sewer taps it could approve for the project.                                    As a

consequence,      Fifth       Third   never      received          evidence      of     Lincoln

County’s utility approvals for 204 lots, as represented in the

closing    documents.          In   addition,         it    turned       out    that    Carlton

Tyson never executed the $2.1 million loan Guaranty Agreement as

represented by Fifth Third.               Fifth Third had a notary in its

office witness the Tysons’ signatures, but the notary stated at

trial that the Tysons never appeared before her to sign the

documents;      she     was   simply     presented          with     a    signed       copy   to

notarize.        Indeed, an email exchange between Fifth Third and

Burton Creek a few days after the closing indicated that the

Tysons’ Guaranty Agreement had not then been executed, despite

the closing date that appeared on the notarization.                              And Carlton

Tyson    testified      at    trial    that      he    never       signed       the    Guaranty

Agreement, that he did not authorize anyone to sign it on his

behalf, and that the signature on the Guaranty Agreement was not

his.

        First   South    commenced      this      action       and,      with     its    second

amended     complaint,        alleged,    among            other    claims,       breach      of

contract, fraud, and violation of the North Carolina Unfair and

Deceptive       Trade    Practices     Act       (“NCUDTPA”),            N.C.    Gen.     Stat.

                                             5
§ 75-1.1.        In its prayer for relief, First South sought, among

other relief, both rescission and damages for breach of contract

and fraud.

     Before trial, the district court advised First South that

First South could not “have it both ways” -- i.e., that it could

not both affirm the contract and thereby claim damages for its

breach and for fraud in the inducement and at the same time

rescind the contract.        First South elected rescission, demanding

only that the monies it had advanced be restored to it less

credits     it    had   already   received,   a   sum   that   the   parties

stipulated was $2,764,232.46.         The parties also agreed that the

court, not the jury, would try the NCUDTPA claim, based on the

jury verdict.

     The jury returned a verdict in favor of First South and

awarded it the stipulated amount of $2,764,232.46.             Because the

district court concluded, among other things, that the jury was,

with that award, effecting rescission and not awarding damages,

it ruled against First South on its NCUDTPA claim, which allows

treble damages only with respect to an award of damages.                 See

Winant v. Bostic, 5 F.3d 767, 776-77 (4th Cir. 1993).                   More

particularly, the court concluded first that South Carolina law

applied to this action and therefore First South did not have a

claim under NCUDTPA, a North Carolina law.              It also concluded

that even if First South had made a claim under the analogous

                                      6
South Carolina Unfair Trade Practices Act (“SCUTPA”), it failed

to    prove    “actual       damages,”       as   required         under    the    SCUTPA    to

obtain treble damages.                 See S.C. Code Ann. § 39-5-140.                       The

court    noted    that       instead    of    seeking        “actual       damages,”      First

South only sought rescission.                 Finally, the court concluded that

if the NCUDTPA applied, again First South did not seek damages,

but    rather    rescission,       precluding           it    from       recovering      treble

damages under the specific language of the NCUDTPA.                               See Winant,

5 F.3d at 776-77.

       First South appealed and now contends that the district

court erred in ruling against it on the NCUDTPA claim, arguing

that    the    jury    awarded    it     damages,        thus      justifying       a    treble

damages award for the fraud that the jury found.                                  First South

also contends that the district court erred in refusing to award

it     prejudgment       interest.            Fifth     Third          cross-appealed       and

contends       that    the    evidence       against         it    was     insufficient      to

support the jury’s verdict on fraud and breach of contract and

that the district court erred in granting First South roughly

$8,000    in    experts’       costs     when     the    experts          themselves      never

testified at trial.

       The principal issue in this case centers on whether First

South elected rescission and whether the consequences imposed by

the court on it because of that election were appropriate.                                   In

essence,       First     South     contends         that          it     elected    to     seek

                                              7
“rescissionary damages” and that the jury in fact gave it what

it   requested,      filling     in   its        verdict     on     a    line    labeled

“damages.”     It points out that throughout the proceedings, it

referred     repeatedly     to      its     claim     for     “damages,”         thereby

suggesting that it was not in fact pursuing rescission.

     While the language used by First South’s attorneys -- i.e.,

“rescissionary damages” -- was peculiar, the record supports the

district   court’s     conclusion         that    First     South       indeed   elected

rescission and that the case was presented, argued, and decided

as a rescission case.            First, before trial, the court advised

First South that it had to make an election:

     I’ve said this before. I think there’s going to have
     to be an election. I don’t think you can sue and say
     put me back where I would be if the contract hadn’t
     even happened.  I want all my money back.  Oh, and I
     also want damages for breach of that contract that I
     basically want nullified.  I don’t think you can do
     both of those.

In   response,    First     South     elected       rescission,         stating,     “Our

damages are purely, one hundred percent rescissionary damages,

whether or not it’s a breach of contract or it’s fraud.”                            After

explaining    that    its    claim        for    “rescissionary          damages”     was

essentially a claim for “rescission,” First South left no doubt

about this, stating:

     The damages we seek are essentially our money back and
     to restore us in the position we were prior to signing
     the contract.   We’re not seeking actual damages that
     are above rescission or our money back.     The proper
     measure of damages encompasses damages to restore

                                           8
     First South Bank in a condition in its original place
     as if the misrepresentations and the fraud and the
     material breach had not occurred and that the
     agreement had not been reached.

(Emphasis added).   Not only was the election unambiguous, the

case was thereafter presented to the jury as a rescission case,

and First South never placed that fact in question.   When First

South presented its case to the jury after presenting all the

evidence, it directed the jury to the line of the verdict form

labeled “damages” and explained, “And the damages are, simply

put, our money back.    We’re not asking for anything more or

anything less than a refund.     And this is the amount of the

refund.”   Finally, the district court, without any objection

from First South, instructed the jury on rescission, stating:

     [T]he plaintiff had to prove . . . that the plaintiff
     timely elected to cancel the contract.

                           *    *    *

     [T]he plaintiff must show that the plaintiff has
     restored to, offered to restore to, credited or in a
     position to restore so much of the consideration it
     received from the defendant as would be fair and
     equitable under the circumstances. Once a contract is
     canceled, both the plaintiff and the defendant must be
     returned to same relative positions they occupied
     immediately preceding the formation of the contract.

                           *    *    *

     As I stated earlier, the plaintiff in this case seeks
     recovery in the form of rescission. Specifically, the
     plaintiff seeks to recover back the monies it has
     parted with because of the contract at issue.

                                9
And consistent with rescission, the parties agreed to the amount

of refund -- the amount that First South parted with -- and the

jury,    in   finding       for    First   South,     awarded       that    stipulated

amount.

       Because First South pursued its case for rescission and the

jury award represented the refund of what it had advanced, it

did not receive a damage award.                 Yet a damage award is what is

necessary     to       receive    an   award    of   treble      damages    under     the

NCUDTPA.      See Winant, 5 F.3d at 776-77 (“By the terms of [N.C.

Gen.    Stat.]     §    75-16,    only   ‘if    damages    are    assessed’      is   the

amount     trebled.         Because      damages     were     not     assessed,       but

rescission elected, we conclude the amount should not have been

trebled”).         Similarly,      a   plaintiff     may   only     bring   an   action

under the SCUTPA “to recover actual damages.”                      S.C. Code Ann. §

39-5-140; see also Fields v. Yarborough Ford, Inc., 414 S.E.2d

164, 166-67 (S.C. 1992) (explaining that a plaintiff must prove

it suffered “actual damages” to recover under the SCUTPA, and

that because the “two remedies [an action for damages and an

action for rescission] are inconsistent,” the plaintiff “cannot

in the one form of action secure the relief appropriate to the

other” (alteration in original) (internal quotation marks and

citation omitted)).

       In short, we conclude that the district court correctly

found that First South had elected rescission and thereby waived

                                           10
its claims for damages.         The court also correctly concluded that

First South’s unfair trade practices claim, under either the

NCUDTPA or the SCUTPA, must therefore fail.

     We also reject First South’s argument that the district

court improperly denied its claim for prejudgment interest.                   The

district court noted that prejudgment interest of $231,467.22

was included in the sum to which First South stipulated at trial

as the amount of refund due it.             The court correctly explained

that because the stipulated sum included interest, any award of

additional prejudgment interest would amount to a windfall.

     As    to    Fifth   Third’s    cross-appeal,      Fifth   Third    contends

first that the evidence was insufficient to support the jury’s

verdict.        We reject this argument.        Our review of the record

shows that ample testimony was presented to support the verdict.

In essence, the jury could well have found that Fifth Third

deliberately deceived First South into believing that at closing

Fifth Third had received letters approving utilities and the

properly    executed     $2.1   million     Guaranty    Agreement      from   the

Tysons, when in fact it had received neither and it knew or was

reckless in not knowing that it had received neither.                     These

false representations were material to the risk that First South

believed it was accepting in entering into the participation

agreement.         The   evidence    showed   that     without   the    utility

                                       11
approvals and the $2.1 million guaranty from the Tysons, First

South would not have participated in the $11 million financing.

     Finally, on Fifth Third’s claim that the district court

erred in assessing the costs of expert witnesses because the

experts    never      testified,    we   affirm    the   district    court.      The

court    did    not   impose   costs     incurred    for   expert    testimony   at

trial,    but    rather    for     testimony      obtained   in     responding    to

discovery.      See Fed. R. Civ. P. 26(b)(4)(E).

     Accordingly, the judgment of the district court is

                                                                         AFFIRMED.

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