Court Opinion

ID: 9514600
Source: CourtListenerOpinion
Date Created: 2023-08-06 22:50:37.893256+00
Date Added: 2024-06-11T09:06:19.156738
License: Public Domain

KONENKAMP, Justice
(dissenting).
[¶ 32.] Were it not for settled law, I would be drawn to join the majority, for its decision touches a gallant chord. Not that the majority disregards the law — instead, it broadly expands the rules on fiduciary *601duties. In doing so, it reaches almost operatic expediency. Formidable obstacles fall away and unexpected forces achieve a climactic rescue. To fulfil this triumph, the bank transforms unwittingly into a trustee for its borrowers, customer confidentiality vanishes, and twelve jurors, who found no fault in the bank’s conduct, are banished with their verdict to make way for the majority’s new benevolence. As Justice Hugo Black once remarked, “the holding in this case today makes it more necessary than ever that we stop and look more closely at where we are going.”5
[¶ 33.] To look where we are going, let us begin by confirming that, at least until today, not every bad loan and business misfortune creates an occasion for a new fiduciary duty. And however much one may question First Fidelity’s involvement in this sale, the jury, after hearing all the pejoratives the majority now dwells on, still rejected the Buxcels’ claims for fraud, misrepresentation, negligence, and breach of the implied covenant of good faith and fair dealing. In this appeal, no one claims that the instructions defining those causes of action were defective. What is more, the jury had in hand the bank records the majority says the Buxcels should have had before making their purchase decision. Nevertheless, the jurors were unconvinced. We are thus to decide only if the bank had some distinct obligation to disclose to the Buxcels its financial data about the Fabers.
[¶ 34.] No rule cited to us imposes on banks a general duty to disclose to its customers information about its other customers. As I see it, then, and as counsel argues the matter, any such duty must arise from some special connection beyond ordinary debtor-creditor relations. The majority finds such a connection by extending the fiduciary duty concept beyond rational limits. Yet “[t]he virtually unanimous rule is that creditor-debtor relationships rarely give rise to a fiduciary duty.” United Jersey Bank v. Kensey, 306 N.J.Super. 540, 704 A.2d 38, 44 (N.J.Super.Ct.App.Div.1997) (citations omitted).
[¶ 35.] This Court now holds that a bank must voluntarily disclose to a borrower unrequested financial data on another borrower. Bank customers are shielded from undue government intrusion through the Bank Secrecy Act and the Right to Financial Privacy Act. See 31 U.S.C.A. § 5313 and 12 U.S.C. § 3403(c). But after today, no law will apparently protect customers in South Dakota if, to avoid a lawsuit, a bank decides to reveal a customer’s financial secrets to another customer. In its haste to heave the curtain, the majority brooks no legal impediment. Many jurisdictions, however, hold banks to an implied contractual duty to keep financial information about borrowers confidential. See Edward L. Raymond, Jr., J.D., Annotation, Bank’s Liability, Under State Lato, For Disclosing Financial Information Concerning Depositor or Customer, 81 A.L.R.4th 377 (1990); see also Peoples Bank of Virgin Is. v. Figueroa, 559 F.2d 914, 917 (3dCir.1977) (bank could not make unauthorized disclosure of customer’s financial information “without breaching duties of confidentiality and privacy”); Roth v. First Natl State Bank of New Jersey, 169 N.J.Super. 280, 404 A.2d 1182, 1184 (1979), cert. denied, 81 N.J. 338, 407 A.2d 1212 (1979) (stating “there is a generally recognized obligation of confidentiality in respect of a depositor’s financial relationship with a bank.”); In re Addonizio, 53 N.J. 107, 248 A.2d 531, 546 (N.J.1968) (bank may have contractual obligation to keep customer transactions confidential, but must comply with subpoena); Roy Elbert Huhs, Jr., To Disclose or Not to Disclose Customer Records, 108 Banking LJ 30 (1991) (analyzing banks’ duty to maintain confidentiality of customer records and the “special circumstances” that create a duty to disclose); Raymond, su-*602pro (discussing information disclosure by banks). Here, First Fidelity had a written confidentiality policy covering its customer records. A bank can usually divulge confidential data only when a customer consents or when the law requires disclosure. Id.; see also Baldwin v. First Nat’l. Bank of Black Hills, 362 N.W.2d 85 (S.D.1985) (no invasion of privacy when petitioner consented to disclosure).
[¶ 36.] Ordinarily, a lender-borrower relationship presupposes an arm’s length transaction, as each side works in its own interest. See Taggart v. Ford Motor Credit Co., 462 N.W.2d 493, 499 (S.D.1990) (“This court has never imposed a duty to disclose information on parties to an arm’s-length business transaction, absent an employment or fiduciary relationship.”). Because their positions conflict, it “would be anomalous to require a lender to act as a fiduciary for interests on the opposite side of the negotiating table.” Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 53 (3dCir.1988) (quoting Weinberger v. Kendrick, 698 F.2d 61, 79 (2dCir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983).
[¶ 37.] Essential to recognizing a fiduciary duty requiring a bank to reveal private information is a finding that to not do so would be a gross breach of good faith and fair dealing, amounting to deceit. See Barnett Bank of West Florida v. Hooper, 498 So.2d 923 (Fla.1986) (bank officer knew that customer was engaged in check kiting scheme but still encouraged another customer to borrow and place funds with the malfeasant); Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla.Dist.Ct.App.1994) (when bank has assumed a fiduciary role, the responsibilities that accompany that role follow). In analyzing those unusual cases where banks are obligated to disclose customer data, the court in United Jersey Bank stated:
These cases all involved egregious breaches of the lender’s duty of good faith and fair dealing. In each of these cases, the bank actively encouraged the plaintiff to rely upon its advice and concealed its self-interest in promoting the transaction involved. In blunt terms, the banks acted no better than common swindlers.
United Jersey Bank, 704 A.2d at 46. Cf. Boubelik v. Liberty State Bank, 553 N.W.2d 393, 401 (Minn.1996) (bank’s “knowledge of a customer’s irretrievable insolvency” creates duty to disclose such information to third-party customers contemplating loan transactions involving the irretrievably insolvent party). As recognized in the Restatement (Second) of Torts § 551 (1977 & Supp. 1997), in certain rare instances there may be a duty to disclose. Comment 1 to § 551, subsection 2, explains that the circumstances contemplated under this rule occur when the advantage taken of a plaintiffs ignorance is “so shocking to the ethical sense of the community, and is so extreme and unfair, as to amount to a form of swindling....”
[¶ 38.] In deciding whether a bank owes a fiduciary duty we look to our seminal ease on the subject, Garrett v. BankWest, Inc., 459 N.W.2d 833 (S.D.1990). In Garrett, we stated:
A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. A fiduciary is a person with a duty to act primarily for the benefit of another. A fiduciary is in a position to have and exercise, and does have and exercise influence over another. A fiduciary relationship implies a condition of superiority of one of the parties over the other. Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary.
Id. at 837-38 (emphasis in original) (citations omitted). We also noted:
[A] relationship can become a fiduciary relationship if the borrower reposes a faith, confidence and trust in the bank which results in dominion, control or influence over the borrower’s affairs.... [T]he borrower who reposes the confidence must be in a position of “inequali*603ty, dependence, weakness or lack of knowledge.”
Id. at 838 (quoting Union State Bank v. Woell, 434 N.W.2d 712, 721 (N.D.1989)). In ordinary lender-borrower relations, therefore, no fiduciary duty exists. Id. at 838. Other jurisdictions have held the same. See, e.g., Delta Diversified, Inc. v. Citizens & S. Nat’l Bank, 171 Ga.App. 625, 320 S.E.2d 767, 776 (1984) (noting that “there is no confidential relationship between a bank and its customers borrowing funds”). To discern a fiduciary duty, a court must find three things: (1) the borrower reposed “faith, confidence and trust” in the lender, (2) the borrower was in a position of “inequality, dependence, weakness, or lack of knowledge” and, (3) the lender exercised “dominion, control or influence” over the borrower’s affairs. Garrett, 459 N.W.2d at 838 (citing Union State Bank, 434 N.W.2d at 721); see also Waddell v. Dewey County Bank, 471 N.W.2d 591, 593-94 (S.D.1991) (reciting the necessary elements to establish a fiduciary duty between borrower and bank).
[¶ 39.] Applying the Garrett factors, no fiduciary relationship existed here. First, although the Buxcels claim they expected the bank to give them accurate, complete information on the store, that reliance was misplaced. Banks are commercial enterprises in business to make a profit. They owe their primary allegiance to their directors and stockholders. Of course, they also owe a duty of good faith and fair dealing to their customers. They cannot misrepresent the truth. From the jury’s verdict we know the bank did not misrepresent facts or breach its duty of good faith and fair dealing. Banks are not placed in a fiduciary relationship simply because they have at hand information that might give a potential borrower pause before proceeding. “A fiduciary relation exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.” Restatement (Second) of Torts § 874 cmt. a (1979).
[¶ 40.] Second, the Buxcels insist that because they had no knowledge of how to fill out SBA loan papers, had no retail sales or management experience, and had limited educations, they were in an uneven bargaining posture and in a position of inequality, dependence, weakness, and lack of knowledge. Before the sale, the bank suggested to the Buxcels that they visit other grocers to learn about the business. It also recommended that they examine the Fabers’ books and independently investigate the store and its operations. To establish a fiduciary duty, it must be shown that the relationship decreased the dependent party’s ability or willingness to act on its own behalf. Ainsworth v. First Bank of South Dakota, 472 N.W.2d 786, 788 (S.D.1991)(“There must be additional circumstances, or a relationship that induces the trusting party to relax the care and vigilance which he would ordinarily exercise for his own protection.”). The bank did not induce the Buxcels to relax their vigilance. The bank encouraged them to visit other grocery stores to understand the business. They never did. They were given unlimited time to review the books before buying Dean’s Market. At trial, Clifford Buxcel admitted that despite having looked at the books he did not understand them, but planned to gain an understanding after buying the grocery. The Buxcels declined to obtain an independent appraisal, to hire an attorney, or to consult with an accountant. The bank did not induce them to neglect these things; the Buxcels, on their own, failed to do what most prudent business purchasers would do.
[¶ 41.] Third, even if we were to recognize a plausible showing on the first two factors, the Buxcels must also establish that the bank exercised dominion, control and influence over their affairs. “Fiduciary relationships juxtapose trust and dependence on one side with dominance and influence on the other.” High Plains Ge*604netics Research, Inc., 535 N.W.2d at 842. Where has this been shown? Although they borrowed minor sums from the bank in the past, there was nothing to suggest a dependent or controlling financial relationship. The Buxcels had no reason to feel compelled to buy the store, to borrow money from First Fidelity, or to resort to the bank’s loan officer for advice or information. Initially, they intended not to buy the grocery, then changed their minds. The Buxcels ignored the bank’s suggestions for investigating the business. When the Buxcels were actually running the store, they disregarded suggestions to obtain outside help to increase profits from their food distributor and other sources, even though help was available. The bank did not exercise dominion or control over their affairs, before or after the sale.
[¶ 42.] During trial, moreover, the bank offered considerable evidence that the Buxcels’ business venture failed through their mismanagement. After the sale closed, the Buxcels put a new roof on the store, cleaned it, and improved its overall appearance. Unfortunately, though, they eliminated or changed some of the grocery’s more profitable attractions. They stopped making homemade pizza, discontinued stocking meat at the beginning of every week, quit selling a profitable line of personal products, refused to cash checks, and declined to arrange inventory in a manner recommended by their supplier to maximize profits. Indeed, they failed to gross nearly as much as the Fabers had. Furthermore, whether the Fabers’ financial difficulties were the result of their own excessive draws, as opposed to some intrinsic deficiency in the store as a profitable business, was a factual point in dispute at trial. Mertens testified that the Fabers lived above their means, pulling more money out of the market than the business could bear.
[¶43.] First Fidelity may have had a keen financial interest in protecting its existing loans and in promoting new ones, but that will not make it an insurer or a trustee for its borrowers. I concede the bank took an uncommonly active role in the sale, but according to expert testimony from an official with the SBA, much of which the jury must have accepted, such role is not unusual for rural banks in South Dakota. Consequently, the Buxcels failed to show that it was error to instruct the jury that the bank had no duty to disclose the Fabers’ personal loan information.
[¶ 44.] Contrast this case with Brandriet, 499 N.W.2d 613, cited by the majority. There, the bank admittedly positioned itself in an “advocacy role” for its customers, the Brandriets. Id. at 618. A bank officer, claiming she was “working for the Brandriets,” represented herself to them as an expert on VA loans, and falsely informed them that they were ruled ineligible for such a loan. Id. Confronted with the bank’s “blatant misrepresentations,” another bank officer conceded in testimony that “the bank owed a duty to the Bran-driets.” Id. Under “these facts and circumstances,” we affirmed the trial court’s legal conclusion that a confidential relationship developed. Id. This Court went on to hold that the Brandriets proved their claim of “fraud,” which was “willful, wanton and malicious.” Id.
[¶ 45.] Here, oppositely, the jury found that the Buxcels’ proved no fraud, no misrepresentation, no negligence, and no breach of good faith and fair dealing. As those findings were not appealed, they stand final and unassailable, despite the majority’s attempted reprise in its assertion that the bank “was less than candid with” the Buxcels. Unlike Brandriet, the bank here never conceded that it was acting for the Buxcels in the grocery store sale, and nothing in the record supports any finding that the bank represented itself to them as a grocery business expert working for their benefit. True, the bank prepared the SBA loan documents for them, but that was after the Buxcels decided to purchase the business. If the Bux-cels reposed unreserved trust in the bank, it was done unilaterally, without the bank’s *605acceptance of such trust. Quite the reverse, instead of inviting reliance, as in Brandriet, the bank here encouraged the Buxcels to independently investigate.
[¶46.] These circumstances have arisen before. In Klein, 196 N.W.2d at 620-21, Virginia Klein sued her bank when it foreclosed on stock she pledged as collateral for a loan the bank made to her employer. Her employer already owed the bank $9,250, and the bank intended to rely entirely on Virginia’s stock to secure both loans. Id. at 621. Virginia was unaware of this and the bank never disclosed it to her. Id. at 621-22. She alleged that the bank’s failure to inform her of all the details of the transactions was fraudulent. Id. at 622. She had been a customer for two decades, and she trusted the bank just as she would her doctor or lawyer. Id. The Minnesota Supreme Court held that although a bank is generally under no fiduciary duty to a borrower, special circumstances may exist requiring the bank to disclose certain material facts:
We believe the correct rule to be that when a bank transacts business with a depositor or other customer, it has no special duty to counsel the customer and inform him of every material fact relating to the transaction ... unless special circumstances exist, such as where the bank knows or has reason to know that the customer is placing his trust and confidence in the bank and is relying on the bank so to counsel and inform him.
Id. at 623. The Court found no “special circumstances” to justify imposing a fiduciary duty on the bank, as no evidence in the record suggested that the bank knew or should have known that the plaintiff was placing her trust and confidence in it. Id.
[¶47.] The Minnesota Supreme Court was again called on to decide when a borrower might validly claim a fiduciary relationship with a lender in Stenberg v. Northwestern National Bank of Rochester, 307 Minn. 487, 238 N.W.2d 218 (1976). Mr. and Mrs. Stenberg wished to finance an expansion of their small business. Id. at 219. They opened a line of credit with Northwestern Bank. Id. When their debt increased, the bank encouraged them to obtain a loan from the SBA to consolidate the debt and reduce interest charges. Id. The bank assured the Stenbergs their relationship with the bank would help their business grow and they should not worry about their increasing indebtedness. Id. Against the warnings of their accountant, they took the bank’s advice. Id. Their business failed and they went bankrupt. Id.
[¶ 48.] Claiming they relied on the bank’s counseling, the Stenbergs sued alleging a fiduciary obligation. Id. In rejecting this assertion, the Court ruled that the evidence would not support a “basis for plaintiffs’ claim that a fiduciary relationship existed....” Id. Mr. Stenberg was a businessperson, “capable of independent judgment”; thus, no basis existed for an exception to the general rule that a bank owes no special duty to its borrowers. Id. (citing Klein, 196 N.W.2d at 623). As they were able to make their own decisions, the Court found they could not justifiably rely on the bank’s representations. Id.
[¶ 49.] One case the Garrett Court relied on for guidance was Denison State Bank v. Madeira, 230 Kan. 684, 640 P.2d 1235 (1982). Indeed, we quoted its definition of a fiduciary relationship. In Denison, the Kansas Supreme Court held that in a creditor-debtor relationship, persons cannot “abandon all caution and responsibility” for their “own protection and unilaterally impose a fiduciary relationship on another without a conscious assumption of such duties by the one sought to be held as a fiduciary.” Id. at 1243-44.
[¶ 50.] All these decisions recognize that to create a fiduciary obligation a customer must justifiably place trust and confidence in the bank, and the bank must also knowingly accept such trust. Here, First Fidelity encouraged the Buxcels to seek outside advice and to examine the books. Not *606having accepted the Buxcel’s purported reliance, the bank owed no fiduciary duty to them, and the circuit court was correct when it directed a verdict against them on this issue. Finding a new fiduciary duty here may be a grand gesture to aid those who borrow money and later fail in business, but this holding is unsound. Not only will it beget less customer service and more reluctance in giving advice, but also it will inevitably bring a chorus of disappointed entrepreneurs desperate for the courts to rescue them by transforming their lenders into insurers.
[¶ 51.] GILBERTSON, Justice, joins this dissent.

. Brown v. Louisiana, 383 U.S. 131, 168, 86 S.Ct. 719, 737, 15 L.Ed.2d 637, 660 (1966) (Black, J., dissenting).