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Unfair Trade Practice Claim Proceeds

The Norfolk U.S. District Court allows a grain dealer’s action against a bank under the North Carolina Unfair and Deceptive Trade Practices Act to proceed for the jury to decide whether bank misled grain dealer and caused it to lose over $4 million.

Grain dealer purchases grain sold in hedge contracts and must maintain margin accounts for the difference between its contract and market prices. Between 2004 and 2008, bank loaned dealer over $3 million in 17 separate transactions to purchase grain and fund dealer’s margin account in exchange for security interests in dealer’s grain and purchase contracts.  In late 2007 and early 2008, grain prices rose sharply requiring dealer to increase its margin account.   In January 2008, when dealer was facing $400,000 shortfall in its margin account, a bank representative called dealer to request additional security through a blanket lien on dealer’s equipment valued at $3 million.  Dealer signed a blanket lien and note for $800,000, not knowing the five-page loan document include a new term prohibiting use of the loan for margin accounts.  Bank advanced $400,000 then refused to advance any further funds. In February, dealer was unable to make a margin call and lost over $4 million as a result.   Dealer’s state court action was removed.  After initially dismissing the complaint, the district court allowed a third amended complaint to proceed on a count alleging violation of NCUDTPA, the North Carolina statute.  Bank moved for summary judgment.

The district court held dealer’s claim presented two jury questions:   (1) whether bank misled grain dealer, and (2) caused grain dealer to lose over $4 million. Although what constitutes an unfair or deceptive trade practice is somewhat nebulous, case law holds a party to a contract responsible for reading it and bound by its provisions.  The party’s relationship here does not create a fiduciary relationship requiring bank to disclose the new loan term.  However, a genuine issue of material fact is created as to whether bank misled dealer knowing dealer’s intent to use the loan to fund its margin.  Courts apply NCUDTPA liberally.  Spartan Leasing, Inc. v. Pollard, 101 N.C. App. 450 (1991), is distinguishable:  The contract in that case was only one page and clearly labeled; the contract here was 10 pages long with the promissory note and rife with small print boilerplate.  This case is similar to Curtis P. Pearson Music Co. v. McFayden Music, Inc., No. 1:04cv378 (M.D.N.C. Oct. 31, 2006), denying summary judgment when the final version of a contract contained a new provision.  Proximate causation is also an ambiguous concept. Dealer argues the blanket lien made it unable to secure alternative funding.  Bank contends dealer had other collateral at its grain facility but dealer disputes its value as collateral.  A jury must decide if bank wrongdoing caused dealer to suffer injury.

Salmons, Inc. v. First Citizens Bank & Trust Co. (Doumar) No. 2:10cv72; Oct. 7, 2011; USDC at Norfolk, Va. VLW 011-3-589, 16 pp.

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