Southern Update - Gibson v. Ameris Bank

Gibson v. Ameris Bank, 420, S.C. 536, 804 S.E.2d 276, 2017 S.C. App. LEXIS 81

In order to purchase and renovate an apartment complex in North Charleston, a limited liability company obtained a $2.8 million loan from Ameris Bank (“Ameris”). However, before this loan was obtained, the guarantor of the loan (the “guarantor”) had first sought financing from a bank with which she had previously worked in connection with another real estate purchase (the “bank”). When the bank failed to provide adequate service, the guarantor’s real estate and financial advisor (the “advisor”) reached out to the loan officer that had been involved in the previous deal (the “loan officer”), but who had since left the bank as of October 5, 2007, to question who could better serve them. The loan officer suggested Ameris, and indicated he had already provided the loan documents to a former employee of the bank who had begun working at Ameris on October 11, 2007. At the time, the guarantor accurately believed that the loan officer had left the bank, but had not yet joined Ameris; it was not until January 11, 2008 that the loan officer accepted a written offer of employment with Ameris.

After the loan closed on November 2, 2007, the guarantor underwent surgery; while she was recuperating, Ameris disbursed funds to the advisor, who had begun renovations, as he submitted invoices. Although the advisor indicated that “everything was fine, on schedule, on budget” and that the project was “moving along as planned,” when the guarantor was finally able to visit the apartments in March of 2008, she discovered he had lied. The advisor was subsequently fired in May, as the guarantor not only believed he had mismanaged her properties, but also that he had stolen several hundred thousand dollars from her. She then began managing the apartment complex herself, but soon realized the rental income was insufficient to cover interest payments on the loan. The borrower and guarantor (the “respondents”) were ultimately unable to repay the loan, resulting in Ameris bringing a foreclosure action. In response, the respondents brought counterclaims for negligent misrepresentation, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty. Although the foreclosure action settled, the counterclaims remained and were tried before a master-in-equity, which found in favor of the respondents under all three causes of action. More specifically, the master-in-equity found both that the loan officer was effectively Ameris’s agent and that Ameris had aided and abetted the advisor’s breach of fiduciary duty. Based on these findings, a judgment was entered against Ameris in an amount of $2,913,886.00.

On appeal, the Court of Appeals of South Carolina reversed. With regards to the counterclaims for negligent misrepresentation and breach of fiduciary duty, the Court concluded that, even though the loan officer had indicated that the transaction was a “good deal” and that the “rents would cover the debt,”  because Ameris had no right to control the conduct of the loan officer in October of 2007 and had never represented to respondents that the loan officer was its agent, he was not acting as an agent of Ameris at that time. As a result, Ameris could not be held liable for damages arising from any conduct of the loan officer prior to January 11, 2008. Additionally, the Court held that, since there was no evidence that Ameris had actual knowledge of the advisor’s breach of fiduciary duty when it disbursed loan proceeds to him, the master-in-equity also erred in finding that Ameris aided and abetted such breach. Given that the findings on all three causes of action were reversed, the Court found that there was no basis for awarding actual or punitive damages.