Cedar Square L.L.C. v. TCF National Bank, No. 16-1076, 2018 WL 4496327 (E.D. Wisc. Sept. 19, 2018)
In a dispute involving alleged liability over a bank’s refusal to grant a loan for development of a construction project, the U.S. District Court, Eastern District of Wisconsin (the “Court”) granted defendant’s 12(b)(6) motion to dismiss in part, and denied in part. The Court ruled that the Wisconsin statute of frauds didn’t bar the developer’s theft by conversion claim after the bank refused to provide follow-on funding for a project, but that the claim was the only one among several that the court found was not barred by Wisconsin’s statute of frauds.
On June 11, 2014, TCF National Bank (“TCF”) provided Cedar Square L.L.C. (“Cedar Square”) with a business loan for $7.8 million, with the parties agreeing to a second loan in the amount of $650,000 in December 2015, with $250,000 expressly set aside for pre-construction costs for an upcoming project. Cedar Square approached TCF for a third loan in October 2015, but in February 2016, TCF informed Cedar Square that not only would they not grant the third loan, but also that Cedar Square’s request to refinance the original loan was denied. Cedar Square obtained outside financing to pay off its two loans with TCF, incurring $200,000 in costs in the process.
As a result, Cedar Square brought a suit against TCF in state court, which was subsequently moved to federal court, where TCF filed a motion to dismiss for failure to state a claim. In its amended complaint, Cedar Square alleged damages based on promissory estoppel, negligent misrepresentation, tortious interference with a contract, intentional or fraudulent misrepresentation, theft by conversion, unjust enrichment, and a violation of Wis. Stat. § 224.80. TCF responded by declaring that all of Cedar Square’s claims, aside from the intentional misrepresentation claim, were barred by Wisconsin’s statute of frauds, and argued that the intentional misrepresentation claim should be dismissed for a lack of particularity.
The Court began its analysis by clarifying Wisconsin’s statute of frauds, codified as Wis. Stat. § 241.02(2)(f). The statute prohibits bringing an action against a financial institution enforcing an offer, promise, agreement, or commitment if that offer or promise was not in writing. However, it does provide for an exception for fraudulent misrepresentation under common law. TCF argued that this prohibition clearly bars all of Cedar Square’s claims, except for the fraudulent misrepresentation claim. Cedar Square responded that because the second loan mentioned costs relating to the project in question, its claims are not barred. This project was also mentioned in the original loan documents with the funds to be utilized for costs associated with a student housing project. The Court rejected Cedar Square’s argument, pointing to the language in § 241.02(3)(b) that specifically states that in order to bring an action enforcing a commitment against a financial institution, such commitment must be in writing and enumerate relevant terms and conditions, which the loans failed to do. There were no terms that established a commitment from TCF to grant a future loan to Cedar Square, nor were there any terms in regard to loan dollar amount, interest rates, time periods for repayment, or any other terms that represent “relevant” terms and conditions.
Additionally, the Court found that the second loan undermined Cedar Square’s argument, as the loan stated explicitly that the agreement does not go beyond the scope of that particular loan. In combination with its statute of frauds analysis, the Court dismissed all of Cedar Square’s claims, save for its intentional misrepresentation claim. The Court turned its attention to this claim, and began by stating that such a claim cannot be based on future events or unfulfilled promises, except when a plaintiff claims that the defendant had a “present intent not to perform.” TCF argued this claim should also be dismissed, because Cedar Square failed to adequately plead a present intent not to perform and displayed no reasonable reliance. Cedar Square responded by declaring that throughout the five months of conversations surrounding the third loan, TCF never had any intention of providing the financing and continued the discussions in bad faith. However, Cedar Square pled facts showing that TCF had communicated its desire to provide additional funding, but had a change of heart and denied the loan. The Court found that TCF did not intentionally mislead Cedar Square in their ongoing conversations, and dismissed Cedar Square’s intentional misrepresentation claim on the grounds of failure to state a claim, before addressing TCF’s particularity and reasonable reliance arguments. The Court dismissed Cedar Square’s claim under Wis. Stat. § 224.77 for the same reasons, stating that such a claim is based on a successful pleading of facts.
In the alternative, Cedar Square asserted that TCF committed theft by conversion when it deducted funds held in escrow that were meant to be applied to real estate taxes from the principal, with TCF again arguing that the statute of frauds barred this claim. While the Court did not find that this claim was directly related to TCF’s failure to grant the third loan, it found that the claim related to funds from the existing loans that were allegedly illegally converted from escrow to payment of real estate taxes by applying them to a prepayment fee. The Court held that this claim was not barred by the statute of frauds and denied TCF’s motion to dismiss in this regard.
Lastly, Cedar Square claimed that TCF was unjustly enriched through its collection of prepayment fees from the existing loans. Again, TCF responded that the statute of frauds barred this claim, which the Court found unpersuasive. However, TCF’s alternative argument that unjust enrichment claims are only available in the absence of an agreement persuaded the Court to rule that Cedar Square’s unjust enrichment claim failed as a matter of law. Citing Lindquist Ford, Inc. v. Middleton Motors, Inc., 557 F.3d 469 (7th Cir. 2009), TCF correctly noted that in Wisconsin, a plaintiff may seek equitable remedies in the absence of an enforceable contract, and both loans had language including prepayment penalties, barring unjust enrichment claims.
Article courstey of Michael Robson of Greenberg Traurig, LLP.