PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-2104
DREAMSTREET INVESTMENTS, INC., d/b/a DS Builders, a North
Carolina Corporation,
Plaintiff - Appellant,
v.
MIDCOUNTRY BANK, a Federal Savings Bank,
Defendant - Appellee.
Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro. Catherine C. Eagles,
District Judge. (1:14-cv-00521-CCE-JEP)
Argued: October 25, 2016 Decided: November 30, 2016
Before WILKINSON, KING, and HARRIS, Circuit Judges.
Affirmed by published opinion. Judge Harris wrote the opinion,
in which Judge Wilkinson and Judge King joined.
ARGUED: Rachel Marie Stevens, DREAMSTREET INVESTMENTS, INC.,
Raleigh, North Carolina, for Appellant. Robert Eli Levin,
HAYWOOD, DENNY & MILLER, L.L.P., Durham, North Carolina, for
Appellee. ON BRIEF: Matthew Ivan Van Horn, LAW OFFICE OF
MATTHEW I. VAN HORN, PLLC, Raleigh, North Carolina, for
Appellant.
PAMELA HARRIS, Circuit Judge:
This case arises from a “seller holdback” agreement between
Dreamstreet Investments, Inc., which was selling a vacant lot
for home construction, and MidCountry Bank, which was financing
the lot’s purchase by a third party. Under the agreement, part
of the purchase price owed to Dreamstreet instead would be
retained by MidCountry, pending completion of the home and
subject to certain conditions.
On June 16, 2009, Dreamstreet contacted MidCountry,
challenging the propriety of the seller holdback agreement and
threatening to sue. Over four years later, Dreamstreet made
good on its threat. In a complaint filed on June 28, 2013,
Dreamstreet alleged that MidCountry fraudulently induced it to
enter into the seller holdback agreement, in violation of North
Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”).
A subsequent amendment added a claim under the common-law
doctrine of constructive fraud.
The district court granted summary judgment to MidCountry.
Dreamstreet’s UDTPA claim, the court held, was barred by the
applicable four-year statute of limitations. And on the
undisputed record facts, the court concluded, Dreamstreet could
not establish the necessary elements of a constructive fraud
claim. We agree, and for the reasons given below, we affirm the
district court’s decision.
2
I.
A.
At issue in this case is an agreement between two
commercial entities: Dreamstreet, a real estate investment
corporation; and MidCountry, a bank. The terms of that
agreement are not contested. What is disputed is how the
agreement came to be, and whether MidCountry has lived up to its
obligations to Dreamstreet. 1
The case began when Jason Pittman, through his company
Dreamstreet Investments, entered into a purchasing agreement to
sell an unimproved lot to Carl Ingraham for $115,000. Ingraham
hoped to build a home on the property, and to fund his purchase,
he applied for an owner-builder loan from MidCountry. An owner-
builder loan would allow Ingraham to borrow the purchase price
of the lot, and then, acting as his own general contractor, to
make additional draws on the remaining loan amount to fund the
construction of his home.
Under MidCountry’s underwriting standards, Ingraham was
required to make a down-payment of approximately $43,000 to
qualify for the loan. But Ingraham was unable to meet this
1 On review of a grant of summary judgment to MidCountry, we
view the facts in the light most favorable to Dreamstreet, as
the non-moving party. See Henry v. Purnell, 652 F.3d 524, 531
(4th Cir. 2011) (en banc).
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requirement, and so Dreamstreet and MidCountry entered into the
seller holdback agreement (the “Agreement”) at issue here.
Under the Agreement, Dreamstreet would forgo immediate receipt
of $43,200 of the purchase price of the lot. That money instead
would be retained by MidCountry, ensuring – according to
MidCountry – that there would be sufficient funds to complete
construction of Ingraham’s home. Upon completion of the home,
the money would be released to Dreamstreet.
Additional conditions of the Agreement were memorialized in
an email sent and signed by Pittman on June 12, 2008, which the
parties agree establishes the terms of their agreement. Under
those terms, the $43,200 would not be disbursed to Dreamstreet
if Ingraham defaulted on his MidCountry loan or failed to
complete construction on his home. Specifically, the email
stated: “I [Dreamstreet] understand that the only reason the
holdback would not be available was if [Ingraham] was in default
or unable to complete construction on the home and at that point
MidCountry would use those remaining funds to complete
construction on the home.” J.A. 80.
After sending the June 12 email, Pittman contacted his
attorney, his banker, and a real estate appraiser to discuss the
seller holdback agreement because it did not “sound right” to
him. J.A. 195. Pittman concluded that he would complete the
transaction and sell the Dreamstreet lot to Ingraham only if
4
Ingraham provided him with a promissory note to cover the
holdback, secured by a deed of trust on the property. On June
19, 2008, Ingraham and Dreamstreet executed a promissory note
for $49,450, secured by a deed of trust, and closed on the sale
of the lot.
A year later, shortly before the promissory note was due
and after several unsuccessful attempts to contact MidCountry,
Dreamstreet sent a lengthy email to MidCountry demanding
immediate return of what it now viewed as the improper $43,200
holdback. According to the June 16, 2009 email, Pittman had
consulted with his attorney, and it was their view that the
holdback actually had “nothing to d[o]” with ensuring the
availability of funds for Ingraham’s construction project, and
“never should have been held back in the first place.” J.A. 86.
Pittman promised to report MidCountry to the North Carolina
Banking Commission and also to file a lawsuit against
MidCountry: “[I] have already paid my attorney $1,000 to
initiate this process,” and “[w]e will be sending out complaints
via certified mail on the 26th.” Id.
For over four years, Dreamstreet failed to follow through
on its threat. During that time, Ingraham defaulted on his loan
with MidCountry. On February 25, 2010, MidCountry notified
Ingraham that his mortgage loan had come due on September 19,
2009; that his failure to make payments on the loan in December
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2009 and January and February 2010 had put him in default; and
that MidCountry intended to commence foreclosure proceedings.
At around the same time, on December 10, 2009, the county
inspection department certified the construction on Ingraham’s
land as compliant with building and zoning regulations. 2 And on
March 30, 2012, MidCountry foreclosed on Ingraham’s home.
Although Dreamstreet’s promissory note against Ingraham was
secured by a deed of trust on the property, it appears that
Dreamstreet did not assert any security interest in connection
with the foreclosure.
B.
Dreamstreet finally filed the promised suit against
MidCountry on June 28, 2013. 3 Alleging that MidCountry
fraudulently induced it to enter into the Agreement and never
intended to release the $43,200 holdback, Dreamstreet raised
claims under North Carolinaʹs Unfair and Deceptive Trade
2Whether the Certificate of Compliance received by Ingraham
demonstrated completion of Ingraham’s home for purposes of the
Agreement is disputed by the parties. We may assume for
purposes of this appeal that the home was completed on December
10, 2009.
3Dreamstreet originally filed suit in North Carolina state
court against Carl Ingraham and his wife, as well as MidCountry.
After Dreamstreet voluntarily dismissed the Ingrahams as
defendants, MidCountry removed the action to federal district
court, invoking diversity jurisdiction. See 28 U.S.C. § 1332.
6
Practices Act and for common-law constructive fraud. MidCountry
moved for summary judgment. Dreamstreet’s UDTPA claim, it
asserted, was barred by the applicable four-year statute of
limitations. And the constructive fraud claim failed,
MidCountry argued, because as a matter of law, Dreamstreet could
not show the required element of a fiduciary relationship
between the parties.
The district court granted MidCountry’s motion for summary
judgment in an oral ruling. It agreed with MidCountry that the
four-year statute of limitations barred the UDTPA claim. On the
constructive fraud claim, the district court assumed without
deciding that there was a fiduciary relationship between
MidCountry and Dreamstreet. But because Ingraham defaulted on
his loan, the court concluded, the Agreement’s conditions on
release of the holdback were not satisfied, and thus MidCountry
did not breach any fiduciary duty it may have owed to
Dreamstreet. Dreamstreet timely appealed.
II.
We review de novo the district court’s grant of summary
judgment. Durham v. Horner, 690 F.3d 183, 188 (4th Cir. 2012).
Summary judgment is appropriate only if no material facts are
disputed and the moving party is entitled to judgment as a
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matter of law. Henry v. Purnell, 652 F.3d 524, 531 (4th Cir.
2011) (en banc).
A.
Dreamstreet’s first contention on appeal is that the
district court erred in holding that its UDTPA claim is time-
barred. Under North Carolina law, UDTPA claims are governed by
a four-year statute of limitations, and that limitations period
begins to run when an alleged violation occurs. See N.C. Gen.
Stat. § 75-16.2 (setting out limitations period); Hinson v.
United Fin. Servs., Inc., 473 S.E.2d 382, 386–87 (N.C. Ct. App.
1996) (applying UDTPA limitations period). And when, as in this
case, a UDTPA claim is based on alleged fraudulent conduct, then
the violation occurs – and the limitations clock starts running
– “at the time that the fraud is discovered or should have been
discovered with the exercise of reasonable diligence.” Rothmans
Tobacco Co., Ltd. v. Liggett Grp., Inc., 770 F.2d 1246, 1249
(4th Cir. 1985) (citing Wilson v. Crab Orchard Dev. Co., 171
S.E.2d 873, 884 (N.C. 1970)).
The parties do not dispute this governing framework. 4
Instead, they disagree as to whether Dreamstreet discovered or
4 Dreamstreet does suggest that it is “perhaps more
appropriate” to analogize its action to one for breach of
contract, in which case the limitations period would begin to
run at the time of the breach. Appellant Br. at 22; see Ring
Drug Co. v. Carolina Medicorp Enters., Inc., 385 S.E.2d 801, 804
(Continued)
8
should have discovered the fraud of which it complains more than
four years before it filed suit on June 28, 2013. According to
Dreamstreet, the earliest date on which it could have discovered
or been expected to discover MidCountry’s alleged fraud was
December 10, 2009 – within the four-year limitations period –
when Ingraham received the certificate of compliance on his
home. It was not until then, Dreamstreet argues, that
MidCountry was required to make good on the Agreement by
releasing the holdback to Dreamstreet, and thus not until then
that Dreamstreet could have known that MidCountry did not intend
to honor the Agreement.
What that position fails to account for is the undisputed
fact that on June 16, 2009 – approximately two weeks outside the
four-year limitations period – Dreamstreet itself announced that
it planned to sue MidCountry on the same theory it advances in
this litigation: that the seller holdback was a sham. In its
June 16 email, Dreamstreet explained that the extensive
(N.C. Ct. App. 1989) overruled on other grounds by Crossman v.
Moore, 459 S.E.2d 715 (N.C. 1995). Like the district court, we
disagree. In both its complaint and its brief before this
court, Dreamstreet makes clear that its claim “is based on
deceptive statements made by MidCountry” in order to induce
Dreamstreet to enter into a “sham seller holdback scheme.”
Appellant Br. at 22; see also J.A. 437 (district court
explaining that “all the conduct the plaintiff is contending
constitutes the [UDTPA violation] occurred back in 2008, in the
inducement to enter into” the Agreement).
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documents it had shared with its attorney – “all emails from
[MidCountry] during the initial closing, along with my note,
deed of trust, and a budget spreadsheet from [MidCountry]
regarding Carl Ingraham’s house budget” – were enough to
convince both Dreamstreet and its counsel that the holdback
funds were not intended for Ingraham’s construction budget and
“never should have been held back in the first place.” J.A. 86.
By June 16, 2009, in other words, Dreamstreet and its
attorney were privy to information that led it to accuse
MidCountry of fraud and threaten to “get a judge . . . to force
the release of those funds.” Id. Dreamstreet cannot now claim
that it lacked “capacity and opportunity to discover” that
fraud, Grubb Props., Inc. v. Simms Inv. Co., 400 S.E.2d 85, 88
(N.C. Ct. App. 1991), until six months later, when Ingraham
received a certificate of compliance. The limitations period on
Dreamstreet’s UDTPA claim began running by June 16, 2009, see,
e.g., Newton v. Barth, 788 S.E.2d 653, 662 (N.C. Ct. App. 2016)
(UDTPA claim triggered when party discovers or should discover
facts constituting alleged fraud), more than four years before
Dreamstreet filed suit. With respect to the UDTPA claim, the
district court properly granted summary judgment to MidCountry
on statute of limitation grounds.
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B.
We turn next to Dreamstreet’s constructive fraud claim, on
which the district court also granted summary judgment to
MidCountry. Under North Carolina law, the key to a constructive
fraud claim is a fiduciary relationship between plaintiff and
defendant. It is that relationship of “special confidence” that
gives rise to a special duty to “act in good faith and with due
regard to the interests of the one reposing confidence.” Branch
Banking & Trust Co. v. Thompson, 418 S.E.2d 694, 699 (N.C. Ct.
App. 1992) (internal quotation marks and citation omitted).
When such a fiduciary relationship exists – and only when it
exists – a plaintiff need not bear the “exacting” burden of
proving actual fraud, but may instead rely on a presumption of
constructive fraud that arises under equity “when the superior
party obtains a possible benefit.” Cash v. State Farm Mut.
Auto. Ins. Co., 528 S.E.2d 372, 380 (N.C. Ct. App. 2000); see
also White v. Consol. Planning, Inc., 603 S.E.2d 147, 156 (N.C.
Ct. App. 2004) (constructive fraud plaintiff need not prove
intent to deceive).
MidCountry argues that Dreamstreet cannot show such a
relationship in this case, and we agree. Under North Carolina
law, fiduciary relationships are characterized by “confidence
reposed on one side, and resulting domination and influence on
the other.” Dallaire v. Bank of America, N.A., 760 S.E.2d 263,
11
266 (N.C. 2014) (internal quotation marks and citation omitted).
Lawyers and their clients, for instance, or trustees and their
beneficiaries, share such relationships, with a “heightened
level of trust” matched with a corresponding duty to “maintain
complete loyalty.” Id. By contrast, parties to a contract –
like the Agreement between MidCountry and Dreamstreet –
generally do not become each other’s fiduciaries; what they owe
each other is defined by the terms of their contracts, with no
special duty of loyalty. Branch Banking, 418 S.E.2d at 699; see
also Dallaire, 760 S.E.2d at 267 (borrowers and lenders, unlike
fiduciaries, “are generally bound only by the terms of their
contract and the Uniform Commercial Code”). As a matter of law,
there can be no fiduciary relationship between “parties in equal
bargaining positions dealing at arm’s length, even though they
are mutually interdependent businesses.” Strickland v.
Lawrence, 627 S.E.2d 301, 306 (N.C. Ct. App. 2006).
On the record in this case, it is clear that the
relationship between MidCountry and Dreamstreet was no more than
the standard one between two commercial entities negotiating a
contract at arm’s length. There is nothing to suggest that
Dreamstreet “reposed any sort of special confidence,” Branch
Banking, 418 S.E.2d at 699, in MidCountry; on the contrary,
skeptical of MidCountry’s proposal, Pittman consulted with an
attorney, a banker, and a real estate appraiser about the
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holdback before closing on the sale of the lot. Such
consultation with outside experts, North Carolina courts have
held, is inconsistent with a claim of fiduciary relationship or
constructive fraud. See id. (no fiduciary relationship where
complaining party consulted with banker and accountant before
entering into agreement); see also Sullivan v. Mebane Packaging
Grp., Inc., 581 S.E.2d 452, 462 (N.C. Ct. App. 2003) (evidence
that complaining party obtained outside counsel rebuts
presumption of constructive fraud).
Nor is there any indication that Dreamstreet was in the
kind of unequal bargaining position that might qualify as an
indication of a fiduciary relationship under North Carolina law.
Dreamstreet emphasizes that it was MidCountry that devised the
holdback arrangement and then proposed it to Dreamstreet. But
the fact that one party proposes or advocates for a transaction
is not enough to establish unequal bargaining power and a
fiduciary relationship. North Carolina law makes clear, for
instance, that borrowers ordinarily do not enjoy a fiduciary
relationship or the protection of a special duty of loyalty when
it comes to their lenders, even when those lenders encourage
them to borrow. See Dallaire, 760 S.E.2d at 266-67 (assurances
by bank lender regarding mortgage loan do not turn ordinary
debtor-creditor relationship into fiduciary relationship);
Branch Banking, 418 S.E.2d at 699 (reliance on representations
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of creditor does not turn debtor-creditor relationship into
fiduciary relationship). Dreamstreet was in a position to
consult with an attorney before agreeing to MidCountry’s terms.
If Dreamstreet had concerns, then it could have declined the
holdback proposal and forgone the sale of its lot – or it could
take steps to protect itself, as it did, by insisting on a
promissory note with Ingraham, secured by a deed of trust.
We do not doubt, as Dreamstreet argues, that a fiduciary
relationship does not depend in every case on the existence of a
formal legal relationship like that between attorney and client
or trustee and beneficiary. See Bumgarner v. Tomblin, 306
S.E.2d 178, 183 (N.C. Ct. App. 1983) (finding issue of fact as
to fiduciary relationship where plaintiffs had long-term and
regular dealings with defendant with special legal skills and
real estate expertise). But it is clear that more is required
than a “mutually interdependent” business relationship between
two parties to a commercial contract. Strickland, 627 S.E.2d at
306; see Branch Banking, 418 S.E.2d at 699. The undisputed
facts of this case reveal an ordinary contractual relationship,
with nothing that could give rise to a special fiduciary
relationship. And because the existence of a fiduciary
relationship is a necessary element of constructive fraud, the
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district court properly granted summary judgment to MidCountry
on this claim, as well. 5
III.
For the foregoing reasons, we affirm the judgment of the
district court.
AFFIRMED
5 As noted above, the district court assumed the existence
of a fiduciary relationship for purposes of its decision, and
granted summary judgment on the ground that Dreamstreet could
show no breach of any fiduciary duty it was owed. See Governors
Club, Inc. v. Governors Club Ltd. P’ship, 567 S.E.2d 781, 787–88
(N.C. Ct. App. 2002) (constructive fraud plaintiff must show
existence of fiduciary duty and breach of that duty). Because
we hold that Dreamstreet cannot show the necessary fiduciary
relationship as a matter of law, we need not address the
district court’s alternative holding.
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