North Carolina Court of Appeals to Consider Whether Lender's Exercise of Contractual Rights Constitutes an "Unfair and Deceptive" Trade Practice

This Spring, the North Carolina Court of Appeals will hear an appeal from a $2.1 million judgment after a jury verdict against a lender for unfair and deceptive trade practices arising out of its handling of a commercial loan gone bad. The case, SunTrust Bank v. Bryant/Sutphin Properties, LLC (Docket No. 12-131), involves a lender’s commercial lending relationship with a developer and his property development company. After the developer and development company defaulted under multiple loans, the lender placed a hold on a money market account owned by the developer. The lender subsequently set off the funds in the developer’s account against the outstanding debts, initiated foreclosure proceedings on collateral securing the loans, and sued the developer and development company for the deficiency. The defendants asserted counterclaims for, among other things, wrongful setoff and violation of North Carolina’s Unfair and Deceptive Trade Practices Act. 

After trial, the jury concluded that the lender’s actions did not breach any of the loan documents, but that it had placed the money market account on hold without providing notice to the defendants. The jury awarded $700,000 in damages to the development company. The trial court went on to find that the lender had established a “course of dealing” with the defendants in which it “would routinely exercise leniency with respect to deadlines for payments on loans and compliance with other terms and conditions.” The court held that by changing this course of dealing, the lender committed “an oppressive and inequitable exercise of superior power” in violation of the Unfair and Deceptive Trade Practices Act and trebled the jury’s award to $2.1 million.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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