Wait - Who Do You Work For?

August 28, 2017 - Sarah P. Spruill

Court of Appeals reverses judgment for bank customer on breach of fiduciary duty claim in case where representations in question were made by an individual that was not employed by the Bank at that time.

In Gibson v. Ameris Bank, substituted opinion filed August 23, 2017, the South Carolina Court of Appeals reversed a nearly $3,000,000 judgment for a Bank customer in a case alleging counterclaims for breach of fiduciary duty, negligent misrepresentation, and aiding and abetting a breach of fiduciary duty. The case arose after the Bank sought to foreclose on a loan made to the Appellants for the purchase of an apartment complex.

The underlying facts, quoted from the opinion, include the following details:

  • In deciding to purchase the apartment complex, Gibson first consulted her real estate and financial advisor, Rolando Villavicencio.

  • On August 28, 2007, Gibson signed a contract to purchase the apartment complex and sought financing from First Reliance Bank (First Reliance). Gibson previously worked with First Reliance in 2005 when First Reliance financed Heritage Seven\'s purchase of a $2.4 million shopping center in Moncks Corner. Karl Zerbst was the loan officer and Benji Lanier was the analysist for the 2005 shopping center loan from First Reliance. Gibson personally owned a 50% interest in Heritage Seven, and the Trust owned the remaining 50% interest. Gibson guaranteed the loan in her individual capacity and as trustee of the Trust.

  • After seeking financing from First Reliance for the apartment complex, Villavicencio complained to Zerbst that he and Gibson were not being served at First Reliance and wanted to know who could help them obtain financing. According to Gibson, Zerbst told her that she would be better served at Ameris and that he had given her loan documents to Lanier, who had left First Reliance and had begun working at Ameris on October 11, 2007. Gibson decided to seek financing from Ameris. Her understanding was that Lanier would handle the loan at Ameris and Zerbst would ultimately handle the transaction for her. However, Zerbst testified he never told Gibson or Villavicencio that he was going to work for Ameris. Zerbst ended his employment with First Reliance on October 5, 2007.

  • Although Zerbst spoke with other banks, including Ameris, regarding potential employment, he remained unemployed from October 5, 2007, until January 11, 2008, when he accepted a written employment offer from Ameris. Zerbst testified he did not work for Ameris and did nothing on Ameris\'s behalf before January 11, 2008. Marc Bogan, an executive at Ameris, testified Ameris did not encourage Zerbst to refer customers to it or authorize Zerbst to do anything on its behalf before hiring Zerbst in January 2008. Bogan stated no one at Ameris had the ability or right to control Zerbst\'s conduct before Zerbst formally accepted the employment offer on January 11, 2008. Further, Richard Sturm, the President of Ameris, testified Ameris never told Gibson that Zerbst was acting on Ameris\'s behalf prior to January 2008.

  • In mid-October 2007, Gibson spoke with Zerbst about the apartment complex transaction. At that time, Gibson believed Zerbst had left First Reliance but had not yet joined Ameris. Gibson testified she and Zerbst discussed "the wisdom" of her closing the apartment transaction, the appraisal, the location, and the rents she would charge. According to Gibson, Zerbst thought the apartment complex was a "good investment," and Zerbst assured her that the rents would cover the debt.

  • On November 2, 2007, Respondents and Ameris closed the apartment complex loan.

  • Gibson underwent surgery soon after the loan closing. While Gibson was recuperating, Ameris disbursed funds to Villavicencio when he submitted invoices for work performed in the renovation of the apartment complex. Gibson testified that while she was unable to visit the apartment complex because of her health problems, Villavicencio assured her that "everything was fine, on schedule, on budget." On February 7, 2008, Villavicencio sent an email to Lanier, stating that the project was "moving along as planned" and that he expected the units to be completed and ready for leasing by the next month.

  • When Gibson visited the apartments in March 2008 after recovering from her surgery, however, she discovered Villavicencio and the contractor were not on speaking terms, Villavicencio had lied to her about the status of the project, and all three apartment buildings were being renovated at once, instead of one at a time as originally planned. In May 2008, Gibson fired Villavicencio because she believed he had mismanaged her properties and stolen several hundred thousand dollars from her while managing her shopping center and apartment complex. After firing Villavicencio, Gibson managed the apartment complex herself. Gibson also took control of the loan proceeds and arranged for Ameris to place the disbursements in her checking account without receiving invoices. After Gibson began renting the units, several tenants lost their jobs and were unable to pay rent. Gibson allowed many of the tenants to remain in the apartments and pay a lower rate. Gibson testified the rental income from the apartment complex was insufficient to cover the interest payments on the loan, so she had to use funds from her savings account to pay the remaining interest. The master determined the relationship between Zerbst and Gibson was more than a creditor and debtor relationship. 

On these facts, the trial court imposed liability on all of the above theories because it found that “Zerbst accepted Gibson′s trust, Zerbst advised Gibson about the apartment complex transaction, Zerbst was Ameris′s agent when Respondents purchased the apartment complex, and Zerbst and Ameris breached their fiduciary duties to Respondents.”

The Court of Appeals reversed because it found Zerbst was not an agent of the Bank at the time of the conduct in question. With respect to the claim for aiding and abetting a breach of fiduciary duty, the Court of Appeals found that the Bank did not have knowledge of Villavicencio’s alleged breaches and, as a result, the Appellant had not proven a claim under this theory.  Based on these findings, the Court of Appeals reversed the judgment in its totality.

Although the outcome was positive for the Bank, it is of some concern that the Court of Appeals did not include any language here relating to the premise that a bank does not owe a general fiduciary duty to its customers. See Burwell v. South Carolina Nat\'l Bank, 288 S.C. 34, 41, 340 S.E.2d 786, 790 (1986) (finding a bank will only be found to be a fiduciary in limited circumstances “if the bank undertakes to advise the customer as a part of the services the bank offers”). 

Full opinion available here.  

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