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Scott v. First Southern National Bank

United States District Court, E.D. Kentucky, Central Division, Lexington

September 24, 2018




         This matter is before the Court on a motion for summary judgment by the Defendant and on a cross-motion for partial summary judgment by the Plaintiffs. [DE 66; 77.] For the reasons set forth below, the Court will GRANT Defendant's motion in full and DENY the Plaintiffs' cross-motion.


         On July 22, 2013, the parties to this action executed a commercial loan agreement (“the Construction Loan”). Per the terms of the agreement, Defendant First Southern was to loan Plaintiffs, Drs. Scott and Larkin, an amount not to exceed $1, 013, 519.00. In turn, Plaintiffs promised to repay all the funds advanced to them by First Southern. [DE 1, at 3.] The purpose of the Construction Loan was to finance the renovation of property in Cincinnati, Ohio. Specifically, Plaintiffs wished to turn a former hotel into residential apartments with store-fronts. As security for the loan, First Southern took mortgages on three of Plaintiffs' properties held in Kentucky and Ohio. [DE 1, at 3.]

         The Construction Loan agreement came as a result of negotiations between Plaintiffs and First Southern's Community President, Rocky Mason. [DE 66-1, at 4.] Following the issuance of the Construction Loan, Mason continued to represent the bank in its dealings with the Plaintiffs. It is the nature of these communications between Plaintiffs and Mason that form the basis of this lawsuit. Plaintiffs maintain that First Southern, through Mason, promised to provide any additional funds needed to complete the hotel renovation project. [DE 1, at 4.] First Southern refutes this assertion. The Plaintiffs also claim that but for these assurances from Mason, they would have gone elsewhere to secure financing for the project. Plaintiffs have conceded, however, that no documentation exists for the guarantees allegedly made by Mason.

         In November of 2013, Dr. Scott alerted Mason that as much as $400, 000 in additional funding could be needed to complete the hotel renovation project. [DE 66-1, at 7; Text Communications, Exhibit 6, pg. 10-11.] In response, Mason informed Dr. Scott that after the contractor was chosen and bids were collected, he would “go to work for the new money.” [DE 66-1, at 8; Text Communications, Exhibit 6, pg. 11.] After numerous exchanges between Dr. Scott and Mason regarding the new cost projections, Dr. Scott notified Mason that Rick Pansiera, the project architect, would send him the final cost estimate. And on February 21, 2014, Pansiera sent Mason a spreadsheet indicating that the total anticipated of cost of the project had ballooned to $1, 654, 648.86. [DE 66-1, at 8.]

         A week later, Dr. Scott and Mason met in Cincinnati, Ohio to discuss the updated cost projections. It is disputed though, whether additional collateral for the proposed financing was discussed during the Cincinnati meeting. First Southern asserts that Dr. Scott refused to offer more collateral when Mason asked him whether he would do so. [DE 66-1, at 9.] Conversely, Plaintiffs argue that the subject of additional collateral was never broached. And had it been brought up, Plaintiffs suggest that Dr. Scott was willing and able to provide the extra collateral. [DE 78, at 11.]

         On March 8, 2014, Pansiera sent Mason a detailed breakdown of the request for additional funding and provided a narrative for the project change orders. [DE 78, at 11.] After receiving this information from Pansiera, Mason commenced a new underwriting process. As a part of this process, Plaintiffs' bookkeeper sent updated financials to First Southern regarding the Plaintiffs' other various businesses. [DE 66-1, at 10.] Moreover, Mason requested a new appraisal of the hotel property under renovation. [DE 78, at 11.]

         On March 21, 2014, a senior analyst from First Southern retrieved the Plaintiffs' credit report at the request of Mason. [DE 78, at 12.] When the analyst viewed the report, she observed two new loans that Plaintiffs had taken from another financial institution, United Bank. [DE 66-1, at 11.] The analyst then brought the United Bank loans to the attention of Mason, who claims that at the time, he was unaware of their existence.

         On March 31, 2014, First Southern advised Dr. Scott that it would not be lending the additional $640, 000 needed to finish the hotel renovation project. [DE 66-1, at 12.] First Southern contends that given the additional, outstanding loans, the extension of more credit to the Plaintiffs would have been an imprudent business decision. Plaintiffs, however, have an alternate theory. They claim that the refusal was retribution for Dr. Scott using another institution, United Bank, to finance other business ventures. [DE 78, at 13.]

         After receiving First Southern's refusal to furnish additional funds, Dr. Scott secured funding in the amount of $2, 040, 000 from United Bank. The stated purpose of this loan was to repay existing debt with United Bank, pay down all debt owed to First Southern, and to provide the necessary $640, 000 to complete the hotel renovation project. For reasons that are disputed, Plaintiffs failed to make the required payments on their line of credit with First Southern in July and August of 2014. As a consequence, First Southern's computer system automatically reported the two payment delinquencies to Equifax. [DE 66-1, at 14.] Even after the line of credit with First Southern was completely paid down in September of 2014, the computer system, while showing the correct balance of zero, continued to note the prior delinquencies. [DE 66-1, at 14.]

         As stipulated by the parties, Dr. Scott became aware of the impact of the delinquencies on his credit score on October 6, 2014. [DE 1, at 5.] On that same day, Dr. Scott sent a text message to Mason, informing him what had occurred. In response, Mason assured Dr. Scott that First Southern would “straighten [the reports] out immediately.” [DE 78, at 20; DE 78, Exhibit K.] In attempting to resolve the problem, First Southern took a series of actions. First, the bank drafted a letter to Clarion Financial, an institution providing credit to the Plaintiffs' dental business, that “the credit agency was provided inadvertent inaccurate information and FSNB [is] making corrections to update the credit bureau's file.” [DE 78, at 20.] Further, First Southern submitted two requests to the national credit reporting agencies to remove the past negative reporting. [DE 66-1, at 14.]

         The parties spent much of October of 2014 trying to resolve the negative reporting issue. During this process, First Southern allegedly advised the Plaintiffs not to pull a credit report because doing so would further exacerbate their credit score problems. [DE 78, at 20.] In addition, in March of 2015, the Plaintiffs discovered that the negative reporting on their credit score had not been corrected. [DE 78, at 21.] By this time, Plaintiffs were represented by counsel. On March 4, 2015, Plaintiffs' attorney sent a letter to First Southern advising the bank that the issue had still not been resolved. The attorney sent First Southern a second letter on June 11, 2015 and a third on August 20, 2015. Throughout this process, however, neither the Plaintiffs nor their attorney, reported the discrepancies directly to a credit reporting agency.

         On July 11, 2016, Plaintiffs filed this action in Fayette Circuit Court bringing claims for: willful, or in the alternative, negligent violations of the Fair Credit Reporting Act; breach of the duty of good faith and fair dealing; fraudulent misrepresentation; and tortious interference with business relationships. [DE 1.] The action was removed to this Court on August 1, 2016 and the parties have since moved for summary judgment pursuant to Fed.R.Civ.P. 56.


         Defendant First Southern has now moved for summary judgement on all five counts asserted in Plaintiffs' Complaint [DE 66.] As to Counts I and II, First Southern contends that the FCRA claims must be dismissed since the Plaintiffs have not satisfied the required element of filing the dispute with a credit reporting agency. Second, First Southern argues that Plaintiffs' claim for breach of duty of good faith and fair dealing (Count III) is preempted by the FCRA and therefore, must be dismissed. Further, First Southern asks this court to dismiss Count IV arguing that Plaintiffs have failed to satisfy the essential elements of a fraudulent ...

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