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Scott v. First Southern National Bank

United States Court of Appeals, Sixth Circuit

August 29, 2019

Michael L. Scott; Linda A. Larkin, Plaintiffs-Appellants,
v.
First Southern National Bank, Defendant-Appellee.

          Argued: August 9, 2019

          Appeal from the United States District Court for the Eastern District of Kentucky at Lexington. No. 5:16-cv-00281-Karen K. Caldwell, Chief District Judge.

         ARGUED:

          Richard A. Getty, THE GETTY LAW GROUP, PLLC, Lexington, Kentucky, for Appellants.

          Robert C. "Coley" Stilz III, KINKEAD & STILZ, PLLC, Lexington, Kentucky, for Appellee.

         ON BRIEF:

          Richard A. Getty, Danielle Harlan, THE GETTY LAW GROUP, PLLC, Lexington, Kentucky, for Appellants.

          Robert C. "Coley" Stilz III, KINKEAD & STILZ, PLLC, Lexington, Kentucky, Stanton L. Cave, LAW OFFICE OF STAN CAVE, Lexington, Kentucky, for Appellee.

          Before: CLAY, LARSEN, and READLER, Circuit Judges.

          OPINION

          CLAY, CIRCUIT JUDGE.

         Plaintiffs Michael L. Scott and Linda A. Larkin filed a five count Complaint in state court against Defendant First Southern National Bank ("First Southern") after First Southern failed to extend additional loans to finance Plaintiffs' commercial renovation project. First Southern removed the action to federal district court, properly invoking federal question jurisdiction, see 28 U.S.C. §§ 1331 and 1441, for Plaintiffs' claims under the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681, et seq., and supplemental jurisdiction over Plaintiffs' related state common law claims, see 28 U.S.C. § 1367. After discovery, First Southern moved for summary judgment on all claims. In response, Plaintiffs filed a motion for partial summary judgment on their claim that First Southern breached its duty of good faith and fair dealing. The district court granted First Southern's motion for summary judgment, denied Plaintiffs' motion for partial summary judgment, and entered judgment in favor of First Southern. Plaintiffs filed this timely appeal.

         For the reasons provided below, we AFFIRM the district court.

         I. BACKGROUND

         A. Factual History

         Plaintiffs own two dental practices, several LLC's that own properties that Plaintiffs use to generate rental income, a sports bar, and an indoor basketball gymnasium that they also rent out as an event center. Around 2009, Scott began "buying property" that he "could rehab" because "it was a great time to buy . . . especially in Cincinnati." (Scott Dep., ECF No. 66-2 at PageID #322.) To further his property-investment efforts, Scott obtained a $300, 000 commercial line of credit ("Credit Line") from First Southern.

         Scott had previously taken out several loans from First Southern, including a home equity loan, a line of credit, and a construction loan. From his prior dealings with First Southern, Scott knew that First Southern went through a "process" before it "len[t] money or renew[ed] notes to approve people for loans." (Id. at 316.) Scott knew that this process entailed "collect[ing] . . . financial information about the borrower" through "[p]ersonal financial statements" and "credit reports" and gathering "information about the collateral that's going to be pledged." (Id. at 317.) And Scott understood that First Southern evaluated this financial information before deciding whether to approve a borrower for a loan.

         In June 2013, Scott sought a loan from First Southern to convert a vacant former hotel into 26 apartment units and two commercial spaces. To support his loan request, Scott provided First Southern with a total cost estimate of $941, 793.32 for the renovation. Scott submitted the cost estimate to Rocky Mason, the Community President of First Southern's Lexington branch who managed Plaintiffs' accounts at First Southern. Scott and Mason also communicated about the loan request via text message, discussing, among other things, the terms of the potential loan, the bank's appraisal of Scott's collateral, and the bank's valuation of the renovation project.

         After First Southern received the cost estimates for the renovation project from Scott, First Southern followed its usual process for reviewing a request for a sizable loan. An analyst from First Southern evaluated Plaintiffs' financial statements, three years of Plaintiffs' tax returns, and Plaintiffs' credit report. The analyst compiled Plaintiffs' financial information into a "loan presentation" that was submitted to First Southern's Executive Loan Committee. After reviewing the loan presentation, the Executive Loan Committee approved Plaintiffs' loan request.

         On July 23, 2013, Plaintiffs and First Southern executed a Commercial Loan Agreement through which Frist Southern extended Plaintiffs a commercial loan for the renovation project ("Construction Loan"). The Commercial Loan Agreement provided that the "maximum total principal balance" for the Construction Loan "will not exceed $1, 013, 519.00." (Loan Agreement, ECF No. 66-11 at PageID #582.) The Commercial Loan Agreement, by its terms, represented "the complete and final expression of the understanding between" Plaintiffs and First Southern, provided that it could "not be amended or modified by oral agreement," and stated that "[n]o amendment or modification . . . is effective unless made in writing and executed" by Plaintiffs and First Southern. (Id. at PageID #587.)

         While the Commercial Loan Agreement did not contain any promise that First Southern would extend additional loans to Plaintiffs, Scott believed that First Southern would loan him any extra funds needed to complete the renovation. According to Scott, he and Mason had discussed the possibility of cost overruns before Plaintiffs and First Southern entered into the Commercial Loan Agreement; Mason understood that overruns were likely and told Scott that because of Scott's longstanding relationship with First Southern, Mason "d[id]n't see [Scott] having any problems" obtaining additional financing. (Scott Dep., ECF No. 66-2 at PageID #336.) Scott asserts that Mason "represented [that] the project was going to be finished." (Id. at PageID #345.) Scott states that he relied on Mason's assurances that Scott could obtain additional funding in deciding to finance the project through First Southern rather than through a different lending institution.

         In early November 2013, Scott informed Mason via text message that Plaintiffs would likely need an additional $400, 000 to complete the renovation. Scott asked Mason to "let me know as soon as possible" if First Southern "cannot do" the additional loan because Scott could "get it from PNC" instead. (Text Messages, ECF No. 66-7 at PageID #533.) In response, Mason asked Scott to provide a "breakdown" for the additional $400, 000 Scott might request. (Id.) Scott stated that he would have the architect for the renovation project explain to Mason the reasons for requesting the additional funds.

         On November 9, 2013 and November 27, 2013, the architect provided Mason with revised bids for certain individual components of the renovation. But the architect did not provide an updated estimate of the total cost to complete the project. On January 10, 2014, Mason emailed Scott, "[i]f you will need more funds, we will need to gather an estimate of what it will cost to complete soon." (ECF No. 77-14 at PageID #1195.) On February 21, 2014, the architect provided First Southern with an updated cost estimate for the entire renovation project. The revised total estimated cost was $1, 654, 648.65, i.e., approximately $712, 000 above the total cost for the project that Plaintiffs had represented in their loan application and approximately $640, 000 more than First Southern had loaned Plaintiffs.

         The following week, Mason and Scott met in Cincinnati. Mason states that Scott requested that First Southern loan Plaintiffs an additional $650, 000; that Mason requested that Scott present additional collateral to support his new loan request; and that Scott refused to offer additional collateral. Scott states that Mason never asked that Scott provide additional collateral. Scott also asserts that additional collateral was not needed because he was already "overcollateralized" on his loans with First Southern. (Scott Dep, ECF No. 66-2 at PageID #358.) A few days after their meeting, Scott texted Mason to "try [his] best to get the whole amount" of the additional funds that Scott had requested. (ECF No. 66-7 at PageID #539.)

         Mason initiated the process of reviewing Scott's new loan request. This process involved obtaining itemized cost breakdowns from the architect, assembling Plaintiffs' updated financial information, running new credit checks on Plaintiffs, and ultimately seeking approval of a new loan from First Southern's Executive Loan Committee. When compiling this updated information, an analyst from First Southern discovered that Plaintiffs had incurred additional debt in the period since First Southern had approved the Construction Loan and that Plaintiffs had failed to disclose this new debt to Frist Southern. After ...


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