Tuesday, January 31, 2012

Banks can make themselves liable simply by foreclosing on you. (My Actual Case Results)

So I made a little law today. In MidCountry Bank v. Todd Bork et al, a Burnette County case, I represent the defendants, whose Wisconsin property is facing foreclosure as part of a larger lawsuit mostly centered on property in Minnesota.

The case roughly shapes up (in our view) this way: A while back, Todd Bork was taken for a ride by his banker, literally: the banker came to his house and suggested that the two take a drive. On that drive [I should note that many of these facts are set forth in affidavit from, but there has as yet been no trial or finding as to their accuracy], the banker suggested that Bork visit a property, and Bork agreed. After touring the property, the banker then suggested that Bork buy that property.

From there, as alleged in our counterclaims, Bork relied on the banker's advice (he'd known the banker for 30 years); at the time, Bork was suffering from some disabilities that he said affected his judgment, and the banker knew about them.

So Bork bought the property, only to learn that it required several hundred thousand in additional investments to fix up. The banker told Bork he could afford to do the transaction anyway, and then structured the loan so that not only was Bork buying the property and fixing it up but also he was paying off a couple hundred thousand on a different line of credit he'd had with the Bank -- essentially securing that line of credit with additional property.

The note was a "negative equity" loan-- the balance kept rising while Bork made minimum payments. After Bork could no longer make payments, he was foreclosed on in Minnesota and Wisconsin, the property which is the subject of these claims being located in Wisconsin.

Bork counterclaimed for breach of fiduciary duty, and the Bank, while denying the allegations (which have yet to be tried in any court) moved to dismiss on statute of limitations' grounds.

The Court made not one, but two novel rulings. First, we moved to deny the motion to dismiss on timeliness grounds. The Bank's replies to counterclaims had not said anything about a statute of limitations defense, and the motion was first raised about a month before the first trial date, many months into the case.

The Court decided that that Bank could not preserve the statute of limitations claim through that catch-all language so many seemingly-smart-but-not-really-that-smart lawyers throw into things; the Bank had said it reserved all other defenses or some such, a way of trying to say "We're claiming this even if we're not claiming it," and that didn't work: the Court (correctly) ruled that the bank couldn't reserve defenses.

But, the Court said, the statute in question (802.06) allows the statute of limitations' defense to be raised by motion, which was what the Bank did. I pointed out that a motion must, as I read the statute, precede the reply, but the Court disagreed, and so the Bank won its procedural argument: it could move to dismiss on statute of limitations grounds a year and a half or so into the case.

The Court then denied the motion to dismiss on substantive grounds, agreeing with me that the breach of fiduciary duty cause of action did not accrue until the Bank actually foreclosed on the property, and so the action was timely because the statute of limitations didn't start to run until the Bank filed this action.

In so ruling, the judge relied on an unpublished decision I provided, Wittenberg Ford-Mercury, Inc. v. Rosenow, Wis. Ct. App. 2009 AP 2931, a case in which an aut0-dealership purchase gone wrong led to breach of fiduciary duty claims that accrued, the Wittenberg court said, when it became clear that the purchase was not going to go through.

There's no clear case law on when a breach of fiduciary duty claim accrues for statute of limitations' purposes, but with a 2-year statute of limitations, it's important to start delineating those boundaries, and now Mid-Country vs. Bork has helped clarify that a little: A cause of action for breach of fiduciary duty under these circumstances accrues when the Bank takes legal action to enforce its claims.

To put it another way: Had the Bank not taken legal action but instead modified the loan, it would never have faced counterclaims in not one, but two states. I wonder if the Bank's lawyers bothered advising Mid-Country of that strategy: modify the loan, get payments coming in, and you'll avoid a counterclaim that will ultimately reduce our billable hours, your legal fees, and everyone's troubles?

Somehow, I suspect they did not.