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RES JUDICATA - IMMUNITY UNDER § 11-99-A-7 - DUTY - RELIANCE BY PARTY NOT IN PRIVITY - FRAUD - CONSPIRACY - THIRD-PARTY BENEFICIARY - ALIANT BANK V. FOUR STAR INVESTMENTS, INC., ET AL.

Aliant Bank v. Four Star Investments, Inc., et al., [Ms. 1150822, 1150823, 1150824, May 5, 2017] __ So. 3d __ (Ala. 2017). In a decision authored by Chief Justice Stuart (Bolin, Parker, Main, and Wise, JJ. concur, and Shaw, J., concurs in the result) the Court reverses in part and affirms in part summary judgment entered against Aliant Bank on claims of conspiracy and other wrongdoing filed by the bank against a number of parties arising from a plan to develop a subdivision to be known as Twelve Oaks.

Aliant loaned $2.3 million to Four Star Investments, Inc. to develop a 197-acre tract of land in Odenville. Four Star’s president Bobby R. Smith, Sr. guaranteed the loan. On September 26, 2011, Aliant secured a $2.2 million default judgment against Four Star and Smith on claims alleging breach of the promissory note and breach by Smith of his guaranty. In March 2012, Aliant filed the instant suit against Four Star and Smith and a number of other parties involved in the development and the bond financing of its infrastructure. The circuit court dismissed all claims against all parties.

The Court first addressed collateral estoppel/res judicata based upon Aliant Bank’s prior action in which it had obtained the default judgment. The Court first noted that “[e]ssentially, the doctrine of collateral estoppel operates to bar the re-litigation of issues actually litigated in a previous action, while the doctrine of res judicata bars the litigation of claims that were or could have been litigated in a previous action.” Ms. *24, citing Lee L. Saad Constr. Co. v. DPF Architects, P.C., 851 So. 2d 507, 516 (Ala. 2002). The Court found collateral estoppel not applicable because the issues determined in the previous action were whether Twelve Oaks breached the promissory note and whether Smith breached his personal guaranty of that debt. The issues in the subsequent case involved whether Improvement District Board members and others breached duties they owed Aliant and whether the Board members and other defendants made misrepresentations to Aliant. Those issues were not litigated in the previous action. The Court noted that although the Aliant loan was a relevant part of both actions, the loan itself was not an “issue” that is subject to collateral estoppel. Ms. *25.

The Court held that “[t]he elements of res judicata are (1) a prior judgment on the merits, (2) rendered by a court of competent jurisdiction, (3) with substantial identity of the parties, and (4) with the same cause of action presented in both suits.” Ms. *27. The Court concluded that res judicata/claim preclusion was not applicable because:

that evidence [breach of the promissory note and guaranty] would not support and is not needed to prove Aliant’s present claims and negligence, breach of fiduciary duties, fraud, conspiracy, and wantonness. Those claims are based on separate and distinct actions, not directly related to the Aliant loan, that were allegedly taken by the Board members and other defendants, and separate evidence is needed to establish those claims. For example, with regard to the negligence and breach-of-fiduciary duty claims asserted against the Board members, that evidence would include evidence of the actions the Board members took in their official capacities and whether those actions were sufficient to fulfill the duties they owed Aliant. Accordingly, the doctrine of res judicata does not bar Aliant from asserting its present claims.

Ms. *29.

The Court also held that dismissal was not supported by the statute of limitations because a factual dispute was presented as to whether Aliant had actual knowledge of the facts that formed the basis of its claims at the time those facts were occurring. Relying on the holding in Bryant Bank v. Talmadge Kirkland and Co., 155 So. 3d 231 (Ala. 2014), the Court cited testimony of Aliant’s loan officer that the bank had received no invoices and had no right to access relevant bank records showing that the bond proceeds were being disbursed despite the fact that construction was not proceeding on the infrastructure. Ms. *36.

Noting that determination of the existence of a duty is generally a question for the Court to decide, the Court also concluded the Improvement District Board member owed duties to Aliant Bank. The Court held

[T]he District exists primarily to benefit those owning property within its boundaries; accordingly, the Board members owe their duties to owners of property within the District. Inasmuch as Alabama is a “title theory” state, Aliant, which at all relevant times held a mortgage on the Twelve Oaks property, must be included among those to whom the Board members owed a duty of care and a duty of loyalty.

Ms. *17.

The Court reached a different conclusion with regard to the bank’s allegation that WHA, the manager of the District, owed fiduciary duties to the bank. The Court affirmed summary judgment for WHA on the fiduciary duty claim, concluding that “Aliant has identified no evidence that would refute the trial court’s conclusion that Aliant had no relationship with WHA, much less a confidential or fiduciary relationship.” Ms. *39. Aliant also asserted a negligence claim alleging that WHA had failed “to act with care and skill in its role as manager of the District.” Ms. *40. The Court concluded that Aliant could not come within any exception to the general rule that “‘where the charge of negligence is based upon breach of duty arising out [of] a contractual relationship, no cause of action arises in favor of one not in privity to the contract.’” Ms. *40, citing Federal Mogul Corp. v. Universal Constr. Co., 376 So. 2d 716, 724 (Ala. Civ. App. 1979). The Court found that Aliant could not establish the duty element of a negligence cause of action against WHA because WHA was never in a position of control over Aliant. Ms. *45-46. The Court also found that there was no evidence of “particularized reliance by Aliant on the skill and knowledge of WHA in WHA’s role as manager of the District.” Ms. *46.

Aliant also named as a defendant a Mr. Hunt, a partner in WHA. The Court rejected Hunt’s argument that the statute of limitations had expired as to him, because Hunt could only show that the bank knew that Hunt was involved in the bond issue through his work for the underwriter for the bonds. The Court noted that “Hunt has cited this Court to no evidence establishing when Aliant knew of Hunt’s involvement in any wrongdoing ....” Ms. *68. The Court rejected the statute of limitations basis for summary judgment for Hunt holding “[t]his Court will decide as a matter of law when a fraud claim accrued, that is, when ‘a person of reasonable prudence would have discovered the alleged fraud,’ only when the evidence is undisputed and allows but one conclusion.” Ms. *68, quoting Bryant Bank [v. Talmadge Kirkland and Co., 155 So. 3d 231, 237 [(Ala. 2014)].

In regard to Aliant’s claims against EOS, the engineering contractor for the development, the Court affirmed summary judgment based upon the statute of limitations. While Aliant had sued the Board members of the District and the other parties in March 2012, it did not assert any claims against EOS until October 29, 2014. Ms. *48. EOS presented evidence in the trial court that before bond proceeds could be disbursed, EOS had to certify as engineer that the disbursement “was consistent with ‘(i) the applicable acquisition or construction contract; (ii) the plans and specifications for the portion of the project with respect to which such disbursement is being made; and (iii) the report of the consulting engineer.’” Ms. *54. EOS also established that Aliant received documents confirming EOS’s role in the approval of disbursement of bond proceeds in March 2012 through post-judgment discovery [a subpoena to EOS] conducted by Aliant in connection with Aliant’s efforts to collect its default judgment on the promissory note and guaranty. Ms. *54. The Court held

It is undisputed by March 2012, Aliant had knowledge of facts that had led it to conclude that Smith’s reimbursement request had improperly been approved and paid and that Aliant was aware that EOS’s approval was required before any reimbursement could be paid and that Harbison had in fact provided that approval. Nevertheless, Aliant did not assert claims against EOS defendants until October 29, 2014. This was more than two years after those claims had accrued, i.e., when, in the exercise of reasonable diligence, they should have been discovered, and we can accordingly conclude as a matter of law that all claims asserted by Aliant against the EOS defendants are barred by the statute of limitations set forth in 6-5-221(a) [Ala. Code 1975]. See § 6-5-221(a) explaining that the two-year statute of limitations set forth therein applies to all civil actions “in tort, contract or otherwise ....”

Ms. *55-56.

The Court also concluded that Aliant’s negligence claims against B&B Construction were barred by the statute of limitations. Those claims also were asserted for the first time in 2014 and “Aliant knew or reasonably should have known of its claims against B&B Construction at least when it filed its initial complaint in March 2012.” Ms. *63.

Aliant also asserted fraud claims against Four Star Investments, Twelve Oaks Properties, and B&B Construction based upon invoices for goods and services allegedly provided to the District by those parties. Aliant asserted that many of the goods and services were never actually provided to the District by those parties and the defendants’ receipt of bond proceeds on those invoices constituted fraud on Aliant. The Court held it had little difficulty concluding that a false representation had been made concerning a material fact. However, the Court affirmed summary judgment as to these claims based upon lack of reasonable reliance. The Court held “it is undisputed ‘[i]n this case that Aliant never relied on or changed its course of action based on the false representations allegedly made in the identified invoices.’” Ms. *60. The Court noted that Aliant’s representative testified that Aliant “didn’t have access to what transpired with the disbursement of the proceeds of the bond issue. We didn’t know when they were disbursed, who they were disbursed to, what was supposed to happen.” Ms. *60. The Court held “‘[i]t is axiomatic that a plaintiff cannot show reliance (reasonable or otherwise) on a statement upon which he or she is unaware.’” Ms. *61, quoting Fisher v. Ciba Specialty Chems. Corp., Civil Action No. 03-0566-WS-B (S.D. Ala. Oct. 11, 2007).

As for Aliant’s claims against the District for fraud, the Court concluded that unlike the Board Members, the District enjoyed immunity from those claims under § 11-99A-7, Ala. Code 1975. The Court noted that “§ 11-99A-7 expressly provides that an improvement district has ‘the same immunity ... as a municipality,’ and this Court has stated that § 11-47-190 ‘absolves a municipality from liability for the intentional torts of its agents.’” Ms. *66, quoting Altmeyer v. City of Daphne, 613 So. 2d 366, 369 (Ala. 1993).

The Court concluded that Aliant Bank presented sufficient evidence to establish a prima facie case of fraudulent misrepresentation against Smith, Twelve Oaks Properties, Hunt, and WHA based upon misrepresentations allegedly made by Hunt in WHA documents transmitted to Aliant. The Court reversed the summary judgment as to those claims. Ms. *72. However, the Court affirmed summary judgment as to Aliant’s claim for fraudulent suppression concluding the bank had not established a duty to disclose on the part of the defendants. The Court held that

a duty to disclose is more likely to be found where there is a special or confidential relationship between the parties, but a duty to disclose may still be found when the parties engage in an arm’s length business transaction and there are special circumstances or when specific information is requested. Mason, 653 So. 2d at 954-55. However, it will be the rare situation and only under the most extreme special circumstances that a duty to disclose is imposed upon parties that have no relationship with each other.

Ms. *76-77. The Court found no duty to disclose on the part of Hunt and WHA with whom Aliant had no relationship. However, the Court reached a different conclusion as to Smith. The bank had a contractual relationship with Smith and Smith made representations to Aliant concerning how bond proceeds would be used. The Court held that “‘even if one is not under a duty to speak, if he decides to do so,’ he must make a full and fair disclosure,’ without concealing any facts within his knowledge.’” Ms. *78, quoting Ellis v. Zuck, 409 F.Supp. 1151, 1158 (N.D. Ala. 1976). The Court reversed the summary judgment in favor of Smith on the fraudulent suppression claim holding that “once Smith represented how the bond proceeds would be used, he had a duty to make a full disclosure as to how those proceeds would be used. Aliant has submitted evidence indicating that Smith’s failure to fulfill that duty and instead conceal the truth about how the bond proceeds would be used, thus inducing Aliant to execute the mortgage-special-assessment acknowledgment and resulting in subsequent injury to Aliant.” Ms. *78-79.

The Court concluded that having found summary judgment was improperly entered against the bank as to fraudulent misrepresentation and some of the fraudulent suppression claims, the trial court accordingly erred in dismissing the conspiracy claims. Certain of the defendants argued that because they had secured summary judgment on the wrong underlying the conspiracy, they could not be held liable for the conspiracy. The Supreme Court rejected this argument holding

[a]lthough it is true that “‘[a] plaintiff alleging conspiracy must have a valid underlying cause of action,’” Callens v. Jefferson County Nursing Home, 769 So. 2d 273, 280 (Ala. 2000), it is not necessary that each alleged conspirator be the subject of an underlying cause of action, only that there be a valid cause of action against at least one of the alleged conspirators.

Ms. *80.

The Court rejected the bank’s argument that it was a third-party beneficiary of the completion agreement between Twelve Oaks Properties and the District. Accordingly, the Court affirmed the summary judgment as to the breach of contract claim. Noting that the determination of third-party- beneficiary status is a conclusion of law reviewed de novo, the Court concluded that even if assumed the contract was intended to bestow benefits upon owners of property in the District “those benefits would run directly only to the party in possession of the property – any benefit to the mortgagee would necessarily be incidental.” Ms. *86.
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