C S Bio Co. v. Comerica Bank

Background

C S Bio Co. and CCS Management, LLC, referred to collectively as “CS,” alleged that they had a long-term banking relationship with Comerica Bank and had received several loans from it. In 2019, CS sought a new $6.6 million loan to help fund improvements to commercial real estate. CS planned to fund the project with existing resources, a Small Business Administration loan, and the proposed Comerica loan.

CS alleged that Comerica advised it that reducing its existing loan portfolio would make approval faster and easier. CS replaced an approximately $3 million Comerica loan with a loan from another lender at a higher interest rate. After construction began, CS alleged that Comerica employees Peter Wentworth and Bill Burke repeatedly indicated that the proposed loan was close to approval and would be funded. The alleged statements included that the loan was on the “20-yard line” and later the “15-yard line,” that approval would follow issuance of a term sheet, and that CS should pay construction costs because Comerica would reimburse it after the loan went through.

The term sheet that CS signed stated in bold that it was for discussion purposes only and did not represent a commitment to lend. It also said that the proposal was subject to credit approval and additional conditions, including a minimum fixed-charge-coverage ratio of 1.25. After the Small Business Administration loan was approved, Comerica told CS that it would not proceed with the financing because CS failed to meet that ratio. CS did not dispute that it failed to meet the ratio, but alleged that Comerica knew earlier that CS’s construction payments could cause the failure and nevertheless encouraged those payments.

Claims and legal standard

The complaint asserted six claims: intentional misrepresentation, concealment, breach of oral agreement, promissory estoppel, negligent misrepresentation, and negligence. CS withdrew the breach-of-oral-agreement claim in its opposition to the motion to dismiss.

Comerica moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally sufficient claim. The court was required to accept material allegations as true and interpret them favorably to CS, but claims involving fraud also had to satisfy a heightened requirement for factual detail.

Court’s analysis

The court rejected Comerica’s argument that a bank generally owes no duty of care to a borrower in an ordinary lending relationship as applied to the misrepresentation claims. The court stated that Comerica could identify no authority suggesting that a bank has no duty to refrain from defrauding its customers.

The court noted that the negligence claim was labeled as general negligence but repeated the same alleged misrepresentations as the negligent-misrepresentation claim. It therefore treated the negligence claim as duplicative of the negligent-misrepresentation claim. The court said that a distinct general-negligence claim might theoretically be possible, but CS had not pleaded one.

The court dismissed the misrepresentation claims because CS had not plausibly alleged that Comerica knew its statements were false when made. The court reasoned that the financial information CS supplied in July showed that it met the ratio requirement at that time, and CS did not allege that Comerica had the other financial information needed to calculate the ratio before December. The court also found it difficult to infer that the bank knew the loan would not be approved while continuing to process the application, particularly because CS alleged no possible motive for such conduct.

The court also found that CS had not plausibly alleged reasonable reliance. CS alleged that it made a contractor payment believing the loan had been approved and would be funded, but the court emphasized that CS signed a term sheet clearly stating that the loan had not been approved and remained subject to numerous conditions. The court stated that CS had not pleaded enough facts to overcome the significance of signing that term sheet.

The promissory-estoppel claim was not viable for similar reasons. Promissory estoppel generally requires a promise, an expectation that the promise will induce action or forbearance, actual detrimental reliance, and a need to enforce the promise to avoid injustice. The court concluded that Comerica’s alleged reassurances about forthcoming approval could not be treated as enforceable promises in light of the term sheet, and that CS could not reasonably have relied on them.

Disposition

The court granted Comerica’s motion to dismiss, with leave to amend. The court dismissed the misrepresentation claims and allowed CS to amend by adding factual allegations supporting the existing claims or stating a different claim arising from the alleged facts. The order required any amended complaint to be filed within 20 days of the order.