UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: MACO HOMES, INCORPORATED,
Debtor.

BOB MCLEMORE AND COMPANY,
INCORPORATED; BOB MCLEMORE
HOMES, INCORPORATED; APPLE HOMES,
INCORPORATED; APPLE REALTY 2000,
INCORPORATED; BMI LAND COMPANY,
INCORPORATED; MACO HOMES,
INCORPORATED,
                                    No. 95-2938
Plaintiffs-Appellants,

v.

BRANCH BANKING & TRUST COMPANY;
HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CHARLOTTE,
Defendants-Appellees,

v.

ROBERT V. MCLEMORE,
Third Party Defendant-Appellant.
In Re: MACO HOMES, INCORPORATED,
Debtor.

BOB MCLEMORE AND COMPANY,
INCORPORATED; BOB MCLEMORE
HOMES, INCORPORATED; APPLE HOMES,
INCORPORATED; APPLE REALTY 2000,
INCORPORATED; BMI LAND COMPANY,
INCORPORATED; MACO HOMES,
INCORPORATED,
                                                                 No. 95-2939
Plaintiffs-Appellants,

v.

BRANCH BANKING & TRUST COMPANY;
HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CHARLOTTE,
Defendants-Appellees,

v.

ROBERT V. MCLEMORE,
Third Party Defendant.

Appeals from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, District Judge.
(CA-95-60-3-MU, CA-95-4-3-MU, BK-94-30421)

Argued: April 5, 1996

Decided: September 10, 1996

Before RUSSELL and MOTZ, Circuit Judges, and LAY,
Senior Circuit Judge of the United States Court of Appeals for
the Eighth Circuit, sitting by designation.

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Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Wyatt B. Durrette, Jr., DURRETTE, IRVIN & BRAD-
SHAW, P.C., Richmond, Virginia, for Appellants. Edwin Osborne
Ayscue, Jr., SMITH, HELMS, MULLISS & MOORE, L.L.P., Char-
lotte, North Carolina, for Appellee Branch Banking; Robert C. Ste-
phens, HORACK, TALLEY, PHARR & LOWNDES, Charlotte,
North Carolina, for Appellee Home Federal. ON BRIEF: William O.
Quirey, Hammarstrom Davies, Durham, North Carolina, for Appel-
lants. Robert H. Pryor, SMITH, HELMS, MULLISS & MOORE,
L.L.P., Charlotte, North Carolina, for Appellee Branch Banking;
G. Robert Turner, III, Zipporah Marie Basile, HORACK, TALLEY,
PHARR & LOWNDES, Charlotte, North Carolina, for Appellee
Home Federal.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Bob McLemore & Co., Inc. ("BMC") and its subsidiary companies
(collectively, the "McLemore group"), brought numerous claims
against Home Federal Savings & Loan Association of Charlotte
("Home Federal") and Branch Bank & Trust Co. ("BB&T"). On the
defendants' motions for summary judgment, the district court dis-
missed all claims against the defendants because the McLemore
group had previously executed valid, written agreements releasing the
defendants from all such claims. The McLemore group allege that
they entered into those written releases under fraud and duress. We
agree with the district court's finding that no fraud or duress occurred,
and we affirm the judgment of the district court.

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I.

Robert V. McLemore is the president and sole shareholder of
BMC, which is engaged in land development and home construction.
BMC is the corporate parent of BMI Land Co., Inc. ("BMI Land"),
Bob McLemore Homes, Inc. ("BMH"), Apple Homes, Inc. ("Apple
Homes"), Apple Realty 2000, Inc. ("Apple Realty"), and MACO
Homes, Inc. ("MACO Homes"). BMI Land is engaged in the purchase
and development of tracts of land for home construction. BMH and
Apple Homes are engaged in the construction of new homes. To
induce customers to purchase new homes, McLemore created the
"trading places" program; under this innovative program, a person
who signed a construction contract for a new home with BMH or
Apple Homes could trade in his existing home, which the McLemore
group agreed to sell before the completion of the new home. Apple
Realty was created to list and sell the new home buyers' existing
homes. If Apple Realty could not sell the existing home before the
closing of the new home, MACO Homes would purchase the existing
home and manage it as rental property.

Since 1972, the McLemore group worked closely with Home Fed-
eral to finance all phases of its construction operations. When the
McLemore group wanted to begin development of a property, Home
Federal would make the initial acquisition and development loan to
BMI Land. When BMH or Apple Homes sold lots to individual home
buyers, Home Federal would make the construction loans to McLem-
ore and use the proceeds of those loans to pay down the initial acqui-
sition and development loan. After construction of the new homes and
upon closing with the home buyers, Home Federal made the perma-
nent mortgage loans to the home buyers and used the proceeds to pay
down the construction loans. If necessary, Home Federal made a sec-
ond permanent mortgage loan to finance the sale of the customer's
existing home either to a third-party or to MACO Homes. For many
years, the McLemore group and Home Federal enjoyed an extremely
close and very profitable financing relationship.

In 1988, the McLemore group proposed a drastic expansion in the
scope of its business--from three to nineteen residential development
projects. Home Federal approved the financing of the new construc-

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tion, and the McLemore group began purchasing and developing
tracts of land.

In August 1989, however, Congress enacted the Financial Institu-
tions Reform Recovery and Enforcement Act ("FIRREA"), which
necessarily altered the McLemore group's financing relationship with
Home Federal. FIRREA imposed a requirement on thrift institutions
that prevented them from extending more than 15% of its unimpaired
capital to a single borrower. Although a thrift could seek and receive
a waiver from the Office of Thrift Supervision ("OTS"), allowing it
to loan up to 30% of its unimpaired capital to a single borrower, even
the 30% limit restricted Home Federal's ability to continue financing
the McLemore group's activities in the same manner as it had in the
past.

Because Home Federal could no longer meet all of the McLemore
group's financing needs, the McLemore group started doing business
with BB&T, which had actively sought the McLemore group as a cli-
ent. On March 28, 1990, BB&T executed a commitment to loan the
McLemore group seven million dollars--one million dollars to BMI
Land for land development, five million dollars to BMH and Apple
Homes for homes construction, and one million dollars to MACO
Homes for the purchase of rental homes. On August 7, 1991, BB&T
and the McLemore group executed another commitment agreement
that replaced the March 28, 1990 agreement. The terms of the August
7, 1991 agreement specified that the commitment to lend expired on
September 1, 1992. Between March 1990 and June 1992, BB&T
made loans to the McLemore group in accordance with the terms of
the commitment agreements.

By June 1992, however, BB&T had determined that the financial
condition of the McLemore group was deteriorating. On June 24,
1992, BB&T informed the McLemore group that it would not renew
its commitment to provide financing beyond the September 1, 1992
expiration date of the August 7, 1991 agreement. BB&T and the
McLemore group negotiated a schedule by which the McLemore
group would repay its outstanding debts to BB&T. The parties exe-
cuted a repayment agreement on October 5, 1992. By December
1992, the McLemore group had defaulted under the terms of the

                    5
repayment agreement. The parties began negotiating a workout agree-
ment for the McLemore group's defaults.

On April 8, 1993, the McLemore group and BB&T executed a
written workout agreement. Under this agreement, BB&T accepted
the deeds to certain properties and released the McLemore group from
its indebtedness on those properties, thus avoiding the need for fore-
closure proceedings. BB&T also extended some of the McLemore
group's obligations and loaned additional money to pay certain liens
and interest payments, thus giving the McLemore group an opportu-
nity to work out the defaults on some of the properties. The McLem-
ore group also released BB&T from any and all claims known or
unknown, absolute or contingent, matured or unmatured that the
McLemore group had against BB&T. During the course of the negoti-
ations culminating in the workout agreement, the McLemore group
was represented by counsel.

The McLemore group subsequently defaulted on the terms of the
April 8, 1993 workout agreement, and BB&T foreclosed on the
remaining properties.

Meanwhile, the McLemore group's financial position with Home
Federal had also deteriorated. The McLemore group defaulted on its
Home Federal loans in 1991. As it had done in the past, Home Fed-
eral worked with the McLemore group to bring the loans current. By
June 1993, MACO Homes had defaulted on all its loans from Home
Federal, as well as its loans from Southern National Bank of North
Carolina ("Southern National") and United Carolina Bank ("UCB").
After a series of negotiations, the McLemore group, Home Federal,
Southern National, and UCB entered an agreement, in which the three
banks loaned MACO Homes additional funds to bring its loans cur-
rent.

By July 1993, the McLemore group remained in default on the
acquisition and development loans to BMI Land and the home con-
struction loans to BMH. The McLemore group and Home Federal
negotiated a workout agreement, which the parties executed on
August 20, 1993. Under this agreement, Home Federal granted the
McLemore group a six-month forbearance period on its defaults, giv-
ing the McLemore group a chance to sell properties and pay down its

                    6
indebtedness. Home Federal also reduced the interest rate on certain
loans during this forbearance period, and it forgave $390,206 in past
due interest. The workout agreement also included the McLemore
group's release from any claims that the McLemore group had against
Home Federal. The McLemore group was represented by counsel
when it negotiated and signed the workout agreement with Home
Federal.

The McLemore group was unsuccessful in its efforts to sell proper-
ties and to pay down its outstanding debt. At the end of the forbear-
ance period, the McLemore group's loans remained in default. Home
Federal informed the McLemore group of its obligation under the
workout agreement to deliver the deeds to Home Federal in lieu of
foreclosure.

In response, the McLemore group filed a complaint against Home
Federal and BB&T in North Carolina state court on February 22,
1994. When three of the McLemore group companies filed for bank-
ruptcy, this action was removed to the United States Bankruptcy
Court for the Western District of North Carolina. In two separate
entries of proposed findings of fact and conclusions of law, the bank-
ruptcy court recommended the entry of summary judgment on all
claims against Home Federal and BB&T because, inter alia, the April
8, 1993 workout agreement and the August 20, 1993 workout agree-
ment released Home Federal and BB&T from all of the claims
brought by the McLemore group. The district court adopted verbatim
the bankruptcy court's proposed findings of fact and conclusions of
law. The McLemore group filed a timely appeal.

II.

We review the district court's grant of summary judgment de novo.
Evans v. Technologies Applications & Serv. Co. , 80 F.3d 954, 958
(4th Cir. 1996). Although the district court asserted several reasons
for dismissing the McLemore group's claims, its primary reason was
the existence of the release provisions in the April 8, 1993 and August
20, 1993 workout agreements. The McLemore group contends that
the district court should not have enforced the release provisions for
two reasons: first, the McLemore group signed the workout agree-
ments under duress, and second, the McLemore group was defrauded

                    7
into signing the workout agreements. We consider each argument in
turn.

A. Duress

Under North Carolina law, a person who enters into a contract
under duress can avoid his obligations under that contract. Duress
exists "where one by the unlawful act of another is induced to make
a contract or perform or forego some act under circumstances which
deprive him of the exercise of free will." Adder v. Holman & Moody,
Inc., 219 S.E.2d 190, 194 (N.C. 1975). Although duress may arise
from the wrongful use of physical force or threats of physical force,
it can also arise from the wrongful exertion of economic pressure.
However, not every imbalance in economic power creates a situation
of economic duress. Economic duress arises from the illegitimate use
of economic power outside the bounds of a contract or the law. See
Rose v. Vulcan Materials Co., 194 S.E.2d 521, 536 (N.C. 1973).
Thus, the mere threat by one party to breach a contract, though
wrongful, does not establish economic duress. Id . Economic duress
occurs when a party's wrongful action forces another to make a con-
tractual promise, or else suffer irreparable injury to his business. See
id. In addition, the wronged party must have"no immediate and ade-
quate remedy in the courts" that would enable him to resist the other's
demands. Id.

The McLemore group contends that it signed the workout agree-
ments under duress. We disagree for two reasons. First, neither
BB&T nor Home Federal exerted any undue economic pressure on
the McLemore group. The threat of foreclosure certainly pressured
the McLemore group into signing the workout agreements, but BB&T
and Home Federal had the legal right to threaten foreclosure because
the McLemore group defaulted on its loans. Neither BB&T nor Home
Federal created the McLemore group's weak financial position, thus
forcing it to negotiate workout agreements from a weak bargaining
position.*
_________________________________________________________________
*The McLemore group alleges that Home Federal created artificial
defaults by deliberately misapplying the McLemore group's loan pay-
ments: instead of using loan payments first to pay off any interest due

                    8
Second, the undisputed evidence in the record demonstrates that, as
an alternative to signing the workout agreements, the McLemore
group could have sought the protection of the bankruptcy code.
Instead, and with the hopes of saving its business, the McLemore
group chose to enter workout agreements that released BB&T and
Home Federal from any actions it could pursue against them. Because
the McLemore group had an alternative to signing the workout agree-
ments, it cannot argue that it entered those agreements under duress.

B. Fraud

Next, the McLemore group contends that BB&T and Home Fed-
eral, on several occasions, represented to it that BB&T and Home
Federal were not planning a merger. The McLemore group alleges
that BB&T and Home Federal began merger negotiations as far back
as 1989, culminating in a merger agreement at the end of 1993. The
McLemore group also alleges that Home Federal represented to the
McLemore group that the OTS had denied Home Federal a 30%
waiver in 1992, when in fact Home Federal never applied for such a
waiver. Furthermore, the McLemore group alleges that Home Federal
misapplied the McLemore group's payments, causing the McLemore
_________________________________________________________________
and then to pay down principal, Home Federal began applying the entire
loan payment to pay down principal, thus allowing the McLemore group
to fall behind on interest payments. The McLemore group has supported
its allegations with verified affidavits, and we do not resolve this factual
dispute at this stage of the proceedings.

Nonetheless, such misconduct, even if it occurred, would not establish
that the McLemore group signed the workout agreement with Home Fed-
eral under duress. If Home Federal had misapplied loan payments, the
McLemore group either knew or should have known of this fact before
it signed the workout agreement. Although the McLemore group trusted
Home Federal to handle the accounting of its loan payments, it had a
duty to make at least some inquiries to ensure that Home Federal kept
the books correctly. Certainly by the time Home Federal threatened fore-
closure proceedings, the McLemore group should have investigated to
ensure that Home Federal had correctly applied the loan payments to its
debts. By signing the workout agreement, the McLemore group chose to
release Home Federal from its misconduct in exchange for a forbearance
period to cure its loan defaults.

                   9
group to fall behind in its interest payments and to default on its
loans. The McLemore group argues that it would not have signed the
workout agreements if it had known about the defendants' fraud.

Although the McLemore group's allegations may serve as the basis
of fraud actions against BB&T and Home Federal, the McLemore
group released the defendants from such actions in the workout agree-
ments. There is no evidence in the record that BB&T and Home Fed-
eral fraudulently induced the McLemore group to sign the release
agreements. With regard to each of the two workout agreements, the
district court found that the McLemore group actively participated in
the negotiations, reviewed drafts of the agreement, and made changes
to the agreement. The McLemore group was represented by counsel
throughout the negotiations and the signing of the agreements. The
district court found that the McLemore group knew that each workout
agreement contained a release provision when it signed the agree-
ment.

Like the district court, we conclude that the undisputed facts dem-
onstrate that the McLemore group was not induced by fraud to enter
into the workout agreements with BB&T and Home Federal.

III.

We agree with the district court that the release provision in the
workout agreements is a valid defense against all of the McLemore
group's claims against BB&T and Home Federal. Therefore, we need
not consider the McLemore group's other arguments. We affirm the
district court's entry of summary judgment in favor of the defendants
on all claims.

AFFIRMED

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