               Filed 3/13/19 by Clerk of Supreme Court
                        IN THE SUPREME COURT
                     STATE OF NORTH DAKOTA


                                  2019 ND 76


Baker Boyer National Bank,                               Plaintiff and Appellee

      v.

JPF Enterprises, LLC,                                 Defendant and Appellant


                                 No. 20180222


       Appeal from the District Court of McKenzie County, Northwest Judicial
District, the Honorable Daniel S. El-Dweek, Judge.

      AFFIRMED.

      Opinion of the Court by Crothers, Justice.

      Trevor A. Hunter (argued), Williston, ND, and Todd Reuter (on brief),
Spokane, WA, for plaintiff and appellee.

      Steven J. Wild, Bowman, ND, for defendant and appellant.
             Baker Boyer National Bank v. JPF Enterprises, LLC
                                   No. 20180222


       Crothers, Justice.
[¶1]   JPF Enterprises, LLC, appeals from a summary judgment awarding Baker
Boyer National Bank $858,135.47 on its breach of contract claim and dismissing
JPF’s counterclaim for fraud in the inducement. JPF argues the district court erred
in granting summary judgment on the counterclaim for fraud in the inducement. We
conclude JPF failed to raise a genuine issue of material fact about the existence of a
fiduciary relationship, and affirm the summary judgment.


                                          I
[¶2]   Baker Boyer loaned money to JPF for the purchase of thirty mobile homes
from Jason Sundseth and his company, Vindans LLC, for use as rental housing in
western North Dakota. In 2013, Vindans owned the homes and rented them to oil
field workers through Greenflex Housing, LLC, and Greenflex’s rental manager,
Badlands, LLC. Vindans purchased the homes with financing from Baker Boyer.
[¶3]   In the summer of 2013, James Foust, managing owner of JPF, and Sundseth
began negotiations for JPF to purchase the homes from Vindans, and JPF sought
financing for the purchase from Baker Boyer. According to Foust, Baker Boyer’s
loan officer, Chris Sentz, obtained rental information from Greenflex Housing
indicating the monthly rental proceeds from the thirty homes was $9,600 and would
not service JPF’s anticipated monthly payments of about $15,000 for the loan. Foust
also claimed Baker Boyer required JPF to contract with Greenflex Housing to rent the
homes to oil field workers and informed him the arrangement would result in a return
of $45,000 per month for the thirty homes. According to Foust, Vindans’ loan with
Baker Boyer was near foreclosure and Baker Boyer failed to inform him that his
purchase of the homes would not be profitable.



                                          1
[¶4]   On August 20, 2013, Sentz emailed Foust that the requested financing for the
purchase was “no longer a viable possibility” and that he would be sending an
“official declination letter in the mail.” Foust testified in his deposition that the denial
was because Sundseth “was absolutely impossible to deal with” and Foust told Sentz
he was “out of the deal.” Foust also testified the denial had nothing to do with the
“soundness of [his] financials.” Baker Boyer did not send Foust a declination letter
in the mail. On August 26, 2013, Sentz emailed Foust that “things have occurred” to
allow Baker Boyer to again consider financing JPF’s purchase of the homes.
According to JPF, the subsequent development was the availability of Foust’s
personal guaranty of JPF’s loan.
[¶5]   On September 24, 2013, JPF and Vindans executed an asset purchase
agreement for JPF to purchase the thirty homes contingent on JPF obtaining
financing from Baker Boyer. The purchase agreement stated the purchase price for
the homes was a $1,000,000 payoff of Baker Boyer’s loan to Vindans and a $245,000
payment to Vindans.
[¶6]   In October 2013, Baker Boyer and JPF executed loan documents for JPF to
borrow $1,077,600 from Baker Boyer to finance JPF’s purchase of the homes from
Vindans. The loan documents included a promissory note, a business loan agreement,
a commercial guaranty of JPF’s loan by Foust, a security agreement listing the mobile
homes as collateral for the loan, and financing statements. Foust’s personal guaranty
stated “that, absent a request for information, Lender shall have no obligation to
disclose to Guarantor any information or documents acquired by Lender in the course
of its relationship with Borrower.”
[¶7]   In November 2015, JPF defaulted on its loan from Baker Boyer, and Baker
Boyer sued JPF in North Dakota1 to enjoin JPF from transferring or disposing of the
loan collateral, to take possession of the collateral, for appointment of a receiver, for

       1
       Baker Boyer also sued Foust personally in Washington on his personal
guaranty. In October 2018 the Washington Court of Appeals affirmed a summary
judgment dismissing Foust’s counterclaim for fraud in the inducement. Baker Boyer
Nat’l Bank v. Foust, 431 P.3d 131 (Wash. Ct. App. 2018).
                                             2
sale of the collateral and for a money judgment. JPF answered and counterclaimed,
admitting payments were not made as agreed and alleging fraud in the inducement.
JPF claimed Baker Boyer acted as an intermediary for JPF’s purchase of the homes
from Vindans and failed to disclose information to JPF about the physical condition
of the homes, the financial condition of Vindans, and the uncertain financial viability
of the home rentals. JPF sought an order requiring Baker Boyer to refund more than
$600,000 that JPF paid to Baker Boyer in exchange for JPF transferring all right, title
and interest in the homes to Baker Boyer.
[¶8]   The district court granted Baker Boyer’s motion for summary judgment, ruling
Baker Boyer was entitled to judgment as a matter of law on its claim for damages
against JPF and awarding Baker Boyer $858,135.47. The court also concluded Baker
Boyer was entitled to judgment as a matter of law on JPF’s counterclaim for fraud in
the inducement, ruling JPF failed to provide competent admissible evidence
establishing a genuine issue of material fact about the existence of a fiduciary
relationship between Baker Boyer and JPF. The court said:
              “The Defendant relies upon American Bank Center v. Wiest,
       2010 ND 251 to support its counterclaim. However, unlike this case,
       Wiest involves the bank admitting that there was fraud committed by its
       agent, a loan officer. Also unlike this case, Wiest involves numerous
       material misrepresentations by the bank’s loan officer which induced
       the debtor to borrow money. Furthermore, it is clear that the loan
       officer in Wiest was more than just a loan officer. Here, it does not
       appear that the bank was doing more than a bank loan officer typically
       would do. Therefore, there is no evidence of [a] fiduciary [ ]
       relationship between the parties in this matter.
               “The Defendant contends that the bank had a duty to disclose
       that the loan involving these trailers was nonperforming. As a
       knowledgeable investor, the Defendant had to know that banks
       sometimes make loans on assets that turn out to be nonperforming.
       Furthermore, a change in ownership or management of a real estate
       investment can often turn an unprofitable investment in the right
       direction. Therefore, the mere fact that the loans on these assets were
       nonperforming is not something that the bank would necessarily need
       to disclose. Moreover, as a non-party to the purchase agreement of
       these trailers, [the] bank had no duty to disclose that the assets were not
       profitable up to this point.
                                           3
               “The Court also is [ ] persuaded that having a lease agreement
       in place prior to the loan of $1 million would be part of the normal
       underwriting process, and not the result of a fiduciary relationship.
       Having such agreements in place reduce the risk of default, which is a
       legitimate goal of the lending process. Requiring such an agreement
       does not create a fiduciary or special relationship between the parties.
       Because there must be a fiduciary relationship as a condition precedent
       to a fraudulent inducement claim, the counterclaim must fail.”


                                           II
[¶9]   We review the issues raised in this appeal in the posture of summary judgment.
Under N.D.R.Civ.P. 56(c),2 summary judgment “shall be rendered if the pleadings,
the discovery and disclosure materials on file, and any affidavits show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment
as a matter of law.” Our standard for reviewing a summary judgment is well
established:
       “Summary judgment is a procedural device for the prompt resolution
       of a controversy on the merits without a trial if there are no genuine
       issues of material fact or inferences that can reasonably be drawn from
       undisputed facts, or if the only issues to be resolved are questions of
       law. A party moving for summary judgment has the burden of showing
       there are no genuine issues of material fact and the moving party is
       entitled to judgment as a matter of law. In determining whether
       summary judgment was appropriately granted, we must view the
       evidence in the light most favorable to the party opposing the motion,
       and that party will be given the benefit of all favorable inferences
       which can reasonably be drawn from the record. On appeal, this Court
       decides whether the information available to the district court precluded
       the existence of a genuine issue of material fact and entitled the moving
       party to judgment as a matter of law. Whether the district court
       properly granted summary judgment is a question of law which we
       review de novo on the entire record.”




       2
       Rule 56, N.D.R.Civ.P. was amended effective March 1, 2019. The former
language of N.D.R.Civ.P. 56(c) is substantively the same as the current language in
N.D.R.Civ.P. 56(c)(3).
                                           4
Wenco v. EOG Res., Inc., 2012 ND 219, ¶ 8, 822 N.W.2d 701 (quoting Arndt v. Maki,
2012 ND 55, ¶ 10, 813 N.W.2d 564).
[¶10] Summary judgment is appropriate when a party fails to establish the existence
of a factual dispute on an essential element of that party’s claim on which the party
will bear the burden of proof at trial. Mr. G’s Turtle Mountain Lodge v. Roland Twp.,
2002 ND 140, ¶ 23, 651 N.W.2d 625. When no pertinent evidence on an essential
element is presented to the district court in opposition to a motion for summary
judgment, it is presumed no such evidence exists. Id. Issues of fact become issues
of law if reasonable persons could reach only one conclusion from the facts. Saltsman
v. Sharp, 2011 ND 172, ¶ 5, 803 N.W.2d 553.


                                          III
[¶11] JPF argues the district court erred in dismissing JPF’s counterclaim because
genuine issues of material fact exist on its claim for fraud in the inducement. Relying
on Am. Bank Ctr. v. Wiest, 2010 ND 251, ¶¶ 31-32, 793 N.W.2d 172, JPF argues that
the existence of special circumstances beyond a normal banking relationship is a
question of fact, and that correspondence from Baker Boyer’s loan officer, Sentz,
shows this loan was not made in an ordinary lender-borrower relationship. JPF argues
Baker Boyer breached a fiduciary duty to disclose information to Foust and JPF about
the questionable financial viability of renting the homes. JPF claims a fiduciary duty
exists because Baker Boyer failed to inform JPF of the initial reason for denying the
loan application in a declination letter required under 15 U.S.C. § 1691(d). He also
claims a fiduciary duty exists because Baker Boyer required JPF to contract with
Greenflex Housing to manage the homes. JPF argues evidence established a “unique
underwriting process” rather than a standard lender-borrower relationship and Baker
Boyer had a fiduciary duty to disclose information to Foust.
[¶12] Baker Boyer claims the undisputed facts show its loan with JPF involved
nothing more than a typical lender-borrower relationship. Baker Boyer argues JPF
failed to provide competent admissible evidence showing that JPF placed its faith,

                                          5
confidence, or trust in Baker Boyer, that Baker Boyer exercised control or influence
over JPF’s affairs, or that Foust or JPF were in a position of inequality, dependence,
weakness, or lack of knowledge.
[¶13] A valid contract requires parties capable of contracting, consent, a lawful
object and sufficient consideration. N.D.C.C. § 9-01-02. See Wiest, 2010 ND 251,
¶ 10, 793 N.W.2d 172; Erickson v. Erickson, 2010 ND 86, ¶ 7, 782 N.W.2d 346. The
parties’ consent must be free, mutual and communicated by each to the other.
N.D.C.C. § 9-03-01. See Wiest, at ¶ 10; Erickson, at ¶ 7. A party’s apparent consent
is not free when it is obtained through either actual or constructive fraud. N.D.C.C.
§§ 9-03-03(3) and 9-03-07. See Wiest, at ¶ 10; Erickson, at ¶ 7. In Erickson, at ¶ 8,
we discussed the application of actual or constructive fraud necessary to invalidate a
contract:
              “Persons alleging actual or constructive fraud seek to invalidate
       contracts by arguing consent was not freely obtained. See N.D.C.C.
       § 9-03-01(1) (parties’ consent to a contract must be free); § 9-03-03(3)
       (consent is not free when obtained through fraud); § 9-03-07 (‘Fraud is
       either actual or constructive.’). The most significant difference
       between the two claims is that actual fraud requires proof of an intent
       to deceive, while constructive fraud requires no proof of such intent.
       N.D.C.C. §§ 9-03-08 and 9-03-09(1). Although actual and constructive
       fraud both invalidate a party’s apparently free consent to a contract, the
       two types of fraud differ in the source of injury they address. Actual
       fraud confronts situations where one party intentionally misrepresents
       or conceals facts from another contracting party. N.D.C.C. § 9-03-08.
       Constructive fraud confronts situations where the source of the
       claimant’s injury is the breach of an existing duty between the
       contracting parties. N.D.C.C. § 9-03-09(1). As this Court stated in
       Fire Ass’n of Philadelphia v. Vantine Paint & Glass Co.:
              Constructive fraud . . . rests upon presumption and rests
              less upon furtive intent than does [actual] fraud. It is
              presumed from the relation of the parties to a transaction
              or from the circumstances under which it takes place.”
133 N.W.2d 426, 431 (N.D. 1965) (quotation omitted).
[¶14] Under N.D.C.C. § 9-03-09:
       “Constructive fraud consists:


                                           6
       1. In any breach of duty which, without an actually fraudulent intent,
       gains an advantage to the person in fault or anyone claiming under that
       person, by misleading another to the other’s prejudice or to the
       prejudice of anyone claiming under the other; or
       2. In any such act or omission as the law specially declares to be
       fraudulent without respect to actual fraud.”
[¶15] Under Erickson and our statutory provisions for consent to a contract and
constructive fraud, JPF’s claim for fraud in the inducement required Baker Boyer to
have a fiduciary duty to JPF and to breach that duty.
[¶16] “The relationship between a bank and its customers is viewed as a
debtor-creditor relationship which does not ordinarily impose a fiduciary duty upon
a bank.” Union State Bank v. Woell, 434 N.W.2d 712, 721 (N.D. 1989). “Some
courts have recognized that a fiduciary relationship may arise under circumstances
which reflect a borrower’s reposing of faith, confidence and trust in a bank with a
resulting domination, control or influence exercised by the bank over the borrower’s
affairs.” Id. In those circumstances, “the borrower or party reposing the confidence
must be in a position of inequality, dependence, weakness, or lack of knowledge.”
Id. However, “[i]n a commercial context, the mere rendering of advice by a lender
to a borrower, even if given in a sincere effort to help the borrower prosper, does not
transform a business relationship into a fiduciary relationship.” Id. “Rather, actual
day-to-day involvement in management and operations of the borrower or the ability
to compel the borrower to engage in unusual transactions is required for the purposes
of showing that a lending institution had ‘control over a borrower.’” Id. The
existence of a fiduciary relationship is a question of fact which is dependent upon a
showing of special circumstances. First Nat’l Bank & Trust Co. v. Brakken,
468 N.W.2d 633, 637 (N.D. 1991).
[¶17] In Woell, 434 N.W.2d at 721, this Court affirmed the summary judgment
dismissal of a claim that a bank breached a fiduciary duty to a customer. We
explained the customer failed to provide any evidence permitting a reasonable
inference the bank had dominion or control over the customer’s business and the



                                          7
record established the bank’s association with the customer did not extend beyond the
normal incidents of a debtor-creditor relationship. Id.
[¶18] In Wiest, 2010 ND 251, ¶ 38, 793 N.W.2d 172, we affirmed a district court’s
findings that special circumstances established a bank’s fiduciary relationship with
a customer and imposed a duty of disclosure. In that case, evidence showed a “rogue”
loan officer’s role in making loans went beyond that of merely a lender, and the loan
officer’s adverse relationship with another related individual, while representing to
the borrower that the loan officer “was taking care” of the borrower, created a
fiduciary relationship with the borrower.        Id. at ¶¶ 14, 34-37.       Under the
circumstances in that case, this Court affirmed a district court’s finding that the loan
officer’s failure to disclose operative facts to the borrower breached a fiduciary duty
to the borrower. Id. at ¶¶ 37-38.
[¶19] Here, JPF has not presented specific evidence with relevant citation to the
record to raise a factual issue that Baker Boyer assumed anything more than an
ordinary lender-borrower relationship with JPF. According to Foust, he did not have
an established business relationship with Baker Boyer and he had not done business
with Baker Boyer before this loan. Although Baker Boyer obtained some knowledge
about the financial viability and condition of the homes during the loan underwriting
process, that evidence is consistent with a bank’s underwriting process. Baker
Boyer’s knowledge does not raise a factual inference that it exercised domination,
control, or influence over JPF’s affairs on a day-to-day basis, that JPF placed faith,
confidence and trust in Baker Boyer, or that JPF was in a position of inequality,
dependence, weakness, or lack of knowledge. No evidence establishes Baker Boyer
was involved in the day-to-day management of JPF, and this record does not support
an inference of a “rogue” loan officer making loans beyond the normal underwriting
process. See Wiest, 2010 ND 251, ¶¶ 14, 34-37, 793 N.W.2d 172. Moreover, Foust
was an experienced businessperson. He testified in his deposition that he started his
own company at age 25 in 1965, and that he thereafter started or purchased two other
business entities before he retired in 2007. See Baker Boyer Nat’l Bank v. Foust,

                                           8
431 P.3d 131, 137 (Wash. Ct. App. 2018) (in context of Baker Boyer’s action on
Foust’s personal guaranty, recognizing Foust was experienced business person and
holding Foust did not demonstrate any special circumstances giving rise to a fiduciary
duty of disclosure and did not demonstrate Baker Boyer provided services beyond
normal underwriting services).
[¶20] JPF argues Baker Boyer required JPF to enter into a lease and management
agreement with Greenflex Housing, which JPF claims shows Baker Boyer exercised
control over JPF’s operation.
[¶21] Foust emailed Sentz in June 2013, stating his “[e]xpectations” that he would
enter into a management agreement with Greenflex Housing for his contemplated
purchase of the homes. The evidence shows Foust entered into a lease agreement
with Greenflex Housing on June 1, 2013, which was before he purchased the homes
from Vindans.     According to Foust, Baker Boyer thereafter elevated Foust’s
expectation of a contract with Greenflex Housing to a requirement for the loan.
[¶22] We agree with the Washington Court of Appeals’ conclusion that this
requirement did not create a fiduciary relationship between Baker Boyer and JPF:
       “It is normal for commercial lenders extending substantial credit to
       satisfy themselves, sometimes through loan conditions or requirements,
       that a borrower’s business will be operated competently during the loan
       term. Mr. Foust’s own deposition testimony makes clear that this is
       what the bank’s ‘requirement’ was all about.
       ....
              “There is no evidence that the bank insisted that the operating
       role Greenflex would fill must be filled by Greenflex to the exclusion
       of any other operator. Mr. Foust presents no evidence that he ever
       expressed the desire to fill the operational role with someone else
       qualified to rent units located in North Dakota. Traditional
       underwriting requirements that are designed only to ensure competent
       operation of a business but that do not divest management of the
       borrower of operational control do not give rise to a fiduciary
       relationship.”
Baker Boyer, 431 P.3d at 137-38.
[¶23] On this record, we conclude Baker Boyer’s requirement that JPF enter into a
lease agreement with Greenflex Housing as part of the ordinary underwriting process
                                          9
does not show a special circumstance giving rise to a fiduciary relationship between
Baker Boyer and JPF.
[¶24] JPF also argues a fiduciary duty arises from Baker Boyer’s failure to send an
official declination letter to JPF after informing Foust by email that the loan was “no
longer a viable possibility.”
[¶25] In Baker Boyer, the Washington Court of Appeals rejected Foust’s claim about
Baker Boyer’s failure to send a declination letter:
       “the contention that the Equal Credit Opportunity Act was violated is
       patently without merit. The act prohibits discrimination on the basis of
       race, color, religion, national origin, sex, marital status, or because a
       borrower gets public assistance. 15 U.S.C. § 1691(a). To effectuate its
       purpose, the act includes protections, one being that an applicant
       against whom adverse action is taken must be provided by the creditor
       with a statement of reasons for the adverse action. 15 U.S.C.
       § 1691(d)(2). ‘“[A]dverse action” means a denial or revocation of
       credit, a change in the terms of an existing credit arrangement, or a
       refusal to grant credit in substantially the amount or on substantially the
       terms requested.’ 15 U.S.C. § 1691(d)(6). The statement of reasons
       helps identify when the creditor has acted in a discriminatory fashion.
              “Consistent with the clear intent of the legislation, the statement
       of reasons is required when adverse action is taken on the credit
       application and in this case there was only one application, by JPF, not
       Mr. Foust. The bank acted favorably, not adversely, on the application.
       No statement of reasons was needed because there could be no
       contention that the bank had discriminated in acting on JPF’s credit
       application.”
431 P.3d at 139-140.
[¶26] We agree with the Washington Court of Appeals’ analysis. The lack of a
declination letter in this case does not give rise to a fiduciary relationship between
Baker Boyer and JPF.


                                           IV
[¶27] The district court did not err in ruling as a matter of law that Baker Boyer
did not have a fiduciary relationship with JPF. We affirm the summary judgment.
[¶28] Daniel J. Crothers

                                           10
Lisa Fair McEvers
Jon J. Jensen
Jerod E. Tufte
Gerald W. VandeWalle, C.J.




                             11
