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Township of West Deptford v. Fulton Bank N.A.

Superior Court of New Jersey, Appellate Division

December 26, 2013

FULTON BANK N.A. and FULTON BANK OF NEW JERSEY, Defendants-Respondents.


Argued November 7, 2013

On appeal from Superior Court of New Jersey, Chancery Division, Gloucester County, Docket No. C-34-12.

Mark Cimino argued the cause for appellant.

Christopher R. Gibson argued the cause for respondents (Archer & Greiner attorneys; Mr. Gibson of counsel and on the brief; Patrick M. Flynn, on the brief).

Before Judges Maven and Hoffman.


Plaintiff Township of West Deptford (Township) appeals from the November 26, 2012 order of the Chancery Division granting summary judgment to defendants Fulton Bank N.A. and Fulton Bank of New Jersey (Fulton Bank), and dismissing the Township's complaint that alleged improper disbursement of bond funds relating to the construction of a municipal golf course. For the reasons that follow, we affirm.


On May 6, 1999, the Township designated approximately 600 acres of land bordering the Delaware River as an area for redevelopment that would include a proposed golf course and related facilities (hereinafter known as the "Project"). The Township requested the Gloucester County Improvement Authority (GCIA)[1] to issue a bond to finance the Project. The GCIA agreed to assist but only on the condition the bonds would be "secured by . . . an unconditional and irrevocable general obligation guaranty of an entity with unlimited general taxing powers[, ]" which the Township possesses pursuant to N.J.S.A. 40:37A-80.

In 2000, the Township entered into a Project development agreement with Arret Dobson and Emory Dobson (Dobson Brothers). The agreement provided that the Dobson Brothers would "be solely responsible in all respects and . . . indemnify and hold harmless the Township for all organizational, operational and other requirements necessary to construct, market and operate the Project."

On October 10, 2001, the bond transaction took place. The GCIA issued a $9, 945, 000 taxable guaranteed revenue bond which was secured under the "Guaranty Agreement Between the Gloucester County Improvement Authority and Township of West Deptford" (Guaranty Agreement), whereby the Township unconditionally and irrevocably guaranteed the principal and interest payments on the bond. The Guaranty Agreement included a waiver and release of any defense the Township may have to pay the full principal and interest of the bond. According to Section 5 of the Guaranty Agreement, the "obligations of the Township . . . shall remain in full force and effect until the entire principal of and interest on the Bonds . . . have been paid in full in accordance with and as required by law." Importantly, Section 5 further provided that the "Township's obligations shall not be affected, modified or impaired upon the happening . . . of any of the following events, " including

(ii) the failure to give notice to the Township of the occurrence of an Event of Default under the provisions of the Bond Agreement;
(iii) the extension of the time for payment of any principal of or interest on the Bonds or of the time for performance of any obligations, covenants or agreements under or arising out of the Bond Agreement;
(iv) the modification or amendment (whether material or otherwise) of any obligation, covenant or agreement set forth in the Bond Agreement;
(v) any failure, omission, delay or lack on the part of the Authority to enforce, assert or exercise any right, power or remedy conferred on the Authority in this Guaranty Agreement, the Bond Agreement or any other act or acts on the part of the Authority or the holder of the Bond;
(vii) to the extent permitted by law, any event or action that would, in the absence of this clause, result in the release or discharge by operation of law of the Township from the performance or observance of this Guaranty Agreement;
(viii) the default or failure of the Authority fully to perform any of its obligations set forth in this Guaranty Agreement or any other the [sic] Bond Agreement.

Finally, Section 7 expressly stated that,

[n]o set-off, counterclaim, reduction or diminution of an obligation or any defense of any kind or nature . . . which the Township has or may have against the Authority, the Borrower or any holder of the Bonds shall be available hereunder to the Township against the Authority or any Holder of the Bonds[.]

Also on October 10, 2001, the GCIA, River Winds Country Club, LLC, Riverwinds Golf Urban Renewal, LLC, [2] and Fulton Bank entered into the "Bond Agreement, " and the GCIA issued the bond for $9, 945, 000. Pursuant to the Bond Agreement, Fulton Bank purchased the bond and GCIA assigned to the bank "all of its right, title and interest in the Note, the Guaranty, the Bond Agreement, and all documents and instruments executed in connection with the Loan[.]" Consequently, the transaction was structured so that GCIA gave Fulton Bank, as the assignee, the authority to disburse the loan and make advances directly to the developer to pay Project costs, as well as authority to receive all payments due under the bond.

Beginning in October 2001, the Dobson Brothers began submitting requisitions for the payment of project costs to Fulton Bank in accordance with the Bond Agreement. The requisitions and disbursements continued for eighteen months until the full $9, 945, 000 was paid.

On October 21, 2002, the Dobson Brothers submitted a certification verifying the Project was substantially completed. The GCIA further completed the Borrower's Completion Certification stating that the Project was completed as of September 14, 2002. By November 2002, the Riverwinds Golf Course was open for business; in a letter dated November 25, 2002, the Township acknowledged the developer's substantial completion.

In 2007, the Township released the Dobson Brothers as the developer from the Ground Lease. In 2008, the Township entered into an agreement with a second developer. In this agreement, the Township, once again, represented and warranted that it was bound by the original Guaranty Agreement and that "there are no defenses, set-offs, or counterclaims of any kind or nature whatsoever with respect to the Loan Documents and with respect to any party hereto arising from the Loan Documents[;]" the Township also acknowledged that Fulton Bank was, in fact, relying on its representations and warranties in this letter.

In October 2008, after the second developer failed to make the required principal and interest payments on the Bond, Fulton Bank exercised its right under the Guaranty and gave notice of its demand for payment of all sums due and owing. The Township then released the second developer and paid Fulton Bank the overdue principal and interest payment.

Subsequently, in 2009 and 2010, the Township took possession of the project and entered into a management agreement and long-term lease agreement with River Winds RJM, LLC to operate the Project. On May 10, 2011, Fulton Bank and the Township acknowledged the default of the borrowers and the Township agreed to pay the past due principal, which then totaled $1, 005, 000, to Fulton Bank.

Then, in 2012, a new Township administration took office and raised questions about prior disbursements relating to the Project. The new administration wrote to Fulton Bank seeking documentation of certain transactions in connection with the loan; however, before Fulton Bank had an opportunity to supply the documents, the Township filed the present lawsuit.

On November 26, 2012, Judge Anne McDonnell heard argument on cross-motions for summary judgment and ruled in favor of Fulton Bank, based on the clear and binding language of the Guaranty Agreement. Judge McDonnell noted the language expressly and unambiguously waived and released any possible claim or defense as a basis to reduce or set-off the Township's guaranty obligation to Fulton Bank. The court further determined that the Township was not absolved of its responsibilities set forth in the Guaranty Agreement simply because Fulton Bank assumed GCIA's position as the paying agent of the bond. The trial court found the documents clearly indicate the Township has the obligation to make the required payments and Fulton Bank had no duty to the Township beyond disbursing the funds.

On appeal, the Township claims Fulton Bank disbursed millions of dollars without requiring proper documentation, and that these alleged improper disbursements constituted a breach of its fiduciary duty. The Township posits Fulton Bank had a duty to the Township taxpayers because it was not only the bond holder, but was also the paying agent, and therefore had an obligation to ensure the disbursements complied with payment requirements. Specifically, the Township maintains that Fulton Bank had "the duty to ensure that the monies which were disbursed actually went into the project." The breach of this alleged duty, the Township argues, relieves it of the obligation to pay the remaining principal and interest on the bond to Fulton Bank.


In reviewing a grant of summary judgment, we apply the same familiar standard under Rule 4:46-2(c) employed by the trial court. Murray v. Plainfield Rescue Squad, 210 N.J. 581, 584 (2012). We must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

The question of whether a fiduciary duty exists is a matter of law. United Jersey Bank v. Kensey, 306 N.J.Super. 540, 551 (App. Div. 1997) (citing Carter Lincoln-Mercury, Inc. v. EMAR Group, Inc., 135 N.J. 182, 194 (1994)), certif. denied, 153 N.J. 402 (1998). "[T]here is no presumed fiduciary relationship between a bank and its customer." Id. at 552 (citing Globe Motor Car Co. v. First Fidelity Bank, N.A., 273 N.J.Super. 388, 393, (Law Div. 1993), aff'd, 291 N.J.Super. 428 (App. Div.), certif. denied, 147 N.J. 263, (1996)). A fiduciary duty may arise, however, when "either one or each of the parties, in entering . . . [the] transaction, expressly reposes . . . a trust and confidence in the other . . . or [because of the] circumstances of the case, the nature of their dealings, or their position towards each other, such a trust and confidence . . . is necessarily implied." Id. At 551 (alterations in original) (quoting Berman v. Gurwicz, 189 N.J.Super. 89, 93-94 (Ch. Div. 1981), aff'd, 189 N.J.Super. 49 (App. Div.), certif. denied, 94 N.J. 549 (1983)). Accordingly, a "fiduciary relationship arises between two persons when one person is under a duty to act for or give advice for the benefit of another on matters within the scope of their relationship, " or when "one party places trust and confidence in another who is in a dominant or superior position." F.G. v. MacDonell, 150 N.J. 550, 563 (1997) (citing Restatement (Second) of Torts § 874 comment a (1979)).

Nevertheless, we have adopted the reasoning of the Third Circuit Court of Appeals that it "'would be anomalous to require a lender to act as a fiduciary for interests on the opposite side of the negotiating table, ' because their respective positions are essentially adversarial." Kensey, supra, 306 N.J.Super. at 553 (quoting Paradise Hotel Corp., supra, 842 F.2d at 53 (citation omitted)). Thus, there is the presumption that the "relationship between lenders and borrowers is conducted at arms-length, and the parties are each acting in their own interest." Ibid. (citation omitted).

Accordingly, a breach of fiduciary duty claim against a lender can only arise where there are special circumstances. See Id. at 555. "Fiduciary relationships implied in law are premised upon the specific factual situation surrounding the transaction and the relationship of the parties." Id. at 553 (citations omitted). Courts have found a breach of fiduciary duty by banks when there has been "egregious breaches of the lender's duty of good faith and fair dealing[, ]" such as where a "bank actively encouraged the plaintiff to rely upon its advice and concealed its self-interest in promoting the transaction involved." Id. at 557; see Barnett Bank of West Florida v. Hooper, 498 So.2d 923 (Fla. 1986) (finding the bank breached its fiduciary duty when it encouraged its customer to invest in a company the bank knew was perpetrating fraud); Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. Dist. Ct. App. 1994) (finding the bank breached its fiduciary duty because the bank promised and pressured its customer to enter into transactions with another customer who was on the verge of bankruptcy). In such cases, "the banks acted no better than common swindlers[;]" however, in less egregious circumstances, courts have not imposed a duty on lenders "to disclose information they may have concerning the financial viability of the transactions the borrowers were about to enter." Kensey, supra, 306 N.J.Super. at 557.

Finally, "[a]bsent a contractual duty, a bank has no obligation to manage, supervise, control or monitor the financial activity of its debtor[.]" Globe Motor Car Co., supra, 273 N.J.Super. at 395. Indeed, "imposing a duty on a bank that would obligate it to be responsible for its depositor's financial affairs would be impractical as a matter of public policy." Id. at 394.


The question presented is whether Fulton Bank breached a fiduciary duty to the Township. Because the record does not support the Township's claim that a fiduciary relationship existed between it and Fulton Bank, we answer the question in the negative. After careful review, we find no special circumstances between Fulton Bank and the Township to give rise to a fiduciary duty. The record lacks any evidence the Township placed special trust in Fulton Bank. Nor does the Township claim it sought advice from the bank.

As a guarantor of the bond, the Township was a party to an arms-length transaction with Fulton Bank, with each party bound to the other by contractually agreed-upon provisions. The fact that the Guaranty Agreement was actually between the Township and the GCIA, with Fulton Bank later acquiring GCIA's rights as an assignee, further proves the absence of a special relationship. The purpose of the Guaranty Agreement was to make the bond marketable and induce the purchase of the bond, not to create a special relationship in the nature of a fiduciary duty. It is difficult to imagine a scenario where a bank would voluntarily enter into an arrangement that created a fiduciary duty to oversee and manage a borrower's business activities. The record provides no support this occurred here.

Additionally, the language in the Bond Agreement authorized Fulton Bank to make the required disbursements for the project directly to the developer, and in turn, directly receive the principal and interest on the bond when payments became due. Fulton Bank was not required to monitor the disbursements of the funds once they were made; as noted, imposing such a duty "would be impractical as a matter of public policy." Globe Motor Car Co., supra, 273 N.J.Super. at 394. Moreover, public policy does not impose upon a bank "absolute liability for hardships which may befall the business venture it finances." Ibid. (alteration in original) (quoting Wagner v. Benson, 101 Cal.App.3d 27, 24 (Cal.App. 1980)). The Township has failed to identify any contractual provision that supports its fiduciary relationship claim.

Furthermore, the record lacks evidence the Township placed its trust and confidence in Fulton Bank to supervise the developer; the bank was neither in a dominant nor a superior position with respect to the Township. The Township's developer provided Fulton Bank with the requisitions that listed the expenses and consistent with the Bond Agreement, Fulton Bank disbursed the money. However, once the developer deposited the money into its own bank account, Fulton Bank was not charged with the responsibility of overseeing the developer's management of the project. Moreover, the Township's Phase I Redevelopment Agreement and Management Agreement explicitly authorized and directed the Township to implement and manage project development.

Importantly, the relationship here is one between a guarantor and a guarantee, an adversarial relationship, rather than a "special relationship" the Township needed to overcome the presumption against a fiduciary relationship in the lender-borrower context. "Banks cannot be expected to be their borrowers' financial guarantors." Globe Motor Car Co., supra, 273 N.J.Super. at 395. Thus, similar to Globe Motor Car Co., where the plaintiff attempted to assign liability to its bank for its failure to police its own employee, the Township's effort to blame Fulton Bank is misplaced. Ibid. The Township was charged with managing the Project and entered the project arrangement knowing fully that it unconditionally guaranteed it would pay the principal and interest on the bond. Therefore, we find no fiduciary relationship was established by virtue of the contractual provisions or their implementation and accordingly, the breach of fiduciary duty claim was properly dismissed.

The Township next argues that it is not bound by the waiver and unconditional guaranty because it did not voluntarily waive its right to avoid paying the full principal and interest. Certainly a waiver is only valid if it was made voluntarily and "there must be a clear act showing the intent to waive the right." Cnty. of Morris v. Fauver, 153 N.J. 80, 104 (1998). However, it is a fundamental principle of New Jersey law that "where the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." Karl's Sales & Serv. v. Gimbel Bros., 249 N.J.Super. 487, 493 (App. Div.) (quoting Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960); Levison v. Weintraub, 215 N.J.Super. 273, 276 (App. Div.), certif. denied, 107 N.J. 650 (1987)), certif. denied, 127 N.J. 548 (1991). Furthermore, a court may not "remake a better contract for the parties than they themselves have seen fit to enter into, or to alter it for the benefit of one party and to the detriment of the other." Ibid. (citing James v. Federal Ins. Co., 5 N.J. 21, 24 (1950)).

Plaintiff correctly states that "waiver cannot be predicated on consent given under a mistake of fact." Fauver, supra, 153 N.J. at 105 (citation omitted). The Township criticizes the payment requisitions submitted by its developer for providing inadequate detail and documentation. The Township argues that its reaffirmation of its obligations under the Guaranty Agreement was based upon a mistake of fact that Fulton Bank had made proper disbursements of the loan proceeds. This claim, first made ten years after the completion of the project, clearly lacks merit. By the fall of 2002, the developer had certified the project's substantial completion, which the Township acknowledged. Moreover, Fulton Bank was not a party to the development contract between the Township and the Dobson Brothers nor did it ever agree to manage or supervise the project.

The Bond Agreement clearly indicates each party's intent for the Township to bear the risk of a default or other failure by the developer, rather than the GCIA or the ultimate purchaser of the bond. Importantly, the Township's recourse for non-performance was against the Dobson Brothers, pursuant to an indemnity provision and a performance bond. In 2007, the Township waived its recourse against the Dobson Brothers and their performance bond, in order to move forward with a new agreement with another developer. Having made this decision, the Township has no basis to challenge its liability to Fulton Bank under the Bond Agreement.

The Township waived all claims and defenses it could raise to avoid paying the full principal and interest on the bond in the event of a default by its developer. Thus, we find that the extremely broad waiver and release language was intended to make it absolutely clear that the Township's obligation to pay the full principal and interest on the bond was absolute, unconditional and irrevocable and could not be avoided, limited, modified or reduced.

Finally, plaintiff contends that the 2007 and 2011 agreements were neither a release nor a waiver of any claim, but rather a reaffirmation of the guaranty. Alternatively, the Township asserts the releases were never approved by the governing board. However, the Township Committee passed a resolution in May 2007 specifically authorizing the Township Administrator to enter into all necessary agreements for the project to continue. Additionally, the Township's subsequent conduct in complying with all aspects of the 2007 and 2011 transactions and accepting all of the benefits constitutes ratification of those agreements. As such, this argument lacks sufficient merit to warrant further discussion in this opinion. R. 2:11-3(e)(2).


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