The transcript of the video follows below for further review.
The case of Rister v. Yadkin Bank arose out of a United States Small Business Administration ("SBA") loan that Defendant Yadkin Bank ("the Bank") made in 2011 to a corporate borrower, Mystique Makeover, LLC, a salon in Charlotte, North Carolina, operated by Maria L. Rex. Rister attempted to represent himself in the litigation. In July 2011, Plaintiff Timothy Rister and Ms. Rex signed a Commitment Letter with the Bank, acknowledging that they each intended to be guarantors on the loan for a maximum principal amount of $100,000. In September 2011, Rister signed an SBA Unconditional Guarantee (SBA Form 148) with respect to the loan, agreeing unconditionally to pay the lender all amounts owed under the loan. In 2014, Ms. Rex ceased her business operations due to disability, the corporate borrower defaulted on the loan, and Ms. Rex filed for bankruptcy. Following the borrower's default, the Bank's North Carolina counsel, Ellis & Winters LLP, sent a demand letter to Rister dated May 2, 2014, informing him that as a result of the default, the principal balance, all accrued but unpaid interest, and all other amounts owing under the loan were immediately due and payable in full. In September 2014, Rister commenced the present action, filing a Complaint against the Bank containing seventeen counts, following which the Bank filed a Motion to Dismiss the Complaint in its entirety.
Rister asserted claims of "negligence/mistake/deception/bad faith" concerning a "commitment fee." Rister alleged that the Commitment Letter failed to sufficiently define the "packaging fee" and "SBA fee". He alleged that the terms "packaging fee" and "SBA fee" are "ambiguous and vague," and that the Commitment Letter failed to provide a "detailed breakout as to what these fees were." He also alleges that, by virtue of the Commitment Letter and the Unconditional Guarantee, the Bank "owed a duty of good faith and fair dealing" to him, "created a confidential relationship" with him, and had "a fiduciary duty to disclose details of [the] 'packaging fee' and 'SBA Fee'" to him because he and the Bank "were in a commitment letter contract and a 'contract of guaranty'". In addition, Rister alleged that the Bank's failure to sufficiently define the SBA and packaging fees caused a "unilateral mistake" on his part, such that "any contract is unenforceable or voidable by the plaintiff."
The Court noted that courts have refused to find a general duty of care between a lender and a guarantor. Likewise, Rister's allegations that the Bank failed to provide a detailed breakout of the fees do not state a claim for breach of the covenant of good faith and fair dealing, which occurs when "a party unreasonably exercises discretion authorized in a contract."
With respect to Rister's claim of unilateral mistake, the Court noted that one of the "basic elements required for a court to find a unilateral mistake" is that the mistake "must be to a 'basic assumption' or the essence of the contract." The Court stated that the Amended Complaint did not plausibly allege that Rister made a mistake as to a basic assumption of an agreement. Indeed, as the Bank points out, the nature of Rister's alleged mistake is unclear from the Complaint. Moreover, the fees listed in the loan are only a small fraction of the amount of the loan, and so it is difficult to imagine how any mistake concerning those fees could be basic to the transaction. The second element of a unilateral mistake is that "the party alleging the mistake must not bear the risk of the mistake by being aware, at the time the contract is made, that the party has 'limited knowledge' of the facts to which the mistake relates and treating this limited knowledge as sufficient." The allegations in the Complaint failed to meet this element because Rister was or should have been aware at the time he signed the Commitment Letter that the Letter did not include a "detailed breakout" of the fees. Finally, even if Rister could establish the elements of a unilateral mistake, "courts do not grant relief when the mistake is unilateral, instead of mutual, and is not due to the fault of the other party." The Court ruled that Rister had not plausibly alleged that he made a unilateral mistake due to the fault of the Bank.
In sum, the allegations in Rister's Complaint failed to state a claim upon which relief may be granted.
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Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’s ureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.
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