After more than three years of litigation, a large bank with over $50 billion in assets obtained a defense judgment in its favor. A California Superior Court Judge held the bank was not liable for fraudulent inducement following a two-week bench trial.
The plaintiffs alleged that, in September 2008, the bank fraudulently induced them to sign loan guarantees. According to the plaintiffs, the bank concealed the fact that the borrower was already in default when the guarantees were signed; that the borrower had violated numerous loan covenants; and that the borrower had been in severe financial trouble for years. The plaintiffs sought rescission of the personal guarantees and more than $13 million in lost profits. The Judge bifurcated the lost profits claims and decided to hear the equitable claims first.
The plaintiffs testified that they were misled by the bank’s loan officers on a number of occasions. Specifically, the plaintiffs suggested that the bank lied to them about the scope of their risk and assured them that they “had nothing to worry about.” The plaintiffs also asserted that the bank lied to them about the collateral that they were pledging in connection with several multi-million dollar loans. In support of their case, the plaintiffs offered testimony from a banking expert who opined that the bank violated industry standards in connection with the loans. The bank offered conflicting testimony and evidence as to all of the plaintiffs’ theories and impeached the plaintiffs’ with their prior testimony in unrelated litigation.
The Judge found that the plaintiffs’ testimony was not credible and that the bank did not owe a duty to disclose any more information than it did. Significantly, the Judge held that the evidence “does not support a finding that the bank fraudulently induced plaintiffs to enter into the guarantees at issue or otherwise fraudulently deceived plaintiffs such that they were entitled to rescission of the guarantees.”
Judgment will be entered against the plaintiffs as to all of their affirmative claims. The bank intends to proceed with a jury trial against the plaintiffs in connection with a cross-complaint for breach of contract, as well as attorney’s fees.