LENDER Sues Borrower for Deceptive Trade Practices

Most states have a Deceptive Trade Practices Act. These laws typically prohibit “unfair methods of competition and unfair or deceptive acts or practices.” The first state to enact such a law was Massachusetts in 1967. Today just over half the states have enacted similar laws.

The original deceptive trade practices law was meant for consumers. That all changed in 1972 when Massachusetts permitted businesses to also bring these claims. Texas followed shortly thereafter in 1975.

Today these laws are one of favorite weapons in our lender liability arsenal. Borrowers who successfully bring a deceptive trade practices act are typically entitled to punitive damages and legal fees. We also like these laws because they often have a low burden of proof. In states that have passed such a law, borrowers now have a real remedy when a bank overreaches or lies to borrowers.

Because the laws vary tremendously from state to state, we don’t mean to imply that every misrepresentation by a bank can brought under the one of these laws. In fact, in some states (such as Florida) banks may be exempt from the deceptive trade practices law.

To date, all the lender liability cases under these laws that we have seen have been brought by customers. The laws were designed for consumers – individual and corporate – to sue banks and other wrongdoers.

The tables have been flipped in at least one case, however.

In a recent North Carolina case, a lender successfully brought an action under the North Carolina Unfair and Deceptive Trade Practices Act!

That such a case was brought in North Carolina is not surprising. Home to many banks including Bank of America, the state is very “lender friendly.”

In the recent North Carolina case, Dinesh Makadia made a private $1 million loan to a company called Capital Waste Management LLC. The company promised to use the loan proceeds to purchase to waste plants. The company lied and said it purchased the plants but used the money for other purposes.

When Makadia found out he demanded payment. The company only paid $150,000 of the money they owed. At that point Makadia filed a suit and included a claim under the state’s deceptive trade practices act.

Usually a mere breach of contract is not enough to bring a deceptive practices claim. Litigants like these laws, however, because they often provide for punitive damages and legal fees. North Carolina’s law is no exception. In a dramatic turnaround, the lender in this case filed the lawsuit against the borrower.

North Carolina’s Unfair and Deceptive Trade Practices Act

The North Carolina law requires the person suing to show (1) an unfair or deceptive act or practice, or an unfair method of competition, (2) that affects commerce, (3) and is the proximate cause of the plaintiff’s injuries.  

North Carolina courts follow the general prohibition of using the deceptive trade practices act as a means for gaining leverage in a simple breach of contract case. Here, however, the court found the allegations that Capital Waste Management stole Mikadia’s money and lied about the use of the loan proceeds were enough to allow the case to move forward.

The case is far from over. At this stage the court simply ruled that the case can proceed. The ruling shows, however, that lenders can also use the deceptive trade practices act in litigation.

Does this mean we should now worry about “borrower liability”?  The answer depends.

If a borrower actively lies or misleads a bank, we suspect it won’t be the borrower that is suing. But that borrower that actively deceives a bank could find itself on the wrong end of one these claims.

MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers

MahanyLaw and Judge, Lang & Katers are two Midwest boutique lender liability firms with national practices. Both firms have joined forces to better represent borrowers across the United States. We hope to be your first stop when you are looking for a lawyer to sue a bank (most won’t). We also represent borrowers in lawsuits on personal guaranties and on claims alleging loan deficiencies.

We offer Midwest rates and service across the United States.

Wondering how to sue your bank? Looking for lawyers not afraid of big banks? Look no further. For more information, contact attorneys Brian Mahany and Chris Katers today. Chris can be reached at [hidden email] and Brian can be reached at [hidden email]. Or call us at 877-858-8018. All inquiries kept completely confidential.

MahanyLaw and Judge, Lang & Katers – “We Sue Banks”

[A note on the cases we take. We regret that we do not represent borrowers with individual home loan, foreclosure, loan modification, auto loan or identity theft matters. And we never represent banks. Because we are so busy, we only consider cases with a minimum loss or amount in controversy of $5 million. If the case is "in our back yard," we wil consider smaller cases. In rare instances we consider class action cases.]