Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D.N.C.: “Interest rate swap” claims not rejected for alleging “capital raising” transactions, (Oct 18, 2013)

By Jody Coultas, J.D.

Wells Fargo Bank, N.A. was denied summary judgment of North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) claims alleging fraud in the execution of an “interest rate swap,” the federal district court in Statesville, North Carolina has held (Landmar, LLC v. Wells Fargo Bank, N.A., October 16, 2013, Cogburn, M.). The court refused to rule, at this stage in the litigation, that the UDTPA was inapplicable to the alleged conduct, despite North Carolina intermediate appellate decisions holding that the statute was inapplicable to transactions entered to raise capital.

Landmar, which redevelops commercial property for purposes of resale, alleged that Wells Fargo defrauded it in the execution of an “interest rate swap,” entered into in conjunction with a commercial loan in 2007, which funded the purchase, rehabilitation, and resale of the apartments.

Wells Fargo argued that the UDTPA does not apply to transactions entered into to raise capital, citing a decision by the North Carolina Court of Appeals. Opinions issuing from the North Carolina Court of Appeals are persuasive in situations where the North Carolina Supreme Court has not spoken. In Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 62 (2001), the North Carolina Court of Appeals held that the UDTPA does not apply to “capital raising” transactions, including loans from financial institutions. The North Carolina Business Court has held that the UDTPA does not apply to swaps entered into in conjunction with capital raising loans.

The district court held that such day has not yet come as there is a genuine issue of material fact as to whether the swap transaction was a capital raising transaction. The court does not yet need to decide whether the North Carolina Supreme Court would overrule Oberlin Capital, because the Business Court’s decisions, which relied on the appellate court’s decision, did not convince this court, at least at this point, that the interest rate swap transaction in this case was itself a “capital raising” transaction. Wells Fargo may raise a motion to reconsider this issue at the close of plaintiffs’ evidence at trial.

The case is No. 5:11-cv-00097-MOC.

Attorneys: S. Leigh Rodenbough , IV (Brooks Pierce McLendon Humphrey & Leonard, LLP) for Hamilton Country Club, LLC and Landmar, LLC. Baxter Chad Ewing (Womble Carlyle Sandridge & Rice, PLLC) for Wells Fargo Bank.

Companies: Landmar, LLC; Wells Fargo Bank, N.A.

Cases: StateUnfairTradePractices NorthCarolinaNews