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FAMM Steel, Inc. v. Sovereign Bank

571 F.3d 93 (2009)

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FAMM Steel, Inc. v. Sovereign Bank

United States Court of Appeals for the First Circuit

571 F.3d 93 (2009)

Facts

FAMM Steel, Inc. (FAMM) (plaintiff) was a New Hampshire-based steel-fabricating company that built offices, apartments, ballparks, and hotels, among other projects. Starting in 1998, FAMM began banking with Fleet National Bank. Sovereign Bank (Sovereign) (defendant) later assumed Fleet National Bank’s interest and began dealing with FAMM. In late 2001, FAMM had operating losses. Soon thereafter, FAMM’s comptroller left FAMM. FAMM wanted to hire an interim accountant to oversee its financials as well as a new comptroller. Sovereign’s vice president was involved in these discussions with FAMM, and he expressed his discomfort with at least one candidate he did not like and supported other candidates who he was comfortable with. FAMM ended up hiring candidates Sovereign had supported. Unfortunately, there were major management errors with the accountant, Lee, and the new comptroller, Woolford. In 2002, Lee and Woolford did not reconcile FAMM’s ledgers, and they overstated income revenues. Accordingly, they predicted a $300,000 profit, but FAMM had a $1.1 million loss. Eventually, the accountant resigned and the comptroller was fired. Thereafter, Sovereign and FAMM were at odds. FAMM indicated that Sovereign had stopped doing automatic sweeps between FAMM’s bank account and its line of credit and also made it difficult for FAMM to access its banking information online. FAMM also complained of a Sovereign error in handling accounts, which caused a check to bounce; Sovereign’s lack of response to questions from FAMM suppliers and subcontractors; and finally, Sovereign’s indication that it would issue a forbearance agreement for FAMM and extend FAMM’s credit. This did not happen, and in May 2003, Sovereign terminated FAMM’s line of credit. In 2004, Sovereign sold FAMM’s loans for $1.725 million. FAMM then closed, and its remaining assets were liquidated. In December 2006, FAMM, along Ann and Paul Gavin—two corporate officers—and Austin Realty, Ltd. (plaintiffs), which owned FAMM’s fabrication facility, sued Sovereign Bank on a dozen lender-liability claims on various bases of liability, including the instrumentality doctrine, by which FAMM posited that Sovereign so controlled FAMM that Sovereign should be liable for FAMM’s losses. The district court granted summary judgment to Sovereign on all claims, holding there was no fiduciary relationship between FAMM and Sovereign and that ruling otherwise could render all lenders exercising any oversight of debtors into fiduciaries. Most of the claims, noted the district court, did not involve dishonesty or any attempt by Sovereign to injure FAMM. FAMM appealed the ruling.

Rule of Law

Issue

Holding and Reasoning (Lynch, J.)

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