Sun American Bank v. Fairfield Financial Services, Inc.

Herbert Lee Underwood financed three real estate developments with three relatively small construction loans from Fairfield Financial Services, Inc. (Fairfield) (defendant). In 2006, Underwood began work on a new project and needed a much bigger loan of $21,840,000 (the loan). Fairfield raised that sum by entering into a participation agreement with Sun American Bank (Sun) (plaintiff) and other banks, each of which would fund part of the loan in return for a share of the profits. The agreement obligated Fairfield to notify the participant lenders if Underwood's ability to repay the loan deteriorated or if Fairfield lowered the loan's credit rating. The agreement also entitled the participant lenders to demand the return of their shares in case of default. In 2007, the real estate market collapsed, and Underwood's liquid assets started drying up. In October 2007 Fairfield notified its partners in the 2006 loan that it was bolstering Underwood's liquidity by restructuring one of his smaller loans. Only in April 2008, however, did Fairfield reveal that Underwood's finances had been deteriorating since early 2007, and that since November 2007 Fairfield had considered the 2006 loan to be a poor risk. Alarmed, Sun stopped funding Underwood's draws on the loan. When Fairfield refused to refund Sun's money, Sun accused Fairfield of breaching the participation agreement and filed suit in federal district court. Sun moved for summary judgment.