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Edens v. Synovus Financial Corp.

United States District Court, D. South Carolina, Columbia Division

November 1, 2017

Joe Edens, Jr. and Village at Battery Creek, LLC, Plaintiffs,
Synovus Financial Corporation and Synovus Bank, Defendants.


          Margaret B. Seymour Senior United States District Judge

         This matter involves disputes regarding certain investments and loans between and among Plaintiffs Joe Edens, Jr. (“Edens”) and Village at Battery Creek, LLC (“Battery Creek”) (together “Plaintiffs”) and Defendants Synovus Financial Corporation and Synovus Bank (together “Defendants”). Plaintiffs filed a complaint on December 15, 2016, in the Court of Common Pleas for Richland County, South Carolina, asserting claims against Defendants for (1) fraud in the inducement (First Cause of Action), (2) breach of contract (Second Cause of Action), (3) breach of contract accompanied by a fraudulent act (Third Cause of Action), (4) fraud (Fourth Cause of Action), (5) constructive fraud (Fifth Cause of Action), (6) misrepresentation (Sixth Cause of Action), (7) promissory estoppel (Seventh Cause of Action), (8) violation of the South Carolina Unfair Trade Practices Act (“SCUPTA”) (Eighth Cause of Action), and (9) breach of fiduciary duty (Ninth Cause of Action). Plaintiffs also seek injunctive relief (Tenth and Eleventh Causes of Action). Defendants removed the action to federal court on the basis of diversity jurisdiction on March 27, 2017. ECF No. 1; see 28 U.S.C § 1332.

         On March 31, 2017, Defendants filed a motion to dismiss or, in the alternative, to compel arbitration and stay the federal proceedings. ECF No. 6. Defendants argue that Plaintiffs agreed to binding arbitration for disputes related to the loan. ECF No. 6-1 at 3. Edens disputes the arbitration is binding on him individually. ECF No. 9 at 6. Plaintiffs also assert that the arbitration agreement is unconscionable, or, alternatively, that Plaintiffs' claims are not subject to arbitration. ECF No. 9 at 1. The court held a hearing on the motion on August 28, 2017.


         Edens served on the National Bank of South Carolina (“NBSC”) board of directors beginning in 1969. ECF No. 1-1 at ¶ 6. Subsequent to a merger in 1995, NBSC became a division of Synovus Bank, which is a wholly-owned subsidiary of Synovus Financial Corporation. Id. at ¶ 4. After the merger, two of Defendants' executives requested Edens participate in Defendants' Family Asset Management (“FAM”) program. Id. Edens eventually invested $7, 000, 000 to be managed through the FAM program. Id. Edens alleges the value declined over $1, 000, 000 within nine months due to “very questionable and risky investments.” ECF No. 9 at 3.

         At some point prior to September 10, 2009, Defendants' representatives began discussing with Edens the purchase of an uncompleted residential construction project in Port Royal, South Carolina (the “Project”). ECF No. 1-1 at ¶ 9. Defendants had advanced over $12, 000, 000 to a developer who had started but not completed the Project. Defendants were beginning foreclosure proceedings on the Project and wished to sell it “as is” for $3, 000, 000. Defendants' representatives urged Edens to consider buying the note and mortgage covering the Project. Id. According to Edens, Defendants “strongly solicited [him] to ‘help the bank out, '” though he had never been involved in residential real estate development. ECF No. 9 at 4. Defendants' representatives allegedly promised Edens that after they obtained a settlement with the developer, Edens would have no personal liability on the potential loans or financing. Id. at ¶ 10. Edens alleges that Defendants promised to loan him $3, 000, 000 to purchase the note and mortgage as well as advance a $1, 500, 000 line of credit and a $650, 000 loan to finish eight units the developer had substantially completed. Id.

         Edens agreed to take over the Project and thereafter formed Battery Creek. On September 10, 2009, Edens, as manager of Battery Creek, executed numerous agreements enabling Battery Creek to purchase the note on the Project. ECF Nos. 6-1 at 2; 10 at 3. Edens executed a personal guaranty on the loans. ECF No. 6-1 at 2. After Plaintiffs and Defendants executed the various documents, Defendants requested Edens keep his involvement in the Project a secret and refrain from visiting the Project until Defendants reached an agreement with the developer. Id. Edens states that negotiations between Defendants and the developer lasted over nine months. During this time the Project was not properly secured and was vandalized. Id. at 5. When Plaintiffs finally assumed control of the Project, they spent over $650, 000 from the line of credit just to replace stolen items and repair damage done to the residential units. Plaintiffs and Defendants were unable to agree on any further construction loans. Edens contributed $1, 000, 000 out of pocket to complete the Project.

         Plaintiffs allege that Defendants have since “undertaken a pattern and course of retaliation against” Plaintiffs by

force placing insurance on the properties and charging Plaintiffs for the premiums some or most of which is kicked back to Defendants from the insurer, refusing to release parcels or units which have been sold from the master mortgage, despite repeated requests in writing, and charging or assessing, as well as refusing to remove, unwarranted fees or surcharges from the loan(s).

ECF No. 1-1 at ¶ 18.

         At the hearing on August 28, 2017, Plaintiffs clarified that both Plaintiffs are requesting relief stemming from the loan documents and financing of the Project, as set forth in the First through Eighth Causes of Action. Edens individually is requesting relief stemming from his investment in the FAM program, as set forth in the Ninth Cause of Action.


         The Federal Arbitration Act (“FAA”) provides that “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract.” 9 U.S.C. § 2. To compel arbitration, a defendant must demonstrate (1) the existence of a dispute between the parties; (2) a written agreement that includes an arbitration provision that purports to cover the dispute; (3) the relationship of the transaction, as evidenced by the agreement, to interstate or foreign commerce; and (4) the failure, neglect, or refusal of the plaintiff to arbitrate the dispute. See Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir. 2002); Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991). “To decide whether an arbitration agreement encompasses a dispute[, ] a court must determine whether the factual allegations underlying the claim are within the scope of the arbitration clause, regardless of the legal label assigned to the claim.” J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 319 (4th Cir. 1988).

         In interpreting arbitration agreements, the court must resolve any doubts concerning the scope of arbitrable issues in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983). Even though courts view arbitration agreements favorably, an “underlying agreement between the parties to arbitrate” must exist. Arrants v. Buck, 130 F.3d 636, 640 (4th Cir. 1997). “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Written arbitration agreements are required ...

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