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Skywaves I Corp. v. Branch Banking and Trust Co.

Court of Appeals of South Carolina

May 2, 2018

Skywaves I Corporation, Appellant/Respondent,
v.
Branch Banking and Trust Company, Successor in merger to Branch Banking and Trust Company of SC, a/k/a BB&T, and James Edahl, Defendants, Of which Branch Banking and Trust Company, Successor in merger to Branch Banking and Trust Company of SC, a/k/a BB&T is the Respondent/Appellant, And Of Whom James Edahl is the Respondent. Appellate Case No. 2015-001809

          Heard March 5, 2018

          Appeal From Charleston County Roger M. Young, Sr., Circuit Court Judge

          M. Dawes Cooke Jr. and John William Fletcher, both of Barnwell, Whaley, Patterson & Helms, LLC; John P. Linton Sr. and Brian C. Duffy, both of Duffy & Young, LLC; Andrew K. Epting Jr., of Andrew K. Epting Jr.,

          LLC; and George J. Kefalos, of George J. Kefalos, PA, all of Charleston, for Appellant/Respondent.

          Kirsten Elena Small, of Nexson Pruet, LLC, of Greenville; Julio E. Mendoza Jr., of Nexsen Pruet, LLC, of Columbia; and Molly Hughes Cherry, of Nexsen Pruet, LLC, of Charleston, all for Respondent/Appellant.

          J.W. Nelson Chandler, of Chandler & Dudgeon LLC, of Charleston, for Respondent.

          KONDUROS, J.

         This cross-appeal arises out of a suit brought by Skywaves I Corporation (Skywaves) against Branch Banking and Trust Company (BB&T) and James Edahl. Skywaves brought suit against BB&T for breach of contract and breach of contract accompanied by fraudulent acts and against both BB&T and Edahl for negligent misrepresentation, negligence, and violation of the South Carolina Unfair Trade Practices Act (SCUTPA).[1] Skywaves appeals the circuit court's orders (1) granting BB&T's and Edahl's motions to strike its demand for a jury trial, (2) granting summary judgment to BB&T and Edahl as to its claims for negligence and negligent misrepresentation, (3) dismissing its SCUTPA claim, and (4) denying its motion to strike BB&T's and Edahl's answers. BB&T appeals the circuit court's order denying it summary judgment as to Skywaves' claims for breach of contract and breach of contract accompanied by fraudulent acts. We affirm in part, reverse in part, and dismiss in part.

         FACTS/PROCEDURAL HISTORY

         Skywaves is a South Carolina corporation that develops technology for the wireless telecommunications industry; specifically, Skywaves manufactures structures for sheltering equipment at the base of cell phone towers. Ronald Konersmann, a businessman who has been involved with manufacturing infrastructure for the telecommunications industry since 1982, is Skywaves' founder and Chief Executive Officer (CEO), and John Voytko, a licensed certified professional accountant, is Skywaves' Chief Financial Officer (CFO). BB&T is a banking institution with branches in several states including North and South Carolina. Edahl is a resident of South Carolina and was an officer at BB&T at the time of the events leading to the action.

         On March 22, 2005, Skywaves entered into a factoring agreement (the Agreement) with BB&T.[2] Under the Agreement, BB&T agreed to purchase Skywaves' accounts receivable for eighty percent of the face value of the invoice up to a maximum of $1.5 million. Once Skywaves sold a receivable to BB&T, BB&T became vested with all of Skywaves' rights in the account, including the right to payment. Every factored invoice was required to "state plainly on the face thereof that the [a]ccount . . . has been assigned and sold to, [and] is owned by and is payable to BB&T only." If a customer sent payment on a factored invoice to Skywaves, BB&T required Skywaves to hold the payment "as the property of BB&T, without commingling [the payment] with any funds or property of [Skywaves], " and immediately turn the payment over to BB&T. BB&T also required Skywaves to make several covenants and warranties regarding its financial status, including its ability to pay its debts as they matured in the ordinary course of business.

         The Agreement was for a one-year term subject to renewal if not terminated by BB&T or Skywaves. BB&T could terminate the Agreement at any time with sixty days' written notice and could terminate the Agreement without notice "after the occurrence of any [e]vent of [d]efault." Events of default included violation of the financial covenants, such as Skywaves' inability to pay its debts as they accrued in the ordinary course of business; Skywaves' failure to comply with any portion of the Agreement or any other agreement it had with BB&T; and "for any other reason [BB&T] deem[ed] itself insecure." The Agreement also provided, "All acts, transactions, rights, and liabilities under this Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of North Carolina." The Agreement stated in bold writing, immediately prior to the signature page, Skywaves waived its right to "trial by jury and the right to trial by jury on any issue in any way pertaining to this Agreement or any transactions or occurrences arising hereunder or governed hereby." Finally, the Agreement set forth "the entire understanding between the parties . . . supersed[ing] all prior and contemporaneous agreements and understandings, inducements and conditions, whether express or implied, oral or written, " and provided it "supersede[d] any course of performance and/or usage of the trade inconsistent with any of the terms hereof." (emphasis added).

         From the outset, Skywaves contended some of its customers were unable or unwilling to make payments on factored invoices directly to BB&T, and it informed BB&T of this issue. Skywaves alleged it and BB&T orally agreed payments on factored invoices could flow through Skywaves and Skywaves could delay remittance of such payments to BB&T for up to sixty days. No writing reflects the alleged modifications to the Agreement, and on several occasions, BB&T told Skywaves to put the required notification on factored invoices and expressed concern regarding overdue payments on factored invoices. For example, on June 5, 2006, BB&T informed Skywaves "over $150, 000 [of payments on factored invoices from Cingular and Nextel were thirty plus] days past due." On August 31, 2007, BB&T contacted Skywaves and asked why it had been holding payments from Verizon on factored invoices for six weeks and reminded Skywaves holding payments "could be viewed as a violation of the [Agreement]." A December 14, 2007 email from BB&T to Skywaves indicated $43, 125 worth of accounts were over sixty days past due. Additionally, Skywaves' CFO Voytko admitted Skywaves intermingled the payments it received on the factored invoices, which belonged to BB&T, with Skywaves' funds and used the payments for operating purposes and cash flow.

         From 2005 to 2006, Skywaves and BB&T occasionally amended the Agreement via written modifications in order for BB&T to fund Skywaves' working capital needs as those needs developed and expanded. Initially, on June 1, 2005, BB&T reduced the minimum monthly commission required under the Agreement because Skywaves did not begin factoring invoices until late 2005. Next, on May 11, 2006, BB&T and Skywaves executed a written amendment to the factoring agreement, increasing Skywaves' line of credit from $1.5 million to $1.75 million and reducing the minimum monthly commission. Additionally, early in 2006, BB&T began advancing money to Skywaves based on purchase orders it received from Nextel.

         In early 2007, Skywaves won several lucrative government contracts, and as a result, its Board of Directors determined the company required more capital to meet the increased demand for its products than BB&T had provided at that time. Skywaves therefore solicited funding proposals from various entities, including Wachovia and Hunt Capital (Hunt). In particular, Hunt sent Skywaves a preliminary, nonbinding term sheet, which was dated March 22, 2007, offering to purchase thirty percent of Skywaves' stock for $4 million.

         Edahl, BB&T's relationship manager for Skywaves, assured Skywaves BB&T was familiar with Skywaves' financial needs and could provide for those needs without Skywaves diluting its stock by working with Hunt. Thus, Skywaves decided to obtain the needed funding from BB&T, and BB&T created a unique financing arrangement for Skywaves. On March 2, 2007, BB&T sent a letter to Skywaves, stating the Agreement had been renewed and it had increased Skywaves' line of credit to $3.5 million with a $2 million sublimit for purchase order financing. Under the renewal, BB&T would advance eighty-five percent of the value of an invoice to Skywaves and sixty percent of the value of a purchase order. On March 14, 2007, BB&T sent another letter to Skywaves, clarifying the purchase order advance rate was actually sixty-five percent. BB&T and Skywaves executed a written amendment, making the changes contemplated in the March 2 and March 14 letters. Under the amendment, BB&T would advance funds on the purchase order of any customer.

         In the spring of 2007 and again in July 2007, Skywaves asked Edahl if BB&T would advance funds to it on the basis of site plans-potential sites where it anticipated placing shelters if ordered by customers. Konersmann stated Edahl agreed to factor site plans, and Edahl admitted he agreed to factor specific site plans-namely those related to Skywaves' contract with General Dynamics-at the same advance rate as purchase orders.[3] BB&T had never factored site plans before, an arrangement to factor site plans is not reflected in the Agreement or any written amendment to the Agreement, and Edahl's supervisor stated Edahl did not receive approval from him to factor site plans. BB&T advanced funds until January 2008 to Skywaves based on the General Dynamics site plans.

         On January 17, 2008, Michael Burke, the new account executive for Skywaves' factoring line, went with Edahl to Skywaves' warehouse. During the visit, Skywaves provided BB&T its 2007 year-end financial statements, which showed Skywaves had not had a profitable month since January 2007 and had closed 2007 with a net loss of $1, 388, 349.43. Also during the visit, Burke asked Konersmann and Voytko about "a number of items that looked like purchase orders [BB&T] had advanced on that [it was] not getting invoices on." Konersmann and Voytko told Burke the items were not purchase orders, and Burke "was very shocked, very concerned" to learn BB&T was funding money to Skywaves without valid purchase orders. Edahl, out of fear of losing his job, denied knowledge of the site plan factoring and told his superiors at BB&T, in an email sent January 22, 2008, "As we discussed Friday, neither you or I had any idea that the [General Dynamics-New York State] purchase orders funded from July through October were not documented and funded exactly like the other purchase orders."

         A January 2008 field audit by BB&T revealed Skywaves had received $320, 000 to $340, 000 from Verizon on factored invoices and had not turned this money over to BB&T. The audit also revealed that as of January 25, 2008, thirty-seven percent of Skywaves' payables were more than sixty days overdue. Skywaves stated its overdue debts were all to one creditor, StructuredTech, which was owned by a Skywaves' investor who agreed to give Skywaves an extension of time to pay. However, Skywaves admitted the amount owed to StructuredTech only accounted for twenty-five percent of Skywaves' payables.

         On January 18, 2008, Edahl informed Skywaves its "over advance ha[d] put [it] in default of the commercial finance loan and that [it] w[ould] be getting written notice of the same shortly." On January 25, 2008, BB&T sent Skywaves written notice it had defaulted under the terms of the Agreement, BB&T refused to honor any further financial commitments, and BB&T was terminating the Agreement. In particular, BB&T asserted Skywaves defaulted because it had received payments for factored accounts and did not immediately turn the payments over to BB&T; Skywaves was not paying its debts in the ordinary course of business; and BB&T had the good faith belief Skywaves' ability to pay BB&T and perform the obligations of the Agreement were impaired.

         In response, Skywaves hired an attorney, Earle Hewlette, who wrote to BB&T on Skywaves' behalf, asking BB&T to utilize a rescue plan to save the company and expressing Skywaves' "regret for the mistakes made in the past in dealing with [BB&T]." In its reply to Hewlette's email, BB&T did not agree to utilize the rescue plan. Additionally, BB&T listed eight instances of Skywaves holding payments owed to BB&T in violation of the Agreement, and two of these instances involved Skywaves holding payments for over sixty days. Due to the absence of funding, Skywaves filed for bankruptcy in April 2008.

         On December 3, 2009, Skywaves filed this action against BB&T and Edahl for (1) breach of contract, (2) breach of contract accompanied by fraudulent acts, (3) negligent misrepresentation, (4) fraudulent inducement, and (5) lender liability. Skywaves subsequently filed an amended complaint, asserting claims against BB&T for (1) breach of contract, (2) breach of contract accompanied by fraudulent acts, (3) promissory estoppel, and (4) breach of the covenant of good faith and fair dealing. It also asserted claims against both BB&T and Edahl for (1) negligent misrepresentation, (2) fraudulent misrepresentation, (3) negligence, and (4) violation of SCUTPA. In its amended complaint, Skywaves alleged, "The unfair acts and practices of [BB&T and Edahl] have an impact on the public interest, [and] have a potential for repetition."

         In their answers to the amended complaint, BB&T and Edahl both admitted Edahl was an officer of BB&T and worked at the Charleston branch, but they denied that, "At all times relevant hereto, Defendant Edahl was the agent, servant, and employee of Defendant BB&T, and acted within the scope and course of his employment." In 2015, BB&T clarified it did "not deny that Mr. Edahl was its employee, and thus its agent, in the financing provided under the . . . Agreement." Additionally, in their answers, BB&T and Edahl denied Skywaves' allegations they agreed to modify the Agreement to provide for the advancement of capital based on site plans and that this modification was memorialized in numerous writings, including emails, letters, and other documents.

         BB&T filed a partial motion to dismiss Skywaves' claims for negligent misrepresentation, fraudulent misrepresentation, negligence, violation of the SCUTPA, and breach of contract accompanied by fraudulent acts. Edahl filed a motion to dismiss all of Skywaves' claims against him. At the hearing on the motions to dismiss, BB&T and Edahl argued the lender liability statute of frauds, set forth in section 37-10-107 of the South Carolina Code (2015), barred Skywaves' claims.[4] Skywaves argued the case needed to proceed to trial to determine whether section 37-10-107 was applicable. Skywaves also argued BB&T's representations it could provide Skywaves with adequate financing was a present act that could constitute fraud. Additionally, Skywaves argued its relationship with BB&T exceeded the typical bank-customer relationship because BB&T, through Edahl, advised Skywaves and advised others to invest in Skywaves. Finally, Skywaves argued its allegation that BB&T's conduct had a potential for repetition was "sufficient to establish the impact on the public interest, " as required to have a claim under SCUTPA. After the hearing, [5] the circuit court dismissed all of Skywaves' claims against Edahl and also dismissed Skywaves' claims against BB&T for (1) breach of contract accompanied by fraudulent acts, (2) negligent misrepresentation, (3) fraudulent misrepresentation, (4) negligence, and (5) violation of SCUTPA. Skywaves filed a motion to reconsider the dismissal. Skywaves also filed a notice of intent to appeal the order. The circuit court granted Skywaves' motion to reconsider, modifying its order to allow Skywaves to proceed on its claims for breach of contract accompanied by fraudulent acts against BB&T and on its claims for negligence and negligent misrepresentation against BB&T and Edahl. Skywaves then filed a motion to withdraw its appeal as moot, and this court dismissed the appeal.

         During Edahl's first deposition on September 19, 2013, he indicated he did not remember agreeing to site plan financing until he heard Konersmann's deposition testimony the week prior to his deposition. Edahl also testified no written modification to the Agreement was made reflecting his oral agreement with Skywaves to factor site plans. He stated that based on the oral ...


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