...arise out of the same case. The cases are Thompson v. BB&T, 2008-CA-1217 (Ky. Ct. App., June 12, 2009) ("Thompson I") and Thompson v. BB&T, 2009-CA-1427 (Ky. Ct. App., Jan. 28, 2011) ("Thompson II").
Both decisions arise out of a commercial lending dispute that boiled over into a foreclosure in which the borrower asserted sizeable counterclaims, despite entering into a forbearance agreement during the workout phase that contained two critically important provisions: a merger clause, and a general release in favor of the lender. The case was tried by a jury (scary), which found in favor of the borrower (scarier) and imposed a $9,000,000 punitive damage award (scariest) agianst the lender.
In Thompson I, the Kentucky Court of Appeals upheld the trial judge's determination to appoint a property receiver pending the outcome of the foreclosure lawsuit. Kentucky has a statute governing the appointment of receivers in foreclosure matters, and its terms require a lender to establish that the subject property is in danger of being lost, removed or materially injured. However, the loan agreement in the Thompson case had a contractual receivership clause that gave the lender the right to appoint a receiver upon mere default. In the first decision, the Court of Appeals held that the contractual basis is sufficient to appoint a receiver: "Having found a contractual right to a receiver, it is unnecessary ... to further consider whether [lender] has an independent statutory right under KRS 425.600." This ruling makes it significantly easier (and cheaper) to obtain a receiver in a foreclosure matter, because a lender only needs to establish that a default exists, and that the loan agreements contain this clause.
In Thompson II, the stakes were much larger. The lender offered several arguments to overturn the massive jury verdict against it, but the most important one is that the borrower had executed a forebearance agreement that released the bank. The borrower contended that the forbearance agreement itself was the product of fraudulent inducement and that the release therein should not be enforced. However, the forbearance agreement contained a merger clause that stated that it was the "entire and exclusive statement of the agreement of the parties," which conflicted with the borrower's contention that there were material fraudulent representations made that induced it into executing that very agreement. The borrower admitted that it did not read the contents of the forbearance agreement. The Kentucky Court of Appeals found that not reading the document is not an excuse, that the borrower could not establish reasonable reliance (necessary to succeed on the fraudulent inducement claim), and that the release in the forbearance agreement was operative. Accordingly, the Court overturned the jury verdict.
The lesson for lenders is, of course, to make sure that your forbearance agreements contain releases and solid merger clauses. Also, please note that both of these decisions are unpublished, and CR 76.28(4)(C) applies to each.