## Facts

- FAMM Steel, Inc., a family-owned steel fabricator, expanded its business and financed facility and equipment growth through loans and a credit line from Fleet National Bank, later succeeded by Sovereign Bank.
- Between 1998 and 2002, the bank extended approximately $6.1 million in credit to FAMM.
- After FAMM experienced financial strain and turnover in financial staff, the bank’s vice-president (FAMM’s main contact) participated in discussions about replacing financial personnel and expressed preferences about candidates for interim accountant and comptroller roles.
- FAMM hired financial personnel the bank favored; FAMM later alleged these hires mismanaged the accounting (including failing to reconcile ledgers and overstating revenues), contributing to inaccurate forecasts and significant losses.
- FAMM alleged the bank later worsened conditions by altering cash-management practices (including stopping automatic account sweeps), impairing access to account information, mishandling accounts leading to a bounced check, and failing to respond to supplier and subcontractor inquiries.
- FAMM asserted the bank suggested it would provide forbearance and additional credit but then terminated the line of credit in May 2003 after deterioration and default.
- In 2004, the bank sold FAMM’s loans; FAMM ceased operations and its remaining assets were liquidated.
- FAMM, related entities, and individual principals sued the bank on multiple “lender liability” theories; the district court granted summary judgment to the bank.

## Issues

1. Whether the bank’s involvement in FAMM’s financial staffing and oversight amounted to extraordinary control supporting lender liability under an instrumentality theory and/or created a fiduciary relationship.
2. Whether the bank breached the implied covenant of good faith and fair dealing by its conduct in administering the lending relationship and terminating credit.
3. Whether the evidence supported related claims for fraud, economic duress, and interference with advantageous business relations.

## Decision

- The First Circuit affirmed summary judgment for the bank on all claims.
- The court held that, on the summary-judgment record, the bank’s conduct reflected creditor oversight and protection of its security interests, not domination of the borrower sufficient for instrumentality-based liability.
- The court held no fiduciary duty arose from this arm’s-length commercial lending relationship because the required special circumstances were not shown.
- The court found no breach of the implied covenant of good faith and fair dealing where the bank exercised contractual rights in response to default without evidence of dishonesty, improper motive, or conduct depriving the borrower of contractual benefits.
- The court held the remaining tort theories failed for insufficient evidence of essential elements (including actionable misrepresentation and reasonable reliance for fraud, wrongful pressure for duress, and intentional improper interference for business-relations claims).

## Legal Principles

- A lender’s active monitoring and influence over a borrower, including input into financial controls or staffing, does not by itself establish the extraordinary control required for instrumentality-type lender liability.
- In Massachusetts commercial lending, fiduciary duties do not arise from ordinary creditor–debtor dealings absent special circumstances showing a relationship of trust and justified reliance beyond typical arm’s-length lending.
- The implied covenant of good faith and fair dealing is not violated merely because a lender enforces loan terms, declines further credit, or terminates a credit facility after default; liability requires evidence of dishonest purpose, improper motive, or conduct that destroys the borrower’s contractual fruits.
- Fraud, economic duress, and interference claims in the lender-liability setting require proof of their specific elements and are not established by aggressive but contractually permitted creditor conduct.

## Conclusion

The First Circuit held that the bank’s oversight and enforcement actions, even if unfavorable to the borrower, did not constitute extraordinary operational control, create fiduciary obligations, or show bad-faith contract performance, and the plaintiffs’ remaining tort theories failed for lack of evidentiary support.


FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d 93 (1st Cir. 2009)