Owners of Hindu temple lose fraudulent inducement appeal against building seller

The owners of a southern Indiana Hindu temple who claim they were misled about the acceptable uses of a building they purchased for an intended religious facility failed to demonstrate fraudulent inducement, the Court of Appeals of Indiana has affirmed.

In 2012, Farmers State Bank of Alto Pass, Illinois, acquired real estate in Newburgh through a foreclosure proceeding. Farmers leased the property to a group known as the Embassy of Christ, which used the building as a church.

In the spring of 2013, the property was listed for sale as a religious facility. At the same time, Sumalatha Satoor — a co-founder of Sri Shirdi Saibaba of Tristate Inc. — was attempting to open a Hindu temple in the area.

Satoor entered into an agreement with Farmers to purchase the building, but she did not review the applicable zoning regulations or inspect the real estate other than a structural inspection. Tristate entered into multiple agreements to fund the purchase, which was personally guaranteed by Satoor.

However, after closing, a code enforcement inspection revealed the property was originally zoned as a banquet hall and, thus, its use as a Hindu temple would be limited to small gatherings. According to the Court of Appeals, “This prohibition on large gatherings has limited (Satoor and Tristate’s) ability to raise funds to cover the expenses of the Temple and make the payments on the promissory note.”

Thus, Satoor and Tristate filed a breach of contract suit against Farmers. Farmers filed a counterclaim and, at a subsequent bench trial, moved for a directed verdict.

The Warrick Superior Court granted the motion for a directed verdict as to Tristate’s claims relating to the purchase agreement but denied the motion as to Satoor and Tristate’s other claims. However, the trial court eventually issued findings and conclusions in favor of Farmers, finding it did not breach the purchase agreement and did not fraudulently induce Satoor to enter into the agreement.

As for the counterclaim, the trial court concluded Satoor and Tristate breached the loan documents, so Farmers was entitled to foreclose on its security interest and have the real estate sold.

The Court of Appeals affirmed in full, agreeing with the trial court that Farmers did not fraudulently induce the appellants to enter into the purchase agreement. The appellants did not challenge the grant of a directed verdict as to Tristate’s claims relating to the purchase agreement, so the COA addressed that claim with respect to Satoor only.

The appellate court pointed to the test in Rice v. Strunk, 670 N.E.2d 1280 (Ind. 1996), which lays out the five elements of constructive fraud. Also, the court cited testimony from Scott Johnson, the former president of Farmers, and Mark Miller, Farmers’ real estate agent, who agreed that “the real estate was sold ‘As Is,’ and Satoor’s interrogatory responses, admitted at trial, twice affirmed that ‘[w]e purchased the [real estate] with ‘As-Is’ clause as it was a church.”

“Viewing the evidence most favorable to the judgment, we conclude that no fiduciary relationship existed between Satoor and Farmers as she cannot establish that Farmers stood in a position of superiority and exercised influence over her,” Judge Patricia Riley wrote. “Accordingly, in the absence of a fiduciary relationship, Satoor remained in a buyer and seller relationship and retained the burden to establish all five elements of the Rice test.

“… (H)ere, Farmers did not make any representation regarding the real estate’s compliance with any zoning, fire, or building code regarding its use as a religious facility. Rather, Miller indicated on the listing that the building was used as a religious facility based on the then-current use of the building by the Embassy of Christ,” Riley continued. “Satoor does not point us to any evidence inferring that the description of religious facility presented anything more than a realtor’s description and indicated an affirmative representation of its zoning status. Viewing, as we must, only the evidence on the record which supports the trial court’s judgment, we cannot say that Farmers made any fraudulent representations with respect to the zoning of the building that induced Satoor to enter into the purchase agreement.”

The case is Sri Shirdi Saibaba Sansthan of Tri State, Inc. and Sumalatha Satoor v. Farmers State Bank of Alto Pass, Ill., 21A-PL-2572.