Midcities Metropolitan District No. 1 v. U.S. Bank National Association

Filing 52

Memorandum, Opinion and ORDER denying 29 Motion for Leave to File Amended Complaint. By Judge Lewis T. Babcock on 5/15/2014.(klyon, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 12-cv-03322-LTB-BNB
MIDCITIES METROPOLITAN DISTRICT NO. 1, a Quasi-Municipal Corporation and
Political Subdivision of the State of Colorado,
Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION, a National Banking Association,
Defendant.
______________________________________________________________________________
MEMORANDUM OPINION AND ORDER
______________________________________________________________________________
Babcock, J.
This matter is before me on a Motion for Leave to File Amended Complaint filed by
Plaintiff, MidCities Metropolitan District No. 1 (“MidCities”), seeking leave to amend its
complaint to add a breach of contract claim against Defendant, U.S. Bank National Association
(“USBank”), who opposes this request. [Doc #29] Oral arguments would not materially aid in
my determination of this motion. After consideration of the parties briefs and arguments, I
DENY the motion as follows.
I. FACTS
MidCities is a special district (a quasi-municipal corporation and political subdivision of
the State of Colorado) organized under Colo. Rev. Stat. §32-1-101, et seq., which provides
services – such as sewer and water systems – to owners of real property located within its
boundaries. The MidCities district consists of property adjacent to the Flatirons Mall located in
Broomfield, Colorado.

On August 21, 2001, Coalton Acres, LLC (the original developer and Grantor) granted
8.1 acres of real property located within the district boundaries to the original Grantee, Heritage
Bank, via a Special Warranty Deed. Section 2.1 of the Deed – entitled Grantee’s Covenant as to
Sales Tax Revenue: – requires the following:
(a) Grantee covenants and agrees that Grantee shall pay to MidCities . . . for
every calendar year, during the term of this covenant, commencing with the
calendar year 2003, . . . the remainder of (i) $350,000 minus (ii) one-half (½) of a
three and one-half percent (3.5%) sales tax collected by the City from the
Property for the year (the “Shortfall Amount”).
Section 2.1(b) provides that the Shortfall Amount shall be paid to MidCities on or before March
31st of each calendar year, and Section 2.1(c) provides that the obligation to pay the Shortfall
Amount shall continue until the bond obligations and amounts due in repayment of developer
guarantees are made. MidCities alleges that in November 2004, the original Grantor (Coalton
Acres) assigned its rights under the Deed to MidCities.
Heritage Bank paid the Shortfall Amount set forth in Section 2.1(a) of the Deed until
2007, when First Community Bank acquired Heritage Bank. Thereafter, First Community Bank
paid the Shortfall Amount until it was placed into receivership by the Federal Deposit Insurance
Corporation (the “FDIC”) in January 2011. MidCities alleges that USBank then acquired the
property at issue from the FDIC upon execution of a Purchase and Assumption Agreement, dated
January 28, 2011 (the “P&A Agreement”).
MidCities’ position is that USBank is now obligated to pay the Shortfall Amount and,
despite numerous demands, USBank has failed to pay. As a result, MidCities filed this lawsuit
in the District Court for the City and County of Broomfield, seeking payment of the Shortfall
Amount due, and a declaration that USBank is liable to pay it in the future. USBank

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subsequently removed the case from state court to this court, by filing a Notice of Removal on
December 21, 2012, on the basis of diversity jurisdiction under 28 U.S.C. §1332(a).
USBank then filed a motion seeking dismissal of MidCities’ claims against it for failure
to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). On June
24, 2013, I ruled in favor of USBank on MidCities’ claims seeking relief for Breach of Contract,
Declaratory Judgment, and Injunctive Relief, which were brought on the theory that Section 2.1
of the Deed is a real covenant that runs with the land. I rejected this theory, and instead ruled
that Section 2.1 was a personal covenant that did not run with the land. As such, I determined
that MidCities’ contract-based claims, which sought to enforce the provisions contained in
Section 2.1 of the Deed against USBank (as the current owner of the property), were not
cognizable as predicated on a faulty legal theory. I further ruled, however, that MidCities stated
a claim for Unjust Enrichment, precluding dismissal of the case. [Doc # 18]
Almost six months later, on December 6, 2013, MidCities filed the motion at issue here
seeking leave to amend its complaint. Specifically, it seeks to add another breach of contract
claim based on the new legal theory that USBank expressly assumed all duties and obligations
related to the property – including paying the Shortfall Amount pursuant to Section 2.1 of the
Deed – in its P&A Agreement with the FDIC. Because MidCities is both an express beneficiary
under the Deed, and an assignee under the covenant, it argues that it is entitled to enforce the
contractual obligations assumed by USBank in the P&A Agreement with the FDIC. MidCities
contends that USBank’s failure to pay the Shortfall Amount results in breach and damages.
MidCities now seeks to amend its complaint to include this new breach of contract claim against
USBank. [Doc # 29-1]

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II. LAW
Pursuant to Fed.R.Civ.P. 15, a plaintiff may amend its complaint after the defendant has
answered only with leave of court. See Fed.R.Civ.P. 15(a)(2)(after a responsive pleading has
been served, “a party may amend its pleadings only with the opposing party’s written consent or
the court’s leave”). The Court has the discretion whether to grant a motion seeking leave to
amend, and leave should be freely granted where justice requires. Id.; Anderson v. Merrill Lynch
Pierce Fenner & Smith Inc., 521 F.3d 1278, 1288 (10th Cir. 2008). The Court may exercise its
discretion to deny a motion to amend upon a showing of undue delay, undue prejudice to the
opposing party, bad faith or dilatory motive, failure to cure deficiencies by previously allowed
amendments, or futility of the amendment. Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th
Cir. 1993).
USBank argues that this motion to amend, under the circumstances, is untimely and
creates undue prejudice. USBank also argues that I should not allow MidCities to allege the new
breach of contract claim because such claim is not cognizable and, as such, allowing it would be
futile.
III. ANALYSIS
MidCities’ new breach of contract claim is based on its allegation – set forth in its
proposed amended complaint – that USBank contractually assumed the obligation to pay the
Shortfall Amount in Section 2.1 of the Deed, via its P&A Agreement with the FDIC. In so
doing, MidCities first alleges that it is an express beneficiary to Section 2.1 of the Deed and, in
addition, that Coalton Acres explicitly assigned/transferred to MidCities the terms and
provisions in Section 2.1 in a written Assignment dated November 30, 2004. [Doc # 29-1 ¶¶14-

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19]
MidCities then alleges that the FDIC assumed Section 2.1 following its appointment as
the Receiver of First Community Bank. Specifically, MidCities notes that it submitted a Proof of
Claim to the FDIC – on or about April 5, 2011 – seeking payment of the Shortfall Amount in
Section 2.1. [Doc # 29-1 ¶24] In response, the FDIC did not disaffirm the obligation in Section
2.1, but instead denied that it was responsible for MidCities’ claim for payment on the basis that
“[t]he property has passed to the Assuming Institution, USBank . . . ”. [Doc # 29-1 ¶24&25] As
a result, MidCities argues that the FDIC’s conditional denial constitutes evidence that the FDIC
assumed the obligation to pay the Shortfall Amount when it was appointed Receiver of First
Community Bank. Because the FDIC denied MidCities’ claim seeking payment of the Shortfall
Amount on the basis that the property at issue “has passed to the Assuming Institution,
USBank,” MidCities avers that the FDIC “communicated” that the obligation under Section 2.1
of the Deed is a “Related Liability” as set forth and defined in §1.3(iii) of the P&A Agreement
between the FDIC and USBank as “any other obligation determined by the Receiver to be
directly related to such Asset.” [Doc # 29-1 ¶28] As such, MidCities asserts in its new breach
of contract claim that USBank “has assumed [the obligation in Section 2.1 via the P&A
Agreement] and is therefore obligated to pay the Shortfall Amount for each year that it has
owned and continues to own” the property at issue. [Doc # 29-1 ¶20]
A. Untimely & Prejudicial
In response to the request to amend, USBank argues – and I agree – that under the
circumstances here, MidCities’ request should be denied as both untimely and prejudicial.

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As a general rule, “[l]ateness does not of itself justify the denial of the amendment.”
Minter v. Prime Equip. Co., 451 F.3d 1196, 1205 (10th Cir. 2006). However, “untimeliness
alone [can be] a sufficient reason to deny leave to amend, especially when the party filing the
motion has no adequate explanation for the delay.” Pallottino v. City of Rio Rancho, 31 F.3d
1023, 1027 (10th Cir. 1994). In assessing undue delay, “[t]his Circuit focuses primarily on the
reasons for the delay” and has held that denial of leave to amend is appropriate “when the party
filing the motion has no adequate explanation for the delay.” Minter v. Prime Equip., supra, 451
F.3d at 1206 (quoting Frank v. U.S. West, supra, 3 F.3d at 1365-6). Furthermore, I note that the
longer the delay in filing the motion to amend, “the more likely the motion to amend will be
denied, as protracted delay, with its attendant burdens on the opponent and the court, is itself a
sufficient reason for the court to withhold permission to amend.” Minter v. Prime Equip., supra,
451 F.3d at 1205 (citations omitted)(ruling that “a party who delays in seeking an amendment is
acting contrary to the spirit of the rule and runs the risk of the court denying permission because
of the passage of time”).
Here, MidCities attempts to bring another breach of contract claim based on a different
legal theory. MidCities does not explain its reasons for advancing this new theory at this late
point, or for the delay, but instead argues that it has asserted a viable alternative theory of
recovery and that it was not acting in bad faith. While the request to amend was filed nine days
prior to the expiration of the deadline for amending, set forth in the Scheduling Order [Doc #
26], it was over six months after I dismissed their initial breach of contract claim. The proposed
amendment was not based on facts that were unavailable at the time the complaint was filed, but
instead advances an alternate legal theory that MidCities did not choose to bring until after

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USBank successfully demonstrated that its original legal theory was fatally flawed, warranting
dismissal for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6).
“Where the party seeking amendment knows or should have known of the facts upon
which the proposed amendment is based but fails to include them in the original complaint, the
motion to amend is subject to denial.” Pallottino v. City of Rio Rancho, supra, 31 F.3d at 1027
(quotation and citation omitted). Likewise, where the plaintiff seeks to amend the complaint to
assert an alternative theory based on evidence already known, the court “need not allow itself to
be imposed upon by the presentation of theories seriatim.” Id. “Liberality in amendment is
important to assure a party a fair opportunity to present [its] claims and defenses, but equal
attention should be given to the proposition that there must be an end finally to a particular
litigation.” Id. (quotations and citations omitted)(holding that a plaintiff was not entitled to
amend his complaint after his existing claims were dismissed pursuant to an adverse summary
judgment ruling).
As such, I find that the request to amend in this case is not timely. See Fed. Ins. Co. v.
Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987)(“Courts have denied leave to amend in
situations where the moving party cannot demonstrate excusable neglect. For example, courts
have denied leave to amend where the moving party was aware of the facts on which the
amendment was based for some time prior to the filing of the motion to amend”); see also Smith
v. Aztec Well Serv. Co., 462 F.3d 1274, 1285 (10th Cir. 2006); Pallottino v. City of Rio Rancho,
supra, 31 F.3d at 1027.
In addition, I agree with USBank that allowing MidCities’ proposed amendment would
cause undue prejudice. Under Fed.R.Civ.P. 15(a), undue prejudice means undue difficulty in
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prosecuting or defending a lawsuit as a result of a change of tactics or theories on the part of the
plaintiff. Minter v. Prime Equip., supra, 451 F.3d at 1208; see also Jones v. Wildgen, 349
F.Supp.2d 1358, 1361 (D. Kan. 2004)(citations omitted). While any amendment invariably
causes some “practical prejudice,” leave to amend may be denied when the amendment “would
work an injustice to the defendants.” Koch v. Koch Indus., 127 F.R.D. 206, 209–10 (D.
Kan.1989)(citations omitted). According to the Tenth Circuit, undue prejudice is the most
important factor in deciding a motion to amend. See Minter v. Prime Equip., supra, 451 F.3d at
1207.
While the amendment proposed by MidCities does not assert any alterations to the
underlying facts, or change the ultimately recovery sought, the theory of recovery on the breach
of contract claim is vastly different. I agree with USBank that MidCities’ attempt to revive its
breach of contract claim under a different theory, after its first theory was rejected on a motion to
dismiss for failure to state a claim, creates undue prejudice to USBank. See Minter v. Prime
Equip., supra, 451 F.3d at 1208 (ruling that a change of tactics or theories on the part of the
plaintiff resulting in difficulty in defending a lawsuit creates undue prejudice). As such, I
conclude that MidCities’ request for leave to amend is denied, pursuant to Fed.R.Civ.P.
15(a)(2), as both unduly prejudicial and untimely.
B. Futility - Lack of Standing
USBank also argues that MidCities’ new breach of contract claim fails to state a viable
claim, as a matter of law, and thus should be denied as futile. Because I agree that MidCities
lacks standing to bring its new breach of contract claim against USBank – based on its P&A
Agreement with the FDIC – I conclude that even if the motion to amend was timely and not
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prejudicial, it should be denied as futile.
“A proposed amendment is futile if the complaint, as amended, would be subject to
dismissal.” Anderson v. Merrill Lynch, supra, 521 F.3d at 1288; see also Jefferson County Sch.
Dist. v. Moody’s Investor’s Services, 175 F.3d 848, 859 (10th Cir. 1999). A proposed
amendment to a complaint is futile if it would be subject to dismissal for any reason, including
that the amendment would not survive a motion for summary judgment or a motion to dismiss.
See Watson ex rel. Watson v. Beckel, 242 F.3d 1237, 1239 (10th Cir. 2001); Gohier v. Enright,
186 F.3d 1216, 1218 (10th Cir.1999). The grant or denial of a motion to amend is within the
sound discretion of the trial court. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d
222 (1962).
In its proposed amended complaint, MidCities avers that it is both “an express
beneficiary under the Deed and an assignee under [Section 2.1]” and it argues that it “is entitled
to enforce its contractual rights under the Deed.” [Doc # 29-1 ¶40] Because MidCities had not
been paid pursuant to Section 2.1 of the Deed, MidCities claims that USBank’s “breach of the
[P&A] Agreement has resulted in damages to MidCities.” [Doc # 29-1 ¶42]
In response to the request to amend, USBank asserts that MidCities’ new claim is not
cognizable because MidCities lacks standing to bring a breach of contract claim against USBank
based on its P&A Agreement with the FDIC. Specifically, it asserts that non-parties to an FDIC
purchase and assumption agreement do not have standing to enforce its terms or to pursue
litigation based on the rights claimed to be afforded by such agreement; rather third parties to
Government contracts are presumed to be, at most, incidental beneficiaries who lack standing
absent a clear intent that they be permitted to enforce the terms of the contract. In so arguing,
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USBank refers to the provision of the P&A Agreement that specifically provides that “nothing
expressed or referred to in this Agreement is intended or shall be construed to give any Person
other than the [FDIC], the Corporation and [USBank] any legal or equitable right, remedy or
claim under or with respect to this Agreement . . .”.
The issue of whether a creditor of a failed bank has standing to assert claims against an
assuming bank, under a FDIC purchase and assumption agreement, has not been addressed in
this Circuit. In Interface Kanner, LLC v. JPMorgan Chase Bank, 704 F.3d 927 (11th Cir. 2013),
a plaintiff/lessor who entered into a lease agreement with a bank that was subsequently taken
into receivership by the FDIC, brought suit against the assuming bank who received the assets
pursuant to a P&A Agreement with the FDIC. Id. at 930. The Eleventh District upheld the
district court’s ruling that the plaintiff/lessor could not enforce the P&A Agreement against the
assuming bank, under federal common law, because it is not an intended third-party beneficiary
of that contract. Id. In so doing, the Court noted that only a party to a contract or an intended
third-party beneficiary may sue to enforce the terms of a contract, and that Government
contracts, such as the P&A Agreement, “often benefit the public, but individual members of the
public are treated as incidental beneficiaries unless a different intention is manifested.” Id. at
933 (citing Restatement (Second) of Contracts §313(2) cmt.a). Finally, the Court indicated that
the lessor’s “task of demonstrating ‘clear intent’ is made significantly more difficult by . . .
section 13.5 of the P&A Agreement [that] expressly disclaims any intent to create third-party
beneficiaries.” Interface Kanner v. JPMorgan, supra, 704 F.3d at 933. The Court found that the
P&A Agreement does not provide a “clear intent” to benefit the lessor, and concluded that the
lessor “is not an intended third-party beneficiary to the P&A Agreement and cannot sue to

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enforce it.” Id. In so doing, the Eleventh Circuit relied on a Ninth Circuit ruling in an “almost
identical case” which concluded that the P&A Agreement did not confer a benefit on the
landlord, by finding that the reliance on the assumption language in the P&A Agreement “does
not evince the specificity required to carve out enforceable rights as contemplated by section
13.5,” nor does it “show the ‘clear intent’ needed to rebut the presumption that [the landlord] is
merely an incidental beneficiary.” Id. (quoting GECCMC v. JPMorgan Chase Bank, 671 F.3d
1027, 1034 (9th Cir. 2012)); see also Hillside Metro Associates, LLC v. JPMorgan Chase Bank,
Nat. Ass’n, ___ F.3d ___, 2014WL401303 (2nd Cir. February 4, 2014).
In response, MidCities refers me to Excel Willowbrook, L.L.C v. JP Morgan Chase Bank,
Nat. Ass’n, ___ F.3d ___, 2014WL1633508 (5th Cir. April 24, 2014), in which the Fifth Circuit
recently faced the same issue of “whether the [Plaintiff/]Landlords qualify as intended
beneficiaries to the P&A Agreement, in which case they have a contractual right to enforce [the
assuming bank’s] promise to assume [the failing bank’s] obligations under the Leases.” Id. The
Fifth Circuit opinion questioned the rulings in Interface Kanner v. JPMorgan, supra and
GECCMC v. JPMorgan Chase, supra, on the basis that the assuming bank not only accepted the
FDIC’s assignment of the failed bank’s interest in the Leases, but also “expressly assume[d]”
and “agree[d] to pay, perform, and discharge” all of the failed bank’s liabilities (including the
obligations under the leases) in the P&A Agreement. As such, the Court indicated that “the
Landlords appear to be quintessential creditor beneficiaries to the P&A Agreement.” Id.
Furthermore, while the P&A Agreement contains a clause disclaiming any intention to create
third-party beneficiaries, the Court noted that “the no-beneficiaries clause is qualified by the
modifying phrase ‘except as otherwise specifically provided in this Agreement,’” and the

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assuming bank’s “unqualified promise to “expressly assume[ ] . . . and agree [ ] to pay, perform,
and discharge” all of the failed bank’s obligations “is arguably tantamount to ‘specifically’
designating the Landlords as creditor beneficiaries.” Id. Finally, the Court found that “affording
the Landlords enforcement rights on the narrow facts of this case would not open the floodgates,
as the class of persons entitled to third-party beneficiary status would remain exceedingly narrow
and subject to the FDIC’s control.” Id. Thus, the Fifth Circuit concluded that if “[w]e were
writing on a blank slate, we would conclude that the Landlords are creditor beneficiaries to the
P&A Agreement and therefore have a contractual right to enforce [the assuming bank’s] promise
to assume the Leases.” Id. However, “in the interest of maintaining uniformity in the
construction and enforcement of federal contracts” the Court followed the established precedent,
and held that the Landlords did not qualify as third-party beneficiaries. Id. The Court went on to
affirm judgment in favor of the Landlords on different grounds – specifically, that the Landlords
proved privity of estate which, in turn, gives them the right to enforce the “real covenants” of
rent and taxes. Id.
Without discounting the analysis and reasoning of the Fifth Circuit, I likewise conclude
that I am to follow the legal authority of Interface Kanner v. JPMorgan, supra and GECCMC v.
JPMorgan Chase, supra, and rule that MidCities is not a third party beneficiary to the P&A
Agreement. As such, they have no standing to either enforce or seek interpretation of the P&A
agreement at issue here. In so doing I reject MidCities argument that it is not attempting to
enforce the terms of the P&A Agreement via third-party standing, but rather, it seeks to enforce
its contractual rights under the Deed. It is clear that MidCities seeks and interpretation of the
terms of the P&A Agreement that, as a matter of law, USBank assumed the obligation of Section

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2.1 of the Deed. Because MidCities lacks standing to assert its new contract claim, its proposed
amendment to the complaint is futile. See Hutchinson v. Pfeil, 211 F.3d 515, 523 (10th Cir.
2000)(upholding the ruling that the plaintiff’s proposed new claim of negligent
misrepresentation was futile on the basis that he lacked Article III standing).
Because I have determined that MidCities does not have standing to bring its new
contract claim, I do not reach USBank’s alternative arguments that the new proposed claim is not
plausible in that: 1) the “evidence” is insufficient – as a matter of law – to conclude that the
FDIC assumed the obligation to pay the Shortfall Amount set forth in Section 2.1 when First
Community Bank was placed into receivership by the FDIC in January of 2011; and 2) the
conclusion that USBank, in turn, expressly assumed the Section 2.1 obligation in its P&A
Agreement with the FDIC – as a “Related Liability” – is not a viable interpretation of the P&A
Agreement.
ACCORDINGLY, I DENY the Motion for Leave to File Amended Complaint [Doc #29]
filed pursuant to Fed. R. Civ. P. 15(a)(2) by Plaintiff, MidCities Metropolitan District No. 1
(“MidCities”), seeking leave to amend its complaint to add a breach of contract claim against
Defendant, U.S. Bank National Association (“USBank”), on the basis that it is untimely,
prejudicial, and futile.

Dated: May

15 , 2014 in Denver, Colorado.
BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE
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