In re: NNN 400 Capitol Center 16, LLC, et al.
Filing
26
MEMORANDUM OPINION. Signed by Judge Matthew W. Brann on 7/26/2018. (crb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
NNN 400 CAPITAL CENTER 16,
LLC, et al.,
No. 1:17-CV-01688
(Judge Brann)
Plaintiffs,
v.
FGG, INC., et al.,
Defendants.
MEMORANDUM OPINION
JULY 26, 2018
Defendants moved to dismiss Counts IV and V of Plaintiffs’ Complaint. For
the reasons that follow, that motion will be granted.
I.
BACKGROUND1
Plaintiffs are joint owners of an office building in Arkansas.2 Defendants
were the property managers of that building.3
On July 24, 2014, JS Partners (“JSP”) made an offer to purchase the office
building.4
By its own, written terms the offer expired on August 10, 2014.5
1
When considering a motion to dismiss, a court assumes the truth of all factual allegations
made in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The material in this
section, then, is taken entirely from Plaintiffs’ Complaint, and is presumed true for present
purposes.
2
Complaint (ECF No. 1) ¶ 12.
3
Id. ¶ 15.
4
Id. ¶ 23.
Defendants, as part of their property managing duties, indicated that they would
vet the offer and provide an analysis and recommendation on it to Plaintiffs.6 On
August 12, 2014, Defendants and Plaintiffs held a conference call, during which
Defendants recommended that the offer be rejected.7
On August 14, 2014,
Defendants memorialized their recommendation in an email.8
At that time, one of the building’s largest tenants was Blue Cross Blue
Shield (“BCBS”), whose lease was set to expire on June 30, 2016.9
BCBS
ultimately did not renew its lease, and the value of the building therefore
“dramatically declined.”10 Partially as a result, Plaintiffs were later forced to file
for bankruptcy.11
Plaintiffs’ Complaint contains claims for breach of contract (Count I),
breach of the implied covenant of good faith and fair dealing (Count II), breach of
fiduciary duty (Count III), negligence (Count IV), and constructive fraud (Count
V). As relevant here, Plaintiffs’ negligence claim is based on allegations that
5
Id.
6
Id. ¶ 24.
7
Id. ¶ 27. It is not clear why this call was held after JSP’s offer expired.
8
Id. ¶ 28.
9
Id. ¶ 29.
10
Id.
11
Plaintiffs initiated the instant suit as an adversary proceeding before the United States
Bankruptcy Court for the District of Delaware. In re NNN 400 Capitol Center 16, LLC, 1612728 (Bankr. Del. 2016); NNN 400 Capitol Center 16, LLC v. FGG, Inc., No. 17-50940
(Bankr. Del. 2017). The matter was subsequently reassigned to this Court.
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Defendants failed to exercise “due care, skill, and diligence” when considering
JSP’s offer, which negligence led Plaintiffs, mistakenly, to decline the offer.12 And
Plaintiffs’ constructive fraud claim is based on allegations that Defendants’ “acts,
omissions and/or concealments” breached their fiduciary obligations to Plaintiffs.13
On February 22, 2018, Defendants move to dismiss Plaintiffs’ Complaint.14
Defendants’ motion also sought to dismiss Paul Michael Getty for lack of personal
jurisdiction. Because Plaintiffs subsequently dismissed Mr. Getty voluntarily,15
this Court will not address that portion of Defendants’ motion.
II.
DISCUSSION
A.
Whether Plaintiffs’ Negligence Claim is Timely
Defendants argue that Plaintiffs’ negligence claim should be dismissed
pursuant to Federal Rule of Civil Procedure 12(b)(6) because it is untimely.
Both parties agree that the relevant statute of limitations for Plaintiffs’
negligence claim is two years.16 JSP’s offer expired on August 10, 2014; the last
alleged act of Defendants vis-à-vis this offer occurred on August 14, 2014. The
instant suit was commenced on August 1, 2017, nearly three years after that act.
12
Id. ¶ 57.
13
Id. ¶ 61.
14
ECF No. 4.
15
ECF No. 11.
16
The parties also appear to agree that California law applies, at least to this claim.
Defendants’ Brief in Support of Their Motion to Dismiss (ECF No. 4) at 3; Plaintiffs’ Brief
in Opposition to Defendants’ Motion to Dismiss (ECF No. 10) at 6.
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Plaintiffs, however, argue that the relevant starting date for limitations
purposes should be June 30, 2016, when BCBS’s lease expired, since (1) the
expiration of BCBS’s lease damaged Plaintiffs (through a decline in the value of
the building), and (2) a claim for negligence does not accrue until “it is complete
with all of its elements,” including the damages element.17 This Court disagrees.
While the building’s depreciation may have injured Plaintiffs, the Complaint does
not indicate, nor can this Court infer, that BCBS’s decision not to renew was in any
way caused by, or related to, Defendants’ actions. In other words, Defendants’
acts did not cause those damages.18
Plaintiffs next argue that they should be able to utilize the “discovery rule,”
which “postpones accrual of a cause of action until the plaintiff discovers, or has
reason to discover, the cause of action.”19 To take advantage of the discovery rule,
however, a plaintiff “must specifically plead facts to show (1) the time and manner
of discovery and (2) the inability to have made earlier discovery despite reasonable
diligence.”20
Because Plaintiffs have not satisfied that pleading burden, the
discovery rule cannot aid them.
It appears, therefore, that Plaintiffs’ negligence claim is untimely; it will
consequently be dismissed. The dismissal, however, will be without prejudice, and
17
Aryeh v. Canon Business Solutions, Inc., 55 Cal. 4th 1185, 1191 (2013).
18
Id. (“those elements being wrongdoing, harm, and causation”) (emphasis added).
19
Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th 797, 807-08 (2005).
20
Id. at 808 (emphasis in original).
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Plaintiffs may amend their Complaint in order to rectify the above-identified
deficiencies, if desired and if possible.
B.
Whether Plaintiffs’ Constructive Fraud Claim Has Been Pled
With Sufficient Particularity
Defendants argue that Plaintiffs’ constructive fraud claim should be
dismissed pursuant to Rules 9(b) and 12(b)(6).
Rule 9(b) states that, when alleging fraud, a plaintiff “must state with
particularity the circumstances constituting” that fraud. The Third Circuit has
indicated that this heightened pleading standard is met by factual allegations that
tell the “who, what, when, where, and how of the events at issue.”21 Plaintiffs have
failed to meet that standard.
Plaintiffs’ constructive fraud claim occupies six numbered paragraphs in
their complaint.22
These paragraphs allege that Defendants owed a duty to
Plaintiffs,23 that Defendants’ “acts, omissions and/or concealments” breached that
duty,24 that such breach requires no fraudulent intent to constitute constructive
fraud,25 that Plaintiffs “reasonably relied” on Defendants’ recommendations
21
GSC Partners CDO Fund v. Washington, 368 F.3d 228, 239 (3d Cir. 2004); see also
Frederico v. Home Depo, 507 F.3d 188, 200 (3d Cir. 2007) (“To satisfy this [heightened]
standard, the plaintiff must plead or allege the date, time[,] and place of the alleged fraud or
otherwise inject precision or some measure of substantiation into a fraud allegation.”).
22
Complaint ¶¶ 59-64.
23
Id. ¶ 60.
24
Id. ¶ 61.
25
Id. ¶ 62.
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concerning JSP’s offer,26 and that Defendants’ conduct damaged Plaintiffs to the
tune of more than $10 million.27
Plaintiffs correctly note that their constructive fraud claim also “reasserts,
restates, and incorporates by reference” the rest of their complaint, and their brief
opposing Defendants’ Motion to Dismiss attempts to explain how conduct alleged
in other paragraphs constitutes constructive fraud. Rule 9(b), however, imposes a
pleading standard, not a briefing standard. Because this explanation is absent from
the complaint, Count V of the complaint will be dismissed.
The dismissal,
however, will be without prejudice, and Plaintiffs may amend their Complaint in
order to rectify the above-identified deficiencies, if desired and if possible.
III.
CONCLUSION
For the reasons discussed above, Counts IV and V of Plaintiffs’ Complaint
will be dismissed. An appropriate Order follows.
BY THE COURT:
s/ Matthew W. Brann
Matthew W. Brann
United States District Judge
26
Id. ¶ 63.
27
Id. ¶ 64.
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