General Electric Capital Corporation et al v. Nebraska Investment Finance Authority
Filing
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ORDER AND OPINION re: 60 MOTION for Judgment on the Pleadings . filed by Nebraska Investment Finance Authority, 52 MOTION for Judgment on the Pleadings . filed by Nebraska Investment Finance Authority.For the foregoi ng reasons, NIFA's motion for judgment on the pleadings is GRANTED as to the unjust enrichment (Count IX), constructive trust (Count X) and breach of the duty of good faith and fair dealing (Count XII) and DENIED in all other respects. The Clerk of Court is directed to close the motions at Dkt. No. 52 and Dkt. No. 60. (Signed by Judge Lorna G. Schofield on 9/14/2016) (kgo)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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GE FUNDING CAPITAL MARKET SERVICES, :
INC. and TRINITY FUNDING COMPANY, LLC, :
:
Plaintiffs,
:
:
-against:
:
NEBRASKA INVESTMENT FINANCE
:
AUTHORITY,
:
:
Defendant. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 09/14/2016
15 Civ. 1069 (LGS)
ORDER AND OPINION
LORNA G. SCHOFIELD, District Judge:
Plaintiffs GE Funding Capital Market Services, Inc. and Trinity Funding Company, LLC
(collectively, “GE”) bring this action against Defendant Nebraska Investment Finance Authority
(“NIFA”) seeking declaratory and equitable relief and money damages arising from NIFA’s
alleged breach of six investment agreements. NIFA moves for partial judgment on the pleadings.
For the reasons below, the motion is granted in part and denied in part.
I.
BACKGROUND
For purposes of NIFA’s motion, the following facts are drawn from the Second Amended
Complaint (the “Complaint”) and documents attached to the Complaint. The facts are construed
in the light most favorable to GE as the non-moving party.
NIFA is an independent, quasi-governmental body established under the Nebraska
Investment Finance Authority Act, Neb. Rev. Stat. §§ 58-201 to 58-272. NIFA’s activities
include providing sources of mortgage financing to Nebraska residents of low and moderate
income levels at reduced rates. Between 1994 and 2000, NIFA issued certain series of bonds to
finance its acquisition of mortgage loans or mortgage-backed securities, which were generated in
connection with purchases of homes by eligible Nebraska residents. Each bond series was
separately issued and named: “NIFA’s Single Family Housing Revenue Bonds 1994 Series
ABCD,” “NIFA’s Single Family Housing Revenue Bonds 1994 Series A-1 and Series B-1,”
“1994 Series C-1 and Series D-1,” “1995 Series A,” “1995 Series B,” “1996 Series A,” and
“2000 Series A and B.”
The bonds were governed by a General Indenture of Trust (the “General Indenture”) and
several series-specific Supplemental Indentures executed by NIFA and its Trustee, Norwest
Bank of Minnesota, N.A. (the “Trustee”). The purpose of these indentures was to secure
repayment of moneys to the bondholders of the relevant series of bonds. Accordingly, the
General Indenture established a system of “special Funds and Accounts” to hold the proceeds
from the bonds. The General Indenture established nine funds, each with a specific purpose. For
example, the Revenue Fund held “all Revenues derived from the Mortgage Loans (including
Defaulted Mortgage Loans) and the Mortgage-Backed Securities.” Within each fund, the
General Indenture provided for the creation of a separate account for each bond series (the
“Accounts”). Thus, the proceeds from each bond series were allocated across the same nine
funds but kept segregated within each fund by the separate Accounts.
For each bond series, NIFA and the Trustee entered into an Investment Agreement with a
former or current affiliate of GE. The Investment Agreements provide that GE would pay a
fixed rate of return to NIFA on amounts deposited in the Accounts. The Investment Agreements
further provide that NIFA could make withdrawals from the Accounts for “Permitted
Withdrawal Purposes” and that GE would remit to NIFA on the “Termination Date” the
outstanding principal balance and all unpaid interest thereon. This arrangement was designed to
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provide NIFA with an income stream so that NIFA could make debt service payments on, and
ultimately redeem, each series of bonds.
As relevant here, the Investment Agreements define when GE must pay NIFA interest.
Although there are slight, non-substantive variations across the agreements, § 2.2 of each of the
Investment Agreements generally provides:
Interest on the outstanding principal balance of each Investment shall accrue daily
as of the close of business each day from and including the date of receipt thereof
by [GE] to but excluding the earlier of the Termination Date and the date remitted
to the Trustee as provided herein, at the applicable Rate of Earnings with respect
thereto, provided that no interest will accrue on or after the Termination Date.
“Investment” is defined, through a series of steps, as specified “funds and accounts established
under the Indenture in connection with the [bond series].” The “Termination Date” is a date
certain set forth in Exhibit A to each Investment Agreement and ranging from March 2, 2026, to
March 2, 2035. Each Investment Agreement also provides that it “shall terminate on the
Termination Date, unless earlier terminated in accordance with its terms.”
NIFA redeemed the bonds on a rolling basis between 2005 and 2010. Although the
Investment Agreements required the Trustee to give GE notice if and when each bond series was
redeemed, GE was not aware that any of the bond series had been redeemed until late 2014.
NIFA continued to invest funds and accept interest payments under the Investment Agreements.
In September 2014, GE requested an explanation why the Investment Agreements had
remained funded following the redemption of the bonds. On February 13, 2015, after GE and
NIFA failed to reach agreement as to the status of the Investment Agreements following
redemption, GE filed this action. GE seeks a declaratory judgment that NIFA had no right to
further interest payments under the relevant Investment Agreement following redemption of each
series of bonds and that NIFA’s conduct in that regard constituted ultra vires activity. GE also
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brings claims for unjust enrichment, constructive trust, breach of contract and breach of the duty
of good faith and fair dealing.
II.
LEGAL STANDARD
The Court reviews motions for judgment on the pleadings brought pursuant to Federal
Rule of Civil Procedure 12(c) under the same standard as Rule 12(b)(6) motions to dismiss.
Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 922 (2d Cir. 2010). The Court accepts as
true all of the non-moving party’s well-pleaded factual allegations and draws all reasonable
inferences in favor of the non-moving party. See Standard Inv. Chartered, Inc. v. Nat’l Ass’n of
Sec. Dealers, Inc., 637 F.3d 112, 115 (2d Cir. 2011). Judgment on the pleadings may be granted
“where material facts are undisputed and where a judgment on the merits is possible merely by
considering the contents of the pleadings.” Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639,
642 (2d Cir. 1988).
On a Rule 12(c) motion, the Court may consider “the complaint, the answer, any written
documents attached to them, . . . any matter of which the court can take judicial notice for the
factual background of the case[,] . . . any written instrument attached . . . as an exhibit, materials
incorporated . . . by reference, and documents that, although not incorporated by reference, are
integral” to the pleadings. L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011)
(internal quotation marks omitted).
III.
DISCUSSION
NIFA moves for judgment on the pleadings on all counts except Count I, which pertains
to the missing 1994 Series ABCD Investment Agreement. NIFA’s motion is denied with respect
to GE’s claims for declaratory judgment (Counts II–VII) and breach of contract (Count XI), and
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granted with respect to GE’s claims for unjust enrichment (Count IX), constructive trust (Count
X), and breach of the duty of good faith and fair dealing (Count XII).
A.
Choice of Law
All parties agree that the choice of law provision in the Investment Agreements requires
application of New York law to the entire action. See, e.g., Arch Ins. Co. v. Precision Stone,
Inc., 584 F.3d 33, 39 (2d Cir. 2009) (“The parties’ briefs assume that New York substantive law
governs the issues . . . presented here, and such implied consent is, of course, sufficient to
establish the applicable choice of law.”).
B.
NIFA’s Right to Interest Payments Following Redemption of the Bonds
NIFA’s motion for judgment on the pleadings is denied with respect to GE’s claims for
declaratory judgment regarding NIFA’s right under the Investment Agreements to interest
payments following redemption of the bonds, as the Investment Agreements are ambiguous on
that point.
“The threshold question in a dispute over the meaning of a contract is whether the
contract terms are ambiguous. Under New York law, the meaning of a contract that is
unambiguous is a question of law for the court to decide.” Revson v. Cinque & Cinque, P.C.,
221 F.3d 59, 66 (2d Cir. 2000). A contract is ambiguous if its terms “could suggest more than
one meaning when viewed objectively by a reasonably intelligent person who has examined the
context of the entire integrated agreement and who is cognizant of the customs, practices, usages
and terminology as generally understood in the particular trade or business.” Law Debenture
Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir. 2010) (internal quotation
marks omitted). On the other hand, “[n]o ambiguity exists where the contract language has a
definite and precise meaning, unattended by danger of misconception in the purport of the
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[contract] itself, and concerning which there is no reasonable basis for a difference of opinion.”
Id. at 467 (internal quotation marks omitted; alteration in original); accord Banco Espirito Santo,
S.A. v. Concessionaria Do Rodoanel Oeste S.A., 951 N.Y.S.2d 19, 24 (1st Dep’t 2012).
A court’s primary objective in interpreting a contract is “to give effect to the intent of the
parties as revealed by the language of their agreement.” Compagnie Financiere CIC L’Union
Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 157 (2d Cir. 2000). A
contract should be read as whole “to ensure that undue emphasis is not placed upon particular
words and phrases” and “to safeguard against adopting an interpretation that would render any
individual provision superfluous.” Law Debenture Trust Co., 595 F.3d at 468 (internal quotation
marks omitted). “The words and phrases in a contract should be given their plain meaning . . . .”
Chesapeake Energy Corp. v. Bank of N.Y. Mellon Trust Co., 773 F.3d 110, 114 (2d Cir. 2014)
(internal quotation marks omitted).
NIFA and GE proffer competing interpretations of the Investment Agreements as they
pertain to when interest payments to NIFA cease. NIFA argues that it is entitled to interest
payments until the relevant Investment Agreement terminates, either on the Termination Date or
“earlier . . . in accordance with its terms.” Because neither the Termination Date nor any of the
events expressly defined as triggering termination have come to pass for any of the Investment
Agreements, NIFA contends that it should continue to receive interest payments. GE argues that
the determinative issue is not whether the Investment Agreements have terminated but whether
there is still a qualifying Investment. Because the Investments are defined in terms of seriesspecific Accounts, GE posits that redemption of each bond series extinguished the associated
Accounts and, with them, the qualifying Investment.
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Both interpretations of the Investment Agreements are reasonable and cannot be
reconciled with one another. Section 2.2 of the Investment Agreements provides that interest
payments shall be made on the “Investment” and until the “Termination Date.” Each party
begins its interpretation with one of those key terms, and by following the plain language of the
Investment Agreements the parties come to opposite conclusions as to whether NIFA is entitled
to interest payments following bond redemption. Although GE’s interpretation is more nuanced
than NIFA’s, it is nonetheless reasonable and based on the language of the Investment
Agreements and the indentures, which the Investment Agreements reference and, therefore, can
be considered in construing the Investment Agreements. See Hallmark Synthetics Corp. v.
Sumitomo Shoji New York, Inc., 275 N.Y.S.2d 587, 590 (1st Dep’t 1966) (“Extrinsic matters
such as letters and other instruments may be construed as a part of a contract where they are
referred to therein or annexed thereto, or where it appears they were intended to be a part of the
contract.” (internal quotation marks omitted)), aff’d, 232 N.E.2d 646 (N.Y. 1967). The parties’
proffered interpretations show that the Investment Agreements are susceptible to more than one
reasonable interpretation and are therefore ambiguous. See Law Debenture Trust Co., 595 F.3d
at 466.
“If ambiguity is found [in a contract], it must be resolved -- as well as all inferences
drawn -- against the moving party, which has the burden of establishing that no facts material to
the outcome of the litigation are in dispute.” Seiden Associates, Inc. v. ANC Holdings, Inc., 959
F.2d 425, 429 (2d Cir. 1992). Since the Investment Agreements are ambiguous regarding
NIFA’s entitlement to interest payments following redemption of the bonds, NIFA’s motion for
judgment on the pleadings is denied with respect to GE’s claims for declaratory judgment on that
issue.
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C.
Ultra Vires Activity
NIFA’s motion for judgment on the pleadings is denied with respect to GE’s claims for
declaratory judgment regarding NIFA’s alleged ultra vires activity. Activity is ultra vires if it is
“beyond the scope of power allowed or granted by a corporate charter or by law.” Black’s Law
Dictionary (10th ed. 2014); cf. BLF Assoc., LLC v. Town of Hempstead, 870 N.Y.S.2d 422, 425
(2d Dep’t 2008) (“Towns and other municipal authorities have no inherent power to enact or
enforce zoning or land use regulations. They exercise such authority solely by legislative grant
and in the absence of legislative delegation of power[,] their actions are ultra vires and void.”
(internal quotation marks omitted; alteration in original)). GE alleges that NIFA “has improperly
obtained an above-market return on the monies purportedly invested pursuant to each Investment
Agreement to which it is not entitled,” which violates the terms of the Investment Agreements
and indentures as well as NIFA’s statutory mandate that its activities “shall not be conducted for
profit.” Neb. Rev. Stat. § 58-203(2). This claim raises two factual issues -- which party’s
interpretation of the Investment Agreement is correct and whether NIFA has received an abovemarket return on its investment -- neither of which can be resolved on a motion for judgment on
the pleadings. See Sellers, 842 F.2d at 642 (judgment on the pleadings may be granted “where
material facts are undisputed and where a judgment on the merits is possible merely by
considering the contents of the pleadings”). NIFA’s motion is denied with respect to this claim.
D.
Breach of Contract
NIFA’s motion for judgment on the pleadings is denied with respect to GE’s breach of
contract claim. The elements for a breach of contract claim under New York law are: “(1) the
existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach
of contract by the defendant, and (4) damages.” Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d
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Cir. 1996); accord Harris v. Seward Park Hous. Corp., 913 N.Y.S.2d 161 (1st Dep’t 2010). GE
has sufficiently alleged that it entered into the Investment Agreements with NIFA, that GE paid
and continues to pay NIFA interest pursuant to the Investment Agreements, and that GE has been
damaged by NIFA’s acceptance of interest payments following bond redemption. Whether
NIFA breached the Investment Agreements cannot be determined at this stage of the proceedings
because, as explained above, the Investment Agreements are ambiguous. Accordingly, NIFA’s
motion is denied with respect to this claim.
E.
Remaining Claims
NIFA’s motion for judgment on the pleadings is granted with respect to GE’s claims for
unjust enrichment, constructive trust and breach of the duty of good faith and fair dealing
because they duplicate GE’s contract claims. Under New York law, “[t]he existence of a valid
and enforceable written contract governing a particular subject matter ordinarily precludes
recovery in quasi contract for events arising out of the same subject matter.” Clark-Fitzpatrick,
Inc. v. Long Island R.R. Co., 516 N.E.2d 190, 193 (N.Y. 1987); see also N. Shipping Funds I,
LLC v. Icon Capital Corp., 921 F. Supp. 2d 94, 107 (S.D.N.Y. 2013) (dismissing claims for
unjust enrichment and constructive trust as duplicative of contract claims). Similarly, New York
law “does not recognize a separate cause of action for breach of the implied covenant of good
faith and fair dealing when a breach of contract claim, based upon the same facts, is also pled.”
Harris v. Provident Life and Accident Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002). Because GE’s
unjust enrichment, constructive trust, and breach of the duty of good faith and fair dealing claims
are based on the same allegations as the contract claims and GE has not challenged the validity
or enforceability of the Investment Agreements, those claims are dismissed.
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IV.
CONCLUSION
For the foregoing reasons, NIFA’s motion for judgment on the pleadings is GRANTED
as to the unjust enrichment (Count IX), constructive trust (Count X) and breach of the duty of
good faith and fair dealing (Count XII) and DENIED in all other respects.
The Clerk of Court is directed to close the motions at Dkt. No. 52 and Dkt. No. 60.
SO ORDERED.
Dated: September 14, 2016
New York, New York
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