U.S. Bank National Association, et al v. BFPRU I, LLC et al
OPINION AND ORDER re: 32 MOTION to Dismiss Notice of Motion to Dismiss the Third Party Complaint. filed by LNR Partners, LLC, 35 MOTION to Dismiss . filed by Mark Karasick, BFPRU I, LLC, Michael Silberberg. The defen dants move to dismiss the plaintiffs' First Amended Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. LNR moves to dismiss the defendants' third party complaint. (As further set forth in this Order.) For the reasons s et forth above, the defendants' motion to dismiss the First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) is denied. The third party defendant's motion to dismiss the third party complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) is granted. The remaining arguments of the parties are either moot or without merit. The clerk is directed to close all pending motions. (Signed by Judge John G. Koeltl on 1/28/2017) (cf)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
U.S. BANK NATIONAL ASSOCIATION, ET
OPINION AND ORDER
- against –
BFPRU I, LLC, ET AL.,
JOHN G. KOELTL, District Judge:
This action arises out of a dispute between the plaintiffs,
U.S. Bank National Association and Wells Fargo Bank, N.A.,
(collectively, the “Lender”); the defendants and third party
plaintiffs, BFPRU I LLC, (the “Borrower”) and Mark Karasick and
Michael Silberberg (the “Guarantors”); and the third party
defendant, the Lender’s loan servicer, LNR Partners, LLC
The defendants move to dismiss the plaintiffs’ First
Amended Complaint under Rule 12(b)(6) of the Federal Rules of
This motion is denied.
the defendants’ third party complaint.
LNR moves to dismiss
This motion is granted.
The following facts alleged in the First Amended Complaint
and the third party complaint are accepted as true for purposes
of the pending motions.
In 2013, the Lender and Borrower modified a Loan Agreement
related to a $410 million
commercial mortgage loan (the “Loan”)
secured by two commercial buildings in Chicago, One Prudential
Plaza and Two Prudential Plaza (the “Property”) by entering into
an Amended Loan Agreement. First Am. Compl. (“FAC”) ¶ 1, ECF No.
The Amended Loan Agreement bifurcated the loan into a $336
million “A” Note and a $74 million “B” Note.
FAC ¶ 25.
The Amended Loan Agreement provided that the Borrower could
prepay the loan upon a “Refinancing Capital Event.”
FAC ¶ 1,
To initiate a Refinancing Capital Event, the Borrower
would notify the Lender by providing the proposed terms of a
refinancing offered by a separate third-party lender.
FAC ¶ 28.
The Borrower and Lender would then each obtain “as is”
appraisals of the Property that “conform to the requirements
for appraisals relied upon by regulated financial institutions.”
FAC ¶ 29.
If the appraisals were within 5% of each other, the
“Appraised Fair Market Value” would be 96% of the average of the
two appraisals, and this figure would be used to calculate the
amount required to secure a release of the Property.
FAC ¶ 30-
The Amended Loan Agreement also stated that the Borrower
would “cooperate with and timely provide any and all information
as may be reasonably requested by the Lender’s appraiser in
order to complete [the] appraisal.”
FAC ¶ 29 (quoting Am. Loan
Agmt. § 3.6(c), Edwards Decl. Ex. 1, ECF No. 37).
Agreement and Amended Loan Agreement stated that the failure to
satisfy these obligations constituted an Event of Default.
FAC ¶¶ 79-80.
Further, as part of the modification, the
Guarantors signed a Guaranty Agreement agreeing to be held
liable to the Lender for any losses sustained by the Lender
arising out of or in connection with “any fraud, willful
misconduct or intentional material misrepresentation by Borrower
. . . or by any Guarantor in connection with the Loan.”
The Borrower initiated a Refinancing Capital Event on April
2, 2015, and the Lender then engaged Integra Realty Resources
(“IRR”) on April 21, 2015 to perform an appraisal on the
FAC ¶ 32-35.
The following day, IRR submitted a
written request to the Borrower’s managing agent for the
Property, Jones Lang LaSalle (“JLL”) for information related to
the Property, including a specific request for all leasing
information and “information on leases under negotiation.”
JLL responded to the request by providing information on
various types of leasing activity, but did not provide any
information relating to leases under negotiation.
FAC ¶ 38-39.
JLL also provided financial projections to IRR forecasting a
decline in leasing at the Property.
FAC ¶ 39.
Based on the information provided by JLL, IRR completed its
appraisal on May 27, 2015 and arrived at an “as is” value of the
Property of $430,000,000 as of May 12, 2015.
FAC ¶ 41.
Borrower’s appraiser, Butler Burgher Group (“BBG”) completed its
appraisal on May 26, 2015, arriving at an “as is” value of
$427,400,000 as of April 8, 2015.
FAC ¶ 42.
Based on these two
appraisals, the Appraised Fair Market Value was determined to be
FAC ¶ 43.
The Refinancing Capital Event was set to close on July 30,
2015, and in anticipation of the closing, the Borrower and
Guarantors provided a Certification to the Lender.
FAC ¶ 44.
The Certification stated that the Borrower and Guarantors, “as
of this 30th day of July, 2015,” had “provided all financial,
operating and leasing information about the Property” to the
Lender, to IRR, and BBG; that “[a]ll such financial, operating
and leasing information provided to Lender, [IRR] and [BBG] is
complete, true and accurate in all respects”; and that “[n]one
of Borrower or any Guarantor is aware of any additional
financial, operating or leasing information that would have a
material effect on the value of the Property.”
FAC ¶ 44
(quoting Certification ¶ 1, Kapoor Decl. Ex. 3, ECF No. 39).
Upon closing, as a result of the priority of payment
schedule outlined in the Amended Loan Agreement, the Lender
received full repayment for the A-note, but received no payment
for the B-note.
FAC ¶¶ 2, 74-75, 97.
Thereafter, the Lender
learned that a newly refinanced loan made to the Borrower and
secured by the Property was being marketed in a prospectus that
valued the Property at $642,000,000.
FAC ¶ 47.
was based on an “as is” appraisal performed by CBRE Inc. as of
June 24, 2015, which, according to the plaintiffs, used the same
methodology as the Borrower and Lender appraisals.
FAC ¶ 4, 47.
The plaintiffs allege that the CBRE appraisal exceeded the
other appraisals because the CBRE appraisal incorporated the
terms of several pending leases that were determined to have a
high probability of being fully executed.
FAC ¶ 53.
plaintiffs allege that the defendants or their agents
participated in these lease negotiations, that they had
knowledge of these lease negotiations, and that all property
leases required approval by the Guarantors prior to execution.
FAC ¶¶ 60-62.
According to the defendants’ third party complaint, a
majority of these new leases were disclosed to the plaintiffs’
loan servicer and the third party defendant, LNR, in connection
with the Borrower’s May 2015 and June 2015 property reserve
disbursement requests for tenant improvements and third party
leasing brokerage commissions.
ECF No. 13.
Third Party Compl. (“TPC”) ¶ 41,
LNR provided loan servicing to the Lender pursuant
to a Pooling and Servicing Agreement (the “PSA”), to which the
defendants were not a party.
See TPC ¶ 52; PSA, TPC Ex. 6.
PSA further specified that nonparties such as the Borrower and
Guarantors had no benefits, rights, remedies or claims under the
PSA ¶ 12.08 at 298.
Finally, as part of the July 30, 2015
closing of the Refinancing Capital Event, the defendants signed
a General Release that “absolutely, unconditionally, and
irrevocably waive[d]” any claims against LNR.
Release, Kapoor Decl. Ex. 4, ECF No. 39.
The plaintiffs filed suit, alleging (1) breach of contract
against the Borrower; (2) breach of contract against the
Guarantors; (3) fraudulent concealment and misrepresentation
against the Borrower and Guarantors; (4) negligent omission and
misrepresentation against the Borrower and the Guarantors; and
(5) unjust enrichment against the Borrower.
FAC ¶¶ 88-157.
defendants move to dismiss the plaintiffs’ claims.
The defendants filed a third party complaint against LNR
for (1) negligent omission; (2) contribution; and (3)
LNR moves to dismiss the defendants’ claims.
In deciding a motion to dismiss pursuant to Rule 12(b)(6),
the allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiffs’ favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d
556, 566 (S.D.N.Y. 2007).
The Court’s function on a motion to
dismiss is “not to weigh the evidence that might be presented at
trial but merely to determine whether the complaint itself is
Goldman v. Belden, 754 F.2d 1059, 1067 (2d
The Court should not dismiss the complaint if the
plaintiff has stated “enough facts to state a claim to relief
that is plausible on its face.”
U.S. 544, 570 (2007).
Bell Atl. Corp. v. Twombly, 550
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
Ashcroft v. Iqbal, 556 U.S. 662, 678
While the Court should construe the factual allegations
in the light most favorable to the plaintiff, “the tenet that a
court must accept as true all of the allegations contained in
the complaint is inapplicable to legal conclusions.”
also SEC v. Rorech, 673 F. Supp. 2d 217, 221 (S.D.N.Y. 2009).
The same principles apply to the motion to dismiss the
complaint and the motion to dismiss the third party complaint.
See, e.g., Elastic Wonder, Inc. v. Posey, No. 13-cv-5603 (JGK),
2015 WL 273691, at *1 (S.D.N.Y. Jan. 22, 2015).
The defendants maintain that all of the plaintiffs’ claims
should be dismissed.
The parties agree that New York law is the
governing law to be applied and the Court can accept that
See Burt Rigid Box, Inc. v. Travelers Prop. Cas.
Corp., 302 F.3d 83, 91 (2d Cir. 2002).
The defendants argue that the plaintiffs’ fraud and
negligent misrepresentation claims should be dismissed because
they are duplicative of their breach of contract claims, and
because the fraud and negligent misrepresentation claims fail to
satisfy Rule 9(b) of the Federal Rules of Civil Procedure.
“[U]nder New York law, parallel fraud and contract claims
may be brought if the plaintiff (1) demonstrates a legal duty
separate from the duty to perform under the contract; (2) points
to a fraudulent misrepresentation that is collateral or
extraneous to the contract; or (3) seeks special damages that
are unrecoverable as contract damages.”
Merrill Lynch & Co.
Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 183 (2d Cir.
A duty to disclose separate from the duty to perform under
the contract may arise “where one party possesses superior
knowledge, not readily available to the other, and knows that
the other is acting on the basis of mistaken knowledge.” TVT
Records v. Island Def Jam Music Grp., 412 F.3d 82, 91 (2d Cir.
2005) (quoting Brass v. Am. Film Tech., Inc., 987 F.2d 142, 150
(2d Cir. 1993)).
A duty to disclose separate from a contractual duty may
also arise if the defendants made a partial or ambiguous
statement that required additional disclosure in order to avoid
misleading the other party.
See id.; see also Brass, 987 F.2d
at 150 (noting that under New York law, a duty to disclose
exists “where [a] party has made a partial or ambiguous
statement, on the theory that once a party has undertaken to
mention a relevant fact to the other party it cannot give only
half of the truth.”).
A plaintiff may also bring parallel fraud and breach of
contract claims when there are “[m]isrepresentations of present
facts made post-contract formation [that] are collateral or
extraneous to the contract.”
Minnie Rose LLC v. Yu, 169 F.
Supp. 3d 504, 520-21 (S.D.N.Y. 2016); see also Eagle Comtronics,
Inc. v. Pico Products Inc., 682 N.Y.S.2d 505, 507 (App. Div.
1998) (“Plaintiff does not allege merely that Defendant entered
into the contract while misrepresenting its intent to perform as
agreed, but alleges that, after the contract was entered into,
defendant repeatedly misrepresented or concealed existing
facts.” (citation omitted)); but see Madison Capital Co., LLC v.
Alasia, LLC, 615 F. Supp. 2d 233, 240 (S.D.N.Y. 2009)
(determining that a plaintiff was barred from bringing both a
negligent misrepresentation claim and a breach of contract claim
stemming from alleged misstatements in contractually required
certifications, but without addressing whether such alleged
misstatements could be considered misrepresentations of present
facts made post-contract formation).
Here, the plaintiffs’ allegations support their claim that
defendants had a special duty to the plaintiffs based on
The plaintiffs allege that the defendants
had exclusive knowledge regarding information about leases under
negotiation not readily available to the plaintiffs, including a
listing of the specific leases allegedly under negotiation as of
July 30, 2015 that were ultimately executed.
assert that because the defendants and their agents failed to
provide information related to the leases under negotiation
despite a specific request to do so, the defendants were aware
that the plaintiffs were preparing an appraisal “on the basis of
TVT Records, 412 F.3d at 91.
factual allegations lead to the reasonable inference that the
defendants had a duty based on superior knowledge to disclose
the leases under negotiation to the plaintiffs, thereby
permitting the plaintiffs to plead fraud and negligent
misrepresentation claims in addition to breach of contract
Moreover, the plaintiffs allege that the defendants,
through their agents, provided incomplete disclosures related to
leasing activity and leases under negotiation, which also
included a forecasted decline in leasing activity that was
By only providing information on certain
leases and disregarding a specific request to provide
information on leases under negotiation, the defendants
allegedly made partial or misleading statements regarding the
leasing activity at the Property that required additional
disclosures in order to avoid deceiving the plaintiffs.
These factual allegations thus also support the claim that the
defendants had a duty to disclose separate from their
contractual duties, which, in turn, support the plaintiffs’
ability to plead fraud and negligent misrepresentation claims in
addition to breach of contract claims.
The plaintiffs’ ability to bring claims for fraud and
negligent misrepresentation is further supported by the
plaintiffs’ allegations of a misrepresentation collateral or
extraneous to the contract.
See Merrill Lynch, 500 F.3d at 183.
Here, the Certification stated that as of July 30, 2015, the
defendants had “provided all financial, operating and leasing
information” to the Lender, IRR, and BBG as part of the
appraisals and that all such information was “complete, true,
and accurate in all respects.”
Certification ¶ 1.
Certification also stated that “[n]one of the Borrower or any
Guarantor [was] aware of any additional financial, operating, or
leasing information that would have a material effect on the
value of the Property.”
Contrary to the defendants’
representations in the Certification, the plaintiffs list
numerous executed leases that were allegedly under negotiation
as of July 30, 2015, including thirteen leases that were
ultimately executed on or before July 31, 2015.
allegations support a reasonable inference that the July 30,
2015 Certification contained “[m]isrepresentations of present
facts made post-contract formation” that were ”collateral or
extraneous” to the Loan Agreement and Amended Loan Agreement,
and were therefore potentially “actionable in fraud.”
Rose, 169 F. Supp. 3d at 520.
Accordingly, the alleged
misrepresentations in the Certification are an additional basis
to permit the plaintiffs to pursue fraud and negligent
misrepresentation claims in addition to breach of contract
The defendants rely on several cases that are easily
They cite Vitrano v. State Farm Ins. Co., No.
08-cv-00103 (JGK), 2008 WL 2696156 (S.D.N.Y. July 8, 2008).
there, the claims “rest[ed] solely on [a] defendant's alleged
failure to honor [an] insurance policy, which is a claim for
breach of contract.” Id. at *3.
Absent in Vitrano were any
allegations that the defendant had superior knowledge that gave
rise to a duty to disclose, that the defendants disclosed
partial or misleading information that would trigger a duty to
provide additional information, or that there were alleged
misrepresentations collateral or extraneous to the contract.
Therefore, Vitrano is not analogous to this case.
The defendants also attempt to draw support from Almeciga
v. Ctr. for Investigative Reporting, Inc., No. 15-cv-4319 (JSR),
2016 WL 2621131, at *4 (S.D.N.Y. May 6, 2016) (publication
However, in Almeciga, the plaintiff’s fraud claims
were dismissed because the only additional allegation apart from
the breach of contract claim was that the defendant never
intended to perform the contract, and because it was plain that
the plaintiff had not relied on any of the allegedly fraudulent
See id. at *4.
By contrast, the allegations here go
beyond mere claims that the defendants never intended to perform
under the relevant contract because the plaintiff alleges that
the defendants made fraudulent or negligent misrepresentations
in the July 30, 2015 Certification.
Moreover, the plaintiffs
allegedly relied on these representations in order to complete
the Refinancing Capital Event.
In sum, there is no basis at the motion to dismiss stage to
dismiss the plaintiffs’ fraud and negligent misrepresentation
claims as duplicative of their breach of contract claims.
The defendants also contend that the fraud and negligent
misrepresentation claims should be dismissed because they do not
satisfy the particularity requirement of Rule 9(b) of the
Federal Rules of Civil Procedure.
Rule 9(b) provides that “[i]n
alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person's mind may be
alleged generally.” Fed. R. Civ. P. 9(b).
To satisfy Rule 9(b),
a complaint must “(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why the
statements were fraudulent.” Mills v. Polar Molecular Corp., 12
F.3d 1170, 1175 (2d Cir. 1993). Although Rule 9(b) allows a
plaintiff to allege fraudulent intent generally, a plaintiff
must allege facts that give rise to a strong inference of
Shields v. Citytrust Bancorp, Inc., 25 F.3d
1124, 1128 (2d Cir. 1994). This strong inference can be
established either “(a) by alleging facts to show that
defendants had both motive and opportunity to commit fraud, or
(b) by alleging facts that constitute strong circumstantial
evidence of conscious misbehavior or recklessness.”
also S.E.C. v. Ballesteros Franco, 253 F. Supp. 2d 720, 731–32
“[A]llegations of motive are sufficient if
they ‘entail concrete benefits that could be realized by one or
more of the false statements and wrongful disclosures alleged.’”
Marcus v. Frome, 329 F. Supp. 2d 464, 473 (S.D.N.Y. 2004)
(quoting Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001)).
Further, “opportunity ‘entail[s] the means and likely prospect
of achieving concrete benefits by the means alleged.’”
329 F. Supp. 2d at 473 (quoting Novak v. Kasaks, 216 F.3d 300,
307 (2d Cir. 2000)).
Here, the plaintiffs’ First Amended Complaint satisfies the
requirements of Rule 9(b).
The Complaint alleges that the
defendants’ loan servicer failed to disclose leases under
negotiation despite a specific request to do so, and also points
to statements made in the Certification, signed by all
defendants, that allegedly misrepresented the accuracy and
completeness of the leasing information previously disclosed to
the plaintiffs. 1
Moreover, the First Amended Complaint sufficiently alleges
a motive to commit fraud by pointing to concrete benefits
received by the defendants.
The plaintiffs state that the
Guarantors are the 100% beneficial owners of the Borrower who
Though cited by the defendants, Bigsby v. Barclays Capital Real
Estate, Inc., 170 F. Supp. 3d 568 (S.D.N.Y. 2016) and Ferring
B.V. v. Allergan, Inc., 932 F. Supp. 2d 493 (S.D.N.Y. 2013) are
not analogous to this case. In Bigsby, this Court concluded
that Rule 9(b) was not satisfied when the complaint contained no
specific misrepresentations and failed to “allege when and where
the misrepresentations were made and who made them.” 170 F.
Supp. at 577. Similarly in Ferring, the complaint was
inadequate because it had “not identified, when, where, or how
[the] alleged misrepresentations or omissions occurred.” 932 F.
Supp. 2d at 512. By contrast, the First Amended Complaint here
points specifically to omissions made by the defendants’ loan
servicer and the alleged misstatements in the defendants’
received, among other benefits, the ability to avoid paying $83
million while still obtaining a release of the Lender’s liens
against the property, escaped having to contribute personal
funds to achieve the Refinancing Capital Event, avoided the risk
of a maturity default and foreclosure sale while retaining
ownership of the Property, and extinguished their Guaranty of
the loan obligations.
Such factual allegations plainly “entail
concrete benefits that could be realized” as a result of alleged
misrepresentations about leasing activity at the Property.
Kalnit, 264 F.3d at 139.
The plaintiffs also sufficiently
allege an opportunity to commit fraud because the defendants
initiated the Refinancing Capital Event, had exclusive access to
the leasing information that they allegedly failed to disclose,
and signed the purportedly false Certification. 2
defendants had the “means and likely prospect of achieving the
concrete benefits” of the Refinancing Capital Event.
F.3d at 307.
The defendants also argue that any claims arising out of
the July 30, 2015 Certification should be dismissed because the
While the defendants take issue with the fact that the First
Amended Complaint makes claims based “upon information and
belief,” such allegations can be sufficient to satisfy Rule 9(b)
where, as here, they relate to “matters particularly within the
opposing party’s knowledge” that are “accompanied by statements
of facts upon which the belief is founded.” PI, Inc. v. Ogle,
932 F. Supp. 80, 83–84 (S.D.N.Y. 1996) (citing Luce v.
Edelstein, 802 F.2d 49, 54 n.1 (2d Cir. 1986)).
Certification was actually true.
The Certification stated that
“as of this 30th day of July 2015,” that “[n]one of the Borrower
or any Guarantor is aware of any additional financial, operating
or leasing information that would have a material effect on the
value of the Property.”
Certification ¶ 1.
According to the
defendants, the term “value of the Property” should be
interpreted to mean the value of the Property as of the date of
the IRR appraisal, May 12, 2015.
However, a reasonable
interpretation of the Certification is that it brought any prior
representations up to the date as of the signing of the
Certification and the signatories could not withhold material
information that arose after the appraisals and before the
signing of the Certification.
At the very least, the Court
could not decide as a matter of law that the defendants’
proposed interpretation of the Certification is correct.
Moreover, the term “value of the property” in Paragraph 1 of the
Certification is not limited to the value of the property at the
time of the appraisal, while Paragraph 2 of the Certification
does refer specifically to the report of the Borrower’s
See Certification ¶ 2 (“The appraisal report of the
Property dated May 26, 2015 prepared by Borrower’s Appraiser was
prepared based on true, complete and accurate information
provided by or on behalf of Borrower or Guarantors.”); see also
Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d
458, 467 (2d Cir. 2010) (“[W]here consideration of the contract
as a whole will remove the ambiguity created by a particular
clause, there is no ambiguity.”); Vt. Teddy Bear Co. v. 538
Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004) (noting that
in real property transactions between sophisticated parties,
“courts should be extremely reluctant to interpret an agreement
as impliedly stating something which the parties have neglected
to specifically include” (citation omitted)).
The First Amended Complaint states that the CBRE appraisal
incorporated leases under negotiation and appraised the value of
the Property to be $642,000,000 as of June 24, 2015, while the
IRR appraisal did not incorporate these leases and valued the
Property at $430,000,000 as of May 12, 2015.
the motion to dismiss stage, the Court could not conclude as a
matter of law that the information that influenced the CBRE
appraisal so significantly did not have a “material effect on
the value of the Property“ as stated in the Certification as of
July 30, 2015.
While the defendants urge the Court to interpret
the Certification based on the “commercial realities” of the
transaction, doing so at this stage would be premature without
factual input as to what exactly such commercial realities
See Air Italy S.p.A. v. Aviation Tech., Inc., No. 10-
cv-20(JG), 2010 WL 2925949, at *5 (E.D.N.Y. July 21, 2010).
The defendants also raise a number of arguments claiming
the inadequacy of the pleadings in relation to JLL.
party not named as a defendant in this litigation, managed the
Property for the defendants and allegedly failed to provide to
the plaintiffs’ appraiser information regarding leases under
“The fraudulent statements of an agent, when made
within the scope of its agency, are attributable to the
Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404
F.3d 566, 580 (2d Cir. 2005) (determining that allegations of
incomplete disclosures in documents sent by an agent “on behalf
of” a defendant were sufficient to satisfy Rule 9(b)). “It is
black-letter agency law in New York that an employer is liable
for the representations of its agents when those representations
are made within the scope of the agent’s employment.”
Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435, 453
However, allegations of misconduct by a non-
defendant employee, standing alone, are insufficient to satisfy
Rule 9(b) unless accompanied by adequate factual allegations
supporting an inference that a named defendant acted with
See In re Marsh & Mclennan Companies, Inc. Sec.
Litig., 501 F. Supp. 2d 452, 485 (S.D.N.Y. 2006); Ret. Bd. of
the Policemen’s Annuity v. FXCM Inc., No. 15-cv-3599 (KMW), 2016
WL 4435243, at *7 (S.D.N.Y. Aug. 18, 2016).
Here, there are sufficient factual allegations that support
the inference that the named defendants acted with scienter
because of the motive and opportunity to make the alleged
misstatements in the Certification.
Such statements were
allegedly misleading because JLL had previously failed to
disclose information related to leases under negotiation,
despite a specific request for this information.
there is a sufficient connection between the alleged misconduct
of the named defendants and the alleged misconduct of their
agents such that the defendants could plausibly be “liable for
the representations of its agent.” Glidepath, 590 F. Supp. at
The First Amended Complaint satisfies the requirements of
The defendants argue that the plaintiffs’ breach of
contract claims must be dismissed as a matter of law.
to state a claim of breach of contract, the complaint must
allege: (i) the formation of a contract between the parties;
(ii) performance by the plaintiff; (iii) failure of defendant to
perform; and (iv) damages.”
Johnson v. Nextel Commc'ns, Inc.,
660 F.3d 131, 142 (2d Cir. 2011).
The plaintiffs allege that
the defendants breached the Loan Agreement and the Amended Loan
Agreement by failing to “cooperate with and timely provide any
and all information as may be reasonably requested by Lender’s
appraiser,” Am. Loan. Agmt. § 3.6(c); failing to “obtain a
Qualified Appraisal” that “conforms to the requirements for
appraisals relied upon by regulated financial institutions,”
id.; and failing to “otherwise satisf[y]” the conditions of
Section 3.6 of the Amended Loan Agreement.
FAC ¶¶ 79, 92, 96.
The defendants first contend that the plaintiffs have
waived any breach of contract claim because its appraiser, IRR,
proceeded to complete its appraisal despite lacking information
on leases under negotiation.
But that argument is plainly
undermined by the “no-waiver” clauses within the Loan Agreement.
See Loan Agmt. § 10.4, Kapoor Decl. Ex. 1, ECF No. 39 (No waiver
“unless the same shall be in a writing signed by the party
against whom enforcement is sought”); Id. § 10.5 (“Neither any
failure nor any delay on the part of Lender in insisting upon
strict performance . . . shall operate as or constitute a waiver
thereof.”); Id. § 8.2(d) (“The rights, powers and remedies of
Lender under this Agreement shall be cumulative and not
exclusive of any other right, power or remedy which Lender may
have against Borrower.”).
Provisions such as these are
routinely enforced by courts and apply here.
See, e.g., MBIA
Ins. Corp. v. Patriarch Partners VIII, LLC, 842 F. Supp. 2d 682,
709 (S.D.N.Y. 2012) (“When a contract contains a ‘no waiver’
clause . . . a non-breaching party can continue his contract
instead of terminating it based on breaches that previously
occurred and yet not waive any of his rights under the
contract.”); Maxim Grp. LLC v. Life Partners Holdings, Inc., 690
F. Supp. 2d 293, 310 (S.D.N.Y. 2010) (collecting cases).
Accordingly, the defendants’ contention that the plaintiffs have
waived any breach of contract claim is without merit.
The defendants further contend that the breach of contract
claim against the Guarantors should fail because, pursuant to
the Guaranty Agreement, the Guarantors only guaranteed the
Lender’s losses arising out of or in connection with “fraud,
willful misconduct or intentional material misrepresentation by
Borrower . . . or by any Guarantor in connection with the Loan.”
See FAC ¶ 84-85, 102.
The defendants also reference New York
Civil Practice Law and Rules (“CPLR”) § 7601, which provides for
a special proceeding to enforce an agreement for a valuation or
appraisal, and assert that the principles of CPLR § 7601 apply
to this case such that a challenge to an appraisal is permitted
“only so far as the appraisal was the product of ‘fraud, bias or
Forbes v. Cendant Corp., 205 F.3d 1322 (table),
No. 99-9180, 2000 WL 232069, at *2 (2d Cir. Jan. 28, 2000)
(quoting Liberty Fabrics, Inc. v. Corp. Properties Assocs. 5,
636 N.Y.S.2d 781, 781 (App. Div. 1996)).
But even if it were
the case that the terms of the Guaranty Agreement or the
principles underlying CPLR § 7601 3 would bar the plaintiffs’
breach of contract claim unless fraud were adequately alleged,
this argument is moot where, as here, the plaintiffs have
adequately pleaded with particularity factual allegations
sufficient to satisfy Rule 9(b) in support of their fraud
In sum, the plaintiffs’ factual allegations are sufficient
to state a facially plausible breach of contract claim.
The defendants maintain that the plaintiffs’ unjust
enrichment claim against the Borrower should be dismissed
because it is duplicative of the breach of contract claim.
Unjust enrichment claims are “available only in unusual
situations when, though the defendant has not breached a
contract nor committed a recognized tort, circumstances create
an equitable obligation running from the defendant to the
Corsello v. Verizon N.Y., Inc., 967 N.E.2d 1177,
1185 (N.Y. 2012).
“The existence of a valid and enforceable
written contract governing a particular subject matter
The defendants do not contend that the plaintiffs were required
to bring a petition under § 7601, but rather that it represents
the public policy of the state of New York with respect to
appraisals. Indeed, § 7601 uses permissive rather than
mandatory language. See N.Y. C.P.L.R. § 7601 (“A special
proceeding may be commenced to specifically enforce an agreement
that a question of valuation, appraisal or other issue or
controversy be determined by a person named or to be
ordinarily precludes recovery in quasi contract for events
arising out of the same subject matter.”
Beth Israel Med. Ctr.
v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573,
587 (2d Cir. 2006) (quoting Clark–Fitzpatrick, Inc. v. Long
Island R.R. Co., 516 N.E.2d 190, 193 (N.Y. 1987)).
even though Plaintiffs may not ultimately recover under both the
breach of contract and unjust enrichment claims, courts in this
Circuit routinely allow plaintiffs to plead such claims in the
Transcience Corp. v. Big Time Toys, LLC, 50 F.
Supp. 3d 441, 452 (S.D.N.Y. 2014) (collecting cases).
may allow a breach of contract and an unjust enrichment claim to
proceed past the motion to dismiss stage when the validity or
scope of the contract is difficult to determine.
Capital Mgmt., LLC v. Friedman, Billings, RamseGrp., Inc., No.
11-cv-5832 (AJN), 2012 WL 3542196, at *11 (S.D.N.Y. Aug. 15,
Here, the scope of the contractual obligations remains
It is unclear whether defendants failed to “cooperate
with and timely provide any and all information as may be
reasonably requested by Lender’s appraiser.”
Am. Loan. Agmt. §
It is further unknown whether the defendants failed to
“obtain a Qualified Appraisal” that “conforms to the
requirements for appraisals relied upon by regulated financial
And it is at this stage undetermined
whether the statements made in the Certification were actually
true based on commercial realities.
Therefore, the possibility
remains that “the defendant has not breached a contract nor
committed a recognized tort,” but that “circumstances create an
equitable obligation running from the defendant[s] to the
plaintiff[s].” Corsello, 967 N.E.2d at 1185.
Because the scope
of the contractual obligations and further factual developments
regarding the conduct of the parties have yet to be determined,
dismissing the plaintiffs’ unjust enrichment claim at this stage
would be premature.
The Court will therefore not dismiss the
plaintiffs’ unjust enrichment claim.
The defendants also argue that the plaintiffs’ claim for a
breach of Section 8.1(b) of the Loan Agreement should be
dismissed because it is an impermissible liquidated damages
Section 8.1(b) states:
Upon the occurrence of an Event of Default .
. . and at any time thereafter . . . Lender
may take such action, without notice or
demand . . . including, without limitation,
declaring the Debt to be immediately due and
payable . . . the Debt and all other
obligations of Borrower hereunder and under
the other Loan Documents shall immediately
and automatically become due and payable,
without notice or demand . . . . 4
The defendants’ alternative argument that the plaintiffs’ claim
fails because the Lender did not “declar[e] the Debt to be
immediately due and payable” is meritless because Sections
8.1(b) and 8.2 of the Loan Agreement states that the full debt
Loan Agmt. § 8.1(b).
Contrary to the defendants’ contention,
this language does not operate as a liquidated damages
See G3-Purves St., LLC v. Thomson Purves, LLC, 953
N.Y.S.2d 109, 114 (App. Div. 2012) (holding that a provision of
a guaranty was not a liquidated damages provision because “the
loan agreement only provides for the recovery of actual damages
incurred by the lender, to wit, the debt remaining on the unpaid
loan at the time of default, which is an amount fixed by the
terms of the loan and is not speculative or incalculable”).
defendants’ argument that Section 8.1(b) is a liquidated damages
provision is without merit.
The defendants’ motion to dismiss the plaintiffs’ complaint
The defendants have filed a third party complaint against
the third party defendant LNR for (1) negligent omission, (2)
contribution, and (3) indemnification.
LNR moves to dismiss the
third party complaint on the grounds that: (1) a General Release
signed by the defendants bars their claims; and (2) the third
party complaint fails to plead factual allegations that support
can be declared due “without notice or demand,” and that, upon
default, the Lender may exercise any remedy “whether or not . .
. the Debt [is] declared due and payable.” Loan Agmt. §§
8.1(b), 8.2. Moreover, this argument ignores that the Loan
matured on June 1, 2016, and thus all amounts are currently due
and payable. See Loan Agmt. § 1.1; Am. Loan Agmt. § 3.3(e).
the reasonable inference that LNR is liable for the misconduct
LNR first points to a General Release signed by the
defendants that, according to LNR, bars the claims asserted in
the third party complaint. “Generally, a valid release
constitutes a complete bar to an action on a claim which is the
subject of the release.”
Centro Empresarial Cempresa S.A. v.
Am. Movil, S.A.B. de C.V., 952 N.E.2d 995, 1000, 1001-02 (N.Y.
2011) (quotation marks and citation omitted) (concluding that a
release barred a plaintiff’s claims because “[a]s sophisticated
entities, they negotiated and executed an extraordinarily broad
release with their eyes wide open”).
Here, the terms of the General Release, signed by
sophisticated entities, are quite broad.
It states that the
released, acquitted, satisfied, and forever
discharged, . . . each Lender Party from and
against any matter and all manner of . . .
claims . . . and causes of action of any
nature whatsoever . . . known or unknown . .
which any Borrower Party now has or claimed
to have had or hereafter can, shall or may
have the right to assert by any reason of
any matter . . . occurring from the
beginning of the world to and including the
date of this Release arising out of or
relating to, whether directly or indirectly
(a) the Loan and all documents evidencing,
securing guaranteeing or otherwise related
to the Loan . . . and the administration of
the Loan. . . .
General Release at 1.
The General Release also specifically
includes the defendants, BFPRU I LLC, Karasick, Silberberg, as
well as the third party defendant LNR in the definition of
By its broad terms, the General
Release plainly bars the defendants’ claims against LNR.
The defendants present several arguments why the General
Release does not apply to its claims, but each is unpersuasive.
First, the defendants contend that the release does not bar
their indemnity claim because it arose after the July 30, 2015
date of the release.
But in making its indemnification claim,
the third party complaint points specifically to LNR’s alleged
receipt of purported leasing information about new tenants as
part of the defendants’ reserve disbursement requests for May
2015 and June 2015, while making no mention of any acts
committed by LNR after July 30, 2015.
TPC ¶ 78.
the General Release is plainly applicable and bars the
defendants’ indemnification claim.
The defendants argue that the General Release does not bar
the defendants’ claim for negligent misrepresentation because it
fails to mention the term “negligence” or a word of similar
But courts have interpreted the broad terms of similar
releases to bar claims for negligent misrepresentation.
e.g., Engel v. Deutsche Bank Nat’l Tr. Co., 983 N.Y.S.2d 630,
631-32 (App. Div. 2014) (affirming the dismissal of a negligent
representation claim arising from a loan modification based on a
general release of claims “by reason of any matter, cause or
thing whatsoever from the beginning of the world to the day of
the date of this RELEASE”); Palmatier v. Lockheed Martin Corp.,
No. 13-cv-133 (DNH), 2014 WL 1466489, at *3-4 (N.D.N.Y. Apr. 15,
2014) (concluding that a general release of “any and all claims,
liabilities, demands, and causes of action of any kind . . .
which Plaintiff has, had, or may have at the time of the signing
of this release” barred plaintiff’s negligent misrepresentation
Similarly, the broad terms of the General Release in
this case bars the defendants’ claims against LNR.
The defendants unsuccessfully attempt to rely on Gross v.
Sweet, 400 N.E.2d 306, 307-08 (N.Y. 1979) (concluding that a
general release signed by an enrollee of a parachute jumping
school did not bar his negligence claim when, after one hour of
on-land training, the enrollee was flown to an altitude of 2,800
feet for his first practice jump).
Putting aside the unique
facts of Gross that make it distinguishable, the court in Gross
made clear that the general rule of strict judicial construction
of releases was less stringent for agreements that were
“negotiated at arm’s length between sophisticated business
entities, and which can be viewed as merely allocating the risk
of liability to third parties between themselves.”
310 (citation and quotation marks omitted).
See id. at
defendants make no claim that the General Release was not
negotiated at arm’s length, and it is plain that the defendants
are sophisticated entities. 5
See Am. Loan Agmt. § 6.2 (“Borrower
and each Guarantor represent, warrant and agree that . . . each
is a sophisticated commercial party.”).
Accordingly, Gross is
not helpful to the defendants, especially considering the cases
in which courts have interpreted similarly worded releases to
bar negligent misrepresentation claims.
See e.g., Engel, 983
N.Y.S.2d at 631-32; Palmatier, 2014 WL 1466489, at *3-4.
The General Release bars the defendants’ negligent
misrepresentation and implied indemnification claims, and the
defendants provide no explanation as to why its contribution
claim is not barred by the General Release.
defendants, “[a]s sophisticated entities . .
. negotiated and
executed an extraordinarily broad release with their eyes wide
open,” each of the defendants’ claims are barred.
Empresarial Cempresa S.A., 952 N.E.2d at 1002.
While the defendants attempt to rely on Abramowitz v. N.Y.
Univ. Dental Ctr., Coll. of Dentistry, 494 N.Y.S.2d 721, 722
(App. Div. 1985), the lack of a sophisticated plaintiff in that
case makes it likewise inapplicable. See id. (concluding that a
general release signed by a patient in the midst of a dental
examination while reclining in a dentist chair under a bright
light prior to obtaining reduced cost dental services from
postgraduate dentists did not bar the patient’s malpractice
Moreover, the third party complaint should also be
dismissed as inadequately pleaded.
The negligent misrepresentation claim is inadequate because
the defendants have failed to plead factual allegations that
support a reasonable inference that a special relationship
existed between the defendants and LNR.
“To prevail on a claim
of negligent misrepresentation under New York law, a plaintiff
must show ‘(1) the existence of a special or privity-like
relationship imposing a duty on the defendant to impart correct
information to the plaintiff; (2) that the information was
incorrect; and (3) reasonable reliance on the information.’”
Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 490 (2d
Cir. 2014) (quoting J.A.O. Acquisition Corp. v. Stavitsky, 863
N.E.2d 585, 587 (N.Y. 2007)).
The defendants assert that they had a “special
relationship” with LNR because LNR was the Special Servicer of
the loan and negotiated the Amended Loan Agreement.
acted in its capacity as the special servicer of the loan, a
position that was created and defined by the PSA.
defendants are not parties to the PSA between LNR and the
Lender, and courts “have generally held that a nonparty to a PSA
lacks standing to assert noncompliance with the PSA . . . unless
the non-party is an intended (not merely incidental) third-party
beneficiary of the PSA.”
Anh Nguyet Tran. v. Bank of N.Y., No.
13-cv-580 (RPP), 2014 WL 1225575, at *4 (S.D.N.Y. Mar. 24, 2014)
(collecting cases); see also BNP Paribas Mortg. Corp. v. Bank of
Am., N.A., 949 F. Supp. 2d 486, 510 (S.D.N.Y. 2013).
PSA clarifies that the defendants are not intended third-party
beneficiaries, stating that “[n]o other person, including,
without limitation, any Mortgagor, shall be entitled to any
benefit or equitable right, remedy or claim under this
PSA § 12.08 at 298.
Despite not being parties to the PSA, the defendants allege
that a special relationship existed between LNR and the
defendants by attempting to liken this case to Bayerische
Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC, 692 F.3d
42 (2d Cir. 2012).
The comparison is unpersuasive.
In Bayerische, the court determined that a plaintiff
investor could enforce a legal duty arising from representations
made by the defendant investment manager in order to induce the
plaintiff to invest. Id. at 58-59.
The court noted that the
defendant, in furtherance of its inducement of the plaintiff,
made specific representations that the investments would be
investment grade, that it would manage the investments in a
conservative and defensive manner, and that it would uphold its
duties and responsibilities as outlined in the Portfolio
Management Agreement (“PMA”).
While acknowledging that
the plaintiff was not a party to the PMA, the court concluded
that due to the defendant’s solicitations of the plaintiff for
the investments, and the defendant’s representation that it
would manage the investments in the plaintiff’s favor, the
plaintiff had alleged a sufficiently close relationship to
establish a duty running from the defendants to the plaintiffs.
Id. at 61.
Here, the defendants’ third party complaint is devoid of
any factual allegations that suggest that LNR induced the
defendants in any way.
Also absent are any allegations that LNR
made specific representations to the defendants regarding LNR’s
obligations under the PSA. 6
See 2002 Lawrence R. Buchalter
Alaska Trust v. Philadelphia Fin. Life Assur. Co., 96 F. Supp.
3d 182, 222 (S.D.N.Y. 2015) (no legal duty existed where
defendant made no representations to plaintiffs).
Bayerische is inapplicable. 7
The defendants briefly point to a Pre-Negotiation Letter
between LNR and the Borrower in an attempt to establish a
special relationship that would impose a duty on LNR running to
the defendants. See TPC ¶ 49; TPC Ex. 5 (“Pre-Negotiation
Letter”). But the letter makes clear that LNR was acting as a
“representative of [the] Lender,” makes no representations that
LNR was acting on behalf of the defendants, and contains no
statements regarding LNR’s obligations under the PSA that could
reasonably be construed as creating a duty on the part of LNR to
7 The defendants are not helped by Glanzer v. Shepard, 135 N.E.
275 (N.Y. 1922), which held that the defendants, public weighers
of beans, had a duty to the plaintiff bean purchasers because
the defendants had “held themselves out to the public as skilled
The defendants also claim that LNR had a duty to the
defendants based on superior knowledge of its own contractual
obligations under the PSA.
However, this claim plainly fails
because a party’s “superior knowledge about the particulars of
[its] own business practices is insufficient to sustain a
negligent misrepresentation claim.”
KCG Americas LLC v.
Brazilmed, LLC, 15-cv-4600(AT), 2016 WL 900396, at *7 (S.D.N.Y.
Feb. 26, 2016) (quoting MBIA Ins. Corp. v. Countrywide Home
Loans, Inc., 928 N.Y.S.2d 229, 235-36 (App. Div. 2011)). In sum,
the third party complaint’s factual allegations do not support a
reasonable inference that LNR had a special duty to the
defendants, and as a result, the defendants’ claim for negligent
misrepresentation is inadequately pleaded. 8
The defendants also fail to make a facially plausible claim
A third party complaint for contribution
should be dismissed where the third party defendant (LNR) acted
and careful in their calling” and had sent certificates with
false weights to plaintiff purchasers with knowledge that doing
so would “induce” payment. See id. at 275-76. By contrast, the
defendants here fail to allege that LNR made any such
representations in order to induce the defendants to take any
8 It is unclear whether the defendants’ claim against LNR should
be construed as a negligent misrepresentation claim or a simple
negligence claim. In any event, any such distinction is
irrelevant because the defendants cannot establish a duty
running from LNR to the defendants, a requirement under both
doctrines. Moreover, the lack of any duty running from LNR to
the defendants moots the parties’ dispute about whether the
particularity requirement of Rule 9(b) applies to a negligent
as the agent of the original plaintiff (the Lender) throughout
the transaction in question, because any culpable conduct of the
third party defendant can be attributed to the plaintiff.
Assocs. v. ABS Partners Real Estate LLC, No. 06-cv-928(TPG),
2010 WL 890034, at *4 (S.D.N.Y. Mar. 3, 2010) (dismissing a
third party complaint for contribution against the
representative of a property owner in a case involving
underlying claims of fraud, breach of contract, and negligence);
N.Y. Islanders Hockey Club, LLP v. Comerica Bank-Tex., 115 F.
Supp. 2d 348, 351 (E.D.N.Y. 2000); Gabriel Capital L.P. v.
Natwest Fin., Inc., 137 F. Supp. 2d 251, 266 (S.D.N.Y. 2000).
Here, LNR was a disclosed representative of the plaintiff
Lender. See TPC, Ex. 5 (“Pre-negotiation Letter”) at 1
(describing LNR as the “representative of Lender” with the
authority to act “on behalf of Lender”); see also Loan Agmt. §
9.6 (“Lender may delegate all or any portion of its
responsibilities under th[e] . . . Loan Documents to the
Moreover, the third party complaint refers
repeatedly to actions undertaken by LNR “on behalf of” the
Accordingly, any of the allegedly culpable conduct on
the part of LNR can be attributed to the plaintiff Lender, and
thus the defendants lack a legal basis to assert a contribution
claim against LNR under New York law.
The defendants’ claim for implied indemnification also
In order to establish implied indemnification against
LNR, the defendants would have to establish that it “cannot be
held responsible for the underlying injuries to any degree.”
KBL Corp. v. Arnouts, 646 F. Supp. 2d 335, 344 (S.D.N.Y. 2009)
(quoting Buchwald v. Verizon N.Y., Inc., 860 N.Y.S.2d 360, 361
(App. Div. 2008)).
Here, the defendants admit that they
disclosed information relating to only a majority of the leases
at issue by making property reserve disbursement requests.
Notwithstanding the fact that it is questionable whether these
requests would actually put LNR and the plaintiff Lender on
notice of leases under negotiation, the defendants’ admission
that they failed to provide all relevant information prevents
them from establishing that they “cannot be held responsible for
the underlying injuries to any degree,” and, therefore, there
can be no claim for implied indemnification.
See KBL Corp., 646
F. Supp. 2d at 344.
In sum, both the General Release and the insufficiency of
the factual allegations supporting the defendants’ claims
provide separate reasons to dismiss the third party complaint.
LNR’s motion to dismiss the defendants’ third party complaint is
For the reasons set forth above, the defendants’ motion to
dismiss the First Amended Complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6) is denied.
The third party defendant’s
motion to dismiss the third party complaint pursuant to Federal
Rule of Civil Procedure 12(b)(6) is granted.
arguments of the parties are either moot or without merit.
The clerk is directed to close all pending motions.
New York, New York
January 28, 2017
John G. Koeltl
United States District Judge
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