Creekside Equity Partners, LLC v. U.S. Bank National Association et al
Filing
21
ORDER granting in part and denying in part 15 Motion to Dismiss for Failure to State a Claim. Counts II and III are dismissed. Count I, IV, and V remain pending. Signed by Judge Gregory L. Frost on 6/4/15. (kn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
CREEKSIDE EQUITY PARTNERS, LLC,
Plaintiff,
Case No. 2:14-cv-1702
JUDGE GREGORY L. FROST
Magistrate Judge Elizabeth P. Deavers
v.
U.S. BANK NATIONAL ASSOCIATION,
et al.,
Defendants.
OPINION AND ORDER
This matter is before the Court for consideration of Defendants’ motion to dismiss (ECF
No. 15), Plaintiff’s memorandum in opposition (ECF No. 19), and Defendants’ reply
memorandum (ECF No. 20). For the reasons that follow, the Court GRANTS IN PART and
DENIES IN PART the motion.
I.
Background
According to the amended complaint, Plaintiff, Creekside Equity Partners LLC, is an
Ohio company that owns a mixed-use development located in Gahanna, Ohio (“the Creekside
property”). In December 2013, Plaintiff entered into a loan agreement with UBS Real Estate
Securities Inc. (“UBS”) in which UBS loaned Plaintiff $23,350,000. The loan was secured by a
mortgage on the Creekside property. Section 6.9.1 of the loan agreement provided that Plaintiff
would deposit “Achievement Funds” of $375,000 into an escrow account labeled the
Achievement Reserve Account. Article VI of the loan agreement in turn called for Plaintiff to
make monthly deposits into various other escrow accounts identified as the Additional Reserve
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Accounts, which would fund repairs, capital improvements, and the like. The Achievement
Funds and the Additional Reserve Account funds are at the core of this lawsuit.
In March 2014, UBS assigned all of its rights in the loan agreement, the mortgage, the
Achievement Reserve Account, and the Additional Reserve Accounts to Defendant U.S. Bank
National Association (“U.S. Bank”), which serves as Trustee for the Benefit of the Holders of the
COMM 2014-UBS2 Mortgage Trust Commercial Mortgage Pass-Through Certificates.
Thereafter, on June 9, 2014, Plaintiff submitted a written request for disbursement of the
Achievement Funds to U.S. Bank’s loan sub-servicer, Berkadia Commercial Mortgage LLC
(“Berkadia”). Such disbursement is contemplated in Section 6.9.2 of the loan agreement, which
provides:
Provided all of the Achievement Reserve Release Conditions are satisfied
on or prior to December 5, 2015, Lender shall disburse to Borrower the
Achievement Funds upon written request by Borrower and satisfaction by
Borrower of each of the following conditions (collectively, the “Achievement
Reserve Release Conditions”):
(a)
no Default or Event of Default shall have occurred and remain
outstanding;
(b)
the Multifamily Component has achieved an occupancy rate of at least
95.0%, as reasonably determined by Lender;
(c)
the Debt Service Coverage Ratio based upon the trailing twelve (12)
month period immediately preceding the date of such determination is greater
than 1:30 to 1:0 for two (2) consecutive quarters, as determined by Lender;
(d)
the Debt Yield based upon the trailing twelve (12) month period
immediately preceding the date of such determination is equal to or greater than
9.0% for two (2) consecutive quarters, as determined by Lender;
(e)
Borrower shall satisfy all of the Achievement Reserve Release Conditions
set forth in this Section 6.9.1 on or prior to December 5, 2015;
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(f)
Borrower shall deliver an Officer’s Certificate certifying that all of the
Achievement Reserve Release Conditions set forth in this Section 6.9.1 have been
satisfied; and
(g)
All reasonable costs and expenses incurred by Lender in connection with
holding and disbursing the Achievement Funds shall be paid by Borrower.
(ECF No. 1-1, at Page ID # 124-25.) Berkadia responded by requesting financials from Plaintiff
and other information, and Plaintiff supplied that information on the same day it was requested.
Plaintiff again submitted the financial information on June 22, 2014, in addition to a new
twelve month trailing financial report. The next day, Berkadia told Plaintiff that Plaintiff had
failed to satisfy the loan agreement’s financial target requirements. Plaintiff disagreed, but
submitted additional, updated financial information on June 29, 2014, constituting a
supplemental or second request for disbursement. On July 2, 2014, a Berkadia Reserves Analyst
told Plaintiff that Plaintiff’s request had been approved and that, following approval by her
manager, the funds would be released.
Two days later, Berkadia told Plaintiff that Berkadia was going to seek approval for the
disbursement from Key Bank National Association (“Key Bank”), the Master Servicer. Plaintiff
responded by telling Berkadia that the failure to release the Achievement Funds was a default by
U.S. Bank under the loan agreement. Berkadia nevertheless transmitted the disbursement
request to Key Bank the next day. Several days after that, Plaintiff then learned that Berkadia
was also seeking the approval of Defendant LNR Partners, LLC (“LNR”), the loan Special
Servicer.
On July 11, 2014, Plaintiff received a Pre-Negotiation Letter Agreement from LNR. This
letter sought Plaintiff’s agreement to various conditions for the disbursement, including: Plaintiff
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would submit to expanded credit inquiries; Plaintiff would agree to be bound by Florida law with
the exclusive venue of Miami, Florida; Plaintiff would pay LNR’s attorneys’ fees, inspection
fees, and other negotiation-related fees; and Plaintiff would release LNR from any liability,
claims, and demands caused by or relating to any loan communications. Plaintiff responded that
day by serving written notice that there was a breach of the loan agreement.
Over the next several days, various communications between Plaintiff and the other
involved entities followed, with no resolution achieved. Plaintiff placed a stop payment on its
July 2014 loan payment. Both UBS and Berkadia took actions to compel LNR to honor the
disbursement request, but these efforts also proved unsuccessful. LNR then told Plaintiff,
through a communication delivered via Berkadia, that LNR would approve the disbursement
request if Plaintiff made the July loan payment. Plaintiff made the payment and requested
waiver of any late fees associated with that payment. Key Bank granted the waiver once
Plaintiff agreed to automatic electronic withdrawals for future payments. LNR then twice
requested additional information, some of which Plaintiff had already provided, and Plaintiff
complied with the requests. LNR declined to participate in an early August 2014 conference call
involving the principals and instead made an additional request for information several days
later. Plaintiff provided the information requested, but no action occurred on the disbursement
requests.
Plaintiff stopped payment on its August 2014 loan payment and provided written notice
of default; Plaintiff also did not make its September 2014 payment. U.S. Bank thereafter
provided Plaintiff notice that the trustee considers Plaintiff to be in default of the loan agreement.
As a result of the dispute over the Achievement Funds, U.S. Bank has also refused to release to
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Plaintiff $87,819.48 of the Additional Reserve Account funds that Plaintiff requested in late
August 2014 until the Achievement Funds dispute is resolved.
As of the filing of the November 2014 amended complaint, LNR has never
communicated a definitive decision to Plaintiff on the June 2014 disbursement requests. In the
amended complaint, Plaintiff asserts two claims against U.S. Bank for breach of contract and the
unlawful conversion of Plaintiff’s funds, two claims against LNR for breach of fiduciary duty
and tortious interference with contract, and one claim against both defendants for declaratory
judgment.1 (ECF No 13 ¶¶ 61-92.) Defendants have filed a motion to dismiss the amended
complaint. (ECF No. 15.) The parties have completed briefing on the motion, which is ripe for
disposition.
II.
A.
Discussion
Standard Involved
Defendants seek dismissal of the amended complaint for failure to state a claim upon
which the Court can grant relief. This Federal Rule of Civil Procedure 12(b)(6) attack requires
the Court to construe the amended complaint in Plaintiff’s favor, accept the factual allegations
contained in that pleading as true, and determine whether the factual allegations present plausible
claims. See Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007). The United States
Supreme Court has explained, however, that “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). Thus, “[t]hreadbare recitals of the elements of a cause of action, supported
1
Due to a choice of law provision in the loan agreement, New York law applies to the
claims.
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by mere conclusory statements, do not suffice.” Id. Consequently, “[d]etermining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. at 679.
To be considered plausible, a claim must be more than merely conceivable. Twombly,
550 U.S. at 556; Ass’n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548
(6th Cir. 2007). What this means is that “[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 misconduct alleged.” Iqbal, 556 U.S. at 678. The factual allegations of a pleading
“must be enough to raise a right to relief above the speculative level . . . .” Twombly, 550 U.S. at
555. See also Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291, 295 (6th Cir. 2008).
B.
Analysis
In Count I of the amended complaint, Plaintiff asserts a state law claim against U.S. Bank
for breach of contract. Under New York law, the elements of such a claim are (1) the existence
of a contract, (2) Plaintiff’s performance, (3) U.S. Bank’s breach, and (4) damages. Harsco
Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). Defendants initially seek dismissal of all counts
of the amended complaint on the grounds that § 6.12.1 of the loan agreement bars the entire case.
That section provides that “Lender shall have no obligation to release any of the Reserve Funds
while any Default or Event of Default has occurred and remains outstanding.” (ECF No. 1-1, at
Page ID # 127.) The loan agreement definition of “Reserve Funds” includes the Achievement
Funds. (Id. at Page ID # 52.) Thus, Defendants reason, dismissal is warranted because
Plaintiff’s multiple failures to make its loan payments and the existence of an impermissible
February 2014 loan constitute events of default that permit retention of the Achievement Funds.
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Plaintiff counters that the operative dates for disbursement purposes are the dates of the
requests for disbursement, which means that Defendants’ reliance on post-June 2014 failures to
make payments or post-June 2014 liens improperly expands the scope of the relevant inquiry.
Under this rationale, there were no events of default at the time Plaintiff sought disbursement
that could relieve Defendants of the obligation to release the Achievement Funds. Plaintiff
argues that Defendants’ attempt to rely upon subsequent events to justify the earlier refusals to
disburse conflates distinct events and departs from the meaning of the loan agreement.
The parties therefore disagree on the operative time frame of the relevant inquiry.
Construing the plain terms of the loan agreement in conjunction with logic and common sense,
this Court agrees with Plaintiff that Defendants’ reliance on post-June 2014 events to establish
default runs counter to the loan agreement. Accepting Defendants’ view that § 6.12.1 “has no
time qualifier and applies at the time of suit” would mean that any subsequent event of default
could reach back in time retroactively so that even a prior disbursement is rendered unnecessary
and could be nullified. (ECF No. 20, at Page ID # 795.) This is illogical. The loan agreement
terms, when sensibly read in conjunction, present an agreement in which Defendants are excused
from the disbursement obligation if Plaintiff is in default at the time that obligation is to be
fulfilled. Defendants’ theory imputes a broad temporal scope to § 6.12.1 that is simply not
within that provision’s language.
In fact, § 6.12.1 contains a time qualifier. This caveat provision is contingent on a
specific set of conditions existing at a set point in time. It contemplates a future set of
circumstances (“Lender shall have no obligation to release any of the Reserve Funds”) that exists
at a set point in time at which a past dispositive event has already taken place and remains in
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existence (“while any Default or Event of Default has occurred and remains outstanding”). In
other words, the loan agreement ties the excusal from disbursement to a past event that still
exists at the time there would otherwise be an obligation to disburse.
Finally, U.S. Bank argues that dismissal is warranted because § 6.9.2 of the loan
agreement does not mandate instantaneous disbursement upon request, but instead contemplates
a built-in period in which the Trustee will determine the right to disbursement. This would mean
that any event of default that occurs within the determination period would cut off the right to
disbursement. Two comments are necessary. First, such an argument turns in large part on the
facts and who was doing what, when, and why. Such inquiries highlight why this argument is
inappropriate for a Rule 12(b)(6) motion. Second, although U.S. Bank urges this Court to accept
that there is no express time limitation on the determination period that would keep the time-toperform window open, § 6.9.2 can also be read in a number of ways. It might establish a
mandated disbursement upon satisfaction of all relevant conditions and written request,
regardless of subsequent breach during verification, or it might carry an imputed reasonableness
component to the amount of time the lender can spend making its determination. Neither reading
supports a Rule 12(b)(6) dismissal.
None of this means that post-June 2014 events cannot constitute events of default that
would relieve Defendants of a current or future disbursement obligation. Rather, the Court
concludes that based on the pleadings, these events cannot retroactively present cause for
excusing disbursement under § 6.12.1 at the time of the June 2014 requests. The events may
excuse Defendants from disbursing funds from August 2014 onward, but that is an issue for
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another day. Today’s inquiry is simply whether Plaintiff has pled plausible claims, and the
refusal to make a June 2014 disbursement is actionable.
Plaintiff also disagrees that the February 2014 lien presents a default. Section 10.1(x) of
the loan agreement provides in relevant part that an event of default exists “if Borrower shall be
in default beyond any applicable cure periods under any agreement (other than the Loan
Documents) creating a Lien on the Property or any party thereof.” (ECF No. 1-1, at Page ID #
142.) The loan agreement in turn defines “Borrower” to mean “Creekside Equity Partners LLC .
. . together with its permitted successors and assigns.” (Id. at Page ID # 24.) This matters
because the February 2014 lien upon which U.S. Bank relies arose in relation to a contract
between a broker and Creekside Investment Partners LLC. There is no factual allegation pled
that places Creekside Investment Partners LLC into the definition of Borrower, which means that
the February 2014 lien does not appear to constitute an event of default. Whether this analysis
would stand in a summary judgment context involving proof of facts does not matter to today’s
disposition; the point here is that accepting all factual allegations as true, there is no basis for
treating the February 2014 lien as an event of default.
In addition to the overarching barred action argument, U.S. Bank also seeks dismissal of
Count I on the grounds that Plaintiff has not plausibly alleged that it performed under the loan
agreement or that U.S. Bank breached that agreement. The factual allegations of the amended
complaint, which this Court must necessarily accept as true, indicate that at the time of the June
2014 disbursement requests, Plaintiff had performed. This conclusion accepts that the February
2014 lien does not constitute a default as discussed above. U.S. Bank nevertheless argues that
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Plaintiff cannot sue for breach of contract because Plaintiff has itself breached the contract by
withholding loan payments.
To support this argument, U.S. Bank relies on that portion of § 11.19 of the loan
agreement that provides that “[n]o failure by Lender to perform any of its obligations hereunder
shall be a valid defense to, or result in any offset against, any payments which Borrower is
obligated to make under any of the Loan Documents.” (ECF No. 1-1, at Page ID # 154.) This
selective excerpt ignores both the plain language and the context of that loan agreement section,
which provides in its entirety:
Section 11.19 Waiver of Offsets/Defenses/Counterclaims. Borrower
hereby waives the right to assert a counterclaim, other than a compulsory
counterclaim, in any action or proceeding brought against it by Lender or its
agents or otherwise to offset any obligations to make the payments required by
the Loan Documents. No failure by Lender to perform any of its obligations
hereunder shall be a valid defense to, or result in any offset against, any payments
which Borrower is obligated to make under any of the Loan Documents.
(ECF No. 1-1, at Page ID # 154.) Construed correctly, it is apparent that § 11.19 is a borrowermust-continue-to-pay provision, not a bar to a breach of contract claim.
The first sentence of § 11.19 means that if U.S. Bank or its agents sue Plaintiff, Plaintiff
cannot stop paying on the loan. The second sentence means that Plaintiff must make its loan
payments even if U.S. Bank breaches the loan agreement. Neither of these sentences means that
Plaintiff cannot bring its breach of contract claim against U.S. Bank. What they do mean is that
U.S. Bank can possibly bring a counterclaim against Plaintiff here for the missed payments since
August 2014. U.S. Bank’s argument for dismissal based on § 11.19 therefore incorrectly
expands the purpose and effect of that section.
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Plaintiff also opposes dismissal on the theory that Defendants’ entire Rule 12(b)(6)
motion is predicated on this Court making premature (and at this stage, impermissible) factual
determinations regarding the validity of the amended complaint’s factual allegations. Plaintiff
directs this Court to the factual allegations pled that support satisfaction of each of the § 6.9.2
prerequisites to disbursement as of the June 2014 requests. In light of the foregoing, this Court
agrees with Plaintiff that its allegations, necessarily accepted as true in this Rule 12(b)(6)
context, present a plausible breach of contract claim arising from performance by Plaintiff and
breach by U.S. Bank. The Trustee’s argument for dismissal of Count I fails.
Count II of the amended complaint is a conversion claim against U.S. Bank. Under New
York law, “[c]onversion is any unauthorized exercise of dominion or control over property by
one who is not the owner of the property which interferes with and is in defiance of a superior
possessory right of another in the property.” Schwartz v. Capital Liquidators, Inc., 984 F.2d 53,
53-54 (2d Cir. 1993) (quoting Meese v. Miller, 79 A.D.2d 237, 436 N.Y.S.2d 496, 500 (App.
Div. 1981)). In order to establish conversion, Plaintiff must show “legal ownership of a specific
identifiable piece of property and the defendant’s exercise of dominion over or interference with
the property in defiance of the plaintiff’s rights.” Ahles v. Aztec Enters., Inc., 120 A.D.2d 903,
903, 502 N.Y.S.2d 821, 822 (App. Div. 1986).
U.S. Bank argues that Count II fails to state a claim upon which this Court can grant
relief because a party cannot bring a conversion claim to recover escrowed funds based on an
underlying breach of contract. This Court agrees. It is well settled that “under New York law, a
claim of conversion cannot be predicated on a mere breach of contract.” Robotic Visions Sys.,
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Inc. v. Cybo Sys., Inc., 833 F. Supp. 189, 192 (E.D. N.Y. 1993). See also Karmilowicz v.
Hartford Fin. Servs. Group, Inc., 494 F. App’x 153, 158 (2d Cir. 2012). The conversion claim
must stem from a wrong that is independent of the purported breach of contract. Karmilowicz,
494 F. App’x at 158. Thus, “to sustain a conversion claim, a plaintiff must allege acts that are
unlawful or wrongful as distinguished from acts that are a mere violation of contractual rights.”
Fraser v. Doubleday & Co., 587 F. Supp. 1284, 1288 (S.D.N.Y. 1984).
Plaintiff apparently relies on the fact that the withheld funds are escrow funds to
distinguish the foregoing precedent. Plaintiff is correct that money can be the property at issue
in a conversion claim, provided the money is “held in a ‘specific, identifiable fund and [subject
to] an obligation to return or otherwise treat in a particular manner the specific fund in question.’
” Citadel Management, Inc. v. Telesis Trust, Inc., 123 F. Supp. 2d 133, 147 (S.D.N.Y. 2000)
(quoting High View Fund, L.P. v. Hall, 27 F. Supp. 2d 420, 429 (S.D.N.Y. 1998)). But Plaintiff
has directed this Court to no authority, and this Court can find none in New York law, that would
remove the conversion claim escrow funds at issue here from the rule that more than a breach of
contract must be involved. To the contrary, this Court has found authority in which courts
applying New York law dismissed a conversion claim involving escrowed funds when a breach
of contract claim also existed. See, e.g., Newman v. Mor, No. 08 CV 658(RJD) (CLP), 2009 WL
890552, at *4 (E.D.N.Y. Mar. 31, 2009); Amadasu v. Ngati, No. 05CV2585(JFB)(LB), 2006 WL
842456, at *11 (E.D.N.Y. Mar. 27, 2006). Accordingly, dismissal of Count II is warranted.
In Count III of the amended complaint, Plaintiff asserts a state law claim against LNR for
breach of fiduciary duty. Under New York law, a party seeking to sustain such a claim must
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prove the existence of a fiduciary relationship, misconduct by the defendant, and damages
directly caused by the defendant’s misconduct. Margrabe v. Sexter & Warmflash, P.C., 353 F.
App’x 547, 549 (2d Cir. 2009). LNR argues that dismissal is warranted because Plaintiff has
failed to plead any facts that point to a requisite fiduciary relationship between Plaintiff and
LNR.
Plaintiff disagrees and directs this Court to various states’ laws to support its position.
But New York law applies and provides that, as a standard rule, “ ‘[a]n arm’s length borrowerlender relationship is not of a confidential or fiduciary nature.’ ” Roswell Capital Partners LLC
v. Alt. Constr. Tech., 638 F. Supp. 2d 360, 368 (S.D.N.Y. 2009) (quoting River Glen Assocs.,
Ltd. v. Merrill Lynch Credit Corp., 295 A.D.2d 274, 275, 743 N.Y.S.2d 870, 871 (1st Dep’t
2002)). It is only when a special relationship exists that “[a] lender-borrower relationship may
give rise to a fiduciary duty,” such as “where there exists ‘a confidence reposed which invests
the person trusted with an advantage in treating with the person so confiding, or an assumption
of control and responsibility.’ ” Id. at 368-69 (quoting Mfrs. Hanover Trust Co. v. Yanakas, 7
F.3d 310, 318 (2d Cir. 1993)). The amended complaint sets forth no such special relationship
and in fact disputes that LNR is properly involved in the disbursement issue in any way,
regardless of the delegation of duties provision contained in the loan agreement. Consequently,
dismissal of Count III is also warranted. Having reached this conclusion, the Court need not and
does not address LNR’s alternative rationale for dismissal.
Count IV of the amended complaint is a tortious interference with contract claim against
LNR. Under New York law, the elements of such a claim are “(1) ‘the existence of a valid
contract between the plaintiff and a third party’; (2) the ‘defendant’s knowledge of the contract’;
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(3) the ‘defendant’s intentional procurement of the third-party’s breach of the contract without
justification’; (4) ‘actual breach of the contract’; and (5) ‘damages resulting therefrom.’ ” Kirch
v. Liberty Media Corp., 449 F.3d 388, 401-02 (2d Cir. 2006) (quoting Lama Holding Co. v.
Smith Barney Inc., 88 N.Y.2d 413, 424, 668 N.E.2d 1370, 1375, 646 N.Y.S.2d 76, 82 (1996)).
See also Hidden Brook Air, Inc. v. Thabet Aviation Int’l Inc., 241 F. Supp. 2d 246, 278
(S.D.N.Y. 2002) (quoting Finley v. Giacobbe, 79 F.3d 1285, 1294 (2d Cir. 1996)).
LNR initially argues that dismissal of Count IV is warranted because there has been no
breach of the contract. The Court has already discussed and rejected such a proposition for Rule
12(b)(6) purposes in regard to Count I. This leads into LNR’s second ground for dismissal,
specifically, that as an agent of U.S. Bank, LNR cannot be liable for inducing any purported
breach of the loan agreement.
New York law provides that “[a]n agent cannot be held liable in tort for inducing his
principal to breach a contract, unless he is operating outside the scope of his authority.” Aim
Int’l Trading, L.L.C. v. Valcucine S.P.A., IBI, L.L.C., No. 02 Civ. 1363(PKL), 2003 WL
21203503, at *10 (S.D.N.Y. May 22, 2003). See also Solow v. Stone, 994 F. Supp. 173, 181
(S.D.N.Y. 1998). Liability can also exist if the agent committed an independent tortious act
against a plaintiff. Friedman v. Wahrsager, 848 F. Supp. 2d 278, 298 (E.D.N.Y. 2012). The rule
against agent liability rule is “consistent with the principle that a defendant cannot tortiously
interfere with a contract if he is not a ‘third part[y] unrelated to the contract.’ ” Solow, 994 F.
Supp. at 181. Thus, where “[t]he complaint contains no allegation that [an agent] acted outside
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the scope of his agency . . . the tortious interference claim[] must be dismissed.” Aim Int’l
Trading, L.L.C., 2003 WL 21203503, at *10.
Here, the amended complaint identifies LNR as a Special Servicer while also
characterizing LNR’s involvement as improperly injecting itself into the disbursement issue.
This latter characterization arguably ignores that LNR’s status as Special Servicer means it was
acting as an agent of U.S. Bank, the lender by assignment, and as such might not be a third party
unrelated to the loan agreement. This leads to the question of whether Plaintiff has pled facts
plausibly suggesting that LNR acted outside the scope of its agency.
Under New York law, “actions deemed to be outside the scope of authority include those
that are committed independently for personal pecuniary gain . . . or are derived solely from
malice.” Barsoumian v. Univ. at Buffalo, No. 06-CV-831S, 2012 WL 930331, at *9 (W.D.N.Y.
Mar. 19, 2012). The parties agree that Plaintiff has pled that LNR was acting in its own
economic self-interest; what the parties disagree over is whether such allegations save Count IV
from dismissal.
It is a close call. New York law provides that where a third party has an economic
interest in the contract, a plaintiff must make a higher showing than the basic elements of the
tortious interference tort; the third party’s interference has to have been “ ‘either malicious or
involved conduct rising to the level of criminality or fraud.’ ” Vinas v. Chubb Corp., 499 F.
Supp. 2d 427, 431 (S.D.N.Y. 2007) (quoting Masefield AG v. Colonial Oil Indus., No. 05 Civ.
2231(PKL), 2006 WL 346178, at *5-6 (S.D.N.Y. 2006)). The crux of Plaintiff’s pleading is that
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LNR acted as it did because it would profit from a default by Plaintiff. LNR argues that
Plaintiff’s use of purportedly unnecessary information requests by LNR to establish malice fails
to amount to anything more than an alleged absence of good faith, which LNR asserts is
insufficient.
This Court finds some guidance in Momentive Performance Materials USA, Inc. v.
AstroCosmos Metallurgical, Inc., No. 107-CV-567 (FJS/DRH), 2009 WL 1514912 (N.D.N.Y.
June 1, 2009). In that case, another federal judicial officer addressed a Rule 12(b)(6) motion to
dismiss a claim for tortious interference with contract under New York law. Id. at *5. The
moving defendant asserted that it could not be liable for procuring another defendant’s breach of
a contract because of the economic interest defense. Id. LNR also invokes this defense, and the
parties devote a fair amount of the briefing to the defense. But as Momentive Performance
explained, such briefing is arguably unhelpful at this juncture in the case:
Defendant CLEGC relies on two interrelated theories to support its motion
to dismiss both of Plaintiff's tortious interference claims: (1) the economic interest
defense and (2) the defense that, because Defendant CLEGC and Defendant
AstroCosmos are sister companies, Plaintiff cannot hold Defendant CLEGC liable
for interfering with the contractual and/or business relationship between GE and
Defendant AstroCosmos because any such interference results from Defendant
CLEGC's attempt to protect its own economic interests.
The fatal flaw of relying on either of these theories to support a motion to
dismiss is that they are defenses to Plaintiff’s claims, on which Defendant
CLEGC has the burden of proof. In considering this motion to dismiss, however,
the Court must accept as true all of the well-pleaded allegations in Plaintiff's
amended complaint and draw all reasonable inferences in Plaintiff's favor. Thus,
as long as Plaintiff's allegations are sufficient to state facially plausible claims for
tortious interference, the Court cannot grant Defendant CLEGC’s motion to
dismiss based on Defendant CLEGC’s mere assertion of the business justification
defense.
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Id. at *5-6. The judicial officer in Momentive Performance later explained:
[A] defendant cannot defeat a tortious interference claim simply by asserting an
economic interest defense. Rather, the defendant has to prove that the defense
applies, i.e., that, even assuming that the defendant is affiliated with the party with
whom the plaintiff has the relationship, the defendant interfered with that
relationship to protect its economic interest. Furthermore, once the defendant
meets its burden to prove that the economic interest defense applies, the plaintiff
can still prevail if it can prove that the defendant acted out of malice or
fraudulently or illegally interfered with the contractual or business relationship.
Furthermore, Defendant CLEGC appears to overlook the fact that there is
no legal support for the proposition that the mere assertion of the economic
justification defense or the fact that Defendant CLEGC and Defendant
AstroCosmos are affiliated companies, as a matter of law, defeats Plaintiff’s
tortious interference claims. In addition, there is a factual dispute about the
relationship between Defendant CLEGC and Defendant AstroCosmos that the
Court cannot resolve on a motion to dismiss, particularly since it is Defendant
CLEGC’s burden to prove that such a relationship exists and the extent of that
relationship. Moreover, Defendant CLEGC bears the burden to prove that it
interfered with GE’s contractual and/or business relationship with AstroCosmos
to protect its own economic interest. Finally, assuming that Defendant CLEGC
meets this burden, Plaintiff may still be able to overcome this defense if it can
prove that Defendant CLEGC acted out of malice or employed fraudulent or
illegal means to interfere with the relationship between GE and Defendant
AstroCosmos.
Id. at *8 (footnote omitted). This rationale is instructive.
In the case sub judice, Plaintiff has pled that LNR was acted for its own personal
pecuniary gain. LNR in turn has asserted the economic interest defense. The pleading indicates
that LNR was a Special Servicer, which points to agency, but there are no facts pled about the
scope of that agency. It is LNR’s burden to prove the existence and extent of an agency
relationship. All of this and more point to the fact that dismissal of Count IV is not warranted at
this time. This conclusion expresses no ultimate opinion on any of these issues, but is instead the
17
result of the Rule 12(b)(6) inquiry in which this Court must engage and the specific pleading
involved here.
In Count V of the amended complaint, Plaintiff asserts a claim for declaratory judgment.
Defendants seek dismissal of this final claim on the grounds that it merely rehashes four other
defectively pled claims.2 At the same time, Defendants also argue in their briefing that the Court
should dismiss all of the first four claims because the loan agreement provides that in the event if
a lawsuit, Plaintiff is limited to seeking injunctive relief or declaratory judgment.
Defendants are of course incorrect that all four of the preceding claims fail today.
Additionally, at least one case applying New York law suggests that the Court is not required to
address conclusively the sole remedy provision of the loan agreement at this early stage in the
litigation. See Ace Secs. Corp. Home Equity Loan Trust, Series 2007-HE3 v. DB Structured
Prods., Inc., 5 F. Supp. 3d 543, 557 (S.D.N.Y. 2014). This Court declines to dismiss Count V.
III.
Conclusion
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART
Defendants’ motion to dismiss. (ECF No. 15.) Counts II and III are dismissed. Count I, IV, and
V remain pending.
IT IS SO ORDERED.
/s/ Gregory L. Frost
GREGORY L. FROST
UNITED STATES DISTRICT JUDGE
2
In a footnote in their briefing, Defendants also ask this Court to dismiss various forms
of relief sought by Plaintiff, to deny Plaintiff’s demand for attorney’s fees and costs, and to strike
Plaintiff’s demand for a jury trial. Defendants thus improperly attempt to expand the scope of a
Rule 12(b)(6) motion by utilizing the wrong mechanism to pursue these ends or by overreaching.
18
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