Kamin v. U.S. Bank National Association

Filing 30

OPINION and ORDER denying 15 Partial Motion to Dismiss for Failure to State a Claim. Signed by Judge James P. Jones on 12/9/13. (flc)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
DANIEL G. KAMIN,

)
)
Plaintiff,
)
)
v.
)
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U.S. BANK NATIONAL ASSOCIATION, )
)
AS TRUSTEE, ETC.,
)
Defendant.
)

Case No. 1:13CV00058
OPINION AND ORDER
By: James P. Jones
United States District Judge

William R. Rakes and Michael J. Finney, Gentry Locke Rakes & Moore,
LLP, Roanoke, Virginia, for Plaintiff; Constantinos G. Panagopoulos, Ballard
Spahr, LLP, Washington, D.C., for Defendant.
In this civil diversity action, the plaintiff, Daniel G. Kamin, has sued U.S.
Bank National Association (“U.S. Bank”). Kamin seeks a declaratory judgment
that his liability under a personal Guaranty of a commercial mortgage loan has not
been triggered under the loan documents. U.S. Bank has counterclaimed that
Kamin is liable for the entire debt and associated losses based upon his Guaranty.
U.S. Bank also counterclaims that Kamin is liable for tortious interference with
contract as well as statutory conspiracy. Kamin has moved to dismiss the two tort
counterclaims, arguing that they are barred under Virginia law because they relate
to an alleged breach of contract rather than independent legal duties. For the
reasons set forth below, I will deny Kamin’s motion.

I
In considering Kamin’s Partial Motion to Dismiss Counterclaim, I must
accept as fact the following allegations made by U.S. Bank.
This action arises out of the financial difficulties of Euclid Center L.P.
(“Euclid”), the owner of a shopping center in Bristol, Virginia. Euclid owes $6.9
million on a mortgage loan currently held by U.S. Bank, secured by the shopping
center property. The shopping center’s anchor tenant was K-VA-T Food Stores,
Inc. (“KVAT”), which operated a supermarket on the premises and paid Euclid
rent based in part on its gross receipts from the business. KVAT closed its
supermarket and thereafter Euclid defaulted on the mortgage loan.
Euclid is a limited partnership. The Daniel G. Kamin Bristol Corporation
(“Kamin Bristol Corp.”) is a general partner of Euclid, and Kamin, the plaintiff, is
President of Kamin Bristol Corp.
Euclid’s mortgage loan is on a non-recourse basis to Euclid, except under
certain defined circumstances. Kamin executed a Guaranty by which he in turn
would be personally liable for any recourse debt if a number of specified events
happened, including if Euclid breached Section 4.2 of the Deed of Trust. U.S.
Bank claims that Euclid breached Section 4.2 by taking on additional debt other
than trade payables, by failing to maintain adequate capital for reasonably

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foreseeable business obligations, and by engaging in unauthorized transactions
with KVAT and Kamin.
In its counterclaim for tortious interference with contract, U.S. Bank alleges
that Kamin intentionally caused Euclid to breach the terms of its loan agreement by
(1) causing Euclid to take on outside debt by taking a loan from him, and (2)
causing Euclid to enter into an unauthorized settlement agreement with KVAT
after KVAT closed its supermarket. In the settlement agreement, Euclid agreed to
reduce KVAT’s rent and KVAT agreed to pay an inflated price for other property
owned personally by Kamin.

U.S. Bank alleges that Kamin arranged the

settlement so that he was paid instead of Euclid, thus diverting funds that could
have been used to satisfy the loan. U.S. Bank also alleges that the settlement
agreement was made without its knowledge or prior written consent, in
contravention of the loan documents.
In its counterclaim for statutory conspiracy, U.S. Bank asserts that Kamin
conspired with Euclid to harm U.S. Bank’s interest in recovering under the loan
agreement by (1) facilitating the breach of Euclid’s fiduciary duty to maximize its
assets for the payment of its creditors; and (2) facilitating the conversion of
property subject to the loan agreement. U.S. Bank also alleges that KVAT was
part of the conspiracy and party to the unauthorized settlement agreement.

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II
A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint
to determine whether the pleader has properly stated a cognizable claim. See
Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999).

Federal

pleading standards require that a complaint contain a “short and plain statement of
the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In
order to survive a motion to dismiss, the pleader must “state[] a plausible claim for
relief” that “permit[s] the court to infer more than the mere possibility of
misconduct” based upon its “judicial experience and common sense.” Ashcroft v.
Iqbal, 556 U.S. 662, 679 (2009). In evaluating a pleading, the court accepts as true
all well-pleaded facts and construes those facts in the light most favorable to the
pleader. Id. at 678.
The parties are agreed that Virginia substantive law applies to U.S. Bank’s
claims. Under Virginia law, in order for a single act or occurrence to give rise to
claims in both tort and contract, ‘“the duty tortiously or negligently breached must
be a common law duty, not one existing between the parties solely by virtue of the
contract.’” Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 293 (Va. 2007)
(quoting Foreign Mission Bd. of the S. Baptist Convention v. Wade, 409 S.E.2d
144, 148 (Va. 1991)). The elements for tortious interference with contract are:
(i) the existence of a valid contractual relationship or business
expectancy; (ii) knowledge of the relationship or expectancy on the
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part of the interferor; (iii) intentional interference inducing or causing
a breach or termination of the relationship or expectancy; and (iv)
resultant damage to the party whose relationship or expectancy has
been disrupted.
DurretteBradshaw, P.C. v. MRC Consulting, L.C., 670 S.E.2d 704, 706 (Va.
2009).
In this case, U.S. Bank has alleged that Kamin had knowledge of the
contractual relationship between it and Euclid, and intentionally caused Euclid to
violate the loan agreement, damaging U.S. Bank. Taking the allegations in the
pleadings as true, Kamin arranged a settlement agreement with Euclid’s primary
tenant that caused funds that would have gone to Euclid or U.S. Bank to go instead
to Kamin. The settlement agreement was made without U.S. Bank’s knowledge or
consent, and included a reduction in rent as well as relinquishment of Euclid’s
rights against KVAT, and an agreement for KVAT to purchase land owned by
Kamin. Based on these facts, it is at least plausible that Kamin violated a duty
external to the contract.
Kamin argues that it is implausible that he would intentionally cause a
breach of Euclid’s loan agreement with U.S. Bank given his potential personal
liability under the Guaranty.

Intentional interference is met by purposeful

interference with the performance of another’s contract, but “[t]he requisite level
of intent also exists if the interferor knows that the interference is certain or
substantially certain to occur as a result of his [or her] actions.” Commerce
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Funding Corp. v. Worldwide Sec. Servs. Corp., 249 F.3d 204, 212-13 (4th Cir.
2001) (internal quotation marks and citation omitted). Here, U.S. Bank has alleged
that Kamin structured a settlement agreement with KVAT in a way that diverted
funds from Euclid or U.S. Bank to himself. Accepting these allegations as true,
Kamin would have been reasonably certain that he had interfered with the EuclidU.S. Bank contract. Kamin’s motivations are unknown. U.S. Bank argues that
Kamin may have thought that he would not get caught. Regardless, a reasonable
finder of fact could conclude from these allegations that Kamin acted for the
purpose of diverting funds from U.S. Bank, or knew that the diversion of funds
was substantially certain to occur.
Kamin also argues that U.S. Bank has not adequately pled damages resulting
from the alleged tortious interference with contract.

U.S. Bank has alleged,

however, that Kamin intentionally caused Euclid to breach its contractual
agreements with U.S. Bank, and enriched himself at the expense of U.S. Bank
through the KVAT settlement. Damages for tortious interference with a contract
may be informed by the contract at issue. See Multi-Channel TV Cable Co. v.
Charlottesville Quality Cable Corp., 65 F.3d 1113, 1124 (4th Cir. 1995) (“If a
defendant is liable for tortious interference with a plaintiff’s prospective
contractual relationships, the proper measure of the plaintiff’s damages is the
present value of lost profits resulting from the defendant’s actions.”). Damages
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may also include losses that flow from the interference. Restatement (Second) of
Torts § 774A (1979) (“One who is liable to another for interference with a contract
or prospective contractual relation is liable for damages for (a) the pecuniary loss
of the benefits of the contract or the prospective relation; (b) consequential losses
for which the interference is a legal cause; and (c) emotional distress or actual
harm to reputation, if they are reasonably to be expected to result from the
interference.”).

U.S. Bank has plausibly alleged damages such that its claim

survives Kamin’s motion to dismiss.
Kamin has also moved to dismiss U.S. Bank’s counterclaim for statutory
conspiracy. A party asserting statutory conspiracy under Va. Code Ann. §§ 18.2499, 18.2-500 (2009) must show “(1) a combination of two or more persons for the
purpose of willfully and maliciously injuring plaintiff in his business; and (2)
resulting damage to plaintiff.” AWP, Inc. v. Commonwealth Excavating, Inc., No.
5:13cv031, 2013 WL 3830500, at *3 (W.D. Va. July 24, 2013). The allegations
must allow inference of “a meeting of the minds and not mere parallel conduct.”
Id. Additionally, the concerted action must be unlawful. Simmons v. Miller, 544
S.E.2d 666, 677 (Va. 2001) (“[T]he plaintiff must prove by clear and convincing
evidence that the conspirators acted with legal malice, that is, proof that the
defendant acted intentionally, purposefully, and without lawful justification.”).
Nonperformance of a contract does not constitute unlawful action under the statute,
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nor does conspiracy to breach a contract. Station #2, LLC v. Lynch, 695 S.E.2d
537, 541 (Va. 2010). These limitations are meant to prevent “turning every breach
of contract into an actionable claim for fraud.” Id. (internal quotation marks and
citations omitted).
In connection with its statutory conspiracy claim, U.S. Bank alleges two
unlawful acts independent of the Euclid-U.S. Bank loan agreement. U.S. Bank
asserts that Kamin, Euclid, and KVAT conspired to (1) facilitate the breach of
Euclid’s fiduciary duty to maximize its assets for the payment of its creditors; and
(2) facilitate the conversion of property subject to the loan agreement.
Specifically, U.S. Bank alleges that Kamin, Euclid, and KVAT engaged in willful
concerted action through the KVAT settlement agreement.

The Virginia

conspiracy statute criminalizes conspiracies to “willfully and maliciously injur[e]
another in his reputation, trade, business or profession by any means whatever . . .
.” Va. Code Ann. § 18.2–499A (2009). Here, a reasonable finder of fact could
conclude that by structuring a settlement that released KVAT from its rent
obligations and caused KVAT to purchase land from Kamin, the parties conspired
to divert funds that would have gone to U.S. Bank, causing Euclid unable to pay its
creditors.
To survive a motion to dismiss, U.S. Bank must also allege that it suffered
causally related damage from the statutory conspiracy. Kamin argues that the only
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harm alleged was to U.S. Bank’s ability to recover under its loan agreement with
Euclid. However, U.S. Bank also alleges that the conspiracy damaged the value of
the collateral securing U.S. Bank’s loan because the settlement agreement
relinquished Euclid’s rights against KVAT, and diverted money that Euclid would
have received in rent.
Kamin argues that conversion is not properly alleged because the property
interest at issue — future rent owed by KVAT — is not tangible property, but an
interest that stems from a contract. While the tort of conversion usually applies
only to tangible property, ‘“courts have recognized the tort of conversion in cases
where intangible property rights arise from or are merged with a document.’”
Combined Ins. Co. of Am. v. Wiest, 578 F. Supp. 2d 822, 835 (W.D. Va. 2008)
(quoting United Leasing Corp. v. Thrift Ins. Corp., 440 S.E.2d 902, 906 (Va.
1994)).
Kamin also contends that U.S. Bank has failed to allege a conspiracy
between two or more persons.
parties.

A conspiracy must be comprised of multiple

AWP, Inc., 2013 WL 3830500, at *4 (“[P]roof of concerted action

necessary to establish a conspiracy requires the involvement of at least two legally
distinct persons or entities.”). However, it is not necessary that every member of
the conspiracy is party to the lawsuit. Id. at *5. Here, U.S. Bank has alleged that
Kamin, Euclid, and KVAT entered into an unauthorized settlement agreement that
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diverted funds that were intended for U.S. Bank to Kamin.

U.S. Bank has

adequately alleged the existence of an agreement between multiple parties to
commit unlawful acts to injure the business interests of U.S. Bank. Its claim for
statutory conspiracy survives Kamin’s motion to dismiss.
Finally, I will deny Kamin’s motion to dismiss U.S. Bank’s claim for
attorneys’ fees. In connection with Counts I and II, U.S. Bank seeks attorneys’
fees and collection costs under the Guaranty. Kamin argues that the Guaranty’s
attorneys’ fees language should be declared facially unenforceable because it does
not require U.S. Bank to be the prevailing party. However, an opportunity to
examine the evidence of the setting in which the parties struck their bargain is
necessary. Carlson v. Gen. Motors Corp., 883 F.2d 287, 292 (4th Cir. 1989) (“To
the contrary, unconscionability claims should but rarely be determined on the barebones pleadings — that is, with no opportunity for the parties to present relevant
evidence of the circumstances surrounding the original consummation of their
contractual relationship.”); see Blevins v. New Holland N. Am., Inc., 97 F. Supp. 2d
747, 750 (W.D. Va. 2000) (“The court must consider all of the relevant
circumstances in order to determine whether the exclusion of remedies is
unconscionable.”). More evidence is needed on the issue of attorneys’ fees and
whether the clause is unconscionable.

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III
For the reasons stated, I cannot at this stage of the litigation preclude U.S.
Bank from asserting all of its counterclaims. Accordingly, it is ORDERED that
the Kamin’s Partial Motion to Dismiss Counterclaim (ECF No. 15) is DENIED.
ENTER: December 9, 2013
/s/ James P. Jones
United States District Judge

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