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March 19, 2003


The opinion of the court was delivered by: Harold Baer, Jr., United States District Judge


Two motions in this case are before the Court. Citicorp Real Estate Inc. ("Citicorp") has moved to dismiss LaSalle Bank National Association's ("LaSalle") claim of negligent misrepresentation, while LaSalle has moved to dismiss Citicorp's counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. For the following reasons, Citicorp's motion is granted, and LaSalle's motion is granted in part and denied in part.


A. Standard of Review Under Fed.R.Civ.P. 12(b)(6)

On these motions to dismiss, "the court must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Electric Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995) (citations omitted). Further, "[t]he district court should grant such a motion only if, after viewing plaintiffs allegations in this favorable light, `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Id. (quoting Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992), and Ricciuti v. New York Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)). "The issue is not whether a plaintiff is likely to prevail ultimately, `but whether the claimant is entitled to offer evidence to support the claims.'" Gant v. Wallingford Board of Ed, 69 F.3d 669, 673 (2d Cir. 1995) (quoting cases). When deciding a motion to dismiss, a court may consider not only the complaint, but also "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." See Cortec Indus. Inc., v. Sum Holding L. P., 949 F.2d 42, 47 (2d Cir. 1991).

B. Facts

With certain exceptions, the facts are generally not in dispute. What is in dispute is the significance of certain events and the meaning of a few provisions in a very large and complex contract.

On April 1, 1998, LaSalle and Citicorp and several other entities that are not parties to this litigation signed a Pooling and Services Agreement ("PSA") for the purchase by LaSalle of $1.3-billion worth of mortgages loans, which were to be included in a Real Estate Mortgage Investment Conduit (REMIC)*fn1 Trust. See Complaint ¶ 16. LaSalle was and remains the Trustee and Administrator of the REMIC Trust, and Citicorp was the Mortgage Loan Seller. See id. ¶ 1 & n. 1. Citicorp, as the Mortgage Loan Seller, made several warranties in the PSA, two of which are relevant to the dispute here. First, Citicorp warranted that "[t]he origination, servicing and collection practices used with respect to such Mortgage Loan have been in all material respects legal and have met generally accepted servicing standards for similar commercial and multifamily mortgage loans." See id. ¶ 17 (quoting PSA § 2.05(d)(xxxiv)). Second, Citicorp warranted that "[t]here is no material default, breach or event of acceleration existing under the related Mortgage Note. . . ." See id. (quoting PSA § 2.05(d)(xxv)). The PSA also requires that within 90 days of discovering or learning of a breach of its warranties and representations, Citicorp is obligated to either cure the defective mortgage loan or repurchase it. See id. ¶ 22 (citing PSA § 2.03(a)). Although executed on April 1, the PSA provided that the "Closing Date" was to be May 6, 1998. See id. ¶ 18.

The mortgage loan from this bundle that is at the center of the present dispute is what I will refer to as the Brock Suite Loan, as the parties have done. On December 24, 1997, Brock Suite Greenville, Inc. ("Brock Suite") obtained a $6.75-million loan, which it secured with a promissory note, a mortgage, and an assignment of leases and rents. See id. ¶ 7. That very same day, the lender transferred the Brock Suite Loan to Citicorp. See id. ¶ 9. The mortgaged property included a hotel, which was operated as a franchise of Residence Inn by Marriott, pursuant to a franchise agreement entered into in 1985 for a 15-year term. See Id. ¶ 8.

On March 31, 1998 — i.e., the day before the PSA was executed — Marriott sent a Notice of Default to one Mel Melle, with copies to seven other individuals. See Complaint ¶ 12. This letter indicated the hotel was in default of the franchise agreement because its customer service performance was below the threshold required by Marriott and gave Brock Suite one year to cure the defect. See id. In its counterclaim, Citicorp alleges that none of these eight addressees was an employee of either the original lender nor Citicorp during the period of December 1997 through May 6, 1998. See Counterclaims ¶ 15. Brock Suite failed to correct the problem and, pursuant to an early termination agreement dated September 28, 1998, between Brock Suite and Marriott, the franchise agreement was terminated in March 1999 — which, as Citicorp notes, is five months earlier than the originally indicated August 1, 1999 date. See Complaint ¶ 12; Counterclaims ¶ 17. In January 1999 — after this early termination agreement but before termination — Brock Suite requested LaSalle's consent to a change in the franchise, causing LaSalle to transfer the Brock Suite Loan from the Master Servicer under the PSA to the Special Servicer.*fn2 See Complaint ¶¶ 13, 15. Despite learning about this default in January 1999, LaSalle did not contact Citicorp about it until February 5, 2001, when the Special Servicer*fn3 sent Citicorp a notification of Brock Suite's default of its franchise agreement with Marriott and demanded that Citicorp repurchase the mortgage. See id. ¶ 23. Citicorp alleges that the Special Servicer, acting on LaSalle's behalf and without notifying Citicorp, foreclosed on the Brock Suite Loan in January 2001. See Counterclaims ¶ 23.

On October 1, 2002, LaSalle sued, claiming that because of these defects in this mortgage loan, Citicorp was in breach of the warranties and representations in the PSA, and thus is obligated under the PSA either to cure the defect or to repurchase the mortgage loan. See Complaint ¶¶ 29-31, 32-39. Specifically, Count I of LaSalle's Complaint alleges that contrary to Citicorp's representations in the PSA, the Brock Suite Loan was in default on the day the PSA was executed (April 1, 1998) and on the Closing Date (May 6, 1998) because Brock Suite was in default of its franchise agreement with Marriott. Count II alleges that contrary to Citicorp's representations the Brock Suite Loan was not originated and serviced in accordance with generally accepted servicing standards because of the failure to account for the facts that a) the franchise agreement for the hotel was due to expire in 2 years and b) the hotel required extensive renovations. Count III of LaSalle's complaint alleges that Citicorp negligently misrepresented the condition of the Brock Suite Loan because the representations that the underlying loan was not in default and was originated and serviced in accordance with generally accepted standards allegedly were false when made. See Complaint at ¶ 38. Citicorp counterclaimed, alleging that LaSalle breached the contract and/or breached the implied covenant of good faith and fair dealing by failing to timely notify Citicorp of the defect in the Brock Suite Loan and thus depriving Citicorp of the right to elect between cure and repurchase.


A. Citicorp's Motion to Dismiss LaSalle's Negligent Misrepresentation Claim

Citicorp has moved to dismiss LaSalle's claim for negligent misrepresentation, arguing that 1) it is duplicative of the breach-of-contract action and 2) LaSalle has failed to allege the requisite elements of negligent misrepresentation. Because LaSalle has failed to demonstrate that Citicorp owed LaSalle a duty independent of the contract, its claim for negligent misrepresentation (Count III) is duplicative of its breach-of-contract claims and will be dismissed. I also find that LaSalle ...

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