United States District Court, S.D. New York
September 22, 2005.
MEADOWLANDS INVESTMENTS, LLC, Plaintiff,
CIBC WORLD MARKETS CORP., et al., Defendants.
The opinion of the court was delivered by: DEBORAH BATTS, District Judge
MEMORANDUM & ORDER
Before the Court is Defendant CIBC World Markets Corp.'s
("CIBC") Motion to Dismiss the above action. Defendant CIBC moves
to dismiss the breach of contract claim because Plaintiff's
conclusory allegations of breach of contract are contradicted by
the facts pleaded in the Complaint. Defendant CIBC also moves to
dismiss the fraud claims for failure to state a claim pursuant to
Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure,
for failure to allege any exceptions to the rule that an alleged
breach of contract does not give rise to tort liability, and for
being duplicative. Plaintiff states that it has pleaded all
claims sufficiently to meet the requirements set forth in the
Federal Rules of Civil Procedure, and furthermore, that
Defendant's Motion is premature as there has been no discovery in
For the reasons that follow, Defendant's Motion is GRANTED and
the claims against Defendant CIBC are DISMISSED. Plaintiff is
GRANTED leave to replead the New Jersey Consumer Fraud Act cause of action against Defendant CIBC.
Plaintiff Meadowlands Investments, LLC ("Meadowlands") is a New
Jersey Limited Liability Company with offices in Paramus, New
Jersey. Defendant CIBC is a corporation in the business of
providing commercial loans. CIBC is incorporated in Delaware and
its principal place of business is in New York. (Compl. ¶¶ 1, 3.)
Plaintiff owns property located at 110 Meadowlands Parkway,
Secaucus, New Jersey ("Secaucus Property"). In August, 2003,
Plaintiff was allegedly approached by L.J. Melody & Company
("L.J. Melody"), a named defendant in this matter,*fn1 by
its agent, James F. Gunning, Jr. ("Gunning"). Gunning suggested a
possible refinance of Plaintiff's Secaucus Property. According to
Plaintiff, L.J. Melody "was aware that a possible refinance of the property would be difficult based on the financial make-up
and status of the telecommunications companies which were tenants
in the building." (Id. ¶ 9.)
Defendant L.J. Melody, through Gunning, "advised" Plaintiff
that "it had a lender that was ready, willing and able to
refinance Plaintiff's property." (Id. ¶ 10.) That lender was
Defendant CIBC. (Id. ¶ 11.) Defendants L.J. Melody and CIBC
"advised" Plaintiff that CIBC would refinance the Secaucus
Property for $9,750,000.00, with $750,000.00 of that sum to be
held in an escrow account under the control of CIBC, subject to
certain terms and conditions. L.J. Melody would receive a
commission on the transaction. (Id. ¶¶ 12-13.)
Plaintiff states that prior to applying for the refinancing
loan, it "fully advised Defendants Melody and CIBC of the status
of Plaintiff's current finances, as well as the current status of
all leases and all other relevant information regarding the
subject property."*fn2 (Id. ¶ 14.) L.J. Melody and CIBC were
aware of the financial issues of the tenants of the Secaucus
Property and had been advised by Plaintiff that one particular
tenant, XO Communications, Inc. ("XO") was undergoing financial
reorganization, and hence, it was not known whether XO would be
renewing its lease which was set to expire on December 31, 2004.
(Id. ¶¶ 15-16.)
Both L.J. Melody and CIBC were fully aware of the financial
condition of Plaintiff and its tenants at the Secaucus Property.
(Id.) L.J. Melody, with this knowledge, "advised" Plaintiff that
the refinance was a "done deal" and that "CIBC would process the
loan expeditiously." (Id. ¶ 19.) Based on representations made by
CIBC and L.J. Melody, Plaintiff began the loan application and
submitted an Application Letter to CIBC on September 2, 2003
("Application Letter"), along with a "Good Faith" application fee
of $25,000.00. (Id. ¶¶ 20-21.)
The Application Letter provides that CIBC "warrants and
represents that it will act in Good Faith at all times in the
processing of Applicant's Application." (Id. ¶ 22.) The
Application Letter further provides that
Applicant understands and agrees that Lender is not
obligated to make the Loans contemplated hereby
unless and until (A) Lender has accepted this
Application by obtaining Lender's Loan Committee
approval and issuance of a separate commitment letter
(the "Commitment"), (B) such Commitment is accepted
by Applicant, and (C) the Closing Deposit to be paid
by Applicant is paid. . . . Applicant acknowledges
and agrees that . . . this Application is not an
offer, a contract, a binder, a memorandum of
contract, a commitment or a promise by Lender or CIBC
World Markets to make the Loan, or an agreement to
issue any such commitment. Lender may, at any time
prior to the issuance of a Commitment, reject this Application and have no further
(Def.'s Notice of Motion at Ex. B, p. 2.) In addition, the
Application Letter states that "Any amounts remaining from the
Good Faith Deposit after all Due Diligence Expenses and Legal
Expenses have been paid shall be retained by Lender as a fee in
consideration for its evaluation and processing of this
Application." (Id, p. 2-3.) The Application Letter is signed by
Anil Bansal, "Managing Member" of Meadowlands, and dated
September 2, 2003. (Id.)
Plaintiff began the due diligence process and complied with all
the requirements of the Application. Plaintiff maintained
constant contact with CIBC and CIBC's review counsel Winston &
Strawn, LLP, in order to "assure that Plaintiff was in full
compliance with CIBC's requirements." (Id. ¶ 24.) This constant
contact with CIBC and CIBC's review counsel was "throughout the
application process" and included communications via telephone,
electronic mail, standard mail, overnight deliveries and
facsimiles. (Id. ¶ 25.) According to Plaintiff, the
correspondence was often "several times each day." Whenever CIBC
requested additional documentation or information, Plaintiff
provided it "immediately." (Id.) Plaintiff never withheld any
information, nor delayed in providing the information; Defendant
CIBC requested information continuously. On December 18, 2003, CIBC denied Plaintiff's application.
Plaintiff filed this action against Defendants CIBC, L.J.
Melody, John Does 1-20, and ABC Corporation*fn3 on September
14, 2004. Plaintiff brings six claims against Defendant CIBC.
Count One alleges fraudulent inducement to apply for the loan by
Defendants CIBC and L.J. Melody. Count Two alleges that Defendant
CIBC breached the express and implied contract between CIBC and
Plaintiff. Count Three alleges violations by Defendants of
regulations under the New Jersey Consumer Fraud Act, N.J.S.A. §
56:8-1, et seq. Count Four alleges common law fraud by
Defendants, specifically that Defendants used deception and made
false promises and representations to Plaintiff, which Plaintiff
relied upon in applying for the loan, and that Defendants then
denied the application in bad faith and failed to return the
deposit. Count Five also alleges false representations by
Defendants upon which Plaintiff relied, reasonably believing
those representations to be true and unaware of their falsity.
Count Six again alleges fraud and false representations and
inducements by Defendants as well as unconscionable commercial
practice and deception, resulting in substantial economic damage
to Plaintiff, who reasonably relying on Defendant's
representations, made commitments to purchase additional property with the proceeds of the refinance loan, prior to the approval of
the loan. (Id. ¶¶ 30-68.)
Defendant CIBC filed its Motion to Dismiss the Complaint on
December 10, 2004.
Defendant CIBC moves to dismiss the breach of contract claim
for failure to state a claim because Plaintiff has made factual
allegations that contradict its conclusory allegations of breach
of contract. Defendant CIBC also moves to dismiss the fraud
claims for failure to state a claim pursuant to Fed.R.Civ.P.
12(b)(6) and 9(b), for failure to allege any exceptions to the
rule that an alleged breach of contract does not give rise to
tort liability, and because the fraud claims are duplicative.
In diversity cases, New York substantive law applies to claims
arising out of common law and federal law governs procedural
matters. See Kaufman v. Guest Capital, LLC, No. 03 Civ. 1509,
2005 WL 167602, at *6, fn.7 (S.D.N.Y. Jan. 25, 2005) (citing
Hanna v. Plumer, 380 U.S. 460 (1986)); see also Philips
Credit Corp. v. Regent Health Group, 953 F.Supp. 482, 501
(S.D.N.Y. 1997) (citing Erie R.R. v. Tompkins, 304 U.S. 64,
58 S.Ct. 817 (1938)); deBruyne v. Clay, No. 94 Civ. 4707, 1997 WL
471039, at *4 (S.D.N.Y. Aug. 18, 1997) (same). A. Legal Standard for Motion to Dismiss
In a motion to dismiss pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure, the Court "must accept as true the
factual allegations in the complaint, and draw all reasonable
inferences in favor of the plaintiff." Bolt Elec., Inc. v. City
of New York, 53 F.3d 465, 469 (2d Cir. 1995) (citations
omitted). "The district court should grant such a motion only if,
after viewing plaintiff's 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."
Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999).
For purposes of a motion to dismiss, a complaint is deemed to
include "any written instrument attached to it as an exhibit or
any statements or documents incorporated in it by reference . . .
and documents that the plaintiffs either possessed or knew about
and upon which they relied in bringing the lawsuit." Rothman v.
Gregor, 220 F.3d 81, 88-89 (2d Cir. 2000) (citations omitted).
B. Breach of Contract Claim
Defendant moves to dismiss Count Two of the Complaint for
failure to state a claim for breach of contract.
Defendant argues that Plaintiff has failed to state a claim
because Plaintiff has contradicted the conclusory statements made in Count Two with its factual allegations, and that it has failed
to meet Rule 8(a)'s liberal pleading standard by stating only
legal conclusions, opinions or deductions and not facts. (Def.'s
Mem. of Law at 6-7.)
Rule 8(a) sets forth a very liberal pleading standard. Rule
8(a)(2) states that "A pleading which sets forth a claim for
relief . . . shall contain (1) a short and plain statement of the
grounds upon which the court's jurisdiction depends, . . . (2) a
short and plain statement of the claim showing that the pleader
is entitled to relief, and (3) a demand for judgment for the
relief the pleader seeks." Fed.R.Civ.P. 8(a).
The Second Circuit has stated, however, that "[c]onclusory
allegations or legal conclusions masquerading as factual
conclusions will not suffice to prevent a motion to dismiss."
Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d
Cir. 2002) (quoting Gebhardt v. Allspect, Inc.,
96 F.Supp. 2d 331, 333 (S.D.N.Y. 2000). See also Digests v. Sears, Roebuck &
Co., Inc., 87 F.3d 65, 70 (2d Cir. 1996), cert. denied,
519 U.S. 1007 (1996) ("A complaint which consists of conclusory
allegations unsupported by factual assertions fails even the
liberal standard of Rule 12(b)(6).").
Defendant states that Plaintiff made the following factual
allegations which plainly negate its breach of contract claim:
(1) Meadowlands admitted that prior to submitting its Application Letter, it knew that a possible refinance would be difficult
given the financial condition of its tenants at the Secaucus
Property; (2) Plaintiff alleges that CIBC retained Winston &
Strawn as its "review counsel" for the due diligence process; (3)
Plaintiff characterizes the due diligence as extensive and states
that it lasted for three months; (4) Plaintiff states that CIBC
and Plaintiff maintained constant contact with Plaintiff
throughout the application process, often corresponding "several
times each day"; and (5) Plaintiff states that CIBC "continually
requested" information from Meadowlands. (Def.'s Mem. of Law at
The Application Letter*fn4 specifically states that the
Application Letter is "not an offer, a contract, a binder, a
memorandum of contract of this Application." (Def.'s Notice of
Motion at Ex. B, p. 2.) However, it appears that Plaintiff is not
alleging that the denial of the loan application is a breach of
contract, a claim presumably barred by the language of the
Application Letter. Instead, it appears that the agreement
Defendant CIBC allegedly breached is the failure by CIBC "to
consider [the loan application] as contemplated by the Loan Application." (Pl.'s Mem. of Law at 10.)
As Defendant points out, Plaintiff's factual allegations all
support Defendant's argument that it did consider the loan
application as contemplated by the Application Letter. Defendant
retained a law firm to conduct due diligence, a process which
took over three months. Defendant maintained frequent contact
with Plaintiff throughout that period. Defendant also
"continuously requested" information from Plaintiff. Plaintiff
makes no allegation that Defendant tried to evade Plaintiff's
communications in any way or acted in a manner, during the
Application process, that constituted bad faith, aside from
conclusory statements such as "the denial of Plaintiff's loan
application was in bad faith." (Compl. ¶ 29.)
Plaintiff's allegations in the Complaint, which the Court must
accept as true, demonstrate that Defendant CIBC considered the
loan application "as contemplated" in the Application Letter.
What Plaintiff actually seems to be saying in its breach of
contract claim is that considering the Application "as
contemplated in the Loan Application" means more than good faith
efforts by Defendant CIBC during the loan application process;
instead, considering the Application "as contemplated" meant that
CIBC had to accept Plaintiff's loan application. This is
clearly contradicted by the express terms of the Application
Letter which gave Plaintiff no rights to a loan and stated that
the Lender (CIBC) was not obligated to make any loans unless certain
conditions were met.
The Court finds that Plaintiff has asserted factual allegations
that undermine any claim that Defendant breached any agreement
"to consider Plaintiff's application for the Loan as contemplated
in the Loan Application." In fact, Plaintiff, in the Complaint,
has laid out many facts to support the position that Defendant
was quite diligent in its process of considering the Application.
The assertions contained in Count Two, when read in conjunction
with the factual allegations in the Complaint, are merely legal
conclusions and conclusory allegations. Thus Count Two does not
meet the liberal pleading requirements of Rule 8(a).
Accordingly, the Court Defendant's Motion to Dismiss Count Two
of the Complaint is GRANTED.
C. Fraud Claims
Defendant moves to dismiss the five claims alleging fraud by
Defendant CIBC for failure to state a claim, failure to plead
fraud with particularity, failure to satisfy the requirements for
group pleading, failure to allege any extra-contractual
representation as a basis for the fraud claim, and for being
duplicative. 1. Counts One, Four, Five and Six
Defendant argues that Count One, alleging fraud in the
inducement,*fn5 must be dismissed because it fails to meet
the particularity requirement of Rule 9(b), fails to allege
scienter, and fails to allege any of the exceptions to the rule
that an alleged breach of contract does not give rise to tort
liability. (Def.'s Mem. of Law at 8.) Defendant also argues that
Counts Four, Five and Six must be dismissed for failure to state
a claim for fraud and because they are duplicative of the other
"The elements of actual fraud under New York law are false
representation, scienter, materiality, expectation of reliance,
justifiable reliance, and damage." Congress Fin. Corp. v. John
Morrell & Co., 790 F.Supp. 459, 469 (S.D.N.Y. 1992) (citing
Morse/Diesel, Inc. v. Fidelity And Deposit Co. of Md.,
715 F.Supp. 578, 585 (S.D.N.Y. 1989)). Claims for fraudulent
misrepresentation and fraudulent inducement "must allege, inter
alia, that [Plaintiff] reasonably relied on false representations
made by [Defendant]." Fax Telecommunicaciones, Inc. v. AT&T,
138 F.3d 479, 490 (2d Cir. 1998) (citations omitted).
Plaintiff, through its Managing Member, Anil Bansal, signed the
Application Letter which specifically stated that "this
Application is not an offer, a contract, a binder, a memorandum
of contract, a commitment or a promise by Lender or CIBC world
Markets to make the Loan, . . . . Lender may, at any time prior to
the issuance of a Commitment, reject this Application and have no
further obligations thereunder." (Def.'s Notice of Motion at Ex.
B, p. 2.)
Reading the Complaint in the light most favorable to Plaintiff,
Plaintiff has failed to plead adequately the elements of fraud,
particularly justifiable reliance. In addition to Plaintiff's
failure to allege any specific information about any
misrepresentations as required by Rule 9(b), Plaintiff signed the
Application Letter that stated that Defendant CIBC was not
obligated to approve the loan application. Plaintiff could not
have reasonably relied upon any representations made by Defendant
CIBC that the loan application would be approved when the
Application Letter clearly provides that Defendant CIBC is not at
all obligated to approve the application.
Therefore, because Plaintiff has failed to plead adequately
justifiable reliance, and could not in any circumstance,
Defendant's Motion to Dismiss Counts One, Four, Five and Six of the Complaint is GRANTED.*fn6
2. New Jersey Consumer Fraud Act
Defendant seeks to dismiss Count Three of the Complaint, which
alleges violations of the New Jersey Consumer Fraud Act, N.J.S.A.
§ 56:8-1, et seq.
Plaintiff does not rely on any specific provision of the New
Jersey Consumer Fraud Act but alleges that Defendants L.J. Melody
and CIBC used "unconscionable commercial practices, deception,
fraud, false pretenses, false promises and misrepresentation to
induce Plaintiff to apply for the Loan" and that Defendants
"knowingly concealed, suppressed and omitted material facts."
(Compl. ¶¶ 47-48.) Specifically, Plaintiff claims that Defendants
violated the New Jersey Consumer Fraud Act by:
a. Offering Plaintiff the ability to consider a loan
with predetermined terms and conditions.
b. Inducing Plaintiff to apply for the Loan by
implying that Plaintiff's risk of loss would be
limited by stating that CIBC, "warrants and
represents that it will act in Good Faith at all
times in the processing of Applicant's Application."
c. Denying Plaintiff's application in bad faith. d. Failing to return Plaintiff's Good Faith Deposit
as required by the contract.
(Id. ¶ 49.)
According to the New Jersey Consumer Fraud Act, a practice is
unlawful under the act if
The act, use or employment by any person of any
unconscionable commercial practice, deception, fraud,
false pretense, false promise, misrepresentation, or
the knowing concealment, suppression, or omission of
any material fact with intent that others rely upon
such concealment, suppression or omission, . . .
whether or not any person has in fact been misled,
deceived or damaged thereby, . . . .
N.J. Stat. § 57:8-2. "The Act is worded in the disjunctive, and
requires only that [Plaintiff] prove that defendants committed
one of the prohibited practices to sustain its claim." Naporano
Iron & Metal Co. v. American Crane Corp., 79 F.Supp. 2d 494, 507
(D.N.J. 1999). To state a claim under the Act, a plaintiff must
allege (1) a violation of the Act, (2) that he or she suffered an
ascertainable loss as a result of the unlawful conduct, and (3) a
causal relationship between the unlawful practice and the loss
sustained by plaintiff. See Szczbelek v. Cendent Mortg. Corp,
215 F.R.D. 107, 122 (D.N.J. 2002). The Third Circuit has found
that "unconscionable commercial practice" "implies conduct that
lacks good faith, honesty in fact, and observance of fair
dealing." Green v. Am. Online (AOL), 318 F.3d 465
, 473 (3d Cir.
2003) (citation and internal quotations omitted). Reliance is not
an element under the New Jersey Consumer Fraud Act. See Morgan v. Markerdowne Corp., 201 F.R.D. 341, 350 (D.N.J. 2001).
All elements under the New Jersey Consumer Fraud Act must
comply with the particularity requirements of Fed.R.Civ.P.
9(b). See Lewis Tree Service, Inc. v. Lucent Technologies,
Inc., No. 99 Civ. 8556, 2000 WL 1277303, at *4 (citing Zaro
Licensing, Inc. v. Cinmar, Inc., 779 F.Supp. 276, 286 (S.D.N.Y.
When evaluating a claim of fraud, the Court must first look to
whether the claim has been pled sufficiently under
Fed.R.Civ.P. 9(b).*fn7 According to the Second Circuit, the purpose of
Rule 9(b) is threefold: (1) to put the defendant on notice of the
details of the claims against him, (2) to protect a defendant's
reputation and goodwill from unfounded allegations, and (3) to
prevent strike suits. See Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004) (citation and internal quotations
omitted); Maywait v. Parker & Parsley Petroleum Co.,
808 F.Supp. 1037, 1046 (S.D.N.Y. 1992). Rule 9(b) provides: "[i]n all
averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity. . . ."
Fed.R.Civ.P. 9(b). Therefore, a plaintiff pleading fraud must
"specify the statements it claims were false and misleading, give
particulars as to the respect in which Plaintiff contends the
statements were fraudulent, state when and where the statements
were made, and identify those responsible for the statements."
Suez Equity Investors, L.P. v. Toronto-Dominion Bank,
250 F.3d 87, 95 (2d Cir. 2001) (quoting Cosmas v. Hassett, 886 F.2d 8,
11 (2d Cir. 1989)). In cases where a plaintiff brings charges of
fraud against multiple defendants, the Second Circuit has
required plaintiffs to "set? forth separately the acts
complained of by each defendant." Double Alpha, Inc. v. Mako
Partners, L.P., No. 99 Civ. 11541, 2000 WL 1036034, at *3
(S.D.N.Y. July 27, 2000) (internal quotations omitted).
Plaintiff has failed to plead adequately the elements of fraud
in Count One. Plaintiff alleges that Defendants made certain
representations which Plaintiff relied upon when applying for the
loan, including "advising" Plaintiff that CIBC would refinance
the Secaucus Property (Compl. ¶ 12), and other representations,
"both explicit and implied." (Id. ¶ 33.) However, Plaintiff impermissibly clumps Defendants together and
also fails to give any specific information about the allegedly
false statements as required by Rule 9(b), such as when and where
the statements were made, identifying the speaker responsible for
those statements more specifically than a general identification
of the speaker as "Defendants," and giving particulars about why
the statements were fraudulent when made. See Suez Equity
Investors, 250 F.3d at 95.
Accordingly, Defendant's Motion to Dismiss Count Three is
D. Leave to Replead
Rule 15(a) of the Federal Rules of Civil Procedure requires
that courts freely grant leave to amend "when justice so
requires." Fed.R.Civ.P. 15(a). "[I]t is the usual practice
upon granting a motion to dismiss to allow leave to replead."
Cohen v. Citibank, No. 95 Civ. 4826, 1997 WL 88378, at *2
(S.D.N.Y. Feb. 28, 1997). Absent a showing of undue delay, bad faith or dilatory motive on the part of the movant, undue
prejudice to the opposing party, or the futility of the
amendment, a plaintiff should be granted leave to replead. See
Protter v. Nathan's Famous Sys., Inc., 904 F.Supp. 101, 111
(E.D.N.Y. 1995) (citing Foman v. Davis, 371 U.S. 178, 182
However, if an amendment would be futile, courts can deny leave
to amend. See Oneida Indian Nation of N.Y. v. City of
Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (citing Foman v.
Davis, 371 U.S. 178, 182 (1962)). "A proposed amendment to a
pleading would be futile if it could not withstand a motion to
dismiss pursuant to Rule 12(b)(6)." Id. (citing Ricciuti v.
N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)).
Plaintiff cannot allege any basis for a breach of contract
claim based on the alleged failure to consider the Application
"as contemplated" in the Application Letter, when Plaintiff has
stated facts that show that Defendant met all of its obligations
in evaluating the loan application. The Court finds that any
amendment would be futile and therefore denies Plaintiff leave to
amend the Complaint with respect to the breach of contract claim.
The facts pleaded in the Complaint also demonstrate that
Plaintiff cannot sufficiently allege claims of common law fraud.
Hence, the Court also finds that granting Plaintiff leave to
replead the fraud claims against Defendant CIBC would futile. Plaintiff is denied leave to amend the Complaint with respect to
the common law fraud claims. However, because reliance is not
required to plead a violation of the New Jersey Consumer Fraud
Act, plaintiff is GRANTED leave to amend the New Jersey Consumer
Fraud claim against Defendant CIBC.
For the foregoing reasons, Defendant's Motion to Dismiss the
claims against it is GRANTED.
The breach of contract claim and common law fraud claims
against Defendant CIBC are DISMISSED with prejudice. Plaintiff is
GRANTED leave to replead the New Jersey Consumer Fraud Act claim
against Defendant CIBC with sufficient particularity as to each
Defendant within thirty days of the date of this Order.
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