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MEADOWLANDS INVESTMENTS, LLC v. CIBC WORLD MARKETS CORP.

United States District Court, S.D. New York


September 22, 2005.

MEADOWLANDS INVESTMENTS, LLC, Plaintiff,
v.
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 this matter.

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.

  I. BACKGROUND

  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 obligations thereunder.
(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.

  II. DISCUSSION

  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 6-7.)

  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 fraud claims.

  "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. 1991)).

  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 GRANTED.*fn8

  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 (1962)).

  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.

  III. CONCLUSION

  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.

  SO ORDERED.

20050922

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