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Texas Liquids Holdings, LLC v. Key Bank National Association

March 27, 2007

TEXAS LIQUIDS HOLDINGS, LLC, TEXAS LIQUIDS ACCOMMODATION HOLDINGS, LLC, AND TEXAS LIQUIDS, LLC, PLAINTIFFS,
v.
KEY BANK NATIONAL ASSOCIATION, DEFENDANT.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

MEMORANDUM OPINION AND ORDER

Plaintiffs Texas Liquids Holdings, LLC ("Holdings"), Texas Accommodation Holdings, LLC ("Accommodation"), and Texas Liquids, LLC ("Liquids"), (collectively, "Plaintiffs") bring this diversity action against Defendant Key Bank National Association ("Defendant"), alleging: (1) breach of contract; (2) breach of fiduciary duties; (3) breach of the implied covenant of good faith and fair dealing; (4) fraud; and (5) negligence. Defendant has moved to dismiss, arguing that Plaintiffs' Complaint fails to state a claim upon which relief may be granted. For the reasons set forth below, the Court grants Defendant's Motion to Dismiss.

I. Background

The Court assumes the following facts, drawn from the Complaint, to be true for the purposes of this motion to dismiss. See Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999); cert. denied, 528 U.S. 1188 (2000).

Liquids is a national wholesaler and marketer of propane and other liquid energy products. On August 17, 2000, Defendant signed an $8 million loan agreement (the "Loan Agreement") with Liquids.*fn1 On November 21, 2002, Holdings, through its wholly owned subsidiary, Accommodation, acquired Liquids for $1 million. Accommodation later learned that Liquids's then-President William Connallon ("Connallon") had been diverting Liquids's funds to his personal accounts from about November 2001 through August 2002.*fn2

Connallon obtained these funds from Defendant under the terms of the Loan Agreement. Plaintiffs allege that Defendant, by disbursing funds to Connallon and failing to investigate certain "red flags," breached the Loan Agreement and facilitated Connallon's fraud and embezzlement.

II. Analysis*fn3

A. Proper Parties

Before turning to Defendant's Rule 12(b)(6) arguments, the Court must address Defendant's contention that Holdings and Accommodation lack standing to bring this suit. Each of Holdings's and Accommodation's claims arise under the Loan Agreement. Neither Holdings nor Accommodation, however, signed the Loan Agreement. Defendant is therefore correct that Holdings and Accommodation lack standing to argue that the Loan Agreement has been breached. See Capital Nat'l Bank of N.Y. v. McDonald's Corp., 625 F. Supp. 874, 883 (S.D.N.Y. 1986) ("Contract remedies exist to give injured parties the benefit of their bargain. Absent a contractual relationship there can be no contractual remedy."). Because Holdings and Accommodation lack standing, their claims against Defendant are dismissed.

B. Defendant's Motion to Dismiss

1. Legal Standard

In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must "accept[] as true the factual allegations in the complaint and draw[] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006). "A complaint may not be dismissed under the Rule unless it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts" entitling her to relief. Id. at 250 (internal quotation marks omitted). The Court may consider materials outside the record that Liquids relied upon in drafting the Complaint or that are integral to the Complaint if there are no disputes as to the authenticity, accuracy and relevance of such materials. Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006).

Defendant argues that Plaintiffs' Complaint fails to state a claim for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, fraud, and negligence. Because the Complaint fails to allege any duty beyond a generic "contractual duty," and because its breach of contract claim ...


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