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FCOF UB Securities LLC v. MorEquity

September 29, 2009

FCOF UB SECURITIES LLC ET AL., PLAINTIFFS,
v.
MOREQUITY, INC., DEFENDANT



The opinion of the court was delivered by: VICTOR Marrero, District Judge.

DECISION AND ORDER

Plaintiffs FCOF UB Securities LLC ("FCOF UB") and FCOF UST LLC ("FCOF UST") (collectively "FCOF") filed the complaint in this action on January 20, 2009 alleging that defendant MorEquity, Inc. ("MorEquity") breached its contractual obligations and its duty to negotiate in good faith arising out of an executed letter entitled "Initial Commitment to Purchase" ("Initial Commitment"). MorEquity now moves to dismiss FCOF's claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)"). MorEquity asserts that: (1) the Initial Commitment is not a binding agreement that can support FCOF's breach of contract claim; (2) in the absence of an enforceable contract, FCOF cannot state a claim for violation of good faith and fair dealing; and (3) FCOF is not entitled to damages or specific performance. For the reasons discussed below, MorEquity's motion to dismiss is GRANTED in part and DENIED in part.

I. BACKGROUND*fn1

A. PARTIES

FCOF UB and FCOF UST are limited liability companies organized under Delaware law whose businesses focus on investments in various types of assets, including residential mortgage loans and residential real estate. MorEquity is a mortgage lender and a wholly owned subsidiary of American General Finance ("AGF"), a member of American Insurance Group ("AIG"). MorEquity is a corporation organized under Nevada law.

B. FACTUAL ALLEGATIONS

In mid-2008, representatives of FCOF and MorEquity began discussions related to FCOF's purchase of certain assets held by MorEquity. In November 2008, MorEquity approached FCOF with an offer to sell the assets, and requested that FCOF submit a bid to purchase. In connection with that offer, MorEquity stated that the transaction must close by December 19, 2008. Shortly thereafter, FCOF submitted a bid to purchase the assets from MorEquity. Following negotiations concerning the material terms of the transaction, FCOF and MorEquity executed a purchase agreement, on November 26, 2008, entitled "Initial Commitment to Purchase". MorEquity agreed to sell, and FCOF agreed to purchase, 2,892 first-lien performing, sub-performing and non-performing residential mortgage loans, and certain residential real estate. The Initial Commitment provided a closing date of December 19, 2008.

The Initial Commitment included a detailed description of the assets to be sold and a detailed pricing mechanism, and specified that the closing was subject to the negotiation and execution of a mutually acceptable Asset Purchase and Interim Servicing Agreement. (Complaint at 5.) However, MorEquity would not execute the Initial Commitment until the parties had also agreed to a form of the Asset purchase and Interim Servicing Agreement. As a result, FCOF provided a form of the Asset Purchase and Interim Servicing Agreement to MorEquity, and MorEquity made certain changes, all of which were accepted and agreed to in substance by FCOF. The Asset Purchase and Interim Servicing Agreement was attached as an exhibit to the Initial Commitment.

In anticipation of the settlement date of December 19, 2008, FCOF alleges that it took steps to close the transaction, including: establishing two statutory trusts to hold the loans; gathering the capital necessary to fund the transaction; and negotiating terms of the Interim Servicing Agreement with MorEquity. On December 4, 2008, the parties also entered into a bailee agreement with Wells Fargo Bank, N.A. ("Wells Fargo") pursuant to which Wells Fargo agreed to act as the bailee of the collateral pending the closing of the sale. FCOF was charged $28,790.44 by Wells Fargo for custodial services related to the bailee agreement. In addition, FCOF had essentially completed the due diligence necessary to close the transaction prior to when MorEquity abandoned the transaction.

On December 17, 2008, MorEquity President Kevin Small ("Small") called Michael Fallacara, one of FCOF's representatives. Small stated that MorEquity's parent corporation, AIG, no longer needed the funds that would be generated by the transaction, and thus would not permit MorEquity to close the transaction and sell the assets to FCOF. On the same day, Rick Geissinger ("Geissinger") of AGF called another of FCOF's representatives, Tony Ettinger, and informed him that AIG prohibited MorEquity from closing the transaction. Geissinger confirmed the message conveyed on December 17 in an e-mail stating that MorEquity was "constrained" by its ultimate parent, AIG, from further discussions with FCOF regarding the transaction. (Complaint at 7.)

On December 18, 2008, FCOF sent a letter by e-mail and overnight delivery to MorEquity requesting that MorEquity immediately advise of its availability to finalize and close the transaction. MorEquity has not responded to this letter and has not otherwise contacted FCOF concerning closing the transaction.

FCOF asserts that MorEquity wrongly refused to negotiate, finalize and execute the Asset Purchase and Interim Servicing Agreement despite the terms of the executed Initial Commitment. FCOF claims that MorEquity is in breach of contract because it failed to perform the contractual obligations mandated by the Initial Commitment.

FCOF further argues that MorEquity is in breach of the implied covenant of good faith and fair dealing. FCOF claims that the Initial Commitment imposed an implied obligation to negotiate in good faith, and to deal fairly, in working toward closing the transaction.

FCOF seeks recovery of damages incurred from MorEquity's breach. FCOF seeks specific performance of MorEquity's obligations under the Initial Commitment, an award of money damages resulting from MorEquity's breach, and an award ...


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