United States District Court, S.D. New York
U.S. BANK NATIONAL ASSOCIATION, ET AL., Plaintiffs,
BFPRU I, LLC, ET AL., Defendants.
OPINION AND ORDER
G. Koeltl United States District Judge.
action arises out of a dispute between the plaintiffs, U.S.
Bank National Association and Wells Fargo Bank, N.A.,
(collectively, the “Lender”); the defendants and
third party plaintiffs, BFPRU I LLC, (the
“Borrower”) and Mark Karasick and Michael
Silberberg (the “Guarantors”); and the third
party defendant, the Lender's loan servicer, LNR
Partners, LLC (“LNR”). The defendants move to
dismiss the plaintiffs' First Amended Complaint under
Rule 12(b)(6) of the Federal Rules of Civil Procedure. This
motion is denied. LNR moves to dismiss the
defendants' third party complaint. This motion is
following facts alleged in the First Amended Complaint and
the third party complaint are accepted as true for purposes
of the pending motions.
2013, the Lender and Borrower modified a Loan Agreement
related to a $410 million commercial mortgage loan (the
“Loan”) secured by two commercial buildings in
Chicago, One Prudential Plaza and Two Prudential Plaza (the
“Property”) by entering into an Amended Loan
Agreement. First Am. Compl. (“FAC”) ¶ 1, ECF
No. 31. The Amended Loan Agreement bifurcated the loan into a
$336 million “A” Note and a $74 million
“B” Note. FAC ¶ 25.
Amended Loan Agreement provided that the Borrower could
prepay the loan upon a “Refinancing Capital
Event.” FAC ¶ 1, 27-28. To initiate a Refinancing
Capital Event, the Borrower would notify the Lender by
providing the proposed terms of a refinancing offered by a
separate third-party lender. FAC ¶ 28. The Borrower and
Lender would then each obtain “as is” appraisals
of the Property that “conform to the requirements for
appraisals relied upon by regulated financial
institutions.” FAC ¶ 29. If the appraisals were
within 5% of each other, the “Appraised Fair Market
Value” would be 96% of the average of the two
appraisals, and this figure would be used to calculate the
amount required to secure a release of the Property. FAC
¶ 30-31. The Amended Loan Agreement also stated that the
Borrower would “cooperate with and timely provide any
and all information as may be reasonably requested by the
Lender's appraiser in order to complete [the]
appraisal.” FAC ¶ 29 (quoting Am. Loan Agmt.
§ 3.6(c), Edwards Decl. Ex. 1, ECF No. 37). The Loan
Agreement and Amended Loan Agreement stated that the failure
to satisfy these obligations constituted an Event of Default.
See FAC ¶¶ 79-80. Further, as part of the
modification, the Guarantors signed a Guaranty Agreement
agreeing to be held liable to the Lender for any losses
sustained by the Lender arising out of or in connection with
“any fraud, willful misconduct or intentional material
misrepresentation by Borrower . . . or by any Guarantor in
connection with the Loan.” FAC ¶ 84.
Borrower initiated a Refinancing Capital Event on April 2,
2015, and the Lender then engaged Integra Realty Resources
(“IRR”) on April 21, 2015 to perform an appraisal
on the Property. FAC ¶ 32-35. The following day, IRR
submitted a written request to the Borrower's managing
agent for the Property, Jones Lang LaSalle
(“JLL”) for information related to the Property,
including a specific request for all leasing information and
“information on leases under negotiation.” FAC
¶ 35. JLL responded to the request by providing
information on various types of leasing activity, but did not
provide any information relating to leases under negotiation.
FAC ¶ 38-39. JLL also provided financial projections to
IRR forecasting a decline in leasing at the Property. FAC
on the information provided by JLL, IRR completed its
appraisal on May 27, 2015 and arrived at an “as
is” value of the Property of $430, 000, 000 as of May
12, 2015. FAC ¶ 41. The Borrower's appraiser, Butler
Burgher Group (“BBG”) completed its appraisal on
May 26, 2015, arriving at an “as is” value of
$427, 400, 000 as of April 8, 2015. FAC ¶ 42. Based on
these two appraisals, the Appraised Fair Market Value was
determined to be $411, 552, 000. FAC ¶ 43.
Refinancing Capital Event was set to close on July 30, 2015,
and in anticipation of the closing, the Borrower and
Guarantors provided a Certification to the Lender. FAC ¶
44. The Certification stated that the Borrower and
Guarantors, “as of this 30th day of July, 2015, ”
had “provided all financial, operating and leasing
information about the Property” to the Lender, to IRR,
and BBG; that “[a]ll such financial, operating and
leasing information provided to Lender, [IRR] and [BBG] is
complete, true and accurate in all respects”; and that
“[n]one of Borrower or any Guarantor is aware of any
additional financial, operating or leasing information that
would have a material effect on the value of the
Property.” FAC ¶ 44 (quoting Certification ¶
1, Kapoor Decl. Ex. 3, ECF No. 39).
closing, as a result of the priority of payment schedule
outlined in the Amended Loan Agreement, the Lender received
full repayment for the A-note, but received no payment for
the B-note. FAC ¶¶ 2, 74-75, 97. Thereafter, the
Lender learned that a newly refinanced loan made to the
Borrower and secured by the Property was being marketed in a
prospectus that valued the Property at $642, 000, 000. FAC
¶ 47. The valuation was based on an “as is”
appraisal performed by CBRE Inc. as of June 24, 2015, which,
according to the plaintiffs, used the same methodology as the
Borrower and Lender appraisals. FAC ¶ 4, 47.
plaintiffs allege that the CBRE appraisal exceeded the other
appraisals because the CBRE appraisal incorporated the terms
of several pending leases that were determined to have a high
probability of being fully executed. FAC ¶ 53. The
plaintiffs allege that the defendants or their agents
participated in these lease negotiations, that they had
knowledge of these lease negotiations, and that all property
leases required approval by the Guarantors prior to
execution. FAC ¶¶ 60-62.
to the defendants' third party complaint, a majority of
these new leases were disclosed to the plaintiffs' loan
servicer and the third party defendant, LNR, in connection
with the Borrower's May 2015 and June 2015 property
reserve disbursement requests for tenant improvements and
third party leasing brokerage commissions. Third Party Compl.
(“TPC”) ¶ 41, ECF No. 13. LNR provided loan
servicing to the Lender pursuant to a Pooling and Servicing
Agreement (the “PSA”), to which the defendants
were not a party. See TPC ¶ 52; PSA, TPC Ex. 6.
The PSA further specified that nonparties such as the
Borrower and Guarantors had no benefits, rights, remedies or
claims under the PSA. PSA ¶ 12.08 at 298. Finally, as
part of the July 30, 2015 closing of the Refinancing Capital
Event, the defendants signed a General Release that
“absolutely, unconditionally, and irrevocably
waive[d]” any claims against LNR. See General
Release, Kapoor Decl. Ex. 4, ECF No. 39.
plaintiffs filed suit, alleging (1) breach of contract
against the Borrower; (2) breach of contract against the
Guarantors; (3) fraudulent concealment and misrepresentation
against the Borrower and Guarantors; (4) negligent omission
and misrepresentation against the Borrower and the
Guarantors; and (5) unjust enrichment against the Borrower.
FAC ¶¶ 88-157. The defendants move to dismiss the
defendants filed a third party complaint against LNR for (1)
negligent omission; (2) contribution; and (3)
indemnification. LNR moves to dismiss the defendants'
deciding a motion to dismiss pursuant to Rule 12(b)(6), the
allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiffs'
favor. McCarthy v. Dun & Bradstreet Corp., 482
F.3d 184, 191 (2d Cir. 2007); Arista Records LLC v. Lime
Group LLC, 532 F.Supp.2d 556, 566 (S.D.N.Y. 2007). The
Court's function on a motion to dismiss is “not to
weigh the evidence that might be presented at trial but
merely to determine whether the complaint itself is legally
sufficient.” Goldman v. Belden, 754 F.2d 1059,
1067 (2d Cir. 1985). The Court should not dismiss the
complaint if the plaintiff has stated “enough facts to
state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). While the Court should
construe the factual allegations in the light most favorable
to the plaintiff, “the tenet that a court must accept
as true all of the allegations contained in the complaint is
inapplicable to legal conclusions.” Id.;
see also SEC v. Rorech, 673 F.Supp.2d 217, 221
same principles apply to the motion to dismiss the complaint
and the motion to dismiss the third party complaint. See,
e.g., Elastic Wonder, Inc. v. Posey, No.
13-cv-5603 (JGK), 2015 WL 273691, at *1 (S.D.N.Y. Jan. 22,
defendants maintain that all of the plaintiffs' claims
should be dismissed. The parties agree that New York law is
the governing law to be applied and the Court can accept that
agreement. See Burt Rigid Box, Inc. v. Travelers Prop.
Cas. Corp., 302 F.3d 83, 91 (2d Cir. 2002).
defendants argue that the plaintiffs' fraud and negligent
misrepresentation claims should be dismissed because they are
duplicative of their breach of contract claims, and because
the fraud and negligent misrepresentation claims fail to
satisfy Rule 9(b) of the Federal Rules of Civil Procedure.
New York law, parallel fraud and contract claims may be
brought if the plaintiff (1) demonstrates a legal duty
separate from the duty to perform under the contract; (2)
points to a fraudulent misrepresentation that is collateral
or extraneous to the contract; or (3) seeks special damages
that are unrecoverable as contract damages.”
Merrill Lynch & Co. Inc. v. Allegheny Energy,
Inc., 500 F.3d 171, 183 (2d Cir. 2007).
to disclose separate from the duty to perform under the
contract may arise “where one party possesses superior
knowledge, not readily available to the other, and knows that
the other is acting on the basis of mistaken
knowledge.” TVT Records v. Island Def Jam Music
Grp., 412 F.3d 82, 91 (2d Cir. 2005) (quoting Brass
v. Am. Film Tech., Inc., 987 F.2d 142, 150 (2d Cir.
to disclose separate from a contractual duty may also arise
if the defendants made a partial or ambiguous statement that
required additional disclosure in order to avoid misleading
the other party. See id.; see also Brass,
987 F.2d at 150 (noting that under New York law, a duty to
disclose exists “where [a] party has made a partial or
ambiguous statement, on the theory that once a party has
undertaken to mention a relevant fact to the other party it
cannot give only half of the truth.”).
plaintiff may also bring parallel fraud and breach of
contract claims when there are “[m]isrepresentations of
present facts made post-contract formation [that] are
collateral or extraneous to the contract.” Minnie
Rose LLC v. Yu, 169 F.Supp.3d 504, 520-21 (S.D.N.Y.
2016); see also Eagle Comtronics, Inc. v. Pico Products
Inc., 682 N.Y.S.2d 505, 507 (App. Div. 1998)
(“Plaintiff does not allege merely that Defendant
entered into the contract while misrepresenting its intent to
perform as agreed, but alleges that, after the contract was
entered into, defendant repeatedly misrepresented or
concealed existing facts.” (citation omitted)); but
see Madison Capital Co., LLC v. Alasia, LLC, 615
F.Supp.2d 233, 240 (S.D.N.Y. 2009) (determining that a
plaintiff was barred from bringing both a negligent
misrepresentation claim and a breach of contract ...