Elizabeth Retail Properties LLC v. Keybank National Ass'n
83 F. Supp. 3d 972
D. Or.2015Background
- Elizabeth Retail (an Oregon LLC owned by Judith and Charles Arnell) borrowed $615,000 from KeyBank; Ansteth Jewelers (an S-corp, Judith Arnell sole shareholder) had a $100,000 demand line of credit, both secured by a deed of trust on Elizabeth Retail’s Portland property; guaranties were executed by Mrs. Arnell, Mr. Arnell, and Ansteth Jewelers.
- Mr. Arnell filed Chapter 7 on Feb. 3, 2011; his bankruptcy listed substantial assets and liabilities and he received a discharge on Sept. 1, 2011.
- KeyBank sent demand and default-related letters (Aug. 17, 2011; Mar. 20, 2012; June 13, 2012), threatened foreclosure, filed a notice of default on Aug. 27, 2012, and foreclosed nonjudicially, purchasing the property at sale on Feb. 6, 2013.
- Plaintiffs sued for bad-faith breach of contract (implied covenant), bad-faith foreclosure, defamation, damage to business reputation, trespass, and wrongful foreclosure; KeyBank moved to dismiss; magistrate recommended granting requests for judicial notice and granting/denying parts of the motion; district judge adopted the Findings and Recommendation.
- Court took judicial notice of promissory notes, guaranties, deed of trust, default notice, counsel letters, and bankruptcy filings; refused to judicially notice an internal Asset Quality Report.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of Mrs. Arnell and Ansteth Jewelers | They suffered individual injuries (defamation, reputational harm, separate injury from guaranty/line of credit) and were treated as a single enterprise; therefore have standing. | Claims are derivative of Elizabeth Retail (shareholder/guarantor standing rules) so only Elizabeth Retail properly sues. | Denied dismissal on standing grounds: Mrs. Arnell and Ansteth Jewelers plausibly alleged distinct injuries; issues of guarantor/LLC-member standing survive pleading stage. |
| Breach of implied covenant of good faith and fair dealing | KeyBank’s timing and inconsistent treatment (demanding payment, accepting payment, later declaring default/‘insecurity’, pressing for large principal reduction and foreclosure) show bad faith beyond contract rights. | KeyBank merely exercised explicit contractual remedies; contract permits delay/forbearance and setoff, so no implied-duty breach. | Claimed facts plausibly state a bad-faith breach; claim survives 12(b)(6). |
| Wrongful/bad-faith foreclosure (tort) | Foreclosure process and alleged conduct violated contract and OTDA and was in bad faith. | Oregon does not recognize a tort of wrongful or bad-faith foreclosure; foreclosure was authorized under the trust deed and OTDA. | Tort claims for wrongful foreclosure and bad-faith foreclosure dismissed (Oregon law does not recognize these independent torts). |
| Defamation (notice of default published) | Notice of default falsely accused Plaintiffs of default and was published to customers/public, causing reputational damages. | Statements were true or conditionally privileged; some Plaintiffs (Mrs. Arnell, Ansteth) not specifically identified so lack standing. | Elizabeth Retail’s defamation claim survives (privilege and truth are affirmative, fact issues). Mrs. Arnell and Ansteth Jewelers’ defamation claims dismissed with leave to amend for failure to allege statements concerned them personally. |
| Trespass | Bank entered and disturbed possession without authorization. | Deed of trust expressly authorized lender and agents to enter property to protect lender’s interests. | Trespass claim dismissed because deed of trust granted lender entry rights. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions need factual support for plausibility)
- RK Ventures, Inc. v. City of Seattle, 307 F.3d 1045 (shareholder/owner may have individual standing when alleging individual injuries)
- Soranno’s Gasco, Inc. v. Morgan, 874 F.2d 1310 (same-conduct can yield corporate and individual injuries for standing)
- Johnston v. Oregon Bank, 285 Or. 423 (guarantor’s damages are actionable only if distinct from derivative injuries)
- Caplener v. U.S. Nat’l Bank of Or., 317 Or. 506 (guarantor’s damages are derivative unless distinct)
- Neumann v. Liles, 261 Or. App. 567 (elements and per se principles of defamation under Oregon law)
- Hulse v. Ocwen Fed. Bank, FSB, 195 F. Supp. 2d 1188 (trustee’s notice of sale may be conditionally privileged; abuse of privilege requires improper motive)