Federal National Mortgage Association v. Carroll
3:21-cv-00551
| M.D. La. | May 23, 2023Background:
- Fannie Mae sued Cebarn and Austin Carroll (the Carrolls) as guarantors for breaches related to the Pine Grove Apartments, which had been owned by Carroll Properties One LLC and financed by a non-recourse multifamily loan.
- Carroll Properties retained Latter & Blum as sole property manager before purchase; Latter & Blum was later appointed keeper of the seized property during a state executory foreclosure proceeding that resulted in Fannie Mae purchasing the property at judicial sale.
- Three mechanic/vendor liens (Cornerstone, Noland, Roto Rooter) were recorded pre-sale; Fannie Mae contends these were unauthorized "Transfers" and that the Carrolls are liable as guarantors for failure to repair/maintain and for the liens.
- The Carrolls filed a Third-Party Complaint against Latter & Blum alleging breach of contract, breach of fiduciary duty, and that they were third-party beneficiaries; they claim Latter & Blum ordered work but prioritized self-payment, causing the liens and resulting liability.
- Latter & Blum moved to dismiss under Rule 12(b)(6), arguing the Carrolls lack contractual privity and are not third-party beneficiaries of the Property Management Agreement.
- The court dismissed the breach-of-contract, breach-of-fiduciary-duty, and third-party-beneficiary claims with prejudice, but granted the Carrolls leave to file an amended third-party complaint asserting a Louisiana legal-indemnity claim by a set deadline.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract / breach of fiduciary duty against Latter & Blum | Carrolls: Latter & Blum failed to pay vendors and misapplied funds, causing liens and Carrolls' liability | Latter & Blum: Carrolls lack privity; Carrolls are not parties to the Property Management Agreement | Dismissed with prejudice; privity required under Louisiana law |
| Third-party beneficiary status under Property Management Agreement | Carrolls: as members of Carroll Properties, they are direct or third-party beneficiaries | Latter & Blum: LLC members are not automatically third-party beneficiaries; no stipulation pour autrui language | Dismissed with prejudice; no manifestly clear stipulation and membership alone insufficient |
| Legal indemnity (derivative/constructive liability) | Carrolls: any liability to Fannie Mae is derivative of Latter & Blum’s breach and thus indemnity is available without privity | Latter & Blum: argued dismissal of pleaded contract claims; did not substantively brief futility of indemnity in reply | Court allowed Carrolls leave to amend to properly plead a Louisiana legal-indemnity claim (did not rule on its ultimate merit) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must show plausibility to survive Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient to establish plausibility)
- Pearl River Basin Land & Dev. Co. v. State, 29 So. 3d 589 (La. App. 2010) (privity required for contract actions under Louisiana law)
- Joseph v. Hospital Serv. Dist. No. 2, 939 So. 2d 1206 (La. 2006) (elements for stipulation pour autrui / third-party beneficiary)
- Nassif v. Sunrise Homes, Inc., 739 So. 2d 183 (La. 1999) (Louisiana recognizes legal indemnity where liability is derivative)
- Bewley Furniture Co. v. Maryland Cas. Co., 285 So. 2d 216 (La. 1973) (historical statement of indemnity principles)
- Threlkeld v. Haskins Law Firm, 922 F.2d 265 (5th Cir. 1991) (indemnity claim requires conceivable findings that plaintiff’s fault would be merely technical)
- Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305 (5th Cir. 2002) (leave to amend typically granted before dismissal)