230 F. Supp. 3d 253
S.D.N.Y.2017Background
- 2013 Amended Loan Agreement split a commercial mortgage on two Chicago towers into A and B notes and allowed prepayment upon a "Refinancing Capital Event" requiring appraisals and borrower cooperation with lender appraiser requests.
- Borrower (BFPRU I LLC) and Guarantors (Karasick, Silberberg) initiated a refinancing in 2015; lender engaged IRR as appraiser and borrower engaged BBG; IRR requested leasing information including "leases under negotiation" from JLL (borrower’s manager).
- JLL provided partial leasing information and forecasts; IRR and BBG produced lower "as‑is" appraisals; a third CBRE appraisal (used in the refinance prospectus) incorporated pending leases and valued the property substantially higher.
- Borrower/Guarantors signed a July 30, 2015 Certification stating they had provided all leasing information and that no additional leasing information existed that would materially affect property value; at closing lender was paid A‑note but B‑note went unpaid.
- Plaintiffs (lender banks) sued for breach of contract, fraud/fraudulent concealment, negligent misrepresentation/omission, and unjust enrichment; defendants filed a third‑party complaint against loan servicer LNR. Defendants moved to dismiss plaintiffs’ FAC; LNR moved to dismiss the third‑party complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fraud/negligent‑misrepresentation claims duplicate breach of contract | Plaintiffs say defendants had a duty to disclose superior, nonpublic info re: leases under negotiation and made collateral post‑contract misrepresentations (Certification) | Defendants say claims are duplicative of contract remedies and thus barred | Court: Claims permitted — plaintiffs alleged superior knowledge, partial/ambiguous disclosures, and collateral misrepresentations sufficient to allow tort claims alongside contract claims |
| Whether fraud/negligent claims satisfy Rule 9(b) particularity and scienter | Plaintiffs identify specific omissions (leases under negotiation), the Certification, motive (concrete financial benefits) and opportunity (exclusive access, signed Certification) | Defendants contend pleadings lack particularity and scienter | Court: 9(b) satisfied; complaint alleges who, what, when, where, why, and facts giving strong inference of intent/motive/opportunity |
| Whether breach of contract claims are viable | Plaintiffs point to specific contract provisions requiring cooperation with appraiser and qualified appraisal; no‑waiver clauses preserve lender rights | Defendants argue any waiver by lender (appraisal completed) and guaranty limits liability to fraud/willful misconduct; appraisal challenges governed by CPLR §7601 principles | Court: Breach claims survive — no‑waiver clauses preclude implied waiver; fraud allegations also pleaded, so guaranty arguments do not defeat claim at pleading stage |
| Whether third‑party claims against LNR survive (negligent misrepresentation, contribution, indemnification) | Defendants allege LNR received leasing info and owed duties as special servicer | LNR cites broad General Release signed by defendants and argues no special duty existed; also that defendants are not PSA third‑party beneficiaries | Court: Third‑party complaint dismissed — General Release bars claims; even absent release, allegations fail to show a special duty or entitlement to contribution/indemnity |
Key Cases Cited
- Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171 (2d Cir.) (parallel fraud and contract claims permissible when extra‑contractual duty or collateral misrepresentation exists)
- TVT Records v. Island Def Jam Music Grp., 412 F.3d 82 (2d Cir.) (duty to disclose arises where one party has superior knowledge or makes partial/ambiguous statements)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir.) (motive/opportunity standard for pleading scienter in fraud claims)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir.) (opportunity defined as means and likely prospect to achieve concrete benefits)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (courts need not accept legal conclusions; factual plausibility requirement)
- Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir.) (principle that agent’s fraudulent statements within scope of agency are attributable to principal)
- Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269 (N.Y.) (broad, negotiated releases by sophisticated parties bar released claims)
- Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777 (N.Y.) (unjust enrichment is an extraordinary remedy precluded by an enforceable contract covering the subject matter)
- Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458 (2d Cir.) (contract construed as a whole to resolve ambiguities)