OPINION
Defendant Bank of America, N.A. (“BoA” or “Defendant”) has moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss counts four through twelve of the second amended complaints (“Second Amended Complaints”) filed by Plaintiffs’ BNP Paribas Mortgage Corporation (“BNP”) and BNP Paribas (“BNPP”) (collectively, the “BNP Plaintiffs”) and Deutsche Bank AG (“DB”) and count fourteen of the BNP Plaintiffs’ Second Amended Complaint. For the reasons set forth below, the motion is granted.
The highly skilled advocates on each side have once again been of great assistance to the Court in illuminating the complex set of issues involved.
I. PRIOR PROCEEDINGS
The Plaintiffs initiated these actions against BoA on November 25, 2009, and each filed Amended Complaints on March 17, 2010.
BoA moved to dismiss these complaints on February 5, 2010. In response, Plaintiffs filed their First Amended Complaints (the “FACs”) reasserting their initial cláims, adding new claims for breach of contract and breach of fiduciary duty, and generally supplementing and refining their factual allegations. Further, in addition to their earlier theory that BoA had negligently performed its contractual duties, the Plaintiffs’ FACs asserted that BoA had negligently provided them with incorrect Borrowing Base Certificates, on which Plaintiffs allegedly relied in deciding to “roll” their Ocala notes.
On April 30, 2010, BoA moved to dismiss the FACs and oral argument was heard on that motion on September 15, 2010. On March 23, 2011, this Court issued its ruling on BoA’s motion in BNP Paribas Mortg. Corp. v. Bank of America, N.A.,
On August 30, 2010, the Plaintiffs filed new actions against BoA in the Southern District of Florida, asserting claims for conversion of Ocala’s assets and seeking to recover for their investment losses on their unpaid Ocala notes. Deutsche Bank AG v. Bank of America (“Deutsche II ”), S.D. Fla. Civil Action No. 10-23124 and BNP Paribas Mortg, Corp. v. Bank of America (“BNP II"), S.D. Fla. Civil Action No. 10-23115 (collectively, the “Conversion Actions”). On November 17, 2010, the actions were transferred to the Southern District of New York and referred to this Court. On August 30, 2011, this Court dismissed Plaintiffs’ conversion claims. BNP Paribas Mortg. Corp. v. Bank of America, N.A., Nos. 10-8630 and 10-8299,
The parties commenced discovery in April 2011. BoA answered the Plaintiffs’ FACs on June 8, 2011 and asserted several affirmative defenses. The parties stipulated and agreed to complete document production by March 30, 2012, close fact discovery on November 16, 2012 and extended the time to amend pleadings to December 17, 2012.
On July 6, 2011, Plaintiffs made a formal demand by letter on BoA, as Indenture Trustee and Collateral Agent, to pursue claims against the Depositary, Custodian and Collateral Agent for breaches of the corresponding Depositary, Custodial and Security Agreements. On August 6, 2011, BoA refused Plaintiffs’ demands.
On June 22, 2011, BoA filed its Complaint against Third party defendant BMP Paribas Securities Corporation (“BNPPS”) and third party defendant Deutsche Bank Securities, Inc. (“DBS”) (collectively, the “Note Dealers” or the “Third Party Defendants”), and the motions were heard and marked fully submitted on January 25, 2012. On December 29, 2011, Plaintiffs filed the motion to amend, which was heard and marked fully submitted on April 4, 2012. On June 5, 2012, this Court issued its ruling on BoA’s Complaint against the Third Party Defendants and Plaintiffs’ Motion to Amend in BNP Paribas Mortg. Corp. v. Bank of America, N.A.,
Plaintiffs filed their Second Amended Complaints (“BNP SAC” and “DB SAC”) (collectively, the “SACs”) on October 1, 2012, reasserting their initial surviving claims and adding allegations of (1) BoA failing to “sue itself’ or assign its claims; (2) negligence and negligent misrepresentation; and (3) contingent quasi-contract claims.
On January 15, 2013, BoA filed a motion to dismiss counts four through twelve of the Plaintiffs’ SACs and BNP’s Fourteenth Cause of Action. This motion was heard and marked fully submitted on May 1, 2013.
Separately, on March 15, 2013 BoA filed a motion in limine to (1) admit testimony regarding advice of third party’s counsel; and (2) exclude inquiry into privileged communications with outside counsel. The parties resolved this motion on May 1, 2013.
II. BACKGROUND
Familiarity with the general background of this case and prior litigation between the parties is assumed. The allegations as described in the contract cases are re
This dispute arises generally from the multi-billion dollar collapse of TBW in late summer 2009. According to the Amended Complaints, TBW was “the largest non-depositary residential mortgage lender in the United States” and the “twelfth-largest mortgage originator.” (BNP AC ¶ 25; DB AC ¶ 2.) Its core business was: “(i) originating, underwriting, processing and funding conforming, conventional, government-insured residential mortgage loans; (ii) the sale of mortgage loans into the ‘secondary market’ to government-sponsored enterprises such as Federal Home Loan Mortgage Corporation (“Freddie Mac”); and (iii) mortgage payment processing and loan servicing.” (BNP AC ¶ 26; DB AC ¶ 3.)
TBW created Ocala in 2005 to provide short-term liquidity to TBW between the time of TBW’s origination or purchase of mortgages and the sale of those mortgages, principally to Freddie Mac. (BNP AC ¶ 28; DB AC ¶ 5.) Ocala raised cash by issuing liquidity notes in two series: Series 2005-1 Secured Liquidity Notes (the “2005-1 Notes”) and Series 2008-1 Secured Liquidity Notes (the “2008-1 Notes”) (collectively, the “Ocala Notes”); which were, at all times, secured by the cash proceeds of those notes and mortgages. (BNP AC ¶¶ 39, 43; DB AC ¶¶3, 7, 34.) BNP purchased $480.7 million of the Ocala Notes, and DB purchased $1.2 billion. (See BNP AC ¶¶ 2, 40; DB AC ¶¶ 4, 11.) The Ocala Notes “rolled over” at least once per month up to and through July 20, 2009, the date of the final rollover before TBW’s collapse. (BNP AC ¶ 5; DB AC ¶ 13.)
BoA served in several distinct but related capacities for the Ocala Facility: as Indenture Trustee, Collateral Agent, Depositary and Custodian. In its various capacities, BoA agreed to administer and regulate the flow of mortgages and cash in and out of Ocala, certify the solvency of Ocala prior to its issuance of Ocala Notes, promptly notify the Ocala noteholders of any Event of Default or Potential Event of Default, as defined in the Facility Documents, and shut down the Ocala Facility upon certain Events of Default. (BNP AC ¶ 10; DB AC ¶ 23.) The rights and responsibilities of BoA are set out in the following Ocala Facility Documents: the 2008 Base Indenture (the “Base Indenture”); the 2008 Security Agreement (the “Security Agreement”); the 2005-1 Depositary Agreement (relating to the 2005-1 Notes and upon which the BNP Plaintiffs have sued) and 2008-1 Depositary Agreement (relating to the 2008-1 Notes and upon which DB has sued) (both referred to as the “Depositary Agreement”); the 2008 Custodial Agreement (the “Custodial Agreement”); and the March 2009 Letter.
On or about August 3, 2009, TBW’s offices were raided by law enforcement authorities, TBW stopped originating mortgages, and Freddie Mac terminated TBW’s eligibility to sell and service Freddie Mac loans. (See DB AC ¶¶ 207-08.) On August 10, 2009, BoA declared an Event of Default under the Base Indenture. In the wake of TBW’s collapse, Ocala has failed to repay, and indeed cannot repay, the money owed to DB and BNP, in their capacity as holders of the Ocala
A. Additional Allegations in the SACs
The SACs assert new allegations, including that BoA, in direct violation of its duties under the relevant agreements, failed to securely protect Plaintiffs’ collateral and instead allowed the vast majority of that collateral to leave the Ocala Facility. (BNP SAC ¶ 10; DB SAC ¶ 19.) Plaintiffs allege that BoA continued to issue Secured Notes and failed to shut down the Facility or otherwise inform Plaintiffs of Ocala’s insolvency as required by the governing contracts, despite actual knowledge that the Ocala Facility was insolvent at least as early as January 25, 2008.
The SACs also allege that BoA repeatedly and falsely misrepresented the satisfaction of the Borrowing Base Condition and permitted Ocala to issue Ocala notes in an amount greater than its assets, up to and through July 20, 2009, the last date on which the Ocala Notes rolled over. According to the SACs, on their face, each and every Certificate during this period of time-and each one directly certified by BoA-reflected Ocala’s insolvency, which constituted an Event of Default or a Potential Event of Default under the Base Indenture. Despite these certificates showing insolvency, Plaintiffs’ allege that they did not receive copies of the Borrowing Base Certificates prepared by Ocala and certified by BoA for any of the roll dates prior to the end of December 2008. (BNP SAC ¶ 14.) Instead, the SACs assert that BoA began sending Borrowing Base Certificates only in February 2009, after Plaintiffs requested such copies, but that these Borrowing Base Certificates, unlike those certified by BoA between June and December 2008 and not provided to Plaintiffs, falsely showed Ocala to be solvent. (BNP SAC ¶ 17; DB SAC ¶ 22.) Plaintiffs allege that in issuing these inaccurate Borrowing Base Certificates, from December 17, 2008 to August 4, 2009, BoA repeatedly and negligently misrepresented the state of Ocala’s assets by delivering false loan reports to Plaintiffs. (Id.) Plaintiffs represent that BoA knew or should have known that its representations in these reports were false, and that Plaintiffs were relying on BoA’s representations in deciding whether to roll over the Secured Notes (BNP SAC ¶ 18; DB SAC ¶ 22.)
Moreover, the SACs allege that at no point did BoA inform Plaintiffs that the pre-December 2008 Borrowing Base Certificates, which had not been shared with Plaintiffs, showed the Facility to be insolvent. According to Plaintiffs, had BoA adequately performed its contractual obligations or acted with reasonable care, (i) Plaintiffs would not have purchased the Secured Notes on June 30, 2008 or any of the subsequent roll dates; or (ii) Plaintiffs’ Secured Notes would be fully secured as required by the Ocala Facility Agreements. (BNP SAC ¶ 22; DB SAC ¶ 33.)
In addition, Plaintiffs allege that BoA made “intra-day loans” to Ocala on each day that the Ocala notes matured, including July 20, 2009, which purportedly enabled Ocala to repay maturing notes. These loans allegedly made BoA an unsecured creditor of Ocala, at least until it was repaid the same day with funds received from Plaintiffs’ purchase of new notes. (See BNP SAC ¶¶ 269-74; DB SAC ¶¶ 850-55.) According to Plaintiffs, this allowed BoA to profit unjustly at Plaintiffs’ expense. (Id.)
Finally, the SACs allege that BoA has continued to breach its obligations to Plaintiffs in the period of time following TBI’s collapse. Plaintiffs maintain that BoA, in its capacities as Indenture Trustee and Collateral Agent, has ongoing legal and contractual rights and obligations, as well as its fiduciary duty to recover damages caused by itself in its individual capacity and in its capacities as Collateral Agent, Depositary and Custodian for the benefit of Plaintiffs. (BNP SAC ¶ 24; DB SAC ¶ 31.) Plaintiffs allege that they have instructed BoA to bring claims in its capacities as Indenture Trustee and Collateral Agent against itself in its role as Collateral Agent, Custodian, Depositary and in its individual capacity, or in the alternative, assign any such claims directly to Plaintiffs. The SACs allege that in refusing to bring or assign such claims as instructed, and in making only limited efforts to recover Ocala’s assets, BoA is depriving Plaintiffs of recoveries available to pay their Secured Notes and thus continuing to breach both its contractual and fiduciary duties to Plaintiffs. (BNP SAC ¶ 23; ¶ 27; DB SAC ¶ 18; ¶ 32.)
III. STANDARD OF REVIEW
On a motion to dismiss pursuant to Rule 12(b)(6), all factual allegations in the complaint are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp.,
To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
Plaintiffs allege in their Fourth, Fifth and Sixth Causes of Action that BoA failed either to “sue itself’ or to assign claims against itself, or in the alternative pursue one of numerous options identified by Plaintiffs.
A. Plaintiffs’ Claims that BoA Failed to “Sue Itself’ Fail as a Matter of Law
Plaintiffs allege that BoA had contractual duties as Collateral Agent (under the Security Agreement) and as Indenture Trustee (under the Base Indenture) to sue itself in its other capacities for breaches of the Custodial and Depositary Agreements, respectively, (see BNP SAC ¶¶ 217-26; DB SAC ¶¶ 275, 288, 294 (alleged breaches of the Security Agreement) and BNP SAC ¶¶ 227-37; DB SAC ¶¶ 296-316 (alleged breaches of the Indenture)), and that it breached those duties by failing to bring suit against itself for these alleged claims.
Defendant contends that dismissal of these claims is appropriate on two grounds: because the law does not permit BoA to bring adversarial claims against itself or because the relevant Facility Documents do not require, or even allow, BoA to sue itself.
First, BoA argues that .Plaintiffs’ “sue yourself’ theories are against clearly established federal and state law that “courts do not recognize purportedly adversarial claims brought by a party against itself’ as a general rule. See, e.g., Globe & Rutgers Fire Ins. Co. v. Hines,
The Second Circuit has extended this rule even where a party acts in differing capacities. See Globe & Rutgers,
Plaintiffs respond that the instant case should be treated as an exception to the general rule because here, BoA would be suing itself solely in a representative capacity, having no beneficial or economic interest in the outcome of the litigation. (Memo. Opp. at 2-3.) However, the two cases cited by Plaintiffs in support of this proposition are inapposite: in Banco Nacional De Cuba, no party attempted to sue itself or hold another party liable for failing to sue itself
Plaintiffs, moreover, fail to cite a single case establishing breach of contract or breach of fiduciary duty against a party for failing to sue itself. Nor does the case law Plaintiffs do cite establishing the abili
Second, BoA asserts that the Facility Documents do not include any contractual language stating or implying that BoA is required to sue itself, and alternatively that the Facility Documents cannot create an obligation which the law does not permit.
In their SACs, Plaintiffs rely on various provisions in the Security Agreement and Base Indenture to establish a duty by BoA to “sue itself’ for violating the Depositary and Custodial Agreements: (1) Section 6.02 of the Security Agreement, which states that BoA, as Collateral Agent, must exercise any right or remedy available to it if so directed by the Noteholders following an Indenture Event of Default; (2) Section 8.04 of the Security Agreement, which states that BoA must obey written instructions of Noteholders “except as expressly provided herein or in the Indenture”; (3) Section 10.2(e) of the Base Indenture, which states that BoA “upon the occurrence of a default ... exercise such of the rights and powers vested in it by this Base Indenture, any Supplement or any Facility Document, and to use the same degree of care and skill in their exercise as a prudent person would exercise or under the circumstances in the conduct of such person’s own affairs.” (DB SAC ¶ 276; ¶277; ¶299.)
Plaintiffs maintain that these provisions establish a clear duty by BoA to exercise all rights and powers as Indenture Trustee and Collateral Agent to protect the interests of the Noteholders against the Depositary and Custodian’s breaches of duties, including “suing itself.” (Memo. Opp. at 13.) Plaintiffs maintain that any alternative interpretation would render the contract meaningless to protect the Noteholders’ interests in remedying harms caused by breaches of the Depositary and Custodial Agreements by BoA.
BoA contends that, to the contrary, the contractual language cited by Plaintiffs limits BoA’s actions to those available under the law or those provided for in the relevant Facility Documents, none of
BoA also contends that to adopt Plaintiffs’ reading of these contract provisions, and finding a requirement that BoA sue itself, would produce a result that is “absurd, commercially unreasonable or contrary to the reasonable expectations of the parties.” In re Lipper Holdings, LLC,
B. BoA Does Not Have a Duty to Assign Claims Against Itself as a Matter of Law
In the alternative to Defendant “suing itself,” Plaintiffs maintain that BoA had a duty to assign claims for breaches of the Custodial and Depositary Agreements directly to Plaintiffs.
Plaintiffs cite a number of cases establishing that under New York law, where an assignor assigns his right to pursue a claim to the assignee, the assignee is the “real party in interest” and has standing to assert the injury in fact suffered by the assignor regardless of the likelihood of success of the claim. Hosp. for Joint Diseases v. Travelers Prop. Cas. Ins. Co.,
But putting aside the rights of an assignee to bring a claim, or whether BoA would challenge such an assignment, an assignor may not in the first place “confer any greater rights than at the time of such assignment he had himself.” Squire v. Greene,
Nor could the Facility Documents, as Plaintiffs suggest, reasonably be read as obligating BoA to assign claims against itself to third parties that were neither parties to, nor intended third-party beneficiaries of, the Custodial or Depositary Agreements. See Shirai v. Blum,
C. Defendant is Not Obligated to Pursue Alternate Options as Identified by Plaintiffs
In the event that the Defendant is found incapable of commencing litigation against itself or assigning its claims, Plaintiffs contend that Defendant should still be equitably estopped from “seeking to nullify the promises upon which the Noteholders relied and which BoA, through its conduct, misled the Notehodlers into believing it would honor if the time ever came for it to do so.” (Memo. Opp. at 15.)
Plaintiffs’ arguments continue to rest on the unsupported position that Plaintiffs were misled into believing that Defendant would sue itself because the Facility Documents anticipated and required such actions. No language in any of the Facility Documents reasonably supports this proposition, and the parties undoubtedly knew how to contract for or allow such claims. The parties instead restricted claims to those provided for in the “Base Indenture ... [or] any Supplemental or Facility Document.” See Base Indenture § 10.2(e). This deliberate choice by the “sophisticated, counseled parties dealing at arm’s length” in a “multimillion dollar transaction” to not contract for such rights must be given effect. Chimart Assocs. v. Paul,
Furthermore, in their opposition, Plaintiffs do not challenge BoA’s contentions that certain of the “sue yourself’ claims should be dismissed as duplicative.
V. PLAINTIFFS’ CLAIMS OF NEGLIGENCE ABE DISMISSED
Under New York law, to sustain a claim for negligence, the plaintiff must show that the defendant owed the plaintiff a cognizable duty of care, that the defendant breached that duty, and that the plaintiff suffered damages as proximate result of that breach. King v. Crossland Sav. Bank,
Defendant contends that Plaintiffs’ Seventh and Eighth Causes of Action fail to state a claim for negligence for two related reasons: (1) New York law generally does not allow a tort claim to be predicated on a breach of contract but requires some independent duty that Plaintiffs here have failed to establish and (2) Plaintiffs’ claims are barred by New York’s economic loss rule.
First, to plead a tort claim, a plaintiff must allege an independent duty that “spring[s] from circumstances extraneous to, and not constituting elements of, the contract.” Clark-Fitzpatrick, Inc. v. Long Island R.R. Co.,
In their SACs, Plaintiffs allege that “[n]egligence pervaded virtually every aspect of the Bank of America’s involvement in the Ocala Facility” (BNP SAC ¶ 250; DB SAC ¶ 338), including BoA’s allegedly “negligent certifications” of Borrowing Base Certificates and “negligent disbursements” of Ocala funds. (Id.)
Second, Plaintiffs seek the same damages under their negligence claims as under their contract claims in the Amended Complaints: payment on the Ocala notes they purchased on July 20, 2009. In addition to these claims failing because they improperly convert contract claims into tort claims, where plaintiffs allege primarily economic loss as an injury in a tort claim, “the usual means of redress is an action for breach of contract; a tort action for economic loss will not lie.” In re Adelphia Communications Corp., No. 02-41729,
[T]o keep contract law from drown[ing] in a sea of tort ... [and with this goal in mind] New York courts restrict plaintiffs who have suffered economic loss, but not personal or property injury, to an action for the benefits of their bargains. Thus, [i]f the damages suffered are of a type remediable in contract, a plaintiff may not recover in tort.
Manhattan Motorcars, Inc. v. Automobili Lamborghini S.p.A.,
As stated by the New York Court of Appeals,
[A] defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. The very nature of a contractual obligation, and the public interest in seeing it performed with reasonable care, may give rise to a duty of reasonable care in performance of the contract obligations, and the breach of that independent duty will give rise to a tort claim. Where a party has fraudulently induced the plaintiff to enter into a contract, it may be liable in tort, or where a party engages in conduct outside the contract but intended to defeat the contract, its extraneous conduct may support an independent tort claim. Conversely, where a party is merely seeking*506 to enforce its bargain, a tort claim will not lie.
New York Univ. v. Continental Ins. Co.,
Plaintiffs respond that neither of Defendant’s arguments is applicable here. Instead, Plaintiffs allege that because the Facility Documents explicitly carve out claims of negligence, Plaintiffs’ negligence claims are not precluded either by their contract claims or barred by the economic loss doctrine. (Memo. Opp. at 22.) Plaintiffs cite two cases in support of this theory: Burns v. Del. Charter Guarantee & Trust Co.,
Both Bums and Grund arise from the same underlying dispute where plaintiffs, a group of individuals who entered into Self-Directed Individual Retirement Trust Agreements (the “SIRTAs”) with defendants Principal Financial Group and Delaware Charter Guarantee & Trust Company, directed investments to Westgate Funds which later proved to be a Ponzi scheme. See generally id. In both Bums and its companion case Grund, the defendant moved to dismiss negligence claims on the grounds that they were duplicative of the contract claims and that they were barred by the economic loss rule. The contracts at issue both contained a provision that the defendant “shall not be liable for any act or omission made in connection with the Trust except for its intentional misconduct or negligence.” Burns,
Plaintiffs compare the above language in Bums and Grund with language in the Security Agreement and Base Indenture to show that here, the Facility Documents likewise “explicitly carve out claims of negligence from their coverage.” (Memo. Opp. at 24.) Section 4.10 of the Security Agreement, for example, states that the Collateral Agent shall not be liable “for any action taken or omitted to be taken by it ... relative to any of the Assigned Collateral, except for its own negligence, fraud, bad faith or willful misconduct.” Section 8.01 similarly states that “[n]either the Collateral Agent, nor any of its respective directors, officers, employees, affiliates or agents, shall be liable to any Secured Party or the Issuer for any action taken or omitted to be taken by it or them hereunder, or in connection herewith, except for its own negligence, fraud, bad faith or willful misconduct.”
However, both Bums and Grund can be distinguished from the facts at issue here on multiple grounds. First, in Bums and Grund, which dealt with a non-negotiated form contract, there was no provision explicitly limiting duties to those specified in the contract. Here, Section 8.01 in the Security Agreement precludes any independent duties: “nothing herein shall be deemed ... to impose on the Collateral Agent any obligations other than those for which express provision is made herein.” The Security Agreement applies to all Facility Documents.
Second, plaintiffs in Bums and Grund relied on distinct, independent duties aside from those in the applicable contract; independent duties that Plaintiffs here have not established. See New York Univ. v. Continental Ins. Co.,
Plaintiffs’ attempt to compare the independent duties present in Bums and Grund to the duties present here. In Bums, the Court identified duties beyond the contract that arose from Defendant’s position “as a trustee with expertise in IRA custodianship,” including the “duty to investigate in light of red flags,” “to obtain and hold documents,” “to send accurate reports on asset values,” and “to maintain preserve, and monitor the trust assets in order to prevent wrongful dissipation.” Burns,
Finally, Bums and Grund involved individuals with no independent expertise or knowledge of the investments comparable to that of the trustee, which created a duty beyond that in the contract. Burns,
Because Plaintiffs therefore cannot rely on the Facility Documents as carving out separate negligence claims, and for the reasons stated above, Plaintiffs’ negligence claims are dismissed.
VI. PLAINTIFFS’ NEGLIGENT MISREPRESENTATION CLAIMS ARE DISMISSED
The elements of negligent misrepresentation are that (1) the defendant had a duty as a result of a special relationship to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the defendant knew that the plaintiff desired the information for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or her detriment. Hydro Investors, Inc. v. Trafalgar Power Inc.,
In assessing claims for negligent misrepresentation, courts in this district have applied the heightened pleading standards of Rule 9(b). See Ebusinessware, Inc. v. Technology Services Group Wealth Management Solutions, LLC, No. 08 Civ. 9101,
According to Plaintiffs, three broader sets of misrepresentations were made by BoA: (1) daily collateral reports that overstated the collateral securing Plaintiffs’ investments; (2) monthly borrowing Base Certificates that also overstated that collateral; and (3) BoA’s issuance of notes on behalf of Ocala, which, according to Plaintiffs, effectively constituted a representation that their investments were fully collateralized. (See BNP SAC ¶¶ 260-64, 267; DB SAC ¶¶ 343-48.) Plaintiffs allege that each of these misrepresentations was made in the course of BoA’s performance of duties under the Custodial and Depositary Agreements. For example, BNP alleges that BoA’s “misrepresentations in the [daily] Shipped Reports and other documents breached its contractual obligations” (BNP SAC ¶ 146) and that “[u]nder the terms of the Depositary Agreement, [BoA] was required to certify the Borrowing Base Certificates.” (BNP SAC ¶ 156.) DB similarly alleges that BoA provided these reports “[i]n connection with its duties under the Custodial Agreement” (DB SAC ¶ 162) and that BoA “breached its duties under the Depositary Agreement ... [by] falsely certifying that the Borrowing Base Condition was satisfied pursuant to § 4(d) of the Depositary Agreement.” (DB SAC ¶307.) Both Plaintiffs also specifically allege that BoA breached the Depositary Agreement by issuing the July 20, 2009 notes. (BNP SAC ¶ 63 (alleging that “[t]he Depositary Agreement required [BoA] to certify the Borrowing Base Condition ... before issuing new notes”); DB SAC ¶ 264 (citing BoA’s duty, “as Depositary, to cease issuing Ocala Notes”).)
As an initial matter, Plaintiffs’ claims fail for the same reason as their negligence claims: they improperly attempt to transform contract duties into tort duties, see LaSalle Bank, N.A. v. Citicorp Real Estate Inc., No. 02 Civ. 7868(HB),
Plaintiffs acknowledge that negligent misrepresentation claims are inappropriate where a contract between the two parties required the representation in question. Plaintiffs contend instead that their claim does not arise out of either the Custodial or Depositary Agreements, but from “actual privity of contract between the parties or a relationship so close as to approach that of privity.” Travelers Cas. & Sur. Co.,
Both of Plaintiffs’ grounds to establish a “special relationship” independent of the contracts are barred by the Subscription and Purchase Agreement, which governed Plaintiffs’ purchase of the notes and in which Plaintiffs expressly disclaimed any such relationship:
In connection with the purchase of the Notes: (i) none of the Issuer, the Dealers, the Collateral Agent or the Servicer is acting as a fiduciary or financial or investment adviser for the Investor; (ii) the Investor has conducted its own due diligence and investigation with respect to its investment in the Notes ... and the Investor is not relying (for purposes of making any investment decision or otherwise) upon any advice, counselor representations (whether written or oral) of the Issuer, the Dealers, the Collateral Agent or the Servicer; (iii) none of the Issuer, the Dealers, the Collateral Agent or the Servicer has given to the Investor (directly or indirectly through any other person) any assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence or benefit (including legal, regulatory, tax, financial, accounting, or otherwise) of its purchase; (iv) the Investor has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent it has deemed necessary, and it has made its own investment decisions based upon its own judgment and upon any advice from such advisers as it has deemed necessary and not upon any view expressed by the Issuer, the Dealers, the Collateral Agent or the Servicer; and (v) the Investor has evaluated the rates, prices or amounts and other terms and conditions of the purchase and sale of the Notes with a full understanding of all of the terms, conditions and risks thereof (economic and otherwise), and is capable of assuming and willing to assume (financially and otherwise) these risk and (vi) the Investor is a sophisticated investor.
Subscription & Purchase Agmt. For Short Term Notes.
In HSH Nordbank AG v. UBS AG,
In addition, the language in the Subscription and Purchase Agreement also disclaims any reliance upon the alleged misrepresentations. “[A] party cannot justifiably rely on a misrepresentation that is specifically disclaimed in an agreement.” JM Vidal, Inc. v. Texdis USA, Inc.,
Independently, and even if the Subscription and Purchase Agreement were not applicable, courts have not found “unique or specialized knowledge” or relationships of special “confidence or trust” where all parties are “highly sophisticated players in the mortgage-backed securities market.’ ” MBIA Ins. Corp. v. Countrywide Home Loans, Inc.,
Moreover, Section 8.01 of the Security Agreement, upon which Plaintiffs rely in establishing an agency relationship, specifies that “[t]he relationship ... is that of agency and principal only, and nothing herein shall be deemed to constitute the Collateral Agent a trustee for any Secured Party or impose on the Collateral Agent any obligations other than those for which express provision is made herein.” Even if this provision were to be construed as allowing an agency relationship, it cannot extend such a relationship to Plaintiffs under the Depositary and Custodial Agreements, which Plaintiffs lack standing to enforce.
Finally, even if Plaintiffs’ claims are not based on the Custodial or Depositary Agreements, the deliberate choice of the parties to deny Plaintiffs standing under these documents evidences the lack of any intended “special relationship.” Plaintiffs cannot allege a duty of care in tort, much less from a special relationship, to transform their prohibited contract claims into tort claims, which would give them those prohibited rights.
VII. PLAINTIFFS’ QUASI-CONTRACT CLAIMS ARE DISMISSED
In the alternative to their contract claims and in the event that the Ocala
A. Plaintiff's’ Fail to State a Claim fox Unjust Enrichment
Under New York law, a claim of unjust enrichment “requires simply an allegation that (1) the defendant was enriched, (2) the enrichment was at the plaintiffs expense, and (3) the defendant’s retention of the benefit would be unjust.” M’Baye v. World Boxing Ass’n., No. 05-958KDC),
However, “[w]hile a party generally may not simultaneously recover upon a breach of contract and unjust enrichment claim arising from the same facts, it is still permissible to plead such claims as alternative theories.” Singer v. Xipto Inc.,
Plaintiffs base their unjust enrichment claim on Ocala’s repayment to BoA of alleged intra-day loans, which purportedly enabled Ocala to repay maturing notes and left BoA unsecured until it was repaid the same day with funds received from Plaintiffs’ purchase of new notes. {See BNP SAC ¶¶ 269-74; DB SAC ¶¶ 350-55.) More specifically, Plaintiffs allege that Ocala was insolvent for a significant period of time prior to the declaration by BoA of an Event of Default in August 2009, and the only three reasons why commercial paper was able to roll during this time was (1) BoA’s failure to perform its contractual duties, as alleged in the Complaints; (2) BoA’s payments of the intra-day loans and subsequent retention of amounts received from issuance of new Notes and (3) BoA’s misrepresentations to Plaintiffs that the facility was fully collateralized. (Memo. Opp. at 27-28.)
Defendant contends that even if such intra-day loans were issued,
Plaintiffs respond that, as a threshold matter, these claims are brought in the event that the Ocala Agreements “are deemed void for any reason” and therefore these agreements may not be used to justify actions by BoA. In addition, Plaintiffs contend that BoA, has not shown that the intra-day loans actually followed the procedure of the Depositary Agreement, and to the extent BoA wishes to argue it satisfied these relevant requirements, this is a factual matter not appropriately decided at this stage of the proceedings. Finally, Plaintiffs emphasize that their claim turns on the fact that Plaintiffs did not have notice of the insolvency of the Ocala notes, not on whether Plaintiffs had notice that the intra-day loans might be issued.
Regardless of whether the Depositary Agreement is ultimately deemed void, unjust enrichment claims may not lie where, as here, plaintiffs were on notice of the underlying actions constituting unjust enrichment. See Diesel Props S.r.l.,
Moreover, though Plaintiffs acknowledge the rule that repayment of a debt cannot be unjust enrichment, see, e.g., B.E.L.T., Inc. v. Wachovia Corp.,
Finally, Plaintiffs still received the “benefit of [their] bargain” and have not pled any facts showing that BoA was “enriched” at Plaintiffs’ expense. United States v.
B. Plaintiffs are not Entitled to the Remedy of a Constructive Trust
Under New York law, “in order to establish a constructive trust claim, there generally must be proof of; (1) a confidential or fiduciary relation, (2) a promise, express or implied, (3) a transfer made in reliance on that promise, and (4) unjust enrichment.” Bankers Sec. Life Ins. Soc’y v. Shakerdge,
As an initial matter, as discussed above, Plaintiffs have failed to state a claim for unjust enrichment and thus cannot meet the fourth element necessary to establish the need for a constructive trust. As Plaintiffs acknowledge, courts recognize the “key factor” for the establishment of a constructive trust to be unjust enrichment. In re Koreag, Controle et Revision S.A.,
In addition, Plaintiffs fail to identify any independent relationship necessary to enforce a constructive trust. Plaintiffs offer no support to justify then-statement that their allegations establish a “confidential or fiduciary relationship” between the parties. (Memo. Opp. at 30.) Plaintiffs cite to BoA’s role as “Collateral Agent” under the Security Agreement as establishing a confidential or fiduciary relationship, but Plaintiffs cannot rely on agreements which for the purposes of this claim are void by assumption. Plaintiffs also maintain that establishment of a confidential or fiduciary relationship is not necessary and that an agency relationship, created here by the Security Agreement, is sufficient.
For the reasons stated above, Plaintiffs have failed to plead the elements required for a constructive trust and their claim is therefore dismissed.
“In New York, promissory estoppel has three elements: ‘a clear and unambiguous promise; a reasonable and foreseeable reliance by the party to whom the promise is made; and an injury sustained by the party asserting the estoppel by reasons of his reliance.’ ” Arcadian Phosphates, Inc. v. Arcadian Corp.,
In support of their claim, Plaintiffs incorporate the alleged “promises” that underlie their First, Second, Fourth and Fifth Causes of Action. (See BNP SAC ¶ 287; DB SAC ¶ 368.)
Plaintiffs’ first two allegations, grounded in Counts I and II, are based on promises purportedly made by BoA in the Security Agreement and Base Indenture. More specifically, Plaintiffs’ First Cause of Action alleges that BoA breached promises in Sections 4.10 and 8.01 of the Security Agreement by failing to keep accurate records to establish the security interest it held on behalf of Plaintiffs and by failing to obtain written confirmation that Colonial Bank had released any security interest it had in mortgages for which BoA had paid. (See BNP SAC ¶¶ 288-89; DB SAC ¶¶ 255-56.) Plaintiffs also allege that BoA breached promises in Sections 5.03(a) & (b) of the Security Agreement by making transfers at Ocala’s request for improper purposes, transferring funds when it knew that Ocala was insolvent, not properly segregating mortgages and funds between the BNP and DB sub-accounts, and acting on requests by TWB employees who were not authorized. Plaintiffs’ Second Cause of Action alleges that BoA breached its promises in failing to perform additional functions specified under the Base Indenture after Ocala’s insolvency and material breaches, which Plaintiffs maintain constituted Events of Default. (See Memo, at 31.)
Plaintiffs contend that because this Court has already upheld Counts I and II, Plaintiffs have adequately alleged a duty by Defendant under those agreements and a corresponding breach of that duty. See BNP Paribas Mortg. Co.,
Plaintiffs’ latter two claims, their Fourth and Fifth Causes of Action, are based on BoA’s alleged failures to sue itself under the Security Agreement and Base Indenture. As discussed above, the Facility Documents, and in particular the Custodial and Depositary Agreements which Plaintiffs do not have standing to enforce, cannot be seen to impose a clear promise that BoA would sue itself or assign its claims. See Infra Part IV.A; see also Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc.,
For the reasons stated above, Plaintiffs’ promissory estoppel claims are dismissed.
D. Plaintiffs’ Claim for Negligent Performance of an Assumed Duty is Barred under New York Law
Plaintiffs’ last quasi-contract claim, in their Twelfth Cause of Action, alleges negligent performance of an assumed duty. (See DB SAC ¶¶ 373-78.) More specifically, Plaintiffs allege that whether or not BoA was obligated to do so, BoA did undertake to perform professional services— such as creating and maintaining critical accounts, accepting mortgages into and releasing them from the Ocala facility, certifying the borrowing base on a monthly basis and issuing monthly reports to DB and BNPP purporting to show the collateral securitizing their investment — and failed to perform these duties under a
Under New York law, breach of a contractual duty to render services does not give rise to tort liability in favor of a third party except in three circumstances, only one of which is applicable here: where the plaintiff detrimentally relies upon the continued performance of the contracting party’s duties. See Espinal v. Melville Snow Contractors, Inc.,
In addition, “a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract.” Clark-Fitzpatrick, Inc.,
VIII. CONCLUSION
Based upon the conclusions set forth above, Defendant’s Motion to Dismiss is granted in its entirety.
It is so ordered.
Notes
. Hereafter, the Amended Complaint filed by DB will be referred to as the "DB AC” and the Amended Complaint filed by BNP in its contracts case will be referred to as the "BNP AC” (collectively, “Plaintiffs' FACs”).
. DB has brought separate claims for breach of the prior versions of four of these documents — specifically, the 2006 Base Indenture, the 2006 Security Agreement, the prior version of the 2005-1 Depositary Agreement, and the 2006 Custodial Agreement. Because DB has not alleged any material differences between the prior and recent versions of the Facility Documents, all references are to the 2008 versions of the Facility Documents, except where specifically noted.
. DB alleges that BoA had actual knowledge as early as January 25, 2008. (See DB AC ¶¶ 85-86.) The BNP Plaintiffs allege that BoA had actual knowledge as early as June 30, 2008, the date on which BNP first purchased its secured notes. (See BNP AC ¶¶ 13, 138.)
. More specifically, the SACs allege that BoA served as gatekeeper for the Ocala Facility and, as Collateral Agent, Custodian, Depositary and Indenture Trustee, was charged with, among other things: (i) securing and protecting the cash and mortgage loans collateralizing the Secured Notes; (ii) making certain that the Secured Notes were, in fact, over-collateralized; (iii) shutting down the Ocala Facility and promptly notifying BNPP if at any time BoA became aware that the Ocala Facility was under-collateralized and therefore insolvent; (iv) protecting, preserving and recovering Ocala's assets as necessary; and
. In addition, Defendant identifies diverse areas of the law where courts have rejected "sue yourself” claims. See, e.g., Phoenix Ins. Co. v. Erie & W. Transp. Co., 117 U.S. 312, 322,
. At most, Banco Nacional De Cuba acknowledges a narrow line of cases allowing a trustee to sue itself in specific circumstances, which are not applicable here. See Banco Nacional De Cuba v. Chase Manhattan Bank,
. As Defendant establishes, separate rules and precedent apply to agencies in the Federal Government. See, e.g., Michael Herz, United States v. United States: When Can the Federal Government Sue Itself?, 32 Wm. & Mary L.Rev. 893, 906 (1991) ("[T]he usual bar on litigation by one person against herself does not apply to the federal government. Monolithic though the United States can appear, to deem it one person as a litigant is absurdly formalistic.”). Furthermore, in U.S. v. ICC,
.Plaintiffs quote language in the opinion that is dicta, and not referenced or affirmed in the corresponding appellate decision. See Banco Nacional de Cuba v. Chase Manhattan Bank,
. None of Plaintiffs' cases establishing that BoA would not be the economic beneficiary to the suit and that BoA would be serving distinct legal capacities actually involve a party forcing a corporation to sue itself under a contract or because of its fiduciary duty. (Memo. Opp. at 2-3.) Instead, Plaintiffs' cases involve either a party merely serving in complex capacities, see NML Capital, Ltd. v. Republic of Argentina, No. 08 Civ. 6978(TPG),
. Plaintiffs simultaneously acknowledge that BoA "plainly understands” that it has an obligation to file suit to protect the Noteholders, because it has already done so in connection with the Ocala Transaction. (Memo. Opp. at 14 n. 11.)
. Plaintiffs' impossibility defense argument is inapposite. Plaintiffs’ argue that BoA cannot invoke an impossibility defense where BoA foresaw such impossibility and was legally responsible for creating it. (Memo. Opp. at 6-7.) But an impossibility defense applies only after a contract obligation is agreed to and the event occurs that makes it impossible for one party to perform. See Restatement (Second) of Contracts § 261 ("Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged unless the language or the circumstances indicate the contrary.”); see also United States v. Winstar Corp.,
. With respect to the Custodial and Depositary Agreements specifically, Plaintiffs do not have standing under these documents. Plaintiffs may not then attempt to enforce those agreements through rights for which they did not contract. See Nationwide Auction Co. v. Lynn, No. 90 Civ. 7643,
. Plaintiffs contend that to prevail, BoA must establish that it "had or has no contractual or fiduciary duty to take any other prudent action to vindicate the interests of the Noteholders ... [or] deny the Noteholders their bargained-for protections under the Facility Documents.” (Id. at 12-13.) This does not, however, support Plaintiffs’ claim that BoA is required under the agreements to sue itself or assign its claims. To the contrary, BoA has already filed separate suit in protection of the Noteholders with respect to the Ocala transaction. (Memo. Opp. at 14 n. 11.)
. Plaintiffs allege specifically that (1) Defendant misled Noteholders into believing it would adequately perform its duties; (2) that BoA would not have been retained if it disclosed its belief that it was immune from suit; (3) that BoA knew or should have known it would be in a position it believed made it incapable of carrying out its duties; and (4) that the Noteholders relied upon Defendant’s misrepresentations and omissions, and as such equitable estoppel is appropriate.
. This is particularly true here where the controlling agreement contains an integration clause specifying that the written document is the "entire agreement” between the parties on the subject. See Depositary Agreement § 23.
.Defendant identifies claims based on Plaintiffs' "sue itself” theory as improperly duplicative of claims already pled in the SACs. First, BoA moves to dismiss as duplicative all "sue yourself” claims duplicating Plaintiffs’ existing claims for breach of the Security Agreement, which do not depend on a sue yourself theory but arise from the same facts and allege the same damages. (See DB SAC ¶ 311 (“As set forth in Count I above, BoA breached its contractual duties as Collateral Agent under the Security Agreement.”); BNP SAC ¶ 232 (same)). Second, Plaintiffs allege that BoA failed to sue itself for conversion under three Facility Documents — allegedly breaching the Security Agreement, the Base Indenture, and its fiduciary duties — as well as a stand alone conversion claim in their Thirteenth Causes of Action. Defendant argues
. As Plaintiffs acknowledge, the contracts "must be read as a whole” and "should be read as one.” (Memo. Opp. at 13 n. 9.)
. Plaintiffs argue that New York courts have long recognized that the same conduct can give rise to actions sounding in both tort and contract, as long as there is a separate duty arising outside of a contract. As an initial matter, as discussed above, no such independent duty exists in this case. Further, neither of the two cases Plaintiffs cite establishes an independent tort duty supported by the same underlying conduct as the parallel contract claim. In Mandelblatt v. Devon Stores, Inc.,
. Plaintiffs at oral arguments asserted that the Subscription and Purchase Agreement, dated June 30, 2008, applied only to the initial purchases of the Ocala notes, and not to the subsequent reports at issue here. However, this Court has already applied this agreement prospectively in determining that Plaintiffs disclaimed any fiduciary duty owed to them by the Note Dealers. See BNP Paribas Mortg. Corp.,
. Plaintiffs argue that BoA was the only disinterested party that could have known whether Plaintiffs’ investments were collateralized. Plaintiffs also argue that regardless, whether BoA did have such unique access to knowledge raises a dispute on the merits and cannot be resolved on a motion to dismiss Regardless of whether BoA had unique access, as shown above, courts have routinely found as a matter of law that "greater knowledge” or "knowledge of the particulars of a company's business” cannot give rise to a "special relationship” when the contract is between sophisticated commercial entities. See, e.g., MBIA Ins. Corp.,
. Plaintiffs also contend that the collateral and depositary solvency reports BoA provided to Plaintiffs were voluntarily given and not connected to any contractual duty and as such give rise to an independent duty and special relationship, (BNP SAC ¶¶ 343-348.) Plaintiffs allege that in undertaking to issue these reports, BoA created a duty to use due care to properly represent the stated collateral. (Id.) However, whether Plaintiffs were the contracted for recipients of BoA’s obligations under the contracts does not change the fact that BoA did in fact have these contractual duties. Thus, Plaintiffs not being parties to the contract does not alter the rule that an obligation under contract cannot be transformed into a tort. See King County v. IKB Deutsche Industriebank AG,
. Defendant maintains that Plaintiffs have not provided evidentiary support, as required by Fed.RXiv.P. 11(b)(3), to establish that BoA made intra-day loans to Ocala. Defendant reserves its right to pursue sanctions under Rule 11, but alleges that regardless of Plaintiffs’ lack of evidentiary support, Plaintiffs’ allegations fail to state a claim for unjust enrichment.
. Plaintiffs’ contention that the issue turns on Plaintiffs' notice of the insolvency is unsupported. The notice requirement in unjust enrichment turns on the underlying actions constituting the supposed unjust actions: here, whether Plaintiffs were aware of the possibility of intra-day loans.
. Section 8.01 of the Security Agreements, however, contradicts Plaintiffs’ efforts to establish any independent principal-agent relationship and instead provides that: ”[t]he relationship between the Collateral Agent and each Secured Party is that of agent and principal only, and nothing herein shall be deemed to constitute the Collateral Agent trustee for any Secured Party or impose on the Collateral Agent any obligations other than those for which express provision is made herein” and "except as required by the specific terms of this Agreement, the Collateral Agent shall have no duty to exercise any rights, power, remedy or privilege granted to it hereby.” (BNP SAC ¶ 278; DB SAC ¶ 359.)
. The two cases cited by Plaintiff that purportedly support a constructive trust based on an agency relationship do not establish such a rule. In Halper v. Homestead Building & Loan Ass’n,
. This reasoning also applies to BNP’s separate promissory estoppel claim based on the March letter Agreement. (See BNP SAC ¶¶ 305-13.) Because Plaintiffs lack standing to enforce or rely on this Agreement, and they have established no independent "promise” on which to base their claim, their promissory estoppel claim fails. BNP Paribas Mortg. Co.,
. None of the three cases Plaintiffs cite to contradict Defendant's contention that physical harm is required establishes Plaintiffs' position. Morgan Stanley,
. Defendant also argues that no policy reason exists here, where parties are highly sophisticated commercial entities, to impose an extra-contractual duty, (Memo. Reply at 18.); see also Espinal,