Presidential Bank, Fsb v. 1733 27th Street Se LLC , 271 F. Supp. 3d 163 ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
PRESIDENTIAL BANK, FSB, :
:
Plaintiff & Counter-Defendant, : Civil Action No.: 16-2412 (RC)
:
v. : Re Document Nos.: 17, 26, 29
:
1733 27TH STREET SE LLC, et al., :
:
Defendants & Counter-Claimants. :
MEMORANDUM OPINION
GRANTING DEFENDANTS’ MOTION FOR LEAVE TO LATE FILE OPPOSITION TO PLAINTIFF’S
MOTION TO PARTIALLY DISMISS;
GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION TO PARTIALLY DISMISS
DEFENDANTS’ COUNTERCLAIM;
DENYING AS MOOT DEFENDANTS’ MOTION FOR LEAVE TO LATE FILE
OPPOSITION CONCERNING LIS PENDENS
I. INTRODUCTION
Plaintiff, Presidential Bank, FSB, loaned money to Defendant and secured the loans with
real property owned by Defendants and rented to others. After Defendants defaulted on the loans,
the parties entered into several loan modification agreements. One of these agreements gave
Plaintiff significant control over Defendants’ rental income. The modifications were unavailing
in restoring harmony to the lending relationship, however, and Plaintiff subsequently brought
suit alleging that Defendants had converted some rental income rather than turning it over to
Plaintiff. In response, Defendants lobbed a salvo of affirmative defenses and counterclaimed that
Plaintiff’s execution of the modification agreements had, in fact, been wrongful and caused
Defendants’ financial difficulties. Plaintiff now moves for this Court to dismiss Counts I, II, III,
V, VI, VII and IX of Defendants’ counterclaim. Plaintiff does not move to dismiss Count IV or
VIII of the counterclaim. For the reasons stated below, the Court will grant Plaintiff’s motion.
II. BACKGROUND
A. Factual Background
In resolving Plaintiff’s motion to dismiss, the Court “assume[s] the truth of the factual
allegations of the counterclaim and liberally construe[s] them in favor of [counter-claimants].”
Barnstead Broad. Corp. v. Offshore Broad. Corp., 886 F. Supp. 874, 878 (D.D.C. 1995).
Defendants (and counter-claimants) are six District of Columbia limited liability companies1 and
Kevin Green. Defs.’ Affirmative Defenses, Answers & Counter-Claims (Defs.’ Answer) at 19–
20, ECF No. 12. Mr. Green is an individual and “sole management-member of the counter-
plaintiff Limited Liability Companies.” Defs.’ Answer at 20.
Plaintiff made various loans to each of the Defendant-LLCs, secured by various deeds of
trust. ECF No. 20–23. Each Defendant-LLC owned associated real property which served as
collateral on the loans. Compl. ¶¶ 24–34, ECF No. 1-1, Ex. A; see also Compl. ¶ 5, ECF No. 1-1,
Ex. A. Defendants subsequently defaulted on the loans, and entered into a “Global Loan
Modification Agreement” in October of 2014. Defs.’ Answer at 23; see also Compl. ¶ 9.
Pursuant to the Global Loan Modification Agreement, Defendants assert that Presidential later
obtained a confessed judgment against Defendants in Maryland state court, which is currently
pending appeal at the Maryland Court of Special Appeals. Defs.’ Answer at 24. Problems
between Plaintiff and Defendants persisted, and in 2015 the parties entered into a second
modification agreement, the Forbearance Agreement.2 Defs.’ Answer at 25; see also Compl.
1
The six limited liability companies are 1733 27th St. SE, LLC; 1729 27th St. SE, LLC;
40 Chesapeake St. SE, LLC; 2204 Prout St. SE, LLC; 4001 4th St. SE, LLC; and 1504 18th St.
SE, LLC. Defs.’ Answer at 19.
2
The Court understands that many of the agreements concerning the managements of
funds were memorialized in the Lockbox Agreements that the Forbearance Agreement was
conditioned upon. Compl. ¶¶ 16–17 (“One of the conditions of entering into the Forbearance
Agreement was that Borrowers execute lockbox and security agreements . . . for each of the
2
¶ 12; Forbearance Agreement, ECF No. 17-2. According to Defendants, the Forbearance
Agreement “gave Presidential total control over Borrowers’ business,” including “control of . . .
rental payments” made to Defendants by their tenants. Defs.’ Answer at 25; see also Compl.
¶¶ 16–20.
Subsequent to the Forbearance Agreement, problems with paying the loans continued,
and Presidential eventually foreclosed on the properties. Defs.’ Answer at 29. However,
Defendants claim that the income received by the properties should have been sufficient or
nearly sufficient to pay their mortgages. See generally Defs.’ Answer at 26–27; see also Defs.’
Answer at 27 (stating that, based on “mortgage payments owed by Borrowers to Presidential”
and “Borrowers’ Net Operating Income,” “Borrowers would have a negative cash flow of only
$3,080.00”); Defs.’ Answer at 27 (“For the better course of 2015 and early 2016, Presidential’s
motive operandi [sic], based upon its perceived authority under the [Forbearance] Agreement,
was to block Borrowers’ access to their funds; via their control of the Borrower’s [sic] income,
to impede Borrowers from making timely mortgage payments; similarly delay or reverse timely
loan payments; apply payments retroactively to cover those payments they delayed or reversed . .
. .”). In 2016, Mr. Green also filed one or more complaints with the Office of the Comptroller of
Currency, alleging that Plaintiff had discriminated against Defendants on the basis of race in
violation of the ECOA. Defs.’ Answer at 28; see generally ECF No. 12, Ex. C.
Collateral Properties. . . . Pursuant to the Lockbox Agreements, the respective rents for each of
the Collateral Properties were to be collected by the Borrowers and deposited directly into the
Operating Accounts controlled by Presidential.”); see, e.g., Lockbox and Security Agreement,
ECF No. 17-2.
3
B. Procedural History
This matter began in D.C. Superior Court, where Plaintiffs asserted that Defendants had
wrongfully kept some of the rent paid by their tenants, and sought money damages and the
appointment of a receiver. See generally Compl., ECF No. 1-1, Ex. A. Defendants removed the
case to this Court. Errata to Notice of Removal, ECF No. 4.3 Subsequently, Defendants
3
Because this Court has previously commented on the citizenship of the parties, the
Court briefly addresses its jurisdiction. The Court previously noted that some statements in the
record indicated that Defendants had D.C. citizenship, while other statements suggested Virginia
citizenship. See Order Supp. Briefing, ECF No. 13 (“To establish Defendants’ citizenship,
Plaintiff appears to rely on the statement in the Notice of Removal that ‘Kevin Green is an
individual who is a resident of DC and each of the LLC properties [sic] sole member (Kevin
Green) resides in DC. Therefore, the Defendants are citizens of DC.’ However, other documents
in the record suggest that Mr. Green resides in Virginia.” (citations omitted)). These comments
were directed toward the potential application of the forum-defendant rule, which bars D.C.
residents from removing cases out of D.C. Superior Court and into this Court.
However, the forum-defendant rule is not jurisdictional, and thus may be waived.
Klayman v. Judicial Watch, Inc., 185 F. Supp. 3d 67, 71 (D.D.C. 2016) (“The [c]ourt first
considers whether the forum defendant rule is a jurisdictional rule. While the D.C. Circuit Court
of Appeals has not yet resolved this issue, other district judges in this District have concluded
that this rule is not jurisdictional. See, e.g., Sae Young Kim v. Nat’l Certification Comm’n for
Acupuncture & Oriental Med., 888 F. Supp. 2d 78, 82 (D.D.C. 2012); Taghioskoui v. George
Washington Univ., No. 12–1740, 2013 WL 2371248, at *1 (D.D.C. May 28, 2013). Similarly,
numerous other Circuit Courts have come to the same conclusion. See Lively v. Wild Oats
Markets, Inc., 456 F.3d 933, 940 (9th Cir. 2006).” (parentheticals omitted)). Plaintiff asserted the
forum-defendant rule against removal in its motion to remand. Pl.’s Mot. Remand, ECF No. 3.
However, Plaintiff later withdrew the motion to remand. See Line Withdrawing Mot. Remand,
ECF No. 22 (“In light of the volume of pleadings that have been filed to date, together with this
Court’s overall familiarity with the case, Presidential Bank believes that judicial efficiency is
better served by remaining in this Court and, accordingly, elects to waive any defects in the
Defendants’ removal to this Court.”). Plaintiff has thus waived any available objections under
the forum-defendant rule, and the Court does not consider them.
The Court’s jurisdiction in this matter arises from diversity jurisdiction. Amended Notice
Removal ¶ 5, ECF No. 4-2 (“This Court has . . . original diversity jurisdiction of this action
under 28 U.S.C. § 1332 because of the complete diversity of citizenship among the parties and
because the amount in controversy exceeds $75,000.”). Diversity jurisdiction requires that the
dispute be “between . . . citizens of different States.” Simon v. Mitchell, 199 F. Supp. 3d 244, 246
n.5 (D.D.C. 2016) (quoting 28 U.S.C. § 1332(a)(1)). It is undisputed that Plaintiff is a citizen of
Maryland. Compl. ¶ 1, ECF No. 1-1 (“Presidential is a federal savings bank incorporated under
the laws of the State of Maryland with its principal place of business in Bethesda, Maryland.”);
Amended Notice Removal ¶ 2 (Upon information and belief, Plaintiff Presidential Bank, FSB is
4
unsuccessfully sought either that the case be stayed or that a temporary restraining order issue.
Defs.’ Emergency Mot. Stay or Temp. Restraining Order, ECF No. 8; Minute Entry of January 6,
2017; Order, ECF No. 11 (denying Defendants’ motion for a stay or temporary restraining
order). As an ancillary matter, Plaintiff filed an emergency motion requesting that this Court
cancel a lis pendens4 recorded by Defendants, Pl.’s Emergency Mot. Order Canceling Lis
Pendens, ECF No. 15, and this Court granted the motion as conceded after Defendants failed to
oppose it.5 Order, ECF No. 23.
Defendants answered Plaintiff’s complaint and asserted multiple affirmative defenses and
the nine-count counterclaim at issue here. See generally Defs.’ Answer. The nine counts of the
counterclaim argue, in various ways, that Plaintiff wrongfully used the Forbearance Agreement
to “intentionally, deliberately and maliciously force[] Borrowers’ respective mortgage accounts
into delinquency.”6 Defs.’ Answer at 25.
incorporated in Maryland as a Maryland corporation and maintains the Plaintiff Bank’s
headquarters, principle [sic] place of business and nerve center in Maryland. Therefore Plaintiff
is a citizen of Maryland.”). Even if Defendants are therefore Virginia citizens rather than citizens
of D.C., jurisdiction exists.
4
A lis pendens is a form of notice associated with a specific property and available under
D.C. law. A lis pendens may be filed “if an action in ‘state or federal court in the District of
Columbia’ either ‘affect[s] the title to’ or otherwise ‘assert[s] a mortgage, lien, security interest,
or other interest in real property situated in the District of Columbia.’” McWilliams Ballard, Inc.
v. Level 2 Dev., 697 F. Supp. 2d 101, 111 (D.D.C. 2010) (quoting D.C. Code § 42-1207(a)
(2010)). The lis pendens serves “to enable interested third parties to discover the existence and
scope of pending litigation affecting property.” Cordoba Initiative Corp. v. Deak, 943 F. Supp.
2d 74, 75 (D.D.C. 2013) (quoting McNair Builders v. 1629 16th St., L.L.C., 968 A.2d 505, 507
(D.C. 2009)).
5
Defendants moved for reconsideration of the Court’s order canceling the lis pendens,
and for leave to file their opposition late. See Defs.’ Mot. Recon. Court’s Order, ECF No. 25;
Defs.’ Mot. Leave Late File Opp’n Pl.’s Emergency Mot., ECF No. 26. However, Defendants
soon withdrew their motion for reconsideration. Praecipe Withdraw Mot., ECF No. 28. Because
the underlying motion has now been withdrawn, the Court denies Defendants’ motion to file
their opposition concerning the lis pendens late as moot.
6
The nine counts of the counterclaim proceeded as follows:
5
The Court now addresses Plaintiff’s motion to dismiss Counts I, II, III, V, VI, VII, and IX
of Defendants’ counterclaim. Pl.’s Mot. Dismiss Counts I, II, III, V, VI, VII, & IX7; Defs.’
Counterclaim, ECF No. 17; see also Mem. P. & A. Supp. Pl.’s Mot. Dismiss (Pl.’s Partial MTD),
ECF No. 17-1. Defendants did not oppose this motion within time, but now move to for leave to
late file their opposition, Defs.’ Mot. Leave Late File Opp’n Pl.’s Mot. Dismiss, ECF No. 29, a
motion which Plaintiff opposes, Pl.’s Opp’n Defs.’ Mot. Late File Opp’n (Pl.’s Opp’n Leave
File), ECF No. 30. Defendants’ motion for leave to late file its opposition contained as an
attachment Defendants’ substantive opposition to Plaintiff’s partial motion to dismiss, see
generally Defs.’ Mot. Leave File, Defs.’ Mem. Opp’n Pl.’s Mot. Dismiss Counterclaim (Defs.’
Opp’n), ECF No. 29-1, and Plaintiff’s opposition to Defendants’ motion for leave also contains
Plaintiffs’ substantive responses to Defendants’ motion, see generally Pl.’s Opp’n Leave File.
Therefore, having determined that Defendants should be granted leave to late file their
opposition,8 and having considered the substantive arguments presented in Defendants’
 Count I: Violations of the Equal Credit Opportunity Act, 18 U.S.C. § 1961 et seq.
 Count II: Violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692(g)
 Count III: “Fraud Misrepresentation and Failure to Disclose”
 Count IV: Breach of Contract
 Count V: “Conflict of Interest, Breach of Covenant of Good Faith and Fair Dealing”
 Count VI: “Breach of Agency”
 Count VII: Negligence
 Count VIII: Tortious Interference with Contract Rights
 Count IX: “Breach of Fiduciary Duty, Embezzlement Mismanagement of
Government Funds”
Defs.’ Answer at 29–47.
7
Other motions in this matter are also ripe, but the Court does not address them at present
for the reasons stated on the record in the motions hearing of August 23, 2017.
8
Pursuant to Federal Rule of Civil Procedure 6(b), a court may extend deadlines for good
cause when a party “failed to act because of excusable neglect.” Fed. R. Civ. P. 6(b)(1)(B).
“[I]nadvertence, mistake, or carelessness” may qualify as excusable neglect. Pioneer Inv. Servs.
Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 388 (1993); see also 4B Charles A. Wright &
Arthur R. Miller, Federal Practice and Procedure § 1165 (4th ed. 2015).
6
opposition and Plaintiff’s responses to them, Plaintiff’s motion to partially dismiss the
counterclaim is ripe for adjudication.
III. LEGAL STANDARD
When evaluating a motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim, a court construes the complaint in the light most favorable to
the non-movant and accepts as true all reasonable factual inferences that can be drawn from
well-pleaded factual allegations. In re United Mine Workers of Am. Employee Benefit Plans
Litig., 854 F. Supp. 914, 915 (D.D.C. 1994). The same standards are applicable when a plaintiff
moves to dismiss a defendants’ counterclaims. Wharf, Inc. v. District of Columbia, 232 F. Supp.
3d 9, 15–16 (D.D.C. 2017). In deciding a Rule 12(b)(6) motion, a court may consider “the facts
alleged in the complaint, documents attached as exhibits or incorporated by reference in the
complaint.” Ward v. D.C. Dep’t of Youth Rehab. Servs., 768 F. Supp. 2d 117, 119 (D.D.C. 2011)
(citations omitted).
Here, the Court will permit Defendants to late-file their opposition. Plaintiff does not
argue that it would be prejudiced by consideration of Defendants’ opposition. ECF No. 30 at 1–
2. Any delay will be negligible because the Court is now ready to turn to Plaintiff’s motion to
dismiss, and now has Defendants’ opposition before it. Nor does Plaintiff identify any concrete
reason to fear delay. Although Defendants admit that their failure to timely file their opposition
was inadvertent, there is no evidence of bad faith. Considering the legal arguments from both
sides will assist the Court, especially because the Court is hesitant to grant a motion to dismiss as
conceded. Cohen v. Bd. of Trustees of the Univ. of the D.C., 819 F.3d 476, 482 (D.C. Cir. 2016)
(counseling against granting a motion to dismiss as conceded because it “risks circumventing the
clear preference of the Federal Rules to resolve disputes on their merits”). The Court therefore
grants Defendants leave to late file their opposition. Cf. Cohen, 819 F.3d at 479 (stating that the
four factors to be considered in analyzing a Rule 6(b) motion are “(1) the risk of prejudice to the
other side; (2) the length of the delay and the potential impact on judicial proceedings; (3) the
reason for the delay and whether it was within counsel’s reasonable control; and (4) whether
counsel acted in good faith.” (citations omitted)).
7
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) ‘tests the legal
sufficiency of a complaint,’ or in this case, a counterclaim. The motion does not test a plaintiff's
ultimate likelihood of success on the merits, but only forces the court to determine whether a
plaintiff has properly stated a claim.” Boland v. Wasco, Inc., 50 F. Supp. 3d 1, 4–5 (D.D.C.
2014) (quoting Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002) and citing ACLU
Found. of S. Cal. v. Barr, 952 F.2d 457, 467 (D.C. Cir. 1991)). In order to survive such a motion,
the counterclaim must “contain sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation
marks omitted); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562 (2007). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility
that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 557).
“The court need not accept as true inferences unsupported by facts set out in the complaint or
legal conclusions cast as factual allegations.” Boland, 50 F. Supp. at 5 (citing Warren v. District
of Columbia, 353 F.3d 36, 39–40 (D.C. Cir. 2004)). “Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678
(citing Twombly, 550 U.S. at 555).
IV. DISCUSSION
Plaintiff moves to dismiss Counts I, II, III, V, VI, and IX of Defendants’ counterclaim.
The Court addresses each in turn.
A. Count I—ECOA
Count I of Defendants’ counterclaim raises three claims under the Equal Credit
Opportunity Act (ECOA): race-based discrimination, income-based discrimination, and
retaliation. Pl.’s Partial MTD at 3, ECF No. 17-1. Under the ECOA,
8
It shall be unlawful for any creditor to discriminate against any applicant
with respect to any aspect of a credit transaction—
(1) on the basis of race [or] color . . .
(2) because all or part of the applicant’s income derives from any public
assistance program; or
(3) because the applicant has in good faith exercised any right under this chapter.
15 U.S.C. § 1691(a). Defendants argue that Plaintiff has discriminated against them in each of
the three prohibited ways—on the basis of race, because of Mr. Green’s race and the race of
Defendants’ tenants; on the basis of income, because many of Defendants’ tenants receive public
assistance; and on the basis of exercising rights, because Mr. Green complained to the Office of
the Comptroller of Currency. Defs.’ Answer at 29–35, ECF No. 12.
As a threshold matter, the Court addresses Plaintiff’s argument that a discrimination
claim under the ECOA requires the applicant to demonstrate an “adverse action.” Subsection (d)
of 15 U.S.C. § 1691 entitles an applicant to “a statement of reasons” from a creditor for any
“adverse action” taken against the applicant, and provides a definition of an adverse action. Id.
§ 1691(d). Plaintiff asserts that the actions the Defendants complain of here, such as allegedly
unfavorable terms in the Forbearance Agreement, are excluded from being adverse actions
because the statutory definition does not include “a refusal to extend additional credit under an
existing credit arrangement where the applicant is delinquent or otherwise in default, or where
such additional credit would exceed a previously established credit limit.” Id. § 1691(d)(6); see
also Pl.’s Partial MTD at 10 (“The Defendants’ failure to allege that they were not in default of
their loans is actually fatal to each of their ECOA claims. To prevail on any of their ECOA
claims, the Defendants must show they suffered an adverse action.”).
However, this Court doubts that the statutory definition of an adverse action must be met
for an ECOA discrimination claim. Although some out-of-circuit courts have adopted the
9
interpretation of the statute endorsed by Plaintiff,9 this Court is skeptical of their reasoning. First,
no court in this jurisdiction has advanced Plaintiff’s view. Second, the definition of adverse
action appears in a separate subsection from the definition of a discrimination claim. The
definition of a discrimination claim does not reference the phrase “adverse action” at all, and in
fact refers to “a credit transaction” instead. Nor is the presence of a definition of adverse action a
mystery, because the statute contains a separate requirement in subsection (d) that creditors
notify applicants after taking adverse actions. Third, Plaintiff’s view appears to contradict that of
other courts in this jurisdiction. In Hildebrandt v. Vilsack, 102 F. Supp. 3d 318, 323 (D.D.C.
2015), a court rejected a creditor’s argument that “under the ECOA the [plaintiffs] must show
that they suffered an ‘adverse action’” to state a discrimination claim. Instead, the court in
Hildebrant found that view to be “wrong, because it cites a subsection of the ECOA that has
9
See, e.g., Molina v. Aurora Loan Servs., LLC, 635 F. App’x 618, 624 (11th Cir. 2015)
(“To be liable under the ECOA, a creditor must take an ‘adverse action’ against the plaintiff. [15
U.S.C.] § 1691(d). The Act defines ‘adverse action’ . . . . It also carves out exceptions for actions
that are not considered ‘adverse actions.’ Among the actions not considered adverse is the refusal
to extend additional credit under an existing credit arrangement where the applicant is delinquent
or otherwise in default. See id. The regulations propagated under the ECOA similarly exclude
from the definition of ‘adverse action’ any action or forbearance taken with respect to an account
that is delinquent or in default. See 12 C.F.R. § 202.2(c)(2)(ii). It is undisputed that [the plaintiff]
had already defaulted on her mortgage loan when she requested a loan modification. Under the
plain language of the ECOA and its regulations, [the defendants’] refusal to allow [the plaintiff]
to modify her loan, which was in foreclosure, does not constitute an adverse action and is
therefore not actionable.”), cert. denied, 136 S. Ct. 2465 (2016); Stefanowicz v. SunTrust Mortg.,
No. 3:16-00368, 2017 WL 1103183, at *7–8 (M.D. Pa. Jan. 9, 2017), (rejecting a plaintiff’s
ECOA discrimination claim, in part because “[i]t is also clear from the facts alleged that [the
plaintiff] was in default at the time of the alleged discrimination, under which circumstances the
defendants’ failure to allow her to modify her loan does not constitute a prohibited ‘adverse
action’” (citations omitted)), report and recommendation adopted, No. 3:16-CV-00368, 2017
WL 1079163 (M.D. Pa. Mar. 22, 2017); Berry v. Wells Fargo, No. 15-5269, 2015 WL 8601866,
at *4 (N.D. Ill. Dec. 14, 2015) (rejecting a Plaintiff’s ECOA discrimination claim because “the
latest alleged ‘credit transaction’ that could qualify as an ‘adverse action’ under the ECOA was
[the plaintiff’s] November 2009 attempt to receive a loan modification. The foreclosure
proceedings and all the allegations that accompany those proceedings do not fall within the
‘adverse action’ definition necessary to state an ECOA claim”).
10
nothing to do with the statute’s prohibition on discriminatory conduct. The term ‘adverse action’
appears in a subsection setting forth the statute’s requirements for the provision of notice to a
credit applicant. The ECOA’s prohibition on discrimination, however, is provided in a different
subsection of the statute, and is articulated in broad terms . . . .” Id. (internal citations omitted);
see also Love v. Johanns, 439 F.3d 723, 732 (D.C. Cir. 2006) (rejecting plaintiffs attempt to state
a claim under the ECOA based on an agency’s failure to investigate their discrimination claims
by interpreting the “credit transaction” language of the ECOA, not the definition of an “adverse
action”). Therefore, it appears to this Court that discrimination in a credit transaction, not an
adverse action, is the appropriate standard for a discrimination claim under § 1691(a). But,
because Defendants’ counterclaim fails regardless, the Court need not decide the adverse action
issue here.
Plaintiff claims that Defendants fail to state a claim because “Defendants’ discrimination
claims are supported by nothing more than naked conclusory leaps; not any actual facts.” Pl.’s
Partial MTD at 3. The Court agrees that Defendants have insufficiently pled their claims of race-
based and income-based discrimination.
Defendants describe their claim for race-based discrimination in only the most threadbare
and conclusory fashion. See, e.g., Defs.’ Answer at 32 (“Based on information and belief,
Presidential Bank treated Borrowers [sic] minority owned LLCs (African American) and the
Guarantor (African American) different [sic] than they treated their white commercial credit
applicants.”); Defs.’ Answer at 32 (“Based on information and belief, Presidential Bank as a
creditor acted with specific intent to discriminate against Borrowers . . . . Presidential Bank’s
racially discriminatory activities occurred before, during, and after the extension of credit and
extension of forbearance agreements . . . . Based upon information and belief, Presidential’s
11
‘disparate treatment’ can be found through comparing the treatment of Borrowers as applicants
who receive different treatment than non-minority borrowers for no discernable reason other than
a prohibited basis such as race or color.”); Defs.’ Answer at 33 (“Borrowers [sic] African
American race and association with low-income African American tenants . . . was a substantial
motivating reason for Presidential’s decision to refused [sic] to offer Borrowers unfair credit and
unconscionable forbearance terms . . . .”).
These claims are precisely the “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements” that the Supreme Court has held are insufficient to
state a claim. Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Defendants present no
facts from which they could conclude that race was a factor in Plaintiff’s treatment of them. See
also BEG Investments, LLC v. Alberti, 34 F. Supp. 3d 68, 85 (D.D.C. 2014) (“[G]eneralized
claims of discrimination cannot survive a motion to dismiss if not supported by alleged facts.”
(citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Defendants do not provide “sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). Indeed, Defendants’
allegation that, for example “Presidential Bank as a creditor acted with specific intent to
discriminate against Borrowers,” Defs.’ Answer at 32, is nothing more than a legal conclusion,
and is thus “not entitled to the assumption of truth,” Iqbal, 556 U.S. at 680, see also id. at 679
(“While legal conclusions can provide the framework of a complaint, they must be supported by
factual allegations.”). Having identified Defendants’ conclusory statements, there are no well-
12
pleaded factual allegations remaining to support Defendants’ claim of race-based discrimination,
and dismissal is therefore appropriate.10
Of course, obtaining direct evidence of discrimination, especially prior to discovery, may
be difficult. The Supreme Court has considered analogous concerns. For example, Twombly dealt
with antitrust, where it can be difficult to establish whether conduct is the result of an agreement
or independent action. The Supreme Court required the plaintiff to “place[ the complaint] in a
context that raises a suggestion of a preceding agreement, not merely parallel conduct that could
just as well be independent action.” Twombly, 550 U.S. at 557. Other courts have since
concluded that this requirement may be met by, for example, “provid[ing] some circumstantial
facts, including historical supply and consumption levels, market prices, profit levels, and the use
the industry reports, to support an inference that the defendants engaged in not merely parallel
conduct.” City of Moundridge v. Exxon Mobil Corp., 250 F.R.D. 1, 5 (D.D.C. 2008). As the
Supreme Court noted in Iqbal, a case in which the plaintiff had attempted to sufficiently plead
purposeful and unlawful discrimination, “Rule 8 marks a notable and generous departure from
the hypertechnical, code-pleading regime of a prior era, but it does not unlock the doors of
discovery for a plaintiff armed with nothing more than conclusions.” Iqbal, 556 U.S. at 678–79.
10
Although the Court notes that its decision may appear in tension with the D.C.
Circuit’s holding in the employment discrimination context that “all a complainant ha[d] to say
to survive a motion to dismiss under Rule 12(b)(6)” was something to the effect of “I was turned
down for a job because of my [protected status].” Sparrow v. United Air Lines, Inc., 216 F.3d
1111, 1115 (D.C. Cir. 2000). The D.C. Circuit’s holding in Sparrow drew from Conley v.
Gibson, 355 U.S. 41, 45–46 (1957), which the Supreme Court has since abrogated in Bell
Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). See,
e.g., Jackson v. Acedo, 08-cv-1941, 2009 WL 2619446, at *4 (D.D.C. Aug. 26, 2009)
(concluding that “Sparrow is no longer binding authority in light of” Twombly); Ali v. D.C.
Gov’t, 697 F. Supp. 2d 88, 92 (D.D.C. 2010) (describing the “questions that [have] arise[n] about
the continued validity of Sparrow in light of Twombly and Iqbal”).
13
Here, analogously, the counterclaim is devoid of any circumstantial facts, history, or context
which would support an inference that Plaintiff acted for discriminatory reasons.
Similarly, Defendants’ allegations of income-based discrimination likewise fail to state a
claim. See, e.g., Defs.’ Answer at 34 (“Presidential allowed the condition of the collateral
properties to deteriorate because of Presidential’s callous disregard for the African American
tenant and African American neighborhood in which borrowers’ properties were located. . . .
Borrowers [sic] tenants [sic] source of income, African American race and association with low-
income African American neighborhoods were substantial motivating reasons for Presidential’s
decision to refuse to repair borrowers’ properties.”). Like Defendants’ allegations of race-based
discrimination, these are merely conclusory statements which the Court must not grant the
assumption of truth.
The Court rejects out of hand Defendants’ implications that Plaintiff seeks to force them
to establish a prima facie case at the motion to dismiss stage.11 Defs.’ Opp’n at 3–4, ECF No. 29-
1. Likewise, the requirements of Twombly and Iqbal do not represent a “heightened pleading
standard.” Defs.’ Opp’n at 3–4. Finally, Defendants argue that Iqbal and Twombly do not apply
to their claims. Defs.’ Opp’n at 5–7. However, the Supreme Court has clearly stated that its
holding should not be so cabined by subject-area. See Ashcroft v. Iqbal, 556 U.S. 662, 684
(2009) (“Respondent first says that our decision in Twombly should be limited to pleadings made
in the context of an antitrust dispute. This argument is not supported by Twombly and is
incompatible with the Federal Rules of Civil Procedure. Though Twombly determined the
11
Contrary to Defendants’ implications, the Court does not reach the applicability of the
McDonnell-Douglas burden-shifting framework or apply that framework to reach its conclusion
here that Defendants have failed to state a claim on which relief can be granted. Cf. Defs.’ Opp’n
at 7–8.
14
sufficiency of a complaint sounding in antitrust, the decision was based on our interpretation and
application of Rule 8. That Rule in turn governs the pleading standard ‘in all civil actions and
proceedings in the United States district courts.’ Our decision in Twombly expounded the
pleading standard for ‘all civil actions, and it applies to antitrust and discrimination suits alike.”
(internal citations omitted)).
Unlike their claims of race-based and income-based discrimination, Defendants have
sufficiently pled their allegations that they were retaliated against. Plaintiff again argues that
Defendants’ counterclaim fails because Defendants have not alleged an adverse action under the
statutory definition. Pl.’s Partial MTD at 9–10. However, for the reasons set forth above, it is not
clear to the Court that it is the statutory definition of an adverse action that would trigger the
notification requirement that is relevant for determining whether a party has pled a claim for
retaliation. Thus, absent further briefing on the issue, the Court does not dismiss the portion of
Count I of Defendants’ counterclaim that alleges retaliatory discrimination based on Defendants’
complaints.12
B. Count II—FDCPA
Count II of Defendants’ counterclaim asserts claims under the Fair Debt Collection
Practices Act (FDCPA). Defs.’ Answer at 35. Plaintiff argues that Count II should be dismissed
because Plaintiff is not a debt collector. Pl.’s Partial MTD at 11. Defendants have stipulated their
agreement that this count be dismissed. See generally Defs.’ Opp’n at 1 (“Defendants hereby
12
Plaintiff also argues that Defendants’ ECOA claims must be dismissed because
“Defendants expressly waived any such claim in the Forbearance Agreement itself.” Pl.’s Partial
MTD at 7. However, because this argument implicitly relies on the validity of the Forbearance
Agreement, and this Court has stayed this action while the Maryland Court of Special Appeals
addresses a case which may affect the validity of the Forbearance Agreement, the Court declines
to dismiss on this ground. If appropriate, Plaintiff may of course renew its motion to dismiss on
this ground.
15
concede its allegations based on the Fair Debt Collections Practices Act while maintaining the
remaining counts as clarified herein.”). The Court therefore grants Plaintiff’s motion to dismiss
Count II of Defendants’ counterclaim.
C. Count III—Fraud
Count III of Defendants’ counterclaim asserts that Plaintiff engaged in fraudulent
misrepresentation by “knowingly misstat[ing] material facts and knowingly conceal[ing]
material facts, which it has a duty to disclose and upon which the borrower has relied.” Defs.’
Answer at 36. Plaintiff argues that Count III should be dismissed because it stems from the same
factual basis as the alleged breach of the Forbearance Agreement described in Count IV. Pl.’s
Partial MTD at 11–12; see also Pl.’s Partial MTD at 12 (“It is well established in the District of
Columbia that a litigant may not take what is plainly a breach of contract claim and morph it into
a tort claim for fraud.”).
Defendants do not contest Plaintiff’s legal argument, but assert in their opposition that
“Plaintiff’s fraud began before the forbearance agreement was signed; there was fraud in the
inducement in addition to the fraud predicated upon contractual duties.” Defs.’ Opp’n at 10.
According to Defendants, “Plaintiff in its capacity as banker induced Defendants to enter into the
Forbearance Agreement with fraudulent and false misrepresentations that it would not foreclose
upon Defendants’ properties and that it would manage said properties in the proper manner
thereby preserving the value of Defendants’ assets.” Defs.’ Opp’n at 11.
However, Count III of Defendants’ counterclaim—unlike Defendants’ opposition—does
not allege fraud in the inducement, or refer to any allegedly fraudulent conduct at all prior to the
signing of the Forbearance Agreement. See, e.g., Defs.’ Answer at 36 (“Presidential Bank
negligently represented facts to Borrows and the court when Presidential represented that
16
Borrowers defaulted on their mortgages.”); Defs.’ Answer at 36 (“As the receiver of Borrowers’
rental income Presidential Bank failed to provide Borrowers any accounting or accountability.”);
Defs.’ Answer at 37 (“Presidential Bank did not permit Borrowers to withdraw funds to pay
budgeted project expenses or to provide for debt service payments . . . .”); Defs.’ Answer at 36–
37 (“Presidential Bank . . . intentionally failed to pay Borrowers’ mortgages . . . .”); see also Pl.’s
Opp’n Leave File, ECF No. 30 at 6 (“Defendants fail to cite any paragraph in their Counterclaim
where they allegedly make any such allegations [about fraud in the inducement]. That is because
the Counterclaim states nothing of the sort.”). Defendants have neither sought nor received leave
to amend their counterclaim, and may not expand its scope through their opposition. See, e.g.,
Haynes v. Navy Fed. Credit Union, 52 F. Supp. 3d 1, 8 (D.D.C. 2014) (“[A] party may not
amend its complaint or broaden its claims through summary judgment briefing.” (collecting
citations)). Therefore, the Court will dismiss Count III of Defendants’ counterclaim, and if
Defendants wish to assert fraudulent inducement they must move for leave to amend their
counterclaim.
D. Counts V, VI, VII, IX
Count V of Defendants’ counterclaim asserted that Plaintiff had a conflict of interest
when it both was the lender and decided how to make payments on the loans, and that Plaintiff
assumed a “fiduciary duty” toward Defendants that it breached by not acting in good faith with is
handling of rental income and the rental properties. Defs.’ Answer at 40–42. Count VI claims
that “Presidential created an agency relationship” with Defendants when it “assumed control of
Borrowers’ business” and then breached this relationship by its mismanagement of the properties
and the rental income. Defs.’ Answer at 43. Count VII argues that Plaintiff was negligent
because it “failed to perform its duties with reasonable care and in a manner consistent with the
17
standards of the banking industry” through its mismanagement of the rental funds and properties.
Defs.’ Answer at 43. Count IX argues that “Presidential’s actions breached various duties
including fiduciary, trust and agency” through mismanaging the rental income. Defs.’ Answer at
46.
Plaintiff argues that Counts V, VI, VII, and IX of Defendants’ counterclaim are “a breach
of contract claim with other names” and should therefore be dismissed as duplicative of
Defendants’ actual breach of contract claim (which is contained Count IV). Pl.’s Partial MTD at
12–14. “As a matter of judicial economy, courts should dismiss claims that are duplicative of
other claims.” Wultz v. Islamic Republic of Iran, 755 F. Supp. 2d 1, 81–82 (D.D.C. 2010) (citing
McGee v. District of Columbia, 646 F. Supp. 2d 115, 121–22 (D.D.C. 2009) and Park v. Hyatt
Corp., 436 F. Supp. 2d 60, 66 (D.D.C. 2006)). “Duplicative claims are those that stem from
identical allegations, that are decided under identical legal standards, and for which identical
relief is available.” Wultz, 755 F. Supp. 2d at 82 (citing McGee, 646 F. Supp. 2d at 121–22).
Count IV of the counterclaim alleges that Plaintiff committed breach of contract by, inter
alia, “fail[ing] to disburse lockbox account funds to timely pay Borrowers’ mortgages,” which
violated the Forbearance Agreement and caused Borrowers to default. Defs.’ Answer at 38.
Defendants also argue that Plaintiff “allowed Borrowers’ insurance to lapse,” “withheld or
delayed payment of ‘Approved Expenses’ requested by Borrowers [and] necessary for the
preservation of the properties,” and “failed to apply payments to the principal balance of the
Notes.” Defs.’ Answer at 39. In short, Defendants argue that Plaintiff breached the Forbearance
Agreement by mis-allocating Defendants’ payments, causing Defendants a bevy of harms,
including default, deteriorating conditions in the properties, and lapsed insurance.
18
Defendants do not defend Counts V, VI, or VII of their counterclaim from Plaintiff’s
assertion that they are duplicative of Count IV. Because Defendants do not respond to Plaintiff’s
arguments concerning these counts, Defendants have waived any objection, and dismissal is
therefore appropriate. The Court further notes, that, in its independent judgment, Counts V, VI,
and VII are duplicative of the breach of contract claim contained in Count IV of Defendants’
counterclaim.13
Defendants do argue that at least part of Count IX is not duplicative. According to
Defendants, the “Mismanagement of Government Funds is a separate allegation distinct from the
breach of contract claims previously set forth.” Defs.’ Opp’n at 11. Mismanagement of
Government Funds is one of several assertions contained in Count IX of Defendants’
counterclaim. See Defs.’ Answer ¶¶ 109–16. Although the thrust of Count IX is difficult to
discern, the text of Count IX appears to rely entirely on past portions of the counterclaim
describing the wrongful actions taken by Plaintiff. See, e.g., Defs.’ Answer at 46 (arguing that
“[a]s stated hereinabove, Presidential’s actions breached various duties including fiduciary, trust
and agency’ and “[a]s a direct and proximate result of Presidential’s actions, Borrowers have
13
Counts V, VI, and VII of Defendants’ counterclaim each essentially restate the same
claims that Plaintiff wrongfully violated the Forbearance Agreement by misdirecting funds.
Count V of Defendants’ counterclaim argues that Plaintiff’s breach “illuminated the conflict [of
interest] when it breached the covenant of good faith and fair dealing, using its ‘sole discretion’
to not pay borrowers’ loans thus intentionally placing Borrowers in default.” Defs.’ Answer at
41; see also Defs.’ Answer at 42 (“[I]t was Presidential that caused the arrearages, the lack of
insurance coverage and failure to maintain the buildings in proper order that led to the so-called
default.”). Count VI of Defendants’ counterclaim argues that Plaintiff created and then breached
an agency relationship with Defendants by “assum[ing] control of the Borrowers’ business” and
then “fail[ing] to manage the rental revenue, fail[ing] to pay expenses and fail[ing] to maintain
the rental properties.” Defs.’ Answer at 43. Count VII of Defendants’ counterclaim argues that
Plaintiff was negligent in “fail[ing] to account to Borrowers for its funds, fail[ing] to timely pay
Borrowers’ mortgages, fail[ing] to pay for services rendered by Borrowers’ vendors and fail[ing]
to pay for Borrower’s insurance premiums.” Defs.’ Answer at 44.
19
suffered significant harm”); Defs.’ Answer at 47 (asserting, vaguely, that “Presidential engaged
in a course of action causing Borrower’s business to fail” without detailing any specific
allegations). These claims therefore appear to duplicate the prior counts of the counterclaim,
themselves duplicative of Count IV for breach of contract.
Furthermore, Defendants argue only that the claim that Plaintiff misused government
funds is unique. See Defs.’ Opp’n at 11–12. This phrase appears in precisely two locations in the
counterclaim—in the heading for Count IX, which reads “Breach of Fiduciary Duty,
Embezzlement Mismanagement of Government Funds” and in paragraph 113, which states “As a
direct and proximate result of Presidential’s actions, Borrowers have suffered significant harm
and the government may have been defrauded out of hundreds of thousands of dollars.” Defs.’
Answer at 46 (emphasis added). This oblique reference would be subject to dismissal for failing
to meet the pleading standards of Rule 8 even if it were not duplicative. Cf. Eastland v. Bush,
No. 91-2769, 1991 WL 262154, at *1 (D.D.C. Nov. 26, 1991) (“Rule 8 requires that the
complaint contain a ‘short and plain statement’ of the plaintiff’s claims. This statement need not
use formal legal language; however, it must be clear and understandable. The purpose of this
requirement is to give the defendant clear notice of what plaintiff is seeking so that the defendant
may adequately defend himself or herself.”).14 Defendants state no cause of action, nor do they
14
Because Defendants allege that Plaintiff may have “defrauded” the government out of
hundreds of thousands of dollars, it is likely that the heightened pleading standard of Fed. R. Civ.
P. Rule 9(b) applies. Rule 9(b) requires that a party “state with particularity the circumstances
constituting fraud or mistake.” As Defendants did not even meet Rule 8(a)’s pleading standard
with this allegation, they have also failed to meet Rule 9(b)’s heightened standard. See Acosta
Orellana v. CropLife Int’l, 711 F. Supp. 2d 81, 113 n.37 (D.D.C. 2010) (“[B]ecause the plaintiffs
do not satisfy even the pleading standard of Rule 8(a), it is unnecessary to apply the requirements
of Rule 9(b), even if the defendants’ position that Rule 9(b) controls is correct.”).
20
explain how they would have standing to pursue a claim that the government was defrauded.15
Defendants may not amend their counterclaim by stealth through their opposition to Plaintiff’s
motion to partially dismiss. See, e.g., Haynes v. Navy Fed. Credit Union, 52 F. Supp. 3d 1, 8
(D.D.C. 2014) (“[A] party may not amend its complaint or broaden its claims through summary
judgment briefing.” (collecting citations)).
V. CONCLUSION
For the foregoing reasons, Plaintiff’s Motion to Partially Dismiss Defendants’
Counterclaim (ECF No. 17) is GRANTED IN PART and DENIED IN PART, Defendants’
Motion for Leave to Late File Opposition Concerning Lis Pendens (ECF No. 26) is DENIED AS
MOOT, and Defendants’ Motion for Leave to Late File Its Opposition to Plaintiff’s Motion to
Partially Dismiss Defendants’ Counterclaim (ECF No. 29) is GRANTED. An order consistent
with this Memorandum Opinion is separately and contemporaneously issued.
Dated: September 22, 2017 RUDOLPH CONTRERAS
United States District Judge
15
Even in their opposition, it is unclear if Defendants are simply predicting that the
government may bring some type of prosecution, or attempting to raise a civil RICO claim. See
Defs.’ Opp’n at 11 (“[T]he truth of this allegation may trigger additional charges, particularly
under the federal RICO provisions . . . the government would pursue and potentially hold
Defendants liable . . . .”).
21