ACA Financial Guaranty v. City of Buena Vista, Virginia , 917 F.3d 206 ( 2019 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1268
ACA FINANCIAL GUARANTY CORPORATION; UMB BANK, NA,
Plaintiffs - Appellants,
v.
CITY OF BUENA VISTA, VIRGINIA; PUBLIC RECREATIONAL
FACILITIES AUTHORITY OF THE CITY OF BUENA VISTA, VIRGINIA,
Defendants - Appellees,
and
RUSSELL J. SINGER and DOUGLAS L. SBERTOLI, SR.,
Trustees.
Appeal from the United States District Court for the Western District of Virginia, at
Lynchburg. Norman K. Moon, Senior District Judge. (6:17-cv-00013-NKM-RSB)
Argued: October 31, 2018 Decided: February 21, 2019
Before GREGORY, Chief Judge, and THACKER and QUATTLEBAUM, Circuit
Judges.
Affirmed by published opinion. Judge Quattlebaum wrote the opinion, in which Chief
Judge Gregory and Judge Thacker joined.
ARGUED: Scott Carlton Ford, Brian Aaron Richardson, FORD RICHARDSON, PC,
Richmond, Virginia, for Appellants. Kevin M. Rose, BOTKINROSE PLC,
Harrisonburg, Virginia, for Appellees. ON BRIEF: Michael W. Sharp, BOTKINROSE
PLC, Harrisonburg, Virginia; Brian J. Kearney, W. Wayne Heslep, HESLEP &
KEARNEY PC, Lexington, Virginia, for Appellees.
2
QUATTLEBAUM, Circuit Judge:
In this appeal, we review an order dismissing a complaint that arose from a
troubled bond transaction involving a municipal golf course in the City of Buena Vista,
Virginia (the “City”). Bonds were issued to refinance debt on the golf course and the
repayment of the bonds depended on the City making payments on the lease of the golf
course. When it failed to do so, this litigation ensued. The primary question on appeal is
whether the City’s obligation to make rent payments is legally enforceable when the
obligation is expressly subject to the City’s annual decision to appropriate funds. Finding
that the answer is no, we affirm the district court’s dismissal of the complaint.
I.
Plans for a golf course in the City date back to 2002. In that year, the
Commonwealth of Virginia created the Public Recreational Facilities Authority (the
“Authority”) to construct, operate and maintain public recreational facilities for the
benefit of the City. In 2003, the Authority, at the request of the City, took out a loan to
finance the construction of a municipal golf course called the Vista Links Golf Club (the
“Golf Course”). 1
1
The facts that led to the City’s interest in a golf course and the subsequent
problems with this course are not in the record nor material to this Court’s decision.
However, the events that are described in this case generally follow trends in the golf
industry. In the early 2000s, there was a noticeable rise in the popularity of golf. See
Steven J. Wernick, Diamonds in the Rough: Judicial Reaction to Golf Course
Conversations, 2017 WL 1098131, 30 No. 4 ZONING & PLANNING LAW REPORT 1 (April
2007). Tiger Woods’ dramatic entry and domination in the golf world brought a wave of
new golfers to the sport. Id. What is known as the “Tiger Woods Effect” led to increased
television ratings and golf related sales. Id. However, monetization of the increased
(Continued)
3
In 2005, the City and the Authority sought to refinance the loan on the Golf
Course. To accomplish this, the Authority issued over $9 million in bonds. The Authority
and SunTrust Bank (the “Bank”) entered into a Trust Agreement which described how
the bonds would be issued, how they would be repaid and the rights of the parties in the
event the bonds were not repaid. 2 The Authority used the bond proceeds to pay off the
existing loan on the Golf Course.
To have a source of revenue to repay the bonds, the Authority leased the Golf
Course to the City. Under the Lease Agreement, the City agreed to make rent payments
as well as maintain and operate the Golf Course. The Authority agreed that the rent
payments would be used to repay the bonds. The rent payments from the City, therefore,
were the financial linchpin of the transaction. Critically, however, the City never made an
absolute commitment to make the rent payments. Under the Lease Agreement and the
popularity of golf did not always extend to golf courses. Id. While the number of golf
courses increased, the number of rounds of golf played per year roughly stayed the same.
Thus, some golf courses became the victim of too much supply and not enough demand.
According to the National Golf Foundation, a trend began in 2006 where each year
significantly more golf courses closed than opened. National Golf Foundation, NGF
Issues 2018 Golf Industry Report: Consolidated State-of-the-Industry Report Features
Participation and Course Supply Dada, NGF Quarterly, May 2018,
https://www.thengfq.com/2018/05/ngf-issues-2018-golf-industry-report/.
2
UMB Bank, N.A. is the successor-in-interest to SunTrust Bank.
4
other financing documents, the City’s obligation was subject to its decision to appropriate
funds each year. 3
Other documents in the bond transaction gave the Bank rights as a creditor in the
event the bonds were not repaid. The City issued a Deed of Trust to the Bank where the
City pledged its existing City Hall building and police station as security. Similarly, the
Authority issued a Deed of Trust to the Bank where the Authority pledged the Golf
Course as security. Both the City Deed of Trust and the Authority Deed of Trust
(collectively “Deeds of Trust”) along with the Trust Agreement contain provisions
outlining the Bank’s creditor rights to this collateral.
The Bank retained ACA Financial Guaranty Corporation (“ACA”) to provide
insurance on the bonds. Through this arrangement, ACA received insurance premiums,
and, in return, agreed to pay off the bonds if there was a default in repayment. In such a
situation, ACA would front the costs of paying off the bonds and then assume the Bank’s
rights to receive rent payments and to enforce other creditor rights.
In 2010 and 2011, the City failed to appropriate enough money to fully pay the
rent due on the Golf Course lease. As a result, the Authority could not repay the bonds.
After discussions and negotiations, the parties entered into the Forbearance Agreement.
3
The reason for this arrangement is not clear from the record. However, because
the City’s charter requires “any bonded indebtedness” to be approved through a
referendum “passed by a majority of the qualified voters,” see City of Buena Vista (Va.)
Charter § 2.214, the City could not simply enter into a long-term loan agreement with the
Bank. An obligation subject to the City’s decision to make appropriations avoided the
requirement of having the electorate vote on the debt.
5
Under the Forbearance Agreement, ACA agreed to make up any shortfall resulting from
the City’s failure to make rent payments. It also agreed to temporarily forego exercising
its creditor rights and remedies. The City and the Authority agreed that ACA would be
reimbursed for any payments it made and agreed that the bonds would still be repaid
from rent payments, although the payment plan was extended over a longer period of
time. Significantly, the Forbearance Agreement also makes clear that the obligation to
make the rent payments is subject to annual appropriations by the City.
In January 2015, the City voted not to appropriate funds for the rent payments and
has not made any payments since that time. As a result, the Authority once again failed to
repay the bonds.
In response, ACA and the Bank filed a ten-count complaint in federal court against
the City and the Authority. The City and the Authority filed a motion to dismiss the
complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The district court
granted the motion to dismiss finding that all ten counts in the complaint failed to state
claims for which relief could be granted. ACA and the Bank appealed all but one of the
counts. We have jurisdiction for this appeal pursuant to 28 U.S.C. § 1291.
II.
This Court reviews a motion to dismiss de novo. Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). In so doing, we follow the
well-settled standard for considering a motion to dismiss under Rule 12(b)(6).
A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the claims
pled in a complaint. To sufficiently plead a claim, the Federal Rules of Civil Procedure
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require that “[a] pleading that states a claim for relief must contain . . . a short and plain
statement of the claim showing that the pleader is entitled to relief . . . .” Fed. R. Civ. P.
8(a). This pleading standard does not require detailed factual allegations. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). However, “it demands more than an unadorned, the-
defendant-unlawfully-harmed-me accusation.” Id. Labels, conclusions, recitation of a
claim’s elements, and naked assertions devoid of further factual enhancement will not
suffice to meet the Rule 8 pleading standard. Id.
To meet the Rule 8 standard and survive a motion to dismiss, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Id. (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557
(2007)). To contain sufficient factual matter to make a claim plausible, the factual content
must “allow the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id.
While we must accept the factual allegations in the complaint as true, we need not
accept a complaint’s legal conclusions. Id. Thus, simply reciting the cause of actions’
elements and supporting them by conclusory statements does not meet the required
standard. Id. The Supreme Court noted that while Rule 8 departed from the
hypertechnical code-pleading requirement of a prior era, it did not “unlock the doors of
discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678–679.
Using this standard, we review ACA and the Bank’s claims on appeal.
7
III.
ACA and the Bank appeal nine of the ten counts that the district court dismissed.
Five of the nine counts at issue on appeal are primarily based on the City’s failure to
make the rent payments because it did not appropriate the funds for such payments.
These five counts all assert a breach of one of the financing documents. The remaining
four counts are implied, declaratory and equitable in nature. We will address the five
breach of contract counts and then the remaining implied, declaratory and equitable
counts.
A.
First, ACA and the Bank argue the district court erred in dismissing their claim
for breach of a third-party beneficiary contract. Although they are not parties to the Lease
Agreement between the City and the Authority, ACA and the Bank claim they can bring
an action under it because they are third-party beneficiaries to that Lease Agreement.
They contend this count states a plausible claim for relief because the City has a legally
enforceable obligation to pay rent under the Lease Agreement. ACA and the Bank claim
that the City breached the Lease Agreement by not paying rent to the Bank.
This argument gets to the crux of the lawsuit—whether the City has an
enforceable obligation to make rent payments. The language of the Lease Agreement is
dispositive on this issue. Section 4.2 of the Lease Agreement states that the City shall pay
the rent to the Bank on behalf of the Authority. This provision is subject to Section 4.5
which states:
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Notwithstanding anything in this Lease Agreement to the contrary, the
City’s obligations to pay the cost of performing its obligations under this
Lease Agreement and the Trust Agreement, including without limitation its
obligation to pay all Basic Rent and Additional Rent, shall be subject to
and dependent upon appropriations being made from time to time by
the City Council for such purpose . . . .
J.A. 54. (emphasis added).
Consistently, Section 6.1(c) states:
Notwithstanding anything contained in this Section to the contrary, failure
by the City to make when due any payment required to be made under
this Lease Agreement or failure by the City to observe and perform any
covenant, condition or agreement on its part to be observed or performed
under this Lease Agreement resulting from failure of the City to
appropriate moneys for such purposes, as described in Section 4.5,
shall not constitute an event of default.
J.A. 61–62. (emphasis added).
This language unambiguously states that the City did not have an enforceable
obligation to make the rent payments. Any obligation of the City to make rent payments
was and is subject to the City appropriating the funds for such payments. In other words,
if the City did not appropriate funds, which it did not, the City had no obligation to make
the rent payments. A party cannot be sued for breaching an obligation it never had in the
first place. To make this even more clear, the Lease Agreement provides that the City’s
failure to make rent payments when no appropriations are made does not constitute an
event of default. Therefore, the claim that the City breached its obligation to the
Authority under the Lease Agreement fails to state a claim for which relief can be
granted.
9
The ACA and the Bank challenge the legal effect of the “subject to appropriation”
language. In considering this challenge, the Virginia Supreme Court’s decision in Dykes
v. Northern Virginia Transp. Dist. Comm’n, 411 S.E.2d 1 (Va. 1991) is instructive. In
that case, a county incurred a long-term debt obligation without holding a referendum on
the debt. Concerned citizens alleged that the obligation violated Virginia’s constitutional
requirement that such obligations be approved by the citizens of the county. The court
rejected the challenge because the county’s obligation, like the obligation in this case,
was subject to the county’s appropriation of funds for that purpose. The court held that
“subject to appropriation” financing does not create constitutional cognizable debt
“because it does not impose any enforceable duty or liability on the County.” Id. at 10.
“[N]either the County nor its general revenues is liable for repayment of the debt incurred
by the bond issue.” Id.
ACA and the Bank argue that Dykes is distinguishable from this case because it
involved a constitutional challenge to a municipal bond transaction brought by concerned
citizens whereas this case is brought by parties to the financing arrangement. This
distinction, however, is immaterial. The court in Dykes looked to the nature of the debt,
not the nature of the parties, and found that “subject to appropriation” financing does not
impose any enforceable duty or liability on the county. Dykes confirms the complaint
fails to state a claim that the City breached its obligation to the Authority under the Lease
Agreement for which ACA and the Bank can recover as third-party beneficiaries.
10
B.
ACA and the Bank next argue the district court erred in dismissing their claim that
the Authority breached the Trust Agreement. In that count, ACA and the Bank claim the
Authority has not made bond payments since 2014. To address this ground, we look to
the language of the Trust Agreement. Under it, the Authority’s obligation to make the
bond payments was dependent on the City paying rent. For example, Section 1001(c) of
the Trust Agreement states:
The Authority covenants to faithfully observe and perform all of its
covenants, conditions and agreements contained in this Trust Agreement
and to promptly pay the principal of and premium, if any, and interest on
the Bonds at the places, on the dates and in the manner specified in this
Trust Agreement and the Bonds; provided, however, that such
obligations are limited obligations of the Authority, payable solely from
the payments of Basic Rent and Additional Rent and the property
secured by the Deed of Trust.
J.A. 118. (emphasis added).
Additionally, Section 1703 of the Trust Agreement states:
Notwithstanding any provision of the Bonds or the Basic Agreements to the
contrary, the obligations of the Authority under the Bonds and the Basic
Agreements are not general obligations of the Authority, but are limited
obligations payable solely from payments of Basic Rent and Additional
Rent and the property pledged pursuant to the Deed of Trust.
J.A. 141. (emphasis added).
As the language quoted above makes clear, the Authority’s promise to make the
bond payments was and is subject to the City’s payment of the rent. Aside from the rent
payments from the City, the Authority had no independent contractual obligation to make
the bond payments. Thus, we find that ACA and the Bank’s claim for breach of the Trust
11
Agreement is not plausible because it is contradicted by the clear and unambiguous terms
of the Trust Agreement. See Foothill Capital Corp. v. E. Coast Bldg. Supply Corp., 259
B.R. 844, 845 (E.D. Va. 2001) (holding that where an agreement is plain and
4
unambiguous, the court is not at liberty to rewrite the contractual language).
C.
ACA and the Bank next claim the district court erred in dismissing their claims for
breach of the City Deed of Trust and breach of the Authority Deed of Trust. They point to
Section 1.2 of the Deeds of Trust, which states that the “Grantor shall perform and
observe all duties, obligations, and requirements and shall comply in all respects with the
terms, covenants, conditions, representations and warranties of the Bonds, this Deed of
Trust, the Lease Agreement and the Trust Agreement.” J.A. 176, 199. Specifically, they
argue that by failing to make bond payments in the manner provided by the Trust
4
ACA and the Bank raise an additional issue regarding this count by asserting that
the Authority also breached the Trust Agreement by not paying revenues derived from
the secured property. However, they did not make this argument before the district court.
We have held that “[w]hen a party in a civil case fails to raise an argument in the lower
court and instead raises it for the first time before us, we may reverse only if the newly
raised argument establishes ‘fundamental error’ or a denial of fundamental justice.” In re
Under Seal, 749 F.3d 276, 285 (4th Cir. 2014) (citing Stewart v. Hall, 770 F.2d 1267,
1271 (4th Cir. 1985)). We find neither fundamental error nor a denial of fundamental
justice here. ACA and the Bank do not even allege in this count that the Authority failed
to pay from the revenues of the property secured by the Deed of Trust. The complaint
simply alleges that the Authority breached the Trust Agreement “in a number of material
ways” and does not give any further specificity. These conclusory allegations fail to meet
pleading requirements prescribed in Twombly and Iqbal. They also defeat any argument
that dismissing ACA and the Bank’s new and improperly late argument constitutes
fundamental error or denial of fundamental justice.
12
Agreement, the City and the Authority breached their obligations under the Deeds of
Trust.
While the Deeds of Trust require the City and the Authority to adhere to the Trust
Agreement, they do not alter or modify the language in Sections 1001(c) and 1703 of the
Trust Agreement discussed above. By the express terms of the Trust Agreement, the
Authority’s obligation to make bond payments is limited to the rent paid by the City. It
makes clear that the City’s obligation to make rent payments is subject to the City’s
decision to appropriate rent money. In the face of those clear contractual terms, the
counts alleging violations of the Deeds of Trust fail to state a claim for which relief can
be granted.
D.
ACA and the Bank next claim the district court erred in dismissing their count for
breach of the Forbearance Agreement. They concede that the City’s rent payment
obligation under the Forbearance Agreement is subject to appropriations by the City.
However, they contend that language does not waive the City’s or the Authority’s duty to
make rent payments under the Forbearance Agreement. We disagree. Section 5.4 of the
Forbearance Agreement provides:
The obligations of the City to make adjusted Basic Rent payments pursuant
to Paragraph 5.1 and deferred payments of Basic Rent pursuant to
Paragraph 5.3 are subject to annual appropriation by the City Council
of amounts sufficient to make such payments. The City agrees that it is the
intention of the City to make annual appropriations in amounts sufficient to
make the payments required under this Agreement.
J.A. 227. (emphasis added).
13
Like the language in the Trust Agreement and the Lease Agreement described
above, this language is unambiguous. Accordingly, the claim for breach of the
Forbearance Agreement fails to state a plausible claim.
ACA and the Bank also claim on appeal the district court erred in dismissing this
count because the City and the Authority made misrepresentations which constituted a
breach of the Forbearance Agreement. However, neither this count nor any part of the
complaint contains any allegations about misrepresentations. Instead, the complaint
alleges that ACA and the Bank “have been damaged as a result of Defendants’ breaches
of their contractual obligations contained in the Forbearance Agreement.” J.A. 32. ACA
and the Bank argue that making a misrepresentation constitutes a breach of the City and
the Authority’s obligations under the Forbearance Agreement. ACA and the Bank thus
contend that they have satisfied their pleading requirements by alleging the City and the
Authority breached their contractual obligations even though they have not specified the
alleged misrepresentations. This position is in direct conflict with Twombly and Iqbal.
Conclusory allegations, such as those pointed to by ACA and the Bank, do not contain
sufficient facts to properly state a claim. The allegations do not specify what contractual
obligation was breached. Neither do they refer to any underlying facts to support the
purported breach. Thus, the complaint is not pled with enough specificity to plausibly
state a claim for breach of the Forbearance Agreement.
E.
Having addressed the breach of contract counts, we turn to ACA and the Bank’s
count for breach of the implied covenant of good faith and fair dealing. ACA and the
14
Bank argue that, even if they have no claim for breach of an express term, they have
stated a plausible claim for breach of the implied covenant of good faith and fair dealing.
Specifically, ACA and the Bank argue that the “subject to appropriation” language is
ambiguous and created discretion on the part of the City. They then claim the City acted
arbitrarily and unfairly by failing to appropriate funds when the City could afford to
appropriate the funds to repay the Golf Course debt. This argument fails for two reasons.
First, the complaint does not allege that the City acted arbitrarily and unfairly by
failing to make appropriations when it could afford to appropriate. When a complaint
fails to state a short and plain statement of the claim showing the pleader is entitled to
relief, the claim fails. See Fed. R. Civ. Pro. 8(a)(2). That is precisely the situation here.
Without factual allegations that support their legal conclusions, ACA and the Bank have
failed to plead a plausible claim for relief.
Second, even if we put aside the deficiencies in the pleadings, the “subject to
appropriation” language is not ambiguous. As stated above, ACA and the Bank are
sophisticated commercial entities engaged in a multi-million dollar municipal finance
transaction. They are to be bound by the plain and unambiguous terms of their contracts.
See Quadros & Assocs., P.C. v. City of Hampton, 268 Va. 50, 54, 597 S.E.2d 90, 93
(2004) (holding that the terms of the parties’ contract were plain and unambiguous and
thus the parties were bound by them). Under Virginia law, the implied covenant of good
faith and fair dealing “cannot be the vehicle for rewriting an unambiguous contract in
order to create duties that do not otherwise exist.” Ward’s Equip., Inc. v. New Holland N.
Am., Inc., 254 Va. 379, 385, 493 S.E.2d 516, 520 (1997).
15
In essence, ACA and the Bank ask us to impose new terms to their deal that save
them from the consequences of the express terms of their agreements. We decline to do
so. We find that ACA and the Bank fail to state a claim that the City and the Authority
breached the implied covenant of good faith and fair dealing.
F.
ACA and the Bank challenge the district court’s dismissal of their declaratory
judgment count. In that count, ACA and the Bank sought a declaration that the financing
documents were legal and enforceable and provide ACA and the Bank with the right to
possess and foreclose on the secured property. The district court dismissed this count on
the basis that the request for declaratory judgment was not a proper standalone claim.
We first consider the request for a declaration that the financing documents were
legal and enforceable. Despite its ruling that the declaratory judgment count was not a
proper standalone claim, the district court proceeded to address the merits of this request
in its consideration of the City Deed of Trust claim. The district court explained that the
only document whose legality was at issue was the City Deed of Trust. The district court
then evaluated that document and found it to be legally valid and enforceable. This
finding was not appealed to this Court, thus there is no longer a dispute regarding its
legality. Since the issue for which the declaration was sought is not in dispute, we decline
to address this issue.
Turning now to the request for a declaration that ACA and the Bank could possess
and foreclose the secured property, counsel for the City and the Authority conceded at
oral argument that, subject to compliance with the terms of the documents, ACA and the
16
Bank have the right to foreclose the property secured by the Deeds of Trust. As there
appears to be no dispute about whether ACA and the Bank have the right to pursue their
creditor rights under the financing documents, we decline to address this issue as well.
G.
ACA and the Bank next argue that the district court erred in dismissing their count
for restitution/unjust enrichment/quantum meruit. They argue that this count properly
states a claim because the enforceability of the financing documents is in dispute. ACA
and the Bank claim that if the City and the Authority are not forced to make bond
payments under the financing documents, they can recover under equitable theories. In
support of this argument, ACA and the Bank appear to assume that a finding that the City
and the Authority were not required to make bond payments equates to a finding that the
financing documents are unenforceable or void.
ACA and the Bank are mistaken. The district court did not find that the financing
documents were unenforceable, nor do we. We, as did the district court, simply recognize
that the express terms of the contract make repayment subject to appropriations by the
City. Virginia law makes clear that “where there is an express and enforceable contract in
existence which governs the rights of the parties, the law will not imply a contract in
contravention thereof.” Royer v. Bd. Of Cty. Supervisors of Albemarle Cty., 10 S.E.2d
876, 881 (Va. 1940). Thus, this count fails to state a claim. 5
5
Additionally, the district court found that ACA and the Bank pled this count “in
the alternative” in the event that the court found the City Deed of Trust void. The district
judge found that the City Deed of Trust was a valid document, and thus dismissed this
(Continued)
17
H.
ACA and the Bank next argue that the district court erred in dismissing their count
for constructive fraudulent inducement. They assert that the complaint states a plausible
claim because they pled that they detrimentally relied on misrepresentations by the City
and the Authority concerning the validity of the financing documents. We find this count
should be dismissed because it was inadequately pled. In the complaint, ACA and the
Bank do not identify any specific misrepresentations of the Authority. Therefore, under
Iqbal and Twombly, any claim of misrepresentation by the Authority fails to assert facts
which could plausibly provide relief. 6
IV.
Having addressed the challenges to the district court’s dismissal of the complaint,
we now turn to the challenge to the district court’s rulings on ACA and the Bank’s
requests to amend. ACA and the Bank did not file a motion to amend. However, they
requested leave to amend five times in their response in opposition to the City and the
Authority’s motion to dismiss. Three requests are mentioned in the body of their response
and two in the footnotes. The district court addressed one of these requests, denying it on
count. While the complaint did not state that this count was pled in the alternative,
counsel for ACA and the Bank made representations at oral argument that the count was
pled in the alternative. Therefore, we find no error in the district court’s determination.
6
The district court dismissed this claim because it found that, like the
restitution/unjust enrichment/quantum meruit claim, ACA and the Bank pled it in the
alternative. As stated in the preceding footnote, we find no error in this determination.
18
the basis that it was not a proper motion. The district court does not appear to have ruled
on the other requests. ACA and the Bank argue that the district court erred by summarily
denying one of their requests to amend and ignoring their other requests to amend.
Generally, courts “should freely give leave [to amend] when justice so requires.”
Fed. R. Civ. P. 15(a)(2). A motion to amend should only be denied when “the amendment
would be prejudicial to the opposing party, there has been bad faith on the part of the
moving party, or the amendment would be futile.” Edwards v. City of Goldsboro, 178
F.3d 231, 242 (4th Cir. 1999) (internal quotation marks omitted). However, a district
court does not abuse its discretion by declining to grant a request to amend when it is not
properly made as a motion. See Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 630–31
(4th Cir. 2008) (affirming denial of leave to amend when the plaintiffs’ request for leave
was in a footnote of their response to a motion to dismiss and in their final sentence of
their objection to the recommendation of the magistrate judge).
ACA and the Bank concede that this Court has held that a district court does not
abuse its discretion by denying contingent requests to amend in the legal memoranda
made in lieu of a motion to amend. They argue, however, that this Court should follow
other circuits which, according to their interpretation, find that requests made in
opposition memoranda constitute a proper motion to amend. We decline to do so.
Even if we did find that ACA and the Bank’s “requests” to amend constituted a
motion to amend, the district court did not abuse its discretion by denying it. A review of
the record indicates that although they informally requested several times to amend, ACA
and the Bank never indicated what amendments they were seeking. They never identified
19
any facts they sought to include in an amendment. They never identified any cause of
action they sought to add in an amendment. Without that information, there was no way
for a district court to evaluate whether the proposed amendments were futile or not. Thus,
to the extent their requests for leave are considered motions to amend, and to the extent
they were denied, we affirm the district court.
V.
As the district court correctly concluded, the complaint fails to allege claims for
which relief could be granted. For all the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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