Mill v. Federal Deposit Insurance Corporation as Receiver for First Nbc Bank

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________
)
BRANDON MILL, LLC, et al., )
)
Plaintiffs, )
)
v. )
) Civil Action No. 18-2308 (RMC)
FEDERAL DEPOSIT INSURANCE )
CORPORATION, as Receiver for )
FIRST NBC BANK, )
)
Defendant. )
_________________________________ )
MEMORANDUM OPINION
Plaintiffs Brandon Mill, LLC and H. Pace Burt, Jr. complain that the Federal
Deposit Insurance Corporation (FDIC), acting as receiver for a now-defunct Louisiana bank,
breached its fiduciary duty and contractual obligations by failing to respond to Plaintiffs’ request
for consent to refinance a historic redevelopment project in Greenville, South Carolina.
Plaintiffs claim that FDIC is liable in contract and in tort by interfering with Plaintiffs’ effort to
refinance a construction loan, which resulted in Plaintiffs receiving less favorable terms on a
subsequent loan. FDIC opposes, arguing that Plaintiffs have failed to establish that a contract
existed or that FDIC owed Plaintiffs any relevant legal duties. The matter is ripe for review. 1
FDIC argues that the Court lacks subject matter jurisdiction over the tort counts in
Plaintiffs’ Complaint, which must be brought against the United States under the Federal Tort
Claims Act, and not against an individual agency such as the FDIC. Plaintiffs ask the Court to
1
Def.’s Mot. to Dismiss (Mot.) [Dkt. 7]; Pls.’ Reply in Resp. & Opp’n to Def.’s Mot. to Dismiss
(Opp’n) [Dkt. 9]; Reply Mem. in Supp. of Def.’s Mot. to Dismiss (Reply) [Dkt. 10].
1
accept their proposed Amended Complaint, which substitutes the United States of America for
FDIC as defendant to the tort counts. 2 FDIC asks the Court to disallow the Amended Complaint,
arguing that the counts as amended could not withstand a motion to dismiss, and that all counts
are infirm.
The Court will grant FDIC’s Motion to Dismiss as to all counts. The Court will
deny Plaintiffs’ Motion to Amend the Complaint because it would be futile.
I. FACTS
H. Pace Burt, Jr. is a real estate developer who purchases, renovates, and operates
historic properties through limited liability companies (LLCs). Compl. [Dkt. 1] ¶¶ 6-7. The
LLCs take advantage of federal and state tax credits, such as the federal rehabilitation tax credit,
26 U.S.C. § 47, which are available to owners who renovate and restore historic structures. Id.
¶ 9. One such historic property was a textile mill complex in Greenville, South Carolina called
Brandon Mill, which Mr. Burt planned to convert into loft apartments (the Project). Id. ¶ 23.
Mr. Burt invested $1 million in personal funds in the Project and expected to receive a developer
fee of $2.5 million at the conclusion of the Project. Id. ¶ 30.
In 2015, Mr. Burt formed several LLCs to own, operate, and generate tax credits
for the Project. Id. ¶ 24. Mr. Burt formed Brandon Mill, LLC, to serve as the owner and
operator of the Project (Mill Owner). Id. ¶ 25. Mill Owner consisted of two members: Brandon
Mill Tenant, LLC (Mill Tenant) and Brandon Mill Investor, LLC (Mill Investor). Id. Mill
Tenant was the lessee of the Project. NBC Historic Tax Partners (Tax Partners), a Louisiana
LLC that was a subsidiary owned by First NBC Bank (First NBC or the Bank), invested in Mill
2
Ex. 1, Opp’n, Am. Compl. [Dkt. 9-1]. The proposed Amended Complaint also adds a count for
intentional interference with prospective contractual relations.
2
Tenant as an “investor member.” Id. ¶¶ 32-33. Tax Partners’ primary motivation for investing
in Mill Tenant was to receive the tax credits generated by the Project. A separate entity,
Brandon Mill Manager, LLC (Mill Manager) was formed to serve as the managing member of
Mill Tenant. Id. ¶ 27. Mr. Burt owns a 45% membership interest in Mill Manager.
The relationship between Mill Manager and Tax Partners was set forth in the Mill
Tenant Operating Agreement (MT Operating Agreement). Id. ¶ 35; see also Ex. 2, Opp’n, MT
Operating Agreement [Dkt. 9-1]. The MT Operating Agreement stated that Mill Manager was
responsible for the day-to-day operations of Mill Tenant; however, Mill Manager could not cause
Mill Tenant to incur debt without the consent of Tax Partners. Id.; see also MT Operating
Agreement at 20. While Tax Partners had the right to withhold consent to refinance, the MT
Operating Agreement stated that consent “may not be unreasonably withheld.” Opp’n at 11; see
also MT Operating Agreement at 6. A related governing document was the Master Lease
between Mill Owner and Mill Tenant. Ex. 3, Opp’n, Master Lease [Dkt. 9-1]. The Master Lease
stated that Mill Owner could only refinance the Project’s construction loan with the approval of
Tax Partners, the investor member in the Project. Compl. ¶ 36; see also Master Lease at 28. The
Master Lease also stated that Tax Partners could grant or withhold consent to refinance the
construction loan “in [its] sole and absolute discretion.” Master Lease at 28. A third governing
document, the Mill Owner Operating Agreement between Mill Tenant and Mill Investor (MO
Operating Agreement), apparently provided that Mill Tenant’s consent was required for Mill
Owner to refinance the Project’s construction loan. Compl. ¶ 36. 3
Mill Owner financed construction of the Project through an $18 million loan from
BB&T Corporation (the BB&T Construction Loan). Id. ¶ 31. The BB&T Construction Loan
3
Neither party has provided a copy of the MO Operating Agreement.
3
was not permanent financing; the terms were less favorable than what Mill Owner hoped to
negotiate once the Project achieved 80% occupancy and became eligible for permanent
financing. See id. ¶¶ 12, 31. The BB&T Construction Loan had a floating interest rate, which
exposed the Project to the risk of an increase in the loan interest rate, and the Loan required a
personal guaranty from Mr. Burt. In early February 2017, the Project achieved 80% occupancy
and Mill Owner began seeking opportunities to refinance the BB&T Construction Loan. Id.
¶ 37. Mr. Burt’s LLCs had worked with First NBC in the past, and on previous projects First
NBC had provided “timely consent to the LLCs incurring and refinancing debt.” Id. ¶ 19.
In April of 2017, the Louisiana Office of Financial Institutions closed First NBC
and FDIC was named receiver for First NBC. Id. ¶ 38. Plaintiffs claim that soon after, FDIC
notified Plaintiffs that it would be assuming Tax Partners’ role in the Project. Specifically,
Plaintiffs claim that an individual named “Brad Calloway, who had been employed by First NBC
Bank and was retained and employed by the FDIC, officially notified Mill Tenant and Mill
Manager that, in its capacity as receiver for First NBC Bank, the FDIC would be operating and
acting for Tax Partners.” Id. ¶ 39. Plaintiffs note that FDIC began looking for ways to liquidate
First NBC’s assets and, in May 2017, Mr. Calloway asked Mill Manager to make an offer to
purchase Tax Partners’ membership interest in Mill Tenant. Id. ¶ 41. Mill Manager offered
approximately $90,000 but FDIC did not respond. Id. ¶¶ 41-42.
In April and June 2017, the Project received an offer of financing from Arbor
Commercial Funding for refinancing of the BB&T Construction Loan (the Arbor Terms). Id.
¶ 43. The Arbor Terms included a principal loan of $20 million, which Plaintiffs state was an
amount necessary to refinance the $18 million balance on the Construction Loan, repay Mr. Burt
his $1 million investment in the Project, and cover the $2.5 million developer fee. Id. ¶ 44. The
4
Arbor Terms included a projected interest rate of 3.96% and did not require a personal guaranty
from Mr. Burt. Plaintiffs claim that during the summer of 2017, they made repeated requests
that FDIC consent to refinancing under the Arbor Terms; however, FDIC took no action. 4
In October 2017, Brandon Mill was able to find an alternative commitment to
refinance the BB&T Construction Loan from Synovus Financial Corporation (the Synovus
Commitment). Id. ¶ 55. The Synovus Commitment was for a loan of $18 million, with an
interest rate of 4.15%, and required Mr. Burt’s personal guaranty. Plaintiffs claim that FDIC
initially “promis[ed] to consider the Synovus Commitment, but tied that issue to the terms on
which Tax Partners would ‘exit’ the deal, i.e. the purchase of Tax Partners’ interest in Mill
Tenant.” Id. ¶ 57. Mr. Burt then threatened FDIC with legal action if it did not consent to the
Synovus Commitment, and FDIC consented to the refinancing. Id. ¶ 59. Plaintiffs allege that
despite giving consent, “FDIC continued to use improper leverage in an attempt to force Mill
Manager to buy out Tax Partners’ interest in Mill Tenant at an excessive price.” Id. ¶ 60.
Specifically, in November 2017, an FDIC employee demanded that Mill Manager make an offer
to purchase Tax Partners’ interest in the $6 to $10 million range, far in excess of the $90,000
offer that Mill Manager had made in May 2017. Id.
Mill Owner closed on refinancing with Synovus in January 2018. Id. ¶ 61.
Plaintiffs claim that since the amount of the Synovus Commitment was only for $18 million,
Mill Owner “does not currently have the capital necessary to fund the $2.5 million developers
[sic] fee.” Id.
4
Plaintiffs state that FDIC acknowledged receiving the requests but did not take further action.
Id. ¶¶ 45-46.
5
In March 2018, Brandon Mill and Mr. Burt each filed administrative claims with
FDIC for damages resulting from FDIC’s failure to approve the refinancing with Arbor. Mot. at
4. On August 8, 2018, FDIC disallowed both administrative claims. Id. Plaintiffs then filed this
lawsuit in October 2018 alleging breach of fiduciary duty, breach of contract, negligence, and
violations of the South Carolina Limited Liability Company Act. 5 Compl. ¶¶ 67-96.
On February 28, 2019, FDIC filed a Motion to Dismiss pursuant to Federal Rules
of Civil Procedure 12(b)(6) and 12(b)(1), for failure to state a claim upon which relief can be
granted and for lack of subject-matter jurisdiction. See Mot. FDIC argues that Plaintiffs fail to
state a contract claim against FDIC because there was no contract between Plaintiffs and FDIC
or First NBC. Id. at 1. FDIC asserts that the tort claims also must fail since Plaintiffs have not
demonstrated that FDIC, as receiver for First NBC, owed any duties to Plaintiffs. FDIC claims
that Plaintiffs sued the wrong party, since Tax Partners is a distinct entity from First NBC, Tax
Partners’ parent company. Reply at 1-2.
FDIC further argues that the Court lacks subject-matter jurisdiction over the tort
claims because Plaintiffs needed to bring such claims under the Federal Tort Claims Act
(FTCA), 28 U.S.C. § 2671 et seq., and include the United States as a named defendant. Id.
Plaintiffs apparently concede this point and “respectfully seek leave to amend their complaint to
add the United States of America as the proper defendant for Plaintiffs’ tort claims.” Opp’n at
14 (citing LCvR 15.1). Plaintiffs attach a proposed Amended Complaint as Exhibit 1 to the
5
The Complaint asserts five counts against FDIC: Count I (Breach of Fiduciary Duty); Count II
(Breach of Contract); Count III (Negligence); Count IV (Breach of South Carolina Uniform
Limited Liability Company Act, § 33-44-409 (Duty of Loyalty)); and Count V (Breach of South
Carolina Uniform Limited Liability Company Act, § 33-44-409 (Duty of Care)).
6
Opposition. 6 FDIC asks the Court to deny Plaintiffs’ request to amend, arguing that the
Amended Complaint could not withstand a motion to dismiss. Reply at 2-3.
II. LEGAL STANDARDS
Motion to Dismiss Under Rule 12(b)(1)
Federal Rule of Civil Procedure 12(b)(1) allows a defendant to move to dismiss a
complaint, or any portion thereof, for lack of subject-matter jurisdiction. Fed. R. Civ. P.
12(b)(1). No action of the parties can confer subject-matter jurisdiction on a federal court
because subject-matter jurisdiction is both a statutory requirement and an Article III requirement.
Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003). The party claiming
subject-matter jurisdiction bears the burden of demonstrating that such jurisdiction exists. Khadr
v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008); see also Kokkonen v. Guardian Life Ins.
Co. of Am., 511 U.S. 375, 377 (1994) (noting that federal courts are courts of limited jurisdiction
and “[i]t is to be presumed that a cause lies outside this limited jurisdiction, and the burden of
establishing the contrary rests upon the party asserting jurisdiction”).
Motion to Dismiss Under Rule 12(b)(6)
A motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6) challenges the adequacy of a complaint on its face. Fed. R. Civ. P. 12(b)(6).
To survive a motion to dismiss, a complaint must contain sufficient factual information, accepted
as true, to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court must
6
The proposed Amended Complaint revises the Complaint by substituting the United States of
America for FDIC as the defendant in Counts I, III, IV, and V. The Amended Complaint also
adds Count VI, Intentional Interference with Prospective Contractual Relations, against the
United States.
7
assume the truth of all well-pleaded factual allegations and construe reasonable inferences from
those allegations in favor of the plaintiff. Sissel v. Dep’t of Health & Human Servs., 760 F.3d 1,
4 (D.C. Cir. 2014). A court need not accept inferences drawn by a plaintiff if such inferences are
not supported by facts set out in the complaint. Kowal v. MCI Commc’ns Corp., 16 F.3d 1271,
1276 (D.C. Cir. 1994). Further, a court need not accept as true legal conclusions set forth in a
complaint. Iqbal, 556 U.S. at 678. In deciding a motion under Rule 12(b)(6), a court may
consider the facts alleged in the complaint, documents attached to the complaint as exhibits or
incorporated by reference, and matters about which the court may take judicial notice. Abhe &
Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007).
Subject-Matter Jurisdiction under the Federal Tort Claims Act
The FTCA provides a limited waiver of sovereign immunity for civil actions
seeking money damages from the United States. 7 The limited waiver of sovereign immunity
only extends to the United States and not to specific agencies within the federal government. See
28 U.S.C. § 2679(a). 8 Thus, FTCA suits “must name the United States as defendant.” Goddard
v. D.C. Redevelopment Land Agency, 287 F.2d 343, 345-46 (D.C. Cir. 1961); see also Cox v.
Sec’y of Labor, 739 F. Supp. 28, 29 (D.D.C. 1990) (granting defendant’s motion to dismiss when
plaintiff sued the Secretary of Labor rather than the United States); Johnson v. Veterans Affairs
Med. Ctr., 133 F. Supp. 3d 10, 17 (D.D.C. 2015) (granting defendant’s motion to dismiss when
plaintiff sued the Veterans Affairs Medical Center and failed to name the United States as a
7
The FTCA confers exclusive jurisdiction in the district court over claims for money damages
“for injury or loss of property, or personal injury or death arising or resulting from the negligent
or wrongful act or omission of any employee of the Government while acting within the scope of
his office or employment.” 28 U.S.C. § 2679(b)(1).
8
The FTCA states that “[t]he authority of any federal agency to sue and be sued in its own name
shall not be construed to authorize suits against such federal agency on claims which are
cognizable under section 1346(b) of this title.” Id.
8
defendant). “Failure to name the United States as the defendant in an FTCA action requires
dismissal for lack of subject-matter jurisdiction.” Johnson, 133 F. Supp. 3d at 17.
Before filing suit in court, the FTCA requires plaintiffs to exhaust their
administrative remedies by “first present[ing] the claim to the appropriate Federal agency” and
obtaining a “final disposition” in writing. 28 U.S.C. § 2675(a); see also McNeil v. United States,
508 U.S. 106, 113 (1993). The exhaustion requirement is jurisdictional. GAF Corp. v. United
States, 818 F.2d 901, 904 (D.C. Cir. 1987).
Amendment of Pleadings
Amendment of pleadings is governed by Federal Rule of Civil Procedure 15(a). 9
Rule 15(a)(1) allows parties to amend their pleadings once as a matter of right if they do so
within specified timeframes. Fed. R. Civ. P. 15(a)(1). Rule 15(a)(2) provides that, once those
timeframes have passed, “a party may amend its pleading only with the opposing party’s written
consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). Leave to amend a complaint should be
freely given “when justice so requires.” Id.
“A motion seeking leave to amend a pleading, like all motions, requires the
moving party to ‘state with particularity the grounds for seeking the order’ and to ‘state the relief
sought.’” Saunders v. Davis, No. 15-CV-2026 (RC), 2016 WL 4921418, at *16 (D.D.C. Sept.
9
Rule 15(a)(1) provides in pertinent part: “A party may amend its pleading once as a matter of
course within: (A) 21 days after serving it, or (B) if the pleading is one to which a responsive
pleading is required, 21 days after service of a responsive pleading or 21 days after service of a
motion under Rule 12(b), (e), or (f), whichever is earlier.” Fed. R. Civ. P. 15(a)(1). Rule
15(a)(2) further provides that “[i]n all other cases, a party may amend its pleading only with the
opposing party’s written consent or the court’s leave. The court should freely give leave when
justice so requires.” Fed. R. Civ. P. 15(a)(2).
9
15, 2016) (quoting Fed. R. Civ. P. 7(b)(1)(B)-(C)). 10 The D.C. Circuit has held that “a bare
request in an opposition to a motion to dismiss—without any indication of the particular grounds
on which amendment is sought, cf. Fed. R. Civ. P. 7(b)—does not constitute a motion [to amend]
within the contemplation of Rule 15(a).” Confederate Mem’l Ass’n, Inc. v. Hines, 995 F.2d 295,
299 (D.C. Cir. 1993). The grant or denial of leave to amend is within a court’s discretion so long
as certain factors are not present such as “undue delay, bad faith or dilatory motive on the part of
the movant, repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of [the]
amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962).
III. ANALYSIS
A. Jurisdiction
“‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power
authorized by Constitution and statute.’” Gunn v. Minton, 568 U.S. 251, 256 (2013) (quoting
Kokkonen, 511 at 377). Here, Plaintiffs invoke the Court’s jurisdiction under 12 U.S.C.
§ 1821(d)(6)(A), see Compl. ¶ 4, because the FDIC is acting as receiver for First NBC under the
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Pub. L. No. 101-73,
103 Stat. 183 (1989) (codified in scattered sections of 12 U.S.C.). FIRREA “extends a special
kind of federal jurisdiction outside the scope of 28 U.S.C. § 1331, the normal source of federal
question jurisdiction.” Youkelsone v. FDIC, 910 F. Supp. 2d 213, 222 (D.D.C. 2012). FIRREA
provides for de novo judicial review of the FDIC’s determinations of administrative claims. See
Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1141 (D.C. Cir. 2011). Section 1821(d)(6) states that
10
Federal Rule of Civil Procedure 7(b)(1) states that all motions must: “(A) be in writing unless
made during a hearing or trial; (B) state with particularity the grounds for seeking the order; and
(C) state the relief sought.” Fed. R. Civ. P. 7(b)(1).
10
the U.S. District Court for the District of Columbia (or the district court for the district where the
failed bank has its principal place of business) shall have jurisdiction over claims that are
disallowed by the FDIC, so long as the claimant files suit within 60 days of the disallowance.
See 12 U.S.C. § 1821(d)(6)(A).
In this case, it is undisputed that Plaintiffs filed administrative claims with the
FDIC. See Mot. at 4; Opp’n at 6. FDIC disallowed the administrative claims on August 8, 2018,
and Plaintiffs filed suit in this Court within 60 days, on October 5, 2018. Thus, jurisdiction is
proper under FIRREA.
Nonetheless, the Court lacks subject-matter jurisdiction over the tort claims
brought against FDIC. The Federal Tort Claims Act provides the exclusive remedy for torts
committed by government employees in the scope of their employment, see 28 U.S.C. § 2679(a),
and the United States is the only proper defendant. Goddard, 287 F.2d at 345-46. Because
Plaintiffs did not state a claim against the United States and instead sued FDIC, the Court lacks
subject-matter jurisdiction over Counts I, III, IV, and V. Plaintiffs apparently recognize their
error in not including the United States as the defendant and have requested leave to amend the
Complaint. See Opp’n at 14-15.
B. Did Plaintiffs Properly Move to Amend the Complaint?
FDIC argues that Plaintiffs’ request to amend is improper because Plaintiffs
raised the request in their Opposition and did not separately move. Reply at 3-4. FDIC asserts
that “if Plaintiffs desire to amend their pleadings to add exhibits and facts they must do so by
motion, not argument and exhibits provided only in their Opposition.” Id. at 4. FDIC cites case
law standing for the proposition that complaints may not be amended through opposition briefs.
11
See Reply at 4 n.8 (citing Arbitraje Cases de Cambio, S.A. de C.V. v. U.S. Postal Serv., 297 F.
Supp. 2d 165, 170 (D.D.C. 2003); Carter v. Carson, 241 F. Supp. 3d 191, 197 (D.D.C. 2017)).
FDIC misinterprets Plaintiffs’ request. Plaintiffs are seeking to amend pursuant to
the proposed Amended Complaint attached as Exhibit 1—not by adopting separate exhibits to
the Opposition. The mere fact that Plaintiffs’ request to amend was attached to the Opposition
does not make it impermissible. 11 A “bare request” from Plaintiffs for an amendment is not
enough. Confederate Mem’l Ass’n, 995 F.2d at 299. Here, at least with respect to the original
tort claims, Plaintiffs provided more than a “bare request” for an amendment by acknowledging
their initial pleading error. Plaintiffs also complied with the Local Civil Rule requiring motions
to amend to include a copy of the proposed pleading. See LCvR 15.1. Plaintiffs have properly
moved to amend.
C. Federal Rule of Civil Procedure 15(a)(1)
FDIC is correct that Plaintiffs cannot move to amend under Rule 15(a)(1). Fed.
R. Civ. P. 15(a)(1). Rule 15(a)(1) states that a party may amend its pleadings once as a matter of
right within 21 days after service of a motion to dismiss under Rule 12(b). Id. Here, FDIC filed
the motion to dismiss on February 28, 2019, and Plaintiffs did not file the motion to amend until
March 29, 2019—29 days after the motion to dismiss. Therefore, Plaintiffs missed the deadline
under Rule 15(a)(1).
11
The cases that FDIC cites are distinguishable from this case. In both cited cases, plaintiffs
included new information in an opposition but neither requested leave to file an amended
complaint nor attached a proposed amended complaint. See U.S. Postal Serv., 297 F. Supp. 2d at
170; Carter, 241 F. Supp. 3d at 197. Here Plaintiffs have moved to introduce new information in
an Amended Complaint attached to the Opposition.
12
D. Federal Rule of Civil Procedure 15(a)(2)
Under Federal Rule of Civil Procedure 15(a)(2), leave to amend should be freely
given when justice so requires “[i]n the absence of any apparent or declared reason” not to do so,
which might include “undue delay, bad faith . . ., repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing party . . ., [or] futility of
amendment.” Foman, 371 U.S. at 182. A district court has broad discretion in interpreting and
applying the Foman standard. Here, there is no issue of undue delay and FDIC would not be
prejudiced by the amendment; this case is in its early stages and the proposed amendments do
not alter the nature or scope of the case. See Wharf, Inc. v. District of Columbia, 321 F.R.D. 25,
30 (D.D.C. 2017). Further, there has been no allegation of bad faith on the part of Plaintiffs.
FDIC argues, however, that Plaintiffs’ Amended Complaint would be futile. An
amendment is futile if it “could not withstand a motion to dismiss.” Pietsch v. McKissack &
McKissack, 677 F. Supp. 2d 325, 328 (D.D.C. 2010). FDIC asserts that “Plaintiffs fail to allege
critical elements of their tort claims,” namely, showing that legal duties existed between FDIC
and Plaintiffs. Reply at 3.
The Court proceeds to consider whether the tort claims, as amended, could
withstand a motion to dismiss under South Carolina law. 12
1. Can FDIC as receiver for First NBC be sued for the conduct of Tax Partners?
As a preliminary matter, FDIC argues that Plaintiffs’ claims are improperly
brought against FDIC as receiver for First NBC. FDIC asserts that Plaintiffs “disregard the
corporate distinction” between Tax Partners, a former wholly-owned subsidiary of the Bank, and
12
The parties agree that South Carolina law governs the legal sufficiency of Plaintiffs’ causes of
action. See generally Mot.; see also Opp’n at 6 n.2.
13
the Bank. Reply at 1-2. FDIC notes that it was appointed receiver of First NBC but not as
receiver of Tax Partners. FDIC argues that “Plaintiffs allege no facts to support disregarding the
form of legally separate entities.” Id. at 5.
“It is a general principle of corporate law deeply ‘ingrained in our economic and
legal systems’ that a parent corporation . . . is not liable for the acts of its subsidiaries.” United
States v. Bestfoods, 524 U.S. 51, 61 (1998) (quoting Douglas & Shanks, Insulation from Liability
Through Subsidiary Corporations, 39 Yale L.J. 193 (1929)). However, a parent corporation can
be held directly liable if the alleged wrong can be traced to the parent corporation or “‘the parent
is directly a participant in the wrong complained of.’” Id. at 64 (quoting Douglas & Shanks at
208). Here, Plaintiffs allege that FDIC contacted Mill Tenant and Mill Manager shortly after
becoming receiver for First NBC and notified them “that, in its capacity as receiver for First
NBC Bank, FDIC would be operating and acting for Tax Partners.” Compl. ¶ 39; Am. Compl.
¶ 40. Plaintiffs’ allegations are aimed at FDIC’s direct role in consenting to a loan modification.
Plaintiffs have sufficiently pled a theory of direct liability under which FDIC, acting as receiver
for First NBC, participated in the conduct alleged in the Amended Complaint.
2. Breach of Fiduciary Duty (Count I) and Breaches of South Carolina Uniform
Limited Liability Company Act Duties of Care and Loyalty (Counts IV and V)
Plaintiffs’ proposed Amended Complaint asserts claims against the United States
for breach of fiduciary duty and for breaches of the duties of care and loyalty under the South
Carolina Uniform Limited Liability Company Act (Uniform LLC Act). Plaintiffs claim that
FDIC breached these duties by “failing to timely respond to the request to sign off on new
financing” and by “threatening and actually interfering with the financing of Brandon Mill,
LLC.” Am. Compl. ¶¶ 71, 90, 98.
14
South Carolina’s Uniform LLC Act, S.C. Code §§ 33-44-101 to 33-44-1208,
governs the relationship between members of limited liability companies. Section 33-44-409
establishes different standards of care depending on whether the LLC is member-managed or
manager-managed. See S.C. Code § 33-44-409. By default, LLCs are member-managed, which
means that members have equal rights and duties in the management of the company’s business.
See id. §§ 33-44-101(12) and 33-44-404(a). In the articles of organization, an LLC may be
designated as manager-managed, which means that a named manager has authority to make day-
to-day business decisions without the consent of members. See id. §§ 33-44-101(11) and 33-44-
404(b)-(c).
The Uniform LLC Act provides that only two fiduciary duties apply in the
context of an LLC—those of care and loyalty. 13 In member-managed LLCs, members owe
duties of care and loyalty to all other members. Id. § 33-44-409(a). Similarly, in manager-
managed LLCs, the manager owes these fiduciary duties to members. Id. § 33-44-409(h)(2).
However, in manager-managed LLCs, members do not necessarily owe reciprocal fiduciary
duties to the company or to other members. The Uniform LLC Act provides that a member who
is not designated as a manager, and who does not exercise managerial authority, “owes no duties
to the company or to the other members solely by reason of being a member.” Id. § 33-44-
409(h)(1).
Here, it is undisputed that Mill Tenant was a manager-managed LLC. See Am.
Compl. ¶ 36; Mot. at 3. The MT Operating Agreement designates Mill Manager as the
13
The Uniform LLC Act also provides that principles of law and equity supplement the statutory
scheme where no specific statutory provision applies. See S.C. Code § 33-44-104(a) (“Unless
displaced by particular provisions of this chapter, the principles of law and equity supplement
this chapter.”).
15
“Managing Member,” with broad oversight over day-to-day operations, while Tax Partners is the
“Investor Member,” with limited operational authority. See MT Operating Agreement at 11, 37-
44. Accordingly, while Mill Manager owed fiduciary duties of loyalty and care to Mill Tenant
and to Tax Partners, Tax Partners did not automatically owe such duties to Mill Tenant or to Mill
Manager. Plaintiffs have only provided legal conclusions, but no facts, to support their argument
that such duties existed in this relationship. This Court need not accept as true the legal
conclusions set forth in the Amended Complaint. See Iqbal, 556 U.S. at 678.
The fact that Plaintiffs have not shown legal duties flowing from Tax Partners to
Mill Manager and Mill Tenant renders it implausible that Tax Partners, or First NBC, would owe
fiduciary duties to Plaintiff Burt. Plaintiffs claim that Mill Manager is synonymous with Mr.
Burt and that “Mr. Burt is the real party in interest” harmed by actions injurious to Mill Manager.
Opp’n at 9 n.3. Whatever the truth of Mr. Burt’s injury, Plaintiffs have provided no explanation
as to how Tax Partners would owe fiduciary duties to Mr. Burt individually despite not owing
duties to Mr. Burt’s LLCs. Similarly, Plaintiffs have only provided legal conclusions, but no
factual support, for their claim that Tax Partners owed fiduciary duties to Mill Owner. Leave to
amend will be denied as to Count I, Breach of Fiduciary Duty; Count IV, Breach of South
Carolina Uniform Limited Liability Company Act, § 33-44-409 (Duty of Loyalty); and Count V,
Breach of South Carolina Uniform Limited Liability Company Act, § 33-44-409 (Duty of Care),
because the proposed amendment would be futile.
3. Negligence (Count III)
“To establish a negligence cause of action under South Carolina law, the plaintiff
must prove the following three elements: (1) a duty of care owed by defendant to plaintiff; (2)
breach of that duty by a negligent act or omission; and (3) damage proximately resulting from
the breach of duty.” J.T. Baggerly v. CSX Transp., Inc., 370 S.C. 362, 368-69 (S.C. 2006).
16
Generally under South Carolina law, “[a] breach of a duty which arises under the provisions of a
contract between the parties must be redressed under contract, and a tort action will not lie.”
Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 54-
55 (S.C. 1995). Therefore, a negligence action cannot be brought when the parties are in privity
of contract, unless “there is a special relationship between the alleged tortfeasor and the injured
party not arising in contract.” Id. at 55. “[T]he South Carolina Supreme Court has found a
special relationship where the parties’ relationship was one marked by professional duty . . . or
by supervisor-supervisee relations.” Bahringer v. ADT Sec. Servs., Inc., 942 F. Supp. 2d 585,
590 (D.S.C. 2013); see, e.g., Lloyd v. Walters, 277 S.E.2d 888, 889 (S.C. 1981) (corporation
could maintain negligence action against lawyer who had a professional duty to protect its
interests); Tommy L. Griffin Plumbing, 320 S.C. at 55-56 (contractors could maintain negligence
action against engineer who supervised them).
Here, Plaintiffs have not pleaded facts that demonstrate that legal duties existed
outside of the parties’ purported contractual obligations. 14 The proposed Amended Complaint
states that the LLCs “are bound by interrelated contractual obligations and serve a single
purpose, i.e. to make the Project a financial success for all parties involved, including Tax
Partners.” Am. Compl. ¶ 30. The Amended Complaint further states that Tax Partners—“[a]s a
member of Mill Tenant and having a vested interest in the success of the Project”—“owed duties
of reasonable case [sic], fiduciary duties and duties of good faith and fair dealing to the LLCs
and to Mr. Burt.” Id. ¶ 35. The Amended Complaint provides no factual support for why Tax
14
The Court analyzes the facts as pleaded. As discussed in Section III.E, infra, Plaintiffs have
also failed to state a claim against FDIC for breach of contract.
17
Partners owed the LLCs any duties not arising in contract, such as those arising under a special
relationship. 15 Thus, leave to amend will be denied for Count III because it would be futile.
4. Intentional Interference with Prospective Contractual Relations (Count VI)
Plaintiffs’ Count VI, intentional interference with prospective contractual
relations, is brought only under the proposed Amended Complaint. The Court considers it for
the purposes of determining whether the count would be futile, i.e., whether it could withstand a
motion to dismiss. See Foman, 371 U.S. at 182; Pietsch, 677 F. Supp. 2d at 328. To recover on
a claim for intentional interference with prospective contractual relations, a plaintiff must prove:
“(1) the defendant intentionally interfered with the plaintiff’s potential contractual relations; (2)
for an improper purpose or by improper methods; (3) causing injury to the plaintiff.” Crandall
Corp. v. Navistar Int’l Transp. Corp., 395 S.E.2d 179, 180 (S.C. 1990). Here, Plaintiffs argue
that FDIC intentionally interfered with Plaintiffs’ ability to refinance the BB&T Construction
Loan by failing to consent to the Arbor Terms. Am. Compl. ¶¶ 102-06. 16
The proposed intentional interference count could not avoid a motion to dismiss.
Plaintiffs suggest that FDIC’s behavior was motivated by FDIC’s desire to extract a higher
selling price for Tax Partners’ interest in Mill Tenant. However, Plaintiffs provide no factual
support behind the allegations that FDIC’s conduct was intentional and improper. Plaintiffs cite
certain statements by FDIC that might constitute “improper leverage,” but these alleged
statements were made after FDIC failed to approve refinancing under the Arbor Terms. See id.
¶ 61. Statements that FDIC made after it failed to consent to the Arbor Terms are not relevant to
15
As noted in Section III.D.2, supra, Plaintiffs have failed to state a claim that Tax Partners
owed Plaintiffs fiduciary duties.
16
The wording of Paragraph 104 of the Amended Complaint is somewhat unclear. It states:
“Specifically, FDIC intentionally interfered with Plaintiffs’ ability to refinance the Brandon Mill,
LLC construction loan by accepting the load [sic] from Arbor.” Am. Compl. ¶ 104.
18
Plaintiffs’ claim that FDIC intentionally interfered with refinancing under those Terms.
Moreover, Plaintiffs characterize FDIC’s failure to consent as merely “negligent.” Id. ¶ 49.
Intentional torts, by definition, cannot be committed negligently. See State Farm Fire & Cas.
Co. v. Barrett, 530 S.E.2d 132, 137 (S.C. Ct. App. 2000) (noting that “in the context of a cause
of action alleging an intentional tort, which by definition cannot be committed in a negligent
manner, the allegation of negligence is surplusage”).
To the extent that Plaintiffs rely on a theory of negligent interference with
prospective contractual relations, “South Carolina has declined to recognize a cause of action for
the recovery of pure pecuniary harm resulting from a tortfeasor’s negligent interference with a
plaintiff’s contractual relationships.” Self v. Norfolk Southern Corp., Nos. 06-1730, 06-2104,
2007 WL 540373, at *4 (D.S.C. Feb. 15, 2007) (citing Edens & Avant Investment Properties,
Inc. v. Amerada Hess Corp., 456 S.E.2d 407, 407 (S.C. 1995)).
None of the allegations in the complaint plausibly states a claim that FDIC’s
failure to consent to the Arbor Terms was intentional interference under South Carolina law.
The Court will deny leave to add Count VI of the proposed Amended Complaint because the
amendment would be futile.
E. Breach of Contract (Count II)
To recover for breach of contract under South Carolina law, a plaintiff must
establish: (1) a binding contract entered into by the parties; (2) breach or unjustifiable failure to
perform the contract; and (3) damages suffered by the plaintiff as a direct and proximate cause of
the breach. Tidewater Supply Co. v. Industrial Elec. Co., 171 S.E.2d 607, 608 (S.C. 1969).
Plaintiffs allege that FDIC breached its contractual obligations to Mill Owner and Mr. Burt,
including duties of good faith and fair dealing, by, inter alia, “failing to timely review the Arbor
terms sheet,” “failing to consider and consent to the Arbor terms,” and by “making threats.”
19
Compl. ¶ 63. In the language of Count II, Plaintiffs allege that FDIC breached contractual
obligations “contained in the LLC’s operating agreement.” Id. ¶¶ 74-75. Plaintiffs do not
specify to which LLC agreement they refer, but the Complaint mentions both the MT Operating
Agreement and the MO Operating Agreement. Id. ¶¶ 35-36. The Complaint also mentions the
Master Lease between Mill Owner and Mill Tenant. Id. ¶ 36.
The Court notes that Plaintiff Burt is not a party to any of the agreements
referenced in the Complaint. “‘Generally, one not in privity of contract with another cannot
maintain an action against him in breach of contract, and any damage resulting from the breach
of contract between the defendant and a third-party is not, as such, recoverable by the plaintiff.”’
Fabian v. Lindsay, 410 S.C. 475, 488 (S.C. 2014) (quoting Windsor Green Owners Ass’n v.
Allied Signal, Inc., 605 S.E.2d 750, 752 (S.C. Ct. App. 2004)). Plaintiff Burt lacks the necessary
privity to enforce contractual rights against FDIC. 17 Therefore, the breach of contract claim
brought by Mr. Burt must fail.
Plaintiff Brandon Mill, LLC’s (Mill Owner’s) contract claim against FDIC
requires a different analysis. The only contract referenced in the Complaint to which Mill Owner
is a party is the Master Lease between Mill Owner and Mill Tenant. 18 Mill Owner is seeking to
enforce the Master Lease against FDIC, which assumed the role of Tax Partners, which was a
member of Mill Tenant. Under South Carolina law, the members of a limited liability company
are not normally liable for the debts, obligations, and liabilities of the LLC. See S.C. Code § 33-
17
While Mr. Burt owns a 45% membership interest in Mill Manager, Compl. ¶ 27, Mr. Burt has
not claimed he is bringing a derivative action on behalf of that LLC. Cf. S.C. Code § 33-44-1101
(“A member of a limited liability company may maintain an action in the right of the company if
the members or managers having authority to do so have refused to commence the action . . . .”).
18
Mill Owner is not a party to the MT Operating Agreement between Mill Manager and Tax
Partners or the MO Operating Agreement between Mill Tenant and Mill Investor.
20
44-303(a). 19 While South Carolina courts have recognized that an LLC member can be liable for
breach of contract if the member executed the contract, see Johnson v. Little, 426 S.C. 423, 432-
34 (S.C. Ct. App. 2019), 20 Mill Owner has made no such claim here. To the contrary, Mill
Owner has identified no contract that it can enforce against FDIC. Accordingly, the Motion to
Dismiss will be granted as to Plaintiff Brandon Mill, LLC’s breach of contract claim.
IV. CONCLUSION
For the reasons stated, the Defendant’s Motion to Dismiss, Dkt. 7, will be granted.
Plaintiffs’ Motion Seeking Leave to Amend the Complaint, Dkt. 9, will be denied as futile. A
separate Order accompanies this Memorandum Opinion.
Date: July 31, 2019
ROSEMARY M. COLLYER
United States District Judge
19
S.C. Code § 33-44-303(a) provides that “the debts, obligations, and liabilities of a limited
liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations,
and liabilities of the company.”
20
Little held that the defendant was individually liable because “the contract [was] signed by
Little both as an individual and in his capacity as the sole member and manager of the LLC.”
Little, 426 S.C. at 433.
21