11500 Space Ctr. v. Private Capital Grp., 20200280-CA

CourtCourt of Appeals of Utah
Writing for the CourtTENNEY, JUDGE
Citation2022 UT App 92
Parties11500 Space Center LLC, Space Center Boulevard Land Development LP, Cullen's LLC, and Bermuda Dunes Development LP, Appellants, v. Private Capital Group Inc. and PCG Credit Partners LLC, Appellees.
Docket Number20200280-CA
Decision Date29 July 2022

2022 UT App 92

11500 Space Center LLC, Space Center Boulevard Land Development LP, Cullen's LLC, and Bermuda Dunes Development LP, Appellants,

Private Capital Group Inc. and PCG Credit Partners LLC, Appellees.

No. 20200280-CA

Court of Appeals of Utah

July 29, 2022

Third District Court, Salt Lake Department The Honorable Kara Pettit No. 180901188

Andrew G. Deiss and Seth A. Nichamoff, Attorneys for Appellants

Jeremy C. Reutzel and Jarom R. Jones, Attorneys for Appellees

Judge Ryan D. Tenney authored this Opinion, in which Judges Gregory K. Orme and David N. Mortensen concurred.


¶1 PCG Credit Partners LLC (Lender) entered into a loan agreement with 11500 Space Center LLC, Space Center Boulevard Land Development LP, Cullen's LLC, and Bermuda Dunes Development LP (collectively, Space Center). Private Capital Group Inc. (Servicer), an affiliate of Lender, serviced the loan.

¶2 After defaulting on the loan, Space Center sued Lender and Servicer, alleging several fraud-based claims and a breach of contract claim. The district court dismissed the fraud-based claims on the pleadings. After some discovery, it granted


summary judgment against Space Center on the breach of contract claim. Space Center now appeals both rulings. For the reasons set forth below, we affirm.


The Loan and the Default

¶3 Space Center is a collection of entities that own restaurants, commercial lots, and townhome lots in Texas. On February 18, 2015, Space Center entered into a loan agreement with Lender, a hard money lender. Real property located in Texas served as the "primary collateral for this loan."[1]

¶4 In the loan agreement, Lender agreed to loan up to $11,450,000 to Space Center. The parties further agreed that the loan would mature on June 18, 2015. And the parties also agreed that Space Center could, under certain circumstances, extend the loan.

¶5 The loan agreement detailed three fees "attributable to [Space Center] in relation to the origination and servicing of the Loan." Those fees were (1) a "[s]ervicing fee to [Servicer]" of $687,000, (2) a "[l]egal document fee to [Servicer]" of $16,000, and (3) a "[b]roker fee to [BlueCap] Commercial Funding, LLC" of $114,500.

¶6 The parties further agreed that there would be a "broker- fee reserve" of $114,500. That reserve would be used "to pay a


portion of the broker fee [u]pon the full payment of the Note and full satisfaction of all of [Space Center's] obligations to Lender."

¶7 The loan agreement also included an "excess proceeds and funds" clause (Excess Proceeds Clause). In the Excess Proceeds Clause, the parties agreed that Lender would use "excess proceeds" to "reduce the principal balance of the [l]oan." But funds "identified for a specific purpose" in "any of the Loan Documents" were explicitly excluded from this clause.

¶8 On the day that the parties entered into the loan agreement, Space Center signed a settlement statement and a promissory note. The settlement statement, which was issued by the title company handling the escrow duties, detailed the fees associated with the loan and how they were allocated. In particular, the statement listed the "Servicing Fee (6%) - [Servicer]" of $687,000, the "Legal Document Fee - [Servicer]" of $16,000, and the "Broker Fee (1%) - BlueCap Commercial Funding, LLC" of $114,500. By signing this settlement statement, Space Center authorized the title company "to make expenditures and disbursements as shown and approve[d] the same for payment." In the promissory note, Space Center agreed that the loan "shall bear interest starting the date [Lender] first wires the funds into escrow, or the date indicated above, whichever is earlier." (Emphasis omitted.)

¶9 Interest began to accrue on February 18, 2015 (the day the parties signed the loan agreement), and Lender funded the loan upon closing on February 20, 2015. Per the loan agreement, the loan matured on June 18, 2015. Both parties agree that on June 18, 2015, Space Center had not repaid the loan principal of $11,450,000.

¶10 In August 2015, the parties began "negotiations concerning the fees owed by Space Center and a payoff to release certain collateral." In those negotiations, Space Center expressed its intent to borrow money from another lender to pay off a portion


of what it still owed. Servicer, however, voiced concerns over whether it would still get to hold certain property as collateral.

¶11 Lender ultimately agreed to release certain collateral if Space Center paid $190,000 "plus per diem interest." In the payoff statement detailing the collateral release agreement, Space Center "acknowledge[d] that the Note remain[ed] in default" and that Lender had "not waived any right, power or remedy available to it under the loan documents." In December 2015, Space Center paid $198,360 to release the agreed-upon collateral.

Space Center Files Suit

¶12 In March 2018, Space Center filed a complaint against Lender and Servicer in Utah state court.[2] Space Center alleged eleven claims in this complaint, including multiple fraud-based claims against both Lender and Servicer, as well as a breach of contract claim against only Lender.

¶13 With respect to the fraud-based claims, Space Center argued that under the contract, it was only required to pay fees that Lender had actually incurred, as opposed to the amounts listed in the loan agreement. It then alleged that Servicer "falsely represented to [Space Center's] and First American Title Company's representatives that [Lender] had in fact incurred . . . servicing fees of $687,000.00 and legal fees of $16,000.00." Space Center also alleged that "[Servicer] falsely represented the accrual of interest and amounts owed by [Space Center] to Lender." Relatedly, Space Center asserted that Lender was liable for Servicer's conduct "under the law of vicarious liability, including the doctrine of respondeat superior."


¶14 As for its breach of contract claim, Space Center alleged that Lender "materially breached" the loan agreement's Excess Proceeds Clause "by receiving excess proceeds and funds and failing to return" them to Space Center.[3]

Motion to Dismiss the Fraud-Based Claims

¶15 Lender and Servicer filed a joint motion to dismiss. In their motion, they argued that Space Center's claims were "precluded by the plain terms of the loan agreement" and "barred by the economic loss doctrine." (Quotation simplified.) They further argued that Space Center failed "to allege its fraud-based claims with the particularity required by rule 9[(c)] of the Utah Rules of Civil Procedure." (Quotation simplified.)

¶16 The court heard argument on the motion to dismiss. At that hearing, Space Center continued to assert its fraud and breach of contract claims, but it voluntarily dismissed its other claims.

¶17 The court later issued a ruling from the bench. In that ruling, the court dismissed Space Center's fraud-based claims for two reasons. First, the court concluded that those claims were "barred by the economic loss rule." Second and alternatively, the court concluded that those claims were "not pled with sufficient


particularity." In the court's view, the complaint was lacking because it didn't plead "with sufficient specificity" "the individual" who made the alleged misrepresentation (i.e., "the who"), nor did it identify "the what and the when regarding the alleged misrepresentation."[4] But the court declined to dismiss the breach of contract claim because it found that the Excess Proceeds Clause did not preclude the breach of contract claim "as a matter of law." The court later issued a written order memorializing this decision.[5]

Partial Summary Judgment on the Breach of Contract Claim

¶18 As noted, Space Center asserted that it was only required to pay fees that Lender had actually incurred. From this, Space Center asserted that fee payments that didn't go toward fees actually incurred should have been regarded as "excess proceeds" that Lender should have applied to the loan balance. And from that, Space Center argued that Lender had breached the Excess Proceeds Clause by not doing so.

¶19 After the court dismissed Space Center's fraud-based claims, Lender moved for summary judgment on Space Center's


remaining claim for breach of contract. Among other things, Lender argued that "Space Center was obligated to pay the listed fees" and that there was nothing in the agreement to suggest that the fees had to represent actual costs incurred. (Quotation simplified.) Lender also contended that Space Center could not "prove the element of damages for its breach of contract claim." (Quotation simplified.) To support this, Lender attached a declaration by its accountant, wherein the accountant averred that, even under a "hypothetical accounting" that accepted all of Space Center's allegations as true, Space Center would still owe Lender money. In its opposition, Space Center responded with a number of arguments, and it also challenged the validity of Lender's hypothetical accountings.

¶20 After hearing argument on the motion for summary judgment, the court issued an oral ruling granting the motion in part and denying it in part. The court determined that the loan agreement was not ambiguous and that Space Center had unambiguously agreed to have the servicing and legal fees "attributed to" it. Moreover, in the court's view, nothing in the loan agreement required those fees to be actually incurred, and it was "really irrelevant what happened with those funds after they were paid." The court thus granted summary judgment based on the plain language of the loan agreement.

¶21 But the court did not grant summary judgment with regard to one aspect of Lender's motion. As explained above, the loan agreement required Space Center to pay a broker fee reserve and a broker fee in the same amount. The court determined that the...

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