Brandon Mill, LLC v. Fed. Deposit Ins. Corp.

• Decision Date: 31 July 2019
• Docket Number: Civil Action No. 18-2308 (RMC)
• Parties: BRANDON MILL, LLC, et al., Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for FIRST NBC BANK, Defendant.
• Court: U.S. District Court — District of Columbia

BRANDON MILL, LLC, et al., Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for FIRST NBC BANK, Defendant.

Civil Action No. 18-2308 (RMC)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

July 31, 2019

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 toaccept 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 MillTenant 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 Loanwas 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. TheArbor 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.

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...