DT Apartment Grp., LP v. CWCapital, LLC
| Decision Date | 26 December 2012 |
| Docket Number | Civil Action No. 3:12-CV-0437-D |
| Parties | DT APARTMENT GROUP, LP, et al., Plaintiffs, v. CWCAPITAL, LLC, et al., Defendants. |
| Court | U.S. District Court — Northern District of Texas |
This removed lawsuit is brought by a minority-owned business and a member of a racial minority group. It arises from actions taken in connection with the financing of, attempt to foreclose on, and efforts to sell four apartment complexes that are substantially occupied by minorities. In their third amended complaint, plaintiffs assert numerous claims under federal and state law. Defendants move to dismiss under Fed. R. Civ. P. 8, 9(b), 12(b)(6), and/or 12(c). For the reasons that follow, the court grants the motions in part, denies them in part, and grants plaintiffs leave to replead their claims that have not been released or that are not time-barred.
Plaintiffs DT Apartment Group, LP ("DT Apartment") and Richard Aguilar ("Aguilar")—a minority-owned business and a member of a racial minority group, respectively—sued defendants CWCapital, L.L.C. ("CWCapital"), CWCapital MortgageSecurities I, L.L.C. ("CW Mortgage"), and CWCapital Asset Management, L.L.C. ("CW Asset") in Texas state court. After U.S. Bank, N.A. ("US Bank") filed a plea in intervention, plaintiffs added US Bank as a defendant. Defendants removed the suit to this court under the Class Action Fairness Act of 2005. Pub. L. 109-2, 119 Stat. 4 ().1
Plaintiffs' lawsuit arises in connection with their financing of, and attempts to sell, four apartment complexes ("the Properties") that are substantially occupied by racial and ethnic minorities.2 DT Apartment borrowed the funds to purchase the Properties, and Aguilar guarantied the Note. The Properties also serve as collateral.
The original loan transaction involved several documents, including a deed of trust ("Deed of Trust"), a promissory note ("Note"), and a Cash Management Agreement ("CMA"). The Note contains an article entitled "Minimum Performance Criteria" that prescribes a Debt Service Coverage Ratio ("DSCR")3 that DT Apartment as the borrower must maintain. When the Minimum Performance Criteria are not met, the CMA imposes a "Cash Restriction Condition" that allows rents to be paid into a "Rent Account" and allsecurity deposits to be paid into a "Security Deposit Account." The parties refer to this as the "lock box" arrangement.
In 2008 CWCapital notified DT Apartment that it was in default of the required DSCR, and it demanded payment of $717,600.67 within three business days. This, along with CWCapital's re-categorization of certain assets that had previously been approved, purportedly triggered the lock box arrangement. Plaintiffs allege that DT Apartment was not in default under the terms of the Note; that CWCapital miscalculated the DSCR and improperly re-categorized assets; and that, as a result, CWCapital improperly triggered the lock box arrangement. Plaintiffs assert that CWCapital used "inaccurate and/or inapplicable information"; "applied . . . the wrong test"; acted "in conflict with the parties' established course of conduct" 3d Am. Compl. ¶¶ 77-78; and that, before signing the CMA, CWCapital made, and plaintiffs relied on, assertions that triggering the lock box arrangement was a distant possibility and statements about how the lock box operated.
Plaintiffs also aver that, once the lock box arrangement was triggered, defendants used it to completely control the revenues of the Properties; that defendants4 —at least CW Asset—used the lock box arrangement to "withhold, delay, mishandle, mislabel, and misusefunds," id. at ¶ 82; that defendants used the funds for their own purposes; and that DT Apartment was allowed "no right of access to or control over the Rent Account," id. at ¶ 83 (internal quotation marks omitted); that disbursements were made in defendants' discretion; and that defendants unreasonably denied or unreasonably delayed providing funds, even to maintain or repair the Properties. Plaintiffs allege that, along with other failures to act reasonably, this conduct damaged them by making it difficult to rent units in the Properties for full value or to keep occupancy rates high, and ultimately "strangled any effective management of the property." Id. at ¶ 88; see also ¶ 85.
Following these events, the parties entered into a Modification and Extension Agreement ("Modification Agreement") and a Forbearance Agreement ("Forbearance Agreement"). The Modification Agreement [which became effective March 9, 2009] altered the maturity date of the Note from March 9, 2009 to April 8, 2010. The Modification Agreement included a provision under which plaintiffs released, without exception, their existing claims regarding the Properties and associated documents.
Thereafter, the parties entered into the Forbearance Agreement under which the holder of the Note agreed to forbear from exercising its rights and remedies for a temporary, defined period. The Forbearance Agreement included a release clause that was virtually identical to the release in the Modification Agreement, but with one difference: the release clause in the Forbearance Agreement excepted from the release any claims "relating to or in any manner arising out of" circumstances alleged in Exhibit A to the Forbearance Agreement ("Exhibit A").
After the Note became due, CW Mortgage twice notified DT Apartment that it was seeking to foreclose on the property in question. One result of this attempt to foreclosure was to lower the fair market value of the party and to restrict plaintiffs'5 options in dealing with the property in a difficult market. To avoid foreclosure, plaintiffs requested another modification of the maturity date, which defendants refused.
Without a modified maturity date, plaintiffs sought instead to sell the property. They entered into negotiations with, and later received a letter of intent from, an interested third party. Plaintiffs allege that, after defendants learned of the negotiations, Kevin Thompson ("Thompson"), an employee and representative of CW Asset, requested the identity of the purchaser and then invited the prospective purchaser to bid on the Note at foreclosure. According to plaintiffs, the same thing occurred a second time: DT Apartment was negotiating to sell the Properties, and Thompson requested the identity of the prospective purchaser for the stated purpose of performing due diligence to facilitate the transaction. But when CW Asset was provided the requested information, it did not perform due diligence; instead, it sent notice that it intended to foreclose on the Properties and offered to sell the Note to the potential buyer. Plaintiffs allege that defendants intended to harm them by discouraging potential purchasers.
Plaintiffs assert that, when defendants intended to foreclose, they stated in the notice of sale that any decision about whether CW Asset would subordinate its liens would beannounced at the foreclosure sale, something that the Deed of Trust did not permit. They aver that, after noticing the property for foreclosure, defendants sought to exercise complete and unreasonable control via the improperly invoked lock box arrangement; defendants were not responsive to plaintiffs' requests for access to funds to operate the Properties; after a state court denied US Bank's application for appointment of a receiver, defendants improperly declared default and "unilaterally swept several hundred thousand dollars in backup operational funds into [CW Asset] accounts," id. at ¶ 130; and defendants applied $350,000 to the unpaid principal of the Note and informed plaintiffs that, to receive funds with which to operate the business, they must agree to appointment of a receiver.
Plaintiffs also aver that defendants have engaged in a pattern of obfuscation in which they have prevented plaintiffs from knowing who held the Note at relevant times.6 They aver that defendants have contradicted themselves multiple times as to who is the noteholder; that the Modification Agreement lists Wells Fargo Bank, N.A. as the noteholder in trust for the registered holders of CW Mortgage; that defendants represented to a state court that CW Mortgage was the noteholder, but that they had not amended that information when US Bank represented to the state court that it was the noteholder; that two documents were altered without approval of the notary or the affiant; and that US Bank used these documents to establish intervenor status and reverse any prior actual or purported assignment fromCWCapital to CW Mortgage.
Plaintiffs allege claims for breach of contract, fraud, fraudulent inducement, breach of duty of good faith, negligent misrepresentation, misuse of confidential information, tortious interference with prospective business relations, violations of the Equal Credit Opportunity Act ("ECOA"), the Fair Housing Act ("FHA"), and the Texas Theft Liability Act ("TTLA"), filing false or fraudulent documents, and civil conspiracy. In addition to other requested relief, they seek a declaratory judgment under federal and Texas law. Defendants CW Mortgage, CW Asset, and US Bank move to dismiss each claim under Rules 9(b), 12(b)(6), and 12(c).7 Defendant CWCapital moves to dismiss each claim under Rules12(b)(6), 8, and 9(b). Plaintiffs oppose the motions. The court will address both motions together given the substantial overlap between the two.8
"In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of plaintiffs' amended complaint by 'accepting all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." Bramlett v. Med. Protective Co. of Fort Wayne, Inc., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks and alteration omitted)). To survive d...
To continue reading
Request your trial