In re 50 Pine Co., LLC

• Decision Date: 30 September 2004
• Docket Number: Bankruptcy No. 03-12705 (ALG).,Adversary No. 04-02333(ALG).
• Citation: 317 B.R. 276
• Parties: In re 50 PINE CO., LLC, Debtor. 50 Pine Co., LLC, Plaintiff, v. CapitalSource Finance LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

317 B.R. 276

In re 50 PINE CO., LLC, Debtor 50 Pine Co., LLC, Plaintiff, v. CapitalSource Finance LLC, Defendant.

Bankruptcy No. 03-12705 (ALG).

Adversary No. 04-02333(ALG).

United States Bankruptcy Court, S.D. New York.

September 30, 2004.

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Finkel, Goldstein, Berzow, Rosenbloom & Nash LLP, By Kevin Nash, Esq., New York City, for the Debtor/Plaintiff.

Thacher, Proffitt & Wood LLP, By Christopher F. Graham, Esq., Linda K. Clark, Esq., New York City, for the Defendant.

ALLAN L. GROPPER, Bankruptcy Judge.

On February 12, 2004, 50 Pine Co., LLC (the "Debtor"), filed the complaint in this adversary proceeding against CapitalSource Finance LLC ("CapitalSource"), setting forth the following claims for relief: (1) quasi-contract, (2) unjust enrichment and (3) the avoidance of payments made to CapitalSource as fraudulent conveyances pursuant to § 548 of the Bankruptcy Code.

CapitalSource, in turn, filed a motion to dismiss the complaint for failure to state a claim on which relief can be granted, pursuant to Bankruptcy Rule 7012(b)(6), incorporating Rule 12(b)(6) of the Federal Rules of Civil Procedure. This motion is before the Court for decision.

The Facts as Alleged in the Complaint

The following facts alleged in the complaint, presented in the light most favorable to the Debtor, are assumed to be true for purposes of this motion.

The Debtor is a special purpose entity which, on October 8, 2002, entered into an agreement to purchase the real property at 50 Pine Street in New York City (the "Property") for the sum of $13,500,000. The Property was a "mixed-use" building consisting of 13 residential apartments, a street level retail store and one commercial office, and the Debtor anticipated developing and converting the building into condominium units. As part of the purchase price, the Debtor made a $450,000 down-payment to the seller of the Property.

Following the agreement to purchase the Property, the Debtor sought mortgage financing and consulted with lenders before ultimately selecting defendant CapitalSource as a likely provider of the financing. The parties subsequently entered into a term sheet, dated February 21, 2003, and executed by the Debtor on March 4, 2003, (the "Term Sheet"). The Term Sheet contained specifications of a proposed loan by CapitalSource to the Debtor, subject to due diligence, internal credit approval by CapitalSource, as well as several other conditions.

The Term Sheet outlined all salient details of the financing of the purchase and development. The total cost of the development, including acquisition and construction expenses, was projected at $16,700,000. The financing structure detailed in the Term Sheet consisted of the following: 1) a mortgage loan from CapitalSource in the amount of $11,300,000 over a two-year term, 2) subordinated financing of $3,100,000, which would be provided by another lender, CIG International LLC, and 3) an equity contribution by the Debtor of $2,300,000.

The Term Sheet provided for a $75,000 Good Faith Deposit (the "Deposit"), upon receipt of which CapitalSource would commence its due diligence. The Debtor alleges in the complaint that in the weeks following the execution of the Term Sheet and the payment of the Deposit, it received repeated assurances from CapitalSource that due diligence was underway and that a final commitment was imminent. The parties, the Debtor alleges, were working toward a closing, continuing to negotiate the terms of the financing and other matters relating to the mortgage loan. Additionally, the Debtor obtained a commitment from CIG International LLC for the subordinated financing required by the Term Sheet.

According to the allegations of the complaint, shortly before the contemplated closing date of the purchase of the Property, CapitalSource notified the Debtor that it refused to go forward with the loan commitment because of certain rights restrictions in the tenants' underlying residential leases. The Debtor alleges that these reasons were pretextual and advanced in bad faith since CapitalSource either knew, or should have known, the terms of the underlying leases at the time the Term Sheet was executed.

The Debtor further alleges that it relied on the Term Sheet and the assurances of CapitalSource that the mortgage loan would be forthcoming, and therefore that it did not seek out other financing alternatives. As a result of this reliance, and because CapitalSource's refusal came at such a late date, the Debtor claims that it was left with no meaningful choice but to file for Chapter 11 protection in order to protect its $450,000 down-payment on the Property.

The Debtor did, in fact, file for Chapter 11 protection on April 30, 2003. Pursuant to a stipulation in the underlying bankruptcy proceeding, the Debtor resolved its dispute with the seller of the Property over the $450,000 down-payment, retaining $200,000 but forfeiting the remaining $250,000. The Debtor now seeks to recover the damages it claims resulted from CapitalSource's bad faith in conducting the due diligence and refusing to fund the loan.

As noted above, the complaint alleges the following causes of action: 1) that the Term Sheet between the parties created binding obligations of good faith or quasi-contract that were breached by CapitalSource, 2) that defendant was unjustly enriched by its receipt of the $75,000 and received a 3) fraudulent conveyance thereby.¹

Damages include all or part of the $75,000 Deposit, the $250,000 sum forfeited to the seller of the Property, loss of anticipated profits, accrued interest and the costs of this adversary proceeding.²

The Applicable Legal Standards

CapitalSource moves to dismiss the complaint for failure to state a claim under Bankruptcy Rule 7012(b)(6), incorporating Rule 12(b)(6) of the Federal Rules of Civil Procedure. A complaint may not be dismissed under Rule 12(b)(6) unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When considering a motion to dismiss for failure to state a claim, the Court is obligated to accept the allegations contained in the complaint as true and resolve all reasonable inference in favor of the plaintiff. See Stuto v. Fleishman, 164 F.3d 820, 824 (2d Cir.1999).

Under Rule 12(b)(6), a plaintiff's complaint "is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Cortec Indus., Inc. v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir.1991). Where a plaintiff has relied "on the terms and effect of a document in drafting the complaint" a court may "consider[] the document on a dismissal motion..." without converting the 12(b)(6) motion into one for summary judgment Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002) (collecting cases). See also Cortec, 949 F.2d at 48 (holding that where plaintiff has actual notice of a document and relies upon it, the need for "translating a Rule 12(b)(6) motion into one under Rule 56 is largely dissipated."). However, when a party attaches to its motion to dismiss documents which are extrinsic to the complaint, the court must either exclude such documents from consideration or convert the motion to a motion for summary judgment under Rule 56. See Fed.R.Civ.P. 12(b); Fonte v. Bd. of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir.1988). When a court chooses to convert the motion to one for summary judgment, it must afford "all parties ... reasonable opportunity to present all materials made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12(b); Kopec v. Coughlin, 922 F.2d 152, 154-55 (2d Cir.1991).

In the instant case, the Court at a hearing on the motion determined that it would be appropriate to treat CapitalSource's pleading as a motion to dismiss under 12(b)(6) with respect to count 1 of the complaint but that the motion with respect to counts 2 and 3 would be converted into one for summary judgment. This was based on the fact that, in its reply papers, CapitalSource submitted an affidavit of Christopher Graham and a certification of Pierrette Newman Bradshaw attaching certain documents concerning the nature and use of the Deposit, in an attempt to show that its use of the $75,000 was in accord with the requirements of the Term Sheet. These papers challenged the Debtor's allegations 1) that CapitalSource was unjustly enriched at the Debtor's expense; and 2) that the Debtor did not receive reasonably equivalent value for its payment of the Deposit. At the hearing, the Court gave the Debtor two weeks to take discovery on the unjust enrichment and fraudulent conveyance issues and respond. The Debtor did respond, challenging CapitalSource's redacted account as to its use of the $75,000. We thus have a motion to dismiss as to count 1 and a motion for summary judgment as to counts 2 and 3.

Discussion

Breach of Binding Obligations of Good Faith

The gravamen of count 1 of the Debtor's complaint is that the Term Sheet created specific obligations, based either in law or equity, which made it incumbent on CapitalSource to proceed in good faith toward the contractual objectives articulated in the Term Sheet, or at least created obligations between the parties of a quasi-contractual nature. As discussed below, the Debtor's claims must fail as there was an enforceable agreement, thereby precluding a claim in quasi-contract, but that agreement did not impose on CapitalSource the obligations that the Debtor would construct.

Under New York law, where parties involved in negotiations have reached preliminary agreements contemplating future negotiations, subsequent approvals or a further contract, binding obligations are not typically created.³ Richbell Information Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 297...