Kuhlmann v. Sabal Fin. Grp. LP

• Court: U.S. District Court — Western District of Washington
• Writing for the Court: JOHN C. COUGHENOUR, District Judge.
• Citation: Kuhlmann v. Sabal Fin. Grp. LP, 26 F.Supp.3d 1040 (W.D. Wash. 2014)
• Decision Date: 18 June 2014
• Docket Number: Case No. C13–1865–JCC.
• Parties: William E. KUHLMANN, et al., Plaintiffs, v. SABAL FINANCIAL GROUP LP, et al., Defendants.

26 F.Supp.3d 1040

William E. KUHLMANN, et al., Plaintiffs

v.SABAL FINANCIAL GROUP LP, et al., Defendants.

Case No. C13–1865–JCC.

United States District Court, W.D. Washington, at Seattle.

Signed June 18, 2014.

Lauren Burdette Rainwater, James E. Howard, Dorsey & Whitney, Seattle, WA, for Plaintiffs.

Joseph D. Mueller, William L. Larkins, Jr., Larkins Vacura, Portland, OR, Duffy J. Graham, James P. Savitt, Savitt Bruce & Willey LLP, Seattle, WA, Russel John Hermes, Hermes Law Firm PSC, Everett, WA, for Defendants.

ORDER

JOHN C. COUGHENOUR, District Judge.

This matter comes before the Court on Defendant Bryan Boyle's motion to dismiss (Dkt. No. 16) and Defendants ADC Venture's and Sabal Financial Group's motion for judgment on the pleadings (Dkt. No. 35). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS both motions to the extent they challenge this Court's subject matter jurisdiction to consider Plaintiffs' claims, GRANTS Defendant ADC's motion for judgment on the pleadings with regard to its counterclaim, and otherwise DENIES the motions as moot.

I. BACKGROUND

This case involves a failed real estate development partnership between Plaintiffs William Kuhlmann, Judith Caspar, and non-parties Daniel and Cathy Stevens. It also involves the failure of City Bank in Lynnwood, Washington, which provided a $500,000 line of credit to the Stevens to be used for the real estate development. According to Plaintiffs' Complaint, Mr. Kuhlmann and Ms. Caspar, along with the Stevens, formed Plaintiff Kuhlmann Ridge Estates, LLC (“KRE”), to develop property located in Snohomish County, Washington in 2006. (Dkt. No. 1, at ¶ 3.1.) Mr. Kuhlmann and Ms. Caspar provided the 48–acre tract of land to be developed, which had been in their family for generations, while Mr. Stevens agreed to provide $200,000 in financing and to oversee the construction, development, and the remaining financing of the project in exchange for a 50 percent stake in KRE. (Id. at ¶¶ 3.4–3.6.) The Stevens allegedly took out a $250,000 loan to finance the project from City Bank, and later obtained an increase on that line of credit for another $250,000. (Id. at ¶¶ 3.7, 3.11, 3.22.) The loan was secured by a Deed of Trust on the Property that Mr. Kuhlmann and Ms. Caspar signed. (Id. at ¶¶ 3.7–3.8.)

The Complaint alleges that City Bank and its employees represented to Plaintiffs that the Bank would exercise stringent controls on the lines of credit by requiring documentation of construction progress before advancing funds, but failed to do so, and further failed to require payment from Plaintiffs when Mr. Stevens ultimately defaulted, thereby allowing Mr. Stevens to take advantage of them. (Id. at ¶¶ 3.11, 3.16, 3.21, 3.22, 3.25.) With regard to the misrepresentations, the Complaint alleges in a general fashion that prior to agreeing to secure the loan with the Property, Mr. Kuhlmann “spoke with several people at City Bank, including Naomi Max” about “the controls City Bank would exercise over the construction line of credit before it advanced funds,” and “made it clear to City Bank that [the Plaintiffs] would only agree to enter into the construction loan transaction if City Bank exercised controls on the line of credit.” (Id. at ¶ 3.8.) In response, “City Bank [allegedly] assured Mr. Kuhlmann and Ms. Caspar that the terms of the Construction Loan Agreement [ (“CLA”) ] [between the Bank and the Stevens] provided the protections that Mr. Kuhlmann and Ms. Caspar required [,]” and that the CLA “required documentation of construction before draws would be permitted.” (Id. at ¶ 3.9.) Mr. Kuhlmann and Ms. Caspar then signed the Deed of Trust, which they allege incorporated the CLA. (See id. at ¶ 3.11; Dkt. No. 15 at 34.) After they agreed to secure the loan with the Property, the Complaint alleges, Mr. Stevens failed to actually develop the land, maxed out the initial line of credit, failed to make monthly interest payments on the loan as required from June 2006 through August 2007, obtained the increase in the line of credit with Plaintiffs' permission by failing to disclose the notices of default, and again maxed out the line of credit in 2008 without completing any substantial work on the development. (Id. at ¶¶ 3.17, 3.25.) Plaintiffs fault City Bank and Defendant Bryan Boyle for not exercising the promised controls over the loan dispersements and failing to notify them of the Stevens' numerous defaults.

The CLA that Mr. and Mrs. Stevens signed with City Bank, but which Plaintiffs did not sign, contains numerous provisions for which the parties offer differing interpretations. The first, entitled “Conditions Precedent to Each Advance,” expressly states: “Lender's obligation to make the initial Advance and each subsequent Advance under this agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the related documents[.]” (Id. at ¶ 3.10; Dkt. No. 36, Ex. A) (emphasis added). The agreement then calls for City Bank's approval of contractors, subcontractors, plans, specifications, permits, architects' and construction contracts, and a borrower's authorization. (Id. ) The CLA also contains a “Disbursement of Loan Funds” provision which provides, in relevant part, that “Borrower shall apply only for disbursements with respect to work actually done by the General Contractor and for materials and equipment actually incorporated into the project. Each application for an advance shall be deemed a certification of Borrower that ... all representations and warranties contained in the agreement are true and correct[.]” (Id. ) And finally, the CLA contains an express “Limitation of Responsibility” provision, which states:

Inspections and approvals of the Plans and Specifications, the Improvements, the workmanship and materials used in the improvements, and the exercise of any other right of inspection, approval, or inquiry granted to Lender in this Agreement are acknowledged to be solely for the protection of Lender's interests, and under no circumstances shall they be construed to impose any responsibility or liability of any nature whatsoever on Lender to any party.... Neither Borrower nor ... any other person shall rely, or have any right to rely, upon Lender's determination of the appropriateness of any Advance.

(Dkt. No. 36, Ex. A at 3.)

In 2010, City Bank failed. (Id. at ¶ 3.39.) The Complaint alleges that the FDIC took control of the bank as receiver on April 16, 2010, in order to wind down its affairs. (Id. ) The FDIC then set July 21, 2010 as the “claims bar date” by which creditors and claimants were required to file any existing claims against the Bank with the FDIC. (Id. ) According to Plaintiffs' Complaint, Mr. Kuhlmann and Ms. Caspar did not receive a written notice or see any news about City Bank's failure or the FDIC receivership until late July—approximately one week after the claims bar date passed—when Mr. Kuhlmann spoke with Mr. Stevens. (Id. at ¶¶ 3.27, 3.39.) Plaintiffs then allegedly received a Notice of Default from the FDIC on March 7, 2011. (Id. at ¶ 3.41.) The Complaint alleges that after Plaintiffs' counsel contacted the FDIC about the default, no further action was taken until April 30, 2013, when Plaintiffs filed claims “based on the facts” in their Complaint with the FDIC. (Id. at ¶ 3.42.) In letters dated June 3, 2013, the FDIC disallowed Plaintiffs' claims as untimely. (Id. ) Plaintiffs then filed a state-court lawsuit, but voluntarily dismissed that action. (Dkt. No. 32 at 7 n. 1.)

On October 15, 2013, Plaintiffs filed the instant lawsuit against Mr. Boyle, City Bank's former Vice President; ADC Venture 2011–2, LLC, which purchased the rights to the Loan Documents from the FDIC as receiver for City Bank in 2012; and Sabal Financial Group, LLC, which is the servicer of the loans. (Id. at ¶¶ 1.4–1.6, 3.43–3.44.) Plaintiffs do not name as defendants City Bank, the FDIC, or the Stevens. Instead, Plaintiffs bring the following claims based exclusively on the alleged misrepresentations, omissions, or conduct of City Bank before it failed and was placed into receivership: (1) Fraud in Factum; (2) Fraud in the Inducement; (3) Common Law Fraud; (4) Breach of Contract; (5) Estoppel; (6) Breach of Special Duty; (7) violation of the Washington Consumer Protection Act; and (8) Declaratory Judgment. (Id. at ¶¶ 4–11.) Defendant Bryan Boyle now moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). (Dkt. No. 16.) Defendants ADC and Sabal counterclaim for breach of contract and “foreclosure of deed of trust,” (Dkt. No. 15), and now move for judgment on the pleadings (i) that ADC is entitled to foreclose on the property and (ii) for dismissal of Plaintiffs' claims against ADC and Sabal. (Dkt. No. 35.) For the reasons that follow, the Court dismisses Plaintiffs' Complaint in its entirety for lack of subject matter jurisdiction and grants Defendant ADC's motion for judgment on the pleadings with respect to its counterclaim.

II. DISCUSSION

A. Plaintiffs' Claims Under FIRREA

1. Legal Standard

Under Federal Rule of Civil Procedure 12(b)(1), the Court must dismiss claims over which it lacks subject matter jurisdiction.¹ Chapman v. Pier 1 Imports (U.S.) Inc.,

631 F.3d 939, 954 (9th Cir.2011). The party asserting jurisdiction bears the burden of proving that the Court has subject matter jurisdiction over the asserted claims, Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) ; though, even if a defendant does not move for dismissal under Rule 12(b)(1), the Court has a duty to establish subject matter jurisdiction sua sponte. See United Investors Life Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960, 967 (9th Cir.2004). When determining the existence of subject matter jurisdiction, “the district court is not confined by the facts contained in the...