Mill Creek Group, Inc. v. F.D.I.C.

• Decision Date: 10 April 2001
• Docket Number: No. 3:95 CV 1498 (TPS).,3:95 CV 1498 (TPS).
• Citation: 136 F.Supp.2d 36
• Court: U.S. District Court — District of Connecticut
• Parties: MILL CREEK GROUP, INC., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.

136 F.Supp.2d 36

MILL CREEK GROUP, INC., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.

No. 3:95 CV 1498 (TPS).

United States District Court, D. Connecticut.

April 10, 2001.

COPYRIGHT MATERIAL OMITTED

Jane S. Ancona, Benjamin Ancona, Jr., Ancona & Ancona, West Hartford, CT, for plaintiff.

Heena Kapadia, Carmody & Torrance, New Haven, CT, Philip E. Masquelette, FDIC, Legal Division, East Hartford, CT, Charlotte M. Kaplow, FDIC, Washington, DC, for defendants.

RULING ON MOTION TO RECONSIDER

SMITH, United States Magistrate Judge.

The plaintiff, Mill Creek Group, Inc., brought this action against the Federal Deposit Insurance Corporation ("FDIC") to recover damages allegedly resulting from its purchase of a package of distressed loans from the FDIC as Receiver for National Industrial Bank on September 13, 1993. On September 11, 2000, the court issued a ruling on defendant's motion to dismiss (Dkt. # 117), granting it in its entirety. On September 13, 2000, plaintiff moved for reconsideration (Dkt. # 119). Having entertained plaintiff's motion to reconsider, the court adheres to the view that plaintiff's claims were properly dismissed. Therefore, the motion to reconsider (Dkt. # 119) is GRANTED; but, for the following reasons, plaintiffs request that the court's decision be set aside is DENIED.

I. PROCEDURAL POSTURE

This case has an unusual procedural posture. The defendant first moved to dismiss the complaint on December 11, 1997. Plaintiff responded to this motion by petitioning the court for additional discovery and by seeking an extension of time in which to file opposition papers. The court denied the motion to dismiss without prejudice, and reopened discovery on May 13, 1998. Rancorous discovery continued until November 29, 1999, when defendant re-filed its motion to dismiss.¹

The plaintiff responded to this renewed motion by filing a motion to dismiss defendant's motion to dismiss, and seeking an extension of time in which to file opposition papers until 30 days from a decision on its motion to dismiss the motion to dismiss. On September 11, 2000, the court denied plaintiff's motion to dismiss and granted defendant's motion. The plaintiff thereupon asserted that the court had unfairly granted defendant's motion by not allowing plaintiff the 30 days it had requested to file papers in opposition to defendant's motion. To rectify this, the court has entertained a motion to reconsider, thus providing plaintiff with a full and fair opportunity for the presentation of whatever additional arguments and evidence it believes should be considered by the court.

II. THE FACTS

Certain key facts are undisputed or inescapable. In May of 1993, the defendant placed an advertisement in the Wall Street Journal soliciting bids for the sale of loans. The plaintiff answered the solicitation, and a bid package was sent to it by defendant on July 27, 1993. Certain loan packages and their sub-packages were identified in the bid package. The plaintiff decided to submit a bid on the sub-package identified as SB-93-21(C).

Shortly after the original solicitation, the package labeled SB-93-21(C) consisted of five distressed loans that plaintiff valued at $479,192.00. On July 29, 1993, plaintiff submitted a bid of $63,732.67, or 13.3% of the book value of the loans contained therein, on loan package SB-93-21(C). On August 2, 1993, the FDIC accepted plaintiff's bid to purchase SB-93-21(C).

Shortly after being told that its bid had been accepted, the plaintiff was informed by Mr. Robert Meador, an FDIC Asset Marketing Supervisor, that there was a problem with the loan package. Apparently, despite the fact that it was listed as part of the package plaintiff bid to purchase, the FDIC settled an unsecured note with an obligation of $100,000, of which Paul Romanelli was the maker, and Norman Soep was the guarantor, (the "Romanelli/Soep loan") for $25,000 on August 5, 1993.

In response to the withdrawal of the Romanelli/Soep loan from the package, Mill Creek brokered a compromise with the FDIC. On August 11, 1993, plaintiff authored a letter to the FDIC confirming the terms of the compromise: that the FDIC would recommend for approval that the Romanelli/Soep loan would be removed entirely from SB-93-21(C), and that plaintiff would purchase the remaining four assets, valued at $379,193.00, for $38,732.67. Final approval for the sale was in fact obtained on September 7, 1993.

The parties closed the transaction on September 13, 1993, and executed a written Loan Sale Agreement. The Loan Sale Agreement reflected the terms agreed upon in the August 11 letter, and identified the plaintiff Mill Creek Group, Inc., as the buyer of the loan obligations, and the FDIC "in its receivership capacity" as the seller. (Kathleen Bowen Aff., Dkt. # 111, ¶ 4 and Ex. 1, Att. 5 at 23). The Bill of Sale identifies the seller as the FDIC in its receivership capacity (Id., ¶ 4 and Ex. 1, Att. 2 at 18A).

Unfortunately, after the closing the parties became aware of yet another problem involving SB-93-21(C). One of the assets included in the package was a note, with a maker named Gene Zurolo, that was partially secured by a second lien on a piece of real property in Madison, Connecticut ("Zurolo lien"). On August 24, 1993, after consulting with the holder of the first lien regarding a private sale of the property in question, the FDIC approved a release of the Zurolo lien in exchange for $750.00 of the sale proceeds. Plaintiff did not learn of the release until after it had already purchased the note, and it obtained the funds from the FDIC thereafter.

III. THE CLAIMS

Plaintiff then filed this lawsuit, which charges the FDIC with misrepresenting the contents of the package to the detriment of the plaintiff, and seeks to recover the full value of the package as originally offered. Specifically, plaintiff challenges the FDIC's offering five loans for sale, and then removing one loan entirely, and a lien securing another loan, from the package prior to the closing of the transaction, as a "bait and switch" transaction. At the root of plaintiff's lawsuit is the concept that the FDIC had an obligation to communicate accurate information, and therefore must compensate the plaintiff for its failure to do so.²

In the complaint, plaintiff asserts various sources for this core obligation, and alleges the following causes of action against the FDIC in its corporate capacity: (1) breach of contract (First Count); (2) breach of the covenant of good faith and fair dealing (Second Count); (3) breach of a fiduciary duty (Third Count); (4) fraud, intentional misrepresentation, and collusion (Fourth Count); (5) negligent misrepresentation (Fifth Count); (6) detrimental reliance (Sixth Count); (7) deprivation of property without due process of law (Seventh Count), and (8) fraud under the New Jersey Consumer Fraud Act, New Jersey Statutes Annotated § 56:8-1 et seq. (Eleventh Count).³

Plaintiff's claims may be viewed as either tort claims or non-tort claims. Counts three, four, five, and eleven of the complaint clearly appear to sound in tort. Counts two and six, while perhaps less clearly sounding in tort, have alleged wrong-doing by virtue of interference with plaintiff's putative contractual rights. Only count one, the breach of contract claim, is non-tortious in nature. The defendant moved to dismiss all of the foregoing claims under Rules 12(b)(6) and 12(b)(1) of the Federal Rules of Civil Procedure. Defendant contends that all of the foregoing claims must be dismissed for lack of subject-matter jurisdiction, on grounds of sovereign immunity, or because they fail to state a claim on which relief can be granted.

IV. STANDARDS FOR DISMISSAL

Two different standards govern the court's analysis. First, Rule 12(b)(1) of the Federal Rules of Civil Procedure is the appropriate device to assert a "lack of jurisdiction over the subject matter." Fed. R. Civ. Pro. 12(b)(1). "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. U.S., 201 F.3d 110, 113 (2d Cir.2000).⁴ Although the court must afford the complaint a "broad[] and liberal[]" construction, "argumentative inferences in favor of the party asserting jurisdiction should not be drawn." Cole v. Aetna Life & Cas., 70 F.Supp.2d 106, 109 (D.Conn.1999) (internal quotation marks omitted); see Klein & Vibber, P.C. v. Collard & Roe P.C., 3 F.Supp.2d 167, 169 (D.Conn.1998), aff'd, 201 F.3d 431, 1999 WL 1295920 (2d Cir.1999).

The burden of proving subject matter jurisdiction rests with the plaintiff, see Makarova, 201 F.3d at 113, and the court may look to evidence outside the pleadings when determining if plaintiff has met its burden, see City of New York v. FDIC, 40 F.Supp.2d 153, 160 (S.D.N.Y.1999) (citing Kamen v. American Telephone & Telegraph Co., 791 F.2d 1006, 1011 (2d Cir. 1986)).

The second standard is that set forth in Rule 56 of the Federal Rules of Civil Procedure. Despite the fact that defendant moved for dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, it is well settled that,

[i]f, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief may be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Fed R. Civ. Pro. 12(b).

In determining whether conversion of a Rule 12(b)(6) motion into a Rule 56 motion is appropriate, "[t]he essential inquiry is whether the [plaintiff] should reasonably have recognized the possibility that the motion might be converted into one for summary judgment or was taken by surprise and deprived of...