Premium Hospitality, L.L.C. v. Astra Capital Funding

• Decision Date: 19 July 2013
• Docket Number: CIVIL ACTION NO. 12-0779
• Parties: PREMIUM HOSPITALITY, L.L.C., et al. v. ASTRA CAPITAL FUNDING, et al.
• Court: U.S. District Court — Eastern District of Louisiana

PREMIUM HOSPITALITY, L.L.C., et al.
v.
ASTRA CAPITAL FUNDING, et al.

CIVIL ACTION NO. 12-0779

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA SECTION: "G"(5)

Dated: July 19, 2013

ORDER AND REASONS

Before the Court is Defendant Fidelity National Title Company's ("Fidelity") "Motion to Dismiss Pursuant to Federal Rule 12(b)(6),"¹ wherein it seeks the dismissal of all claims against it here. After considering the complaint, the pending motion, the memorandum in support, the opposition, the record, and the applicable law, the Court will grant in part and deny in part the pending motion.

I. Background

A. Factual Background

Plaintiffs are Premium Hospitality, L.L.C. ("Premium Hospitality"), Kajal, Incorporated ("Kajal"), and Ashok Patel ("Patel") (collectively, "Plaintiffs").² Defendants are Astra Capital Funding, Inc. ("Astra"), John Burton Ramsey ("Ramsey"), Sandeep Nagin Patel ("Sandeep Patel"), BP Communications LTD ("BP"), World Trade Holdings, LLC ("World Trade"), and Fidelity.³

Patel acted as President of both Premium Hospitality and Kajal, which are both engaged in the hotel industry. In that capacity, Patel sought loans to finance specific projects concerning each

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corporation.⁴ Patel contacted Mortgage Corp, whose agent was Defendant Sandeep Patel, who in turn referred him to Astra. Plaintiffs claim that they reached an agreement with Astra, whereby Premium Hospitality would receive a $1,150,000.00 loan and Kajal would receive a $1,680,00.00 loan.⁵ According to Plaintiffs, two letters of commitment, dated November 17, 2011, were drafted and signed by both parties, and a $200,000 escrow deposit for each loan was requested as a down payment.⁶ Fidelity was designated to hold the escrow deposit funds.⁷ On December 2, 2011, the escrow funds were wired to Fidelity, and the loans were scheduled to close on February 24, 2012.⁸ However, according to Plaintiffs on December 6, 2011, Fidelity received a "Conditional Letter of Guarantee" purportedly from Ron My of Wells Fargo Bank, N.A., and the funds were released from the escrow account. Plaintiffs claim a $300,000 wire transfer was sent to BP and a $100,000 payment was sent to World Trade.⁹ Ramsey signed the wire transfer. Plaintiff claim that "[t]hese funds then subsequently disappeared."¹⁰

Plaintiffs claim that "violations of law have occurred in this matter, and comprise fraud, breach of contract, breach of duty of good faith and fair dealing, negligent misrepresentation, breach of fiduciary duty, detrimental reliance, and failure to perform due diligence. Plaintiffs bring causes

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of action under the Louisiana Credit Agreement Statute,¹¹ and Louisiana Civil Code articles 1983, 1759, and 1967.¹² Specifically, with regard to Fidelity, Plaintiff claims that it is "liable to Plaintiffs herein for breach of fiduciary duty, detrimental reliance, and failure to perform due diligence. [It was] the repository for the escrow fund and allegedly conducted due diligence prior to the transfer of the escrow account by assuring plaintiffs of the integrity of the escrow transfer."¹³

B. Procedural Background

Plaintiffs filed the original complaint in this matter on March 23, 2012, invoking this Court's diversity jurisdiction.¹⁴ On August 9, 2012, Fidelity filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).¹⁵ Plaintiffs filed an opposition on September 4, 2012.¹⁶ On March 6, 2013, this Court discovered certain pleading deficiencies that created some doubt as to whether this Court had subject matter jurisdiction. In response, the Court ordered Plaintiffs to file an amended complaint to properly allege the citizenship of all parties, and denied Defendants first motion to dismiss without prejudice, with leave to refile the motion after such time as the Court determined it had subject matter jurisdiction.¹⁷

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On March 13, 2013, Plaintiffs filed an amended complaint.¹⁸ Further, on March 28, 2013, Fidelity filed a memorandum in support of subject matter jurisdiction, alleging the citizenship of all parties and demonstrating complete diversity.¹⁹ On that same day, Fidelity refiled their motion to dismiss.²⁰ Plaintiffs did not refile an opposition to this motion to dismiss, and therefore the Court will construe their opposition to Fidelity's first motion to dismiss as the opposition to the pending motion.

II. Parties' Arguments

A. Fidelity's Arguments in Support of Dismissal of Plaintiff's Claims Against It

In support of the pending motion, Fidelity seeks the dismissal of Plaintiff's claims against it for breach of fiduciary duty, failure to perform due diligence, and detrimental reliance, claiming Plaintiffs have failed to a state a claim upon which relief can be granted for each cause of action.²¹ Fidelity argues that Plaintiffs have "sued Fidelity as a backstop," in case they cannot recover against the other named defendants, and that the "sole fact alleged in support of [their] claims is that Fidelity was the 'the repository for the escrow fund and allegedly conducted due diligence prior to the transfer of the escrow account by assuring plaintiffs of the integrity of the escrow transfer.'"²² Therefore, Fidelity contends that Plaintiffs have failed to state a claim for which relief can be granted regarding the claims against Fidelity.

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Fidelity also notes that Patel and Astra entered into an Escrow Agreement with Fidelity on or around December 1, 2011.²³ Fidelity recognizes that on a motion to dismiss a court typically should only consider the pleadings, but cites Fifth Circuit precedent that a court may consider documents attached to a motion to dismiss if they are cental to the plaintiff's claims.²⁴ Fidelity highlights that under the Escrow Agreement, its obligations and liability are limited:

23. CLARIFICATION OF DUTIES
Fidelity National Title Company - Builder Services serves ONLY as an Escrow Holder in connection with these instructions and cannot give legal advice to any party hereto.
Escrow Holder is not to be held accountable or liable for the sufficiency or correctness as to form, manner of execution, or validity of any instrument deposited in this escrow, nor as to the identity, authority or rights of any person executing same. Escrow Holder's duties hereunder shall be limited to the proper handling of such money and the proper safekeeping of such instruments, or other documents received by Escrow Holder, and for the disposition of same in accordance with the written instructions accepted by Escrow Holder.²⁵

First, Fidelity contends that California law governs Plaintiffs' claims against it.²⁶ Because this Court sits in Louisiana, Fidelity recognizes that Louisiana's approach to conflict of law applies. Fidelity contends that in consideration of Louisiana's specific choice of law provisions and relevant case law, California law should apply because Fidelity is domiciled in California, the Escrow

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Agreement was drafted in California, performance under the Escrow Agreement took place in California, and the Escrow Agreement references California law.²⁷

Applying California law, Fidelity avers that "an escrow holder is the agent and fiduciary of the parties to the escrow."²⁸ However, Fidelity argues that because the escrow holder is a "dual agent" for both parties to the escrow, the escrow holder's duty is limited "to the obligation [] to carry out the instructions of each of the parties to the escrow," and therefore Fidelity cannot be held liable for breach of fiduciary duty or failure to provide due diligence based on Plaintiff's allegations.²⁹ Moreover, Fidelity notes that the California Supreme Court has stated that "'[a]bsent clear evidence of fraud, an escrow holder's obligations are limited to compliance with the parties' instructions.'"³⁰ Further, Fidelity claims that many California appellate courts have held that an escrow holder's duty is confined to acting in accordance with the escrow instructions, and there is no duty to notify the escrow parties or investigate suspicious facts that could affect the parties.³¹

Fidelity contends that these causes of action nevertheless fail even if Louisiana law were to apply, because "the fiduciary duty of an escrow holder is the same as that under California law."³² Therefore, Fidelity argues that the breach of fiduciary duty and failure to perform due diligence claims should be dismissed:

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As noted above, an escrow agent may be held liable to the extent that the escrow agent fails to follow the parties' instructions. Here, the Complaint does not allege that Fidelity did not follow the instructions provided to it. Instead, the Complaint alleges that Fidelity released the Escrow Funds pursuant to a Conditional Letter of Guarantee from Wells Fargo. Without alleging whether Fidelity failed to follow the escrow instructions, Plaintiffs' breach of fiduciary duty and failure to perform due diligence claims are merely conclusory and should be dismissed as a matter of law.³³

Next, Fidelity contends that Plaintiffs have failed...