Ridgeline Capital Partners, LLC v. Midcap Fin. Servs., LLC

• Decision Date: 24 September 2018
• Docket Number: CIVIL ACTION FILE NO. 1:18-cv-991-TCB
• Citation: 340 F.Supp.3d 1364
• Parties: RIDGELINE CAPITAL PARTNERS, LLC, Plaintiff, v. MIDCAP FINANCIAL SERVICES, LLC and MidCap Funding Investment I, LLC, Defendants.
• Court: U.S. District Court — Northern District of Georgia

340 F.Supp.3d 1364

RIDGELINE CAPITAL PARTNERS, LLC, Plaintiff,

v.MIDCAP FINANCIAL SERVICES, LLC and MidCap Funding Investment I, LLC, Defendants.

CIVIL ACTION FILE NO. 1:18-cv-991-TCB

United States District Court, N.D. Georgia, Atlanta Division.

Signed September 24, 2018

Christopher E. Adams, Jeffrey D. Horst, Joshua Ivan McLaurin, Krevolin & Horst, LLC, Atlanta, GA, for Plaintiff.

Gregory F. Harley, Louis G. Fiorilla, Burr & Forman, LLP-ATL, Atlanta, GA, Hannah M. Arenstam, Michael Robert Mulcahy, Vedder Price Kaufman & Kammholz, Chicago, IL, for Defendants.

ORDER

Timothy C. Batten, Sr., United States District Judge

This case involves a failed real estate sales transaction. The purported buyer, Plaintiff Ridgeline, has sued the two Defendants (collectively, "MidCap") under theories of breach of contract, promissory estoppel, and unjust enrichment. Now before the Court is MidCap's motion [18] to dismiss.

I. Background

MidCap was the lender holding a note and security deed with respect to a medical office building in Acworth, Cobb County, Georgia, known as Governors Pavilion.

As of September 2017, the amount owing under the loan was approximately $5.7 million, and the loan was in default.

Before foreclosing on the property, MidCap and Ridgeline discussed the possibility of Ridgeline purchasing the property from the borrower. On August 16, Ridgeline's principal, Jeff Axley, sent an email to MidCap's authorized agent, Lawrence Brin, to "make sure [Ridgeline was] understanding this deal accurately."

In the email, Axley outlined five points summarizing the deal, the most salient being that: (1) Ridgeline would offer to purchase the property from the defaulting borrower; (2) Ridgeline would pay the existing $5.7 million loan balance down to $5 million; and (3) MidCap would loan Ridgeline the $5 million to purchase the property at an agreed-upon interest rate. Ridgeline made the offer to the defaulting borrower, but it rejected the offer.

Following the default of the loan, MidCap told Ridgeline that it intended to foreclose on the property and that after doing so it would sell the property to Ridgeline on the same terms—a purchase price of $5.7 million with MidCap financing $5 million of the purchase price at an agreed-upon interest rate.

Before the foreclosure sale, MidCap requested that Axley visit and inspect the property—which he did—so that Ridgeline would be ready to close shortly after the foreclosure sale.

In October, MidCap sent Ridgeline several documents related to the property, including lease agreements, a survey, and various reports. MidCap advised Ridgeline that the terms of MidCap's proposed sale to Ridgeline would not be reduced to writing prior to the foreclosure sale because MidCap did not want it to appear as if it was chilling the bidding at the foreclosure sale.

On November 7, MidCap credit bid the amount of the debt at the foreclosure sale and thus acquired the property. Axley was present at the foreclosure sale but did not bid because of his understanding that MidCap would purchase the property and then sell it to Ridgeline. After the sale, Axley and Brin met and agreed that MidCap would sell the property to Ridgeline.

On November 8, Axley emailed Brin and requested a term sheet and stated that after MidCap dealt with the paperwork from the foreclosure sale, the parties could "address the contract between us."

On November 9, MidCap emailed a letter (the "term sheet") to Ridgeline, outlining in detail the proposed financing terms for the sale.

In response, Ridgeline paid the good faith deposit, and on November 14 the parties held a conference call to discuss the closing process. Then things changed.

On December 7, Brin told Axley that MidCap might not sell the property to Ridgeline because it had received a lucrative offer to lease all the vacant space in the property which greatly increased its value—perhaps even doubling it. He also told Axley that MidCap would reimburse Ridgeline for the deposit, expenses incurred, and an additional amount to be determined. Five weeks later, on January 12, 2018, Brin confirmed that MidCap would not go forward with the sale.

On January 30, Ridgeline informed MidCap that it was willing and able to close on the property on the financing terms in the term sheet or for cash. MidCap refused. Ridgeline sued.

On April 27, Ridgeline filed an amended complaint, alleging six counts. First, it seeks specific performance of the alleged verbal contract to sell the property. It also asserts claims for breach of contract for the sale of the property and breach of the contractual duty of good faith and fair dealing. Ridgeline alternatively asserts claims for promissory estoppel and unjust enrichment, and it seeks to recover its expenses of litigation pursuant to O.C.G.A. § 13-6-11.

On May 18, MidCap filed this motion to dismiss, arguing that it has no contractual or other obligation to Ridgeline.

II. Legal Standard on a Motion to Dismiss

Federal Rule of Civil Procedure 8(a)(2) requires that a complaint provide "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" This pleading standard does not require "detailed factual allegations," but it does demand "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Chaparro v. Carnival Corp. , 693 F.3d 1333, 1337 (11th Cir. 2012) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ).

Under Rule 12(b)(6), a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Chandler v. Sec'y of Fla. Dep't of Transp. , 695 F.3d 1194, 1199 (11th Cir. 2012) (quoting id. ). The Supreme Court has explained this standard as follows:

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully.

Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citation omitted) (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ); see also Resnick v. AvMed, Inc. , 693 F.3d 1317, 1324-25 (11th Cir. 2012).

Thus, a claim will survive a motion to dismiss only if the factual allegations in the complaint are "enough to raise a right to relief above the speculative level ...." Twombly , 550 U.S. at 555–56, 127 S.Ct. 1955 (citations omitted). "[A] formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955 (citation omitted). While all well-pleaded facts must be accepted as true and construed in the light most favorable to the plaintiff, Powell v. Thomas , 643 F.3d 1300, 1302 (11th Cir. 2011), the Court need not accept as true the plaintiffs legal conclusions, including those couched as factual allegations, Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

Accordingly, evaluation of a motion to dismiss requires two steps: (1) eliminate any allegations in the pleading that are merely legal conclusions, and (2) where there are well-pleaded factual allegations, "assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937.

III. Discussion

A. Breach of Contract

Ridgeline is not suing MidCap for breach of the November 9 term sheet. Rather, it contends that the parties formed a binding oral contract prior to the delivery of the term sheet for the sale of the property, and that the term sheet related only to financing. MidCap responds that its promise to sell the property is unenforceable because the promise was one to sell land, and such promises must be in writing. O.C.G.A. § 13-5-30(4).

Although Ridgeline points to emails between the parties, there is no writing signed by MidCap containing a promise to sell the property. Moreover, the term sheet pertained only to the financing of the purchase.

Ridgeline responds that there was sufficient part performance of MidCap's promise to remove it from the statute of frauds. The statute of frauds does not apply "[w]here there has been performance on one side, accepted by the other in accordance with the contract[.]" Id. § 13-5-31(2).

In order for the part-performance exception to the statute of frauds to apply, "such performance must be essential to the terms of the contract sued upon, and substantial enough to result in a detriment to one party and a benefit to the other to such an extent that the refusal to enforce the contract will result in fraud." Breckenridge Creste Apartments, Ltd. v. Citicorp Mortg., Inc. , 826 F.Supp. 460, 464-65 (N.D. Ga. 1993), aff'd sub nom. Breckenridge Creste v. Citicorp , 21 F.3d 1126 (11th Cir. 1994) (citing Hudson v. Venture Indus., Inc. , 243 Ga. 116, 252 S.E.2d 606, 608 (1979) ).

Thus, the Court must determine whether there has been "such part performance of the contract as would render it a fraud ... if the Court did not compel a performance." Payne v. Warren , 282 Ga.App. 524, 639 S.E.2d 528, 530 (2006). Further, "the part performance shown must be consistent with the presence of a contract and inconsistent with the lack of a contract." Rose v. Cain , 247 Ga.App. 481, 544 S.E.2d 453, 456 (2001).

Regarding part performance, Ridgeline contends that it and MidCap agreed that Ridgeline would not bid at the foreclosure sale and that MidCap would credit bid the amount of the defaulting borrower's debt. This evidence, however, is not inconsistent with the lack of a contract to sell the property. Indeed, a lender purchasing property through a foreclosure sale after a borrower has defaulted is a commonplace occurrence and not indicative of an agreement to later convey the property.

Axley's attendance at the foreclosure sale and his failure to bid on the property, on the other hand, are arguably consistent with an oral agreement and not inconsistent...