Sioux Falls S.D. II FGF, LLC v. Courthouse Square, LLP, Civ. 21-4043
| Decision Date | 14 December 2021 |
| Docket Number | Civ. 21-4043 |
| Parties | SIOUX FALLS S.D. IIFGF, LLC, Plaintiff, v. COURTHOUSE SQUARE, LLP, PATRICK VESEY and KOREY KALLSTROM, Defendants. |
| Court | U.S. District Court — District of South Dakota |
Plaintiff Sioux Falls S.D. II FGF, LLC ("FGF"), brought this diversity action on March 26, 2021, alleging two counts of breach of contract, declaratory judgment, negligent misrepresentation, fraud, and piercing the corporate veil. (Doc. 1.)
Defendants Courthouse Square, LLP ("Courthouse"), Patrick Vesey ("Vesey") and Korey Kallstrom ("Kallstrom") filed a Motion to Dismiss. (Doc. 6.) The motion has been fully briefed and the Court heard argument at a hearing on October 13, 2021. For the following reasons, Defendants' motion to dismiss will be granted in part and denied in part.
FGF is a Delaware limited liability company with its principal place of business in Cleveland, Ohio. Buyer FGF entered into a Purchase and Sale Agreement with seller Courthouse. Vesey and Kallstrom are partners of Courthouse. Vesey executed the Purchase Agreement on behalf of Courthouse.
Under the Purchase Agreement, Courthouse agreed to sell and FGF agreed to purchase, for the price of $21, 625, 000.00, a parcel of land situated at 313/325 S. 1st Avenue, Sioux Falls, South Dakota 57104, together with all improvements thereon, as identified in the Purchase Agreement (the "Premises"). The closing of the sale and purchase of the Premises occurred on April 3, 2020 (the "Closing").
In connection with the Closing, Courthouse assigned to FGF its interest in five tenant leases of space within the Premises including four leases of office space to U.S. government agencies (the "Government Leases"). (Doc. 1-2, Assignment and Assumption of Leases.)
Section 6.0(c) of the Purchase Agreement states, in part:
Seller has not received notice from any Tenant that the Property or any portion thereof is not in full compliance with the terms and provisions of the Leases or is not satisfactory for such Tenant's purposes No Tenant... is entitled to any special work (not yet performed) or consideration (not yet given) in connection with its tenancy under its Lease.
(Doc. 1-1, Purchase Agreement, p. 18.) In its Complaint, FGF alleges that the Government Leases include provisions that require the lessor to maintain and repair the equipment and systems at the Premises; to provide such equipment and systems in a reliable and safe manner; and to provide "suitable" elevators at the Premises (the "Elevators") that conform to American Society of Mechanical Engineers (ASME) Al 7.1 Safety Code for Elevators and Escalators. According to FGF, upon information and belief, multiple employees of the tenants under the Government Leases complained about the performance of the Elevators, and those complaints prompted the federal General Services Administration ("GSA") to inspect the Elevators on February 26, 2020. FGF asserts that Vesey and Kallstrom knew about the complaints about the Elevators and the GSA inspection of the Elevators prior to the Closing Date. On the Closing date of April 3, 2020, GSA sent an email to the property manager for the Premises, Covis Properties, indicating that the Elevators did not meet code, the location and configuration of the Elevator controls were faulty, and the Elevator controls were exposed to excessive dust, temperature swings and water intrusion.[1] FGF contends that Kallstrom was an employee of Covis Properties at all relevant times.
FGF alleges that Defendants were aware of but did not disclose the complaints regarding the Elevators, GSA's inspection of the Elevators, or the results of the GSA inspection at any time prior to Closing on April 3, 2020. Defendants first informed FGF of the GSA inspection and its findings three days after Closing, on April 6, 2020. Subsequently, FGF received a recommendation that the Elevators be replaced. FGF replaced the Elevators at an estimated cost of $1, 100, 294.00. Defendants have refused FGF's request for indemnification and have denied any liability for the Elevator replacement.
The first two causes of action in FGF's Complaint allege claims for breach of contract (breach of the Purchase Agreement and breach of the Assignment of Leases). In Count III, FGF seeks a declaratory judgment in its favor under the Indemnification Provision of the Assignment of Leases. Count IV asserts a negligent misrepresentation claim. Fraud is alleged in Count V. In Count VI, FGF seeks an order piercing the corporate veil to find the individual defendants liable for the damages cause by Courthouse's alleged fraud.
Defendants ask the Court to dismiss all six counts in the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failing to state claims upon which relief may be granted.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court assessing such a motion must accept all factual allegations in the complaint as true and draw all inferences in favor of the nonmovant. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010); Brooks v. Midwest Heart Group, 655 F.3d 796, 799 (8th Cir. 2011). Courts consider "plausibility" by"' draw[ing] on [their own] judicial experience and common sense.'" Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012) (quoting Iqbal, 556 U.S. at 679). Also, courts must" 'review the plausibility of the plaintiffs claim as a whole, not the plausibility of each individual allegation.'" Id. (quoting Zoltek Corp. v. Structural Polymer Grp., 592 F.3d 893, 896 n. 4 (8th Cir. 2010)).
In considering a motion to dismiss for failure to state a claim under Rule 12(b)(6), courts primarily look to the complaint and" 'matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned;' without converting the motion into one for summary judgment." Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 n. 3 (8th Cir. 2012) (quoting 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed. 2004)).
"On a motion to dismiss for breach of contract, courts look not only at the sufficiency of the complaint but also at the contract itself, which by definition is integral to the complaint." Axiom Inv. Advisors, LLC by & through Gildor Mgmt., LLC v. Deutsche Bank AG, 234 F.Supp.3d 526, 533 (S.D.N.Y. 2017). See also Stahl v. U.S. Dep't of Agric, 327 F.3d 697, 700 (8th Cir. 2003) (). Copies of the Purchase and Sale Agreement, the Assignment of Leases and the Seller's Certificate are attached to the Complaint as Exhibits A, B and C. The Court will consider these documents in ruling on Defendants' Rule 12(b)(6) motion to dismiss.
FGF relies on the following language in the documents attached to its Complaint.
Under Section 6.0(c) of the Purchase Agreement, Seller represented and warranted:
The Seller is the "landlord" under the Leases and owns legal and beneficial title, as lessor, to the Leases, and the rents and other income thereunder. . . Seller has not received any notice of termination, default, or audit under any of the Leases, nor is it aware of any default under any of the Leases. There are no existing or uncured defaults by Seller or by any Tenant under any of the Leases. No Tenant has asserted any defenses, set-offs, or counterclaims with respect to its tenancy or its obligation to pay rent, additional rent, or other charges pursuant to the Leases Seller has not received notice from any Tenant that the Property or any portion thereof is not in full compliance with the terms and provisions of the Leases or is not satisfactory for such Tenant's purposes. ... No Tenant ... is entitled to any special work (not yet performed) or consideration (not yet given) in connection with its tenancy under its Lease.
The Assignment of Leases contains an Indemnification Provision:
Assignor hereby agrees to indemnify, hold harmless and defend Assignee from and against any and all obligations, liabilities, costs and claims (including reasonable attorney's fees) arising as a result of or with respect to any of the Leases that are attributable to the period of time prior to the date of this Assignment. Assignee hereby agrees to indemnify, hold harmless and defend Assignor from and against any and all obligations, liabilities, costs and claims (including reasonable attorney's fees) arising as a result of or with respect to any of the Leases that are attributable to the period of time from and after the date of this Assignment. This paragraph shall survivie the closing of the contemplated transaction and the assignment of the Leases.
Finally, in the Seller's Certificate executed and delivered to FGF at Closing on April 3, 2020, Courthouse certified that the representations and warranties contained in Section 6.0 of the Purchase Agreement were true and correct as of the Closing Date.
Section 11.12 of the Purchase Agreement provides that it is "governed by, and construed in accordance with, the substantive federal laws of the United States and the laws of the state in which the property is located," and the parties appear to...
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