Sun Secured Financing LLC v. ARCS Commercial Mortg. Co. LP

• Decision Date: 11 August 2010
• Docket Number: Civil Action No. 09-2162(RMU)
• Citation: 730 F.Supp.2d 132
• Parties: SUN SECURED FINANCING LLC et al., Plaintiffs, v. ARCS COMMERCIAL MORTGAGE CO. LP et al., Defendants.
• Court: U.S. District Court — District of Columbia

730 F.Supp.2d 132

SUN SECURED FINANCING LLC et al., Plaintiffs,

v.ARCS COMMERCIAL MORTGAGE CO. LP et al., Defendants.

Civil Action No. 09-2162(RMU).

United States District Court,

District of Columbia.

Aug. 11, 2010.

Attison L. Barnes, III, Wiley Rein LLP, Washington, DC, Kevin B. Hirsch, Peter M. Alter, Jaffe, Rait, Heuer & Weiss, P.C., Southfield, MI, for Plaintiffs.

Hunter T. Carter, Arent, Fox, Kintner, Plotkin & Kahn, New York, NY, for Defendants.

MEMORANDUM OPINION

Denying the Defendants' Motion to Dismiss; Denying the Plaintiffs' Motion for Leave to File a Sur-Reply

RICARDO M. URBINA, District Judge.

I. INTRODUCTION

Plaintiff Sun Communities, Inc. ("Sun Communities") is the owner and operator of a number of manufactured housing communities scattered throughout the United States. Together with six of its subsidiaries, it has brought suit against defendants ARCS Commercial Mortgage Company LP ("ARCS") and PNC ARCS LLC ("PNC ARCS"), businesses involved in the mortgage industry, and the Federal National Mortgage Association ("Fannie Mae"), a federally chartered mortgage financing corporation based in the District of Columbia.

The dispute centers on a $390 million financing agreement between the plaintiffs and ARCS, which later assigned its rights under the agreement to Fannie Mae. The plaintiffs allege that in 2009, the defendants impermissibly increased one of the fees called for in the agreement. Through this action, they seek to recover their excess fee payments and to obtain a declaratory judgment that the fee increase was impermissible under the terms of the agreement. The matter is now before the court on the defendants' motion to dismiss for failure to state a claim. Because the court concludes that the allegations in the complaint set forth a plausible claim for relief, the court denies the defendants' motion.¹

II. FACTUAL & PROCEDURAL BACKGROUND ²

In May 2002, the plaintiffs ³ and ARCS ⁴ entered into a financing agreement under which ARCS agreed to lend more than $150 million to the plaintiffs through a combination of fixed and variable interest rate loan facilities. Compl. ¶¶ 22-23. Funds disbursed under the fixed interest rate facility were termed "Fixed Advances" while funds disbursed pursuant to the variable interest rate facility were referred to as "Variable Advances." Id. ¶ 29. In April 2004, the borrowers and ARCS executed an amended agreement, increasing the total amount of financing available to the plaintiff to $390 million. Id. ¶ 25.

The parties entered into the amended agreement with the understanding that ARCS was essentially an intermediary and that many of its rights under the agreement would be assigned to Fannie Mae. Id. ¶ 26. Specifically, each time ARCS would disburse an Advance to the plaintiffs, ARCS would assign its rights to repayment to Fannie Mae. Id. ¶ 26. Following such an assignment, Fannie Mae would convert the loan into a mortgage-backed security ("MBS"), a negotiable financial instrument backed by the loan. Id., Ex. A ("Am. Agreement") § 13.01. Fannie Mae would then provide the MBS to ARCS as consideration for the assignment of its repayment rights to the underlying loan. Id. ARCS, in turn, would sell the MBS to investors. Id. § 2.01(c).

In exchange for the financing, the plaintiffs agreed to pay not only interest on theloans, which ultimately went to the buyer of the MBS rather than to the defendants, id., but also a "facility fee" which compensated the defendants for the cost of securitizing and servicing the loans, id. § 1.04(b)(ii). The facility fee for Variable Advances, termed the "Variable Facility Fee," was fixed at fifty-eight basis points ⁵ for the original term of the agreement. Id., App. I at 28.

The $150 million loan commitment provided by the original financing agreement was set to expire in May 2007, but the plaintiffs had the right under the amended agreement to extend it twice: first through April 2009 and again, if they so chose, through April 2014. Id. § 1.07. Similarly, the additional loan commitment established through the amended agreement had a termination date of April 2009, but the plaintiffs had the right to extend it through April 2014. Id. The parties agree that the plaintiffs extended the original financing period through April 2009 without incident. Compl. ¶ 43; Defs.' Mot. at 4. The plaintiffs then opted to extend the termination dates to April 2014 through a notification transmitted to the defendants in October 2008. Compl. ¶ 49.

On March 4, 2009, fifty-six days before the expiration of both the initial term of the amended agreement and the first extension period of the original agreement, the defendants orally informed the plaintiffs that they "proposed to increase the Variable Facility Fee" applicable during the period from April 2009 to April 2014 from fifty-eight basis points to 200 basis points. Id. ¶ 54. The defendants asserted that this modification would apply not only to Variable Advances disbursed during the extension period from April 2009 to April 2014, but also to all Variable Advances that had previously been disbursed to the plaintiffs. Id. When the plaintiffs objected that this retroactive rate increase was impermissible under the amended agreement, the defendants indicated that they would review the agreement and then discuss the issue with the plaintiffs. Id. ¶ 58. The plaintiffs heard nothing further from the defendants about the proposed rate increase until April 3, 2009, twenty-six days before the expiration of the initial term of the amended agreement, when the defendants again orally advised the plaintiffs that they proposed to increase the Variable Facility Fee to 200 basis points. Id. The plaintiffs assert that they received no written notice of this increase until April 17, 2009, twelve days before the expiration of the initial term of the amended agreement. Id. ¶ 59.

The plaintiffs contend that given the state of the mortgage financing market in April 2009, they had no choice but to agree to pay the increased Variable Facility Fee to obtain the extension of the amended agreement. Id. ¶ 61. To secure the extension, the plaintiffs signed an extension agreement providing for an increase in the Variable Facility Fee, but they did so "under protest." Id. ¶ 62. The parties agree that the extension agreement does not prejudice any of the plaintiffs' rights under the amended agreement. Id.

The plaintiffs commenced this action in November 2009, seeking reimbursement of the allegedly excessive Variable Facility Fee payments and a declaratory judgment that the fee increase was not permitted under the amended agreement. See generally id. In December 2009, the defendants filed this motion to dismiss the complaint for failure to state a claim for which relief can be granted, arguing that the plaintiffs cannot recover for their claims because the amended agreement unequivocally provided the defendants the right toincrease the Variable Facility Fee during the extension period for all Variable Advances. See generally Defs.' Mot. With this motion fully briefed, the court turns to the applicable legal standards and the parties' arguments.

III. ANALYSIS

A. Legal Standard for a Rule 12(b)(6) Motion to Dismiss

A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002). The complaint need only set forth a short and plain statement of the claim, giving the defendant fair notice of the claim and the grounds upon which it rests. Kingman Park Civic Ass'n v. Williams, 348 F.3d 1033, 1040 (D.C.Cir.2003) (citing Fed.R.Civ.P. 8(a)(2) and Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). "Such simplified notice pleading is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules to disclose more precisely the basis of both claim and defense to define more narrowly the disputed facts and issues." Conley, 355 U.S. at 47-48, 78 S.Ct. 99 (internal quotation marks omitted). It is not necessary for the plaintiff to plead all elements of his prima facie case in the complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511-14, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002), or "plead law or match facts to every element of a legal theory," Krieger v. Fadely, 211 F.3d 134, 136 (D.C.Cir.2000) (internal quotation marks and citation omitted).

Yet, "[t]o 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, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (abrogating the oft-quoted language from Conley, 355 U.S. at 45-46, 78 S.Ct. 99, instructing courts not to dismiss for failure to state a claim unless it appears beyond doubt that "no set of facts in support of his claim [ ] would entitle him to relief"). A claim is facially plausible when the pleaded factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). "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." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

In resolving a Rule 12(b)(6) motion, the court must treat the complaint's factual allegations-including mixed questions of law and fact-as true and draw all reasonable inferences therefrom in the plaintiff's favor. Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 165 (D.C.Cir.2003); Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002). While many well-pleaded complaints are conclusory, the court need not accept as true inferences unsupported by facts set out in the complaint or legal conclusions cast as...