VC Macon, GA LLC v. Va. Coll. LLC

• Decision Date: 27 August 2020
• Docket Number: CIVIL ACTION NO. 5:18-cv-00388-TES
• Citation: VC Macon, GA LLC v. Va. Coll. LLC, CIVIL ACTION NO. 5:18-cv-00388-TES (M.D. Ga. Aug 27, 2020)
• Parties: VC MACON, GA LLC, Plaintiff, v. VIRGINIA COLLEGE LLC, and EDUCATION CORPORATION OF AMERICA, Defendants.
• Court: U.S. District Court — Middle District of Georgia

VC MACON, GA LLC, Plaintiff, v. VIRGINIA COLLEGE LLC, and EDUCATION CORPORATION OF AMERICA, Defendants.

CIVIL ACTION NO. 5:18-cv-00388-TES

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA MACON DIVISION

August 27, 2020

ORDER GRANTING IN PART DEFENDANT'S MOTION TO DISMISS

Pursuant to Rules 12(b)and9(b)¹ of the Federal Rules of Civil Procedure, DefendantsVirginia College LLC and Education Corporation of America have moved to dismiss with prejudice certain claims against them in PlaintiffVC Macon, GA LLC's Complaint and its Verified Amendment.[Doc. 340at p. 1]; see also[Doc. 1-1]; [Doc. 340].In their Motion, Defendants contend that the only viable claim in Plaintiff's case is its breach of contract claim, and that its claims for conversion; unjust enrichment; fraud; constructive trust; attorney's fees, costs, expenses, and interest; and punitive damagesare due to be dismissed.[Doc. 340at p. 5].Upon review of the parties' briefs and the applicable law, the CourtGRANTS in partDefendants' Motion to Dismiss[Doc. 340].

FACTUAL BACKGROUND

In its Complaint[Doc. 1], Plaintiff alleges that on March 19 and 22, 2010, it and DefendantVirginia College LLC entered into two lease agreements: the Operating Lease and the Capex Lease, respectively.[Doc. 1-1, p. 10, ¶¶ 3-4].DefendantEducation Corporation of America guaranteed the leases by executing a written lease guarantee for each, and "the parties agreed that venue for any action that relates to either" the leases or the guarantees "would lie in Bibb County, Georgia."[Id. at p. 10, ¶¶ 5-6].

DefendantVirginia College LLC once operated a for-profit college known as Virginia College.The college sat on property covered by the leases in Macon, Georgia, and received tuition through loans provided to students through the Office of Federal Student Aid offered under the Higher Education Act of 1965.[Id.at pp. 10-11, ¶¶ 7-8].The tuition "[wa]s designed to cover . . . operating expenses and overhead including . . . the rent and other amounts due under" the leases.[Id. at p. 10, ¶ 13]."On information and belief,"Plaintiff alleges that DefendantVirginia College LLC"has received all of its tuition from students, including tuition paid for [through loans], for the current educational period."[Id. at p. 11, ¶ 12].However, "instead of paying the rent and other amounts due under" the leases, Plaintiff contends that DefendantVirginia College LLC"has breached" the leases by "failing and refusing to pay monthly rental for Septemberand October 2018 and informing Plaintiff of [its] intent to vacate the premises."[Id.at pp. 11-12, ¶ 15].Based on these and other allegations, Plaintiff filed suit against Defendants and asserted claims for breach of contract; conversion; unjust enrichment; fraud;² constructive trust; attorney's fees, costs, expenses, and interest; and punitive damages.[Id. at pp. 12-20].

On November 5, 2018, Defendants removed Plaintiff's Complaint from the Superior Court of Bibb County, Georgia, and filed an Answer admitting that they failed to pay timely rent and breached the leases.See[Doc. 8, pp. 1-5]; [Doc. 340, p. 3, ¶ 4(citing[Doc. 8])].Nine days later, the Court appointed John F. Kennedy as Receiver of the Receivership Estate of Education Corporation of America, Virginia College LLC, and New England School of Business and Finance (collectively, "ECA").[Doc. 26].With that appointment, the Court granted him very broad powers to collect, marshal, preserve, and liquidate the assets of the Receivership Estate and to distribute the proceeds of the Receivership Estate's assets for the benefit of all creditors.Via the procedural vehicle of an injunction, the Court prohibited anyone from commencing any action against ECA seeking to "recover a claim against" and from engaging in "[a]ny act to obtain possession of Receivership Property from the Receiver or to interfere with or exercise control, over, Receivership Property."[Id. at pp. 9-10].

On December 13, 2018, the Court entered a supplemental order establishing December 19, 2018, as the Rejection Date "by which the Receiver was deemed to have 'rejected, repudiated, and/or disavowed' ECA's leases and/or other occupancy agreements."[Doc. 340, pp. 3-4, ¶¶ 6-7].As of the Rejection Date, and in no case later than December 22, 2018, the injunction lifted as to landlords, like Plaintiff, allowing them to seek state-law remedies, take possession of their leased premises, and terminate their leases.[Doc. 104, p. 2].Then, in an effort to streamline claims against the Receivership Estate, the Receiver sought the entry of an order that would establish procedures for creditors to assert those claims.See[Doc. 158]; [Doc. 175].The Court entered such an order and stated that "all Claimants holding or wishing to assert any claim, cause of action, or other right against the Receiver or Receivership Estate whether a Post-Receivership Claim, Pre-Receivership Claim or otherwise . . . must file their Claims pursuant to the Claims Process [herein] established."[Doc. 340, p. 4, ¶ 10(citing[Doc. 175, pp. 1-2, ¶ 2])].

On April 10, 2019, Plaintiff complied with the Claims Process and filed a proof of claim in the amount of $141,177.70 for late rent, late fees on rent, interest on rent, and legal fees.[Doc. 340, p. 4, ¶ 12].While countless hours have been spent on issues concerning the Receivership Estate, Defendants now seek dismissal of all but one of the seven claims from Plaintiff's Complaint and its Verified Amendment—the breach of contract claim.With the parties' arguments fully briefed, Defendants' dismissal motionis ripe for ruling, and the Court addresses Defendants' arguments as to the six remining claims below.

DISCUSSION

A.Legal Standard

When ruling on a motion under Federal Rule of Civil Procedure 12(b)(6), it is a cardinal rule that district courts must accept the factual allegations set forth in a complaint as true.Bell Atl. Corp. v. Twombly, 550 U.S. 544, 572(2007).Under this Rule, a defendant may test the legal sufficiency of a complaint by way of a motion to dismiss.Barreth v. Reyes 1, Inc., No. 5:19-cv-00320-TES, 2020 WL 4370137, at *2(M.D. Ga.July 29, 2020)(citation omitted).This type of motion is an "assertion by a defendant that, even if the facts alleged by a plaintiff are true, the complaint still fails as a matter of law to state a claim upon which relief may be granted."Id.

B.Defendants' Motion to Dismiss

1.Conversion

To support its conversion claim, Plaintiff alleges that Defendants received tuition from its students (a portion of which was intended to pay the sums due under the leases) but failed to adhere to the terms of the leases and remit payment to Plaintiff.[Doc. 1-1, p. 14, ¶ 31-33].In other words, Plaintiff claims that Defendants are liable forthe tort³ of conversion because they should have used some of the tuition money to pay their rent instead of "retaining" the tuition funds.[Id. at p. 14, ¶ 34].

Under Georgia law, "conversion involves an unauthorized assumption and exercise of the right of ownership over property belonging to another, in hostility of his or her rights; an act of dominion over the personal property of another inconsistent with his or her rights; or an unauthorized appropriation."McCalla Raymer, LLC v. Foxfire Acres, Inc., --- S.E.2d ----, 2020 WL 3566242, at *5(Ga. Ct. App.July 1, 2020)."To make out a prima facie case, in an action for damages for conversion of personal property, the plaintiff must show title to the property, possession by the defendant, demand for possession, and refusal to surrender the property, or an actual conversion prior to the filing of the suit."Taylor v. Powertel, Inc., 551 S.E.2d 765, 769(Ga. Ct. App.2001)(citation omitted).Certainly, "money"(in this case unpaid sums due under the leases)"constitutes personal property, money is intangible personalty that is fungible, because it belongs to a class of property which cannot be differentiated by specific identification unless there has been created a specific fund that has been set aside from other money."Id.Simply put, "there can be no conversion action for money damages for money, because generally, money is not subject to a civil action for conversion."Id.(citingBranch v. All. Syndicate, 469 S.E.2d 807(Ga. Ct. App.1996)).However, an exception forthe conversion of money exists when the money comprises a specific, separate, identifiable fund to support an action for conversion.Id.(citingGrant v. Newsome, 411 S.E.2d 796(Ga. Ct. App.1991)).In other words, where the allegedly converted money is not specific and identifiable, an action for conversion will not lie.Taylor, 551 S.E.2d at 770(citation omitted).

Here, the Court has not found, nor have the parties shown that there is anything in either the Operating Lease or the Capex Lease (or the attached guarantees) requiring Defendants to set aside or earmark a certain sum of money to fulfill Defendants' lease obligations.See[Doc. 1-1, pp. 21-87].Absent such a contractual obligation in the parties' leases it is unlikely that Plaintiff could ever show that it ever had title to any tuition money "intended for use . . . to pay the sums due under the [l]eases."McCalla Raymer, 2020 WL 3566242, at *5;[Doc. 1-1, p. 14, ¶ 32].Moreover, Georgia law is clear that a party's failure to pay money due under a contract does not constitute conversion.Morris v. Nat'l W. Life Ins., 430 S.E.2d 813, 815(Ga. Ct. App.1993)("[C]onversion . . . does not lie on account of a mere failure to pay money due under a contract.").Accordingly, Plaintiff's claim for conversion fails as a matter of law and is DISMISSED with prejudice.

2.Unjust Enrichment

As a quasi-contract theory, unjust enrichment "applies when there is no legal contract and when there has been a benefit conferred which would result in an unjustenrichment unless compensated."Tidikis v. Network for Med. Comms. & Rsch. LLC, 619...