Opinion
03 Civ. 5219 (DLC)
January 6, 2004
William M. O'Connor, Dan J. Schulman, Prassana Mahadeva Buchanan Ingersoll, PC, New York, NY, for Plaintiff
Micheal I. Allen, Shapiro Mitchell Forman Alien Miller LLP, New York, N.Y. and J. Michael Hennigan, Peter J. Most, Hennigan, Bennett Dorman, Los Angeles, CA, for Identified Defendants
MEMORANDUM OPINION AND ORDER
On July 15, 2003, Anthracite Capital, Inc. ("Anthracite") filed this action against MP-555 West Fifth Mezzanine, LLC; MP-808 South Olive Mezzanine, LLC (together, the "Borrowers"); and Robert Maguire, III ("Maguire") (collectively, "Defendants"). An amended complaint ("Complaint") was filed on August 12. Anthracite owned a securitized tranche of an approximately $60 million loan ("Loan") obtained by the Borrowers and alleges claims for breach of contract, breach of the implied covenant of good faith and fair dealing, foreclosure, conversion, fraudulent transfer, and declaratory judgment resulting from Defendants' failure to pay Anthracite a $2 million fee due when the Loan was prepaid under specified conditions (the "Supplemental Exit Fee"). Defendants have moved to dismiss the Complaint, arguing primarily that it fails to state a cause of action for breach of contract. For the reasons that follow, Defendants' motion is denied.
Background
The facts in this Opinion are taken from the Complaint and the documents upon which the Complaint relies. This action arises from a series of complex transactions related to the financing of commercial office property in Los Angeles, California (the "Project"). At all relevant times, the Project was owned by Maguire through a series of transaction-created companies owned directly or indirectly by him, including the Borrowers, special purpose entities formed in connection with the refinancing of the Project in December 2000. On December 20, the Borrowers obtained a $61,600,000 loan from Credit Suisse First Boston Mortgage Capital LLC and German American Capital Corporation, governed by the loan agreement executed on that date ("Loan Agreement") and personally guaranteed in part by Maguire. Anthracite purchased a securitized tranche of the Loan.
On or about June 27, 2003, the Project was sold to entities owned and controlled by Maguire Partnership, LP, which was controlled by Maguire Properties, Inc., a Real Estate Investment Trust. The entities to which the Project was sold were created as part of an integrated transaction in which Maguire Properties was taken public in an initial public offering under a prospectus dated June 23, 2003 ("Prospectus"). Bank of America, which loaned the money to refinance the Project in connection with the sale to Maguire Properties and the IPO, had commissioned an appraisal of the Project several months earlier. The Project was appraised at $450 million. The Borrowers received approximately $280 million, and Maguire (or entities under his control or direction) received cash, stock, partnership interests and a reduction of personal liabilities approximately equal to approximately $170 million.
Section 2.6 of the Loan Agreement dictates the circumstances under which the Borrowers could prepay the Loan. Section 2.6(k), excerpted in the Complaint, provides for the payment of the
Supplemental Exit Fee as follows:
Borrowers shall pay to Mezzanine Lender . . . a supplemental exit fee ("the Supplemental Mezzanine Component A Exit Fee"), payable upon one or more sales of all or any portion of the Property by the Companies (each, a "Supplemental Exit Fee Triggering Event"); provided, however, that no such Supplemental Mezzanine Component A Exit Fee shall be due from Borrowers unless and until, at the time the particular Supplemental Exit Fee Triggering Event occurs, the sum of (i) the Supplemental Exit Fee Purchase Price then due, (ii) any prior Supplemental Exit Fee Purchase Price previously paid to the Companies and (iii) the value of the portion of the Property remaining after the current Supplemental Exit Fee Triggering Event . . . is equal to or greater than $425,000,000 . . . For the purposes of the foregoing, "Supplemental Exit Fee Purchase Price" means the gross purchase price of all or a portion of the Property, including without limitation all cash proceeds, non-cash proceeds, any over-market purchase money financing or any other consideration to the Companies or the Borrowers (provided that any and all consideration received shall be payable only to the Companies or the Borrowers) that is reasonably attributable to the Property. . . .
"Borrowers" are defined in the Loan Agreement as MP-555 West Fifth Mezzanine, LLC and MP-808 South Olive Mezzanine, LLC,
"Mezzanine Lender" refers to Credit Suisse First Boston Mortgage Capital LLC and German American Capital Corporation, together with their permitted successors and assigns.
"Companies" are defined the Loan Agreement as Maguire Partners-555 West Fifth, LLC and Maguire Properties-808 South Olive, LLC. The Complaint alleges that the Borrowers secured the Loan by a 99.5% ownership interest in each of the Companies.
(emphasis supplied). On June 27, the Borrowers tendered prepayment of the Loan but did not include the Supplemental Exit Fee of $2 million.
Discussion
Rule 8(a) requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2), Fed.R.Civ.P. Pleadings under the Federal Rules are to give "fair notice of the claim asserted," so as to enable the opposing party to answer and prepare for trial. Simmons v. Abruzzo, 49 F.3d 83, 86 (2d Cir. 1995).
Defendants also move to dismiss the complaint pursuant to Rule 9(b), Fed.R.Civ.P., which describes the pleading standard applicable to claims of fraud. As discussed below, the Court need not reach Defendants' arguments concerning the seventh claim for fraudulent transfer by the Borrowers.
A court may dismiss an action pursuant to Rule 12(b)(6) only if "it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts which would entitle him to relief." Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997) (citations omitted). In construing the complaint, the court must "accept all factual allegations in the complaint as true and draw interferences from those allegations in the light most favorable to the plaintiff." Id. "Given the Federal Rules' simplified standard for pleading, a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002).
In addition to the pleadings, the court may consider "any written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference." Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000) (citation omitted). A court need not credit general, conclusory allegations if they "are belied by more specific allegations of the complaint." Hirsch v. Arthur Andersen Co., 72 F.3d 1085, 1092 (2d Cir. 1995).
It is undisputed that the Loan Agreement is governed by New York law, which dictates that a contract is unambiguous when it has a "definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no basis for a difference of opinion." Krumme v. West Point Stevens, 238 F.3d 133, 139 (2d Cir. 2000). Unambiguous contract terms "are given their plain meaning." Id. On the other hand, contract language is ambiguous if it is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement." Id.
The Complaint's first and second claims for relief allege that the Borrowers and Maguire, respectively, breached the Loan Agreement and related documents by failing to pay Anthracite the $2 million Supplemental Exit Fee. Section 2.6(k) of the Loan Agreement requires payment of the Supplemental Exit Fee upon the sale of the Project for consideration in excess of $425 million.
The term "sale" is not defined in the Loan Agreement. The ordinary meaning of a sale is "the transfer of property or title for . . . money or other consideration." Black's Law Dictionary 1337, 1207 (7th ed. 1999). The Complaint alleges that the Project was sold when title was transferred to newly-formed entities owned by Maguire Properties in exchange for consideration received by Maguire.
"Sale" is defined as "The transfer of property or title for a price." "Price" is defined as the amount of money or other consideration asked for or given in exchange for something. . . ."
Defendants argue that the Complaint's allegation that the Project was sold is conclusory and is contradicted by more detailed allegations in the Complaint and by the Prospectus. The Complaint's use of the word "transfer" to describe the Project's change of ownership, however, does not contradict the allegation that the Project was sold. A sale is understood as a transfer for consideration; moreover, the Loan Agreement specifically defines the term "Transfer" to include a sale. Similarly, the fact that the Prospectus — a document created more than two years after the Loan Agreement — describes the transfer of the Project as a "formation transaction" designed to "consolidate the ownership" of a group of properties does not necessarily resolve the claim that a sale occurred for the purposes of the Loan Agreement.
The Prospectus is incorporated in the Complaint by reference and may therefore be considered in evaluating this motion to dismiss.Rothman, 220 F.3d at 88.
The Defendants next contend that the payment of a Supplemental Exit Fee is only triggered by a payment to the Companies and the Borrowers in excess of $425 million, and that the Complaint has not alleged such a payment. Instead, the Complaint seeks to include in the calculation payments to Maguire, who is neither a Borrower nor one of the Companies. The Loan Agreement provides that the consideration received in exchange for the Project (and any residual value) must exceed $425 million to require payment of the Supplemental Exit Fee. Consideration is defined in relevant part in Section 2.6(k) as the "Supplemental Exit Fee Purchase Price," which is "the gross purchase price of all or a portion of the Property, including without limitation all cash proceeds, non-cash proceeds, any over-market purchase money financing or any other consideration to the Companies or the Borrowers (provided that any and all consideration received shall be payable only to the Companies or the Borrowers)." It is possible to read this passage in a manner that does not restrict the price to consideration received only be certain entities. The Supplemental Exit Fee Purchase Price is defined simply as the gross purchase price of the Project. The plain meaning of price is "the amount of money or other consideration asked for or given in exchange for something." Black's Law Dictionary, 1207 (7th ed. 1999).
In this reading, the clause following the word "including" describes only a subset of items that may be encompassed in the gross purchase price, and the parenthetical provision refers only to this subset. For instance, the passage may be read to provide that where consideration is paid only to the Companies or Borrowers, the gross purchase price includes all consideration paid to them even if not directly attributable to the Project. It is, therefore, possible to read the Loan Agreement in a way that calculates the consideration to include consideration received by entities other than the Companies or Borrowers.
The Complaint adequately alleges that Maguire received consideration equal to $450 million, although the Borrowers received approximately $280 million of that amount. This allegation is sufficient to plead consideration triggering the Supplemental Exit Fee, given the Loan Agreement's potential ambiguity concerning the inclusion of consideration received by the Companies or Borrowers in the gross purchase price when consideration is allocated to entities other than the Borrowers.
The Complaint alleges facts upon which relief for breach of contract could be granted. Therefore, Plaintiff's first and second claims for breach of contract should not be dismissed. The remaining claims present alternate grounds for recovery. Since these claims will not affect the scope of discovery, it is unnecessary to address their sufficiency in the context of this motion to dismiss. Defendants may renew their arguments relating to the remaining claims in a motion for summary judgment or a motion in limine if appropriate.
Conclusion
The Defendants' motion to dismiss is denied.
SO ORDERED.