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declining to find special relationship arising from agreement involving "complex transaction between two sophisticated entities," where defendant did not allege that plaintiff "urged" defendant to rely on the misrepresentations
Summary of this case from The Phx. Cos. v. Concentrix Ins. Admin. Sols. Corp.Opinion
02 Civ. 7868 (HB)
March 19, 2003
OPINION AND ORDER
Two motions in this case are before the Court. Citicorp Real Estate Inc. ("Citicorp") has moved to dismiss LaSalle Bank National Association's ("LaSalle") claim of negligent misrepresentation, while LaSalle has moved to dismiss Citicorp's counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. For the following reasons, Citicorp's motion is granted, and LaSalle's motion is granted in part and denied in part.
I. INTRODUCTION
A. Standard of Review Under Fed.R.Civ.P. 12(b)(6)
On these motions to dismiss, "the court must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Electric Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995) (citations omitted). Further, "[t]he district court should grant such a motion only if, after viewing plaintiffs allegations in this favorable light, `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Id. (quoting Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992), and Ricciuti v. New York Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)). "The issue is not whether a plaintiff is likely to prevail ultimately, `but whether the claimant is entitled to offer evidence to support the claims.'" Gant v. Wallingford Board of Ed, 69 F.3d 669, 673 (2d Cir. 1995) (quoting cases). When deciding a motion to dismiss, a court may consider not only the complaint, but also "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." See Cortec Indus. Inc., v. Sum Holding L. P., 949 F.2d 42, 47 (2d Cir. 1991).
B. Facts
With certain exceptions, the facts are generally not in dispute. What is in dispute is the significance of certain events and the meaning of a few provisions in a very large and complex contract.
On April 1, 1998, LaSalle and Citicorp and several other entities that are not parties to this litigation signed a Pooling and Services Agreement ("PSA") for the purchase by LaSalle of $1.3-billion worth of mortgages loans, which were to be included in a Real Estate Mortgage Investment Conduit (REMIC) Trust. See Complaint ¶ 16. LaSalle was and remains the Trustee and Administrator of the REMIC Trust, and Citicorp was the Mortgage Loan Seller. See id. ¶ 1 n. 1. Citicorp, as the Mortgage Loan Seller, made several warranties in the PSA, two of which are relevant to the dispute here. First, Citicorp warranted that "[t]he origination, servicing and collection practices used with respect to such Mortgage Loan have been in all material respects legal and have met generally accepted servicing standards for similar commercial and multifamily mortgage loans." See id. ¶ 17 (quoting PSA § 2.05(d)(xxxiv)). Second, Citicorp warranted that "[t]here is no material default, breach or event of acceleration existing under the related Mortgage Note. . . ." See id. (quoting PSA § 2.05(d)(xxv)). The PSA also requires that within 90 days of discovering or learning of a breach of its warranties and representations, Citicorp is obligated to either cure the defective mortgage loan or repurchase it. See id. ¶ 22 (citing PSA § 2.03(a)). Although executed on April 1, the PSA provided that the "Closing Date" was to be May 6, 1998.See id. ¶ 18.
A REMIC Trust represents a pool of mortgages, the beneficial ownership of which has been sold to various investors in the form of certificates representing their undivided ownership interest in the total pool." See Complaint ¶ 1 n. 1. If the Trust complies with IRS regulations, mortgage payments made to the Trust may be passed through to certificate holders free of federal taxes. See Id.
The mortgage loan from this bundle that is at the center of the present dispute is what I will refer to as the Brock Suite Loan, as the parties have done. On December 24, 1997, Brock Suite Greenville, Inc. ("Brock Suite") obtained a $6.75-million loan, which it secured with a promissory note, a mortgage, and an assignment of leases and rents. See id. ¶ 7. That very same day, the lender transferred the Brock Suite Loan to Citicorp. See id. ¶ 9. The mortgaged property included a hotel, which was operated as a franchise of Residence Inn by Marriott, pursuant to a franchise agreement entered into in 1985 for a 15-year term. See Id. ¶ 8.
On March 31, 1998 — i.e., the day before the PSA was executed — Marriott sent a Notice of Default to one Mel Melle, with copies to seven other individuals. See Complaint ¶ 12. This letter indicated the hotel was in default of the franchise agreement because its customer service performance was below the threshold required by Marriott and gave Brock Suite one year to cure the defect. See id. In its counterclaim, Citicorp alleges that none of these eight addressees was an employee of either the original lender nor Citicorp during the period of December 1997 through May 6, 1998. See Counterclaims ¶ 15. Brock Suite failed to correct the problem and, pursuant to an early termination agreement dated September 28, 1998, between Brock Suite and Marriott, the franchise agreement was terminated in March 1999 — which, as Citicorp notes, is five months earlier than the originally indicated August 1, 1999 date. See Complaint ¶ 12; Counterclaims ¶ 17. In January 1999 — after this early termination agreement but before termination — Brock Suite requested LaSalle's consent to a change in the franchise, causing LaSalle to transfer the Brock Suite Loan from the Master Servicer under the PSA to the Special Servicer. See Complaint ¶¶ 13, 15. Despite learning about this default in January 1999, LaSalle did not contact Citicorp about it until February 5, 2001, when the Special Servicer sent Citicorp a notification of Brock Suite's default of its franchise agreement with Marriott and demanded that Citicorp repurchase the mortgage. See id. ¶ 23. Citicorp alleges that the Special Servicer, acting on LaSalle's behalf and without notifying Citicorp, foreclosed on the Brock Suite Loan in January 2001.See Counterclaims ¶ 23.
Under the terms of the PSA, the Special Servicer is responsible for servicing and administering certain mortgage loans, such as those that are in default under the related loan documents. See Counterclaim ¶ 8. The current Special Servicer, ARCap Special Servicing, Inc. ("ARCap"), is prosecuting this lawsuit on LaSalle's behalf See Complaint ¶ 1.
The Special Servicer at that time was ORIX Real Estate Capital Markets, LLC. See Complaint ¶ 23. on May 1, 2002, ARCap, as the Special Servicer, sent Citicorp a second notice of the default by Brock Suite and consequently Citicorp's breach of its representations and warranties. See Id.
On October 1, 2002, LaSalle sued, claiming that because of these defects in this mortgage loan, Citicorp was in breach of the warranties and representations in the PSA, and thus is obligated under the PSA either to cure the defect or to repurchase the mortgage loan. See Complaint ¶¶ 29-31, 32-39. Specifically, Count I of LaSalle's Complaint alleges that contrary to Citicorp's representations in the PSA, the Brock Suite Loan was in default on the day the PSA was executed (April 1, 1998) and on the Closing Date (May 6, 1998) because Brock Suite was in default of its franchise agreement with Marriott. Count II alleges that contrary to Citicorp's representations the Brock Suite Loan was not originated and serviced in accordance with generally accepted servicing standards because of the failure to account for the facts that a) the franchise agreement for the hotel was due to expire in 2 years and b) the hotel required extensive renovations. Count III of LaSalle's complaint alleges that Citicorp negligently misrepresented the condition of the Brock Suite Loan because the representations that the underlying loan was not in default and was originated and serviced in accordance with generally accepted standards allegedly were false when made. See Complaint at ¶ 38. Citicorp counterclaimed, alleging that LaSalle breached the contract and/or breached the implied covenant of good faith and fair dealing by failing to timely notify Citicorp of the defect in the Brock Suite Loan and thus depriving Citicorp of the right to elect between cure and repurchase.
II. DISCUSSION
A. Citicorp's Motion to Dismiss LaSalle's Negligent Misrepresentation Claim
Citicorp has moved to dismiss LaSalle's claim for negligent misrepresentation, arguing that 1) it is duplicative of the breach-of-contract action and 2) LaSalle has failed to allege the requisite elements of negligent misrepresentation. Because LaSalle has failed to demonstrate that Citicorp owed LaSalle a duty independent of the contract, its claim for negligent misrepresentation (Count III) is duplicative of its breach-of-contract claims and will be dismissed. I also find that LaSalle has not sufficiently shown the existence of a special relationship such that Citicorp owed LaSalle a duty to speak with care.
1. Existence of duty independent of contract
As both LaSalle and Citicorp acknowledge, under New York law "a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." Clark-Fitzpatrick, Inc. v. Long Island R.R., 70 N.Y.2d 382, 389 (1987) (affirming dismissal of claim for gross negligence where plaintiff failed to allege a violation of a duty independent of a contract). "This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract." Id. LaSalle contends that Citicorp had a duty, separate and distinct from its contractual one, to impart correct information, based on Citicorp's unique knowledge or access to information about the Brock Suite Loan, information which LaSalle did not have. See LaSalle's Memorandum of Law in Opposition to Defendant's Motion to Dismiss Count III of the Complaint [hereinafter "LaSalle Count III Memo"] at 8, 11-12. Relying on two cases where claims for negligent misrepresentation and breach of contract apparently have co-existed — Fleet Bank v. Pine Knoll Corp., 290 A.D.2d 792 (N.Y.App.Div. 2002), and Nielsen Media Research, Inc. v. Microsystems Software, Inc., No. 99 Civ. 10876, 2002 WL 31175223 (S.D.N.Y. Sept. 30, 2002) — LaSalle contends that if it shows there was a special relationship between Citicorp and LaSalle, its claim for negligent misrepresentation is not duplicative because the special relationship necessarily creates a duty independent of the contract. See LaSalle Count III Memo at 8. Assuming arguendo that a special relationship existed — an issue discussed infra — I conclude that LaSalle's proposition is unsupported by the case law. More significantly, I conclude that the factual predicates for LaSalle's negligent misrepresentation claim are elements of and not extraneous to the PSA and thus, in accordance with the holding in Clark-Fitzpatrick, do not create an independent duty on Citicorp.
LaSalle does not cite any cases that expressly hold that a special relationship, such as the one alleged between the parties here, creates a duty independent of the contractual duty, but instead points to several cases that appear to imply it. On close inspection, these cases do not support any such proposition. In Fleet Bank, defendant agreed to allow plaintiff, Fleet Bank, to take over a Small Business Administration loan and sent the bank a business plan that consisted of two phases of financing. See 290 A.D.2d at 792. Defendant told the bank that both phases were necessary for the business to become profitable and the bank assured her that all the funds would be forthcoming. The bank made the first loan but not the second, despite additional assurances that the second loan would be made. See id. at 792-93. Without this second loan, defendant was forced to use her own personal assets and eventually she stopped making payments on the loan, at which time the bank foreclosed.See id. at 794, 796. Although the defendant in Fleet Bank counterclaimed for both negligent misrepresentation and breach of contract, the court granted plaintiffs motion for summary judgment on the breach-of-contract claim, and thus did not either explicitly or implicitly conclude that two different duties arose out of the same transaction. See id. at 794-95.
Nielsen too fails to support LaSalle's position. There the court did not need to reach the Clark-Fitzpatrick issue because the negligent misrepresentation claim, though related to the contract, sprang from circumstances extraneous to, and not constituting elements of the contract. There the negligent misrepresentation claim pertained to alleged misrepresentations Microsystems made about itself and its software in the discussions leading to the contract, while the breach pertained to Microsystem's alleged failure to perform. See 2002 WL 31175223, at *10-*11. Nielsen is similar to other cases where claims for negligent misrepresentation and breach of contract properly co-exist. See Anglo-Iberia Underwriting Management Co. v. Lodderhose, 224 F. Supp.2d 679, 683 (S.D.N.Y. 2002) (misrepresentations were made by an intermediary to the parties and pertained to the authority of an agent to act for a party and the nature of the party's business); Schroders, Inc. v. Hogan Systems, Inc., 522 N.Y.S.2d 404 (Sup.Ct. 1987); cf. Fleet Bank, 290 A.D.2d at 795-96 (although contract claim was dismissed, negligent misrepresentation related to repeated exhortations related to but outside any contract). This showing that Citicorp's duty to speak with care is " extraneous to, and not constituting elements of, the contract" is a second hurdle LaSalle fails to clear.
This masterfully reasoned decision sustained a cause of action for negligent misrepresentation where the plaintiff also alleged a breach-of-contract claim, based on facts similar to Nielsen, in that a computer-programming company made false representations about their technical prowess and ability to implement a given software program, which induced the plaintiffs to enter into contracts which, it would later turn out, defendants were unable to perform. See Schroders, 522 N.Y.S.2d at 405. Not this case.
LaSalle contends that Citicorp made the misrepresentations at three different times — 1) during the negotiations, 2) the day the PSA was executed, and 3) the day specified in the PSA that Citicorp's warranties and representations were effective (i.e., the Closing Date) — and that the duty each time was different. See LaSalle Count III Memo at 2, 9. First, even giving LaSalle the benefit of all reasonable inferences required for a 12(b)(6) motion, I disagree with LaSalle that Citicorp made these representations during negotiations. Although it is possible, even probable, that the representations and warranties in the PSA reflect similar representations and warranties made during negotiations, LaSalle's complaint does not say this, and it is axiomatic that a party opposing a motion to dismiss cannot amend its complaint through its briefs. See Lorentzen v. Curtis, 18 F. Supp.2d 322, 328 (S.D.N.Y. 1998). Second, even assuming allegations that Citicorp made these representations separately from the contract, the problem of invoking tort law for claims that sound in contract remains. See Robehr Films, Inc. v. American Airlines, Inc., No. 85 Civ. 1072, 1989 WL 111079, at *2 (S.D.N.Y Sept. 19, 1989) ("If the only interest at stake is that of holding the defendant to a promise, the courts have said that the plaintiff may not transmogrify the contract claim into one for tort." (quoting Hargrave v. Oki Nursery, Inc., 636 F.2d 897 (2d Cir. 1980))). The misrepresentations that LaSalle points to for its claim of negligent misrepresentation are the allegedly false representations and warranties that Citicorp made at § 2.05(d)(xxv) and (xxxiv) of the PSA — the same statements it points to for its breach-of-contract claim.
LaSalle also finds significance in the fact that the PSA was signed on April 1 but the representations and warranties were effective as of the Closing Date, on May 6. Whatever significance there may be in these different dates on Citicorp's duties to LaSalle, LaSalle has not demonstrated that the duty springs from anything external to the contract.
The paragraph of the Complaint which LaSalle points to (Complaint ¶ 38) does not expressly refer to any negotiations. This paragraph states:
Citicorp, in violation of its duty to LaSalle, misrepresented certain characteristics of the Mortgage Loan, including the imminent expiration of the Franchise Agreement and the extensive required renovations, the default under the terms of the Mortgage, and the default under the Franchise Agreement, which characteristics made the Mortgage Loan unsatisfactory for transfer into the Trust. The structure of the transaction evidenced by the PSA is based on each of the mortgage loans complying with the representations and warranties contained therein, and LaSalle accepts the mortgage loans in justifiable and reasonable reliance on the truth and accuracy of the representations and warranties. LaSalle, to its detriment, justifiably and reasonably relied on Citicorp's deliberate and false representations about the characteristics of the Mortgage Loan and purchased the Mortgage Loan from Citicorp.
This paragraph comes closest to implying that these same representations were made during negotiations when it states "[t]he structure of the transaction evidenced by the PSA." However, since the complaint refers extensively to the PSA and nowhere mentions negotiations, it is unreasonable to infer from this paragraph that Citicorp made these alleged misrepresentations during negotiations.
2. Failure to Plead Elements
The elements of negligent misrepresentation under New York law are 1) duty, as a result of a special relationship, to give correct information; 2) representation that was false and that was known or should have been known to be false, 3) knowledge that the information was desired for a serious purpose, 4) knowledge of plaintiffs intention to rely on the information, and 5) plaintiffs reasonable and detrimental reliance. See Anglo-Iberia Underwriting Management Co. v. Lodderhose, 224 F. Supp.2d 679, 687 (S.D.N.Y. 2002) (quoting Hydro Investors, Inc. v. Trafalgar Power, Inc., 227 F.3d 8, 19 (2d Cir. 2000)). Citicorp contends that LaSalle has failed to allege any of the elements of negligent misrepresentation, and urges that a recent decision is dispositive of the issue.
Citing DVCI Technologies v. Timessquaremedia.com, Inc.,00 Civ. 0207, 2000 WL 33159189, at *4 (S.D.N.Y. Nov. 29, 2000), Citicorp provides a slightly different formulation of the elements of negligent misrepresentation: 1) carelessness in imparting words, 2) expectation of reliance on words, 3) justifiable reliance, 4) detriment, 5) expression of words directly to someone bound by some relation or duty of care. also LaSalle Bank National Assoc., 2002 WL 31729632, at *11.
Under New York law, a court decides as a matter of law the nature of a duty between an injured party and the alleged tortfeasor. See Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996). In Kimmell, the New York Court of Appeals wrote that "In a commercial context, a duty to speak with care exists when `the relationship of the parties, arising out of contract or otherwise, [is] such that in morals and good conscience the one has the right to rely upon the other for information." Id. The court differentiated between a casual informal statement or response and a deliberate representation made by "persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified." Id. Although Kimmell indicated that "whether a particular defendant owes a duty to a particular plaintiff is a question of fact," see id., I conclude, as Judge Schwartz did on nearly identical facts, that LaSalle's pleadings fail to raise a question of fact touching the requisite special relationship because there, as here, LaSalle had no right to rely "in morals and good conscience" with respect to Citicorp's representations. See LaSalle Bank National Assoc. v. Citicorp Real Estate, Inc., No. 01 Civ. 4389, 2002 WL 31729632, at *11 (S.D.N.Y. Dec. 5, 2002) (holding that there was no special relationship between LaSalle and Citicorp relating to a different PSA and dismissing negligent misrepresentation claim).
Finally, the cases where courts have found a special relationship — or at least found that there was a fact question about whether the party's reliance was justified — are distinguishable. First, unlike in Fleet Bank, where the borrower had a right to rely "in morals and good conscience on the bank's representations given the apparent disparity in the parties' positions, the PSA here was a complex transaction between two sophisticated entities. Second, LaSalle does not allege that Citicorp urged LaSalle to rely on the misrepresentations, as was the case in Kimmell and Fleet Bank, nor that Citicorp affirmatively misrepresented its own capabilities and competency, as occurred in Nielsen, Schroders, and Anglo-Iberia Underwriting. Third, since LaSalle has a viable contract-based cause of action for any harm it claims to have suffered, it is not without a remedy. Cf. Kimmell, 89 N.Y.2d at 260 (no contract claim); Fleet Bank, 290 A.D.2d at 795 (defendant's cross-claim for breach of contract dismissed). The negligent misrepresentation claim is dismissed.
The Kimmell court's decision that the plaintiffs reliance was justified was based on the defendant's concerted efforts to solicit plaintiffs' investment, such as giving plaintiffs erroneous projections which he claimed were reliable and which he expected plaintiffs to rely on. See 89 N.Y.2d at 264-65. In Fleet Bank, the bank repeatedly assured the defendant-borrower, a small-business owner, that she was to receive a second loan and thus induced her to further invest in a business which, she claims, failed because she never received this promised loan. See Fleet Bank, 290 A.D.2d at 795.
B. LaSalle's Motion to Dismiss Citicorp's Counterclaims
Citicorp claims that LaSalle's "clandestine resort to extra-contractual self help" and secret failure to properly exercise its rights as Lender" constitute breaches under the PSA's sole remedy" provision of § 2.03(e). See Memorandum of Law of Citicorp in Opposition to LaSalle's Motion to Dismiss Defendant's Counterclaims [hereinafter "Citicorp Counterclaim Memo"] at 1. LaSalle contends that the PSA imposed no duty on LaSalle to disclose any defects to Citicorp and thus its failure to notify Citicorp is not a breach. Further, LaSalle argues that the PSA expressly provides that any delay by LaSalle in notifying of Citicorp of its breach does not waive the rights. The Court concludes that Citicorp should be able to proceed with its counterclaim for breach of the PSA, but not on the theory advanced by Citicorp. The Court further finds that Citicorp's counterclaim for breach of the duty of good faith and fair dealing is duplicative of its breach-of-contract claim and is dismissed.
1. Breach of Contract Counterclaim
With respect to Citicorp's counterclaim for breach of contract, the parties argued in their briefs and at oral argument, 1) whether § 2.03(a) and (c) of the PSA imposes a duty on LaSalle to notify Citicorp, and 2) whether § 7.05, which provides that a delay in exercising a right does not impair the remedy, applies.
a. Breach of § 2.03 of the PSA
Citibank argues that the PSA imposes on LaSalle a duty to notify Citicorp of any breach LaSalle discovers so that Citicorp can elect from among the two remedies set out in § 2.03(a). Section 2.03(a) of the PSA obligates Citicorp to cure or repurchase a mortgage loan upon learning or being notified of a breach involving one of the mortgage loans. Section 2.03(e) further provides: "This Section 2.03 provides the sole remedies available to the Certificateholders, or to the Trustee [ i.e., LaSalle] on behalf of the Certificateholders, respecting any Document Defect or any breach of any representation or warranty set forth in Section 2.05(d) hereof" Citicorp contends that "[i]n order for Citicorp's option to either cure or repurchase to be at all meaningful, Citicorp must be made aware . . . of the facts alleged to constitute a breach while the opportunity to elect the alternative of curing is still available." See Counterclaim Opp. at 10 (emphasis in original). Citicorp argues that LaSalle failed to preserve the option and in fact terminated the Franchise Agreement with Marriott.
Section 2.03(a) of the PSA provides in relevant part that "Within 90 days of the earlier of discovery or receipt of notice by [Citicorp], of a Document Defect . . . or a breach of any representation or warranty set forth in Section 2.05 (d) in respect of any Mortgage Loan, which Document Defect or breach . . . materially and adversely affects the value of such Mortgage Loan or the interests of the Certificateholders therein, the Responsible Party shall cure such Document Defect or breach . . . or repurchase . . . the affected Mortgage Loan at the applicable Purchase Price."
LaSalle argues that these provisions expressly and explicitly impose obligations only on Citicorp, and I agree. Citicorp places great weight on the words "either . . . or," arguing that this language is "surplusage" unless Citicorp has the choice from among the two. See Citicorp Counterclaim Memo at 10. However, to give these words the meaning that Citicorp urges would require an illogical reading of the far more important words in this sentence, namely the subject and verb: Citicorp shall either cure or repurchase. The plain meaning of this provision is to place an obligation on and solely on Citicorp. In no way does this provision state or imply an obligation on LaSalle's part.
b. Applicability of § 7.05
The parties disagree over the applicability of § 7.05, which provides in part that "no delay or omission to exercise any right or remedy shall impair any such right or remedy." LaSalle argues that § 7.05 further shows that the PSA imposed no duty on LaSalle to notify Citicorp of any defects LaSalle was aware of. Citicorp argues that § 7.05 does not apply here, because it is entitled "Additional Remedies of Trustee Upon Event of Default" and enumerates 12 specific "Events of Default," none of which pertains to Citicorp, as the Mortgage Loan Seller. I disagree with both Citicorp's and LaSalle's reading of this provision.
Citicorp's error is in selectively quoting the provision. When one reads the entire sentence where the clause appears, it plainly means to encompass more than just the 12 Events of Default: "Except as otherwise expressly provided in this Agreement, no remedy provided for by this Agreement shall be exclusive of any other remedy, and each and every remedy shall be cumulative and in addition to any other remedy, and no delay or omission to exercise any right or remedy shall impair any such right or remedy or shall be deemed to be a waiver of any Event of Default." PSA § 7.05 (emphasis added ed). Furthermore, Citicorp's construction conflicts with § 11.08 of the PSA, which states that "The article and section headings herein are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof" Meanwhile, LaSalle's error stems from interpreting 7.05 to mean that because LaSalle has no duty to immediately seek a remedy, it therefore follows that LaSalle also has no duty to notify. If there were no express provision about LaSalle's duty to timely notify, this argument might hold up, but it must fail since there is such a provision, as will be discussed next.
c. Section 2.05(e)
Although Citicorp fails to direct it to my attention, the PSA appears to describe LaSalle's obligations in the event it learns of a breach of the representations and warranties. Section 2.05(e) states: "Upon discovery by any of the parties hereto . . . of a breach of any of the representations and warranties set forth in subsection (d) above which materially and adversely affects the value of any Mortgage Loan or the interests therein of the Certificateholders, the party discovering such breach shall give prompt written notice to each of the other parties hereto[.]" Strange, at least to me, this language is essentially the same as the language in other portions of the PSA which LaSalle's counsel argued impose a duty to timely notify. The representations and warranties that LaSalle has alleged Citicorp breached appear in § 2.05(d). Citicorp points out — indeed LaSalle admits — that although LaSalle learned of Brock Suite's default under its franchise agreement with Marriott no later than January 28, 1999, LaSalle did not notify Citicorp of this default until February 5, 2001. Because the PSA obligates LaSalle to give Citicorp prompt written notice of any material breaches of Citicorp's warranties and representations and because LaSalle failed to give written notice of this default for more than 2 years, Citicorp has stated a claim for breach of the PSA by LaSalle.
At oral arguments, counsel for LaSalle identified §§ 204(b), 206(b), 207(b) and 208(b) as provisions in the PSA in which other parties "bargained for the right to get notice promptly in writing if there Was breach." See Transcript of Oral Arguments on Jan. 28, 2003, at 23. Section 2.04, for example, provides: "Upon discovery by any of the parties hereto of a breach of any of the foregoing representations and warranties which materially and adversely affects the interests of the Certificateholders or any party hereto, the party discovering such breach shall give prompt written notice to each of the other parties hereto." The obligation to give timely notice is the same in substance in these four subsections as it is in § 2.05(e).
2. Breach of Duty of Good Faith and Fair Dealing Counterclaim
LaSalle argues that Citicorp's counterclaim charging a breach of the duty of good faith and fair dealing by LaSalle is duplicative of its breach-of-contract counterclaim, while Citicorp argues that it has sufficiently plead additional predicate facts for its good-faith-and-fair-dealing counterclaim so that it is not duplicative of its breach-of-contract claim. Citicorp's theory for breach of the implied duty of good faith and fair dealing was premised on LaSalle's "unreasonably withholding notice" to Citicorp of defects in the Brock Suite Loan for over two years. Because I have concluded that Citicorp can state a claim for breach of contract based on its failure to give prompt notification, its counterclaim for breach of the duty of good faith and fair dealing is duplicative. See, e.g., EUA Cogenex Corp. v. North Rockland Cent. Sch. Dist., 124 F. Supp.2d 861, 873 (S.D.N.Y. 2000) (dismissing claim for breach of the covenant of goodfaith and fair dealing as duplicative since it relied on same factual allegations as made in a claim for breach of contract); Houbigant, Inc. v. ACB Mercantile, Inc., 914 F. Supp. 964, 989 (S.D.N.Y. 1995) (same).
Citicorp also argues that N.Y. courts recognize simultaneous breach of contract and breach of the duty of good faith and fair dealing in "appropriate circumstances." Although citing several cases, Citicorp fails to point out what "appropriate circumstances" are and how they apply here.
III. CONCLUSION
For the foregoing reasons, Citicorp's motion to dismiss LaSalle's claim for negligent misrepresentation and LaSalle's motion to dismiss Citicorp's counterclaim for breach of the implied covenant of good faith and fair dealing are granted. LaSalle's motion to dismiss Citicorp's counterclaim for breach of contract is denied. Per the pre-trial scheduling order of December 20, 2002, this matter will be tried in September 2003.
IT IS SO ORDERED.