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Claremont Apartments, LP v. Principal Commercial Funding II

June 8, 2010

CLAREMONT APARTMENTS, LP, PLAINTIFF,
v.
PRINCIPAL COMMERCIAL FUNDING II, LLC, AND PRINCIPAL COMMERCIAL FUNDING, LLC, DEFENDANTS.



The opinion of the court was delivered by: Buckwalter, S. J.

MEMORANDUM

Plaintiff, Claremont Apartments, LP ("Claremont"), filed this action to assert breach of contract claims against Defendants Principal Commercial Funding II, LLC ("Principal II") and Principal Commercial Funding, LLC ("Principal I"). Currently pending before the Court is Defendants' Motion to Dismiss the Complaint for Failure to State a Claim.

I. FACTUAL BACKGROUND*fn1

Plaintiff Claremont owns and operates the Claremont Apartments, a complex of 243 apartments located in Exton, Pennsylvania. (Compl. ¶ 9.) Plaintiff sought a fixed rate loan that would be secured by its apartment complex. (Compl. ¶ 1, Ex. 1.) In response to this request, Principal I submitted to Claremont proposed terms and conditions (the "Application") for such a loan. (Compl. ¶ 12, Ex. 1.) On July 23, 2007, as a precursor to a forthcoming loan agreement, Claremont accepted the Application. (Compl. ¶ 11, Ex. 1.) The Application provided for a loan of approximately $32,000,000 over a term of ten years, with amortization to be based upon a thirty-year period and a balloon payment towards the end of the loan term (these terms, collectively, will be referred to as "the Loan"). (Compl. ¶ 12-13, Ex. 1.) The Application further provided that Claremont, as the borrower, "'may lock the interest rate upon entering into Lender's Rate Lock Agreement and Lender's receipt of $320,000 (1%) Rate Lock Deposit.'" (Compl. ¶ 14, Ex. 1.) In accepting the Application, Claremont paid an "Application Deposit" in the amount of $30,000. (Compl. ¶ 16, Ex. 1.) Although the Application specified the general terms of the loan, it included language specifying that it "is provided for discussion purposes only and does not constitute a commitment to lend or an agreement to issue a commitment, but merely indicates Lender's willingness to proceed with its evaluation of this potential transaction." (Compl., Ex. 1 at 4.) The Application also stated that "[p]rior to closing, no 'material adverse change' shall have occurred (a) in the Property or in the financial conditions of major tenants, Borrower or sponsors, or (b) in the financial, banking, or capital market conditions that could impair the sale of the Loan by the Lender." (Id.)

On the same day it accepted the Application, July 23, 2007, Claremont also entered into the Rate Lock Agreement, as offered in the Application. (Compl. ¶ 15, Ex. 2.) Claremont entered the Rate Lock Agreement, however, not with Principal I, but with Principal II. (Id.) Principal I and II appear to be affiliated yet separate entities. They are both Delaware limited liability companies, with principal places of businesses at 801 Grand Avenue, Des Moines, Iowa, but ownership interests in the two entities appear to diverge. (Compl. ¶ 4.) Principal I is owned directly or through subsidiaries by Principal Financial Group, Inc., a Delaware corporation also with its principal place of business in Des Moines, Iowa. (Id.) On the other hand, Principal II is jointly owned -- directly or through subsidiaries -- by Principal Financial Group, Inc. and U.S. Bank, N.A., a nationally chartered bank with its principal place of business in Minneapolis, MN. (Id.) U.S. Bank, N.A., in turn, is owned directly or through subsidiaries by U.S. Bancorp, a Delaware corporation that also maintains its principal place of business in Minneapolis, MN. (Id.)

The Rate Lock Agreement provided that Claremont would receive a per annum interest rate of 6.25% on its loan in exchange for payment of $320,000, which represented 1% of the total loan amount, $32 million. (Compl., Ex. 2-A.) The Agreement further provided that the rate lock would be in place for 120 days at a minimum. In its final section of substantive provisions, the Rate Lock Agreement directs that "[n]othing contained herein shall be deemed a waiver or limitation of any term or condition contained in the Application," and that "this Agreement represents the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communications and prior writings." (Compl., Ex. 2 at 4.) Claremont complied with all of the conditions precedent required for the Rate Lock Agreement to go into effect. (Compl. ¶ 18.)

In the days before closing on the loan, Principal II told Claremont that, despite the Rate Lock Agreement, it could not provide an interest rate of 6.25% per annum, but only a higher rate of 6.40%. (Id. ¶ 21.) To obtain the loan within the 120-day Rate Lock Period, Claremont had no choice but to enter into the Loan with Principal I, the aforementioned affiliate of Principal II. (Id. ¶ 22.) Completed within the 120-day period, on November 15, 2007, the Loan bore a 6.40% interest rate per annum, 15 basis points higher than the Rate Lock Agreement had specified. (Id. ¶ 23.) Over the course of the Loan, the increased rate will result in the payment of roughly $480,000 in additional interest and a reduced repayment of principal of over $100,000. (Id. ¶ 24.)

II. PROCEDURAL BACKGROUND

On December 24, 2009, Claremont filed the instant Complaint, which asserts breach of contract claims against Principal II for its failure to offer the interest rate provided in the Rate Lock Agreement. (Id. ¶¶ 28-30.) The Complaint seeks damages from both Principal I and II as a result of the higher interest rate; it also requests equitable relief in the form of a prospective declaration that the interest rate on Principal I's loan to Claremont is 6.25%, as opposed to the current rate of 6.40%. On January 29, 2010, Principal I and II filed a Motion to Dismiss the Complaint for Failure to State a Claim. Claremont filed its Response in Opposition shortly thereafter on February 16, 2010. Subsequently, the Parties submitted two additional briefs. Principal I and II filed a Reply Brief on February 27, 2010, and Claremont filed its Sur-Reply Brief on March 4, 2010. The Court now turns to the arguments contained in these filings.

III. STANDARD OF REVIEW

A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a pleading. FED. R. CIV. P. 12(b)(6). The starting point in analyzing a pleading is Rule 8(a), which requires that a pleading, at a minimum, consist of "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a). Regardless of its exact form, however, a pleading "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face'" in order to withstand a 12(b)(6) motion to dismiss. Ashcroft v. Iqbal, - U.S. -, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When read in the light most favorable to the plaintiff, a pleading that provides sufficient facts to "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged" meets the required level of "facial plausibility." Iqbal, 129 S.Ct. at 1949; see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (in accord with the dictates of Iqbal, extending the 12(b)(6) standard of review established in Twombly to all civil pleadings). On the other hand, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555). Taken together then, in evaluating a pleading's sufficiency in relation to a Rule 12(b)(6) motion to dismiss, a "District Court must accept all of [a pleading's] well-pleaded facts as true" and construe them "in the light most favorable to the plaintiff," "but may disregard any legal conclusions[,]" in determining whether the plaintiff has a "'plausible claim for relief.'" Fowler, 578 F.3d at 210-211 (quoting Iqbal, 129 S.Ct. at 1949-50).

IV. DISCUSSION

Principal I and II seek dismissal of the Complaint on the grounds that the Loan Agreement between Claremont and Principal I is a fully integrated document, and thus the parol evidence rule prohibits the Court from considering any prior, inconsistent agreement -- here, the Rate Lock Agreement -- between those parties or their privies. Principal I and II further argue that the voluntary payment doctrine -- that payment under a contract renders moot any claim for a previous breach -- requires dismissal of Claremont's Complaint. Claremont responds first that at the Motion to Dismiss stage it would be improper for the Court to consider the Loan Agreement as a document upon which the Complaint is not based. Second, Claremont argues that the parol evidence rule is inapplicable to its claims against Principal II, since Principal II was not a party to the Loan Agreement or a privy of Principal I. To bolster this argument, Claremont points out that it only claims breach of the Rate Lock Agreement, which is between Claremont and Principal II, as opposed to the Loan Agreement, which is between Claremont and Principal I. Third, Claremont contends that the ...


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