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Chetty Holdings, Inc., et al. v. Northmarq Capital

May 1, 2012


The opinion of the court was delivered by: O'neill, J.


Plaintiffs Chetty Holdings, Inc. and Carl E. Chetty, trading as Millview Apartment Homes, LP, filed this action against defendants NorthMarq Capital, LLC; NorthMarq Capital, Inc.;*fn1 Amerisphere Mortgage Finance, LLC; AmeriSphere Multifamily Finance, LLC; AmeriSphere Financial, LLC;*fn2 and Timothy C. Kuhn seeking damages relating to Millview's failed effort to obtain a mortgage loan insured by the United States Department of Housing and Urban Development for the refinance of an apartment complex. Plaintiffs assert claims against defendants for negligence, negligent misrepresentation, fraudulent misrepresentation, fraud in the inducement and concert of action. Now before me are three motions to dismiss the claims set forth in plaintiffs' second amended complaint, one filed by the AmeriSphere defendants, one filed by the NorthMarq defendants and one filed by defendant Timothy Kuhn. For the reasons that follow, I will grant defendants' motions.


Millview Apartment Homes, LP is a Pennsylvania limited partnership whose general partner is plaintiff Chetty Holdings, Inc., a Pennsylvania corporation. Second Am. Compl. ¶ 1-4. Plaintiff Carl Chetty is the principal of Millview and Chetty Holdings. Id. ¶ 3. Millview was the owner of a 350-unit apartment complex of the same name in Coatesville, Pennsylvania until sometime in Fall 2010. Id. ¶¶ 4, 73-75.

Plaintiffs allege that in order to finance the property, on or about September 29, 2005, Millview obtained a fifteen-year forward mortgage from Northwestern Mutual Life Insurance Company in the approximate amount of $27,000,000. Id. ¶ 30. The Northwestern Mutual mortgage included a yield maintenance provision that imposed a pre-payment penalty in the event that Millview chose to pay off its indebtedness early. Id. ¶ 21. According to plaintiffs, the occupancy rate at the property began to drop in 2008 as a result of the economic downturn. Id. ¶ 23. Plaintiffs sought to "rais[e] capital and additional equity through a refinance of the Millview Property." Id. ¶ 24. Plaintiffs allege that Northwestern Mutual contacted Chetty in early 2009 and "verbally advised him that, if Plaintiffs were able to re-finance the Property, Northwestern Mutual would be willing to modify the terms of the mortgage loan agreement and waive the pre-payment penalties to allow Millview to pay-off the indebtedness." Id. ¶ 25.

Plaintiffs also allege that "[i]n January, 2009, Defendant Kuhn, a former Senior Vice President for [defendant] NorthMarq . . . initiated discussions [about the possibility of refinancing] with Chetty and Lou Voigt, Chetty's colleague." Id. ¶ 26. Kuhn reviewed plaintiffs' financial situation and "was eminently aware of Plaintiffs' financial status, indebtedness, and payment history with Northwestern Mutual, and the fluctuations in occupancy at the Millview Property." Id. ¶¶ 26-28. Plaintiffs assert that Kuhn was aware that if plaintiffs could secure financing "Northwestern Mutual had verbally indicated its willingness to restructure the mortgage and, for a limited time, waive the pre-payment penalty." Id. ¶ 30. Kuhn "advised Plaintiffs that their best option would be to re-finance the Millview Property by applying for a 223(f) FHA/HUD loan through NorthMarq and its underwriting arm, AmeriSphere, which would prepare and submit the application and obtain the HUD loan on Plaintiffs' behalf." Id. ¶ 31.

On July 7, 2009, Chetty executed an engagement letter*fn3 with AmeriSphere Mortgage Finance LLC,*fn4 in which AmeriSphere agreed "to provide Mortgage Insurance processing services, and . . . to structure and provide" a mortgage loan to Millview Apartment Homes Limited Partnership. Dkt. No. 39, Ex. A at 1. The loan was to "be insured by the [FHA] pursuant to its mortgage insurance program." Id. The project processing summary attached to the engagement letter set a target amount for a 223(f) FHA loan at $31,467,600 to be amortized over a period of up to 35 years. Id. The engagement letter explains that AmeriSphere would undertake the following in assisting plaintiffs with their application for mortgage insurance from the FHA:

* Complete an initial underwriting and analysis of the Project and provide recommendations regarding the FHA Application.

* Prepare, on the appropriate FHA forms, for the Borrower's prior review, the FHA application to be submitted to FHA for a firm commitment from FHA to provide the Mortgage Insurance ("FHA Firm Commitment").

* Interact with all third party professionals regarding any requirements that are necessary for mortgage underwriting relative to the submission of the FHA application[.]

* Upon receipt of the Borrower's approval, submit the FHA Application to FHA

* Monitor the progress of the FHA Application during the FHA processing and underwriting period.

* Follow-up with you and FHA during the processing period.

* Provide you with copies of all material documents and correspondence submitted to and received from FHA.

* Consult with you and your representatives, including your attorney, surveyor and title agent.

* Assist you with FHA in all phases of the FHA Firm Commitment processing.

Id. at 2. Under the terms of the engagement letter, "[t]he scope of services to be provided by [AmeriSphere was] wholly and expressly limited to the matters covered by th[e] Engagement, and complying with conditions, requirements or procedures imposed by FHA in connection with the processing of the FHA application and the issuance of the FHA Firm Commitment." Id. at 4.

The engagement letter also provided, inter alia, that:

(2) This Engagement is not and shall not be construed as a commitment of or by [AmeriSphere] to make the Loan or any other loan to you. Any such commitment shall be evidenced by a separate document entitled the Lender's Funding Commitment following issuance and acceptance by Borrower of the FHA Firm Commitment, and shall ...

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