United States District Court, D. South Carolina, Columbia Division
OPINION AND ORDER GRANTING KEYBANK, DBTCA, AND U.S.
BANK'S MOTION TO DISMISS (ECF NO. 14)
CAMERON MCGOWAN CURRIE SENIOR UNITED STATES DISTRICT JUDGE.
this action, Plaintiff, Palmetto Assisted Living Systems,
Inc. (“Plaintiff”), brings a claim against
Defendants KeyBank National Association
(“KeyBank”); Deutsche Bank Trust Company Americas
(“DBTCA”), as trustee for the registered holders
of the Wells Fargo Commercial Mortgage Securities, Inc.,
Multifamily Mortgage Pass-Through Certificates, Series
2014-K37 (“the K37 Trust”); and U.S. Bank
National Association (“U.S. Bank”), as trustee
for the registered holders of Wells Fargo Commercial Mortgage
Securities, Inc., Multifamily Mortgage Pass-Through
Certificates, Series 2013-KS01 (“the KS01 Trust”)
(collectively, the “Trust Defendants”) for breach
of contract. Plaintiff also seeks a declaratory judgment that
KeyBank, U.S. Bank, and DBTCA breached the contract and
implied covenant of good faith and fair dealing in
withholding consent to foreclose certain property, and that
Plaintiff is entitled to a judgment allowing foreclosure.
Plaintiff has also named as Defendants FC Real Estate -
Harbison, LLC; FC Real Estate - Rock Hill, LLC; FC Real
Estate - Garden City, LLC; and FC Midlands, LLC
(collectively, “the Midlands Defendants”).
matter is before the court on the Trust Defendants'
motion to dismiss under Fed.R.Civ.P. 12(b)(6). ECF No. 14.
Plaintiff filed a response in opposition (ECF No. 23) and the
Trust Defendants filed a reply (ECF No. 25). After reviewing
the briefing, the court ordered the Trust Defendants to file
further contract documents bearing on the issue (ECF No. 29),
which were filed December 14, 2018 (ECF No. 30). The court
also directed the parties to file their positions on the
Senior Loan Documents' impact on their arguments
regarding dismissal (ECF NO. 31), which they did (ECF Nos.
court thereafter entered an Order holding the motion to
dismiss in abeyance, as Plaintiff had requested leave to file
an Amended Complaint in its response to the Trust
Defendants' Motion to Dismiss. See ECF Nos. 23 at 6
(Plaintiff's response), 36 (Order). Plaintiff filed a
motion for leave to file Amended Complaint, and attached the
Proposed Amended Complaint. ECF No. 38. Both sets of
Defendants opposed the motion. ECF Nos. 39, 40. Because it
found Plaintiff's proposed amendments futile, the court
denied Plaintiff's motion for leave to file an Amended
Complaint. ECF No. 41. The court also noted it would apply
the summary judgment standard to the Trust Defendants'
motion, as it considered documents beyond those attached to
the Complaint, and gave the parties until April 18, 2019 to
file any additional items they wished the court to consider.
Id. No. such filings were made, and the deadline has
reasons set forth below, the Trust Defendants' motion to
dismiss, converted into one for summary judgment, is granted.
the court has considered materials outside the pleadings, the
standard applicable to motions for summary judgment applies.
Summary judgment should be granted if “the movant shows
that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a). It is well established that summary
judgment should be granted “only when it is clear that
there is no dispute concerning either the facts of the
controversy or the inferences to be drawn from those
facts.” Pulliam Inv. Co. v. Cameo Properties,
810 F.2d 1282, 1286 (4th Cir. 1987). The party moving for
summary judgment has the burden of showing the absence of a
genuine issue of material fact, and the court must view the
evidence before it and the inferences to be drawn therefrom
in the light most favorable to the nonmoving party.
United States v. Diebold, Inc., 369 U.S. 654, 655
entered into three Subordination Agreements (the Harbison
Subordination Agreement, the Rock Hill Subordination
Agreement, and the Garden City Subordination Agreement) for
the Midlands Defendants to purchase properties from
Plaintiff. ECF No. 1-1 at ¶¶ 2, 42. Defendants U.S.
Bank and DBTCA are the trustees for the KS01 and K37 Trusts,
respectively, that hold the Promissory Note and Pledge and
Security Agreement to facilitate this sale of properties,
KeyBank acted as the master servicer for both U.S. Bank and
DBTCA in connection with the Subordination Agreements.
Id. at ¶¶ 6, 11, 16. As set forth in the
Subordination Agreements, Plaintiff holds a promissory note
dated August 14, 2015, in which FC Midlands promised to pay
eight million dollars and other certain sums due to Plaintiff
(the “FC Midlands Loan”). Id. at ¶
42. That loan is secured by a Pledge and Security Agreement
between FC Midlands and Plaintiff, which provides terms and
conditions under which Plaintiff may foreclose on and obtain
membership of FC Midlands Properties III, LLC (currently held
by FC Midlands). Id. at ¶ 43. Under the
Subordination Agreements, KeyBank (as master servicer for the
Trusts) must consent to any “Enforcement Action”
Plaintiff may file to protect its interest in the event of a
default under the FC Midlands Loan Agreement. Id. at
August 15, 2018, Plaintiff submitted to KeyBank, as master
servicer for DBTCA and U.S. Bank, formal notice of its
request under each Subordination Agreement for consent to
proceed with an Enforcement Action against FC Midlands to
obtain the membership interest in FC Midlands Properties,
III, LLC, as contemplated in the Pledge and Security
Agreement. Id. at ¶ 48. KeyBank refused
Plaintiff's request for consent. Id. at ¶
49. Although Plaintiff requested KeyBank (and U.S. Bank and
DBTCA) provide a good faith reason for denying consent, they
did not do so. Id. at ¶¶ 51-52.
support of their motion to dismiss, the Trust Defendants
argue the Complaint does not allege any actual breach of
contract, because a refusal of consent prior to the debt
being paid in full is not a breach of the terms of the
Subordination Agreements. ECF No. 14 at 8. Even though the
Trust Defendants refused to consent to an enforcement action,
the Subordination Agreements specifically note Plaintiff may
not proceed with an enforcement action until after the Trusts
are paid in full for the senior indebtedness, except with the
Trustees' consent, which they refused. Id. They
contend Plaintiff has attempted to circumvent this
requirement by invoking the covenant of good faith and fair
dealing; however, they argue that covenant is not an
independent cause of action separate from a breach of
contract claim under South Carolina law, and “cannot
contravene the parties' express agreement.”
Id. at 7 (citing In re Hovis, 325 B.R. 158,
166 (Bankr. D. S.C. 2005)). The Trust Defendants argue they
did not, as a matter of law, violate the covenant by
withholding consent to Plaintiff's proposed enforcement
action because, under the express terms of the Subordination
Agreements, they may withhold consent for any or no reason.
Id. at 8. They contend KeyBank must be dismissed
because it is not a party to the Subordination Agreements,
but is a mere servicer for the Trusts and has “no
rights, duties, or obligations” under the agreements
and therefore cannot breach them. Id. at 9. Finally,
they request the court dismiss the declaratory judgment
action as it “hinges on Plaintiff's ability to
prevail on its breach of contract claim, ” which it
cannot. Id. at 9-10.
response, Plaintiff argues it has alleged facts sufficient to
show a breach of contract occurred and it was damaged as a
result. ECF No. 23 at 4. Plaintiff disagrees with the Trust
Defendants' interpretation of the Subordination
Agreements, arguing they do not contain a provision allowing
consent to be withheld for any reason, and the parties to the
contract did not contemplate arbitrary refusal, as this
intention could have been effected by inserting the word
“voluntary” before “consent.”
Id. Plaintiff also briefly argues its ability to
prevail on the declaratory judgment claim does not depend on
its ability to prevail on the breach of contract claim.
Id. at 5-6. In the alternative, Plaintiff requests
leave to amend the Complaint if the court determines
Plaintiff has failed to plead with sufficient particularity.
Id. at 9.
Trust Defendants submitted a reply in further support of
their motion, arguing Plaintiff's interpretation of the
Subordination Agreements is incorrect because “consent,
” by definition, must be voluntary. ECF No. 24. They
argue the court should refrain from re-writing the contract
to include a standard for consent to initiate an enforcement
action. Id. at 2. Finally, they contend they did not