West Run Student Housing Associates, LLC v. Huntington National Bank , 712 F.3d 165 ( 2013 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________________
No. 12-2430
___________________
WEST RUN STUDENT HOUSING ASSOCIATES, LLC;
CAMPUS VIEW JMU, LLC; MT. TABOR VILLAGE, LLC,
Appellants
v.
HUNTINGTON NATIONAL BANK
__________________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 12-cv-00076)
District Judge: Honorable Terrence F. McVerry
__________________
Submitted Under Third Circuit LAR 34.1(a)
February 11, 2013
Before: HARDIMAN, and ALDISERT, Circuit Judges
and STARK*, District Judge
*
The Honorable Leonard P. Stark, District Judge for the
(Filed: April 4, 2013)
James R. Cooney
Robert O. Lampl
Robert O. Lampl & Associates
960 Penn Avenue
The Convention Tower, Suite 1200
Pittsburgh, PA 15222
Rudy A. Fabian
1623 Shady Avenue
Pittsburgh, PA 15217
Attorneys for Appellants
Kathleen J. Goldman
Peter S. Russ
Renee M. Schwerdt
Buchanan Ingersoll & Rooney
301 Grant Street
One Oxford Centre, 20th Floor
Pittsburgh, PA 15219
Attorneys for Appellee
__________________
OPINION OF THE COURT
__________________
United States District Court for the District of Delaware,
sitting by designation.
2
HARDIMAN, Circuit Judge.
West Run Student Housing Associates, LLC (West Run),
Mt. Tabor Village, LLC (Mt. Tabor), and Campus View JMU,
LLC (Campus View) (collectively, Plaintiffs) appeal the District
Court‘s order dismissing their amended complaint against
Huntington National Bank. We will affirm in part, vacate in
part, and remand.
I
This lawsuit arose from three commercial real estate
development projects for student housing at West Virginia
University (the West Run Project), Virginia Tech (the Mt. Tabor
Project), and James Madison University1 (the Campus View
Project). The same group of individuals (Sponsors) sponsored
each project.
A. The West Run Project
In August 2006, the Sponsors formed West Run to
facilitate the construction and management of off-campus
housing at West Virginia University in Morgantown, West
Virginia. West Run retained CBRE/Melody, a real estate
broker, for the purpose of securing bank financing for the
project. CBRE/Melody provided prospective lenders with
1
In the pleadings, the District Court opinion, and the
appellate briefs, this university is referred to as ―James Mason
University.‖ No such institution exists. The record cites a
school in Harrisonburg, Virginia, where James Madison
University is located.
3
confidential and proprietary information, consisting of ―an
‗underwriting,‘ a ‗bank package,‘ a loan request, a front end
appraisal of the project . . . , and financial information for each
of the Sponsors,‖ in conjunction with its efforts to secure bank
financing. Amended Compl. ¶ 9. In September 2006, West Run
selected Sky Bank to provide financing for the project, and the
bank agreed to loan West Run $39.975 million. On July 1,
2007, Huntington National Bank (Huntington) became the
successor-by-merger to Sky Bank‘s rights and obligations under
the West Run loan transaction.
The West Run Project was to be constructed in two
phases. Phase I was completed on schedule in August 2007.
The apartments completed during that phase had an occupancy
rate of 95% in the fall of 2007. Construction of Phase II was
completed in August 2008.
In the fall of 2008, as the West Run Project was being
completed, construction commenced on an unrelated student
housing project known as the Copper Beech Townhomes
(Copper Beech), located across the street from the West Run
Project. By the spring of 2009, a number of the Copper Beech
units were available for rent in competition with those in the
West Run Project. According to the amended complaint, it was
at this time that West Run first learned that ―Huntington had
participated, to the extent of $20 million, in the financing of
Copper Beech.‖ Id. ¶ 32. West Run also alleges that
Huntington divulged to the Copper Beech developers the
proprietary West Run information that had been provided by
CBRE/Melody to Huntington‘s predecessor, Sky Bank.
The West Run Project‘s overall occupancy dropped from
95% in the fall of 2007 to 64% in the fall of 2009, which greatly
4
decreased West Run‘s available cash flow. Consequently, West
Run anticipated that it would be unable to make the principal
and interest payments due to Huntington by December 1, 2009.
West Run contends that its ―occupancy crisis was caused by
Huntington‘s financing of Copper Beech, with its resulting
diminishment of [the West Run Project‘s] revenues.‖ Id. ¶ 40.
B. The Mt. Tabor Project
In October 2007, the Sponsors formed Mt. Tabor to
facilitate the construction and management of an off-campus
housing project at Virginia Tech in Blacksburg, Virginia. The
Mt. Tabor Project was smaller than the West Run Project,
consisting of only thirty-eight condominium units. Huntington
agreed to finance this development with a $6 million loan, to be
disbursed in installments. The loan agreement, however,
required Mt. Tabor to sell at least twenty-nine units before
Huntington was required to fund the entire project. In the spring
of 2009, as the project was nearing completion, Huntington
refused to provide the last construction advance, and the project
failed.
C. The Campus View Project
In February 2008, the Sponsors formed Campus View to
facilitate the construction and management of an off-campus
housing project at James Madison University in Harrisonburg,
Virginia. The Campus View Project consisted of one hundred
sixty-eight condominium units to be constructed in three phases.
Huntington agreed to finance the Campus View Project with a
$10.5 million revolving line of credit, which was secured by a
mortgage on the property. The loan agreement required Campus
View to sell at least fifty-four units before Huntington was
5
required to fund Phase II. In or around August 2009,
Huntington refused to extend further construction advances to
Campus View.
II
On December 22, 2011, Plaintiffs filed a three-count
verified complaint in the Court of Common Pleas of Allegheny
County, Pennsylvania. In Count I, West Run alleged that
Huntington had breached its duty of good faith and fair dealing
by financing the Copper Beech project. In Counts II and III,
Campus View and Mt. Tabor each alleged breach of contract
based on Huntington‘s failure to provide funds under their
respective construction loan agreements.
On January 20, 2012, Huntington removed the case to the
United States District Court for the Western District of
Pennsylvania. A week later, Huntington filed a motion to
dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. The motion argued that West Run‘s claim (Count I)
should be dismissed for failure to state a plausible claim. It also
argued that Mt. Tabor‘s and Campus View‘s claims (Counts II
and III) should be dismissed because the number of pre-sold
condominium units listed in the complaint established that they
had sold an insufficient number of units to require Huntington to
disburse additional funds pursuant to the construction loan
agreements.2
2
In the original complaint, Mt. Tabor averred that it
had pre-sold twenty-seven units and Campus View averred
that it had pre-sold thirty-six units.
6
In response to Huntington‘s motion to dismiss, Plaintiffs
filed an amended complaint, which simply omitted the factual
allegations regarding the number of pre-sold units. The
amended complaint also included a new count, listed as Count I,
in which West Run alleged that Huntington had breached its
duty of good faith and fair dealing by disclosing confidential
information it had received from CBRE/Melody to the Copper
Beech developers. The other counts were renumbered Counts
II, III, and IV, in the same order as they originally appeared.
Huntington then filed a motion to dismiss the amended
complaint, again arguing that West Run‘s claims should be
dismissed for failure to state a plausible claim. As to the claims
of Mt. Tabor and Campus View, Huntington argued that they
failed to state a claim based on the admissions as to the pre-sales
deficiencies contained in the original complaint.
The District Court granted the motion and dismissed the
amended complaint in its entirety with prejudice. W. Run
Student Hous. Assocs., LLC v. Huntington Nat’l Bank, 2012 WL
1739820, at *7 (W.D. Pa. May 15, 2012). This appeal
followed.3
3
The District Court exercised subject matter jurisdiction
under 28 U.S.C. § 1332. We have appellate jurisdiction under
28 U.S.C. § 1291, and we exercise plenary review of a district
court‘s dismissal order under Federal Rule of Civil Procedure
12(b)(6). Santiago v. Warminster Twp., 629 F.3d 121, 128 (3d
Cir. 2010) (citation omitted).
7
III
Plaintiffs raise three arguments on appeal: (1) the District
Court erred when it concluded that West Run did not plead
sufficient facts to support its allegation that Huntington provided
confidential information regarding the West Run Project to the
Copper Beech developers; (2) the District Court erred when it
concluded that Huntington had no duty to West Run to refrain
from financing Copper Beech; and (3) the District Court erred
by deeming the unit pre-sale numbers listed in the superseded
original complaint to be binding judicial admissions. We will
examine each argument in turn.
A
The District Court determined that West Run alleged
insufficient facts to support the conclusion that Huntington
provided any proprietary information regarding the West Run
Project to the Copper Beech developers. We agree. To survive
a motion to dismiss, the factual allegations of a complaint ―must
be enough to raise a right to relief above the speculative level‖
and the complaining party must offer ―more than labels and
conclusions‖ or ―a formulaic recitation of the elements of a
cause of action.‖ Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009).
Just as the complaint in Twombly contained only ―an
allegation of parallel conduct and a bare assertion of
conspiracy,‖ 550 U.S. at 556, here West Run offers no more
than an allegation that confidential information was disclosed
and a bare assertion that this violated the duty of good faith and
fair dealing. West Run does not plead facts regarding the nature
of the disclosed information, who disclosed it, or when it was
8
disclosed. Nor does the amended complaint contain any
corroborating factual averments that confidential information
was disclosed at all. ―[W]here the well-pleaded facts do not
permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged—but it has not
‗show[n]‘—‗that the pleader is entitled to relief.‘‖ Iqbal, 556
U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). Accordingly, we
will affirm the District Court‘s dismissal of Count I.
B
In Count II, West Run alleges that Huntington breached
the implied duty of good faith and fair dealing by providing a
loan to Copper Beech for a competing housing development
near the West Run Project. The District Court dismissed this
claim after observing that the loan agreement between West Run
and Huntington contained no language that would bar
Huntington from making loans to Copper Beech, and finding
that West Run‘s broad conception of the implied duty of good
faith and fair dealing would essentially bar Huntington from
financing anyone West Run considers a competitor.
Although ―[e]very contract imposes upon each party a
duty of good faith and fair dealing in its performance and its
enforcement,‖ Kaplan v. Cablevision of PA, Inc., 671 A.2d 716,
722 (Pa. Super. Ct. 1996) (quoting Restatement (Second) of
Contracts, § 205) (internal quotation marks omitted), that duty is
not limitless. Rather, there must be some relationship to the
provisions of the contract itself to invoke the duty of good faith.
See id. at 721–22; Agrecycle, Inc. v. City of Pittsburgh, 783
A.2d 863, 867 (Pa. Commw. Ct. 2001) (―The good faith
obligation may be implied to allow enforcement of the contract
terms in a manner that is consistent with the parties‘ reasonable
9
expectations.‖). Otherwise, the court would violate the axiom
that it ―not imply a different contract than that which the parties
have expressly adopted.‖ Hutchison v. Sunbeam Coal Corp.,
519 A.2d 385, 388 (Pa. 1986). In other words, the duty of good
faith and fair dealing does not license courts to interpose
contractual terms to which the parties never assented.
In this case, we agree with the District Court that the
implied duty of good faith and fair dealing did not extend as far
as Plaintiffs suggest. West Run argues for a duty of good faith
external to its contract with Huntington. Pennsylvania courts
have rejected such attempts to rewrite a contract. See, e.g.,
Kaplan, 671 A.2d at 721–22 (defendant cable companies did not
breach the duty of good faith and fair dealing by allegedly
providing ―insufficient, confusing and misleading
representations regarding the subscribers‘ right to credit for
service interruptions‖ because the cable companies ―were not
contractually bound to provide such service or credit and
. . . made no representations regarding the right to such credits‖).
We do likewise and hold that the District Court did not err
when it dismissed Count II.
C
Plaintiffs‘ final argument is that the District Court erred
by deeming pre-sale numbers in the original complaint to be
binding judicial admissions, notwithstanding the fact that the
original complaint had been superseded by an amended
complaint.
The loan agreements at issue explicitly conditioned
Huntington‘s obligation to fund construction advances upon Mt.
Tabor and Campus View achieving a certain level of pre-sold
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condominium units. In the original complaint, Mt. Tabor
averred that it had pre-sold twenty-seven units and Campus
View averred that it had pre-sold thirty-six units. Because the
number of units listed in the original complaint was insufficient
to trigger Huntington‘s obligation to fund the loans, Huntington
moved to dismiss. In response, Plaintiffs filed an amended
complaint that omitted those pre-sale averments after they
―realiz[ed] that the presale numbers in the original Complaint
were in error.‖ Appellants‘ Br. 26. Thereafter, Huntington filed
another motion to dismiss, contending that the District Court
should accept the averments in the original complaint as judicial
admissions. The District Court agreed and granted the motion.
As we shall explain, the District Court erred given the
procedural posture of the case.
Rule 15(a) of the Federal Rules of Civil Procedure allows
a party to amend its pleading once as a matter of course within
21 days after serving it or within 21 days after service of a
responsive pleading. Fed. R. Civ. P. 15(a). ―[T]he amended
complaint ‗supersedes the original and renders it of no legal
effect, unless the amended complaint specifically refers to or
adopts the earlier pleading.‘‖ New Rock Asset Partners, L.P. v.
Preferred Entity Advancements, Inc., 101 F.3d 1492, 1504 (3d
Cir. 1996) (quoting Boelens v. Redman Homes, Inc., 759 F.2d
504, 508 (5th Cir. 1985)). This approach ―ensures that a
particular claim will be decided on the merits rather than on
technicalities.‖ Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d
Cir. 1990); see also 6 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1474 (3d ed. 2008) (―A
liberal policy toward allowing amendments to correct errors in
the pleadings clearly is desirable and furthers one of the basic
objectives of the federal rules—the determination of cases on
their merits.‖).
11
Although the District Court acknowledged these
principles, it reasoned that ―a plaintiff is not permitted to take a
contrary position in a complaint in order to avoid dismissal.‖ W.
Run, 2012 WL 1739820, at *6. The District Court relied on two
of our decisions for this proposition: Sovereign Bank v. BJ’s
Wholesale Club, Inc., 533 F.3d 162, 181 (3d Cir. 2008), and
Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269, 275 (3d
Cir. 2004). See W. Run, 2012 WL 1739820, at *6. But neither
of those decisions involved the question of whether a plaintiff
could amend a complaint to cure a purported factual mistake. In
Sovereign Bank, a party attempted to take a legal position on
appeal that was contradicted by an allegation in its complaint,
and we held that the allegation was a binding judicial admission.
See Sovereign Bank, 533 F.3d at 181. In Parilla, we denied the
appellee‘s motion to dismiss an appeal for lack of standing
because, inter alia, factual concessions in her own complaint
revealed the basis for appellants‘ standing. See Parilla, 368
F.3d at 275.
Even if Plaintiffs‘ allegations in the original complaint
constituted judicial admissions, it does not follow that they may
not amend them. This Court and several of our sister courts
have recognized that judicial admissions may be withdrawn by
amendment. See Giannone v. U.S. Steel Corp., 238 F.2d 544,
547 (3d Cir. 1956) (recognizing that ―withdrawn or superseded
pleadings‖ do not constitute judicial admissions); see also, e.g.,
InterGen N.V. v. Grina, 344 F.3d 134, 144–45 (1st Cir. 2003)
(―An amended complaint supersedes the original complaint, and
facts that are neither repeated nor otherwise incorporated into
the amended complaint no longer bind the pleader.‖); 188 LLC
v. Trinity Indus., Inc., 300 F.3d 730, 736 (7th Cir. 2002) (―When
a party has amended a pleading, allegations and statements in
earlier pleadings are not considered judicial admissions.‖); Huey
12
v. Honeywell, Inc., 82 F.3d 327, 333 (9th Cir. 1996) (―When a
pleading is amended or withdrawn, the superseded portion
ceases to be a conclusive judicial admission . . . .‖ (citation and
internal quotation marks omitted)); Hibernia Nat’l Bank v.
Carner, 997 F.2d 94, 101 (5th Cir. 1993) (―To the extent that
Hibernia did make a ‗judicial confession[]‘ [in its original
complaint,] that confession was amended away.‖ (citations
omitted)). Indeed, effectively disallowing amendment by
looking to the original pleading is contrary to the liberal
amendment policy embodied in Rule 15.
Nor was dismissal warranted because Plaintiffs sought to
―take a contrary position . . . to avoid dismissal.‖ W. Run, 2012
WL 1739820, at *6. Plaintiffs routinely amend complaints to
correct factual inadequacies in response to a motion to dismiss.
See 6 Wright & Miller, supra § 1474 (―Perhaps the most
common use of Rule 15(a) is by a party seeking to amend in
order to cure a defective pleading.‖). That is so even when the
proposed amendment flatly contradicts the initial allegation.
See, e.g., 188 LLC, 300 F.3d at 734–36 (noting that district court
permitted plaintiff to amend complaint to assert a contradictory
factual position in response to a Rule 12(b)(6) motion and
holding that earlier allegation was no longer a binding judicial
admission in light of that amendment); cf. Gray v. Phillips
Petroleum Co., 858 F.2d 610, 612 (10th Cir. 1988) (noting that
ADEA plaintiff amended his complaint as of right in response to
motion to dismiss to ―change[] the date of the alleged
discriminatory action‖ for statute of limitations purposes,
―ma[king] the filing of the discrimination charge timely under
the pleadings‖).
We find the Seventh Circuit‘s decision in Kelley v.
Crosfield Catalysts, 135 F.3d 1202 (7th Cir. 1998), particularly
13
instructive because it considered the question presented in this
appeal under nearly identical procedural circumstances. In
Kelley, the plaintiff filed a Family and Medical Leave Act
(FMLA) action against his employer. He alleged in his
complaint that he had been fired because he took leave from
work to ―obtain custody of [his] kids.‖ Id. at 1203. The
employer filed a Rule 12(b)(6) motion to dismiss, arguing that
seeking custody of one‘s own children was not covered by the
FMLA. Id. The plaintiff later filed an amended complaint that
omitted that assertion. Id. The employer again moved to
dismiss, arguing that the admissions contained in the original
complaint were binding. Id. at 1203–04. The district court
granted the motion. Id. at 1204.
The Seventh Circuit reversed. It first noted that ―[i]t is
well-established that an amended pleading supersedes the
original pleading; facts not incorporated into the amended
pleading are considered functus officio.‖ Id. It then explained
that ―[i]f certain facts or admissions from the original complaint
become functus officio, they cannot be considered by the court
on a motion to dismiss the amended complaint. A court cannot
resuscitate these facts when assessing whether the amended
complaint states a viable claim.‖ Id. at 1205. Applying these
principles, the court concluded:
Any facts that Kelley had pleaded in his first two
complaints were effectively nullified for 12(b)(6)
purposes when he filed his Second Amended
Complaint, which did not reference those facts.
There was no longer any ―confession‖ in the
pleadings on which the district court could rely
when reviewing Crosfield‘s motion to dismiss the
Second Amended Complaint.
14
Id. This approach is consistent with how other courts of appeals
have treated the issue. See, e.g., InterGen, 344 F.3d at 144–45;
Huey, 82 F.3d at 333; Hibernia Nat’l Bank, 997 F.2d at 101.
This is not to say, however, that a party‘s assertion of
contrary factual positions in the pleadings is without
consequence. A superseded pleading may be offered as
evidence rebutting a subsequent contrary assertion. See
Giannone, 238 F.2d at 547; see also InterGen, 344 F.3d at 144–
45; 188 LLC, 300 F.3d at 736; Huey, 82 F.3d at 333; Andrews v.
Metro N. Commuter R.R. Co., 882 F.2d 705, 707 (2d Cir. 1989);
Raulie v. United States, 400 F.2d 487, 526 (10th Cir. 1968). For
example, at the summary judgment stage, a district court may
consider a statement or allegation in a superseded complaint as
rebuttable evidence when determining whether summary
judgment is proper. See 188 LLC, 300 F.3d at 735–36.
However, at the motion to dismiss stage, when the district court
typically may not look outside the four corners of the amended
complaint, the plaintiff cannot be bound by allegations in the
superseded complaint.
Applying these principles to this appeal, the District
Court was required to convert Huntington‘s motion to dismiss
into a motion for summary judgment before looking beyond the
amended complaint to the pre-sale numbers contained in the
original complaint. See Kelley, 135 F.3d at 1204. We will
vacate and remand so the District Court can give Plaintiffs a
chance to provide evidence showing that the pre-sale numbers in
the original complaint were incorrect (as they now claim) and
15
that the real numbers meet the contractual requirements.4
IV
For the foregoing reasons, we will affirm the District
Court with respect to its dismissal of Counts I and II of the
amended complaint, and we will vacate and remand with respect
to Counts III and IV.
4
We note that the original complaint, filed in state court,
was verified as true and correct under penalty of perjury by
Russell P. Mills, the manager of West Run. Although the fact
that the original complaint was verified does not alter the
principle that an amended complaint will supersede the original,
see King v. Dogan, 31 F.3d 344, 346 (5th Cir. 1994) (per
curiam), that verification places a heavy burden on Plaintiffs to
explain why the number of pre-sold units was incorrect.
We also note that although complaints filed in federal
court are usually not verified by the parties, Rule 11 of the
Federal Rules of Civil Procedure requires an attorney to certify
that a pleading ―is not being presented for any improper
purpose, such as to harass, cause unnecessary delay, or
needlessly increase the cost of litigation‖ and that ―the factual
contentions have evidentiary support.‖ Fed. R. Civ. P. 11(b)(1),
(3).
16