Of A Feather, LLC v. Allegro Credit Services, LLC

Background

These were related cases about a proposed loan refinancing. Of A Feather, LLC alleged that Allegro Credit Services, LLC misled it during negotiations and ultimately refused to fund the loan. Of A Feather asserted claims for deceptive business practices under New York General Business Law § 349, negligent misrepresentation, fraud, and breach of contract.

Of A Feather had a mortgage on a Massachusetts farm and sought refinancing after its mortgagee offered to settle the debt at a substantial discount. In March 2019, Of A Feather and Allegro signed a Loan Commitment for a $6.9 million loan. Of A Feather paid $15,000 for legal fees and $20,000 toward the commitment fee. Allegro later said it could not close the loan by the refinancing deadline because it lacked the necessary funding. Of A Feather obtained a loan from the original lender on less favorable terms and alleged that Allegro did not refund the fees.

In the first case, Allegro moved to dismiss Of A Feather’s amended complaint for failure to state a claim. In the related case, Allegro sued Of A Feather, Jared Stamell, and Susan Stamell; Of A Feather responded with counterclaims that substantially repeated the claims in the first case and also asserted them against Allegro’s owner, Daniel L. Gordon. Allegro separately moved to dismiss those counterclaims.

Court’s Analysis

A motion to dismiss for failure to state a claim tests whether the pleaded facts, assumed true at this stage, plausibly support legal relief. The court held that Of A Feather’s claim under New York General Business Law § 349 failed because the alleged conduct involved a single private loan negotiation, not conduct with a broader effect on consumers. The court also rejected Of A Feather’s reference to an alleged advance-fee loan scam because the pleaded facts described only the privately negotiated transaction.

The negligent-misrepresentation claims failed because Of A Feather did not adequately plead the special relationship required for Allegro to have a duty to provide accurate information. The court held that the alleged friendship and business connections did not transform the arm’s-length borrower-lender relationship into such a relationship.

The fraud and intentional-misrepresentation claims failed because Of A Feather did not plead facts creating a strong inference that Gordon intended to defraud it when he said in December 2018 that Allegro had enough money to close the transaction. Allegro’s later failure to perform, by itself, was not enough.

The court concluded that Of A Feather adequately pleaded its breach-of-contract claims. The parties agreed that the Loan Commitment was a contract; Of A Feather alleged that it performed its obligations, including paying required fees; and it alleged that Allegro breached by failing to fund the loan. The court also rejected Allegro’s argument that Of A Feather’s payment of only $20,000 toward the $575,000 commitment fee defeated the claim, because the agreement allowed the remaining amount to be paid from the loan proceeds at closing.

Disposition

Judge Denise Cote granted Allegro’s February 21, 2020 motion to dismiss in the Original Action, except as to Of A Feather’s breach-of-contract claim. The court granted Allegro’s June 15, 2020 motion to dismiss the counterclaims in the Related Action, except as to Of A Feather’s breach-of-contract counterclaim. The opinion did not resolve the ultimate merits of those contract claims.