Wells Fargo Bank, National Association v. GC SHL, LLC

Background

Natixis Real Estate Capital LLC made a $170 million loan to GC SHL in October 2017. The loan was later transferred to Wells Fargo in its capacity as trustee of a commercial mortgage trust. The Standard High Line Hotel, which GC SHL purchased in 2017 using the loan in part, closed in March 2020 because of lockdowns imposed by city and state officials in response to the COVID-19 pandemic.

GC SHL alleged that it sought to use money in a façade-work subaccount to make debt-service payments. It claimed that the loan servicer delayed releasing those funds, including while transferring the loan to a new account manager and later referring the request to the special servicer. The funds were never released, and Wells Fargo sent GC SHL a notice of default in June 2020.

GC SHL later signed two pre-negotiation agreements. The first stated that GC SHL then knew of no claim against Wells Fargo. The second included a broad release of Wells Fargo and related parties and incorporated the first agreement.

Claims and motion

GC SHL asserted two counterclaims: one for breach of the implied duty of good faith and fair dealing and one seeking a declaration that Wells Fargo violated the loan agreement. GC SHL relied on two theories: that Wells Fargo delayed releasing the façade funds and thereby manufactured a default, and that Wells Fargo caused additional harm through delays during post-default negotiations.

Wells Fargo moved to dismiss both counterclaims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The court accepted well-pleaded facts as true and viewed the counterclaims in the light most favorable to GC SHL for purposes of the motion.

Ruling

The court granted Wells Fargo’s motion to dismiss as to both counterclaims. Applying New York law, the court held that the pre-negotiation agreements were unambiguous and broadly released or waived GC SHL’s claims. GC SHL knew of at least some of the alleged conduct, including the alleged delay in releasing façade funds, when it signed the first agreement. The court therefore concluded that the agreements barred both counterclaims.

The court also explained that contractual liability limitations do not protect intentional wrongdoing, gross negligence, or highly reckless conduct. But it found that GC SHL had not alleged conduct rising to that level. The loan agreement made façade-fund disbursements contingent on use for façade remediation and the absence of an ongoing default; it did not require Wells Fargo to release the funds solely so GC SHL could make monthly payments. The court also found that GC SHL’s allegations about an alleged scheme, deliberate bad faith, and a manufactured default were conclusory.

Separately, the court held that the loan agreement independently barred GC SHL’s first counterclaim to the extent it sought monetary damages. The agreement waived monetary damages and stated that GC SHL’s sole remedies were an action for injunctive relief or a declaratory judgment. The court did not address Wells Fargo’s other grounds for dismissal. The Clerk was directed to close the motion.