360 N. Rodeo Drive, LP v. Wells Fargo Bank, National Association

Background

360 N. Rodeo Drive LP owned a luxury hotel in Beverly Hills, California, and borrowed $38 million under a loan agreement. The agreement required the property to continue operating as a hotel and retail property, and it did not contain a force-majeure clause. During the COVID-19 pandemic, the plaintiff closed the hotel after occupancy declined and operating costs exceeded revenue.

The plaintiff alleged that Midland Loan Services representative Chris Valencia told it that the closure would not cause problems as long as mortgage payments continued. The plaintiff also alleged that Wells Fargo sent monthly statements showing no default interest due for fourteen months. In July 2021, however, Midland allegedly demanded default interest that had accrued during the closure. The plaintiff sold the property and paid more than $9.5 million in asserted default interest, penalties, fees, and attorney’s fees under protest.

The complaint asserted claims for breach of the loan agreement, breach of the implied duty of good faith and fair dealing, breach of a special servicing agreement, intentional misrepresentation, negligent misrepresentation, money had and received, and unjust enrichment. The defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), or alternatively to strike allegations seeking certain damages and relying on oral representations or modifications.

Rulings on the Claims

Count I—breach of the loan agreement. The court denied the motion to dismiss Count I. It held that the plaintiff plausibly alleged that the pandemic, government stay-at-home orders, partial performance, and the defendants’ statements could support its theories that performance was excused or made impossible or impracticable. The court emphasized that a motion to dismiss tests whether the claim is sufficiently pleaded, not whether the plaintiff will ultimately prove it.

Count II—implied covenant of good faith and fair dealing. In the discussion section, the court denied the motion to dismiss Count II. It found that the claim was sufficiently distinct from the contract claim because it focused on allegedly inaccurate statements showing no default interest and the defendants’ alleged delay in notifying the plaintiff that fees were accruing. The court concluded that these allegations plausibly claimed that the defendants prevented the plaintiff from taking steps to avoid or reduce the fees. However, the conclusion later states that Count II was dismissed, creating a conflict within the opinion.

Count III—special servicing agreement. The court granted the motion to dismiss Count III. It concluded that the complaint alleged only a possible future agreement and did not show that the parties reached and finalized a contract with definite terms.

Count IV—intentional misrepresentation. The court dismissed Count IV. Although the plaintiff alleged statements about default interest and prepayment penalties, the court found that the complaint did not plausibly allege that the statements were knowingly false and made with an intent to induce reliance. The court characterized the pleaded facts as supporting possible negligence or recklessness, but not the required intent to deceive.

Count V—negligent misrepresentation. The court granted the motion as to Count V. It accepted that the plaintiff plausibly alleged inaccurate statements and reliance, but found that the plaintiff did not adequately allege the required special relationship. The court stated that the complaint described an ordinary lender-borrower relationship rather than a relationship involving a special duty to provide information.

Counts VI and VII—money had and received and unjust enrichment. The court stated that these quasi-contract claims were barred because the loan agreement covered the subject matter of the dispute and the agreement’s existence and enforceability were not contested. The court therefore said it was granting the motion to dismiss Counts VI and VII. Immediately afterward, however, the opinion states that the motion was “denied as to Counts VI and VII.” The conclusion says Counts VI and VII were dismissed. These statements are inconsistent.

Motion to Strike

The court denied the defendants’ alternative motion to strike in its entirety. It declined to remove allegations seeking consequential, exemplary, or punitive damages because the plaintiff alleged grossly negligent or willful conduct, which could potentially avoid the agreement’s exculpatory clause. It also declined to strike allegations concerning oral representations or modifications because partial performance can, in some circumstances, support enforcement of an oral agreement despite a written-modification requirement.

Overall Disposition and Uncertainty

The opinion states that the defendants’ motion was “GRANTED in part and DENIED in part.” The discussion supports denial as to Counts I and II, dismissal of Count III, dismissal of Counts IV and V, and dismissal of Counts VI and VII, except that the text expressly contradicts itself regarding Counts II, VI, and VII. The motion to strike was denied in its entirety. Because this was a partial Rule 12(b)(6) ruling addressing whether claims were adequately pleaded rather than deciding the parties’ ultimate contractual rights, the classification is procedural_order.