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

Background

The original complaint contained seven claims: three for breach of contract, two for intentional and negligent misrepresentation, one for money had and received, and one for unjust enrichment. In an earlier order, the court granted the defendants’ motion to dismiss in part. Counts one and two survived; counts three through seven were dismissed.

The scheduling order initially set July 31, 2023, as the deadline for motions to amend. After further orders and an agreed extension, the deadline for the plaintiff’s motion was extended to January 14, 2024. The plaintiff filed its motion for leave to amend on that date. It sought to add another breach-of-contract allegation to the surviving counts one and two, and to add allegations addressing problems identified in the earlier dismissal order for counts three, four, and five. The defendants did not oppose the amendment to counts one and two. They argued that the other amendments were too late and futile, meaning they would not state legally sufficient claims even if added. They also argued that counts three, four, and five should be evaluated under the summary-judgment standard because substantial discovery had occurred. The plaintiff abandoned counts six and seven.

Legal standard

Under Federal Rule of Civil Procedure 15(a)(2), courts should freely allow amendments when justice requires. Undue delay, bad faith, prejudice, or futility can justify denying leave. Usually, futility is evaluated under the Rule 12(b)(6) standard, which asks whether the proposed complaint contains enough factual allegations to make a claim for relief plausible.

The court rejected the defendants’ request to apply the summary-judgment standard. The cases applying that standard involved cases already at summary judgment or a complete factual record. Here, the plaintiff argued that contract terms might be ambiguous or unenforceable because of fraud, creating factual questions. The court therefore applied the usual Rule 12(b)(6) pleading standard.

Court’s analysis

The court held that the proposed amendments were not unduly delayed. Although the plaintiff sought leave nearly ten months after the initial dismissal, the delay resulted from a series of extensions to which the defendants consented. The defendants also failed to show prejudice.

The court concluded that proposed count three plausibly stated a breach-of-contract claim involving the special servicer agreement. The plaintiff alleged that it and one of the defendants’ representatives orally agreed that the plaintiff would move its loan from master servicing to special servicing in exchange for continued negotiations about fee and penalty waivers. They allegedly also agreed that, if they could not reach agreement on the waivers, the loan could be transferred back to master servicing. The plaintiff alleged that it performed by transferring the loan, while the defendant breached by refusing to negotiate and refusing to allow the transfer back. The court also stated that the plaintiff plausibly alleged promissory estoppel—a claim based on a clear promise, reasonable reliance, and resulting injury—and that the defendant had not addressed that theory.

The court also concluded that proposed count five plausibly stated a negligent-misrepresentation claim. Under New York law, the claim required allegations supporting a special relationship, including the speaker’s special expertise, a relationship of trust or confidence, and awareness that the information would be used for a particular purpose. The court found that the first factor slightly favored the plaintiff because the defendants allegedly had uniquely controlled, opaque, and rapidly changing information about their policies during the early COVID-19 pandemic. The second factor favored the defendants because there was no traditional relationship of trust or confidence. The third factor strongly favored the plaintiff because the allegations indicated that the speaker knew the plaintiff would rely on assurances about fees, penalties, and other policies. The court emphasized that whether the relationship justified reliance was a fact-specific question and that the allegations were sufficient at the pleading stage.

Disposition

The court granted the motion for leave to amend. It directed the Clerk of Court to close docket entry 62 and ordered the plaintiff to file the amended complaint by February 7, 2024, at 5:00 p.m. The opinion does not separately state a disposition for each proposed amendment to count four; its stated disposition is that the motion for leave to amend was granted.