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UC Funding I, LP, Trustee v. Berkowitz, Trager & Trager, LLC

United States District Court, D. Connecticut

May 1, 2018

UC FUNDING I, LP, TRUSTEE, and UCF I TRUST 1, Plaintiffs,
v.
BERKOWITZ, TRAGER & TRAGER, LLC, Defendant.

          RULING ON MOTION TO DISMISS

          VICTOR A. BOLDEN, UNITED STATES DISTRICT JUDGE

         UCF I Trust 1 (“UCFT”) and UC Funding I, L.P., Trustee (“UCF Trust”) (together, “Plaintiffs”) filed a Complaint against Berkowitz, Trager & Trager, LLC (“Berkowitz” or “Defendant”), alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation, based on an opinion letter authored by Berkowitz that allegedly induced Plaintiffs to enter into a contract that eventually resulted in a loss of approximately $13, 000, 000. Compl. ¶¶ 12, 25, ECF No. 1.

         Berkowitz has moved to dismiss the Complaint, arguing that Plaintiffs' claims, for breach of contract, breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation, all fail as a matter of law. Mot. Dismiss, ECF No. 14.

         For the reasons discussed below, Defendant's motion to dismiss is GRANTED.

         Plaintiffs may serve an Amended Complaint within thirty (30) days of this Order, to the extent they are able to address the deficiencies in the dismissed claims.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         UCFT, a Delaware statutory trust[1] with its principal place of business in Boston, Massachusetts, makes secured mezzanine loans.[2] Compl. ¶¶ 3-4. UCF Trust, a limited partnership with a principal place of business in Dover, Delaware, is the trustee of UCFT. Id. ¶ 5. Berkowitz, a Connecticut limited liability company, has its principal place of business in Westport, Connecticut. Id. ¶ 6.

         A. Factual Allegations

         On November 1, 2012, UCFT allegedly loaned $12 million to Park Square West Member Associates (“the borrower”) in the form of a mezzanine loan. Compl. ¶ 8. In connection with that loan, UCFT and the borrower entered into a loan agreement. Id. ¶ 9. Under that agreement, the borrower would be the 100% owner of Park Square West Member Associates, LLC (“the Park Square West LLC”), and the Park Square West LLC would own the commercial property known as Park Square West, located in Stamford, Connecticut, in fee simple. Id. ¶ 11. In addition, UCFT and the borrower entered into a Guaranty of Payment in favor of UCFT (“the guaranty”), secured by a pledge agreement and security agreement (“the pledge agreement”). Id. at 12.

         Under the pledge agreement, the Park Square West LLC allegedly represented that it was the sole member of and owned 100% of the interest in Park Square West Member Associates. Id. ¶ 13. The Park Square West LLC's ownership interest in Park Square West Member Associates allegedly served as the collateral for the loan made by UCFT. Id. ¶ 14.

         Plaintiffs allege that Berkowitz acted as counsel to various entities connected with the Park Square West Entities.[3] Id. ¶ 15. Plaintiffs allege that Berkowitz “issued an opinion letter addressed to UCFT concerning the PSW Mezzanine Loan, Guaranty, Pledge Agreement and the additional agreements memorializing the loan transaction set forth therein.” Id. ¶ 16. Plaintiffs allege that in the letter, Berkowitz opined:

2. “Each of Borrower, Pledgor, and Subordinated Lender has all requisite limited liability company power and authority to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder.
3. “The execution and delivery by Borrower, Pledgor, and Subordinated Lender of the Loan Documents to which each is a party, and the performance by Borrower, Pledgor, and Subordinated Lender of their respective obligations thereunder, have been duly authorized by all necessary limited liability company action on the part of Borrower, Pledgor, and Subordinated Lender, as the case may be.” 4. The Loan Documents to which each of Borrower, Pledgor, and Subordinated Lender is a party, have been duly executed and delivered by Borrower, Pledgor, and Subordinated Lender respectively, and constitute the valid and binding obligations of Borrower, Pledgor, and Subordinated Lender, enforceable against Borrower, Pledgor, and Subordinated Lender in accordance with their respective terms.
6. Neither the execution and delivery by Borrower, Pledgor, Guarantor, and Subordinated Lender of the respective Loan Documents to which each is a party, nor Borrower's, Pledgor's, Guarantor's, or Subordinated Lender's respective performances thereunder (a) to the best of our knowledge, will result in the creation or imposition of a lien, charge, or encumbrance upon any of the property or assets of Borrower, Pledgor, Guarantor, or Subordinated Lender other than the liens contemplated by the Loan Documents, (b) violates any federal or Connecticut law or regulation applicable to Borrower, Pledgor, Guarantor or Subordinated Lender or, to the best of our knowledge, any judgment, order, writ, injunction or decree binding on Borrower, Pledgor, Guarantor, or Subordinated lender or (c) violates the terms or provisions of the Articles of Organization or the Limited Liability Company Operating Agreement of Borrower, Pledgor, or Subordinated Lender.”

Id. ¶ 17 (quoting “Opinion Letter Representations”).

         Plaintiffs allege that, after the mezzanine loan was funded, and following a default by the borrower, Plaintiffs discovered that the Park Square West LLC did not own a 100% interest in the borrower. Id. ¶ 18. Plaintiffs allege that the Park Square West LLC “appears to have owned nothing at the time it made the Pledge in favor of UCFT to secure the PSW Mezzanine Loan, ” and that the borrower was allegedly “owned 25% by Seaboard Realty, LLC and 75% by various other individuals and entities.” Id. ¶ 19. Plaintiffs allege that UCFT relied on Berkowitz's opinion letter when they agreed to the mezzanine loan, and that “UCFT's reliance was expressly contemplated by Berkowitz as the Opinion Letter states that ‘This opinion is rendered to you and is for your benefit in connection with the above transaction.'” Id. ¶ 21.

         Plaintiffs allege that, in December 2015, Seaboard Realty, LLC, and its affiliate entities, including the Park Square West LLC, the borrower, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware. Id. ¶ 22 (citing In re Newbury Common Associates, LLC, Case No. 15-12507). Plaintiffs allege that “[t]hrough the bankruptcy case, the real estate owned by Park Square West Associates, LLC controlled Seaboard Realty LLC, was sold and purchased by an affiliate of UCFT for approximately $43 million.” Id. ¶ 23. Plaintiffs also allege that because the Park Square West LLC did not own 100%, “UCFT's security interest did not attach to the 100% interest in PSW Mezzanine Borrower, ” and as a result, Plaintiffs lost more than $13, 000, 000. Id. ¶¶ 24-25.

         B. Procedural History

         UCFT filed a Complaint in this Court on August 4, 2017, claiming breach of contract, breach of the covenant of good faith and fair dealing, and negligent misrepresentation against Berkowitz. See generally Compl.

         On September 25, 2017, Berkowitz moved to dismiss, claiming that UCFT had failed to state a claim upon which relief can be granted because (1) UCFT was not Berkowitz's client; (2) a third party beneficiary of a written contract cannot recover for a breach of the implied covenant of good faith and fair dealing; and (3) UCFT's claim for negligent misrepresentation is barred by the statute of limitations. Mot. Dismiss at 1-2, ECF No. 14. Berkowitz argues that it “did not represent UCF, and in fact was adverse to UCF in its role representing Park Square West Member Associates, LLC as borrower and [Berkowitz's] other clients in connection with this transaction.” Mot. Dismiss at 2. Berkowitz therefore claims that UCF cannot bring a claim based in contract related to ...


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