United States District Court, D. Connecticut
RULING ON MOTION TO DISMISS
A. BOLDEN, UNITED STATES DISTRICT JUDGE
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.
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.
reasons discussed below, Defendant's motion to dismiss is
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.
FACTUAL AND PROCEDURAL BACKGROUND
Delaware statutory trust with its principal place of business in
Boston, Massachusetts, makes secured mezzanine
loans. 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.
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.
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.
allege that Berkowitz acted as counsel to various entities
connected with the Park Square West Entities. 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
Id. ¶ 17 (quoting “Opinion Letter
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.
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.
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.
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 ...