UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

SUN SECURED FINANCING LLC et al., : 

 : 

Plaintiffs, : Civil Action No.: 09-2162 (RMU) 

: 

v. : Re Document Nos.: 11, 21 

: 

ARCS COMMERCIAL MORTGAGE CO. : 

LP et al., : 

: 

Defendants. : 

MEMORANDUM OPINION

DENYING THE DEFENDANTS’ MOTION TO DISMISS;

DENYING THE PLAINTIFFS’ MOTION FOR LEAVE TO FILE A SUR-REPLY

I. INTRODUCTION 

Plaintiff Sun Communities, Inc. (“Sun Communities”) is the owner and operator of a 

number of manufactured housing communities scattered throughout the United States. Together 

with six of its subsidiaries, it has brought suit against defendants ARCS Commercial Mortgage 

Company LP (“ARCS”) and PNC ARCS LLC (“PNC ARCS”), businesses involved in the 

mortgage industry, and the Federal National Mortgage Association (“Fannie Mae”), a federally 

chartered mortgage financing corporation based in the District of Columbia. 

The dispute centers on a $390 million financing agreement between the plaintiffs and 

ARCS, which later assigned its rights under the agreement to Fannie Mae. The plaintiffs allege 

that in 2009, the defendants impermissibly increased one of the fees called for in the agreement. 

Through this action, they seek to recover their excess fee payments and to obtain a declaratory 

judgment that the fee increase was impermissible under the terms of the agreement. The matter 

is now before the court on the defendants’ motion to dismiss for failure to state a claim. Because 
 2

the court concludes that the allegations in the complaint set forth a plausible claim for relief, the 

court denies the defendants’ motion.1

II. FACTUAL & PROCEDURAL BACKGROUND2

In May 2002, the plaintiffs3

 and ARCS4 entered into a financing agreement under which 

ARCS agreed to lend more than $150 million to the plaintiffs through a combination of fixed and 

variable interest rate loan facilities. Compl. ¶¶ 22-23. Funds disbursed under the fixed interest 

rate facility were termed “Fixed Advances” while funds disbursed pursuant to the variable 

interest rate facility were referred to as “Variable Advances.” Id. ¶ 29. In April 2004, the 

borrowers and ARCS executed an amended agreement, increasing the total amount of financing 

available to the plaintiff to $390 million. Id. ¶ 25. 

The parties entered into the amended agreement with the understanding that ARCS was 

essentially an intermediary and that many of its rights under the agreement would be assigned to 

 

1

 The plaintiffs moved for leave to file a sur-reply to the defendants’ motion. See generally Pls.’ 

Mot. for Leave to File Sur-Reply Brief. The court concludes that the issues were fully briefed in 

the original motion, opposition and reply, and that the proposed sur-reply merely rehashes 

arguments already made in the plaintiffs’ opposition. See generally id., Ex. 1. Accordingly, the 

court denies the plaintiffs’ motion for leave to file a sur-reply. See Winston & Strawn LLP v. 

Fed. Deposit Ins. Corp., 2007 WL 2059769, at *5 n.3 (D.D.C. July 13, 2007) (denying a motion 

for leave to file a sur-reply because the proposed sur-reply merely “quibble[d] with particular 

statements” in the reply). 

2

 Because this matter is before the court on a motion to dismiss pursuant to Rule 12(b)(6), the court 

treats all of the plaintiffs’ factual allegations as true for purposes of the present motion. See Holy 

Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 165 (D.C. Cir. 2003); Browning v. 

Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002).

3

 The financing agreement was entered into by ARCS and Sun Communities’ six subsidiaries. 

Although Sun Communities was not itself a party to the agreement, the plaintiffs allege that it 

was an intended third-party beneficiary. See Compl. ¶ 13. 

 

4

 The defendants note that in July 2007, the assets of ARCS were transferred to PNC ARCS and 

ARCS was dissolved as a legal entity. Defs.’ Mot. at 4. Accordingly, after the transfer of 

ARCS’s assets, PNC ARCS stepped into the role previously occupied by ARCS under the 

amended agreement. See id.
 3

Fannie Mae. Id. ¶ 26. Specifically, each time ARCS would disburse an Advance to the 

plaintiffs, ARCS would assign its rights to repayment to Fannie Mae. Id. ¶ 26. Following such 

an assignment, Fannie Mae would convert the loan into a mortgage-backed security (“MBS”), a 

negotiable financial instrument backed by the loan. Id., Ex. A (“Am. Agreement”) § 13.01. 

Fannie Mae would then provide the MBS to ARCS as consideration for the assignment of its 

repayment rights to the underlying loan. Id. ARCS, in turn, would sell the MBS to investors. 

Id. § 2.01(c). 

In exchange for the financing, the plaintiffs agreed to pay not only interest on the loans, 

which ultimately went to the buyer of the MBS rather than to the defendants, id., but also a 

“facility fee” which compensated the defendants for the cost of securitizing and servicing the 

loans, id. § 1.04(b)(ii). The facility fee for Variable Advances, termed the “Variable Facility 

Fee,” was fixed at fifty-eight basis points5

 for the original term of the agreement. Id., App. I at 

28. 

 The $150 million loan commitment provided by the original financing agreement was set 

to expire in May 2007, but the plaintiffs had the right under the amended agreement to extend it 

twice: first through April 2009 and again, if they so chose, through April 2014. Id. § 1.07. 

Similarly, the additional loan commitment established through the amended agreement had a 

termination date of April 2009, but the plaintiffs had the right to extend it through April 2014. 

Id. The parties agree that the plaintiffs extended the original financing period through April 

2009 without incident. Compl. ¶ 43; Defs.’ Mot. at 4. The plaintiffs then opted to extend the 

termination dates to April 2014 through a notification transmitted to the defendants in October 

2008. Compl. ¶ 49. 

 

5

 A basis point is one-hundredth of one percent. BLACK’S LAW DICTIONARY (8th ed. 2004). 
 4

 On March 4, 2009, fifty-six days before the expiration of both the initial term of the 

amended agreement and the first extension period of the original agreement, the defendants 

orally informed the plaintiffs that they “proposed to increase the Variable Facility Fee” 

applicable during the period from April 2009 to April 2014 from fifty-eight basis points to 200 

basis points. Id. ¶ 54. The defendants asserted that this modification would apply not only to 

Variable Advances disbursed during the extension period from April 2009 to April 2014, but 

also to all Variable Advances that had previously been disbursed to the plaintiffs. Id. When the 

plaintiffs objected that this retroactive rate increase was impermissible under the amended 

agreement, the defendants indicated that they would review the agreement and then discuss the 

issue with the plaintiffs. Id. ¶ 58. The plaintiffs heard nothing further from the defendants about 

the proposed rate increase until April 3, 2009, twenty-six days before the expiration of the initial 

term of the amended agreement, when the defendants again orally advised the plaintiffs that they 

proposed to increase the Variable Facility Fee to 200 basis points. Id. The plaintiffs assert that 

they received no written notice of this increase until April 17, 2009, twelve days before the 

expiration of the initial term of the amended agreement. Id. ¶ 59. 

The plaintiffs contend that given the state of the mortgage financing market in April 

2009, they had no choice but to agree to pay the increased Variable Facility Fee to obtain the 

extension of the amended agreement. Id. ¶ 61. To secure the extension, the plaintiffs signed an 

extension agreement providing for an increase in the Variable Facility Fee, but they did so 

“under protest.” Id. ¶ 62. The parties agree that the extension agreement does not prejudice any 

of the plaintiffs’ rights under the amended agreement. Id.

 The plaintiffs commenced this action in November 2009, seeking reimbursement of the 

allegedly excessive Variable Facility Fee payments and a declaratory judgment that the fee 
 5

increase was not permitted under the amended agreement. See generally id. In December 2009, 

the defendants filed this motion to dismiss the complaint for failure to state a claim for which 

relief can be granted, arguing that the plaintiffs cannot recover for their claims because the 

amended agreement unequivocally provided the defendants the right to increase the Variable 

Facility Fee during the extension period for all Variable Advances. See generally Defs.’ Mot. 

With this motion fully briefed, the court turns to the applicable legal standards and the parties’ 

arguments. 

III. ANALYSIS 

A. Legal Standard for a Rule 12(b)(6) Motion to Dismiss 

A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint. Browning v. 

Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). The complaint need only set forth a short and plain 

statement of the claim, giving the defendant fair notice of the claim and the grounds upon which 

it rests. Kingman Park Civic Ass’n v. Williams, 348 F.3d 1033, 1040 (D.C. Cir. 2003) (citing 

FED. R. CIV. P. 8(a)(2) and Conley v. Gibson, 355 U.S. 41, 47 (1957)). “Such simplified notice 

pleading is made possible by the liberal opportunity for discovery and the other pretrial 

procedures established by the Rules to disclose more precisely the basis of both claim and 

defense to define more narrowly the disputed facts and issues.” Conley, 355 U.S. at 47-48 

(internal quotation marks omitted). It is not necessary for the plaintiff to plead all elements of 

his prima facie case in the complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511-14 (2002), 

or “plead law or match facts to every element of a legal theory,” Krieger v. Fadely, 211 F.3d 

134, 136 (D.C. Cir. 2000) (internal quotation marks and citation omitted). 
 6

 Yet, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S. 

Ct. 1937, 1949 (2009) (internal quotation marks omitted); Bell Atl. Corp. v. Twombly, 550 U.S. 

544, 562 (2007) (abrogating the oft-quoted language from Conley, 355 U.S. at 45-46, instructing 

courts not to dismiss for failure to state a claim unless it appears beyond doubt that “no set of 

facts in support of his claim [] would entitle him to relief”). A claim is facially plausible when 

the pleaded factual content “allows the court to draw the reasonable inference that the defendant 

is liable for the misconduct alleged.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 

556). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more 

than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 

556). 

In resolving a Rule 12(b)(6) motion, the court must treat the complaint’s factual 

allegations – including mixed questions of law and fact – as true and draw all reasonable 

inferences therefrom in the plaintiff’s favor. Holy Land Found. for Relief & Dev. v. Ashcroft, 

333 F.3d 156, 165 (D.C. Cir. 2003); Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). 

While many well-pleaded complaints are conclusory, the court need not accept as true inferences 

unsupported by facts set out in the complaint or legal conclusions cast as factual allegations. 

Warren v. Dist. of Columbia, 353 F.3d 36, 39 (D.C. Cir. 2004); Browning, 292 F.3d at 242. 

“Threadbare recitals of the elements of a cause of action, supported by mere conclusory 

statements, do not suffice.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 555).

B. The Court Denies the Defendants’ Motion to Dismiss 

 The defendants argue that court should dismiss the complaint because the increase in the 

Variable Facility Fee that prompted the complaint was permissible under the amended 
 7

agreement. Defs.’ Mot. at 7. In response, the plaintiffs contend that the amended agreement did 

not permit the defendants to increase the Variable Facility Fee for previously disbursed Variable 

Advances and, in the alternative, that even if the defendants were entitled to increase the 

Variable Facility Fee, they failed to provide the thirty-days advance written notice that the 

amended agreement required as a condition for altering the fee.6

 Pl.’s Opp’n at 10-13. In reply, 

the defendants argue that they substantially complied with the written notice requirement by 

providing actual notice, and contend that strict compliance with the notice provision is not 

required under the amended agreement. Defs.’ Reply at 6-7. 

1. The Disputed Provision is Ambiguous 

 Under District of Columbia law,7 the presence of ambiguity in a contract is a question of 

law. Wash. Props., Inc. v. Chin, Inc., 760 A.2d 546, 548 (D.C. 2000) (citing Holland v. Hannan, 

456 A.2d 807, 815 (D.C. 1983)). “A contract is not ambiguous merely because the parties 

disagree over its meaning.” Id. (citing Bagley v. Found. for Pres. of Historic Georgetown, 647 

A.2d 1110, 1113 (D.C. 1994)). Rather, “a contract is ambiguous when, and only when, it is . . . 

reasonably or fairly susceptible of different constructions or interpretations.” Id. (quoting 

Holland, 456 A.2d at 815). If a court determines that a contractual provision is ambiguous, then 

“its proper interpretation requires consideration of extrinsic evidence” demonstrating the intent 

of the parties at the time the contract was made. Mamo v. Skvirsky, 960 A.2d 595, 599 (D.C. 

2008). 

 

6

 The plaintiffs also argue that the fee increase was not determined according to the proper criteria 

and was therefore imposed contrary to the terms of the agreement and additionally that the fee 

increase is barred by the doctrine of laches. See Pls.’ Opp’n at 26. Because the court concludes 

that the motion to dismiss must be denied due to ambiguities in the contract and the defendants’ 

alleged non-compliance with the notice requirement, the court does not reach these other 

arguments at this point in the proceedings. 

7

 The amended agreement contains a choice of law provision which specifies that it is to be 

governed by District of Columbia law. See Amended Agreement § 17.06.
 8

 The key contractual provision in dispute is the definition of “Variable Facility Fee” found 

in Appendix I to the amended agreement. See Am. Agreement, App. I at 28. The third sub-part 

of that definition provides that “if the Variable Facility Termination Date is extended . . . for 

any Variable Advance drawn from any portion of the Variable Commitment . . . after the original 

Variable Facility Availability Period,” then the Variable Facility Fee will be “the number of 

basis points per annum determined by the lender as the Variable Facility Fee for such period.” 

Id. The parties agree that this provision allows the defendants to increase the Variable Facility 

Fee for Variable Advances drawn after the extension date of the amended agreement. See Defs.’ 

Mot. at 8; Pls.’ Opp’n at 18-19. They disagree, however, over what it means to “draw” a 

Variable Advance. 

The defendants argue that because of the structure of the agreement, a Variable Advance 

is “drawn” every time the MBSs which finance the agreement are rolled over, which is at least 

every nine months. See Defs.’ Mot. at 9; see also Am. Agreement, App. I at 1 (defining 

“Advance” to include rollover advances); id. § 1.04(b) (limiting the term of each Variable 

Advance to the term of the MBS which financed it). Conversely, the plaintiffs argue that, 

regardless of the issuance of rollover advances, they cannot be said to “draw” a new Variable 

Advance when they do not receive any new financing, and that they did not receive any new 

financing under the amended agreement during the extension period. See Pls.’ Opp’n at 18. 

The word “draw” remains regrettably undefined in the parties’ agreement, and, as far as 

the court can ascertain, appears only in the disputed provision. See generally Amended 

Agreement. The term is, however, ordinarily defined as the act of “tak[ing] out (money) from a 

bank, treasury, or depository,” BLACK’S LAW DICTIONARY (8th Ed. 2004), providing some 

support for the plaintiffs’ interpretation of the agreement, as the plaintiffs allege that they 
 9

received no new funds pursuant to any Variable Advance during the extension period, Compl. ¶ 

56. 

Considering the amended agreement’s lack of clarity with respect to what it means to 

“draw” a Variable Advance, together with the ordinary definition of “draw,” the court concludes 

that the amended agreement does not unambiguously give the defendants the power to increase 

the Variable Facility Fee on Variable Advances disbursed to the plaintiff prior to the April 2009 

extension. This conclusion alone requires that the court deny the defendants’ motion, because if 

the agreement is ambiguous then the parties are entitled to support their interpretations with 

extrinsic evidence of intent. Mamo, 960 A.2d at 599. 

2. The Effect of the Thirty-Day Notice Provision Remains Unclear 

 The issue of the thirty-day written notice requirement built into the definition of 

“Variable Facility Fee” also persuades the court to deny the defendant’s motion. The amended 

agreement provides that if the duration of the agreement is extended, the Variable Facility Fee 

for advances drawn in the period following the extension will be “determined by the lender . . . 

which fee shall be set by Lender not less than 30 days prior to the commencement of such 

period.” Am. Agreement, App. I at 28. The agreement further provides that “[a]ny approval, 

designation, determination, selection, action, or decision of Lender or Borrower must be in 

writing to be effective.” Id. § 17.17; see also id. § 17.08 (specifying methods by which sufficient 

written notice can be provided). These provisions indicate that the defendants were required to 

provide the plaintiffs with written notice of any change in the Variable Facility Fee thirty days 

prior to the commencement of the extension period. Accordingly, even if the court were to 

conclude that the defendants’ interpretation of the agreement were correct, it could not grant the 

defendants’ motion to dismiss unless it were also able to conclude as a matter of law that the 
 10

defendants complied with the thirty-day written notice requirement, that the defendants’ noncompliance was excused or that the defendants’ non-compliance did not prohibit them from 

increasing the Variable Facility Fee. Accordingly, the court turns to the issue of the defendants’ 

compliance with the written notice requirement. 

 Although District of Columbia courts have shown some willingness to excuse purely 

technical deficiencies in notice, see Mason v. Curro, 41 A.2d 164, 165 (D.C. 1945) (concluding 

that a written notice of intent to terminate a lease that contained all required information was 

sufficient even though it was sent by the purchaser of the property rather than the original lessor 

as the lease required), the defendants cite no case in which oral notice was accepted in lieu of 

written notice, and the general rule is to the contrary, see Flynn v. Beeler Barney Assocs. 

Masonry Contractors, Inc., 2004 WL 3712630, at *4 (D.D.C. Aug. 10, 2004) (holding that a 

contractual requirement of written notice was not met by oral notice); see also Hein Enterprises, 

Ltd. v. S.F. Real Estate Investors, 720 P.2d 975, 979 (Colo. 1985) (holding that “[w]hen an 

agreement concerning real estate calls for written notice affecting the rights of the parties, oral 

notice does not suffice”); 66 C.J.S. Notice § 18 (2010) (noting that “where written notice is 

required, oral notice will not suffice”). Furthermore, there remains some question as to whether 

the oral notification on which the defendants rely actually put the plaintiffs on notice that the 

defendants were raising the Variable Facility Fee rather than merely contemplating such a move. 

See Compl. ¶ 54 (alleging that the defendants merely stated that they “proposed to increase the 

Variable Facility Fee” the only time the issue was discussed before the thirty-day deadline); id. ¶ 

58 (alleging that when the plaintiffs protested such an increase, the defendants indicated that they 

would review the agreement and discuss the matter further). Thus, the court cannot conclude at 
 11

this stage of the proceedings that the oral notice provided to the plaintiffs satisfied the thirty-day 

notice requirement. 

Likewise, the question remains as to whether the thirty-day notice requirement is a 

condition precedent to the defendants’ power to alter the Variable Facility Fee (such that the 

defendants’ alleged failure to comply resulted in the waiver of their right to alter the Fee), or if it 

instead merely imposed a duty on the defendants (such that their alleged failure to comply at 

most entitles the plaintiffs to recover damages for the lack of notice). See MURRAY ON 

CONTRACTS § 99D (describing the effect of construing a notice provision as a condition 

precedent rather than merely as a promise). Under District of Columbia law, “there is a 

presumption in favor of construing doubtful language in a contract as language of promise rather 

than as language of condition.” Wash. Props., Inc., 760 A.2d at 549 (citing N.Y. Bronze Powder 

Co. v. Benjamin Acquisition Corp., 716 A.2d 230, 234 (Md. 1998)). There is, on the other hand, 

some support for the proposition that notice provisions are generally understood to be conditions 

precedent to the exercise of power about which notice is being given. See Russell v. Dep’t of 

Hous. & Urban Dev., 836 A.2d 576, 579 (D.C. 2003) (concluding that service of a notice to quit 

was a condition precedent to an eviction action, so a landlord had no power to evict a tenant 

when such a notice had not been properly served); see also United States v. Cunningham, 125 

F.2d 28, 31 (D.C. Cir. 1941) (concluding that a contractual requirement that a party provide 

written notice of any delay was a condition precedent to that delay being excused). 

In any event, “[t]he question of whether a provision in a contract ‘constitutes a condition 

precedent is one of construction dependent on the intent of the parties’” as revealed by the 

contract itself, and, if necessary, by extrinsic evidence. Wash. Props., Inc., 760 A.2d at 550 

(quoting Canaras v. Lift Truck Servs., Inc., 322 A.2d 866, 875 (Md. 1974)). The court cannot 
 12

conclude at this stage of the proceedings that it would be unreasonable to interpret the thirty-day 

notice requirement as a condition precedent to the defendants’ power to increase the Variable 

Facility Fee, particularly in light of the parties’ scant briefing on the issue.8

 If the thirty-day 

notice requirement was a condition precedent to the defendants’ power to set the Variable 

Facility Fee, then the defendants had no authority to increase the Fee unless they strictly 

complied with the notice requirement. See id. (noting that a condition precedent “must occur . . . 

before performance under a contract becomes due” (quoting RESTATEMENT (SECOND) OF 

CONTRACTS § 224)); see also Cunningham, 125 F.2d at 31 (concluding that oral notice was 

insufficient to satisfy a condition precedent where the contract required written notice); but see 

Omni Specialties-Wash., Inc., 1990 WL 69284, at *3 (D.C. Cir. May 25, 1990) (noting the 

possibility that “exceptional circumstances” might render an express contractual notice provision 

inapplicable). Furthermore, even if the notice requirement was not an express condition 

precedent to the defendants’ power to set the Variable Facility Fee, the court might be persuaded 

to construe it as a constructive condition precedent to that power. See Wash. Props., Inc., 760 

A.2d at 550 (noting that courts can impose constructive conditions if necessary to do justice). 

 Thus, even if the court were to accept the defendants’ interpretation of the amended 

agreement, and their authority to increase the Variable Facility Fee, as the only reasonable 

interpretation, there would remain an open question regarding the effect of the thirty-day notice 

requirement. Because the court cannot conclude as a matter of law that the plaintiffs’ 

interpretation of the notice provision, under which timely written notice was a condition 

 

8

 Although the parties discuss the written notice requirement in some detail, they do not squarely 

address the question of whether the requirement is a condition precedent to the defendants’ 

alleged power to set the Variable Facility Fee. See generally Pls.’ Opp’n; Defs.’ Reply. Indeed, 

the defendants seem to concede that some measure of compliance with the notice requirement is a 

condition precedent to their fee-setting power. See Defs.’ Reply at 7 (arguing that “[p]laintiffs 

concede receipt of actual notice, and substantial compliance, and under the Agreement and 

applicable law nothing more is required”). 
 13

precedent to the defendants’ fee-setting power, is not the correct interpretation, and because the 

court must accept as true the plaintiffs’ allegation that the defendants did not comply with the 

thirty-day notice requirement, the court denies the defendants’ motion to dismiss for failure to 

state a claim. 

IV. CONCLUSION

 For the foregoing reasons, the court denies the defendants’ motion to dismiss for failure 

to state a claim for which relief can be granted and denies the plaintiffs’ motion for leave to file a 

sur-reply. An Order consistent with this Memorandum Opinion is separately and 

contemporaneously issued this 11th day of August, 2010. 

RICARDO M. URBINA 

United States District Judge