1 

IN THE UNITED STATES DISTRICT COURT 

FOR THE SOUTHERN DISTRICT OF OHIO 

EASTERN DIVISION 

: 

CITY OF LANCASTER, : Case No. 2:10-CV-1041 

: 

 Plaintiff, : 

: JUDGE ALGENON L. MARBLEY 

 v. : 

: MAGISTRATE JUDGE DEAVERS 

FLAGSTAR BANK, FSB, et al., : 

: 

 Defendants. : 

OPINION AND ORDER

I. INTRODUCTION 

This matter is before the court on Plantiff/Counterclaim Defendant the City of 

Lancaster’s Motion to Dismiss (Dkt. 9) and Motion for Judgment on the Pleadings (Dkt. 14). 

The City moves to dismiss Counts I and II of Flagstar Bank, FSB’s Counterclaim for failure to 

state a claim upon which relief may be granted. The City moves for judgment on the pleadings 

as to Count I of the Complaint and Count III of the Counterclaim. For the following reasons, the 

City’s Motion to Dismiss is GRANTED, and its Motion for Judgment on the Pleadings is 

GRANTED in part and DENIED in part. 

II. BACKGROUND

 Plaintiff/Counterclaim Defendant the City of Lancaster is a municipality in the state of 

Ohio. Defendant Flagstar Bank, FSB, is a Michigan entity whose principal place of business is 

located in Troy, Michigan. Defendant Island Capital is a Michigan limited liability company 

that is in the business of acquiring and developing commercial real estate. Flagstar Bank is the 

assignee of the claims of Island Capital. 

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A. The Tax Increment Financing Agreement 

Tax Increment Financing (“TIF”) is a method of financing used to pay for public 

improvements. A city will “float” (i.e., sell) bonds for public improvements, with the intent to 

recoup the money from increases in the value of property positively impacted by those public 

improvements. The property owners make service payments to a fund in lieu of property taxes, 

and the city pays the bond obligations with the money from this fund, rather than with the public 

city’s general revenue fund. The service payments are commonly used to pay either the direct 

costs of necessary infrastructure improvements or to pay the debt service charges on bonds or 

notes issues to finance these improvements. 

 In September 2006, the Lancaster City Council unanimously passed an ordinance to 

encourage and assist the development of several commercial retail shopping centers located in 

the City of Lancaster. To accomplish this goal, City Council authorized the City to enter into a 

TIF Agreement with several developers who were planning to develop targeted properties in the 

City, including Island Capital, Menard, Inc., Wal-Mart Stores East, LP, TLG Lancaster Ltd., 

GCG Lancaster Ltd., and Anchor Lancaster LLC (collectively referred to as the “Current 

Owners”). 

 Pursuant to the Agreement, the City agreed to issue bonds or notes (the “Debt”) in an 

amount not to exceed $3.6 million to pay the “Costs of Public Improvements” for the proposed 

developments. In lieu of paying real property taxes on improvements to be made to the target 

properties, each of the Current Owners, including Island Capital, agreed to make semiannual 

Debt service payments (the “Service Payments”) in connection to their respective properties. 

TIF Agreement § 3.1(a). 

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 To provide security for the Service Payments, the Current Owners, including Island 

Capital, were required to provide a letter of credit (“LOC”) prior to the issuance of the debt, in a 

form satisfactory to the City.1 TIF Agreement §§ 1.1, 3.5(a). The TIF Agreement required that 

the LOCs were to be “issued by an institution having unsecured, uninsured and unguaranteed 

long-term debt rating ‘A2’ or higher by Moody’s Investors Service or ‘A’ or higher by Standard 

& Poor’s Rating Service. TIF Agreement §§ 1.1, 3.5(a). 

The Agreement also provided that “at least 15 days prior to the expiration of any Letter 

of Credit,” the Current Owner “must provide another Letter of Credit with a maturity date of not 

less than one year from the date of its issuance or the next succeeding payment of principal and 

interest on the Debt following the expiration date of the Letter of Credit, whichever is later.” 

TIF Agreement § 3.5(c). If a Current Owner does not comply with § 3.5(c) and provide a LOC 

at least 15 days prior to the expiration of the then existing LOC, “[t]he City shall draw on the 

Letter of Credit in the entire amount of that Letter of Credit.” TIF Agreement § 3.6(a). The 

funds “shall be deposited in the TIF Fund and shall be used to pay Debt Service and for no other 

purpose.” TIF Agreement § 3.6(d). 

B. Island Capital/Flagstar Letter of Credit 

In compliance with the TIF Agreement, on or about October 6, 2006, Island Capital 

 1

A letter of credit is an undertaking by a bank (in this case, Flagstar) on behalf of one of 

its customers, known as the applicant (in this case, Island Capital), to honor demands for 

payments by a beneficiary (in this case, the City) upon the occurrence of certain conditions 

specified in the letter of credit. 

A “standby” letter of credit is a specific type of LOC, which acts as a “back-up” against 

applicant default. The default of the applicant triggers the issuer’s obligation to pay the 

beneficiary. 

 

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obtained an irrevocable standby LOC from Flagstar Bank and in favor of the City in the amount 

of $1,084,320.00. The LOC had a final expiration date of October 3, 2009. In September 2007, 

Island Capital requested that the City reduce the amount of the LOC required of them by the TIF 

Agreement. Representing that it was “pleased with the development progress achieved to date . 

. . and with Island Capital’s continued commitment to development,” on November 20, 2007, the 

City entered into a letter agreement with Island Capital to reduce the required letter of credit 

amount by 50% upon certain conditions. Although Island Capital did not obtain a new or 

amended letter of credit, it agreed to the terms and conditions in the letter agreement. 

Pursuant to § 3.6(a), Island Capital was to provide a replacement letter of credit to the 

City by September 18, 2009, which was 15 days before the date of expiration of the initial LOC. 

That date passed, and Island Capital had failed to provide a replacement LOC to the City. On 

October 1, 2009, the City learned that Flagstar Bank had been the subject of an adverse rating 

action and its credit rating had been downgraded as a result. 

Accordingly, on October 1, 2009, the City sent a letter to Flagstar Bank demanding 

payment of the full amount of the LOC. In support of its demand the City stated that: (1) it had 

not received the replacement letter of credit by the required deadline; and (2) given Flagstar 

Bank’s downgrade, “any extension or renewal [with Flagstar as issuer] would not be compliant 

with the terms of the TIF Agreement.” The City did not provide Flagstar with any prior notice. 

On or about October 6, 2009, Flagstar Bank wired the full amount of the Flagstar LOC to 

the City’s account. The City asserts that on the same day, it issued a note in favor of Island 

Capital in the amount of $542,160.00, plus interest from the date of the drawing on the Flagstar 

LOC. This note reflected Island Capital’s interest in any funds that may remain following 

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application of the proceeds of the LOC to Island Capital’s obligations under the TIF Agreement. 

Likewise, the City subsequently agreed to reduce Island Capital’s obligation by 50%, returning 

$542,160.00 to Flagstar Bank and retaining $542,160.00 in an escrow account for application 

pursuant to the terms and conditions of the TIF Agreement. By contrast, Flagstar asserts that the 

City only returned the sum of $454,160.00 to the bank, and retained $18,000.00 for certain legal 

expenses and $70,000.00 to be held in a separate escrow fund specifically to secure payment of 

Taxes or Service Payments of Island Capital. 

C. The Replacement Letter of Credit 

On November 2, 2010, more than one year after the expiration of the initial LOC, 

Flagstar Bank presented a replacement LOC to the City on behalf of Island Capital. The Bank 

requested that the City return the remaining $542,160.00 in exchange for the replacement LOC. 

The City refused to accept the LOC or return the $542,160.00. Flagstar threatened the City with 

litigation if it failed to comply with its demand. 

D. Procedural Background 

On November 4, 2010, the City filed a Complaint in the Fairfield County Court of 

Common Pleas against Flagstar Bank and Island Capital seeking a declaration that it validly 

exercised its rights by drawing on the Flagstar LOC and retaining the proceeds. On November 

18, 2010, the Bank and Island Capital removed the case to this Court based on diversity of 

citizenship. Thereafter, the Bank answered the complaint and filed a counterclaim. The matter 

is currently before the Court on the City’s Motion to Dismiss Counts I and II of the 

Counterclaim pursuant to 12(b)(6), and the City’s Motion for Judgment on the Pleadings as to 

Count I of the Complaint and Count III of the Counterclaim pursuant to FRCP 12(c). The 

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motions are fully briefed and ripe for decision. 

III. STANDARD OF REVIEW

 A case may be dismissed if the complaint does not state a claim on which relief can be 

granted. Fed. R. Civ. P. 12(b)(6). 

 A motion for judgment on the pleadings may be made "[a]fter the pleadings are closed 

but within such time as not to delay the trial." Fed. R. Civ. P. 12(c). A motion for judgment on 

the pleadings under Rule 12(c) attacks the sufficiency of the pleadings and is reviewed under the 

same standard applicable to a motion to dismiss under Rule 12(b)(6). Ziegler v. IBP Hog Mkt., 

249 F.3d 509, 511-12 (6th Cir. 2001). "A motion to dismiss for failure to state a claim is a test of 

the plaintiff's cause of action as stated in the complaint, not a challenge to the plaintiff's factual 

allegations." Golden v. City of Columbus, 404 F.3d 950, 958-59 (6th Cir. 2005). Consequently, 

the Court must construe the complaint in the light most favorable to the non-moving party, 

accept all factual allegations as true, and make reasonable inferences in favor of the non-moving 

party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 

434 (6th Cir. 2008); Murphy v. Sofamor Danek Gp., Inc., 123 F.3d 394, 400 (6th Cir. 1997). The 

Court is not required, however, to accept as true mere legal conclusions unsupported by factual 

allegations. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (citing Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). 

 Although liberal, the Rule 12(b)(6) standard requires more than the bare assertion of legal 

conclusions to survive a motion to dismiss. Allard v. Weitzman, 991 F.2d 1236, 1240 (6th Cir. 

1993) (citation omitted). The complaint must "'give the defendant fair notice of what the claim 

is, and the grounds upon which it rests.'" Nader v. Blackwell, 545 F.3d 459, 470 (6th Cir. 2008) 

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(quoting Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007)). 

While a complaint need not contain "detailed factual allegations," its "[f]actual allegations must 

be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 544, 127 

S. Ct. at 1964. A complaint that suggests "the mere possibility of misconduct" is insufficient; 

rather, the complaint must state "a plausible claim for relief." Iqbal, 129 S.Ct. at 1950 (citing 

Twombly, 550 U.S at 556). A Rule 12(c) motion is granted only if there is an absence of law to 

support a claim of the type made or of facts sufficient to make a valid claim, or if on the face of 

the complaint there is an insurmountable bar to relief indicating that the plaintiff does not have a 

claim. Cmty. Mental Health Servs. v. Mental Health & Recovery Bd., 395 F. Supp. 2d 644, 649 

(S.D. Ohio 2004).

IV. LAW AND ANALYSIS 

A. MOTION TO DISMISS 

The City moves to dismiss Counts I and II of the Bank’s Counterclaim. 

1. Count I of the Counterclaim: Breach of Contract

 In Count I, Flagstar Bank alleges breach of contract. According to the counterclaim, 

pursuant to the TIF Agreement the City was obligated to provide written notice and an 

opportunity to cure regarding any failure to observe or perform any agreement or obligation 

under the TIF agreement. In addition, the City was obligated to act in good faith and to 

cooperate and use its best efforts to perform timely all its obligations pursuant to the TIF 

agreement. FSB alleges that the City breached its obligations by failing to provide Island Capital 

with either sufficient notice or an opportunity to cure the alleged default before drawing on the 

Flagstar Letter of Credit on October 1, 2009, and by refusing to accept the Replacement Letter of 

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Credit. 

 In order to make out a claim for breach of contract, a plaintiff must show that: (1) a 

contract existed; (2) the plaintiff performed; (3) the defendant breached; and (4) the plaintiff 

suffered damages. Pavlovich v. Nat'l City Bank, 435 F.3d 560, 565 (6th Cir. 2006) (interpreting 

Ohio law); Nat’l City Bank of Cleveland v. Erskine & Sons, 110 N.E.2d 598, 603 (Ohio 1953); 

Wauseon Plaza Ltd. P'ship v. Wauseon Hardware Co., 807 N.E.2d 953, 957 (Ohio Ct. App. 

2004). It is undisputed that the TIF Agreement is a valid contract. The issue is whether there 

was a breach. Flagstar argues that the City breached the TIF Agreement in two ways: (1) it did 

not provide the bank with written notice of the breach and 30 days to cure; and (2) it did not 

accept the replacement letter of credit provided in November 2010. 

a. Notice or Cure

 First, Flagstar argues that it should have been given written notice and 30 days to cure 

before the City drew on the Flagstar LOC. The LOC was to expire on October 3, 2009. On 

September 18, 2009, fifteen days before the expiration, Island Capital had not yet provided the 

City with a new LOC as required by § 3.5(c) of the TIF Agreement. Flagstar concedes that this 

is a default or breach. It goes on to argue, however, that the City breached the contract by failing 

to give Island Capital written notice of this breach and thirty days to cure, as required by § 

6.1(a).1

 

1

Section 6.1(a) provides: Except as otherwise provided in this Agreement, in the event of default 

in or breach of this Agreement, or any of its terms or conditions, the City or the applicable 

Current Owner shall, upon written notice from any of the others, proceed promptly to cure or 

remedy such default or breach. In case such remedial action is not taken or not diligently 

pursued within thirty (30) days of such written notice, the entity asserting default or breach may 

institute such proceedings at law or in equity, and in the case of a claim against the City, if 

appropriate, an action in mandamus, as may be necessary or desirable in its opinion to remedy 

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Flagstar’s reliance on § 6.1(a) is misplaced. Under § 3.6(a), “[t]he City shall draw on a 

Letter of Credit in the entire amount of that Letter of Credit if the provider of that Letter of 

Credit has not provided a new Letter of Credit pursuant to Section 3.5(c) at least 15 days prior to 

the expiration of the then current Letter of Credit.” This more specific remedy for a breach of § 

3.5(c) replaces the general requirement in § 6.1(a). Hedrick v. Spitzer Motor City, Inc., No. 

89306, 2007 WL 4442689, at *2 (Ohio App. 8 Dist. December 20, 2007) (quoting Mut. Life Ins. 

Co. v. Hill 193 U.S. 551, 558 (1904) (“The ordinary rule in respect to the construction of 

contracts is this: that where there are two clauses in any respect conflicting, that which is 

specially directed to a particular matter controls in respect thereto over one which is general in 

its terms, although within its general terms the particular may be included. Because, when the 

parties express themselves in reference to a particular matter, the attention is directed to that, and 

it must be assumed that it expresses their intent; whereas a reference to some general matter, 

within which the particular may be included, does not necessarily indicate that the parties had 

the particular matter in thought.”)). 

 Further, enforcement of the more general § 6.1(a) requirement for breaches of § 3.5(a) 

would lead to absurd results and render § 3.6(a) meaningless. § 3.5(a) required Island Capital to 

provide a replacement LOC to the City 15 days before the older LOC expired. If Island Capital 

breached this obligation, and was given 30 days to cure, the LOC would expire and the city 

would have no right to draw on the LOC. The City would not have any security for Island 

Capital’s debt service obligations and the burden would shift to other Current Owners and to the 

City’s taxpayers. Additionally, this 30 day requirement of § 6.1(a) would render the 15 day 

 

such default or breach. 

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requirement of § 3.6(a) meaningless because it would eliminate the ability of the City to take 

advantage of this provision. As it is a general principle of contract law that all provisions of a 

contract should be given meaning, the City acted in accordance with the TIF Agreement when it 

drew on the LOC pursuant to § 3.5(a). See Foster Wheeler Enviresponse, Inc. v. Franklin 

County Convention Facilities Auth., 678 N.E.2d 519, 526 (Ohio 1997) (quoting Farmers Natl. 

Bank v. Delaware Ins. Co., 94 N.E. 834 (Ohio 1911) (“In the construction of a contract courts 

should give effect, if possible, to every provision therein contained, and if one construction of a 

doubtful condition written in a contract would make that condition meaningless, and it is 

possible to give it another construction that would give it meaning and purpose, then the latter 

construction must obtain.”)). 

b. Replacement Letter of Credit

 Second, Flagstar argues that the City has breached the TIF agreement by failing to accept 

the replacement LOC presented more than one year after the expiration of the LOC. Flagstar 

argues that Island Capital has a continuing obligation to provide a letter of credit, and thus the 

City has a continuing obligation to accept it if it was in a satisfactory form. 

The language of the TIF Agreement does not support this interpretation, however, 

because there is no provision that requires the City to accept a replacement LOC or that creates a 

continuing obligation. According to the TIF Agreement, Current Owners (such as Island 

Capital) are required to provide LOCs “prior to the issuance of Debt” and then “at least 15 days 

prior to the expiration of the then current Letter of Credit.” §§ 3.5(a) and 3.6(a). If Island 

Capital fails to meet these requirements, it has breached the contract. From this set of 

requirements, and absent an express provision to the contrary, it would be illogical to infer that 

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Island Capital has more than one year to provide a replacement LOC once the current LOC has 

expired or once the City has drawn on the LOC. See Leigh v. Crescent Square Ltd., 608 N.E.2d 

1166, 1168 (Ohio App. 2 Dist. 1992) (“It is widely held that courts may not imply additional 

terms in a contract or agreement where none clearly exists.”). 

 Finally, Flagstar argues that the replacement LOC is substitute performance that will put 

the City in the exact same position as contemplated by the TIF Agreement. Substitute 

performance applies when a party cannot perform due to impracticability. Restatement (Second) 

of Contracts § 270. Flagstar does not allege that it needed more than a year to provide a 

replacement LOC because of impracticability, and thus this doctrine does not apply. 

 Even accepting all of Flagstar Bank’s factual assertions as true, Flagstar has not 

established a claim upon which relief can be granted. The interpretation of the contract is a 

matter of law, and it is clear that the City acted in accordance with the TIF Agreement’s terms 

when it drew on the LOC without providing notice and refused to accept the replacement LOC 

more than one year after the expiration of the prior LOC. Accordingly, the City’s motion to 

dismiss Count I of the Counterclaim for failure to state a cause of action upon which relief can 

be granted is GRANTED. 

2. Count II of the Counterclaim: Declaratory Judgment 

 In Count II, Flagstar requests a declaratory judgment. The Bank alleges that, when 

Island Capital submitted the replacement letter in November 2010, it did so pursuant to its 

continuing obligation to supply a letter of credit to secure its payment obligations. As a 

consequence, the City has a corresponding obligation to accept a letter of credit that meets the 

requirements and definitions found in the TIF agreement. The Bank asserts that there is no basis 

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under the TIF Agreement for the City to retain proceeds drawn from the Flagstar Letter of Credit 

pursuant to § 3.6(a) while Island Capital is, at the same time, required to provide a letter of 

credit. The City’s failure to accept the Replacement Letter of Credit deprives Island Capital of 

certain contractually bargained-for benefits under the TIF Agreement, including its opportunity 

to extinguish its LOC requirement. Thus, in the alternative to the monetary judgment requested 

in Count I, Flagstar Bank requests declaratory relief that the City must accept the Replacement 

Letter of Credit and return to Flagstar Bank the remaining $542,160.00 that was drawn on the 

Flagstar Letter of Credit pursuant to § 3.6(a) of the TIF Agreement. 

 Under the Agreement, Island Capital did not have a continuing obligation to provide a 

LOC to the City. Island Capital provided the City with a LOC pursuant to § 3.5(a). It defaulted, 

and the City drew on the LOC as permitted under § 3.6(a). As the City has already drawn on the 

LOC, no further action is required. There is no provision in the TIF Agreement that the City is 

obligated to exchange the proceeds from the LOC for a replacement letter. Thus, a declaratory 

judgment requiring this action would be inappropriate. 

Even accepting all of Flagstar Bank’s factual assertions as true, it has not established a 

claim upon which relief can be granted. The interpretation of the contract is a matter of law, and 

it is clear that the City acted in accordance with the TIF Agreement’s terms. Accordingly, the 

City’s motion to dismiss Count II of the Counterclaim for failure to state a cause of action upon 

which relief can be granted is GRANTED. 

B. MOTION FOR JUDGMENT ON THE PLEADINGS 

 The City moves for judgment on the pleadings as to Count I of its Complaint and Count 

III of the Bank’s Counterclaim. 

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1. Count I of the Complaint: Declaratory Judgment 

In Count I, the City requests a declaratory judgment that it has an absolute right to retain 

the proceeds of the Island LOC, and to apply the proceeds of the LOC in accordance with the 

terms of the TIF Agreement. As discussed above, the City argues that the plain language of § 

3.6(a) entitled it to draw upon the LOC when Island Capital defaulted. Under § 3.6(d), any 

amount drawn on the LOC shall be: (1) deposited in the TIF fund; and (2) used to pay Debt 

Service and for no other purpose.2

 As it is undisputed that Island Capital defaulted or breached 

its obligations to supply a new LOC to the City, the City argues that it is entitled to a declaratory 

judgment that it may retain the funds pursuant to § 3.6(a) and apply them to the Debt when 

payments are due in accordance with § 3.6(d). 

Although the City asserts that this is a matter of law that is appropriate for judgment on 

the pleadings, the Bank asserts that there are several factual issues that need to be addressed. 

First, the Bank argues that there are factual issues surrounding whether the City waived strict 

compliance with § 3.5(c) for Island Capital. It bases this allegation on an email exchange 

between Island Capital and the City, which is not a part of the pleadings. As such, this Court 

cannot consider these emails on a Rule 12(c) motion. W. Energy Ptnrs., LLC v. New Energy Co., 

No. 2:20-cv-7025, 2007 WL 397066, *3 (S.D. Ohio January 31, 2007) (citing Nieman v. NLO, 

Inc., 108 F.3d 1546, 1554 (6th Cir.1997) (matters outside the pleadings cannot be considered in 

deciding a motion for judgment on the pleadings)). 

 

2

 “Debt Service” is defined in the TIF Agreement as: “the principal and interest to be paid on the 

Debt when due.” “Debt” is defined as: “any bonds, notes or other obligations of the City issued, 

or issued to retire prior Debt issued.” TIF Agreement § 1.1. 

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Furthermore, even in the Court did consider the emails, there was not a waiver. First, 

waiver of a contractual term requires proof of a “clear, unequivocal, decisive act of the party 

against whom the waiver [is] asserted.” White Co. v. Canton Transp. Co., 2 N.E.2d. 501, 505 

(Ohio 1936); Monreal Funeral Home, Inc. v. Ohio Farmers Ins. Co., 937 N.E.2d 159, 164 (Ohio 

Ct. App. 2010). There is nothing in the emails that meets this standard. Second, § 6.3 states: 

No failure by the City . . . to insist upon strict observance or performance by the others of 

any covenant, agreement or obligation under this Agreement and no failure to exercise 

any right, remedy or power consequent upon a breach thereof, shall constitute a waiver of 

any right to strict observance or performance or a waiver of any breach. 

This language bars the Bank’s contention that the email exchange regarding a replacement LOC 

constitutes breach. 

Second, the Bank argues that there are factual issues as to whether the City’s right to 

draw on the Flagstar LOC pursuant to § 3.6(a) was actually triggered when Island Capital 

defaulted pursuant to § 3.5(a). This default is not disputed, nor is the appropriate remedy for the 

breach. As discussed above, § 3.6(a) is the correct remedy. 

Third, the Bank argues that the propriety of the City’s draw of the entire $1,084,320.00 is 

in question. As described above, in November 2007, the City and Island Capital agreed to 

reduce the amount of the LOC by 50%. The parties agreed to a Reduction Letter Agreement, but 

Island Capital did not provide a replaced LOC with the reduced value on which the City could 

have drawn. When the City did draw on the LOC, it returned half of the initial proceeds to the 

Bank. The Bank argues that consideration of this extrinsic evidence is necessary to determine 

the appropriateness of the draw on the LOC. As discussed above, the plain language of the TIF 

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Agreement allowed the City to draw on the entire LOC. 

As none of these factual issues is actually in dispute based on the plain language of the 

TIF Agreement, judgment on the pleadings is appropriate. The City acted in accordance with the 

Agreement when it drew on the LOC. It has the right to retain the proceeds and apply them in 

accordance with the terms of the TIF Agreement. Accordingly, the City’s Motion for Judgment 

on the Pleadings as to Count I of the Complaint is GRANTED. 

2. Count III of the Counterclaim: Declaratory Judgment 

The final issue is how the City may apply the proceeds of the LOC in accordance with 

the TIF Agreement. In Count III, the Bank seeks a declaratory judgment that the City may only 

use the remaining funds from the draw on the Flagstar LOC to make Debt Service payments that 

are in proportion to Island Capital’s portion of the Debt and only in the event that Island Capital 

fails to make timely service payments. Under § 3.6(d) of the TIF Agreement: “All amounts 

drawn on any Letter of Credit pursuant to § 3.6(a) and (b) shall be deposited in the TIF Fund and 

shall be used to pay Debt Service and for no other purpose.” The Bank argues that other 

provisions of the TIF Agreement make clear that if the City draws upon a Current Owner’s LOC, 

or requires a project shortfall payment from a Current Owner, the draw is to be proportional to 

the Current Owner’s percentage of the Debt. Nothing in the TIF Agreement authorizes the City 

to use the proceeds of any draw on a Current Owner’s LOC to make payments that exceed this 

proportional share, or to make payments when the Current Owner is otherwise current in its 

payment obligations. The Bank, upon information and belief, asserts that the City plans to use 

the funds from the Flagstar LOC to pay Debt Service without any regard to Island Capital’s 

percentage of the debt. 

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 The City retorts that this interpretation is in direct conflict with the plain language of § 

3.6(d) because this section’s reference to “Debt Service” encompasses the City’s total obligation 

for the entire project. According to the City, there is no textual support for Flagstar’s contrary 

contention that the proceeds must be applied proportionally in the TIF Agreement. Nevertheless, 

the language could support either interpretation. Accordingly, this is not a question of law that is 

appropriate for judgment on the pleadings, and the City’s motion as to Count III is DENIED. 

V. CONCLUSION 

 For the foregoing reasons, the City’s Motion to Dismiss is GRANTED and its Motion 

for Judgment on the Pleadings is GRANTED as to Count I of the Complaint and DENIED as to 

Count III of the Counterclaim. 

IT IS SO ORDERED. 

 

 s/Algenon L. Marbley 

 ALGENON L. MARBLEY 

 UNITED STATES DISTRICT JUDGE 

 

DATED: June 6, 2011 

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