Court Opinion

ID: 9365734
Source: CourtListenerOpinion
Date Created: 2023-01-24 21:02:35.219988+00
Date Added: 2024-06-11T17:15:47.354738
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

PVP ASTON, LLC, et al.                    )
                                          )
                  Plaintiffs,             )
                                          )
                v.                        )
                                          ) C.A. No. N22C-03-103 AML CCLD
U.S. BANK NATIONAL                        )
ASSOCIATION, et al.                       )
                                          )
                  Defendants.             )

                         Submitted: November 9, 2022
                          Decided: January 24, 2023

                         MEMORANDUM OPINION

                     Upon Defendants’ Motions to Dismiss:
                                GRANTED

Robert A. Penza, Esq., Christina B. Vavala, Esq., of POLSINELLI PC, Wilmington,
Delaware; Llynn K. White, Esq., of POLSINELLI PC, St. Louis, Missouri,
Attorneys for Defendants Sutherland Grantor Trust, Series V, and Sutherland
Commercial Mortgage Trust 2018-SBC7.

John A. Sensing, Esq., Carson R. Bartlett, Esq., of POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware, Attorneys for Defendants U.S. Bank
National Association, and Wells Fargo Trust Company, N.A.

Chad S.C. Stover, Esq., of BARNES & THORNBURG LLP, Wilmington,
Delaware, Attorney for Defendant WF RR3-CMFUN, LLC.

Michael L. Vild., Esq., Christopher P. Simon, Esq., of CROSS & SIMON, LLC,
Wilmington, Delaware, Attorneys for Plaintiffs PVP Aston, LLC, et al.

LeGrow, J.
      The borrowers, who are the plaintiffs in this action, each acquired a real estate

property improved with a drugstore. The borrower acquiring each property funded

the purchase with a commercial loan issued by one of several lenders in this action.

Each loan was secured by an insurance policy provided by a third-party insurer. The

policy insured the final balloon installment on each loan in the event the borrower

defaulted. All borrowers were unable to make their respective balloon payments and

therefore defaulted. Following each default, the insurer paid the outstanding loan

balance to the applicable lender under the loan terms. Each lender then assigned the

applicable loan to the insurer. After assignment, the insurer and its designees sold

the loans and related documents to other parties, some of whom have attempted to

foreclose on the properties.

      The borrowers, however, contend the lenders were not contractually permitted

to assign the loans to the insurer because the insurer did not exercise its contractual

option to purchase the loans. Additionally, the borrowers argue the insurer’s

payment of each outstanding loan balance satisfied the borrowers’ remaining loan

obligations, and the borrowers therefore own the properties free and clear of their

debt obligations. The lenders and insurer disagree.

      The borrowers brought the following claims in this action: (1) a claim seeking

a declaration that the payments made by the insurer to each lender satisfied the
related loan in full, such that the borrowers have no further obligations; (2) two

breach of contract claims against the lenders under the loan documents; and (3) a

claim for violation of state mortgage recording statutes. In the current motions to

dismiss, the lenders ask the Court to dismiss all the borrowers’ claims against the

lenders. The issue that ultimately is dispositive of the motions is one of contractual

interpretation, namely whether the agreements underlying the loan and insurance

policy only permitted the lenders to assign the loans if the insurer exercised the

contractual “option” to purchase the loans for less than the insured value. The

plaintiffs’ proffered interpretation is unreasonable and inconsistent with the

contracts’ plain language, including language describing the purchase option as

being within the insurer’s “sole discretion” and “in lieu of” paying the complete

insured value.    Since all the plaintiffs’ claims are premised on this flawed

interpretation, they must be dismissed.

              FACTUAL AND PROCEDURAL BACKGROUND

   A. The Parties and the Underlying Transactions

      The following facts are drawn from the Amended Complaint and the record

in this matter. Plaintiffs PVP Aston, LLC, RX Fredericksburg Investors L.L.C.,

AUBSP Ownerco 15, LLC, and the thirty-three other LLCs named in the Amended

                                          2
Complaint (collectively, “Plaintiffs” or each, a “Borrower” )1 obtained commercial

loans (each, a “Loan”) to finance the sale and leaseback of properties formerly

owned by Rite-Aid drugstores (each, a “Property”).2 Defendants U.S. Bank National

Association; Sutherland Grantor Trust, Series V; Sutherland Commercial Mortgage

Trust 2018-SBC7; Wells Fargo Trust Company, N.A.; WF RR3-CMFUN, LLC;

Berkadia Commercial Mortgage, LLC; and KeyBank National Association

(collectively, “Defendants”)3 were lenders or agents of lenders (each, a “Lender”)

for the Loans.4

       Around 1999, each Plaintiff or its predecessor-in-interest acquired a Property

that was improved and operated as a Rite-Aid drugstore.5 Each acquisition was

1
  PVP Aston, LLC is a Delaware LLC that owns a Property in Aston, Pennsylvania occupied by
Rite-Aid or an affiliate (“RAD”) under a bond type net lease (each, a “Lease”). Amended
Complaint (“Am. Compl.”) ¶ 6 (D.I. 28). RX Fredericksburg Investors L.L.C. is a Delaware LLC
that owns a Property in Fredericksburg, Virginia occupied by RAD under a Lease now expired.
Id. ¶ 7. AUBSP Ownerco 15, LLC is a Texas LLC that owns a Property in Muskegon, Michigan
occupied by RAD as a holdover tenant under an expired Lease. Id. ¶ 8.
2
  See id. ¶¶ 2, 6-10.
3
  U.S. Bank National Association is a banking association formed under the law of the United
States and is a Lender for 30 Loans. Id. ¶ 11. Sutherland Grantor Trust, Series V is a Delaware
statutory trust and is a Lender for one Loan. Id. ¶ 14. Sutherland Commercial Mortgage Trust
2018-SBC7 is a Delaware statutory trust and is a Lender for two Loans. Id. ¶ 15. Wells Fargo
Trust Company, N.A. is a national banking association formed under the laws of the United States
and is a Lender for one Loan. Id. ¶ 17. WF RR3-CMFUN, LLC is a Delaware LLC and is a
Lender for two Loans. Id. ¶ 12. Berkadia Commercial Mortgage, LLC is a Delaware LLC and
acted as an authorized agent for WF RR3-CMFUN, LLC for two Loans. Id. ¶ 13. KeyBank
National Association is a national banking association formed under the laws of the United States
and acted as an authorized agent for Sutherland Grantor Trust, Series V and Sutherland
Commercial Mortgage Trust 2018-SBC7 for three Loans. Id. ¶ 16.
4
  See id. ¶¶ 11-17, 20.
5
  Id. ¶ 18.
                                               3
financed with a Loan borrowed from a Lender.6 Each Loan was evidenced and

secured by a note, mortgage, and related instruments that encumbered each

respective Property (collectively, the “Loan Documents”).7 Each Loan was held by

a Lender at all relevant times.8

    B. The Residual Value Insurance Policies

       The Loan Documents required each Borrower to obtain residual value

insurance (“RVI”) through a policy issued by Financial Structures Limited (“FSL”).9

The RVI insured the full payment of the final “balloon” installment due on each

Loan.10 If a Borrower did not timely pay the Loan at maturity, FSL agreed to pay

the Loan balance to the applicable Lender.11 The insurance was documented by an

RVI Policy, defined to include “this [RVI] Policy, the Application and the

Declarations, the Additional Named Insured Endorsement and any and all other

endorsements hereto or thereto.”12 Each Plaintiff was identified as a Borrower under

both the applicable RVI Policy and the Loan Documents,13 and each Defendant was

a Lender under the RVI Policy that related to the specific Loan held by the Lender.14

6
  Id. ¶ 19.
7
  Id.
8
  Id. ¶ 20.
9
  See id. ¶¶ 3, 21-22.
10
   Id. ¶ 21.
11
   Id.
12
   Id. ¶ 22, Ex. C RVI Policy art. II(27).
13
   Id. ¶ 22.
14
   Id. ¶ 23.
                                             4
     C. Loan Maturity and Assignment

       All the Loans matured during the COVID-19 pandemic,15 and none of the

Loans was timely retired.16 In other words, when each balloon payment came due

under each Loan, the Borrower did not pay and defaulted on each respective Loan.17

After each default, the aggrieved Lender submitted a claim to FSL under the RVI

Policy associated with that Loan.18 FSL then paid each Lender the Insured Value,19

and each Lender assigned the Loan Documents to FSL.20 FSL and the Lenders

entered into agreements (each, an “Extension Agreement”) under which FSL paid

an amount greater than the Insured Value to each Lender, which Plaintiffs call an

“Extension Fee,” in exchange for extension of the payment deadline.21 After

assignment, FSL and its designees sold at least fifteen Loans to third parties.22 These

third parties sought or are seeking foreclosure on some of the Properties.23 At the

time the Amended Complaint was filed, foreclosure orders had been entered in at

least five cases.24

15
   Id. ¶ 36.
16
   Id. ¶ 37.
17
   See id.
18
   See id. ¶¶ 38, 44.
19
   “Insured Value” is defined in the RVI Policy as: “with respect to the Property, the amount
identified on Item 8 of the Declarations, not to exceed all amounts due and payable on the Loan.”
See id., Ex. C RVI Policy art. II(20).
20
   See id. ¶¶ 38-39.
21
   See id. ¶¶ 38, 44, 75.
22
   Id. ¶ 58.
23
   Id.
24
   Id. ¶ 59.
                                               5
     D. Relevant Contractual Language

       The Plaintiffs’ claims turn on issues of contract interpretation, and close

examination of the relevant contractual language therefore is inescapable. Article

V, subsection (a) of the RVI Policy, titled “Payment of Insured Value,” defines

FSL’s obligation to pay the Insured Value. That article requires FSL to pay the

“Additional Named Insured,” that is, the Lender,25 the Insured Value if: (i) FSL

receives a valid claim notice; (ii) the Lender has not received the full payment on

the Loan; and (iii) the RVI Policy’s terms and conditions are satisfied.26 That same

section confirms that the Borrower has no “ownership or other rights” to the RVI

Policy’s proceeds.27 Article V provides that the Policy’s coverage terminates upon

25
   The Lenders are the “Additional Named Insured” under the RVI Policy. See id. ¶ 26; Defendants
U.S. Bank National Association, Wells Fargo Trust Company, N.A., and WF RR3-CMFUN’s
Motion to Dismiss (“U.S. Bank Motion”) at 1 (D.I. 34); see also Am. Compl., Ex. C RVI Policy
art. II(1).
26
   Am. Compl., Ex. C RVI Policy art. V(a). Article V(a) states in relevant part:

       (a) [FSL] will pay to the [Lender] an amount equal to the Insured Value, if: (i) a
       valid Notice of Claim has been given; (ii) the [Lender] shall not have received
       payment in full of all amounts owing under the Loan; and (iii) all of the terms and
       conditions of this [RVI] Policy have been satisfied. [FSL]’s obligations hereunder
       are limited to making payment to the [Lender] in accordance with the terms hereof
       and the Additional Named Insured Endorsement, or, at [FSL]’s option, in
       accordance with [Article] (V)(d) below, and [FSL] shall have no liability to the
       Insured except to make payment to the [Lender] in accordance with this [RVI]
       Policy.

See id.
27
   See id. (“In no event will the Insured have any ownership interest or other rights with respect to
the proceeds of this Policy.”).
                                                 6
payment of the Insured Value or exercise of the Loan Purchase Option contained in

subsection (d).28

       Subsection (d) establishes an alternative to payment of the Insured Value

under subsection (a). Specifically, if FSL is obligated to pay the Insured Value, FSL

has the option “in its sole discretion, in lieu of complying with Article I and Article

V,” to purchase the Loan from the Lender for the total amounts payable under the

Loan (the “Loan Purchase Option”). Article V(d) describes the Loan Purchase

Option as follows:

       (d) In the event that [FSL] is obligated in accordance with the terms and
       conditions of this [RVI] Policy to make payment to the [Lender], on the
       Termination Date (and at any time thereafter) [FSL] shall have the
       option in its sole discretion, in lieu of complying with Article I and
       Article V of this [RVI] Policy, to purchase the Loan from the [Lender]
       for a purchase price equal to all amounts payable under the Loan, but
       in no event greater than the Insured Value. [FSL] may exercise such
       option by giving written notice to the Insured and the [Lender] within
       the time period provided in Article V(c) hereof. If [FSL] exercises such
       option, the [Lender] will assign the Loan and all documents evidencing
       or securing the Loan to [FSL], without recourse, in accordance with the
       provisions of Section 8 of the Additional Named Insured Endorsement.
       Upon completion of such transfer and payment by [FSL] as provided
       herein, any and all liability of [FSL] under the [RVI] Policy shall
       terminate. In any event, if the Loan is not outstanding on the
       Termination Date, any and all liability of [FSL] under the [RVI] Policy
       shall terminate.29

28
   See id., Ex. C RVI Policy art. V(b). Article V(b) states: “Upon payment of the Insured Value
under paragraph (a) above or paragraph (d) below, all coverage provided by this [RVI] Policy shall
be terminated.” See id.
29
   Id., Ex. C RVI Policy art. V(d).
                                                7
          Subsection (c) of Article V sets forth the timing of FSL’s payment obligations:

          (c) [FSL] shall endeavor to make any payment payable under Article
          V(a) or V(d) hereof on the same day a valid Notice of Claim is received
          by [FSL]. In all events if a Notice of Claim is received by [FSL] not
          less than three (3) Business Days prior to the Termination Date, [FSL]
          will make payment hereunder on the Termination Date, and if a Notice
          of Claim is received by [FSL] less than three (3) Business Days prior
          to the Termination Date payment shall be made within three (3)
          Business Days after receipt of the Notice of Claim.30

          Each RVI Policy is subject to an Additional Named Insured Endorsement

(“ANIE”). Importantly for the purposes of this case, the Loan Purchase Option

expressly references Section 8 of the ANIE, titled “Assignment of Loan Documents

in Accordance with Requirements of [RVI] Policy.” Section 8 is the assignment

provision and establishes the Lenders’ obligation to assign the Loan Documents

under the RVI Policy:

          Upon payment by [FSL] of the Insured Value pursuant hereto, the
          [Lender] agrees to promptly assign to [FSL] (or its designee), without
          recourse, the Note, the Mortgage and all other documents relating to the
          Loan (“Loan Documents”, including without limitation the rights of the
          [Lender] under any mortgage title insurance policies, to the extent
          assignable) or, in the event the [Lender] (or its Affiliate) has acquired
          title to the Property prior to the Termination Date, the [Lender], at the
          option of [FSL] shall also transfer good and marketable title to the
          Property to [FSL], subject to no mortgages, deeds of trust, liens,
          easements, covenants, conditions, restrictions, leases or other
          encumbrances other than the permitted title matters identified on
          Schedule B attached hereto and made a part hereof or which do not have
          a material, adverse effect on the value of the Property as of the
          Termination Date. Notwithstanding the foregoing, the [Lender] shall

30
     Id., Ex. C RVI Policy art. V(c).
                                             8
       not be required to assign any claim it has to rent payable during the
       terms of the Lease.31

       The RVI Policy also included an Insured Covenants Agreement (“ICA”).

Section 4 of the ICA, titled “Transfer of Title,” further confirms the Lenders are

obligated to deliver the Property’s Deed to FSL under Article V of the RVI Policy:

       (a) In the event that FSL makes payment for a Claim under Articles I
       and V of the [RVI] Policy, the Owner shall cause the deed to the
       Property to be immediately delivered to FSL, without payment of
       additional consideration by FSL. Owner hereby acknowledges that
       payment by FSL under the [RVI] Policy is the equivalent of a purchase
       of the Property by FSL for an amount equal to the amount paid under
       the [RVI] Policy and used in satisfying all or part of Owner’s
       obligations under the Note, and that such payment constitutes full and
       fair consideration for the transfer of title to the Property to FSL.

       (b) At the time of such transfer of title to the Property, Owner agrees to
       comply with all of the terms and conditions of, and to execute all
       documents referred to in, the Contract Provisions Exhibit, attached
       hereto as Exhibit B.32

       Finally, the Loan Documents establish certain requirements if the Lender

receives a payment after an event of default. In their opposition to the Motions to

Dismiss, Plaintiffs clarify that the Loan Documents fall into two subsets: the RA2

Set and the WEC Set.33 Section 6.05 of the RA2 Set, titled “Payment after Event of

Default,” states:

31
   Am. Compl., Ex. C ANIE § 8 (underlining in original).
32
   Id., Ex. C ICA § 4.
33
   See Plaintiffs’ Answering Brief (“Answering Br.”) at 10 (D.I. 44). The RA2 Set “includes all
of the Loans on Exhibit A of the Amended Complaint for which US Bank is the Lender.” Id. at
10 n.4. The WEC Set “includes all of the Loans on Exhibit A of the Amended Complaint for
which US Bank is not the Lender. Specifically, the Loans held” by Sutherland Grantor Trust,
                                              9
       The Lender shall apply (a) all moneys received and amounts realized
       by it (including any amounts realized by the Lender pursuant to the
       exercise of remedies pursuant to this Agreement, the Mortgage, the
       Lease Assignment, Paragraph 19 of the Lease or any other Operative
       Document) after either (x) a Lease Event of Default shall have occurred
       and the Lease shall have been declared to be in default or (y) the
       principal of the Loan then Outstanding shall have been declared to be
       due and payable immediately pursuant to Section 7.01, and (b) all
       moneys then held or thereafter received by it under this Agreement or
       under any other Operative Document as part of the Mortgaged Property,
       as follows:

       (i) to reimburse the Lender for any unpaid expense (including any
       reasonable legal and other professional fees or expenses) or other costs
       incurred or paid or advances made by it with its own funds;

       (ii) to pay in full the aggregate unpaid principal amount of the Loan
       then Outstanding, plus any due but unpaid interest thereon to the date
       of application (including, to the extent permitted by law, interest at the
       Overdue Rate, if any);

       (iii) to pay in full any other Secured Obligations; and

       (iv) the balance, if any, of such payments and amounts remaining
       thereafter shall be distributed to the Company [i.e., the Borrower] or as
       the Company may direct in writing.34

       Paragraph 25 of the WEC Set Mortgage and Security Agreement, titled

“Payment After Event of Default,” states in pertinent part:

       If following the occurrence of any Event of Default under this
       Indenture, Grantor shall tender payment of an amount sufficient to
       satisfy the Debt at any time prior to a sale of the Mortgaged Property
       either through foreclosure or the exercise of other remedies available to

Series V; Sutherland Commercial Mortgage Trust 2018-SBC7; Wells Fargo Trust Company, N.A.;
and WF RR3-CMFUN, LLC. Id. at 10 n.5.
34
   Id., Ex. A RA2 Loan Agreement § 6.05; see also id. at 11 (explaining that the “Company” is the
Borrower).
                                               10
       Beneficiary under this Indenture, such tender by Grantor shall be
       deemed to be a voluntary prepayment under the Note and this Indenture
       in the amounts tendered.35

     E. Procedural History

       1. Related Litigation

       There are several related lawsuits pending in Delaware and elsewhere

involving some of the parties to this current action. First, six months before this

action was filed, certain Plaintiffs in this action filed a lawsuit against FSL in this

Court (the “FSL Action”).36 The plaintiffs in the FSL Action filed claims for

declaratory relief, breach of contract, violation of insurance laws, and unjust

enrichment.37 The FSL Action is ongoing; the Court presently has under advisement

plaintiffs’ motion for summary judgment and defendants’ motions to dismiss.

       Second, on August 9, 2021, one Plaintiff here (AUSBP Ownerco 12, LLC)38

filed a lawsuit against FSL in Michigan (the “Michigan Action”).39                    AUSBP

Ownerco 12, LLC filed a complaint with causes of action for declaratory relief and

35
   Id., Ex. B WEC Mortgage and Security Agreement ¶ 25.
36
    See PVP Aston, LLC, et al. v. Fin. Structures Ltd., et al., C.A. No.: N21C-09-095 AML
[hereinafter “FSL Delaware Action __”].
37
   FSL Delaware Action D.I. 71 ¶¶ 138-51.
38
   AUSBP Ownerco 12, LLC was formerly known as RA2 Troy L.L.C. See Am. Compl. ¶ 10.
39
   See RA2 Troy, L.L.C. v. FI 135 Troy, LLC and ICA Acq. Troy, LLC, C.A. No: 21-189427-CB;
see also U.S Bank Motion, Ex. 1 (displaying a copy of the plaintiff’s complaint in the Michigan
Action). The Court may take judicial notice of court records in the Rule 12(b)(6) context. See,
e.g., Hammer v. Howard, 2021 WL 4935019, at *4 n.36 (Del. Super. Oct. 22, 2021) (taking judicial
notice of filed records in other cases in a Rule 12(b)(6) context).
                                              11
breach of contract.40       The Michigan court granted the defendants’ motion for

summary judgment, which disposed of that case.41

       Third, on June 1, 2020, certain Plaintiffs in this action filed a lawsuit against

FSL in a Texas federal court (the “Texas Action”).42 The plaintiffs’ complaint

included claims for breach of the duty of good faith and fair dealing, violations of

the Texas insurance code, violations of the Texas consumer protection act, and

unjust enrichment.43 On August 25, 2020, the claims made by two Plaintiffs to this

litigation, WEC 98D-4 LLC and WEC 98D-5 LLC, were dismissed with prejudice

by stipulation.44

       Fourth, a lawsuit was filed in Idaho with similar posture to the current action

(the “Idaho Action”).45 In the Idaho Action, the plaintiff was an assignee under the

ICA.46    The plaintiff filed the Idaho Action when the defendants, which are

companies similar to Plaintiffs in this lawsuit, failed to transfer title to various

properties when the insurer paid the Lender’s claim.47 The Idaho plaintiff sought

40
   See U.S. Bank Motion, Ex. 1 ¶¶ 98-103.
41
   See id., Ex. 3.
42
   See WEC 98D-4 LLC, et al. v. Fin. Structures Ltd., U.S. Dist. Ct. N.D. Tex., C.A. No.: 3:20-cv-
1399; see also U.S. Bank Motion, Ex. 4 (displaying a copy of the plaintiffs’ complaint in the Texas
Action).
43
   See U.S. Bank Motion, Ex. 4 ¶¶ 33-55.
44
   See id., Ex. 5.
45
   See TJV Assocs. LLC v. RA2 Boise-Overland L.L.C., et al., C.A. No.: CV01-21-07907; see also
U.S. Bank Motion, Ex. 6 (displaying a copy of a memorandum decision and order in the Idaho
Action).
46
   See U.S. Bank Motion, Ex. 6 at 2.
47
   See id.
                                               12
specific performance under the ICA.48 On July 12, 2022, the court in the Idaho

Action held the ICA was an enforceable agreement under Idaho law and granted the

plaintiffs’ motion for summary judgment on the specific performance claim.49

       2. This Litigation

       On March 11, 2022, Plaintiffs filed the current action in this Court.50 The

original complaint asserted seven claims: declaratory relief under the Loan

Documents, declaratory relief under the RVI Policies, breach of the RVI Policies,

breach of the Loan Documents, violation of various state mortgage recording

statutes, fraudulent concealment, and civil conspiracy.51                 On May 18, 2022,

Defendants moved to dismiss the original complaint.52

       On July 29, 2022, Plaintiffs filed their current Amended Complaint, mooting

Defendants’ motions.53 The Amended Complaint asserts four causes of action: (1)

a claim seeking a declaratory judgment that “the claim payments that FSL made to

each of the Defendants satisfied the Loans in full and that upon payment of the

claims, Plaintiffs have no further obligations under the Loan Documents”; (2) a

claim for breach of the RVI Policies on the basis that Defendants had an obligation

to deliver assignments reflecting a zero balance on each Loan when FSL paid each

48
   See id.
49
   See id., Ex. 6 at 19, 34-35.
50
   See Complaint (D.I. 1).
51
   See id. ¶¶ 63-98.
52
   See Defendants’ Motions to Dismiss (D.I. 17, D.I. 18, D.I. 19, D.I. 20).
53
   See Am. Compl.
                                                13
Lender the Insured Value in exchange for the assignments; (3) a claim for breach of

the Loan Documents for the same reasons set forth in Count II; and (4) a claim for

violations of state statutes requiring recording of satisfied mortgages and discharge

of indebtedness because Defendants allegedly failed to record the pay-off of the

Loan balances.54 On August 26, 2022, Defendants filed their current Motions to

Dismiss the Amended Complaint.55

                              PARTIES’ CONTENTIONS

       Defendants Sutherland Grantor Trust, Series V and Sutherland Commercial

Mortgage Trust 2018-SBC7 moved to dismiss the Amended Complaint; and

Defendants U.S. Bank National Association, Wells Fargo Trust Company, N.A., and

WF RR3-CMFUN, LLC filed a second Motion to Dismiss the Amended Complaint

(collectively, the “Motions”).56 The Motions overlap significantly and will be

discussed together.

       Defendants contend that, following FSL’s payments under the RVI Policies,

the Lenders had a contractual obligation to assign the Loan Documents to FSL, and

54
   Id. ¶¶ 85-162.
55
   See Defendants’ Motions to Dismiss the Amended Complaint (D.I. 32, D.I. 33, D.I. 34, D.I. 35).
On September 26, 2022, Plaintiffs dismissed their claims without prejudice against Defendant
KeyBank National Association and Defendant Berkadia Commercial Mortgage, LLC. See Partial
Stipulation of Dismissal (D.I. 46). Both were authorized agents for other Lender Defendants. See
Am. Compl. ¶¶ 13, 16. As such, only two Motions to Dismiss the Amended Complaint remain
(D.I. 33, D.I. 34).
56
   See U.S. Bank Motion; see also Defendants Sutherland Grantor Trust, Series V, and Sutherland
Commercial Mortgage Trust 2018-SBC7’s Motion to Dismiss (“Sutherland Motion”) (D.I. 33).
                                               14
Plaintiffs’ Loans were not discharged or satisfied as a result of the payments or

assignments.57 Namely, Defendants contend they did not breach the RVI Policies

(Count II), Plaintiffs have no rights under the RVI Policies,58 and Defendants did not

breach the Loan Documents (Count III).59 Defendants argue Plaintiffs also are not

entitled to declaratory relief (Count I) because (i) neither the RVI Policies nor the

Loan Documents support their claim; and (ii) Count I is duplicative of Counts II and

III.60 Defendants further maintain they did not violate state mortgage statutes (Count

IV) and owed Plaintiffs no obligations under those statutes.61 Defendants separately

assert Plaintiffs’ claims against U.S. Bank National Association and Wells Fargo

Trust Company, N.A. in their individual capacities should be dismissed because each

entity acted solely in their capacities as trustees.62

       Defendants present additional, alternative arguments as bases to dismiss all

the claims (the “Alternative Arguments”).             Namely, Defendants contend the

doctrines of res judicata and collateral estoppel wholly bar Plaintiffs’ claims.63

Defendants also argue Plaintiffs failed to plead damages and therefore lack standing

to assert claims against Defendants.64 Finally, Defendants assert Plaintiffs’ claims

57
   See U.S. Bank Motion at 12-17.
58
   See id. at 18-19; Sutherland Motion at 21-24.
59
   See U.S. Bank Motion at 18-19; Sutherland Motion at 13-19.
60
   See Sutherland Motion at 19-21; U.S. Bank Motion at 19-21
61
   See U.S. Bank Motion at 21-22; Sutherland Motion at 24-25.
62
   See U.S. Bank Motion at 26-27.
63
   See id. at 23-25.
64
   See id. at 26; Sutherland Motion at 19.
                                             15
should be dismissed for impermissible group pleading because Plaintiffs make

general allegations about all Defendants rather than alleging specific breaches by

each Defendant.65

       Plaintiffs respond that they have adequately pleaded claims against all parties

for Counts II and III because the Amended Complaint alleges the terms of the

contracts at issue, Plaintiffs’ performance under those contracts, Defendants’

breaches of those contracts, and damages.66 Plaintiffs contend they sufficiently

pleaded a claim for declaratory relief (Count I), and the declaration sought is distinct

from the breach of contract claims.67 Plaintiffs further argue none of their claims are

barred by res judicata or collateral estoppel,68 and contend the Lender Defendants

violated state mortgage statutes by failing to record mortgage satisfactions after the

outstanding loan balances were paid.69

       Several of Defendants’ arguments present valid bases for dismissal, but only

one requires analysis here. The Motions must be granted because the contractual

language is clear that the assignments by Defendants to FSL were valid and in fact

required under the RVI Policies. As such, the Alternative Arguments are moot.

Additionally, Plaintiffs conceded at oral argument that any purported claims against

65
   See U.S. Bank Motion at 23; Sutherland Motion at 1, 3, 5 n.3, 21.
66
   See Answering Br. at 20-32.
67
   See id. at 32-33.
68
   See id. at 33-38.
69
   See id. at 38-39.
                                               16
U.S. Bank National Association or Wells Fargo Trust Company, N.A. in their

individual capacities were not properly pleaded and should be dismissed.70

                                        ANALYSIS

       Under Delaware Superior Court Civil Rule 12(b)(6), dismissal is warranted

when the complaint fails to state a claim upon which relief can be granted.71 When

the Court considers a motion to dismiss, the Court must: “(1) accept all well pleaded

factual allegations as true, (2) accept even vague allegations as ‘well pleaded’ if they

give the opposing party notice of the claim, (3) draw all reasonable inferences in

favor of the non-moving party, and (4) [not dismiss the claim] unless the plaintiff

would not be entitled to recover under any reasonably conceivable set of

circumstances.”72 Under Delaware law, the pleading standard governing a motion

to dismiss is “minimal,”73 but the Court will not accept “conclusory allegations that

lack specific supporting factual allegations.”74 “Accordingly, the Court will dismiss

a complaint if the plaintiff fails to plead specific allegations supporting each element

of a claim or if no reasonable interpretation of the alleged facts reveals a remediable

injury.”75

70
   See Official Transcript (“Hearing Tr.”) at 60:13-19 (D.I. 53).
71
   See Del. Super. Ct. Civ. R. 12(b)(6).
72
   Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs., LLC, 27 A.3d 531, 535 (Del. 2011).
73
   Id. at 536.
74
   Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998).
75
   Axogen Corp. v. Integra LifeSciences Corp., 2021 WL 5903306, at *2 (Del. Super. Dec. 13,
2021) (citing Surf’s Up Legacy P’rs, LLC v. Virgin Fest, LLC, 2021 WL 117036, at *6 (Del. Super.
Jan. 13, 2021)).
                                              17
          In the Rule 12(b)(6) context, the Court may consider documents outside the

pleadings when “the document[s are] integral to a plaintiff’s claim and incorporated

into the complaint.”76 Here, the RVI Policies and Loan Documents were not all

attached to the Amended Complaint, but all parties agree they are integral to the

Amended Complaint and incorporated by reference therein.77

     I.      Plaintiffs’ breach of contract claims (Counts II and III) against the
             Lenders must be dismissed because the Lenders’ assignments of the
             Loans to FSL were required by the RVI Policies.

          To plead a breach of contract claim under Delaware law, the plaintiff must

allege: “(1) the existence of a contractual obligation; (2) a breach of that obligation;

and (3) damages resulting from the breach.”78 Plaintiffs’ theory of this case is that

the Lenders’ assignment of the Loan Documents to FSL breached the RVI Policies

because FSL only was entitled to such assignment if it exercised the Loan Purchase

Option in Article V(d) of the RVI Policies.79 Plaintiffs maintain that because FSL

indisputably did not exercise the Loan Purchase Option, the assignments were

76
   Windsor I, LLC v. CWCapital Asset Mgmt. LLC, 238 A.3d 863, 873 (Del. 2020) (internal
quotation marks omitted).
77
   See Answering Br. at 10 n.3 (“Although the Loan Documents were not attached to the Amended
Complaint, the Defendants have argued, and the Plaintiffs agree, that the Loan Documents are
integral to the Amended Complaint and can be considered by the Court.”); Sutherland Motion at
4 n.2.
78
   Buck v. Viking Hldg. Mgmt. Co. LLC, 2021 WL 673459, at *3 (Del. Super. Feb. 22, 2021) (citing
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003)). The applicable law in
this case depends on where each underlying Property was located. All parties agreed there is no
conflict of laws as to the issues raised in the Motions. Hearing Tr. at 60:4-12. Thus, the Court has
relied, as needed, on Delaware law for the uncontroverted legal principles at issue.
79
   See Answering Br. at 2, 7.
                                                18
invalid, and the Lenders should have credited FSL’s payments to Plaintiffs’

underlying obligations under each respective mortgage.80

       “Delaware adheres to the ‘objective theory’ of contracts, i.e.[,] a contract’s

construction should be that which would be understood by an objective, reasonable

third party.”81    An unambiguous contract is one that is “subject to only one

reasonable interpretation.”82 Delaware courts interpret clear and unambiguous

contractual terms according to their ordinary meaning.83 When the only reasonable

interpretation of a contract defeats a plaintiff’s claim, dismissal is warranted.84

       Plaintiffs’ interpretation of the RVI Policy language is not reasonable. The

plain language of Article V of the RVI Policy and Section 8 of the ANIE permits

only one reasonable interpretation: FSL was entitled to assignment of the Loans

upon tendering payments under either Article V(a) or V(d). Article V(a) provides

FSL “will pay to the [Lender]” the “Insured Value, if: (i) a valid Notice of Claim has

been given; (ii) the [Lender] shall not have received payment in full of all amounts

owing under the Loan; and (iii) all of the terms and conditions of this [RVI] Policy

80
   See id. at 7; Am. Compl. ¶¶ 41-43.
81
   Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (internal quotations marks
and citation omitted).
82
   See Motley v. Maddox, 1992 WL 52206, at *6 (Del. Super. Feb. 19, 1992); see also Sheehan v.
AssuredPartners, Inc., 2020 WL 2838575, at *9 (Del. Ch. May 29, 2020).
83
   Osborn, 991 A.2d at 1159-60 (citing Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins.
Co., 616 A.2d 1192, 1195 (Del. 1992)).
84
   VLIW Tech., LLC, 840 A.2d at 615 (“Dismissal, pursuant to Rule 12(b)(6), is proper only if the
defendants’ interpretation is the only reasonable construction as a matter of law.” (emphasis in
original)).
                                               19
have been satisfied.”85 Section 8 of the ANIE provides, in pertinent part, “[u]pon

payment by [FSL] of the Insured Value pursuant hereto, the [Lender] agrees to

promptly assign to [FSL] . . . the . . . Loan Documents.”86 Section 8 of the ANIE is

an express and mandatory provision that requires Defendants to assign the Loans to

FSL upon payment of the Insured Value, which Plaintiffs concede occurred with

respect to all the Loans.87

       Article V(d), the Loan Purchase Option, is an alternative to Article V(a).

Article V(d) gives FSL the “option in its sole discretion . . . to purchase the Loan

from the [Lender] for a purchase price equal to all amounts payable under the Loan,

but in no event greater than the Insured Value.”88 Article V(d) goes on to specify

“[i]f [FSL] exercises such [Loan Purchase Option], the [Lender] will assign the

[Loan Documents] to [FSL], without recourse, in accordance with the provisions of

Section 8 of the [ANIE].”89 This subsection allows FSL to acquire the Loans for

less than the Insured Value if the amount payable under a given Loan is less than

that value.90 The fact Article V(d) is an alternative to Article V(a) is made clear by

the contractual language in both subsections. For instance, Article V(d) includes the

85
   Am. Compl., Ex. C RVI Policy art. V(a).
86
   Id., Ex. C ANIE § 8 (emphasis added).
87
   See Answering Br. at 32 (acknowledging FSL paid Defendants the Insured Value); see also Am.
Compl. ¶ 39.
88
   Am. Compl., Ex. C RVI Policy art. V(d).
89
   Id.
90
   See id.
                                             20
language, “[FSL] shall have the option in its sole discretion,” and “in lieu of

complying with Article I and Article V of this [RVI] Policy.”91 Article V(a) includes

the language, “[FSL]’s obligations hereunder are limited to making payment to the

[Lender] in accordance with the terms hereof and the [ANIE], or, at [FSL]’s option,

in accordance with [Article] V(d).”92 Even Article V(c), which addresses the timing

of payment, refers to payments under Article V(a) or V(d).93

       This interpretation also is consistent with other provisions in the parties’

agreement that state Plaintiffs have no ownership interest in the proceeds of the RVI

Policy, and Defendants have an obligation to assign the Loans to FSL upon payment

by FSL. ICA Section 4 states, “[i]n the event that FSL makes payment for a Claim

under Articles I and V of the [RVI] Policy, the Owner [i.e., Lender Defendants] shall

cause the deed to the Property to be immediately delivered to FSL, without payment

of additional consideration by FSL.”94 RVI Policy Article V(a) states, “[i]n no event

will the Insured [i.e., Plaintiffs] have any ownership interest or other rights with

respect to the proceeds of this [RVI] Policy.”95 ANIE Section 8 states, “[u]pon

payment by [FSL] of the Insured Value pursuant hereto, the Additional Named

91
   Id.
92
   Id., Ex. C RVI Policy art. V(a) (emphasis added).
93
   See id., Ex. C RVI Policy art. V(c) (“[FSL] shall endeavor to make any payment payable under
Article V(a) or V(d) herefof on the same day a valid Notice of Claim is received by [FSL].”).
94
   See id., Ex. C ICA § 4.
95
   See id., Ex. C RVI Policy art. V(a).
                                              21
Insured [i.e., Lender Defendants] agrees to promptly assign to [FSL] . . . without

recourse, the . . . Loan Documents.”96

       Plaintiffs attempt to defeat this plain reading by pointing out there is no

mention of ANIE Section 8 in FSL Policy Article V(a), and the title of Section 8

refers to assignment “in accordance with the requirements of [the] policy.”97 Article

V(a), however, does not need to expressly reference Section 8 because Article V(a)

expressly refers to payment of the Insured Value,98 and Section 8 expressly applies

to such payments.99 A cross-reference would be redundant, so its absence is not

significant. In contrast, Article V(d) refers to occasions when FSL pays less than

the Insured Value.100 Article V(d) therefore cross-references Section 8 to confirm

that assignment also shall occur if FSL exercises the Loan Purchase Option under

that subsection.

       Additionally, Plaintiffs seek to escape the Loan Documents’ plain meaning by

arguing the Extension Agreements between FSL and Defendants somehow altered

Defendants’ contractual obligations.101 Although the argument is less than clear,

Plaintiffs seem to take the position that payment of the Insured Value by FSL to

Defendants more than three days after notice violated the RVI Policy and the

96
   Id., Ex. C ANIE § 8.
97
   See Answering Br. at 7.
98
   See Am. Compl., Ex. C RVI Policy art. V(a).
99
   See id., Ex. C ANIE § 8.
100
    See id., Ex. C RVI Policy art. V(d).
101
    See Answering Br. at 17, 29-30.
                                             22
assignments therefore were not permitted by Section 8.102 If this is Plaintiffs’

argument, it is unconvincing. Whether the Extension Agreement and associated

Extension Fees were valid is not relevant to whether FSL tendered payment in

accordance with Article V(a) of the RVI Policy. The three-day notice requirement

for payment appears in only Article V(c).103 The timing obligation under the RVI

Policy is owed to Defendants, not Plaintiffs, because Article V(a) states, “[i]n no

event will the Insured [i.e., Plaintiffs] have any ownership interest or other rights

with respect to the proceeds of this [RVI] Policy.”104 If Defendants chose to waive

the three-day requirement, Plaintiffs have no standing to challenge that waiver.105

       It simply is not a reasonable reading of the RVI Policies or the Loan

Documents to conclude that payment after three days was a payment that satisfied

Plaintiffs’ Loan obligations rather than payment under Article V(a). The question

of whether the Extension Fees are obligations validly imposed on Plaintiffs is an

issue to be resolved between Plaintiffs and FSL. It is not a claim against Defendants

because Defendants no longer own the Loans.

102
    See id. at 17 (“Defendants knew that the express provisions of each [RVI] Policy required that
FSL pay each claim to the applicable Defendant within three business days. However, FSL entered
agreements with each Defendant to ‘amend’ the [RVI] Policy provisions requiring timely payment
in order to allow FSL to pay claims weeks later than they were due.”)
103
    See Am. Compl., Ex. C RVI Policy art. V(c) (“[I]f a Notice of Claim is received by [FSL] less
than three (3) Business Days prior to the Termination Date payment shall be made within three (3)
Business Days after receipt of the Notice of Claim.”).
104
    See id., Ex. C RVI Policy art. V(a).
105
    See Fla. Chem. Co., LLC v. Flotek Indus., Inc., 262 A.3d 1066, 1084 (Del. Ch. 2021) (“As a
general matter, only a party to a contract has standing to enforce it.”).
                                               23
       In addition to being inconsistent with the contractual language, Plaintiffs’

interpretation is commercially and economically unreasonable. Plaintiffs’ reading

of the relevant agreements would mean that for payment of each insurance premium,

Plaintiffs absolved themselves of responsibility for the balloon payment.106 In other

words, Plaintiffs would have no incentive to make their respective balloon payments,

but nevertheless would obtain each Property free and clear of all obligations unless

FSL exercised the Loan Purchase Option by paying less than the Insured Value. No

commercially reasonable party would agree to that.

       Having concluded that Plaintiffs’ interpretation is not reasonable, Plaintiffs’

breach of contract claims require little further analysis. Because Defendants acted

in accordance with the requirements of the RVI Policies, they did not breach the RVI

Policies or the Loan Documents. Plaintiffs argue the Loan Documents required any

money Defendants received following a payment default to be credited to the unpaid

principal on Plaintiffs’ Loans.107 Plaintiffs cite the RA2 Set of Loan Agreements

Section 6.05 and the WEC Set of Loan Agreements Paragraph 25 in support of their

position.108 Plaintiffs contend Defendants breached their obligations under these

106
    See Answering Br. at 1-2.
107
    See id. at 16.
108
    See id. (citing earlier discussion regarding RA2 Loan Agreement Section 6.05 and WEC Loan
Agreement Paragraph 25 in Plaintiffs’ Answering Brief); see also id., Ex. A RA2 Loan Agreement
§ 6.05; id., Ex. B WEC Mortgage and Security Agreement ¶ 25.
                                             24
policies because the funds Defendants received were not credited to the unpaid

principal on Plaintiffs’ Loans.109

            Plaintiffs’ argument is premised on their contention that the Lenders only

could assign the Loans if FSL exercised the Loan Purchase Option. Since FSL did

not exercise the Loan Purchase Option, Plaintiffs conclude Defendants were

required to apply the funds received from FSL to the outstanding indebtedness on

the Loans.110 As set forth above, this interpretation of the RVI Policies is flawed,

and Defendants were required to assign the Loan Documents upon FSL’s

compliance with Article V(a). Accordingly, Defendants’ obligations under the RA2

Set of Loan Agreements Section 6.05 and the WEC Set of Loan Agreements

Paragraph 25 never were triggered.111

      II.      Plaintiffs’ declaratory judgment claim (Count I) is duplicative of its
               breach of contract claims and must be dismissed for the same reasons.

            Plaintiffs’ declaratory judgment claim similarly is premised on its flawed

interpretation of the RVI Policy and therefore it must be dismissed for the same

109
    See id. at 16.
110
    See id. at 10-12 (arguing RA2 Loan Agreement Section 6.05 and WEC Loan Agreement
Paragraph 25 required Defendants to use money received from FSL to pay Plaintiffs’ outstanding
Loan balances); see also id. at 12-16 (arguing FSL did not exercise the Loan Purchase Option).
111
    Defendants separately argued the plain language of Section 6.05 and Paragraph 25 did not apply
to payments from FSL under the RVI Policies. See U.S. Bank National Association, Wells Fargo
Trust Company, N.A., and WF RR3-CMFUN, LLC’s Reply Brief at 5-8 (D.I. 48); Sutherland
Grantor Trust, Series V, and Sutherland Commercial Mortgage Trust 2018-SBC Reply Brief at 5-
7 (D.I. 47). Although there is persuasive force to Defendants’ arguments, the Court need not
address them here.
                                               25
reasons set forth above relating to Counts II and III. Even if those claims survived

dismissal, however, Count I is not adequately pleaded and must be dismissed.

       “A declaratory judgment ‘is a statutory action’ and so ‘is meant to provide

relief in situations where a claim is ripe but would not support an action under

common-law pleading rules.’”112 To survive a motion to dismiss, the “declaratory

count must be ‘distinct’ from the affirmative counts in the complaint.”113 In other

words, “[w]here a declaratory judgment claim is completely duplicative of the

affirmative counts of the complaint, it must be dismissed,”114 and “[w]here a

declaratory judgment does not set forth a distinct cause of action and the other claims

fail, the declaratory judgment claim must fail.”115

       In Blue Cube Spinco LLC v. Dow Chemical Company, this Court decided a

motion to dismiss a breach of contract claim and a declaratory judgment claim.116

The plaintiff there sought a declaration that the defendant was liable for “any and all

[l]osses” incurred from a code violation.117 This Court determined the breach of

112
    Blue Cube Spinco LLC v. Dow Chem. Co., 2021 WL 4453460, at *15 (Del. Super. Sept. 29,
2021) (quoting Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2014 WL
6703980, at *29 (Del. Ch. Nov. 26, 2014)).
113
    Id. (quoting Sweetwater Point, LLC v. Kee, 2020 WL 6561567, at *12 (Del. Super. Nov. 5,
2020)).
114
    Sweetwater Point, LLC, 2020 WL 6561567, at *12 (citing US Ecology, Inc. v. Allstate Power
Vac, Inc., 2018 WL 3025418, at *10 (Del. Ch. June 18, 2018), aff’d, 202 A.3d 510 (Del. 2019)
(Table)).
115
    Id. (citing Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at *20 (Del. Ch. Sept. 18, 2014)).
116
    See Blue Cube Spinco LLC, 2021 WL 4453460, at *17.
117
    See id. at *16.
                                                26
contract claim sought “the same thing, except in the language of breach.”118 The

breach of contract claim survived dismissal, but the declaratory judgment claim was

dismissed because it was duplicative of the breach claim.119

       Similarly here, Plaintiffs seek a declaration that “under the terms of the Loan

Documents and the [RVI] Policies, the claim payments that FSL made to the Lenders

‘satisfied the Loans in full and that upon payment of the claims, the Plaintiffs have

no further obligations under the Loan Documents.’”120 Plaintiffs argue Count I is

distinct from Counts II and III because it “seeks a declaration of how the payments

received by each Defendant should be characterized under the Loan Documents,”

whereas Counts II and III “seek damages that the Plaintiffs have suffered from the

Defendants[’] breaches of the Loan Documents and [RVI] Policies.”121 But it is

inescapable that the underlying premise upon which Counts I, II, and III are based

is the same—FSL’s payments to the Lenders satisfied Plaintiffs’ Loan obligations

despite Defendants’ arguments to the contrary. As pleaded, “Plaintiffs’ declaratory

judgment claim is not a distinct cause of action; it is a request for relief for” Counts

II and III.122 In such a circumstance, the declaratory judgment claim must fail.123

118
    See id.
119
    See id. at *16-17.
120
    Answering Br. at 32 (quoting Am. Compl. ¶ 87).
121
    See id.
122
    See Veloric, 2014 WL 4639217, at *20 (dismissing a declaratory judgment claim where it was
not distinct from the breach of contract claims).
123
    See Sweetwater Point, LLC, 2020 WL 6561567, at *12; see also Blue Cube Spinco, LLC, 2021
WL 4453460, at *16-17.
                                             27
      III.   Plaintiffs’ statutory claim (Count IV) is premised on the same flawed
             construction of the RVI Policies and therefore also fails to state a claim
             for relief.

         Count IV cites various state laws requiring a mortgagor to timely record a

certificate of loan satisfaction or similar document when the full amount of a

mortgage is paid.124 For the reasons set forth above, the Loans were not paid in full

because FSL’s payment did not satisfy Plaintiffs’ underlying obligations on their

respective Loans. Count IV therefore fails to state a cognizable claim.

                                    CONCLUSION

         For the foregoing reasons, the Motions to Dismiss filed by Defendants

Sutherland Grantor Trust, Series V; Sutherland Commercial Mortgage Trust 2018-

SBC7; U.S. Bank National Association; Wells Fargo Trust Company, N.A.; and WF

RR3-CMFUN are GRANTED, and the Amended Complaint is DISMISSED

WITH PREJUDICE. IT IS SO ORDERED.

124
      See Am. Compl. ¶¶ 99-159.
                                           28