Court Opinion

ID: 4644642
Source: CourtListenerOpinion
Date Created: 2020-12-18 16:00:43.73085+00
Date Added: 2024-06-11T08:00:47.075241
License: Public Domain

United States Court of Appeals
                           FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 19-5224                                                   September Term, 2020
                                                             FILED ON: DECEMBER 18, 2020
BRANDON MILL, LLC AND H. PACE BURT, JR.,
                  APPELLANTS

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR FIRST NBC BANK,
                   APPELLEE

                          Appeal from the United States District Court
                                  for the District of Columbia
                                      (No. 1:18-cv-02308)

     Before: WILKINS and RAO, Circuit Judges, and EDWARDS, Senior Circuit Judge.

                                        JUDGMENT

     This case was considered on the record from the United States District Court for the District
of Columbia and the briefs and oral argument of the parties. The Court has afforded the issues
full consideration and has determined that they do not warrant a published opinion. See D.C. CIR.
R. 36(d). It is

     ORDERED AND ADJUDGED that the decision of the district court be AFFIRMED.

                                                 I

    Brandon Mill, LLC, and H. Pace Burt, Jr., (“Plaintiffs”) appeal the district court’s denial of
leave to amend their complaint. The district court denied leave to amend on the ground that the
proposed amended complaint would fail to state a claim under Federal Rule of Civil Procedure
12(b)(6), and thus amendment was futile under Federal Rule of Civil Procedure 15(a). See
Brandon Mill, LLC v. FDIC, 2019 WL 3458688, at *7–10 (D.D.C. July 31, 2019). We agree that
none of Plaintiffs’ claims in their proposed amended complaint states a claim under Rule
12(b)(6) and thus affirm the district court.

    Because this case was decided below at the pleading stage, the facts are recounted as
Plaintiffs have pled them. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (“[W]hen ruling on a
defendant’s motion to dismiss, a judge must accept as true all of the factual allegations contained
in the complaint.”). In 2015, Burt formed several LLCs for the purpose of engaging in a real
estate development project that would convert an historic textile mill in South Carolina into loft
apartments (“the project”). The LLC structure is critical to this case. Plaintiff Brandon Mill, LLC
(“Mill Owner”) was to be the owner of the property and the project. Mill Owner had two
members: Brandon Mill Investor, LLC, and Brandon Mill Tenant, LLC (“Mill Tenant”). Mill
Tenant, in turn, was comprised of Brandon Mill Manager, LLC (“Mill Manager”) and First NBC
Historic Tax Partners, LLC (“Tax Partners”), a wholly owned subsidiary of First NBC Bank. In
April 2017, however, Louisiana regulators closed First NBC Bank. The Federal Deposit
Insurance Corporation (“FDIC”) became the receiver for the bank and thus succeeded to the
obligations of Tax Partners.

     As relevant here, the FDIC could exercise Tax Partners’ contractual right to consent to any
refinancing of the project, but consent could not “be unreasonably withheld.” A86 (defining
“Consent of the Investor Member” to “mean[] the prior written consent or approval of [Tax
Partners], which consent may not be unreasonably withheld”). In the spring of 2017, Burt
negotiated terms to refinance the project with Arbor Commercial Funding. Over the following
months, he repeatedly requested that the FDIC consent to the refinancing with Arbor. The FDIC,
however, did not consent, despite acknowledging receiving the requests, which caused the
refinancing opportunity with Arbor to slip away. Plaintiffs became suspicious that the FDIC,
which was trying to liquidate First NBC’s assets in its capacity as receiver, had withheld its
consent to gain leverage and extract a higher price from Plaintiffs to buy out Tax Partners’ share
in Mill Tenant. In October 2017, Plaintiffs secured alternate refinancing, which was less
favorable than the terms of the Arbor financing would have been. When they approached the
FDIC for its consent, the FDIC explicitly tied its consent to a buyout offer for Tax Partners. The
FDIC agreed to this proposed refinancing only after Burt threatened legal action.

    Plaintiffs brought five claims arising out of the FDIC’s failure to consent to the Arbor loan,
and they later attempted to add a sixth, all of which are now before this court. The district court
rebuffed Plaintiffs’ attempt to amend their complaint on the ground that their amended complaint
would not state a claim and could not survive a Rule 12(b)(6) motion. Brandon Mill, 2019 WL
3458688, at *7–10. We typically review denials of leave to amend for abuse of discretion, but
where, as here, such denial is based on “perceived deficiencies … under Rule[] 12(b)(1) [or]
12(b)(6),” we review the district court’s determination de novo, asking whether Plaintiffs’
amended complaint would pass muster under 12(b)(6). Osborn v. Visa Inc., 797 F.3d 1057, 1062
(D.C. Cir. 2015). In this case, the district court correctly held that it would not.

                                                  II

     Plaintiffs’ various claims fail, at bottom, because Plaintiffs have no direct relationship with
Tax Partners and therefore lack the requisite legal relationship to plead their claims. Tax
Partners, and now the FDIC, was a party to only one relevant contract: the Tenant Operating
Agreement, an agreement between Tax Partners and Mill Manager. Neither plaintiff in this
action is a party to that agreement.

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     First, the district court correctly held that Plaintiffs’ two claims under South Carolina
corporate law, which governs the relevant entities, do not state a claim under Rule 12(b)(6).
Plaintiffs allege that the FDIC breached its duty of loyalty and its duty of care. But on the facts
pled, the FDIC owed Plaintiffs no such duties because Tax Partners owed Plaintiffs no such
duties. Mill Manager, not Tax Partners, was the manager of Mill Tenant’s day-to-day business
activities. South Carolina law provides that a non-managing member of an LLC, such as Tax
Partners, “owes no duties to the company or to the other members solely by reason of being a
member.” S.C. CODE ANN. § 33-44-409(h)(1). And even if, as Plaintiffs argue, Tax Partners
nonetheless owed some corporate-law duties to some entity, they would be owed to the LLC
itself, Mill Tenant, or Tax Partners’ fellow LLC member, Mill Manager. Tax Partners simply
owed no corporate law duties to Burt or Mill Owner, the plaintiffs here. Plaintiffs thus fail to
state a corporate law claim.

     Second, Plaintiffs forfeited their argument that the FDIC violated a common law fiduciary
duty by failing to raise it. See Herron v. Fannie Mae, 861 F.3d 160, 165 (D.C. Cir. 2017).
Plaintiffs discuss fiduciary duty only glancingly, and exclusively in the context of fiduciary
duties owed under South Carolina corporate law, not common law. Appellants’ Br. 24–26;
Appellants’ Rep. Br. 4.

     Third, the district court correctly held that Plaintiffs fail to state a breach of contract claim
under Rule 12(b)(6). That they were not in privity of contract with Tax Partners is fatal to this
claim. See Fabian v. Lindsay, 765 S.E.2d 132, 139 (S.C. 2014) (“Generally, one not in privity of
contract with another cannot maintain an action against him in breach of contract.”) (cleaned up).
Tax Partners signed one agreement, the Tenant Operating Agreement. That agreement alone
contained its obligation not to withhold unreasonably its consent to refinance the project, and
neither plaintiff was a party to it. Plaintiffs press a number of arguments for why they should
nonetheless be allowed to sue, such as the fact that Burt is mentioned in the Tenant Operating
Agreement (though not a party to it), or that the Tenant Operating Agreement mentions other
contracts to which Plaintiffs are parties. But Plaintiffs cite no case law or any other authority
supporting a right to sue for breach of contract based on these facts, and as a federal tribunal, we
decline to create new South Carolina contract law.

     Fourth, the district court correctly held that Plaintiffs fail to state a negligence claim.
Establishing a cause of action for negligence under South Carolina law requires three elements:
“(1) a duty of care owed by defendant to plaintiff; (2) breach of that duty by a negligent act or
omission; and (3) damage proximately resulting from the breach of duty.” J.T. Baggerly v. CSX
Transp. Inc., 635 S.E.2d 97, 101 (S.C. 2006). Plaintiffs cannot plausibly plead that Tax Partners
owed either of them a duty of care. They claim first that Tax Partners owed such a duty because
it had a vested interest in the success of the Brandon Mill project. In narrow instances under
South Carolina law, “a tortfeasor may be liable for injury to a third party arising out of the
tortfeasor’s contractual relationship with another, despite the absence of privity between the
tortfeasor and the third party.” McCullough v. Goodrich & Pennington Mortg. Fund, Inc., 644
S.E.2d 43, 46 (S.C. 2007). South Carolina courts, however, determine whether such liability
exists on a case-by-case basis, considering “public policy considerations.” Id. at 47; see also id.
                                                  3
(declining to find a duty between secured creditor and third party, in part because allegedly
injured party was “sophisticated” and engaged in “a calculated business decision”). Here,
Plaintiffs cite no authority to indicate why, given the circumstances of this case, Tax Partners
should be liable to third parties (such as Mill Owner and Burt) by virtue of its contractual
relationship. Plaintiffs’ allegation that Tax Partners had “a vested interest in the success of the
Project,” A10, does not on its own establish a legal duty.

     Plaintiffs’ other theory, only scantily invoked in their brief, is that past dealings between
Burt and First NBC gave rise to a duty of care. Assuming Plaintiffs sufficiently raised this
argument, it flies in the face of the distinct entity concept in corporate law. See, e.g., Costas v.
First Fed. Sav. & Loan Ass’n, 321 S.E.2d 51, 56 (S.C. 1984) (“It is recognized that a corporation
is an entity separate and distinct from its officers and stockholders.”). Burt created the corporate
plaintiff, Mill Owner, in connection with this project. Plaintiffs cite no authority to suggest that
Mill Owner can rely on Burt’s past dealings with First NBC, before Mill Owner even existed, to
allege that a duty of care was owed to Mill Owner. Similarly, Burt alleges past dealings only
with First NBC, not with Tax Partners, the entity on whose duties this case turns. Plaintiffs cite
no authority showing that South Carolina law recognizes negligence claims against corporations
based on a history of transactions between other parties, and we again decline to create new
South Carolina law.

     Fifth, the district court correctly held that Plaintiffs’ proposed claim for intentional
interference with prospective contractual relations would also fail under Rule 12(b)(6). In order
to prevail on an intentional interference claim, Plaintiffs must plead “(1) the defendant
intentionally interfered with the plaintiff’s potential contractual relations; (2) for an improper
purpose or by improper methods; (3) causing injury to the plaintiff.” Crandall Corp. v. Navistar
Int’l Transp. Corp., 395 S.E.2d 179, 180 (S.C. 1990). With respect to the “improper purpose or
methods” factor, Plaintiffs must plead a “purpose or motive by the defendant other than the
proper pursuit of its own contractual rights.” United Educ. Distribs., LLC v. Educ. Testing Serv.,
564 S.E.2d 324, 328 (S.C. Ct. App. 2002). Even if the FDIC was attempting to induce a more
lucrative buyout offer for Tax Partners’ share, or if the FDIC did breach its contractual duties to
Mill Manager by refusing consent, such behavior was not improper with respect to Plaintiffs,
who were not parties to the allegedly breached contract. Plaintiffs do not cite, and we are
unaware of, any South Carolina cases that hold a breach of contractual obligation to a third party
constitutes an improper method for purposes of intentional interference.

     Lastly, Plaintiffs throughout their brief contend that it was error for the district court not to
offer them a second chance to amend their pleadings after finding that their first set of proposed
amendments would not pass muster under Rule 12(b)(6). But Plaintiffs never asked the district
court for leave to amend a second time, thus forfeiting the opportunity to ask this court for such
leave. City of Harper Woods Emps.’ Retirement Sys. v. Olver, 589 F.3d 1292, 1304 (D.C. Cir.
2009) (“When a plaintiff fails to seek leave from the District Court to amend its complaint … it
forfeits the right to seek leave to amend on appeal.”).

                                                    ***

                                                   4
    For the foregoing reasons, we affirm the district court in full.

     Pursuant to D.C. Circuit Rule 36, this disposition will not be published. The Clerk is
directed to withhold issuance of the mandate herein until seven days after resolution of any
timely petition for rehearing or petition for rehearing en banc. See FED. R. APP. P. 41(b); D.C.
CIR. R. 41(a)(1).

                                                            FOR THE COURT:
                                                            Mark J. Langer, Clerk

                                                      BY: /s/
                                                          Daniel J. Reidy
                                                          Deputy Clerk

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