United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO
ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.
Royce-George & Associates, LLC (“RGA”) brings
this action against U.S. Bank, N.A., as Trustee for Morgan
Stanley Bank of America Merrill Lynch Trust 2013-C13
Commercial Pass-Through Certificates Series 2013-C13
(“U.S. Bank”) and Wells Fargo Bank, N.A.
(“Wells Fargo” and together with U.S. Bank
“Defendants”). RGA claims that Defendants are
improperly withholding monthly lease payments that Walgreens
Company (“Walgreens”) is paying for a now vacant
drugstore on property owned by RGA. U.S. Bank is the note
holder and mortgagee by assignment of a non-recourse mortgage
on RGA's property at 78 Church Street in Flemington, New
Jersey (the “Property”). [ECF No. 13
(“Amended Complaint” or “Am. Compl.”)
¶¶ 8, 12, 14]. Wells Fargo collects the rent for
the Property and services the loan for U.S. Bank.
Id. ¶ 10.
Aid leased the Property until February 2018, when its lease
(the “Lease”) was assigned to Walgreens in
connection with the acquisition of nearly 2, 000 Rite Aid
stores. Id. ¶¶ 11-12. Rite Aid continued
to operate a drugstore at the Property (the “Flemington
Rite Aid”) until approximately July 2018, when the
store ceased operations because it was among 600 stores that
the Federal Trade Commission (“FTC”) required the
companies to close as a condition for approval of
Walgreens' acquisition of the Rite Aid stores.
Id. ¶¶ 5, 13, 14. Following the closure,
Defendants asserted that because the store was no longer open
to the public, they were entitled to withhold Walgreens'
rent less debt service payments (referred to as “excess
cash flow”) that would otherwise have been forwarded to
RGA. Id. ¶¶ 10, 14. The excess cash flow
is instead being held in escrow.
asserts that, by withholding the excess cash flow, Defendants
have breached the parties' contracts and a violated New
Jersey law. RGA brings claims for a declaration that
Defendants must forward the excess cash flow to RGA
(“Count I”), breach of the implied covenant of
good faith and fair dealing by U.S. Bank and Wells Fargo
(“Count II” and “Count VI, ”
respectively), breach of contract by U.S. Bank and Wells
Fargo (“Count III” and “Count V, ”
respectively), and violation of the New Jersey Consumer Fraud
Act (“NJCFA”) against both Defendants
(“Count IV”). Before the Court is Defendants'
motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief can
be granted. For the reasons explained herein, the motion to
dismiss [ECF No. 16] is GRANTED IN
PART and DENIED IN
following facts are drawn from the Amended Complaint, the
well-pleaded allegations of which are taken as true for the
purposes of evaluating the motion to dismiss. See Ruivo
v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir.
2014). Certain details are also culled from documents
referred to in the Amended Complaint and from documents whose
authenticity is not disputed by the parties. See
Alvarez-Mauras v. Banco Popular of P.R., 919 F.3d 617,
622 (1st Cir. 2019) (holding that courts may consider
additional documents the authenticity of which are not
disputed by the parties).
a Massachusetts limited liability company with a principal
place of business in the Commonwealth. Am. Compl. ¶ 1.
U.S. Bank is a corporation organized under the banking laws
of the United States with its principal place of business in
Ohio. Id. ¶ 2. Wells Fargo is likewise
organized under the banking laws of the United States and has
its principal place of business in California. Id.
September 3, 2013, RGA obtained a $2.5 million non-recourse
mortgage loan from Morgan Stanley Mortgage Capital Holdings,
LLC (“Morgan Stanley”), which was later assigned
to U.S. Bank. Id. ¶ 8. To secure the loan, RGA
granted a mortgage on the Property to Morgan Stanley and also
granted it the right to income from the Lease. Id.
Wells Fargo services the loan for U.S. Bank, meaning that it
collects the rent from Rite Aid, pays the debt service to
U.S. Bank, and then ordinarily forwards the balance or
“excess cash flow” to RGA. Id. ¶
Lease gave Rite Aid an unfettered right of assignment.
Id. ¶ 20. On February 8, 2018, Walgreens bought
1, 932 Rite Aid stores, and as part of that transaction, Rite
Aid assigned the Lease to Walgreens. Id.
¶¶ 11-12. As a condition for approving
Walgreens' purchase of the stores, the FTC required the
companies to close 600 stores, including the Flemington Rite
Aid. Id. ¶ 13. On July 6, 2018, Wells Fargo
notified RGA that it believed the Flemington Rite Aid would
be closing and that Wells Fargo would consider the closure a
“Trigger Event” under the terms of the reserve
and security agreement (“Reserve Agreement”)
between U.S. Bank, as assignee, and RGA. Id. ¶
14. Wells Fargo informed RGA that it would therefore invoke
its right to withhold excess cash flow until the Flemington
Rite Aid reopened or a new tenant leased the Property.
Id. ¶¶ 14, 16. Although the Flemington
Rite Aid ceased operations on or shortly after July 6, 2018,
Walgreens has continued to make rent payments under the
Lease, and Defendants have not been financially damaged by
the closure of the store. See id. ¶ 12.
2.4 of the Reserve Agreement (“Section 2.4”)
between RGA and Morgan Stanley provides that the lender may
deposit excess cash flow in escrow following a “Trigger
Event, ” including a “Tenant Event” as
Defendants claim occurred, and until a “Cash Sweep
Transaction.” It states:
EXCESS CASH RESERVE. Commencing upon a Trigger Event (herein
defined) and until a Cash Sweep Termination (herein defined)
(the period from a Trigger Event to a Cash Sweep
Termination shall be referred to herein as a
“Cash Sweep Period”), Borrower shall, after
written notice from Lender, on each Payment Date, deposit
with Lender all excess cash flow (“Cash Flow”)
from the Property (after deduction of Operating Expenses and
Debt Service but prior to any distribution to any
constituents of Borrower). For purposes hereof, the term
“Trigger Event” shall mean any
of the following: (i) an Event of Default (as defined in the
Security Instrument); (ii) the tenant under the Rite Aid
Lease (as defined in the Security Instrument) enters into
bankruptcy (a “Credit Event”) and/or (iii)
Rite Aid gives notice of its intention to terminate
its lease early or ceases to do business open to the public
at the Property (each, a “Tenant
Event”). Such Cash Flow shall be deposited by
Lender in an interest-bearing escrow account (the
“Excess Cash Reserve Account”) to be held by
Lender pursuant to the terms of this Agreement and the other
Each of the following shall constitute a “Cash Sweep
(A) In the case of Trigger Event as described in the
foregoing subsection (i), such Event of Default has been
cured to the satisfaction of Lender;
(B) In the case of a Credit Event, such time as Rite Aid
either affirms its lease in bankruptcy or a replacement
tenant has entered into a new lease acceptable to Lender and
is paying full rent;
(C) In the case of a Tenant Event, either a
replacement tenant has entered into a new lease acceptable to
Lender and is paying full rent or Rite Aid has ...