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Posted: November 16, 2013

Decision Illustrates the Danger of Overreaching in Pleading

On November 7, 2013, Justice Schweitzer of the New York County Commercial Division issued a decision in U.S. Bank Natl. Assoc. v. Lightstone Holdings LLC, 2013 NY Slip Op. 32874(U), illustrating the dangers of overreaching in pleading.

In U.S. Bank, the plaintiff amended its complaint in what had been a breach of contract action to “add[] two ‘alternative’ causes of action” for “fraudulent concealment” and “negligent omission and misrepresentation.” We quote below several paragraphs of Justice Schweitzer’s opinion, to show the court’s reaction to the added claims:

Each of these alternative claims is premised on the same allegations. Plaintiff first asserts that there is no language in the Intercreditor Agreement that could support the Mezzanine Lenders’ position that they have priority over the Senior Lender with respect to the Capped Guaranty. This assertion is completely at odds with the Appellate Division’s holding that the parties’ differing positions regarding the Intercreditor Agreement are “equally plausible.” Plaintiff then alleges that since there is no supporting language in the Intercreditor Agreement, Bank of America and the other Mezzanine Lenders must be relying on some undisclosed waiver of plaintiffs priority right to the Capped Guaranty that is not contained in the Intercreditor Agreement. According to plaintiff, Bank of America and Wachovia must have concealed this side waiver, not contained in the Intercreditor Agreement, when they assigned the Senior Loan Agreement and related loan documents, including the lntercreditor Agreement, to Wells Fargo as Trustee, which later assigned those agreements to plaintiff.

Plaintiffs allegation that Bank of America and the other defendants are relying on an undisclosed side waiver not contained in the Intercreditor Agreement is demonstrably false. Bank of America does not and has never alleged the existence of an agreement extraneous to the Intercreditor Agreement. Neither has any other Mezzanine Lender in this case. To the contrary, Bank of America maintains, and has always maintained, that the Mezzanine Lenders’ priority rights are based on the Intercreditor Agreement.

The Appellate Division remanded this case for a determination on the facts of which parties’ interpretation of the Intercreditor Agreement is correct. This is a pure contract case and plaintiffs’ attempt to turn it into a fraud case is utterly baseless. Plaintiffs’ fraudulent concealment and negligent omission and misrepresentation claims are frivolous and are dismissed, with prejudice.

It is generally considered good practice to think creatively about causes of action and to assert all that there are, lest they be waived. Justice Schweitzer’s opinion shows that too much of a good thing can be a bad thing. Do not be the counsel that stretches the facts so far in pleading alternative causes of action that the court dismisses them as “utterly baseless” and “frivolous.”

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