[00:00:02] Speaker 00: Case number 19-5224, Brandon Mill, LLC, and H.B. [00:00:07] Speaker 00: Byrd, Jr., a balance versus Federal Deposit Insurance Corporation as receiver for First NBC Bank. [00:00:14] Speaker 00: Mr. Nace for the balance, Mr. Guarisco for the appellee. [00:00:20] Speaker 03: Good morning, Mr. Nace. [00:00:21] Speaker 03: We'll hear from you. [00:00:23] Speaker 03: Good morning, Your Honor. [00:00:24] Speaker 03: Thank you. [00:00:24] Speaker 04: May it please the court. [00:00:26] Speaker 04: The amended complaint, Your Honors, in this matter satisfies the pleading standards [00:00:30] Speaker 04: of the Federal Rules of Civil Procedure. [00:00:33] Speaker 04: The trial court, in dismissing the complaint, essentially ignored 18 pages and 100 paragraphs of detailed allegations in this matter. [00:00:42] Speaker 04: Rather than taking the facts as pled in a light most favorable to the plaintiff's appellants, the court glossed over these well-pled allegations, and in dismissing almost every count, suggested that the plaintiff's appellants did not provide facts, which were, in fact, clearly laid out in the complaint. [00:01:00] Speaker 04: The corporate structure of the Brandon Mill project is certainly complicated, but that does not negate the fact that the documents to which the USA, through First NBC and tax partners, entered created duties and obligations that include duties of First NBC to Mr. Burt and Brandon Mill LLC. [00:01:19] Speaker 04: At the Rule 12B stage of the case, the plaintiff appellants officially pled their case such that the motion to dismiss should have been denied. [00:01:27] Speaker 04: Moreover, the trial court [00:01:30] Speaker 04: should have granted the plaintiff appellants the opportunity to amend with any factual concerns that were raised. [00:01:37] Speaker 04: The dismissal by the trial court was based largely in this matter on the fact that there was no duty between the USA through tax partners and first NBC bank to the plaintiffs. [00:01:51] Speaker 04: But in fact, the duties are spelled out in the documents that govern the transaction. [00:01:58] Speaker 04: I don't believe there's any dispute in this matter that USA through FDIC is responsible for the obligations of First NBC Bank and tax partners once they became the receiver and seized the bank. [00:02:10] Speaker 04: But what we know in this matter is that like past experience, Mr. Burke, who was a developer who rehabbed old properties and historic buildings, had worked with First NBC when First NBC was interested in acquiring tax credits. [00:02:26] Speaker 04: This project was no different than any other time that Mr. Burt and the bank had worked together. [00:02:32] Speaker 04: Everybody knew their responsibilities that were laid out in the operating agreement, the master lease agreement, and all the other documents at issue. [00:02:41] Speaker 04: Tax partner, first NBC, and thus FDIC's responsibility was to not interfere and not unreasonably withhold consent to refinance the project when the time came. [00:02:57] Speaker 04: In fact, when that time came, the FDIC tried to use their obligate or their responsibility and their right to sign off on financing as leverage to extort a better deal for itself. [00:03:11] Speaker 04: So we have a contract scheme that has first NBC historic tax partners as a party to the Brandon Mill tenant LLC operating agreement. [00:03:21] Speaker 04: The agreement was made with Brandon Mill manager LLC. [00:03:25] Speaker 04: But that does not mean that these documents didn't create obligations that flowed both ways. [00:03:30] Speaker 04: The operating agreement, in its definition section, specifically incorporated the master lease as an operating document. [00:03:39] Speaker 04: And in that section, in section 4.7C, which is at appendix page 105, the operating agreement indicated that the investor member, who was here, USA for purposes of this case and this appeal, [00:03:53] Speaker 04: agreed that the operating agreement was the legal, valid, and binding obligations. [00:03:59] Speaker 04: Then when you go to the master lease agreement between Brandon Mill LLC, who was a plaintiff appellant, and Brandon Mill tenant, the particular obligation consenting to the refinancing is reserved exclusively for tax partners in the bank and thus USA. [00:04:20] Speaker 04: So the duty in question [00:04:23] Speaker 04: is how do you handle the obligation of refinancing when requested? [00:04:29] Speaker 04: We brought several claims, six claims, four in tort, a breach of contract, I guess a fifth in tort, intentional interference with contractual relations. [00:04:39] Speaker 04: The trial court ruled that these claims were futile because of factual pleadings. [00:04:44] Speaker 04: Now, addressing first the two claims under South Carolina's Uniform LLC Act, the trial court ignored the fact that [00:04:53] Speaker 04: when a specific obligation is reserved for a member of the LLC, that L that member has the same obligations as a managing member under the South Carolina act. [00:05:10] Speaker 03: So in this case, what, where, where, what is the authority for that proposition? [00:05:18] Speaker 04: Yes, it's section 33 44 409 H three. [00:05:24] Speaker 04: I had cited it at page, I think, 25 of our brief. [00:05:27] Speaker 04: And this is from the South Carolina Uniform LLC Act. [00:05:32] Speaker 04: It says, a member who pursuant to the operating agreement exercises some or all of the rights of a manager in the management and conduct of the company's business is held to the standards of conduct in subsections B through F [00:05:48] Speaker 04: to the extent that the member exercises the managerial authority vested in a manager by this chapter. [00:05:55] Speaker 04: So in other words, if in fact you, a non-manager member, do somehow exert management control over a particular area, then you are held to duties of loyalty and duties of care. [00:06:09] Speaker 04: And that's right out of the South Carolina Code. [00:06:11] Speaker 04: That's the section that the trial court did not address in dismissing those two claims. [00:06:17] Speaker 04: We know that in this case, the only party that could consent to refinancing was tax partners. [00:06:26] Speaker 04: So they fall into this category of H3 where they have a specific management duty that did not otherwise apply. [00:06:33] Speaker 04: That leads us to, again, our burden is to establish a plausible theory of liability. [00:06:43] Speaker 04: And certainly it is plausible in the way we pled it that FDIC breached their duty of loyalty and duty of care by unreasonably withholding consent, as pled and as explained throughout the complaint and the amended complaint. [00:07:00] Speaker 04: Likewise, the same argument goes for our breach of the duty of care. [00:07:03] Speaker 02: If I remember correctly, you're relying on subsection HC. [00:07:06] Speaker 02: That was not pressed before the district court, and the district court did not even discuss it. [00:07:12] Speaker 02: That whole theory, that whole management theory, assuming there's something to it, it wasn't raised below. [00:07:19] Speaker 02: And the district court didn't address it. [00:07:22] Speaker 04: The district court did not address it. [00:07:24] Speaker 04: We did raise that the South Carolina Uniform Women Reliability Company Act did apply, and we cited to- No, no, I'm not talking about whether you think the act generally applied. [00:07:35] Speaker 02: I'm talking about your specific theory and the citations that you offer to support them. [00:07:41] Speaker 02: The H3 theory was not raised below. [00:07:47] Speaker 02: So my first instinct looking at this is if there's something there, you forfeit it. [00:07:52] Speaker 02: You never raised that theory. [00:07:53] Speaker 02: Whether or not it's tenable, that's another issue. [00:07:57] Speaker 04: Well, I do believe that we cited to this the Uniform LLC Act. [00:08:02] Speaker 02: No, that's not my question. [00:08:04] Speaker 02: You are now [00:08:05] Speaker 02: focusing on a very specific provision in that statute and saying, this is how I come up with my manager theory. [00:08:13] Speaker 02: Because the theory is questionable. [00:08:15] Speaker 02: And I don't know where the authority comes from. [00:08:17] Speaker 02: So one wonders. [00:08:19] Speaker 02: And then when I look, I don't see any reference to that below. [00:08:22] Speaker 02: You never played that out below. [00:08:25] Speaker 02: You never played that theory out below. [00:08:27] Speaker 02: You can't now raise it with us for the first time. [00:08:30] Speaker 04: Well, Your Honor, I imagine, [00:08:34] Speaker 04: I think you're accurate in suggesting that we did not raise H3, but I do believe that the code section in general, the Uniform LLC Act was raised. [00:08:41] Speaker 04: And that's part of the code section. [00:08:45] Speaker 04: So that's how I would respond to that. [00:08:47] Speaker 04: I am into my rebuttal time. [00:08:51] Speaker 04: I do want to just raise the point regarding the negligence claim. [00:08:55] Speaker 04: The court found that held that the negligence claim could not survive because there was a contract claim [00:09:04] Speaker 04: At the same time, the trial court found that there was no contract. [00:09:09] Speaker 04: So it seems to me that either if there is no contract as a matter of law, then in fact the negligence claims, including negligence, breach of fiduciary duty, and intentional interference with contractual relations, those claims would survive. [00:09:26] Speaker 04: If in fact there's no contract, which we don't necessarily concede, but if there is no contract, then the negligence claims [00:09:33] Speaker 04: should move forward. [00:09:36] Speaker 04: If there are no questions, I would like to reserve some time for about. [00:09:38] Speaker 01: I did just have one question, which is, how do you think our ruling in this case would affect a case that's now pending before the district court that involves Brandon email manager suing the United States? [00:09:52] Speaker 04: So I don't know. [00:09:53] Speaker 04: Because the parties are different, I don't know that it would affect that case. [00:09:57] Speaker 04: You know, I will obviously represent to the court that at an appropriate time [00:10:03] Speaker 04: We did file 495s as required under the Federal Tort Claims Act on behalf of those other entities. [00:10:11] Speaker 04: If any of these claims, obviously Mr. Byrd has individual claims. [00:10:15] Speaker 04: This corporate entity would have individual claims. [00:10:18] Speaker 04: I would think that if this matter was remanded to move forward on any of the claims, the matters could be consolidated and litigated that way. [00:10:26] Speaker 04: They are different entities. [00:10:29] Speaker 04: The subject matter, Your Honor is absolutely correct that they are. [00:10:32] Speaker 04: the same issues, but there are different corporate entities that do have different claims, I believe. [00:10:41] Speaker 03: Thank you. [00:10:41] Speaker 03: All right. [00:10:42] Speaker 03: Thank you. [00:10:43] Speaker 03: Judge Rao, Judge Edwards, anything further? [00:10:45] Speaker 03: No. [00:10:46] Speaker 03: All right. [00:10:47] Speaker 03: We'll hear from Mr. Gorisco. [00:10:52] Speaker 05: Good morning and may it please the court. [00:10:54] Speaker 05: My name is John Gorisco and I represent the FDIC as receiver for First NBC Bank. [00:11:00] Speaker 05: The district court correctly dismissed plaintiff's complaint and denied leave to amend because none of the proposed amended claim stated a claim to relief that was plausible. [00:11:16] Speaker 05: I'd like to point out initially, council talked about [00:11:21] Speaker 05: alleged that it was not disputed that the FDIC was responsible for the acts of tax partners. [00:11:28] Speaker 05: As we pointed out in our brief, the district court found that for purposes of a 12b6 motion, the plaintiffs had sufficiently alleged that the FDIC had directly participated in the conduct of tax partners. [00:11:43] Speaker 05: So for purposes of the motion to dismiss, the court treated the FDIC as equivalent with tax partners, [00:11:51] Speaker 05: And we have framed our arguments presuming, in other words, giving plaintiffs the benefit of the doubt, presuming that the FDIC could be held liable for any wrongdoing by tax partners. [00:12:04] Speaker 05: First of all, with respect to plaintiffs breach of contract claim. [00:12:08] Speaker 05: I think it's one of the best ways to follow all of the issues in this case is to look at the corporate structure that we've laid out on page six of our brief. [00:12:20] Speaker 05: This is the structure that's alleged by the plaintiffs. [00:12:24] Speaker 05: And in fact, plaintiffs do allege that this structure is Mr. Burt's creation. [00:12:29] Speaker 05: This is how he structures these transactions where he seeks to renovate historical properties and generate tax credits. [00:12:38] Speaker 05: And the structure, keeping the structure, you know, the illustration of it in mind will help to frame the arguments. [00:12:47] Speaker 05: With respect to the breach of contract, the plaintiffs rely on two contracts that were in fact attached to their response to the motion of dismiss. [00:12:57] Speaker 05: The master lease and what we call for short the tenant operating agreement, which is the agreement between manager and tax partners [00:13:07] Speaker 05: to create a tenant. [00:13:10] Speaker 05: And as we point out below, plaintiffs argue that tax partners breached a duty that was owed under the master lease by unreasonably failing to consent to the proposed refinancing of the construction loan. [00:13:29] Speaker 05: Now, tax partners is not a party to the master lease. [00:13:34] Speaker 05: Moreover, on the tenant operating agreement, [00:13:37] Speaker 05: Tax partners is a party, but neither the plaintiffs in this case is a party. [00:13:42] Speaker 05: Mr. Bird is not a party and owner, our shorthand for Brandon Mill LLC, also is not a party. [00:13:50] Speaker 05: So if tax partners does not have a contractual relationship with either of the two plaintiffs, it cannot be held liable for breach of contract. [00:14:01] Speaker 05: And even [00:14:02] Speaker 05: And we set forth in our brief how none of the definitions laid out in the operating agreement that are referred to by plaintiffs, none of those definitions suggest that somehow owner has the right to sue tax partners under the master lease. [00:14:22] Speaker 05: And as we also pointed out in our brief, even if tax partners could be sued under the master lease, even if it were a part of the master lease, the reference to tax partners in the master lease that's relied on by plaintiffs is section 20.5, which says that tax partners can grant or withhold consent to the refinancing of the construction loan in its sole and absolute discretion. [00:14:52] Speaker 05: reference in that clause to any cabining of the discretion, whether it's unreasonable or reasonable. [00:15:00] Speaker 05: Quite the opposite. [00:15:02] Speaker 05: The text of the master lease states the tax partner says sole and absolute discretion. [00:15:09] Speaker 05: So we believe that because the district court correctly found that the plaintiffs in this case have not alleged any contract that they can enforce against tax partners and therefore the FDIC, the breach of contract claim was correctly dismissed. [00:15:26] Speaker 05: I'll next address the two statutory claims under the South Carolina LLC Act, which were addressed by plaintiffs in their opening. [00:15:37] Speaker 05: As we explained in our brief, the operative provision of the LLC act provides that members of LLCs may have fiduciary duties of either loyalty or care. [00:15:52] Speaker 05: And the scope of those duties, the extent depends on whether it's a manager-managed LLC or a member-managed LLC. [00:16:00] Speaker 05: The district court found that that that tenant was a manager managed LLC. [00:16:08] Speaker 05: And in their opening, as they did in their brief below the plaintiffs argued that the district court should have considered H3, which says that even in a manager managed LLC a non manager likes to like tax partners. [00:16:23] Speaker 05: does have duties to the extent that they are exercising authority that is deemed managerial under the operating agreement. [00:16:32] Speaker 05: But of course, that ignores the main point of our argument. [00:16:35] Speaker 05: It wasn't addressed in the reply brief below and it wasn't addressed a few minutes ago in oral argument, which is [00:16:42] Speaker 05: even if tax partners were a manager of tenant, even if it had every conceivable duty owed under the South Carolina LLC Act. [00:16:52] Speaker 05: The LLC Act by its terms only imposes duties of loyalty and care upon members of an LLC in favor of two groups of plaintiffs. [00:17:06] Speaker 05: One is the LLC itself, which as you look at page six, [00:17:11] Speaker 05: That is tenant. [00:17:13] Speaker 05: The other potential plaintiff are the other members of the LLC. [00:17:19] Speaker 05: Well, the other member of tenant besides tax partners is manager. [00:17:23] Speaker 05: Manager is also not a plaintiff in this case. [00:17:26] Speaker 05: They may be plaintiffs [00:17:27] Speaker 05: in the case pending in the district court that Judge Rao alluded to, but they are not plaintiffs in this case. [00:17:33] Speaker 05: By its terms, the LLC Act does not create any duties owed to someone outside of the LLC. [00:17:42] Speaker 05: Both these plaintiffs are outside the LLC and they do not dispute that. [00:17:48] Speaker 05: Plaintiffs also talked about their negligence claim. [00:17:52] Speaker 05: and raise the argument that that if in fact if in fact they don't have can if in fact tax partners doesn't have contractual duties well therefore it must have a duty that supports negligence claim and then went on from there to say well if they have a duty that supports negligence claim they also have duties [00:18:14] Speaker 05: With respect, the fact that plaintiffs alleged that tax partners' duties came from a contract doesn't mean that if, in fact, they had no contractual duties, they had duties arising out of some other source. [00:18:31] Speaker 05: It means that tax partners has no duties to these plaintiffs. [00:18:34] Speaker 05: I mean, that is the alternative. [00:18:36] Speaker 05: The alternative isn't, well, if it's not a contract duty, it must be a duty that gives rise to tort. [00:18:43] Speaker 05: The only duties alleged here [00:18:47] Speaker 05: coming from two contracts, the operating agreement and the master lease. [00:18:51] Speaker 05: And if there are no duties under those contracts, there are no duties anywhere pled in the complaint. [00:19:01] Speaker 05: We also addressed in our brief the other tort claims that the plaintiffs attempted would like to plead against the United States, but we submit had not been pled plausibly under Twombly, [00:19:15] Speaker 05: With respect to a common law breach of fiduciary duty claim which wasn't even addressed in either a plaintiff's briefs or in their argument. [00:19:24] Speaker 05: There are no allegations giving rise to anything but speculation that either these two plaintiffs reposed any trust and tax partners. [00:19:33] Speaker 05: to act in their interest and not tax partner's interest, nor are there allegations suggesting that tax partners accepted or induced any such trust. [00:19:46] Speaker 05: And with respect to the tortious interference claim, as we set forth under South Carolina law, tax partners alleged exercise of its contractual right [00:19:59] Speaker 05: to withhold consent to the refinancing of the construction loan for the purpose of fulfilling the FDIC's mandate of maximizing receivership assets and liquidating receiverships as expeditiously as possible. [00:20:14] Speaker 05: That's not an improper method, and that's not an improper purpose under South Carolina law. [00:20:19] Speaker 05: And finally, with respect to plaintiff's request to amend, again, we read their brief as suggesting that even if the district court [00:20:29] Speaker 05: correctly denied leave to amend because their claims weren't plausible. [00:20:33] Speaker 05: They should somehow get another opportunity. [00:20:36] Speaker 05: We believe that any such opportunity has been forfeited because it wasn't asked for below. [00:20:41] Speaker 05: Plaintiffs had an opportunity to plead plausible claims in response to the FDSE's motion and added no new factual allegations, nor did they file a Rule 59 or Rule 15 motion after dismissal. [00:20:53] Speaker 05: Under Harper Woods, we believe that that's been forfeited. [00:20:57] Speaker 05: I see that my time has expired. [00:20:59] Speaker 05: If the court has no questions, we would ask that the district court's judgment be affirmed. [00:21:04] Speaker 03: All right. [00:21:04] Speaker 03: Thank you, Mr. Gorisco. [00:21:07] Speaker 03: Mr. Nace, we'll give you two minutes on rebuttal. [00:21:10] Speaker 04: Thank you, Your Honors. [00:21:12] Speaker 04: I would like to just start, first of all, with the suggestion that there was nothing anywhere to suggest that FDIC or First NBC Bank couldn't [00:21:21] Speaker 04: that there wasn't a cap on their ability to withhold consent. [00:21:25] Speaker 04: In fact, at page A86 of the appendix, the definition of consent of the investor member reads as such. [00:21:36] Speaker 04: Consent of the investor member means the prior written consent or approval of the investor member, which consent may not be unreasonably withheld. [00:21:48] Speaker 04: That is in the definition section, [00:21:50] Speaker 04: of the operating agreement. [00:21:53] Speaker 04: So in fact, there is a cap on First NBC tax partner's ability to withhold consent. [00:22:01] Speaker 04: It cannot be unreasonably withheld. [00:22:04] Speaker 04: That is a factual issue, which at this stage of the case, the plaintiff should be permitted to establish through discovery and through factual determinations in this case. [00:22:16] Speaker 04: With regard to the suggestion that negligence isn't properly pled, I'm not really sure how to plead it in this case then. [00:22:25] Speaker 04: There is a hundred paragraph complaint that talks about the prior dealings, the prior relationship, that talks about the fact that the contracts include you can't unreasonably withhold consent. [00:22:39] Speaker 04: And then in a perfect example of how the district court [00:22:42] Speaker 04: failed to read the facts in a light most favorable to the plaintiff and read them the other way. [00:22:47] Speaker 04: When we in fact cited, again, this is pre-discovery, references to emails where FDIC threatened and informed the plaintiffs that they would be withholding consent waiting for a better deal, that was read against the plaintiffs because it came after the consent was offered. [00:23:09] Speaker 04: If you read the facts in a light most favorable to the plaintiff, what that does is establishes a motive and tension, a reason that the consent was withheld for so long and without any communication from FDIC. [00:23:27] Speaker 04: My time is up. [00:23:29] Speaker 04: I do believe that we have properly asked for the right to amend. [00:23:34] Speaker 04: as the trial court considered, they ruled, the trial court ruled that we did properly ask to amend, and that was not cross-appealed. [00:23:41] Speaker 04: We would ask that the case be remanded and reversed, or at a minimum that we could get an opportunity. [00:23:46] Speaker 02: Council, the provision that you mentioned with unreasonable withheld comes from the tenant operating agreement, right? [00:23:53] Speaker 04: Yes, it does. [00:23:54] Speaker 02: And neither one of the plaintiffs or a party to that agreement, right? [00:23:58] Speaker 04: That's correct. [00:23:59] Speaker 04: Okay. [00:24:00] Speaker 04: But it does, Your Honor, if I may, it does lay out, again, to the extent that we are outside of the contract claims and looking at the dealings of these parties with each other, it was very clear that the bank and thus FDIC knew that they had an obligation to not unreasonably withhold and that failure to do, or the unreasonable withholding of consent caused damage. [00:24:26] Speaker 04: And again, at this pleading stage of the case, we think we've pled a plausible claim. [00:24:31] Speaker 03: Okay. [00:24:33] Speaker 03: All right. [00:24:34] Speaker 03: Thank you. [00:24:34] Speaker 03: The case is submitted.