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Meridian Investments, Inc. v. Federal Home Loan Mortgage Corp.

United States District Court, E.D. Virginia, Alexandria Division

March 1, 2016

MERIDIAN INVESTMENTS, INC., Plaintiff,
v.
FEDERAL HOME LOAN MORTGAGE CORPORATION, et al., Defendants.

MEMORANDUM OPINION

JAMES C. CACHERIS, UNITED STATES DISTRICT COURT JUDGE.

This case comes before the Court on the Defendants’ Motion to Dismiss [Dkt. 20]. For the reasons stated below, the Court will grant Defendants’ Motion to Dismiss and Dismiss the Case with prejudice.

I. Background

On September 6, 2008, following the financial crisis, Defendant Federal Home Loan Mortgage Corporation (“Freddie Mac”) was placed into a federal statutory conservatorship by Defendant Federal Housing Finance Agency (“FHFA”). (Compl. [Dkt. 1] ¶ 7.) Shortly after FHFA began its conservatorship, FHFA, on behalf of Freddie Mac, entered into a Senior Preferred Stock Agreement with the Department of the Treasury (“Treasury”). (Id. at ¶ 56; Def.’s Mem. in Supp. [Dkt. 21], at 1.) That agreement resulted in a huge capital influx from Treasury in return for, among other things, an agreement that Freddie Mac:

Shall not, and shall not permit any of its subsidiaries to, in each case without the prior written consent of [Treasury], sell, transfer, lease, or otherwise dispose of (in one transaction or a series of related transactions) all or any portion of its assets (including Equity interests in other persons, including subsidiaries), whether now owned or hereafter acquired (any such sale, transfer, lease or disposition, a “Disposition”), other than Dispositions for fair market value: . . . (b) of assets and properties in the ordinary course of business, consistent with past practices, [or] . . . (d) of cash or cash equivalents for cash or cash equivalents . . . .”

(Compl., Ex. 5 [Dkt. 1-5], at 9.) Shortly after entering the conservatorship and entering into the agreement with the treasury, Freddie Mac and Plaintiff Meridian Investments, Inc. entered into a Memorandum of Understanding (“MOU”) providing that Freddie Mac and Meridian would take commercially reasonable steps in a good faith effort to negotiate a definitive agreement for the sale of Low Income Housing Tax Credits (“LIHTCs”). (Compl. ¶ 44, Ex. 2 [Dkt. 1-2], ¶7.) The MOU explicitly acknowledges that any definitive agreements would have to be subject to FHFA’s approval. (Compl., Ex. 2, ¶3(a).) Ultimately, the deal for the sale of the LIHTCs fell through because FHFA, as receiver of Freddie Mac, declined to approve the deal. In refusing to finalize the deal, Freddie Mac pointed to the refusal of the Department of the Treasury to give its consent to a similar sale by Fannie Mae, pursuant to rights Treasury acquired under the Senior Preferred Stock Arrangement. (Compl. ¶ 55.) Defendant admits that the deal fell through due to Treasury’s refusal to consent to the sale of LIHTCs as FHFA believed was required under the terms of the Senior Preferred Stock Arrangement. (Defs.’ Mem. in Supp. at 2.) Ultimately, Meridian filed this action for breach of contract as a result of the deal (often referred to by the parties as the “Project America” deal) falling through.

Defendants filed this motion to dismiss arguing: (1) that this action for breach of contract is barred by Virginia’s five-year statute of limitations for breach of contract causes of action; (2) that the MOU was a non-binding “agreement to agree”, in violation of the well settled principle in Virginia that agreements to agree are too vague and indefinite to be enforced; and (3) the complaint fails to state a claim because it provides no plausible allegations suggesting that Defendants breached the MOU. (Id.) For the reasons explained below, the Court finds that the Plaintiff’s complaint is barred by the Virginia statute of limitations and that the MOU was a non-binding “agreement to agree”. Additionally, as explained below, the Court finds that paragraph 12 of the MOU requiring the parties to execute and deliver “formal written definitive agreements” before the proposed transaction became binding created a condition precedent which had to be satisfied prior to the creation of any obligations or rights relating to the proposed Project America transaction.

II. Legal Standard

Defendants move to dismiss Plaintiff’s claims pursuant to Federal Rule of Civil Procedure 12(b)(6). “While the court must accept well-pleaded allegations as true when ruling on a Rule 12(b)(6) motion, the court need not accept as true legal conclusions disguised as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 679-81 (2009). Therefore, a pleading that offers only a “formulaic recitation of the elements of a cause of action will not do.” Iqbal, 556 U.S. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). Equally unacceptable is a complaint that tenders mere “naked assertion[s]” devoid of “further factual enhancement.” Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 557. “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint; importantly, [a Rule 12(b)(6) motion] does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999) (citation omitted) (internal quotation marks omitted). In the instance where sufficient facts are alleged in the complaint to rule on an affirmative defense, such as the statute of limitations, the defense may be reached by a motion to dismiss filed under Rule 12(b)(6). This principle only applies, however, if all facts necessary to the affirmative defense “clearly appear[ ] on the face of the complaint.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (emphasis in original).

III. Analysis

The Court begins by examining Defendant’s assertion that this action is time-barred by the Virginia statute of limitations for breach of contract actions. The Court will then turn to the issue of the MOU’s enforceability as an “agreement to agree”. Finally, the Court will examine whether the MOU’s requirement of executed and delivered formal, written, and definitive agreements constituted a condition precedent to the creation of a contract for the Project America transaction.

A. Statute of Limitations

Plaintiff invokes this Court’s jurisdiction both on the basis of the parties’ diversity pursuant to 28 U.S.C. § 1332(a)(1) and on the basis of federal question jurisdiction pursuant to 28 U.S.C. § 1331 and the “sue and be sued clause” of Freddie Mac’s organic statute, 12 U.S.C. § 1452. (Compl. at ¶¶ 4-5.) Whatever the basis of this court’s jurisdiction, the applicable statute of limitations in this case hinges on the question of whether this is a suit between private parties, or a suit between a private party and the United States of America or one of its agencies. Plaintiff argues that Freddie Mac and FHFA have acted as instruments and agents of Treasury, thus making Freddie Mac and FHFA the United States for purposes of 28 U.S.C. § 2401(a) and bringing this action within the six year statute of limitations prescribed by that statute. As described below, however, the Court finds that Defendants are private parties rather than agents or instrumentalities of the United States of America for purposes of this case. Accordingly, the six-year statute of limitations for civil actions brought against the United States provided by 28 U.S.C. § 2401(a) does not apply in this case. As this case is a breach of contract action between private parties, the five year statute of limitations for breach of contract actions established by Virginia Code § 8.01-246 applies regardless of whether this Court’s jurisdiction is based on diversity of citizenship or the “sue and be sued clause” of 12 U.S.C. § 1452. See Smith v. Flagstar Bank, F.S.B., No. 3:14-Cv-741, 2015 WL 1221270, at *3 (E.D.Va. Mar. 17, 2015)(“[i]n a federal diversity action, state law governs the existence and interpretation of any statute of limitations”); Kirkpatrick v. Lenoir Cty. Bd. Of Educ., 216 F.3d 380, 386 (4th Cir. 2000)(holding that in the absence of a specific federal statute of limitations federal courts “adhere to the ‘borrowing’ doctrine, which requires a federal court to borrow from the state [with] the most analogous state statute of limitation”).

Several courts have already determined, and this Court agrees, that when a federal instrumentality acts as a receiver, in the interests of the party in receivership, that instrumentality does not act as the government. See, e.g., O’Melveny & Myers v. Fed. Deposit Ins. Corp., 114 S.Ct. 2048, 2053 (1994)(“the FDIC is not the United States”); Ameristar Financial Servicing, Co., LLC v. U.S., 75 Fed.Cl. 807 (2007)(holding FDIC is not the United States when it acts as conservator of newly established bank); Herron v. Fannie Mae, 857 F.Supp.2d 87, 2012 WL 1476051 (D.D.C. Apr. 30, 2012)(“FHFA stepped into the shoes of Fannie Mae. FHFA as conservator for Fannie Mae is not a government actor”). Likewise, courts are in agreement that Freddie Mac has not become a government actor simply by virtue of FHFA’s receivership or conservatorship. See, e.g., Mik v. Fed. Home Loan Mortg. Corp., 743 F.3d 149, 168 (6th Cir. 2014)(“Freddie Mac is not a government actor [for constitutional purposes].”); Fed. Home Loan Mortg. Corp. v. Shamoon, 922 F.Supp.2d 641 645 (E.D. Mich. 2013), appeal dismissed (Sept. 5, 20132)(FHFA conservatorship “does not and cannot transform that private corporation [Freddie Mac] into a government actor” for purposes of constitutional claims); Syriani v. ...


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