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First Guaranty Bank v. Republic Bank, Inc.

United States District Court, D. Utah

November 17, 2017

FIRST GUARANTY BANK, Plaintiff,
v.
REPUBLIC BANK, INC. nka RB PARTNERS, INC., Defendant.

          MEMORANDUM DECISION AND ORDER DENYING IN PART AND GRANTING IN PART MOTION TO AMEND THE COMPLAINT

          Jill N. Parrish United States District Court Judge

         District Judge Jill N. Parrish Before the court is First Guaranty Bank's Motion to Amend its Complaint. [Docket 36]. First Guaranty seeks to amend the factual allegations in the original complaint and to add two additional causes of action: (1) failure of consideration concerning the portion of the May 26, 2015 Portfolio Purchase Agreement that transferred the Pioneer Health Services, Inc. lease to First Guaranty and (2) tortious interference with economic relations. Republic Bank, Inc. does not oppose amendment of the Complaint's general factual allegations, but it does object to the addition of the two new causes of action. Republic argues that leave to add the additional causes of action should be denied as futile because these claims would be subject to dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court agrees with Republic and DENIES the motion to amend to the extent that the motion seeks to add the two new causes of action and GRANTS the motion to amend to the extent that the motion seeks to add additional factual allegations.

         BACKGROUND

         Med One Capital Funding LLC leased medical equipment to a number of hospitals and medical practices.[1] Med One then assigned the right to receive the lease payments to Republic. Republic later assigned fifty-three separate equipment leases, including the Med One leases it held, to First Guaranty by way of two “Portfolio Purchase Agreements.” A December 24, 2014 Portfolio Purchase Agreement transferred forty-five lease agreements to First Guaranty. A subsequent May 26, 2015 Portfolio Purchase Agreement transferred eight additional lease agreements to First Guaranty, including a lease contract with Pioneer Health Services, Inc. for software.

         In March 2016, Pioneer stopped making payments under its lease contract. On March 30, 2016, Pioneer filed for bankruptcy. A bankruptcy judge determined that the lease agreement was not a “true lease” of personal property within the meaning of 11 U.S.C. § 365(d)(5). The judge, therefore, denied a motion brought by Med One and First Guaranty to compel Pioneer to continue to make payments under the lease contract during the pendency of the bankruptcy proceedings.

         On October 28, 2016, Republic filed a UCC Financing Statement Amendment with the State of Mississippi. First Guaranty alleges that the filing terminated First Guaranty's UCC financing statement for the software that is the subject of the Pioneer lease contract, impairing its legal rights to collect on the lease contract.

         First Guaranty sued Republic, asserting three causes of action: (1) declaratory relief under 28 U.S.C. § 2201, (2) breach of contract, and (3) breach of the covenant of good faith and fair dealing. On June 21, 2017, First Guaranty moved to amend its Complaint to include additional factual allegations and to add two additional causes of action: (1) partial rescission for failure of consideration and (2) tortious interference with economic relations. Republic opposed the motion to amend to the extent that it seeks to add the two new causes of action, arguing that the amendment would be futile because the new claims would be subject to dismissal for failure to state a claim.

         LEGAL STANDARD

         Rule 15(a)(2) provides that parties may amend their pleadings by leave of the court and that courts “should freely give leave when justice so requires.” “Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment.” Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir. 2009) (citation omitted). “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal . . . .” Watson ex rel. Watson v. Beckel, 242 F.3d 1237, 1239-40 (10th Cir. 2001). “The futility question is functionally equivalent to the question whether a complaint may be dismissed for failure to state a claim” under Rule 12(b)(6). Gohier v. Enright, 186 F.3d 1216, 1218 (10th Cir. 1999).

         The court's function when evaluating whether a complaint fails to state a claim is not to weigh potential evidence that the parties may present at trial but to “assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citation omitted). “A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff.” Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). Plausibility, in the context of a motion to dismiss, means that the plaintiff has alleged facts that allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         ANALYSIS

         I. FAILURE OF CONSIDERATION CLAIM

         The proposed Amended Complaint contains a new cause of action for failure of consideration. In this proposed claim, First Guaranty alleges that Republic failed to perform its promise to deliver “all rights and claims arising under or related [to the Leases] and all payments of any kind whatsoever which are due and payable under the Leases” or its promise that the “Lease Documents . . . are valid and binding obligations of the Lessees (or other party thereto) enforceable in accordance with their terms.” [Docket 36-1, ¶¶ 66, 68]. First Guaranty asserts that Republic failed to deliver on these promises because a bankruptcy court later determined that the Pioneer lease transferred by the May 26, 2015 Purchase Agreement was not a “true lease, ” finding instead that it was a conditional sales agreement. Because the Pioneer contract was not a true lease, the bankruptcy court denied a motion to compel Pioneer to continue to make the lease payments during the bankruptcy proceedings.

         The proposed Amended Complaint alleges that Republic's failure to perform its promises entitles it to a partial rescission of the May 26, 2015 Portfolio Purchase Agreement. Although the Purchase Agreement transferred eight separate leases to First Guaranty, the proposed cause of action for failure of consideration specifically seeks rescission of only the portion of the Purchase Agreement that transferred the Pioneer lease. Republic ...


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