Summary
In Ironworks, the court dismissed a negligence claim against Truist Bank for negligently processing a Paycheck Protection Program loan application.
Summary of this case from Nat'l Funding, Inc. v. Modern Renovations, LLCOpinion
Case No. 3:21-cv-00032
2021-12-07
IRONWORKS DEVELOPMENT LLC, Plaintiff, v. TRUIST BANK, Defendant.
Jonathan Spencer Jacobs, Zobrist Law Group, Washington, DC, for Plaintiff. Joshua David Wade, Matthew DeVane Fender, McGuireWoods LLP, Richmond, VA, Cheryl Haas, McGuireWoods LLP, Atlanta, GA, for Defendant.
Jonathan Spencer Jacobs, Zobrist Law Group, Washington, DC, for Plaintiff.
Joshua David Wade, Matthew DeVane Fender, McGuireWoods LLP, Richmond, VA, Cheryl Haas, McGuireWoods LLP, Atlanta, GA, for Defendant.
MEMORANDUM OPINION & ORDER
NORMAN K. MOON, SENIOR UNITED STATES DISTRICT JUDGE
Ironworks Development LLC brought this suit in the Albemarle County Circuit Court, alleging that Truist Bank tortiously processed its Paycheck Protection Program ("PPP") loan application. Dkt. 1. Truist timely removed the case to this Court, id. , and moved to dismiss for failure to state a claim, Dkt. 7. Truist's motion will be granted. The case must be dismissed because Ironworks’ causation allegations are conclusory. Moreover, because Virginia's economic loss rule precludes Ironworks’ negligence claims, the Court will dismiss those counts with prejudice.
I.
The following facts are alleged in Ironworks’ Complaint and assumed true for purposes of resolving this motion. See Francis v. Giacomelli , 588 F.3d 186, 193 (4th Cir. 2009) (reiterating the appropriate standard of review). Shortly after the second round of PPP loans were announced, Ironworks reached out to Truist to apply. Dkt. 1, Ex. A ("Complaint") ¶ 2. By March 2021, the necessary documents were collected and Truist sent Ironworks confirmation that it had applied on Ironworks’ behalf for a loan in the amount of $984,277.30. Id. Over the ensuing months, Ironworks regularly inquired into the progress of its application. Id. at ¶ 3. Truist's response was invariably to assure Ironworks that the application was processing with the Small Business Administration ("SBA") and that nothing more needed to be done. Id.
Ironworks continued to follow-up with Truist in May and June, calling and emailing as often as twice a day. Id. at ¶ 6. Truist either ignored these inquiries or dismissed Ironworks’ concerns. Id.
On July 2, 2021, Ironworks received a message from Truist that its application had been declined. Id. at ¶ 9. Truist's only explanation was that "[t]he verification and approval of your PPP loan application was not completed prior to the end of the PPP loan authorization period on June 30, 2021." Id. Ironworks’ repeated requests for more information went unanswered. Id. at 12. Truist only added that the loan never received an electronic application number. Id. at ¶ 11.
Ironworks asserts that its application was delayed due to a hold code. Id. at ¶ 4. It is not clear from the Complaint when either party learned of the hold code. But the Complaint does allege that on May 3 Truist assured Ironworks that the SBA had reserved funds for everyone with hold codes, and that Ironworks would get its PPP funding despite the delay caused by the hold. Id. The Complaint also alleges that, among its many inquiries, Ironworks had asked Truist to provide it with the electronic application number assigned by the SBA to Ironworks’ application. Id. at ¶ 7. Truist's Matthew Guthrie responded that he would check, but, despite numerous follow-up requests, Truist never provided the number. Id. at ¶ 8.
Ironworks states three causes of action under Virginia law: negligence, gross negligence, and fraud. Id. at ¶¶ 18–30. In Count One, Ironworks alleges that Truist owed it a duty of care to timely process its application for PPP funding, and to respond to Ironworks’ repeated requests intended to move the application process forward. Id. at ¶ 19. And that Truist breached that duty when it "did nothing on the loan and simply ignored Ironworks’ requests for assistance to get the loan moving." Id. at ¶ 20.
In Count Two, Ironworks alleges that Truist's desire to profit off PPP loans led it to take on more loan applications than it could staff. Id. at ¶ 24. This understaffing caused Truist's "complete disregard" for Ironworks’ application—a disregard which Truist masked by "providing false information about its application and the process" to Ironworks. Id. at ¶ 24. Ironworks asserts that this conduct meets the heightened standard for gross negligence under Virginia law.
In Count Three, Ironworks alleges that Truist made intentional misrepresentations to Ironworks. It identifies five categories of statements:
1. Truist's assurances that "everything was fine";
2. Truist's assurances that Ironworks’ PPP application was completed;
3. Truist's assurances that Ironworks’ application was being processed by the SBA;
4. Truist's assurances that the hold code on Ironworks’ PPP application would be resolved; and
5. Truist's assurances that PPP money had been reserved for companies like Ironworks who had a hold code on their application.
Id. at ¶ 28. Ironworks further alleges that it relied on these representations to its detriment when it decided to keep its application with Truist, rather than turn to one of Truist's competitors when its application appeared stalled. Id. at ¶ 29.
Finally, Ironworks alleges that punitive damages are warranted under Virginia law because Truist's representations were intentional and because its breach of duty constituted willful and wanton negligence. Id. at ¶ 31(b).
II.
"A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the claims in a complaint." ACA Fin. Guar. Corp. v. City of Buena Vista, Va. , 917 F.3d 206, 211 (4th Cir. 2019). To survive such a motion, a complaint must contain "sufficient factual material, accepted as true, to ‘state a claim to relief that is plausible on its face’." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Facial plausibility arises when a "plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). A reasonable inference is not supported, for example, by facts demonstrating a "sheer possibility" of or "mere[ ] consist[ency]" with unlawful conduct. Id. (citing Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). Nor does "formulaic recitation of the elements of a cause of action" constitute factual material supporting an inference of liability. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. On the other hand, a motion to dismiss should be denied if the plaintiff articulates facts, as opposed to legal conclusions, that, accepted as true, nudge a claim across the border from mere possibility to rationally support finding the elements of the plaintiff's cause of action. Francis , 588 F.3d at 193.
III.
A.
Truist correctly argues that Ironworks’ Complaint fails to state a claim upon which relief can be granted. Each of Ironworks’ claims require it to prove that Truist caused Ironworks to suffer loss. See Willner v. Dimon , 849 F.3d 93, 113 (4th Cir. 2017) ("Under Virginia law, ‘[t]he elements of an action in negligence are a legal duty on the part of the defendant, breach of that duty, and a showing that such breach was the proximate cause of injury, resulting in damage to the plaintiff.") (quoting Blue Ridge Serv. Corp. of Virginia v. Saxon Shoes, Inc. , 271 Va. 206, 624 S.E.2d 55, 62 (2006) ); Glaser v. Enzo Biochem, Inc. , 464 F.3d 474, 476–77 (4th Cir. 2006) ("Under Virginia law, a plaintiff seeking to recover for fraud must allege: (1) a false representation, (2) of material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled.").
In extraordinary circumstances, a plaintiff's inability to explain the causal connection between a defendant's breach and a plaintiff's injuries can be excused under the theory of res ipsa loquitur. Following its name, "the thing speaks for itself," this doctrine applies in circumstances where the fact of the plaintiff's injury itself raises a reasonable inference that the defendant breached a duty of care. But such an inference is not reasonable where alternative explanations remain viable. See Easterling v. Walton , 208 Va. 214, 156 S.E.2d 787, 789–90 (1967) (res ipsa loquitor applies where the means or instrumentality causing injury is in exclusive possession and control of the person charged with negligence). The doctrine is unsuitable, for example, when an injury could have resulted in the absence of negligence on anyone's part, or where it could have been caused by the negligence of someone other than the defendant.
Ironworks’ Complaint fails to allege facts raising a facial plausibility that its loan was denied because of Truist's inaction. Ironworks does not, for example, identify what Truist could have or should have done that would have resulted in its loan being approved. Was the hold code something that Truist could have resolved itself? Or prompted Ironworks to resolve? Or prompted the SBA to resolve? Or had Truist properly shepherded the application to a point in the process where there was nothing left to do but wait? The Complaint is silent on these questions.
Instead, it baldly asserts causation in conclusory form. See Complaint ¶ 21 ("As a direct and proximate result of these actions by Truist, Ironworks was harmed.") (negligence claim); id. at ¶ 21 ("As a direct and proximate result of these actions by Truist, Ironworks was harmed.") (gross negligence claim); id. at ¶ 30 ("As a direct and proximate result of these actions by Truist, Ironworks was harmed.") (fraud claim). These statements are nothing more than a "formulaic recitation of the elements of a cause of action" devoid of factual enhancement and cannot support a reasonable inference of liability. Twombly , 550 U.S. at 555, 127 S.Ct. 1955.
Nor does the allegation that the denial of Ironworks’ loan followed Truist's alleged inattention render Ironworks’ claim plausible. Such post hoc reasoning cannot nudge a claim across the border between possibility and plausibility. Id. at 557, 127 S.Ct. 1955. This is not a situation where the only explanation for plaintiff's harm is negligence by the defendant, such as would support a theory of res ipsa loquitor. Far from it. As the unanswered questions above demonstrate, the Complaint does not foreclose the possibility that Ironworks’ loan was rejected because of the conduct of the SBA, or Ironworks itself; or simply because funds were more limited than applicants. The Complaint is insufficient, and the case must be dismissed.
B.
Ironworks argues that any dismissal should be without prejudice, citing new facts discovered after the Complaint was filed. Most notably, Ironworks attached an exhibit in its brief in opposition which, Ironworks argues, would give rise to a reasonable inference of causation. But these additional facts would not allow Ironworks to state a negligence claim. Virginia law bars recovery for purely economic losses due to negligence unless the parties are in privity of contract. Redman v. Brush and Co. , 111 F.3d 1174, 1182 (4th Cir. 1997) ("a plaintiff who is not in privity of contract with the defendant cannot maintain an action for negligence ... based on purely economic damages."); Phoenix Packaging, Operations, LLC v. M&O Agencies, Inc. , No. 7:15-cv-569, 2016 WL 3181172, *5 (W.D. Va. June 3, 2016) (Urbanski, J.) (explaining the two ways Virginia's economic loss rule limits tort claims and that "lack of privity with a defendant will preclude a plaintiff from pursuing economic damages in negligence actions"). This follows from the bedrock principle of Virginia common law that tort actions protect the safety of persons and property, while contract law governs bargained-for expectations. Sensenbrenner v. Rust, Orling & Neale, Architects, Inc. , 236 Va. 419, 374 S.E.2d 55, 58 (1988).
The factual material from which the Court may draw in the 12(b)(6) analysis is limited to what is alleged in the Complaint. Courts may consider exhibits offered for the first time in an opposition brief to a motion to dismiss only if the document was " ‘integral to the complaint and authentic.’ " Goines v. Valley Community Servs. Bd. , 822 F.3d 159, 164 (4th Cir. 2016) (quoting Sec'y of State for Defence v. Trimble Nav. Ltd. , 484 F.3d 700, 705 (4th Cir. 2007) ). That narrow exception is inapplicable here.
Even professional duties are enforceable only as an express or implied term of a contract. See McConnell v. Servinsky Engineering, PLLC , 22 F.Supp.3d 610, 616 (W.D. Va. 2014) (Jones, J.) ("[T]he Supreme Court of Virginia has repeatedly held that a claim for breach of professional duties is properly brought as a breach of contract claim."). In Oleyar v. Kerr , a plaintiff sued her attorney for losses caused by the attorney's negligence in examining and reporting on the title to her property. 217 Va. 88, 225 S.E.2d 398 (1976). The Supreme Court of Virginia permitted the claim, but only as one for breach of an oral contract between the parties. Not as a tort action. Id. at 400 ("[A]n action for negligence of an attorney in the performance of professional services, while sounding in tort, is an action for breach of contract"). Further, the court warned that "[b]ut for the contract, no duty by [the attorney] to [the plaintiff] would have existed." Id. at 399.
In the hearing on this motion held December 2, 2021, the Court asked several times whether the parties had entered into a contract with respect to the loan application. Ironworks insisted they had not. Nor did Ironworks allege in its Complaint that it and Truist had entered into a contract. Therefore, Ironworks does not have a right of action for negligence under Virginia law.
IV.
"The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint;" not to resolve "contests surrounding the facts, the merits of a claim, or the applicability of defenses." Edwards v. City of Goldsboro , 178 F.3d 231, 244 (4th Cir. 1999) (internal quotation marks omitted). Because Ironworks’ Complaint is insufficient as written, and no factual elaboration would state a claim for negligence, Ironworks’ negligence claims are DISMISSED with prejudice . Ironworks is HEREBY GRANTED LEAVE to move to amend its Complaint within fourteen (14) days of the issuance of this Order. Truist's motion to dismiss, Dkt. 7, is TERMINATED .
It is so ORDERED .