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Overlook Gardens Properties, LLC v. Orix USA, L.P.

United States District Court, M.D. Georgia, Columbus Division

November 1, 2017

OVERLOOK GARDENS PROPERTIES, LLC, CREEKWOOD APARTMENTS, LLC, INVERNESS II, LLC, and GREYSTONE FARMS APARTMENT COMMUNITY, LLC, Plaintiffs,
v.
ORIX USA, L.P., RED CAPITAL GROUP, LLC, RED MORTGAGE CAPITAL, LLC, RED CAPITAL MARKETS, LLC, and RED CAPITAL PARTNERS, LLC, Defendants.

          ORDER

          CLAY D. LAND CHIEF U.S. DISTRICT COURT JUDGE.

         The pending motions to remand (ECF No. 8) and transfer (ECF No. 6) present several choice of forum, removal, and remand issues. Plaintiffs filed their original complaint in the State Court of Muscogee County, Georgia, alleging claims arising from and related to separate but connected contracts entered into by Plaintiffs and Defendant Red Mortgage Capital, LLC (“Red Mortgage”). Relying upon diversity of citizenship, Defendants removed the state court action to this Court and now seek transfer to the United States District Court for the Northern District of Texas based on a forum selection clause in one of the contracts. But the contracts contain conflicting forum selection clauses. And Plaintiffs, maintaining that the parties agreed on which contract's terms would control if such a conflict arose, argue that the superseding forum selection clause requires Plaintiffs' claims to be litigated in a Georgia state court. Thus, Plaintiffs seek remand of this action to the State Court of Muscogee County.

         The Court finds that Plaintiffs and Red Mortgage entered into contracts that require Plaintiffs' claims to be litigated in a Georgia state court, and therefore, Red Mortgage had no right to remove this action to this Court. Because Red Mortgage had no right to remove this action, it had no authority to consent to the removal of this action by its co-Defendants, who were not parties to the contracts with Plaintiffs. Without Red Mortgage's consent to removal, the other Defendants likewise had no right to remove this action to this Court. Accordingly, Plaintiffs' motion to remand (ECF No. 8) is granted, and Defendants' motion to transfer (ECF No. 6) is denied.

         FACTUAL ALLEGATIONS

         Plaintiffs develop apartment complexes in Georgia. Plaintiffs financed their projects with loans through the U.S. Department of Housing and Urban Development's Multifamily Accelerated Processing (“MAP”) program. Plaintiffs enlisted the services of Red Mortgage to assist them with the loan process. As explained in more detail below, Red Mortgage procured HUD's commitment to insure each loan, and then Red Mortgage served as the lender on the loans. For its services, Plaintiffs paid Red Mortgage a loan origination fee. Plaintiffs contend that during this process, Red Mortgage breached its contract with Plaintiffs and that Red Mortgage, along with its parent and sister companies, engaged in fraud and violated the Georgia Racketeer Influenced and Corrupt Organizations Act.

         I. The Loan Process

         After HUD approved Plaintiffs' MAP program applications and issued firm commitments for mortgage insurance, Red Mortgage sent a “Lender's Commitment Letter” to the borrower. See Defs.' Mot. to Transfer Ex. 2(A), Greystone Farms Apartment Community, LLC Lender's Commitment Letter (July 13, 2012), ECF No. 6-2 at 5-18 (“Greystone Letter”); Defs.' Mot. to Transfer Ex. 2(B), Overlook Gardens Properties, LLC Lender's Commitment Letter (Oct. 23, 2013), ECF No. 6-2 at 20-34 (“Overlook Letter”); Defs.' Mot. to Transfer Ex. 2(C), Inverness II, LLC Lender's Commitment Letter (June 5, 2015), ECF No. 6-2 at 36-63 (“Inverness Letter”); Defs.' Mot. to Transfer Ex. 2(D), Creekwood Apartments, LLC Lender's Commitment Letter (Sept. 8, 2015), ECF No. 6-2 at 65-76 (“Creekwood Letter”). In each letter, Red Mortgage committed to make a loan to the borrower on the terms and conditions set forth in the Lender's Commitment Letter. See, e.g., Overlook Letter at 1, ECF No. 6-2 at 20. The letter “describes the terms under which a debtor-creditor relationship will be established in this transaction.” E.g., Id. at 4, ECF No. 6-2 at 23. A number of “general conditions” were incorporated into each Lender's Commitment Letter. The conditions include a forum selection clause and a choice of law provision. E.g., Overlook Letter Ex. 2, General Conditions ¶ 26, ECF No. 6-2 at 30. Those conditions also state that Red Mortgage may fund the loan by the issuance and sale of Government National Mortgage Association mortgage-backed securities. E.g., Overlook Letter Ex. 2, General Conditions ¶ 12, ECF No. 6-2 at 26. According to Plaintiffs, that is how the loans were funded. Compl. ¶¶ 121-122, 135, ECF No. 1-2.

         After Red Mortgage issued the Lender's Commitment Letter, Red Mortgage offered pricing terms to the borrower in a “rate lock letter.” If the borrower accepted those pricing terms and executed the rate lock letter, then the borrower was bound to close on the loan if Red Mortgage could provide the pricing terms set forth in the rate lock letter-in other words, an interest rate equal to or less than the interest rate quoted in the rate lock letter. Compl. ¶¶ 125-126; see Overlook Letter at 2 ¶ B(2), ECF No. 6-2 at 6 (explaining pricing terms process); Compl. Ex. 14, Overlook Gardens Rate Lock Letter (Nov. 1, 2013), ECF No. 1-3 at 62.

         Plaintiffs allege that Defendants led them to believe that Red Mortgage would work “to secure the best possible financial deal for the Borrower” but actually worked “to induce the Borrower to unknowingly accept an interest rate higher than the prevailing market interest rate.” Compl. ¶ 22. According to Plaintiffs, the interest rate quoted in each rate lock letter was higher than the rate Red Mortgage knew investors would be willing to accept in exchange for funding the mortgage. Id. ¶ 125. Plaintiffs further allege that Defendants received additional compensation from investors when they induced borrowers to accept an above par interest rate; Plaintiffs refer to this additional compensation as “yield spread premium.” Id. ¶¶ 26-28. Plaintiffs assert that Defendants intended to provide Plaintiffs with an above par interest rate and that Defendants did not disclose these things to Plaintiffs. Id. ¶¶ 26-28, 127-131.

         Once each borrower executed the rate lock letter, Red Mortgage issued the borrower a confirmation letter stating that Red Mortgage locked the borrower's interest rate at a slightly lower rate than Red Mortgage quoted in the rate lock letter. Id. ¶ 132. But, according to Plaintiffs, that interest rate was still higher than what was available had Red Mortgage actually worked to secure the best financial deal for the borrowers. Id. ¶¶ 134, 136-138. Again, Plaintiffs contend that Red Mortgage receives additional, indirect compensation if it can induce the borrower to accept an above par interest rate because investors pay Red Mortgage more to purchase the loan than they would have paid to purchase a loan at par value. Id. ¶ 136. According to Plaintiffs, Red Mortgage is required to provide Plaintiffs with full disclosure of all loan fees but failed to disclose the yield spread premiums they received from the transactions with Plaintiffs. Id. ¶¶ 159-160. Specifically, Plaintiffs contend that Red Mortgage should have disclosed the yield spread premium in the Lender's Commitment Letter and also in a HUD form that was executed at the time of closing. Id. ¶ 184.

         At the closing of the loans, Plaintiffs executed promissory notes and security instruments to Red Mortgage as the lender. Plaintiffs promised to pay the interest rate that was established through the pricing terms process described above. Plaintiffs relied on Red Mortgage's representations regarding the best available interest rate and the compensation collected by Red Mortgage in connection with the loans. Id. ¶¶ 128-130, 149. Plaintiffs allege that because they relied on Defendants' alleged misrepresentations regarding the interest rates, they “are bound to pay interest rates in excess of what they otherwise would have agreed to pay and which results in hundreds of thousands of dollars in excess interest paid over the life of the loans.” Id. ¶ 182. Like the Lender's Commitment Letters, the notes and security instruments contain forum selection clauses.

         II. The Forum Selection Clauses

         A. Lender's Commitment Letters

         1. Lender's Commitment Letter for Overlook Gardens Loan, Inverness II Loan, and Creekwood Loan

         The Lender's Commitment Letters for the loans to Overlook Gardens Properties, LLC, Inverness II, LLC, and Creekwood Apartments, LLC state:

By its acceptance of the Lender's Commitment, the Borrower agrees that (a) it was negotiated, made and issued by the Lender in the State of New York; (b) any action brought hereunder shall only be brought in the federal or local courts of Dallas County, Texas; and (c) the rights and obligations of the parties shall be determined in accordance ...

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