United States District Court, M.D. Georgia, Columbus Division
OVERLOOK GARDENS PROPERTIES, LLC, CREEKWOOD APARTMENTS, LLC, INVERNESS II, LLC, and GREYSTONE FARMS APARTMENT COMMUNITY, LLC, Plaintiffs,
ORIX USA, L.P., RED CAPITAL GROUP, LLC, RED MORTGAGE CAPITAL, LLC, RED CAPITAL MARKETS, LLC, and RED CAPITAL PARTNERS, LLC, Defendants.
D. LAND CHIEF U.S. DISTRICT COURT JUDGE.
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.
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.
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.
The Loan Process
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.
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.
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,
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.
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.
The Forum Selection Clauses
Lender's Commitment Letters
Lender's Commitment Letter for Overlook Gardens Loan,
Inverness II Loan, and Creekwood Loan
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