The opinion
14‐4163‐cv
Brown v. Lower Brule Community Development Enterprise, LLC, Gavin Clarkson
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL
EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER
JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE
32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED
WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL
APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals for the Second
2 Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley
3 Square, in the City of New York, on the 4th day of June, two thousand fifteen.
4
5 PRESENT: RALPH K. WINTER,
6 RAYMOND J. LOHIER, JR.,
7 SUSAN L. CARNEY,
8 Circuit Judges.
9 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
10 DAVID A. BROWN,
11
12 Plaintiff‐Appellant,
13
14 v. No. 14‐4163‐cv
15
16 LOWER BRULE COMMUNITY DEVELOPMENT
17 ENTERPRISE, LLC, GAVIN CLARKSON,
18
19 Defendants‐Appellees.*
20
21 FOR APPELLANT: ETHAN A. BRECHER, Law Office of Ethan A.
22 Brecher, LLC, New York, NY.
The Clerk of the Court is respectfully directed to amend the caption of this case
**
as set forth above.
1
2 FOR APPELLEES: COURTNEY A. LANZALOTTO (Robert A. Giacovas,
3 Lainie E. Cohen, on the brief), Lazare Potter &
4 Giacovas LLP, New York, NY.
5
6 Appeal from a judgment of the United States District Court for the
7 Southern District of New York (P. Kevin Castel, Judge).
8 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
9 AND DECREED that the judgment of the District Court is AFFIRMED.
10 David Brown appeals from the District Court’s grant of a motion pursuant
11 to Federal Rule of Civil Procedure 12(b)(6) to dismiss his claims for default on a
12 promissory note, breach of contract, and breach of the duty of good faith and fair
13 dealing. We assume the parties’ familiarity with the facts and record of the prior
14 proceedings, to which we refer only as necessary to explain our decision to
15 affirm.
16 In March 2011 Brown executed a Limited Recourse Promissory Note (the
17 “Note”) with the Lower Brule Community Development Enterprise, LLC
18 (LBCDE) in lieu of compensation due to him as president of an LBCDE affiliate.
19 In March 2012 LBCDE allegedly defaulted on its payment obligations under the
20 Note. In April 2012 LBCDE sold one of its primary assets, a $22.5 million loan
21 with debt payments guaranteed by the Department of the Interior (DOI) (the
22 “guaranteed loan”). 1 As to Brown’s claims for default and breach of contract, the
23 only issue on appeal is whether Brown has any remedies based on the terms of
24 the Note.
1 Specifically, the DOI “guarantee[d] payment to the Lender [LBCDE] of [90%] of
any loss of principal, accrued interest, and authorized charges [LBCDE] sustains
on the identified loan.” App’x 187.
2
1 Brown’s potential remedies for default on the Note are contractually
2 limited. “Except with respect to Recourse Events, [Brown’s] recourse under this
3 Note is limited to funds, if any, collected by [LBCDE] under the DOI Guaranty.”
4 App’x 67. Because Brown failed to adequately allege that LBCDE collected any
5 funds “under the DOI Guaranty,” he has no remedy in the absence of a recourse
6 event. We are not persuaded by Brown’s argument that proceeds from the sale
7 of the guaranteed loan were funds received “under the DOI Guaranty.”
8 Brown also argues that a recourse event occurred under the Note because
9 LBCDE (1) “fail[ed] to immediately pay or cause to be paid to [Brown] under the
10 Note the proceeds that [were] received by [LBCDE] under the DOI Guaranty” or
11 (2) “commit[ted] fraud or ma[de] any material misrepresentation in connection
12 with the Offering, this Note, the Financing Documents, or the DOI Guaranty.”
13 App’x 67. The first argument fails for the reasons discussed above. With respect
14 to the second argument, insofar as Brown claims that a “fraud” recourse event
15 occurred, the allegations in support of that claim are insufficient. 2 Brown alleged
16 that LBCDE’s President and CEO, Gavin Clarkson, induced Brown into
17 executing the Note by verbally promising that Brown’s note would be fully paid
18 if LBCDE sold the guaranteed loan. But this alleged verbal promise fails to
19 constitute a “fraud” recourse event because Brown did not adequately allege
20 justifiable reliance, an element of common law fraud. Lazard Freres & Co. v.
21 Protective Life Ins. Co., 108 F.3d 1531, 1543 (2d Cir. 1997). The alleged promise
22 contradicts the limited recourse and “no oral modifications” provisions of the
23 Note, and Brown failed to obtain written documentation of this promise even
2 Having not presented it to the District Court as an argument in opposition to
the motion to dismiss, Brown forfeited the argument that Clarkson’s promise
constituted a “material misrepresentation” recourse event.
3
1 though he knew LBCDE planned to sell the guaranteed loan and he had a full
2 opportunity to request documents and complete due diligence prior to executing
3 the Note.
4 Finally, we affirm the District Court’s dismissal of Brown’s claim for
5 breach of the duty of good faith and fair dealing because LBCDE did not deny
6 payment based on any terms that “a reasonable person in the position of the
7 promisee would be justified in understanding were included” in the Note.
8 Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995) (quotation marks
9 omitted).
10 We have considered Brown’s remaining arguments and conclude that they
11 are without merit. For the foregoing reasons, we AFFIRM the judgment of the
12 District Court.
13 FOR THE COURT:
14 Catherine O’Hagan Wolfe, Clerk of Court
4