Case: 18-14999 Date Filed: 03/19/2020 Page: 1 of 17
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 18-14999
________________________
D.C. Docket No. 1:17-cv-23696-KMW
CUTLER BAY APARTMENTS, LLC,
FIRST CUTLER GARDENS, LLC,
Plaintiffs - Appellants,
versus
BANK OF AMERICA, N.A.,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(March 19, 2020)
Before MARTIN, GRANT, and LAGOA, Circuit Judges.
LAGOA, Circuit Judge:
Case: 18-14999 Date Filed: 03/19/2020 Page: 2 of 17
Cutler Bay Apartments, LLC, and First Cutler Gardens, LLC (collectively,
“Appellants”), two Florida limited liability companies, appeal the district court’s
order granting summary judgment in favor of Bank of America, N.A. (“BANA”) on
Appellants’ claims of breach of contract and breach of the covenant of good faith
and fair dealing. For the reasons discussed below, we affirm the district court’s grant
of summary judgment.
I. FACTUAL AND PROCEDURAL HISTORY
Appellants wanted to refinance loans tied to two apartment complexes located
in Miami-Dade County. To that end, on March 27, 2014, Appellants signed two
exclusive brokerage agreements with CLD Capital, Inc. (“CLD”), under which CLD
would negotiate the refinancing on Appellants’ behalf (the “CLD Agreements”).
The CLD Agreements provided that that CLD would have the exclusive right to
negotiate loans on behalf of Appellants for ninety days following the execution of
the CLD Agreements, that Appellants would pay CLD an origination fee of 0.5
percent of the refinanced loan amounts, that CLD would be entitled to any income
losses if Appellants breached the exclusivity provisions, and that arbitration of
disputes arising from a breach of the agreements would occur in Georgia.
On April 7, 2014, Appellants entered into two identical loan application
agreements (the “Loan Applications”) with BANA. The Loan Applications set forth
the terms under which BANA agreed to consider providing refinancing to
2
Case: 18-14999 Date Filed: 03/19/2020 Page: 3 of 17
Appellants. The Loan Applications also addressed potential brokerage agreements
that either party might enter, stating:
Brokerage and Referral Fees: By execution of this Application, the
Borrower agrees to pay any and all fees imposed or charged by all
brokers, mortgage bankers and advisors hired or contracted by the
Borrower who brought about the issuance of this Application or the
consideration of or making of the Proposed Loan pursuant hereto, and
agrees to indemnify and hold Lender harmless from and against any
and all claims, demands and liability for brokerage commissions,
assignment fees, finder’s fees or other compensation whatsoever
arising from this Application or Lender’s making of the Proposed Loan
which may be asserted against Lender by any person. Lender hereby
agrees to pay any and all fees imposed or charged by all brokers hired
solely by the Lender. In addition, Borrower acknowledges that Lender
may from time to time enter into an agreement under which Lender
provides compensation to a broker, mortgage banker, advisor,
correspondent or finder (which may be affiliated with Lender) who
brought about the issuance of this Application or the consideration of
or making of the Proposed Loan, whether in the form of referral,
incentive, profit sharing or servicing related fees, provided, however,
such parties shall have no authority to act on behalf of, or bind, Lender
in any manner. Lender agrees to indemnify and hold Borrower
harmless from and against any and all claims, demands and liability
arising under such agreement.
The parties further agreed that the Loan Applications would be governed by New
York law. Finally, the Loan Applications included Appellants’ requested carveout
to the “Exclusivity” provisions so that Appellants could continue separate
refinancing negotiations with BankUnited, NA (“BankUnited”). Significantly, CLD
was not involved in Appellants’ negotiations with BankUnited.
During the refinancing process, CLD’s Vice President, Leanne Eicoff,
discussed with James Angoff, an employee of BANA, the prospect of securing a
3
Case: 18-14999 Date Filed: 03/19/2020 Page: 4 of 17
referral or finder’s fee of 0.5 percent for CLD if CLD was able to successfully
convince Appellants to refinance their loans with BANA. At the time, Appellants
were unaware of any discussion about a potential referral or finder’s fee for CLD.
Ultimately, Appellants did not refinance with BANA. Instead, Appellants
refinanced with BankUnited.
On October 8, 2014, CLD made a demand for arbitration and presented a
statement of claims against Appellants. In its demand, CLD claimed that Appellants
breached the exclusivity provisions in the CLD Agreements and sought damages and
its attorney’s fees “pursuant to the [CLD] Agreements.” As damages, CLD sought
0.5 percent of each proposed loan amount for Appellants’ breach of the CLD
Agreements’ exclusivity provisions, as well as the additional 0.5 percent of each
proposed loan CLD claimed it would have received from BANA as a finder’s fee.
Appellants and CLD proceeded to arbitration (the “CLD Arbitration”). On February
6, 2016, the arbitrator denied CLD’s claims under the CLD Agreements against
Appellants but did not award Appellants their attorney’s fees for defending
themselves against CLD’s claims.
Subsequently, on October 10, 2017, Appellants sued BANA for (1) breach of
contract and (2) breach of the covenant of good faith and fair dealing. In their
Complaint, Appellants alleged that BANA failed to indemnify Appellants against
CLD’s claims in the CLD Arbitration, as required by the Loan Applications, and that
4
Case: 18-14999 Date Filed: 03/19/2020 Page: 5 of 17
as a result, Appellants suffered damages of over $200,000 in legal fees and costs
defending themselves. In its Answer, BANA denied all of Appellants’ allegations
and raised several affirmative defenses. After various motions were filed by the
parties, BANA moved for summary judgment. In its motion, BANA argued that, as
a matter of law, BANA owed no duty to indemnify Appellants, as the indemnity
provisions in the Loan Applications did not apply to the contractual dispute between
CLD and Appellants that arose from the CLD Agreements and that was the subject
of the CLD Arbitration. BANA further argued that Appellants’ claim for breach of
the covenant of good faith and fair dealing failed as a matter of law, as Appellants
were unable to alter BANA’s obligations under the unambiguous terms of the Loan
Applications’ indemnity provisions.
The district court referred BANA’s motion for summary judgment to a
magistrate judge for a report and recommendation. On September 24, 2018, the
magistrate judge issued an Amended Report and Recommendation (the “Report and
Recommendation”). In his Report and Recommendation, the magistrate judge
determined that no binding terms of the Loan Applications ever materialized because
certain conditions precedent were not met and, thus, no indemnity agreement was
ever perfected between the parties. The magistrate judge therefore concluded that
BANA had no duty to indemnify Appellants and recommended granting summary
judgment in favor of BANA on the breach of contract claim. As an alternate ground
5
Case: 18-14999 Date Filed: 03/19/2020 Page: 6 of 17
for summary judgment, the magistrate judge also considered whether BANA’s duty
to indemnify, assuming one did arise, extended to CLD’s claims in the CLD
Arbitration. Applying New York law, the magistrate judge determined that the CLD
Agreements and the Loan Applications were two separate sets of documents
governed by different law and prepared by independent entities and that BANA was
not even referenced in the CLD Agreements. The magistrate judge further noted
that CLD’s claims in arbitration were based solely on Appellants’ breach of the CLD
Agreements. The magistrate judge rejected Appellants’ argument that BANA had a
duty to indemnify them against CLD because BANA offered to pay CLD a
commission if CLD successfully convinced Appellants to close their refinancing
with BANA, concluding that such a claim lay outside the scope of indemnity liability
under New York law. The magistrate judge therefore recommended that summary
judgment be entered in favor of BANA on Appellants’ breach of contract claim on
this ground as well.
Turning to Appellants’ claim of breach of the covenant of good faith and fair
dealing, the magistrate judge noted that New York law “does not recognize a
separate cause of action for breach of the implied covenant of good faith and fair
dealing outside the scope of a traditional breach of contract claim.” The magistrate
judge noted that, although “deficient,” Appellants’ breach of contract claim arose
from some contractual language in the Loan Applications. As such, the magistrate
6
Case: 18-14999 Date Filed: 03/19/2020 Page: 7 of 17
judge found that the allegations in the second count were “not viable claims because
they [were] inconsistent with the terms of the parties’ agreement,” which “simply
required BANA to diligently evaluate [Appellants’] request for a loan and, if that
loan resulted from or related to BANA’s broker, to indemnify [Appellants] for any
claims arising out of an agreement between BANA and the broker.” Finding this
claim also had no legal merit, the magistrate judge recommended summary judgment
be entered in favor of BANA. Appellants filed objections to the Report and
Recommendation, which BANA opposed.
On October 30, 2018, the district court issued an order affirming and adopting
the magistrate judge’s Report and Recommendation, finding that:
[(1)] the plain language of the Loan Applications at issue provides that
the indemnity provision was not binding unless [BANA] issued a loan,
and it never did so; (2) even if the indemnity provision were binding, it
would not apply to [Appellants’] indemnification claims in this case;
and (3) no liability exists for [Appellants’] related claim for breach of
good faith and fair deadline [sic].
In a separate order, the district court entered final judgment in favor of BANA on all
of Appellants’ claims. This timely appeal ensued.
II. STANDARD OF REVIEW
We review de novo a district court’s order granting summary judgment,
“view[ing] the evidence (and inferences) in the light most favorable to the . . . non-
moving parties.” Asalde v. First Class Parking Sys. LLC, 898 F.3d 1136, 1138 (11th
Cir. 2018). “Summary judgment is appropriate only when ‘the pleadings, the
7
Case: 18-14999 Date Filed: 03/19/2020 Page: 8 of 17
discovery and disclosure materials on file, and any affidavits show that there is no
genuine issue as to any material fact and that the movant is entitled to judgment as a
matter of law.’” Penley v. Eslinger, 605 F.3d 843, 848 (11th Cir. 2010) (quoting
Fed. R. Civ. P. 56(c)(2)). “A dispute over an issue of material fact is genuine if the
evidence would permit a reasonable jury to return a verdict for the party against
whom summary judgment is sought.” Camp Creek Hosp. Inns, Inc. v. Sheraton
Franchise Corp., 139 F.3d 1396, 1400 (11th Cir. 1998). “If, however, the evidence
of a genuine issue of material fact is ‘merely colorable’ or of insignificant probative
value, summary judgment is appropriate.” Id. (quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249–50 (1986)).
III. ANALYSIS
On appeal, Appellants argue that the district court erred by granting summary
judgment in favor of BANA on Appellants’ breach of contract and breach of the
covenant of good faith and fair dealing claims. We first consider Appellants’
arguments on the breach of contract claim before turning to their arguments
regarding the breach of covenant claim.
A. Breach of Contract Claim
In his Report and Recommendation, the magistrate judge considered two
separate grounds for granting summary judgment in favor of BANA on Appellants’
breach of contract claim, both of which the district court adopted. First, the
8
Case: 18-14999 Date Filed: 03/19/2020 Page: 9 of 17
magistrate judge determined that any duty to indemnify Appellants was never
perfected, as no binding terms of the Loan Applications materialized because certain
conditions precedent were not satisfied. Appellants assert that BANA waived this
argument because BANA failed to raise it as an affirmative defense, and the district
court was unable to consider it sua sponte as a basis for granting summary judgment.
A “failure to plead an affirmative defense typically results in waiver of that
defense,” and “[c]ourts ‘generally lack the ability to raise an affirmative defense sua
sponte.’” Roberts v. Gordy, 877 F.3d 1024, 1028 (11th Cir. 2017) (quoting Latimer
v. Roaring Toyz, Inc., 601 F.3d 1224, 1239 (11th Cir. 2010)). This Court has
previously reversed a district court’s grant of summary judgment where the district
court sua sponte considered an argument never raised in a defendant’s pleadings.
See, e.g., Latimer, 601 F.3d at 1238–41. Here, BANA never raised as an affirmative
defense that the indemnity provisions in the Loan Applications were not perfected.
Instead, BANA alleged that the scope of the indemnity provisions did not apply to
CLD’s claims against Appellants in the CLD Arbitration. Accordingly, it was
improper for the magistrate judge to consider, and the district court to adopt, this
ground as a basis for granting summary judgment on Appellants’ breach of contract
claim.
As a separate ground for recommending summary judgment, however, the
magistrate judge also considered BANA’s argument that the indemnity provisions
9
Case: 18-14999 Date Filed: 03/19/2020 Page: 10 of 17
did not extend to CLD’s claims against Appellants in the CLD Arbitration. The
magistrate judge determined that the CLD Agreements and Loan Applications were
two separate sets of agreements and that CLD’s claims against Appellants in the
CLD Arbitration were based solely on Appellants’ breach of the CLD Agreements,
not any agreement between CLD and BANA. The magistrate judge noted that the
parties had agreed to apply New York law to the Loan Applications. As such, the
magistrate judge found that, under New York law, the indemnity provisions did not
apply to the CLD Arbitration claims and recommended granting summary judgment
on this separate basis, which the district court also adopted. Appellants argue that
the magistrate judge and district court erred by finding the indemnity provisions did
not apply to CLD’s claims against them. We disagree.
Under New York law, an indemnity provision “should be construed so as to
encompass only that loss and damage which reasonably appear to have been within
the intent of the parties.” Niagara Frontier Transp. Auth. v. Tri-Delta Constr. Corp.,
487 N.Y.S.2d 428, 431 (N.Y. App. Div. 1985), aff’d, 484 N.E.2d 1047 (N.Y. 1985).
Furthermore, an indemnity provision “should not be extended to include damages
which are neither expressly within its terms nor of such character that it is reasonable
to infer that they were intended to be covered under the contract.” Id.; accord McKay
v. Weeden, 50 N.Y.S.3d 684, 689–90 (N.Y. App. Div. 2017). As noted above, the
Loan Applications’ indemnity provisions each provided the following:
10
Case: 18-14999 Date Filed: 03/19/2020 Page: 11 of 17
Borrower acknowledges that Lender may from time to time enter into
an agreement under which Lender provides compensation to a broker,
mortgage banker, advisor, correspondent or finder . . . who brought
about the . . . making of the Proposed Loan, whether in the form of
referral, incentive, profit sharing or servicing related fees, provided,
however, such parties shall have no authority to act on behalf of, or
bind, Lender in any manner. Lender agrees to indemnify and hold
Borrower harmless from and against any and all claims, demands and
liability arising under such agreement.
(emphasis added).
Reviewing the record in the light most favorable to Appellants, we find that
BANA had no duty to indemnify Appellants against CLD’s claims in the arbitration,
as those claims did not arise under a referral or finder’s fee agreement between CLD
and BANA. Prior to the execution of the Loan Applications between Appellants and
BANA, Appellants and CLD entered into the CLD Agreements, which provided that
CLD had the exclusive right to negotiate loans for Appellants’ apartment complexes
on behalf of Appellants for a ninety-day period following the execution of the
agreements. CLD’s demand and statement of claims was based solely on the CLD
Agreements, alleging that Appellants “were bound to exclusively utilize and work
with CLD with regard to refinancing” and “[i]nstead of complying . . . , [Appellants]
breached the exclusivity agreement by sourcing the refinancing . . . from another
lender.” Moreover, CLD sought damages and attorney’s fees “pursuant to the [CLD]
Agreements.” Thus, the only contracts at issue in the CLD Arbitration were the CLD
Agreements, which are not covered by the Loan Applications’ indemnity provisions.
11
Case: 18-14999 Date Filed: 03/19/2020 Page: 12 of 17
Moreover, even if the scope of the CLD Arbitration could be considered to
include the Loan Applications because of the potential referral fee CLD negotiated
with BANA, Appellants did not close any loan with BANA. The discussion between
CLD and BANA about a potential finder’s fee if Appellants closed with BANA does
not constitute an executed finder’s fee agreement between CLD and BANA that
could fall within the Loan Applications’ indemnity provisions. The fact that
Appellants did not close with BANA rendered the indemnity provisions
inapplicable.
We also reject Appellants’ suggestion to expand the Loan Applications’
indemnity provisions to cover any engagement of a broker by BANA as contrary to
New York law’s strict construction of indemnity provisions. See McKay, 50
N.Y.S.3d at 689 (“It is axiomatic that, ‘[w]hen a party is under no legal duty to
indemnify, a contract assuming that obligation must be strictly construed to avoid
reading into it a duty which the parties did not intend to be assumed.’” (alteration in
original) (quoting Hooper v. AGS Computers, Inc., 74 N.E.2d 903, 905 (N.Y.
1989))). The indemnity provisions at issue required BANA to indemnify Appellants
only for claims arising from an agreement by BANA with a broker to pay that broker
a finder’s fee where the broker referred a borrower to BANA who then went forward
and closed on a loan with BANA. For example, BANA would have been required
to indemnify Appellants in a situation where BANA had entered into a finder’s fee
12
Case: 18-14999 Date Filed: 03/19/2020 Page: 13 of 17
agreement with CLD, the loans had closed, BANA refused to pay CLD a finder’s
fee, and CLD then sought the finder’s fee from Appellants instead of BANA. That
is not what happened here, and the fact that CLD sought the amount it would have
earned as a finder’s fee if Appellants had closed with BANA as damages in the CLD
Arbitration by itself does not trigger BANA’s duty to indemnify Appellants.
Accordingly, because CLD’s claims in the CLD Arbitration arose from the
CLD Agreements and not from the Loan Agreements, we hold that the district court
properly granted summary judgment in favor of BANA on the breach of contract
claim.
B. Breach of Covenant Claim
Finally, we address Appellants’ argument that the district court erred in
granting summary judgment in favor of BANA on their breach of the covenant of
good faith and fair dealing claim. Specifically, Appellants contend that BANA’s
alleged “acts and omissions” during the CLD Arbitration are “distinct facts” separate
from their claim alleging breach of the Loan Applications’ indemnity provisions.
This argument is without merit.
“Under New York law, parties to an express contract are bound by an implied
duty of good faith, but breach of that duty is merely a breach of the underlying
contract.” Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73, 80 (2d Cir.
2002) (quoting Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052,
13
Case: 18-14999 Date Filed: 03/19/2020 Page: 14 of 17
1056 (2d Cir. 1992)). “New York law . . . does not recognize a separate cause of
action for breach of the implied covenant of good faith and fair dealing when a
breach of contract claim, based upon the same facts, is also pled.” Id. at 81; accord
ARI & Co., Inc. v. Regent Int’l Corp., 273 F. Supp. 2d 518, 522 (S.D.N.Y. 2003).
“A claim for breach of the implied covenant will be dismissed as redundant where
the conduct allegedly violating the implied covenant is also the predicate for breach
of covenant of an express provision of the underlying contract.” Harris, 310 F.3d at
80 (quoting ICD Holdings S.A. v. Frankel, 976 F. Supp. 234, 243–44 (S.D.N.Y.
1997)); accord Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 125 (2d Cir. 2013); see
also, e.g., Canstar v. J.A. Jones Constr. Co., 622 N.Y.S.2d 730, 731 (N.Y. App. Div.
1995). Thus, “a breach of the implied covenant of good faith claim can survive a
motion to dismiss ‘only if it is based on allegations different than those underlying
the accompanying breach of contract claim.’” ARI, 273 F. Supp. 2d at 522 (quoting
Siradas v. Chase Lincoln First Bank, N.A., No. 98 Civ. 4028, 1999 WL 787658, at
*6 (S.D.N.Y. Sept. 30, 1999)). Additionally, where the plaintiff seeks relief that is
“‘intrinsically tied to the damages allegedly resulting from the breach of contract,’
there is no separate and distinct wrong that would give rise to an independent claim”
for breach of the implied covenant. Id. (citation omitted) (quoting Alter v. Bogoricin,
No. 97 Civ. 0662, 1997 WL 691332, at *8 (S.D.N.Y. Nov. 6, 1997)). Finally, “New
York law is clear that the implied covenant cannot be used to create independent
14
Case: 18-14999 Date Filed: 03/19/2020 Page: 15 of 17
obligations beyond the contract.” Id. at 523; accord Dalton v. Educ. Testing Serv.,
663 N.E.2d 289, 291–92 (N.Y. 1995) (“The duty of good faith and fair dealing,
however, is not without limits, and no obligation can be implied that ‘would be
inconsistent with other terms of the contractual relationship.’” (quoting Murphy v.
Am. Home Prods. Corp., 448 N.E.2d 86, 91 (N.Y. 1983))).
In the second count of their complaint, Appellants alleged that:
BANA breached the covenant of good faith and fair dealings under the
Agreements by . . . allowing CLD to bring the Arbitration suit against
[Appellants] and doing absolutely nothing in [Appellants’] defense, by
picking sides with CLD in the Arbitration litigation, by entering into an
oral promise with CLD that caused CLD to file an Arbitration suit
against [Appellants], by failing to communicate in writing the existence
of that promise to [Appellants] along with failing to memorialize the
terms of the promise with CLD, by failing to communicate with CLD
that the carve out to the exclusivity was a complete bar to CLD’s action,
and by failing to indemnify [Appellants] from CLD’s Arbitration suit.
. . . In addition, BANA refused to even attend the arbitration via skype
. . . to assist [Appellants] in rebutting false testimony presented by CLD
....
We agree with the magistrate judge and district court that the “violations” in this
claim were tied to the Loan Applications’ indemnity provisions. As explained
above, however, the Loan Applications do not create a duty for BANA to indemnify
Appellants beyond a third-party broker’s claims arising from a referral or finder’s
fee agreement executed between that broker and BANA. BANA therefore had no
duty to indemnify Appellants for CLD’s claims in arbitration. We decline to extend
the implied covenant of good faith and fair dealing to the preliminary finder’s fee
15
Case: 18-14999 Date Filed: 03/19/2020 Page: 16 of 17
discussions between BANA and CLD, as doing so would be inconsistent with the
terms of the Loan Applications. See Dalton, 663 N.E.2d at 291–92.
Moreover, the allegations in Appellants’ claim are clearly tied to their breach
of contract claim, as those allegations relate to BANA not indemnifying or otherwise
participating in the CLD Arbitration. See, e.g., Cruz, 720 F.3d at 125 (finding
plaintiff’s “claim for breach of the implied covenant of good faith and fair dealing”
redundant where “his breach of contract claim clearly rest[ed] on the same alleged
deceptive practices”). Additionally, the damages Appellants seek for their count of
breach of covenant—attorney’s fees for defending the CLD Arbitration—are
“intrinsically tied” to the damages resulting from the breach of contract, i.e., the
same amount of attorney’s fees. Cf. ARI, 273 F. Supp. 2d at 522 (finding damages
for the plaintiff’s claim of breach of the implied covenant of good faith and fair
dealing “intrinsically tied to” the plaintiff’s breach of contract claim where the
plaintiff sought to recover the exact amount of money for loss of commissions). The
breach of covenant claim therefore is redundant of Appellants’ breach of contract
claim, and the district court properly granted summary judgment for BANA on this
claim.
IV. CONCLUSION
The magistrate judge and district court correctly determined (1) that under the
Loan Applications’ indemnity provisions, BANA had no duty to indemnify
16
Case: 18-14999 Date Filed: 03/19/2020 Page: 17 of 17
Appellants for CLD’s claims in the CLD arbitration and (2) that Appellants’ claim
of breach of the covenant of good faith and fair dealing was inconsistent with the
indemnity provisions, as well as redundant of the breach of contract claim.
Accordingly, we hold that the district court properly granted summary judgment in
favor of BANA on both counts of Appellants’ complaint, and therefore affirm the
district court’s final judgment.
AFFIRMED.
17