Fish Creek Capital, LLC v. Wells Fargo Bank, N.A.

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit

FOR THE TENTH CIRCUIT June 20, 2012

Elisabeth A. Shumaker
Clerk of Court

FISH CREEK CAPITAL, LLC, a
Wyoming limited liability company,

Plaintiff-Appellant,
No. 11-8081
and (D.C. No. 2:11-CV-00176-NDF)
(D. Wyo.)
FLAT CREEK CAPITAL, LLC, a
Wyoming limited liability company,

Plaintiff,

v.

WELLS FARGO BANK, N.A., a national
bank,

Defendant-Appellee.

ORDER AND JUDGMENT*

Before BRISCOE, Chief Judge, PORFILIO, Senior Circuit Judge, and MURPHY,
Circuit Judge.

*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
 Plaintiff Fish Creek Capital, LLC, appeals from the dismissal of its contract

claims against Wells Fargo Bank, N.A. Exercising jurisdiction under 28 U.S.C.

§ 1291, we affirm.

The Snake River Sporting Club Development Company (Snake River

Company) obtained a subdivision permit from the Teton County Board of

Commissioners (Teton County) in Jackson, Wyoming. In July 2005, Wells Fargo

(successor by consolidation with Jackson State Bank and Trust) issued a letter of

credit (LC) to Teton County. The purpose of the LC, which had a termination date of

July 15, 2006, was “to ensure that [Snake River Company] will install

INFRASTRUCTURE IMPROVEMENTS” in the Snake River Sporting Club

Development (Snake River Development) by the LC’s termination date and to

“insure that [Snake River Company] will be financially responsible should [it] fail to

install [those improvements] in the specified time and manner.” App. at 19. Wells

Fargo extended the LC by issuing three replacement LCs. The second terminated on

July 14, 2007, the third on July 14, 2008, and the fourth on October 14, 2008 (later

extended to February 12, 2009). Each LC stated that it was governed by the

Wyoming Uniform Commercial Code. Snake River Company never completed the

infrastructure improvements, and in January 2009, Teton County drew on the LC.

Wells Fargo paid off on it, and Teton County completed the infrastructure in the fall

of 2010.

-2-
 Meanwhile, on August 30, 2006, Fish Creek obtained a $1.425 million loan

from Wells Fargo for the purchase of property in the Snake River Development. The

loan had a term of one year. Fish Creek’s co-plaintiff, Flat Creek Capital, LLC,

granted a $500,000 mortgage to Wells Fargo against real property it owned to secure

the loan to Fish Creek.1 Sometime after Wells Fargo issued the third LC in July

2007, one of Fish Creek’s principals met with Wells Fargo to notify the bank that

extending the LC would adversely affect the value of property in the Snake River

Development and make it difficult or impossible to sell because the infrastructure had

not been timely completed. During this same time frame, Wells Fargo became a

lender to the previous senior lender for the Snake River Development project, R.E.

Loans, LLC, which subordinated its interests to Wells Fargo, thereby making Wells

Fargo the lender to R.E. Loans and the senior lender for the Snake River

Development.

Ultimately, Wells Fargo gave notice of its intent to foreclose the mortgage Flat

Creek had given to secure the Fish Creek loan. Fish Creek then filed this action. In

its complaint, as clarified somewhat in its response to Wells Fargo’s motion to

dismiss, Fish Creek claimed that Wells Fargo breached a covenant of good faith and

fair dealing in their loan agreement by extending the second LC beyond the July 2007

termination date. Fish Creek alleged that it had relied on the completion of the
1
Flat Creek is repeatedly identified in this action as “Flat Creek Capital, LLC,”
although the entity’s name appears to be Flat Creek Capital Corporation, as set out on
the mortgage.

-3-
infrastructure by that date in deciding to borrow funds to purchase property in the

Snake River Development, and that Wells Fargo had negotiated extensions of the

LCs for its own benefit, apparently evidenced by the fact that Wells Fargo’s funding

exposure was reduced by more than $2.1 million between the second LC and the

fourth LC. Fish Creek also claimed that it was a third-party beneficiary of the LCs

and, as such, entitled to damages arising from Wells Fargo’s failure to pay on the LC

that terminated on July 14, 2007. Fish Creek noted that property values in Teton

Valley decreased dramatically between the July 2007 termination date and the

eventual completion of the infrastructure in the fall of 2010. Fish Creek estimated

that the value of its property in the Snake River Development had decreased over

$700,000 during that time.

Wells Fargo moved to dismiss Fish Creek’s claims under Fed. R. Civ.

P. 12(b)(6), arguing that it had no duty to Fish Creek under the loan transaction—and

no duty at all under the LCs—to assure that Snake River Company completed the

infrastructure improvements by any particular date. Wells Fargo contended that its

only duty under the loan agreement was to advance the loan proceeds, which it did.

Wells Fargo also argued that Fish Creek was not a third-party beneficiary of the LCs

and, in any event, Well Fargo’s only duty under the LCs was to pay when Teton

County drew on an LC, which it did.

The district court agreed with Wells Fargo’s position. The court first

considered Fish Creek’s claim that Wells Fargo breached the covenant of good faith

-4-
and fair dealing, observing that Wells Fargo had no obligation under the loan

agreement to complete the infrastructure by the summer of 2007; Wells Fargo’s only

obligation was to lend money to Fish Creek, and it fulfilled that duty. The court also

observed that there was no allegation that Wells Fargo promised Fish Creek that the

infrastructure would be completed by any particular date. Because “[t]he covenant of

good faith and fair dealing may not . . . be construed to establish new, independent

rights or duties not agreed upon by the parties,” Whitlock Constr., Inc. v. S. Big Horn

Cnty. Water Supply Joint Powers Bd., 41 P.3d 1261, 1267 (Wyo. 2002) (quotation

omitted), the court concluded that the claim must be dismissed.2

Turning to the third-party-beneficiary breach-of-contract claim, the court

rejected Fish Creek’s argument that Wells Fargo knew that lot owners were intended

beneficiaries of the LCs. Fish Creek relied on two Wyoming statutes in support of

that argument, Wyo. Stat. §§ 18-5-304 and 18-6-306(a)(viii). Section 18-5-304

provides that “[n]o person shall sell land subject to subdivision regulation under this

article, record a plat or commence construction of a subdivision without first

obtaining a subdivision permit pursuant to W.S. 18-5-306 or, if applicable, W.S.

18-5-316 from the board of the county in which the land is located.” In turn,

§ 18-6-306(a)(viii) requires a developer to “provide a performance bond, acceptable

letter of credit or other sufficient financial commitment to assure that any facilities

2
Because this is a diversity case, Wyoming law applies. See Cooperman v.
David, 214 F.3d 1162, 1164 (10th Cir. 2000).

-5-
proposed or represented to be part of the subdivision will in fact be completed as

proposed, or escrow sufficient monies out of land sales to guarantee that

[infrastructure improvements] are installed.” The court found no legal basis in these

statutes supportive of Fish Creek’s allegation that it was an intended third-party

beneficiary of the LCs. Further, the LCs themselves provided no support for Fish

Creek’s position because each one identified the Teton County Board of

Commissioners as the beneficiary entitled to payment in the event Snake River

Company failed to install the infrastructure improvements, and there was no

indication that lot purchasers had any rights under the LCs. The court also

recognized that the purpose of the statutory requirements is to protect a county from

financial burden in the event a developer fails to complete a subdivision project, and

that it is the county, not the issuer of an LC, who determines when and whether to

draw on an LC. Teton County set the timelines for completion of the project, and

when it ultimately drew on the LC, Wells Fargo fulfilled its sole obligation by paying

on it. Accordingly, the district court concluded that it must dismiss Fish Creek’s

second claim.

We review a dismissal under Fed. R. Civ. P. 12(b)(6) de novo. Kan. Penn

Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011). “[I]n ruling on a

motion to dismiss, a court should disregard all conclusory statements of law and

consider whether the remaining specific factual allegations, if assumed to be true,

plausibly suggest the defendant is liable.” Id. Having reviewed the record, the

-6-
applicable law, and the parties’ arguments, we agree with the district court that Fish

Creek’s factual allegations did not plausibly suggest that Wells Fargo was liable. We

therefore affirm the judgment for substantially the same reasons set forth in the

district court’s well-reasoned dismissal order. We add only two points. First, Fish

Creek did not allege that Teton County attempted or intended to draw on the LC that

terminated in July 2007, so the allegation that Wells Fargo reduced its obligation by

negotiating an extension of that LC fails the plausibility test. Second, provisions of

the Wyoming Uniform Commercial Code, which expressly govern the LCs, reinforce

the conclusion that Wells Fargo was not obligated to Fish Creek for any failure of

performance in the underlying contract for which the LCs were issued. See Wyo.

Stat. § 34.1-5-103(d) (“Rights and obligations of an issuer to a beneficiary or a

nominated person under a letter of credit are independent of the existence,

performance, or nonperformance of a contract or arrangement out of which the letter

of credit arises or which underlies it, including contracts or arrangements between the

issuer and the applicant and between the applicant and the beneficiary.”); id.

§ 34.1-5-108(f)(i)-(ii) (“An issuer [of an LC] is not responsible for (i) The

performance or nonperformance of the underlying contract, arrangement or

transaction; [or] (ii) An act or omission of others[.]”).

The judgment of the district court is AFFIRMED.

Entered for the Court

John C. Porfilio
Senior Circuit Judge

-7-