ACA FINANCIAL GUARANTY CORPORATION; UMB BANK, NA, Plaintiffs - Appellants,
CITY OF BUENA VISTA, VIRGINIA; PUBLIC RECREATIONAL FACILITIES AUTHORITY OF THE CITY OF BUENA VISTA, VIRGINIA, Defendants - Appellees, and RUSSELL J. SINGER and DOUGLAS L. SBERTOLI, SR., Trustees.
Argued: October 31, 2018
from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:17-cv-00013-NKM-RSB)
Carlton Ford, Brian Aaron Richardson, FORD RICHARDSON, PC,
Richmond, Virginia, for Appellants.
M. Rose, BOTKINROSE PLC, Harrisonburg, Virginia, for
Michael W. Sharp, BOTKINROSE PLC, Harrisonburg, Virginia;
Brian J. Kearney, W. Wayne Heslep, HESLEP & KEARNEY PC,
Lexington, Virginia, for Appellees.
GREGORY, Chief Judge, and THACKER and QUATTLEBAUM, Circuit
QUATTLEBAUM, CIRCUIT JUDGE
appeal, we review an order dismissing a complaint that arose
from a troubled bond transaction involving a municipal golf
course in the City of Buena Vista, Virginia (the
"City"). Bonds were issued to refinance debt on the
golf course and the repayment of the bonds depended on the
City making payments on the lease of the golf course. When it
failed to do so, this litigation ensued. The primary question
on appeal is whether the City's obligation to make rent
payments is legally enforceable when the obligation is
expressly subject to the City's annual decision to
appropriate funds. Finding that the answer is no, we affirm
the district court's dismissal of the complaint.
for a golf course in the City date back to 2002. In that
year, the Commonwealth of Virginia created the Public
Recreational Facilities Authority (the "Authority")
to construct, operate and maintain public recreational
facilities for the benefit of the City. In 2003, the
Authority, at the request of the City, took out a loan to
finance the construction of a municipal golf course called
the Vista Links Golf Club (the "Golf
2005, the City and the Authority sought to refinance the loan
on the Golf Course. To accomplish this, the Authority issued
over $9 million in bonds. The Authority and SunTrust Bank
(the "Bank") entered into a Trust Agreement which
described how the bonds would be issued, how they would be
repaid and the rights of the parties in the event the bonds
were not repaid. The Authority used the bond proceeds to
pay off the existing loan on the Golf Course.
a source of revenue to repay the bonds, the Authority leased
the Golf Course to the City. Under the Lease Agreement, the
City agreed to make rent payments as well as maintain and
operate the Golf Course. The Authority agreed that the rent
payments would be used to repay the bonds. The rent payments
from the City, therefore, were the financial linchpin of the
transaction. Critically, however, the City never made an
absolute commitment to make the rent payments. Under the
Lease Agreement and the other financing documents, the
City's obligation was subject to its decision to
appropriate funds each year.
documents in the bond transaction gave the Bank rights as a
creditor in the event the bonds were not repaid. The City
issued a Deed of Trust to the Bank where the City pledged its
existing City Hall building and police station as security.
Similarly, the Authority issued a Deed of Trust to the Bank
where the Authority pledged the Golf Course as security. Both
the City Deed of Trust and the Authority Deed of Trust
(collectively "Deeds of Trust") along with the
Trust Agreement contain provisions outlining the Bank's
creditor rights to this collateral.
Bank retained ACA Financial Guaranty Corporation
("ACA") to provide insurance on the bonds. Through
this arrangement, ACA received insurance premiums, and, in
return, agreed to pay off the bonds if there was a default in
repayment. In such a situation, ACA would front the costs of
paying off the bonds and then assume the Bank's rights to
receive rent payments and to enforce other creditor rights.
and 2011, the City failed to appropriate enough money to
fully pay the rent due on the Golf Course lease. As a result,
the Authority could not repay the bonds. After discussions
and negotiations, the parties entered into the Forbearance
Agreement. Under the Forbearance Agreement, ACA agreed to
make up any shortfall resulting from the City's failure
to make rent payments. It also agreed to temporarily forego
exercising its creditor rights and remedies. The City and the
Authority agreed that ACA would be reimbursed for any
payments it made and agreed that the bonds would still be
repaid from rent payments, although the payment plan was
extended over a longer period of time. Significantly, the
Forbearance Agreement also makes clear that the obligation to
make the rent payments is subject to annual appropriations by
January 2015, the City voted not to appropriate funds for the
rent payments and has not made any payments since that time.
As a result, the Authority once again failed to repay the
response, ACA and the Bank filed a ten-count complaint in
federal court against the City and the Authority. The City
and the Authority filed a motion to dismiss the complaint
under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
The district court granted the motion to dismiss finding that
all ten counts in the complaint failed to state claims for
which relief could be granted. ACA and the Bank appealed all
but one of the counts. We have jurisdiction for this appeal
pursuant to 28 U.S.C. § 1291.
Court reviews a motion to dismiss de novo. Nemet
Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d
250, 253 (4th Cir. 2009). In so doing, we follow the
well-settled standard for considering a motion to dismiss
under Rule 12(b)(6).
motion to dismiss pursuant to Rule 12(b)(6) tests the
sufficiency of the claims pled in a complaint. To
sufficiently plead a claim, the Federal Rules of Civil
Procedure require that "[a] pleading that states a claim
for relief must contain . . . a short and plain statement of
the claim showing that the pleader is entitled to relief . .
. ." Fed.R.Civ.P. 8(a). This pleading standard does not
require detailed factual allegations. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). However, "it
demands more than an unadorned,
Id. Labels, conclusions, recitation of a claim's
elements, and naked assertions devoid of further factual
enhancement will not suffice to meet the Rule 8 pleading
the Rule 8 standard and survive a motion to dismiss, "a
complaint must contain sufficient factual matter, accepted as
true, to 'state a claim to relief that is plausible on
its face.'" Id. (citing Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 557 (2007)). To contain
sufficient factual matter to make a claim plausible, the
factual content must "allow the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Id.
we must accept the factual allegations in the complaint as
true, we need not accept a complaint's legal conclusions.
Id. Thus, simply reciting the cause of actions'
elements and supporting them by conclusory statements does
not meet the required standard. Id. The Supreme
Court noted that while Rule 8 departed from the
hypertechnical code-pleading requirement of a prior era, it
did not ...