United States District Court, D. Minnesota
JOAN N. ERICKSEN, District Judge.
This case is before the Court on a Motion for Partial Summary Judgment brought jointly by the Defendants, Outsource Service Management ("OSM") and BF-Negev. ECF No. 88. For the reasons discussed below, the motion is granted.
This case arises out of a dispute over the parties' respective rights and obligations stemming from two loans.
The first, known as the Grande Palisades loan, was made to a developer to build a resort hotel and condominium complex near Disney World in Orlando, Florida. To fund the loan, the lead lender, Marshall Financial Group, entered into a number of participation agreements with other financial institutions, including one in 2007 with Columbian Bank of Kansas. Columbian Bank subsequently failed and entered receivership. In 2009, the Federal Deposit Insurance Corporation acting as receiver sold of a pool of loans owned by Columbian Bank, including its participation in the Grande Palisades loan, to Plaintiff LNV Corporation. At roughly the same time, OSM succeeded Marshall as the lead lender.
The second loan giving rise to the disputes here, known as the Bahia loan, was made for the re-financing and construction of the Little Harbor Development near Tampa, Florida. As with the Grande Palisades loan, the lead lender of the Bahia loan, BankFirst, entered into a number of participation agreements, including one in 2007 with First Priority Bank. Since then, through a series of assignments that are not relevant to this motion, LNV has succeeded First Priority Bank as participant, BF-Negev has succeeded BankFirst as lead lender, and OSM has become the loan's servicer.
In its Complaint, LNV pleads twelve causes of action against OSM and BF-Negev over the disputes that have arisen in connection with these two loans. In addition to breach of contract claims based on the written agreements associated with the loans, LNV also asserts civil theft/conversion, unjust enrichment/quantum meruit, and constructive trust claims against the Defendants. In turn, in an Answer filed jointly by the Defendants, OSM asserts breach of contract and unjust enrichment counterclaims against LNV relating to the Grande Palisades dispute.
With their Motion for Partial Summary Judgment, OSM and BF-Negev argue that the record now establishes that the parties' disputes over the Grande Palisades and Bahia loans are governed by valid and enforceable contracts. Therefore, they argue, it is appropriate for the Court to streamline the case - and particularly what remains of discovery - by dismissing LNV's non-contract claims.
Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record... or showing that the materials cited do not establish the absence or presence of a genuine dispute...." Id. (c)(1)(A)-(B). The Court "need consider only the cited materials, but it may consider other materials in the record" not specifically called to its attention by the parties' memoranda. Id. (c)(3). In determining whether summary judgment is warranted, this "evidence and all fair inferences from it must be viewed in the light most favorable to the non moving party...." Johnson v. Blaukat, 453 F.3d 1108, 1112 (8th Cir. 2006).
LNV opposes the Defendants' motion, arguing that the record contains sufficient evidence to create a genuine issue of material fact - or could, with more discovery pursuant to Federal Rule of Civil Procedure 56(d) - regarding the validity of the Grande Palisades Loan Participation Agreement between Marshall and Columbian Bank, to which OSM and LNV succeeded.
That issue, as well as the state of the parties' dispute over the Bahia loan, are discussed below.
I. Grande Palisades dispute.
Fundamentally, with respect to the Grande Palisades portion of the case, LNV is suing OSM for disbursement of a percentage of the Collections received on the Grande Palisades loan that LNV alleges it is owed as a participant. In turn, OSM is countersuing LNV for certain Credit Advances and Extraordinary Expenses that OSM alleges LNV is obligated to pay as a participant.
In its Answer, LNV asserted the following as an affirmative defense to OSM's counterclaims:
Based upon the September 23, 2013 Affidavit of Cecelia Borenko in Outsource Services Management, LLC v. Lake Austin Properties Limited I, LTD, Case No. 8:13-CV-1476-T-35AEP (M.D. Fla. Sept. 23, 2013), filed in connection with Malbec Investments, LLC's Renewed Motion to Intervene, OSM's claims are barred by fraud, misrepresentation, fraudulent inducement and/or fraudulent concealment.
Construed in the light most favorable to LNV - in fact, in LNV's own telling - Borenko's affidavit in combination with other materials in the record demonstrates the following: Marshall originated the $140 million Grande Palisades construction loan. One of the terms of that loan required the borrower to fund a portion of the cost of the project with approximately $30 million of its own equity. This is known as the borrower having "skin in the game"; without it, lenders, as well as participating banks, would typically be unwilling to fund a project of that magnitude. According to LNV, Marshall knew from the outset that the borrower was not in compliance with this term, but nevertheless moved forward with the loan because it stood to benefit financially from it. In order to retain those benefits while minimizing its own exposure to the risk inherent in such a "no money down" unfunded loan, Marshall proceeded to market participations in the loan to other financial institutions using materials that specifically stated that the borrower had the required $30 million worth of "skin in the game" furnished by "related third parties." Ultimately, more than sixty banks, including Columbian Bank, entered into participations. The borrower subsequently defaulted.
LNV argues that this evidence creates a genuine issue of material fact as to whether Marshall secured Columbian Bank's participation in the Grande Palisades loan by fraud. In this regard, LNV seeks to establish its right to disaffirm the Grande Palisades Participation Agreement by way of its noticed affirmative defense of fraudulent inducement and/or fraudulent concealment.
The parties agree that the Grande Palisades Participation Agreement is governed by New York law. Under New York law, to sustain its fraud defense, LNV bears the burden of establishing by clear and convincing evidence: (1) that Marshall either misrepresented a material fact to Columbian Bank, or, alternatively, concealed a material fact from Columbian Bank that it had a duty to disclose; (2) that Columbian Bank entered into the Participation Agreement in justifiable reliance on Marshall's misrepresentation or concealment; and (3) that Columbian Bank was injured thereby. Lama Holding Co. v. Smith Barney Inc., 668 N.E.2d 1370, 1373 (N.Y. 1996); Vermeer Owners, Inc. v. Guterman, 585 N.E.2d 377, 378 (N.Y. 1991); Lane v. McCallion, 561 N.Y.S.2d 273, 275 (N.Y.App.Div. 1990). See also Stuart v. Lester, 17 N.Y.St. Rep. 248 (N.Y. Gen. Term 1888) (where defendant resists enforcement of a contract induced by fraud, it is "not... necessary for the defendant to show, in order to defeat a recovery, that he had suffered a pecuniary loss in any particular sum by reason of the misrepresentation made by the plaintiff").
OSM argues that LNV's fraud defense fails in the face of the plain language of both the Grande Palisades Participation Agreement between Marshall and Columbian Bank and the Loan Sale Agreement by which the FDIC-Receiver conveyed Columbian Bank's interest in the participation to LNV. These two issues are discussed in turn below.
OSM first contends that LNV is foreclosed from proving reliance, an essential element of a fraudulent inducement defense, by the disclaimer that appears in § 2.1 of the Grande Palisades Participation Agreement. The relevant language is as follows:
c. [Columbian Bank] has, without reliance of any kind or nature on [Marshall], any other Credit Provider or the directors, officers, agents, employees or attorneys of [Marshall], and instead in reliance upon information supplied to it by or on behalf of the Obligor and upon such other information as [Columbian Bank] has deemed appropriate, made its own independent credit analysis and decision to purchase its Participation Interest in the Credit;
d. [Columbian Bank] will, independently and without reliance of any kind or nature on [Marshall], any other Credit Provider or the directors, officers, agents, employees or attorneys of the Lender, continue to make its own independent credit analysis and decisions in ...