25th St. Grp. Apartments #1 v. Bremer Bank
| Decision Date | 14 July 2022 |
| Docket Number | 3:20-cv-167 |
| Parties | 25th Street Group Apartments #1, LLC, Plaintiff, v. Bremer Bank, National Association, Defendant. |
| Court | U.S. District Court — District of North Dakota |
25th Street Group Apartments #1, LLC, Plaintiff,
v.
Bremer Bank, National Association, Defendant.
No. 3:20-cv-167
United States District Court, D. North Dakota, Eastern Division
July 14, 2022
MEMORANUDM AND ORDER
Peter D. Welte, Chief Judge, United States District Court
Before the Court are two motions. The first is a motion for partial summary judgment filed by Plaintiff 25th Street Group Apartments #1, LLC, (“25th Street”) on September 2, 2021. Doc. No. 33. On September 23, 2021, Defendant Bremer Bank, National Association, (“Bremer”) filed a response in opposition to the motion. Doc. No. 42. 25th Street filed its reply. Doc. No. 51. The second motion is Bremer's motion for summary judgment, filed on September 3, 2021. Doc. No. 38. 25th Street filed a response in opposition on September 24, 2021. Doc. No. 43. Bremer filed its reply. Doc. No. 54. For the reasons below, the Court denies 25th Street's motion for partial summary judgment (Doc. No. 33) and grants in part and denies in part Bremer's motion for summary judgment (Doc. No. 38).
I. BACKGROUND
The case before the Court centers on the termination of an interest-rate swap agreement between 25th Street and Bremer and the resulting commercial dispute over the terms of that agreement. In basic terms, the parties to an interest-rate swap agreement essentially “swap” interest rates, or more specifically, swap payments that are based on interest rates. Doc. No. 48-1, p. 20. In some cases, an interest-rate swap is used in conjunction with a loan agreement. Here, 25th Street entered into a loan agreement with Bremer. The loan agreement had a variable interest rate, which
was higher risk than a fixed interest rate. To mitigate that risk, 25th Street and Bremer entered into an interest-rate swap agreement. This interest-rate swap agreement essentially transformed 25th Street's interest rate from a variable rate to a synthetic fixed rate. 25th Street eventually terminated the swap and, as a result, incurred a fee. With this general background in mind, a brief introduction of the parties is necessary.
25th Street is a North Dakota limited liability company and has its principal office in Fargo, North Dakota.[1] Doc. No. 1-3, ¶ 2. Richard Jordahl and Brent Olson are members of 25th Street. Doc. No. 67, p. 5. Jordahl is also the President of 25th Street. Doc. No. 42-3, p. 7. Jordahl has more than 10 million dollars in investments, which include, among other things, investing in farmland and buying and developing land with apartment buildings or rental properties. Doc. No. 67, pp. 6, 9. Additionally, Jordahl is involved in “a number of different entities,” including at least a dozen limited liability companies, and about half of the entities Jordahl is involved in include Olson. Id., p. 6. Olson, a certified public accountant with an active license, serves as the secretary/treasurer of 25th Street. Doc. No. 48, pp. 17-20. Olson has been a part of more than 60 business entities and has more than 10 million dollars in investments. Doc. No. 40-3, p. 6, 44.
Bremer is a banking corporation and has its principal office and place of business in Saint Paul, Minnesota, with branch offices in Fargo, North Dakota. Doc. No. 1-3, ¶ 3. Vassil Zanev is a Bremer employee and currently the director of capital markets, and he has, throughout his time with Bremer, worked on swap agreements. Doc. No. 48-1, pp.17-18. Jennifer Carlier is another Bremer employee, who works with Zanev in the capital markets department and is currently the
vice president capital markets associate. Doc. No. 48-2, p. 20. Jessica Broers is a business banker for Bremer and works on commercial loan requests. Doc. No. 24-1, p. 19. According to Broers, if a client is interested in a swap, she pulls in Zanev and Carlier and serves as a connection between the client and the “swap department.” Doc. No. 28, p. 22. Broers also works on client relationships. Doc. No. 24-1, p. 19.
A. 25th Street finances with Bremer
Broers has worked with both Jordahl and Olson on different financing transactions in the past. Doc. No. 28, pp. 23-24; Doc. No. 48, p. 27. In early 2017, Jordahl and Broers were working on separate financing unrelated to this case. See Doc. No. 48, p. 27. At the same time, 25th Street was seeking permanent financing to replace an existing construction loan. Doc. No. 42-3, p. 5. At some point, Jordahl and Broers discussed financing for 25th Street.[2] Doc. No. 48, p. 27. Broers represented that Bremer had “a fixed-rate product on a ten-year fixed,” according to Olson. Id. Olson explained that this “seemed to be a good deal” so 25th Street “explored a fixed-rate loan with Bremer.” Id.
25th Street ultimately decided to pursue financing with Bremer. When asked why, Jordahl explained, “[Olson] and I discussed it, so it was kind of a mutual thing. But [Olson] does a lot of this stuff. [Olson's] a real smart guy, kind of educated . . . he's the CPA guy[.]” Doc. No. 67, p. 7.
As part of this financing, 25th Street and Bremer entered into a loan agreement and a swap agreement on June 26, 2017.[3] Doc. Nos. 65-1, 65-2.
1. The Loan Agreement
The loan agreement consists of several documents-the loan, the note,[4] and collateral documents[5] (together, the “Loan Agreement”). See Doc. No. 65-1, p. 88. Under the Loan Agreement, Bremer agreed to make a single advance to 25th Street of $12,800,000. Id., p. 84. The interest rate under the Loan Agreement was a variable rate based on the ICE London Interbank Offered Rate (“LIBOR”) plus 2.10%.[6] Id., p. 103. 25th Street, however, wanted a fixed interest rate. See Doc. No. 48, p. 32. To reach that end, 25th Street and Bremer created a synthetic fixed rate by entering into a swap agreement.
In entering into the swap agreement, Bremer wanted to ensure “the loan is structured exactly as the swap is,” according to Zanev. Doc. No. 48-1, p. 31. Part of this process included having Bremer's “swap counsel do a review as well and make sure that everything related to the swap is included appropriately in the [Loan Agreement].” Id. Indeed, the Loan Agreement expressly contemplates the parties entering into a swap agreement. For example, under the Loan Agreement, a condition precedent to an initial monetary advance is “an independent ISDA swap
agreement executed by [25th Street], in form and substance satisfactory to [Bremer].” Doc. No. 65-1, p. 87 (emphasis added). The Loan Agreement also has a “Prepayment” clause, which provided, in part, that 25th Street “may prepay the Note, in whole or in part, at any time and from time to time without premium or penalty, subject to the terms and conditions of any independent ISDA swap agreement executed by [25th Street] of approximate even date herewith.” Id., p. 85. Additionally, the Loan Agreement lists as an event of default, a “default under any interest rate swap . . . any time entered into by [25th Street] in connection with the Note[.]” Id., p. 96.
2. The Swap Agreement
Similar to the Loan Agreement, the swap agreement consists of several documents-the 2002 ISDA Master Agreement (the “Master Agreement”), the schedule, and confirmations (together, the “Swap Agreement”).[7] See Doc. No. 65-2, pp. 1, 16. Here, the Swap Agreement was for a 10-year interest rate swap, which created a synthetic fixed rate loan of 4.32% between the parties.[8] Doc. No. 42-3, p. 6.
Several provisions of the Swap Agreement are important to the competing motions. The Swap Agreement states, “This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).” Doc. No. 65-2, p. 34.
Other relevant provisions concern the parties, the Loan Agreement, and termination. As to the parties, the Swap Agreement states:
[Each party] is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction, it being understood that information and explanations related to the terms and conditions of a Transaction will not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
Id., p. 35. The Swap Agreement further provides that “[t]he other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.” Id.
The Swap Agreement also contains provisions relating to the Loan Agreement. For example, the Swap Agreement defines “Credit Agreement” as “that certain Loan Agreement, dated June 26, 2017 [] among [Bremer] and [25th Street].”[9] Id., p. 31. The Swap Agreement also contains an “Independent Obligations” provision, that states:
Although [25th Street] may be entering into one or more Transactions under this Agreement to hedge against the interest expense of, or other risk associated with, an existing or future Loan, this Agreement and each Transaction shall be an independent obligation of [25th Street] separate and apart from any such Loan, and therefore: (A) each party's obligations under this Agreement or any Transaction shall not be contingent on whether any Loan closes, is outstanding or is repaid, in whole or in part, at any time; (B) except as expressly set forth in this Agreement, any repayment . . . of . . . any Loan, whether in whole or in part, at any time, shall not in any way affect this Agreement, any Transaction or either party's obligations under this Agreement or Transaction[.]
Id., p. 37.
The Swap...
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