Venture v. M&I Marshall & Ilsley Bank

Decision Date11 May 2011
Docket NumberCir. Ct. No. 2009CV3509,Appeal No. 2010AP1285,Appeal Appeal No. 2010AP1448
CourtWisconsin Court of Appeals
PartiesCaroline Apartments Joint Venture, Plaintiff-Appellant, v. M&I Marshall & Ilsley Bank, Defendant-Respondent, Stern Brothers & Co.,Defendant.


This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.

A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See WIS. STAT. § 808.10 and RULE 809.62.

A. John Voelker Acting Clerk of Court of Appeals

APPEALS from a judgment of the circuit court for Waukesha County: DONALD J. HASSIN, JR., Judge. Affirmed and cause remanded with directions.

Before Brown, C.J., Anderson and Reilly, JJ. ¶1 PER CURIAM. Caroline Apartments Joint Venture (CAJV) appeals from a judgment dismissing its claims against M&I Marshall & Ilsley Bank for breach of contract, fraud, and breach of fiduciary duties relating to a municipal bond financing transaction. CAJV argues that material factual disputes exist which preclude summary judgment in M&I's favor, that M&I was not entitled to an award of attorney fees, and that the circuit court erroneously exercised its discretion in determining the attorney fees award. Because parole evidence cannot be introduced to challenge or vary the terms of the parties' integrated contract, we affirm the judgment. With respect to M&I's motion for reasonable attorney fees and costs incurred postjudgment and in this appeal, we remand for a hearing before the circuit court to determine what, if any, attorney fees and costs should be awarded.

¶2 CAJV is a partnership that owns an apartment community in Waukesha. The property is financed with tax-exempt municipal revenue bonds. Interest to the bondholders is variable and the rate is determined weekly by the remarketing agent, Stern Brothers & Co. M&I issued a letter of credit (LOC) through February 2012, which supplies the liquidity and creditworthiness of the bonds. Interest is paid and bonds are redeemed by draws against the LOC. Under a Reimbursement Agreement and First Amendment to Reimbursement Agreement (hereafter, "amended reimbursement agreement"), CAJV agreed to reimburse M&I for payments made under the LOC and all reasonable out-of-pocket costs and expenses, including reasonable attorney fees, incurred by M&I in the enforcement or preservation of its rights under the agreement.

¶3 The interest rate on the bonds is tied to the strength of the bank issuing the underlying LOC and investors' consequential perception of the quality of the bonds. In early 2009, M&I reported huge losses for 2008. As a result, itsStandard and Poor's counterparty credit rating was downgraded from A to A-and its financial strength rating from Moody's was downgraded from B to C+. The downgrading of M&I's creditworthiness caused Stern Brothers to raise the interest rate on the bonds. In April 2009, the sole bondholder, Evergreen Investment, tendered the bonds for payment.1 Stern Brothers was unable to remarket the bonds and the full amount of bond redemption was drawn against the LOC. CAJV defaulted on the amended reimbursement agreement with M&I. CAJV eventually found a replacement LOC to support the remarketing of the bonds but at higher costs.

¶4 CAJV commenced this action against M&I, alleging five causes of action: breach of contract, breach of the implied covenant of good faith, fraud in the inducement, 2unjust enrichment, and equitable estoppel. CAJV alleged that by representations of M&I principals regarding its financial strength and conservative lending practices, the bank had a contractual duty and duty of good faith to maintain the creditworthiness of the LOC so that the bonds could trade at the lowest possible interest rate. It claimed that M&I breached the contract and duty of good faith by making risky loans in Arizona, Florida, and elsewhere that went into default and seriously damaged M&I's creditworthiness. It also claimed the duty of good faith was breached by M&I's failure to disclose its risky loan activity so as to permit CAJV to seek alternative credit sources before the bonds were rendered unmarketable. The unjust enrichment claim sought to disgorge fromM&I extra interest and fees CAJV had to pay as a result of the default under the amended reimbursement agreement caused by the decline of M&I's creditworthiness and by no fault of CAJV. CAJV alleged that by its failure to maintain credit worthiness to permit a reasonable bond interest rate, M&I was also equitably estopped from collecting the default interest rate and fees.

¶5 Prior to answering the complaint, M&I moved for summary judgment.3 M&I asserted that the written agreements were fully integrated and did not permit variance of terms or duties by proof of oral representations or agreements. CAJV's opposing affidavit explained that CAJV's interest in the creditworthiness of the LOC so that the bonds would carry a low interest rate was known to M&I and that M&I represented it was "the oldest and largest bank in Wisconsin," that it "was conservative, and only made diversified and well secured loans," that it "did not make risky loans or engage in aggressive lending activity," and that it "expected to maintain its strong credit rating for years to come." The circuit court granted summary judgment, concluding that the LOC stated that it is a full representation of the parties' undertaking and it contains no promise that potential bond investors will accept the LOC as a strong indicator of bond value. The court determined that parole evidence of oral promises could not be considered because the agreements expressly exclude any additional understandings. See Dairyland Equip. Leasing, Inc. v. Bohen, 94 Wis. 2d 600, 608, 288 N.W.2d 852 (1980). It further concluded that there was no good faith duty beyond the terms of the written agreement and that CAJV had not established a separate oral contract. The claims against M&I were dismissed. Judgment was granted to M&I for $100,917.85 for costs and attorney fees.

¶6 We review decisions on summary judgment de novo, applying the same methodology as the circuit court. M & I First Nat'l Bank v. Episcopal Homes Mgmt., Inc., 195 Wis. 2d 485, 496, 536 N.W.2d 175 (Ct. App. 1995). That methodology has been recited often and we need not repeat it here except to observe that summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. at 496-97; WIS. STAT. § 802.08(2) (2009-10).4 The party moving for summary judgment has the burden of establishing the absence of a factual dispute and that he or she is entitled to judgment as a matter of law. Grosskopf Oil, Inc. v. Winter, 156 Wis. 2d 575, 581, 457 N.W.2d 514 (Ct. App. 1990). However, the ultimate burden of demonstrating that there is sufficient evidence to go to trial is on the party that has the burden of proof on the issue that is the object of the motion. Transportation Ins. Co. v. Hunzinger Constr. Co., 179 Wis. 2d 281, 290, 507 N.W.2d 136 (Ct. App. 1993). Here, CAJV's claims all rest on establishing that there was a contractual agreement that M&I would maintain creditworthiness so that the bonds would trade at lowest possible interest rate. We consider what proof CAJV makes of that contractual agreement.

¶7 CAJV relies on a prior oral agreement which is not embodied in the written contracts. The parole evidence rule bars proof of oral agreements that vary or contradict written terms when the parties to a contract embody their agreement in writing and intend the writing to be the final expression of their agreement. Dairyland Equip., 94 Wis. 2d at 607. Thus, the question here becomes whether the parties intended the written contracts to be the final and only expression of their agreement.

¶8 M&I points to the merger clause in the LOC.5 "Absent claims of duress, fraud, or mutual mistake, a written provision which expressly negatives collateral or antecedent understandings makes the document a complete integration." Id. at 608. CAJV contends that the LOC is not in fact a contract between itself and M&I and that it only sets forth M&I's obligation to the beneficiary of the LOC, the bond trustee. See WIS. STAT. § 405.103(4) (rights and obligations of an issuer to a beneficiary are independent of the existence, performance, or nonperformance of a contract out of which the letter of credit arises, including contracts between the issuer and applicant).

¶9 The "independence principle" embodied in WIS. STAT. § 405.103(4) confirms that the obligation of the issuer of a letter of credit to pay the beneficiary"is an obligation independent of any other claim that may exist among the parties to the letter of credit contract." Admanco, Inc. v. 700 Stanton Drive, LLC, 2010 WI 76, f22, 326 Wis. 2d 586, 768 N.W.2d 759. That principle does nothing to define the contract between the issuer, M&I here, and the applicant, CAJV here. By its very nature, the LOC is executed by only one party and is not in the form of a traditional contract demonstrating consideration and mutual obligations. See id., f20 (the letter of credit is not like other devices creating legal obligations and it forms a unique legal relationship among the parties); Bank of Cochin Ltd. v. Mfrs. Hanover Trust Co., 612 F. Supp. 1533, 1537 (S.D.N.Y. 1985) ("Not a contract, the letter of credit has been best described as 'a relationship with no perfect analogies but nevertheless a well defined set of rights and obligations.'" (Citation omitted.)). The opening recital in the LOC refers to CAJV as the borrower and references that draws on the LOC be made for the "account of the Borrower, pursuant to a Reimbursement Agreement, as amended on the even date herewith." In turn the amended reimbursement agreement serves the desire to amend the form of the...

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