Cascade Capital Grp., LLC v. Livingston Holdings, LLC

Decision Date04 February 2019
Docket NumberCAUSE NO. 3:17cv952-LG-MTP
PartiesCASCADE CAPITAL GROUP, LLC PLAINTIFF v. LIVINGSTON HOLDINGS, LLC; CHESTNUT DEVELOPERS, LLC; DAVID LANDRUM; and MICHAEL L. SHARPE DEFENDANTS AND LIVINGSTON HOLDINGS, LLC; CHESTNUT DEVELOPERS, LLC; and MICHAEL L. SHARPE COUNTERCLAIMANTS v. CASCADE CAPITAL GROUP, LLC COUNTERDEFENDANT AND LIVINGSTON HOLDINGS, LLC; CHESTNUT DEVELOPERS, LLC; and MICHAEL L. SHARPE THIRD PARTY PLAINTIFFS v. MARK CALVERT THIRD PARTY DEFENDANT
CourtU.S. District Court — Southern District of Mississippi
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

BEFORE THE COURT is the [74] Motion for Summary Judgment filed by Plaintiff Cascade Capital Group, LLC ("Cascade") and Third-Party Defendant Mark Calvert. The Motion for Summary Judgment argues that no issues of material fact remain with regard to either the First Amended Complaint or the Amended Counterclaims and Third Party Claims, such that summary judgment may be granted in favor of Cascade and Calvert. The Motion is fully briefed. Having considered the submissions of the parties and applicable law, the Court concludes that Cascade is entitled to summary judgment on its breach of contract claim and that Cascade and Calvert are entitled to summary judgment on Defendants' breach of the duty of good faith and fair dealing counterclaim and third party claim. However, unresolved material issues of fact preclude granting summary judgment on Defendants' counterclaim and third party claim for breach of fiduciary duty.

I. BACKGROUND

This lawsuit derives from Defendants' alleged default on a Promissory Note ("the Note"), as modified by a subsequent Forbearance Agreement ("the Agreement"), used to fund the re-development of the old Town of Livingston in Madison County, Mississippi. (See Am. Compl., ECF No. 8.) Cascade's Amended Complaint seeks the appointment of a receiver to take possession and control of Defendants' property - which is designated as collateral in the Note and the Agreement - and a joint and several judgment against Defendants for the principal and interest due on the Note (as modified by the Agreement), attorneys' fees, and collection costs.

Livingston, Chestnut, and Sharpe filed amended answers to Cascade's complaint on August 21, 2018, asserting both counterclaims and third party claims.(Sharpe Am. Answer, Countercl., & Third Party Compl., ECF No. 51; Livingston & Chestnut Am. Answer, Countercl., & Third Party Compl., ECF No. 52.) They assert counterclaims for breach of fiduciary duty and breach of duty of good faith and fair dealing against Cascade and third party claims for the same against Calvert. They maintain that Calvert is personally liable for the conduct of Cascade because Cascade is merely his alter ego, thus not entitled to treatment as a separate entity.1

In 2008, David Landrum,2 Chestnut, and Livingston began to re-develop the Town of Livingston ("the Project") in Madison County, Mississippi. Chestnut's sole member is Livingston. Livingston's members were originally Marna Sharpe (Michael Sharpe's wife) and Jill Landrum (David Landrum's wife), but in October 2014, Mike Bollenbacher became Livingston's third member. Chestnut acquired land and plans for a multi-use development. In 2011, a loan was secured from BankPlus to fund a portion of the Project. Chestnut provided BankPlus with a promissory note in the principal amount of $978,287.17, secured by a Deed of Trust granted to BankPlus by Chestnut.

In 2012, Livingston began looking for assistance "to move the development forward and to recapitalize with more equity and/or new borrowing" because "[a] difficult economy [had] caused the Livingston Project to move slowly." (Mem. Supp. Resp. Opp. 4, ECF No. 89.) Livingston engaged the consulting services of Cascade by July of that year, but the parties have not located a signed copy of the engagement letter. Cascade submitted an unsigned copy of the supposedly agreed-upon engagement letter. (See Mot. Summ. J. Ex. 5, at 63-65, ECF No. 74-2 (ECF pagination).) Livingston maintains that no such letter was ever signed and agreed-upon. Defendants have produced invoices detailing fees for services beginning July 25, 2012, including an "Initial meeting" on July 26, 2012. (See Resp. Opp. Ex. 3, at 1, ECF No. 88-3.) A description next to services rendered on September 7, 2012 notes that Calvert "discussed need to get signed engagement letter before information is distributed." (Id. at 3.)

Sharpe says that Cascade identifies itself as a professional service firm with a broad background in finance, debt restructuring, and turnarounds. Sharpe says Calvert represented that he had assisted hundreds of clients to buy, sell, and restructure businesses and that he had substantial experience in cleaning up troubled operating and real estate companies.

According to Defendants, Calvert recommended to David Landrum that he borrow money from Michael Sharpe - a longtime friend of David Landrum - for the Project. Sharpe loaned funds to Livingston, made capital contributions to the Project, and personally guaranteed the BankPlus loan. Sharpe says that, in making these and further contributions to the Project, he relied heavily on the representations and advice of Calvert because Sharpe is not a real estate development professional.

The BankPlus note matured December 15, 2013, and Livingston was unable to pay off the balance of $468,193.53. David Landrum met with Terry Howard, a BankPlus loan officer, on December 16, 2013 to discuss the loan and request a 60 to90-day renewal of the loan. Landrum memorialized the meeting with an email, on which Calvert and Sharpe were copied. On December 23, 2013, Landrum emailed Calvert stating, "We have the cash pulled together for Bankplus except for 30k. If you can help us with this remaining amount we will pay you back first when cottage financing is closed. . . . This at least gets us to March." (Mot. Summ. J. Ex. 7, at 68, ECF No. 74-2 (ECF pagination).) Calvert wired $30,000 to Livingston's account the same day. Also the same day, Chestnut paid BankPlus $60,500 towards the loan balance in exchange for a three-month extension on the loan's maturity date to February 15, 2014. Landrum, in his capacity as Manager of Chestnut, executed a related Change in Terms Agreement, which reflected an extension loan balance of $412,329.94.

On January 28, 2014, Landrum emailed Calvert stating that Livingston needed $20,000 for a deposit on "the cottage designs" and another $5,300 "owe[d to] Nolan." (Id. Ex. 10, at 88 (ECF pagination).) Calvert wrote back,

I will do another 30k so 60k in total if . . .
You have your attorney do the legal work to give me a lien in the Cottage Lots for the 60k and professional fees . . .
And a personal guarantee from both of you . . .
Same term just like we discussed before . . .

(Id. (all sic and ellipses in original).) David agreed to those terms on behalf of both himself and Sharpe. Andy Clark, their attorney, drafted a promissory note for $60,000, plus $95,144.11 in professional fees incurred through December 31, 2013 and any additional fees incurred throughout the duration of the Note, due February 1, 2015.

Thomas Hudson, General Counsel for BankPlus, wrote Chestnut, Landrum, and Sharpe on March 7, 2014 to inform them of their default on the BankPlus note. Hudson cautioned that legal action would be taken against them to collect on the note if the amount of $418,664.03 in overdue principal, interest, and late fees was not paid by March 27, 2014. Calvert emailed Terry Howard on March 12, 2014, copying Landrum and Sharpe, to follow up on a phone call had earlier that morning. Calvert proposed that he personally refinance the loan through a new loan of $250,000 to Calvert along with Calvert's contribution of $250,000 of his own money. Calvert separately wrote to Sharpe, Landrum, and Clark stating,

This will clearly result in a conflict of interest . . .
Understand it will help you resolve an issue,
But it will cause a conflict of interest.
As a result . . . we will need a very detail conflict waiver done by your law firm.
From a timing aspect we will also need to make sure this is done after the road litigation is resolved/settled. .
We will need to determine the correct way to do this . . . .
We can discuss after we hear back from the bank depending on what they say . . . .

(Id. Ex. 13, at 98 (ECF pagination) (all sic and ellipses in original).) Notwithstanding Calvert's stated need for a conflict-of-interest waiver, no waiver was prepared at the time.

On March 20, 2014, Landrum emailed Calvert to say that Sharpe had called him the previous night to share that Jamie Planck Martin - personal attorney for Mike Bollenbacher, who is a friend of Sharpe and a real estate professional - had called Sharpe recommending that Livingston allow Bollenbacher to buy the BankPlus note because "what [Calvert was] going to do was to buy the land andthat Bollenbacher would just do it where [Livingston] can pay the regular interest rate." (Resp. Opp. Ex. 5, at 3, ECF No. 88-6.) Landrum wrote, "I told [Sharpe] that we definitely do not need to do that because going forward that just builds their case of all the good things they have done for us. . . . I believe that he agrees with me but wants to run it by you to see what you think. . . ." (Id.)

BankPlus did not accept Calvert's refinancing proposal. On March 24, 2014, Calvert emailed Landum, Sharpe, and Clark to outline the terms by which Calvert could personally buy out the BankPlus note: Cascade would make two loans to Chestnut - one for $500,000 at an interest rate of 20%, which would be used to purchase the BankPlus note, and another for $250,000, which would cover the cost of Cascade having to borrow from a bank - in exchange for Chestnut, Landrum, and Sharpe granting Cascade a lien in the Project's property. (See Mot. Summ. J. Ex. 15, at 102, ECF No. 74-2 (ECF pagination).) That evening, Landrum emailed...

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