In re Matrix Development Corporation, Case No. 08-32798-tmbl (Bankr.Or. 10/9/2008)

• Decision Date: 09 October 2008
• Docket Number: Case No. 08-32798-tmbl.
• Parties: Matrix Development Corporation.
• Court: U.S. Bankruptcy Court — District of Oregon

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Matrix Development Corporation.

Case No. 08-32798-tmbl.

United States Bankruptcy Court, D. Oregon.

October 9, 2008.

David A. Foraker, Sanford R. Landress, Greene & Markley, P.C., Portland, OR.

Mary Jo Heston, Lane Powell PC, Seattle, WA.

TRISH M. BROWN, Bankruptcy Judge.

Dear Mr. Foraker and Ms. Heston:

This case was originally on for hearing on KeyBank N.A.'s (hereinafter the "Bank") motion to compel Debtor's compliance with eight orders entered by the court on June 24, 2008, Debtor's motion for limited relief from those orders, and Debtor's motions to use Bank's cash collateral. Following extensive settlement discussions, the parties resolved all of the issues save the extent, if any, to which Debtor's obligations to Bank are cross-collateralized.

Oral argument was on September 10, 2008. The Bank was represented by Mary Jo Heston. Debtor, Matrix Development Corporation, was represented by Sanford Landress and David Foraker. Following the hearing, I reviewed my notes, the exhibits, and the pleadings and other submissions in the file. I also read applicable legal authorities, both as cited to me and as located through my own research. I have considered carefully the oral arguments presented and have read counsels' submissions in detail. The following findings of fact and legal conclusions constitute the court's findings under Federal Rule of Civil Procedure 52(a), applicable in this proceeding under Federal Rules of Bankruptcy Procedure 9014 and 7052. To the extent any findings of fact constitute conclusions of law, they are adopted as such. To the extent that any conclusions of law constitute findings of fact, they are adopted as such.

FACTS

The parties filed a Stipulation re: Language in Loan Documents re: Cross Collateralization which will not be repeated here except as necessary to make findings.

Debtor is the sole owner of a California limited liability company known as La Ventana Partners 77, LLC ("La Ventana"). The Bank is the holder of a number of promissory notes executed by Debtor as well as a note executed by La Ventana (the "La Ventana Note"). As used herein, the term "Notes" refers to all of the promissory notes collectively, including the La Ventana Note. The Bank is also the holder of an Unconditional and Continuing Guaranty executed by Debtor which guarantees repayment of the La Ventana Note (the "Guaranty").

Each of the Notes was executed in connection with a written loan agreement. Schedule 1 to each loan agreement provides in relevant part:

"G. Cross-Default/Cross-Collateral:

Borrower understands that the Loan is cross-defaulted with the other loans from Lender to Borrower or its affiliates (collectively, the "RelatedLoans"), such that a default under any one of the Related Loans constitutes a default under the Loan. Additionally, all of the Related Loans are cross-collateralized, such that following an event of default under any of the Related Loans, Lender, in its discretion, may exercise its rights and remedies against any and all of the collateral securing any of the Related Loans...." (emphasis in original)

In addition to the Notes, the Bank is the holder of a number of deeds of trust executed in favor of the Bank by Debtor. All of the deeds of trust contain identical language defining the obligations secured thereby. Paragraph 1.2 of each of the deeds of trust states:

"Borrower makes the grant, conveyance, transfer and assignment set forth in Section 1.1, and grants the security interest set forth in Section 2.1 for the purpose of securing the following obligations (the "Secured Obligations") in any order of priority that Lender may choose:" (emphasis in original)

Paragraph 1.2 contains six subparagraphs, three of which are at issue in this case, 1.2.2, 1.2.3, and 1.24, which state as follows:

"1.2.2. Loan Documents. Payment and/or performance of each and every other obligation of Borrower under the Note, this Deed of Trust, any construction or land loan agreement executed in conjunction therewith (the "Loan Agreement"), all other documents evidencing, securing, or otherwise governing the Loan (specifically excluding, however, for purposes of establishing the Secured Obligations, any obligations of Borrower arising solely under any guaranty of the Secured Obligations or any indemnity agreement that by its terms is not secured hereby), and any and all amendments, modifications, and supplements thereto (collectively, the "Loan Documents"), the provisions of which are incorporated herein by this reference; (emphasis in original)

1.2.3. Related Loan Documents. Payment and/or performance of each covenant and obligation on the part of Borrower or its affiliates to be performed pursuant to any and all loan documents (the "Related Loan Documents") that have been or may be executed by Borrower or its affiliates evidencing or securing one or more present or future loans by Lender or its affiliates to Borrower or its affiliates (collectively, the "Related Loans"), whether now existing or made in the future, together with any and all modifications, extensions and renewals thereof; provided, however, that nothing contained herein shall be construed as imposing an obligation upon Lender, or as evidencing Lender's intention, to make any Related Loan to Borrower or its affiliates; (emphasis in original)

1.2.4. Future Obligations. Payment to Lender of all future advances, indebtedness and further sums and/or performance of such further obligations as Borrower or the then record owner of the Project or the then owner of the balance of the Collateral may undertake to pay and/or perform (whether as principal, surety, or guarantor) for the benefit of Lender, its successors or assigns, (it being contemplated by Borrower and Lender that Borrower may hereafter become indebted to Lender in such further sum or sums), when such borrowing and/or obligations are evidenced by a written instrument reciting that it or they are secured by this Deed of Trust;"

Each deed of trust contains language defining the obligations secured by that deed of trust. The Notes, deeds of trust, loan documents, and the Guaranty were executed by Debtor between April 4, 2005, and July 9, 2007.

APPLICABLE LEGAL STANDARDS

In construing a contract the court may not read a particular provision in a vacuum. Rather, it must consider "the contract as a whole with emphasis on the provision or provisions in question." Eagle Industries. Inc. v. Thompson, 321 Or. 398, 405 (1995). See also New Zealand Ins. Co. v. Griffith Rubber Mills, 270 Or. 71, 75 (1974) ("It is a fundamental rule in the construction of contracts that it is the duty of a court to construe a contract as a whole employing any reasonable method of interpretation so that no part of it is ignored and effect can be given to every word and phrase") (citations omitted). See also, Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464, 472 (1991) ("an insurance policy is to be reasonably interpreted ' so that no part of its is ignored and effect can be given to every word and phrase.'") (citing New Zealand).

Further, "[i]n the construction of an instrument the intention of the parties is to be pursued if possible; and when a general and particular provision are inconsistent, the latter is paramount to the former. So a particular intent shall control a general one that is inconsistent with it." ORS 42.240.

Finally, to the extent that there is any ambiguity in a document it must be construed against the drafter of the document. State v. Watters, 211 Or. App. 628, 641 (Or. App. 2007).

LEGAL ANALYSIS

The Bank contends that all of the debt owed under all of the Notes is cross-collateralized by all of the deeds of trust, regardless of whether the Notes were executed before, after, or in conjunction with a particular deed of trust. The Bank relies on subparagraph 1.2.3 to support this contention.

Debtor agrees that La Ventana is an "affiliate" and, therefore, its debt is a Related Loan as that term is defined in subparagraph 1.2.3. Debtor concedes that the language of subparagraph 1.2.3, read alone, supports the Bank's position. It contends however, that paragraph 1.2, when read in its entirety, does not support that position. Specifically, it argues that subparagraph 1.2.3 is a general provision which is limited or modified with respect to guaranteed debt and future obligations by the more specific provisions of subparagraphs 1.2.2 and 1.2.4.

Guaranteed Debt Under Subparagraph 1.2.2

Debtor contends that the La Ventana Note is exempted from the definition of the term Secured Obligations by the provisions of subparagraph 1.2.2. The Guaranty of the La Ventana Note is not a Secured Obligation because the parenthetical language of subparagraph 1.2.2, exempts guaranty liability from the definition of Secured Obligations. I agree. The parenthetical language clearly states that the term Secured Obligations does not include "any obligations of Borrower arising solely under any guaranty of the Secured Obligations ..." Accordingly, the Guaranty executed by the Debtor is not a Secured Obligation.

However, the Bank does not base its claim that the La Ventana Note is secured by the deeds of trust on Debtor's Guaranty of that note. Rather, it argues that the La Ventana Note evidences a debt made to an affiliate of the Debtor. Such a debt is included in the definition of Secured Obligations under subparagraph 1.2.3. Here, I concur with the Bank. Accordingly, the La Ventana Note is secured by antecedent and subsequent deeds of trust to the same extent that direct obligations of the Debtor are secured by those deeds of trust.

Future Obligations Under Subparagraph 1.2.4

According to the Debtor, under subparagraph 1.2.4, future obligations are Secured...