Jpmorgan Chase Bank, N.A. v. Kb Home

• Decision Date: 15 July 2009
• Docket Number: No. 2:08-CV-01711-PMP-RJJ.,No. 2:08-CV-01709-PMP-RJJ.,No. 2:08-CV-01717-PMP-RJJ.,No. 2:08-CV-01716-PMP-RJJ.,No. 2:08-CV-01714-PMP-RJJ.,No. 2:08-CV-01715-PMP-RJJ.,No. 2:08-CV-01713-PMP-RJJ.,2:08-CV-01711-PMP-RJJ.,2:08-CV-01717-PMP-RJJ.,2:08-CV-01714-PMP-RJJ.,2:08-CV-01715-PMP-RJJ.,2:08-CV-01709-PMP-RJJ.,2:08-CV-01713-PMP-RJJ.,2:08-CV-01716-PMP-RJJ.
• Citation: 632 F.Supp.2d 1013
• Parties: JPMORGAN CHASE BANK, N.A., Plaintiff, v. KB HOME et al., Defendants. and All Related Actions.
• Court: U.S. District Court — District of Nevada

632 F.Supp.2d 1013

JPMORGAN CHASE BANK, N.A., Plaintiff, v. KB HOME et al., Defendants. and All Related Actions.

No. 2:08-CV-01711-PMP-RJJ.

No. 2:08-CV-01717-PMP-RJJ.

No. 2:08-CV-01714-PMP-RJJ.

No. 2:08-CV-01715-PMP-RJJ.

No. 2:08-CV-01709-PMP-RJJ.

No. 2:08-CV-01713-PMP-RJJ.

No. 2:08-CV-01716-PMP-RJJ.

United States District Court, D. Nevada.

July 15, 2009.

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James E. Hough, Jamie A. Levitt, Morrison & Foerster LLP, New York, NY, Allyson R. Noto, Jeffrey R. Sylvester, Sylvester & Polednak, Ltd., Las Vegas, NV, for Plaintiff.

Bruce E. Van Dalsem, Erica P. Taggart, Johanna Y. Ong, Michael T. Lifrak, Quinn Emanuel Urquhart Oliver & Hedges, LLP, Benjamin D. Lichtman, Mark T. Drooks, Bird, Marella, Boxer, Wolpert, Nessim, Drooks, et al., Los Angeles, CA, Donald A. Lattin, Maupin, Cox & Legoy, Reno, NV, Andrew J. Detherage, Karoline E. Jackson, Barnes & Thornburg LLP, Indianapolis, IN, Megan K. Dorsey, Koeller Nebeker Carlson & Haluck, LLP, Randolph L. Howard, Kolesar & Leatham, Chtd., Anthony B. Golden, Christopher H. Byrd, Craig S. Newman, Fennemore Craig, P.C., Anthony P. Sgro, Patti & Sgro, Las Vegas, NV, Mark S. Cohen, Oliver Haker, Sandra C. McCallion, Cohen & Gresser LLP, New York, NY, Donald A. Lattin, Maupin, Cox & Legoy, Patricia K. Lundvall, McDonald Carano Wilson LLP, Reno, NV, Fredric C. Nelson, John R. Foote, John R. Foote, Nixon Peabody LLP, San Francisco, CA, for Defendants.

ORDER

PHILIP M. PRO, District Judge.

Presently before the Court are five Motions to Dismiss filed by the following Defendants: KB Home and KB Home Nevada Inc. (2:08-CV-01711-PMP-RJJ (Base File), Doc. # 27); Coleman-Toll Limited Partnership and Toll Brothers, Inc. (2:08-CV-01713-PMP-RJJ, Doc. # 24); Beazer Homes Holdings Corp. and Beazer Homes USA, Inc. (2:08-CV-01715-PMP-RJJ, Doc. # 35); Pardee Homes of Nevada and Weyerhaeuser Real Estate Co. (2:08-C01716-PMP-RJJ, Doc. # 24); and Meritage Homes of Nevada, Inc. and Meritage Homes Corp. (2:08-CV-01717-PMP-RJJ, Doc. # 28).

I. BACKGROUND

This case involves a dispute over the financing of a 2,000-acre real estate development in Henderson, Nevada, named "Inspirada." (Compl.(Doc.# 1) ¶¶ 12, 14.)¹ As alleged in the Complaint, eight real estate companies (the "Members")² formed non-party South Edge, LLC ("South Edge") in May 2004 to facilitate the purchase of the land for Inspirada. (Id. ¶ 15.) On May 3, 2004, the Members entered into an Amended and Restated Operating Agreement of South Edge, LLC (the "Operating Agreement"). (Compl. ¶ 23, Ex. B.) Each Defendant Member also is a subsidiary of a separate Defendant parent company (the "Parents").³ (Compl. ¶¶ 9, 11.)

On June 2, 2004, South Edge successfully bid $557 million for the land for Inspirada from the United States Bureau of Land Management ("BLM"). (Compl. ¶ 15, Ex. C at 1.) On October 29, 2004, each Member agreed to purchase or "take down" specified parcels of land in Inspirada from South Edge pursuant to Purchase and Sale Agreements and Joint Escrow Instructions between South Edge and each Member (the "Acquisition Agreements"). (Compl. ¶¶ 16, 24, Ex. C.) Each Parent cosigned their related Member's respective Acquisition Agreement. (Compl., Ex. C.)

To finance the purchase from the BLM, South Edge entered into a November 1, 2004 credit agreement between South Edge as the borrower, Plaintiff JPMorgan Chase Bank, N.A. ("JPMorgan") and other financial institutions as lenders, and Plaintiff JPMorgan as the administrative agent. (Compl. ¶ 15.) On March 9, 2007, the credit agreement was replaced by an Amended and Restated Credit Agreement (the "Credit Agreement") between the same parties. (Compl. ¶ 15, Ex. A.) To provide security for the Credit Agreement, South Edge executed several other documents (the "Collateral Documents") in favor of Plaintiff and the other lenders. (Compl. ¶ 25.) One such Collateral Document is a Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents and Leases (the "Deed of Trust"), which secures the Credit Agreement. (Compl. ¶ 25(a), Ex. D.) Additionally, South Edge granted Plaintiff a security interest in permits, construction and labor contracts, and plans for Inspirada through an Assignment of Contracts, Permits and Plans and Specifications (the "Assignment of Contracts"). (Compl. ¶ 25(b), Ex. E at 1-2.) South Edge also granted Plaintiff a security interest in the Acquisition Agreements through an Assignment of and Agreement with Respect to Acquisition Agreements (the "Assignment of Acquisition Agreements"). (Compl. ¶ 25(c), Ex. F.) Finally, Plaintiff alleges the existence of a Uniform Commercial Code ("UCC") financing statement perfecting Plaintiff's security interest in personal property, such as the Acquisition Agreements and the Operating Agreement. (Compl. ¶¶ 25(d), 26.)

The Members thereafter allegedly refused to take down land from South Edge under the Acquisition and Operating Agreements. (Id. ¶ 35.) South Edge also defaulted under the Credit Agreement and Collateral Documents for failure to pay and failure to complete the construction of Inspirada. (Id. ¶¶ 33-34.) Plaintiff requested assurances of performance and cure of defaults from Defendants but Defendants failed to comply. (Compl. ¶¶ 39-40, Exs. G, H.)

On December 5, 2008, Plaintiff filed suit in this Court, alleging causes of action for breach of contract against the Members (count 1), breach of contract against the Parents (count 2), breach of fiduciary duty against the Members and Parents (count 3), intentional interference with contractual relations against the Parents (count 4), and constructive and/or resulting trust against the Members and Parents (count 5). (Compl. at 10-12.) Five Members⁴ and their related Parents⁵ now move to dismiss, arguing the terms of the contracts incorporated into the Complaint require dismissal of Plaintiff's claims.

II. LEGAL STANDARD

When ruling on a motion to dismiss, the Court "must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true." Siaperas v. Mont. State Comp. Ins. Fund, 480 F.3d 1001, 1003 (9th Cir.2007) (quotation omitted). Although a plaintiff's factual allegations need not be detailed, a plaintiff must allege "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Court is not "required to accept as true conclusory allegations that are contradicted by documents referred to in the complaint, and [the Court does] not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Paulsen v. CNF Inc., 559 F.3d 1061, 1071 (9th Cir.2009). Dismissal is proper only if no cognizable legal theory exists or the plaintiff has alleged insufficient facts to support a cognizable legal theory. Siaperas, 480 F.3d at 1003.

III. DISCUSSION

Under Nevada law,⁶ when the facts are not in dispute, contract interpretation is a question of law. Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., 197 P.3d 1032, 1041 (Nev.2008). Generally, the Court construes unambiguous contracts according to their plain language. Sheehan & Sheehan v. Nelson Malley & Co., 121 Nev. 481, 117 P.3d 219, 223-24 (2005). A contract is ambiguous if it is subject to more than one reasonable interpretation. Anvui, LLC v. G.L. Dragon, LLC, 123 Nev. 25, 163 P.3d 405, 407 (2007). When interpreting a contract, "the court shall effectuate the intent of the parties, which may be determined in light of the surrounding circumstances if not clear from the contract itself." Sheehan, 117 P.3d at 224 (quotation omitted). "The parties' intentions regarding a contractual provision present a question of fact." Anvui, LLC, 163 P.3d at 407.

A. Breach of Contract Against the Members (Count 1)

Defendants argue the breach of contract claim against the Members fails as to the Operating Agreement because Plaintiff lacks standing to enforce the Operating Agreement.⁷ Specifically, Defendants contend Section 15.15 of the Operating Agreement bars Plaintiff from enforcing the Operating Agreement for its own benefit, the power of attorney provision in the Credit Agreement cannot be interpreted to allow Plaintiff to enforce the Operating Agreement, and no other document authenticated by South Edge describes the Operating Agreement as collateral.

Plaintiff responds that Section 15.15 applies to third-party beneficiaries, not secured creditors such as Plaintiff. Plaintiff also contends Section 15.15 is a boilerplate limitation that cannot preclude security interests Plaintiff received later in the Collateral Documents, such as the Deed of Trust. Additionally, Plaintiff argues Defendants' interpretation of Section 15.15 conflicts with the UCC.

Defendants reply that Section 15.15 is a substantive provision applying to all creditors. Defendants contend Plaintiff failed to allege or attach a document stating the Operating Agreement was assigned to Plaintiff and Plaintiff, as a sophisticated lender, never obtained a concession allowing it to enforce the Operating Agreement. Further, Defendants argue the Deed of Trust does not grant Plaintiff a security interest in the Operating Agreement because the Deed of Trust does not reference or describe the Operating Agreement, the Operating Agreement is a governance document not related to real or personal property, and, in any event, South Edge could not pledge rights in the Operating Agreement because it was not a party to that contract.

Section 15.15 of the Operating Agreement states that "[n]one of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company, any Manager or any Member." (Compl., Ex. B at 62.) Under the plain language of this provision, no creditor can enforce the provisions of the...