National Minority Supplier Dev. V. First Nat. Bank
| Decision Date | 14 December 1999 |
| Docket Number | No. Civ.A. 98-2505-CM.,Civ.A. 98-2505-CM. |
| Citation | 83 F.Supp.2d 1200 |
| Parties | NATIONAL MINORITY SUPPLIER DEVELOPMENT COUNCIL BUSINESS CONSORTIUM FUND, INC., Plaintiff, v. The FIRST NATIONAL BANK OF OLATHE, Defendant. |
| Court | U.S. District Court — District of Kansas |
William F. High, James D. Griffin, Stephen J. Torline, Blackwell Sanders Peper Martin LLP, Overland Park, KS, for National Minority Supplier Development Council Business Consortium Fund, Inc., plaintiff.
Christopher B. Bacon, Lowe, Farmer, Bacon & Roe, Olathe, KS, for First National Bank of Olathe, defendant.
This is a contract dispute related to the proper allocation of funds collected from a third party after default on certain loans. Now before the court are two motions: Plaintiff's Second Motion for Partial Summary Judgment (Doc. 52), and Defendant First National Bank of Olathe's Second Motion for Partial Summary Judgment (Doc. 54). For the reasons set forth below, both motions are granted.
The facts in this matter are not in dispute. On September 3, 1996 defendant, First National Bank of Olathe (Bank), made a $375,000 loan, due September 5, 1997, to Hybrids International, Inc. (Hybrids). Plaintiff National Minority Supplier Development Council Business Consortium Fund, Inc. (BCF) purchased a 100% participation interest in this loan pursuant to a Loan Participation Agreement between Bank and BCF executed on September 4, 1996. Terms of the Loan Participation Agreement (LPA) are discussed below as they become relevant.
Under two pre-existing non-participating loans from Bank to Hybrids, Hybrids granted security interests in its inventory, equipment, furniture, fixtures, accounts receivable and general intangibles to Bank. Collateral securing the LPA was defined as all inventory of Hybrids and a junior lien on accounts receivable, furniture, equipment, fixtures and general intangibles.
Hybrids defaulted on all three loans on July 31, 1997. Bank received monies from Hybrids customers through a pre-existing lockbox arrangement whereby Bank received payments on Hybrids accounts receivable.1 Bank applied the monies received through the lockbox to the nonparticipating loans first. Consequently the non-participating loans were paid off before November 11, 1997. The participating loan has not been satisfied.
Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505).
The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Id. at 670-71. In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. at 671 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505; see Adler, 144 F.3d at 671 n. 1 (). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.
In a prior order this Court denied Bank's motion for summary judgment in which Bank asserted the participation agreement does not require that proceeds from Hybrid's accounts receivable be apportioned between the participating and non-participating loans. In its order the Court reasoned "if the participation agreement allows Bank to avoid apportionment, it does so only ambiguously." (Doc. 44 at 6). Because BCF did not seek summary judgment on the issue, the Court was not required to determine if the LPA was ambiguous. (Doc. 44 at 4). BCF has now made a motion for summary judgment asserting that the LPA requires apportionment of proceeds from Hybrid's accounts receivable based upon the relative unpaid balances of the loans. The Court now considers whether the LPA is ambiguous.
Bank argues that a proper understanding of Sections 8(e) and 13.C.5. of the participation agreement requires accounts receivable proceeds to be credited to the non-participating loans made by Bank and that only excess amounts be credited to the junior interest created by the LPA. Alternatively, Bank argues that the intent of the LPA sections is ambiguous and is, therefore, a question of material fact precluding summary judgment.
BCF argues that the LPA is not ambiguous and that Sections 8(e)(1) or (2) of the LPA require that any payments or collections made after July 31, 1997 must be apportioned between the loans.
In construing a contract the intent of the parties controls. The Court determines the parties' intent by examining the four corners of the document, looking to all sections rather than to a critical analysis of any isolated provision. See Akandas, Inc. v. Klippel, 250 Kan. 458, 464-65, 827 P.2d 37, 44 (1992); Wiles v. Wiles, 202 Kan. 613, 620, 452 P.2d 271, 277 (1969). The Court must attempt to give effect to all provisions of the contract. See Wiles at 619, 452 P.2d at 276. Where the contract is clear and unambiguous there is no need to apply rules of construction. See Desbien v. Penokee Farmers Union Coop., 220 Kan. 358, 363, 552 P.2d 917, 923 (1976). Ambiguity is a question of law to be determined by the court. See Simon v. National Farmers Org., Inc., 250 Kan. 676, 680, 829 P.2d 884, 888 (1992).
To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it uncertain which one of two or more meanings is the proper meaning.
Id. (Citation omitted).
The Court finds the following provisions of Section 8(e) of the LPA to be clear and controlling in this case.
8(e): To the extent that any payments by [Hybrids] to the Bank are insufficient to pay in full the amounts then due and owing under the Loan and any other loan, ... then, ... it is expressly understood as follows:
(1) The amounts received by the Bank, which may constitute payment of either the Loan or any other loan, ... shall be apportioned between the Loan and such other loans in proportion to the respective balances then due and owing under each loan;
(2) The occurrence of an Event of Default, under either the Loan or any other loan, and the decision ... that said loan shall be collected, ... then ... the same action shall be taken by the bank with respect to each such loan, and the proceeds of collection, ... shall be first allocated between the Loan and any other loan, based upon the outstanding balances owed under each such loan.
.
The payments under the lockbox arrangement were insufficient after July 31, 1997 to pay in full the amounts due and owing under the participating loan and the non-participating loans. Consequently, section 8(e) applies. Under 8(e)(1) the amounts received which "may constitute payment ... of any other loan ... shall be apportioned." The payments under the lockbox arrangement were, in fact, payments which had been used and continued to be used after July 31, 1997 as payments on the non-participating loans. Therefore, the payments "may constitute payment of ... any other loan" and must be apportioned between all three loans.
In its prior order, this Court determined that the participating loan was in default as of July 31, 1997. Bank would be incorrect to argue that because the lockbox arrangement was continuing there was no decision to collect on the non-participating loans. In fact, every time the lockbox was opened and monies applied Bank made a decision to collect on the non-participating loans. Section 8(e)(2) requires that, where a decision is made to collect any loan in default, the Bank take the same action with respect to each loan and the proceeds be allocated between the loans. Bank did not allocate the proceeds of collection between the loans. Under either Section 8(e)(1) or (2) the proceeds of collection or payment must be apportioned among the three loans. The Court finds the Collateral priority implied in Section 13.C.5. of the Loan Participation Agreement does not relate to proceeds of collection or payment.
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