Old Colony Ventures I v. SMWNPF HOLDINGS

• Decision Date: 26 February 1996
• Docket Number: No. 95-2050.,95-2050.
• Citation: 918 F. Supp. 343
• Parties: OLD COLONY VENTURES I, INC., Plaintiff, v. SMWNPF HOLDINGS, INC., et al., Defendants.
• Court: U.S. District Court — District of Kansas

918 F. Supp. 343

OLD COLONY VENTURES I, INC., Plaintiff, v. SMWNPF HOLDINGS, INC., et al., Defendants.

No. 95-2050.

United States District Court, D. Kansas.

February 26, 1996.

Gregory L. Musil, Steven D. Ruse, Shughart, Thomson & Kilroy, Overland Park, KS, P. John Brady, James C. Sullivan, Shughart, Thomson & Kilroy, Kansas City, MO, for Old Colony Ventures I, Inc.

Robert P. Wray, Roy R. Darke, Jerald S. Meyer, Armstrong, Teasdale, Schlafly & Davis, Kansas City, MO, Renana B. Abrams, Armstrong, Teasdale, Schlafly & Davis, Olathe, KS, for SMWNPF Holdings, Inc.

Roy R. Darke, Jerald S. Meyer, Armstrong, Teasdale, Schlafly & Davis, Kansas City, MO, Renana B. Abrams, Armstrong, Teasdale, Schlafly & Davis, Otathe, KS, for Sheet Metal Workers National Pension Fund, Arthur Moore, Alan J. Chermack, Ronald Palmerick, Matthew B. Hernandez, Bruce J. Stockwell, Robert Custer, Robert T. Stringer, Carl Moore, Robert J. Fanning.

Gordon D. Gee, Laurilyn A. Goettsch, Seigfreid, Bingham, Levy, Selzer & Gee, Kansas City, MO, for Merrill Lynch Pierce Fenner & Smith, Inc.

Roy R. Darke, Jerald S. Meyer, Armstrong, Teasdale, Schlafly & Davis, Kansas City, MO, John E. Ivan, Shawnee Mission, KS, Jennifer L. Lewis, John Ivan Law Office, Shawnee Mission, KS, for Robert B. Francis, Clinton O. Gowan, Jr.

Steven D. Ruse, Shughart, Thomson & Kilroy, Overland Park, KS, P. John Brady, James C. Sullivan, Shughart, Thomson & Kilroy, Kansas City, MO, for Rist Group, Inc.

John E. Ivan, Shawnee Mission, KS, Jennifer L. Lewis, John Ivan Law Office, Shawnee Mission, KS, for Woodland Hills Joint Venture.

James C. Wirken, Michael S. Jones, The Wirken Group, P.C., Kansas City, MO, for Holland Corp.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

Old Colony Ventures I, Inc. (OCV) alleges in this action, among other things, that SMWNPF Holdings, Inc. (Holdings) prevented a real estate development project from being completed. Holdings has asserted several cross claims against Woodland Hills Joint Venture (WHJV), a general partnership consisting of OCV and Holdings. Presently before the court is Holdings's motion for partial summary judgment on counts VI and VII of its cross claims and for severance thereof (Doc. # 153).¹ Influenced heavily by the totality of the circumstances surrounding the particular trilateral relationship among OCV, Holdings and WHJV, the court makes the following rulings: (1) material questions of fact exist regarding whether a default has occurred and (2) the issues implicated by counts VI and VII are inextricably intertwined with the remainder of the case. As a result, Holdings's motion is denied.

I. Facts²

WHJV is a Kansas general partnership with two general partners: OCV, an Illinois corporation with its principal place of business in Kansas and Holdings, a Delaware corporation with its principal place of business in Virginia. WHJV arose from a February 20, 1992 agreement between OCV and Holdings entitled "Venture Agreement of the Woodland Hills Joint Venture, a Kansas joint venture" (joint venture agreement). Pursuant to the joint venture agreement, Holdings loaned WHJV $9,000,000 on March 20, 1992. In exchange for the loan, WHJV executed a promissory note (note) in favor of Holdings with a principal amount of $9,000,000. WHJV and Holdings also entered into a Loan and Security Agreement (loan agreement), which outlined the lending relationship between WHJV and Holdings. The loan was secured by a mortgage, in favor of Holdings, on real property owned by WHJV. As additional security, OCV executed, in favor of Holdings, an assignment and security agreement (assignment agreement) of OCV's partnership interest in WHJV. On April 8, 1993, WHJV and Holdings agreed to increase the principal loan amount to $9,500,000.

Pursuant to the loan documents, WHJV submitted 15 draw requests to Holdings between February of 1992 and July of 1993. Holdings paid the requests, which together totaled $9,500,000. Of the amount requested, WHJV used $627,880 to pay Holdings for interest on the note.

WHJV has made no payment on the note since May 5, 1994³ — neither an interest payment nor full payment when the note became due on April 1, 1995. Each loan document contains provisions defining default. Holdings contends that, under these provisions, WHJV defaulted on its obligations. WHJV responds that the conduct of Holdings, which is both the lender to whom the debt is owed and an equal partner in the partnership which is the borrower, bars application of the default provisions and provides a defense to foreclosure.

II. Standard for Summary Judgment

When considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the nonmoving party. Jones v. Unisys Corp., 54 F.3d 624, 628 (10th Cir.1995). A moving party who bears the burden of proof at trial is entitled to summary judgment only when the evidence indicates that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Anglemyer v. Hamilton County Hosp., 58 F.3d 533 (10th Cir.1995). If the moving party does not bear the burden of proof at trial, it must show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986).

Once the movant meets these requirements, the burden shifts to the party resisting the motion to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). The nonmovant may not merely rest on the pleadings to meet this burden. Id. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. at 2511; Tersiner v. Union Pacific R.R., 740 F.Supp. 1519, 1522-23 (D.Kan. 1990). More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex, 477 U.S. at 327, 106 S.Ct. at 2555.

III. Discussion

Holdings seeks summary judgment on the basis that WHJV defaulted on the loan and waived any defenses it might have to foreclosure. In the alternative, Holdings requests severance of its foreclosure cross claims from the remainder of the action.⁴ Because the court concludes that material fact questions exist regarding whether or not a default occurred, summary judgment may not be granted. The court also finds that, under the circumstances presented by this action, severance would be inappropriate.

A. Default

Holdings maintains that WHJV defaulted on the loan by failing to make required interest payments and/or by failing to pay the note when it became due. WHJV responds that the loan agreement obligated Holdings to make the interest payments until the project generated a cash flow. WHJV also claims that Holdings's inequitable conduct caused any failure of WHJV to meet its obligations. The court agrees with WHJV's latter contention.

Both parties cite to portions of the following language from the loan agreement as controlling the duty to make interest payments:

2.02 Maximum Loan Amount. The aggregate amount of funds advanced to borrower at any one time under the Loan shall not exceed $9,500,000 in any event. If at any time the aggregate unpaid principal balance outstanding under the Loan exceeds the foregoing maximum amount, Borrower shall immediately pay Lender the amount by which the outstanding principal balance of the loan exceeds $9,500,000.

2.03 Purposes of Advances. Lender may advance funds from time to time in its sole and absolute discretion under the Loan, at Borrower's request, to pay or to reimburse Borrower for the payment of (i) the cost of Borrower's acquisition of the Land, (ii) sums owed by Borrower to Lender in reimbursement of due diligence costs incurred by Lender in preparing for the execution of the Venture Agreement and/or in preparation for the making of the Loan, (iii) Construction costs incurred in connection with the development or subdivision of the Land, the construction of improvements and/or the development, design, construction, management, marketing or completion of the Project and (iv) interest payable from time to time on the outstanding balance of the Loan in accordance with the terms of the Note, and for no other purpose without Lender's prior written consent, which may be granted or withheld in each instance in Lender's sole and absolute discretion.

* * * * * *

Lender agrees to advance the monthly payments of accrued interest required under the Note until such time as funds are available from operation of the Project to pay such interest payments.

The parties disagree about the meaning of the last paragraph of section 2.03. WHJV contends that this paragraph obligates Holdings to advance interest payments until the project generates funds or, if the project fails to generate funds, for the duration of the loan. According to WHJV, the obligation to advance interest payments exists irrespective of other provisions in the loan agreement. Not surprisingly, Holdings disagrees with WHJV's analysis. Holdings points to section 2.02 as authority for its position that it has no obligation to make advances once the loan limit is reached, which occurred by July of 1993.⁵ The court agrees with Holdings.

The construction and effect of contracts "is a question of law to be determined by the court." First Hays Banshares, Inc. v. Kansas Bankers Sur. Co., 244 Kan. 576, 586, 769 P.2d 1184, 1191 (1989). Whether or not the language of a contract is ambiguous is a question of law for the court to resolve. Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir.) (applying Kansas law), cert. denied, 502 U.S. 1020, 112 S.Ct. 670, 116 L.Ed.2d 761 (1991); Simon v. National Farmers Organization, Inc., 250 Kan. 676, 680, 829 P.2d 884, 888 (1992)....