Opus Corp. v. International Business Machines Corp.
| Decision Date | 20 April 1998 |
| Docket Number | No. 97-3432,97-3432 |
| Citation | 141 F.3d 1261 |
| Parties | OPUS CORPORATION, a Minnesota corporation, Plaintiff--Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation, Defendant--Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Samuel L. Hanson, Minneapolis, MN, argued (Charles B. Rogers and Janel E. LaBoda, on the brief), for appellant.
Craig D. Diviney, Minneapolis, MN, argued (Mark Ginder, Creighton R. Magid and Julie A. Rich, on the brief), for appellee.
Before BEAM and HEANEY, Circuit Judges, and KOPF, 1 District Judge.
Opus Corporation (Opus) appeals from the district court's 2 decision to grant summary judgment in favor of International Business Machines Corporation (IBM). Opus presents two issues on appeal: (1) Did the district court err when it construed "all recourse obligations" to mean secondary obligations, and (2) Did the district court err in granting summary judgment on Opus's claim that IBM breached its fiduciary duty as managing partner? After careful consideration, we conclude that the district court's decision was correct and we affirm.
Because we have the benefit of two thoughtful and thorough opinions by the district court, 3 the background of this matter will be stated summarily. In essence, this is a breach of contract case involving a limited partnership agreement. The parties to the limited partnership agreement are Opus and IBM. It is undisputed that Minnesota law applies.
The purpose of the limited partnership was to construct and rent a 50-floor office building known as "First Bank Place." The partners intended to erect a prominent office building in downtown Minneapolis. Opus was the sole limited partner with a 10-percent partnership interest. IBM was the sole general partner with a 90-percent interest. At its inception, the partnership was thinly capitalized; that is, IBM contributed only $90,000 of capital and Opus contributed $10,000.
Both Opus and IBM agreed to do a variety of things to accomplish the goal of building and developing "First Bank Place." For example, IBM agreed to raise the large sums of money needed to construct what was intended to be a fancy building. IBM also agreed to rent 275,000 square feet of space in the new building for an agreed price.
As for financing, IBM guaranteed full payment by the partnership of the principal and interest on more than $325 million to be used for construction. IBM also guaranteed that the partnership would complete construction of the building. Regarding this completion guaranty, Opus agreed to indemnify IBM to the extent of one-third of IBM's liability if the partnership failed to complete construction and IBM was called to honor its guaranty of completion.
For its part, Opus became the general contractor and leasing agent for the project. An Opus affiliate became the property manager. Opus hoped to make millions of dollars from these separate roles. Neither IBM nor the partnership had any right to these earnings.
In a letter of intent, Opus agreed with IBM that, as consideration for the benefits Opus was deriving from the deal, Opus would take over other leases from a prospective "anchor tenant" so the tenant could move into the new building. The prospective tenant was First Bank. As a result, Opus entered separate negotiations with First Bank. In the end, Opus agreed with First Bank that Opus would take over First Bank's other leases so First Bank could move into the new building. Opus hoped to make as much as $38 million by subleasing First Bank's old space. Everyone agrees that neither IBM nor the partnership would have shared in that profit.
No agreement between IBM and Opus imposed upon IBM or the partnership any liability--direct or indirect--for the First Bank leases Opus took over. However, to give Opus a tax break, after Opus completed its negotiations with First Bank, some payments made by Opus to First Bank were funneled through the partnership.
In their capacities as partners, IBM and Opus understood there might be a need for additional partnership capital in the future. Thus, they agreed that under certain circumstances the general partner, IBM, could "call" for the partners to contribute more money. If a partner, like Opus, failed to contribute its share of additional capital, IBM could "cram down"; that is, IBM could pay the capital Opus failed to pay, and take over Opus's interest in the partnership.
If the "cram down" took place, the parties agreed that "the Contributing Partner shall (x) assume and indemnify the Non-Contributing Partner and its affiliate(s) against all recourse obligations of the Non-Contributing partner ... in connection with Partnership business ...." (Art. 3.2(f) Amended and Restated Limited Partnership Agreement; Opus App. at 342-43.) Specifically listed as "recourse obligations" were IBM's guaranty of construction financing, IBM's guaranty of completion, Opus's indemnity agreement with IBM regarding IBM's completion guaranty, and "any other recourse obligation on third-party loans." (Id.) Opus's agreements with First Bank were not described as "recourse obligations."
As the perceptive reader might predict, the real estate market in Minneapolis collapsed, IBM made a capital call, 4 Opus refused to meet the call, and IBM "crammed down" on Opus. Opus then made a demand on IBM to reimburse Opus for the money it had paid First Bank regarding the leases on the old First Bank space.
Noting that it had lost over $80 million on the project and that it continued to be obligated to pay rent on 275,000 square feet of space at higher than market rates, IBM refused to honor Opus's indemnity demand. IBM asserted that Opus's payments to First Bank were not "recourse obligations of the Non-Contributing partner in connection with Partnership business."
Opus argues that IBM, in its capacity as general partner, breached its fiduciary duty to Opus. Opus's original claim was based on a conspiracy allegation. In its amended complaint, Opus asserted that:
At some time unknown to Opus, either before or shortly after the parties entered into the Partnership Agreement, IBM conspired with the parties and its affiliated corporations and undertook a series of covert actions that were designed to eliminate Opus as a partner and damage or defeat Opus' partnership interest.
(Am. Compl. p 7; Opus Addendum to Br. at 58.)
After the motion for summary judgment was filed, Opus essentially abandoned its conspiracy claim. Instead, Opus defended the motion for summary judgment by contending that various acts or omissions of IBM constituted a breach of fiduciary duty.
It is undisputed that both Opus and IBM are very sophisticated companies. IBM, of course, is well known. While not as famous as IBM, Opus is a knowledgeable real estate developer. In fact, one commentator described Opus as "on its way to becoming Minneapolis' king of office development." (Patrick Boulay, Opus Eyes the Crown, FREEWAY NEWS (June 15, 1988); IBM App. at 992-93.) Each company hoped to earn millions of dollars from their association.
The two sophisticated parties engaged equally sophisticated negotiators and lawyers to help them agree on each of the many questions raised by the formation of the partnership and the related business ventures. In fact, it took over a year to arrive at a final draft of the partnership agreement. When the partners eventually signed it, the agreement was 94 pages long. It also contained numerous explanatory exhibits.
Among many other things, the partners agreed that IBM would generally have no liability to Opus if IBM made "mistake[s] in judgment." (Art. 5.9 Amended and Restated Limited Partnership Agreement; Opus App. at 375-76.) In particular, they agreed that IBM would have no liability to Opus for mistakes in judgment unless IBM intentionally violated the agreement, was "grossly negligent," or engaged in "willful neglect." (Id.) Specifically, the partners agreed that the following "business judgment" rule would govern them:
The Managing General Partner and the Partners shall perform their duties under this Agreement with ordinary prudence and in a manner characteristic of business persons in similar circumstances. However, neither the Managing General Partner nor any other Partner shall have any liability whatsoever to the Partnership or to any Partner for loss caused by any act or by the failure to do any act if the loss suffered by the Partnership or such Partner arises out of a mistake in judgment by the Managing General Partner or such Partner, as the case may be or if the Managing General Partner or such Partner, as the case may be, in good faith, determined that the action giving rise to the loss was in the best interests of the Partnership; provided, however, that such exculpation from liability shall not apply to any intentional violation of the terms and provisions of this Agreement, nor shall it apply to any liability for loss caused by any act or by the failure to do any act which arises out of the gross negligence or willful neglect of the Managing General Partner or such Partner, as the case may be.
(Id.)
We first examine the district court's decision that summary judgment should be granted for IBM because Opus's obligations to First Bank were not "recourse obligations of the Non-Contributing partner [Opus] in connection with Partnership business." We then examine the district court's decision that summary judgment should be granted in favor of IBM on Opus's breach of fiduciary duty claim.
In reviewing the district court's decision to grant summary judgment, we follow well-known rules. We have previously described those rules this way:
In reviewing a district court's grant of summary judgment, this court applies the same standard as the district court applied, without giving deference to the...
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