Orix Pub. Fin., LLC v. Lake Cnty.
| Decision Date | 05 December 2013 |
| Docket Number | Civil File No. 11-3261 (MJD/LIB) |
| Parties | ORIX PUBLIC FINANCE, LLC, Plaintiff, v. LAKE COUNTY, MINNESOTA; and LAKE COUNTY HOUSING AND REDEVELOPMENT AUTHORITY, MINNESOTA, Defendants. |
| Court | U.S. District Court — District of Minnesota |
MEMORANDUM OF LAW & ORDER
Brent A. Lorentz, Justin H. Jenkins, and Michael A. Rosow, Winthrop & Weinstine, PA, Counsel for Plaintiff.
Alain M. Baudry, Maslon Edelman Borman & Brand, LLP, and Kenneth H. Bayliss, III and Cally R. Kjellberg, Quinlivan & Hughes, PA, Counsel for Defendants.
This matter is before the Court on Plaintiff's Motion for Summary Judgment [Docket No. 61], Defendants' Motion for Summary Judgment [Docket No 63], and Plaintiff's Motion to Partially Exclude Opinion Testimony of R. Donald Keysser and Prohibit Supplementation [Docket No. 75]. The Court heardoral argument on October 9, 2013. Because the frustration of purpose doctrine applies, the Court grants summary judgment to Defendants.
In 2009, Defendant Lake County, Minnesota ("Lake County" or "the County") learned that it was eligible to participate in a federal loan and grant program that provides funding for the construction of broadband cable service networks. (Huddleston Decl. ¶¶ 1-2.) The Broadband Initiatives Program, available through the Rural Utilities Service ("RUS"), a division of the United States Department of Agriculture, assists rural communities with broadband project funding. (Id. ¶ 2.) Lake County applied for an RUS loan and grant. (Id. ¶ 3.) That first application was denied by RUS in February 2010 based on concerns about technical feasibility. (Id. ¶ 4.)
The County then applied for a second round of RUS funding and sought $66 million in loans and grants. (Huddleston Decl. ¶ 5.) To obtain RUS funding, the County had to meet certain requirements, including that the broadband project ("Project") would be "'substantially completed' within two years of thedate of the issuance of the award and fully complete within three years of the date of the award." (Huddleston Decl., Ex. A, Notice of Funds Availability at 3826.) Also, to qualify for the RUS funding, the County had to provide local matching funds to cover certain expenses that could not be covered by the RUS loan and grant. (Huddleston Decl. ¶ 5.) Lake County was required to "include with the application evidence of all funding, other than the RUS award, necessary to support the project." (Notice of Funds Availability at 3827-28.)
RUS also required that Lake County prove to RUS that the Project was financially feasible. (Notice of Funds Availability at 3828.) If Lake County failed to obtain the local matching funds specified in its application or to fulfill any other pre-award condition, RUS would not disburse funds to Lake County and would withdraw the award. (Id. at 3833.)
In early 2010, Lake County submitted its second RUS application for a $56,413,705 loan and a $9,955,359 grant. (Huddleston Decl., Ex. B, Round 2 Application at 12-13.) The application stated that the County would satisfy the local matching fund requirement by issuing $3.5 million in revenue bonds. (Id. at 13.) Lake County decided to issue revenue bonds to avoid putting publicfunds at risk: the revenue bonds would be repaid solely from subscription fees paid by users of the broadband network. (Huddleston Decl. ¶ 7.)
On September 10, 2010, RUS formally notified Lake County that its application had been approved, subject to the County's satisfaction of RUS conditions contained in the Loan/Grant and Security Agreement between Lake County and RUS ("LGSA"). (Huddleston Decl. ¶ 8; Huddleston Decl., Ex. D, Award Letter; Huddleston Decl., Ex. C, LGSA.) The award letter stated: "Please note that any proposed modifications to these legal agreements at this point may result in withdrawal of the offer by RUS." (Award Letter.) Lake County accepted RUS's offer on September 14, 2010. (Id.)
Under the LGSA, RUS required the County to satisfy the following conditions, as determined by RUS in its sole discretion, in order to receive the approximately $66 million loan and grant: all legal matters incident to consummating the loan and grant shall be satisfactory to counsel for RUS (LGSA § 4.1(a)); Lake County "shall enter into an indenture, in form and substance satisfactory to RUS, for the $3,500,000 pledged by [Lake County] toward this Project as required under Section 4.2(d), which indenture shall secure such fundswith a subordinate priority to the RUS on the Revenues of the Telecommunications System" (id. § 4.1(j); id., Schedule 1, Art. IV(1)(a)); and Lake County shall not incur additional indebtedness without prior written consent of RUS, with certain limited exceptions (LGSA § 7.4).
Once the County received its award letter from RUS, it began to seek funding for the $3.5 million in local matching funds. (Huddleston Decl. ¶ 12.) RUS provided the County a November 23, 2010 deadline to provide evidence that it had matching funds in place. (Id.) The County retained Northland Securities, Inc. ("NSI") to locate an investor willing to buy revenue bonds to fund its local match. (Id.)
On November 12, 2010, NSI contacted Plaintiff ORIX Public Finance, LLC ("ORIX"), an investment group. (Huddleston Decl. ¶ 13; Rosow Aff., Ex. 22; Bayliss Decl., Ex. E.) NSI represented that Lake County would receive approximately $66 million from RUS and that it needed to obtain $5 million in matching funds as a condition of the RUS loan. (Rosow Aff., Ex. 22; Dinan Aff. ¶¶ 2-3.) ORIX expressed interest, and, on November 15, 2010, NSI sent ORIX a"pitch book," which included, among other things, a summary of the Project and a copy of the LGSA. (Huddleston Decl. ¶ 13; Bayliss Decl., Ex. A, Dinan Dep. 26.)
On November 22, 2010, Lake County's bond counsel sent ORIX's in-house counsel, John Dinan, a complete copy of the LGSA, which Dinan reviewed. (Bayliss Decl., Ex. D, Dep. Ex. 75; Bayliss Decl., Ex. A, Dinan Dep. 26, 68.) ORIX expressed its desire to purchase the revenue bonds. (Huddleston Decl. ¶ 13.)
Lake County's bond counsel, attorneys at the Duluth law firm of Fryberger, Buchanan, Smith & Frederick, P.A., drafted the first version of the bond purchase agreement between the parties. (Skala Decl. ¶¶ 2-4; Maddy Decl. ¶ 2.) Mary Francis Skala was lead bond counsel and attorney Daniel Maddy assisted in the preparation of the agreement. (Skala Decl. ¶¶ 2-4; Maddy Decl. ¶ 2.) Maddy avers that he made the final revisions to the first draft of the bond purchase agreement. (Maddy Decl. ¶ 2; Second Rosow Aff., Ex. 1, Skala Dep. 10, 24.)
Skala and Maddy both aver that it is standard for bond purchase agreements to have conditions precedent to each party's obligation to close. (Skala Decl. ¶ 4; Maddy Decl. ¶ 3.) It is also standard that the purchaser beentitled to waive the conditions precedent to its obligations to purchase the bonds and that the seller be entitled to waive the conditions precedent to its obligations to issue the bonds. (Skala Decl. ¶ 4; Maddy Decl.¶ 3.) The draft agreement that Maddy used as a template for drafting contained a Section 3, entitled "Conditions of the Purchase Obligation of Purchaser," which explicitly provided that the obligations of the Purchaser to purchase the bonds "are subject to . . . conditions, compliance with any of which may be waived . . . by the Purchaser." Maddy proceeded to draft the reciprocal Section 4, relating to conditions precedent to the Issuer and Borrower's obligations. Maddy avers that he intended that the conditions precedent to the Issuer and Borrower's obligation to sell the bonds in Section 4 would be waivable by the Issuer or Borrower, but he inadvertently made a typographical error and provided that the conditions precedent to the Issuer's and Borrower's obligations to close were waivable by the Purchaser, ORIX. (Maddy Decl. ¶¶ 2, 5-6.) Maddy declares that this error occurred because he cut and pasted the entirety of Section 3 into the new Section 4 that governed the conditions precedent to the closing obligations of the Issuer and Borrower. (Maddy Decl. ¶ 5.) However, Maddy neglected to change the identity of theparty that could waive the conditions from "Purchaser" to "Issuer and Borrower," as he should have. (Id.) Skala avers that the resulting waiver language in Section 4 is nonsensical. (Skala Decl. ¶ 5.)
The language allowing ORIX to waive the Section 4 conditions precedent appeared in the first draft of the bond purchase agreement emailed by Skala to ORIX on November 17, 2010. (Skala Decl. ¶¶ 6-8; Dinan Aff. ¶ 4; Rosow Aff., Ex. 25.) At that time, there had been no negotiations between the Fryberger law firm and ORIX about the bond purchase agreement, including Section 4. (Skala Decl. ¶ 7; Maddy Decl. ¶ 8.) (See also Bayliss Decl., Ex. F, Nguyen Dep. 9-10; Bayliss Decl., Ex. G, Dep. Ex. 87; Bayliss Decl., Ex. A, Dinan Dep. 96.)
ORIX and Lake County's counsel then had negotiations over the telephone. (Dinan Aff. ¶ 4.) ORIX negotiated certain changes to Section 3 of the bond purchase agreement so that ORIX's performance would be conditioned on a number of conditions precedent. (Id.) On November 21, 2010, Lake County's counsel sent a new draft of the bond purchase agreement and a redline showing changes from the first draft. (Dinan Aff. ¶ 4; Rosow Aff., Ex. 27.)
The initial drafts of the bond purchase agreement provided that the County would issue the revenue bonds to ORIX at 12% interest and gave ORIX a security interest and right to receive revenue from the Project pari passu with the rights held by RUS. (Huddleston Decl. ¶ 14; Skala Decl. ¶ 9.) In late November 2010, RUS refused to approve the pari passu funding and...
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