Ross v. Thomas

• Decision Date: 15 July 2010
• Docket Number: No. 09 Civ 5631(SAS),09 Civ 5631(SAS)
• Citation: 728 F.Supp.2d 274
• Parties: Joel ROSS, Eric Levine, and Jerde Development Company, Plaintiffs, v. Stanley E. THOMAS and S. Thomas Enterprises of Sacramento, LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

728 F.Supp.2d 274

Joel ROSS, Eric Levine, and Jerde Development Company, Plaintiffs,

v.Stanley E. THOMAS and S. Thomas Enterprises of Sacramento, LLC, Defendants.

No. 09 Civ 5631(SAS).

United States District Court,

S.D. New York.

July 15, 2010.

Gerald Padian, Esq., Bradley M. Rank, Esq., Howard M. Raber, Esq., Tashjian & Padian, New York NY, for Plaintiffs.

Edward R. Gallion, Esq., Steven Spielvogel, Esq., Gallion & Spielvogel LLP, New York, NY, for Defendants.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge:

I. INTRODUCTION

Joel Ross, Eric Levine, and Jerde Development Company (f/k/a JPI Development Company) (collectively, "Plaintiffs") bring this action against Stanley E. Thomas and S. Thomas Enterprises of Sacramento, LLC (the "Company") (collectively, "Defendants"). Plaintiffs contend that both Defendants breached the terms of, and Thomas breached his guarantee of, their July 13, 2004 Operating Agreement (the "Agreement") by, inter alia, failing to pay ten million dollars in equity distributions as required by section 10.2 of the Agreement. On April 16, 2010, Plaintiffs moved for partial summary judgment on their First and Second Causes of Action pursuant to Rule 56(b) of the Federal Rules of Civil Procedure. For the reasons stated below, Plaintiffs' motion is granted.

II. BACKGROUND ¹

A. The Project

In February 2002, Plaintiffs agreed to collaborate in the acquisition and development of approximately 238 acres of land (the "Property") owned by Union Pacific Rail Yards ("Union Pacific") in Sacramento, California (the "Project"). ² In June 2002, Plaintiffs reached an agreement with Thomas for Thomas to become the capital partner on the Project.³ In November 2002, Union Pacific selected Plaintiffs, operating under the name Millennia Associates, LLC ("Millennia Associates"), as its preferred developer and awarded Millennia Associates the exclusive right to negotiate for the purchase of the Property. ⁴

Millennia Associates and Thomas's company, Thomas Enterprises, Inc., entered into a May 20, 2003 Memorandum of Agreement under which Millennia Associatesagreed to transfer all of its rights and contracts in the Project to a yet-to-be-formed limited liability company.⁵ On October 14, 2003, Millennia Associates entered into a Memorandum of Understanding with the City of Sacramento (the "City") regarding the Project.⁶ On April 29, 2004, Plaintiffs and Thomas formed the Company.⁷ On June 6, 2004, the parties entered into a second Memorandum of Agreement, under which Plaintiffs agreed to transfer control of the Company to Thomas in exchange for an unconditional payment of $500,000 and certain non-voting "economic rights." ⁸

B. The July 13, 2004 Agreement

On July 13, 2004, Plaintiffs and Defendants entered into the Agreement, through which Thomas purchased Plaintiffs' interest in the Company.⁹ Under the terms of the Agreement, Thomas became the sole Member ¹⁰ and sole Manager ¹¹ of the Company and Plaintiffs became Economic Interest Owners.¹² The Agreement stated that it "shall be governed by and construed in accordance with the laws of the State [of Delaware] ... and specifically the [Delaware Limited Liability Company] Act." ¹³

The Agreement allocated to Plaintiffs one hundred Special Units in the Company, which gave them an ownership interest in the Company.¹⁴ Pursuant to section 10.2 of the Agreement, Plaintiffs were entitled to cash distributions in exchange for their shares of equity ownership if certain conditions precedent were met:

The Company shall distribute in cash to [Plaintiffs] ... the Applicable Percentage (defined below) of the amount, if any, by which the aggregate Net Cash Flow from Operations ¹⁵ and Gross Capital Proceeds ¹⁶ received by the Company,any Equity Owner, or any of their respective Affiliates through the date of determination exceeds the aggregate Acquisition and Development Expenses ¹⁷ incurred by the Company, any Equity Owner, or any of their respective Affiliates through the Date of Determination. ¹⁸ The portion of such excess amount shall be payable to [Plaintiffs] as and when such excess amount is received, being the Date of Determination. ¹⁹

The "Applicable Percentage" of the excess funds payable to Plaintiffs is defined as "0.225% per Special Unit outstanding at the time in question." ²⁰ Thomas guaranteed the payments due to the Plaintiffs "jointly, severally, and primarily with the Company." ²¹

C. The Company's Capital Transactions

On December 29, 2006, the Company acquired title to the Property from Union Pacific for approximately seventy-four million dollars, roughly sixteen million of which was in the form of a promissory note.²² As part of the same deal, the Company sold a portion of the Property known as "Parcel A" to the City for fifty-five million dollars-thirty million dollars in cash and a promissory note worth twenty-five million dollars.²³ The Company then sold the City's promissory note to Bank of America for twenty-five million dollars in cash,²⁴ and forwarded that money to Union Pacific as part of the purchase price of the Property.²⁵

The Company also secured two Loans from IA Sacramento Rail, LLC, an affiliate and/or subsidiary of Inland America Real Estate Trust, Inc. ("Inland"): one in April 2007 for $125 million,²⁶ and the second in August 2008 for $50.35 million (collectively the "Loans").²⁷ The first loan was collateralized in part by encumbering the Property with a Deed of Trust, which granted Inland a security interest in the premises.²⁸ Thomas also personally guaranteed repayment of the loan, and the Company offered a corporate guarantee.²⁹ As additional collateral for the second loan, Thomas offered some of his personal assets, including four shopping centers he owned in various locations around the country (one in Georgia, one in Alabama, and two in California), as well as his 9,700-acre ranch in Sarasota, Florida.³⁰ The new loan was cross-defaulted with the original loan to enhance the security guarantee.³¹ While the Loans were secured in large part by the Property, Inland did not specify or restrict how the loan proceeds were to be spent.³²

D. Procedural History

On June 19, 2009, Plaintiffs filed this diversity action alleging breach of contract against both Defendants and breach of guarantee against Thomas. ³³ Plaintiffs sought damages in excess of ten million dollars and a declaratory judgment entitling them to inspect various Enterprises records. ³⁴ On August 14, 2009, Defendants moved to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, and requested a stay of discovery pursuant to Rule 26(c). By opinion and order dated November 5, 2009, both motions were denied.³⁵

On January 6, 2010, Defendants filed a motion to dismiss Plaintiffs' Seventh and Eighth Causes of Action pursuant toRule 12(b)(6) of the Federal Rules of Civil Procedure. In response, Plaintiffs moved for summary judgment on those two claims on February 5, 2010. This Court granted Defendants' motion to dismiss and denied Plaintiffs' motion for summary judgment by opinion and order dated March 2, 2010.³⁶ Six weeks later, on April 16, 2010, Plaintiffs moved for summary judgment on their First and Second Causes of Action pursuant to Rule 56 of the Federal Rules of Civil Procedure.

III. APPLICABLE LAW

A. Summary Judgment

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." ³⁷ " 'An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. A fact is material if it might affect the outcome of the suit under the governing law.' " ³⁸ "[T]he burden of demonstrating that no material fact exists lies with the moving party ...." ³⁹ "When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the non[-]movant's claim." ⁴⁰

To defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact.⁴¹ The non-moving party must do more than show that there is " 'some metaphysical doubt as to the material facts,' " ⁴² and it " 'may not rely on conclusory allegations or unsubstantiated speculation.' " ⁴³ However, " 'all that is required [from a non-moving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial.' " ⁴⁴

In determining whether a genuine issue of material fact exists, the court must "constru[e] the evidence in the light most favorable to the non-moving party and draw all reasonable inferences" in that party's favor.⁴⁵ However, " 'only admissible evidence need be considered by thetrial court in ruling on a motion for summary judgment.' " ⁴⁶ " 'Credibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment.' " ⁴⁷ Summary judgment is therefore "appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." ⁴⁸

B. Contract Interpretation Under Delaware Law ⁴⁹

"[T]he proper interpretation of language in a contract is a question of law." ⁵⁰ "Summary judgment is an appropriate process for the enforcement of unambiguous contracts because there is no material dispute of fact for the court to resolve." ⁵¹ "Delaware adheres to the objective theory of contract interpretation" under which "the court looks to the most objective indicia of [the parties'] intent: the words found in the written instrument." ⁵² "When the plain, common, and ordinary meaning of the words lends itself to only one reasonable interpretation, that interpretation...