Stone and Michaud Ins., Inc. v. Bank Five for Sav.

Citation785 F. Supp. 1065
Decision Date06 March 1992
Docket NumberCiv. No. 90-485-D.
CourtU.S. District Court — District of New Hampshire

Richard F. Therrien, Manchester, N.H., for plaintiff.

Steven A. Solomon, Manchester, N.H., John H. Henn, Boston, Mass., for defendant.


DEVINE, Chief Judge.

In this civil action, an insurance agency seeks recovery of more than $95,000 for unpaid insurance premiums for coverage provided for a real estate development. Plaintiff contends that Bank Five for Savings ("Bank"), is liable for the monies owed because the relationship existing between the insured and Bank allegedly went beyond that of borrower and lender and was actually a partnership or joint venture. Plaintiff's amended complaint ("complaint")1 sets forth three counts: assumpsit, partner in law, and partner in fact. Diversity jurisdiction is properly based upon 28 U.S.C. § 1332.2 Presently before the court are Bank's Amended Motion to Strike Selected Paragraphs of the Affidavit of Frederick T. Fish and its motion for summary judgment, both of which are opposed by plaintiff. Because the court finds no unusual reasons why oral argument would be of assistance in resolving this matter, defendant's request for same is denied. See Local Rule 11(g).

I. The Project and the Players

In the mid 1980s, Frederick Fish, a real estate developer acting individually and/or as trustee of various entities, began to develop a 677-acre area in Francestown and Bennington, New Hampshire. The site included a golf course, a restaurant, an inn, and a small conference center, all of which he hoped to transform into a four-season resort complex also containing condominiums. ("Tory Pines project"). Toward this end, a real estate trust controlled by Fish entered into certain loan arrangements with Bank, a Massachusetts savings bank having a principal place of business in Arlington, Massachusetts. Plaintiff Stone and Michaud Insurance, Inc. ("Stone & Michaud"), a New Hampshire corporation with its principal place of business in Manchester, New Hampshire, provided borrower Fish with the insurance coverage required by Bank. Ultimately, the Tory Pines project faltered, Fish defaulted on a note, and Bank foreclosed in 1990.

II. Undisputed Facts

The parties present the following undisputed facts. From October 1985 until sometime in 1989, Bank engaged in a relationship with Fish whereby Bank provided financing to Fish for the acquisition and development of the Tory Pines project. The first loan of $2,100,000 was secured by a Mortgage and Security Agreement. In connection with the Tory Pines project, Fish was required by Bank to maintain fire, theft, liability, workers' compensation, and various umbrella insurance coverages. Stone & Michaud provided the required insurance to Fish from October 1985 to October 1989. As a result, Fish became indebted to Stone & Michaud for the value of unpaid insurance premiums in the sum of $95,370.21 for the period October 1987 through October 1989. Although Stone & Michaud obtained a judgment against Fish in Hillsborough County (New Hampshire) Superior Court, it was to no avail, as Fish was by then protected from creditors by virtue of bankruptcy proceedings.

In conjunction with its first loan to Fish of $2,100,000 at 12 percent interest, Bank entered into another agreement with him, one that provided for an "equity kicker".3 This agreement, entitled Agreement for Additional Interest, obligated Fish to make additional payments to Bank up to a maximum of $4,500,000. As characterized by the parties, the amount of these additional payments was to be calculated as a "percent (65%) of net profits" of the Tory Pines project, Complaint at 5, ¶ 21, or a "percentage of the proceeds ... realized from the sale or refinancing of any interest in the property, excluding the first sixteen condominium units completed for sale" at Tory Pines. Defendant's Motion for Summary Judgment at 4, ¶ 6. Bank also secured the Agreement for Additional Interest by a mortgage which was recorded on October 9, 1985, in the Hillsborough County Registry of Deeds. It is further agreed by the parties that the equity kicker agreement was amended in February 1987, reducing the maximum amount due to $4,400,000.

III. The Dispute

At the crux of this case lies the October 1985 equity kicker arrangement, which Stone & Michaud characterizes as a "secret agreement" between Fish and Bank, concealed from it and all other creditors. Stone & Michaud states that it first learned of this secret agreement to share profits from the Tory Pines project when it received a May 31, 1990, letter from Fish. Had it known of the agreement, argues plaintiff, it would have dictated a different credit arrangement to protect its interests.

In part, it is the alleged secret nature of the equity kicker agreement which plaintiff contends gives rise to Bank's liability. Additionally, plaintiff maintains that the secret agreement provides for payments which can only be construed as a share of profits from the Tory Pines project, and could not be interest or principal payments or debt service on the original $2,100,000 loan. Because the agreement is for profits and not interest, plaintiff argues, a partnership at law was created, thus exposing Bank to partnership liability for the unpaid insurance coverage. Plaintiff partially relies on the rule of RSA 304-A:7 IV that a sharing of the profits of a business is prima facie evidence of a partnership relationship.

Stone & Michaud also alleges that Bank engaged in certain conduct which demonstrates either that a partnership in fact existed between Bank and Fish, or that they were joint venturers. These allegations regarding Bank's conduct focus primarily upon Bank's right to control and its actual control of the Tory Pines project, which serve to implicate Bank as Fish's partner in the resort's development.

Bank's position is that it required Fish to agree to the equity kicker in order to compensate Bank for "the risk it was undertaking in providing initial financing" for the project. Affidavit of Edward V. Casavant (bank loan officer who administered several real estate loans to Fish) ("Casavant Affidavit") at 3, ¶ 8 (attached to Defendant's Motion for Summary Judgment). That risk was felt by Bank to exist as the result of a combination of factors: "absence of a demonstrated market for the project in the Tory Pines area, the fact that Fish had never successfully completed a project of this nature and scope, and the fact that Fish had secured no other funding for the project." Id. Moreover, Bank argues that the equity kicker agreement was not secret because it was secured by a publicly recorded mortgage.

Bank maintains that its documentary evidence establishes that a partnership relationship with Fish did not exist. In fact, it argues that the equity kicker agreement upon which plaintiff bases this action expressly disclaims the creation of any partnership. Their agreement explicitly states that the borrower, Fish, has sole responsibility for control and management of the project, that his relationship is one of debtor to creditor, and that Bank has no responsibility for any losses. Additionally, Bank contends that Stone & Michaud has set forth no facts to support its theory that Bank was a general partner or joint venturer of Fish under New Hampshire law—that plaintiff does no more than present unsubstantiated and conclusory allegations and fails to establish by way of competent evidence the existence of a disputed issue of material fact. Bank therefore claims that it is entitled to summary judgment.

IV. The Summary Judgment Standard

The court agrees with plaintiff that the purpose of summary judgment is issue finding, not issue determination. Indeed, at this "stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); see also Olivera v. Nestle Puerto Rico, Inc., 922 F.2d 43, 45 (1st Cir.1990) (same). However, the court disagrees with plaintiff's understanding of the controlling standard. Plaintiff maintains that, in opposition to summary judgment, a party need only show reasonable and specific grounds for believing that evidence disputing the moving party's affidavit can be furnished at trial to defeat summary judgment. Such a construction would eliminate Rule 56's usefulness in avoiding unnecessary trials. To survive a motion for summary judgment, the burden is higher for plaintiff than it indicates.

When the moving party can demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of its claim, Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 2557, 91 L.Ed.2d 265 (1986) (Brennan, J., dissenting), the burden shifts to the nonmoving party to do one of three things: "(1) rehabilitate the evidence attacked in the moving party's papers, (2) produce additional evidence showing the existence of a genuine issue for trial as provided in Rule 56(e), or (3) submit an affidavit explaining why further discovery is necessary as provided in Rule 56(f)." Id., 477 U.S. at 332 n. 3, 106 S.Ct. at 2558 n. 3 (citing 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2727 (1983)). Accord Local No. 48, United Bhd. of Carpenters & Joiners v. United Bhd. of Carpenters & Joiners, 920 F.2d 1047, 1050-51 (1st Cir.1990) (delineating summary judgment standard). What the opposing party must not do is "rest upon mere allegations or denials" of the moving party's pleadings. Rule 56(e), Fed.R.Civ.P.

The evidentiary showing required of an opposing party may be made "by affidavits or as otherwise provided in this rule, but it must set forth specific facts showing that there is a genuine issue for trial." Id. (Emphasis added.) "Rule 56...

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