Woodmont Co. v. LaSalle Shopping Ctr., LLC, Case No. 1:17-cv-00073

CourtUnited States District Courts. 8th Circuit. United States District Court of North Dakota
Writing for the CourtPeter D. Welte, Chief Judge United States District Court
PartiesThe Woodmont Company and Woodmont Hay Creek, L.P., Plaintiffs, v. LaSalle Shopping Center, LLC and Hay Creek Development, LLC, Defendants.
Docket NumberCase No. 1:17-cv-00073
Decision Date02 June 2020

The Woodmont Company and Woodmont Hay Creek, L.P., Plaintiffs,
v.
LaSalle Shopping Center, LLC and Hay Creek Development, LLC, Defendants.

Case No. 1:17-cv-00073

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH DAKOTA

June 2, 2020


ORDER ON MOTIONS FOR SUMMARY JUDGMENT

This case arises from the development and leasing of commercial real estate for a shopping center in Bismarck, North Dakota, known as the Hay Creek Shops. Plaintiffs The Woodmont Company ("Woodmont") and Woodmont Hay Creek, L.P. ("Woodmont Hay Creek") lodge a six-count first amended complaint against Defendants LaSalle Shopping Center, LLC ("LaSalle") and Hay Creek Development, LLC ("HCD"). Doc. No. 52. The complaint consists of various breach of contract and related equitable claims. In retort, the Defendants advance a five-count second amended counterclaim, asserting contract-based claims of their own in addition to seeking damages under two North Dakota statutes. Doc. No. 39. Before the Court are the parties' respective motions for summary judgment. Doc. Nos. 77, 80. This order resolves all but two of the claims.

I. BACKGROUND

Anchoring this litigation are two contracts: (1) an Agreement for Leasing Services ("LSA") between HCD and Woodmont, and (2) a Development Services Agreement ("DSA") between HCD and Woodmont Hay Creek. Doc. Nos. 79-1, 79-18. HCD assigned both contracts to LaSalle

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on December 31, 2015. Doc. Nos. 79-11, 79-19. An introduction of the parties and a summary of the factual and procedural history follows.

A. Introduction of Parties

Woodmont is a Texas corporation headquartered in Fort Worth that offers development, leasing, and property management services for retail shopping centers. Doc. No. 52, p. 2. Woodmont Hay Creek, as one of approximately 50 Woodmont-affiliated entities, is a Texas limited partnership based in Fort Worth that functioned as the developer for the Hay Creek Shops project. Id. Stephen Coslik is Woodmont's Chairman and served as the managing member of Woodmont Hay Creek. Doc. Nos. 79-1, p. 11; 79-18, p. 14. Grant Gary, then a Vice President and now President of Brokerage Services for Woodmont, headed up lease solicitation and negotiation with potential tenants for the Hay Creek Shops. Doc. No. 85-2 at 16:3-10. Woodmont's President of Development Services, Rick Machak, spearheaded the project's development component. Doc. No. 85-1 at 92:1-20.

LaSalle and HCD are Bismarck-headquartered North Dakota limited liability companies. Doc. No. 52, pp. 2-3. LaSalle is the owner of the Hay Creek Shops property. Doc. No. 39, p. 2. HCD holds a 50% ownership stake in LaSalle, with two other investor groups, Bismarck Partners and LaSalle Partners, owning the remainder. Doc. No. 85-5 at 11:7-12:7. The two primary individuals behind HCD and LaSalle are Ron Knutson and Jerry Splonskowski. Knutson is LaSalle's managing member and holds an ownership interest in HCD. See id.; Doc. No. 79-15, p. 2. Splonskowski is HCD's managing member and, during the time relevant to this action, he was a partner in Northwest Contracting Inc. ("Northwest"), which provided construction services for the Hay Creek Shops. See Doc. Nos. 79-1, p. 11; 85-6 at 8:3-8. Todd Porter represented Bismarck Partners on LaSalle's management committee. Doc. No. 85-7 at 11:13-17.

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B. Factual Background

The business relationships that led to this lawsuit originated from Woodmont's inaugural development endeavor in Bismarck, the Pinehurst Square Shopping Center. Doc. No. 85-6 at 15:13-18. Splonskowski worked with Machak on that project in 2006 and 2007, leaving him with a favorable impression of Woodmont. Id. at 16:14-19. Several years later, Coslik contacted Splonskowski about additional development opportunities in the Bismarck area. Id. at 20:6-16. Splonskowski referred him to a real estate venture called Mandan 94 that owned 30 acres of undeveloped land in north Bismarck.1 Id. at 20:17-21:9. Coslik expressed Woodmont's interest in purchasing the property for the purpose of developing a retail shopping center. Doc. No. 85-5 at 21:7-18.

To that end, Woodmont Land Company (a Woodmont affiliate not involved in this litigation) entered into an earnest money contract with Mandan 94. Doc. No. 97-1. Although the sale had yet to close, Mandan 94 separately granted Woodmont Land Company a license to develop the property. Id. Woodmont Land Company started soliciting potential tenants and negotiated several letters of intent and leases. Doc. No. 85-1 at 43:5-10. On Woodmont's request, Northwest commenced with construction services. Doc. No. 85-6 at 23:11-24:10. Woodmont Hay Creek, a single-purpose entity created for the Hay Creek Shops project, came into existence not long after. Doc. No. 85-1 at 13:15-19. Woodmont Land Company then began systematically assigning leases to Woodmont Hay Creek. Id. at 12:9-13.

In the meantime, the Mandan 94 investors became concerned with how long the land sale was taking to close. Doc. No. 85-5 at 28:16-29:18. That concern was vindicated when Woodmont

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Land Company's financing prospects collapsed. Doc. Nos. 85-1 at 17:5-22. The earnest money contract was terminated, and Woodmont Land Company relinquished any ability to develop the property as a result. Doc. No. 97-1. Construction ground to a halt. Doc. No. 85-6 at 27:18-23. By then, Northwest (and Splonskowski personally) had expended substantial amounts of money and effort on the project's early construction requirements. Id. at 26:2-5.

Determined to see the project through and to curb further losses, Splonskowski formed HCD with Knutson and one other individual. Doc. No. 85-5 at 30:2-16. On December 24, 2014, HCD acquired 100% ownership of the Hay Creek Shops property. Doc. No. 97-8. HCD subsequently sought additional financing to resume development of the shopping center. Negotiations ensued with the Berg Group, a commercial real estate outfit from Fargo, North Dakota, resulting in a capital injection sufficient for construction to restart. Doc. No. 85-6 at 30:1-11. HCD and the Berg Group ultimately elected not to partner on the Hay Creek Shops project, however. Doc. No. 85-5 at 47:20-25. Following entreaties from Knutson and Splonskowski, Bismarck Partners and LaSalle Partners joined forces with HCD to spawn LaSalle. Id. at 48:1-12. LaSalle then took over ownership of the property and obtained financing that facilitated ongoing development. Id. at 48:13-25.

While the financing situation unfolded, Woodmont Land Company assigned a batch of leases to HCD on June 25, 2015. Doc. No. 97-1. HCD paid Woodmont Land Company commissions for those leases. See Doc. Nos. 97-2 to 97-5. Woodmont Hay Creek and Woodmont Land Company later assigned their remaining leases piecemeal to the Defendants.2 Doc. No. 85-

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10. Owing to Woodmont's experience with retail shopping center projects, HCD consented to the company remaining involved with the Hay Creek Shops project. Doc. No. 85-6 at 39:22-33:8, 41:16-25. Woodmont enlisted to act as HCD's leasing agent and to provide property management services for tenants, while Woodmont Hay Creek agreed to contribute development services. Id. at 47:4-48:2. Woodmont accordingly continued to solicit potential tenants and to negotiate letters of intent and leases, but on the Defendants' behalf rather than its own. Doc. No. 85-1 at 52:2-20.

Neither Woodmont nor any of its employees obtained real estate licenses from the North Dakota Real Estate Commission while working on the Hay Creek Shops project.3 Id. at 77:14-15. Coslik and Gary are licensed real estate brokers in Texas. Doc. No. 85-2 at 9:1-11, 23:13-24:10. The Defendants aver that they were unaware Woodmont lacked a North Dakota real estate license while acting as their leasing agent. Doc. Nos. 85-5 at 79:4-13; 85-6 at 122:23-124:17; 85-7 at 55:4-57:24.

Initially, there was no written contract that controlled the Woodmont entities' leasing and development services. After ironing out the details, HCD entered into the DSA with Woodmont Hay Creek and the LSA with Woodmont on October 27, 2015. See Doc. Nos. 79-1, 79-18.

1. Development Services Agreement

The DSA delineated the Hay Creek Shops project into four phases. Phase 1 was already complete when the DSA retroactively took effect on September 15, 2015. Doc. No. 79-18, p. 2. The Defendants have not pursued Phases 3 and 4, which were designated in the contract as optional in their discretion. Id. at 10. That leaves Phase 2 as the focal point for the current disputes.

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At a basic level, Woodmont Hay Creek agreed under the DSA to use good faith effort to secure required government permits, impart advice on design plans, lease out available space, and participate in the project's management and day-to-day operations. Id. at 6-7. For leasing in particular, the DSA cross-referenced the LSA, stating that Woodmont would shoulder the responsibility for leasing services. Id. at 8. The operation of the DSA was explicitly not conditional on the LSA's continued existence. Id. A choice-of-law clause selected North Dakota law to govern the DSA. Id. at 13.

The DSA contemplated two forms of incentive-based compensation for Woodmont Hay Creek: The Construction Management Fee and the Construction Management Bonus. Id. at 9. The Construction Management Fee afforded Woodmont Hay Creek a guaranteed 2% cut of the total project costs capped at a maximum of $500,000, to be paid concurrently whenever the Defendants expended funds in furtherance of the project. Id. The DSA expressed that the obligation to pay the Construction Management Fee persisted even if a party terminated the contract for cause. Id. at 4-5. And as relevant here, the Construction Management Bonus provided for a one-time payout of $750,000 upon Woodmont Hay Creek—either directly or through Woodmont—leasing out 95% of the available Phase 2 commercial retail space. Id. at 9-10. The DSA stated that if the LSA were terminated for cause, Woodmont Hay Creek's entitlement to the...

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