2010-1 RADC/CADC Venture, LLC v. Bral et al
Filing
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ORDER granting 53 Ventures Motion For Summary Judgment. It is FURTHER ORDERED that Venture SHALL SUBMIT an updated damages calculation and statement of attorney fees (including all supporting documentation as to why the amount of attorney fees is reasonable and warranted) on or before Wednesday, August 20, 2014. The Defendants MAY file a response to the updated damages calculation and statement of attorney fees on or before Wednesday, September 3, 2014. In Court Hearing on damages and attorney fees is set for 10/9/2014 at 10:00 AM in Courtroom A1002 before Judge Wiley Y. Daniel, by Judge Wiley Y. Daniel on 7/30/2014.(evana, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Wiley Y. Daniel
Civil Action No. 13-cv-00550-WYD-CBS
2010-1 RADC/CADC VENTURE, LLC
Plaintiff,
v.
KAVEH BRAL, and
HASHEM MIKAIL,
Defendants.
______________________________________________________________________
ORDER
______________________________________________________________________
THIS MATTER is before the Court on plaintiff, 2010-1 RADC/CADC Venture,
LLC’s, Motion For Summary Judgment [ECF No. 53]. For the reasons stated below, the
motion is GRANTED.
BACKGROUND
This suit arises out of two guarantors’ alleged failure to honor their guaranties.
Defendants, Kaveh Bral and Hashem Mikail (“the Defendants”), own Arvada
Structures and Denver Structures. The Defendants formed Arvada Structures and
Denver Structures to acquire and develop a 5,000 square-foot retail shopping center. In
order to finance the shopping center, Arvada Structures and Denver Structures
borrowed a total of $14,476,000 from New Frontier Bank. Arvada Structures obtained
two loans from New Frontier Bank; one for $11,000,000 and another for $3,000,000.
Denver Structures obtained one loan from New Frontier Bank for $476,000. The
Defendants personally guarantied all three loans.
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Subsequent to administering the loans to Arvada Structures and Denver
Structures, New Frontier Bank failed and the Federal Deposit Insurance Corporation
(“FDIC”) took the over New Frontier Bank as its receiver. In a series of transactions on
August 26, 2010 and September 1, 2010, the FDIC sold, assigned, and transferred to
plaintiff, 2010-1 RADC/CADC Venture, LLC (“Venture”), all rights associated with the
three loans, including all rights associated with the Defendants’ guaranties. Venture
alleges that Arvada Structures defaulted on its loans on February 28, 2009 and that
Denver Structures defaulted on its loan on June 8, 2009. Venture further alleges that
the Defendants are in default of their guaranties because they have not paid the money
owed by Arvada Structures and Denver Structures.
On February 1, 2013, Venture filed suit in the District Court for Jefferson County,
Colorado, Case No. 2013CV328, alleging that the Defendants breached their guaranties
by not paying the sums owed by Arvada Structures and Denver Structures. On March
2, 2013, the Defendants removed the case to the United States District Court for the
District of Colorado on the basis of diversity subject matter jurisdiction. ECF No. 1. On
October 31, 2013, Venture filed a Motion For Summary Judgment [ECF No. 53] arguing
that it is entitled to judgment as a matter of law because the Defendants breached their
guaranties and that it is owed a total of $27,071,623.49 in damages, which includes the
principal and interest on the three loans and attorney fees and costs.
ANALYSIS
A. Legal Standard for a Motion for Summary Judgment
Summary judgment is proper when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
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law.” FED. R. CIV. P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
(1986); Equal Employment Opportunity Comm. v. Horizon/CMS Healthcare Corp., 220
F.3d 1184, 1190 (10th Cir. 2000). “When applying this standard, [the court must] ‘view
the evidence and draw all reasonable inferences therefrom in the light most favorable to
the party opposing summary judgment.’” Atl. Richfield Co. v. Farm Credit Bank of
Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000) (citation omitted). “A fact is ‘material’ if,
under the governing law, it could have an effect on the outcome of the lawsuit.”
Horizon/CMS Healthcare, 220 F.3d at 1190. “A dispute over a material fact is ‘genuine’
if a rational jury could find in favor of the nonmoving party on the evidence presented.”
Id.
“The burden of showing that no genuine issue of material fact exists is borne by
the moving party.” Horizon/CMS Healthcare, 220 F.3d at 1190. “‘Only disputes over
facts that might affect the outcome of the suit under the governing law will properly
preclude the entry of summary judgment.’” Atl. Richfield Co., 226 F.3d at 1148
(quotation omitted). All doubts must be resolved in favor of the existence of triable
issues of fact. Boren v. Sw. Bell Tel. Co., 933 F.2d 891, 892 (10th Cir. 1991).
B. Venture’s Motion For Summary Judgment [ECF No. 53]
Venture argues that there is no genuine issue of material fact that the
Defendants breached their guaranty contracts.
When federal jurisdiction is based on diversity subject matter jurisdiction, as is
the case here, federal district courts apply the substantive law of the forum state. Barrett
v. Tallon, 30 F.3d 1296, 1300 (10th Cir. 1994). Under Colorado state law, a plaintiff
seeking to establish a breach of contract claim must show: “(1) the existence of a
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contract; (2) performance by the plaintiff or some justification for nonperformance; (3)
failure to perform the contract by the defendant; and (4) resulting damages to the
plaintiff.” Western Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992) (internal
citations omitted).
1. Elements of Breach of Contract Claim
a. Existence of a Contract
The Defendants personally guarantied all three loans from New Frontier Bank. In
each of the six guaranty contracts, the Defendants agreed to absolutely and
unconditionally guaranty payment on the loans. Venture attached all six guaranty
contracts to this motion. See ECF Nos. 53-5, 53-6, 53-8, 53-9, 53-11, & 53-12. Thus,
this element is satisfied.
b. Performance by the Plaintiff
It is undisputed that New Frontier Bank, Venture’s predecessor, performed by
administering the three loans to Arvada Structures and Denver Structures. Thus, this
element is satisfied.
c. The Defendants’ Failure to Perform / Breach
It is undisputed that the Defendants have not paid Venture the sums owed under
the loans. Therefore, the Defendants have failed to perform and have breached the
guaranty contracts.
d. Damages
Venture suffered damages because the Defendants failed to repay the loans.
Venture argues that its damages include the principal and interest on the loans, attorney
fees, and costs incurred in enforcing its rights to the property that secured the loans.
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i. Principal and Interest on Loans
As of October 31, 2013, Arvada Structures owes Venture $11,000,000 in
principal and $6,888,086.41 in interest on the first loan and $3,000,000 in principal and
$1,879,141.66 in interest on the second loan.1 As of October 31, 2013, Denver
Structures owes Venture $279,435.57 in principal and $10,490.48 in interest on its
loan.2
ii. Attorney Fees and Costs
Venture also argues that attorney fees and costs related to enforcement of their
rights under the loans is part of the damage calculation.
(a) Attorney Fees
Pursuant to the Defendants’ guaranty contracts regarding Arvada Structures’ first
loan from New Frontier Bank, the Defendants agreed to “pay or reimburse Lender [New
Frontier Bank] for all costs associated (including reasonable attorneys’ fee and legal
expenses) incurred by Lender [New Frontier Bank] in connection with the protection,
defense, or enforcement of this guaranty in any litigation or bankruptcy or insolvency
proceedings.” ECF No. 53-5, p. 2, ¶ 5 / ECF No. 53-6, p. 2, ¶ 5. Pursuant to the
Defendants’ guaranty contracts regarding New Frontier Bank’s loan to Denver
Structures and New Frontier Bank’s second loan to Arvada Structures, the Defendants
agreed that:
On or after Default, to the extent permitted by law, I agree to
pay all expenses of collection, enforcement or protection of
your rights and remedies under this Guaranty or any other
document relating to the Debt. To the extent permitted by
1
Interest accrues at a rate of $3,895.83 per day on the first loan and $1,062.50 per day on the second
loan. ECF No. 53-3, p. 6, ¶¶ 25-26 & p. 8, ¶¶ 45-46.
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Interest accrues at a rate of $98.97 per day. ECF No. 53-3, p. 7, ¶¶ 35-36.
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law, expenses included, but are not limited to, reasonable
attorneys’ fees, court costs and other legal expenses.
ECF No. 53-8, p. 4, ¶ 11 / ECF No. 53-9, p. 4, ¶ 11 / ECF No. 53-11, p. 4, ¶ 11 / ECF
No. 53-12, p. 4, ¶ 11.
It is clear that the guaranty contracts’ express terms provide for attorney fees.
Venture states that it is owed $349,172.17 for “expenses incurred in connection with this
action” and $111,342.94 for “expenses associated with the receivership of the Arvada
property.” ECF No. 53, p. 15.3 Venture attached documents evidencing these fees to
support its argument. ECF Nos. 53-22, 53-23, 53-30, & 53-31. Thus, the total amount
of attorney fees incurred in connection with this action is $460,515.11.
(b) Costs
Venture states that it is owed $1,287,180.61 for payments it “made to remove
mechanics’ liens from title to the Arvada property.” ECF No. 53, p. 15. Venture attached
a document that evidences such costs. ECF No. 30.
iii. Defendants’ Argument Regarding Offset
The Defendants argue that because it is highly likely that Venture will foreclose
on the Arvada property, Venture’s damages should be offset by the anticipated or
expected value of the foreclosure sale. The Defendants do not cite any case law or
provision from the guaranty contracts that supports this argument. Further, I will not
speculate as to what price the Arvada property will sell for at foreclosure. Thus, the
Plaintiffs’ damages will not be offset.
e. Conclusion
Venture has established all elements for a breach of contract claim. However,
3
The Arvada property is the property that Arvada Structures offered as security for its two loans from New
Frontier Bank. See ECF Nos. 53-28, p. 2 & 53-29, p. 2.
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the Defendants argue that Venture’s breach of contract claim fails because they were
fraudulently induced to enter into the guaranty contracts and because the Plaintiffs
breached the implied covenant of good faith and fair dealing. I address each argument
in the following section.
2. The Defendants’ Arguments
a. Fraud in the Inducement
Venture argues that the Defendants’ fraud in the inducement defense is barred
under D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 460 (1942), and under the
Colorado Credit Agreement Statute of Frauds, COLORADO REVISED STATUTES § 38-10124.
i. D’Oench, Duhme & Co. and 12 U.S.C. § 1823(e)
The D’Oench, Duhme doctrine prevents debtors/guarantors from asserting
defenses to payment on obligations that are based on side agreements not evidenced
in the written instruments creating such obligations. The D’Oench, Duhme doctrine is
codified in 12 U.S.C. § 1823(e). Pursuant to 12 U.S.C. § 1823(e):
No agreement which tends to diminish or defeat the interest
of the Corporation [Federal Deposit Insurance Corporation]
in any asset acquired by it under this section or section 11
[12 USCS § 1821], either as security for a loan or by
purchase or as receiver of any insured depository institution,
shall be valid against the Corporation unless such
agreement-(A) is in writing,
(B) was executed by the depository institution and any
person claiming an adverse interest thereunder,
including the obligor, contemporaneously with the
acquisition of the asset by the depository institution,
(C) was approved by the board of directors of the
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depository institution or its loan committee, which
approval shall be reflected in the minutes of said
board or committee, and
(D) has been, continuously, from the time of its
execution, an official record of the depository
institution.
The D’Oench, Duhme doctrine “applies to actions brought by FDIC’s assignees as well
as by the FDIC itself.” UMLIC-Nine Corp. v. Lipan Springs Dev. Corp., 168 F.3d 1173,
1179 (10th Cir. 1999) (citing Nat’l Enters., Inc. v. Smith, 114 F.3d 561, 564 (6th Cir.
1997)). Thus, the D’Oench, Duhme doctrine applies in this case because Venture is the
FDIC’s assignee.
In order for the D’Oench, Duhme doctrine to bar a debtor/guarantor’s defense to
payment, an agreement must exist between the creditor and debtor/guarantor. The
substance of the Defendants’ fraud in the inducement defense and the purported
agreement at issue is that New Frontier Bank (the creditor) “would never seek to
recover” on the Defendants’ guaranties. ECF No. 58, p. 7, ¶ 10 / p. 8, ¶ 16 / p. 9, ¶ 22. I
need not address whether the alleged statements by New Frontier Bank representatives
constitute agreements because the guaranties that create the Defendants’ obligations
do not evidence any such statements in writing. This the precise situation in which the
D’Oench, Duhme doctrine applies to protect the FDIC and its assignees from a defense
to payment based on an alleged secret agreement which is not evidenced in the
documents creating the debtor’s obligation(s). Because the D’Oench, Duhme doctrine
applies to FDIC assignees and because the alleged agreement, assuming arguendo
that such statements constitute an agreement, is not evidenced in a written document
creating the Defendants’ obligations, the D’Oench, Duhme doctrine applies to bar the
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Defendants’ fraud in the inducement defense. Because the D’Oench, Duhme doctrine
bars the Defendants’ fraud in the inducement defense, I need not address Venture’s
argument that the Colorado Credit Agreement Statute of Frauds, C.R.S. § 38-10-124,
bars the Defendants’ defense.
b. Venture’s Alleged Breach of the Implied Covenant of Good Faith
and Fair Dealing
The Defendants argue that Venture breached the implied covenant of good faith
and fair dealing by failing to timely bring this action against the Defendants. Under
Colorado state law, “every contract contains an implied covenant of good faith and fair
dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (citations omitted).
“The good faith performance doctrine is generally used to effectuate the intentions of
the parties or to honor their reasonable expectations.” Id. (citations omitted).
Simply stated, the Defendants argue that the four year delay from the time the
Defendants were in default and the time Venture instituted this action is a breach of the
covenant of good faith and fair dealing. I disagree. Venture was under no obligation to
immediately commence suit to enforce the Defendants’ guaranty contracts. In the
Defendants’ guaranty contracts regarding New Frontier Bank’s first loan to Arvada
Structures, the contracts state that “[t]he liability of the Undersigned shall not be
affected or impaired by any of the following acts or things . . . any delay or lack of
diligence in the enforcement of indebtedness, or any failure to institute proceedings . . .
” ECF Nos. 53-5, p. 3, ¶ 6 & 53-6, p. 3, ¶ 6. In the Defendants’ guaranty contracts
regarding New Frontier Bank’s loan to Denver Structures and the second loan to Arvada
Structures, the Defendants agreed “that any delay or lack of diligence in the
enforcement of Debt, or any failure to file a claim or otherwise protect any of the Debt, in
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no way affects or impairs my liability.” ECF Nos. 53-8, p. 3, ¶ 9(A)(8) / 53-9, p. 3, ¶
9(A)(8) / 53-11, p. 3, ¶ 9(A)(8) / 53-12, p. 3, ¶ 9(A)(8). Thus, the guaranty contracts’
plain text prevents any delay in bringing an action to enforce the guaranties from
impairing or affecting the Defendants’ liability. Therefore, I find that the near four year
delay in bringing this action to enforce the Defendants’ obligations under the guaranty
contracts is not a breach of the implied covenant of good faith and fair dealing.
CONCLUSION
After careful consideration of the matter before this Court, I find that there are no
genuine issues of material fact regarding the Venture’s breach of contract claim and
Venture is entitled to judgment as a matter of law on that claim. Accordingly, it is
ORDERED that Venture’s Motion For Summary Judgment [ECF No. 53] is
GRANTED. It is
FURTHER ORDERED that Venture SHALL SUBMIT an updated damages
calculation and statement of attorney fees (including all supporting documentation as to
why the amount of attorney fees is reasonable and warranted) on or before
Wednesday, August 20, 2014. The Defendants MAY file a response to the updated
damages calculation and statement of attorney fees on or before Wednesday,
September 3, 2014. Should the Defendants file a response, they SHALL NOT rehash
any arguments already posited with the Court. It is
FURTHER ORDERED that a hearing on damages and attorney fees is set for
Thursday, October 9, 2014 at 10:00 a.m. in Courtroom A-1002. To be clear, the sole
purpose of this hearing is to determine the exact amount of damages and attorney fees
awarded to Venture.
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Dated: July 30, 2014.
BY THE COURT:
/s/ Wiley Y. Daniel
Wiley Y. Daniel
Senior U. S. District Judge
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