RS-ANB Fund, LP v. KMS SPE LLC et al

Filing 174

MEMORANDUM DECISION AND ORDER denying 159 Motion to Bifurcate. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

RS-ANB FUND, LP,

Lead Case No. 4:11-cv-00175-BLW

Plaintiff/Counterdefendant,
v.
KMS SPE LLC, LIZ AIR 6 L.L.C.,
JERALD M. SPILSBURY, KINGSTON
PROPERTIES L.P., MIKE KINGSTON,
PAUL E. AVERY, BERT BOECKMANN
AND JANE BOECKMANN, TRUSTEES
OF THE BOECKMANN FAMILY
REVOCABLE TRUST, ANDARY
INVESTMENTS 2 LLC and RGRCM LLC,

MEMORANDUM DECISION AND
ORDER

Defendants/Counterclaimants.

KMS SPE, LLC
Plaintiff/Counterdefendant,
v.
RS-ANB Funds, LP,
Defendant/Counterclaimant.
MEMORANDUM DECISION AND ORDER - 1

Consolidated Case No. 4:11-cv-00179BLW

RS-ANB Fund, LP,

Consolidated Case No. 4:11-cv-00179BLW

Plaintiff,
v.
DAVID ORVILLE KINGSTON,
Defendant.

INTRODUCTION
Before the Court is Plaintiff RS-ANB Fund, LLP’s Motion to Bifurcate (Dkt.
159). RS asks the Court to bifurcate the remaining legal claims1 from Kingston
Properties and the Original Investors’ equitable claims for rescission and reformation.
For the reasons set forth below, the Court will deny RS’s motion.
ANALYSIS
Bifurcating an action into multiple trial units is allowed “to avoid prejudice, or to
expedite and economize.” Fed. R. Civ. P. 42(b). But when ordering trial bifurcation, the
court must preserve any existing constitutional right to a jury trial. Id. Legal claims

1

Since filing its motion to bifurcate, the Court has dismissed the majority of RS’s
claims, including its federal and state securities fraud claims and a breach of fiduciary
duty claim.
MEMORANDUM DECISION AND ORDER - 2

must be tried before a jury. Equitable claims, by contrast, do not. E.g., Dollar Sys., Inc.
v. Avcar Leasing Sys., Inc., 890 F.2d 165, 170 (9th Cir. 1989).
When legal and equitable claims are joined in the same action, the trial judge has
only limited discretion in determining the sequence of trial. This means that the court’s
discretion must be exercised to preserve jury trial, whenever possible. Dollar Systems,
Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 170 (9th Cir. 1989). “[O]nly under
the most imperative circumstances…can the right to a jury trial of legal issues be lost
through prior determination of equitable claims.” Dollar Systems, 359 U.S. at 509.
When legal and equitable claims involve the same set of facts, the right to a jury trial
should predominate. If, however, the legal and equitable claims do not involve any
common questions of law or fact, a court does not abuse its discretion by deciding the
equitable claims prior to the legal claims. Id. at 170-71.
RS’s claims center on the correct interpretation of Section 4.5 of the Participation
Agreement. First, RS claims that the Section 4.5 of Agreement entitles it to a 25% share
of the monthly distributions of Gross Proceeds. Defendants disagree. They say that this
reading of Section 4.5 does not reconcile with the other provisions because it grants RS
more than a 25% overall interest in the Gross Proceeds when the other provisions limit
RS to exactly a 25% interest in the Gross Proceeds. The Court however found the
Agreement unambiguously accords with RS’s interpretation. Now RS claims the only
MEMORANDUM DECISION AND ORDER - 3

issue remaining is its damages, but Original Investor Kingston Properties has filed claims
for reformation or rescission based on unilateral mistake.
The parties disagree about another aspect of Section 4.5 as well. The Participation
Agreement gives RS “50% of the Gross Proceeds until [RS] receives $12,000,000.”
Participation Agreement § 4.5. RS contends that this provision means that it should have
received 50% distributions until it reached $12,000,000 in Gross Proceeds distributions
as opposed to $12,000,000 in distributions of any kind. If RS prevailed on this claim, it
would be entitled to an additional $375,000. On this point, the Court found Section 4.5
ambiguous.
RS also brings a claim for breach of the implied covenant of good faith and fair
dealing. It alleges that Defendants breached the covenant by not making distributions to
RS, improperly including expenses in the calculation of the Net Monthly Share,
improperly computing and reporting income tax, and entering into self-dealing
transactions. KMS SPE has counterclaimed against RS, alleging claims for tortious
interference and breach of the implied covenant of good faith and fair dealing.
Now RS asks the Court to hold a bench trial on the reformation and rescission
claims relating to the Gross Proceeds distributions under Section 4.5, and if necessary, a
jury trial on the remaining legal claims, which would include Defendant KMS SPE,
LLC’s counterclaims. Bifurcation of the legal and equitable claims, however, would
MEMORANDUM DECISION AND ORDER - 4

threaten Defendants’ right to a jury trial on the legal claims, and it would not aid judicial
economy.
The Court has found no ambiguity in Section 4.5 with respect to the monthly
distributions provision, but it has found an ambiguity with respect to the provision
requiring RS be paid 50% of the Gross proceeds until it receives $12,000,000. The jury
will therefore have to consider the parties’ intent in drafting the Participation Agreement,
and Section 4.5 specifically. Likewise, the Court will have to determine the parties’
intent when they entered into the contract in deciding Kingston Properties’ rescission and
reformation claims. Thus, the parties’ intent in drafting Section 4.5 will be a common
issue to both the breach of contract and the rescission and reformation claims.
But even assuming that these claims were not sufficiently intertwined to preclude
bifurcation of the trial on Seventh Amendment grounds, the Court imagines that the
parties will rely on many of the same witnesses and documents to prove or defend all of
these claims. It would be a waste of judicial resources to bring in the same witnesses
and same exhibits for two separate trials. For these reasons, the Court will deny RS’s
request to bifurcate the trial.
ORDER
Plaintiff RS-ANB Fund, LLP’s Motion to Bifurcate (Dkt. 159) is DENIED.

MEMORANDUM DECISION AND ORDER - 5

DATED: June 6, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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