KMS SPE LLC v. RS-ANB Fund, LP
MEMORANDUM DECISION AND ORDER granting 13 Motion to Intervene. 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
KMS SPE LLC, a Nevada limited
Case No. 4:11-CV-179-BLW
MEMORANDUM DECISION AND
RS-ANB FUND, LP, a Delaware limited
The Court has before it Kingston Properties, LP’s Motion to Intervene (Dkt. 13).
Have reviewed all submitted briefs, the Court will grant Kingston’s Motion.
In January 2009, ANB Ventures submitted a successful bid for the acquisition of
the assets of a distressed bank after it was seized by the Federal Deposit Insurance
Corporation (FDIC). Plaintiff KMS SPE, LLC (“KMS”) was formed simultaneously as a
management company to administer, service, and liquidate the assets of the portfolio.
The portfolio cost $24 million. And to accomplish its acquisition, several parties invested
in the purchase in exchange for a profit participation interest. Kingston Aff. ¶ 4, Dkt. 26-1.
MEMORANDUM DECISION AND ORDER - 1
Kingston Properties, LP was one of the principal original investors. Id. ¶ 6.
In early 2009, Defendant RS-ANB Fund, LP approached the original investors and
Kingston about purchasing a participation interest in the portfolio. Id. ¶ 6. The original
investors agreed to sell 25% of their participation interest to RS for $12 million. Id. ¶ 10.
But, according to Kingston, the original investors intended to limit RS’s interest to a
profit participation interest similar to their own. Id. ¶ 12. The original investors and RS
executed a Participation Agreement outlining the terms of the sale and distribution of the
profit proceeds to RS. Id. ¶11. Under the Agreement, RS purchased a 25% interest in
each of the original investor rights to receive distributions from portfolio profits. Id. ¶ 12.
Disputes between the original investors and RS soon arose. Id. ¶¶ 13, 14, & 15.
Based on its reading of the Participation Agreement, RS has taken the position that it is
entitled to greater than 25% of the profits. Id. According to Kingston however, RS’s
interpretation dilutes the participation interests of the original investors. Id. ¶16.
Because the managing entity, KMS, is uncertain about its obligations to the
original investors and RS under the Participation Agreement, it filed this action for
declaratory judgment in state court. Kingston filed its motion to intervene, arguing that it
has a significant protectable interest because it is a key investor in the loan portfolio
central to this litigation, and RS’s interpretation of the Participation Agreement would
dilute Kingston’s percentage ownership on the ANB profit distribution.
The Federal Rules of Civil Procedure set forth two types of intervention: 1) as a
MEMORANDUM DECISION AND ORDER - 2
matter of right and 2) permissive intervention. See Fed.R.Civ.P. 24(a)(2), 24(b). In this
case, Kingston seeks to intervene as a matter of right.
To intervene as of right under Rule 24(a)(2), the proposed intervenor must
demonstrate that “(1) it has a significant protectable interest relating to the property or
transaction that is the subject of the action; (2) the disposition of the action may, as a
practical matter, impair or impede the applicant's ability to protect its interest; (3) the
application is timely; and (4) the existing parties may not adequately represent the
applicant's interest.” United States v. City of Los Angeles, 288 F.3d 391, 397 (9th Cir.
2002). The party seeking to intervene bears the burden of showing that all the
requirements for intervention have been met. Id.; see also Perry v. Proposition 8 Official
Proponents, 587 F.3d 947, 950 (9th Cir.2009) (“failure to satisfy any one of the
requirements is fatal to the application”). In determining whether intervention is
appropriate, courts are guided primarily by practical and equitable concerns, and the
requirements for intervention are broadly interpreted in favor of intervention. City of Los
Angeles, 288 F.3d at 397.
There is no dispute that Kingston’s motions is timely. RS also concedes that
Kingston has a significant protectable interest in the loan portfolio. RS argues, however,
that (1) the disposition of this action will not impair or impede Kingston’s ability to
protect its interest in the portfolio; and (2) Kingston’s interests are adequately protected
by the parties to the action.
MEMORANDUM DECISION AND ORDER - 3
Impaired Ability to Protect Interest
As noted above, Kingston has a significant protectable interest because it is a key
investor in the loan portfolio central to this litigation, and RS’s interpretation of the
Participation Agreement would dilute Kingston’s profit participation interest. Once a
movant has successfully established a sufficient interest in the subject of the action, the
movant must demonstrate that disposition of that action may “impair” or “impede” the
movant's ability to protect that interest. The question must be put into practical terms
rather than legal terms, and the rule is satisfied whenever disposition of the action would
put the applicant at a practical disadvantage in protecting its interest. See 7C Wright,
Miller & Kane, Federal Practice And Procedure: Civil § 1908.2 at 368 (3d ed. 2007 &
Supp.2010). Generally, if the applicant would be substantially affected in a practical
sense by the determination of an action, he should be allowed to intervene. See
Fed.R.Civ.P. 24 (advisory committee notes); Arakaki v. Cateyano, 324 F.3d 1078, 1086
(9th Cir. 2003).
RS argues that Kingston’s interest in the loan portfolio will not be impaired
because Kingston is a defendant in a companion case, RS-ANB Fund, LP vs. KMS SPE
LLC, et al., Civil No. 4:11-CV-00175-CWD, and Kingston will have the opportunity to
fully and fairly represent its interests through that case. RS maintains that Kingston’s
participation in this case would just muddle the pleadings.
The Court disagrees. RS’s position is based on the assumption that this case will
be consolidated with the companion case. But a motion to consolidate has not even been
MEMORANDUM DECISION AND ORDER - 4
filed, and there is no guarantee that the cases will be consolidated. Moreover, RS has
filed a motion for judgment on the pleadings, in which RS advocates its interpretation of
the Participation Agreement. Responses are due on June 6, 2011. If RS prevails on the
motion for judgment on the pleadings before the cases are consolidated, it would dispense
of the case, and Kingston would lose its right to defend its position forever. Thus, as a
practical matter, Kingston’s ability to protect its interest in the loan portfolio would be
RS also argues that the existing parties will adequately protect Kingston’s
interests. The Court considers three factors in determining the adequacy of
representation: (1) whether the interest of a present party is such that it will undoubtedly
make all of a proposed intervenor's arguments; (2) whether the present party is capable
and willing to make such arguments; and (3) whether a proposed intervenor would offer
any necessary elements to the proceeding that other parties would neglect. Arakaki, 324
F.3d at 1086. The burden on proposed intervenors in showing inadequate representation is
minimal, and would be satisfied if they could demonstrate that representation of their
interests “may be” inadequate. Id.
The most important factor in determining whether a proposed intervenor is
adequately represented by a party to the action is how the intervenor's interest compares
with the interests of the existing parties. Perry, 587 F.3d at 947 (citing Arakaki, 324 F.3d
at 1086). But where the party and proposed intervenor share the same “ultimate
MEMORANDUM DECISION AND ORDER - 5
objective,” a presumption of adequacy of representation applies, and the intervenor can
rebut that presumption only with a “compelling showing” to the contrary. Id.
Here, the existing parties do not adequately represent Kingston’s interest. While
RS argues that KMS and Kingston’s interests are aligned, in reality KMS has an
obligation to distribute profits to the investors in compliance with the Participation
Agreement; it does not have a duty to resolve ambiguities in the agreement in favor or
against any of the investors. KMS cannot be expected to protect Kingston’s interest when
it is obliged to protect the interests of all investors equally. KMS could ultimately have
an interest adverse to Kingston. Therefore, Kingston has made a compelling showing that
KMS would be an inadequate representative of their interests. Further, examining the
Arakaki factors, it cannot be said that KMS would undoubtedly make all of Kingston’s
possible arguments. KMS does not share Kingston’s property and financial interests and
Kingston may have the incentive to make additional arguments that KMS does not.
IT IS ORDERED that Kingston Properties, LP’s Motion to Intervene (Dkt. 13)
DATED: June 1, 2011
Honorable B. Lynn Winmill
Chief U. S. District Judge
MEMORANDUM DECISION AND ORDER - 6
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?