Federal Deposit Insurance Corp. v. Wallace Investment Limited Partnership et al
Filing
160
MEMORANDUM OPINION AND ORDER denying 145 Motion for Summary Judgment ; granting 149 Motion for Summary Judgment. Signed by Judge Dee Benson on 5/13/14. (jlw)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
WALLACE INVESTMENT LIMITED
PARTNERSHIP,
MEMORANDUM OPINION AND ORDER
Plaintiff,
vs.
Case No. 2:10-CV-610
Judge Dee Benson
LONE PEAK DEVELOPMENT PARTNERS
LLC,
Defendant.
Presently before the court is Third-Party Plaintiff Wallace Investment Limited
Partnership’s (“Wallace”) motion for summary judgment against Lone Peak Development
Partners LLC (“Lone Peak”) for breach of contract and for breach of the implied covenant of
good faith and fair dealing. (Doc. No. 145.) Also before the court is Lone Peak’s motion for
summary judgment on the claims asserted by Wallace. (Doc. No. 149.) The court held a hearing
on the motions on April 18, 2014. At the hearing, Wallace was represented by Jonathan R.
Schofield and Rachel L. Wertheimer. Lone Peak was represented by Joshua L. Lee. The court
took the matter under advisement. The court has considered the memoranda and other materials
submitted by the parties, as well as the law and facts relating to the motion. Now being fully
advised, the court renders the following Memorandum Decision and Order.
BACKROUND
In January 2006, Lone Peak and Wallace had discussions about Wallace investing in and
Lone Peak developing a residential property located in Heber, Utah, to be known as the Triple
Crown Development. (Pl.’s Mot. Summ. J.) Lone Peak and Wallace believed the Triple Crown
Project would be completed within eight months from the time an investment was made. (Id.)
Later in January 2006, Lone Peak entered into a Real Estate Purchase Contract with Summit
Development & Management, LLC in anticipation of purchasing the Triple Crown Property
(“Property”) for $9,400,000. (Id.)
In February 2006, Wallace provided Lone Peak with two payments totaling $500,000 to
be used by Lone Peak as earnest money for Lone Peak’s purchase of the Property. (Id.) Lone
Peak subsequently asked and Wallace agreed to act as borrower for a $9,400,000 loan to
purchase the Property, in connection with which Lone Peak would assign to Wallace Lone
Peak’s right to purchase the Property, Wallace would purchase the Property, and Lone Peak
would then act as the developer of the Triple Crown Project. (Id.)
On February 27, 2006, Wallace and Lone Peak memorialized their agreement in writing
(“Repayment Agreement”). (Id.) The Repayment Agreement states in relevant part:
Lone Peak Development Partners agrees to pay the interest on the
remaining balance on the loan secured by Wallace Investment
Limited Partnership beginning 8 months after the closing of the
Triple Crown Property in Heber City, Utah. The monies will be
subtracted from their portion of the profit. Additionally Lone Peak
Development Partners will pay at a simple interest rate of 8 1/2 %
per annum on all amounts contributed by Wallace Investment
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Limited Partnership toward the acquisition and development of the
property.
***
Wallace Investment Limited Partnership agrees to enter a project
management agreement with Lone Peak Development Partners for
the improvement of this property.
(Doc. No. 145-1.)
On March 16, 2006, Lone Peak assigned its rights to purchase the Property to Wallace.
On that same day, Wallace and Lone Peak entered into a Project Management Agreement.
(“Management Agreement”) (Pl.’s Mot. Summ. J.) The relevant sections of the Management
Agreement state:
1. Subdivision of the Property. . . . Upon the subdivision of
the Property, the parties shall also cooperate and work together to
sell the resulting Lots; provided that Owner shall retain Lot 28 as
shown on the Plat.
(Ex. B, Management Agreement § 1.)
2. Payment of Assignment Consideration. Owner and
Developer acknowledge and agree that the Contract required the
payment of a $250,000.00 initial earnest money deposit, which
was paid by Developer and has been reimbursed to Developer by
Owner. In consideration for such reimbursement, and the
assumption of Developer’s obligations under the Contract,
Developer and Owner shall execute an Assignment and
Assumption Agreement, in the form attached hereto as Exhibit A
(the “Assignment Agreement”), pursuant to which all of
Developer’s rights and obligations as buyer under the Contract
shall be assigned to and assumed by Owner. Owner agrees not to
enter into any amendment or other modification of the Contract
without Developer’s written consent. Owner has also paid the
second $250,000.00 earnest money deposit required under the
terms of the Contract and shall pay any other amounts required to
be paid by the buyer under the Contract prior to the closing of the
Contract.
(Id. § 2.)
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3. Loan Contributions. Owner agrees to obtain a loan (the
“Loan”) to finance the acquisition and development of the
Property, including submitting all information requested by the
lender, which lender shall be mutually agreeable to Owner and
Developer. The Loan, together with amounts paid by Owner
hereunder, shall fund the aggregate acquisition and anticipated
development costs applicable to the Property (including any
required improvement guarantee bonds), as such costs are set forth
on the construction budget attached hereto as Exhibit B (the
“Construction Budget”). . . . All amounts determined to be
required for the acquisition and development of the Property, in
excess of the Loan, will be paid solely by Owner.
(Id. § 3.)
9. Allocation of Net Proceeds. As sales of Lots are
completed, the net sales proceeds . . . of each Lot sale shall be
allocated and paid as follows: A. First, toward the Loan until the
Loan is paid in full; . . . D. Fourth, toward all accrued but unpaid
Owner’s Interest, until all Owner’s Interest is paid in full. . . . E.
Fifth, toward the repayment of all equity contributions made by
Owner until the equity contributions are paid in full; . . . G. Finally,
all remaining proceeds shall be divided and paid to Owner and
Developer in equal amounts.
(Id. § 9.)
14. Default by Developer. If (a) Developer breaches any
of its obligations and responsibilities under this Agreement, (b)
Developer fails to cause construction of any component of the
Improvements to proceed so as to substantially satisfy the
Construction Schedule, (c) Developer fails to cause construction
completion by the Outside Completion Date, . . . then Owner may
deliver written notice of such breach to Developer, which notice
shall describe such breach in reasonable detail. If Developer fails
to cure such breach within the greater of thirty (30) days of such
longer time reasonably required to remedy such breach, then
Owner shall be entitled to terminate Developer as the developer to
complete the Improvements in exchange for commercially
reasonable compensation. . . . In no event shall Developer be
liable for actual, special, consequential or punitive damages as a
result of any breach by Developer of its obligations under this
Agreement except to the extent of the offset against the
Development Management Fee and Developer’s distributions
under Section 9.G. . . .
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(Id. § 14.)
20. Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the
subject matter hereof . . . .
(Id. § 20.)
In May 2006, Wallace obtained a loan for approximately $9,400,000 from ANB
Financial, Inc., to purchase the Property. Wallace closed on the Property on May 18, 2006, and
executed a payment schedule prepared by the general contractor Silver Spur. (Pl.’s Mot. Summ.
J. at iv.) In May 2007, Wallace refinanced the loan from ANB with a construction loan for
$10,987,500 from Centennial Bank (“Centennial Loan”). (Pl.’s Mot. Summ. J. at v.) Prior to
closing the Centennial Loan, however, Centennial Bank determined that the $10,987,500 loan
amount was insufficient to cover the costs associated with completing the Triple Crown Project
and that an additional $1,100,000 was needed. (Id.) Centennial Bank required Wallace to deposit
$1,100,000 into a personal deposit account with Centennial Bank to cover any additional costs.
Wallace deposited the funds on May 10, 2007. (Id.) The Centennial Loan allowed Wallace to
pay off the ANB Loan and continue financing the Triple Crown Project through a development
draw account. (Id.)
Difficulties started to arise with the Triple Crown Project in or about June 2007, when
Lone Peak submitted two draw requests to Centennial Bank to pay Silver Spur approximately
$334,041.07 and $477,103.05 for road work and improvements. (Id. at vi.) Centennial Bank
refused to honor the draw requests due to concern over Lone Peak’s failure to secure a final plat
approval from Wasatch County. (Id.) As a result, Wallace refused to sign any draw requests that
included Lone Peak’s development management fee. The final plat was recorded on August 26,
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2007, but construction was halted for approximately two months prior because Silver Spur was
not paid. (Id.)
Around the end of 2007, Wasatch County was prepared to issue its final approval of the
Triple Crown Project. Final approval from Wasatch County was critical; without it purchasers of
lots in the Triple Crown Project would be unable to obtain building permits and, therefore, lot
sales would be adversely impacted. Before Wasatch County would issue its final approval,
however, the County required a final review from the engineering firm responsible for
developing the Property, Gilson Engineering. (Id. at vii.) Centennial Bank refused to honor
Wallace’s draw requests, including a request necessary to pay Gilson Engineering, which
resulted in Gilson Engineering refusing to perform the final review needed for Wasatch County’s
final approval of the Triple Crown Project. (Id.)
Due to Loan Peak’s failure in obtaining final approval from Wasatch County and a lack
of funding, construction on the Triple Crown Project ceased. The lots for the Triple Crown
Project were unable to be sold and all of the presold lot commitments fell through. (By
September 2006, 56 of the 59 lots were presold). As a result, the Centennial Loan went into
default and Centennial Bank initiated a foreclosure action on the Triple Crown Project.
DISCUSSION
Wallace brings this action for summary judgment based on its breach of contract claims
against Lone Peak. Wallace asserts that Lone Peak breached both the Repayment and
Management Agreements by failing to pay the interest on the loan Wallace secured in order to
fund the purchase and development of the Property, and by failing to obtain the required
approvals for the Triple Crown Project from Wasatch County. Lone Peak moves for summary
judgment asserting that the Repayment Agreement was superseded by the Management
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Agreement and that even if it breached the Management Agreement Wallace is not entitled to a
money judgment because the Management Agreement limits Wallace’s remedies. The court
agrees with Lone Peak and for the following reasons the court grants summary judgment in favor
of Lone Peak and denies Wallace’s motion for summary judgment.
“Summary Judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Gwinn v. Awmiller, 354 F.3d 1211, 1215 (10th Cir. 2004) (quoting Fed. R. Civ.
P. 56(c)). Upon proper motion, summary judgment will be granted unless the non-moving party
must “by affidavits or otherwise—set out specific facts showing a genuine issue for trial.” Fed.
R. Civ. P. 56(e)(2). “An issue of material fact is genuine only if a party presents facts sufficient
to show that a reasonable jury could find in favor of the nonmovant.” True v. United States, 190
F.3d 1165, 1171 (10th Cir. 1999). Conversely, “[s]ummary judgment is appropriate if the
evidence is such that no reasonable jury could return a verdict for the nonmoving party.” Zurich
Am. Ins. Co. v. O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916, 920 (10th Cir. 2008).
I.
The Management Agreement
Lone Peak asserts the Management Agreement was breached by Wallace for failing to
provide additional funding for the Triple Crown Project when Centennial Bank stopped honoring
draw requests. Conversely, Wallace asserts that Lone Peak breached the Management
Agreement because Lone Peak failed to obtain the required approvals from Wasatch County
which would have allowed Centennial Bank to honor the submitted draw requests.
Lone Peak has failed to show Wallace was obligated to provide the additional funding Lone
Peak claims was lacking, or that Wallace breached any of its contractual obligations to fund the
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development. To the contrary, the facts show Wallace satisfied its contractual obligations to
provide funding for the Triple Crown Project, including continued bank financing, and providing
excess funds above the development costs set forth in the construction budget provided by Lone
Peak. Wallace refused to provide additional funding after Centennial Bank stopped honoring
draw requests because Lone Peak failed to obtain the required approvals from Wasatch County
when they were required, which was a condition precedent to Wallace’s obligation to cooperate
with Lone Peak to submit draw requests. Lone Peak breached the Management Agreement by
failing to obtain the required approvals from Wasatch County which would have allowed
Centennial Bank to continue to fund the Triple Crown Project.
Section 14 of the Management Agreement deals with the repercussions of a default by Lone
Peak and outlines the remedies available to Wallace. Courts are not in the business of rewriting
contracts and will enforce an agreement according to its terms. E.g., Richardson v. Hart, 2009
UT App 387, ¶ 15, 223 P.3d 484. Accordingly, in the absence of extraordinary circumstances,
courts enforce contractual limitations on remedies for breach. See, e.g., Wilcox v. Career Step,
LLC, 929 F.Supp 2d 1155, 1168 (D. Utah 2013); Blaisdell v. Dentrix Dental Sys., 2012 UT 37,
284 P.3d 616.
Under Section 14 of the Management Agreement the limitation on remedies is clear and
unambiguous. Section 14 states in relevant part:
In no event shall Developer be liable for actual, special,
consequential or punitive damages as a result of any breach by
Developer of its obligations under this Agreement except to the
extent of the offset against the Development Management Fee and
Developer’s distributions under Section 9.G.
This Section of the Management Agreement is crucial to both parties’ motions and
Wallace only briefly addresses it. Wallace does not argue that this Section limits the damages it
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may recover if Lone Peak breaches the Management Agreement, but asks the court only to find
Lone Peak in breach. However, Sections 9 and 14 make it clear that the only way Wallace can
obtain a money judgment if Lone Peak breaches the Management Agreement is through the
proceeds from lot sales, and/or withholding Lone Peak’s development management fee. Without
monetary damages Wallace cannot obtain relief on its breach of contract claim because damages
is an essential element of a contract claim. Accordingly, Wallace’s claim for breach of the
Management Agreement fails as a matter of law.
II.
The Repayment Agreement
Wallace asserts that parol evidence is admissible to determine whether there is integration,
but this principle does not apply where there is an integration clause. Tangren Family Trust v.
Tangren, 2008 UT 20, ¶ 16, 182 P.3d 326. Under Utah law, “evidence of prior or
contemporaneous agreements or discussions is not admissible to contradict terms of a written
agreement.” Cantamar, L.L.C. v. Champagne, 2006 UT App 321, ¶ 10, 142 P.3d 140. The
Management Agreement has an integration clause: “This agreement contains the entire
agreement and understanding of the parties with respect to the subject matter hereof . . . .”
(Management Agreement § 20.) Therefore, the Repayment Agreement constitutes inadmissible
parol evidence to the extent it touches upon the subject matter of the Management Agreement.
The critical inquiry is whether the two agreements cover the same subject matter. The Utah
Court of Appeals has declared that “regardless of whether the parties may have had preliminary
agreements about a given subject during the course of negotiations, we will assume that a writing
dealing with the same subject was intended by the parties to supersede any prior or
contemporaneous agreements.” Novell, Inc. v. Canopy Group, Inc., 2004 UT App 162, ¶14, 92
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P.3d 768. The plain language of both agreements makes it clear they cover the same subject
matter, as evidenced below:
1. Payment of interest on the development loan:
a. Repayment Agreement—Lone Peak . . . agrees to pay the interest on the
remaining balance on the loan secured by Wallace beginning 8 months after
the closing of the Triple Crown property. The monies will be subtracted from
their portion of the profit.
b. Management Agreement Section 3. Loan Contributions. Owner agrees to
obtain a loan (the “Loan”) to finance the acquisition and development of the
Property . . . .
c. Management Agreement Section 9. Allocation of Net Sales Proceeds. As
sales of Lots are completed, the net sales proceeds . . . of each Lot sale shall
be allocated and paid as follows: A. First, toward the Loan until the Loan is
paid in full; . . . E. Fifth, toward the repayment of all equity contributions
made by Owner until the equity contributions are paid in full; . . . G. Finally,
all remaining proceeds shall be divided and paid to Owner and Developer in
equal amounts.
2. Payment of Interest on Wallace’s Loan:
a. Repayment Agreement—Additionally, Lone Peak Development Partners
will pay at a simple interest rate of 8 1/2% per annum on all amounts
contributed by Wallace Investment Limited Partnership toward the acquisition
and development of the property.
b. Management Agreement Section 3. Loan Contributions; . . . all amounts
contributed by Owner toward the acquisition and development of the Property
shall accrue simple interest at the rate of eight and one half percent (8.5%) per
annum (the “Owners Interest”).
c. Management Agreement Section 9. Allocation of Net Sales Proceeds. As
sales of Lots are completed, the net sales proceeds . . . of each Lot sale shall
be allocated and paid as follows: . . . D. Fourth, toward all accrued but unpaid
Owner’s Interest, until all Owner’s Interest is paid in full.
3. Wallace’s retention of Lot 28:
a. Repayment Agreement—Lone Peak . . . and Wallace . . . also agree that
Dean Wallace will have lot 28.
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b. Management Agreement Section 1. Subdivision of Property. . . . Upon the
subdivision of the Property, the parties shall also cooperate and work together
to sell the resulting lots; provided that Owner shall retain Lot 28 as shown on
the Plat.
4. Assignment of the REPC:
a. Repayment Agreement—It is agreed by both parties that Lone Peak . . . will
assign the real estate contract for the Triple Crown property . . . to Wallace . . .
for which $500,000.00 (Five Hundred-Thousand Dollars) . . . .
b. Management Agreement Section 2. Payment of Assignment Consideration.
Owner and Developer acknowledge and agree that the Contract required the
payment of a $250,000.00 initial earnest money deposit, which was paid by
Developer and has been reimbursed to Developer by Owner. In consideration
for such reimbursement, and the assumption of Developer’s obligations under
the Contract, Developer and Owner shall execute an Assignment and
Assumption Agreement, in the form attached hereto as Exhibit A (the
“Assignment Agreement”), pursuant to which all of Developer’s rights and
obligations as buyer under the Contract shall be assigned to and assumed by
Owner. Owner agrees not to enter into any amendment or other modification
of the Contract without Developer’s written consent. Owner has also paid the
second $250,000.00 earnest money deposit required under the terms of the
Contract and shall pay any other amounts required to be paid by the buyer
under the Contract prior to the closing of the Contract.
5. Entry of project management agreement.
a. Repayment Agreement—Wallace . . . agrees to enter a project management
agreement with Lone Peak . . . for the improvement of this property.
b. Management Agreement—This Project Management Agreement (this
“Agreement”) is made on this 16 day of March 2006 by and between Lone
Peak . . . and Wallace . . . .
As detailed above, each term of the Repayment Agreement is addressed in the
Management Agreement, including payment of interest on the loan secured by Wallace, payment
of interest on Wallace’s contributions, and identical agreed upon interest rates. The subject
matter covered in both agreements is also the same. The Management Agreement therefore
supersedes the Repayment Agreement and precludes the entry of a money judgment against
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Lone Peak. Accordingly, Wallace’s claim for breach of the Repayment Agreement fails as a
matter of law.
III.
If the Repayment Agreement did not Supersede the Management Agreement
If the Repayment Agreement did not supersede the Management Agreement Wallace would
still be unable to obtain damages. The Repayment Agreement provides that “[t]he monies [due
from Lone Peak] will be subtracted from their portion of the profit.” Wallace asserts that even
though the parties intended the interest on the loan to be paid from Lone Peak’s profit share, the
Repayment Agreement does not limit Wallace’s remedies if there are no profits. However, if the
money was to be paid out of the profits, and there were no profits, then the failure to pay was not
a breach in the first place. If there was no breach, there can be no claim for breach.
Additionally, in order for a contract to exist, there must be a “meeting of the minds on the
central features of the agreement. . . . which must be spelled out, either expressly or impliedly,
with sufficient definiteness to be enforced.” Prince, Yeates & Geldzahler v. Young, 2004 UT 26,
¶ 16, 94 P.3d 179. If there is any “uncertainty or indefiniteness, or future negotiations or
considerations to be had between the parties, there is not a completed contract, in fact, there is no
contract at all.” Id. ¶ 17. The Repayment Agreement does not specifically indicate how interest
payments were to be made in the absence of any profits. The Repayment Agreement only
indicates that interest would be paid out of Lone Peak’s share of the profits. Nowhere does the
Repayment Agreement indicate Lone Peak is obligated to make any interest payments in any
other way. Accordingly, Wallace’s claim that Lone Peak breached the Repayment Agreement
for failure to pay interest on the Centennial Loan fails.
Wallace also asserts that even if its remedies are limited with respect to interest on the loan,
this limitation does not apply to interest on Wallace’s contributions. However, this assertion
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only highlights an ambiguity in the Repayment Agreement. The “monies subtracted” sentence
falls in the middle of the paragraph, so the question is whether it applies only to loan interest, or
to contribution interest as well. The only extrinsic evidence submitted on this issue is the
clarification of the parties’ understanding set forth in the Management Agreement. The
Management Agreement unambiguously provides that Wallace’s contributions (defined as
“Owners Interest”) are to be paid out of the proceeds of lot sales. All the documents submitted
in this case are consistent with the understanding that the parties never intended Lone Peak to be
obligated to repay any interest out of pocket; it was always contemplated that such obligations
would be paid through lot sales. Furthermore, the Repayment Agreement was clearly superseded
by the Management Agreement. Wallace’s claim for breach of the Repayment Agreement fails
as a matter of law.
IV.
Implied Covenant of Good Faith and Fair Dealing
Wallace asserts that its claim for breach of the implied covenant of good faith and fair
dealing might survive even if the contract claims fail. However, Wallace has not presented any
admissible evidence to support the notion that the contractual limitation on remedies would be
overridden if an implied duty were breached. The Management Agreement specifically provides
that “in no event” will Lone Peak be liable for damages of any kind except as an offset. Any
implied terms or covenants cannot override this specifically agreed upon and bargained for term
of the express and integrated written agreement between the parties. Oakwood Vill. L.L.C. v.
Albertsons, Inc., 2004 UT 101, ¶ 45, 104 P.3d 1226. Accordingly, Wallace’s claim for breach of
the implied covenant of good faith and fair dealing fails as a matter of law.
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CONCLUSION
For the above reasons, Wallace’s Motion for Summary Judgment is DENIED. Lone
Peak’s Motion for Summary Judgment on Claims of Wallace is GRANTED.
DATED this 13th day of May 2014.
___________________________________
Dee Benson
United States District Judge
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