Ruppel v. Basmajian et al

Filing 87

MEMORANDUM DECISION and ORDER denying 67 Motion for Summary Judgment (Partnership); denying 68 Motion for Summary Judgment (Release). Signed by Judge Dee Benson on 8/15/2017. (blh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
MATT J. RUPPEL,
Plaintiff,
v.

MEMORANDUM DECISION AND
ORDER

THOMAS D. BASMAJIAN, an individual,
1415 SOUTH MAIN STREET, LLC, a
Delaware Limited Liability Company,
BLACK SQUARE REAL ESTATE, INC., a
Delaware Corporation, the BASMAJIAN
RUPPEL GENERAL PARTNERSHIP, a
Utah General Partnership,

Case No. 2:14-cv-728-DB
District Judge Dee Benson

Defendants.

This matter is before the court on two motions for summary judgment filed by Defendant,
Thomas D. Basmajian (“Basmajian”). (Dkt. Nos. 67 and 68.) Basmajian’s first motion for
summary judgment seeks a ruling as a matter of law that Matt Ruppel (“Ruppel”) and
Basmajian’s association was not a general partnership as that term is defined in the Utah
Uniform Partnership Act. (Dkt. No. 67.) Basmajian’s second motion seeks summary judgment
on the basis of a release provision in a Redemption Agreement signed by Ruppel. (Dkt. No. 68.)
The court held a hearing on the motions on June 19, 2017. At the hearing, Ruppel was
represented by Margaret H. Olson. Basmajian was represented by Thomas W. Seiler. At the
conclusion of the hearing, the court took the motions for summary judgment under advisement.
Now being fully advised, the court renders the following Memorandum Decision and Order.

BACKGROUND
The court, as it must, “examine[s] the factual record and reasonable inferences therefrom
in the light most favorable to the party opposing summary judgment”—Ruppel here. Applied
Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990).
During the latter part of 2004, Ruppel and Basmajian were both out of work. (Id. at 63
and 67.) They met in Salt Lake City, Utah, to discuss a possible future business relationship.
(Dkt. No. 8, Amended Complaint (“Compl.”) at ¶ 10; Dkt. No. 12, Answer at ¶ 4.) Ruppel had
knowledge and expertise purchasing sub and nonperforming mortgage loans. (Answer at ¶ 5.)
Basmajian had expertise managing the ownership and disposition of performing and
nonperforming residential mortgage loans, including the management and disposition of postforeclosed REO properties. (Dkt. No. 72-5, Basmajian Resume.) The two “discussed the
opportunity to make money in single family assets through having information about the
underlying collateral—single family houses—and have a more efficient acquisition and
disposition method for REO assets….” (Dkt. No. 72-32, Deposition of Matt Ruppel (“Ruppel
Dep.”) at 54-65.)
In 2004, Ruppel formed, owned and controlled 406 Partners, LLC, as sole Member and
Manager. (Ruppel Dep. at 32, 52, 54, 62, and 159.) Ruppel capitalized 406 Partners, LLC with a
personal investment of $750,000. (Id.) On January 28, 2005, 406 Partners, LLC, as sole member,
formed 406 Real Estate Services, LLC, for the purpose of engaging in REO operations and
construction management. (Dkt. No. 72-7.) A few days later, on February 1, 2005, Ruppel and
Basmajian formed 1415 South Main, LLC, each with a 50% interest. (Dkt. No. 72-8.) That same
day, 1415 South Main, LLC purchased a commercial office building, and Ruppel and Basmajian

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each signed a personal guaranty securing the full amount of the commercial mortgage. (Dkt. No.
72-9, 72-10.) Three days later, on February 4, 2005, Basmajian entered into an “LLC
Membership Interest Purchase Agreement” for the right to acquire an ownership interest in
Brighton Real Estate Services, LLC, a company that managed the disposition and sale of REO
properties. (Compl. at ¶ 26, Answer at ¶ 16.) 1415 South Main, LLC was the parties’ “place of
operation where [they] had multiple people supporting [their] business endeavors, one of which
was Brighton.” (Ruppel Dep. at 30.)
On May 20, 2005, Ruppel and Basmajian formed 406 EG, LLC, to allocate interests in all
of the “406 Group” entities with an initial membership of 44.88% each. (Ruppel Dep. at 30-36.)
To match Ruppel’s $750,000 monetary contribution to 406 Partners, LLC, Basmajian
contributed “the work he had been doing which yielded the Brighton REO platform.” (Id. at 32,
54, 62, 159.) Within a few weeks of the formation of 406 EG, LLC, the parties, through their
various legal entities, formed several other limited liability companies, including Balto EG, LLC,
Balto, LLC, 406 Technology, LLC, 406 Mortgages Services, LLC, and 406 Management, LLC.
(Dkt. Nos. 72-14—18.) Ruppel and Basmajian—or the entities they controlled—managed each
of these entities for various purposes related to the acquisition and disposition of REO assets.
(Ruppel Dep. at 30-36.)
On June 30, 2005, Ruppel and Basmajian each entered into an Employment Agreement
with 406 Management, LLC. (Dkt. Nos. 72-19; 72-20.) Basmajian was the Managing Director of
Real Estate Management and Ruppel was Managing Director. (Id.) Both Employment
Agreements had identical job descriptions and identical compensation, with each receiving a

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salary of $250,000 per year. (Id.) Both Ruppel and Basmajian agreed to devote their “full
business time and energies to the business and affairs of the Company.” (Id.)
On June 30, 2008, Ruppel redeemed his interest in 406 EG, LLC, by way of a
Redemption Agreement entered into by Ruppel, 406 EG, LLC, and Gold Creek Capital
Management, LLC (“Gold Creek”), a limited liability company which Ruppel formed and for
which he was the sole member. (Dkt. No. 46-5.) Basmajian signed the Redemption Agreement
on behalf of 406 EG, LLC. (Id.) Ruppel signed the Redemption Agreement on behalf of himself
as a member of 406 EG, LLC, and as Manager of Gold Creek. (Ruppel Dep. at 144.) In the
Redemption Agreement, the parties agreed to a mutual release. (Id.) Ruppel agreed to a release
as follows:
(a)
Release by Member. Member and Gold Creek, with the intention of
binding themselves and their respective successors and assigns, hereby generally
releases and forever discharges the Company [406 EG, LLC], each Affiliate [406
Partners, LLC; 406 Real Estate Services, LLC; 406 Integrated Services, LLC; 406
Mortgage Services, LLC; 406 Technology, LLC; and 406 Management, LLC],
and their past, present and future parents and subsidiaries, divisions, members,
shareholders, officers, directors, employees, affiliates, partners, assigns,
successors and any other person, firm or corporation with whom any of them is
now or may hereafter be affiliated (collectively, the “Company Releasees”) and
holds each of them harmless from any and all claims, demands, obligations,
losses, causes of action, damages, penalties, costs expenses, attorney’s fees,
liabilities and indemnities of any nature whatsoever including, without limitation,
claims for discrimination, tortuous interference with economic relations and
intentional infliction of emotional distress, whether based on contract, tort or
statute or other legal or equitable theory of recovery, whether known or unknown,
which as of the date of this Agreement, Member or Gold Creek had, now has or
claims to have or may claim to have in the future, against any Company Releasee
arising out of or in any way related to Member’s ownership of the Redeemed
Interest, the redemption of the Redeemed Interest as set forth in this Agreement or
any other matter relating to any Company Releasee, other than with respect to any
breach of any obligation of or misrepresentation of the Company set forth in this
Agreement. The consideration recited in this Agreement is the sole consideration
for this release.

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(Dkt. No. 68-1.) Ruppel was not represented by counsel when the Agreement was executed, but
does not dispute that he entered into the Agreement knowingly and voluntarily and that he was
not threatened or coerced into signing the Agreement. (Ruppel Dep. at 144.) As consideration for
the Redemption Agreement, Ruppel received five million dollars and a mutual release from 406
EG, LLC. (Dkt. No. 68-1.)
Following the execution of the Redemption Agreement, from 2008 to 2014, Ruppel and
Basmajian continued to do business together through 1415 South Main Street, LLC. (See Dkt.
No. 73-10—73-20; Dkt. No. 72-29.) They continued to own property, and each maintained
personal guarantees on those properties. (Id.) Jeff Jonas, a member of 406 EG, LLC who shared
an office building with Basmajian and Ruppel, stated that, based on his observations of the
dealings between the parties, he “never understood the Redemption Agreement to obviate all
existing contractual obligations among the members of 406 EG, LLC and their different business
interests.” (Dkt. No. 73-2 at ¶ 6.) Mr. Jonas further observed that, subsequent to the execution of
the Redemption Agreement, 1415 South Main, LLC continued its business operations. (Id.)
Throughout the parties’ business relationship—from 2004 to 2014—Ruppel and
Basmajian often referred to each other as “partners”, including in emails (see, e.g., Dkt. No. 7229), official documents to third parties (see, e.g., Dkt. No. 73-20; Dkt. No. 72-27), and when
speaking to each other (Dkt. No. 35.) Mr. Jonas, who was involved in many of the parties’
business dealings and “interacted with Ruppel and Basmajian on a near daily basis” from 2004 to
2015, testified that the two “held themselves out to me as partners” and “always maintained joint
control over their business and all business decisions.” (Dkt. No. 73-2 at ¶ 2-3.)

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In November 2008, Basmajian signed a Term Sheet with Brighton Real Estate Services,
LLC. (Dkt. No. 73-2 at ¶ 4.) Brighton Real Estate Services, LLC distributed an amount
exceeding two million dollars directly to Basmajian. (Id.) Jeff Jonas, a member of both 406 EG,
LLC and Brighton Real Estate Services, LLC in 2008, signed the Term Sheet and understood
that Basmajian “was obligated to share one half of what he received with Matt Ruppel based
upon the relative contributions of Basmajian and Ruppel at the time of the formation of 406
Partners and the loan Basmajian made to assist in the formation of Brighton.” (Id. at ¶ 6.) Ruppel
discovered the distributions immediately prior to filing this lawsuit in October 2014. (Compl. at
¶ 33.) In November 2015, the last piece of real estate held by 1415 South Main Street, LLC was
sold, and the proceeds of the sale were divided equally between Ruppel and Basmajian. (Dkt.
No. 73-4.)
DISCUSSION
Federal Rule of Civil Procedure 56 permits the entry of summary judgment “if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The court must “examine the factual
record and reasonable inferences therefrom in the light most favorable to the party opposing
summary judgment.” Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238,
1241 (10th Cir. 1990).

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Partnership
Basmajian’s first motion for summary judgment seeks a ruling as a matter of law that no
general partnership was formed between Ruppel and Basmajian. (Dkt. No. 72.) Under Utah law1,
a partnership is “an association of two or more persons to carry on as co-owners a business for
profit.” U.C.A. § 48-1-3 (1998). Although “[t]he requirements for establishing the existence of a
partnership are not exactly defined,” the parties to a partnership must: “combine their money,
effects, skill, labor and knowledge”, constitute a “community of interest in the performance of
the common purpose”, maintain “a joint proprietary interest in the subject matter”, including “a
mutual right to control, a right to share profits,” and a duty to share losses. Mardanlou v.
Ghaffarian, 2006 UT App 165, ¶ 11, 135 P.3d 904, 908 overruled on other grounds by Ellsworth
Paulsen Const. Co. v. 51-SPR-L.L.C., 2008 UT 28, ¶ 11, 183 P.3d 248.2
Here, Ruppel has set forth sufficient facts to survive summary judgment with respect to
his assertion that he maintained a general partnership with Basmajian that operated through
limited liability companies. The parties undoubtedly carried on a business relationship for profit
for many years. They combined their money and skills for the common purpose of the
acquisition and disposition of REO assets. Ruppel has marshaled sufficient evidence to support a
finding that the parties maintained a mutual right to control, and a right to share profits and
losses. The ultimate determination of whether Ruppel and Basmajian maintained a general
partnership that operated through limited liability companies, or whether those limited liability

1

The parties agree that the code section, as it existed in 2004 and 2005, contained the cited language and is the
applicable provision in determining the nature of the parties’ relationship.
2

Ellsworth overruled Mardanlou in requiring a duty to share losses in order to establish a partnership.

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companies encompassed the entire relationship of the parties is one properly left in the discretion
of a jury.
Release
Basmajian’s second motion for summary judgment seeks a ruling as a matter of law that
the release in the Redemption Agreement forecloses all of Ruppel’s claims. (Dkt. No. 68.) Here,
again, Ruppel has set forth sufficient evidence to survive summary judgment. Although the
language of the release in the Redemption Agreement is very broad, it is limited by the phrase
“as of the date of this Agreement[.]” (Dkt. No. 68-1.) The parties continued to maintain a
business relationship subsequent to the execution of the Redemption Agreement. Accordingly, a
factual question exists as to “claims, demands, obligations, losses, causes of action, damages,
penalties, costs expenses, attorney’s fees, liabilities and indemnities” that Ruppel had or may
have claimed to have as of the date of the Redemption Agreement.
CONCLUSION
For the foregoing reasons, Basmajian’s Motions for Summary Judgment are hereby
DENIED.

DATED this 15th day of August, 2017.

BY THE COURT:

Dee Benson
United States District Judge

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