SJ Properties Suites BuyCo ehf et al v. Development Opportunity Corp et al

Filing 172

ORDER signed by Judge Rudolph T Randa on 12/17/2010 denying (105) Motion for Summary Judgment; pursuant to Fed. R. Civ. P. 41(a)(2), the damages counterclaims of STJ, P.C.; Economou Construction; John Economou; Steve Economou; and Thomas Economou are DISMISSED; the caption of the Case No. 09-C-533 portion of this consolidated action has been AMENDED to reflect the dismissal of STJ, P.C.; Economou Construction; John Economou; Steve Economou; and Thomas Economou as counterclaimants; denying (116) Motion for Summary Judgment in case 2:09-cv-00533-RTR; denying (25) Motion for Summary Judgment in case 2:09-cv-00569-RTR. (cc: all counsel) (Koll, J)

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UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF WISCONSIN

S J PROPERTIES SUITES, BUYCO, EHF; SJ FASTEIGNIR, EHF; and, A S K A R CAPITAL, HF; P l a i n t if fs , and, S E T H E. DIZARD, Court-Appointed Receiver of DOC Milwaukee LP; Intervenor Plaintiff, v. C a s e No. 09-C-0533 (C o n so lid a te d with Case No. 09-C-0569)

S T J , P.C., d/b/a ECONOMOU PARTNERS; E P MILWAUKEE, LLC; E C O N O M O U PARTNERS CONSTRUCTION, INC.; JOHN W. ECONOMOU; STEVE J. ECONOMOU; and, THOMAS V. ECONOMOU; Defendants.

EP MILWAUKEE, LLC;

C o u n ter claim a n t, v. SJ PROPERTIES SUITES, BUYCO, EHF; Counterclaim Defendant.

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S J PROPERTIES SUITES, BUYCO, EHF; Plaintiff - Counterclaim Defendant, and, SETH E. DIZARD, Court-Appointed Receiver of DOC Milwaukee LP; Intervenor Plaintiff, v.

EP MILWAUKEE, LLC; D e fe n d a n t- C o u n te r c la im a n t.

DECISION AND ORDER

T h is Decision and Order address three motions for summary judgment that are p e n d in g in this consolidated action. The action arises from a hotel and condominium real e s ta te development construction project located at 1150 North Water Street, in downtown M ilw a u k e e , Wisconsin (the "Milwaukee Project" or the "Project"). There are two separate C o m p lain ts ­ one setting forth the damages claims (Docket No. 84) and another setting forth th e declaratory judgment claims (Docket No. 157). There are also counterclaims to each C o m p la in t. STAND A RDS APPLICABLE TO SUMMARY JUDGMENT In deciding the pending motions for summary judgment, the Court applies the f o llo w in g standards. When considering a motion for summary judgment, summary judgment

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" sh o u ld be rendered if the pleadings, the discovery and disclosure materials on file, and any a f f id a v its show that there is no genuine issue as to any material fact and that the movant is e n titled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also, Anderson v. Liberty L o b b y , Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). A party "opposing a properly supported motion for summary judgment may not rest upon the m e re allegations or denials of his pleading, but . . . must set forth specific facts showing that th e re is a genuine issue for trial." Doe v. Cunningham, 30 F.3d 879, 883 (7th Cir. 1994) (q u o tin g Anderson, 477 U.S. at 248; also citing Celotex Corp., 477 U.S. at 324; Matsushita E le c . Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); United States v. R o d e Corp., 996 F.2d 174, 178 (7th Cir. 1993)). "Material facts" are those facts that under the applicable substantive law "might a f f e c t the outcome of the suit." See Anderson, 477 U.S. at 248. A dispute over "material f a cts " is "genuine" if "the evidence is such that a reasonable jury could return a verdict for th e nonmoving party." Id. The burden of showing the needlessness of a trial ­ (1) the a b se n c e of a genuine issue of material fact and (2) an entitlement to judgment as a matter of la w ­ is upon the movant. In determining whether a genuine issue of material fact exists, the C o u rt must consider the evidence in the light most favorable to the nonmoving party. See M a ts u s h ita Elec. Indus. Co., Ltd., 475 U.S. at 587. R u le 56(e)(1) addresses the opposing party's obligation to respond stating " [ w ]h e n a motion for summary judgment is properly made and supported, an opposing party m a y not rely merely on allegations or denials in its own pleading; rather, its response must

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­ by affidavits or as otherwise provided in this rule ­ set out specific facts showing a genuine is s u e for trial." Furthermore, in determining the material and undisputed facts, the Court has d i sr e g a rd e d those proposed findings of fact and responses that constituted legal conclusions, w e re argumentative or irrelevant, were not supported by the cited evidence, or were not s u p p o rte d by citations specific enough to alert the Court to the source for the proposal. ECONOMOU DEFENDANTS' MOTION FOR SUMMARY JUDGMENT T h e Defendants and Counterclaimants, STJ, P.C. d/b/a Economou Partners (" S T J , P.C."); EP Milwaukee, LLC ("EP"); Economou Partners Construction, Inc. (" E c o n o m o u Construction"); John W. Economou ("John Economou"); Steve J. Economou (" S te v e Economou"), and Thomas V. Economou ("Thomas Economou") (collectively the " E c o n o m o u Defendants") seek summary judgment dismissing the damages claims of the P la in tif f s, SJ Properties Suites, BuyCo, ehf ("BuyCo"); SJ Fasteignir, ehf ("Fasteignir"); and, A sk ar Capital, hf ("Askar") (collectively the "Plaintiffs"). The Economou Defendants assert th a t the Plaintiffs' damages claims against them must be dismissed because the Plaintiffs e n te re d into a Pierringer release 1 in this action. The Plaintiffs maintain that the motion s h o u ld be denied.

1 See Pierringer v. Hoger, 124 N.W .2 d 106, 111-12 (Wis. 1963) (holding that a settling tortfeasor in a m u lti-d e fe n d a n t case may be released from all future liability and could not be made a party-defendant in any action b r o u g h t against the non-settling tortfeasors).

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R e lev a n t Facts2 D O C Milwaukee, LP (the "Partnership"), is a limited partnership that is the o w n e r of the Milwaukee Project, a partially constructed 14-story, mixed-use building at the c o rn e r of Juneau and Water Streets in downtown Milwaukee, Wisconsin. The Partnership c o n s is ts of BuyCo, and Development Opportunity Corp. ("DOC") which are limited partners, a n d EP, which is the general partner. On May 1, 2006, the Partnership and STJ, P.C. entered into a Standard Form o f Architect Services on AIA form B141-1997. On July 1, 2006, the Partnership and E co n o m o u Partners executed a Construction Manager Agreement on standard AIA form B 8 0 1 / C M a . As such, Economou Partners prepared payment applications for review by STJ, P .C . and final approval by EP. O n May 27, 2009, the Plaintiffs filed this action in this District, Case Number 0 9 -C -0 5 3 3 , against various persons and entities associated with the Milwaukee Project. This c a s e previously included allegations against DOC; DOC Development Milwaukee, LLC ("D ev e lo p m en t LLC"); DOC Ft. Myers, LLC ("DOC Ft. Myers"); Brenda Yurick ("Yurick"); a n d Phillip E. Hugh ("Hugh") (collectively the "DOC Parties"). The action previously, and

The relevant facts are taken from the parties' proposed findings of fact ("PFOF") to the extent that they are u n d i s p u t e d . Citations to quoted excerpts have been included even when the facts are undisputed. To the extent that a party has responded to a proposed finding of fact with the statement "deny' without citing a n y supporting factual material, that party has failed to raise a genuine factual dispute. See Fed. R. Civ. P. 56(e)(2); C i v i l L. R. 56(b)(2)(B)(i)(E.D. W i s . ) . See also, Montano v. City of Chicago, 535 F.3d 558, 569 (7th Cir. 2008) ( q u o tin g Smith v. Lamz, 321 F.3d 680, 683 (7th Cir. 2003) (stating "mere disagreement with the movant's asserted f a c t s is inadequate to defeat summary judgment if made without reference to specific supporting material.")). (See e . g ., Economou Defs.' Resps. to Pls.' PFOF 9-13.)

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c u rre n tly, contains allegations against STJ, P.C.; EP; Economou Construction; Steve E c o n o m o u ; John Economou; and Thomas Economou. The principal of one of the DOC Parties admitted that funds intended for the M ilw a u k e e Project had been loaned to DOC Ft. Myers for the separate project being d e v e lo p e d in Fort Myers, Florida. Thereafter, the Plaintiffs entered into a settlement a g re e m e n t and Pierringer release with all of the DOC Parties. The Pierringer release (" R e le a s e " ) was signed by the Plaintiffs in the fall of 2009. (See Ex. A to the Affidavit of G re g o ry J. Cook filed on February 18, 2010 ("Cook Feb. 2010 Aff."). The Release refers to th e Plaintiffs collectively as the "Releasing Persons," and the DOC Parties as the "Released P erso n s." (Cook Feb. 2010 Aff. ¶ 3 Ex. A.) By the Release, the DOC Parties were dismissed from the lawsuit,3 and the P lain tiff s withdrew the claims against them under Wis. Stat. § 779.02(5); Wis. Stat. § 895.446; and Wis. Stat. § 943.20(1)(b). Section 779.02(5) of the Wisconsin Statutes p ro v id e s for a theft by contractor claim. Paragraph 4 of the Release states: To permit the full effectiveness of the Pierringer provisions of th is agreement for the Released Persons, without impairing the R e le a s in g Persons' ability to pursue any non-settling parties (g e n e ra lly, as well as those specific entities and persons defined in this paragraph), the Released Persons, hereby fully reserve, p r e s e rv e and maintain all actions, causes of actions, claims, d em an d s, liabilities, rights, or suits of any kind or nature w h a ts o e v e r (whether arising in contract, tort, or otherwise, and
3 Paragraph 1 of the Economou Defendants' proposed findings of fact in support of their motion for summary j u d g m e n t lists the name of the final defendant who signed the release as "Phillip Yurick," rather the "Phillip E. Hugh." T h e Court has corrected the error.

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a ll damages, injuries or losses suffered or incurred to date, in c lu d in g all costs, expenses and attorney's fees suffered or in c u rre d in connection with the Actions) against [STJ, P.C., EP, E C O N O M O U CONSTRUCTION, JOHN ECONOMOU, S T E V E ECONOMOU, THOMAS ECONOMOU], and any o t h e r entity that these entities or persons own or have an o w n e rs h ip interest (collectively being referred to as the "NonS e ttlin g Parties"). The Released Persons hereby irrevocably a n d unconditionally assign, grant, convey and transfer to [ B U Y C O ] or to the Receiver as their interests may appear, all s u c h actions, causes of actions, claims, demands, liabilities, rig h ts , or suits of any kind or nature whatsoever (whether arising in contract, tort, or otherwise), against all non-settling parties, in c lu d in g the Non-Settling Parties. This assignment is separate a n d independent consideration for the release of the Released P e rs o n s. In addition, to permit the full effectiveness of the P ie rr in g e r provisions of this agreement for the Released P e r s o n s , without impairing the Releasing Persons' ability to p u rs u e non-settling parties, including the Non-Settling Parties, th e Released Persons specifically assign all indemnification and c o n trib u tio n claims that they have against the Non-Settling P a r tie s, and all actions, causes of actions, claims, demands, l ia b i li tie s, rights, or suits of any kind or nature whatsoever (w h e th e r arising in contract, tort, or otherwise) that they have a g a in s t the Non-Settling Parties, to the Releasing Persons. (C o o k Feb. 2010 Aff. ¶ 4 Ex. A.) T h e Plaintiffs' Complaint4 revolves around two sets of alleged wrongdoings. T h e Plaintiffs believe that both the DOC Parties and the Plaintiffs were the victims of § 779.02(5) violations associated with draw requests and payment applications submitted by th e Economou Defendants that falsely represented the percentage of completion of the M ilw a u k e e Project work. These are not "co-intentional tortfeasor" torts, but wrongful actions th a t were solely by the Economou Defendants.

The Complaint setting forth damages claims is the subject of the Economou Defendants' summary judgment m o t io n and all references to the Complaint are to the damages Complaint, Docket No. 84.

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T h e Plaintiffs also believe that the DOC Parties improperly loaned funds a d v a n ce d for the Milwaukee Project to another project being developed by the Economou D e f en d a n ts and the DOC Parties in Fort Myers, Florida. The Plaintiffs received an

a ss ig n m e n t of claims where the DOC Parties were the victims of wrongful actions by the E c o n o m o u Defendants. Section 779.02(5) of the Wisconsin Statutes provides for a theft by contractor c la im . In their Second Amended Complaint ("Complaint"), the Plaintiffs allege as their first c a u se of action that STJ, P.C.; EP; Economou Construction; John Economou; Steve E c o n o m o u ; and Thomas Economou "intentionally used trust fund money advanced by P la in tif f s for purposes other than those permitted by Wisconsin Statutes section 779.02(5)." (C o m p l. ¶ 48.) Paragraph 48 of the Complaint also includes allegations under Wisconsin S ta tu te s §§ 895.446 and 943.20(1)(b). The Plaintiffs' second cause of action is for recoupment of misappropriated tr u s t funds and the claim is interrelated and dependent upon the first cause of action because a n interested party may petition for recoupment of funds if theft by contractor has occurred. In their third cause of action for fraudulent transfer, the Plaintiffs allege John E c o n o m o u and Steve Economou "acted with actual intent to hinder, delay, and defraud their c re d ito rs by fraudulently transferring assets to corporations that they controlled without a d e q u a te compensation." (Compl. ¶72.) Paragraph 72 of the Complaint is not the entire basis f o r the Plaintiffs' third cause of action.

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A sworn statement produced by the Economou Defendants for January 31, 2 0 0 9 , lists the percentage of completion for the Project as a whole of 97.36%, and for E c o n o m o u Construction of 99.93%. The Project was nowhere near the certified level of c o m p le tio n . In addition, neither the "balance to complete," "net previously paid," nor " re te n tio n " columns in the pay application are accurate, resulting in subcontractors being u n d e rp a id and the Economou Defendants taking Project funds to which they had no e n t i t l e m e n t. (See Halloin Mar. 2010 Aff. ¶ 12.) Separate and apart from such claims are c la im s involving funds advanced by the Plaintiffs that were allegedly diverted from the DOC P a rtie s and the Economou Defendants from the Project to a separate project being developed b y the DOC Parties and the Economou Defendants in Fort Myers, Florida. As of March 19, 2010, when the Plaintiffs filed their response to the Economou D e f en d a n ts ' summary judgment motion they did not know if there are other loans. As of that d a t e , no depositions had been taken in the case. Discovery is ongoing with the job cost a c co u n tin g for the Milwaukee Project. To date, no fact finder has determined, nor been asked to determine, whether any of the DOC Parties acted intentionally. To date, no fact finder has d e te rm in e d , nor been asked to determine, whether any of the Economou Defendants acted in te n tio n a lly. Analysis A s a federal court sitting in diversity, the Court applies state law to substantive is s u e s and federal law to procedural and evidentiary matters. Bevolo v. Carter, 447 F.3d 979, 9 8 2 (7th Cir. 2006). The parties agree that Wisconsin substantive law applies to the

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P ie rr in g e r release issue. This Court must apply the law of the state as it believes the highest c o u rt of the state would apply it if the issue were presently before that tribunal. Pisciotta v. O ld Nat'l Bancorp, 499 F.3d 634, 635 (7th Cir. 2007). Pierringer, 124 N.W.2d at 111-12, holds that a settling tortfeasor in a m u l ti- d e f e n d a n t case may be released from all future liability and can not be made a party d e f e n d a n t in any action brought against the non-settling tortfeasors. A Pierringer release lim its the plaintiff's recovery to the unsatisfied portion of the damages; that is, the portion a ttr ib u ta b l e to the non-settling tort-feasors. Id; see also Siler v. N. Trust Co., Inc., 80 F. S u p p . 2d 906, 908-09 (N.D. Ill. 2000). Stated somewhat differently, a Pierringer release a llo w s for "piecemeal settlement of multi-defendant lawsuits" . . . and permits a plaintiff to " se ttle its case with fewer than all of the defendants without releasing its claims against the n o n -s e ttlin g defendant." Siler, 80 F. Supp. 2d at 908-09. Three elements must be satisfied for a valid Pierringer release: (1) complete re le a se of the settling defendant by the plaintiff; (2) the plaintiff's express reservation for c laim s against any remaining and non-settling defendants; and (3) the plaintiff must agree to in d e m n if y the settling defendant against claims for contribution or indemnification. Id. at 9 0 9 ; see also Fleming v. Threshermen's Mut. Ins. Co., 388 N.W.2d 908, 911 (Wis. 1986) (h o ld in g that Pierringer principles apply to action for indemnity as well as actions for c o n trib u tio n ). "[A] Pierringer release operates to impute to the plaintiff whatever liability in contribution or indemnity the settling joint tort-feasor may have to the non-settling joint to rt-f e a s o r." Brandner by Brandner v. Allstate Ins. Co., 512 N.W.2d 753, 762 (Wis. 1994).

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The premise of the Economou Defendants' summary judgment motion is that a lth o u g h the Pierringer release attempts to release some but not all of the alleged intentional to rtf e as o rs in this action, the Plaintiffs have released all of the intentional tortfeasors and, th e re f o re , the Complaint should be dismissed. In so contending the Economou Defendants re ly upon Fleming, 388 N.W.2d at 911, and the language of the Release. The Plaintiffs assert th a t the motion is premature, and legally and factually flawed. In Fleming, the court was presented with the questions of whether a negligent to rtf e a s o r has a right of indemnity or contribution from an intentional tortfeasor and how a P ie r r in g e r release affects the right of the negligent tortfeasor. Id. at 908-09. The court held th a t a negligent tortfeasor has a right to indemnity from an intentional joint tortfeasor. Id. at 9 0 9 . The court further concluded that a Pierringer release of an intentional joint tortfeasor o p e ra te s to absolve a negligent tortfeasor of liability to a plaintiff because the negligent to rtf e a so r's right to indemnity from the intentional joint tortfeasor becomes a right to in d e m n ity from the plaintiff. Id. The claims against the Economou Defendants are not identical to those pled a g a in s t the DOC Parties. The claim that the Economou Defendants wrongfully transferred f u n d s to themselves based on inflated claims of completed work involves conduct that may b e independent of the diversion of the funds to the Fort Myers project.

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In asserting that their theft by contractor claim does not require proof of intent, th e Plaintiffs maintain that intent is not an element of a § 779.02(5) claim.5 However, the P la in tif f s' first cause of action does not rely solely on § 779.02(5);6 it also relies upon § § 895.446 7 and 943.20(b)(1). Tri-Tech Corp. of America, 646 N.W.2d at 829-30, analyzes th e interplay of the three statutes invoked by the Plaintiffs' claim for theft by a contractor w ith a treble damages remedy. Tri-Tech holds that a civil theft by a contractor claim that

Section 779.02(5) of the W is c o n s in Statutes " is designed to protect subcontractors and material suppliers b y making money paid by the owner to the contractors and subcontractors a trust fund for the subcontractors and m a t e r ia l suppliers." Kraemer Bros., Inc. v. Pulaski State Bank, 406 N.W .2 d 379, 381-82 (W is . 1987)
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S e c tio n 779.02(5) of the W is c o n s i n Statutes provides: T h e proceeds of any mortgage on land paid to any prime contractor or any s u b c o n t r a c t o r for improvements upon the mortgaged premises, and all moneys p a i d to any prime contractor or subcontractor by any owner for improvements, c o n s titu te a trust fund only in the hands of the prime contractor or subcontractor to the amount of all claims due or to become due or owing from the prime c o n tr a c to r or subcontractor for labor, services, materials, plans, and s p e c i fic a t io n s used for the improvements, until all the claims have been paid, and s h a ll not be a trust fund in the hands of any other person. The use of any such m o n e y s by any prime contractor or subcontractor for any other purpose until all c l a i m s , except those which are the subject of a bona fide dispute and then only to the extent of the amount actually in dispute, have been paid in full or p r o p o r tio n a lly in cases of a deficiency, is theft by the prime contractor or s u b c o n tr a c to r of moneys so misappropriated and is punishable under s. 943.20. I f the prime contractor or subcontractor is a corporation, limited liability c o m p a n y, or other legal entity other than a sole proprietorship, such m is a p p r o p r i a tio n also shall be deemed theft by any officers, directors , members, p a r tn e rs , or agents responsible for the misappropriation. Any of such m i s a p p r o p r ia te d moneys which have been received as salary, dividend, loan r e p a y m e n t, capital distribution or otherwise by any shareholder, member, or p a r tn e r not responsible for the misappropriation shall be a civil liability of that p e r s o n and may be recovered and restored to the trust fund specified in this s u b s e c tio n by action brought by any interested party for that purpose. Except as p r o v id e d in this subsection, this section does not create a civil cause of action a g a in s t any person other than the prime contractor or subcontractor to whom s u c h moneys are paid. Until all claims are paid in full, have matured by notice a n d filing or have expired, such proceeds and moneys shall not be subject to g a r n i s h m e n t , execution, levy or attachment.

W i s c o n s i n Statutes § 895.446 was enacted to provide a treble damages remedy to victims of certain i n t e n t i o n a l property crimes. See Tri-Tech Corp. of Am. v. Americomp Servs., 646 N.W .2 d 822, 828 (Wis. 2002).

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in c o rp o ra te s §§ 895.446 and 943.20(b)(1) is a specific intent cause of action, and the person c la im in g theft by a contractor must prove intent by a preponderance of the evidence. See id. In te n t to commit theft by contractor can be inferred, but must be proven by the plaintiff by th e preponderance of the evidence. Id. at 829. "The intent establishing the violation is the in te n t to use moneys subject to a trust for purposes inconsistent with the trust." State v. S o b k o w ia k , 496 N.W.2d 620, 626 (Wis. Ct. App. 1992). "[P]roof of an `intent to defraud' in a n action for theft by contractor requires no more than the production of sufficient probative e v id e n c e to establish criminal intent." Id. "`Intentionally' means that the defendant must h a v e had a purpose to use the money for other than the payment of claims due or to become d u e from him for labor or materials used in the improvements before all such claims were p a id ." Id. Therefore, to prevail on their first cause of action, BuyCo must prove that the E c o n o m o u Defendants acted with intent to use the monies subject to the trust for purposes in c o n s is te n t with the trust. See id. However, the Complaint includes a second cause of action for "recoupment," u n d e r the fourth sentence of § 779.02(5), the Wisconsin theft by contractor statute, which s ta te s "[a]ny of such misappropriated moneys which have been received as salary, dividend, lo a n repayment, capital distribution or otherwise by any shareholder, member, or partner not re sp o n s ib le for the misappropriation shall be a civil liability of that person and may be re c o v ere d and restored to the trust fund specified in this subsection by action brought by any in te re ste d party for that purpose."

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T h e Plaintiffs assert that the recoupment is a remedy rather than a cause of a c tio n . They so contend without citing any case law or supporting authority. The Plaintiffs' re c o u p m e n t claim arises from the Wisconsin theft by contractor statute.8 T h e issue of whether recoupment under § 779.02(5) is a remedy or a cause of a c tio n , has not been directly addressed by the Wisconsin courts. However, Wisconsin courts h a v e upheld claims predicated upon the trust provision of § 779.02(5). See Capen Wholesale, I n c . v. Probst, 509 N.W.2d 120, 121 (Wis. Ct. App. 1993); W. H. Major & Sons, Inc. v. K r u e g e r, 369 N.W.2d 400, 403-04 (Wis. Ct. App. 1985). The statute expressly states that w h e n an owner pays money to a prime or subcontractor for improvements, the money c o n s titu te s a trust fund in the hands of that prime or subcontractor. See In re Ward, 417 B .R . 582, 587 (E.D. Wis. Bankr. 2009). The beneficiaries of such trusts are the "laborers, s u p p lie rs and materialmen," as well as "owners and contractors." Id. (citing Matter of T h o m a s , 729 F.2d 502, 506 (7th Cir. 1984)). In order to establish that a trust exists in this c a se , the Plaintiffs must establish that 1) an owner (2) paid monies (3) to EP (4) for im p ro v e m e n ts (5) and that EP used the monies in trust for purposes other than paying the c la im s of subcontractors for labor or materials used for improvements. See Capen Wholesale, In c ., 509 N.W.2d at 123-24; In re Ward, 417 B.R. at 587; Matter of Tetzlaff, 44 B.R. 177, 179 (E .D . Wis. 1984) (holding that in order for the plaintiff to sustain his claim, he was required
Under federal common law, the doctrine of equitable recoupment is available to both the taxpayer and the g o v e r n m e n t , depending on the circumstances, where inequitable consequences have resulted from application of the s t a t u t e of limitations. See, e.g., Stone v. White, 301 U.S. 532, 539 (1937); Bull v. United States, 295 U.S. 247, 262 ( 1 9 3 5 ) . As a general matter, a defendant's right to plead "recoupment," a "defense arising out of some feature of the tr a n sa c tio n upon which the plaintiff's action is grounded," Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 2 9 9 (1946) (quoting Bull, 295 U.S. at 262), "survives the expiration of the period provided by a statute of limitation th a t would otherwise bar the recoupment claim as an independent cause of action." Beach v. Ocwen Fed. Bank, 523 U . S . 410, 415 (1998).
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to present evidence that the debtor-defendant received payments from its customers in trust f o r its suppliers and that the debtor-defendant, as an officer and director of the business, m isa p p lied those funds contrary to Wis. Stat. § 779.02(5)). Moreover, the Wisconsin courts h a v e held that a civil claim for theft by contractor does not require proof of intent. See State v . Hess, 298 N.W.2d 111, 114 (Wis. Ct. App. 1980). Thus, this Court concludes that a s ta tu to ry recoupment "cause of action" under the fourth sentence of Wis. Stat. § 779.02(5) m a y be a "claim," and does not require proof of intent. The third cause of action in the Plaintiffs' Complaint is under the Uniform F r a u d u le n t Transfers Act ("UFTA"). Under the UFTA, a transfer of funds is fraudulent as to present and future creditors if: The debtor made the transfer or incurred the obligation as f o l lo w s : (a ) With actual intent to hinder, delay, or defraud any creditor of th e debtor; or (b ) Without receiving a reasonably equivalent value in exchange fo r the transfer or obligation, and the debtor: (1 ) Was engaged or was about to engage in a business tran sa c tio n for which the remaining assets of the debtor were u n re a so n a b ly small in relation to the business or transaction; or (2 ) Intended to incur, or believed or reasonably should have b e li e v e d that he or she would incur debts beyond his or her a b ility to pay as they become due.

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W is. Stat. § 242.04(1). Section 242.04(1)(a) expressly requires intent, and § 242.04(2) lists fa ctors to consider in determining the existence of "actual intent" under § 242.04(1)(a).9 S im ila rly, under the UFTA a transfer is fraudulent as to present creditors "if the debtor made th e transfer or incurred the obligation without receiving a reasonably equivalent value in e x c h an g e for the transfer or obligation and the debtor was insolvent at that time or the debtor b e c am e insolvent by reason of the transfer." Wis. Stat. § 242.05(1). Intent is not required u n d e r § 242.05. See DeWitt, Porter, Huggett Schumacher & Morgan, S.C. v. Kovalic, 991 F .2 d 1243, 1246 (7th Cir. 1993) ("A plaintiff-creditor does not have to prove that the debtor in te n d e d to defraud her in a fraudulent conveyance action under § 242.05."). Under

W is c o n sin law, "the party alleging fraud has the burden of proving it by clear and convincing e v id e n c e." Williams v. Rank & Son Buick, Inc., 170 N.W.2d 807, 809 (Wis. 1969). See also

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Section 242.04(2) of the W is c o n s i n Statutes states: I n determining actual intent under sub. (1)(a), consideration may be given, a m o n g other factors, to whether: ( a ) The transfer or obligation was to an insider; ( b ) The debtor retained possession or control of the property transferred after the tr a n sfe r ; ( c ) The transfer or the obligation was disclosed or concealed; ( d ) Before the transfer was made or the obligation was incurred, the debtor had b e e n sued or threatened with suit; ( e ) The transfer was of substantially all the debtor's assets; ( f) The debtor absconded; ( g ) The debtor removed or concealed assets; ( h ) The value of the consideration received by the debtor was reasonably e q u iv a le n t to the value of the asset transferred or the amount of the obligation in c ur r e d ; ( i) The debtor was insolvent or became insolvent shortly after the transfer was m a d e or the obligation was incurred; ( j ) The transfer occurred shortly before or shortly after a substantial debt was incurred; and ( k ) The debtor transferred the essential assets of the business to a lienor who tr a n s fe r r e d the assets to an insider of the debtor.

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M a tte r of Loyal Cheese Co., Inc., 969 F.2d 515, 518 (7th Cir. 1992) (regarding UFTA); M a n n v. Hanil Bank, 920 F.Supp. 944, 950 (E.D. Wis. 1996) (same). T h e Plaintiffs' Complaint simply cites the UFTA; it does not specify the statute o r subsection under which the statutory claim is being advanced. The third cause of action a lle g e s acts that could be deemed a violation of § 242.04 in that it states John Economou and S te v e Economou transferred $310,189.00 out of the Partnership to shield those funds from c re d ito rs and they transferred funds to the Fort Myers Project without compensation and that th e y acted with actual intent to hinder, delay, and defraud their creditors by transferring assets that they controlled without adequate compensation. (Compl. ¶¶ 69-72.) However, the Complaint also alleges that John and Steve Economou were i n s o lv e n t because the amount they personally owed creditors exceeded their ability to pay. (C o m p l. ¶ 73.) Such allegation taken together with the allegation that they transferred the f u n d s to the Fort Myers Project without adequate compensation could give rise to a claim u n d e r § 242.05(1). Thus, the third cause of action for fraudulent transfer alleges claims arising u n d er § 242.04(1) which requires proof of intent, and § 242.05(1) which does not require p ro o f of intent. Consequently, the Plaintiffs' claims would not be subject to dismissal b e c au s e the third cause of action against them includes an alleged violation that does not re q u ire proof of intent. The claim for recoupment and a possible claim under UFTA (the third cause o f action) do not require proof of intent. Therefore, the Economou Defendants' motion for

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s u m m a r y judgment dismissing the Plaintiffs' claims against them based on the Pierringer re le a s e between the Plaintiffs and the DOC Parties is denied. BUYCO'S MOTION FOR SUMMARY JUDGMENT DISMISSING THE ECONOMOU DEFENDANTS' COUNTERCLAIMS B u yC o seeks summary judgment dismissing Economou Defendants' c o u n te rc la im s with respect to the damages Complaint. EP asserts that BuyCo has not e sta b lish e d that EP's counterclaims are subject to dismissal upon summary judgment.10 W ith d ra w a l of Counterclaims by Five Economou Defendants I n response to the summary judgment motion, five of the six Economou D efend an ts ­ namely, STJ, P.C.; Economou Construction; John Economou; Steve Economou, a n d Thomas Economou ­ state that they withdraw their counterclaims. (See Economou D e f s.' Resp. Br. Opp'n Mot. Summ. J. 1-2.) However, BuyCo filed an answer to the c o u n te rc la im s and a motion for summary judgment. And, the parties have not filed a written s tip u la tio n signed by them dismissing the counterclaims of STJ, P.C.; Economou C o n s tru c tio n ; John Economou; Steve Economou, and Thomas Economou. Consequently, a n order of this Court is required. See Fed. R. Civ. P. 41(a). In its reply brief, BuyCo notes and does not object to the dismissal of the c o u n te rc la im s of STJ, P.C.; Economou Construction; John Economou; Steve Economou, and T h o m as Economou. In light of the foregoing, the damages counterclaims of STJ, P.C.;

10 The Court will apply the standards for summary judgment that it previously set forth. The statement of r e l e v a n t facts is based upon the parties' proposed findings of fact to the extent they are undisputed. Citations to all q u o t e d excerpts are provided regardless of whether they are undisputed.

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E c o n o m o u Construction; John Economou; Steve Economou; and Thomas Economou are d is m is s e d . The Court will now address BuyCo's summary judgment motion, which c o n sis te n t with the Second Amended Complaint and BuyCo's amended proposed findings o f fact, no longer requests that the Court declare who is the general partner of the Partnership. (S e e BuyCo's Mot. Amend Am. Compl. for Declaratory Relief & Amend BuyCo's Proposed Findings of Fact 3.) The Court begins by setting forth the relevant facts. Relevant Facts O n November 9, 2006, the Partners of DOC Milwaukee, LP (the "Partnership") e x e cu t e d a Limited Partnership Agreement (the "Agreement"). A copy of the Agreement a ttac h e d as exhibit A to the February 2010 Halloin affidavit in support of summary judgment. (" H a llo in Feb. 2010 Aff.) The Agreement requires the application of Delaware law. At the Partnership's inception, BuyCo and EP were both limited partners and D O C Milwaukee II, LLC ("DOC II") was the general partner. DOC II's members are Hugh a n d Yurick. DOC succeeded DOC II as the general partner. The Agreement set forth each P a rtn e r's percentage interest in the Partnership. The original contributions were established o n exhibit A to the Agreement. BuyCo was the sole partner advancing cash and its capital c o n trib u tio n was to be $7 million. Article V of the Agreement is the only portion of the Agreement that addresses f u tu re contributions. Article V governs capital accounts and clearly states that no partner can b e required to advance additional capital, but if one partner does and others do not, the

19

o w n e rs h ip percentages must be adjusted. However, it was also specifically contemplated as a possibility in Article 5.2 that DOC II or EP could contribute capital. Exhibit C to the Halloin February 2010 affidavit is a copy of the first page and g u a ra n ty page of the January 9, 2008, loan agreement between the Partnership and Specialty F in a n c e Group, LLC. ("SFG"). The personal guarantors of the loan are Hugh, John E c o n o m o u , and Steve Economou. BuyCo did not sign the guaranty. D u e to numerous changes and upgrades to the plans and designs for the hotel a n d condominiums, along with work stoppages caused by BuyCo's failure to timely fund c o n stru c tio n draws, the Project went over budget which was a violation of the terms of the lo a n with the senior lender, SFG. Due to this gap in financing, SFG forced the Partnership t o enter into a forbearance agreement on about October 8, 2008, with respect to the loan a g re e m e n t between the Partnership and SFG. The forbearance agreement, attached as exhibit B to the Halloin February 2010 affidavit, was entered into with the knowledge and consent o f all the partners of the Partnership. The forbearance agreement required the Partnership to m a k e an equity contribution of $4,000,000 on or before December 1, 2008, to fund im p ro v e m e n ts to the development of the Milwaukee Project. The forbearance agreement was jo in tly and severally guaranteed by Hugh, John Economou, and Steve Economou. Attached as exhibit A to the affidavit of John Economou that was filed on M a rc h 28, 2010, ("Economou Mar. 2010 Aff.") are copies of email correspondence between J o h n Economou and other parties from October 6, 2008, to October 9, 2008, regarding the f o rb e a ra n c e agreement. On October 7, 2008, Johann Fridrik Haraldsson ("Haraldsson") sent

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m u ltip le individuals, including John Economou, an email regarding the forbearance a g re e m e n t stating, "Under paragraph 6.B. in the agreement it says that we have to put in a d d itio n a l 4 million in equity. I am assuming those 4 are part of the 7,5 million mezz piece. F o r what are the remaining, 3,5?" Þór4ur Gíslason ­ whose name in English is Thordur G is la so n ("Gislason") ­ was copied on the email. E co n o m o u Ex. A.) During fall of 2008, Gislason and Haraldsson represented Askar, the financial a d v is o r to BuyCo, and Gislason and Haraldsson "negotiated structures, approved and funded d e a ls on behalf of Askar." (Economou Defs.' Add'l Facts ¶ 13; BuyCo's Resp. to Defs.' S ta te m e n t of Proposed Material Facts ¶ 13.) From October 6, 2008, through October 9, 2008, H a ra ld s s o n forwarded funds on behalf of BuyCo and based on that activity John Economou b e lie v e d that Haraldsson represented BuyCo. After Gislason left Askar in late 2008, H a ra ld s s o n represented Askar, until he turned over its representation to Bjarki A. Brynjarsson ("Brynjarsson"). T h e re was never a formal capital call made pursuant to Section 5.2 of the A g re e m e n t requesting that any of the partners contribute additional capital. There also was n e ith e r a Partnership meeting to discuss making a capital call nor a motion made by a partner to make a capital call for the additional funds. None of the mechanisms required by Section (Economou Mar. 2010 Aff. ¶ 14,

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5 .2 (a ) or (b) were utilized to obtain the $4 million or the financing under the second f o rb e a ra n c e agreement.1 1 D u rin g late November and early December of 2008, DOC II, the general p a rtn e r, and all limited partners of the Partnership were well aware of the status of the f in a n c in g and construction and DOC II indicated that it wanted to step down as the general p artne r. All the partners discussed the replacement of the general partner and all the partners c h o se EP to replace DOC II, as general partner on December 16, 2008. A Unanimous C o n s e n t of the partners of the Partnership naming EP as the new general partner, was e x e c u te d on December 16, 2008. On December 16, 2008, EP succeeded DOC II as the Partnership's general p a rtn e r. EP owners are John Economou, Steve Economou, and Thomas Economou. EP

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Sections 5.2(a) and (b) of the Agreement, entitled Additional Capital Contributions, state: ( a ) The Partners recognize that, in addition to the Capital Contributions, the P a r t n e r s h i p may request additional capital from time to time. The Partners shall b e requested to contribute additional capital to the Partnership upon the Partners' d e te r m in a t io n by a vote of the Required Interest that such additional capital is n e c e s s a r y for the Partnership. No Partner shall be required to make any a d d i t io n a l contribution to capital. All Partners shall have the right to contribute s u c h additional capital based on their then existing pro rata ownership interest i n the Partnership. (b) If any Partner fails to pay all or any portion of any additional capital c o n tr ib u tio n requested pursuant to Section 5.2(a) within ten (10) days after w r itte n notice of demand, the other Partners shall have the right (i) to make such a d d itio n a l contribution to capital (and as between them in accordance with the r e s p e c t iv e pro rata Interests of the Partners that desire to make such contribution) a n d (ii) as set forth in the foregoing notice of demand, to pro rata increase the r e s p e c t iv e Percentage Interests of the contributing Partners and to reduce the r e s p e c tiv e Percentage Interests of the Partners that do not make such c o n t r ib u tio n s . In the event any Partner fails to pay all or any portion of a d d i tio n a l capital requested as set forth herein, such Partner shall lose its power to vote on any and all matters.

( H a l lo in Feb. 2010 Aff. ¶ 2, Ex. A.)

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re p la c ed DOC II as the general partner until June 22, 2009, when the receivership was filed a n d Seth Dizard ("Dizard") assumed the general partner functions as receiver under W is c o n sin Statutes section 128.18. B u yC o was in closed door negotiations with Wave Development, LLC (" W a v e ") and SFG before the Plaintiffs filed case number 09-C-569 on June 8, 2009, and c a se number 09-C-533 on May 27, 2009. EP was present during some but not all of the m e e tin g s . EP was excluded from all meetings after BuyCo filed its theft by contractor action o n May 27, 2009. BuyCo refused to include EP in the discussions with Wave and SFG and B u yC o refused to provide information regarding the discussions. Attached as exhibit D to the Halloin February 2010 affidavit are copies of a l e t t e r sent by the receiver's counsel to Wave on July 24, 2009, and a letter sent by EP 1 2 to W a v e on July 22, 2009. Exhibit E to the Halloin February 2010 affidavit are copies of a tta c h m e n ts to the August 14, 2009, affidavit of John Wieser ("Wieser"), filed in case number 0 9 -C -5 3 3 . Askar served as financial advisor for BuyCo. A copy of portions of the April 3, 2009, second forbearance agreement, signed b y EP as the general partner of the Partnership is attached as exhibit M to John Economou's M a rc h 2010, affidavit. The second forbearance agreement was executed with the

u n d e rs ta n d in g that BuyCo promised to fund the contributions required under the forbearance

Paragraph 17 of BuyCo's proposed material facts, which is undisputed, states that the letter was sent by th e "Economou Partners." However, Exhibit D, cited in the factual statement, is signed by John Economou for EP a n d the letter demands on behalf of EP, as general partner for the partnership, and the receiver that W a v e not negotiate w i th BuyCo "unless and until" EP and the receiver are included in the negotiations. Given the foregoing, the Court h a s revised the statement to reflect that EP sent the letter.

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a g re e m e n t.1 3 John Economou was forwarded or sent copies of emails from April 1, 2009, re g a rd in g the second forbearance agreement. (Economou Mar. 2010 Aff., Ex. B.)1 4 O n April 1, 2009, Haraldsson sent SFG an email regarding Askar's payment p u rsua n t to the forbearance agreement.1 5 On April 1, 2009, Haraldsson represented Askar, th e financial advisor for BuyCo, and based on such representation Haraldsson represented B u yC o . O n April 29, 2009, BuyCo attempted to exercise its right under Section 8.2 of th e Agreement to terminate EP as the Partnership's general partner,1 6 and requested the right to inspect the Partnership's financial records because of the uncured defaults with respect to th e Project's completion by EP. On April 30, 2009, BuyCo again attempted to assert its rights a s the general partner and again requested the ability to review the financial documents of the P a rtn e rs h ip . On April 30, 2009, BuyCo noticed a special meeting of the Partnership for

BuyCo asserts that there is a factual dispute regarding whether the forbearance agreement would have been e x e c u t e d absent the understanding that BuyCo would fund the contributions required under the forbearance agreement. H o w e v e r, it also states that the dispute is not material to the issues involved in the summary judgment motion r e g a r d i n g EP's counterclaims. Paragraph 20 of the Economou Defendants' additional facts refers to the second forbearance agreement. H o w e v e r , BuyCo's Response to paragraph 20 of those proposed facts states the emails relate to the third forbearance a g re e m e n t. However, they do not cite any evidentiary material in support of that contention. Moreover, the subject lin e on the emails state "DOC Milwaukee 2nd Forbearance Agreement," (Economou Mar. 2010 Aff. ¶ 20, Ex. B ) , and the second forbearance agreement was executed April 3, 2009. BuyCo has not raised a factual dispute.
14

13

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Section 8.2(a) of the Agreement states: [ D O C II], which is managed by [Hugh], shall serve as General Partner during the e n t ir e term of the Partnership. Upon death or disability of [Hugh], the Partners ( b y vote of the Required Interest) shall designate a successor. In the event of an u n c u re d event of default under the development for the Project (to be entered in to pursuant to Section 8.6 hereof), BuyCo shall have the right to appoint a new G e n e r a l Partner for the Partnership.

(Halloin Feb. 2010 Aff. ¶ 2, Ex. A.)

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W e d n e sd a y, May 13, 2009. A Partnership meeting was held on May 13, 2009, to resolve the is s u e of who was general partner. BuyCo and its counsel attended the meeting, as did EP, th ro u g h its counsel, Wieser. DOC II did not participate in the meeting. No action was taken at the meeting. EP continued to maintain that it was general partner. S e c tio n 8.1 describes the powers and duties of the general partner. It states, in p a rt: "the business and the affairs of the Partnership shall be conducted and managed solely u n d e r the direction of the general partner including entering into, making and performing c o n tra c t s , agreements, and undertakings binding the Partnership that may be necessary, a p p ro p ria te , or advisable in furtherance of the Project." (Halloin Feb. 2010 Aff. ¶ 2, Ex. A) S e c tio n 8.1 goes on to list, without limitation, eight types of actions that the general partner m a y take on behalf of the Partnership. On March 31, 2009, Wieser sent an email to Lee van Egmond ("Egmond"), le g a l counsel for BuyCo, and copied John Economou on the email. (See Economou Mar. 2 0 1 0 Aff., Ex. D.) On March 30, 2009, John Economou sent an email to Egmond.

(E c o n o m o u Mar. 2010 Aff. ¶ 40, Ex. E.) Wieser sent an email to Egmond on April 1, 2009, w ith a copy also being sent to John Economou. (Economou Mar. 2010 Aff., Ex. F.) E P presented an option 1 7 from Taylor Town Investment Partners, LLC ("Taylor T o w n " ), an Ohio limited partnership company that is a lender.

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There is a factual dispute regarding the nature of the financial option and its viability.

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O n May 14, 2009, Haraldsson represented Askar, the financial advisor for B u yC o . On May 14, 2009, EP Milwaukee sent BuyCo a summary of a potential proposal f ro m Taylor Town, but did not provide the actual proposal. On May 27, 2009, this lawsuit, alleging theft by contractor, was filed. On May 2 9 , 2009, John Economou sent an email to Haraldsson regarding a buy out discussion. (See E co n o m o u Mar. 2010 Aff. ¶ 52, Ex. H.) On May 29, 2009, Haraldsson represented Askar, th e financial advisor for BuyCo. On June 8, 2009, BuyCo, through its counsel, disputed EP's notice of meeting f o r June 5, 2009, contending that EP lacked the ability to call a meeting and its notice was f a cia lly invalid. Later on June 8, 2009, BuyCo filed a separate lawsuit seeking a declaration o f rights over who was acting as general partner for the Partnership contending that EP re f u se d to turn over the records of the partnership and the Project's accounting records, and to recognize BuyCo's status as owning over a 67% required interest. On June 9, 2009, John Economou sent emails regarding the updated Taylor T o w n financing schedule to Haraldsson, who represented Askar, the financial advisor for B u yC o . (See Economou Mar. 2010 Aff. ¶ 54, Ex. I.) On June 9, 2009, John Economou sent e m a ils to Brynjarsson regarding Taylor Town. (See Economou Mar. 2010 Aff. ¶¶ 54 & 58, E x . J & Ex. K. ) On June 9, 2009, Wieser sent a letter to Halloin, and copied John Economou o n the letter. (See Economou Mar. 2010 Aff. ¶ 60, Ex. I.)

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B u yC o 's main contact, authorized agent, was Askar.1 8 The only way to get to B u yC o was through Askar. On June 22, 2009, a receivership action was filed in Milwaukee County Circuit C o u rt, In re DOC Milwaukee, L.P., as Case No. 09-C-9785 ("Receivership Action"). One o f the reasons cited in the Petition for the Receivership Action was the existence of a dispute o v e r who was entitled to serve as general partner and that there was a disagreement among th e parties that had effectively deadlocked the Partnership. On June 30, 2009, an interim o rd e r appointing Dizard as the receiver on a temporary basis was entered in the Receivership A c tio n . See http://wcca.wicourts.gov/courts (last visited Nov. 30, 2010.) 19 O n July 2, 2009, EP provided BuyCo with a copy of the Taylor Town proposal f o r the first time. On July 8, 2009, an order appointing Dizard as the receiver in the R e c e iv e rs h ip Action was entered, with EP's consent. Prior to the appointment of the receiver on July 8, 2009, John Economou went to 15 different lenders to try to find a bridge lender to loan the $4 million that BuyCo

Paragraph 58 of the Economou Defendants' proposed additional facts, which is taken directly from p a r a g r a p h 61 of John Economou's March 2010 affidavit states "BuyCo's main contact, authorized agent was Askar, th e only way to get to BuyCo was through Askar." BuyCo responded to the proposed additional fact admitting that A s k a r was the advisor to BuyCo and one avenue to contact BuyCo, and that, because of language differences, it was p o te n t ia l ly the most convenient method for EP in Milwaukee to contact BuyCo. However, BuyCo also asserts, without c ita tio n to any evidentiary material, that Askar was certainly not the only way to get to Buyco. BuyCo has not raised a factual dispute. It also makes the conclusory statement that agency principles are different in Iceland.
19 Paragraph one of BuyCo's proposed additional facts states that on June 30, 2009, the order appointing the r e c e iv e r was entered, citing the W is c o n s in Circuit Court Access for Milwaukee County Circuit Court Case No. 09-CV0 9 7 8 5 . However, that court record indicates that it was an interim order.

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p ro m is e d 2 0 to do through the forbearance agreement but then did not.2 1 On July 27, 2009, B u yC o responded to the Taylor Town proposal by presenting a counter-proposal. O n December 17, 2009, the Economou Defendants asserted three c o u n te rc la im s : (1) a violation of Section 17-502 of the Delaware Revised Limited

P a rtn e rs h ip Act ("DRLPA") claim; (2) breach of the duty of good faith and fair dealing claim; a n d (3) a breach of fiduciary duty claim. STJ, P.C.; Economou Construction; John

E c o n o m o u ; Steve Economou; and Thomas Economou are not partners of the Partnership. Of th e parties to this case, only BuyCo and EP are partners of the Partnership. Applicable Law T h e counterclaims are based upon alleged violations of the Delaware law and the Agreement. This is a diversity case, and because the Agreement contains a Delaware c h o ic e -o f -la w provision, the Court applies Delaware law to the claims arising out of the b re a c h of the Agreement. Fix v. Quantum Indus. Partners LDC, 374 F.3d 549, 551 (7th Cir. 2 0 0 4 ); see also, Harper v. Del. Valley Broad., Inc., 743 F.Supp. 1076, 1083 (D. Del. 1990). D e la w a r e Code Title 6, section 17-502 reads: (a )(1 ) Except as provided in the partnership agreement, a partner is obligated to the limited partnership to perform any promise to c o n trib u te cash or property or to perform services, even if that p a rtn e r is unable to perform because of death, disability or any

BuyCo responded to Paragraph 63 of the Economou Defendants' proposed additional facts regarding the J u ly 8, 2009, date of the order appointing the receiver denying the fact and citing docket number 22, exhibit 1. H o w e v e r , those papers, the affidavit of Gregory W . Lyons filed on August 5, 2009, and exhibit 1, thereto, which is a copy of the July 8, 2009, state court order appointing the receiver do not create a factual dispute.
21 In response to paragraph 58 of the Economou Defendants' proposed additional facts, BuyCo asserts that " th e date for the appointment of the receiver is inaccurate," and refers to the June 22, 2009, date that the receivership p r o c e e d i n g was filed in the Circuit Court for Milwaukee County, W is c o n s in . (Emphasis added.) BuyCo has conflated t h e two events which occurred on two different dates.

20

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o th e r reason. If a partner does not make the required contribution o f property or services, he or she is obligated at the option of the lim ite d partnership to contribute cash equal to that portion of the a g re e d value (as stated in the records of the limited partnership) o f the contribution that has not been made. (2) The foregoing option shall be in addition to, and not in lieu o f , any other rights, including the right to specific performance, th a t the limited partnership may have against such partner u n d e r the partnership agreement or applicable law. (b )(1 ) Unless otherwise provided in the partnership agreement, th e obligation of a partner to make a contribution or return m o n e y or other property paid or distributed in violation of this c h a p te r may be compromised only by consent of all the partners. 2 ) A conditional obligation of a partner to make a contribution o r return money or other property to a limited partnership may n o t be enforced unless the conditions to the obligation have been s a tis f ie d or waived as to or by such partner. Conditional o b lig atio n s include contributions payable upon a discretionary c a ll of a limited partnership or a general partner prior to the time th e call occurs. (c) A partnership agreement may provide that the interest of any p a r tn e r who fails to make any contribution that he or she is o b lig a te d to make shall be subject to specified penalties for, or s p e c if ie d consequences of, such failure. Such penalty or c o n se q u e n ce may take the form of reducing or eliminating the d e f au ltin g partner's proportionate interest in the limited p a rtn e rs h ip , subordinating the partnership interest to that of n o n d e f a u ltin g partners, a forced sale of his or her partnership in te r e s t , forfeiture of that partnership interest, the lending by o th e r partners of the amount necessary to meet his or her c o m m itm e n t, a fixing of the value of that partnership interest by a p p ra isa l or by formula and redemption or sale of the partnership in te re st at such value, or other penalty or consequence. (D el. Code Ann. tit. 6, § 17-502).

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Delaware Code Title 6, section 15-404 reads: (a ) The only fiduciary duties a partner owes to the partnership an d the other partners are the duty of loyalty and the duty of care s e t forth in subsections (b) and (c). (b) A partner's duty of loyalty to the partnership and the other p a rtn e rs is limited to the following: 1. to account to the partnership and hold as trustee for it any p ro p e rty, profit or benefit derived by the partner in the conduct o r winding up of the partnership business or affairs or derived f ro m a use by the partner of partnership property, including the a p p ro p ria tio n of a partnership opportunity; 2 . to refrain from dealing with the partnership in the conduct or winding up of the partnership business or affairs as or on behalf of a party having an interest adverse to the partnership; and 3. to refrain from competing with the partnership in the conduct o f the partnership business or affairs before the dissolution of the p a rtn e rs h ip . (c ) A partner's duty of care to the partnership and the other p a rtn e rs in the conduct and winding up of the partnership b u sin e ss or affairs is limited to refraining from engaging in g ro s s ly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law. (d) A partner does not violate a duty or obligation under this c h a p te r or under the partnership agreement solely because the p a rtn e r's conduct furthers the partner's own interest. (D el. Code Ann. tit. 6, § 15-404). T h e Delaware Revised Uniform Limited Partnership Act ("DRULPA") " e m b o d ie s the policy of freedom of contract and maximum flexibility." Gotham Partners, L .P . v. Hallwood Realty Partners, L.P., 817 A.2d 160, 170 (Del. 2002). Thus, "by statute,

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th e parties to a Delaware limited partnership have the power and discretion to form and o p e ra te a limited partnership in an environment of private ordering according to the p ro v is io n s in the limited partnership agreement." Id. The operative document is the limited p a rtn e rs h ip agreement and the statute merely provides the "fall-back" or default provisions w h e re the partnership agreement is silent. Cantor Fitzgerald, L.P. v. Cantor, No. Civ. A. 1 8 1 0 1 , 2001 WL 1456494, at *5 (Del. Ch. Nov. 5, 2001). Only "if the partners have not e x p re ss ly made provisions in their partnership agreement or [ ] the agreement is inconsistent w ith mandatory statutory provisions, . . . will [a court] look for guidance from the statutory d e f au lt rules, traditional notions of fiduciary duties, or other extrinsic evidence." Gotham P a r tn e r s , L.P., 817 A.2d at 170. The general policy of DRULPA `is that the liability of limited partners of a D e la w a re limited partnership is limited." Martin I. Lubaroff & Paul M. Altman, Delaware L im ite d Partnerships § 5.4 at 5-11 (2004). Nevertheless, "[t]o the extent a partnership a g re e m e n t requires a partner to make a contribution, the partner is obligated, except to the e x te n t such obligation is modified by the terms of the partnership agreement, to make such c o n trib u tio n to a limited partnership." Id. at § 6.3, 6-3. See also 6 Del. Code Ann. § 17-502.

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A n a l y s is BuyCo seeks summary judgment dismissing each of EP's counterclaims. The th re e counterclaims will be addressed in sequence. Section 17-502 Counterclaim W ith respect to EP's § 17-502 counterclaim based on BuyCo's failure to make a supplemental $4 million equity contribution by December 1, 2008, BuyCo maintains that o n ly the Partnership may bring an action under that provision of the Delaware Code. M o re o v e r, Buyco states that although EP has at times acted as general partner, the c o u n te rc la im s are not asserted in that capacity nor could they because those functions have b e e n assumed by the receiver. However, in the event that the Court concludes that EP may b r i n g the action, BuyCo contends that the provisions of § 17-502 regarding partnership o b lig a tio n s to contribute cash have been modified by § 5.2 of the Agreement which provides th a t no partner shall be required to make capital contributions. BuyCo also contends that the f o rb e a ra n c e agreement contains no promises from BuyCo and does not bind BuyCo. BuyCo a lso maintains that even if EP had a claim, the statutory remedy is reallocation of partnership in te re sts based upon the amounts funded by EP as a result of BuyCo's alleged breach; h o w e v e r, EP never funded any cash. Citing § 8.2 of the Agreement, EP asserts that as the general partner of the P a rtn e rs h ip it has standing to bring the counterclaim. It also contends that there are genuine is s u e s of material fact regarding whether BuyCo promised to contribute cash for the f o rb e a ra n c e agreement. Additionally, it asserts that nothing in the counterclaim lies under

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th e jurisdiction of the receivership and the order appointing the receiver does not give the re c eiv e r the right to bring the counterclaim. Furthermore, EP contends that because there was n o capital call, § 17-502(a)(2) of the DRULPA applies and gives EP the right to request s p e c if ic performance and other remedies. At the time the counterclaim was filed, EP was the purported general partner a n d , therefore, had standing to bring the counterclaim. To the extent, that Dizard as the rec eive r, is now the general partner, he has standing to bring the claim and may be the more p ro p e r proponent of the claim. Although Buyco was not party to the forbearance agreement, th e re is some evidence that it promised to advance the $4 million dollars required for that tra n sa c tio n . While the nature of that promise is unclear at this juncture of the proceedings B u yC o has not established that, as a matter of law, it is entitled to judgment dismissing the c la im . Finally, BuyCo's contention as to the limited remedies available, is contrary to § 502(c) which provides for a variety of remedies. Breach of Good Faith and Fair Dealing Counterclaim B u yC o maintains that EP's counterclaim for breach of the duty of good faith a n d fair dealing should be dismissed. It states that the question for the Court is whether B u yC o owes the type of duty that is alleged to have been breached to the Partnership, which is in receivership. EP contends that its breach of the duty of good faith and fair dealing c o u n te rc la im is based on BuyCo's actions prior to the appointment of the receiver. It further sta tes that BuyCo violated its duties under Del. Code Tit. 6, § 15-404 when it engaged in

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c lo s e d door discussions with Wave and SFG and did not include EP in those discussions. EP's contention blends the concept of the implied duty of good faith and fair dealing with the f id u c ia ry duties of § 15-404. Delaware courts employ the implied covenant of faith and fair dealing sparingly w h e n parties have crafted detailed complex agreements. Bay Center Apartments Owner, LLC v . Emery Bay PKI, LLC, C.A. No. 3658-VCS, 2009 WL 1124451 at *7 (Del. Ch. Apr. 20, 2 0 0 9 ). However, they have recognized the occasional necessity of implying contract terms to ensure that parties' reasonable expectations are fulfilled. As noted in Desert Equities, Inc. v . Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1206 (Del. 1993), "the G e n e ra l Partner is obliged to exercise that discretion [to exclude a limited partner from an in v e stm e n t opportunity] in a reasonable manner." In this case, section 8.1 provides that "the business and the affairs of the P a rtn e rs h ip shall be conducted and managed solely under the direction of the general partner in c lu d in g entering into, making and performing contracts, agreements, and undertakings b in d in g the Partnership that may be necessary, appropriate, or advisable in furtherance of the P r o j e c t. " EP has presented evidence that BuyCo engaged in negotiations with Wave

r e g a rd i n g the Project, without the direction of EP, the general partner. BuyCo simply asserts, w ith o u t any reference to supporting case law or analysis that the type of activity alleged c a n n o t state a cause of action. BuyCo also relies upon § 15-404 as limiting its obligation only a s to engaging in those activities that would be "dealing with the partnership," and in so d o in g , pursing interests adverse to the partnership. BuyCo's reading of § 15-404 would

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n u llif y the Agreement's proviso that only the general partner may conduct the affairs of the P a rtn e rs h ip . Such a reading would be contrary to Delaware's policy of regarding freedom to contract and, therefore, is not persuasive. Consequently, Buyco has not established that E P ' s counterclaim for breach of good faith and fair dealing should be dismissed at this stage o f the proceedings. Breach of Fiduciary Duty Counterclaim BuyCo maintains that EP's breach of fiduciary duty counterclaim should be d is m is s e d , because even assuming as true EP's claim that BuyCo failed to respond to a p r o p o s a l, under § 15-404 there would be no violation of BuyCo's statutory fiduciary duties. EP maintains that its breach of fiduciary duty claim should not be dismissed b e c a u s e there exists a genuine issue of material fact and the breach occurred before the re c eiv e r was appointed on July 8, 2009. EP relies upon the emails that it sent to Haraldsson o n May 14, May 29, and June 9, 2009, regarding the Taylor Town proposal. It also relies u p o n the email that it forward to Brynjarrson on June 9, 2009 as well as an email that EP sent to him on that date. Additionally, EP relies upon the June 9, 2009, email from van Egmond, c o u n se l for BuyCo, stating "[a]t this point, [BuyCo] is not willing to consider any funds from yo u or Taylor Town without committed funds." (Economou Mar. 2010 Aff. ¶ 56, Ex. J.) EP m a in ta in s that such response was a refusal to participate, and that BuyCo's