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Peterson v. Imhof

United States District Court, D. New Jersey

May 8, 2017

RONALD R. PETERSON, as Chapter 7 Trustee for Lancelot Investors Fund, L.P., et al. and MAA, LLC, Plaintiffs,


          WILLIAM J. MARTINI, U.S.D.J.

         This bankruptcy and contract matter involves an 11-count complaint and 5 crossclaims. In October 2007, Defendant Kennedy Funding, Inc., (“Kennedy”), a loan originator and servicing entity owned and operated by the Wolfer Defendants (“the Wolfers”), agreed to loan roughly $47 million to Defendant Clearwater Development (“Clearwater”), to be used for developing a golf course(s) in Colorado. The Loan Documents list Kennedy as “Agent” for a group of to-be-determined co-lenders, and use “Lender” to refer to “Agent and lenders . . . collectively.” The Loan was secured by a $23 million Guaranty by Defendants Imhof, Marvin, and Hatle Trusts (“Guarantors”) and collateralized by certain parcels of land in Colorado. Importantly, the Loan Documents authorized Kennedy to modify or release the Guarantors from their Guaranty obligations upon obtaining a majority consent of the co-Lenders, who at the time were either nonexistent or simply not listed in the contract, but whose existence and participation were likely anticipated by both Kennedy and the Guarantors.

         Several weeks later, in November 2007, Defendant Kennedy organized and executed a Co-Lenders Agreement (“CLA”). The CLA allocated roughly 54% interest in the Loan to Kennedy and 43.5% of the Loan to Plaintiff KD8 (“KD8”).[1] KD8 is now represented by its bankruptcy Trustee, Ronald Peterson (“Trustee” or “Plaintiff”)[2]. Unlike the original Loan Documents, the CLA required 100% consent from Co-Lenders in order to release the Guarantors. After Clearwater defaulted on the loan in 2009, Kennedy executed-without the consent of KD8, which the CLA required-a Modification Agreement with Guarantors which released the Guarantors from their $23 million obligation in exchange for $500, 000 up front and $3, 000, 000 in expenses to physically maintain the collateral real estate over the following two years. The validity and effect of the Modification and Release between Kennedy and Guarantors (at the alleged detriment of Trustee) are central to this litigation.

         Four motions now come before the Court. First, Trustee moves for summary judgment on all eleven Counts. Second, Guarantors have filed a competing motion for summary judgment on Counts 1 through 4. Third, Guarantors move to strike two declarations supporting Plaintiff's motion for summary judgment. Fourth, the Wolfer Defendants move for summary judgment to dismiss Guarantors' Crossclaims 1 through 5 against them as individuals, arguing that alter ego liability does not apply.

         For the reasons below, Plaintiffs' motion for summary judgment is GRANTED in part and DENIED in part; the Guarantors' motion for summary judgment is DENIED; the Guarantors' motion to strike the Declarations of Ronald R. Peterson and Daniel Dooley is DENIED; and the Wolfers' motion for summary judgment is DENIED.

         I. BACKGROUND

         Facts are drawn from the pleadings and, where appropriate, the parties' motion papers.

         A. The Parties

         Plaintiff Ronald R. Peterson (“Trustee”) is the Chapter 7 Trustee for Lancelot Investors Fund, a group of entities that includes KD8.

         KD8, LLC (“KD8”) is an investment entity that agreed via the Co-Lenders Agreement with Defendant Kennedy to provide 43.53% of funding to Clearwater under the Loan Documents.

         Defendant Kennedy Funding, Inc. (“Kennedy”) is an entity that funds and facilitates real estate projects. It is listed in the Loan Documents as “agent for the lenders.” Kennedy agreed in the CLA to fund roughly 53% of the Loan to Clearwater.[3] Declaration of Eve A. Brackmann, (“Brackmann Decl.”), Ex. 16 at 1, ECF No. 161-15.

         Plaintiff MAA, LLC (“MAA”) replaced Kennedy as Agent for the co-lenders, pursuant to the Amended Co-Lenders Agreement dated October 22, 2013. The Amended CLA, which authorized MAA to intervene as a plaintiff in this litigation, was approved by order of the United States Bankruptcy Court for the North District of Illinois on August 22, 2013. In re Lancelot Investors Fund, L.P. et al., No. 08-28225, Doc. 1290. (Bankr. N.D.Ill. 2013).

         Defendants Kevin Wolfer, Jeffrey Wolfer and Gregg Wolfer (the “Wolfers”) occupied management roles at Kennedy at times relevant to this litigation. Kevin and Gregg each currently own 50% of Kennedy Funding. In January 2014, Plaintiffs agreed pursuant to Federal Rule 41 (a)(1)(A)(ii) to dismiss with prejudice all claims against the Wolfers as individuals, though not against Kennedy. See Letter from Sharon L. Levine, ECF No. 99. Judge Cavanaugh's Order did not impair Guarantors' Crossclaims against the individual Wolfers Defendants, which the Wolfers now seek to dismiss on summary judgment. ECF No. 100.

         Defendant Clearwater Development, Inc. (“Borrower” or “Clearwater”) agreed under the Loan Agreement to borrow up to $47 million from Kennedy and other lenders, including Plaintiff KD8 (now represented by Trustee). The money was to be used for Clearwater's development of golf courses.

         Defendants Hans Imhof, Wells L. Marvin, Hatle Trusts (“Guarantors”) are individuals who guaranteed $23 million of the Clearwater loan.

         B. The Original Clearwater Loan Documents

         On October 26, 2007, Defendant Kennedy entered into a Loan and Security Agreement (the “Loan Agreement” or “Loan”) with Defendant Clearwater. Clearwater executed a $47, 142, 500 promissory note (the “Note”) in favor of Kennedy. The Loan was secured by a $23 million guaranty agreement (the “Guaranty”) from Hans Imhof, Wells L. Marvin, Hatle Trusts (“the Guarantors”), the exclusive shareholders of Clearwater Development. See Brackmann Ex. 1, Loan Agreement ¶ (h). The Loan was further secured by collateral described in Schedule A of the Agreement, namely, eleven parcels of land comprising the Brightwater Golf Club in Eagle County, Colorado. Id. at Schedule A, Exhibit A.

         The Loan Agreement, Guaranty and Note are referred to herein as the “Loan Documents” unless stated otherwise. The Loan Agreement begins with the following paragraph:

THIS LOAN AND SECURITY AGREEMENT (“Agreement”), dated as of October 26, 2007, between Clearwater Development, Inc., . . . and KENNEDY FUNDING, Inc. (“Agent”), having an address at Two University Plaza, Suite 302, Hackensack, New Jersey 07601, as agent for the lenders identified on Schedule D attached hereto and incorporated herein by reference, in each case having an address care of Kennedy Funding, Inc. . . . (the aforesaid Agent and lenders are hereinafter collectively referred to as “Lender”).

Brackmann Decl. Ex. 1 (emphasis added). Schedule D was blank at the time the documents were signed, and was never explicitly amended. In other words, there were never any lenders (other than Kennedy itself) formally listed in the original Loan Agreement, although both parties understood that additional lenders would participate by purchasing interest in the Loan from Kennedy.

         C. The Co-Lenders Agreement Between Kennedy, KD8 and other Lenders

         Several weeks later, in November 2007, Kennedy entered into the Co-Lenders Agreement (the “CLA”) with a group of lenders, including newly formed investment vehicle Plaintiff KD8.[4] The CLA provides that “[e]ach Lender shall own an undivided fractional interest in the Loan, in its respective Lender's Percentage, and in all documents, instruments and collateral issued by the Borrower or the Guarantors.” Brackmann Decl. ¶ 4, CLA ¶ 2. The CLA was demonstrably predicated on the Loan Documents already executed by Kennedy, Clearwater and the Guarantors. KD8, agreeing under the CLA to fund 44% of the Loan, thence became part of the collective “Lender” in the underlying Loan Agreement with Clearwater and Guarantors. Paragraph 11 of the CLA reads that, “To the extent not already set forth therein, Schedule D to the Loan Agreement . . . shall be amended and restated to specifically set forth the Lender's Percentage of each lender which holds a portion of the Loan.” See Brackman Decl. Ex. 4, CLA ¶ 11. Unfortunately, the parties neglected to actually amend Schedule D of the Loan Agreement to reflect the participation of KD8 and the other lenders. Guarantors, not a party to the CLA, claim they were unaware of the CLA or of KD8's participation in the Loan until much later. Nonetheless, the Loan Documents appear to give Kennedy the right to add lenders (or agents) without consent or notification of Guarantors. See Loan Agreement ¶ 20(h).

         D. Clearwater Default; Modification of the Loan Documents; and Conflicting Consent Provisions

         Clearwater has been in default on the Loan since January 2009.[5] At that point, Kennedy, as “agent for the lenders” under the original Loan Documents, began negotiating with Clearwater and Guarantors about modifying the Loan. See J. Wolfer Dep. 23:3-10. In July 2009, Kennedy agreed to a modification of the Loan (“Loan Modification” or the “Modification”) that released the Defendant Guarantors from their $23 million obligation in exchange for $500, 000 and a promise to spend a total of $3 million over the following two years (“Maintenance Term”) to physically maintain the collateral real estate, so as to preserve its value. See Brackmann. Decl., Ex. 19. When deposed, Defendant Jeffrey Wolfer, Principal of Kennedy, explained that “things were falling apart in the world at the time and we were trying to do whatever we could to salvage the collateral the best we could knowing the bank was not going to put up the money and the co-lenders were not putting up the money.” Defs. Statement of Material Facts, ¶ 128.

         Trustee, standing in KD8's place, argues that the Modification is invalid because, pursuant to the CLA consent provision, Kennedy lacked authority to release the Guarantors without Trustee's consent. On the issue of lender consent to modification, the original Loan Agreement and the Co-Lenders Agreement conflict. The Loan Agreement, between Guarantors and Kennedy (as “agent of the lenders”), required that Kennedy obtain consent of lenders holding at least 50% interest in the Loan. See Brackmann Decl. Ex. 1, Loan Agreement ¶ 20(d). Meanwhile, the CLA-between Kennedy, KD8 and other lenders- required Kennedy to obtain unanimous consent from all lenders to release Guarantors' $23 million liability. See Brackmann Decl. Ex. 4, CLA ¶ 6. Plaintiff KD8 was the only lender not to consent, and it is unclear whether Kennedy attempted to obtain KD8's consent. See Defendants' Reply to Plaintiff's Rule 56.1 Statement of Facts ¶ 100. In short, although Kennedy complied with the Loan Agreement's consent requirement, it ostensibly violated the unanimous consent provision of the CLA.

         Trustee argues that, if the Modification is valid, Guarantors nonetheless failed to satisfy its terms, leaving in effect the Guarantors' $23 million obligation under the original Loan Documents. Specifically, Trustee alleges that Guarantors failed to spend $3 million maintaining the collateral property, and instead allowed the property to fall into disrepair. Guarantors respond that the Modification is valid since Kennedy obtained majority consent pursuant to the Loan/Guaranty documents, and argue that Guarantors substantially performed those obligations of the Modification upon which their release was contingent. Guarantors provide documentation of expenses relating to maintenance of the collateral property, but the contents and meaning of those documents are disputed by the parties on various grounds, which are more suitable for resolution at trial.

         E. Trustee's Knowledge of the Modification and Release

         Several key defenses asserted by Defendants-laches and the inapplicability of equitable tolling of statutory limitations-hinge on when Trustee learned that the Guarantors had been released. During depositions, Trustee and his lawyer, Larry Swibel, insisted that Trustee was unaware of the release until August 2011. See Brackmann Decl., Ex. 29, Swibel Dep. 91:9-92:16; Brackmann Decl., Ex. 25, Peterson Dep. 77:13-78:14. Defendant Jeffrey Wolfer, then president of Kennedy, alleges that he discussed the Loan with Trustee on multiple occasions between October 2008 and February 2010, but that he could not recall details of those conversations. See, e.g. Brackmann Decl., Ex. 7, J. Wolfer Depo. 131:19-132:2. Trustee admits that in 2009 he occasionally received email updates from Kennedy about the collateral property. See Peterson Dep. 66:13-68:16. Trustee and Mr. Swibel received a memorandum in August 2009 from Kennedy discussing aspects of the Modification agreement, though neither remembers actually reading the memorandum. See Peterson Dep. 69:15-22. Moreover, the memorandum did not explicitly mention releasing Guarantors from their original obligations. See Brackmann Decl. Ex. 80. Guarantors argue that, at absolute latest, Trustee learned of the Modification and release on January 14, 2010, when Trustee and Mr. Swibel received additional emails from Kennedy regarding the status of the Clearwater Loan. See Defs.' Statement of Facts in Support of Summary Judgment, ¶¶ 177-180. In short, when Trustee learned of the release remains a disputed question of material fact.

         F. Procedural History

         Trustee filed a complaint against Defendants in United States Bankruptcy Court for the Northern District of Illinois on April 27, 2012, claiming that Kennedy lacked authority to modify the Loan Documents without Trustee's consent. The action was withdrawn to District Court for the Northern District of Illinois. On January 8, 2013, Judge James B. Zagel granted Plaintiff's motion to transfer venue to the District Court for the District of New Jersey. ECF. No. 49.[6]

         Trustee filed an amended complaint (“FAC”) on March 8, 2013, alleging contract and bankruptcy claims. On August 22, 2013, Judge Cavanaugh approved a stipulation to dismiss with prejudice all of Plaintiffs' claims against the individual Wolfer Defendants, without affecting the Guarantors crossclaims against the Wolfers.[7] ECF. 99. On October 8, 2013, Judge Cavanaugh denied Guarantor's motion to dismiss and held that discovery would be necessary to determine whether the two-year statute of limitations on Trustee's bankruptcy claims had been equitably tolled, and whether plaintiff engaged in “inexcusable delay” in bringing the action such that laches should bar relief. ECF No. 79.[8]

         On November 1, 2013, Guarantors filed an answer to the FAC, along with four counterclaims against Trustee and five crossclaims against Kennedy and the individual Wolfer Defendants. As to the counterclaims, on June 30, 2014, this Court dismissed under 12(b)(6) Counterclaims 1-3 (Fraud, Negligent Misrepresentation, and Breach of the Modification Contract).[9] The Court reasoned that Guarantors failed to allege damages, a necessary element of all three claims. Guarantors' Cross-Complaint against Kennedy and the individual Wolfers alleged the same four claims as the Guarantors' Counter-Complaint, except that it added a fifth Crossclaim for indemnification. As discussed below, the individual Wolfer Defendants now move to dismiss the five Crossclaims for failure to establish alter ego liability.

         The Second Amended Complaint (“SAC”), filed January 19, 2014, makes the following claims. Count I alleges that Kennedy and Guarantors violated the automatic stay provision of federal bankruptcy code and requests that the Court void the Modification pursuant to 11 U.S.C. § 362(a)(3). Counts 2 and 3 allege that Clearwater is in breach of the Loan Agreement. Count 4 seeks avoidance of postpetition transfer pursuant to § 549 of the federal bankruptcy code. Count 5 alleges that Kennedy violated the Co-Lenders Agreement by modifying the Loan without Trustee's consent. Count 6 asserts that, even if the Modification is valid, Kennedy violated the CLA by failing to distribute Trustee's 43.53% share of the $500, 000 paid by Guarantors under the Modification. Counts 7 through 11 assert alternate theories of vindicating KD8's right to its share of the Guarantor's $500, 000 payment to Kennedy. All of Plaintiff's claims against the individual Wolfer Defendants were dismissed with prejudice pursuant to a Stipulation dated January 27, 2014.[10]

         Defendant Guarantors assert crossclaims against Kennedy and the individual Wolfer Defendants for fraud, negligent misrepresentation, breach of contract, declaratory relief, and indemnification. Guarantors argue that, if the Modification is deemed invalid in light of the CLA's consent provision, Kennedy committed fraud by misrepresenting to Guarantors that Kennedy had obtained necessary consent from the other lenders, and that Guarantors should be indemnified as to claims filed by Trustee.

         G. Pending Motions

         Plaintiff Trustee and Defendant Guarantors each move for summary judgment on Trustee's contract and bankruptcy claims. Guarantors move to strike two allegedly “sham” declarations submitted in support of Trustee's motion for summary judgment. Lastly, Kevin, Jeffrey and Gregg Wolfer move to dismiss all of Guarantors' crossclaims against the Wolfers as individuals, arguing that the record does not support alter ego liability.

         II. L ...

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