United States District Court, D. New Jersey
RONALD R. PETERSON, as Chapter 7 Trustee for Lancelot Investors Fund, L.P., et al. and MAA, LLC, Plaintiffs,
HANS IMHOF, THE RUSSELL ELDON HATLE AND LORRAINE LOUISE HATLE REVOCABLE TRUST, THE L. HATLE TRUST, DATED DECEMBER 30, 1991, KENNEDY FUNDING, INC., JEFFREY WOLFER, KEVIN WOLFER, AND GREGG WOLFER. Defendants.
WILLIAM J. MARTINI, U.S.D.J.
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.
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”). KD8 is now represented by its bankruptcy
Trustee, Ronald Peterson (“Trustee” or
“Plaintiff”). 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.
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.
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.
are drawn from the pleadings and, where appropriate, the
parties' motion papers.
Ronald R. Peterson (“Trustee”) is the Chapter 7
Trustee for Lancelot Investors Fund, a group of entities that
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
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. Declaration of Eve A. Brackmann,
(“Brackmann Decl.”), Ex. 16 at 1, ECF No. 161-15.
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).
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.
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
Hans Imhof, Wells L. Marvin, Hatle Trusts
(“Guarantors”) are individuals who guaranteed $23
million of the Clearwater loan.
The Original Clearwater Loan Documents
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.
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.
The Co-Lenders Agreement Between Kennedy, KD8 and other
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
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
Clearwater Default; Modification of the Loan Documents; and
Conflicting Consent Provisions
has been in default on the Loan since January
2009. 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.
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.
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.
Trustee's Knowledge of the Modification and
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.
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.
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. 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.
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). 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.
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.
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.
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.