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Peterson v. Imhof

United States District Court, D. New Jersey

August 10, 2017

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


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

         In January 2013, Plaintiff Ronald R. Peterson, Chapter 7 Trustee for the entity KD8 (“Trustee”), brought this bankruptcy and contract action against Kennedy Funding, Inc. (“Kennedy”) and Hans Imhof, Wells L. Marvin, and the Hatle Trusts (the “Guarantors” or “Defendant Guarantors”).[1] The litigation concerns a $37 million loan issued by Kennedy as “agent” of KD8 and other lenders to Clearwater Development, Inc. (“Clearwater” or “CDI”) in October 2007. The loan was executed together with a $23 million guaranty (the “Guaranty”) by Defendant Guarantors. Plaintiffs' Second Amended Complaint was filed on January 29, 2014. ECF No. 101. On May 8, 2017, this Court denied Defendants' motion for summary judgment.[2] The matter now comes before the Court pursuant to 28 U.S.C. 1292(b) on Defendants' motion for interlocutory appellate review of four issues arising from the Court's decision. The motion is decided on the papers. Fed.R.Civ.P. 78(b). For the following reasons, Guarantors' motion to certify an order for interlocutory appeal is DENIED.

         I. BACKGROUND

         The following facts are limited to those pertinent to Defendant Guarantors' motion seeking interlocutory appeal.[3] This matter concerns a $37 million loan issued in October of 2007 to Clearwater for the development of a golf course in Gypsum, Colorado. The Loan Documents designated Kennedy as “agent” for a group of co-lenders not listed in the original Loan Documents. One of the Loan Documents was a $23 million guaranty executed by Defendant Guarantors. In November 2007, Kennedy entered into the Co-Lenders Agreement (“CLA”) with Plaintiff KD8 (represented here by Trustee) and several other co-lenders, allocating 43.33% interest in the Loan to KD8.[4] The Guaranty and the CLA contain conflicting provisions regarding Kennedy's authority to release Guarantors or otherwise modify the Loan Documents. Whereas the Loan Documents permits Kennedy to release Guarantors with the consent of lenders holding 50% interest in the Loan, the CLA requires unanimous consent of all co-lenders-KD8 included-before Guarantors can be released.

         Plaintiff KD8 filed for bankruptcy in October 2008, whereupon Mr. Peterson was appointed Chapter 7 Trustee. Clearwater defaulted on the loan in January 2009. In July 2009, amid the global financial crisis, Kennedy agreed-without the knowledge or consent of Trustee-to a Modification Agreement (the “Modification”) releasing Guarantors from their $23 million obligation. In exchange, Guarantors made an immediate payment of $500, 000 to Kennedy and promised to spend $1.5 million in each of the following two years to maintain the collateral real estate, in accordance with an accompanying Property Management Agreement (“PMA”).

         Trustee maintains that the Modification is unenforceable because the CLA requires the unanimous consent of all co-lenders (KD8 included) to release Guarantors from the Guaranty. And assuming the Modification were valid, Trustee argues that Guarantors did not “substantially perform” under the Modification, thereby voiding the Modification and preserving the terms of the original Loan Documents. Trustee also claims that the Modification was a “postpetition transfer, ” avoidable under 11 U.S.C. § 549, as well as a violation of the Bankruptcy Code's automatic stay provision. 11 U.S.C. § 362(a)(3).

         Although Trustee stated during his deposition that he was unaware of the Modification until August 2011, the Guarantors insist that Trustee knew of the Modification and release by January 2010, at the very latest. This is an unresolved and material question of fact; if Trustee knew about the Modification in 2010, the bankruptcy claims (Counts 1 and 4) are presumptively barred by the Bankruptcy Code's two-year statute of limitations, but if Trustee became aware in August 2011 then the limitations provision does not apply. Meanwhile, Trustee argues that Guarantors cannot assert the limitations defense because a provision in the Guaranty explicitly waives “[a]ny statute of limitations affecting the liability of the undersigned . . . under the Loan Documents or the enforcement thereof . . . .” Guaranty §(m).

         On May 8, 2017, this Court issued an order and opinion (the “Opinion”) denying Defendant Guarantors' motion for summary judgment[5] and partly granting Plaintiffs' motion for summary judgment against Kennedy for breach of the CLA (Counts 5 and 6). ECF No. 187. The Court denied Plaintiffs' motion for summary judgment on the bankruptcy and contract claims asserted in Counts 1 through 4.[6] Defendants now move to certify four separate issues for interlocutory appellate review.


         District courts have discretion to certify an interlocutory order for immediate appeal. 28 U.S.C. § 1292(b). See In re Cendant Corp. Secs. Litig., 166 F.Supp.2d 1, 13 (D.N.J. 2001). Because this marks a “deviation from the ordinary policy of avoiding ‘piecemeal appellate review of trial court decisions, '” certification is “used sparingly.” Kapossy v. McGraw-Hill, Inc., 942 F.Supp. 996, 1001 (D.N.J. 1996) (citations omitted). The Court considers three criteria:[7] “[t]he order must (1) involve a ‘controlling question of law, ' (2) offer ‘substantial ground for difference of opinion' as to its correctness, and (3) if appealed immediately ‘materially advance the ultimate termination of the litigation.'” Katz v. Carte Blanche Corp., 496 F.2d 747, 754 (3d Cir. 1974) (quoting 28 U.S.C. § 1292(b)). The purpose of § 1292(b) is “to permit decision of legal issues as to which there is considerable question without requiring the parties first to participate in a trial that may be unnecessary.” Meyers v. Heffernan, 2014 WL 7336792, at *3 (D.N.J. Dec. 22, 2014). Accordingly, “saving of time of the district court and of expense to the litigants” bears significantly on a court's decision to grant certification under § 1292(b). Katz, 496 F.2d at 755.


         Defendant Guarantors seek immediate interlocutory review of four issues. Guarantors first contend that, if they failed to perform under the Modification, relief should be limited to “shortfall” damages specified in an accompanying Property Management Agreement (“PMA”), rather than rescission of the Modification altogether. Second, Guarantors argue that a contractual waiver of statutes of limitation is unenforceable because it is contrary to public policy insofar as it is applied to the Bankruptcy Code's two-year limitations period. Third, Guarantors argue that the Court should have imputed Kennedy's knowledge of the Modification to Trustee because Kennedy was acting as Trustee's “agent” under the Loan Documents. Fourth, Guarantors argue that the word “individual” in Section 362(k)(1) of the Bankruptcy Code, which allows aggrieved parties to “avoid” postpetition transfers, refers only to people and not to entities such as a KD8. The Court addresses each of these arguments below, and finds none suitable for immediate appellate review.

         A. Does the Alleged Shortfall of $200, 000 Provide Grounds for Avoiding the Modification?

         Paragraph 2 of the Modification states that Guarantors shall fund maintenance of the collateral property in the amount of $1.5 million for each of two years “in accordance with the Property Management Agreement, ” executed together with the Modification on July 17, 2009. In turn, the PMA states that if Guarantors spend less than $1.5 million in either year, the resulting “shortfall” would be applied to satisfy real estate taxes. Plaintiffs assert that Guarantors only spent $2.8 million of the $3 million promised in the Modification.[8] Defendants deny this fact and assert that, even if a $200, 000 shortfall occurred, damages for breach of the Modification should be limited to $200, 000, to be applied to real estate taxes as the PMA states. Putting aside the shortfall, and more important in the Court's eyes, Plaintiffs argue that the Modification should be voided because Guarantors “allowed the Property to fall into disrepair during the Maintenance Term . . . .” Pls. Opp. to Cert. 10. The Court denied summary judgment and ...

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