Opinion
Civil File No. 99-51 MJD/JGL.
June 11, 2001
Michael O. Freeman, Lindquist Vennum, P.L.L.P., on behalf of Plaintiff.
Steve Gaskins, Patrick R. Martin, Flynn Gaskins, L.L.P., on behalf of Defendant.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on the parties' cross motions for summary judgment. Defendant moves for summary judgment on the issue of attorneys' fees in the collection of a bad loan made by both parties, and in the litigation of the instant case. Plaintiff moves for disgorgement of the loan proceeds collected in the prior litigation. This Court previously granted summary judgment to Defendant on the underlying matter, in which Plaintiff sought damages for breach of contract, breach of fiduciary duty and negligent misrepresentation.
Background
Plaintiff BCF, with its principal place of business in New York City, is a non-profit organization that assists minority-owned businesses with obtaining credit. Under one of its programs designed to achieve this goal, BCF purchases or "participates in" loans extended to "credit risks" — businesses that would not otherwise qualify for conventional bank loans. Generally, BCF leaves the administration and monitoring of these loans to regional banks with whom they participate in the loan. Defendant Windsor is a bank located in Minneapolis, Minnesota.
In 1994, Plaintiff BCF and Defendant Windsor extended a $500,000 line of credit to DBP, a business seeking a line of credit to conduct its business as an intermediary between two large corporations, Atmel and CDI/GDIS ("GDIS"). BCF had a 75% participation in the loan, and Windsor had a 25% participation in the loan. The terms of this agreement were set forth in the "Participation Agreement," a contract authored by BCF.
DBP defaulted on the loan, in the amount of $417,776.06, and DBP's president fled the country for Egypt. Bank Windsor filed suit against DBP and obtained a judgment, after a vigorously contested action. In an unsuccessful attempt to collect on the judgment, Bank Windsor hired Kelly Berens, P.A. Bank Windsor asserts that it notified BCF regarding the suit, and BCF paid its share of the Kelly Berens bills for several months, after which it stopped paying. BCF asserts that it was not properly notified and was forced to request information from Bank Windsor's counsel.
Bank Windsor also sued GDIS under Minnesota law, for GDIS's failure to honor the notice of assignment of DBP's accounts receivable to Bank Windsor. The parties settled out of court for $225,000. Bank Windsor asserts that it notified BCF regarding the suit, and BCF paid its share of the Flynn Gaskins legal bills for two months, after which it stopped paying. BCF did not participate in the settlement. Bank Windsor holds BCF's share of the settlement, minus attorneys fees and expenses, in escrow pending disposition of this suit. BCF initiated the present lawsuit against Bank Windsor, alleging breach of contract, breach of fiduciary duty, negligent misrepresentation, and RICO violations, and requesting an accounting, indemnification, and the imposition of a constructive trust. This Court granted summary judgment for Defendant on all counts on January 10, 2000. Defendant now moves this court for summary judgment on the issue of Plaintiff's liability for 75% of attorney's fees, as per the Participation Agreement. Defendant contends that Plaintiff must pay its share not only for the two suits against DBP and CDI, but also for attorney's fees in the instant lawsuit. Plaintiff moves for summary judgment, on a contract or equitable disgorgement theory, granting BCF its share of the settlement proceeds obtained by Bank Windsor from CDI, totaling $62,722.16, plus interest, from January 1999.
Standard
Summary judgment as a matter of law is appropriate when no genuine issue of material fact exists in the record. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-250 (1986). A fact is material if resolving disputes concerning that fact affects the outcome of the case. Anderson, 477 U.S. at 248. A dispute is genuine if, based on the evidence, a reasonable jury could return a verdict for either party. Id. at 252. On a motion for summary judgment, the Court views all evidence and inferences in a light most favorable to the nonmoving party. Id. at 250. The moving party carries the burden to demonstrate the absence of any genuine issue of material fact. Fed.R.Civ.P. 56(b); Celotex, 477 U.S. at 323.
Analysis
a) Defendant's Motion for Attorneys' Fees
i) Bank Windsor v. DBP and Bank Windsor v. GDIS
The terms of Bank Windsor's and BCF's joint involvement in the loan to DBP are governed by the Participation Agreement. The relevant section of the Participation Agreement reads:
[a]ll costs, expenses and reasonable attorneys' fees which may be incurred by [Bank Windsor] in enforcing, protecting or realizing on the loan or any collateral therefor, or in prosecuting or defending any action or proceeding relating thereto or in managing or maintaining any collateral, shall be paid by [Bank Windsor] and the BCF in proportion to their respective Participation Interest . . . provided that the BCF has received notice and has given prior approval as to such costs, expenses and fees. Part. Ag. ¶ 6(d).
BCF's "Participation Interest" is 75%; Bank Windsor's "Participation Interest" is 25%. Bank Windsor incurred costs and attorneys' fees in connection with the two suits for recovery of the DBP loan, Bank Windsor v. DBP and Bank Windsor v. GDIS. As these costs were incurred "in enforcing, protecting or realizing on the loan" and "in prosecuting . . . any action relating thereto," Plaintiff must abide by the plain language of the Participation Agreement and pay its share of the fees. See Trondson v. Janikula, 458 N.W.2d 679, 681 (Minn. 1990) (holding that interpretation of an unambiguous contract term is a question of law); see also Bank of the West v. Valley Nat'l Bank of Arizona, 41 F.3d 471 (9th Cir. 1994) (holding that participating bank must pay lead bank for its share of expenses incurred in recovering on joint loan, per express language of participation agreement).
BCF argues that it did not receive adequate notice, nor did it approve the litigation expenses. The Court finds that BCF's partial payment of the expenses, as well as BCF's demand for its share of the proceeds from the Bank Windsor v. GDIS litigation, indicate that BCF both had notice and approved of the litigation. Defendant's motion for summary judgment is granted on this issue.
ii) BCF v. Bank of Windsor
Defendant is also moving the Court to order Plaintiff to pay its share of the attorneys' fees in the instant case, BCF v. Bank Windsor. Bank Windsor is relying on the language in the Participation Agreement which requires sharing fees incurred "in enforcing, protecting or realizing on the loan or any collateral therefor, or in prosecuting or defending any action or proceeding relating thereto . . ." Part. Ag. ¶ 6(d) (emphasis added).
The Court finds that reading this provision to require BCF to pay for the attorneys' fees in the instant action would strain the bounds of credibility. As Defendants themselves noted in an understatement, this was probably "not the most likely scenario" contemplated by the contract drafters. Following the American Rule, therefore, the Court orders that each party shall bear its own costs in the litigation of the instant motion.
b) Plaintiff's Motion for Disgorgement
In addition to disputing the attorneys' fees argument, BCF argues that Bank Windsor must remit BCF's 75% share of the funds recovered in the second litigation, Bank Windsor v. GDIS. The total amount recovered in the settlement was $225,000. Bank Windsor has placed BCF's 75% share in an escrow account; when costs and fees are subtracted, the total comes to $62,722.16. According to the plain language of the Participation Agreement, argues BCF, its share of the settlement proceeds, plus interest dating from January, 1999, must be turned over.
Bank Windsor argues that it is entitled to deduct the amount it is owed for costs and attorneys' fees from BCF's share of the settlement proceeds.
The Court agrees with Bank Windsor, and therefore denies Plaintiff's motion. Accordingly, IT IS HEREBY ORDERED that:
1. Defendant's Motion for Summary Judgment as to the attorneys' fees arising from the lawsuits Bank Windsor v. DBP and Bank Windsor v. GDIS is GRANTED;
2. Defendant's Motion for Summary Judgment on the issue of attorneys' fees arising from the instant lawsuit is DENIED;
3. Plaintiff's Motion for Summary Judgment is DENIED.
Let judgment be entered.