Opinion
Civ. File No. 99-1894 (PAM/JGL)
August 12, 2002
MEMORANDUM AND ORDER
This matter is before the Court on Defendants' Motion for Partial Summary Judgment and on Plaintiff's Motion for Summary Judgment on the issue of attorney's fees. For the reasons that follow, Plaintiff's Motion is denied, and Defendants' Motion is granted in part and denied in part.
BACKGROUND
The Court exhaustively set forth the facts underlying this dispute in the Order denying Defendants' Motion to Dismiss (Clerk Doc. No. 20). Those facts will not be recounted in detail here. For the purposes of this Motion, the relevant facts are that Plaintiff Triple Five of Minnesota, Inc. ("Triple Five") and Defendant Si-Minn Developers Limited Partnership ("Si-Minn") were 50/50 partners in Mall of America Associates ("MOAA"), which owned approximately 45% of the Mall of America in Bloomington, Minnesota (the "Mall"). Si-Minn acted as managing partner for MOAA. Teachers Insurance and Annuity Association of America ("Teachers") owned the remaining approximately 55% of the Mall.
In 1998, Teachers decided to sell all or part of its interest in the Mall. Teachers originally solicited bids for the sale of 100% of its interest, but later decided that it would sell only 50% of its interest. Triple Five knew that Teachers wanted to sell its entire interest, but contends that it was unaware that Teachers ultimately decided to remain invested in the Mall and sell only 50% of its interest. Teachers eventually sold 50% of its interest to the Simon Property Group, Inc. ("SPG") in October 1999. SPG is controlled by Defendants Melvin and Herbert Simon, who also control Si-Minn. SPG, through Si-Minn, obtained financing for the purchase by taking out a $312 million mortgage on assets of the Mall. Triple Five asserts that SPG's purchase of 50% of Teachers' interest in the Mall constitutes a breach of Si-Minn's fiduciary duties to the MOAA partnership. This assertion is based in large part on Triple Five's claim that SPG and Si-Minn usurped an opportunity that should have been made available either to MOAA or to Triple Five.
Defendants argue that when Teachers decided to sell only 50% of its interest in the Mall, Teachers had certain standards for the purchaser of that interest. According to Defendants, Triple Five did not meet any of the standards for purchasing Teachers' interest. Indeed, in July 1999, when Teachers, Triple Five, and SPG/Si-Minn held a teleconference about the pending purchase of Teachers' interest, Teachers informed Triple Five that Teachers would not consider selling the interest to Triple Five. Defendants maintain that Triple Five did not have the ability to participate in the challenged transaction and that its claim of usurpation of opportunity therefore fails. Because the usurpation claim fails, Defendants contend that they are entitled to summary judgment on Counts 1, 3 through 10, and 12 of Plaintiff's 12-count Complaint.
Triple Five has brought a separate Motion for Summary Judgment asserting that, under the terms of the MOAA partnership agreement, MOAA must pay Triple Five's attorney's fees in this matter.
DISCUSSION
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The Court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996). However, as the United States Supreme Court has stated, "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at 747. A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials, but must set forth specific facts in the record showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik v. Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
A. Attorney's Fees
The partnership agreement for MOAA provides in pertinent part:
In the event of a breach of this Agreement, the breaching party shall pay to the non-breaching party attorneys' fees and costs. . . . Except for the foregoing, all attorney and accounting fees incurred at any time by either of the Partners with respect to this agreement (other than with respect to the negotiation of this Agreement), the Partnership, any property owned by the Partnership and/or the operation of any of the foregoing and/or in carrying out the purpose of the Partnership shall be the obligation of and paid by the Partnership.
(Trumpold Aff. Ex. A at 66-67.) Triple Five asserts that this lawsuit arises "with respect to" the agreements, MOAA itself, property owned by MOAA, and the operation of MOAA, so that the MOAA partnership should be responsible for paying Triple Five's attorney's fees.
A plain reading of the partnership agreement provides for the payment of fees in two distinct situations: (1) where one partner accuses the other partner of breach of the agreement, the breaching partner pays fees; and (2) ordinary-course-of-business situations where one partner incurs costs on behalf of the partnership, the partnership pays fees. The instant situation is the first type. That is, Triple Five contends that Si-Minn breached the partnership agreement. If Triple Five is ultimately correct, Si-Minn will be liable for Triple Five's attorney's fees. Because this case falls within the first scenario, it does not fall within the second and the partnership is not obligated to pay Triple Five's fees. This is the only logical reading of the agreement. If the agreement is read as Triple Five contends, Triple Five could accuse Si-Minn of breaching the agreement and regardless of the merits of such claim, the partnership would be forced to pay Triple Five's fees. The agreement clearly contemplates each partner bearing its own costs when bringing an action for breach, until a finding of breach is made and then the breaching party pays the fees and costs. Triple Five's Motion for Summary Judgment on the issue of attorney's fees is denied.
B. Defendant's Motion
1. Usurpation of Partnership Opportunity
Most of Triple Five's claims rest on its contention that Si-Minn breached its fiduciary duties to the partnership by usurping a business opportunity that should have been offered to the partnership. A claim of usurpation of opportunity rests on the principle that one who "occupies a fiduciary relationship to the [partnership] . . . may not exploit his position as an `insider' by appropriating to himself a business opportunity properly belonging to the [partnership]." Miller v. Miller, 222 N.W.2d 71, 78 (Minn. 1974).
A business opportunity is characterized as a partnership opportunity if it is one the partnership is financially able to undertake, is in the line of the partnership's business, and is "one in which the [partnership] has an interest or a reasonable expectancy." Id. at 78 (quoting Guth v. Loft, Inc., 5 A.2d 503, 510 (Del.Ch. 1939)).
The seminal case in Minnesota, Miller v. Miller, makes clear that a determination of the merits of a claim of usurpation of opportunity will depend on the facts and circumstances of the case. Id. The court explained that:
The threshold question to be answered is whether a business opportunity presented is also a `corporate' opportunity, i.e., whether the business opportunity is of sufficient importance and is so closely related to the existing or prospective activity of the corporation as to warrant judicial sanctions against its personal acquisition. . . . The inquiry of the factfinder should be directed to all facts and circumstances relevant to the question, [including] . . . whether the corporation, by reason of insolvency or lack of resources, has the financial ability to acquire the opportunity; and whether the opportunity includes activities as to which the corporation has fundamental knowledge, practical experience, facilities, equipment, personnel, and the ability to pursue.
Id. at 81. Defendants focus on the final phrase of this formulation, contending that Triple Five did not have the "ability to pursue" the acquisition of Teachers' interest, because Teachers did not want to sell to Triple Five and because Triple Five did not have the financial wherewithal to meet Teachers' price. If the partnership "lacks either the financial or fundamental practical or technical ability to pursue" the opportunity, that opportunity is "noncorporate as a matter of law." Id.
Triple Five vehemently disputes its financial ability to purchase Teachers' interest. The "evidence" Triple Five points to, however, consists mainly of assertions that Triple Five could have secured financing for the purchase, with no affidavits from bankers or other testimonial or documentary evidence to back up those assertions. On the other hand, Defendants' accusations with regard to Triple Five's financial strength are little more than mud-slinging. In any event, this is precisely the type of factual dispute cannot be resolved on a motion for summary judgment.
Even assuming Triple Five could have secured financing to purchase Teachers' interest, Defendants contend that Teachers would have refused to sell to Triple Five. Thus, according to Defendants, Triple Five lacked the practical ability to take advantage of the opportunity, making it noncorporate as a matter of law. Triple Five argues that, because Defendants concealed the opportunity from Triple Five, Defendants cannot now rely on the so-called "refusal to deal" defense to liability under the corporate opportunity doctrine. See Regal-Beloit Corp. v. Drecoll, 955 F. Supp. 849, 862 (N.D.Ill. 1996) ("[B]efore a person invokes refusal to deal as a reason for diverting a corporate opportunity he must unambiguously disclose that refusal to the corporation. . . .").
Some evidence belies Defendants' assertion that Teachers would not have sold to Triple Five under any circumstances and that Si-Minn's actions had nothing to do with Teachers' unwillingness to sell to Triple Five. At least one of Teachers' representatives testified that, by July 1999, Teachers was not willing to sell to Triple Five for several reasons, chief among them the fact that the deal with SPG was already signed. (King Dep. at 36.) This evidence could lead a jury to believe that Teachers' unwillingness to sell to Triple Five was because of SPG's allegedly underhanded actions in securing the deal for itself. The equitable nature of the doctrine precludes the assertion of the refusal-to-deal defense in a situation where the refusal to deal was because of nefarious actions by the person asserting the defense. Regal-Beloit, 955 F. Supp. at 862.
There is other evidence, however, that Teachers might have made the decision that it would not sell to Triple Five before Teachers discussed the deal with SPG. Joseph Luik, who was responsible for Teachers' real estate portfolio, testified unequivocally that Teachers did not want the Simon family, the Ghermezian family, or MOAA to increase their ownership interest in the Mall. (Luik Dep. at 104, 122, 125.) The deposition excerpts Defendants provide do not, however, indicate at what time in the negotiations Teachers made this decision. Nor do the excerpts explain why Teachers ultimately decided to sell to SPG, despite Luik's testimony that Teachers did not want the Simon family's interest in the Mall increased.
In the final analysis, whether the opportunity was indeed a corporate opportunity that Triple Five had the ability to take advantage of is a very close question. The voluminous evidence the parties have submitted demonstrates that genuine issues of fact remain to be resolved on Triple Five's usurpation claims. Defendants' Motion as to these claims must be denied.
2. RICO
Count 12 of the Complaint alleges that Defendants' actions constitute a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-68. This Count is essentially a restatement of Triple Five's tort claims. Although the Court is aware that the Supreme Court has insisted that RICO be read broadly, Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985), the Court also believes that, absent evidence of actual racketeering activity, RICO is simply not a proper surrogate for an injured party's tort claims. GFI America, Inc. v. Chernin, No. 01-798 (PAM/JGL), 2001 WL 1636499, at *5 (D.Minn. Sept. 19, 2001). Triple Five insists that its allegations show a pattern of racketeering activity by Defendants that rises to the level of criminal behavior and that warrants the imposition of RICO's treble damages and attorney's fees sanctions.
At the hearing, the Court asked counsel for Triple Five to more clearly delineate the predicate acts it claims form the basis for its RICO claim. Counsel indicated that the predicate acts consisted of two letters, from March 1998 and May 1998, from the Simons to Triple Five, the July 1998 teleconference among Triple Five, Si-Minn, and Teachers, and an August 1998 telephone call between Mr. Foxworthy of Si-Minn and Mr. Samson of Triple Five. Triple Five appears to have abandoned the claim made in its papers that a letter agreement mailed to Triple Five in negotiations to settle earlier litigation constitutes a predicate act.
In pressing its RICO claim, Triple Five relies heavily on this Court's previous determination that one of the letters, along with the letter agreement, was sufficient to properly plead mail fraud as the requisite predicate acts for RICO. See 18 U.S.C. § 1961(1) (defining RICO predicate acts to include mail fraud and wire fraud). Merely because these documents were sufficient to withstand a Motion to Dismiss, however, does not mean that there is evidence to support Triple Five's RICO allegations sufficient to withstand a Motion for Summary Judgment.
Defendants point out that Magistrate Judge Lebedoff found that there was no evidence of fraud, i.e., no present intention to perform on the promise made, for the May 6, 1998, letter. The only reason this Court found in its previous Order that the May 6, 1998, letter could form the basis for a RICO claim was the possibility that the evidence would reveal a lack of present intent to perform. Triple Five presented no such evidence to Magistrate Judge Lebedoff and has not offered any evidence on that point here. The May 6, 1998, letter, in the absence of evidence showing that the writer did not have the present intent to perform the promises made in it, cannot be a predicate act of mail fraud for the purposes of RICO.
Thus, Triple Five's RICO claim rests on the March 1998 letter and two telephone calls. Until the hearing on these Motions, Triple Five had never argued to the Court that the telephone calls constituted predicate acts for its RICO claims. Nor does Triple Five point to any alleged misrepresentation sufficient to constitute wire fraud in either of the telephone conversations. In the absence of evidence establishing the elements of wire fraud with respect to these telephone calls, those calls cannot constitute predicate acts for the purposes of Triple Five's RICO claim. Triple Five has raised only one predicate act, which is insufficient as a matter of law for a RICO claim. 18 U.S.C. § 1961(5) ("`pattern of racketeering activity' requires at least two acts of racketeering activity"). Thus, Triple Five's RICO claim fails as a matter of law and is dismissed.
CONCLUSION
When Triple Five initiated this lawsuit in November 1999, the country was in the midst of an economic boom and the public's view of business was overwhelmingly positive. Times have changed. The public's confidence in business has been severely tried by accounting and stock scandals too numerous to name. A jury today is likely to be highly suspicious of Defendants' actions in this matter, even if those actions technically meet the requirements of the law. The Court encourages the parties to recognize these changed circumstances and reflect seriously on the difficulty of presenting this case to a group of people weary of hearing stories of shady business dealings.
For the foregoing reasons, and upon all of the files, records, and proceedings herein, the Court concludes that genuine issues of fact preclude the entry of summary judgment on Triple Five's usurpation claims, but that Triple Five's RICO claim must be dismissed. The Court further determines that the parties' partnership agreement does not require the partnership to pay Triple Five's attorney's fees.
Accordingly, IT IS HEREBY ORDERED that:
1. Defendants' Motion for Partial Summary Judgment (Clerk Doc. No. 169) is GRANTED IN PART and DENIED IN PART; and
2. Plaintiff's Motion for Summary Judgment (Clerk Doc. No. 180) is DENIED.