Stone and Michaud Ins., Inc. v. Bank Five for Sav.

Citations: 785 F. Supp. 1065; 1992 U.S. Dist. LEXIS 2686; 1992 WL 43453Docket: Civ. 90-485-D

Court: District Court, D. New Hampshire; March 6, 1992; Federal District Court

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An insurance agency, Stone and Michaud Insurance, Inc., is seeking over $95,000 from Bank Five for Savings for unpaid insurance premiums related to the Tory Pines project, a real estate development in New Hampshire. The plaintiff argues that the relationship between the bank and developer Frederick Fish constituted more than a standard borrower-lender arrangement, suggesting a partnership or joint venture. The amended complaint includes three counts: assumpsit, partner in law, and partner in fact, with diversity jurisdiction established under 28 U.S.C. 1332. 

The court is currently reviewing Bank's motion to strike certain paragraphs from an affidavit and its motion for summary judgment, both opposed by the plaintiff. The court has denied the defendant's request for oral argument, finding it unnecessary for resolution.

Historically, from 1985 to 1989, the bank financed Fish's Tory Pines project, which included a golf course and resort facilities. Fish was required to maintain various insurance coverages, which Stone and Michaud provided, leading to a debt of $95,370.21 in unpaid premiums. Although Stone and Michaud secured a judgment against Fish, collection was hindered due to his bankruptcy. The bank's initial loan agreement with Fish included an "equity kicker," allowing for additional payments based on project profits, and was secured by a mortgage. This agreement was later amended to reduce the maximum payment amount.

The case centers around an October 1985 equity kicker arrangement that Stone and Michaud allege was a "secret agreement" between Fish and the Bank, undisclosed to them and other creditors. They claim to have learned of it through a May 31, 1990 letter from Fish, arguing that knowledge of the agreement would have altered their credit arrangements. The plaintiffs assert that the secret nature of the agreement implicates the Bank in liability, as it is interpreted as a profit-sharing mechanism rather than interest or loan repayments. This profit-sharing is posited to establish a partnership at law, exposing the Bank to liability for unpaid insurance coverage, supported by RSA 304-A:7 IV, which indicates that sharing profits suggests a partnership.

Stone and Michaud further allege that the Bank's conduct indicates either a partnership or joint venture with Fish, particularly due to the Bank's control over the Tory Pines project. In contrast, the Bank contends that the equity kicker was necessary to offset the risks of financing a project lacking market validation, citing Fish's inexperience and lack of additional funding. The Bank argues that the agreement was not secret, as it was secured by a publicly recorded mortgage, and that no partnership existed, as the agreement explicitly stated that Fish retained full control and that the Bank bore no responsibility for losses.

The Bank claims that Stone and Michaud have not provided sufficient evidence to support their allegations of a partnership under New Hampshire law, and therefore, seeks summary judgment. The court acknowledges that the purpose of summary judgment is to identify genuine issues for trial rather than determine the truth, but it disagrees with the plaintiff's interpretation of the standard necessary to oppose a motion for summary judgment, emphasizing that the burden on the plaintiff is higher than they suggest.

A moving party can obtain summary judgment if they demonstrate that the nonmoving party's evidence fails to establish an essential element of their claim, shifting the burden to the nonmoving party. They must then either rehabilitate the challenged evidence, present additional evidence indicating a genuine issue for trial, or submit an affidavit detailing the necessity for further discovery. Merely resting on allegations or denials is insufficient; the opposing party must provide specific facts showing a genuine issue for trial. Evidence based on conjecture or lacking probative value does not meet the standard required for avoiding summary judgment. 

In this case, the Defendant Bank has supported its summary judgment motion with affidavits from bank vice presidents and various documentation, arguing that the plaintiff cannot establish essential elements of a partnership or joint venture under New Hampshire law. According to the New Hampshire Uniform Partnership Act, a partnership involves two or more persons co-owning a business for profit, and the rules governing partnerships also apply to joint ventures, which are defined by a specific venture rather than ongoing business. The intent of the parties is crucial in determining the existence of either relationship, which can be expressed or implied by their actions. Generally, intent is a factual issue for the trier of fact, but if a contract is clear and unambiguous, intent can be determined as a matter of law.

In New Hampshire, the interpretation of a contract is a legal question for the highest court, which assesses the parties' intent through objective standards rather than subjective beliefs. The intent is determined at the time of contracting, and any ambiguities are resolved by considering the contract as a whole. In the case at hand, the equity kicker agreement specifies that the relationship between the Borrower and the Lender is strictly that of creditor and debtor, explicitly stating that the Lender is not a partner or co-venturer with the Borrower. The Bank argues that Stone and Michaud cannot prove essential elements of a partnership, particularly that they were "co-owners" of the project, as true partners share ultimate control over the business. The agreement further clarifies that the Borrower has sole responsibility for the management of the Property, indicating the absence of shared control. Consequently, the Bank asserts it has demonstrated a lack of evidence supporting the claims of Stone and Michaud. In terms of procedural matters, the burden shifts to Stone and Michaud to present sufficient evidence to create a genuine issue of material fact. Despite their claims of lacking evidence due to discovery not having commenced, the court notes they did not utilize Rule 56(f) to request additional time for discovery. As a result, they must bear the consequences of a limited record, primarily relying on a letter and an affidavit from Fish, which the Bank deems insufficient and conclusory. According to Rule 56(e), affidavits must be based on personal knowledge and contain admissible facts.

Sworn or certified copies of documents referenced in an affidavit must be attached or served with it. The court allows supplementation of affidavits with depositions, interrogatory responses, or additional affidavits. In this circuit, a letter, even if signed, is considered unauthenticated hearsay and thus inadmissible as evidence unless properly authenticated. The court disregards the Fish letter due to these standards. The Bank's motion to strike portions of Fish's affidavit is denied; however, the court will disregard parts that do not meet evidentiary requirements under Rule 56(e). Fish's affidavit asserts a genuine issue of material fact about a partnership with the Bank, claiming the Bank was to receive 65% of net cash post-sale of a condominium unit, indicating a profit-sharing arrangement. The plaintiff argues that this suggests a partnership, but the court clarifies that mere profit sharing does not equate to a partnership or joint venture. Evidence is needed to show that both parties had control and ownership, which the plaintiff has not adequately demonstrated. The Fish affidavit briefly addresses Bank's control but lacks personal knowledge and specific facts, failing to establish the necessary elements of a partnership. Fish himself indicates that the Bank was to provide funding while he managed the project, which does not support a claim of partnership or joint venture.

A court may disregard an express contractual provision only when a different interpretation better reflects the parties' actual intent at the time of contract formation, as established in Heaton v. Boulders Properties, Inc. In this case, the court determined that the intent of the parties, specifically Bank and Fish, was clearly articulated in the equity kicker agreement, indicating no intention of forming a partnership or joint venture. Consequently, plaintiffs Stone and Michaud failed to provide sufficient evidence to support their claim, leading the court to rule in favor of Bank for summary judgment.

Stone and Michaud also asserted a count in assumpsit against Bank, claiming liability for insurance coverage extended to Fish at the Bank's request. However, the court found no grounds for such a claim against Bank, as Stone and Michaud did not demonstrate any genuine dispute of material fact. The evidence presented, particularly the Fish affidavit, lacked indications of any express or implied contract between Bank and Stone and Michaud. The court referenced case law regarding implied contracts, noting that no evidence of an arrangement or understanding existed between these parties.

Ultimately, the court concluded that Stone and Michaud did not create sufficient contention to necessitate a jury trial, supporting its decision to grant Bank's motion for summary judgment on all counts while denying Bank's amended motion to strike. The clerk was instructed to enter judgment accordingly. Additionally, the court noted that the original complaint's charges against Bank were not addressed, as the amended complaint had replaced the former one entirely.

Plaintiff asserts jurisdiction under 28 U.S.C. § 2201, which allows U.S. courts to declare legal rights, but the court focuses solely on jurisdiction under § 1332 since the plaintiff's request for relief does not include such a declaration. An equity kicker is defined as an arrangement allowing a lender to gain equity in the underlying loan, and examples from case law illustrate how parties may share profits from property resale. The term "joint venture" is clarified as synonymous with "joint adventure" and "joint enterprise." Under Rule 56(f) of the Federal Rules of Civil Procedure, a court may delay judgment if a party cannot present essential opposing facts due to stated reasons. The plaintiff argues that the court can consider materials from other cases related to a potential partnership between Bank and Fish, but the court finds this claim unsupported and emphasizes that the burden of proof lies with the plaintiff. Rejection of the plaintiff's reliance on Sardo v. McGrath is noted, as that case's considerations were limited to its own record. Additionally, the plaintiff's argument regarding liability for debts under a secret profit-sharing agreement lacks merit because there is no evidence that the Bank profited from the Tory Pines project. The court highlights that the equity kicker agreement was publicly recorded, negating any claim of secrecy. The Bank also cites the New Hampshire Statute of Frauds, RSA 506:2, which requires written agreements for certain promises, but the court does not need to address this statute to resolve the case.