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Golden West Holdings, LLC v. BBT Holdings

November 22, 2010

GOLDEN WEST HOLDINGS, LLC, AN IDAHO LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
BBT HOLDINGS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; TED LEROY LARSEN; INDIVIDUALLY; PEGGY K. LARSEN, INDIVIDUALLY; BROCK K. LARSEN, INDIVIDUALLY; BARBARA A. THOMAS, AKA BARBARA A. LARSEN, INDIVIDUALLY; BRIAN L. LARSEN, INDIVIDUALLY; JULIE SCHINDLER, INDIVIDUALLY; AND DOES I THROUGH X, DEFENDANTS.



The opinion of the court was delivered by: Honorable Candy W. Dale Chief United States Magistrate Judge

MEMORANDUM DECISION AND ORDER

INTRODUCTION

Before the Court is the Motion for Summary Judgment filed by Plaintiff Golden West Holdings, LLC, ("Golden West"), on July 30, 2010, and the Motion to Strike the affidavits of Donna Jarman, filed on August 23, 2010, by Defendants/Counterclaimants BBT Holdings, LLC, and the Larsons (collectively, "BBT"), which affidavits Plaintiff filed in support of its motion for summary judgment. At the parties' request, the Court postponed the deadline for filing a responsive memorandum to the Motion for Summary Judgment until the Motion to Strike was decided, as BBT contended several statements and exhibits should be stricken from the record under Fed. R. Evid. 408. A hearing on the Motion to Strike was conducted on October 5, 2010. At that time, the Court took the Motion to Strike under advisement, advising the parties that the Court would not rule upon the motion until it considered the statements in the context of the Motion for Summary Judgment. The Court also ordered BBT to amend the Motion to Strike to clarify which portions of the affidavit BBT contended were objectionable. Defendants filed their Amended Motion to Strike on October 19, 2010. (Dkt. 44.)

The Motion for Summary Judgment is now fully briefed. A hearing was conducted on November 2, 2010, during which all parties appeared and presented oral argument. The Court also invited additional argument on the Motion to Strike at that time. Since then, Plaintiff filed a motion on November 16, 2010, inviting the Court to take judicial notice of a memorandum decision and order in Performance Chevrolet, Inc. v. Market Scan Information Sys., Inc., Case No. 1:04-cv-244-BLW (Nov. 18, 2005). (Dkt. 52.) Upon careful consideration of the parties' arguments, the briefing, and the relevant authorities, the Court will deny the Motion for Summary Judgment and the Motion to Strike. The motion to take judicial notice also will be denied.

FACTS AND PROCEDURAL HISTORY

The following material facts, unless otherwise noted, are undisputed.

This lawsuit arises from BBT's purchase from Golden West in or about July of 2006 of a storage facility and car wash business (the "Property"), known as the A-1 Storage and Car Wash, located in McCall, Idaho. Defendant Ted Larson, the managing member of BBT, submitted an offer to purchase the Property that was accepted by Donna Jarman, the principal of Golden West, on July 10, 2006. (Aff. of Jarman Ex. F, Dkt. 14-6.) The parties agreed to a purchase price of $4,050,000, with $2,850,000 allocated for the purchase of real property, $1,100,000 for the purchase of the improvements to the property, and $100,000 allocated for the purchase of personal property and equipment. (Aff. of Jarman Ex. F, Dkt. 14-6 at 18.) Golden West agreed to finance a portion of the purchase price in the amount of $607,500 pursuant to a Promissory Note secured by a second deed of trust. (Id.)

As a condition of the sale, BBT was to perform a "personal due-diligence including but not limited to review of tax returns, balance sheets, staff salary/wages, benefits, utilities, insurance, and inspections of any and all types. The due diligence period will end 14 days after receipt of the Preliminary Title Report...." (Aff. of Jarman Ex. F, Dkt. 14-6 at 2.) Under Section 9 of the Agreement, BBT chose to conduct inspections, and the closing of the transaction was expressly conditioned upon BBT's satisfaction or waiver of several contingencies, including "review of seller's relevant business documents." (Aff. of Jarman Ex. F, Dkt. 14-6 at 3.)

Golden West agreed to provide BBT business operating statements and financial information, tax returns, and occupancy information. (Aff. of Jarman Ex. F, Dkt. 14-6 at 3.) Absent written notice of "disapproved items," BBT was deemed to have completed all inspections, investigations, review of applicable documents and disclosures, and to have elected to proceed with the transaction. (Id.)

Ms. Jarman represented in her Affidavit that she provided updated financial information to BBT and its principals up to the point of sale, both verbally and through written data provided through her real estate agent. (Aff. of Jarman at 4, Dkt. 14.) Specifically, Ms. Jarman asserts that "to the best of my knowledge, in early 2006, I provided the Defendants with information concerning the expenses and income of the storage and car wash business. At that time, I had the tax returns and financial information for 2004, but not for 2005, as they had not yet come out." (Aff. of Jarman at 4, Dkt. 14.) The only financial record provided to the Court and attached to the Affidavit of Ms. Jarman is six pages of the 2005 Return of Partnership Income for Golden West. (Aff. of Jarman Ex. E.) The 2005 Return indicates net earnings for the Property of $156,422.

Defendant Larson, on behalf of BBT, reviewed "documentation provided... by Plaintiff in the summer of 2006.... the documentation provided purported to include accurate information regarding the income and expenses of the Plaintiff during its operation of the A-1 Storage and Car Wash facility during years 2003, 2004, 2005 and part of 2006." (Aff. of Larsen ¶ 3--4, Dkt. 41.) According to BBT, Golden West provided its tax returns for 2003 and 2004. (Aff. of Larson ¶ 6, Dkt. 41.) BBT claims it received no additional information after July of 2006. (Aff. of Larsen ¶ 14, Dkt. 41.) On or about August 14, 2006, Defendant Larson gave Ms. Jarman a document purporting to be a valuation assessment based upon the 2003, 2004, and 2005 tax returns of the car wash and storage business, along with cash flow calculations, prepared by a third party. (Aff. of Jarman Ex. H, Dkt. 14-8.) Exhibit H represents that the estimated 2006 net income for the Property would be $25,000, while the listed 2005 net income was $185,000.

Addendum E to the Purchase and Sale Agreement, dated August 14, 2006, indicated that "the buyers have completed their due diligence and inspections period and hereby declare all conditions and contingencies to be satisfied and/or waived. Buyers are at this time depositing an additional ten thousand dollars earnest money...." (Aff. of Jarman Ex. F, Dkt. 14-6 at 13.) The parties agreed to close on or before November 15, 2006. (Id., Dkt. 14-6 at 16.) Addendum H, dated November 9, 2006, indicated title to the Property would be in the name of BBT, and the Seller would provide completed statements showing accounts payable, accounts receivable, prepaid accounts, and cash on hand as of the date of closing. (Aff. of Jarman Ex. F, Dkt. 14-6 at 18.)

On November 15, 2006, BBT, together with the other named defendants, executed a Promissory Note in the original principal amount of $607,500.00, in favor of Golden West for the purchase of the Property, which Note is secured against the Property pursuant to a Deed of Trust recorded in Valley County, Idaho. (Aff. of Jarman Exs. A, B, Dkt. 14-1, 14-2.) According to the terms of the Golden West Note, interest only payments in the amount of $4,050 were due each month until November 15, 2010, when all principal and interest would then be due and payable. (Compl. Ex. A, Dkt. 1; Aff. of Jarman Ex. A, Dkt. 14-1.) The Note specified also that, if there was a default in payment of any installment when due, the "whole sum of principal and interest shall be come immediately due...." (Id.) The Golden West Note and Deed of Trust were recorded subsequent to, and therefore subordinate to, a first Deed of Trust held by Home Federal Bank in the original principal amount of $2,835,000.00, which debt the Property also secures. (Aff. of Jarman Ex. B, Dkt. 14-2.)

Beginning in December of 2009, BBT ceased paying the monthly installments due and owing under the Golden West Note. (Aff. of Jarman at 14, Dkt. 14.)*fn1 The parties tried unsuccessfully to negotiate a solution until Golden West filed this lawsuit on June 9, 2010. The Complaint alleges BBT breached the terms of the Note by failing to pay the monthly payments. (Dkt. 1.) BBT removed the action to this Court on July 1, 2010. (Dkt. 1.) BBT did not dispute Golden West's representation that, as of June 3, 2010, the total amount due and owing is $639,090, representing principal and accrued interest to date with interest continuing thereon a the rate of $141.05 per day. (Aff. of Jarman at 9, Dkt. 14 at 9.)

During discovery in this case, Defendant Larson reviewed the "actual financial records" and "compiled accurate summaries of the expenses and income as purported by" Golden West, and the summaries allegedly "illustrate the discrepancies from the actual records." (Id. ¶ 6, Ex. A.) According to Defendant Larson's recent review, he asserts that Golden West under reported income of $79,288 in tax year 2003, and under reported income of $96,213 in tax year 2004. (Id. ¶ 8.) Defendant Larson then identified a dramatic increase in 2005 income to $139,398, with no corresponding expenses shown. (Id.¶ 9.)

Larson asserted that Golden West over reported income in 2005 by $3,114. (Id. ¶ 12.) Accordingly, Defendant Larson stated that the records actually show a flat revenue stream, not the "100% increase Plaintiff claimed in reporting income from $49,000 to $57,000 then miraculously jumping to $139,000 from 2003 to 2005. In reality, the income was nearly flat as a result of Plaintiff's under reporting income in early years and hiding expenses in later years." (Id. ¶13.) Finally, Defendant Larson represented his documentation illustrated the "failure to report expenses represented in the form of payments to Donna Jarman's son, Mark Rhodes." (Id. ¶ 15.)

Defendant Larson, in reliance upon the documentation provided at the time of the purchase negotiations, made recommendations to the other members of BBT, and claims had he been aware of the true state of the finances of the Property, such information would have "negatively impacted" the decision by the members of BBT to purchase the Property. (Id. ¶ 18.) Had Defendant Larson known of the true revenue stream, he claims he would have known that "any significant growth in annual revenue was unrealistic in light of actual expenses," and the failure to report expenses "would have affected the accuracy of the financial information and the projection of the business's ability to earn income." (Id. ¶¶ 15, 18.)

BBT brought two counterclaims, the first requesting rescission of the contract based upon mutual mistake, and the second asserting damages for fraud. BBT contends Golden West misrepresented the amount of income generated by the storage facility and car wash business for the three years prior to BBT's purchase, and had BBT known the true facts BBT would not have purchased the Property. Golden West denies BBT's claims.

DISPOSITION

1. Motion for Summary ...


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