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Kms Spe LLC, A Nevada Limited Liability Company v. Rs-Anb Fund

June 1, 2011

KMS SPE LLC, A NEVADA LIMITED LIABILITY COMPANY,
PLAINTIFF,
v.
RS-ANB FUND, LP, A DELAWARE LIMITED PARTNERSHIP, DEFENDANT.



The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge

MEMORANDUM DECISION AND ORDER

INTRODUCTION

The Court has before it Kingston Properties, LP's Motion to Intervene (Dkt. 13). Have reviewed all submitted briefs, the Court will grant Kingston's Motion.

BACKGROUND

In January 2009, ANB Ventures submitted a successful bid for the acquisition of the assets of a distressed bank after it was seized by the Federal Deposit Insurance Corporation (FDIC). Plaintiff KMS SPE, LLC ("KMS") was formed simultaneously as a management company to administer, service, and liquidate the assets of the portfolio.

The portfolio cost $24 million. And to accomplish its acquisition, several parties invested in the purchase in exchange for a profit participation interest. Kingston Aff. ¶ 4, Dkt. 26-1.

Kingston Properties, LP was one of the principal original investors. Id. ¶ 6.

In early 2009, Defendant RS-ANB Fund, LP approached the original investors and Kingston about purchasing a participation interest in the portfolio. Id. ¶ 6. The original investors agreed to sell 25% of their participation interest to RS for $12 million. Id. ¶ 10. But, according to Kingston, the original investors intended to limit RS's interest to a profit participation interest similar to their own. Id. ¶ 12. The original investors and RS executed a Participation Agreement outlining the terms of the sale and distribution of the profit proceeds to RS. Id. ¶11. Under the Agreement, RS purchased a 25% interest in each of the original investor rights to receive distributions from portfolio profits. Id. ¶ 12.

Disputes between the original investors and RS soon arose. Id. ¶¶ 13, 14, & 15. Based on its reading of the Participation Agreement, RS has taken the position that it is entitled to greater than 25% of the profits. Id. According to Kingston however, RS's interpretation dilutes the participation interests of the original investors. Id. ¶16.

Because the managing entity, KMS, is uncertain about its obligations to the original investors and RS under the Participation Agreement, it filed this action for declaratory judgment in state court. Kingston filed its motion to intervene, arguing that it has a significant protectable interest because it is a key investor in the loan portfolio central to this litigation, and RS's interpretation of the Participation Agreement would dilute Kingston's percentage ownership on the ANB profit distribution.

LEGAL STANDARD

The Federal Rules of Civil Procedure set forth two types of intervention: 1) as a matter of right and 2) permissive intervention. See Fed.R.Civ.P. 24(a)(2), 24(b). In this case, Kingston seeks to intervene as a matter of right.

To intervene as of right under Rule 24(a)(2), the proposed intervenor must demonstrate that "(1) it has a significant protectable interest relating to the property or transaction that is the subject of the action; (2) the disposition of the action may, as a practical matter, impair or impede the applicant's ability to protect its interest; (3) the application is timely; and (4) the existing parties may not adequately represent the applicant's interest." United States v. City of Los Angeles, 288 F.3d 391, 397 (9th Cir. 2002). The party seeking to intervene bears the burden of showing that all the requirements for intervention have been met. Id.; see also Perry v. Proposition 8 Official Proponents, 587 F.3d 947, 950 (9th Cir.2009) ("failure to satisfy any one of the requirements is fatal to the application"). In determiningwhether ...


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