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Rs-Anb Fund, Lp, Lead v. Kms Spe LLC

February 1, 2012

RS-ANB FUND, LP, LEAD
PLAINTIFF/COUNTERDEFENDANT,
v.
KMS SPE LLC, LIZ AIR 6 L.L.C., JERALD M. SPILSBURY, KINGSTON PROPERTIES L.P., MIKE KINGSTON, PAUL E. AVERY, BERT BOECKMANN AND JANE BOECKMANN, TRUSTEES OF THE BOECKMANN FAMILY REVOCABLE TRUST, ANDARY INVESTMENTS 2 LLC AND RGRCM LLC, DEFENDANTS/COUNTERCLAIMANTS. KMS SPE, LLC PLAINTIFF/COUNTERDEFENDANT,
v.
RS-ANB FUNDS, LP, DEFENDANT/COUNTERCLAIMANT. RS-ANB FUNDS, LP,
PLAINTIFF,
v.
DAVID ORVILLE KINGSTON, DEFENDANT.



The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court

MEMORANDUM DECISION AND ORDER

Consolidated Case No. 4:11-cv-00179- BLW

INTRODUCTION

The Court has before it two motions for partial summary judgment (Dkts. 84 & 91) and a motion for a prejudgment writ of attachment and restraining order (Dkt. 111) filed by RS-ANB Fund, LP. Also before the Court are two motions for discovery (Dkts. 95 & 106). The Court has reviewed the parties' submissions and determined that oral argument will not significantly assist the decisional process. For the reasons set forth below, the Court will deny RS-ANB's motions for partial summary judgment without prejudice, grant in part and deny in part RS-ANB's application for writ of attachment and TRO, and grant the motions for discovery.

BACKGROUND*fn1

In January 2009, ANB Ventures, LLC acquired the assets of a distressed bank seized by the Federal Deposit Insurance Corporation (FDIC). The loan portfolio cost $24 million, and to accomplish its acquisition several parties contributed to the purchase in exchange for a profit participation interest. A managing company, KMS SPE, LLC, was formed simultaneously to administer, service, and liquidate the assets of the portfolio -- it receives distributions from ANB Ventures, which it then distributes to the investors.

In early 2009, RS-ANB Fund, LP approached the original investors about becoming an investor in the portfolio. The original investors agreed to sell 25% of their participation interest to RS-ANB for $12 million. Participation Agreement at §§ 2-4, Dkt. 11-1. The original investors, KMS SPE, and RS-ANB executed a Participation Agreement outlining the terms of the sale and distribution of the profit proceeds to RSANB. Id.. Under the Agreement, RS-ANB paid $12 million to the original investors (deemed the "Current Investors") in exchange for a portion of the Current Investors' "right, title and interest" to participate in the distributions. Id. § 4.1.

A dispute between the original investors and RS-ANB about the effect of Section 4.5 of the Agreement -- the "Payments" section -- arose not long after the parties executed the agreement. Section 4.5 entitles RS-ANB to receive monthly payments when KMS SPE has earnings available for distribution. It provides:

Payments shall be paid monthly from the proceeds of the Net Company's Share less 15% (the "Gross Proceeds") to the extent they are available. Each monthly payment [to RS-ANB] shall be as follows (Participant's Monthly Payment):

 50% of the Gross Proceeds until [RS-ANB] receives $12,000,000;  thereafter, 25% of the Gross Proceeds (Participant's Monthly Payment). Id. § 4.5.

In accordance with this section, KMS SPE initially distributed 50% of the Gross Proceeds to the original investors and 50% to RS-ANB. KMS SPE continued this distribution allotment until RS-ANB had received $11.25 million from the Gross Proceeds and $750,000 from its share of a $3,000,000 "Special Distribution" by KMS SPE. Analysis of Payment to Date, Ex. to Townsend Decl., Dkt. 84-3. The "Special Distribution" was a return-of-capital distribution made in September 2009. Reece Decl. ¶ 10, Dkt. 94-2. KMS SPE counted the $750,000 disbursement in determining when RSANB had "receive[d] $12,000,000" for purposes of the 50% provision. Id. ¶ 11.

Once KMS SPE determined that RS-ANB had received $12 million, however, KMS SPE did not distribute 25% of the Gross Proceeds as RS-ANB contends it should have. Id. ¶¶ 14-15. Instead, KMS SPE and the original investors took the position that that Section 4.5 was intended to accelerate RS-ANB's return of its $12 million investment by providing for the 50% phase, but not to both accelerate RS-ANB's return of its investment and grant RS-ANB more than 25% of the Current Investors' rights to receive distributions from KMS SPE. Id. In accordance with interpretation, KMS SPE began distributing less than 25% of the earnings to offset the phase when RS-ANB received 50% of the earnings, pending resolution of this dispute about the Participation Agreement's meaning. Id.

In an earlier decision granting RS-ANB's motion for judgment on the pleadings, the Court found that the Participation Agreement unambiguously entitled RS-ANB to 25% of the Gross Proceeds once it received $12 million -- with no period when RS-ANB would receive less than 25% to offset the phase when RS-ANB received 50% of the earnings. Kingston Properties, joined by the other original investors, moved to reconsider this decision (Dkt. 80), but the Court denied this motion (Dkt. 112). KMS SPE has not yet distributed to RS-ANB Fund the Gross Proceeds it withheld to offset the 50% phase. Reece Decl. ¶ 15. Instead, those withholdings continue to be deposited in KMS SPE's IOLTA account. Id.

Now RS-ANB has filed two motions for partial summary judgment. In its first motion for summary judgment, RS-ANB argues that it is entitled to approximately $1.2 million in breach-of-contract damages and prejudgment interest. RS-ANB predicates this motion on its claim that it is entitled to $12 million in Gross Proceeds, and the $750,000 "Special Distribution" should not count towards calculating when RS-ANB "receive[d] 12,000,000." It claims a $375,000 shortfall from this dispute. RS-ANB asks the Court to award the alleged $375,000 shortfall, as well as all of the withheld Gross Proceed distributions following the 50% phase, plus prejudgment interest on all these amounts.

With its second motion for partial summary judgment, RS-ANB asks for "future damages." It seeks almost $4 million damages based on alleged breaches of Section 4.5 that RS-ANB anticipates will occur between now and the end of 2015. RS-ANB estimates these future damages based on projections of future performance KMS SPE prepared. Using KMS SPE's projections and the federal mid-term interest rate of 4.18%, RS-ANB's expert, Brad Townsend, reduced RS-ANB's portion of the estimated future stream on income to present value. Townsend Decl. ΒΆΒΆ 7-8, Dkt. 9-2. RS-ANB also filed an application for ...


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