United States District Court, D. Idaho
ROBERT CAYNE and PHYLLIS CAYNE, husband and wife; RONNIE RIVERA, individually; SEAN RIVERA, individually; KEN McELROY and LAURA McELROY, husband and wife; and the same on behalf of themselves and on behalf of all others similarly situated, Plaintiffs,
WASHINGTON TRUST BANK, a Washington corporation; and WEST SPRAGUE AVENUE HOLDINGS, LLC, a Washington limited liability company; and JOHN/JANE DOE I-V, Defendants
[Copyrighted Material Omitted]
Robert Cayne, Phyllis Cayne, David T Kuo, Bess Lee Chang,
Ronnie Rivera, Sean Rivera, Ken McElroy, Laura McElroy,
Plaintiffs: Douglas S Marfice, LEAD ATTORNEY, RAMSDEN &
LYONS, Coeur d'Alene, ID; Adam H Springel, PRO HAC VICE,
Springel & Fink, LLP, Las Vegas, NV.
Washington Trust Bank, Washington corporation, Defendant:
William M Appleton, LEAD ATTORNEY, Coeur d'Alene, ID;
Fred B Burnside, Rebecca J Francis, PRO HAC VICE, Davis
Wright Tremaine, LLP, Seattle, WA; Thaddeus James
O'Sullivan, Joseph Todd Reuter, K& L Gates, LLP, Spokane,
WA; Thomas Timbridge Bassett, K AND L GATES LLP, Spokane, WA.
West Sprague Avenue Holdings, LLC, Washington limited
liability company, Defendant: Thaddeus James O'Sullivan,
Joseph Todd Reuter, K& L Gates, LLP, Spokane, WA; Thomas
Timbridge Bassett, K AND L GATES LLP, Spokane, WA.
MEMORANDUM DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY
Ronald E. Bush, United States Magistrate Judge.
OF THE CASE AND DECISION
are individuals who bought into an exclusive and expensive
golf course development that began to take shape in 2004 on
the western shores of Lake Coeur d'Alene, in northern
Idaho. Most joining the golf course resort purchased a
building lot in the real estate development surrounding the
golf course, and a membership in the golf course club itself,
known as " the Club at Black Rock." Those
interested were required to make an up front payment of a
socalled " membership deposit," which increased in
amount over time but was always in the tens of thousands of
dollars at a minimum and over $100,000 at its most expensive.
On top of that, the members paid monthly dues to the golf
Club at Black Rock closed in the late fall of 2010, after it
fell into financial distress and several months after
defendant Washington Trust, the bank whose loans were secured
by the Club's real and personal property, took over
ownership of nearly the entirety of the Club's assets, in
a work-out agreement with the Club's developer, Marshall
Chesrown. The Club continued to operate as it had before the
change in ownership until the bank sold the golf course to a
third-party, and after the members of the Club at Black Rock
were informed that the memberships were terminated, and the
Club was being closed.
former members of the Club at Black Rock want a return of
their membership deposits. The membership agreement described
when, and if, a member was entitled to a refund of the
membership deposit. The former members contend that
Washington Trust owes them a refund of those deposits,
because Washington Trust assumed that liability when they
took ownership of the golf course assets, which included an
assignment of the Membership Agreement and related
agreements. Washington Trust vigorously disputes that it has
responsibility for the membership deposits, which --
depending upon which side answers the question -- total
approximately $29 million. Someone in this case will
ultimately be left holding that bag. Right now, it is the
former members. They contend it should be the bank.
pending before the Court are Cross-Motions for Summary
Judgment (Dkts. 89, 99) filed by Plaintiffs and
Defendants Washington Trust Bank and (its wholly owned
subsidiary) West Sprague Avenue Holdings, LLC (sometimes
collectively referred to as the " Bank" or "
Washington Trust" ). For the reasons discussed herein,
Plaintiffs' Motion for Summary Judgment is granted in
part and denied in part, and Defendants' Motion for
Summary Judgment also is granted in part, and denied in part.
In the decision that follows: (1) the Court holds as a matter
of law that the Bank took an assignment of the Membership
Agreement and related Membership Plan which contain the
details of when the members have a right to a refund of their
membership deposits; (2) the Court holds as a matter of law
that the right to a refund of the membership deposits was
triggered when the memberships were terminated and the golf
course facilities closed to the members; (3) the Court holds
as a matter of law that the Bank did not make an express
assumption of the liability for the membership deposits,
having made express disclaimers of any such type of liability
in the work-out agreement; and (4) the Court holds that there
are genuine issues of material fact which preclude summary
judgment for either side, and which will require resolution
at trial, on the remaining ultimate issue of whether the Bank
impliedly assumed liability for the membership deposit
refunds because of its actions and conduct in the manner in
which it took ownership of the Club and its facilities, and
in the manner in which the Club continued to operate it until
it was ultimately sold.
BACKGROUND AND SUMMARY OF THE CLAIMS AND DEFENSES
filed their lawsuit in Idaho state court, after which
Defendants removed it to this Court. Plaintiffs brought three
claims for relief: (1) breach of contract (as to the
Membership Agreement and Membership Plan); (2)
and/or constructive fraud; and (3) violation of the Idaho
Consumer Protection Act (" ICPA" ). (Dkt. 1-1.)
Defendants filed a Motion for Judgment on the Pleadings,
which was denied as to the breach of contract claim. The
constructive fraud/misrepresentation claim and the ICPA
violation claim were dismissed, but with leave to amend.
(Dkt. 13.) Plaintiffs did not seek to amend the dismissed
parties stipulated to class certification (Dkt. 54), which
was the subject of the Court's December 11, 2013
certification order (Dkt. 57). The pending cross-motions for
summary judgment followed, and argument was heard upon the
same in Coeur d'Alene on May 5, 2015.
now-defunct Club at Black Rock (the " Club" ) was
marketed to be a world-class golf resort and residential
community for the wealthy, located on the edge of Lake Coeur
d'Alene in Northern Idaho. During its development, the
legal entity that owned the Club assets and operated the Club
was the " Club at Black Rock, LLC" (the "
LLC" ). The LLC borrowed more than $12 million
in various loans from Washington Trust Bank, secured by
various assets, including the real and personal property
connected with the operation of the Club. By late 2010, the
LLC was in significant financial distress, and facing the
threat of foreclosure. The Bank was concerned about its
collateral, because of the length of time required to pursue
such a foreclosure, and because there were other unpaid
creditors. The possibility of an involuntary bankruptcy also
loomed, and in either scenario the Bank was concerned that
the golf club would be shut down, a result which the Bank
feared would greatly diminish the value of its primary piece
of collateral. To avoid such an end, the Bank sought and
obtained a work-out agreement with the LLC by which the Bank
accepted a deed in lieu of foreclosure in order to obtain
immediate possession and ownership of the secured real estate
and improvements, and by which the Bank also obtained
immediate possession and ownership of the associated personal
property, chattels and paper through a bill of sale. The Bank
released the LLC from any possible deficiency and released
Marshall Chesrown from his personal guarantee upon the
largest of the unpaid loans. The deed in lieu of foreclosure,
and its related bill of sale agreement, were entered into on
August 11, 2010. From that date the Bank was the owner of all
that used to be the Club at Black Rock, previously operated
by the LLC.
workout agreement was being negotiated and in the months that
followed its completion, the Bank actively sought to sell the
Club as a going-concern. The Club remained open through the
remainder of the 2010 summer and fall golfing
season, before being closed on October 31, 2010.
Contemporaneously with its closure the Bank sold the Club to
a third-party, which took the name " The Golf Club at
Black Rock, LLC." Before the new owner re-opened the
doors to the golf course under its ownership, the Plaintiffs
received a letter informing them that the Club was "
terminating all membership agreements effective at 5:00 p.m.
on October 31, 2010." Springel Decl. Ex. ZZ.
Plaintiffs contend that the Bank had assumed the duties of
the LLC in the operation of the Club -- including the
LLC's duties under the Membership Agreement -- as a
result of the assignment of that contract from the LLC to the
Bank. The Plaintiffs further contend that closure of the Club
and the termination of the memberships triggered the duty to
refund the membership deposits under the Membership Agreement
and its related Membership Plan, and that under the
applicable agreements between the Plaintiffs and the LLC and
the applicable agreements between the LLC and Washington
Trust, Washington Trust became responsible to refund the
membership deposits. Washington Trust disputes any such
liability, arguing that the agreements it had between itself
and the LLC expressly disclaimed the possibility of any such
liability and that it did not take on such a liability,
either expressly or impliedly.
The Development and Financing of The Club at Black Rock,
Developer and managing member Marshall Chesrown created the
Club at Black Rock, LLC (the " LLC" ) to develop,
own, and operate a private golf club named the Club at Black
Rock (the " Club" ) to promote his contemporaneous
development of luxury home sites along the golf course and
Lake Coeur d'Alene in Idaho. He had a 99% interest in
the LLC. Defs.' SOF ¶ 2; Burnside Decl. Ex. 12,
Chesrown Dep. 11:24-12:1, 12:13-24, 101:24-102:1, 146:10-14.
Between 2004 and 2010, Washington Trust made four loans to
the LLC amounting to over $12 million. These loans were
secured by a deed of trust on the golf course and club house,
and security interests in its equipment, vehicles, boats,
trailers, inventory, equipment, furniture, fixtures and
accounts receivable. Mr. Chesrown personally guaranteed the
first loan, made in June 2004, of $10 million. Defs.'
SOF ¶ 10; Oberst Decl. ¶ ¶ 3-4, Ex. 21, Ex.
23, Ex. 24, Ex. 25, Ex. 26, Ex. 27, Ex. 28, Ex. 29, Ex. 30,
Ex. 31; Perko Dep. 195:5-13, 207:18-20; 253:16-18; Chesrown
Dep. 114:18-116:1; 153:19-154:1, 155:3-156:8 ; Heath Dep.
80:18-22, 175:15-21, 192:19-193:2, 193:7-10; Burnside Decl.
Ex. 16, Oberst Dep. 297:24-298:6; Springel Decl. Exs. H-M,
Ex. D, Perko Dep. 17:16-18:4.
Membership in the Club at Black Rock
Membership Agreement was a contract between each member and
the LLC, whose rights and obligations were also governed by
the incorporated Membership Plan. See Membership
Agreement (Dkt. 92-1).
Membership Plan described the membership amenities at the
Club, including the Club facilities, Club operations,
membership rights, and dues and charges. Membership Plan
Agreement required each member to pay a membership deposit
(this ranged from $40,000 to $125,000, increasing in amount
as the number of members grew) and monthly dues and charges
in exchange for use of the Club's
facilities. Defs.' SOF ¶ 3; Pls.' SOF
Members were entitled to a refund of the Membership Deposit
within thirty days of the following: (1) termination of the
Membership Plan; (2) termination of any category of
membership; or (3) the discontinuance of operation of all or
substantially all of the Club facilities. Membership
Agreement, p. 4. See also Membership Plan, p. 14.
Membership Agreement provided that: " In the event that
the Club facilities are sold and the buyer assumes liability
for the repayment of the Membership Deposit, the [member]
shall look solely to the new for owner for repayment of the
Membership Deposit and the seller shall be released from all
liability for the repayment thereof. In the event of a sale
of the Club facilities, the buyer shall take title subject to
the terms and provisions of the then existing Membership
Plan." Membership Agreement, p. 4. See also
Membership Plan, p. 14.
members of the Plaintiff class are all former members of the
Club. Defs.' SOF ¶ 1; Pls.' SOF ¶ 1.
Oberst, Commercial Special Assets Manager at Washington
Trust, was aware of the Membership Agreement and Membership
Plan. Dean Emmanuels, Washington Trust Vice President and
Chief Appraisal Officer, knew the deposits were refundable.
Pls.' SOF ¶ 16, ¶ 38; Springel Decl. Ex. E,
Emmanuels Dep. 132:2-17; 156:6-157:8; 164:3-165:6; Ex. F,
Oberst Dep. 27:8-15; 31:13-32:12; 85:11-25.
Financial Difficulties Surrounding the LLC and Related
Between 2004-2009, the LLC operated at multi-million dollar
annual operating losses. Defs.' SOF ¶ 7; Pls.'
SOF ¶ 26; Perko Dep. 30:4-23; 90:1-7; Springel Decl. Ex.
G, Von Buchwaldt Dep. 65:21-24; Ex. O; Ex. X.
From 2003 to 2010, the LLC listed " Club Member
Deposits" as a long-term liability on its balance sheet.
By March 31, 2010, the liability was calculated at
$29,505,182.00. Defs.' SOF ¶ 6; Oberst Decl. ¶
8, Ex. 39; Burnside Decl. Ex. 14, Rountree 1st Dep. 39:2-13.
2009, Washington Trust purchased the Black Rock marina and
beach/sales office properties used by Club members. These
properties previously were owned by other Chesrown-owned
entities, and not the LLC. Washington Trust President Jack
Heath testified that these properties were purchased because
aggregating the real estate would make it more valuable.
Pls.' SOF ¶ 29; Springel Decl. Ex. N, Chesrown Dep.
146:23-148:1; Ex C., Heath Dep. 85:4-86:24, 216:5-16.
the summer of 2010, the LLC solicited Club members to serve
on a long-range planning committee, to advise it and Club
members on options for restructuring. Defs.' SOF ¶
12; Francis Decl. Ex. 7
letters to Club members in 2010, the long-range planning
committee recommended that the best solution would be to
convert the Club to a member-owned club. However, the LLC and
Club members could not agree on how this should occur.
Chesrown testified that his priority was for the Club to
remain open and that was a prerequisite to any deal he would
agree to. Defs.' SOF ¶ ¶ 13-14; Francis Decl.
Exs. 8-9; Oberst Decl. ¶ 7; Oberst Dep. 86:14-24,
87:22-88:23; Heath Dep. 153:23-154:2 ; Burnside Decl. Ex. 6,
Gorton Dep. 43:3-22; Chesrown Dep. 134:23-136:15.
this time in 2010, the LLC had a number of unpaid creditors.
Also in 2010, Washington Trust became concerned about the
possibility of an involuntary bankruptcy originating with
other creditors that the Bank believed could cause "
significant delay to preserving the asset" (that is,
Washington Trust's security for its unpaid loans).
Pls.' SOF ¶ 37; Perko Dep. 55:7-10, 57:18-25; Oberst
Dep. 55:19-56:4, 61:18-62:5; Oberst Decl. ¶ 7 ("
the Bank did not want to proceed with bankruptcy or
foreclosure because both can take months or years to complete
. . . [t]o achieve a faster resolution than bankruptcy or
foreclosure would allow, and to best protect the value of the
collateral, the Bank agreed to executed a deed in lieu of
foreclosure." ); Heath Dep. 178:17-20 (" the
decision to take the deed in lieu of foreclosure" was
because " we [didn't] have to go through an extended
foreclosure process." )
Washington Trust, as reflected in internal memoranda,
believed that " preservation of the membership
base" was critical to the Club's value and that
there would be more value if there were active members
interested in buying the Club. Pls.' SOF ¶ 34;
Defs.' SOF ¶ ¶ 15-16; Heath Dep. 156:6-12;
Springel Decl. Ex Y.
Washington Trust knew it could " let the golf course go
to seed," but believed that doing so would make the
asset worth much less. On the other hand, the Bank believed
that keeping the golf course open and maintained would
preserve its value. Pls.' SOF ¶ 33; Defs.' SOF
¶ 16; Heath Dep. 43:21-45-7; Oberst Dep. 86:18-24.
Deed in Lieu of Foreclosure
avoid the prospect of either a voluntary or involuntary
bankruptcy, and to protect against foreclosure and a possible
deficiency, Washington Trust and the LLC agreed to a work out
of the unpaid loans which included an Agreement for Deed in
Lieu of Foreclosure (" DIL Agreement" ), an
accompanying Non-Merger Warranty Deed in Lieu of Foreclosure
(" Warranty Deed" ), and a Bill of Sale and
Assignment (" Bill of Sale" ). These agreements
were executed effective August 11, 2010. Defs.' SOF
¶ 17; Oberst Decl. ¶ 7; DIL Agreement, Non Merger
Warranty, Bill of Sale (Dkt. 92-2--3).
DIL Agreement released the LLC from its indebtedness on the
four outstanding loans secured by the golf club's real
and personal property. The Bank also agreed to release
Chesrown from the individual guaranty he made on the $10
million loan in 2004. The Warranty Deed transferred the real
property to the Bank and the Bill of Sale transferred the
associated personal property to the Bank, as detailed more
specifically below. Id.
LLC's 2010 Tax Return reported nearly $28 million in
" Cancellation of Debt" income related to the
membership deposits as a result of the DIL Agreement.
Pls.' SOF ¶ 56; Springel Decl. Ex. AAA.
the DIL Agreement, Washington Trust and the LLC agreed that
of the Property to [Washington Trust] in lieu of
foreclosure is necessary to allow for continued operation of
the Club as set forth in Section 6.3." DIL Agreement
Section 6.3 of the DIL Agreement, titled " Post-Closing
Obligations," provided that after the Closing, the Bank
was required to: " reasonably endeavor to continue
stabilized operations of the Club, at least through the 2010
season, at a level of service and amenities that is
consistent with the prior operation of the Club, provided
that the membership is maintained with a sufficient number of
dues paying members to sustain operation of the Club as
reasonably determined by [Washington Trust]." DIL
Agreement § 6.3.
a provision addressing representations and warranties made by
the LLC to the Bank, Section 7.4 reads: " [The LLC]
acknowledges and agrees that acceptance by [Washington Trust]
of title to and [the LLC's] interest in the Property
pursuant to the terms of this Agreement shall not create any
obligations on the part of [Washington Trust] to third
parties that have claims of any kind whatsoever against [the
LLC] with respect to the Property and that [Washington Trust]
does not assume or agree to discharge any liabilities
pertaining to the Property that occurred prior to the date of
Closing, except as specifically assumed by [Washington
Trust.] The [LLC] agrees to indemnify and hold [Washington
Trust] free and harmless from and against any losses,
damages, costs, or expenses, including attorneys' fees,
pertaining to claims and liabilities relating to the
Property, resulting from events that occurred prior to the
date of Closing. No person not a party to this Agreement
shall have any 'third-party beneficiary' or other
right hereunder." DIL Agreement § 7.4.
Section 9.10 of the DIL Agreement, titled " No
Partnership," described the " relationship between
[Washington Trust] and [the LLC] is that of debtor and
creditor. Nothing contained in this Agreement will be deemed
to create a partnership or joint venture between [Washington
Trust] and [the LLC], or between [Washington Trust] and any
other party, or to cause [Washington Trust] to be liable or
responsible in any way for the actions, liabilities, debts,
or obligations of [the LLC]." DIL Agreement § 9.10.
Section 9.12 was titled " No Third-Party
Beneficiaries" and reiterated the language of the last
sentence of Section 7.4: " The provisions of this
Agreement are solely for the benefit of [Washington Trust]
and [the LLC], and do not inure to the benefit of, or confer
rights upon, any third party." DIL Agreement §
Bill of Sale and Assignment, executed contemporaneously with
the DIL Agreement, served to " grant, bargain, sell,
convey, assign, and transfer unto [Washington Trust]"
the following: " All Equipment; " " All
inventory, chattel paper, accounts, furniture, and all
fixtures, excluding Alcoholic Liquor as defined in Idaho Code
23-105; " . . . " All deposits and bonds of the
Club; " . . . " All assignable permits,
licenses, contracts, approvals, applications
and agreements, of every kind and nature, relating
to the Club, including, without limitation, all building
permits and environmental and subdivision approval; but
excluding any permits and licenses relating to Alcoholic
Liquor as defined in Idaho Code 23-105. . ." Bill of
Sale (emphasis added). There is no reference in any of the
conveyance agreements that address by specific name the
membership deposits that are referenced in the Membership
Agreement; however, neither is there any reference in the
conveyance agreements that specifically indicates by name
that the Membership Agreement is not one of the
agreements otherwise included in the above described
paragraph from the Bill of Sale.
Washington Trust President Heath testified that the Bank
" took the things that were required to operate the
Club. . ." Pls.' SOF ¶ 50; Heath Dep. 111:1-5.
Section 5.2 required that the LLC deliver, at closing, all
insurances policies, all keys to access the Property, and all
Certificates of Title to Property. DIL Agreement § 5.2.
Section 2.1(c) confirmed that, upon a default, the various
security agreements gave Washington Trust the power to deal
with " the Personal Property" in Washington
Trust's own name or that of the LLC. DIL Agreement §
Section 2.2 stated, in part: " The [LLC] should have no
further interest or claim in or to the Personal Property
conveyed by the Bill or Sale and Assignment, or the proceeds
or profits of any kind whatsoever which may be derived from
the Personal Property." DIL Agreement § 2.2.
Deed in Lieu Agreement, and related documents (including the
Warranty Deed and Bill of Sale), were executed on August 11,
2010. Pls.' SOF ¶ 48; Defs.' SOF ¶ 17.
August 23, 2010, Washington Trust assigned the assets
transferred by the LLC to its wholly owned subsidiary, West
Sprague Avenue Holdings, LLC. Pls.' SOF ¶ 49;
Defs.' SOF ¶ 19; Springel Decl. Ex. YY.
The Operation of the Club After Execution of the DIL
Washington Trust's request, Black Rock
Development assigned Washington Trust its
declarant's rights to the Black Rock Homeowners'
Association (" HOA" ). Pls.' SOF ¶ 52;
Oberst Dep. 39:16-40:17; 42:21-43:12.
Dean Oberst, Special Assets Manager and Washington Trust,
said the assignment of the HOA's declarant rights was
important to the Bank for two reasons: (1) if the Bank was
the declarant, it would not be charged HOA dues and (2) a
potential buyer would interested in " getting all of the
rights that are available" . Pls.' SOF ¶ 52;
Oberst Dep. 39:16-43:20.
Following this, the former HOA board members, who had been
appointed by Chesrown, resigned. In their place, Washington
Trust appointed persons ...