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Hitchens v. Thompson National Properties, LLC

United States District Court, D. Colorado

March 18, 2014



LEWIS T. BABCOCK, District Judge.

This matter is before me on Motions for Summary Judgment filed by Defendant Thompson National Properties - seeking dismissal of Plaintiffs Doug and Sheryl Hitchens' claims - as well as a Motion for Summary Judgment filed by Plaintiffs - seeking judgment in their favor as to Defendant's liability. [Docs # 28 & 29]. Oral arguments would not materially aid in my determination of these motions. After consideration of the parties arguments, and for the reasons stated, I DENY IN PART AND GRANT IN PART Defendant's Motion for Summary Judgment [Doc #28], and GRANT IN PART AND DENY IN PART Plaintiffs' Motion for Summary Judgment [Doc. # 29]. The Plaintiffs' motion is granted in favor of Plaintiffs as to liability on their Breach of Guaranty Claim. Defendant's motion is granted on Plaintiffs' Unjust Enrichment Claim and otherwise denied.

I. Facts

The Parties provide that the following facts are undisputed.

Defendant Thompson National Properties ("TNP") was formed in February 2008, by Anthony Thompson for a claimed purpose of investing in the recessionary real estate market. [ See Doc. # 34]. The company was to acquire different investments, including commercial properties, real estate loans and operating companies. [ Id. ] In an effort to raise the funds needed to finance the investments, an aggregate principal amount of up to $18, 000, 000 of 12% notes due June 10, 2011 were offered by the TNP 12% Notes Program, LLC ("TNP 12%"), in accordance to a Confidential Private Placement Memorandum ("Memorandum"). [ Id. ] The offering was made to investors across the United States, including the Plaintiffs. [ Id. ] Investors were required to invest a minimum of $50, 000. [ Id. ]

TNP 12% raised over $21, 000, 000 from 418 investors. [ Id. ] Of that amount, TNP 12% took approximately $2.5 million off the top for its fee. [Doc. # 28, Ex. 6, p. 2]. Of the remaining $19, 000, 000, TNP 12% used $10, 000, 000 to purchase real estate. [Doc. # 34, Ex. A, p. 7]. Five million dollars was "used to acquire the rights to manage a sponsor's portfolio of 26 [] properties purchased for $700, 000, 000 in 2005." [Doc. # 28, Ex. 6, p. 2]. Eleven of those properties were then lost to foreclosure. [ Id. ] TNP 12% used over $8, 000, 000 of the funds raised from investors to pay those same investors interest in their notes. [ Id ].

On April 9, 2009, Plaintiffs purchased a note in the amount of $100, 000 (the "Note") from TNP 12% and a corresponding Guaranty Agreement from TNP. [Doc. # 28, Ex. 1 & Ex. 8]. Pursuant to the Subscription Agreement (the "Subscription Agreement") with TNP 12%, the Note would become due June 10, 2011. [Doc. # 28, Ex. 1]. Under the Note, TNP 12% was obligated to pay interest at 12%, and repay the principal of the Note in a lump sum on June 10, 2011, subject to any extension. [ Id .; see also Doc. # 34]. TNP and TNP 12% did not issue a physical certificate for the Note, but held all notes in "book-entry" form. [Doc. # 34]. Interest on the Note was 12% and accrued quarterly and was payable on the 15th day of the month following the end of each calendar quarter. [Doc. # 29]. In the event of an extension of the term of the Note, the interest rate would increase by one quarter. [ Id. ]

The Subscription Agreement states that it is "subject to the terms, conditions, acknowledgments, representations and warranties stated herein and in the Confidential Private Placement Memorandum relating to the" Notes. [Doc. # 28, Ex. 1, p. 1]. Under section 12(b) of the Subscription Agreement, an investor cannot cancel, terminate, or revoke the agreement. [ Id. at 5]. Section 12(c) of the Subscription Agreement provides as follows:

[T]his Subscription Agreement and the Memorandum, together with all attachments and exhibits thereto, constitute the entire agreement among the parties hereto with respect to the sale of the Notes and may be amended, modified or terminated only by a writing executed by all parties (except as provided herein with respect to rejection of this Subscription Agreement by the Company).

[ Id. ]

A Confidential Private Placement Memorandum (the "Memorandum") was also provided to all Note holders in the TNP 12% Notes Program, including Plaintiffs. [ See Doc. # 28, Ex. 2]. Under the terms of the Memorandum, all notes issued under the program were to bear non-compounded interest at the annual rate of 12%. [ Id. ] The notes were set to mature by June 10, 2011. [ Id. ] However, the company at its discretion could extend the date of maturity for the notes for up to two one-year terms. [ Id. at Ex. 2, pp. i, 5, 6, 17]. Under the terms of the Memorandum, TNP 12%'s obligations were unconditionally guaranteed by Defendant. [ See Id. at p. 6]. Additionally, the Memorandum provided that TNP 12% is not obligated to redeem the notes prior to the date of maturation "[u]nless an event of default under the Notes exists and the Note holders elect to declare the Notes due and payable." [ Id. at p. 17].

As part of the Memorandum and Subscription Agreement, and the offering, Defendant executed a Guaranty Agreement unconditionally guaranteeing the obligations of TNP 12%. [ Id. at Ex. 8]. The Guaranty Agreement is "governed by and construed and enforced in accordance with the laws of the State of California." [ Id. ] Thus, TNP 12%'s obligations under the Note were unconditionally guaranteed by TNP. Specifically, the Guarantee provided that TNP:

unconditionally guarantees the performance of all of the Company's obligations under the Notes, including, without limitation the payment of principal and interest (as such terms are described in the Confidential Private Placement Memorandum dated June 10, 2008 for the sale of the Notes) as provided therein. This Guaranty shall remain in full force throughout the term of the Notes.

[ Id .; see also Doc. 3-2, Ex. B]. The Guaranty Agreement also states in pertinent part as follows:

Guarantor acknowledges that the Noteholders may, by simple majority vote or consent, appoint one of them or a third-party attorney or agent, to prosecute the Noteholders' rights hereunder and such party shall be entitled to bring any suit, action or proceeding against the undersigned for the enforcement of any provision of this Guaranty on behalf of all Noteholders.

[Doc. # 28, Ex. 8; see also Doc. 3-2, Ex. B]. Additionally, the Guaranty Agreement provided that TNP agreed to "pay any costs or expenses, including the reasonable fees of an attorney, incurred by the Noteholders in enforcing this Guarantee." Id. The Guaranty Agreement was provided to investors ...

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