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Ball Four, Inc. v. SIP-1 CRE/CADC Venture, LLC

United States District Court, D. Colorado

May 15, 2014

BALL FOUR, INC., Plaintiff-Appellant,
v.
2011-SIP-1 CRE/CADC VENTURE, LLC, Defendant-Appellee

Page 849

For Ball Four, Inc., In Re: Mark Allan Larson, Allen & Vellone, P.C., Denver, CO.

For Ball Four, Inc., Appellant: Jordan D. Factor, Mark Allan Larson, Patrick D. Vellone, LEAD ATTORNEYS, Allen & Vellone, P.C., Denver, CO.

For 2011-SIP-1 CRE/CADC Venture, LLC, successor, Firs Tier Bank, Appellee: Steven Anton Klenda, LEAD ATTORNEY, Adroit Advocates, LLC, Denver, CO.

Page 850

ORDER

R. Brooke Jackson, United States District Judge.

This case comes before the Court on Ball Four, Inc.'s Partial Objection to Bankruptcy Court's Proposed Findings and Conclusions [ECF No. 23] pursuant to 28 U.S.C. § 157(c). The matter became ripe for review on May 2, 2014 upon Ball Four, Inc.'s filing a Reply. Also pending is Ball Four's Motion for Leave to Appeal Pursuant to Bankruptcy Rule 8003 [ECF No. 2], over which the Court exercises jurisdiction pursuant to 28 U.S.C. § 158(a).

PROCEDURAL POSTURE

On January 17, 2012 Ball Four filed a complaint against 2011-SIP-1 CRE/CADC Venture, LLC (" SIP" ) in a Chapter 11 bankruptcy proceeding. [ECF No. 23-1 at 1-7; Case No. 10-33952-EEB Chapter 11, Adversary Proceeding No. 12-01036-EEB]. Ball Four asserted five claims. [ECF No. 23-1 at 5]. SIP moved for summary judgment dismissing all claims. Id. at 13-29. On September 30, 2013, the United States Bankruptcy Court, Hon. Elizabeth E. Brown, entered final orders granting summary judgment in favor of SIP on two " core" (bankruptcy) claims and, pursuant to Stern v. Marshall, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), entered proposed findings of fact and conclusions of law, and a recommendation that summary judgment be granted in favor of SIP on the three " non-core" (state law) claims. [ECF No. 23-2 at 69-84; Case No. 10-33952-EEB Chapter 11, Adversary Proceeding No. 12-01036-EEB]. Those proposed findings of fact and conclusions of law are subject to de novo review by this Court. 28 U.S.C. § 157(c). Ball Four asks this Court to take its appeal from the dismissal of the core claims at the same time that it reviews the non-core claims.

Because it appeared that the fate of all five claims potentially hinged on this Court's analysis of Ball Four's claim that SIP's predecessor, FirsTier Bank, breached a covenant of good faith and fair dealing implied in a loan agreement (Ball Four's Third Claim for Relief), the Court asked the parties to begin by briefing just that issue. The Court concludes that summary judgment should not have been granted on that claim and therefore remands the case to the Bankruptcy Court for further proceedings.

BACKGROUND

Ball Four set out to build a sports complex in North Denver. To do so, it obtained a construction loan in the amount of $1,950,000 from FirsTier Bank. SIP later purchased the loan from the FDIC in its capacity as receiver for FirsTier Bank. The Loan Agreement provided for FirsTier, in its discretion, to make advances (payments) to the construction contractors.

Page 851

However, the Loan Agreement also made it clear that any discretionary payment should not be interpreted as an approval or acceptance of the work done up until that point or a representation against any deficiency or defect in the work.

Ball Four closely monitored the construction of its sports complex. According to its Complaint in the underlying bankruptcy action [ See ECF No. 23-1 at 1-7], Ball Four found a number of problems with the work being performed, including safety hazards arising from the use of incorrect building materials in the bathrooms; potential hazards arising from the failure to construct a specified foyer; the installation of an inferior quality turf in the indoor soccer fields; and the failure properly to install concrete under the structure and in the parking lot, leading to numerous cracks. Id. at 3-4 (¶ ¶ 20-36). When it discovered these problems, it explained the situation to FirsTier and directed the bank to stop making payments to those contractors.

However, despite those instructions, FirsTier continued to make payments to the contractors, at one point even issuing a second check after Ball Four made a stop payment on the first one. Ball Four asserts that by continuing to make these payments, FirsTier breached the covenant of good faith and fair dealing implied in the Loan Agreement. SIP responds that the express terms of the Loan Agreement waive any liability for making these advances, and that the claim must be dismissed.

There are two relevant provisions: the Payments provision and the Limitation of Responsibility provision.

The Payments provision reads:

At the sole option of Lender, Advances may be paid in the joint names of Borrower and the General Contractor, subcontractor(s), or supplier(s) in payment of sums due under the Construction Contract. At its sole option, Lender may directly pay the General Contractor and any subcontractors or other parties the sums due under the Construction Contract. Borrower appoints Lender as its attorney-in-fact to make such payments. This power shall be deemed coupled with an interest, shall be irrevocable, and shall survive an Event of Default under this Agreement.

[ECF No. 23-1 at 33].

The Limitation of Responsibility provision reads:

The making of any Advance by Lender shall not constitute or be interpreted as either (A) an approval or acceptance by Lender of the work done through the date of the Advance, or (B) a representation or indemnity by Lender to any party against any deficiency or defect in the work or against any breach of any contract. Inspections and approvals of the Plans and Specifications, the Improvements, the workmanship and materials used in the Improvements, and the exercise of any other right of Inspection, approval, or inquiry granted to Lender in this Agreement are acknowledged to be solely for the protection of Lender's interests, and under no circumstances shall they be construed to impose any responsibility or liability of any nature whatsoever on Lender to any party. Neither Borrower nor any contractor, subcontractor, materialman, laborer, or any other person shall rely, or have any right to rely, upon Lender's determination of the appropriateness of any Advance. No disbursement or approval by Lender shall ...

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