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Stearn v. Catalus Capital, LLC

United States District Court, D. Colorado

July 23, 2015

LEATHEM STEARN, UTE MESA LOT 1, LLC, a Colorado limited liability company, and UTE MESA LOT 2, LLC, a Colorado limited liability company, Plaintiffs,
v.
CATALUS CAPITAL, LLC, a Connecticut limited liability company, Defendant.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

WILLIAM J. MARTÍNEZ, District Judge.

Plaintiffs Leathem Stearn ("Stearn"), Ute Mesa Lot 1, LLC, and Ute Mesa Lot 2, LLC (collectively, "Stearn") bring this lawsuit against Catalus Capital, LLC ("Catalus") for alleged breach of contract and conversion. (ECF No. 1.) Before the Court is Stearn's Motion for Partial Summary Judgment ("Motion"). (ECF No. 48.) For the reasons stated below, the Court holds that Stearn is entitled to judgment as a matter of law on a subset of his breach-of-contract claim ( i.e., a claim for a particular $9, 274.66 that Catalus has refused to refund). The Court further holds that Catalus's counterclaims for fraud and negligent misrepresentation fail as a matter of law. The Motion is otherwise denied.

I. LEGAL STANDARD

Summary judgment is warranted under Federal Rule of Civil Procedure 56 "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A fact is "material" if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is "genuine" if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).

II. FACTS

The following facts are undisputed unless otherwise noted.

A. General Background

Stearn alleges that Ute Mesa Lot 1 and Ute Mesa Lot 2, both limited liability companies, developed two separate parcels of real property in Aspen, Colorado, known as Lot 1 and Lot 2. (ECF No. 1 ¶ 9.) Stearn further claims that Ute Mesa Lot 1 and Ute Mesa Lot 2 procured separate construction loans from different lenders to build single high-end residential properties on each of the parcels of property. ( Id. ¶ 11.) While the house on Lot 2 was constructed, Stearn says, the house on Lot 1 was not constructed because Ute Mesa Lot 1 filed Chapter 11 Bankruptcy in 2010. ( Id. ¶¶ 12-13.) Stearn alleges that he then sought financing that would permit him to complete construction on Lot 1 and pay off the loan on Lot 2. ( Id. ¶ 16.)

B. The Term Sheet

Stearn's need for a new lender eventually led him to Catalus. On February 27, 2013, Stearn and Catalus executed a document titled "Aspen-Indicative Summary of Terms $29 million Debt Facility" (the "Term Sheet"). (ECF No. 48 at 5, ¶ 2; see also ECF No. 48-1.) As its formal name suggests, the Term Sheet contemplates a $29 million loan, but it also states explicitly that it is non-binding except with respect to four specific provisions:

The Borrower, on behalf of itself and its Subsidiaries, acknowledges that the provisions described above (other than those under the Indemnification, Governing Law, Diligence Expenses, and Exclusivity headings) are non-binding and do not purport to summarize all of the conditions, covenants, representations, warranties and other provisions that would be contained in definitive documentation for the Loan. This Term Sheet is not an agreement to extend credit . Any agreement of the Lender to extend credit to the Borrower is subject to due diligence as well as the negotiation and execution of definitive documentation required by the Lender. Notwithstanding the foregoing, Borrower acknowledges the binding nature of, and agrees to comply with, the provisions under the Indemnification, Governing Law, Diligence Expenses, and Exclusivity headings.

(ECF No. 48 at 5, ¶ 3 (emphasis added).)

The referenced Indemnification section requires Stearn to indemnify Catalus for liabilities "arising out of or relating to the Loan, the transactions contemplated by the Loan Documents, [or] the Borrower's use of loan proceeds or the commitments." (ECF No. 48-1 at 5.)

The Governing Law section specifies Connecticut law. ( Id. )

The Diligence Expenses section states that "the loan shall be without cost to Catalus, " and therefore requires Stearn to deposit money with Catalus "to defray travel, legal and due diligence expenses and other costs and expenses in connection with this transaction." ( Id. at 4.) The Term Sheet requires an initial deposit of $15, 000 and allows Catalus to request more as additional expenses are incurred. ( Id. ) But, "[i]n the event this Loan is not consummated, the unused portion of the Expense Deposit shall be refunded to Borrower." ( Id. )

The Exclusivity section requires Stearn, with certain exceptions not relevant here, to refuse to work with any other potential lender during the due diligence anticipated by the Term Sheet. ( Id. ) It also requires Stearn to pay a "break-up fee of 2% of the Loan amount" if he is "unwilling or unable to close for any reason" "within 60 days of the execution of this agreement." ( Id. )

The parties agree that the Term Sheet's basic purpose was to establish "indicative" terms of a possible loan and then to facilitate due diligence of ...


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