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McWhinney Holding Company, LLLP v. Poag

United States District Court, D. Colorado

March 13, 2018

MCWHINNEY HOLDING COMPANY, LLLP, a Colorado Limited Liability Partnership, MCWHINNEY CENTERRA LIFESTYLE CENTER, LLC, a Colorado Limited Liability Company, and CENTERRA LIFESTYLE CENTER, LLC, a Delaware Limited Liability Company, Plaintiffs,
v.
G. DAN POAG, an individual; JOSHUA D. POAG, an individual; an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; TERRY W. McEWEN, an individual; POAG & McEWEN LIFESTYLE CENTERS - CENTERRA, LLC, a Delaware Limited Liability Company; POAG & McEWEN LIFESTYLE CENTERS, LLC, a Delaware Limited Liability Company; POAG LIFESTYLE CENTERS, LLC, a Delaware Limited Liability Company; POAG SHOPPING CENTERS, LLC, a Delaware Limited Liability Company; PM LIFESTYLE SHOPPING CENTERS, LLC, a Delaware Limited Liability Company; POAG BROTHERS, LLC, a Tennessee Limited Liability Company; JEREMY M. POAG, an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; D. MARK POAG, an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; DOE INDIVIDUALS 1-10; DOE TRUSTS 11-30; and ROE CORPORATIONS 31-60; Defendants.

          ORDER ON MOTION TO REMAND

          R. Brooke Jackson, Judge.

         Plaintiffs move to remand this case to state court, arguing that there is no federal subject matter jurisdiction. The Court denies the motion.

         BACKGROUND

         I. The Lifestyle Center Project.

         This lawsuit is the latest chapter in litigation that began in 2011. It all dates back, however, to the mid-1990's when two brothers, Chad and Troy McWhinney, decided to develop a mixed use community on approximately 3, 000 acres of undeveloped land they owned in Larimer County. A centerpiece of the contemplated development would be an upscale fashion shopping center. However, they lacked experience with such a development. Their search for someone who had such expertise eventually led them to Dan Poag, who purportedly invented the concept of a “lifestyle center.” In December 2002 the McWhinneys decided to enter into a joint venture with and Poag and his partner, Terry McEwen, to develop a lifestyle center on the McWhinneys' property.

         To this end, in 2004 the parties created a new entity called Centerra Lifestyle Center, LLC (“CLC”). CLC's mission was to build, own, and operate the “Promenade Shops at Centerra.” The facts are somewhat complicated by the penchant of both sides to do their business through holding companies under which sprouted a veritable garden of subsidiaries and affiliates. For present purposes, however, the key McWhinney entity is McWhinney Centerra Lifestyle Center, LLC (“MCLC”), and the key Poag and McEwen entity is Poag & McEwen Lifestyle Center-Centerra, LLC (“P&M”). On September 29, 2004 MCLC and P&M signed a contract entitled “Limited Liability Company Agreement of Centerra Lifestyle Center, LLC, ” sometimes referred to simply as the “Operating Agreement.” Under the Operating Agreement MCLC and P&M each are 50% members and owners of CLC. MCLC contributed land and capital. P&M contributed expertise in building and leasing lifestyle centers and was designated the manager of CLC.

         The Shops were built, but leasing was less successful than had been anticipated. For various reasons a permanent loan was never obtained to pay off the construction loan. Eventually the center was foreclosed by the lenders and sold in foreclosure to a third party. Neither the McWhinneys nor Poag & McEwen retain any ownership interest in the Shops today, although the new owner hired a Poag entity called Poag Lifestyle Centers, LLC (“PLC”) to be the manager of the Shops.

         II. State Court Litigation.

         I need not, at least for present purposes, describe in detail what happened to the project because those facts have been extensively discussed in a state court lawsuit that was filed on May 27, 2011. The plaintiffs originally named in that case were McWhinney Holding Company, LLLP and MCLC, “derivatively on behalf of [CLC], a nominal defendant, ” and three other entities related to the McWhinneys (Centerra Properties West, LLC, SMP4 Investments, Inc. and Centerra Retail Sales Fee Corporation). Complaint, Larimer County District Court, ECF No. 74-1. The defendants named were P&M, Poag & McEwen Lifestyle Centers, LLC, PLC and several “Does.” Following a 13-day bench trial, the district court, Hon. Thomas R. French, issued a 79-page order and judgment on August 15, 2017. ECF No. 22-1. The order discusses the history of the project and the parties' falling out in great detail. The court discusses and resolves each of the plaintiffs' claims and the defendants' counterclaims in turn as follows:

         A. Plaintiffs' First Claim: Breach of Contract.

         The court found that P&M had breached contractual duties of good faith, loyalty, care, fair dealing and candor owed to MCLC and to CLC under the express terms of the Operating Agreement (which essentially imposed the same duties as would in any event be owed as fiduciary duties under governing Delaware law). Specifically, P&M breached the Operating Agreement in seven different ways:

         1. Purchase of a $155 Million Forward Swap.

         In connection with its obligation to obtain a permanent loan to pay off the construction loan for the Shops, P&M purchased an uncovered or “naked” swap with CRC funds without MCLC's informed knowledge or approval. This was a risky gamble on future interest rates. The state court held that it constituted an exercise of bad judgment; a breach of the duties of good faith and loyalty by favoring the interest of P&M, Dan Poag, his son Josh Poag, and PMLC over the interests of CLC and the Shops; and a breach of the duty of candor. The swap caused CRC to lose $7.5 million. Although the court found that the breach was not sufficiently material to excuse MCLC from performing its duties under the Operating Agreement, it was sufficient to render P&M liable to MCLC for damages under § 6.6(a) of the Operating Agreement because it was accompanied by gross negligence and willful misconduct. ECF No. 22-1 at 39-42 (pp. 38-41 of the court's order).

         2. A $40 Million Loan to Pay Off Terry McEwen.

         A major contributor to the project's financial demise arose after Mr. McEwen informed Dan Poag that he wanted to retire and wished to be paid $40 million for his interest in Poag and McEwen and related entities. Instead of using the Poags' money for this purpose, the decision was made to obtain a $40 million loan and, without MCLC's knowledge or approval, ultimately to repay the loan with CRC's anticipated permanent loan proceeds. P&M surreptitiously increased the size of CRC's permanent loan application by $40 million to provide for funds to repay this loan. A permanent loan in that increased amount was never obtained, resulting in the foreclosure proceedings. The court found that P&M's entry into and concealment of the $40 million loan was, for several reasons, a material breach of fiduciary duties owed to MCLC and CLC as embedded in the Operating Agreement. Id. at 44-51 (pp. 43-50 of the court order).

         3. Sales Negotiations.

         This breach concerns P&M's intentional withholding of material financial information during a time when P&M was attempting to sell its interest in CLC to MCLC. See Id. at 51-53 (pp. 50-52 of court order).

         4. Tax Appeals.

         P&M breached § 6.2(m) of the Operating Agreement by contesting a valuation of the lifestyle center below $190 per square foot without MCLC's consent. Id. at 53-55 (pp. 52-54 of court order).

         5. Distributions from CLC.

         P&M breached its duty of loyalty under the Operating Agreement by taking cash distributions from CLC in order to make interest payments on the $40 million loan when CLC could not afford to do. Id. at 55-56 (pp. 54-55 of court order).

         6. Permanen ...


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