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Seascape Development, LLC, A Hawaii Limited Liability Company v. Fairway Capital

March 23, 2011

SEASCAPE DEVELOPMENT, LLC, A HAWAII LIMITED LIABILITY COMPANY; BANYAN TRIMONT PROPERTIES, A HAWAII LIMITED LIABILITY COMPANY, PLAINTIFFS,
v.
FAIRWAY CAPITAL, LLC, A NEVADA LIMITED LIABILITY COMPANY, DEFENDANT.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

ORDER DENYING PLAINTIFFS' LLC, SECOND MOTION FOR SUMMARY JUDGMENT ORDER DENYING PLAINTIFFS' SECOND MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

This breach of contract action concerns a $7.2 million loan extended by Defendant Fairway Capital, LLC ("Fairway") to Plaintiff Seascape Development, LLC ("Seascape") and secured by a mortgage on real property in Kailua-Kona, Hawaii. On March 14, 2008, Seascape and Fairway entered into an agreement (the "Seascape Letter Agreement") to settle the debt and release the mortgage. Seascape contends that it fully performed under the Seascape Letter Agreement by satisfying the debt such that Fairway should release the mortgage.

On May 29, 2009, Seascape transferred one of the lots secured by the mortgage to Plaintiff Banyan Trimont Properties, LLC ("Banyan").

Fairway contends, among other things, that the Seascape Letter Agreement is not the parties' entire agreement and that Seascape has breached the terms of their full agreement by transferring the property to Banyan. Indeed, two other agreements were entered into the same day as the Seascape Letter Agreement. On August 25, 2010, after extensive briefing and a full hearing on the merits, this court issued a twenty-five page Order Denying Plaintiff's Motion for Summary Judgment and Denying Defendant's Cross-Motion for Summary Judgment ("August 25 Order"), finding that the Seascape Letter Agreement was not integrated. Seascape Dev. v. Fairway Capital,737 F. Supp. 2d 1207 (D. Haw. 2010).

Currently before the court is Plaintiffs' Second Motion for Summary Judgment, in which it makes two principal arguments. First, Plaintiffs argue that even if the parties' entire agreement includes all three letter agreements, such agreement does not require Seascape to provide any additional consideration before Fairway must release the mortgage. In the alternative, Plaintiffs argue that looking at the Seascape Letter Agreement by itself, it is partially integrated and does not require any additional consideration by Seascape. Based on the following, the court finds that genuine issues of material fact exist regarding the scope and content of the parties' agreement and therefore DENIES Plaintiffs' Second Motion for Summary Judgment.

II. BACKGROUND

A. Factual Background

Although the August 25 Order provides a detailed analysis of the facts, the court recites the following facts relevant to Plaintiffs' Second Motion:

1. The Seascape Loan

Seascape, controlled by John Stevens ("Stevens") is in the business of acquiring and developing real property. Doc. No. 13-2, Stevens June 14, 2010 Decl. ¶¶ 2, 5.*fn1 To finance his property development projects, Stevens has repeatedly borrowed money from Bernie Van Maren and entities controlled by Van Maren (collectively, "Van Maren"), including Fairway. Id. ¶¶ 7-9.

On November 29, 2007, Fairway loaned Seascape $7.2 million (the "November 29 Loan"). Id. ¶ 7; Doc. No. 20-3, Ex. C. Fairway and Seascape executed both a promissory note (the "November 29 Note"), Doc. No. 20-2, Ex. B, and a loan agreement. Doc. No. 20-3, Ex. C. In conjunction with the November 29 Loan, Stevens and Stevens-related entities also entered into a Guaranty in favor of Fairway (the "November 29 Guaranty"). Doc. No. 20-5, Ex. E. By the terms of the November 29 Guaranty, Stevens and Stevens-related entities (collectively, the "Guarantors") guaranteed not only payment to Fairway on the November 29 Loan, but also payments owed to a Van Maren entity, CTI Reno 100 (Morgan), LLC ("CTI Reno") by a Stevens entity Sonny Ventures, LLC.*fn2 Id.; Doc. No. 20-31, Ex. EE at 3.

Finally, Fairway and Seascape executed a mortgage (the "December 3 Mortgage"), which was recorded on December 3, 2007. Doc. No. 13-2, Stevens June 14, 2010 Decl. ¶¶ 7, 8, 14; Doc. No. 13-4, Ex. 1 at 2, 29-38.*fn3 The December 3 Mortgage provides that in the event Seascape shall sell, convey, or otherwise encumber certain real property, "then the entire balance of the Indebtedness[] shall become immediately due and payable at the option of [Fairway]." Doc. No. 13-4, Ex. 1 at 9.

The December 3 Mortgage also secured "payment of the Indebtedness" and "payment (with interest provided) and performance by [Seascape] of the Obligations." Id. at 2. The December 3 Mortgage defines Indebtedness and Obligations:

Indebtedness: The principal of and all other amounts, payments and premiums due under the Note . . . and all other indebtedness of [Seascape] to [Fairway] and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. . . .

Obligations: Any and all of the covenants, promises and other obligations (including, without limitations, the Indebtedness) made or owing by [Seascape] or due to [Fairway] under and/or as set forth in the Loan Documents and all of the covenants, promises and other obligations made or owing by [Seascape] to each and every other Person relating to the Property, provided that when the Indebtedness has been repaid the obligations will not be deemed to include any contingent claims (e.g. indemnity).

Id. at 3, 4. The Mortgage defines the Loan Documents as "[t]he Note, this Mortgage, the Guarantee, the Loan Agreement and all other documents, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations." Id. at 4.

2. The Subsequent Agreements

On March 14, 2008, various Smith- and Van Maren-related entities entered into three agreements.

In the first agreement, the Seascape Letter Agreement, Seascape agreed to repay the November 29 Loan in exchange for release of the December 3 Mortgage because Seascape had found a new capital investor (Richard L. Fischer). Doc. No. 13-5, Ex. 2 at 1. The Seascape Letter Agreement provides that "to repay the Loan in full on March 14, 2008, Seascape must pay . . . $5,945,828.25[]." Id. at 2. In exchange, Fairway must provide three forms of consideration:

In consideration of Seascape's payment of all outstanding principal and interested owed under the Note as aforesaid, Fairway shall execute, among other things, (1) a UCC Financing Statement Amendment to terminate the UCC Financing Statement in favor of Fairway as secured party recorded in the Bureau of Conveyances of the State of Hawaii ("Bureau") as Document No. 2007-208967, (2) a Release of Mortgage in connection with its Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which encumbers certain real property located in Kailua-Kona, Hawaii bearing Tax Map Key Nos. (3) 7-3-010:052, 053 and 054 recorded in said Bureau as Document No. 2007-208966, and (3) a Release of Mortgage in connection with its unrecorded Mortgage, Assignment of Rents, Security Agreement and Fixture Filing covering certain real property located in KailuaKona, Hawaii bearing Tax Map Key No. (3) 7-3-010:051.

Id.

In the second agreement, the Sonny Ventures Letter Agreement, CTI Reno agreed to release Stevens from his guaranty to pay CTI Reno preferential limited distributional interest in Sonny Ventures in exchange for, among other things, (1) a guaranty by Stevens and Stevens Family Limited Partnership LLLP ("Stevens Family LLLP") to CTI Reno of the return on its investment in Sonny Ventures plus a five percent return per annum and (2) a pledge by Stevens and the Stevens Family LLLP of their membership interest in Oak Canyon Ranch LLC as collateral security for repayment to CTI Reno. Doc. No. 20-7, Ex. G at 2. The Sonny Ventures Letter Agreement further provided:

Within ten (10) calendar days after the execution of this letter agreement, the parties shall prepare, execute and deliver revised guaranty, pledge and related documents to reflect the foregoing agreements and such other terms in form and content approved by [CTI Reno]; provided, however, the same shall not delay the payments to be made pursuant to the (a) letter agreement between Fairway Capital LLC and Seascape Development, LLC, and (b) letter ...


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