Tri-State Truck Insurance, LTD v. First National Bank of Wamego ( 2013 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT August 12, 2013
Elisabeth A. Shumaker
Clerk of Court
TRI-STATE TRUCK INSURANCE,
LTD.; TST, LTD; ANDREW B. AUDET,
Plaintiffs – Appellees,
v. No. 11-3264
(D.C. No. 5:09-CV-04158-SAC)
FIRST NATIONAL BANK OF (D. Kan.)
WAMEGO, KANSAS,
Defendant - Appellant,
and
THE GIBSON FAMILY LIMITED
PARTNERSHIP,
Defendant-Intervenor -
Appellant.
ORDER AND JUDGMENT*
Before LUCERO, HARTZ, and O'BRIEN, Circuit Judges.
*
This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
Tri-State Trucking Insurance Ltd. (Tri-State) executed two commercial loan
agreements to borrow over $8 million from Brooke Credit Corporation, later known
as Aleritas Capital (Aleritas). Aleritas soon sold portions of the loans to other parties.
Three years later, Tri-State filed suit against Aleritas in Pennsylvania state court. It
alleged Aleritas had fraudulently induced Tri-State into signing the contracts. When
Aleritas did not answer the complaint, the Pennsylvania court entered a default
judgment which awarded damages and rescinded both loans.
The day after receiving the Pennsylvania judgment, Tri-State filed a declaratory
judgment action in the Kansas federal district court naming the major participant,
First National Bank of Wamego, as defendant. Although the participants were not
parties to the Pennsylvania action and had no notice of the claims against Aleritas, the
district court entered summary judgment in favor of Tri-State. The judge decided the
Pennsylvania judgment was valid under the full faith and credit clause and the
contracts’ rescission eliminated all of Tri-State’s obligations under the contracts.
Wamego appealed. Because the default judgment would not, under Pennsylvania law,
bar the participants’ claims against Tri-State, we reverse in part and remand.
BACKGROUND
A. The Loans
On June 30, 2006, Tri-State entered into a commercial loan agreement, Loan #
5483, with Aleritas to borrow $8,216,000. Relevant here, the addendum to the loan
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agreement provided for the sale of the loan to participants and elaborated the participant’s
rights:
CONSENT TO LOAN PARTICIPATIONS; ETC. Borrower agrees and
consents to Lender’s sale or transfer, whether now or later, of the Loan,
including, without limitation: Lender’s sale or transfer of one or more
participation interests in the Loan to one or more purchasers, whether
related or unrelated to Lender . . . . Borrower additionally waives any and
all notices of sale of participation interests . . . . Borrower also agrees that
the . . . purchasers of any participation interests may or will be considered
as the absolute owners of such interests in the Loan and will have all the
rights granted under the participation agreement or agreements governing
the sale of such participation interests. Except for liability claims based
upon intentional misconduct of Lender, Borrower further waives all rights
of offset or counterclaim that it may have now or later against . . . any
purchaser of such a participation interest and unconditionally agrees that
such . . . purchaser may enforce Borrower’s obligations under the Loan
irrespective of the failure of insolvency of any holder of any interest in the
Loan. Borrower further agrees that the . . . purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Lender.
(Vol. 1 at 22.) On the same day, Andrew Audet, president and owner of Tri-State,
executed a stock pledge agreement as security for a second loan of $436,000, Loan #
5484, from Aleritas.1
On the day the original Loans 5483 and 5484 were executed, Aleritas sold
participating interests in these loans to Wamego and others. Within a short period of
time, Aleritas sold 100% of the loans to participants. The participating agreements sold
1
In January 2007, Loan 5483 was amended to include TST Ltd., another
company owned by Audet, as an additional borrower. The stock pledge agreement was
also amended to include TST’s stocks as collateral for Loan 5484.
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an “undivided . . . percent interest, [Share], without recourse to Seller,” and transferred to
participants the rights associated with ownership:
This Agreement includes the sale to Purchaser of a share in all notes and
other instruments evidencing indebtedness of Borrower in the Loan,
together with all security interests in the Property securing such
indebtedness. Purchaser and Seller agree that Purchaser will be considered
for all purposes the legal and equitable owner of the above Share in the
Loan . . . .
(Id. at 104.) After the participating interests were sold, Aleritas’s only involvement was
as the administrator of the loans.
Aleritas’s role changed in 2008 when it executed an “Assignment and Assumption
of Loan Administration Duties” transferring all of the loan administration duties to
Wamego. (Id. at 108.) Tri-State received both a letter and an e-mail announcing the
transfer of duties. Both communications advised: “These loans have not been transferred
or sold by Aleritas, we are simply partnering with select banks for payment servicing to
ensure quality payment processing.” (Id. at 53-54.) From September 2008 through
November 2009, Tri-State made the regularly scheduled payments to Wamego. 2 During
that time, Tri-State went to Wamego when it felt temporary modifications to the loan
terms were necessary. Wamego worked with Tri-State to advance the interests of both
the borrowers and the participants.
2
Wamego bought a participating interest in Loan 5483. It did not participate in
the loan to Audet. However, when Aleritas could no longer administer the loans, the two
participants in the Audet loan agreed to have Wamego administer both loans. At some
point in the fall of 2008, Aleritas ceased day-to-day operations. Wamego tried to serve
Aleritas on another matter in December 2008 and January 2009, but were told by the
corporate representative that Aleritas was defunct.
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B. The Pennsylvania Lawsuit
In December 2008, Tri-State knew Aleritas was no longer operating and its related
entities were in bankruptcy. In September 2009, Tri-State filed suit solely against
Aleritas in Pennsylvania. It sought rescission of the loans and damages for breach of
contract, negligent misrepresentation, and fraud in the inducement. On October 5, 2009,
CT Corporation, the registered agent for Aleritas at the time the suit was filed, responded
that it was unable to forward the complaint to Aleritas.3 Predictably, Aleritas did not
answer the complaint and a default judgment was entered against it on October 30, 2009.
Following a hearing at which Audet testified regarding damages, the court entered
judgment awarding Tri-State damages in the amount of $5,972,661, rescinded the loans
“and any and all loan documents under said loans, including any Loan Addendum,
Modification, Stock Pledge Agreements, Security documents, UCC statements, Loan
Obligations or Guarant[ies].” (Vol. 2 at 461.)
Tri-State did not notify Wamego of the Pennsylvania lawsuit even though the two
entities remained in communication regarding the loans. However, the day after it
obtained the Pennsylvania judgment, Tri-State registered the judgment in Kansas and also
filed a declaratory judgment action in the Kansas federal district court naming Wamego
as defendant. It asked the court to declare the Pennsylvania judgment rescinding the
loans relieved it of any obligations to Wamego or any other participant.
3
CT Corporation ceased acting as Aleritas’s agent as of November 16, 2009.
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Prior to being served with Tri-State’s federal complaint, Wamego learned of this
suit and the Pennsylvania judgment. On December 24, 2009, it filed a motion in
Pennsylvania seeking to reopen the case and intervene in the action. Tri-State resisted
the motion, arguing Wamego could protect its rights in the Kansas federal court:
[T]he thrust of FNB Wamego’s attempt to intervene in this action relates to
its desire to prevent the default judgment against Aleritas from affecting its
interest as a participant in Loan No. 5483. Plaintiffs do not deny that the
rescission of Loan No. 5483 may affect FNB Wamego. However, as noted
by FNB Wamego in its memorandum, there is already pending in the
United State[s] District Court for the District of Kansas . . . . FNB Wamego
will have its day in court in the declaratory judgment action to make the
same arguments and raise the same issues that it apparently seeks to assert
in this action. There is no reason to entertain those issues and arguments in
this action when there is already a pending action involving the parties on
those issues . . . . Moreover, given the issues between the plaintiffs and
FNB Wamego will involve the application of Kansas state law the Kansas
federal district court is particularly suited to resolve those issues.
(Vol. 2 at 434-35.) The Pennsylvania court agreed. It denied Wamego’s motion because
“[t]he dispute between [Tri-State] and [Aleritas] was adjudicated on December 14, 2009,
and the case was not pending when Wamego’s petition was filed [ten days later].” (Id. at
462.) In addition, the court said it made “no findings as to the merits of any claims
Wamego has raised with respect to its ownership interest in Loan Nos. 5483 and 5484, or
any other legally enforceable right arising out of said loans, and [found] that this Opinion
and Order are without prejudice to Wamego raising these issues in the Declaratory
Judgment action filed in the United States District Court . . . .” (Id. at 463.) Wamego did
not appeal from the decision.
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C. The Federal Lawsuit
The parties returned to the federal court in Kansas. Wamego filed counterclaims
against Tri-State asserting breach of contract and seeking declaratory judgment holding
Tri-State responsible for its obligations under the loans.4 All parties filed motions for
summary judgment.
Tri-State asserted the Pennsylvania judgment, as a valid and final judgment under
the Kansas Uniform Enforcement of Judgments Act, Kan. Stat. Ann. § 60-3001 et seq.,
was entitled to full faith and credit in Kansas. Because the loans were rescinded by that
order, Tri-State claimed it had no obligations under the loans. It also argued that
Wamego’s affirmative defenses, such as waiver and estoppel, must fail because they
either sought to undo the Pennsylvania judgment or were not raised to the Pennsylvania
court in the motion to intervene. In summary, Wamego’s counterclaims failed because
there was no remaining contract to breach.
Wamego, on the other hand, claimed the Pennsylvania judgment granting
rescission had no preclusive effect on their claims. The contracts, for purposes of its
claims, remained valid. Based on the loan documents, the participation agreements and
the assignment of administrative duties, Wamego claimed it had the right to enforce Tri-
State’s obligations under the contract, which Tri-State breached when it ceased paying on
the loans.
4
Another participant to Loan 5483, Gibson Family Limited Partnership,
intervened as a defendant. Gibson adopted Wamego’s pleadings throughout the lawsuit.
Therefore, we will refer only to Wamego.
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In granting Tri-State’s motion for summary judgment and denying Wamego’s, the
district judge determined the preclusion principles of collateral estoppel and res judicata
did not bar Wamego’s claims. (Vol. 5 at 1335.) Nonetheless, under the full faith and
credit clause, the Pennsylvania courts would recognize the default judgment as final as
between Tri-State and Aleritas. Wamego could not show the state court lacked
jurisdiction, or the judgment was procured by fraud. As a result, the federal court was
required to recognize the state court judgment as a final rescission of the loan contracts
and Tri-State owed no further contractual obligations to anyone.
DISCUSSION
“In this diversity case, the substantive law of the forum state, Kansas, governs our
analysis of the underlying claims.” Kan. Penn Gaming, LLC v. HV Properties of Kan.
LLC, 662 F.3d 1275, 1284 (10th Cir. 2012). However, when determining the propriety of
summary judgment, we are governed by federal law and review the district court’s grant
of summary judgment pursuant to Federal Rule of Civil Procedure 56(c). Id. Under
those standards, our review is de novo and summary judgment will be affirmed “if there
is no genuine dispute of material fact and the prevailing party is entitled to judgment
under the law.” Id. (quotation marks omitted).
A. Tri-State’s Motion for Summary Judgment
Tri-State claims the Pennsylvania judgment relieved it of all obligations under the
loan contracts, including those to Wamego and the other participants. Generally
speaking, a judgment has preclusive effect in a subsequent lawsuit in the same forum and,
by virtue of the US Constitution and the full faith and credit statute, in a different forum.
-8-
Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). The statute
provides that state judicial proceedings “shall have the same full faith and credit in every
court within the United States . . . as they have by law or usage in the courts of such State
. . . from which they are taken.” 28 U.S.C. § 1738. “[W]hether there is an exception to §
1738 arises only if state law indicates that litigation of a particular claim or issue should
be barred in the subsequent federal proceeding.” Marrese, 470 U.S. at 383. Thus, we
must start our analysis of full faith and credit by determining the extent to which the
Pennsylvania judgment (Tri-State v. Aleritas) would preclude Wamego’s claims had they
been raised in a court of competent jurisdiction in Pennsylvania.
The doctrine of collateral estoppel provides the answer.5 Collateral estoppel, or
issue preclusion, is “designed to prevent relitigation of questions of law or issues of fact,
which have already been litigated in a court of competent jurisdiction.” Three Rivers
Aluminum Co. v. Zoning Hearing Bd., 618 A.2d 1165, 1168 (1992). It is based upon the
policy that “a losing litigant deserves no rematch after a defeat fairly suffered, in
5
This principle is distinguished from “[s]trict res judicata, also known as
claim preclusion, [which] provides that where there is a final judgment on
the merits, future litigation between the parties on the same cause of action
is prohibited.” McGill v. Southwark Realty Co., 828 A.2d 430, 435 (Pa.
Cmwlth. 2003). For claim preclusion to apply, there must be: (1) “identity
in the thing being sued upon or for”; (2) “identity of the cause of action”;
(3) “identity of the persons and parties to the action”; and (4) “identity of
the quality or capacity of the parties being sued.” Id. Unlike collateral
estoppel, if the requirements are met, “[a] default judgment is res judicata
with regard to transactions occurring prior to entry of judgment.” Id.-9-
adversarial proceedings, on an issue identical in substance to the one he subsequently
seeks to raise.” Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 107 (1991).
To succeed in precluding an issue from later consideration, the party seeking preclusion
must show: (1) “the fact or facts at issue in both instances were identical”; (2) “these
facts were essential to the first judgment and were actually litigated in the first cause”;
and (3) “the party against whom a plea of collateral estoppel is asserted must have had a
full and fair opportunity to litigate the issue in question in a prior action.” McGill v.
Southwark Realty Co., 828 A.2d 430, 434 (Pa. Cmwlth. 2003). Under Pennsylvania law,
a “default judgment is not entitled to the preclusive effect of [issue preclusion]” because
it “lacks the requisite element that it be ‘actually litigated.’” Id. at 435.
Under Pennsylvania law, the Tri-State v. Aleritas judgment would not preclude
Wamego’s claim. The district judge so recognized, saying, “[Wamego] was given no
notice of the Pennsylvania action, was not a party to the Pennsylvania action, and is not
alleged to have been in privity with any party to that action.” (Vol. 5 at 1353.)
Therefore, under usual circumstances, Tri-State would be unable to “enforce the
Pennsylvania judgment against [Wamego].” (Id.)
But the judge did not stop there. Because the Pennsylvania judgment did not
“purport to bind [Wamego] or any other participating bank as a judgment debtor,” he
concluded it was final and valid as between Tri-State and Aleritas. (Id.) So far, so good.
But as a result, he also decided the Full Faith and Credit clause precluded Wamego’s
collateral attack on the rescission itself. (Id.) Too far, not so good. His decision creates
an anomalous result: Wamego would not be precluded (by collateral estoppel) from
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bringing this suit in Pennsylvania, but it is precluded (by collateral estoppel) from
bringing it in a federal court in Kansas. Full faith and credit does not sweep that broadly.
State judgments “shall have the same full faith and credit in every court within the United
States . . . as they have by law or usage in the courts of [the forum] State .” 28 U.S.C. §
1738. Nowhere does the statute purport to give greater credit to state judgments in other
forums. As the Supreme Court has said, it is error to give a “state court judgment greater
preclusive effect than the state courts themselves would give to it.” Marrese, 470 U.S. at
384. The Pennsylvania judgment’s validity as between Aleritas and Tri-State does not
affect Wamego’s ability to protect its interests in subsequent litigation.
If more need be said, the discussion in Pogonovich v. Bertolotti (In re Bertolotti),
470 B.R. 356 (Bankr. W.D. Pa. 2012) is instructive. There, Bertolotti sold Pogonovich
property in Pennsylvania under a land contract. Id. at 357. When a dispute arose,
Bertolotti filed a lawsuit in state court and Pogonovich filed an amended counterclaim
alleging fraud in the inducement and fraudulent misrepresentation. Id. at 358. When
Bertolotti failed to answer, Pogonovich ultimately received a judgment against Bertolotti.
Id. at 358-59.
When Bertolotti filed for bankruptcy, Pogonovich filed an adversary complaint
seeking a declaration that the debt under the Pennsylvania judgment was
nondischargeable.6 Id. The court found, under Pennsylvania law, “the counts . . .
6
11 U.S.C. § 523(a)(2)(A), excepts from discharge any debt “for money property,
services, or an extension, renewal, or refinancing of credit to the extent obtained, by false
(continued . . .)
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alleging fraud in the inducement and fraudulent misrepresentation were not actually
litigated,” and therefore, “the elements of collateral estoppel have not been met and
summary judgment [was] not appropriate.” Id. at 364.
The same principles apply here. Even if Aleritas might7 be precluded from
attempting to relitigate the propriety of the rescission, issue preclusion does not prevent
Wamego from litigating the issues in a different proceeding even if it is in a different
forum. According full faith and credit to the Pennsylvania court’s judgment in Tri-State
v. Aleritas does not strip Wamego (or any of the other participating interests in the loans)
of its right to protect its own interests under the contract. The state court judgment did
not eliminate Wamego’s ability to claim rescission is inappropriate or to otherwise
enforce Tri-State’s contractual obligations to it.
B. Wamego’s Motion for Summary Judgment
Wamego also contends it can sue Tri-State for breach of contract. The district
judge concluded Wamego had no right to sue either as a matter of contract law or under
the specific terms of the loan agreements. He reasoned Wamego was not a party to the
loan agreement and, generally, a participant bank has no legal relationship with the
borrower and the participant cannot look to the borrower for satisfaction of the debt. See
First Bank of WaKeeney v. Peoples State Bank, 758 P.2d 236, 239 (Kan. App. 1988)
pretenses, a false representation, or actual fraud, other than a statement respecting the
debtor's or an insider's financial condition.”
7
We say “might” be precluded only because Pennsylvania does not apply issue
preclusion to default judgments. McGill, 828 A.2d at 434.
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(“[I]n the absence of a negotiated contract term, the lead bank exercises sole control over
the collection and enforcement of the loan.”). The judge determined the loan agreement
was not intended to grant third-party benefits to participants, the participation agreements
conferred no rights to enforce the contracts, and the assignment conferred no additional
rights to Wamego. As a result, he concluded, Wamego had no right to sue Tri-State even
if the contracts were not rescinded.
While Wamego acknowledges it was not a party to the loan contract, it argues the
provision regarding the rights of participants gave it an independent right to sue. It is
correct.
As stated above, we apply Kansas law. “Where a plaintiff and defendant lack
privity, Kansas law allows a qualified third-party beneficiary plaintiff to enforce a
contract expressly made for his or her benefit even though he or she was not a party to the
transaction.” State ex rel. Stovall v. Reliance Ins. Co., 107 P.3d 1219, 1230-31 (Kan.
2005). Kansas case law distinguishes third-party contract beneficiaries into the general
classes of intended beneficiaries and incidental beneficiaries. Noller v. GMC Truck &
Coach Div., 772 P.2d 271, 275 (Kan. 1989) (citing Fasse v. Lower Heating and Air
Conditioning, Inc., 736 P. 2d 930 (Kan. 1987)). A beneficiary may sue to enforce a
contract made by others only if he is an intended beneficiary, i.e., one who the
contracting parties intended should receive a direct benefit from the contract. Id. “In
determining whether a particular person is an intended beneficiary of a contract,
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the court applies the general rules for construction of contracts.” Byers v. Snyder,
237 P.3d 1258, 1265 (Kan. Ct. App. 2010).
It is not necessary for the third party to be the exclusive beneficiary of the
contract; it may benefit the contracting parties as well. Fasse, 736 P.2d at 932. Nor is it
necessary for the third party beneficiary to be personally named in the contract. It will
suffice if he is a member of a designated class or otherwise identifiable as a person
intended by the parties’ language to benefit from the contract. Hartford Fire Ins. Co. v.
Western Fire Ins. Co., 597 P.2d 622, 632 (Kan. 1979). “Before the issue is reached of
whether a third party may directly enforce a contract from which he would benefit, the
third party must show the existence of some provision in the contract that operates to his
benefit.” Stovall, 107 P.3d at 1231.
Wamego points to the contractual provision specifically relating to the participants
to the loan. In that provision, Tri-State permitted Aleritas to sell participating interests
and waived any notice of the sale. Further, the parties “agree[d] that the . . . purchasers
of any participation interests may or will be considered as the absolute owners of such
interests in the Loan” and “unconditionally agree[d] that such . . . purchaser may enforce
Borrower’s obligations under the Loan irrespective of the failure of insolvency of any
holder of any interest in the Loan.” (Vol. 1 at 22.) Finally, Tri-State “agree[d] that
the . . . purchaser of any such participation interests may enforce its interests irrespective
of any personal claims or defenses that Borrower may have against Lender.” Id.
According to Wamego, this language clearly expresses Tri-State’s agreement to allow
participants the benefit of directly enforcing Tri-State’s contractual obligations.
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Tri-State argues as follows. It did not intend to benefit Wamego and was unaware
of the existence of participants for two years. Moreover, “[c]ontracting parties are
presumed to act for themselves and therefore an intent to benefit a third person must be
clearly expressed in the contract.” Noller, 772 P.2d at 275. Because the court must
consider the whole contract rather than just one isolated sentence or provision, the single
provision relied on by Wamego is insufficient to defeat the presumption the parties did
not intend to benefit Wamgeo. See Byers, 237 P.3d at 1265 (“Contracts should not be
interpreted by isolating one particular sentence or provision, but by construing and
considering the entire instrument.”).
Tri-State’s assertions of its intent do not control. “The intention of the parties and
the meaning of the contract are to be determined from the instrument itself where the
terms are plain and unambiguous.” Fasse, 736 P.2d at 933.
Where the provisions of a written contract are clear and unambiguous, there
is no occasion for applying rules of construction. A contract must be
enforced according to its terms so as to give effect to the intention of the
parties, and that must be determined from the four corners of the instrument
itself.
Id. at 933-34.
In two key cases, the Kansas Supreme court has illustrated the distinctions
between an intended beneficiary and other beneficiaries. In Fasse, a provision of the
contract provided the employer agreed to pay wages based on the scale derived from the
Davis-Bacon Act, 40 U.S.C. § 278a et seq. 736 P.2d at 931. Without that provision,
Kansas law would require only a lower minimum wage. Id. When the employer
attempted to pay the Kansas wage scale, the employees filed suit. The court found the
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wage provision in the contract unambiguously conferred a benefit on the employees and
therefore, the employees were third-party beneficiaries of the contract between their
employer and the owner of property. 736 P.2d 934.
In light of the clear and unambiguous language of the loan addendum, the district
judge erred in requiring more than one provision to establish the parties’ intent. We do
not disagree with his observation that the loan agreement “demonstrate[s] the parties’
intent to benefit [Tri-State] by their receipt of the loan proceeds, and to benefit Aleritas
by its receipt of interest on repayments of the loan.” (Vol. 5 at 1357.) But under Kansas
law, this does not preclude the participants’ status as third-party beneficiaries. Fasse, 736
P.2d at 932 (“The contract may also benefit the contracting parties as well.”). The
employees in Fasse were not the focus of the construction contract; it was the specificity
of the provision granting them a certain benefit that conferred their third-party right to
enforce the receipt of that benefit.
Tri-State agreed to allow the sale of participating interests, to waive notice of the
sale, and to consider the participants “as the absolute owners” of their interests. (Vol. 1
at 22.) And Tri-State “unconditionally agree[d] that such . . . purchaser may enforce
Borrower’s obligations under the Loan irrespective . . . of any personal claims or
defenses that Borrower may have against Lender.” (Id.) No one claims this language is
ambiguous—and the benefit is obvious. Tri-State correctly quotes WaKeeney, “in the
absence of a negotiated contract term, the lead bank exercises sole control over the
collection and enforcement of the loan.” Wakeeney, 758 P.2d at 239. But the case is of
no help to it because here the parties agreed that the participants would have the right to
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enforce Tri-State’s obligations under the loan. The participants were intended
beneficiaries of the loan agreement between Tri-State and Aleritas pursuant to the
addendum to Loan # 5483.
Stovall is not contrary to this result. There, the Kansas Supreme Court looked to
the Restatement (Second) Contracts § 302, as support for its determination that the State
was not an intended third-party beneficiary to the contract between its contractor and a
subcontractor. The Restatement section provides in relevant part:
(1) Unless otherwise agreed between promisor and promisee, a beneficiary
of a promise is an intended beneficiary if recognition of a right to
performance in the beneficiary is appropriate to effectuate the intention of
the parties and . . .
(a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary . . . .
Stovall, 107 P.3d at 1232 (Restatement (Second) Contracts § 302). The Comment to this
section defines “a ‘promisee’ as the person to whom a promise is addressed, and
‘beneficiary’ as a person other than the promisee who will be benefitted by performance
of the promise.” Restatement (Second) comment a. “Both terms are neutral with respect
to rights and duties: either or both or neither may have a legal right to performance.” Id.
The Stovall court reasoned:
While the State's plans and specifications are referenced within the
subcontracts in question, there is no language clearly expressing an intent
for the subcontractors to assume a direct duty to the State. The provisions
referenced by the State do not include a promise or the specific intention to
benefit the State, nor were the provisions made directly and primarily for
the [State's] benefit.
107 P.3d at 1232 (quotation marks omitted).
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Unlike the parties in Stovall, Aleritas, the promisee in this case, contracted with
Tri-State to allow the participants to enforce their interests in the loan. It cannot be
doubted that the performance of this promise will satisfy Aleritas’s obligation to pay the
participants the money owed on their participation interests, placing the situation here
directly within the Restatement’s parameters. The general rules limiting the rights of
participants notwithstanding, the contract addendum between Aleritas and Tri-State
unambiguously gave Wamego and the other participants the right to enforce the
contractual obligations affecting their interests in Loan # 5483.
Loan # 5484, however, did not include the addendum providing for the
participants’ rights. And neither Wamego nor the Gibson Family signed a participation
agreement with Aleritas securing an interest in that loan. Therefore, the only document
which may grant Wamego a right to enforce Audet’s obligations under Loan # 5484 is
the assignment of administrative duties from Aleritas to Wamego, but Wamego does not
argue this point on appeal. In sum, Wamego makes no argument which would establish
standing to sue on Loan # 5484. The district judge did not err in granting Tri-State
summary judgment on Wamego’s claims relating to the loan to Audet.
The grant of summary judgment in favor of Tri-State on Loan # 5483 is
REVERSED, summary judgment in favor of Tri-State on Loan # 5484 is AFFIRMED,
and this case is REMANDED to the district court.
Entered by the Court:
Terrence L. O’Brien
United States Circuit Judge
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