Kena Properties, LLC v. Merchants Bank & Trust ( 2007 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 07a0140n.06
Filed: February 20, 2007
No. 06-3688
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
KENA PROPERTIES, LLC, LESLIE FOSTER, and )
JAMES FOSTER, )
) ON APPEAL FROM THE
Plaintiffs-Appellants, ) UNITED STATES DISTRICT
) COURT FOR THE
v. ) SOUTHERN DISTRICT OF
) OHIO
MERCHANTS BANK & TRUST, )
)
Defendant-Appellee. )
__________________________________________ )
BEFORE: GUY, SUHRHEINRICH, and GRIFFIN, Circuit Judges.
PER CURIAM.
Plaintiffs Kena Properties, LLC (“Kena”), Leslie Foster, and James Foster appeal the district
court’s order of summary judgment in favor of defendant Merchants Bank & Trust (“Merchants”)
on their claims of breach of contract and promissory estoppel. Plaintiffs argue that the district court
erred in concluding that no genuine issue of material fact existed with regard to Merchants’
cancellation of two commitment letters that it sent to Kena concerning the refinancing of properties
owned by Kena and the Fosters. Plaintiffs assert further that the district court erred in granting
Merchants’ motion for summary judgment on plaintiffs’ claim of promissory estoppel with respect
to Merchants’ decision to withdraw an alleged oral commitment to assist in the financing of a real
No. 06-3688
Kena Properties, LLC et al. v. Merchants Bank & Trust
estate venture known as the Alpine Terrace project. For the reasons set forth below, we affirm the
district court’s entry of summary judgment in favor of defendant Merchants.
I.
Kena is a limited liability company owned by plaintiffs Leslie and James Foster. In 2003,
Leslie Foster and Merchants engaged in negotiations to refinance and renovate properties owned by
Kena. The negotiations resulted in Merchants issuing two commitment letters to plaintiffs. The first
letter, issued July 14, 2003, concerned the refinancing of seven investment properties located in
Cincinnati, Ohio. The second letter, issued August 25, 2003, approved plaintiffs’ request for a
$250,000 revolving line of credit to renovate the Fosters’ home in Lexington, Kentucky. Each letter
contained the following statement: “This commitment may be deemed null and void if there are any
material adverse conditions with respect to the Borrower that occur before the closing.”
After Merchants issued these letters to plaintiffs, Leslie Foster discussed with Merchants the
financing of a condominium development known as Alpine Terrace. Plaintiffs allege that Foster
received a phone call from Merchants’ Assistant Vice President Diana Barhorst during which
Barhorst told Foster that Merchants would supply financing for the Alpine Terrace project. Plaintiffs
claim that, in reliance on Merchants’ alleged oral commitment to finance the Alpine Terrace project,
Leslie Foster entered into a $110,000 contract to develop the project. The contract was signed on
September 22, 2003.
On or about September 12, 2003, Merchants learned of a lawsuit that had been filed in the
United States District Court for the Southern District of Ohio, Fletcher v. Minger et al., No. 03-616,
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Kena Properties, LLC et al. v. Merchants Bank & Trust
in which Kena was named as a defendant. The Fletcher plaintiffs alleged that numerous defendants,
including Kena, engaged in a complex mortgage fraud to sell overpriced homes to uneducated
buyers, a practice commonly referred to as “flipping.” The complaint asserted specifically that Kena
acted as a “property speculator,” where it “masqueraded as [a] legitimate property owner[]” and
“acquired depressed real estate and arranged to sell the properties at vastly inflated prices to innocent
buyers . . . .”
In response to the Fletcher complaint, Merchants’ President Don Patterson called Leslie
Foster to discuss the lawsuit. After initially agreeing to come in to discuss the lawsuit with
Patterson, Foster later changed her mind. Instead, Foster, her attorney William Sulau, Patterson, and
Merchants’ attorney Arthur Weber engaged in a conference call on September 15, 2003, during
which Weber informed Foster and Sulau that Merchants would “not be moving forward on anything
with Kena Properties until [the Fletcher case] is resolved.” After further negotiations between
plaintiffs and Merchants failed, Merchants announced that it had withdrawn its offer to finance
Kena’s properties.
Plaintiffs filed a complaint on August 27, 2004, in the Hamilton County Court of Common
Pleas, asserting claims of breach of contract and promissory estoppel against Merchants. Merchants
timely removed this case to federal court on September 29, 2004. On March 1, 2006, Merchants
moved for summary judgment. The district court granted Merchants’ motion on April 24, 2006.
This timely appeal followed.
II.
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We review de novo the district court’s entry of summary judgment in favor of Merchants.
Brainard v. Am. Skandia Life Assur. Corp., 432 F.3d 655, 660 (6th Cir. 2005); see also Parrett v.
American Ship Bldg. Co., 990 F.2d 854, 858 (6th Cir. 1993) (noting that under Ohio law, “[t]he
question of whether the language of a written agreement is ambiguous is one of law”). Summary
judgment is proper when there are no genuine issues of material fact in dispute and the moving party
is entitled to judgment as a matter of law. FED . R. CIV . P. 56(c). A genuine issue for trial exists only
when there is sufficient “evidence on which the jury could reasonably find for the plaintiff.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). “[T]o the extent that there is
disagreement about the facts . . . we must review the evidence in the light most favorable to the
Plaintiffs, taking all inferences in their favor.” Champion v. Outlook Nashville, 380 F.3d 893, 900
(6th Cir. 2004), cert. denied sub nom. Dickhaus v. Champion, 544 U.S. 975 (2005).
With regard to their breach of contract claim against Merchants, plaintiffs first argue that the
district court erred in concluding that the commitment letters’ “any material adverse conditions”
clause was satisfied by the Fletcher complaint filed against Kena. The district court reasoned as
follows:
The phrase “material adverse condition” is unambiguous. It means a meaningful or
significant, negative or disadvantageous situation. In the context in which the phrase
is used in the agreements in question, it means a significant disadvantageous situation
arising in the life or existence of a borrower under the agreement. The parties may
squabble over the degree of significance of the real estate flipping lawsuit, but
Plaintiffs cannot seriously argue that the lawsuit was immaterial, given the virtual
certainty that it would affect the financial position of Kena Properties, if only as a
result of the expenditure of legal fees. The parties may also squabble over the degree
of adverseness of the lawsuit, but Plaintiffs cannot seriously deny that its filing was
an adverse condition. The Court can conceive of no interpretation of the phrase
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“material adverse condition” that would not encompass the filing of the lawsuit
naming Kena Properties as a defendant after the agreements in question were
executed. Because the agreements include the word “any” before “material adverse
condition,” Defendant was permitted to nullify the agreements whenever a material
adverse condition of any sort arose. Its doing so did not amount to a breach of the
agreements embodied in the commitment letters.
We agree with the district court, and affirm its order of summary judgment with respect to plaintiffs’
breach of contract claim against Merchants.
Plaintiffs contend that, because the term “material adverse condition” is not defined in the
commitment letters, the phrase is ambiguous and a genuine issue of material fact exists as to its
meaning. We disagree. Under Ohio law, “[t]he fact that the parties fail to specifically define a term
within the contract does not make the term ambiguous.” State ex rel. Petro v. R.J. Reynolds Tobacco
Co., 820 N.E.2d 910, 915 (Ohio 2004) (citing Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm,
652 N.E.2d 684, 686 (Ohio 1995)). Rather, “common, undefined words appearing in a written
instrument ‘will be given their ordinary meaning unless manifest absurdity results, or some other
meaning is clearly evidenced from the face or overall contents of the instrument.’” Id. (quoting
Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio 1978)). We agree with the district
court that the phrase “material adverse condition” is unambiguous and that the phrase means, in this
context, “a significant disadvantageous situation arising in the life or existence of a borrower under
the agreement.”
Plaintiffs next contend that a genuine issue of material fact exists as to whether the Fletcher
lawsuit constitutes a “material adverse condition” because Merchants failed to investigate the merits
of the lawsuit’s claims against Kena. This argument also fails. Neither commitment letter provides
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that Merchants owes a duty to investigate claims brought against Kena, and plaintiffs do not cite to
any case – Ohio or otherwise – which suggests that a lender owes a borrower such a duty. Moreover,
as the district court’s order suggests, the Fletcher lawsuit imposed a substantial burden on plaintiffs,
regardless of the lawsuit’s merits. Thus, whether the Fletcher lawsuit constituted a “material adverse
condition” did not depend solely on the merits of the lawsuit.
Finally, plaintiffs argue that because the Fletcher lawsuit named Kena as a defendant – and
not James and Leslie Foster – there were no material adverse conditions against the Fosters. We
disagree for two reasons. First, although plaintiffs argue that the revolving credit line commitment
was made for the Fosters’ personal use, Kena – rather than the Fosters – is identified as the borrower
on that loan in a July 14, 2003, letter from Merchants to plaintiffs. Second, the Fosters were
guarantors of the loan and the sole members of Kena. Any material adverse condition that would
affect Kena would likewise affect the Fosters. For these reasons, and the reasons stated by the
district court, we affirm the order granting summary judgment against plaintiffs with respect to their
breach of contract claim against Merchants.
III.
Plaintiffs next argue that the doctrine of promissory estoppel precluded Merchants from
withdrawing its alleged oral agreement to finance the Alpine Terrace project. Plaintiffs rely on the
following deposition testimony by Leslie Foster regarding an alleged oral promise made by Barhorst
to provide financing for the Alpine Terrace project:
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Q: As I understand from your testimony, please correct me if I’m wrong, Ms.
Barhorst indicated to you after you had this long discussion with her that she
had to run it by people at the bank?
A: Correct.
Q: How long was it before she got back to you?
A: Less than 24 hours.
Q: And again, what did she indicate to you when she got back to you?
A: Her exact comment was, hi, Leslie, this is Diana. I’ve got great news. The
bank is going to fund this project for you. I said, great. She said, this is what
I need.
That’s when she asked me for the information on Temple to use as my
collateral and when she asked me for the information from Jerry Tepe at
Neyer. And that was on that Friday.
Q: And the Temple property is owned by Kena?
A: Kena Properties, correct.
Q: Was there any discussion of a written commitment letter or anything of that
type?
A: Yes. She said she would be forwarding something to me in writing.
In its April 24 order, the district court properly identified four elements that must be met for
a promissory estoppel claim to succeed in Ohio: (1) a clear and unambiguous promise; (2) reliance
upon the promise by the person to whom the promise is made; (3) the reliance is reasonable and
foreseeable; and (4) the party seeking to enforce the agreement is injured as a result of its reliance.
Weiper v. W.A. Hill & Assocs., 661 N.E.2d 796, 803 (Ohio Ct. App. 1995); see also Stonecreek
Props. v. Ravenna Sav. Bank, 2004 WL 1559725, at *7 (Ohio Ct. App. July 9, 2004) (unpublished)
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(same). With regard to the merits of plaintiffs’ promissory estoppel claim, the district court
reasoned:
The parties agree that Defendant did not provide funding for the Alpine Terrace
Project. Plaintiff Leslie Foster represents that Diana Barhorst told her that Defendant
would provide financing for the Alpine Terrace Project in a telephone conversation
during which she also told Ms. Foster that Defendant would need documentation
concerning the property to be used as collateral and that a written commitment would
follow. Plaintiffs have offered some evidence of detrimental reliance upon the
statement. Under those circumstances, the Court is persuaded, as a matter of law,
that to the extent that Ms. Barhorst’s statement was clear and unambiguous it
indicated that Defendant intended to provide financing but that it would formally
commit to doing so after receiving information from Kena Properties or Ms. Foster.
The statement did not clearly and unambiguously indicate that Defendant would
provide such financing regardless of Plaintiffs’ ability to document the sufficiency
of the collateral. The statement was either ambiguous and, thus, not a basis for a
promissory estoppel claim or unambiguous in a manner that would not permit a
showing of justifiable reliance by Plaintiffs. Accordingly, the first element of the
promissory estoppel claim is not satisfied.
The Court is equally persuaded that Plaintiffs cannot satisfy the third element. The
promise to provide financing was implicitly conditioned upon the receipt of, and
Defendant's satisfaction with, information from Plaintiffs. Not having received
written confirmation after having provided that information, Plaintiffs’ actions in
reliance upon Ms. Barhorst’s oral statement were not, as a matter of law, reasonable
or foreseeable. Accordingly, Defendant is entitled to summary judgment with respect
to Plaintiffs’ promissory estoppel claim.
Plaintiffs first contend that, because their argument is based on the doctrine of promissory
estoppel, the statute of frauds is inapplicable and does not bar their claim. Plaintiffs’ argument is
misplaced, however, as the district court did not rely on the statute of frauds to bar plaintiffs’
promissory estoppel claim regarding the Alpine Terrace project. Rather, the district court held that
Ohio’s statute of frauds, OHIO REV . CODE § 1335.02, bars any breach of contract claim concerning
Barhorst’s alleged oral promise to finance the Alpine Terrace project.
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Plaintiffs next argue that the district court erred in granting Merchants’ motion for summary
judgment with respect to plaintiffs’ promissory estoppel claim because they offered evidence that
Leslie Foster relied on Barhorst’s alleged promise in entering into a written contract with Neyer
Properties for $110,000 to develop the Alpine Terrace project. The district court held that plaintiffs
could not satisfy the elements of promissory estoppel because Barhorst’s alleged statement was
ambiguous and because Foster’s reliance was unreasonable. We agree with the district court.
Foster’s reliance on Barhorst’s alleged oral promise was unreasonable. First, Barhorst
informed Foster that she would need information concerning the property to be used as collateral and
that a written commitment letter would later be issued before the financing could be completed.
Because Foster had already applied for – and received – financing commitments from Merchants for
two other loans, it was unreasonable for Foster to expect that Merchants’ alleged commitment to
finance the Alpine Terrace project would be binding, regardless of its approval of Foster’s proposed
collateral.
Moreover, Foster acted unreasonably in signing a contract with Neyer Properties for
$110,000 in reliance on Barhorst’s alleged oral promise. During the September 15 conference call
with Patterson and Merchants’ attorney, Foster was told that Merchants would “not be moving
forward on anything with Kena Properties until [the Fletcher case] is resolved.” Nonetheless, on
September 22, Foster signed the contract with Neyer to develop the Alpine Terrace project. Foster
contends that, although Merchants’ attorney Arthur Weber had informed her during the conference
call that Merchants would not be providing any financing until the Fletcher case had been resolved,
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Merchants allegedly agreed during that conference call to provide financing for the Alpine Terrace
project. Regardless of this claimed promise, Foster was put on notice that Merchants was concerned
about the impact of the Fletcher lawsuit and that it was at least disinclined to provide plaintiffs
financing until the case had been resolved. We conclude that Foster’s decision to sign a contract
with Neyer and assume further debt under such circumstances was unreasonable.
Because plaintiffs cannot show that they reasonably relied on the alleged oral promise by
Barhorst to finance the Alpine Terrace project, they cannot establish a promissory estoppel claim.
We therefore affirm the district court’s entry of summary judgment in favor of Merchants with
respect to plaintiffs’ promissory estoppel claim.
IV.
For the reasons set forth above, we affirm the district court’s entry of summary judgment in
favor of Merchants.
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