Submitted: May 9, 2017
from United States District Court for the District of
Minnesota - Minneapolis
SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.
Corporation sued Outsource Services Management, LLC (OSM) to
recover its share of the sale proceeds of a promissory note.
OSM counterclaimed alleging that LNV owed OSM millions of
dollars for loan advances that it paid for LNV's benefit.
OSM also asserted, as a defense to LNV's suit, that
LNV's prior breach of contract excused OSM's alleged
breach. Additionally, LNV sued BF-Negev, LLC to recover its
share of the sale of collateral under a separate agreement.
BF-Negev, an OSM subsidiary, asserted that it was withholding
LNV's share as a setoff against what LNV owed OSM. On
summary judgment, the district court held that (1) it lacked
jurisdiction over OSM's counterclaim because OSM did not
pursue an available and necessary administrative relief
procedure before filing suit; (2) the OSM-LNV contract
required OSM to pay LNV its net share of the sale despite
LNV's prior breach; and (3) BF-Negev was not entitled to
withhold LNV's share of the collateral. For the reasons
given below, we affirm.
Lake Austin Loan
2007, Marshall Financial Group, LLC funded a construction
loan for a condominium complex in Florida (the "Lake
Austin Loan") for $140 million. Columbian Bank &
Trust Company of Topeka, Kansas ("Columbian")
purchased a $6 million participation interest in the Lake
Austin Loan. Columbian thus acquired a 4.28571429% stake in
the financing investment. Columbian's participation
interest was governed by a participation agreement (the
"Lake Austin Agreement"). In the Lake Austin
Agreement, Columbian agreed to fund its proportionate share
of advances to the borrower and to reimburse Marshall for its
share of expenses. Marshall in turn agreed to pay Columbian
its share of loan collections.
paid its share of the first 23 advances to the borrower;
these advances came to just under $3 million, or 2.12424110%,
of the $140 million loan. In August 2008, though, Columbian
became insolvent and went into FDIC receivership. The
receiver set November 25, 2008, as the deadline to file
claims related to Columbian's or the receiver's
actions. See 12 U.S.C. § 1821(d)(3)(B).
September 2008, soon after Columbian went into receivership,
Marshall made another advance to the borrower and asked
Columbian to pay its 4.28571429% share. Neither Columbian nor
the FDIC receiver did so. To satisfy the shortfall, Marshall
allowed the other loan participants to fund Columbian's
share in exchange for a pro-rata share of Columbian's
unfunded participation interest. (The Lake Austin Agreement
provided for this arrangement and noted that by allowing
Marshall to pick up Columbian's remaining interest,
Marshall was not giving up the right to seek payment from
Columbian.) Marshall made 19 more advances to the borrower.
Neither Columbian nor the receiver funded any of them.
Marshall, for its part, did not file a claim with the
receiver challenging the lack of payment before the November
September 2009, after the final advance to the borrower, the
receiver sold Columbian's interest in the Lake Austin
Agreement to LNV Corporation. Around the same time, OSM
became lead lender and servicer of the Lake Austin Loan. LNV
refused to pay its (formerly Columbian's) 4.28571429%
share of the prior advances and of the expenses OSM had
2013, OSM sold the note on the Lake Austin Loan for $30
million. Citing LNV and its predecessor's failure to fund
its share of advances and expenses, OSM refused to disburse
any of the sale receipts to LNV.
2007, BankFirst funded a $30 million loan to finance a
different Florida development (the "Bahia Loan").
Through a series of assignments, LNV succeeded to a
3.33333333% participation interest in the Bahia Loan,
BF-Negev-an OSM subsidiary-succeeded to the role of lead
lender, and OSM succeeded to the role of loan servicer.
LNV's interest in the Bahia Loan, like its interest in
the Lake Austin Loan, was governed by a participation
agreement (the "Bahia Agreement"). After the
borrower defaulted, BF-Negev foreclosed on and sold the
collateral. LNV was entitled to approximately $65, 000 of the
proceeds, but BF-Negev withheld LNV's share as a setoff
against what LNV owed OSM under the Lake Austin Agreement.
2013, LNV sued OSM and BF-Negev asserting various legal
theories to recover its alleged unpaid share under the two
participation agreements. OSM and BF-Negev answered in part
that (1) OSM's breach of the Lake Austin Agreement, if
any, is excused by LNV's prior material breach; and (2)
BF-Negev is entitled to set off LNV's share of the Bahia
Loan proceeds by the amount LNV owes under the Lake Austin
Agreement. OSM also counterclaimed, alleging that as a result
of LNV's breach of the Lake Austin Agreement, LNV owed
OSM money-not the other way around. According to OSM, LNV
remains responsible for funding its (and Columbian's)
original 4.28571429% interest under the Lake Austin
Agreement. If LNV is held responsible for that full interest,
then LNV owes OSM several million dollars. If, on the other
hand, LNV is responsible for only 2.12424110%, then OSM owes
LNV approximately $344, 500.00 under that agreement.
district court held, on summary judgment, that (1) it was
statutorily barred from exercising jurisdiction over
OSM's counterclaim, which effectively meant that LNV
owned a 2.12424110% participation interest, rather than a
4.28571429% interest, in the Lake Austin Loan; (2) OSM was
not excused from performing under the Lake Austin Agreement;
and (3) BF-Negev was not entitled to set off LNV's
proceeds under the Bahia Agreement against LNV's debt
under the Lake Austin Agreement. OSM and BF-Negev appeal.
review the district court's summary judgment ruling and
its statutory interpretation de novo. Liles v. C.S.
McCrossan, Inc., 851 F.3d 810, 817 (8th Cir. 2017)
(summary judgment); Haug v. Bank of Am., N.A., ...