Ambac Assurance Corp. v. Fort Leavenworth Frontier Heritage Communities, II, LLC

315 F.R.D. 601, 2016 WL 3541732
CourtDistrict Court, D. Kansas
DecidedJuly 29, 2016
DocketCase No. 15-cv-9596-DDC-JPO
StatusPublished
Cited by7 cases

This text of 315 F.R.D. 601 (Ambac Assurance Corp. v. Fort Leavenworth Frontier Heritage Communities, II, LLC) is published on Counsel Stack Legal Research, covering District Court, D. Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ambac Assurance Corp. v. Fort Leavenworth Frontier Heritage Communities, II, LLC, 315 F.R.D. 601, 2016 WL 3541732 (D. Kan. 2016).

Opinion

MEMORANDUM AND ORDER

Daniel D. Crabtree, United States District Judge

Plaintiff Ambac Assurance Corporation filed this breach of contract action against defendant Fort Leavenworth Frontier Heritage Communities, II, LLC. Plaintiff alleges that defendant has breached a provision of a Servicing and Lockbox Agreement (“Servicing Agreement”) to which both plaintiff and defendant are parties. Plaintiff seeks specific performance of that provision and an award of “enforcement damages,” which, plaintiff contends, the Servicing Agreement requires. This matter comes before the court on defendant’s “Motion to Dismiss Plaintiffs Complaint Pursuant to Federal Rule of Civil Procedure 12(b)(7)” (Doc. 7).

Defendant contends that plaintiff has failed to join an indispensable party under Fed. R. Civ. P. 19. Defendant argues that the court must dismiss plaintiffs Complaint because joinder of the indispensable party would destroy diversity jurisdiction. Defendant also asserts that plaintiff has not pleaded the diversity of the existing parties adequately. Plaintiff has responded (Doc. 13) and defendant has filed a reply (Doc. 15). For reasons explained below, the court denies defendant’s motion.

I. Factual Background

A. The Fort Leavenworth Project

In 2006, the Secretary of the Army engaged “a private construction, development[,] and property management company” (“Developer”) to help it rehabilitate, construct, and manage on-base housing at Fort Leavenworth (the “Project”).1 Doc. 8 at 3. The Secretary of the Army and the Developer organized the Project by forming two limited liability companies, Fort Leavenworth Frontier Heritage Communities, LLC (“Subles-[604]*604sor”) and defendant. The Secretary of the Army owns a 49 percent interest in Subles-sor. And Fort Leavenworth-Michaels JV, LLC, a private entity formed by the Developer, owns the remaining 51 percent. Defendant is owned entirely by Fort Leavenworth-Michaels Private, LLC — another entity formed by the Developer. A separate corporation, Leavenworth SPE, Inc., is a member of both Sublessor and defendant, but it owns no interest in either company. Defendant’s motion contends that Sublessor is an indispensable party to this lawsuit.

Defendant’s operating agreement (Doc. 15-4) grants Sublessor authority to review and approve the Project’s annual operating and capital budgets. Specifically, Section 7.13 of the operating agreement, as relevant here, provides:

No later than Closing .,. and not less than sixty (60) days prior to the commencement of each subsequent fiscal year, [defendant’s] Managing Member shall submit to Sublessor for its review and approval, proposed operating and capital budgets for the Project and the Company in detail for the next fiscal year (collectively, the “Budget”). Each such Budget ... shall specifically list all budgeted revenue and expense line items and be organized in major categories including, but not limited to, administration, operation,.,, amounts anticipated to be advanced or required under the Sublessee Loan, [and] debt service with respect to the Loans and the Subles-see Loan .... Each such Budget shall be accompanied by the certification of the Managing Member as to the adequacy of the provision made for operations,... and deposits to the accounts maintained pursuant to the [Servicing] Agreement, in light of the ongoing and long-term needs of the Project. Upon receipt of the proposed Budget, Sublessor shall have 60 days to review, conduct discussions, and communicate any objections with respect to, the proposed Budget .... Until such time as Sublessor has agreed to the proposed Budget for any fiscal year, the Managing Member will continue to operate the Company and administer the Project in accordance with the approved Budget for the immediately preceding fiscal yeai', provided that the operating budget incorporated within such Budget shall be adjusted by the CPI for such preceding year. Subject to the [Servicing] Agreement, the Managing Member shall be authorized to permit the Asset Manager to pay all necessary expenses for operation of the Project, even if such expenses exceed the amounts anticipated for particular items in the Budget, if such expenditures ... (ii) are required to avoid suspension of any necessary service to the Project or (iii) are needed to meet the requirements and procedures for Project management and maintenance, as set forth in the Ground Lease.

Id. at 38-39. The Sublessor is a signatory to defendant’s operating agreement, but “as to the provision of Section 7.13 only.” Id. at 62.

The Sublessor leased land for the Project directly from the Army. In turn, Sublessor subleased that land to defendant on March 1, 2006. See Doc. 15-5.

B. Financing the Project

On March 1, 2006, defendant financed the Project by obtaining a loan from GMAC Commercial Holding Capital Corp. (the “Lender”). Defendant and the Lender memorialized the general terms of this transaction in a Loan Agreement (Doc. 8-3), in which defendant agreed to repay the Lender, as set out in two promissory notes.

That same day, the Lender and U.S. Bank executed a Grantor Trust Agreement (Doc. 1-2), creating the GMAC Commercial Military Housing Trust (the “Trust”). Under the terms of the Grantor Trust Agreement, the Lender assigned all of its lights, title, and interest in the loan to the Trust and U.S. Bank, acting as “Grantor Trustee.” In turn, the Trust issued certificates entitling holders to a portion of each loan payment. The Trust Agreement also gives the Project’s “Credit Enhancer” an interest in the Trust, stating: “the Credit Enhancer has been granted certain rights under the Credit Enhancement Agreement which are hereby incorporated herein by reference.” Id. at 60.

The Credit Enhancement Agreement (Doc. 1-3) identifies plaintiff as the “Credit Enhancer.” In that position, plaintiff issued a [605]*605Financial Guaranty Insurance Policy (Doc. 1-4), assuring payment of all principal and interest due on the loan, should defendant fail to make a scheduled payment. In exchange, defendant, the Lender, and the Grantor Trustee, assigned plaintiff all rights of the Lender under the Loan Agreement, Grantor Trust Agreement, the Servicing Agreement, and all other loan documents (collectively, the “Loan Documents”). Specifically, as relevant here, the Credit Enhancement Agreement provides:

(o) So long as the Obligations have not been paid in full in accordance with the Loan Documents:
(i) The Credit Enhancer shall be deemed the Lender, and the Owner of 100% of the Certificates, for purposes of exercising rights, instituting any action or granting or withholding any consent permitted by or required of the Lender or the Owners under the Transaction Documents ....

Doc. 1-3 at 8.2 Thus, plaintiff assumed all rights of the Lender and Grantor Trustee to enforce the Loan Documents and to receive all principal and interest paid on the loan.

C. The Servicing Agreement

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Bluebook (online)
315 F.R.D. 601, 2016 WL 3541732, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ambac-assurance-corp-v-fort-leavenworth-frontier-heritage-communities-ksd-2016.