Midwest Update - Morgan Walg, LLC v. Nicollet Island Development Co

Morgan‑Walg, LLC v. Nicollet Island Development Co., et al., No. 17‑1844, 2018 WL 3716369 (Minn. Ct. App. 08/06/18).

In an action between former joint venture partners, a Minnesota Court of Appeals panel held that a state district court erred when it granted summary judgment when a genuine issue of material fact existed as to amounts owed under promissory notes and a guaranty.

In May 2009, Morgan‑Walg, LLC (“Morgan‑Walg”) and two developer companies (the “Developers”) agreed to participate in a joint venture for the development, construction, sale and lease of at least ten Walgreens stores. Pursuant to a development agreement, Morgan‑Walg advanced a series of initial payments to the Developers, each of which was evidenced and secured by a promissory note personally guaranteed by Howard Bergerud, president of both Developers. In January 2011, the parties executed a transfer agreement, whereby the Developers agreed to purchase all of Morgan‑Walg’s participation rights in the project and to repay Morgan‑Walg $23,717,818, which represented its initial payments, equity capital, and an agreed‑upon amount for return on investment. This amount was evidenced by two promissory notes guaranteed by Bergerud.

The Developers failed to pay in full when the promissory notes matured in September and November 2011, respectively. The parties executed a forbearance agreement in March 2012, in which they agreed that the outstanding balance on the notes was $20,005,500, not including accrued interest and fees. The Developers proceeded to default on the first forbearance agreement, and the parties then executed another forbearance agreement in August 2013. In October 2015, Morgan‑Walg sued the Developers and sought a confession of judgment, and the district court entered judgment against the Developers in excess of $22 million. The parties then entered a final forbearance agreement in January 2016, in which the parties stipulated to the dismissal of the lawsuit and to vacating the judgment.

In December 2016, Morgan‑Walg filed the present suit against the Developers, alleging breach of the promissory notes and guaranty. Morgan‑Walg moved for summary judgment and for an award of attorney fees and costs. In support of its motion, Morgan‑Walg filed an affidavit of its CFO that listed specific amounts of unpaid principal and accrued interest owed under the promissory notes, as well as affidavits relating to the attorneys’ fees and costs. In response, the Developers filed an affidavit from Bergerud, which admitted that the developers owed money to Morgan‑Walg but contested the amount. Because no discovery had been conducted, Bergerud’s declaration did not state the exact amount due. The district court ultimately granted Morgan‑Walg’s motion for summary judgment and attorneys’ fees, awarding the amounts listed in Morgan‑Walg’s affidavits. In October 2017, the Developers filed an additional affidavit that alleged that one of the principals at Morgan‑Walg would frequently amend the terms of written agreements “through oral agreements and handshake deals.” Later in October 2017, the developers requested reconsideration of the order granting summary judgment and attorneys’ fees, and filed a new affidavit from Bergerud. The district court denied the request for reconsideration.

On appeal, the Minnesota Court of Appeals overturned the summary judgment and held that a genuine issue of material fact existed as to the amount of damages owed to Morgan‑Walg under the promissory notes and guaranty. While the Court held that the district court did not err by ignoring the evidence submitted after the grant of summary judgment, it found that the CFO’s affidavit and the second forbearance agreement (executed in August 2013) identified different amounts of unpaid principal. Bergerun’s declaration identified particular dates of specific payments that were not accounted for in the CFO’s affidavit, which did not explain the discrepancy with the second forbearance agreement other than by asserting that the “loan balance changed over time and the forbearance/modification documents were executed at various points during the life of the loan, reflecting the different balances owed at different times.” The Court held that, due to the conflicting amounts of unpaid principal and the lack of supporting documentation for the numbers in the CFO’s affidavit, the Developers’ assertion went beyond a “metaphysical doubt” as to the accuracy of the CFO’s affidavit and reversed the grant of summary judgment.

The Court upheld the attorneys’ fees and costs for Morgan‑Walg, noting that the promissory notes and the guaranty both explicitly provided for attorneys’ fees to be repaid to Morgan‑Walg. The Court noted that Morgan‑Walg had presented the district court with extensive records relating to work performed by its attorneys. In addition, it upheld the payment of approximately $8,000 in Westlaw and Lexis fees, noting that the Eighth Circuit has recognized that the “prevailing view among other circuits is to permit awards to reimburse counsel for the reasonable use of online legal research.”