FarnhamNovak & Associates, Inc., Appellant, vs. CommonBond Communities, et al., Respondents.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-379

 

FarnhamNovak & Associates, Inc.,
Appellant,
 
vs.
 
CommonBond Communities, et al.,
Respondents.

 

Filed September 14, 2004

Affirmed

Minge, Judge

 

Hennepin County District Court

File No. CT 03-012203

 

 

James A. Reichert, Dooley & Reichert, PLC, 270 Grain Exchange Building North, 301 Fourth Avenue South, Minneapolis, MN 55415 (for appellant)

 

D. Charles Macdonald, Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-3901 (for respondents)

 

            Considered and decided by Randall, Presiding Judge; Willis, Judge; and Minge, Judge.

 

U N P U B L I S H E D  O P I N I O N

 

MINGE, Judge

 

            Appellant financial company appeals from the district court's grant of summary judgment in favor of respondent developer, arguing that the district court erred in its findings and its interpretation of the parties' memorandum of understanding.  Because there is no evidence that respondent has an obligation to pay appellant, we affirm.

FACTS

 

            The claim of appellant FarnhamNovak & Associates, Inc. arises from the financing and construction of a senior citizen rental housing development located in Hastings.  The project was financed with $9.265 million of bonds issued by the Housing and Redevelopment Authority of Hastings (HRA).  Respondent CommonBond is the developer of the project.  Respondent Arbor Oaks is the owner of the project.  Respondent Wells Fargo serves as trustee of the funds.  Respondent Commonwealth is the disbursing agent.

Appellant FarnhamNovak and respondent CommonBond signed a "Memorandum of Understanding," in which appellant agreed to provide management-consulting and financial-advisory services in exchange for half of the developers fee or development/consulting fee generated by the project.  The parties agree that this fee was $835,000; appellant's half was $417,500.  Respondent Wells Fargo, as trustee, signed an Indenture of Trust with HRA.  Article V of the document, entitled "Funds and Accounts," created a "Construction Fund" initially funded by $7,053,402 of the bond proceeds.  The document provided a schedule of payouts from the fund that included an $835,000 development fee.  Under the schedule, $417,500 was to be disbursed at bond closing, $125,250 was to be disbursed in the same percentage as the percentage of the completion of construction, and the last $292,250 was to be disbursed "pro rata upon execution of unit leases."  Respondents Arbor Oaks, Wells Fargo, and Commonwealth entered into a disbursing agreement instructing Commonwealth to disburse 50% of the development fee to appellant according to the schedule in the Indenture of Trust.

When the bonds were sold, $417,500 was paid out as development fees and divided equally between respondent CommonBond and appellant.  As construction of the project progressed, the next $125,250 was paid and divided equally between respondent CommonBond and appellant.  As the housing units were rented, additional sums were paid out equally between the two parties.  At the time of the district court's order, all but $90,020 had been paid to appellant. 

During this time, the funds remaining in the Construction Fund were needed to pay for construction of the development, and the account was depleted.  While respondent CommonBond advanced money to cover certain costs of finishing construction, there was no money in the Construction Fund to pay either respondent CommonBond or appellant the balance of the development fee.  Respondent CommonBond refused to pay appellant directly or indirectly, arguing that it had no contractual liability to pay appellant, that it was not liable for advancing money to the Construction Fund to pay the balance of the development fee, that appellant could only collect to the extent there was money available in the Construction Fund, and that the Fund was depleted.  Appellant sued CommonBond, Arbor Oaks, Wells Fargo, and Commonwealth, seeking the balance of its fee.  The district court granted respondents' motions for summary judgment, concluding first that respondents Wells Fargo and Commonwealth had no duty to appellant.  The court then concluded that the terms of the agreement between appellant and CommonBond were clear and unambiguous and that appellant had been paid the money owed to date under the parties' agreement.  Appellant appeals the district court's grant of summary judgment in favor of CommonBond.

D E C I S I O N

 

            "On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law."  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  "A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law."  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  "We view the evidence in the light most favorable to the party against whom judgment was granted."  Id.

            The dispute is whether respondent CommonBond has a direct contractual obligation to pay appellant.  The memorandum of understanding is between appellant and CommonBond for services to be provided to CommonBond incident to the project.  The language of the parties' memorandum of understanding states:

Compensation proposed at the onset of this contract that payment for services rendered under this contract would be a split of 50%-50% to each party of the fees generated under the heading "Developers Fee" or "Development/Consulting Fee" in the sources and uses of the borrowing for this project. 

 

In the section entitled "Payout of Fees," the memorandum of understanding provides that "[d]epending upon the underwriter's covenants and requirements, it is likely that any developers fee will be paid out as follows:  1.  In total, at the closing of the financing . . . . 2.  In proportion to the rent-up of the units as they are rented."  

Respondent argues that appellant is not entitled to a payment until the Construction Fund has sufficient funds to make a payment and that, until then, it has no contractual obligation to pay appellant.  Appellant contends that the lack of money in the Construction Fund is not a defense because respondent has a direct, general contractual obligation to appellant for its entire fee and, if necessary, an obligation to replenish the Construction Fund. 

            Appellant, however, is unable to produce, and we are unable to find in the record, any evidence stating that respondent CommonBond has such a general obligation to appellant or an obligation to replenish the Construction Fund.  Without such evidence, there is no support for appellant's argument.  Rather, the memorandum of understanding indicates that appellant is entitled to be paid half of the development fee "generated." 

Appellant attempts to rely on its interpretation of the word "generated" in the parties "Memorandum of Understanding."  It argues that under the definition of "generated," appellant earned the money when bonds were sold and that therefore, respondent has a direct obligation to pay appellant, regardless of whether there was money in the Construction Fund.  That appellant has performed all its services and earned its fee is not at issue.  According to the plain language of the parties' memorandum of understanding, when appellant earned its fee is irrelevant.  The question is whether respondent CommonBond must pay appellant regardless of the availability of money to pay the remainder of the developer's fee.  The memorandum of understanding includes two available options for payment.  One of these provisions clearly provides for the payment of the fees out of the Construction Fund in proportion to the rent-up of the units as they are rented.  The record indicates that up until the date of the district court's order, appellant had been paid according to the parties' memorandum of understanding. 

Respondent CommonBond does not deny that appellant is entitled to be paid at a subsequent date, if further units are rented and if respondents receive enough cash flow to replenish the Construction Fund.  Further, respondent CommonBond conceded at oral argument that the district court's dismissal with prejudice of the other respondents was not a bar to appellant's subsequent collection of fees.  We therefore determine that the district court did not err in granting respondent CommonBond's motion for summary judgment on the basis that it had performed its contractual duties to the date of the hearing. 

            Affirmed.