March 20, 2019

Archives for November 17, 2014

Tenth Circuit: When Both Parties to Contract Agree to Its Terms, Third Party Has No Standing to Object

The Tenth Circuit Court of Appeals issued its opinion in Security Service Federal Credit Union v. First American Mortgage Funding, LLC on Tuesday, November 4, 2014.

Security Service Federal Credit Union’s predecessor in interest, New Horizons Community Credit Union, entered into a funding service agreement with First American Mortgage Funding, LLC (FAM) and First American Mortgage, Inc. (together, FAM defendants), under which FAM originated 26 mortgage loans to individual borrowers for the purchase and construction of residential properties in Colorado and California. The closing agents performed closing procedures. Security Service (SSFCU) contended that the FAM defendants and closing agents wrongfully induced New Horizons to fund the loans to straw borrowers, and that the loan transactions were a vehicle to misappropriate $14 million in funds. SSFCU brought claims in district court, but FAM objected, contending that SSFCU was not a proper party in interest to pursue the claims. The district court found for FAM and dismissed SSFCU’s claims with prejudice.

The Tenth Circuit found this case easy to resolve, following 6th Circuit precedent in JP Morgan Chase Bank, N.A. v. First Am. Title Ins. Co., 750 F.3d 573 (6th Cir. 2014). When both parties to a contract agree to its terms, a third party cannot object. Here, both New Horizons and SSFCU entered into a Purchase and Assumption Agreement, where SSFCU had all rights to pursue claims on behalf of New Horizons. FAM, as a third party, had no right to object to SSFCU’s standing. The district court’s dismissal was reversed.

Tenth Circuit: Contract’s No Third-Party Beneficiary Provision Effectively Barred Claims of Third-Party Beneficiary Entities

The Tenth Circuit Court of Appeals issued its opinion in Gorsuch Ltd., B.C. v. Wells Fargo National Bank Association on Tuesday, November 4, 2014.

Renie and David Gorsuch founded Gorsuch, Ltd., a retail store, in 1962, and subsequently founded Gorsuch, Limited at Aspen and  Gorsuch, Limited at Keystone to operate additional retail stores. They founded Gorsuch Cooper to own the property from which Gorsuch, Ltd. at Aspen operates its business. The three child entities are collectively known as the Gorsuch Entities. In 2008, Gorsuch, Ltd. obtained a $14 million line of credit from Wells Fargo, and the credit agreement explicitly contained a no third-party beneficiary (NTPB) provision. When Gorsuch’s retail sales were lower than expected in 2009, Wells Fargo suspended the line of credit. Gorsuch Ltd. and the Gorsuch Entities brought suit against Wells Fargo for damages in state court, but Wells Fargo removed to federal court for diversity jurisdiction. Wells Fargo moved to dismiss the Gorsuch Entities’ third-party beneficiary claims due to the NTPB provision.

The district court determined the Gorsuch Entities were impermissible third-party beneficiaries and held the NTPB provision precluded them from seeking relief. The district court dismissed the Gorsuch Entities, granted Wells Fargo’s motion to dismiss the third-party claims, stayed the proceeding while Wells Fargo and Gorsuch, Ltd. proceeded to arbitration, and administratively closed the case without prejudice. Gorsuch, Ltd. moved to amend the complaint to include the Gorsuch Entities, but the district court denied the motion since the case was administratively closed and no one had petitioned to reopen it. Gorsuch, Ltd. eventually petitioned to reopen the case, but later withdrew the motion as it arbitrated its claims. After the district court’s deadline for reopening passed, it dismissed the case without prejudice. Gorsuch, Ltd. subsequently moved to reopen the case, which was granted, and moved for the court to confirm the arbitration award and file a third amended complaint along with the Gorsuch Entities. The district court affirmed the arbitration award, concluding Gorsuch, Ltd.’s involvement in the case. A magistrate judge filed a minute order clarifying that Gorsuch, Ltd. was the only proper plaintiff in the case, and the district court judge agreed, finding that the Gorsuch Entities had been dismissed from the litigation and had not shown good cause to file the third amended complaint. The Gorsuch Entities filed a timely appeal.

On appeal, the Tenth Circuit, applying Colorado law, found that (1) the district court correctly dismissed the Gorsuch Entities, and (2) properly denied their motion to amend. The Tenth Circuit found the Gorsuch Entities were not permissive assignees under the contract with Wells Fargo, and in fact were barred from bringing claims by the contract’s NTPB provision. Although Wells Fargo understood the business relationship between Gorsuch, Ltd. and the Gorsuch Entities, the contract expressly prohibited litigation from the Gorsuch Entities, therefore the district court’s dismissal of the Entities’ claims was correct. The Gorsuch Entities asserted that the district court gave improper weight to the NTPB provision, but there was no evidence in writing that the Entities were permissible third-party beneficiaries under the contract.

The Tenth Circuit also found that the district court correctly denied the Gorsuch Entities’ motion to amend the complaint. They were dismissed as parties in November 2011, and their July 2013 motion to amend was both untimely and showed no good cause to amend the complaint. Because the Gorsuch Entities lacked good cause for the delay in filing their amended complaint, the district court’s dismissal was proper.

The Tenth Circuit affirmed the district court’s dismissal of the Gorsuch Entities as parties and denial of their motion to amend.

Tenth Circuit: Unpublished Opinions, 11/14/2014

On Friday, November 14, 2014, the Tenth Circuit Court of Appeals issued one published opinion and four unpublished opinions.

Madrid v. Wilson

United States v. Harris

McCulley v. University of Kansas School of Medicine

United States v. Kujat

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.