Antitrust Law Daily Wrap Up, RICO—W.D. Mo.: Trustee’s RICO action against property developer survives motion to dismiss, (Mar 11, 2016)

By Michael Menzhuber, J.D., LL.M.

A summary judgment motion to dismiss a trustee’s Racketeer Influenced and Corrupt Organizations (RICO) Act and fraudulent misrepresentation claims, in an effort to recover development period reserve funds that it had released to the original property developer, was denied by the federal district court in Springfield, Missouri (BOKF, N.A. v. BCP Land Company, LLC, March 9, 2016, Harpool, D.).

In July 2007, the Community Improvement District and the trustee, Southwest Trust Company, entered into a Trust Indenture which set forth the terms of bonds authorized to finance the development of the District property for commercial and residential purposes (Special Assessment Property). At the time the District was created, all the property in the District was owned by Branson Commerce Park, LLC and four related entities.

Pursuant to the Trust Indenture, a development period reserve fund (DPRF) was created and established with the trustee (currently BOKF N.A) for the purpose of paying any defaulted special assessments on the Special Assessment Property. The DPRF was funded by the developer, Branson Commerce Park. A Replenishment Covenant was also established that required the developer to replenish the DPRF in an amount equal to 110 percent of any amount withdrawn to pay a special assessment. The replenishment covenant was personally guaranteed by certain individuals, including Jack Redwine.

In May 2009, Redwine unsuccessfully sought to terminate the DPRF and release the funds to him after Branson Commerce Park, LLC sold the Special Assessment Property to BCP Land Company, LLC. In 2012, several of the parcels of the Special Assessment Property were auctioned to companies that were primarily owned by Jack Kynion, who had a business relationship with Redwine. After the sale, the trustee released a pro rata portion of the funds in the DPRF to Redwine. After the sale, none of the purchasing entities paid any of the special assessments that had become due.

In 2013, additional parcels were auctioned off to companies whose owners had business and/or personal relationships with Kynion or Redwine. This time the trustee refused to release a pro rata portion of the DPRF to Redwine. After the sale, none of the purchasing entities paid any of the special assessments that had become due.

The trustee, BOKF, seeking a return of the DPRF funds that it released to Redwine in 2012 and a ruling that it acted properly in refusing to release funds to Redwine following the 2013 property sales, filed a complaint against BCP Land, Redwine, and other companies which sought a declaratory judgment regarding the interpretation of the Trust Indenture. The complaint also sought a claim for a violation of RICO. In response, Redwine filed counterclaims for declaratory judgment and breach of contract. The parties subsequently filed cross motions for summary judgment.

RICO. The BCP Land defendants argued that they were entitled to summary judgment on BOKF’s RICO claims because: (1) the claims were barred by the economic loss doctrine; (2) the alleged conduct did not amount to “racketeering activity” under RICO; and (3) the alleged false representations were not false or representations of fact.

The court declined to say that BOKF’s claims were barred by the economic loss doctrine because: (1) the suit involved a declaratory judgment, rather than a breach of contract action; and (2) BOFK was asking the court to interpret the terms of the Trust Indenture, to which the defendants were a direct party. Furthermore, BOKF’s RICO claims were not dismissed, as a matter of law, because BOKF alleged predicate acts of bank fraud and wire fraud and the defendants did not argue that BOKF failed to present sufficient evidence as to any particular element of bank fraud or wire fraud.

The case is No. 6:14-cv-03025-MDH.

Attorneys: Andrea M. Chase (Spencer, Fane, Britt & Browne LLP) for BOKF, N.A. Brad K. Thoenen (Seigfreid Bingham, PC) for BCP Land Co.

Companies: BOKF, N.A.; BCP Land Co.; Grace Properties Branson, LLC; SJ Legacy, LLC

Cases: RICO MissouriNews