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Red Star Mortgage Corp. v. Branch

United States District Court, E.D. Pennsylvania

August 21, 2017

DAVID DURAN and STEVE DURAN, Third-Party Defendants.



         This case arises from the refinancing of the mortgage loan on a financially distressed shopping center. Plaintiff Red Star Mortgage Corporation contends that it is entitled to payment for arranging the refinancing because it introduced the lender, Defendant Thorofare Capital, Inc., to Defendant Allen Branch, who was allegedly working on behalf of the shopping center's owner, Railyard Properties, LLC. Plaintiff seeks to recover its payment based on claims of breach of contract, unjust enrichment, quantum meruit, and conversion against Defendants Allen Branch and Richard “Rick” Jaramillo (a member of Railyard Properties, LLC), [1] as well as claims for unjust enrichment, quantum meruit, conversion, and tortious interference with contractual relations against Defendant Thorofare Capital, Inc.. All three Defendants have filed motions for summary judgment in which they contend that Allen Branch was not acting on behalf of Railyard Properties, LLC when he was introduced to Thorofare, and Thorofare's motion also seeks summary judgment on its a cross-claim and third-party claims seeking indemnification, attorneys' fees, and costs from Railyard's three principle members: Jaramillo, and Third-Party Defendants Steven Duran and David Duran. All three motions shall be granted.

         I. BACKGROUND [2]

         Plaintiff's claims arise from the 2014 refinancing of a mortgage loan on Market Station at the Santa Fe Railyards (“Market Station”), a financially troubled shopping center in Santa Fe, New Mexico. Before describing the events that led to the refinancing, it is useful to first describe the people and entities involved in this case:[3]

Railyard Properties LLC (“Railyard”)[4] is a limited liability company formed in April 2004 by Allen Branch, Rick Jaramillo (“Jaramillo”), Steve Duran, David Duran, and Marco Gonzales which has owned Market Station since its creation, and which declared Chapter 11 bankruptcy in 2015. J.A. 47.
Defendant Xacattack LLC, f/k/a Renaissance Properties, LLC (“Renaissance”) is a limited liability company of which Allen Branch was the managing member at all relevant times, which has no affiliation with Railyard and owns no portion of Market Station. J.A. 180; Allen Branch Aff. ¶ 10.
Defendant Allen Branch was a founding member of Railyard who sold his voting and principle membership interest in Railyard in 2012. J.A. 147, 180.
Defendant Richard “Rick” Jaramillo (“Jaramillo”) is founding member of Railyard who remained a principle member at all relevant times. J.A. 127, 236.
Third-Party Defendants Steve Duran and David Duran (the “Durans”) are founding members of Railyard who remained members at all relevant times. J.A. 127, 236 • Defendant Thorofare Capital, Inc. (“Thorofare”) is a private equity firm that re- purchased the original mortgage loan on Market Station in late 2014. J.A. 241.
Plaintiff Red Star Mortgage Corporation (“Red Star”) is a real estate financial services company that attempted to arrange refinancing for Market Station through negotiations with Allen Branch and Jaramillo in 2012, and again with Allen Branch alone in 2013 at which time Red Star introduced him to Thorofare. J.A. 169-70; 180-200.

         A. Original Financing of Market Station

         In 2008, Railyard obtained a $14, 000, 000 loan from Market Street Railway Properties, LLC (“MSRP”), a subsidiary of Ambit Funding, LLC (“Ambit”), to finance the development of Market Station in the historic railyard section of Santa Fe (the “MSRP/Ambit loan”). J.A. 95. Allen Branch, Steve Duran, and Jaramillo signed the loan documents on behalf of Railyard, and the loan was jointly guaranteed by Allen Branch, David Duran, Elaine Duran (David's wife), Steve Duran, and Jaramillo, pursuant to a Commercial Guaranty with MSRP. J.A. 95, 123.

         Although Railyard secured Recreational Equipment, Inc. (“REI”), a retailer of outdoor recreational equipment and apparel, to serve as anchor tenant for Market Station, many of the other units remained unleased and Railyard soon had difficulty meeting its debt obligations to MSRP. Meanwhile, Railyard suffered from internal disputes among its members, including a lawsuit filed by Allen Branch against the company in late 2010. J.A. 140. In an attempt to resolve their dispute, Railyard purchased Allen Branch's voting interest and all but 5% of his membership interest on May 12, 2012. J.A. 145.

         B. Red Star Solicits Railyard for Refinancing

         Despite selling his membership interest, Allen Branch continued to work with Railyard as its realtor and in efforts to obtain refinancing of the MSRP/Ambit loan throughout 2012. In September of that year, Allen Branch made his first contact with Red Star by responding to a mass e-mail advertising Red Star's financial consulting and brokerage services. J.A. 169. Although he was no longer a voting or principle member of Railyard at the time, he referred to the Market Street property as “our” property and expressed an interest in refinancing “our” loan in his correspondence with Gary Polao, the President of Red Star. J.A. 169. By October 2012, Allen Branch included Jaramillo (who remained a principle member of Railyard) on several email chains to provide further information about Market Station's refinancing potential, and general terms regarding potential refinancing of the MSRP/Ambit loan were discussed. J.A. 356. These negotiations culminated with a conference call between Polao, Allen Branch, and Jaramillo on October 30, 2012. J.A. 356. No formal financing proposal ever emerged from the negotiations, however, and although Allen Branch and Polao continued to exchange sporadic emails suggesting various alternative financing options for several months, the negotiations stopped in March 2013. J.A. 170, 173.

         C. Allen Branch / Renaissance Engage with Red Star

         In the same month that the initial negotiations with Red Star stopped (March 2013), Allen Branch was terminated as Railyard's realtor. Branch Aff. ¶ 5; By May 2013, he stopped all contact with Railyard other than through his lawsuit against the company. Branch Aff. ¶ 7; Jaramillo Aff. ¶ 12; S. Duran Aff. ¶ 9; D. Duran Aff. ¶ 9.[5]

         In late July 2013, Allen Branch - now estranged from Railyard - resumed his e-mail discussion about Market Station with Polao. J.A. 173. These renewed discussions quickly yielded a formal “Agreement for Financial Services” (the “Red Star Agreement”), dated August 7, 2013, between Red Star as the “Consultant” and “Allen Branch and Renaissance Properties, LLC” as the “Client.” J.A. 180. Allen Branch signed the Red Star Agreement twice (once as an individual and once as the “managing member” of Renaissance), and Polao signed on behalf of Red Star; neither Railyard nor any of its other members are mentioned in the document. J.A. 180. For his part, Jaramillo does not appear on any of the July and August 2013 e-mails between Allen Branch and Polao, and he claims he had no contact with Polao after July 2013. Jaramillo Aff. ¶ 9.

         The Red Star Agreement provided that Red Star would serve as the consultant to find a lender and facilitate a $9, 000, 000 loan to finance Renaissance's re-purchase of the MSRP/Ambit loan on the Market Station property. J.A. 180. In return for a successful financing, Red Star would be entitled to a commission of 1.5% of the loan principal, in addition to a $2, 995 consulting fee. J.A. 180. The Red Star agreement contained a clause which provided that:

Client agrees not to obtain financing from Lender/Investors supplied by Consultant, either directly or through third parties, without prior written consent of Consultant, for a period of two (2) years from the date of this agreement except through Consultant and that a separate agreement shall be required for these services.

(the “Non-Circumvention Clause”). J.A. 180.

         The same day the Red Star Agreement was signed, Polao contacted Eugene Rutenberg, a Senior Loan Analyst at Thorofare, and introduced Allen Branch as the “borrower” and “managing member of Renaissance Properties, LLC” in relation to proposed financing for the re-purchase of a commercial loan. J.A. 181, 199. That same day, Polao, Allen Branch, and Rutenberg held a conference call to discuss the financing. J.A. 180, 390. Following the call, Rutenberg e-mailed Polao that Thorofare would consider the loan only if Renaissance obtained $2-3 million in secondary financing from MSRP/Ambit, and that the proposal needed “a lot of work.” J.A. 200. Polao passed this information along to Allen Branch the following day, along with a Proof of Funds from Thorofare to facilitate negotiations with MSRP/Ambit. J.A. 201. There is no evidence of any further communication between Red Star, Thorofare, and Allen Branch, no formal proposal or term sheet was produced, and Renaissance never purchased the MSRP/Ambit loan. J.A. 390.

         Although Polao claims that he informed Rutenberg that Red Star had a consulting agreement with Renaissance during a phone call in August 2013, the Red Star Agreement was not attached to any of the e-mails in the record between Red Star and Thorofare. Polao Aff. ¶ 14; J.A. 181-200. There is also no evidence that Allen Branch communicated ...

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