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Warren Hill, LLC v. SFR Equities, LLC

United States District Court, E.D. Pennsylvania

December 3, 2019



          BARTLE, J.

         Plaintiff Warren Hill, LLC (“Warren Hill”) brings this diversity action under Illinois law for breach of contract, declaratory relief and an accounting against defendant SFR Equities, LLC (“SFR”). Warren Hill sold to SFR its membership interest in an Illinois limited liability company named Vendor Assistance Program, LLC (“VAP”). Warren Hill claims SFR breached the contract that governed the sale. Specifically, Warren Hill claims SFR underpaid it under the provisions of their Membership Interest Purchase Agreement (“MIPA”). The court has determined liability in favor of Warren Hill. Before the court presently is the motion of Warren Hill for summary judgment on damages and interest under Rule 56 of the Federal Rules of Civil Procedure.


         Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A dispute is genuine if the evidence is such that a reasonable factfinder could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). We view the facts and draw all inferences in favor of the nonmoving party. See In re Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir. 2004).

         Summary judgment is granted where there is insufficient record evidence for a reasonable factfinder to find for the nonmovant. See Anderson, 477 U.S. at 252. “The mere existence of a scintilla of evidence in support of the [nonmoving party]'s position will be insufficient; there must be evidence on which the jury could reasonably find for [that party].” Id. In addition, Rule 56(e)(2) provides “[i]f a party fails to properly support an assertion of fact or fails to properly address another party's assertion of fact as required by Rule 56(c), the court may . . . consider the fact undisputed for the purposes of the motion.” Fed.R.Civ.P. 56(e)(2).


         We begin with a summary of the circumstances that resulted in this litigation. The state of Illinois does not pay its debts on time. As a way of ensuring that Illinois vendors can be paid for the services rendered or goods supplied to Illinois, the state established the Vendor Payment Program (“VPP”) in 2011. Under the VPP, Illinois permits third parties to purchase accounts receivable from its vendors at 90% of their face value. In order to participate in the VPP, the third-party purchasers must demonstrate a financial ability to fund the purchase of receivables and commit a minimum purchase amount based on the needs of the VPP. If the third parties meet these and other requirements under Illinois law, they are designated “Qualified Purchasers” and may participate in the VPP.

         VAP is a “Qualified Purchaser” under the VPP. In this capacity, VAP purchases accounts receivable from vendors through previously established trusts. VAP holds the accounts receivable in accordance with management agreements with the trusts. To finance the purchase of vendor receivables, the trusts borrow funds from a lending bank. VAP indemnifies the loans to the trusts and is ultimately responsible for ensuring the lending banks are repaid.

         When Illinois finally pays the accounts receivable, it pays the trusts. The trusts repay the loans used to purchase the receivables with interest, and Illinois's vendors receive their remaining 10%.

         A profit to VAP is possible because when Illinois finally satisfies the accounts receivable, it does so with substantial interest penalties. These penalties are greater than the interest the trusts pays to the lending banks.

         From this profit, the trusts pay “Trust Fee Income” and “Trust Certificate Income.” The trusts pay VAP “Trust Fee Income” pursuant to the trust agreements for tasks performed in its capacity as manager. For example, VAP organizes the financing of the trusts with the lending banks and locates receivables to purchase.

         The trusts pay “Trust Certificate Income” to the holders of the trust certificates.[1] Trust certificates represent the beneficial interest in the trusts. “Trust Certificate Income” is the spread which remains after all related fees and expenses are paid and the bank loans with interest are discharged.

         Before 2016, Warren Hill owned 33.246% of the membership interest in VAP. Warren Hill sold its membership interest to SFR in accordance with the terms of a Membership Interest Purchase Agreement (“MIPA”) which became effective January 1, 2016. Germane to this motion, in addition to a lump sum at closing, SFR agreed to pay Warren Hill a portion of VAP's income for 2016, 2017, and 2018.

         At the time of the sale, VAP held the trust certificates. VAP received therefore both “Trust Fee Income” as manager of the trusts and “Trust Certificate Income” as holder of the trust certificates. In 2017, the management of VAP created Bluestone Capital Markets (“BCM”) which shares a CEO and board of managers with VAP. VAP transferred the trust certificates to BCM for no consideration.[2]

         In March 2018, Warren Hill brought this action, claiming breach of contract and seeking an accounting under the terms of the MIPA. The parties took discovery and filed several motions for summary judgment on the issue of liability, in which they disputed the meaning of the MIPA. The court held oral argument, ultimately determining liability in favor of Warren Hill. The court decided the summary judgment motions, issued two memorandum opinions in which it provided the reasoning for its decisions, and denied SFR's motion for reconsideration. It will not now ...

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