Press v. Key Bank

VELOCITY PRESS, a Utah corporation, Plaintiff - Appellee, v. KEY BANK, NA, Defendant - Appellant.

No. 12-4172

No. 13-4017

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

FILED: July 2, 2014

(D.C. No. 2:09-CV-00520-TS)

(D. Utah)

ORDER AND JUDGMENT^*

Before LUCERO, HOLLOWAY,^** and GORSUCH, Circuit Judges.

Velocity Press, Inc. ("Velocity") was awarded damages and attorneys' fees following a bench trial on Velocity's fraud, breach of contract, and fiduciary duty claimsagainst KeyBank, N.A. ("Key"). Key appeals. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm in part and reverse in part.

I

Velocity is a commercial printer in Utah that specializes in web printing.¹ In October 2006, Velocity entered into a contract with Sanden Machines, Ltd. ("Sanden") to purchase a new custom printing press that would have substantially increased Velocity's printing capacity. Velocity agreed to pay Sanden a total of $1,797,229 in four progress payments: 30% down, 30% halfway through manufacturing, 35% when the press was completed and operating on Sanden's floor, and the final 5% when installation of the press was completed at Velocity's facility. The contract stated that Sanden anticipated delivering the press in six to eight months, but Drew Elkins, the owner and president of Velocity, testified that Sanden was "going to try and get this press done within three months."

Velocity paid Sanden $80,000 toward the down payment as a deposit and planned to obtain a loan for the remainder of the purchase price. The company received commitments from two banks to finance the press, and paid a refundable $7,500 down payment to one bank. Before completing either loan, however, Velocity was approached by Shelly Christopher, a relationship manager for Key. Christopher and her supervisor, Brian Van Camp, solicited Velocity's business. Elkins provided Van Camp with the details of the press contract and contact information for Sanden personnel so that Keycould familiarize itself with Sanden's business. Elkins also provided Key with a copy of the Velocity-Sanden contract.

On June 8, 2007, Velocity entered into a loan agreement with Key (the "June Loan"). The June Loan documents established a revolving line of credit for the express purpose of "Printing Press Construction," and allowed Velocity to request advances either orally or in writing. As part of the transaction, Velocity granted Key a security interest in all of its assets, and Elkins and his wife provided personal guarantees. Upon Velocity's request, Key transferred the remainder of the down payment to Sanden immediately after the June Loan documents were executed.

In the days prior to the closing of the June Loan, Key attempted to make three changes to Velocity's contract with Sanden without Velocity's knowledge. First, Key proposed and Sanden agreed that the third progress payment would be paid when the press was delivered to Velocity, rather than the date it was operating on Sanden's floor as provided in the Velocity-Sanden contract. Second, Key obtained a first position security interest in the initial $250,000 of parts and materials purchased to construct Velocity's press, even though Velocity's contract with Sanden gave Sanden the first position security interest in that material. Third, Key informed Sanden that it would have to obtain a letter of credit to secure the second progress payment before that payment would be advanced. Elkins testified that he would not have signed the June Loan documents had he been aware of these changes.

On July 6, 2007, Christopher wrote to Sanden, seeking an update on the letter of credit that Key understood Sanden would have in place before the second progresspayment was made. Peter Williams, a Sanden employee, responded on July 19, stating that Sanden thought Key would be issuing a letter of credit. In light of this confusion, Williams indicated that "funding the [letter of credit] in time to maintain production would be impossible." The email concluded that "it was, and is, Sanden's expectation that we were to receive the second progress payment as normal, per the terms of the contract and deviation from this will result in significant production delays as the production schedule is sold out through January of 2008." Representatives from the bank testified that the letter of credit requirement was imposed to protect the bank's assets despite knowledge that the requirement would delay production of the press.

After receiving this email, Key decided that rather than requiring Sanden to obtain a letter of credit to secure the second progress payment, Key would itself issue a letter of credit in lieu of the second progress payment. This approach would force Sanden to seek independent funding using the Key letter of credit as collateral. To move forward with this plan, Key sent Elkins a new loan agreement and a letter of credit application, but Christopher misrepresented to Elkins that Sanden had imposed this new requirement. On August 9, 2007, Velocity and Key entered into a modified loan agreement (the "August Loan"). Elkins was told that he would not receive any additional financing unless he agreed to sign the letter of credit application. And the loan documents did not indicate that the letter of credit was being substituted for the second progress payment.

Due to funding issues created by Key's letter of credit requirement, Sanden rearranged its production schedule. Using components purchased for Velocity's press, Sanden completed a press ordered by a different company, North Star, which had beenscheduled for manufacture after Velocity's press. Sanden later began work on a press for yet another customer, Corporate Express, which had also initially been behind Velocity in the production schedule. Sanden never submitted an invoice for the second progress payment to Velocity because Key had communicated that funding would not be forthcoming.

In September 2008, Sanden filed for bankruptcy without ever resuming work on Velocity's press. Sanden did, however, complete construction of the press for Corporate Express (and had completed the North Star press prior to bankruptcy). Velocity filed a claim with Sanden's bankruptcy trustee for the amount of the 30% down payment, but the bankruptcy trustee denied all but $80,000 of Velocity's claim because Sanden's records indicated that the rest of the money had come from Key. Elkins attempted to negotiate an assignment of Key's security interest to Velocity after Velocity obtained financing and paid Key the full amount owed on the loan. But Elkins refused to sign the assignment offered by Key because Key required a release of liability.

Velocity eventually filed suit against Key, as well as several other defendants that were dismissed with prejudice in January 2011 and are not parties to this appeal. The complaint stated claims against Key for breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment. Velocity also sought punitive damages and an award of attorneys' fees and costs. After a bench trial, the district court determined that Key did not repudiate either the June Loan or the August Loan and thus was not liable for breach of contract. However, the court concluded that Key violated the implied covenant of good faith and breached a fiduciaryduty it owed to Velocity. After allowing Velocity to add a fraud claim, the court also found that Key fraudulently induced Velocity to enter into the loan. It awarded Velocity $904,576.41 in damages, as well as attorneys' fees. Key timely appealed.

II

Before addressing Key's claim-specific contentions, we consider its over-arching argument that the evidence was insufficient to support a finding that Key's actions caused Velocity's damages. In particular, Key contends that the court replaced the required proximate cause analysis with a "but for" analysis.

Utah law² provides that proximate cause is generally an issue reserved for the finder of fact. Pace v. Swerdlow, 519 F.3d 1067, 1074 (10th Cir. 2008) (citing Steffensen v. Smith's Mgmt. Corp., 820 P.2d 482, 486 (Utah Ct. App. 1991)). We thus review the district court's determination only for clear error. See Sw. Stainless, LP v. Sappington, 582 F.3d 1176, 1183 (10th Cir. 2009). "A finding of fact is 'clearly erroneous' if it is without factual support in the record or if, after reviewing all the evidence, we are left with a definite and firm conviction that a mistake has been made." Id. (quotation omitted). This Court reviews the evidence "in the light most favorable to the district court's ruling and must uphold any district court finding that is permissible in light of the evidence." Id. (quotation omitted).

"Proximate cause is that cause which, in the natural and continuous sequence (unbroken by an efficient intervening cause), produces the injury and without which the result would not have occurred. It . . . necessarily sets in operation the factors thataccomplish the injury." Mahmood v. Ross, 990 P.2d 933, 938 (Utah 1999) (quotation and alteration omitted). The district court concluded "that Sanden's bankruptcy was not an intervening cause, as it was reasonably foreseeable that requiring Sanden to find independent financing could lead to financial difficulties and delaying construction of the press for over a year could lead to the press not being constructed." The court also concluded that Sanden would have had the ability to complete Velocity's press in 2007 had it not been for the letter of credit requirement.

The record amply supports the district court's findings. In Williams' July 19, 2007 email to Christopher, he repeatedly warned Christopher that the letter of credit requirement would jeopardize the "ongoing production of the press" and that it could "result in significant production delays." James Watts, one of the salespeople who worked for Sanden on the Velocity press, testified that it would have taken six to eight weeks for Sanden...