Back in 2000, U.S. Bancorp Piper Jaffray Inc. offered certain high net worth employees the opportunity essentially to borrow money and, with that borrowed money, invest in a U.S. Bancorp Piper investment fund. The loans were to be 50% “recourse” and 50% “non-recourse,” meaning that some of the debt would be repayable only from proceeds generated by the investment (the non-recourse portion). The remaining debt came with the obligation to repay under any circumstance.
When the loans became due, the fund distributions were insufficient to cover the amounts due, so U.S. Bank brought claims against the borrowers. The issue: were distributions from the Fund credited to the recourse debt or the non-recourse debt? Which class of debt was to be paid off first?
The bank moved for summary judgment before Hennepin County Judge Charles Porter arguing that non-recourse debt was paid off first and that it therefore had a claim on the remaining unpaid recourse debt. Undoubtedly to the bank’s surprise, not only did it fail to win summary judgment but the trial court awarded summary judgment to the defendants who had not even moved for summary judgment.
The unambiguous language in the limited-recourse provision provides that distributions would be credited first to the non-recourse 50% portion of respondents’ loans and, if and when the non-recourse 50% portion was paid inclusive of interest, the distributions, if any, would be credited against the recourse 50% portion of respondents’ loans. We conclude that under the plain language of the limited-recourse provision, respondents were liable for principal until outstanding principal was 50% paid off, after which they were liable for the remaining balance only on a non-recourse basis.
The ironies of practicing in commercial litigation are perhaps nowhere better highlighted than when a trial court finds a contract unambiguous in favor of Party A. The Court of Appeals then finds the contract unambiguous in favor of Party B. One must assume that “unambiguous” or “plain language” cannot, in this context, be seen as synonymous with “obvious.”