• August 2, 2012

This summer has been one of the hottest on record for the Twin Cities (as well as the nation). To me, after being bombarded with seemingly endless heat, there are few things better than going to a water park (or taking a trip down a Slip n’ Slide). Building a large water park, particularly an indoor park, however, is a massive undertaking that requires enormous capital to finance and construct rides like the “Howlin’ Tornado” and “River Canyon Run.” Following close behind the challenge of getting money for such a project comes the obligation to repay, of course.

One bank, of many, that helped finance an indoor water park project in Washington State brought suit in Minnesota seeking a preliminary injunction before a large payment on the construction loan was to come due by the borrower on August 1, 2012.  The bank argued that if the court doesn’t issue the injunction, it could be forced to take a deep dive into a dry pit (also known as “irreparable harm”) on its rights as a lender party to a participation agreement.

Venture Bank was one of 66 participating lenders that came together to fund the $102 million construction cost of the Great Wolf Lodge Water Park in Grand Mound, Washington which opened in 2007. Due to the economic downturn, the State of Washington closed Venture Bank and the FDIC took over as a receiver. First-Citizens Bank & Trust Company of North Carolina bought most of Venture Bank’s assets, including its share in the construction loan.

Almost a year before the $93 million amount still outstanding on the debt came due, the borrower said that it would not be able to come up with the money and wanted to renegotiate. A majority of the participating banks wanted to extend the payment terms but First-Citizens did not. To stop the new agreement concerning the terms of repayment from going into place, First-Citizens brought a declaratory judgment action asserting that unanimous consent was required to amend the lenders’ previous agreement.

On First-Citizens’ motion for a preliminary injunction, U.S. District Court Judge Ann Montgomery (D. Minn.) considered where the balance struck by applying test from Dataphase Systems, Inc. v. CL Systems, Inc.: (1) threat of irreparable harm to the movant; (2) harm to other parties if the relief is granted; (3) probability of movant’s success on the merits; and (4) effect on public interest.

One interesting thing about this decision was the court’s analysis of the fourth prong of the Dataphase test: effect on the public interest. In facilitating the sale of Venture Bank’s assets, the FDIC guaranteed 85-90% of First-Citizens’ losses on any asset it purchased. Defendant (another creditor who supported a renegotiation of the debt) the argued that imposing Plaintiff’s proposed preliminary injunction would shut down the project, lead to costs for the FDIC – and subsequently us as taxpayers — and potentially cause job loss at the water park.

Judge Montgomery rejected Defendant’s claims though she found the threat of job loss “concerning.” Ultimately, though, the fact that the water park was not foreclosed upon, and that act didn’t seem “imminent,” ruled the day and Judge Montgomery granted the motion for a temporary restraining order.

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