Although a reversal in the Indiana Court of Appeals handed an investment firm a reimbursement, the amount of funds to be returned is unknown since the trial court was left to figure the sum.
The Court of Appeals reviewed an agreement between Champlain Capital Partners L.P. and Elway Co., L.P., Dale Elrod, Jeffrey Elrod and Mary Ann Waymire (collectively called “the Elrod plaintiffs" by the appellate court). Champlain provided a needed infusion of money into the Elrods’ company, John K. Elrod Co. by acquiring a majority interest in 2006.
However, financial problems continued and the fall of 2006, Champlain placed JKE Co. into Chapter 7 liquidation bankruptcy. As a result, Safeco Surety, which issued construction bonds on JKE Co.’s behalf, drew down the $3.5 million available in the substitute letter of credit to pay claims against those bonds. Champlain then demanded reimbursement from the Elrods under provisions of their business agreement. The Eldod plaintiffs filed a complaint seeking declaratory judgment as to their obligations under the agreement.
Morgan Superior Court entered judgment for the Elrod plaintiffs, finding they had not breached the agreement.
The Court of Appeals affirmed in part but ruled the trial court misconstrued the agreement’s reimbursement terms.
Champlain argued the Elrod plaintiffs breached the agreement when they refused to reimburse Champlain for substitute LOC funds that Safeco used. The plaintiffs countered that they would have only incurred liability once the $3.5 million had been depleted.
However, the Court of Appeals agreed with Champlain, concluding the investors and the Elrod plaintiffs would share liability on a 50-50 basis. The unanimous panel found the agreement established an obligation on the plaintiffs to reimburse Champlain if Safeco drew down funds.
Next the appellate court turned to the amount of the reimbursement. Champlain asserted it was entitled to $1.75 million, half the value of the $3.5 million substitute LOC.
The Court of Appeals held the trial court erred by concluding only one construction project had been completed. On remand, the appellate court instructed the lower court to conduct more proceedings to determine whether the projects from which the bond claims arose were completed within the scope of the agreement’s terms.
“We note here an issue relevant to the determination of what amounts the Elrod Plaintiffs owe to Champlain: the amount of money retained by Safeco from its draw-down on the substitute LOC funds. Champlain argues that it is entitled to $1.75 million from the Elrod Plaintiffs, without regard to the possibility of recovering the remaining substitute LOC funds,” Judge L. Mark Bailey wrote. “Upon remand, we note that the trial court may or may not, depending upon the evidence presented, conclude that the funds retained by Safeco are to be offset against amounts owed by the Elrod Plaintiffs. Such an offset may be required to avoid the possibility of a double recovery in light of the pro rata reimbursement terms of the Agreement.
“Accordingly, we instruct the trial court take into account the Safeco-retained LOC funds in its decision upon remand.”
The case is Champlain Capital Partners, L.P. v. Elway Company, LLP, Dale K. Elrod, Jeffrey L. Elrod, and Mary Ann Waymire, 55A04-1510-CC-1630.