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Kendall State Bank v. Archway Insurance Services, LLC

United States District Court, D. Kansas

April 26, 2017

KENDALL STATE BANK, et al., Plaintiffs,
v.
ARCHWAY INSURANCE SERVICES, LLC, et al., Defendants. ARCHWAY INSURANCE SERVICES, LLC, et al., Plaintiffs,
v.
BANK OF COMMERCE AND TRUST, et al., Defendants.

          MEMORANDUM AND ORDER

          KATHRYN H. VRATIL United States District Judge.

         This matter comes before the Court on Plaintiffs' Motion To Enforce Settlement And To Clarify That The Court's 6/23/15 Order Was “On The Merits, ” With Plaintiffs' Request To Establish Briefing Schedule On Motion (Doc. #216) filed September 19, 2016. Defendant Union One has not responded to plaintiffs motion and the Court finds on the merits that the motion should be sustained in part.

         Procedural And Factual Background

         In 2007, Kendall State Bank loaned Union One $2, 924, 125.00 under a loan agreement. Plaintiff Kendall State Bank's Memorandum In Support Of Its Motion For An Interpretation Of, And To Enforce, Settlement Agreement (Doc. #201) filed September 9, 2014 at 4. In January of 2009, The Harris Agency LLC, an affiliate of Union One and co-obligor on the loan, filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Id. On May 5, 2009, as part of the bankruptcy case, Kendall State Bank and Union One entered into a Stipulated Agreement, which states that Kendall State Bank holds “a valid, properly perfected first priority security interest” in Union One assets. Doc. #201-1 at 2.

         On November 12, 2010, Kendall State Bank, along with other interested parties, (collectively the Banks) filed a claim for breach of loan agreements against Union One and others in this Court.[1] On December 14, 2012, during the trial of this action, the parties entered into a settlement agreement on the record. Consent Judgment (Doc. #169) at 2. On January 8, 2013, pursuant to the settlement agreement the Court entered a consent judgment in favor of plaintiffs. Id. The parties agreed to execute a written settlement agreement to further memorialize their verbal settlement agreement. Id. On February 11, 2013, the parties entered into a settlement agreement in which Union One agreed to (1) pay plaintiffs $2, 000, 000.00 in monthly payments of $2, 000; (2) take no action to transfer, assign or pledge any of its assets without the written, signed approval of the Banks; and (3) not divert revenue to any other entity. See Doc. #201-6 at 7-8.

         On February 20, 2013, Alliance National Insurance Company (“Alliance”) sued Union One in the Court of Common Pleas of Montgomery County, Pennsylvania seeking to collect funds allegedly owed under a lease. Doc. #201-9. Alliance secured an ex parte judgment of $264, 977.92 against Union One. See Docs. #201-9, #201-11. Alliance then commenced garnishment proceedings against agencies that owed commissions to Union One. In April of 2013, Kendall State Bank notified those agencies of the Consent Judgment in this Court, along with its security interest in Union One assets. Doc. #201-6 at 25-26. The agencies then interpled the disputed funds in the Alliance lawsuit. Doc. #201-14. Kendall State Bank filed a petition in the Alliance suit to set aside the writs of execution, vacate the Alliance judgment against Union One and re-open the suit. Doc. #201-13. In response, Alliance claimed that the Settlement Agreement between Kendall State Bank and Union One superseded Kendall State Bank's security interest in Union One assets and effectively extinguished that security interest. Doc. #201-15 at 2.

         On September 9, 2014, Kendall State Bank filed a Motion For An Interpretation Of, And To Enforce, Settlement Agreement (Doc. #200). Specifically, Kendall State Bank asked this Court to (1) find that Union One had breached the Settlement Agreement and Consent Judgment; (2) find that the Settlement Agreement did not supersede Kendall State Bank's security interest in Union One assets; (3) award Kendall State Bank damages; and (4) order Union One to pay Kendall State Bank attorney's fees related to the Alliance lawsuit and the motion to interpret and enforce. Union One did not respond to the motion or the Court's subsequent order to show cause why it should not sustain the Kendall State Bank motion. Id. at 4.

         On June 23, 2015, the Court issued an order sustaining the bank's motion to interpret and enforce. Order (Doc. #215). The Court noted Union One's lack of response. Id. at 1, 2, 5. The Court treated as uncontested the fact that commissions owed to Union One were subject to the bank's security interest, consent judgment and settlement agreement. Id. at 3. The Court found that (1) Union One had breached the Settlement Agreement and Consent Judgment; (2) Kendall State Bank was entitled to the funds interpled in the Alliance lawsuit; and (3) Kendall State Bank was entitled to attorney's fees incurred in the Alliance lawsuit and the subsequent motions in this Court. Id. at 5.

         Kendall State Bank presented this Court's order to the Pennsylvania Court of Common Pleas, which then entered an order in the Alliance lawsuit stating in part as follows:

Kendall claims this issue was decided by the United States District Court for the District of Kansas in its order dated June 22, 2015, which granted Kendall's Motion for an Interpretation Of, And To Enforce, Settlement Agreement' [sic] and Kendall's Request That The Court Decide Its Motion For An Interpretation Of, And To Enforce, Settlement Agreement. At first glance, the June 22, 2015 order appears to decide the question in Kendall's favor that the Security Agreement is not superseded by the Settlement Agreement. However after further review, it is unclear to this court whether the motions were granted upon Union One's failure to respond or based upon the merits of said motions.

Doc. #216-1 at 3. The Pennsylvania Court then stayed the Alliance lawsuit pending this Court's clarification of that issue. Kendall State Bank's motion to clarify this Court's order followed. Plaintiff's Motion To Clarify That The Court's 6/23/15 Order Was “On The Merits” (Doc. #216).

         Analysis

         Plaintiffs motion is uncontested. Union One has had a full and fair opportunity to respond to it, but has chosen not to dispute the factual or legal issues that it presents.

         On June 23, 2015, this Court found on the merits that Kendall State Bank is entitled to the funds interpled in the Alliance lawsuit. In the Settlement Agreement, Kendall State Bank and Union One agreed as follows: “Union One shall cooperate in good faith and use its best efforts regarding any sale of Union One or any of its assets, and Union One, hereby agrees that it shall take no action to transfer, assign or pledge any of its assets without the Banks' written, signed ...


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