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Larson Manufacturing Company of South Dakota, Inc. v. Western Show Homes, Inc.

United States District Court, D. South Dakota, Southern Division

March 13, 2019

LARSON MANUFACTURING COMPANY OF SOUTH DAKOTA, INC., and SUPERIOR HOMES, LLC, Plaintiffs,
v.
WESTERN SHOW HOMES, INC., AMERICAN MODULAR HOUSING GROUP, LLC, AMERICAN MODULAR HOUSING GROUP, INC., and PAUL THOMAS, Defendants.

          REQUEST FOR INTERNATIONAL JUDICIAL ASSISTANCE (LETTERS ROGATORY)

          The Honorable Veronica L. Duffy, United States Magistrate Judge.

         The United States District Court for the District of South Dakota presents its compliments to the appropriate judicial authorities of Canada and the Province of Saskatchewan and requests international judicial assistance to effect service of process and obtain evidence to be used in a civil proceeding before this Court in the above-captioned matter. A trial on this matter is presently scheduled for Tuesday, August 20, 2019, at 9:00 a.m. in Sioux Falls, South Dakota, United States of America.

         This Court requests the assistance described herein as necessary in the interests of justice. The appropriate judicial authorities of Canada and the Province of Saskatchewan are requested to effect service of process and compel the appearance of Gregory Jahnke to appear for a video-taped oral examination to be used as evidence at a trial in this matter under the United States' Federal Rules of Civil Procedure concerning dealings among Aspen Village Properties, Ltd., Aspen Village Developments, Ltd. ("Aspen Village Developments"), Aspen Creek Developments, Ltd., Superior Homes, L.L.C. ("Superior"), Larson Manufacturing of South Dakota, Inc. ("Larson"), Western Showcase Homes, Inc. ("Western"), American Modular Housing Group, Inc. ("AMGH, Inc."), American Modular Housing Group, L.L.C. ("AMGH, LLC"), and Paul Thomas[1] relating to the Aspen Village Project.

• Name of Witness/Person to Be Served: Gregoryjahnke
• Nationality of Witness/Person to Be Served: Canadian.
• Address of Witness/Person to Be Served: P.O. Box 537 Station Main, White City, Saskatchewan, Canada, S41 5B1 or 310 Emerald Park Rd., Emerald Park, Saskatchewan, Canada, S4L 1B9.
• Description of Documents or Evidence to Be Produced: See below.

         BACKGROUND[2]

         A. Parties

         Plaintiff Larson is a South Dakota corporation with its principal place of business in Brookings, South Dakota. Plaintiff Superior Homes, LLC is a South Dakota limited liability company, the members of which are residents of South Dakota. Superior's majority owner is Larson, but Superior conducts its own business separate and apart from Larson, with its own employees and accounts.

         Defendant Western is a corporation formed under the laws of Nevada with its principal place of business in Las Vegas, Nevada. Defendant AMHG, LLC is a limited liability company formed under the laws of Nevada. Defendant AMHG, Inc. is a corporation formed under the laws of Saskatchewan, Canada, with its principal place of business located in Las Vegas, Nevada. Defendant Paul Thomas is a resident of Las Vegas, Nevada, and is the sole owner of Western and both AMHG entities.

         B. Greg Jahnke and the Aspen Village Project

         Defendants and Greg Jahnke, the president of Aspen Village Properties, had a business relationship involving the Aspen Village project in Emerald Park, Saskatchewan, Canada. Superior manufactured modular homes for the Aspen Village project.

         The Aspen Village project was a significant project. It first contemplated the development of numerous residential living units, including high density multi-family, and single-family residences. It also included the McKenzie Lane project, which involved the construction of nineteen condominium units. Finally, it included the Emerald Park project, which consisted of Aspen Links Country Club, including the associated golf course and clubhouse; Block XX and twenty-four other separately parceled lots near the Aspen Links Country Club ready for residential development; Blocks W, WW, YY, and ZZ; and other real property suitable for residential and/or commercial development.

         Near the end of 2011, the defendants entered into an agreement with Aspen Village that provided the defendants the opportunity to acquire a 25% ownership interest in a new entity (Aspen Village Developments, Ltd.). Also in 2011, Western agreed to purchase two modular homes from Superior.

         C. Larson's Loans to the Aspen Entities

         Plaintiffs, Western, and the Aspen Entities negotiated a series of agreements to formalize their commercial relationship. In 2011, Larson entered into a loan agreement with Aspen Village Properties, Ltd. (hereinafter "Aspen") through which Larson loaned Aspen 2.3 million (Canadian) dollars. The loan agreement included a series of documents (a promissory note, a collateral mortgage, and an assignment of leases and rents) to secure Aspen's debt to Larson. At that time, Greg Jahnke, the president of Aspen, also signed a personal guarantee for the loan. Although the original mortgage agreement encumbered many of the lands to be developed for the Aspen Village project, it did not encumber the parcels on which the McKenzie Lane project condominium units were to be situated.

         D. The Credit Agreement and Amendments to the Credit Agreement

         Subsequently, on April 24, 2012, Western and Larson entered into a credit agreement through which Western assumed Aspen's obligations under the loan agreement, the principal balance of which was $2, 247, 191.30 (US dollars) at the time, plus accrued interest of $71, 060.50 (US dollars). The term note related to Aspen's debt on the Aspen Village project lands. These funds were also used to settle external bills and liens against the Aspen Village project properties and to pay for the two homes that Superior had manufactured in 2011.

         Western and Larson agreed to form a revolving credit facility ("revolving note") in the amount of $2.7 million to fund further progress on the Aspen Village project. The credit agreement, and particularly the revolving loan, was intended to finance the residential development of the Aspen Village project. A portion of the money advanced by Larson to Western under the amended credit agreement was used to purchase modular housing units from Superior.

         Pursuant to the credit agreement, Western executed a term note in the amount of $2, 247, 191.30 (US dollars) and a revolving note in the amount of $2.7 million (US dollars). Interest accrued on the amounts loaned pursuant to the notes and credit agreement at the rate of 9.95% per annum.

         In exchange for Western's assumption of its debt, Aspen agreed that its prior collateral mortgage and assignment of leases and rents would continue to secure the amounts and obligations Western assumed or owed Larson under the credit agreement.

         Through these transactions, therefore, Western was indebted to Larson for $5 million, with $2.3 million related to the term note for debt related to the Aspen Village project lands and $2.7 million related to the revolving note to fund further progress on the Aspen Village project.

         The credit agreement expressly states:

Section 4.2 Payment of Revolving Note: The revolving note shall be due and payable as follows: (i) the minimum required revolving note payment shall be due and payable immediately upon the sale of any residential unit, and (ii) the remaining principal balance of the revolving note and all accrued but unpaid interest on the revolving note shall be due and payable on the revolving credit expiration date. Without limiting the generality of the foregoing, no interest on any note shall be payable until the sale of a residential unit, provided that all accrued and unpaid interest on the notes shall be due and payable in full on the term note maturity date or the revolving credit expiration date, as applicable, whether or not any residential units have been sold.

         The credit agreement does not specify that Western was to repay its obligation with the exact funds paid by purchasers; it only provides that a minimum payment must be made on the revolving note when a sale of a modular home unit to an end customer occurs. The parties disagree about whether Larson was required to obtain a South Dakota lending license to lawfully enter into the credit agreement(s).

         As early as July, 2012, the maximum amount of the initial revolving note was reached. Larson and Western subsequently amended the credit agreement three times, though Western disputes the validity of the third amendment. The first amendment was made on August 9, 2012, and temporarily increased the revolving note to $4.7 million (US dollars). The second amendment to the credit agreement was made on December 10, 2012, and increased the amount of the note to $7 million (US dollars). The second amendment set a date of June 30, 2012, for payment of the $7 million, which represented the total amount of both the term and revolving notes. As consideration for the increase in the limit for the note to $7 million, Western was required to pay Larson an additional $500, 000.00.

         Simultaneously with the first and second amendments to the credit agreements, other documents were signed to secure the debt. These documents were signed by Greg Jahnke -the president of Aspen Village - who still retained an ownership in the Aspen Village land. Specifically, in August, 2012, Aspen amended the collateral mortgage and assignment of leases and rents to substitute new collateral land for a parcel that had been previously sold, and to revise the amount of Western's debt that was collateralized by Aspen's property to $7 million.[3]

         But when the time came to sign the third amendment to the credit agreement, seeking to again increase the amount of Larson's loan to the defendants, Aspen/Greg Jahnke withdrew cooperation and refused to sign the third amended credit agreement or the counterpart documents which ...


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