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Barney J. Ng, As the Sole Trustee of the v. Stephen Schram

September 21, 2011



Barney Ng, as trustee of the Barney J. Ng Living Trust, sues to recover $5 million allegedly owed by defendant Schram on a guarantee. In his answer, Schram denies liability, alleging that he has been released from his guarantee. The answer includes a counterclaim, alleging that Ng breached the agreement releasing Schram.

Ng moves to dismiss the counterclaim under Fed. R. Civ. P. 12(b)(6). Schram opposes the motion. He has filed an affidavit with exhibits, and asserts that the motion should be treated as one for summary judgment.

The court has considered the Schram affidavit and exhibits and thus treats the motion as one for summary judgment. As such, the motion is denied. The court believes that there are factual issues which cannot be resolved on the present record.


Ng's Complaint

The following facts are set forth in Ng's complaint, except where otherwise indicated.

Ng is the former president of Bar-K, Inc. ("Bar-K"), a California corporation that pursued real estate investment opportunities for R.E. Loans, LLC ("RE Loans"), a real estate investment fund based in California.

In December 2004, Ng, on behalf of Bar-K, arranged for RE Loans to provide $64 million in financing to the Canyon Club, Inc. ("CCI"), a Wyoming corporation owned and controlled by Richard Edgcomb. This financing took the form of a promissory note (the "Note"). An exhibit to the complaint shows that the Note was given by CCI to RE Loans, although neither the complaint nor any exhibit thereto specifies the exact amount or terms of the Note. Certain financial statements provided with the Schram affidavit indicate that the Note was for about $64 million. This financing was part of a restructuring plan for a resort development project near Jackson Hole (the "Jackson Hole Property") that CCI was involved in. The project was bankrupt.

As part of this reorganization, a New York development firm, Dolan Pollak and Schram Development Company, LLC ("DPS") assumed control over the management and marketing of the Jackson Hole Property. In addition, DPS and CCI formed the Snake River Sporting Club Development Company, LLC (the "Company") to complete the resort development. Schram was appointed Managing Member of the Company.

It appears that Bar-K was to be paid $9 million for procuring the $64 million financing. Bar-K agreed to have the payment of the $9 million fee deferred until December 31, 2009. Ng memorialized this deferment in a non-interest bearing note dated December 22, 2004 (the "Second Note"). The Second Note is an exhibit to the complaint. The note was made out to Bar-K and was signed by Edgcomb for CCI. The maturity date of the Second Note was December 31, 2009. On January 7, 2005, Bar-K assigned $5 million of the Second Note to the Barney J. Ng Living Trust.

In 2007, Edgcomb and CCI decided to terminate their relationship with the Company and the Jackson Hole Property. Ultimately Edgcomb and CCI entered into a separation agreement dated December 4, 2007 (the "Separation Agreement"). Edgcomb, CCI, DPS, the Company, Ng, and the Trust were all parties to the Separation Agreement.

The Separation Agreement is complex. The complaint contains allegations summarizing parts of the Separation Agreement, and the Separation Agreement itself is an exhibit to the complaint.

Pursuant to this agreement, Ng agreed to relieve Edgcomb and CCI of any obligation on the Note and the Second Note. The complaint states (par. 14) that the "Company remained liable for the Note and Second Note." Nevertheless, the complaint does not allege how this came about, since it was CCI and not the Company which was the promissor on the Note and the Second Note. The court will assume, however, for the purposes of this motion, that in some way the Company became liable on the Note and the Second Note. In any event, the complaint states that Schram agreed to guarantee full payment of the Note and Second Note pursuant to the Separation Agreement. Indeed, Paragraph 8 of the Separation Agreement, which is attached to the complaint as an exhibit, so states.

However, the Separation Agreement provided that within 30 days of the effective date of the agreement a company named SRCR Investments, LLC ("SRCR Investments"), which the complaint alleges was controlled by Edgcomb, would pay down the Note (owed to RE Loans) to the extent of $1.82 million. The Separation Agreement went on to provide that the Company would repay the $1.82 million by paying Edgcomb 7.5% of the gross sales price from each future sale of a lot or sale of a club membership. In a complicated paragraph, most of which is ...

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