On September 13, 2023, the U.S. District Court for the District of Kansas granted in part and denied in part UMB Bank’s motion to dismiss counterclaims for tortious interference, breach of contract, and breach of the duty of good faith and fair dealing asserted by unsuccessful developers of a Hard Rock Hotel outside of Kansas City. UMB was the trustee for municipal bonds. As such, under the development agreement, UMB had the ministerial duty of reimbursing certain defendants for qualifying construction-related expenses, which the claimants alleged UMB failed to do.

The court dismissed the claims against certain defendants on the ground that those defendants did not have standing because they were not party to, or intended beneficiaries under, any agreement. As to the remaining defendants, the court allowed the claims to proceed. UMB argued that it had properly stopped reimbursing the expenses of the project owner, One10 HRKC LLC, only after notifying One10 HRKC that it was in default under the development agreement. The court, however, found that the notice of default that UMB sent to One10 HRKC failed to specify the section of the development agreement One10 HRKC was in default of—and the court itself could not pinpoint one—and thus concluded that it was plausible that no event of default had occurred. The court also permitted an individual guarantor’s breach of the duty of good faith and fair dealing counterclaim to proceed because UMB’s alleged use of funds to cover expenses from the bonds that the individual personally guaranteed allegedly went against the “spirit” of the agreement. For example, UMB allegedly used bond funds to finance its litigation against the individual guarantor and to cover expenses under different financing instruments. Accordingly, the court allowed the individual guarantor’s counterclaim to proceed.

The case is UMB Bank, N.A. v. Monson, No. 21-cv-2504 (D. Kan. Sept. 13, 2023). Monson and One10 Hotel HRKC are represented by Edgar Law Firm LLC. UMB is represented by Greenberg Traurig, LLP and Spencer Fane LLP. The opinion is available here.