Regions Bank v. Beemer & Associates XVII, L.C. et al
Filing
106
ORDER granting in part and denying in part 66 Motion for summary judgment; directing plaintiff to file a proposed final judgment or notify the Court of its intention to go to trial no later than 1/20/2012; permitting defendants to file objections to the proposed final judgment no later than 2/3/2012; denying 85 Motion to compel; granting 89 Motion to substitute party; denying 92 Motion to strike; denying 100 Motion to strike; denying 105 Motion to strike; providing instructions to the Clerk. Signed by Judge Timothy J. Corrigan on 12/29/2011. (JMS)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
LSREF2 BARON, LLC,
Plaintiff,
vs.
Case No. 3:10-cv-577-J-32JBT
BEEMER & ASSOCIATES XVII,
L.C., et. al.,
Defendants.
ORDER
Regions Bank (“Regions”) filed suit against Beemer & Associates XLVII, L.L.C.
(“Beemer”) to collect on a promissory note and against Mike Ashourian as guarantor.1
This case is before the Court on Plaintiff’s Motion for Final Summary Judgment (Doc. 66),
to which defendants have responded (Doc. 71.) The Court held oral argument on the
motion for summary judgment on September 26, 2011, the transcript of which is
incorporated by reference. (Doc. 83.) The Court also considers defendants’ Motion to
Compel Discovery (Doc. 85), plaintiff’s Motion to Substitute Party Plaintiff (Doc. 89), and
defendants’ motions to strike (Docs. 92, 100, 105).
I. BACKGROUND
This dispute arises from a series of agreements between the parties relating to a
loan for the construction of improvements to certain real property. Regions and Beemer
first entered into an ISDA Master Agreement (the “Swap Agreement”), which, among
1
As discussed below, Regions subsequently sold the note to LSREF2 Baron, LLC, which
then sold the note to Wells Fargo Bank, N.A.
other things, provided terms applicable to all future transactions between the parties.
Doc. 1-1. Regions and Beemer then entered into a Construction Loan, wherein Regions
agreed to lend a maximum principal amount of $12,750,000 to Beemer. Doc. 1-3. The
Construction Loan was evidenced by a promissory note (the “Note”), which Beemer
executed and delivered to Regions, in the same amount. Doc. 1-2. Ashourian executed
and delivered a guaranty to Regions (the “Guaranty”), which guaranteed Beemer’s
performance under the Construction Loan and the Note. Doc. 1-8.
On June 2, 2010, Regions sent a letter to Ashourian and Beemer stating that
Beemer had defaulted on the Note by failing to make any monthly payments since
April 1, 2010. In the letter, Regions also demanded full and immediate payment on the
Note and listed the amounts that Beemer was obligated to pay. Doc. 1-7.
On June 16, 2010, Regions sent a letter to Ashourian and Beemer which stated
that Beemer was in default of it obligations under the Swap Agreement. The letter further
notified Beemer that all transactions under the Swap Agreement would be terminated on
June 21, 2010. The letter also states: “Pursuant to the [Swap] Agreement, we will
provide to you on or as soon as reasonably practicable after the Early Termination Date a
statement of any amounts that may be due to Regions . . . and the details of the account
to which such amounts may be paid.” Doc. 1-6 at 1. However, Regions has not provided
defendants with such a statement. Doc. 72 at 4-5.
Regions filed suit against Beemer to recover under the Note and against
2
Ashourian to recover under the Guaranty.2 Regions seeks to recover “the principal
balance [of the Note] in the amount of $12,750,000.00, plus accrued but unpaid interest
in the amount of $76,864.59, late fees of $3,099.13 through June 22, 2010, and the Swap
Termination Fee of $1,148,601.44, for a total amount due of $13,978,565.16 as of June
22, 2010, plus per diem rate of interest of $683.54 accruing thereafter.” Doc. 66 at 3.
Regions also seeks interest and late fees accruing after June 22, 2010, court costs, and
attorneys’ fees. Id. at 10-11. After filing suit, Regions assigned all of its rights, title, and
interest in the Beemer loan to LSREF2 Baron, LLC (“LSREF2”), (see Doc. 79), and the
Court thus substituted LSREF2 as the party plaintiff in this case (Doc. 80).
The Court held a hearing on pending motions on September 27, 2011. Doc. 83.
At the hearing, defendants argued that LSREF2 had presented insufficient evidence of
the transfer of the Note, that LSREF2 had not explained how it had arrived at its
monetary calculations under the Swap Agreement, and that defendants should not be
required to repay the Note at this time due to commercial impracticability. Because
Beemer had not properly raised these issues prior to the hearing, the Court ordered
additional briefing. Doc. 84. After the hearing, LSREF2 assigned its interest in the Note
to Wells Fargo Bank, N.A. (“Wells Fargo”) and now seeks to substitute Wells Fargo as
party plaintiff in this case. Doc. 89.
2
Although Regions initially named other Beemer entities in the Complaint, all defendants
other than Beemer & Associates XVII, L.C. and Mike Ashourian have been dismissed from
this case. See Doc. 70. Moreover, because Counts III and IV of the Complaint have also
been dismissed, see id., they will not be discussed in this Order.
3
II.
STANDARD OF REVIEW
Summary judgment is proper “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). An issue is genuine when the evidence is such that a reasonable jury
could return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249-50 (1986). “The burden of demonstrating the satisfaction of this standard lies with
the movant.” Branche v. Airtran Airways, 342 F.3d 1248, 1252-53 (11th Cir. 2003). In
determining whether summary judgment is appropriate, a court must draw inferences
from the evidence in the light most favorable to the nonmovant and resolve all reasonable
doubts in that party’s favor. Centurion Air Cargo, Inc. v. United Parcel Serv. Co., 420
F.3d 1146, 1149 (11th Cir. 2005).
III.
DISCUSSION
Plaintiff claims it is entitled to summary judgment because the undisputed facts
show that the Note is in default and that this default allows it to enforce the terms of the
Note and Guaranty. Doc. 66 at 5. In its response to plaintiff’s motion for summary
judgment, Beemer and Ashourian do not assert that they are in compliance with their
obligations under the Note or Guaranty. See Doc. 71.3 Instead, they assert that, even
though they are in default, they nevertheless have no legal obligation to pay at this time.
3
Defendants make only the general allegation that “Regions has failed to substantiate
its claim.” Doc. 71 at 3. Moreover, although plaintiff presents arguments against each of the
affirmative defenses asserted in defendants’ Answer, in responding to the summary
judgment motions defendants do not reply to these arguments or otherwise assert any
affirmative defenses beyond the defenses discussed below.
4
Defendants first assert that plaintiff cannot recover in this action because it has not
complied with its obligations under Section 6(d)(i) of the Swap Agreement, which states:
On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make
the calculations on its part, if any, contemplated by Section
6(e) and will provide to the other party a statement (l)
showing, in reasonable detail, such calculations (including all
relevant quotations and specifying any amount payable under
Section 6(e)) and (2) giving details of the relevant account to
which any amount payable to it is to be paid.
Doc. 1-1 at 7. Defendants claim that plaintiff’s failure to provide such a statement
following termination of the Swap Agreement on June 21, 2010, “represents a failure of a
condition precedent to recovery by Regions against Defendants.” Doc. 71 at 3.
A condition precedent is “an event that must occur before performance of a
contractual duty becomes due.” Ginett v. Computer Task Group, Inc., 962 F.2d 1085,
1099 (2d Cir. 1992).4 “Conditions are not favored under New York law, and in the
absence of unambiguous language, a condition will not be read into the agreement.” Id.
at 1099-1100; see also Isreal v. Chabra, 537 F.3d 86, 93 (2d. Cir. 2008)(“New York
courts are cautious when interpreting a contractual clause as a condition precedent
. . . .”)(quotation omitted).
Plaintiff’s obligation to provide a statement under Section 6(d)(i) of the Swap
Agreement is not a condition precedent to defendants’ payment obligations. There is no
language in Section 6(d)(i), or elsewhere in the Swap Agreement, which unambiguously
4
The Swap Agreement provides that it will be governed by and construed in accordance
with New York law. Doc. 1-1 at 17.
5
states that defendant’s obligations do not arise until Regions provides the required
statement. In fact, there is nothing in the Swap Agreement that would even suggest that
the statement required under Section 6(d)(i) is a condition precedent to defendants’
obligations. Although Regions did not strictly comply with the procedures set out in
Section 6(d)(i) of the Swap Agreement, such minor noncompliance does not relieve
defendants of their contractual obligations. See le Cordon Bleu, S.A. v. BPC Publ’g Ltd.,
451 F. Supp. 63, 71 (S.D.N.Y. 1978); F. Garofalo Elec. Co. v. New York University, 300
A.D.2d 186, 189 (N.Y. App. Div. 2002).
Second, defendants contend that, if plaintiff prevails on the merits, they are
entitled to a set-off under principles of equity. Doc. 71 at 4-5. Defendants essentially
argue they should not be required to pay interest on funds that Beemer deposited into an
account at Regions which permitted Beemer to make withdrawals only for tenant
improvements. Defendants contend a set-off is appropriate because Beemer was
effectively unable to access the funds and the restricted account paid a lower rate of
interest than the rate charged under the Construction Loan. However, the record reveals
that Beemer freely entered into the Construction Loan and voluntarily deposited the funds
into the restricted account in order to obtain a more advantageous interest rate. See
Docs. 1-3, 1-4. Defendants have presented no authority in support of their argument that
this arrangement violates principles of equity. That defendants may now believe Beemer
received an unfavorable deal does not provide a basis for this Court to reduce plaintiff’s
recovery under the contracts.
Third, defendants argue that, under the doctrine of temporary commercial
6
impracticability, they should be “temporarily excused from performance of the loan
obligations until the economic environment for commercial tenants has stabilized.” Doc.
93 at 6. Essentially, defendants argue it is impracticable for them to pay on the Note
because unanticipated changes in the market have made it unable to secure tenants at
the expected rates.
The doctrine of commercial impracticability provides that:
Where, after a contract is made, a party’s performance is
made impracticable without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on
which the contract was made, his duty to render that
performance is discharged, unless the language or the
circumstances indicate the contrary.
Rest. 2d Contracts § 261.5 “The important question in an impossibility inquiry is whether
an unanticipated circumstance has made performance of the promise vitally different
from what should reasonably have been within the contemplation of both parties when
they entered into the contract.” Ferguson v. Ferguson, 54 So.3d 553, 556 (Fla. 3d DCA
2011).6
5
The Restatement’s approach to commercial impracticability has been cited in several
Florida law cases. See, e.g., City of Key West v. R.L.J.S. Corp., 537 So.2d 641 (Fla. 3d
DCA 1989); Hancock v. Boyd, No. 5:11-cv-132/RS-EMT, 2001 WL 5082134 (N.D. Fla. Oct.
25, 2011).
6
Although the court in Ferguson sometimes uses the term “impossibility” rather than
“commercial impracticability,” its analysis broadly applies to impossibility and “its cousins,
impracticability and frustration of purpose.” Ferguson, 54 So.3d at 556. These doctrines are
often grouped together under the rubric of “impossibility” because “the doctrine of
impossibility does not require a showing of actual or literal impossibility of performance but
only a showing of commercial impracticability.” Seabord Lumber Company v. United States,
308 F.3d 1283, 1294 (Fed. Cir. 2002). Despite defendants’ assertions to the contrary, the
court’s analysis in Ferguson is thus applicable to this case.
7
The defense of commercial impracticability does not apply to the undisputed facts
of this case. First, an economic downturn, even one as drastic and severe as the recent
recession, is not the type of unanticipated circumstance that would relieve sophisticated
business entities from their contractual obligations. While the parties may not have
thought a recession likely at the time they signed the agreements, the possibility of
economic downturn should have reasonably been within their contemplation. See
Ferguson, 54 So.3d at 556 (“Economic downturns and other market shifts do not truly
constitute unanticipated circumstances in a market-based economy.”); Flathead-Michigan
I, LLC v. Peninsula Development, LLC, No. 09-14043, 2011 WL 940048 (E.D. Mich.
March 16, 2011) (“[T]he continuation of existing market and of the financial situation of
the parties are not ordinarily such [basic] assumptions, so that mere market shifts or
financial ability do not usually effect discharge.”) (quoting Rest. 2d Contracts § 261,
comment b); All Points Capital Corp. v. Boyd Brothers, Inc., 5:11-cv-116/RS-EMT, 2011
WL 2790170 (N.D. Fla. 2011) (same). Second, “simple inability to pay does not create an
impossibility or impracticality which excuses a party’s performance of his contractual
allegations.” Bank of America, N.A. v. Shelbourne Development Group, Inc., No. 09-c4963, 2011 WL 829390, at *5 (N.D. Ill. March 3, 2011) (quoting Days Inn of America, Inc.
v. Patel, 88 F. Supp. 2d 928, 933 (C.D. Ill. 2000)); see also Hoosier Energy Rural Electric
Co-Op, Inc. v. John Hancock Life Insurance Co., 582 F.3d 721 (7th Cir. 2009)
(“‘[I]mpossibility’ doctrine never justifies failure to make a payment, because financial
distress differs from impossibility.”); Karl Wendt Farm Equip. Co. v. Int'l Harvester Corp.,
931 F.2d 1112, 1118 (6th Cir.1991) (“[N]either market shifts nor the financial inability of
8
one of the parties changes the basic assumptions of the contract such that it may be
excused under the doctrine of impracticability.).7
Fourth, defendants argue summary judgment cannot be entered because factual
issues exist regarding the ownership of the Note and Guaranty. Doc. 93 at 9-10. To
establish ownership, plaintiff filed the Declaration of Marisa McGaughey (Doc. 104),
which avers that Wells Fargo is the owner of the Note and Guaranty and attaches the
Assignment Agreements between Regions, LSREF2, and Wells Fargo.8 Defendants filed
a motion to strike the declaration, arguing that it is invalid because it was executed by
McGaughey in her representative capacity on behalf of LSREF2 and Wells Fargo rather
than in her individual capacity. Doc. 105 at 2-3.
Defendants’ argument is without merit. Rule 56(c)(4) states: “An affidavit or
declaration used to support or oppose a motion must be made on personal knowledge,
set out facts that would be admissible in evidence, and show that the affiant or declarant
is competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4). Although a
corporation itself cannot take an oath, “[c]orporations may offer testimony through their
corporate representatives in the form of affidavit” or declaration. D’Aprile v. Unum Life
Ins. Co. Of Am., No. 2:09-cv-270-FTM-36SPC, 2010 WL 3810845, at *2 (M.D. Fla. Sept.
7
Defendants likely waived this defense by failing to raise it prior to the hearing on
plaintiff’s motion for summary judgment. Nevertheless, the Court has addressed the defense
on the merits.
8
Plaintiff also filed the Amended Affidavit of Marisa McGaughey (Doc. 99), which is
identical in substance to the declaration. Although plaintiff has not acknowledged any flaw
in the affidavit, the declaration was filed to cure the alleged deficiencies identified in
defendants’ motion to strike the affidavit (Doc. 100).
9
24, 2010).9 The McGaughey declaration states that its contents were based upon her
personal knowledge and that she has the authority to make the declaration as an
authorized representative of Wells Fargo and LSREF2. Doc. 104. The Court thus
considers the McGaughey declaration and determines that Plaintiff has submitted
sufficient evidence to show that Wells Fargo is the current holder of the Note and
Guaranty.10
Fifth, defendants argue that “Plaintiff has failed to meet one or more conditions
precedent under the SWAP Agreement,” because “its calculation of the SWAP
termination fee is unreliable and unsubstantiated.” Doc. 93 at 9. Defendants contend the
calculations are unreliable because plaintiff has failed to provide a “Market Quotation,” as
9
Defendants’ reliance on Rowland v. California Men’s Colony, 506 U.S. 194 (1993), is
misplaced. Rowland merely states that a corporation cannot itself make an affidavit because
“artificial entities cannot take oaths.” Id. at 204. While a corporation cannot take an oath,
a corporate representative may do so. See, e.g., id. at 204 (“Of course, it is true that courts
have often coupled this recognition of a corporation's incapacity to make an affidavit with a
willingness to accept the affidavit of a corporate officer or agent on its behalf even when the
applicable statute makes no express provision for doing so.”); Harrison-Hoge Indus. v.
Panther Martin S.R.L., No. 05-cv-2851, 2008 WL 905892, at * 28 (E.D.N.Y. March 31,
2008)(“It is axiomatic that a corporate representative may testify and submit affidavits based
on knowledge gained from a review of corporate books and records.”).
10
Defendants also submit the affidavit of Randall Whitfield, an employee of one of the
companies owned by Ashourian. This affidavit avers that, on October 24, 2011, an
employee of LSREF2 told Whitfield over the phone that the Note and Guaranty were still
owned by LSREF2. Even if this evidence were admissible, it would not create a material
dispute of fact on the issue of ownership. See Webb-Edwards v. Orange Cnty. Sheriff’s
Office, 525 F.3d 1013, 1029 (11th Cir. 2008) (“The non-moving party must provide more than
a mere scintilla of evidence to survive a motion for summary judgment as a matter of law.”)
10
that term is used in the Swap Agreement.11
Again, defendant’s argument is baseless. In relevant part, the Swap Agreement
provides that, upon early termination, “an amount will be payable equal to (A) the sum of
the Settlement Amount (determined by the non-defaulting party) in respect of the
Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party less
(B) the Unpaid Amounts owing to the defaulting Party.” Doc. 1-1 at 7 (emphasis added);
see also id. at 15-16. The “Settlement Amount” is defined as “the sum of: (a) Market
Quotation . . . and (b) such party’s Loss . . . for each Terminated Transaction . . . for
which a Market Quotation cannot be determined . . . .” Id. at 13 (emphasis added).
“Loss” is defined in turn as “an amount that party reasonably determined in good faith to
be its total losses and costs . . . in connection with this Agreement.”12 Determining a
“Market Quotation” is thus not a “condition precedent” to payment under the Swap
Agreement; instead, if a Market Quotation is not determined, the non-defaulting party
may still recover its losses and costs. Moreover, the Swap Agreement provides that such
an amount “will be paid together with . . . interest thereon . . . at the Applicable Rate.” Id.
at 7.
Although defendants’ condition precedent argument is without merit, plaintiff has
11
Defendants also filed a Motion to Compel Discovery (Doc. 85), which requests all
documents relating to plaintiff’s calculation of the Swap Termination Fee. Because this
motion was filed months after the close of discovery (and after the hearing on plaintiff’s
motion for summary judgment) it is due to be denied as untimely.
12
The SWAP Agreement further provides that “[a] party may (but need not) determine its
Loss by reference to quotations of relevant rates or prices from one or more leading dealers
in the relevant market.” Doc. 1-1 at 11-12.
11
not sufficiently explained how it arrived at its calculation of the Early Termination Fee. In
its September 27, 2011 Order, the Court directed plaintiff to “file an affidavit that explains
how Plaintiffs arrived at their monetary calculations under the Swap Agreements.” Doc.
84. Plaintiff filed the Affidavit of Paul Presley, which states that the “Early Termination
Fee is determined by subtracting the net amount reflected on the Floating Cash Flows
spreadsheet from the net amount reflected on the Fixed Cash Flows spreadsheet.” Doc.
91 at 3. However, the affidavit does not explain what these cash flow spreadsheets
represent or why this calculation represents the amount due for early termination of the
Swap Agreement.13 The Court now having given plaintiff two opportunities to prove up
damages under the Swap Agreement, and remaining unpersuaded, the Court will decline
to grant summary judgment on these fees.
Accordingly, it is hereby
ORDERED:
1. Plaintiff’s Amended Motion for Final Summary Judgment (Doc. 66) is
GRANTED in part and DENIED in part to the extent stated herein.
2. No later than January 20, 2012, Plaintiff should file a proposed final judgment
consistent with this Order, including any requests for attorneys’ fees and costs (with
supporting documentation). (If plaintiff chooses to go to trial on the Swap Agreement
damages, it must notify the Court by January 20, 2012 and may delay filing a proposed
13
It is also unclear why certain numbers are used, such as the 5.475% fixed rate of
interest. While the Court assumes that the Early Termination Fee assessed by plaintiff
reflects Loss, plaintiff has not explicitly stated as much.
12
judgment until after trial.) No later than February 3, 2012, defendants may file any
objections to the proposed final judgment.
3. Defendants’ Motion to Compel Discovery (Doc. 85) is DENIED.
4. Plaintiff’s Motion to Substitute Party Plaintiff (Doc. 89) is GRANTED. The
Clerk is directed to substitute Wells Fargo Bank, N.A. as the plaintiff in this case.
5. Defendants’ motions to strike (Docs. 92, 100, 105) are DENIED.
DONE AND ORDERED at Jacksonville, Florida this 29th day of December, 2011.
js.
Copies:
counsel of record.
13
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