MLCFC 2007-8 Fayette SG Property, LLC v. Meadowood Apartments of Lexington, Ltd. et al

Filing 60

MEMORANDUM OPINION & ORDER: 1) 52 MOTION for Summary Judgment is GRANTED. 2) Pla will be awarded judgment against dfts in the amt of $10,857,338.17, plus per diem interest of $2,190.213 accuring from 5/8/2013 until the principal amt i s paid in full. 3) The mechanics of the pla's foreclosure against the real property securing the dfts' indebtedness shall be set out in a corresponding Order of Sale to be entered separately. Signed by Judge Danny C. Reeves on 10/15/2013.(SCD)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
MLCFC 2007-8 FAYETTE SG
PROPERTY, LLC,
Plaintiff,
V.
MEADOWOOD APARTMENTS OF
LEXINGTON, LTD., et al,
Defendants.

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Civil Action No. 5: 12-319-DCR

MEMORANDUM OPINION
AND ORDER

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This matter is pending for consideration of Plaintiff MLCFC 2007-8 Fayette SG
Property’s (“Fayette SG Property”) motion for summary judgment. [Record No. 52]1 The
plaintiff asserts that Defendants Meadowood Apartments of Lexington, Ltd., Cedarwood
Apartments of Lexington II, Ltd., Cedarwood Apartments of Lexington, III, Ltd., and
Longwood Apartments of Lexington, Ltd. (collectively, “the borrowers”); defaulted in
repaying a loan and, as a result, it is entitled to enforce the terms of a promissory note and
certain liens against the defendants’ real and personal property. [Id., p. 1] Fayette SG
Property argues that there are no disputed issues regarding the default and it is entitled to
judgment as a matter of law. The defendants have not opposed the motion for summary
1

On February 5, 2013, Defendant Lexington-Fayette Urban County Government was
dismissed as a defendant. [Record No. 30] Additionally, on October 1, 2013, the Court entered a
default judgment against Defendant PW Real Estate. [Record No. 59]
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judgment. Having fully considered the merits of the issues presented, the plaintiff’s motion
will be granted.
I.
Plaintiff Fayette SG Property is a Kentucky limited liability company whose sole
member is U.S. Bank National Association, as Trustee for the Registered Holders of MLCFC Commercial Mortgage Trust 2007-8, Commercial Mortgage Pass-Through Certificates,
Series 2007-8, (“U.S. Bank”). The plaintiff has filed this action seeking to foreclose: (i) on
four parcels of real property located in Fayette County and (ii) a security interest in personal
property related to the four parcels of land. [Record No. 1, p. 2] On May 9, 2007, Arbor
Commercial Mortgage, LLC (the “Original Lender”) entered into a loan agreement with the
defendants for the purchase of parcels of real property. [Record No. 1-2] Pursuant to that
agreement, the Original Lender loaned certain borrowers, including the defendants,
$335,000,000.00. The borrowers, including the defendants, executed a promissory note in
favor of the Original Lender in that amount. [Record No. 1-4]
In connection with the transaction, the defendants executed a “Mortgage, Assignment
of Leases and Rents, Security Agreement and Fixture Filing,” which was recorded on May
30, 2008, in the County Clerk’s Office of Fayette County, Kentucky. [Record No. 1-5] The
mortgage “conveyed a first and prior lien on the real property at issue in this action, together
with all improvements, appurtenances, fixtures, and equipment therefrom, all leases thereon,
and all rents, issues and profits deriving therefrom” on the real property to the Original
Lender. [Record No. 52-1, p. 3] In addition, the defendants executed and recorded an
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“Assignment of Leases and Rents” to the Original Lender. [Record No. 1-6] Under the
terms of the mortgage, the borrowers granted the Original Lender a security interest in certain
collateral. [See Record No. 1-5.] To perfect the security interest in the collateral, a Uniform
Commercial Code (“UCC”) Financing Statement was recorded and filed with the Kentucky
Secretary of State. [Record No. 1-13] Thereafter, the promissory note, assignment of leases
and rents, and financing statement were assigned from the Original Lender to U.S. Bank.2
On August 8, 2011, U.S. Bank split the original promissory note into fifteen separate
companion notes pursuant to the loan agreement. The fifteen notes – identified as Severed
Notes A-1 through A-15 – were dated May 9, 2007, and replaced the original note in its
entirety. Severed Note A-15 was split into fifty-nine additional companion notes (identified
as Severed Notes A-16 through A-74) which were also dated May 9, 2007. These notes
amended, restated, and replaced Severed Note A-15. The plaintiff is attempting to collect
Severed Note A-48 (representing a principal loan amount of $5,400,000.00) and Severed
Note A-50 (representing a principal loan amount of $2,620,000.00) from the defendants.
[Record Nos. 1-7, 1-8] To reflect Severed Notes A-48 and A-50, the mortgage was modified,
and the modification was executed by U.S. Bank pursuant to the loan agreement. [Record
No. 1-10] The Mortgage, Assignment of Leases and Rents, and Financing Statements (the

2

The documents were first transferred to Merill Lynch Mortgage Lending, Inc., which
transferred them to LaSalle Bank National Association. LaSalle Bank transferred the documents
to U.S. Bank. [Record No. 52-1, p. 4 n.1]
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“Loan Documents”) were assigned by U.S. Bank to the plaintiff. [See Record Nos. 1-11, 12,
14, 15.]
II.
Summary judgment is appropriate when “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); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Chao v.
Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002). A dispute over a material fact is not
“genuine” unless a reasonable jury could return a verdict for the nonmoving party. That is,
the determination must be “whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986); see Harrison
v. Ash, 539 F.3d 510, 516 (6th Cir. 2008).
The party moving for summary judgment bears the burden of showing there are no
genuine issues of material fact for resolution. CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6th
Cir. 2008). Once the moving party has met its burden of production, “its opponent must do
more than simply show that there is some metaphysical doubt as to the material facts.” Sigler
v. Am. Honda Motor Co., 532 F.3d 469, 483 (6th Cir. 2008) (citing Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). In determining whether summary
judgment is appropriate, the Court must review all the facts and the inferences drawn from
those facts in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587.

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III.
The plaintiff contends that the defendants defaulted under the Loan Documents “by
failing to make one or more payments of principal and interest when due.” [Record No. 521, p. 5] As evidence of the default, it attaches an affidavit of Dmitry Sulsky, an asset
manager with LNR Partners, LLC, the entity that services the loan secured by the property.
Sulsky is also the manager of Fayette SG Property. [Record No. 52-3, p. 2] Fayette SG
Property references a letter notifying the defendants of the default in March 2011. [Record
No. 1-16] The Sulsky affidavit states that the defendants are “in default of [their] obligations
under the Loan because [they] failed to pay when due the monthly installments of principal
and interest.” [Record No. 52-3, p. 3] Further, the plaintiff asserts that
Plaintiff, as the owner and holder of the Loan Documents, has a good and valid
first lien on the Property for the purposes of securing repayment of Severed
Notes A-48 and A-50, prior to all other liens against the Property, subject only
to ad valorem real property taxes and assessments, if any, now a lien on the
Property. [] By virtue of its security interest in the Collateral, Plaintiff is
entitled to exercise any and all remedies available to a secured party under the
Uniform Commercial Code, including having the Collateral, or so much
thereof as Plaintiff shall designate, sold at public or private sale. See
Mortgage,§§ 1.3, 1.4[].
The defendants admit in their Answer that the subject documents “speak for
themselves.” [Record No. 20, pp. 1-2] The Loan Documents provide that, upon a breach of
any agreement or covenant of the Mortgage or the other Loan Documents, the holder of the
documents would be entitled to enforce the Mortgage and to have the Property sold to pay
the amounts due thereunder, together with the costs and expenses of the enforcement action.
[Record No. 1-5, p. 16] This is the remedy sought by Fayette SG Property.
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Although the defendants filed an Answer indicating that they intended to assert the
affirmative defenses of waiver and estoppel, no further support was ever provided for these
affirmative defenses. See Guarino v. Brookfield Township Trustees, 980 F.2d 399, 404 (6th
Cir. 1992) (the Court is not required to “conduct its own probing investigation of the record”
when the nonmoving party has not responded.). Additionally, on May 1, 2013, the Court,
at the request of the defendants, allowed counsel for the defendants to withdraw. [Record
No. 46] In that Order, the Court gave the defendants fifteen days to designate new counsel
in this matter. But the defendants did not comply with this Order. [Id.] The Court notes that,
as limited liability partnerships, the defendants may not represent themselves. See Lattanzio
v. COMTA, 481 F.3d 137 (2d Cir. 2007). Nor have the defendants responded to the motion
for summary judgment. However, resting on unsupported assertions contained in their
pleadings will not save the defendants from summary judgment. Celotex, 477 U.S. at 324
(holding that a nonmoving party cannot rely upon the assertions in its pleadings; rather, that
party must come forward with probative evidence, such as sworn affidavits, to support its
claims).
The fact that the defendants have not responded to the motion for summary judgment
does not mean that the motion should be granted automatically. The plaintiff must still
satisfy its burden. See Fed. R. Civ. P. 56; see also Smith v. Hudson, 600 F.2d 60, 64-65 (6th
Cir. 1979). However, when a party fails to respond to a summary judgment motion, many
courts will deem the factual averments in the motion as uncontested, as long as the factual
statements are supported by evidence and show an absence of a genuine issue for trial. See,
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e.g. Guarino, 980 F.2d at 404 (“Dozens of other [Courts] [] have dealt with the
circumstance of a dispositive motion in want of a response and have consistently assumed
without specific comment that a court’s reliance on the facts advanced by the movant is
proper and sufficient.”); Eady v. Lappin, 2009 U.S. Dist. LEXIS 97513 (N.D.N.Y. Sept. 30,
2009) (nonmoving party’s failure to respond lightens the moving party’s burden on summary
judgment); see also Larsen v. JBC Legal Group, P.C., 533 F. Supp. 2d 290, 296 (E.D.N.Y.
2008) (same).
In the present case, the documents provided by the plaintiff demonstrate that Fayette
SG Property is entitled to summary judgment. The Loan Documents indicate that the
defendants had an obligation to make monthly payments to the plaintiff as the holder of the
documents. [See Record Nos. 1-2 through 1-16.] The affidavit of Dmitry Sulsky, the letter
to the defendants notifying them of the default, and the assertions of the plaintiff sufficiently
establish that the defendants have defaulted on their obligations under the Loan Documents.
[See Record No. 52-4; Record No. 1-16.] And the defendants have not presented “evidence
on which the trier of fact could reasonably find” for them. See Hartsel v. Keys, 87 F.3d 795,
799 (6th Cir. 1996) (citing Anderson, 477 U.S. at 251-52). Instead, the Court concludes that
the defendants have defaulted on their obligations under the Loan Documents, have not
complied with the Court’s Order, and have ceased any defense of its default, in this and other
Courts. See MLCFC 2007-8 Jefferson SG Property, LLC v. Forsythia Court Apartments of
Jefferson County, Ltd., Case No. 3:12-CV-645-S.

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Thus, the Court turns to the issue of damages. In his affidavit, Mr. Sulsky calculates
the balance due on Severed Note A-48, as of May 8, 2013, as $7,310,427.20. [Record No.
52-3, p. 3] He asserts that interest on Severed Note A-48 accrues at the per diem rate of
$1,474.780. [Id., p. 4] Regarding Severed Note A-50, he states that the total due on this loan
as of May 8, 2013, is $3,546,910.97, with a per diem interest rate of $715.433. [Id.] Fayette
SG Property also claims that it is entitled to recover reasonable attorneys’ fees and costs
expended. [Record No. 52-1, p. 6]
The plaintiff also seeks other forms of relief under the loan documents. Specifically,
it seeks an order:
(1) that Plaintiff holds a first lien on the Property prior and superior to all other
liens and encumbrances, other than for unpaid ad valorem real property taxes;
(2) that Plaintiff’s first mortgage be enforced and, to that end, that the Property
and so much of the Collateral as may be designated by Plaintiff, shall be sold
at public auction as provided in the tendered Judgment and Order of Sale, free
and clear of all liens and encumbrances; and (3) that the proceeds of such sale,
or such of the proceeds as may be necessary, be applied pursuant to the
proposed order tendered herewith.
[Record No. 52-1, p. 9] The Loan Documents provide specifically for these remedies. The
Court will grant the relief requested by the plaintiff.
IV.
For the reasons stated above, it is hereby
ORDERED as follows:
1.

Plaintiff MLCFC 2007-8 Fayette SG Property, LLC’s motion for summary

judgment [Record No. 52] is GRANTED.

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2.

The plaintiff will be awarded judgment against the defendants in the amount

of $10,857,338.17, plus per diem interest of $2,190.213, accruing from May 8, 2013, until
the principal amount is paid in full.
3.

The mechanics of the plaintiff’s foreclosure against the real property securing

the defendants’ indebtedness shall be set out in a corresponding Order of Sale to be entered
separately.
This 15th day of October, 2013.

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