51382 Gratiot Ave. Holdings, LLC v. Chesterfield Dev. Co.

• Decision Date: 12 December 2011
• Docket Number: Case No. 2:11–cv–12047.
• Parties: 51382 GRATIOT AVENUE HOLDINGS, LLC, Plaintiff/Counter–Defendant, v. CHESTERFIELD DEVELOPMENT COMPANY, LLC and John Damico, Defendants/Counter–Plaintiffs/Third–Party Plaintiffs, v. Morgan Stanley Mortgage Capital Holdings, LLC, Third–Party Defendant.
• Court: U.S. District Court — Eastern District of Michigan

835 F.Supp.2d 384

51382 GRATIOT AVENUE HOLDINGS, LLC, Plaintiff/Counter–Defendant,

v.CHESTERFIELD DEVELOPMENT COMPANY, LLC and John Damico, Defendants/Counter–Plaintiffs/Third–Party Plaintiffs,

v.Morgan Stanley Mortgage Capital Holdings, LLC, Third–Party Defendant.

Case No. 2:11–cv–12047.

United States District Court,

E.D. Michigan,

Southern Division.

Dec. 12, 2011.

James L. Allen, Miller Canfield, Troy, MI, Emily C. Palacios, Miller Canfield, Ann Arbor, MI, for Plaintiff/Counter–Defendant.

Kevin B. Hirsch, Peter M. Alter, Jaffe, Raitt, Southfield, MI, for Defendants/Counter–Plaintiffs/Third–Party Plaintiffs.

OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON THE COMPLAINT, GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON DEFENDANTS' COUNTERCLAIMS, AND DIRECTING DEFENDANTS TO SHOW CAUSE WHY THIRD–PARTY CLAIMS SHOULD NOT BE DISMISSED

ROBERT H. CLELAND, District Judge.

In December 2009, Defendant Chesterfield Development Co. (“Chesterfield”) defaulted on a commercial mortgage loan held by Plaintiff 51382 Gratiot Avenue Holdings, LLC (“Gratiot”). Plaintiff subsequently foreclosed on the shopping center securing the loan and filed this suit. Presently, the claims remaining in the case concern Plaintiff's right to the deficiency between the balance owed on the loan and the value of the foreclosed property—an amount in excess of $12,000,000. Before the court is Plaintiff's affirmative motion for summary judgment on the complaint, which asserts that the loan contract allows it to recover the deficiency from both Chesterfield and the guarantor of the loan, Defendant John Damico. Also pending is Plaintiff's motion for summary judgment on Defendants' counterclaims, all of which concern Defendants' liability for the deficiency. Both motions have been fully briefed, and the court heard oral argument on November 16, 2011. For the following reasons, the court will grant Plaintiff's motion for summary judgment on the complaint, grant Plaintiff's motion for summary judgment on the counterclaims, and direct Defendants to show cause why their third-party claims should not be dismissed.

I. BACKGROUND¹

On April 13, 2005, Chesterfield obtained a $17,000,000 commercial mortgage loan (the “Loan”) from Plaintiff's predecessor-in-interest, Third–Party Defendant Morgan Stanley Mortgage Capital Holdings, LLC (“Morgan Stanley”). (Hundertmark Aff. ¶ 3, Dkt. # 3–2.) To secure the loan, Chesterfield mortgaged the Chesterfield Village Square shopping center (the “Property”), located at the corner of Gratiot Avenue and 23 Mile Road in Chesterfield Township, Michigan. The terms of the loan were memorialized in several documents (collectively, the “Loan Agreement”) executed by Chesterfield (“Borrower”) and Morgan Stanley (“Lender”), including a Promissory Note for the principal sum of $17,000,000 (the “Note”), a Mortgage for the Property (the “Mortgage” or “Security Instrument”), and a Guaranty of Recourse Obligations of Borrower signed by Damico (the “Guaranty”). The Loan Agreement was subsequently assigned to Plaintiff, effective August 22, 2010. ( Id. ¶ 11.)

As of December 1, 2009, Chesterfield stopped making the monthly payments required by the Loan Agreement. ( Id. ¶ 15.) On April 9, 2010, Plaintiff sent Chesterfield a notice of default stating that the maturity of the Loan had been accelerated and demanding payment in full of the amount due. (Demand Letter, Dkt. # 36–8.) Chesterfield did not pay the accelerated Loan balance, (Hundertmark Aff. ¶ 19), and Plaintiff foreclosed its mortgage by advertisement, ( id. ¶ 21). On April 1, 2011, the Property was sold at public auction to Plaintiff for $7,600,000. ( Id.)

On May 10, 2011, Plaintiff invoked the court's diversity-of-citizenship jurisdiction to file this suit against Chesterfield, seeking, among other claims, judgment for the amount due on the Note less the price paid by Plaintiff to purchase the Property at the foreclosure sale. ( See Compl. ¶¶ 23–29, Dkt. # 1.) In the complaint, Plaintiff also requested that the court appoint a receiver to manage the Property for the six-month statutory redemption period during which Chesterfield remained in possession. ( See id. ¶¶ 41–50; see also Mot. Appoint Receiver, Dkt. # 3.) Plaintiff added Damico as a Defendant via an amended complaint filed on June 8, 2011, alleging that the Guaranty made Damico liable for payment in full of the Loan. (Am. Compl. ¶¶ 62–71, Dkt.# 24.)

The court appointed a receiver to manage the Property by a stipulated order entered on June 10, 2011. (Stip. & Order Grant. Mot. Appoint Receiver, June 10, 2011, Dkt. # 28). On June 27, 2011, Plaintiff filed the instant motion for summary judgment on its claims for judgment on the Note and the Guaranty, (Mot. Summ. J. 1, Dkt.# 36), seeking recovery of the $12,240,108.64 deficiency between the amount due on the Note and the value of the Property, (Br. Supp. Mot. Summ. J. 16–17, Dkt.# 36). While Plaintiff's motion was pending, the court terminated the receivership, again by stipulated order, ( see Stip. & Order Term. Receivership., Oct. 20, 2011, Dkt. # 75), after title to the Property vested in Plaintiff on October 1, 2011. The receivership proceedings have settled all of Plaintiff's claims except for its request for a deficiency judgment from both Chesterfield and Damico.

After Plaintiff filed its amended complaint, Defendants filed a counterclaim and third-party complaint that states six counterclaims and third-party claims: (I) breach of contract as to Plaintiff; (II) breach of covenant of good faith and fair dealing as to Plaintiff; (III) fraud/intentional misrepresentation as to Third–Party Defendant; (IV) fraud in the inducement as to Plaintiff and Third–Party Defendant; (V) request for declaratory relief as to Plaintiff; and (VI) reformation as to Plaintiff and Third–Party Defendant. (Am. Counterclaim & 3d Party Compl., Dkt. # 81.) On August 22, 2011, Plaintiff filed the instant motion for summary judgment on the counterclaims contained in Counts I, II, IV, V, and VI. (Mot. Summ. J. Defs.' Countercls., Dkt. # 49.) The court combined both of Plaintiff's summary judgment motions for briefing; Defendants have since filed a response, Plaintiff a reply, and Defendants, with leave of the court, a sur-reply. After the court heard oral argument on November 16, 2011, both Defendants and Plaintiff filed an additional, supplemental brief, again with leave of the court.

II. STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment is proper 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). When deciding a motion for summary judgment, the court “is not to ‘weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.’ ” Sagan v. United States, 342 F.3d 493, 497 (6th Cir.2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). “The central issue is ‘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.’ ” Id. at 497 (quoting Anderson, 477 U.S. at 251–52, 106 S.Ct. 2505). “The judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the [movant] is entitled to a verdict....” Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

The party seeking summary judgment has the initial burden of showing the absence of a genuine dispute as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the nonmovant, who “must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256, 106 S.Ct. 2505. It is not enough for the nonmovant to “simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, the nonmovant must sufficiently allege a fact that, if proven, “would have [the] effect of establishing or refuting one of essential elements of a cause of action or defense asserted by the parties.” Midwest Media Prop., L.L.C. v. Symmes Twp., Ohio, 503 F.3d 456, 469 (6th Cir.2007) (alteration in original) (quoting Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir.1984)) (internal quotation marks omitted).

Both parties must support their assertions “that a fact cannot be or is genuinely disputed” by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatoryanswers, or other materials.” Fed.R.Civ.P. 56(c)(1)(A). Alternatively, either party may carry its burden by “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Id. 56(c)(1)(B). “The court must view the evidence in the light most favorable to the non-moving party, drawing all reasonable inferences in that party's favor.” Sagan, 342 F.3d at 497 (citing Matsushita, 475 U.S. at 587, 106 S.Ct. 1348).

III. DISCUSSION

The primary dispute between Plaintiff and Defendants is whether the Loan Agreement holds Defendants liable for the deficiency between the amount still due on the Loan and the value of the Property at the time of the foreclosure. This is the subject of Plaintiff's affirmative motion for summary judgment on the complaint; Defendants' response—titled (but not docketed as) a “Cross–Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56(f)(1)”—also contains a request for summary judgment on this point. SeeFed.R.Civ.P. 56(f)(1) (“After giving notice and a reasonable time to...