Blue Hills Office Park v. J.P. Morgan Chase Bank, Civil Action No. 05-10506-WGY.

• Decision Date: 14 March 2007
• Docket Number: Civil Action No. 05-10506-WGY.
• Citation: 477 F.Supp.2d 366
• Parties: BLUE HILLS OFFICE PARK LLC, Plaintiff, Defendant-in-Counterclaim, v. J.P. MORGAN CHASE BANK, as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 1999-C1, Defendant, and CSFB 1999-C1 Royall Street, LLC, Defendant, Plaintiff-in-Counterclaim and William Langelier and Gerald Fineberg, Defendants-in-Counterclaim.
• Court: U.S. District Court — District of Massachusetts

Page 366

477 F.Supp.2d 366

BLUE HILLS OFFICE PARK LLC, Plaintiff, Defendant-in-Counterclaim, v. J.P. MORGAN CHASE BANK, as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 1999-C1, Defendant, and CSFB 1999-C1 Royall Street, LLC, Defendant, Plaintiff-in-Counterclaim and William Langelier and Gerald Fineberg, Defendants-in-Counterclaim.

Civil Action No. 05-10506-WGY.

United States District Court, D. Massachusetts.

March 14, 2007.

COPYRIGHT MATERIAL OMITTED

Peter B. McGlynn, Meredith A. Swisher, Bernkopf, Goodman LLP, Boston, MA, for Plaintiff, Defendants — in — Counterclaim.

Bruce S. Barnett, E. Randolph Tucker, Bruce E. Falby, Traci S. Feit, DLA Piper Rudnick Gray Cary U.S. LLP, Boston, MA, Edward J. Barshak, Sugarman, Rogers Barshak & Cohen, Boston, MA, for Defendant, Plaintiff — in — Counterclaim.

MEMORANDUM

YOUNG, District Judge.

After a nine-day jury-waived trial, this Court entered its findings of fact and rulings of law from the bench immediately following closing arguments. An appropriate regard for the requirements of Federal Rule of Civil Procedure 52(a), requires this more extensive memorandum. This high stakes, winner-takes-all, quintessentially complex commercial case involves a $33 million dollar nonrecourse loan, multiple sophisticated parties, and an abundance of loan documents. The plaintiff, Blue Hills Office Park LLC ("Blue Hills"), alleges that the defendants, Credit Suisse First Boston Mortgage Capital LLC ("Credit Suisse"), J.P. Morgan Chase Bank, as Trustee for the Registered Holders of Credit Suisse Bank First Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 1991-C1 ("J.P.Morgan"), and CSFB 1999-C1 Royall Street, LLC ("CSFB") (collectively, the "Lender") breached the loan contract, breached the implied covenant of good faith and fair dealing, and violated Massachusetts General Laws chapter 93A. Were Blue Hills to succeed on any one of these claims, it would raise the probability that it could deflect the Lender's counterclaims. The Lender defended against the Blue Hills' barrage by alleging that Blue Hills breached both the loan contract and the implied covenant of good faith and fair dealing. The Lender then raised the stakes by alleging that Blue Hills and the loan's guarantors, Gerald Fineberg ("Fineberg") and William Langelier ("Langelier") (collectively, the "Guarantors"), made intentional misrepresentations and violated Massachusetts General Laws chapter 93A. The Lender additionally asserted that the Guarantors breached the guaranty.

I. PROCEDURAL BACKGROUND

Blue Hills brought the following claims against J.P. Morgan and CSFB: 1) breach of contract; 2) breach of covenant of good faith and fair dealing; and 3) violations of Massachusetts General Laws chapter 93A. Second Am. Compl. [Doc. No. 36] at 17-20. The case came on for a bench trial on September 13, 2006. On the seventh day of trial, at the close of Blue Hills' evidence as to liability, J.P. Morgan and CSFB made an oral motion for a finding in their favor pursuant to Federal Rule of Civil Procedure 52. Trial Tr. Vol. 7 at 165:21-176:1. After careful `consideration of all the evidence, briefs, and the parties' oral arguments, the Court dismissed all claims brought by Blue Hills. Id. at 176:2-16. Thereafter, CSFB presented evidence as to liability on all its counterclaim theories.

CSFB alleged that Blue Hills: 1) breached the mortgage contract; 2) breached the case management agreement; and 3) breached the implied covenant of good faith and fair dealing. Answer to Pl.'s Second Am. Compl. and Countercl. [Doc. No. 37] at 20-21. CSFB also claimed that Blue Hills, Langelier, and Fineberg (collectively, the "Borrowers") made intentional misrepresentations and violated Massachusetts General Laws chapter 93A. Id. at 21-22. CSFB further alleged that Langelier and Fineberg breached the guaranty. Id. at 22.

On the final day of trial, the Court made its findings of fact and rulings of law. Trial Tr. Vol. 9 at 45:3-55:1. The Court denied CSFB's claims of breach of the implied covenant of good faith and fair dealing and intentional misrepresentation. Id. at 45:18-46:22. The Court further found that Blue Hills had breached the mortgage and Langelier and Fineberg had breached the guaranty. Id. at 46:23-51:25. As to the Chapter 93A claim, the Court ruled that CSFB waived the claim and expressed no opinion as to its merits. Id. at 52:4-10. As to interest and attorneys' fees, the Court ruled that the terms of the contract and guaranty governed. Id. at 54:16-55:1.

II. FINDINGS OF FACT

In the summer of 1999, Langelier and Fineberg, as trustees of Royall Associates Realty Trust ("Royall Associates"), created Blue Hills as a limited liability company to refinance the mortgage on property located at 150 Royall Street in Canton, Massachusetts ("150 Royall Street"). Joint Pre-trial Mem. at 8, 30. Royall Associates is the sole member of Blue Hills. Id. at 29. Langelier has served as president to the Langelier Company, a business that invests in real estate, for 36 years. Trial Tr. Vol. 1 at 27:9-19. Fineberg has approximately 40 years of experience in the real estate, business, with substantial experience in acquiring, financing, managing, and selling commercial buildings. Id., Vol. 7 at 101:11-24. Fineberg Management, Inc., a company affiliated with Fineberg, was retained by Blue Hills to manage the 150 Royall Street property. Joint Pre-trial Mem. at 31.

On or about September 14, 1999, Credit Suisse, a Delaware limited liability company, loaned Blue Hills, also a Delaware limited liability company, $33,149,000.00. Joint Pretrial Mem. at 29. The nonre-course loan¹ was secured by a mortgage on the real property, 150 Royall Street, and other property, rights and interests set forth in the mortgage agreement [Trial Ex.5]. Id. at 34. As a precondition to the refinancing, Blue Hills was formed as a single purpose entity whose sole business was to acquire and own the 150 Royall Street property. Id. at 8, 30. As part of the loan closing, on September 14, 1999, Blue Hills executed various loan documents including the mortgage agreement, the mortgage note [Trial Ex. 4], and, the cash management agreement [Trial Ex. 6]. Id. at 30. That day, Langelier and Fineberg also executed a guaranty [Trial Ex. 7]. Id. at 30.

Credit Suisse required Blue Hills to deposit substantial portions of its net cash flow into several sub-accounts designated for debt service, maintenance, real estate taxes, insurance, and tenant improvement. Id. at 2; Cash Management Agreement at 5-6. Upon satisfaction of certain conditions precedent, the mortgage agreement permitted Blue Hills to use up to $1,000,000 (in excess of a minimum account balance of $2,750,000) in the reserve accounts for payment of loan principal and interest if the primary tenant vacated the property. Joint Pretrial Mem. at 2; Mortgage ¶ 6(c)(ix).

On April 20, 2000, all of Credit Suisse's rights, title, interest, and obligations in the loan were assigned to J.P. Morgan, a New York banking corporation. Joint Pretrial Mem. at 29. The assignment included a Pooling and Servicing Agreement that made Wells Fargo Commercial Mortgage Servicing ("Wells Fargo") the servicer and LNR Partners, Inc. ("LNR Partners") the special servicer of the loan. Id. at 31. Both servicers were agents of J.P. Morgan. Id.

In April 2003, the owner of 250 Royall Street applied to the Town of Canton Zoning Board of Appeals ("Zoning Board") for a special permit to construct a parking garage. Id. The Zoning Board granted the special permit despite Blue Hills' objections. Id. On or about June 9, 2003, Blue Hills filed an appeal of the Zoning Board's decision in the Massachusetts Superior Court sitting in and for the County of Norfolk, Civ. A. No.2003-01051 ("Zoning Appeal"). Id. at 32. On August 5, 2003, without notifying or seeking the consent of the J.P. Morgan, Blue Hills entered into a settlement agreement with the owner of 250 Royall Street, BlueView Corporate Center LLC, and DST Realty, Inc. ("DST Realty"), an affiliate of Boston Equiserve Limited Partnership ("Equiserve") that intended to purchase 250 Royall Street from BlueView. Joint Pretrial Mem. at 32, 35. Under the terms of the settlement agreement, Blue Hills received $2,000,000 from DST Realty and waived all further rights of appeal from the Zoning Board decision. Id. at 35. On August 8, 2003, the settlement proceeds were wired to a client account at Bernkopf Goodman LLP. Id. at 32. Blue Hills never notified J.P. Morgan of its receipt of the settlement payment or conveyed the payment to J.P. Morgan. Id. at 36.

When the loan was made to Blue Hills, Equiserve occupied approximately 96% of the building on 150 Royall Street. Id. at 30. Equiserve's lease expired on July 31, 2004, though it had an option to extend the lease for an additional five-year term. Id. at 31. In April 2003, Blue Hills became aware of Equiserve's intention to relocate to 250 Royall Street subsequent to the expiration of the lease. Id. On May 14, 2003, Equiserve notified Blue Hills and confirmed its intent not to exercise its option to extend the lease. Id.

As a result, Blue Hills could not obtain from Equiserve all the funds necessary to pay the real estate taxes due on August 2, 2004. Id. at 6. By a letter dated July 16, 2004, Wells Fargo requested that Blue Hills deposit the sum of $158,181.19 to cure the deficiency in its tax funds. Id. at 36-37. On or about August 4, 2004, Blue Hills' chief financial officer, Joseph Donovan ("Donovan"), faxed Wells Fargo a written request seeking disbursements of $412,833.43 from the reserve accounts to pay principal and interest on the loan due for the month of August 2004 and to pay real estate taxes due on August 2, 2004. Id. at 32, 38. As of August 2004, funds deposited in the reserve accounts totaled approximately $4,100,000. Id. at 3...