Case Prop. Servs. v. Columbia Props. Phx.
| Decision Date | 27 March 2023 |
| Docket Number | 17 Civ. 3110 (NSR) |
| Parties | CASE PROPERTY SERVICES, LLC, Plaintiff, v. COLUMBIA PROPERTIES PHOENIX, L.P., COLUMBIA SUSSEX CORPORATION, CHRISTOPHER J. BALLAD, and COLUMBIA PROPERTIES MINNEAPOLIS, LTD., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Case Property Services, LLC (“Plaintiff,” or “CPS”) commenced this action against Defendants Columbia Properties Phoenix, L.P. (“Columbia Phoenix”), Columbia Sussex Corporation (“Columbia Sussex,” or “CSC”), Christopher J. Ballad (“Mr. Ballad”), and Columbia Properties Minneapolis, Ltd. (“Columbia Minneapolis”) (collectively, “Defendants”), asserting common law claims for breach of contract, account stated, unjust enrichment, and breach of personal guaranty. (First Amended Complaint (“FAC”), ECF No. 12.) Plaintiff also asserted a claim for a violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836, but this Court dismissed that claim in an Opinion & Order dated September 17, 2018. (ECF No. 28.)
Presently before the Court are (1) Defendants' motion for summary judgment on all of Plaintiff's claims (ECF No. 68); and (2) Plaintiff's cross-motion for partial summary judgment on its claims for breach of contract, unjust enrichment, and breach of personal guaranty (ECF No. 77). For the following reasons, the Court GRANTS in part and DENIES in part Defendants' motion for summary judgment, and the Court DENIES Plaintiff's cross-motion for partial summary judgment.
The parties have submitted briefs, statements of material facts pursuant to Local Civil Rule 56.1, and the record and exhibits from discovery in the instant proceeding, which reflect the following factual background.[1]
A. The Phoenix and Minneapolis Loans
Columbia Phoenix owns the Phoenix Airport Marriot Hotel (“Phoenix Hotel”) in Phoenix, Arizona. (Defendants' Rule 56.1 Statement (“Defs 56.1”) at ¶ 1, ECF No. 69-1.) Columbia Minneapolis owns the Minneapolis Marriot Hotel (“Minneapolis Hotel”) in Minneapolis, Minnesota. (Id.) Both Columbia Phoenix and Columbia Minneapolis entered into loan agreements (the “Phoenix Loan” and “Minneapolis Loan,” respectively), one collateralized by the Phoenix Hotel and the other by the Minneapolis Hotel. (Plaintiff's Rule 56.1 Statement (“Plf. 56.1”) at ¶ 1, ECF No. 75.) These loans were placed into a multi-tranche commercial mortgage-backed security (“CMBS”). (Pinewski Tr 28:20-29:10; Chopp Tr. 33:12-23, 229:24-230:18.) As of February 16, 2017, Columbia Phoenix owed $66,162,892.67 on the Phoenix Loan (Plf. 56.1 at ¶ 107), and Columbia Minneapolis owed $59,777,105.32 on the Minneapolis Loan (id. at ¶ 109).
A CMBS is composed of multiple classes, or “tranches.” Investors buy into different tranches, and they are repaid with interest generated by the loan. “A” tranche investors are paid first, “B” tranche next “C” after that, and so on and so forth. “A” tranche investors carry less risk because they are repaid first. More junior classes are paid later and thus carry a higher risk of nonpayment, but they also reap higher interest payments. Because “A” tranche investors receive payment first, a borrower's default will first trigger losses for more junior tranche investors. These more junior tranches are “wiped out” by the losses, and when that happens, the most junior tranche becomes the “controlling class until that class loses 75 percent of its value.” (Pinewski Tr. 30:1831:12.) In the event of default, the controlling class appoints a “special servicer” to administer the loan. (Chopp Tr. 60:17-19.) In so doing, the special servicer has three options: (1) foreclose the underlying property; (2) modify the defaulted loan; or (3) sell the loan to a controlling class member at a fair value price. (Chopp Tr. 60:8-65:14 Pinewski Tr. 89:9-95:20.)
The Phoenix and Minneapolis Loans were approaching maturity default. (Plf. 56.1 at ¶ 68.) These non-performing Loans were held in a CMBS for which Triangle Capital (“Triangle”) was the controlling class member. (Ballad Tr. 33:14-34:4.) CW Capital Asset Management LLC (“CW Capital”) was the special servicer on the Loans until August 2016, when it was replaced by C-III Asset Management (“C-III”). (Plf. 56.1 at ¶¶ 22-23; Defendants' Response to Plaintiff's Rule 56.1 Statement (“Defs. 56.1 Resp.”) at ¶ 23, ECF No. 75.) As the controlling class member, Triangle owned the right to approve any actions of CW Capital (or later C-III). (Pinewski Tr. 32:1-11.) Triangle also owned the right to purchase the Loans at a fair value price. (Id.)
B. The Consulting Agreement Between CPS and Defendants
CPS provides consulting services to distressed borrowers. (Plf. 56.1 at ¶ 9.) Shlomo Chopp (“Mr. Chopp”) is one of CPS's principals. (Id. at ¶ 8.) On January 14, 2015, Columbia Phoenix, through its corporate agent and Chief Financial Officer Christopher Ballad, entered into a consulting agreement (the “Agreement”) with CPS set to expire on October 31, 2015. (Defs. Ex. A at Ex. 1.) Mr. Ballad was aware of the personal guarantee language in sections 1, 2, 4, and 5 of the Agreement, including language stating that “the authorized signatory for the Borrower hereby personally guarantees full payment of the Debt Reduction Fees.” (Agreement § 5.) Mr. Ballad, however, believed the personal guaranty was unenforceable because he signed once in his capacity as corporate agent and did not sign a second time in his individual capacity. (Ballad Tr. 46:449:19.)
CPS was retained by Columbia Phoenix to “obtain[ ] a reduction, repurchase, acquisition and/or release of debt owed by the Borrower as of the date hereof.” (Agreement at 1.) CPS's goal, in other words, was to reduce the amount of the Phoenix Loan. (Ballad Tr. 50:16-52:21.) If CPS “directly or indirectly” contributed to “an agreement or arrangement full[y] executed and entered into between Borrower and Lender” that resulted in the “reduction or forgiveness of the agreement amount due under a Loan,” the Agreement obligated the Borrower-here, Columbia Phoenix-to pay a “Debt Reduction Fee.” (Agreement § 5.) The Debt Reduction Fee is payable “for each Loan” for which CPS provided services, “regardless of whether the execution of the documents evidencing” the agreement “occur[ed] prior to or after the expiration of the Term, or termination of this agreement.” (Id.)
Columbia Sussex owns CSC Holdings, LLC (“CSC Holdings”), which in turn owns hotels and is the parent company of Columbia Phoenix and Columbia Minneapolis. (Ballad Tr. 282:21283:4.) Less than a month after Columbia Phoenix and CPS entered into the Agreement, Columbia Sussex and CPS entered into a Related Entities Agreement (the “Related Entities Agreement”). (Defs. Ex. A at Ex. 2.) Columbia Sussex agreed that “if and to the extent that” CPS provided “Consulting Services” to Columbia Sussex “and/or” to any “Related Entities,” including Columbia Minneapolis, “said Consulting Services” would be subject to “all of the terms” of the Agreement, including the payment of fees in Schedule A, “but only to the extent that” Columbia Sussex “and/or the Related Entities retains ownership of the associated properties.” (Id.) The Related Entities Agreement then outlines when Columbia Sussex would not pay a “Debt Reduction Fee,” for a “Related Entity's loan,” “in respect of such entity.” (Id.) The Fee would not “be payable by” Columbia Sussex “in respect of” a Related Entity if the Related Entity's loan was not “(a) restructured with CSC or an affiliate under an agreement that provides for CSC or an affiliate to retain ownership and control or (b) acquired by CSC or an affiliate via a note purchase or discounted payoff.” (Id.) At minimum, the Related Entities Agreement “makes the terms of the Consulting Agreement applicable to Columbia Minneapolis and other entities and properties specifically identified therein.” (Defs. 56.1 Resp. at ¶ 46.)
On September 23, 2015, CPS and Columbia Phoenix extended the Agreement, as modified by the Related Entities Agreement, through December 31, 2015. (Defs. Ex. A at Ex. 3.) On November 17, 2015, the parties further modified the Agreement, specifically the payment of fees in Schedule A. (Id. at Ex. 4.) Schedule A, as amended, reads as follows:
(Id.) The Agreement expired on December 31, 2015 and was subsequently reinstated through December 31, 2016. (Id. at Ex. 5.) On December 9, 2016, Mr. Chopp sent Mr. Ballad a third extension agreement. (Plf. Ex. 8.) Mr Ballad did not sign the extension, and the Agreement expired on December 31, 2016. Nonetheless, Mr. Ballad remained “open to the possibility of reinstating the Agreement, after it expired, if Plaintiff could be helpful” and “if Plaintiff renegotiated certain terms.” (Defs. 56.1 Resp. at ¶ 54.) Further negotiations were to no avail. (Id. at ¶¶ 53-54.) On February...
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