Cityplace Retail, L.L.C. v. Wells Fargo Bank, N.A.

Citation457 F.Supp.3d 1318
Decision Date30 April 2020
Docket NumberCase No. 9:18-CV-81689-ROSENBERG/REINHART
Parties CITYPLACE RETAIL, L.L.C., a Foreign Limited Liability Company, Plaintiff, v. WELLS FARGO BANK, N.A., AS TRUSTEE FOR the REGISTERED HOLDERS OF CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-C1, Defendant.
CourtU.S. District Court — Southern District of Florida

Bruce Alan Weil, Patricia Melville, Laselve Elijah Harrison, Robert George Keefe, Boies Schiller Flexner LLP, Miami, FL, Karen A. Chesley, Pro Hac Vice, Nicholas A. Gravante, Jr., Pro Hac Vice, Boies Schiller Flexner LLP, New York, NY, for Plaintiff.

Angelo A. Stio, III, Pro Hac Vice, Pepper Hamilton, LLP, H. Peter Haveles, Jr., McDermott Will & Emery, LLP, New York, NY, Michael Paul Woodbury, Woodbury, Santiago & Correoso, P.A., Miami, FL, for Defendant.

MEMORANDUM OPINION

Robin L. Rosenberg, United States District Judge

First-year law students are required to take a basic course in contract law, and a common case for new law students to study in that course is the case of Jacob & Youngs, Inc. v. Kent , 230 N.Y. 239, 129 N.E. 889 (1921). Kent is a memorable case involving a contract for the construction of a house. Id. at 240, 129 N.E. 889. The prospective owner of the home, Mr. Kent, wanted a very specific pipe installed as part of the construction—pipe manufactured by the Reading company. Id. To that end, Mr. Kent included in the contract for home construction a provision that the piping had to be Reading-brand. See id. Near the end of the construction of the home, however, the parties learned that, due to inadvertent error, the piping of a different manufacturer had been installed. Id. Mr. Kent was insistent that his house have Reading pipe and, as a result, Mr. Kent demanded specific performance—that the terms of the contract be adhered to and Reading pipe be installed. See id. The problem was that the piping, by that point, was ensconced in the house's walls—if the builder were to replace the piping the cost to do so would have been large indeed. Id. The builder, therefore, attempted to produce evidence that the piping it had installed was the exact same quality as Reading pipe; the piping merely had a different name stamped on the outside of the pipe. See id. at 241, 129 N.E. 889. Not only did the trial court refuse to consider such evidence, the trial court entered a directed verdict in favor of Mr. Kent. Id.

On appeal, the case was reversed. In an opinion written by Justice Benjamin Cardozo, the appellate court explained that while parties are certainly free to contract as they choose, not every contract provision is strictly enforceable. Recognizing that Mr. Kent would not receive exactly what he had contracted for, Justice Cardozo acknowledged that "those who think of symmetry and logic in the development of legal rules [more than] practical adaptation to the attainment of a just result" would be troubled by the court's ruling. Id. at 242, 129 N.E. 889. Even so, New York courts had "balanced such considerations against those of equity and fairness, and found the latter to be the weightier." Id. at 243, 129 N.E. 889. Thus, when "the significance of the default is grievously out of proportion to the oppression," the contract term at issue may not be strictly enforced. See id.

Law students take away lessons from Kent in a variety of areas such as the proper quantification of damages and the suitability of specific performance, but the facts of Kent make the case memorable to law students for a reason. Mr. Kent no doubt felt justified in enforcing his clear and unambiguous requirement for Reading-pipe, but he lost. Cases such as Kent therefore establish reasonable boundaries on the freedom of parties to contract, and the remedies that may flow from certain types of breach of contract. But what are those boundaries, and what contract provisions are enforceable? Cases such as Kent acknowledge the reality that there can be no bright-line rule about what provisions are strictly enforceable and what are not, but when "the significance of the default is grievously out of proportion to the oppression," the contract term is generally not enforceable.

Here, the Court presided over a trial between a borrower (CityPlace) and the borrower's lender (Wells Fargo).1 Just as in Kent , New York law governs the parties’ dispute.2 The loan agreement between CityPlace and its lender is clear—just like the construction contract in Kent . CityPlace's lender made a mistake,3 just like the builder in Kent . And just like Mr. Kent, CityPlace insisted on enforcing its contract as it was written. The problem, however, is that the contract provision at issue in this case (requiring the disclosure of the name of an appraiser working for the lender) is a provision of minimal significance which is analogous to the miniscule difference between a Reading-brand pipe and the pipe in Mr. Kent's walls.

The Court details in this Memorandum Opinion the specifics of the mistake committed by CityPlace's lender, what the contract provision at issue is, and why the provision has minimal significance; but CityPlace, in seeking to strictly enforce the provision, would transform the lender's small mistake into a multi-million dollar forfeiture. Just as in Kent , New York law does not permit CityPlace to strictly enforce its contract under these circumstances. For the reasons set forth below, judgment is entered against CityPlace.

I. PROCEDURAL HISTORY OF THE CASE

This action concerns a dispute under a mortgage loan agreement between a lender, defendant Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-C1 (the "Trustee"), and a borrower, plaintiff CityPlace Retail, LLC ("CityPlace"), regarding compliance with provisions in a loan agreement governing the amount to be paid on a loan. More specifically, the parties dispute how the loan should have been refinanced including: (1) the amount necessary to pay off and refinance the loan, (2) which party properly obtained an appraisal of the property, and (3) whether there should be any additional appraisals of the property in connection with the refinance.

On December 7, 2018, CityPlace filed this action in Florida Circuit Court. On December 11, 2018, the Trustee removed the action to the United States District Court for the Southern District of Florida. Dkt. 1. CityPlace and the Trustee have filed cross-claims against each other for declaratory relief. CityPlace is seeking a declaration as to the following:

(1) Defendant/Lender's CBRE4 appraisal dated November 23, 2018, is invalid in whole and/or in part because it improperly included the potential future value of a zoning change in violation of the requirements set forth in Section 4.9(g)(v) of the Loan Modification;
(2) the Net Refinance Proceeds be calculated in accordance with the appraisal submitted by Plaintiff/Borrower's appointed appraiser Cushman & Wakefield; and
(3) to the extent the requirement for a third-party Qualified Appraiser is determined to have been triggered, the third-party Qualified Appraiser must base its appraisal on the "as-is" value of the Property on or before October 24, 2018.

Dkt. 49 at ¶¶ 26-38.

The Trustee seeks a declaratory judgment that:

(i) the Trustee has complied in all respects with its obligations under the parties’ loan agreements;
(ii) CityPlace must direct its Qualified Appraiser to prepare a new appraisal based on all information that was available to CityPlace in September 2018 with respect to a zoning change for the use of the portion of the property that Macy's had occupied;
(iii) CityPlace is obligated to cooperate and to participate in the appointment of a third party Qualified Appraiser in accordance with the terms of Section 4.9(g);
(iv) upon the completion of the third party's Qualified Appraiser's Appraisal, the parties are obligated to determine the Appraised Value in accordance with the formula set forth in Section 4.9(g) of the Loan Modification Agreement;
(v) upon determination of the Appraised Value, the parties are obligated to cooperate and to determine the Net Refinancing Proceeds in accordance with the formula set forth in Section 4.9(f) of the Loan Modification Agreement; and
(vi) upon determination of the Net Refinancing Proceeds, CityPlace is obligated to pay the Trustee the remaining balance of the Net Refinancing Proceeds that it did not pay to the Trustee when the refinancing occurred and the loan was partially paid on December 21, 2018.

Dkt. 50 at ¶¶ 71-83.

On December 13, 2018, CityPlace filed an Emergency Motion for Preliminary Mandatory Injunctive Relief before this Court, seeking to compel the Trustee to refinance its loan under the terms set by CityPlace. Dkt. 14. On December 18, 2018, this Court entered a consent order that resolved the Emergency Motion (the "Consent Order"). Dkt. 26. Under the Consent Order, the parties agreed that the closing of the refinance would occur on December 26, 2018, and that the parties would use CityPlace's appraisal to determine the appraised value of the property on a preliminary basis, provided that the parties reserved their respective rights with respect to their loan agreement and the ultimate calculation of the appropriate amounts for refinancing. Id. at 2.

After discovery, Plaintiff filed a motion for summary judgment. The Court denied the motion (hereinafter cited as the Court's "Decision"). This case was tried before the Court in a bench trial held on October 23, 24, 30, 31 of 2019, and January 13, 14, 16, and 17 of 2020. Dkt. 193-194, 195, 203-206. At trial, CityPlace presented the live testimony of Jordan Rathlev, James Walsh, Stuart Lieberman and its expert Val K. Chiasson in its case in chief.

In addition, CityPlace submitted deposition testimony from Lorena Trujillo, Christie Corallo, Kristie Alvelo, Geraldine Kohut, Gary Routzahn, Aaron...

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