Jayson Investments, Inc. v. Kemp, 90 C 4004.
| Decision Date | 18 September 1990 |
| Docket Number | No. 90 C 4004.,90 C 4004. |
| Citation | 746 F. Supp. 807 |
| Parties | JAYSON INVESTMENTS, INC., an Illinois corporation, as general partner of Michigan Beach Cooperative Partners Limited Partnership, an Illinois limited partnership; and Cincinnati Mortgage Corporation, a foreign corporation, Plaintiffs, v. Jack KEMP, Secretary of Housing and Urban Development; and Michigan Beach House Cooperative, an Illinois non-for-profit corporation, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Jerome H. Torshen, Zoran Dragutinovich, Torshen, Schoenfield & Spreyer, Ltd., Chicago, Ill., for plaintiff Jayson Investments, Inc.
Bruce R. Meckler, Phelan, Pope & John, Chicago, Ill., Robert C. Seldon, Mario Greszes, Krooth & Altman, Washington, D.C., for plaintiff Cincinnati Mortg. Corp.
Ira H. Raphaelson, Acting U.S. Atty. by Nancy K. Needles, Asst. U.S. Atty., Chicago, Ill., Edward Eitches, Sr. Trial Atty., Washington, D.C., for defendant HUD.
Herbert H. Fisher, Chicago, Ill., for defendant Michigan Beach Housing Co-op.
Plaintiff Jayson Investments, Inc. ("Jayson") filed the instant action seeking to compel the Department of Housing and Urban Development ("HUD") to perform certain acts relating to the financing and operation of a particular real estate project in which Jayson has a substantial financial interest. First, Jayson seeks to compel HUD to issue its final endorsement of a mortgage securing a loan to Jayson for the development of cooperative housing at a building known as the Michigan Beach Apartments. HUD's final endorsement is required to trigger HUD's coinsurance of the mortgage. Second, Jayson seeks to require HUD to issue its approval of the conversion of the Michigan Beach project from cooperative housing to rental property. Under federal regulations, HUD's approval is required before such a conversion can take place.
In response to Jayson's allegations, HUD has filed a motion requesting the court to either dismiss the amended complaint or enter summary judgment in its favor. For the reasons stated herein, the court finds that based on certain material facts over which there is no genuine dispute, HUD is entitled to judgment as a matter of law. Therefore, HUD's motion is granted to the extent that it seeks the entry of summary judgment in its favor.
On May 24, 1985, the owner of the multifamily apartment building known as the Michigan Beach Apartments1 filed a Chapter 11 petition in bankruptcy. In Re Michigan Beach Apartments, An Illinois Limited Partnership, 85 B 6614. HUD, the holder of the mortgage on the Michigan Beach property, was the sole secured creditor in the bankruptcy proceedings. At some point during the pendency of bankruptcy proceedings, Jayson became interested in purchasing Michigan Beach. Jayson, an Illinois corporation owned by brothers Scott and Jay Canel, was formed in 1986 to engage in the business of real estate investment.
Jayson claims it was solicited by HUD to buy the Michigan Beach property and develop it as a cooperative. HUD contends that developing the property into a cooperative was Jayson's own idea from the start. Whether the cooperative was initially HUD's idea or Jayson's, however, one thing is clear — HUD and Jayson reached an accord on a plan of reorganization for the property pursuant to which Jayson was to purchase the property and develop it as a cooperative. Under the terms of the initial agreement between HUD and Jayson, HUD's mortgage would be paid in full out of the proceeds of an FNMA Housing Cooperative Loan to be obtained by Jayson from the National Consumer Cooperative Bank. As a precondition to the release of the FNMA loan to Jayson, at least 50% of the Michigan Beach cooperative units had to be sold in advance.
On June 23, 1986, HUD filed its Plan of Reorganization in the bankruptcy court containing the specific details of its agreement with Jayson, including the terms outlined above. HUD also filed a Disclosure Statement with the bankruptcy court in which HUD stated its belief that "the best interests of all parties dictates that the Project be sold to Jayson, Inc. and the Debtor's assets be liquidated as soon as practicable in the current Chapter 11 case and distributed according to the Plan." One day after HUD submitted its Plan to the bankruptcy court, Jayson and HUD executed a "Memorandum of Understanding" which, by its own terms, "sets forth the agreement between Jayson ... and HUD concerning the proposal by Jayson to acquire the Michigan Beach property." The Memorandum states that it is intended to supplement the April 16, 1986 letter from Scott Canel to William T. Clabault, the Assistant United States Attorney who represented HUD in the Michigan Beach bankruptcy proceedings. In that letter, Canel had first outlined for HUD the specific terms of Jayson's plan to purchase the property and turn it into a cooperative through extensive ($1.75 million) rehabilitation.
After the original Reorganization Plan and Disclosure Statement were submitted to the bankruptcy court, Jayson and HUD mutually agreed to alter the terms of their agreement in several respects. To reflect those changes, HUD filed an Amended Reorganization Plan and an Amended Disclosure Statement on December 17, 1986. The Amended Plan stated that HUD would take part in financing the project by coinsuring Jayson's first mortgage for the project. Specifically, the Amended Plan indicated that 2 The Amended Disclosure Statement revealed that in addition to the loan from Dean, Witter, Jayson would be financing the project in part through a loan from the City of Chicago. The Amended Disclosure Statement also stated that after confirmation of the Amended Plan, a company called Services for Cooperative Condominium Communities, Inc. ("SCCC") would be appointed to manage the property.
In May 1987, Jayson and HUD also amended their initial Memorandum of Understanding — twice. Neither amendment, however, changed the general substance of the parties' agreement. The first amendment merely modified the schedule by which Jayson was to complete its presale of the cooperative units in order to have financing released; the second amendment revised conditions pertaining to the management of the property.
On May 27, 1987, the bankruptcy court entered an order confirming HUD's Amended Plan of Reorganization. Although the order approves the sale of the Michigan Beach property to Jayson for development as a cooperative, the order also states that if Jayson is unable to complete presale of the cooperative units or to obtain permanent financing to satisfy HUD's claim in full, then the Chapter 11 case and the property other than the cash collateral were to be returned to the "status quo." In that event, the order further provided, Jayson would have no right, title, or interest in the property, and Jayson could bring no claim against HUD in connection with the Chapter 11 case. The bankruptcy court order was the first document concerning the Michigan Beach project which set forth what would happen in the event that Jayson was unable to obtain sufficient financing or sales to allow the cooperative to proceed. None of the other documents to which Jayson and HUD were privy — including the original and amended Reorganization Plan, the original and amended Disclosure Statement, and the original and twice amended Memorandum of Understanding — contained any provision regarding the rights or duties of the parties in the event the cooperative failed.
After the bankruptcy court approved the Amended Plan, SCCC was appointed to manage the property in accordance with that Plan. In addition, Ida Curtis Fisher began marketing the property as a cooperative. Fisher is president of ICF Development Corporation, a company in the business of providing marketing and development services to housing cooperatives. Fisher and ICF had been involved in the planning of the cooperative project from the start. According to Jayson, it was Fisher who initially proposed the idea of turning Michigan Beach into a cooperative as an investment opportunity for Jayson. Upon the approval of the Amended Plan, Fisher marketed the property as Jayson's agent.3
While Fisher marketed the cooperative, Jayson attempted to obtain financing for the purchase and rehabilitation of the property. Pursuant to terms of the Amended Plan, Jayson negotiated with Dean, Witter Housing and Real Estate Financing Corp. for a first mortgage, and applied to the City of Chicago for a low interest rate subordinated second mortgage. Although Jayson's application for funding from the City of Chicago was successful, Jayson's negotiations with Dean, Witter eventually broke down. Ultimately, however, Jayson secured a loan commitment from Cincinnati Mortgage Corporation ("CMC"), whom Jayson has joined as an involuntary plaintiff to this action. CMC issued its commitment on July 21, 1988. In the commitment, CMC agreed to make, and to coinsure with HUD under the § 221(d)(3) program, a mortgage loan in the amount of $6,390,100, subject to certain terms and conditions. One of those conditions was that at least 51% of the co-op units had to be sold prior to initial endorsement of the loan. After CMC's loan commitment issued, the bankruptcy court entered an order allowing modification of the Amended Plan to indicate that funding of the project would be through a loan from CMC, not Dean, Witter as the Amended Plan had indicated. The bankruptcy court's order further reflected that an additional loan from the City of Chicago in the amount of $3,295,380 would be secured by a second...
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