Jewish Center for Aged v. Bspm Trustees
| Citation | 295 S.W.3d 513 |
| Decision Date | 21 July 2009 |
| Docket Number | No. ED 91965.,ED 91965. |
| Parties | JEWISH CENTER FOR AGED and JCA Support Co., Respondents, v. BSPM TRUSTEES, INC., and Pami Autumn, LLC, Appellants. |
| Court | Missouri Court of Appeals |
Mark B. Leadlove, Mark H. Goran, James R. Wyrsch, Jr., Kenneth L. Marshall, Lawrence C. Friedman, Cheryl A. Kelly, St. Louis, MO, for Respondent.
PAMI Autumn, LLC (hereinafter, "PAMI") and BSPM Trustee, Inc. (hereinafter, "BSPM" and referred to collectively as "Appellants") appeal from the trial court's judgment in favor of Jewish Center for the Aged (hereinafter, "JCA") and JCA Support Co. (hereinafter, "JCA Support") after a bench trial. Appellants raise five points on appeal. We affirm.
JCA is a benevolent corporation which owns approximately thirty-three acres of land in Town and County, Missouri. JCA operates a nursing home for the elderly and poor on approximately eight acres of that land. In the late 1990s, JCA planned to construct a new, 276-bed facility to replace their outdated nursing home. To that end, JCA sought approximately $60 million in financing to fund construction of the new facility. JCA ultimately applied for financing through the Department of Housing and Urban Development (hereinafter, "HUD") through a program commonly referred to as the Section 232 HUD Mortgage Program.
In order to obtain the best interest rate for the loan, JCA retained Gershman Investment Corporation (hereinafter, "Gershman") to process the HUD mortgage insurance loan application for JCA. Certain HUD regulations require all HUD-insured loan borrowers be "single asset mortgagors," which means the mortgagor cannot own any asset other than the facility being mortgaged under the HUD loan program. Since JCA wished to retain the undeveloped acres of land and other assets not connected with the new facility, it could not qualify as a "single asset mortgagor." To rectify this situation, JCA's attorneys recommended JCA create a new entity that would borrow the funds from HUD. JCA, as owner of the land upon which the facility was being constructed, would lease the land to the new entity, and that entity would construct the new facility on that land and lease the facility to JCA since JCA was a licensed nursing home operator.
JCA Support, a not-for-profit corporation and wholly owned subsidiary of JCA, was incorporated on April 20, 2000, as that new entity. JCA Support was formed as a single-purpose entity, serving as the borrower from HUD. JCA Support had its own board of directors, officers, and maintained separate accounting from JCA. The corporations shared a mailing address, issued consolidated financial statements, and several of the members of the board and directors overlapped.
After JCA Support was formed, JCA and JCA Support worked with its attorneys, Gershman, and HUD to finalize the documents needed to implement the development plan. In the fall of 2000, Gershman submitted several documents to HUD for its review, including a Ground Lease, which is the focus of this litigation. HUD reviewed these documents and returned them with comments. The documents were revised over the course of the next few months.
On February 21, 2001, the parties closed the mortgage transaction to finance the construction of the new nursing home facility, and executed several documents. Initially, JCA and JCA Support executed the Ground Lease. Through this lease, JCA leased JCA Support the real property upon which the facility would be built in exchange for $1.00 rent annually. The Ground Lease contains several provisions, including JCA Support's duty that it "shall act as the borrower for the development of a nursing home project initiated" by JCA on the real property. The Ground Lease also contained Section 26, the provision directly at issue in this case. Section 26 states:
In the event of any default by [JCA Support] under a Leasehold Mortgage which [JCA Support] fails to cure within the time period allowed, without releasing [JCA Support] in whole or in part from the obligations to be performed by [JCA Support] thereunder, [JCA] may cure the default at [JCA Support's] sole cost and expense. Additionally, notwithstanding anything herein, [JCA] and [JCA Support] agree that, in the event of a failure of [JCA Support] to pay any amount due under the Leasehold Mortgage, and in the further event that HUD or any Leasehold Mortgagee determines to pursue any remedy under the Leasehold Mortgage, or the HUD Addendum which could affect the possession of the Real Property, [JCA] will be given notice ("Purchase Notice") of such failure to make payment and will have a first right to acquire [JCA Support's] leasehold interest together with the Improvements and other assets of [JCA Support] related thereto for a purchase price equal to the then fair market value thereof. [JCA] shall not be required to assume any liabilities of [JCA Support] .... If [JCA] declines to exercise its option, HUD or any other Leasehold Mortgagee may declare [JCA Support] in default under the Leasehold Mortgage and may take any and all action permitted by such agreement and by law. [JCA] must give notice to [JCA Support] and to HUD and any other Leasehold Mortgagee of its intention to exercise its right to acquire the [JCA Support's] Leasehold interest pursuant to the terms hereof within thirty (30) days of receipt of the Purchase Notice and shall thereunder have one hundred twenty (120) days to close the purchase. [JCA] and [JCA Support] agree to cause notice of this option to be placed of record.
The Ground Lease also contained a "HUD Addendum" wherein HUD amended the Ground Lease to include several HUD requirements into the document.
In connection with the Ground Lease, the parties also executed and recorded a Memorandum of Lease. This document expressly stated the memorandum was not a complete summary of the lease and did not supersede, modify, amend, or otherwise change the terms of the lease. The document stated in part, "The Lease includes provisions granting Tenant [JCA Support] certain rights, in the event of a default by Landlord [JCA] under any Leasehold Mortgage (as defined in the Lease), which may include the purchase [of] the premises which are the subject of the Lease."
JCA Support next executed a Deed of Trust Note (hereinafter, "the Note"). The Note established that JCA Support obtained financing to construct the new nursing home by borrowing $55.1 million through Gershman, which was in turn insured by HUD through the Section 232 HUD Mortgage Program as a non-recourse loan. HUD required all HUD insured mortgages to be first liens on the property securing the mortgage. JCA Support promised to pay the principal loan amount plus all interest accrued to Gershman as the holder of the Note. As security for the Note, JCA Support executed a Deed of Trust naming Bruce Sandweiss as trustee and Gershman as the beneficiary. The Deed of Trust encumbered JCA Support's rights and interests under the Ground Lease as security for the loan.
JCA and JCA Support also executed the Nursing Home Lease. This lease named JCA Support as the landlord and JCA as the tenant. Under the terms of this lease, JCA Support leased the new nursing home facility to JCA in exchange for JCA paying monthly rent to JCA Support in an amount equal to JCA Support's debt service obligation, plus interest, under the Note in the original amount of $55.1 million.
In late 2002 and 2003, JCA began encountering financial difficulties. The costs of operating the new nursing home facility were higher than projected in light of rising insurance premiums due to the events of September 11, 2001, a reduction in the federal supplement to the Medicaid program, and a cut in the Medicaid rate. The nursing home market in St. Louis also became more competitive as several new facilities opened or increased their capacity. In sum, the anticipated revenues could not cover the increasing operating costs.
In an effort to salvage the new facility, JCA and JCA Support consulted with HUD, Gershman, and Greystone Servicing Corporation, Inc. (hereinafter, "Greystone") to find a solution. Greystone suggested JCA cease paying its obligation to JCA Support under the Nursing Home Lease, and JCA Support cease payment on the Note. Both parties took this advice and stopped making payments in February 2005. On March 1, 2005, Gershman assigned its rights and interest under the Deed of Trust and the Note to Greystone.
After the parties ceased making payments, Greystone attempted to restructure JCA Support's debt obligation with HUD. On May 1, 2005, Greystone and JCA Support entered into a funding agreement whereby Greystone agreed to refrain from exercising any of its remedies under the documents connected to the HUD loan and not collect principal payments or interest due under the loan except for any month in which the facility demonstrated a positive projected cash flow. In the meantime, JCA and JCA Support also worked to reduce operating expenses for the facility in an attempt to stabilize their finances.
Greystone's efforts to restructure the debt continued through 2005 and the early part of 2006. Despite these efforts, Greystone was unsuccessful in negotiating a workout. On April 17, 2006, Greystone assigned its rights and interests under the Deed of Trust and the Note to the Commissioner of HUD. After all efforts to arrange a workout agreement proved futile, HUD announced it intended to sell the Deed of Trust and Note in a public auction scheduled for December 6, 2006.
After JCA received notice of HUD's intention to hold the public auction, JCA sent HUD a letter on December 1, 2006, reminding HUD of the provision in the...
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