John Street Leasehold v. Fed. Deposit Ins.
Decision Date | 01 August 1999 |
Docket Number | Docket No. 99-7242 |
Citation | 196 F.3d 379 |
Parties | (2nd Cir. 1999) JOHN STREET LEASEHOLD LLC, Plaintiff-Counter-Defendant-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant-Counter-Claimant-Appellee |
Court | U.S. Court of Appeals — Second Circuit |
Appeal from opinion and order of the United States District Court for the Southern District of New York (Koeltl, J.) granting Defendant's motion for summary judgment.
Affirmed.
ROBERT J. WARD, Mayer, Brown & Platt, N.Y., N.Y., for Plaintiff-Counter- Defendant-Appellant
PAUL RUBIN, Herrick, Feinstein, LLP, N.Y., N.Y., ANN S. DUROSS, Assistant General Counsel, FDIC, COLLEEN J. BOLES, Senior Counsel, FDIC, KATHRYN R. NORCROSS, of Counsel, FDIC, Washington, D.C., for Defendant-Counter-Claimant-Appellee.
Before: FEINBERG, OAKES, and POOLER, Circuit Judges.
John Street Leasehold LLC ("John Street") seeks to avoid the consequences of a mortgage agreement it signed in December, 1972. In exchange for a nonrecourse loan in excess of 20 million dollars, John Street agreed to repay the principal plus interest by January 1, 2006.
John Street also agreed that after December 30, 1992, the lender (a consortium of banks) could provide 6 months notice and require repayment of the entire loan (the "call provision"). As 1992 approached, John Street realized that the threat posed by the call provision undercut its ability to secure additional needed financing. John Street attempted to negotiate a waiver of the call provision with the FDIC,1 and apparently thought it had entered a binding oral agreement in telephone conversations with the FDIC's representative Alfredo Santos. John Street allegedly agreed to continue making its scheduled payments and to invest money in maintaining and improving the building in exchange for a waiver of the call provision.2 Upon learning that the FDIC through its loan servicer, Capital Management Resources ("CMR") -- did not acknowledge the existence of an oral agreement, John Street withheld its regularly scheduled payments. The FDIC declared John Street in default and foreclosed.
In 1995, John Street filed a state court action for breach of contract, fraud, negligent misrepresentation, and breach of the duty of good faith and fair dealing. Defendant removed to federal court, and, on December 20, 1996, the district court (John G. Koeltl, J.) granted FDIC's motion for summary judgment on all grounds except breach of contract. At the completion of discovery, the FDIC moved for summary judgment on the breach of contract issue, and the district court granted that motion in an order dated July 22, 1998. We affirm for substantially the reasons stated by the district court in its two fine opinions.
John Street's predecessor in interest, 127 John Street Associates, obtained a $20,300,000 nonrecourse loan through the efforts of its nominee, Rednow Realty Corporation. United Mutual Savings Bank later replaced by American Savings Bank, which, in turn, was replaced by the FDIC acted as lead bank in a syndicate with at least 15 other banks participating. The banks secured the loan with a Mortgage Extension, Consolidation and Modification Agreement (the "mortgage"). The mortgage provided for acceleration of the loan in the event of default, including failure to pay monthly installments, yearly interest, or nonperformance of other mortgage obligations. The mortgage also allowed the banks to exercise the call provision, on 180 days notice, any time after December 30, 1992. The terms of the mortgage allowed only written modifications signed by both parties. In addition, although the lead bank received some authority to make modifications, it could only do so with the prior agreement of at least 2/3 of the participating banks.
Appellant John Street sought a waiver of the call provision, because its mere existence deterred investors. John Street asserts that its fiduciary duty to its owners, pension funds and trusts, precluded John Street from using even its own funds to maintain the building. The FDIC does not dispute that John Street would have been unable to repay the balance due on the loan if the lenders exercised the call provision.
In 1992, John Street began negotiations with American Savings, then the lead bank, before the FDIC took over as receiver when American Savings failed. The FDIC sent a letter on September 22, 1992, regarding the proposed modification stating that any agreement "is contingent upon the execution of formal recordable documents between the Plaintiff and Participant Banks." No agreement was reached that year. Unable to get the FDIC to pay serious attention to the issue of waiver, John Street deliberately defaulted on its monthly mortgage payment in January 1993.
The FDIC's representative Alfredo Santos called Melvyn Kaufman, a John Street principal, to discuss matters. Santos sympathized with John Street's predicament but explained that the FDIC needed the votes of half of the other banks in order to waive the call provision. However, as John Street at all times was aware, although preparation for the vote may have begun, Santos never sent the necessary ballot forms to the participant banks. John Street alleges that Santos and Kaufman came to an oral understanding on April 23, 1993. In that conversation, Santos again promised to send the ballot forms out: "I have in front of me a ballot that is going out on Tuesday."3 John Street highlights the following exchange:
A month later, however, Santos informed Kaufman that the FDIC had delegated the John Street loan to a servicer, CMR, and that CMR was handling the loan. Santos explained why he had not yet sent the ballots needed for the syndicated banks to register their approval of the waiver:
The only thing that has to be done right now is for these people to get the ballots out, first step. The ballots have already been prepared. Legal has approved it. FDIC Liquidator in Charge gave it its blessing and the only...
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