Meyer v. Bank of Am., N.A.

• Decision Date: 09 March 2021
• Docket Number: Case No. 2:18-cv-218
• Parties: P. JONATHAN MEYER, et al., Plaintiffs/Counter-Defendants, v. BANK OF AMERICA, N.A., Defendant/Counter-Plaintiff/Third-Party Plaintiff, v. STANBERY ENGLISH VILLAGE, LP, et al., Third-Party Defendants.
• Court: U.S. District Court — Southern District of Ohio

P. JONATHAN MEYER, et al., Plaintiffs/Counter-Defendants, v. BANK OF AMERICA, N.A., Defendant/Counter-Plaintiff/Third-Party Plaintiff, v. STANBERY ENGLISH VILLAGE, LP, et al., Third-Party Defendants.

Case No. 2:18-cv-218

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

March 9, 2021

Judge Sarah D. Morrison

Magistrate Judge Kimberly A. Jolson

BENCH OPINION AND ORDER OF FINAL JUDGMENT

Plaintiffs P. Jonathan Meyer, Mark Pottschmidt, and Raymond Brunt ("Assignors") first brought suit for declaratory judgment in a contract dispute against Defendant Bank of America, N.A. (the "Bank") in state court on November 13, 2017. (Compl., ECF No. 11.) The Bank removed the action to this Court on March 14, 2018. (Notice of Removal, ECF No. 1.) Shortly thereafter, the Bank filed its Answer and Affirmative Defenses (Answer, ECF No. 3) and asserted Counterclaims and a Third-Party Complaint, joining, inter alia¹, Third-Party Defendants The Shoppes at Union Hill, LLC, Stanbery Harrisburg, LP, and Stanbery English Village, LP (together with Assignors, the "Stanbery Parties") (Countercl., ECF No. 4).

On December 2, 2019, this Court granted in part and denied in part each of the parties' cross-motions for summary judgment. (December 2 Order, ECF No. 75.) The case proceeded to a bench trial in November 2020 on liability and damages for all remaining claims. (See December 2 Order, 37-38.) Post-trial briefs and proposed findings of fact and conclusions of law have been submitted by the Stanbery Parties (ECF Nos. 126, 132, 135) and the Bank (ECF Nos. 130, 133, 134). Upon review of such filings, and pursuant to Federal Rule of Civil Procedure 52(a), the Court now issues the following findings of fact and conclusions of law.

I. FINDINGS OF FACT²

A. The Parties

Assignors are sophisticated, experienced commercial real estate professionals. Mr. Meyer first began his work in the field after graduating from college. (Tr. 35:8-12.) He worked in Continental Real Estate's leasing anddevelopment groups, and eventually became an equity partner in the company's projects. (Id., 35:13-19.) Mr. Pottschmidt also worked for Continental Real Estate. (Id., 362:25.) After ten years with Continental, Mr. Pottschmidt held the title of Vice President of Development and had also invested in several of the company's projects. (Id., 363:2-7.) Mr. Brunt first met Mr. Meyer in 1995, when he was Senior Director of Real Estate for The Gap, working with the Continental team to bring Old Navy stores to Ohio. (Id., 448:11-25.) Mr. Meyer and Mr. Pottschmidt left Continental in 2000 and co-founded Stanbery Development, LLC, a firm focused on developing open-air shopping centers. (Id., 36:2-6.) That same year, Mr. Brunt left The Gap—his employer of twenty-one years—to work with Stanbery Development in commercial leasing. (Id., 448:6-17, 449:2-6.)

Stanbery Development has completed fourteen projects, with three more currently in progress. (Id., 38:16; 364:14-15.) Stanbery Development develops projects by investment with partners in special purpose entities (or SPEs). (Id., 40:7-22.) Stanbery Development typically receives equity in the SPE and either a development fee or a special distribution fee, intended as compensation for overhead expenses incurred in project financing and development. (Id., 39:1-40:14.) Although Stanbery Development receives all or some of that compensation before a project is complete, the gain is generally not taxable until the project is sold and the SPE disposes of its assets.³ (Id., 40:1-5.)

Between 2004 and 2007, Stanbery Development and four SPEs obtained more than $175 million in loans from various lenders for the development of projects titled The Shoppes at Wyomissing, The Shoppes at Hamilton, and The Promenade at Coconut Creek. (See Exs. J-1-J-60, recitals. See also ECF No. 113, 2.) The Bank (as successor to LaSalle Bank) was one of those lenders. (See Exs. D-1-D-4, preamble.) Assignors personally guaranteed the loans. (See id., preamble and recitals.)

After the 2008 economic downturn, the borrowers defaulted on the loans and Assignors defaulted on their guaranty obligations. (See Exs. D-1-D-6, recitals.) At the time of default, the loans' outstanding balance totaled $155 million. (See Exs. D-1-D-4, § 2; Exs. D-5-D-6, § 3.) Facing bankruptcy, Assignors requested that the lenders release them from their obligations under the loans. (Exs. D-1-D-6, recitals.) The lenders ultimately agreed in exchange for, inter alia, (i) proceeds from the sales of the Wyomissing, Hamilton, and Coconut Creek properties and (ii) a portion of any proceeds from the sales of four other Stanbery Development projects in which the Bank had no existing interest. (Exs. D-1-D-6.) The latter was accomplished by execution of sixty near-identical⁴ Assignments of Proceeds (the "Assignments"). (See Exs. D-2-D-6, J-1-J-60.)

B. Assignments of Proceeds

The Assignments apply to the following properties (each a "Property" and, collectively, the "Properties"):

• The Shoppes at Old Bridge ( "Old Bridge");

• The Shoppes at Susquehanna Marketplace ("Harrisburg");

• The Shoppes at Union Hill ("Union Hill"); and

• The Shoppes at English Village ("English Village"),

owned respectively by the following SPEs (each a "Company" and, collectively, the "Companies"):

• Stanbery Old Bridge LLC;

• Stanbery Harrisburg, LP;

• The Shoppes at Union Hill, LLC; and

• Stanbery English Village, LP.

(Id.)

Each dated September 30, 2010, the Assignments provide in relevant part as follows:

Assignment of Allocated Percent of Sale Proceeds

• The Assignor assigns to the Bank a certain percent (the "Allocated Percent") of the Sale Proceeds (defined below) resulting from any sale of the applicable Property. (Exs. J-1-J-60, § 1(a).)

? "Sale Proceeds" means (a) the cash and non-cash proceeds received by the Company and/or Assignor from a Sale (defined below), minus (b) any out-of-pocket costs incurred by the "Company directly in connection with such Sale, including (i) income or gains taxes actually payable by the Company or Assignor as a result of any gain recognized in connection with such Sale, without regard to losses, deductions or credits unrelated to such Sale which might otherwiseaffect the actual taxes payable," (ii) payment of debt (including principal, interest, and any prepayment penalties) secured by the Property, and (iii) reasonable and customary transaction costs associated with the Sale. (Id., § 1(a)(i).)

? "Sale" means "a sale, assignment, conveyance, transfer, merger or other disposition of or to, or any exchange of or by the Company or its assets or fractional interest therein with any person, in one transaction or a series of transactions outside the ordinary course of business, any event which results in a change of control of the Company, or any refinancing or restructuring of all or any portion of any debt of the Company." (Id., § 1(a)(ii).)

Notice and Documentation Related to a Sale

• The Company and Assignor must provide the Bank at least thirty days' "advance written notice of the occurrence of any Sale[.]" (Id., § 1(b).)

• The Company and Assignor must, at least ten days prior to any Sale, "(or as soon thereafter as the relevant calculations are available)", provide the Bank "documentation setting forth, in reasonable detail" the material facts of the Sale and the "Company's and Assignor's calculation of the Sale Proceeds resulting from such Sale[.]" (Id.)

Escrow of Allocated Percent and Availability of Escrow Funds

• Within three days of the Company's receipt of any Sale Proceeds, the Allocated Percent must be paid into escrow. (Id., § 1(c)(ii).)

• The Escrow Funds (defined below) may be distributed only for payment of a Tax Balance (defined below) or upon written instruction from the Bank to the escrow agent "of either or that either (1) (a) a Qualifying Sale [(defined below)] or (b) a final determination of the Appraisal Amount[⁵] has occurred under this Assignment and each of the Other Assignments . . . , or (2) the ninth anniversary of the date of this Assignment has occurred[.]" (Id., § 1(d)(iii)(B).)

? "Escrow Funds" means escrow amounts payable under each of the sixty Assignments, plus any interest, dividends, income, capital gains, and other amounts earned thereon. (Id., § 1(d)(ii).)

? "Tax Balance" means the excess of any "income or gains taxes actually payable by the Company or Assignor as a result of any gain recognized in connection with [a] Sale" over "the cash proceeds payable to the Company or Assignor from such Sale without taking into consideration the Sale Proceeds payable to" escrow. (Id., § 1(d)(iii)(A).)

? "Qualifying Sale" means "a Sale: (i) by the partners of the Company of all or substantially all of the partnership interests of the Company, (ii) in which the Company is a party and in which the partners of the Company before such Sale do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such transaction, or (iii) by the Company of all or substantially all of the [l]and, the [i]mprovements, all easements, rights of way or use, privileges, or licenses and rights to the same belonging or appertaining to the [l]and, and all personal property located in or on the [l]and and/or the [i]mprovements and owned by the Company." (Id., § 1(c)(iii)(B).)

Each Assignment further provides that its terms "may not be amended or modified except by a writing signed by each of the parties." (Id., § 8(l).) Similarly, "[a]ll . . . waivers required or permitted to be given under this Assignment shall be in writing . . . ." (Id., § 8(a).) But, "[n]o waiver of any breach or default under this Assignment shall be deemed to be a waiver of any subsequent breach or default." (Id., § 8(h).) The parties further:

agree to take any and all additional actions, including, without limitation, the execution, acknowledgement and delivery of any and all documents which [any party] may reasonably request, in order to effect the

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