NEW YORK STATE TEACHERS RET. SYSTEM v. Kalkus
| Decision Date | 02 October 1984 |
| Docket Number | Civ. A. No. 84-0139-A. |
| Citation | 595 F. Supp. 693 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | NEW YORK STATE TEACHERS RETIREMENT SYSTEM, Plaintiff, v. Peter KALKUS, et al., Defendants. |
COPYRIGHT MATERIAL OMITTED
Rodney F. Page, Joseph M. Fries, Russell M. Blau, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for plaintiff.
Grayson P. Hanes, Hazel, Beckhorn & Hanes, Mark W. Wasserman, Fairfax, Va., Paul C. Madden, Rawle & Henderson, Philadelphia, Pa., for defendants.
1. In this action, many of the facts are undisputed. The parties established them by entering into a stipulation of facts ("Stipulation") and by agreeing to admit into evidence a large number of documents ("Exhibits").
2. The Parties
a. Plaintiff New York State Teachers Retirement System ("Teachers") is a public pension system created and existing pursuant to Article 11 of the Education Law of the State of New York and having the powers and privileges of a corporation pursuant to Section 502 thereof. Teachers' principal place of business is in Albany, New York. It administers a system of retirement and pension benefits for retired public school employees in New York.
b. Defendant Peter Kalkus ("Kalkus") is an individual resident and citizen of the State of New Jersey. He is engaged in the business of real estate investment individually and through various entities, including all of the other defendants in this action. Kalkus is the chairman and sole stockholder of defendant Lamar Properties, Inc.; general partner of defendant Arlington Alliance, Ltd.; general partner of defendant Polk & Taylor Associates; and sole stockholder of Lamar Financial, Inc.
c. Defendant Lamar Properties, Inc. is a Delaware corporation, having its principal place of business in New Jersey.
d. Defendant Arlington Alliance, Ltd. ("Arlington Alliance") is a limited partnership established under the laws of the Commonwealth of Virginia. Its general partners are defendants Kalkus and Lamar Properties, Inc.
e. Defendant Polk & Taylor Associates ("PTA") is a limited partnership established under the laws of Virginia. Its sole general partner is defendant Kalkus. Several dozen limited partners are residents of numerous states, including New York.
f. Defendant Lamar Financial, Inc., is a Delaware corporation, having its principal place of business in New Jersey.
g. Defendant Lamar Financial Partnership ("Lamar") is a limited partnership established under the laws of Virginia. Its sole general partner is defendant Lamar Financial, Inc.
3. The Properties
a. This action involves a controversy over the interpretation of particular terms in mortgage agreements pertaining to the James Knox Polk Building and the Zachary Taylor Building ("the properties"), located on adjacent parcels of land in Arlington County, Virginia. See Stipulation No. 1.
b. The properties are commercial office buildings in the Crystal City area of Arlington County. Most of the office space of both buildings is subject to long-term, below-market rental leases held by the United States government. These leases will expire in 1990. See Testimony of Lowell Blom.
1. Royal National Bank of New York ("Royal") provided the original construction financing for the properties, obtaining first mortgages on both of the properties. In 1970, Royal assigned the two mortgages and the notes they secure to plaintiff Teachers. See Stipulation No. 2.
2. In 1972, as a result of events not relevant to this action, Cabot, Cabot and Forbes Land Trust ("Cabot") acquired title to the properties. At present, Cabot is known as Bay Colony Property Company, Inc. See Stipulation No. 14.
3. On October 31, 1972, Teachers and Cabot entered into two Modification Agreements, modifying the terms of the outstanding notes and mortgages on the properties held by Teachers. See Stipulation No. 3. The agreements are nearly identical. One relates to the James Knox Polk Building, the other to the Zachary Taylor Building. See Exhibits D-30 and D-33.
4. Both Modification Agreements provide that the maker of the agreement shall pay the holder of the notes fifteen percent (15%) of the "Gross Receipts" from the properties in excess of $3,500,000 per year. Id.
5. In addition, both agreements include an "Excess Refinancing Proceeds" provision, which reads as follows in the Modification Agreement relating to the James Knox Polk Building:
As additional interest to be paid to the Holder of this Note, Maker shall pay to the Holder of this Note, immediately upon receipt, fifteen percent (15%) of any Excess Refinancing Proceeds from the Property (as defined herein). Excess Refinancing Proceeds from the Property shall mean the excess of (i) the principal amount of the first new mortgage placed upon the Property prior to the expiration of one year from the date (hereinafter referred to as the `Final Payment Date') of the discharge and release of the Deeds of Trust, over (ii) the sum of (a) the unpaid principal balance of the Deeds of Trust immediately prior to the Final Payment Date plus (b) any prepayments of principal without penalty on the Deeds of Trust paid after the date hereof beyond the regular monthly installments of principal and interest plus (c) Four Hundred Thousand Dollars ($400,000.00). For purposes hereof, the term "mortgage" includes deeds of trust, security deeds, or other similar security instruments.
See Exhibit D-30.
6. The Modification Agreement relating to the Zachary Taylor Building contains the same Excess Refinancing Proceeds provision as that set forth above, except that the $400,000.00 amount is changed to $600,000.00. See Exhibit D-33.
7. Both Modification Agreements provide that the mortgage balance on the James Knox Polk Building is to be paid in full by June 20, 1985; and the balance on the Zachary Taylor Building is to be paid in full by October 20, 1985. See Exhibits D-30 and D-33.
8. If no prepayments are made between now and 1985, except for scheduled amortization payments, the mortgage balance due to Teachers on June 20, 1985 is $5,581,378.58. The mortgage balance due on October 20, 1985 is $7,403,246.84. See Testimony of James Campbell.
9. The Modification Agreements were properly executed by Teachers and Cabot, and were properly recorded as required by the applicable laws of Virginia. See Stipulation No. 12.
1. On May 15, 1973, Cabot conveyed the Properties to Jefferson Plaza Management Corporation ("Jefferson"). Jefferson delivered to Cabot its note in the amount of $6,306,248.16, secured by a deed of trust on the properties ("Jefferson Mortgage"). Teachers consented to this conveyance and to the terms of this sale. See Stipulation No. 4 and Exhibits D-36 through D-42.
2. On February 5, 1974, Jefferson conveyed the properties to defendant Arlington Alliance. In connection with this sale, Arlington gave Cabot its note dated February 5, 1974, in the amount of $17,087,765.43. This note was secured by a wraparound deed of trust on the properties dated February 5, 1974 ("Arlington Wrap Mortgage"). In addition, Arlington Alliance agreed to assume Jefferson's liability on the $6,306,248.16 note and to increase the amount of this note to $8,142,865.48. The increased amount of this note was secured through an agreement of amendment of deed of trust, which was placed on the properties ("Arlington Morgage"). Teachers consented to the conveyance to Arlington Alliance and to the terms of this sale. See Stipulation No. 5 and Exhibits D-43 through D-54.
3. Throughout the period that it owned the properties, Arlington Alliance complied with the Gross Receipts provisions of the Modification Agreements. See Testimony of Peter Kalkus.
1. Because the Cabot and Teachers loans became due in 1984 and 1985 respectively, in the fall of 1982 defendant Kalkus began seeking additional financing for the properties. He desired to maintain ownership of the properties at least through 1990 when the federal government's below-market rental leases expired. See Testimony of Peter Kalkus.
2. In the fall of 1982, Kalkus planned a series of transactions with two lenders, Aeneas Venture Corporation ("Aeneas", an affiliate of the Harvard University endowment fund) and InterFirst Bank of Dallas, N.A. ("InterFirst"). These transactions were designed to replace all of the existing mortgages on the properties as follows:
(1) An advance of $7,000,000.00 from Aeneas, an interim loan of $12,000,000.00 from InterFirst and proceeds of a syndication of limited partnership interests in defendant PTA were to be used to discharge the Jefferson and Arlington Wrap Mortgages, and to provide operating funds for the defendants.
(2) In 1984, a second advance of $12,000,000.00 from Aeneas would be used to repay the InterFirst interim loan.
(3) In 1985, a third advance of $12,000,000.00 from Aeneas would be used to repay Teachers' mortgages on the properties. All the Aeneas loans were to be made in exchange for a note and deed of trust in the amount of $69,000,000.00. See Testimony of Peter Kalkus and Exhibit D-78.
3. In November 1982, defendant Kalkus approached Teachers, requesting Teachers' consent to the terms of the above described financing transactions. Kalkus submitted his request in writing on November 17, 1982. See Exhibit D-58. Following the receipt of this letter, Teachers requested additional information about the proposed financing, which Kalkus supplied. See Testimony of James Campbell and Peter Kalkus, and Exhibits D-62 through D-64.
4. On January 4, 1984, Kalkus met with Lowell Blom (head of the mortgage department of Teachers) and James Campbell (a Teachers' mortgage department employee) to discuss the defendants' secondary financing of the properties. At the meeting, the participants discussed the applicability of...
To continue reading
Request your trial
-
New York State Teachers Retirement System v. Kalkus, 84-2082
...district court, and on October 2, 1984, the court issued its final order and declaratory judgment, holding for Teachers on the merits, 595 F.Supp. 693. The district court concluded that it had jurisdiction over the action pursuant to 28 U.S.C. Sec. 1332(a). It ruled that the citizenship of ......