Schron v. Grunstein
| Decision Date | 06 September 2012 |
| Docket Number | No. 650702/2012.,650702/2012. |
| Parties | Rubin SCHRON, Cam–Elm Company, LLC, SMV Property Holdings LLC, SWC Property Holdings LLC, SWC Special Holdings, LLC, SMV Special Holdings, LLC, Cammeby's Equity Holdings LLC, Cammeby's Funding LLC, Cammeby's Funding II LLC, Cammeby's Funding III LLC, Camfive Holdings, LLC, Cammeby's Management Co. LLC, and Cammeby's International, Ltd., Plaintiffs, v. Leonard GRUNSTEIN, Murray Forman, Troutman Sanders LLP, Canyon Sudar Partners LLC, Svcare Holdings, LLC, Savaseniorcare LLC, Fundamental Long Term Care Holdings, LLC, Thi of Baltimore, Inc., National Senior Care, Inc., Mariner Health Care, Inc., Metcap Securities, LLC, Metcap Holding, LLC, Metcap Advisory Services, LLC, Harry Grunstein, and Lawrence Levinson, Defendants. |
| Court | New York Supreme Court |
The genesis of this case lies in the execution of a successful leveraged buyout plan devised by defendants, Leonard Grunstein (“Grunstein”) and Murray Forman (“Forman”), to acquire a publicly held company that was engaged in the nursing home business. Grunstein approached plaintiff, Rubin Schron (“Schron”), a sophisticated real estate investor and client of many years, to participate and to serve as the principal source of the financial resources required to consummate the deal. Schron, who had no experience operating nursing homes, was interested in acquiring the real estate only. Grunstein and Forman devised a “PropCo/OpCo” structure, pursuant to which entities affiliated with Schron would acquire and mortgage the real estate (the PropCo), which would then be leased to an operator of the nursing homes (the OpCo) under long term leases. Rents from the properties would supply revenue to pay principal and interest on the mortgages assumed in connection with the acquisition.
The $1.3 billion transaction, referred to as the Mariner Transaction, closed on December 10, 2004. Schron and his associates provided the financing. Schron affiliates acquired the PropCo, options to acquire control of the OpCo, and certain other assets. Grunstein's brother, Harry Grunstein, was hired to run the OpCo and was installed as the nominal owner of the company. Harry Grunstein had experience operating nursing homes (Tr. 838:7–22; Tr. 839:10–12) 1. Shortly after the closing, the OpCo came to be controlled by Grunstein and Forman through Canyon Sudar Partners LLC (“Canyon Sudar”), a company formed by them to hold the OpCo.
The Fifteenth Cause of Action of the complaint alleges that defendants, Canyon Sudar and SVCARE Holdings, LLC (“SVCARE”), who are parties to an Amended and Restated Unit Purchase Option Agreement (“Option”) and an Amended and Restated Term Loan and Credit Facility Agreement (“2006 Term Loan”), both dated as of June 9, 2006, breached the Option when they refused to honor exercise of the Option by its holder, CamEquity Holdings, LLC (“CamEquity”). Under the terms of the Option, CamEquity was granted the right to purchase up to 99.999% of all membership units of SVCARE for $100 million. In rejecting the notice of exercise, SVCARE claimed, inter alia, that the Option was unenforceable because CamEquity or its affiliates failed to fund a loan to SVCARE in the amount of $100 million, which loan is alleged to have been a condition of granting the Option.
In a Decision and Order, dated January 20, 2011, the court (Yates, J.) granted a motion of plaintiffs to preclude defendants from offering extrinsic evidence in connection with a determination of whether the alleged loan was a condition precedent to exercise of the Option and whether the loan was actually funded ( see32 Misc.3d 231, 917 N.Y.S.2d 820). That decision and the Decision and Order on defendants' motion to renew and reargue, dated September 9, 2011 ( see 2011 N.Y. Misc. LEXIS 6612) reaffirming Justice Yates' decision, were affirmed by the Appellate Division First Department ( see Schron v. Troutman Sanders LLP, 97 A.D.3d 87, 945 N.Y.S.2d 25 [1st Dept 2012] ).
On December 2, 2011, plaintiffs moved for summary judgment as to the Fifteenth Cause of Action. In a Decision and Order, dated March 5, 2012, this court granted the motion but determined that there was a question of fact as to what portion of the $100 million purchase price could be defrayed by assumption/release of the SVCARE indebtedness to CamEquity. The court then scheduled an immediate trial pursuant to CPLR 3212(c) “on the limited issue of the amount, if any, of indebtedness available to be paid at the closing toward the purchase price.”
A 10–day non-jury trial was held. Despite the limited nature of the inquiry, the parties offered and the court heard live testimony of nine (9) witnesses, including plaintiff, Schron; defendants, Grunstein and Forman; plaintiffs' expert Harvey A. Kelly, CPA (“Kelly”); and defendants' expert David S. Williams (“Williams”). In addition, the court reviewed excerpts of video deposition testimony of nineteen (19) witnesses and considered more than a hundred exhibits. Following closing arguments, the parties submitted proposed findings of fact and conclusions of law. The case is now ready for decision.
II.FINDINGS OF FACTA.The Parties
Plaintiff Schron is a New York real estate investor. He is the manager of SMV, Cam III and CamEquity, companies majority-owned by Schron and members of his family.
Plaintiff SMV Property Holdings LLC (“SMV”) owns and controls real estate properties acquired in the Mariner Transaction (Tr. 840:16–25). SMV is majority-owned by Schron and members of his family. Grunstein and Forman hold minority interests in SMV.
Defendant Grunstein is an attorney who represented Schron companies for more than two decades. Grunstein represented Schron in “dozens of matters,” serving as his primary legal counsel in business matters, including acquisition of Mariner Health Care Inc. (“Old Mariner”, the acquisition referred to as the “Mariner Transaction”)(Tr. 122:11–13, 128:9–11).
Defendant Forman is the principal of MetCap Securities LLC (“MetCap”). He acted as Schron's investment banker in the Mariner Transaction (Tr. 821:13–18, 1165:14–25;Tr.393:26–394:16).
Defendant SVCARE Holdings, LLC is a holding company formed in connection with the Mariner Transaction. SVCARE directly owns Sava Senior Care LLC (“Sava”) and through Sava owns approximately 170 nursing home operating entities.
Defendant, Canyon Sudar Partners, LLC is the owner and sole member of SVCARE. Canyon Sudar is jointly owned by Grunstein and Forman.
B.The 2004 Mariner Transaction In 2004, Grunstein and Forman approached Schron and others with a proposal to acquire Old Mariner in a leveraged buyout. At the time, Old Mariner was a public company which operated more than 250 nursing homes and owned the real estate associated with approximately 170 of them (Tr. 830:4–831:12).
Schron was interested in owning the real estate, not operating nursing homes (Tr. 127:23–25, 825:3–12). Grunstein and Forman proposed a complex transaction employing a “PropCo/OpCo” structure whereby Old Mariner's real estate would be separated from the nursing home operations (Tr. 127:15–16, 831:13–18). Through subsidiaries, SMV would acquire Mariner's real estate assets (“PropCo”). Sava, a newly formed company, would lease the SMV properties pursuant to the terms of a master lease and operate nursing homes on those sites (the “OpCo”)(Tr. 126:12–25, 130:6–21, 831:13–18). SVCARE is the sole owner of Sava (PX 61.0030).
As structured by the parties, a newly formed company, National Senior Care, Inc. (“New Mariner”, “NSC” or “NSC/Mariner”), purchased all of the shares of stock of Old Mariner and then sold the real estate to Schron's company, SMV (PX 2, PX 41). SMV then leased the properties to Sava (Tr. 130:16–25, 830:16–831:18). NSC retained the residual operations consisting of the roughly 100 nursing homes located on properties that were leased from third parties. All options to purchase leased property were transferred to Schron entities (Tr. 830:19–831:12, 837:10–25).
As of December 10, 2004, the day of the closing, Grunstein's brother, Harry Grunstein, nominally owned both NSC and SVCARE (Tr. 142:13–16). Thereafter, effective as of February 1, 2005, Grunstein and Forman acquired SVCARE, through Canyon Sudar, a company created for that purpose (Tr. 102:2–11; PX 182.0006; Tr. 480:13–20, PX 314.0001, PX 278.0001).
As discussed at length below, documents signed at the closing provide that Cam III made a loan of $100 million to SVCARE. Defendants claim that the loan was never funded and that there is no indebtedness to be released and contributed toward a purchase of SVCARE.
Grunstein and Forman negotiated and structured the Mariner Transaction (Tr. 127:12–14). A team of attorneys acting under the leadership of Grunstein worked on the transaction and drafted the deal documents (Tr. 98:21–99:10). The legal team, all members of which were associated with the law firm of Jenkens & Gilchrist Parker Chapin (“Jenkens”), included Larry Levinson (“Levinson”), who acted as the chief draftsman, and Mitchel Hill (“Hill”). Hill worked closely with Vincent Barra (“Barra”), a partner in Marks, Paneth & Shron (“MPS”), the accounting firm engaged by the acquiring parties to compile the sources and uses schedules for the deal and to ensure there was adequate funding to close (Tr. 1121:13–18, 1118:23–1119:9).
Defendants' accounting expert, David Williams, testified that parties to complex transactions such as this typically prepare a “deal book” to document the agreement of the parties (Tr 1516,1568). In this case, no deal book was prepared following the closing, but schedules of sources and uses of the funds transferred at the closing were prepared by MPS. Much of the defense in this case involves the alleged unreliability of the documents generated in connection with the closing ( see the SVCARE Parties' Proposed Findings of Fact and Conclusions of Law,...
To continue reading
Request your trial
-
Bavelis v. Doukas (In re Bavelis)
...Loan." Those forms of consideration having been provided, there was no lack of consideration. See Schron v. Grunstein, 36 Misc.3d 1238(A), 2012 WL 3887665, at *10 (N.Y.Sup.Ct. Sept. 6, 2012) ("The court has found that the 2004 and 2006 loans were funded. Assuming, as defendants contend, tha......
-
Power Rental OP CO, LLC v. Virgin Islands Water & Power Authority
... ... the Note to waive all defenses, see Doc. 68 at 11, ... and such a waiver is enforceable under New York law. See ... Schron v. Grunstein , 961 N.Y.S.2d 361 (Table) (N.Y. Sup ... Ct. 2012) (“[P]arties to an agreement may waive their ... defenses and [courts] ... ...
- Schron v. Grunstein