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MARK ANDREW OF PALM BEACHES v. GMAC COMMERCIAL MORTGAGE

July 3, 2003

THE MARK ANDREW OF THE PALM BEACHES, LTD., THE MARK ANDREW OPERATING COMPANY, INC., GREEN FIELDS & WHITE DOORS, INC., FLAGLER LIFE CARE, INC., LORETTA GARDNER AND ROBERT GARDNER PLAINTIFFS,
v.
GMAC COMMERCIAL MORTGAGE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: John Koeltl, United States District Judge

OPINION AND ORDER

This action seeks to recover damages from the defendant, the GMAC Commercial Mortgage Corporation ("GMAC"), for the alleged failure to fund a loan for the construction of a continuing care retirement community in West Palm Beach, Florida known as The Mark Andrew. The Mark Andrew of the Palm Beaches, Ltd., the Mark Andrew Operating Company, Inc., Green Fields & White Doors, Inc., Flagler Life Care, Inc., Lorretta Gardner and Robert Gardner (collectively "the plaintiffs") have sued the defendant for, among other things, common law fraud and breach of contract for GMAC's alleged failure to live up to its obligations to provide the plaintiffs $9 million in loan funds.

GMAC has moved for summary judgment on all of the plaintiffs' claims, including breach of contract (Count 1); promissory estoppel (Count 2); fraud (Count 4); negligent misrepresentation (Count 5); bad faith and unfair dealing (Count 7); and failure to exercise reasonable care in processing of loan application (Count 8).*fn1 GMAC argues, among other things, that at no time was there any contract to fund any loan, because the parties never signed the necessary documents, that GMAC never signed the necessary commitment letter that would have obligated GMAC to loan the plaintiffs money, and that the parties never agreed upon material terms of the proposed loan, before GMAC decided to abandon the final negotiations. GMAC also argues that any claim based on alleged oral guarantees made by GMAC to provide a loan is barred by the statute of frauds applicable to transactions between banks and borrowers. On the other hand, the plaintiffs argue that summary judgment would be inappropriate on any of its claims, because there are material facts in dispute with respect to whether a finalized contract did in fact exist and whether GMAC did agree to finalize a loan. The plaintiffs main contention is that GMAC finalized the loan, and went so far as to send to the plaintiffs loan closing documents, including a promissory note, that were signed and returned to GMAC. The plaintiffs contend that after they signed the closing documents, GMAC simply breached its obligations and refused to loan the agreed upon $9 million.

I.

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 427 U.S. 317 (1986); Gallo v. Prudential Residential Servs. Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "The trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts that are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed R. Civ. P. 56(e). The nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998) (collecting cases). Unless otherwise noted, the following facts are undisputed.

In or about 1994 and 1995, Loretta Gardner, a licensed real estate broker with real estate development experience, along with her husband, Dr. Robert Gardner, formed the Flagler Life Care, Inc. corporation. (Deft.'s Rule 56.1 Stmt. ¶ 1; Pls.' Resp. Rule 56.1 Stmt. ¶ 1.) Through this corporation, the Gardners sought to acquire a large number of contiguous parcels of land located on Flagler Drive in West Palm Beach, Florida that was referred to as the "Assemblage." (Deft.'s Rule 56.1 Stmt. ¶ 1; Pls.' Resp. Rule 56.1 Stmt. ¶ 1.) The Gardners intended, after purchasing the land in the Assemblage, to construct a "Ritz-Carlton" quality senior citizen's continuing care retirement community called "The Mark Andrew." (Deft.'s Rule 56.1 Stmt. ¶ 1; Pls.' Resp. Rule 56.1 Stmt. ¶ 1.) The expected cost of the Mark Andrew was anticipated to exceed $100 million. (Deft.'s Rule 56.1 Stmt. ¶ 1; Pls.' Resp. Rule 56.1 Stmt. ¶ 1.) The Mark Andrew was to consist to approximately 150 independent living units, 66 assisted living units and a 54 bed nursing care facility, which included 15 units for the care of Alzheimers patients and common support areas. (Deft.'s Rule 56.1 Stmt. ¶ 3; Pls.' Resp. Rule 56.1 Stmt. ¶ 3.)

As of 1996, the Gardners had purchased most of the 20 contiguous parcels in the Assemblage, and those parcels were all encumbered by substantial mortgages. (Deft.'s Rule 56.1 Stmt. ¶ 6; Pls.' Resp. Rule 56.1 Stmt. ¶ 6.) In or about 1996 and 1997 the Gardners entered into contracts to purchase the two remaining parcels in the Assemblage. (Deft.'s Rule 56.1 Stmt. ¶ 7; Pls.' Resp. Rule 56.1 Stmt. ¶ 7.) In order about 1997, the Gardners sought to locate a lender to provide the funds necessary to complete the purchase of the remaining parcels of the Assemblage and to finance certain pre-sale requirements; one of these lenders was the defendant, GMAC. (Pls.' Rule 56.1 Stmt. ¶ 8; Dep. of Loretta Gardner dated Aug. 1, 2001 attached as exh. H to Declaration of J. Joseph Bainton ("Bainton I Decl.") sworn to Jan. 7, 2003 at 40-41.)

One other lender from whom the plaintiffs sought to obtain loan financing was the First Connecticut Consulting Group ("First Connecticut"), and on or about May 28, 1997, First Connecticut issued a written commitment letter to lend the plaintiffs $7.5 million for, among other things, The Mark Andrew. (Deft.'s Rule 56.1 Stmt. ¶ 16; Pls.' Resp. Rule 56.1 Stmt. ¶ 16.) Ultimately, First Connecticut did not fund the loan, and the plaintiffs subsequently filed suit in the District of Connecticut against First Connecticut and certain related individuals for failure to fund the loan and they sought damages totaling in excess of $50 million. (Deft.'s Rule 56.1 Stmt. ¶ 18; Pls.' Resp. Rule 56.1 Stmt. ¶ 18.) As against the defendant First Connecticut, the action is still pending in the Bankruptcy Court for the District of Connecticut. (Decl. of Steven S. Rand ("Rand I Decl.") dated Dec. 9, 2002 at ¶ 4; Deft.'s Rule 56.1 Stmt. ¶ 19; Pls.' Resp. Rule 56.1 Stmt. ¶ 19.)

By April, 1999, the Gardners were out of capital, and were in default in payment of many of the mortgages on the properties in the Assemblage. (Deft.'s Rule 56.1 Stmt. ¶ 20; Pls.' Resp. Rule 56.1 Stmt. ¶ 20.) Given these circumstances, and the fact that the plaintiffs were seeking to finance a care facility that was traditionally considered a high risk project, the defendant contend that the Gardners were aware that it would be difficult to obtain financing for the construction of The Mark Andrew. (Deft.'s Rule 56.1 Stmt. ¶ 21.) Dr. Gardner testified in his deposition that he was aware that banks traditionally do not fund projects intended to be nursing home facilities, because those projects do not tend to fit within banks' conventional lending profiles. (Dep. of Robert Gardner dated Aug. 3, 2001 attached as exh. 7 to decl. of Steven Rand dated Dec. 9, 2002 ("Rand II Decl.") at 120.) The plaintiffs contend that the Gardners were confident that after obtaining interim financing, the Gardners would be able to sell units in the Mark Andrew and to obtain additional financing to complete the project. (Pls.' Resp. Rule 56.1 Stmt. ¶ 21; Dep. of Robert Gardner dated Aug. 3, 2001 attached as Exh. I to Bainton I Decl. at 118.)

At this time, the Gardners sought to obtain interim financing to continue their project, in the form of a bridge loan that would be paid off with the proceeds of a subsequent construction loan. (Deft.'s Rule 56.1 Stmt. ¶ 23; Pls.' Resp. Rule 56.1 Stmt. ¶ 23.) The loan that was sought and proposed by the Gardners was to be secured by a mortgage on the Assemblage parcels, and a bond that would guarantee all sums due under the loan. (Deft.'s Rule 56.1 Stmt. ¶ 22; Pls.' Resp. Rule 56.1 Stmt. ¶ 22.)

In or about April 1999, two brokers, assisting the plaintiffs in obtaining the loan they had proposed, approached Jim Rice, who was employed by GMAC, to request a $9 million bridge loan for The Mark Andrew. (Deft.'s Rule 56.1 Stmt. ¶¶ 28-29; Pls.' Resp. Rule 56.1 Stmt. ¶¶ 28-29.) The Gardners proposed that the $9 million loan would be secured by a first mortgage on Assemblage property and a bond guaranteeing payment on the loan. (Deft.'s Rule 56.1 Stmt. ¶ 32; Pls.' Resp. Rule 56.1 Stmt. ¶ 32.)

The plaintiffs contend that in order to avoid prohibitions on the issuance of bonds that guarantee the repayment of borrowed money, their loan proposal was structured to lease the purchased property, and use the lease payments to pay the amounts due to GMAC, with a bond guaranteeing the payments due under the lease. (Pls.' "Issues of Material Fact" ¶ 6.) Under their proposal the plaintiff, The Mark Andrew of the Palm Beaches, Ltd., would be the borrower under the loan and fee owner of the property in the Assemblage; the plaintiff, the Mark Andrew Operating Company, would lease that property, and the rent payments would be equal to or greater than the payments due on the loan to GMAC. The bond was to guarantee payments under the lease. The defendant and the plaintiffs do not disagree about this basic structure. (See Deft.'s Rule 56.1 Stmt. ¶¶ 38-40; Pls.' Resp. Rule 56.1 Stmt. ¶¶ 39-40.) The parties disagree, to some minimal degree, which payments due under the lease were to be guaranteed by the bond. (See id.)

The plaintiffs and the defendant dispute the nature of the conversations between the Gardners and Mr. Rice and the nature of the representations made by Mr. Rice on behalf of GMAC. The defendant contends that Mr. Rice told the Gardners that GMAC would consider their loan application if the bond to be provided was an absolute guarantee of payment of all sums due and that Mr. Rice never represented that GMAC would definitely fund the loan, even if there was a surety bond. (Deft.'s Rule 56.1 Stmt. ¶ 33.) Mr. Rice testified at his deposition that GMAC would be interested in a loan backed by an "absolute guarantee" of payment, which was a loan structure that he was not familiar with, and that he would talk to others at GMAC who could make a decision. (Dep. of James Rice dated Nov. 16, 2001 attached as exh. 13 to Rand II Decl. at 42.) Charles Wilde, an insurance broker acting on behalf of the Gardners and negotiating with GMAC, testified at his deposition that Mr. Rice never told him that GMAC would definitely fund the loan, and that he has never heard of any conversation in which Mr. Rice made such a representation. (Dep. of Charles Wilde dated Nov. 8, 2001 attached as exh. 20 Rand II Decl. at 40-41.) The plaintiffs contend that Rice, in fact, represented to the Gardners that GMAC would in fact make the loan, if it was structured in the method proposed by the Gardners. (Pls.' "Issues of Material Fact" Stmt. ¶ 8.) Mrs. Gardner testified in her deposition that Mr. Rice told her that GMAC would fund the loan. (Dep. of Loretta Gardner dated Aug. 1, 2001 attached as exh. 6 to Rand II Decl. at 192.)

A business unit of GMAC, Commercial Capital Initiatives ("CCI"), submitted a bid to the Gardners, after which GMAC issued a loan application for the $9 million ("the Term Sheet"). (Deft.'s Rule 56.1 Stmt. ¶ 35; Pls' Resp. Rule 56.1 Stmt. ¶ 35.) The terms proposed by GMAC were the most favorable of all the loans offered to the Gardners. (Deft.'s Rule 56.1 Stmt. ¶ 36; Pl.'s Resp. Rule 56.1 Stmt. ¶ 36.)

The Term Sheet indicated that GMAC was proposing a $9 million loan, for a period of 24 months, and that after the Term Sheet was signed, GMAC would conduct due diligence over an unspecified period of time. (Term Sheet attached as Exh. 32 to Decl. of Steven Rand dated Dec. 9, 2002 (Rand III Decl.) At the end of the due diligence period, GMAC was to "issue a commitment letter to make the Loan ("Commitment Letter") or decline to issue a Commitment Letter." (Id. at 2.) The Term Sheet further provided that the Commitment Letter would be effective for 30 days from the date it was issued and that "[w]hen a Commitment Letter materially conforming to terms and conditions [in the Term Sheet] is issued, the Borrower is obligated to accept the Commitment Letter and close the Loan with GMAC." (Id. at 2.)

The Term Sheet also required the Gardners to pay a $90,000 "Good Faith Deposit" to GMAC which would be retained by GMAC in the event certain events occurred, including if a Commitment Letter were issued and not accepted by the Gardners. (Id.) The Good Faith Deposit was to be returned if GMAC failed to issue a Commitment Letter in the manner specified by the Term Sheet, and should GMAC issue a Commitment Letter, the deposit would be credited towards the commitment fee of $270,000 which was due when the Commitment Letter was issued. (Id. at 3.) The Term Sheet also provided that the Gardners were to pay a non-refundable $5,000 underwriting fee to GMAC. (Id.)

The Term Sheet also included various disclaimers. For example, under the title "Committee Approval" the Term Sheet reads, "[T]he issuance of any commitment or any other undertaking or obligation of GMAC to make the Loan is subject to the approval of its loan/credit committee." (Id. at 6.) In addition, on the signature page, in bold type, the Term Sheet contained the following language:

This letter is not a commitment to lend, either expressed or implied, and does not impose any obligation on [GMAC] to issue a commitment or to make the Loan. The terms and conditions outlined above are not all inclusive, but merely reflect the parties' discussions to date, and are subject to change. The issuance of a commitment to make the Loan is subject to full and complete underwriting, diligence, documentation, and loan/credit committee approval.
(Id. at 8.) The plaintiffs have based their breach of contract claim, in part, on an alleged breach of the Term Sheet. (Deft.'s Rule 56.1 Stmt. ¶ 37; Pls.' Rule 56.1 Stmt. ¶ 37.)

The parties agree that the Term Sheet left various items open for future negotiations, including, among other things: the events of default; a default interest rate; the terms of the interest rate cap and its assignment; the surety's subrogration rights in the event of payment of the bond; the drafting of an operating lease; details of the requisite underwriting; and the terms of the surety bond. (Deft.'s Rule 56.1 Stmt. ¶ 45; Pls.' Resp. Rule 56.1 Stmt. ¶ 45.) The Term Sheet also required that any bond that ...


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