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ANTHRACITE CAPITAL, INC. v. MP-555 WEST FIFTH MEZZANINE

May 17, 2005.

ANTHRACITE CAPITAL, INC., Plaintiff,
v.
MP-555 WEST FIFTH MEZZANINE, LLC; MP-808 SOUTH OLIVE MEZZANINE, LLC; ROBERT F. MAGUIRE, III; and "ABC Corp. No. 1" through "ABC Corp. No. 100", the last one hundred names being fictitious and unknown to plaintiff, the persons or parties intended being the persons, companies, or corporations, if any, having or claiming an interest in certain collateral described in the First Amended Complaint, Defendants.



The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

This is a contractual dispute involving, among other things, the refinancing of commercial office property in Los Angeles, California. Defendant Robert F. Maguire, III ("Maguire"), a prominent real estate investor in Southern California, refinanced debt on a number of properties he indirectly owned while simultaneously reorganizing a number of holding companies for those properties and engaging in an initial public offering of shares in a corporation with an interest in a portfolio of those companies. As a result of the debt refinancing, plaintiff Anthracite Capital, Inc. ("Anthracite"), the holder of a portion of debt owed by two of Maguire's property companies, seeks to enforce a clause of its governing loan agreement that requires the Maguire companies to pay an "exit fee" upon the "sale" of an office tower and parking garage (the "Property") above a certain price. The case largely turns on the question of whether the refinancing, reorganization, and initial public offering collectively constitute a "sale" of the Property under the governing loan agreement. Anthracite and the defendants have cross-moved for summary judgment; Anthracite has also moved to exclude the testimony of the defendants' expert. For the following reasons, the defendants' summary judgment motion is granted, Anthracite's summary judgment motion is denied, and Anthracite's motion to exclude expert testimony is denied as moot.

  BACKGROUND

  The following facts are undisputed, or viewed in the light most favorable to the party resisting summary judgment, unless otherwise noted.

  Parties

  Plaintiff Anthracite is a Maryland corporation with its principal place of business in New York, and is a publicly traded Real Estate Investment Trust (REIT) managed by Blackrock, Inc. A REIT is an investment trust that owns and manages a pool of commercial properties, mortgages, and other real estate assets. Anthracite owned a portion of a securitized loan that was made to the defendant organizations.

  Defendant Maguire is a California domiciliary and one of the largest owners and operators of first class office properties in Southern California. Prior to June 2003, Maguire directly or indirectly owned properties through over 125 separate entities (collectively, the "Maguire Organization"). The Maguire Organization included, among other companies, defendant MP-555 West Fifth Mezzanine, LLC ("MP-555"), defendant MP-808 South Olive Mezzanine, LLC ("MP-808"), Maguire Partners — 555 West Fifth, LLC ("Partners 555"), Maguire Partners — 808 South Olive, LLC ("Partners 808"), Maguire Properties — 555 West Fifth, LLC ("Properties 555"), and Maguire Properties — 808 South Olive, LLC ("Properties 808"). MP-555 owned Partners 555, and MP-808 owned Partners 808. Partners 555, Partners 808, Properties 555, and Properties 808 were all single purpose entities intended to hold title to a property directly, while MP-555 and MP-808 were single purpose entities intended to hold a controlling interest in a company that held title to a property directly.

  Loan Agreement

  Between January 1, 2001 and June 1, 2003, Partners 555 owned the title to a large commercial office tower in downtown Los Angeles known as the Gas Company Tower ("Tower"), located at 555 West Fifth Street, and Partners 808 owned the title to the 808 South Olive Street Parking Garage ("Garage"), which is used by tenants of the Tower and others. Under a Mezzanine Loan Agreement*fn1 dated December 20, 2000 ("Loan Agreement"), MP-555 and MP-808 secured a loan of $61.6 million ("Mezzanine Loan") from Credit Suisse First Boston Mortgage Capital, LLC ("CSFB") and German American Capital Corporation ("GACC") with a pledge of MP-555's and MP-808's membership interests in Partners 555 and Partners 808. Maguire personally served as guarantor for the Mezzanine Loan, among other loans. CSFB and GACC conveyed their ownership of the Mezzanine Loan to a trust ("Mezzanine Trust") that issued certificates representing beneficial interests in the assets of the Mezzanine Trust. Anthracite purchased a securitized tranche of the Mezzanine Loan by purchasing Mezzanine Component A-2 Certificates from the Mezzanine Trust.

  Section 10.7 of the Loan Agreement contains, in bold, all capital letter typeface, the governing law provision. It reads as follows:
This Agreement was negotiated in the State of New York, and made by Mezzanine Lender and Accepted by Borrowers in the State of New York, and the proceeds of the Mezzanine Notes were disbursed from the State of New York, which State the Parties agree has a substantial relationship to the Parties and to the underlying transaction embodied hereby, and in all respects, including, without limiting the generality of the foregoing, matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State (without regard to principles of conflict [of] laws) and any applicable law of the United States of America, it being understood that, to the fullest extent permitted by law, the law of the State of New York shall govern the construction, validity and enforceability of all Mezzanine Loan Documents and all of the Obligations arising hereunder or thereunder. To the fullest extent permitted by law, each borrower hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs the Mezzanine Notes, and the Mezzanine Notes shall be governed by and construed in accordance with the laws of the State of New York pursuant to Section 5-1401 of the New York General Obligations Law.
(Emphasis supplied.)

  Section 2.6 of the Loan Agreement dictates the circumstances under which MP-555 and MP-808 could pre-pay the Mezzanine Loan. Section 2.6(k) provides for the payment of a "Supplemental Exit Fee" as follows: Borrowers*fn2 shall pay to Mezzanine Lender*fn3 . . . a supplemental exit fee ("the Supplemental Mezzanine Component A Exit Fee"), payable upon one or more sales of all or any portion of the Property by the Companies*fn4 (each, a "Supplemental Exit Fee Triggering Event"); provided, however, that no such Supplemental Mezzanine Component A Exit Fee shall be due from Borrowers unless and until, at the time the particular Supplemental Exit Fee Triggering Event occurs, the sum of (i) the Supplemental Exit Fee Purchase Price then due, (ii) any prior Supplemental Exit Fee Purchase Price previously paid to the Companies and (iii) the value of the portion of the Property remaining after the current Supplemental Exit Fee Triggering Event . . . is equal to or greater than $425,000,000. . . . For the purposes of the foregoing, "Supplemental Exit Fee Purchase Price" means the gross purchase price of all or a portion of the Property, including without limitation all cash proceeds, non-cash proceeds, any over-market purchase money financing or any other consideration to the Companies or the Borrowers (provided that any and all consideration received shall be payable only to the Companies or the Borrowers) that is reasonably attributable to the Property. . . .

 (Emphasis supplied). The Loan Agreement required MP-555, MP-808, Partners 555, and Partners 808 to remain single purpose entities.

  Refinancing, Restructuring, and Offering Stock in the Maguire Organization

  In an effort, among other things, to eliminate personal guarantees on debt acquired by Maguire Organization entities, Maguire undertook a strategy of restructuring the Organization, refinancing debt, and offering stock to the public to raise capital. The process of restructuring the Maguire Organization began on June 26, 2002, when Maguire Properties, Inc. ("MPI") and Maguire Properties, L.P. ("the Partnership"), a Maryland limited partnership, were formed, although neither entity had any material operations or substantial assets until June 27, 2003. At all relevant times, Maguire was the Chairman and Co-Chief Executive Officer of MPI. MPI was established so that common stock in a Maguire Organization entity could be sold to the public. The Prospectus ("Prospectus") for the Initial Public Offering ("IPO") of stock in MPI indicates that MPI was formed "to succeed certain businesses of the Maguire Organization." The Prospectus also indicates that MPI was formed with the expectation that it would qualify as a REIT for federal ...


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