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Randolph Equities, LLC v. Carbon Capital

August 24, 2009

RANDOLPH EQUITIES, LLC, FAROUK ADAM SHARIF, AND TIERNEY SHARIF, PLAINTIFFS,
v.
CARBON CAPITAL, INC., AND BLACKROCK, INC., DEFENDANTS.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION & ORDER

This is a real estate dispute arising out of Defendants' termination of a planned $16.7 million mezzanine financing loan for Plaintiffs' real estate transaction. Plaintiffs' Second Amended Complaint ("SAC") alleges five claims: breach of contract; fraud; tortious interference with prospective business advantage; promissory estoppel; and equitable estoppel. Defendants now move for summary judgment and Plaintiffs cross-move for partial summary judgment for their breach of contract claim and certain damages claims. For the reasons discussed below, the Defendants' motion for summary judgment is GRANTED in part and DENIED in part, and the Plaintiffs' motion for partial summary judgment is DENIED.

BACKGROUND

I. Factual History*fn1

a. The Treasures Holdco Dispute

Plaintiff Randolph Equities, LLC ("Randolph") is a Chicago-based real estate development and investment firm whose principal is Plaintiff Farouk Adam Sharif. Plaintiff Tierney Sharif is Sharif's wife. (See Defendants' Rule 56.1 Statement ("Def. 56.1") ¶¶ 1-3.) Defendant Carbon Capital, Inc. ("Carbon") is a New York-based private real estate investment fund. (Id. ¶ 4.) Defendant BlackRock, Inc. ("BlackRock") is a publicly traded investment management company with a subsidiary, BlackRock Financial Management, Inc., which is Carbon's investment manager. (Id. ¶ 5.)

Randolph held a beneficial ownership interest in a limited partnership called Treasures Holdco, which had been organized for the purpose of acquiring and developing a residential apartment complex called Treasures-on-the-Bay ("the property") in Miami-Dade County, Florida. (Id. ¶¶ 6-12.) In March 1999 Treasures Holdco purchased the property. (See Plaintiffs' Rule 56.1(a) Statement ("Pl. 56.1") ¶ 1.) Following the purchase, a dispute arose between Randolph and its partners, and in 2001, Randolph sued the partners in an Illinois state court for dissolution of the partnership and disposition of the property. Over the next two years the Illinois court dissolved the partnership and established a bidding process for the sale of the property, subject to judicial monitoring. (Id. ¶ 2; Def. 56.1 ¶ 19.)

b. Randolph Bids for the Property and Arranges Financing

Randolph bid on the property, and on July 1, 2003, the Illinois court ordered Randolph to provide "unequivocal commitments to close at a purchase price of $51,250,000, with committed financing sufficient to fund the pro forma distribution presented to the court." (See Randolph's Joint Appendix of Exhibits ("Pl.") Ex. 14.) The court's order also stated that a competing entity called GREC Conversion IV LLC ("GREC") could submit a purchase proposal. (Id.)

Following the court's order Randolph sought financing for its proposed purchase and conversion of Treasures-on-the-Bay to condominiums. On July 11, 2003, Ohio Savings Bank ("OSB") Vice President David Smith wrote in a letter to Randolph that the bank was interested in providing a loan of more than $50 million, and he noted that the bank required Randolph to obtain an additional institutional mezzanine loan of not less than $10 million. (Id. Ex. 17 at 1.) On August 4, 2003, Randolph signed a letter of intent with Carbon for $10.82 million in mezzanine financing.*fn2 (Id. Ex. 31 at 1.) On August 18, 2003, Randolph asked the Illinois court to approve its $51.75 million bid for the property. The bid included an earnest money deposit of $500,000 in cash and $1.5 million in the form of a pledge of Randolph's interests in the proceeds of the sale of Treasures-on-the-Bay. (Id. Ex. 40 at 2.) Attorneys for Randolph and for defendants in the Illinois case (the defendants are collectively referred to as the "Husman Group") appeared before Judge Stephen

A. Schiller. Over the objections of the Husman Group, Judge Schiller conditionally approved

Randolph's offer to purchase the property. (Id. Exs. 38-39.) Judge Schiller's order of August 18, 2003 stated that "[a]ll conditions set forth in the draft loan commitment letters submitted by Randolph shall be waived in writing by such lenders by August 27, 2003, except; legal opinions; title and survey. Randolph shall accept all existing conditions subject to approval of the title documents." (Id. Ex. 39.) Further, he ordered Randolph to forfeit the $500,000 cash deposit if it could not provide the waivers of condition by August 27, 2003, and the Husman Group would be free to enter into a contract with GREC at that point. (Id.) The transcript of the August 18 hearing makes clear Judge Schiller's interest in eliminating contingencies and completing the sale of the property. Judge Schiller stated, "I would be willing to approve Randolph Equities' offer with the following conditions: One, that the $500,000 be posted. Second, that all conditions be waived by the 27th . . . with the exception of legal opinion." (See Pl. Ex. 38 at 08:11-16 (emphasis added).)

Between August 18 and August 27, 2003, Randolph, OSB, and Carbon discussed how to comply with the court's August 18 order. OSB suggested issuing what it called an "estoppel letter," which it described as a document that "typically eliminates many standard loan contingencies by confirming that they have been satisfied, which makes the takeout loan a more definite obligation of the takeout lender." (Id. Ex. 43 at 1.) On August 21, 2003, James Parmeter, of Defendant BlackRock, noted in an e-mail that "[t]he judge['s] order states that lenders must waive all contingencies to the closing and funding except for title, survey and legal opinions." (Id. Ex. 47.) On August 27, 2003, Carbon Director Alexander Zabik sent a letter to Sharif which stated that Carbon was approving the mezzanine funding "subject to the remaining terms and conditions of the Commitment Letter. Once you have received proper court approval, we will commence our remaining due diligence and loan documentation." (Id. Ex. 66.)

On August 27, 2003 the Illinois court denied Randolph's motion and application to purchase the property, and instead granted the competing buyer's application. (Id. Ex. 67.) On September 5, 2003, however, the competing buyer failed to satisfy the court's order, and the Illinois court gave Randolph five days to present evidence by September 10, 2003, that its lenders had resolved their preconditions to the purchase of the property. (Id. Exs. 78-79.)

c. Carbon and Ohio Savings Bank Revise Letters

Recognizing that the Illinois state court judge would reject non-conforming offers, Randolph, OSB, and Carbon discussed how to revise the commitment letters. On September 10, 2003, OSB faxed a letter to Sharif stating that:

Ohio Savings Bank is prepared to close on the acquisition portion of its loan transaction with Randolph Acquisition IV, L.L.C. by funding $34,000,000 for acquisition costs, subject to the Bank's review and approval of the property's title and survey, its receipt of acceptable legal opinions, the negotiation of loan documents, and the review of Randolph's loan documentation with its mezzanine lender. The Bank anticipates closing with 30 days. (Id. Ex. 84.)

Carbon's Zabik immediately sent an e-mail attaching the letter from OSB (the "9/10 OSB Letter"), and stating in a one-line note, "they waived everything." (Id. Ex. 85.) That same day Zabik also faxed a one-page letter to Sharif which mirrored the language in the 9/10 OSB Letter:

Carbon Capital, Inc. ("Carbon") is prepared to close on the mezzanine portion of its loan transaction with Randolph Equities, L.L.C. by funding up to $16,700,000 subject to Carbon's review and approval of the property's title and survey, its receipt of acceptable legal opinions, the negotiation of loan documents, the review and approval of Randolph's loan documentation with its first mortgage lender, traditional mezzanine lender approval rights and material adverse changes in the economy or the capital markets. Carbon anticipates closing within 30 days. (Id. Ex. 87.) In addition to this "9/10 Carbon Letter," Carbon provided a revised commitment letter and letter of intent. (See Milner Aff. Exs. C, D.) Under an "Exclusivity" heading on page four, paragraph five, the September 10, 2003 Letter of Intent states that it "will terminate on the 30th day following the execution of this Letter of Intent by the Principal but may be terminated sooner by Lender if Lender advises Principal that it does not intend to proceed with the Loan." (Id. Ex. D at 4 (emphasis added).) The Commitment Letter contains a no-oral-modification clause, stating that "[n]o amendment or modification to this Commitment Letter will be effective unless evidenced by a writing executed by all the parties hereto." (Id. Ex. C at 3.)

Randolph presented the OSB and Carbon letters to the Illinois court, which scheduled a hearing for September 12, 2003, to resolve questions about which contingencies remained.*fn3

Carbon, OSB, and Randolph purportedly had several calls over the next two days to discuss the upcoming hearing. Randolph claims that Carbon stated that it would send Jon Glickman, an employee at AFC Realty Capital, Inc. ("AFC"), the asset manager for the project, to represent to the court that: (1) Carbon specifically limited its right to terminate the commitment to a material defect in title, survey, loan documents, and legal opinions, or a material adverse change in the economy or capital markets; (2) material adverse change meant a catastrophic event; and (3) Carbon would keep its commitment in effect through the court's October 12, 2003 closing deadline if the conditions were met. (Pl. 56.1 ¶¶ 51-54.)

d. The September 12, 2003 Court Appearance and Court Order

Glickman testified at the hearing on September 12, 2003. (Pl. Ex. 100.) He identified himself as the "project manager for this project with BlackRock/Carbon Capital." (Id. 15:14-16.) Glickman testified on the record that Carbon was prepared to provide the mezzanine financing depending only upon proper survey and document and title searches, along with "loan documentation." (Id. 15:20-16:03.) He also stated that the loan was not contingent on any environmental conditions. (Id. 16:04-15.) On cross examination Glickman testified that no contingencies would prevent Carbon from funding the deal other than "survey, title, loan documentation and changes in the economy and capital markets." (Id. 24:15-25:03.) Glickman was asked:

Q: Would any negotiation or problems with the intercreditor ...


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