CASE IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, CASE NO. 08-1355 (JMP),
The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.
Plaintiff Lehman Brothers Holdings, Inc., loaned defendant Bethany Holdings Group, LLC, more than $200 million for the purchase of apartment properties in Arizona. Defendants The Terry and Rose Knutson 2000 Family Trust and Terry Knutson (collectively, the "Knutson defendants") executed five guaranties in connection with Lehman's loans to Bethany. After Bethany defaulted on the loans, Lehman demanded payment on the guaranties. The Knutson defendants have not made payment claiming, inter alia, that the guaranties were fraudulently induced. Lehman initiated this suit in its attempt to recover on the guaranties.
Discovery in this action is complete and this case is ready for trial. Before the Court is Lehman's motion to strike the Knutson defendants' jury demand. Because the guaranties these defendants executed contain enforceable jury waivers, the Court grants Lehman's motion.
The following facts are drawn from the pleadings as well as the exhibits submitted in connection with the motion to strike.
A. Phoenix Kingdom I Guaranties
Terry Knutson built a small bakery in rural California into a national frozen baked goods company that he sold for approximately $175 million in November 2006. (Answer ¶ 75; Ex. 1 to Aff. of David Staubitz dated June 10, 2011 ("Staubitz Aff."); Dep. of Terry Knutson dated Feb. 14, 2011 ("Knutson Dep.") at 25:6, 29:5, Ex. 2 to Staubitz Aff.) That sale prompted Knutson to seek real estate investment opportunities, which led him to Bethany Holdings LLC, an owner and operator of apartment complexes across the country. (Answer ¶¶ 76, 78.) Between March and June 2007, Knutson invested his own money and that of The Terry and Rose Knutson 2000 Family Trust in a series of five real estate acquisitions that Bethany organized. (Id. ¶ 90.) In these transactions the Knutson defendants provided equity funding, which Bethany leveraged with loan financing, largely from Lehman, to complete the acquisitions. (Id. ¶¶ 90-96.)
This action concerns the third transaction Lehman financed-the purchase of the Phoenix Kingdom I ("PK I") portfolio of properties in Arizona in June 2007. (Id. ¶¶ 94-95.) Lehman provided three loans for the PK I purchase: a $164.5 million loan secured by the properties, a $37.16 million senior mezzanine loan, and a $34.64 million junior mezzanine loan. (Id. ¶ 95.)
Knutson, acting individually and as co-trustee of the Knutson Trust, executed five guaranties in connection with the two mezzanine loans: one for the interest due on the senior loan through 2012, one for $1.1 million of the principal on the senior loan, one for the interest due on the junior loan, one for up to $5 million of the principal on the junior loan, and another guaranty for up to $5.5 million of the principal on the junior loan. (Exs. 8-12 to Decl. of Lawrence Ecoff dated June 24, 2011 ("Ecoff Decl.").) Bethany and two of its principals, Greg Garmon and Jeffrey Silverman, also executed the guaranties. (Id.)
The closing for the PK I transaction occurred on June 1, 2007. Typically, in advance of a closing, Lehman's law firm would send signature pages to Bethany's law firm, Rutan & Tucker ("Rutan"), which would coordinate execution of the signature pages for the loan documents and then return them to Lehman's law firm. (Dep. of Eugene Balshem dated Mar. 10, 2011 ("Balshem Dep.") at 16:10-18, 48:15-17, Ex. 4 to Ecoff Decl.) Rutan was responsible for circulating documents to Knutson. (Id. at 48:12-13.) The actual loan documents were still being worked out even after completion of the signature pages. (Answer ¶ 92.) The closing, however, would not occur until the loan documents were finalized. (Balshem Dep. at 15:6-10.) The PK I transaction employed this process. (See id. at 16:19-21; Dep. of Gregory Garmon dated Mar. 8, 2011 ("Garmon Dep.") at 124:11-20, Ex. 2 to Ecoff Decl.)
Knutson testified at his deposition that he did not see any of the loan documents in the course of the PK I closing. (Knutson Dep. at 158:22-23, Ex. 5 to Ecoff Decl.) But Christopher Engh, Knutson's personal attorney, was typically involved in the Bethany transactions on behalf of the Knutson defendants. Knutson described Engh's role as follows:
Q: But isn't it correct that you would not allow a signature page to be used unless Mr. Engh had approved the final document?
A: In most cases then I would try and protect that, yes, until he was satisfied with the wording in the documents. In the cases where he was ...