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Meyer v. Bank of America, N.A.

United States District Court, S.D. Ohio, Eastern Division

December 2, 2019

P. Jonathan Meyer, et al., Plaintiffs/Counter-Defendants,
v.
Bank of America, N.A., Defendant/Counter-Plaintiff/ Third-Party Plaintiff,
v.
Stanbery English Village, LP, et al., Third-Party Defendants.

          Kimberly A. Jolson Judge

          OPINION AND ORDER

          SARAH D. MORRISON UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiffs'/Counter-Defendants'/Third-Party Defendants' (ECF No. 60) and Defendant's/Counter-Plaintiff's/Third-Party Plaintiff's (ECF No. 59) Motions for Summary Judgment. The parties have filed Memoranda in Opposition (ECF Nos. 61, 62), and Replies (ECF Nos. 66, 67). These matters are now ripe for decision.

         I. STATEMENT OF THE FACTS

         In January 2000, Plaintiffs/Counter-Defendants Paul Jonathan Meyer and Mark Pottschmidt co-founded Stanbery Development, LTD[1], (“Stanbery Development”) for the purpose of developing retail properties. (Paul Jonathan Meyer Dep. 10:11-11:19, 14:10-11, ECF No. 49.) In addition, Mr. Meyer, Mr. Pottschmidt, and Plaintiff/Counter-Defendant Raymond Brunt (each an “Assignor” and collectively the “Assignors”) each own an interest in Third-Party Defendants Stanbery English Village, LP; The Shoppes at Union Hill, LLC; and Stanbery Harrisburg, LP, as well as in non-party Stanbery Old Bridge, LLC (each a “Company” and collectively the “Companies”). (Def. Mot. Summ. J., at 3, ECF No. 59.)

         Prior to the 2008 economic downturn, Stanbery Development took out loans (the “Loans”) from LaSalle Bank for the development of five properties (the “Leveraged Properties”). (Meyer Dep. 15:22-17:21.) Around this same time, Defendant/Counter-Plaintiff/Third-Party Plaintiff Bank of America, N.A., (the “Bank”) acquired LaSalle Bank and took over the Loans. (Michael Olson Dep. 5:21-6:16, 7:12-16; Meyer Dep. 28:11-14.)

         The rippling effects of the economic downturn caused the Leveraged Properties to decline in value, and the amounts owed on the Loans ultimately exceeded the values of the Leveraged Properties. (Meyer Decl. ¶ 4, ECF No. 60-4; Meyer Dep. 17:12-18:6.) The conversations surrounding resolution of the Assignors' responsibility for the Loans focused on four properties that were owned by the Companies (and in which the Assignors each had an interest as co-owners of the Companies): Shoppes at Old Bridge (“Old Bridge”), Shoppes at Susquehanna Marketplace (“Harrisburg”), Shoppes at Union Hill (“Union Hill”), and Shoppes at English Village (“English Village”) (each a “Property” and collectively the “Properties”). (Meyer Dep. 12:7-21, 58:2-20; Raymond Brunt Dep. 6:11-7:7, ECF No. 50.) The Bank did not have an interest in the Properties prior to these settlement conversations. (Olson Dep. 37:22- 38:4.)

         Ultimately, the Bank negotiated a deal with the Assignors, which was memorialized in sixty Assignment of Proceeds documents (the “Assignments”). (Meyer Dep. 49:15-50:10; ECF No. 60-4, at 119-55; ECF Nos. 60-5 - 60-7; ECF No. 60-38, at 8-134; ECF Nos. 60-39 - 60-40; ECF No. 60-41, at 7-144; ECF Nos. 60-42 - 60-43.) On September 30, 2010, the Bank signed all sixty Assignments, while each of the three Assignors signed five Assignments[2] for each of the Properties. (ECF No. 60-4, at 119-55; ECF Nos. 60-5 - 60-7; ECF No. 60-38, at 8-134; ECF Nos. 60-39 - 60-40; ECF No. 60-41, at 7-144; ECF Nos. 60-42 - 60-43.) Through these Assignments, the parties agreed to split the proceeds of any transactions involving the Properties. (ECF No. 60-4, at 119-55; ECF Nos. 60-5 - 60-7; ECF No. 60-38, at 8-134; ECF Nos. 60-39 - 60-40; ECF No. 60-41, at 7-144; ECF Nos. 60-42 - 60-43.) All sixty Assignments are the same except for the designated Assignor, the Company (and therefore the Property) to which they apply, the percentage of the proceeds due to the Bank, and the particular Leveraged Property involved. (Meyer Dep. 49:15-50:5; ECF No. 60-4, at 119-55; ECF Nos. 60-5 - 60-7; ECF No. 60-38, at 8-134; ECF Nos. 60-39 - 60-40; ECF No. 60-41, at 7-144; ECF Nos. 60-42 - 60-43.)

         On May 8, 2013, Union Hill was refinanced. (ECF No. 60-44, at 4, 8.) The Assignors subsequently put the proceeds from the refinancing ($85, 670) into escrow. (ECF Nos. 60-46, 60-47.) On or before December 13, 2013, English Village was refinanced. (ECF No. 60-48.) The Assignors subsequently escrowed $46, 429 as a result of this transaction. (ECF No. 60-52, at 3- 4.)

         On April 28, 2015, Gerry Swedlow, outside counsel for Stanbery Development, notified the Bank that the Assignors intended to dispose of their interests in Old Bridge via a deed in lieu of foreclosure. (ECF No. 60-53, at 1; Meyer Dep. 43:3-5.) On May 15, 2015, Old Bridge executed the deed in lieu of foreclosure. (ECF No. 59-12, at 4.) That same day, Mr. Swedlow notified the Bank that the Old Bridge transaction had resulted in a net tax loss of over $5 million. (ECF No. 60-4, at 59-61.) It appears that the Assignors now contend that Old Bridge generated a tax liability of closer to $2 million. (Pls. Mot. Summ. J., at 6-7, ECF No. 60.) It is not clear what the Bank's calculations are on this point. Regardless, the parties do not dispute that the transfer of Old Bridge resulted in a loss.

         On April 28, 2015, Mr. Swedlow notified the Bank that a sale on the Harrisburg property was expected in approximately one month. (ECF No. 60-53, at 1.) Around May 28, 2015, the Harrisburg sale closed. (ECF No. 60-56, at 3; ECF No. 59-14, at 23.) On June 10, 2015, Mr. Swedlow provided the Bank with the calculations for the Harrisburg sale. (ECF No. 60-56.) The Assignors allege that the Bank did not object to this calculation. (ECF No. 60, at 19.) There is no evidence to the contrary. The Assignors' and the Bank's calculations as to this sale are dramatically different, both in terms of the mode of calculation and the figures being calculated. (Compare ECF No. 60-56, at 3, with ECF No. 59-14, at 23.) The Assignors did not escrow any money from the Harrisburg transaction. (See Mark Pottschmidt Dep., 27:1-6, ECF No. 51; Pottschmidt Dep. Ex. 13, ECF No. 51-1.)

         On March 9, 2016, Mr. Meyer notified the Bank via email of the impending sale of Union Hill, attaching a preliminary tax calculation. (ECF No. 60-58.) On March 30, 2016, the Union Hill property sold, and on June 15, 2016, Mr. Meyer provided updated calculations to the Bank. (ECF No. 60-59.) The Bank confirmed receiving the calculations but offered no substantive response. (ECF No. 60-60.) As with the Harrisburg sale, there is a substantial difference between the parties' Union Hill sale calculations. (Compare ECF No. 60-59, at 7, with ECF No. 59-14, at 27.) The Assignors did not escrow any money from the Union Hill transaction. (Pottschmidt Dep., 27:1-6; ECF No. 51-1; ECF No. 60, at 20.)

         On September 12, 2016, the Bank contacted Mr. Meyer and, for the first time, raised some general concerns about the Assignors' calculations and the money that was being escrowed. (ECF No. 59-20.) Over approximately the next month, the Bank continued to raise objections about the calculations and the money that was being escrowed but never indicated that the Assignors may have breached the Assignments in any other manner. (ECF Nos. 59-20, 59-21.)

         On August 4, 2017, Mr. Meyer notified the Bank that the English Village property was going to be sold and provided estimated calculations. (ECF No. 60-4, at 66-74.) The closing occurred that same day. (ECF No. 59-17.) Again, Assignors' estimated calculations are very different from the Bank's. (Compare ECF No. 60-4, at 67-69, with ECF No. 59-14, at 18.) As with Harrisburg and Union Hill, the Assignors did not escrow any funds related to the English Village sale. (ECF No. 59-16, at 2; see ECF No. 51-1.) On August 30, 2017, the Bank's counsel sent the Assignors' counsel a letter objecting to the Assignors' English Village calculations and the Assignors' failure to put any additional money into escrow. (ECF No. 60-68.)

         II. PROCEDURAL HISTORY

         On November 13, 2017, the Assignors filed a Complaint in the Franklin County Court of Common Pleas. (Compl., ECF No. 11.) Count One of the Complaint requests that the Court issue a declaratory judgment as to the following: 1) that the Assignors have correctly calculated the Sale Proceeds (as defined in the Assignments) for English Village; 2) that the Assignors are not required to put any additional funds into escrow; and 3) that all amounts in escrow be returned to the Assignors. (Id. at 9.) The Complaint also requests declaratory judgments that the Bank has waived its right to challenge the Assignors' Sale Proceeds calculations as to Old Bridge, Harrisburg, and Union Hill, either intentionally (Count Two) or by estoppel (Count Four); that the Bank has ratified the Old Bridge, Harrisburg, and Union Hill calculations (Count Three); and that laches bars the Bank from challenging these calculations (Count Five).

         On March 14, 2018, the Bank timely removed the Complaint to this Court. (ECF No. 1.) On March 16, 2018, the Bank filed three Counterclaims (Counts One through Three) against the Assignors for breach of contract regarding the sales of English Village, Harrisburg, and Union Hill. (Counterclaim and Third-Party Compl., at 10-28, ECF No. 4.) The Bank also filed three Counterclaims (Counts Six through Eight) against the Assignors for breaches of the Ohio Uniform Fraudulent Transfer Act (the “UFTA”) regarding the sales of English Village, Harrisburg, and Union Hill. (Id. at 32-41.) The Bank has also asserted these breach of contract and UFTA claims as third-party claims against Third-Party Defendants Stanbery English Village, LP (Counts One and Six); Stanbery Harrisburg, LP (Counts Two and Seven); and The Shoppes at Union Hill, LLC (Counts Three and Eight). (Id. at 10-28, 32-41.)[3]

         III. STANDARD OF REVIEW

         Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant has the burden of establishing there are no genuine issues of material fact, which may be achieved by demonstrating the nonmoving party lacks evidence to support an essential element of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Barnhart v. Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1388-89 (6th Cir.1993). The burden then shifts to the nonmoving party to “‘set forth specific facts showing that there is a genuine issue for trial.'” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting Fed.R.Civ.P. 56). When evaluating a motion for summary judgment, the evidence must be viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970).

         A genuine issue exists if the nonmoving party can present “significant probative evidence” to show that “there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris Cos., 8 F.3d 335, 339-40 (6th Cir. 1993). In other words, “summary judgment will not lie . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248; accord Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (concluding that summary judgment is appropriate when the evidence could not lead the trier of fact to find for the non-moving party).

         IV. ANALYSIS

         The Court begins with the interpretation of the Assignments. “Under Ohio law, the interpretation of written contract terms, including the determination of whether those terms are ambiguous, is a matter of law for initial determination by the court.” Savedoff v. Access Grp., Inc., 524 F.3d 754, 763 (6th Cir. 2008). “[A] contract is ‘unambiguous' if a reviewing court ‘can give a definite legal meaning' to the contract's terms.” United States v. Ohio, 787 F.3d 350, 353 (6th Cir. 2015) (quoting Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261 (Ohio 2003)). Where a contract's terms are not ambiguous, the interpreting court must apply the plain language of the contract. Savedoff, 524 F.3d at 763. The court must presume that interpreting the plain language will give rise to the parties' intent. Id. Only where a contract is ambiguous may the court look to extrinsic evidence to ascertain the parties' intent. Id.; Ohio, 787 F.3d at 354.

         Here, the Assignments are not ambiguous. While the relevant provisions are difficult to discern, they can only be interpreted to possess one legal meaning. The Court is thus bound by the plain language of the contracts and is not permitted to look at the extrinsic evidence introduced by the parties for purposes of interpreting the contractual language at issue.

         A. Calculation of the Sale Proceeds

         The calculation of the “Sale Proceeds” under the Assignments is the basis of the Assignors' first declaratory judgment request. Pursuant to § 1(a) of the Assignments, the Assignors agreed to give a designated percentage (the “Percentage”) of the “Sale Proceeds” to the Bank. (ECF No. 60-38, at 64.) “Sale Proceeds, ” in turn, is defined in § 1(a)(i) by an equation-it is the proceeds received from “a Sale” by “the Companyand/or the Assignor, ” less various expenses, including closing costs, taxes owed by “the Company or Assignor, ” and the payoff of a portion of the Loan debt. (Id.) “Sale” is defined in § 1(a)(ii) as a transfer in control or assets of a Company and includes any refinancing or restructuring of a Company. (Id.) This is distinct from a “Qualifying Sale, ” which is defined in § 1(c)(iii)(B) as a Sale of at least the majority interest in a Company or of essentially all of the assets of a Company. (Id. at 65-66.)

         The parties do not dispute any of these provisions except how the Sale Proceeds are to be calculated.[4] The Bank argues that pursuant to the definition of “Sale Proceeds, ” taxes are deducted from proceeds on a per-transaction basis, based on § 1(a)(i)'s reference to “a Sale, ” “the Company, ” and “the Assignor, ” all in the singular form. (ECF No. 59, at 11-12.) The Assignors dispute this reading, although their alternative interpretation is not entirely clear. (ECF No. 60, at 27-28.) However the Assignors are interpreting this provision, the upshot of their interpretation is that they seek to deduct the taxes that they owe after multiplication of the Percentage. (See ECF No. 60-56, at 3; ECF No. 60-59, at 7; ECF No. 60-4, at 67-69; ECF No. 60, at 28 (“[E]ach of the Assignors actually paid . . . tax far in excess of the proceeds received . . . .”).) That is, the Assignors seek to deduct their taxes not from the total sale price but from their individual percentages of the sale price.

         The Bank's interpretation is correct. The Assignments contemplate that the taxes (and other expenses) are deducted not from the Sale Proceeds, but from whatever is received in the course of the Sale (i.e., the “proceeds” with a lowercase “p”). The “Sale Proceeds” (a defined term with a capital “P”) are what results from the equation; the taxes owed are themselves a component of the Sale Proceeds calculation. And because § 1(a) requires that the Percentage be multiplied against the Sale Proceeds, the Percentage has nothing to be multiplied against until the Sale Proceeds are calculated (after the taxes have already been deducted).

         If the calculations are made as argued by the Assignors, the taxes are deducted not from the proceeds received from the Sale but rather from an ad hoc calculation that does not conform to any part of § 1(a). The irrationality of this calculation is demonstrated by the fact that the Assignors seek to deduct the closing costs and the debt payoff from the proceeds at a different time (before the Percentage is applied) than the taxes (after the Percentage is applied). But the § 1(a)(1) definition of “Sale Proceeds” explicitly says that the costs and debt payoff will be deducted at the same time as the taxes, with each being deducted from the proceeds received before generating the final Sale Proceeds amount.

         Accordingly, as to the first component of Count One, the Assignors' declaratory judgment claim, the Assignors have not calculated the Sale Proceeds calculation correctly as to English Village because they have not deducted the taxes from the proceeds received prior to multiplying the Percentage. Plaintiffs' Motion for Summary Judgment as to the first component of Count One is DENIED, and Defendant's Motion for Summary Judgment as to this component is GRANTED.

         B. Distribution of Escrow Funds

         As to the second and third components of Count One, the Assignors request declarations that they are not required to put any additional funds into escrow and that all amounts in escrow be returned to them. A determination of this issue requires a deep dive into how escrow is funded under the Assignments and how the parties agreed to distribute the funds.

         Pursuant to § 1(c)(ii), after a Sale occurred, “the Company” was to pay its Percentage of the Sale Proceeds to the designated escrow agent within three days of receipt of the Sale Proceeds. (ECF No. 60-38, at 65.) The amount due to the escrow agent under each Assignment is defined in § 1(d)(ii) as the “Escrow Amount.” (Id. at 67.) The Escrow Amount is then a component of the “Escrow Funds, ” a term that is the subject of one of the parties' disputes. The Assignors argue that the Escrow Funds consist of the sum of the Escrow Amounts from all sixty Assignments. (ECF No. 60, at 29-30.) The Bank argues that the Escrow Funds are categorized by Company, such that there are four pots of Escrow Funds, each consisting of the sum of the Escrow Amounts resulting from the fifteen Assignments pertaining to each particular Company. (Def. Opp. to Pl. Mot. Summ. J., at 9, ECF No. 61.) The Bank's interpretation finds no support in the Assignments.

         Section (d)(ii) defines “Escrow Funds” as being “[t]he Escrow Amount and all amounts payable to the Escrow Agent pursuant to each respective Section 1 of the Other Assignments . . . .” (ECF No. 60-38, at 67.) The Bank argues that this reference to “Other Assignments” only refers to the other fourteen Assignments “related to that particular Company.” (ECF No. 61, at 9.) The Bank invents that qualifier, for that is not what the Assignments say. The Assignments explicitly define “Other Assignments” as “the documents listed on Schedule 1(d), ” and the Schedules 1(d) all include the other fifty-nine Assignments-not just the other fourteen Assignments related to the particular Company at issue. (See, e.g., ECF No. 60-38, at 67, 76-83.) Thus, because “Escrow Funds” is defined as the Escrow Amounts from the Other Assignments- which means all of the other Assignments-it is the collective Escrow Amounts across all sixty Assignments that combined into the Escrow Funds.

         The Assignments also specifically provide that at least a portion of the Escrow Funds were to “be available for the payment of certain tax obligations of the Company or Assignor as set forth in” § 1(d)(iii)(A). (ECF No. 60-38, at 67.) The Bank acknowledges as much. (ECF No. 59, at 14.)

         However, there is further disagreement between the parties about two other aspects of the Assignments' escrow provisions. First, the parties disagree about when the Escrow Funds could be disbursed to the Bank. The Assignors argue that the Bank was not entitled to receive the Escrow Funds until all of the Properties had been appraised or had undergone a Qualifying Sale. (ECF No. 60, at 31.) The Bank, on the other hand, argues that it could have requested disbursement of the Escrow Funds at any point after a Qualifying Sale. (ECF No. 59, at 5.) Second, the parties disagree about the extent to which the Escrow Funds could be used towards the Assignors' taxes. The Assignors argue that taxes were to be deducted prior to the distribution of any Escrow Funds, (Pls. Opp. to Def. Mot. Summ. J., at 3, ECF No. 62), while the Bank argues that taxes were to be offset after each transaction, (ECF No. 59, at 14-15). Neither party's interpretations are entirely correct.

         The provisions regarding the tax offset and distribution of funds are heavily integrated, and each helps to divine the meaning of the other. As a result, the Court first provides its interpretation of both provisions and then addresses where the parties' alternative arguments go wrong.

         Section 1(d)(iii)(A) defines the “Tax Balance” as the taxes owed “by the Company or Assignor” as a result of a Sale, less any money due to the Company or Assignor from the Sale. (ECF No. 60-38, at 67.) That Section then goes on to say that if “at the time of any Sale, ” the Escrow Funds have a positive balance and the Tax Balance is positive, the Bank and the Assignor would be obligated to jointly instruct the escrow agent to release enough of the Escrow Funds to the Assignor to pay the Tax Balance. (Id.) However, § 1(d)(iii)(A) limits the Assignor to the amount of Escrow Funds that existed at the time of the Sale. (Id.) Accordingly, every time a Sale were to occur, all of the money in the escrow account (if any) had to be used to pay the taxes owed by the applicable Company or Assignor until the Assignor's taxes were paid off or the amount in escrow was exhausted. Only any amount in excess of the taxes would remain in escrow. Thus, when a Sale occurred, if the Tax Balance exceeded the Escrow Funds, the amount in escrow would be zeroed out because the Escrow Funds would be applied in their entirety towards the Tax Balance. On the other hand, if the Escrow Funds exceeded the Tax Balance, any excess amount would remain in escrow until at least the next Sale.

         In turn, Section 1(d)(iii)(B) establishes when the “remaining” Escrow Funds could be distributed. (Id. at 67-68.) Context makes clear that these funds could not be distributed until they were applied against the Tax Balance as described in § 1(d)(iii)(A) because § 1(d)(iii)(B) only permits the “remaining” Escrow Funds to be distributed to the Bank. If the entirety of the Escrow Funds would have been distributed (i.e., if they had not previously been applied against the Assignors' Tax Balance), this usage of “remaining” would be entirely superfluous, because the Escrow Funds would always “remain” in escrow until their distribution. In other words, § 1(d)(iii)(A) is a prerequisite to § 1(d)(iii)(B).

         The Bank roots its incorrect interpretations of these provisions in the assumption that after a Qualifying Sale occurred, it “could immediately request disbursement of the Escrow Funds.” (ECF No. 59, at 5.) The Bank cites to §§ 1(c)(iii)(B) and 1(d)(iii)(B) to support this proposition, but it provides no persuasive explanation for how these provisions support this assertion. Neither section does.

         Section 1(c)(iii)(B) is no help, because it merely defines “Qualifying Sale.” It says nothing about how escrow funds were to be distributed. The conditions of distribution other than for certain taxes are ...


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