TIC Owners v David Bralove, Rick Brown, B&B Realty of Bethesda, et al
As of Dec 11, 2017, the number of TIC partners open to legal action against B&B Realty: 12 of 24
|Jun||16||Lawyers Title Insurance (B&B, TICs 1-9) (Lawyers Title Insurance heavily involved in Las Vegas boom-bust)|
|Dec||19||Purchase & Sale Agreement|
|Mar||28||Kelley Drye & Warren Tax Opinion for B&B, ACP|
|Apr||08||B&B ALEXANDRIA CORPORATE PARK, LLC (ACP), B&B ALEXANDRIA CORPORATE PARK INVESTORS, LLC (B&B INV), B&B ALEXANDRIA CORPORATE PARK MANAGEMENT, LLC (B&B MNGT), B&B ALEXANDRIA CORPORATE PARK TICs 1 through 6 (TICs 1-6) incorporated in Delaware (BRALOVE)|
|May||23||B&B ALEXANDRIA CORPORATE PARK MEZZ BORROWER, LLC (MEZZ) incorporated in Delaware (BRALOVE)|
|May||27||B&B ALEXANDRIA CORPORATE PARK TICs 7 through 10 (TICs 7-10) incorporated in Delaware (BRALOVE)|
|May||28||B&B ALEXANDRIA CORPORATE PARK SPECIAL MEMBER, LLC (SPEC) incorporated in Delaware (BRALOVE)|
|May||30||Swap Agreement Susquehanna Bank (ACP, MEZZ, B&B, BROWN, TICs 1-9, SPEC)|
|Jun||?||Assignment Agreement (BROWN, B&B) to (BROWN, ACP)|
|Jun||?||Assignment Agreement (BROWN, ACP) to (BROWN, TICs 1-9)|
|Jun||05||Kelley Drye & Warren Opinion for Susquehanna|
|Jun||05||The Bralove Group Opinion (BRALOVE, BRALOVE GROUP) to Susquehanna Bank "We have acted as counsel to" ACP, TICs 1-9, BRALOVE, BROWN (Exhibit C)|
|Jun||05||Closing Certificate, $38,000,000 Susquehanna Bank, insurance requirements "No action, omission, misrepresentation, negligence, fraud or similar occurrence has taken place on the part of any person that would reasonably be expected to result in the failure or impairment of full and timely coverage under any insurance policies providing coverage for the Property. (B&B, ACP, MEZZ, BROWN, SPEC) (TICs 1-9, BROWN signing for all)(Exhibit E, ¶7)|
|Jun||05||"Call Agreement" on property located in Fairfax County, Alexandria, Virginia at 6315 Bren Mar Drive and known as Alexandria Corporate Park|
|Jun||05||Tenants in Common (TIC) Agreement by The Bralove Group (ACP, TICs 1-9) (Notarized Jun 3 by Jill Bralove) (ACP, B&B, BROWN)|
|Jun||05||Property Management Agreement wherein TICs 1-9 make ACP the property manager for the property. (ACP, B&B, BROWN, )|
|Jun||05||Disbursement and Receipt Certificate from Susquehanna Bank $33,800,000 loan, agreement to allow Susquehanna to sell loan to a third party (ACP, MEZZ, B&B, BROWN, SPEC, TICs 1-9, BROWN(2))|
|Jun||05||Assignment of Agreements, Permits, and Contracts to Susquehanna Bank as further loan collateral (ACP, TICs 1-9, SPEC, B&B, BROWN)|
|Jun||05||Assignment of Leases and Rents to Susquehanna Bank as further loan collateral (ACP, MEZZ, B&B, BROWN, TICs 1-9,SPEC, B&B, BROWN(2)) Notarized Jill Bralove Jun 4|
|Jun||05||Deed of Trust (B&B, TICs 1-9)|
|Jun||05||Promissory Note (ACP, MEZZ, B&B, BROWN, SPEC, TICs 1-9) $33,800,000(notarized Jill Bralove June 4)|
|Jun||05||Acknowledgment of Property Manager between Susquehanna and ACP (in the event of a default, Property Manager not entitled to fees). ACP, B&B, BROWN | ACP, MEZZ, B&B, BROWN | TICs 1-9, SPEC, B&B, BROWN (Exhibit C: Principal of Property Manager is also Principal of sponsor entity)|
|Jun||05||Reserve Agreement ACP TICs 1-9 and Susquehanna [not read] ACP, MEZZ, B&B, BROWN | TICs 1- 9, SPEC, B&B, BROWN|
|Jun||05||Environmental Liabilities Agreement ACP TICs 1-9 (Borrowers), BROWN, BRALOVE (Borrowers and Principals / Indemnitors) for Susquehanna ACP, MEZZ, B&B, BROWN | TICs 1-9, SPEC, B&B, BROWN | BRALOVE, BROWN [not read]|
|Jun||05||Interest Rate Swap Agreement w Susquehanna ACP, SPEC, B&B, BRALOVE|
|Aug||13||B&B ALEXANDRIA CORPORATE PARK TICs 11 through 15 (TICs 11-15) incorporated in Delaware (BRALOVE)|
|Sep||12||B&B ALEXANDRIA CORPORATE PARK TICs 16 through 20 (TICs 16-20) incorporated in Delaware (BRALOVE)|
|Nov||18||B&B ALEXANDRIA CORPORATE PARK TICs 21 through 30 (TICs 21-30) incorporated in Delaware (BRALOVE)|
|May||29||B&B ALEXANDRIA CORPORATE PARK TICs 31 through 33 (TICs 31-33) incorporated in Delaware (BRALOVE)|
|Aug||01||Receipt and Acknowledgment of Supplement Dated August 1, 2009 to Confidential Private Placement Memorandum B&B Alexandria Corporate Park ; The effective date of this Receipt and Acknowledgment is September 1, 2009. "read a copy of the Supplement dated August 1, 2009 (the "Supplement") to the Private Placement Memorandum dated March 28, 2008, as amended and supplemented by that certain Supplement dated April 10, 2008 and that certain Supplement dated March 28, 2008 and subsequently amended and restated in its entirety by that certain Private Placement Memorandum (amended and Restated) dated May 23, 2008 " K WELCH|
|Oct||05||B&B ALEXANDRIA CORPORATE PARK TIC 34 (TIC 34) incorporated in Delaware (BRALOVE)|
|Oct||07||B&B ALEXANDRIA CORPORATE PARK TICs 35 through 36 (TIC 35-36) incorporated in Delaware (BRALOVE)|
|Oct||09||B&B ALEXANDRIA CORPORATE PARK TICs 37 (TIC 37) incorporated in Delaware (BRALOVE)|
|Oct||14||Virginia Corporate Commission registration for TIC 34|
|May||19||KELLEY DRYE & WARREN LLP letter to Susquehanna Bank re: Partial Assumption of Loan in the principal amount of $33,800,000 by B&B ALEXANDRIA CORPORATE PARK TIC 33, LLC ("TIC33") and B&B ALEXANDRIA CORPORATE PARK TIC 34, LLC ("TIC34")|
|May||19||The Bralove Group legal opinion for Susquehanna Bank re: Partial Assumption of Loan in the principal amount of $33,800,000 by B&B ALEXANDRIA CORPORATE PARK TIC 33, LLC ("TIC33") and B&B ALEXANDRIA CORPORATE PARK TIC 34, LLC ("TIC34") ("We have acted as counsel for" TICs 33 & 34) BRALOVE GROUP, BRALOVE|
|May||27||Special Deed Grantor: ACP Grantee: TIC 33, TIC 34 ACP, MEZZ, B&B, BRALOVE|
|May||27||UCC-1 filing Susquehanna Bank debtor TIC 34 (address Bralove Group)|
|Jun||02||B&B ALEXANDRIA CORPORATE PARK TICs 38 through 39 (TICs 38-39) incorporated in Delaware (BRALOVE)|
|Jun||17||UCC-1 filing Susquehanna Bank debtor TIC 34 (address Bralove Group)|
|Aug||31||B&B Account Statement for TIC 34 (Jun - Aug)|
|Jan||04||B&B ALEXANDRIA CORPORATE PARK TICs 40 through 42 (TICs 40-42) incorporated in Delaware (BRALOVE)|
|Mar||06||Conference call between G8, B&B (Arent Fox) B&B states G8 wants debt paid, doesn't want building.|
|Mar||10||Below is a summary of work completed thus far in the effort to obtain new financing for the
New financing -we conveyed to G8 the above update on both the property and the progress toward finding new financing. We also notified them that beginning with the March debt service payment, we would not be making principal payments on either the mortgage or the 2nd facility. We will continue to pay the interest, tax & insurance escrows and the reserve escrows. With CACI and FPS as the only tenants in place, we need to use the $91,000 we would normally pay for principal each month for property operations. We also suspended payment of our Asset Management fee beginning in January 2014, in order to direct all funds possible to running the property. G8 reiterated their desired course of action is to have the debt paid off and not to take possession of the property. We will keep a regular dialogue going with them.[B&B Memorandum]
|Apr||02||As we have previously reported, HFF has been actively marketing our property to lenders capable of refinancing our existing mortgage that matures on June 15, 2014...
Our goal is be able to present G8 Capital with an offer to purchase its loan on a discounted basis that would provide G8 Capital with an acceptable return on its investment but that would be less than the current aggregate outstanding balance of the loans in the amount of $34,088,875.07. This will require a capital stack consisting of a first mortgage loan, mezzanine financing and, if required and to the extent available, unsecured financing. The selection of a first mortgage lender is the first step in this process. [B&B Memorandum]
|Jun||20||As we discussed on today's conference call, this email is being sent to all co‐owners to ascertain their interest in making a loan to fund the extension and related costs with G8. The loans would be structured as interest only loans with simple interest at 16% per annum accruing until paid in full. The loans would have an exit fee or kicker upon payoff in an amount equal to 100% of the principal balance. In addition the loans would have priority over any co‐owner distribution or return of equity.
At this time, without any further negotiations with G8, we require not less than $1,250,000 in the aggregate in order to be successful with this funding and $1,000,000 available by June 27, 2014. [B&B email]
|Jun||24||Following our last conference call, we received responses from co‐owners prepared to make loans in what we believed to be a sufficient amount to satisfy the proposal submitted by our lender G8 in order to grant an extension of the maturity date until December 1, 2014. Many of the co‐owners committing loans wanted additional assurance that an extension beyond December 1, 2014 could be made available under certain conditions. We contacted G8 to inform that that we were prepared to proceed with their proposal provided we could resolve the potential extension beyond December 1. Unfortunately we are now being told that G8 no longer desires to make an extension beyond June 30 and that the foreclosure will proceed as scheduled. [B&B email]|
|Jun||30||Please be advised that we were able to stay the foreclosure scheduled for this morning through the filing of a Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia by one of the TICs on Friday evening. The bankruptcy filing provides for an automatic stay of legal proceedings against the debtor. Consequently, at this time we remain in ownership and possession of the property pending the outcome of the bankruptcy proceeding. Due to the late filing of the bankruptcy and the possibility that our lender's attorney may not have received actual notice over the weekend, as a precaution, I appeared at the courthouse this morning at the scheduled time for the foreclosure with a copy of the filed bankruptcy petition. No one was in attendance. As the lender was the only party to have received notice of the bankruptcy filing, this means that there were no third party bidders and the lender would have been the owner of the property had foreclosure proceeded in the ordinary course. Our next step is to pursue the term sheet provided earlier by Silver Arch for a $25 Million first trust mortgage loan as well as continue to explore subordinate financing for the amount necessary to satisfy G8. As we have mentioned on our conference calls and other communications, we need time to complete the GSA lease renewal and lease up the vacancies at the property. With a refinancing plan in place and the partial execution of that plan with Silver Arch, we would be in a better position to argue our case before the bankruptcy court. [Bralove email]|
|Jun||30||As you know, we were able to stop the foreclosure action on the property today...Several of you had indicated your willingness to contribute to the potential extension fees to G8 last week, with far greater cash needs. Please help build this fund so we can keep going towards the refinance. [B&B email]|
|Jul||01||Co‐owners, we are still short for the processing costs for the $25,000,000 loan. [B&B email]|
|Jul||22||BANKRUPTCY B&B Alexandria Corporate Park TIC 17 (BRALOVE), LLC (db) vaebke 1:14-bk-12434 TIC 17 (was DiDonna)|
|Oct||06||"Today we submitted our best and final offer to GSA for the FPS lease at B&B Alexandria Corporate Park."..."We understand that the goal of GSA is to award the lease by mid November."..."Regarding the pending bankruptcy of B&B Alexandria Corporate Park TIC 17, LLC, the foreclosure continues to remain stayed and we are operating under a cash management agreement with the lender."..."We are continuing to see more interest in the property from prospective tenants and our overall strategy remains to lease up the vacant space to the extent that it will support a return to the capital markets for refinancing of the existing debt." [B&B email]|
|Feb||04||On January 30, 2015, we received a letter from GSA notifying us that we are the apparent successful offeror for the lease requirement of FPS together with a first draft of the new 10 year lease. ... As we have previously reported, the foreclosure commenced by our first trust lender, G8 Capital, on June 16, 2014 was stayed by the Chapter 11 bankruptcy filing of B&B Alexandria Corporate Park TIC 17, LLC (the "Debtor") on June 27, 2014. ... Due to the procedural requirements of the bankruptcy court and potential strategies available to the Debtor, the outcome of G8's recent motion is not likely to become final until April. Prior to that time, we would hope to have some indication from the capital markets of whether or not we can obtain loan proceeds in an amount necessary to satisfy G8 and retain the property for the co-owners through refinancing. At this time, we consider the best course of action for the co-owners to be to continue to seek tenants for the vacant space while we pursue refinancing based upon the recent leasing activity. Should you have any questions, please contact us.[B&B Memorandum]|
|Mar||03||Conference Call with TIC Partners: We have exchanged comments with GSA on the draft lease and fully expect to have the lease in final form for execution prior to the end of this month. We have elected to retain another mortgage brokerage firm, DZT (formerly Cassidy Turley) to represent us in securing refinancing proceeds now that the GSA renewal is imminent. [B&B Summary]|
|Mar||10||Below is a summary of work completed thus far in the effort to obtain new financing for the property...
Based on the requirement of additional capital and the expected holdbacks, we do not think this option as currently quoted is viable. We are also in the midst of speaking with a large, local bank with whom we have an existing lending and account relationship regarding a 1st trust somewhere in the $28 million range and a mezzanine piece of$5 million. We supplied the bank with various reports and pro-forma information this week and hope to receive a term sheet by March 14th [B&B Memorandum]
|Mar||11||David Bralove opened the meeting. The purpose of the meeting is to answer any questions Coowners may have to the March 3, 2015 Property Update Memorandum (Memoranda attached).
Summary of Strategy
In order to continue with the above steps toward securing new financing, we will need fees to:
• File an additional bankruptcy should the court lift the foreclosure stay
• Put down an earnest money deposit on a term sheet
• Engage a lawyer to represent the ownership group in future negotiations with G8.
Once we have a package to offer, it would be best presented through counsel. We feel it is important to make a shift in the negotiating parties. We have contacted one attorney for a retainer proposal and would consider others when the time comes. If there are not enough co-owners who contribute funds voluntarily we would require a pro rata contribution from each TIC in accordance with the Tenant-in Common (TIC) & Property Management Agreements.
Question – Are the needed funds estimated at $100,000 per TIC or in total?
Response – In total, and would include the needed application funds for new financing.
Question – Why doesn't David continue to be the legal representative for the group?
Response – While David is a lawyer by vocation, he does not represent any of the co-owners in that capacity and has never acted in that capacity for the ownership group. There is no lawyer – client relationship providing confidentiality between David and any of the individual owners. B&B Alexandria Corporate Park Management, LLC, as property manager, is agent for the coowners. We need to contract with a lawyer to represent the group. The strategy is that upon stabilizing, the long term NOI could approximate as much as $3.9M, from the current $2.1M, and provide a much higher value.
Question – Has there been an appraisal since we bought the property?
Response – No. It is difficult to value the property with the current 40% vacancy.
Question – To be clear on the long term strategy, we need to get new leases, secure a loan
package, and then in 3, 4 to 5 years, what would the expectation be?
Response – With $36M in debt, a possible $60M value, the original $25M of equity would
likely be split up with a general partner. Retaining 50% of the co-owners' equity is a fair estimate. We are working to preserve the property. When the time comes, it will be up to all the co-owners to decide what to do. In the meantime we continue working to provide the best offer possible.
Question – With half of the equity retained, we would still be owners?
Response – Yes, along with potential new investors. If we continued holding the property after stabilization, the owners would benefit from the income flow. If we sold the property, you would get a portion of your equity back. The two options would be keep or sell. We will know more after the Court's ruling on Friday.
Question – What is the timing on the voluntary contribution and call procedure?
Response – David will review the Call Agreement and issue a memo to the Co-owners. [See the March 11, 2015 memo attached.]
Question – What would the return on the voluntary contribution be?
Response – We will revisit the terms we offered last time and make a proposal.
Question - Is it feasible to engage (2) capital funding firms to work on the financing at the same time?
Response – No. These firms work under exclusive engagements.
[B&B Conference Call]
|Mar||16||B&B Alexandria Corporate Park TIC 17, LLC Bankruptcy Please be advised that on Friday, March 13, 2015 the bankruptcy Judge in the above captioned matter granted the secured creditor's motion to lift the automatic stay on the foreclosure...
While we had hoped that the conversion of the case from a Chapter 11 to a Chapter 7 would provide additional time to continue the automatic stay while a Chapter 7 trustee is appointed, the Court determined that the newly appointed trustee would have no defense to the creditor's motion to lift the stay and consequently opted now to grant the creditor's motion to lift the stay.
Consequently, in order to attempt to secure additional time to continue the refinancing efforts by DTZ, our mortgage broker, another TIC bankruptcy would need to be filed. There can be no assurance that this new bankruptcy would be successful in granting sufficient time to allow DTZ to secure a proposal from a new lender that would result in a successful resolution with our existing lender, G8 Capital. However, unless we secure sufficient funds to satisfy G8 Capital, the property will be foreclosed upon and your investment lost.
We estimate the legal retainer fees for a new bankruptcy to be $25,000. As this is not a property expense that any co-owner is responsible to remit, we are seeking voluntary loans from any co-owner that would be willing to make under the same terms and conditions as the earlier co-owners loans: 16% per annum interest and priority over any TIC distributions.
Interested co-owners should contact us at once to indicate the amount that they would be prepared to lend. [B&B memorandum]
|Apr||02||In re B&B Alexandria Corporate Park TIC 17, LLC, Debtor
As previously reported, having prevailed on its motion for relief from the automatic stay, the Lender may proceed with the foreclosure process as early as April 2, 2015. If timely commenced, the required notice period in Virginia for a non-judicial foreclosure is 14 days which would result in the loss of the property no earlier than April 16, 2015. Our strategy remains to secure a refinancing term sheet or commitment prior to that time to persuade our Lender to suspend the foreclosure so as to allow us to proceed with the refinancing. We intend to approach the Lender through legal counsel familiar with debt negotiations. If the Lender is unwilling to grant us additional time, then another bankruptcy filing by another TIC could provide us temporarily with another automatic stay while we continue to seek refinancing on terms acceptable to our Lender. One of our TICs is prepared to file for bankruptcy if required and we have identified bankruptcy counsel for this new filing. While we have some level of commitment from co-owners, we are still seeking additional contributions for bankruptcy counsel legal fees. Please contact us if you are able to make a loan to the co-ownership group for legal fees.
DZT, our mortgage broker, has identified two potential lenders who have expressed an interest in our
At this time there are no assurances that our current lender will accept any amount less than the current outstanding balance of approximately $36,000,000 on its loan, inclusive of all late fees and interest. [B&B email]
|Apr||07||The next step is for the Lender to notice all Co-owners of the foreclosure advertisement. As of this time we had not received notice. Under VA law, the foreclosure may occur no earlier than 14 days after notice is given. Our feeling is the Lender is waiting for the GSA lease to be signed before initiating the advertising period, to keep the lease process streamlined...
GSA lease - the lease is in its final form and was sent to the Lender yesterday (4/6) to obtain authorization for us to complete and sign [B&B/TIC Conference Call]
|May||08||Please be advised that as requested by the co ‐ owners, we attempted to negotiate an increase in the purchase price offered by Matan. Unfortunately, this group has no interest in increasing their offer. Consequently, the only potential suitor for the property is Ivy on the terms that have been previously disclosed to you. Accordingly, we request that you proceed with the casting of the ballots that were sent to you. Also, as of the close of business May 7, 2015, we have not received any indications of interest by any co ‐ owner to invest additional equity in the property in connection with the Ivy transaction. As a result, the proceeds currently available under Ivy's proposal are less than the full amount required to pay off our existing lender in full. At this time our lender continues to demand payment in full and has recently rejected an offer of pay off in the amount of $34,000,000 [B&B email]|
|May||11||TIC 17 Bralove, David H. (desig) vaebke 1:14-bk-12434 7 Discharge Not Applicable|
|May||14||Please be advised that a voluntary petition for bankruptcy (Chapter 11) was filed today by B&B Alexandria Corporate Park TIC 10, LLC in the U.S. Bankruptcy Court for the District of Delaware. Our lender and its counsel have been notified of the filing and automatic stay related thereto. As soon as we receive the results of the balloting and provided we have unanimous consent, we shall execute the offer to recapitalize from Ivy Realty. Ivy has agreed to satisfy the outstanding indebtedness on the property without any change in the terms of their offer even if none of the co‐owners decide to advance any additional equity. Consequently, provided that Ivy's Study Period does not reveal anything objectionable in the condition of the property, we can expect to close on this transaction, avoid the adverse tax consequence to co‐owners from a foreclosure and retain some level of ownership in the property. [B&B email]|
|Jun||29||Attached is the LOI from Gold Krown Fund that we referred to in today's conference call. As we noted on the call, the terms contained therein are less favorable than those proposed by the current lender... Regarding an appeal of determination to lift the stay, generally appeals courts will not stay a foreclosure without the posting of a bond in the amount due under the mortgage. This is not an option for us as we are without resources to post a bond. While there is some limited authority for stays of foreclosure without a bond, the standards are high and it is not likely that we can satisfy the requirements. [B&B email]|
|Jul||01||As we had discussed during our last conference call on June 29, we were to report back to you within 48 hours regarding the receipt of a letter of intent to recapitalize the property anticipated from The Matan Companies. While Matan continues to assure us that the letter of intent is forthcoming, at this time it has still not been received. We recommend that you promptly proceed with the casting of the ballot issued to you on June 25, 2015. The lender's proposal will require that a formal agreement be drafted and executed before the proposal becomes binding on either party. In the meantime, if we receive a letter of intent from Matan, then we shall share that with all of you and if appropriate issue a new ballot for your consideration. [B&B email]|
|Jul||09||BANKRUPTCY B&B Alexandria Corporate Park TIC 10, LLC (db) vaebke 1:15-bk-12361 7|
|Jul||15||Please be advised that a preliminary hearing was held today in the matter of In re B&B Alexandria Corporate Park TIC 10, LLC in the United States Bankruptcy Court for the Eastern District of Virginia. The hearing was limited to scheduling only, no motions were decided. The final hearing on the creditor's motion to lift stay has been scheduled for August 13, 2015. We received and appreciate the funding from several of the co‐owners for legal fees; however, we still require an additional $20,000. Please contact us if you are able to contribute. We must retain Virginia counsel by July 28, 2015. Ballots have been received in connection with the Lender's proposal to restructure the ownership and debt at the property and this proposal was unanimously approved. We are continuing to pursue the Lender's proposal and at the same time are providing the Matan Companies with all of the materials requested in connection with their due diligence investigation. Once the voting deadline on the ballot for the Matan proposal expires and the ballot count is reported to us by the accounting firm, we shall inform all co‐owners of the results. [B&B email] Let me guess. It's going to fall through again.|
|Aug||10||Unfortunately, our lender has now taken the position that it will not proceed with its earlier proposal to restructure the ownership and recapitalize the property citing insurmountable income tax considerations that favor foreclosure. But, boy was Gentry livid when Deutsche Bank cited "time constraints! While we have argued that these tax considerations may be minimized, the lender is relying exclusively on the advice of its counsel and has effectively ended negotiations. As a result, the lift stay hearing in the U.S. Bankruptcy Court for the Eastern District of Virginia in the matter of In re B&B Alexandria Corporate Park TIC 10, LLC will take place this Thursday, August 13, 2015 as scheduled. As we have previously indicated, the evidence weighs heavily in favor of the creditor and we expect the stay on the foreclosure to be lifted. While the debtor will argue that the value of the property is higher than the lender's recent appraised amount of $29,160,000, if the court grant's the motion to lift stay, the lender will resume foreclosure. Based on our experience with the previous bankruptcy of B&B Alexandria Corporate Park TIC 17, LLC, we would expect the trustee's sale to take place on or about September 14, 2015. After notice of the trustee's sale, the foreclosure may be stopped upon payment of the outstanding debt in full prior to the sale. However, at this time we have no means to do that. [B&B email]|
|Aug||14||The judge ruled on the Lender's behalf, granting relief from the automatic stay on the foreclosure proceedings. We expect the auction date to be set at or around September 14th. We will provide a more detailed communication on Monday. [B&B email]|
|Aug||17||As we reported on August 14, 2015, the lender prevailed on its motion to lift the automatic stay in the B&B Alexandria Corporate Park TIC 10, LLC bankruptcy case. In summary, the Judge considered our successive bankruptcy filings as a plan to hinder and delay the exercise of the creditor's rights to the collateral. We could offer no binding agreement from any lender or equity source that would lead to a pay‐off of the loan and the Judge determined that there was no equity in the property, accepting the creditor's appraisal value of $29,160,000. Consequently, our legal maneuvers to prevent a foreclosure are at an end and the only means of keeping the property would be to satisfy the lender's outstanding balance in full prior to the foreclosure date. At this time we have not been informed or received notice of the date of the foreclosure. ..." Unfortunately, even though we were able to secure a new lease from GSA, the remaining vacant space at the property could not be leased in time so as to increase the value and thereby increase the potential loan proceeds from a refinance." (purposely delayed GSA expansion) [B&B email]|
|Sep||21||BANKRUPTCY B & B Alexandria Corporate Park TIC 34, LLC (db) vaebke 1:15-bk-13290 7|
|Feb||09||B&B Alexandria Corporate Park TICs 3-6 (pla) vaebke 1:16-ap-01030, B&B Alexandria Corporate Park TIC 34 (pla) & (cd) vaebke 1:16-ap-01030|
|Feb||10||B&B Alexandria Corporate Park TIC 34, LLC (pty) 04cae 16-1136 3422|
|Mar||03||B&B Alexandria Corporate Park TIC 10, LLC (db) vaedce 1:2016-cv-00231 422|
|Apr||07||B&B Alexandria Corporate Park TICs 3-6 (cd) & (pla) vaebke 1:16-ap-01058|
|May||16||From: Jill Holmes <email@example.com>
Date: Mon, May 16, 2016
Subject: ACP Co-Owners
We have been informed that Kenneth Welch may be soliciting former co-owners of B&B Alexandria Corporate Park to join with him in an action recently filed in the Circuit Court for Montgomery County Maryland against B&B Realty Investments, LLC and others, seeking damages in connection with the loss of his investment in the property (the "MD Case"). First, you should be aware that the named defendants in the MD Case deny any wrongdoing or liability and are vigorously contesting that action. Second, you should be aware that Mr. Welch is currently pursuing a separate and different action in North Carolina against some of the same defendants in the MD Case in connection with another real estate investment in North Carolina unrelated to Alexandria Corporate Park (the "NC Case"). In the NC Case, Mr. Welch has suffered no loss of investment and had a healthy return on his invested capital. Nevertheless, he seeks more than the several millions of dollars he already is due. Many of the allegations in the MD Case are similar to those being made in the NC Case. An important hearing was held last week in the NC Case in connection with an effort by Mr. Welch to control distributions in the NC deal. The court denied Mr. Welch's effort, gave some indication that Mr. Welch's vanguard claims have little merit, and denied him the injunctive relief that had been requested. Given the timing of the MD case, it appears that Mr. Welch filed it in an effort to open a second legal front in an ongoing effort to control the distributions from the NC deal. We want all co-owners to be aware of Mr. Welch's penchant for litigation and urge a careful consideration of Mr. Welch's motives for soliciting your participation in the MD Case. From our perspective, he is pursuing you for his own self-interest and not yours. While we sincerely regret the loss of the property, we stand by our diligent efforts to preserve your real estate investment during a time of historic global economic turmoil that had a severe impact in the local Washington, DC market that relies so heavily on federal spending.
David Bralove (BRALOVE)
Rick Brown (BROWN)
B&B Realty Investments (B&B)
B&B Alexandria Corporate Park (ACP)
B&B Alexandria Corporate Park Management (ACP)
B&B Alexandria Corporate Park Mezz Borrower (MEZZ)
Alexandria Corporate Park Special Member (SPEC) ("special member to all") [Exhibit D]
The Bralove Group (BRALOVE GROUP)
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Equity Law a Defense against Crafty Contrivances
Only the infinite mind of God is capable of grasping all the particular details of every human circumstance, noted the 19th Century French philosopher, Alexis de Tocqueville, but man's mind is finite and, therefore, we must employ generalities that we might bring the infinite universe within the realm of our understanding. Consequently, we humans, constrained necessarily by the limitations of generalities, are often in error.
More than four centuries before de Tocqueville, the English had already recognized that the law, similarly, enacted for general application in the pursuit of justice, was itself, in the infinite particularities of human circumstances, often the means, if not the source, of rank injustice. In response to these "errors in the law", the English Chancery Court, or court of equity, was born.
In 1705, an English court of equity held: "Now equity is no part of the law, but a moral virtue, which qualifies, moderates, and reforms the rigour, hardness, and edge of the law, and is an universal truth; it does also assist the law where it is defective and weak in the constitution (which is the life of the law) and defends the law from crafty evasions, delusions, and new subtilties, invented and contrived to evade and delude the common law, whereby such as have undoubted right are made remediless; and this is the office of equity, to support and protect the common law from shifts and crafty contrivances against the justice of the law. Equity therefore does not destroy the law, nor create it, but assist it." [emphasis added]
The court of equity has survived to the present day and has evolved in the United States into what we know as equity law. It is to equity law we turn when the law, having been turned against its own purpose, is the means by which injustice is committed.
Fiduciary Law Shifts Presumption against Well-Informed Actors
An important branch of equity law is fiduciary law, which acts as "a safety valve aimed at countering opportunism. Equity as anti-opportunism takes a page from history in that it, like the earlier equity courts, focuses on “near fraud” or “quasi-fraud,” and, based on certain proxies, shifts the presumption against actors who are both well informed and seek to invoke a disproportionate hardship on another."[emphasis added]
It is to fiduciary law society turns to protect its members from the eternal scourge of well-informed actors and the "crafty evasions, delusions, and new subtilties" they contrive, the effluent of agreements, contracts, supplements and memoranda they disgorge, and the myriad contrivances—the mysterious Tenants in Common and Mezzanine Borrowers and all the other fantastical creatures that appeared on the earth for no reason just last week—by which they "seek to invoke a disproportionate hardship" on others.
Defendants Are Well-Informed Actors
Defendants Bralove & Brown are "well-informed actors" against whom the presumption, in the present case, is properly shifted. From David H. BRALOVE's biography: "His area of expertise extends to the negotiation and drafting of complex business and real estate acquisition and financing agreements among parties with diverse interests and goals. His success and demand as an advocate for real estate clients results from his ability to be both creative and persuasive in the deal-making process."
[Brown expertise to be added later]
Fiduciary Duty Owed by Defendants to Plaintiffs for Two Reasons
In the present case, while going to eye-popping lengths to contractually opt out of the legal requirement we not screw each other at every opportunity, Defendants nevertheless acquired a legal fiduciary duty toward entrustor Plaintiffs in two ways:
As the managing partner for ACP, Defendants had a fiduciary duty toward Plaintiffs. Despite language in the Property Management Agreement disavowing an intention to form a partnership, Plaintiffs and Defendants, whether intended or otherwise, had formed a partnership in fact.
The language of the documents drafted by Defendants makes it plain the Defendants themselves conceived of the TIC partnership as, indeed, a partnership. For example, in the Tenants in Common Agreement (Exhibit A) under "Recitals" at C, we read, "This Agreement is intended to provide for the orderly administration of (the TICs') rights and responsibilities as to each other and as to others and to delegate authority and responsibility for the intended further operation and management of the Property;".
Tenants, in the common understanding of the word, sign leases and do not delegate authority to make such operating decisions as, for example, whether the apartment building in which they rent an apartment should contract for a new roof [participation by capital expenditure indicates partnership] [the obligation of the Tenants in Common to furnish capital as required to fund the ongoing commercial activities of the enterprise is made explicit in the Property Management Agreement (Exhibit C) at §2.2.1], or whether the building should be sold [inability to sell unilaterally indicates a partnership][see 'TICs contractually immobilized' below].
The active participation of the TICs as partners was made explicit in a communication from Defendants to Plaintiffs dated Feb 04, 2015: "At this time, we consider the best course of action for the co-owners to be to continue to seek tenants for the vacant space while we pursue refinancing based upon the recent leasing activity." (Exhibit E) Thus, by Defendants' own words it is clear a business partnership existed and Defendants therefore owed a fiduciary duty to Plaintiffs.
As attorney for ACP, Defendants had assumed the even greater fiduciary duty attendant on an attorney-client relationship. "The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity—uberrima fides."
Defendants may point to language included in the purchase agreements as relieving Defendants from the strictures of professional conduct: "Buyer acknowledges and agrees that counsel representing Seller and its affiliates (Defendants) does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing Buyer (Plaintiffs) in any respect." TIC 34 Purchase Agreement (Exhibit K) §8.21
However, Defendants did act explicitly as counsel for ACP and for the various TICs that comprised ACP. Defendants owed, therefore, a fiduciary duty both to ACP and to its derivative TICs.
Leaving aside the question of the value of Defendants' counsel qua counsel, the fiduciary duty owed to these various instruments (the enhanced fiduciary duty an attorney owes a client) necessarily accumulated in the value of the instruments themselves. The value became embedded in the TICs and traveled with them in the same way certified parts and labor raises a car's resale value.
The fiduciary duty of an attorney, that is, the severe proscription against opportunistic self-enrichment, provided the basis for Plaintiffs' reasonable expectation, when faced with such an extravagantly lawyered deal as the present one, that each arduous step along the tortuous labyrinth had been counseled competently and in good faith. Were it otherwise—were these TICs the product of bad faith counsel, contrived instruments of deceit intended to function solely as the means by which an economic predator might dispossess his neighbors and "invoke a disproportionate hardship" on his fellow humans, legal abominations that degrade a noble profession while making the world an uglier place—the TICs would have no value at all.
But Defendants held out these products, for which they served as counsel, as products of great value. Thus Defendants made the implicit guarantee that the counsel they had provided to the TICs had been in good faith and, as such, their counsel had imparted value to the products they now offered.
Not only did the value necessarily include the fiduciary duty Defendants owed the Defendants, the value remained with the instruments for which Defendants had sought Defendants' counsel, for one couldn't argue that the value bestowed on the TICs by the fiduciary duty owed by counsel to Defendants somehow leaked away from the product of that counsel by the mere change of ownership.
We read further in §8.21: "In addition, Buyer consents to the Property Manager hiring counsel for the Property who is also counsel to Seller and its affiliates." As it turns out, Seller, counsel to Seller, Property Manager, and counsel to Property Manager were all one and the same: BRALOVE and BROWN.
While it may not yet be a settled question for the metaphysicians whether one can owe a fiduciary duty to oneself, one can certainly say legally that if BRALOVE was acting as counsel for BRALOVE (as B&B Principal), BRALOVE (as counsel) could not advise BRALOVE (as ACP incorporator) on BRALOVE (as Purchaser)'s original purchase of Property, and, subsequently, advise BRALOVE (as Property divider) in the partition of BRALOVE (as the Property owner) into various BRALOVES (as Tenants in Common) and in the election by the BRALOVES (as Tenants in Common) of BRALOVE (as Property Manager), which BRALOVE (as Seller) sold to Buyers, without the Property fairly bursting at the seams with accumulated BRALOVE fiduciary duty.
Indeed, as BRALOVE was counsel to ACP on the Assignment Agreement executed (but not dated) by BROWN as BRALOVE's client, B&B, and BROWN as BRALOVE's client, ACP, and BRALOVE was counsel to ACP on the Assignment Agreement executed (but not dated) by BROWN as BRALOVE's client, ACP, and BROWN as BRALOVE's clients, TICs 1-9, and BRALOVE was counsel to ACP on the Swap Agreement with Susquehanna Bank, executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and further executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as SPECIAL MEMBER and SPECIAL MEMBER as TICs 1-9 and BRALOVE was counsel for BRALOVE GROUP in the opinion of counsel for Susquehanna Bank while acting as counsel for ACP and executed by BROWN and BRALOVE on behalf of BRALOVE's clients, TICs 1-9, and BRALOVE was counsel for ACP advising on the Closing Certificate for $38,000,000 with Susquehanna Bank executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and also executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients, TICs 1-9, and BRALOVE was counsel for ACP for the Call Agreement executed by BROWN as manager of BRALOVE's client, B&B, managing member of BRALOVE's client, ACP, manager, and BRALOVE was counsel for ACP for the Tenants in Common (TIC) Agreement drafted by BRALOVE GROUP on behalf of BRALOVE's client, BRALOVE, and BRALOVE's client, ACP, and BRALOVE's clients, TICs 1-9, and notarized the previous day by Jill Bralove and executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as BRALOVE's client, ACP, and BRALOVE was counsel to ACP for the Property Management Agreement wherein BRALOVE counseled TICs 1-9 to make BRALOVE's client, ACP, the property manager, which election was duly executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as BRALOVE's client, ACP, and BRALOVE was counsel to ACP for the Disbursement and Receipt Certificate from Susquehanna Bank for the $33,800,000 loan, executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's client, ACP, and BRALOVE was counsel to ACP for the Assignment of Agreements, Permits, and Contracts, executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients, TICs 1-9, and BRALOVE's clients, TICs 1-9, as BRALOVE's client, ACP, and BRALOVE was counsel to ACP for the Assignment of Leases and Rents, executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and BROWN as BRALOVE's client, B&B, and BRALOVE's client, B&B, as SPECIAL MEMBER and SPECIAL MEMBER as TICs 1-9, notarized by Jill Bralove the previous day, and BRALOVE was counsel to B&B and TICS 1-9 for the Deed of Trust, and BRALOVE served as counsel to ACP for the execution of the Promissory Note for $33,800,000, executed by BROWN as BRALOVE client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and further executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client B&B as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients TICs 1-9, notarized by Jill Bralove a day earlier, and BRALOVE served as counsel to ACP for the Acknowledgment of Property Manager executed by BROWN as BRALOVE client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and further executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client B&B as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients TICs 1-9, wherein BRALOVE as Property Manager is also Principal of the sponsoring entity, and BRALOVE served as counsel to ACP for the Reserve Agreement between ACP and BRALOVE's clients, TICs 1-9, and Susquehanna and executed by BROWN as BRALOVE client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and further executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client B&B as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients TICs 1-9, and BRALOVE served as counsel to ACP for the Environmental Liabilities Agreement between ACP, BRALOVE's clients, TICs 1-9 (Borrowers), BROWN, BRALOVE client, BRALOVE, (Borrowers and Principals / Indemnitors), and Susquehanna executed by BROWN as BRALOVE client, B&B, and BRALOVE's client, B&B, as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE's client, ACP, and further executed by BROWN as BRALOVE's client, B&B, and BRALOVE's client B&B as SPECIAL MEMBER and SPECIAL MEMBER as BRALOVE's clients TICs 1-9, and BRALOVE's client, BRALOVE, and BROWN, and BRALOVE served as counsel to ACP for the Interest Rate Swap Agreement between Susquehanna and ACP,and SPECIAL MEMBER, and BRALOVE's client, B&B, and BRALOVE's client, BRALOVE, and BRALOVE drafted and executed the legal opinion by BRALOVE GROUP for Susquehanna Bank re: Partial Assumption of Loan in the principal amount of $33,800,000 by BRALOVE clients TIC 33 & TIC 34, and signed by BRALOVE client, BRALOVE, and BRALOVE served as counsel to ACP for the Assignment, Acceptance, and Notice Replacement Property Contract and executed by BROWN as BRALOVE client B&B and BRALOVE client B&B as MEZZANINE BORROWER and MEZZANINE BORROWER as BRALOVE client, ACP, and BRALOVE acted counsel to ACP in the Seller Take-Back Guaranty...
...and so on...
...there is so much counseling and representing going on as to achieve something like a ricochet effect—compounding the fiduciary duty and providing more than enough to cover, with several protective layers of good faith each, every fragment of this tessellated monument to the majesty of the law.
Appeal to Equity Law Appropriate
Having established the fiduciary duty owed by Defendants to Plaintiffs, we now, to establish the appropriateness of Plaintiff's appeal to equity law, demonstrate the well-informed craftiness of the violence Defendants committed against the justice of the law.
Defendant David BRALOVE's legal expertise is in both complex real estate financing as well as litigation against (medical) insurance companies.
Well-informed actors like Defendants typically seek to hide from the remedies of fiduciary law through contractual contrivances of grand complexity, but the legalistic contortions, however impressive, do not supersede simple right and wrong. In Flippo v. CSC Associates, the Virginia Supreme Court affirmed the trial court's decision holding two members of a LLC liable for breach of fiduciary duty to the LLC and awarding compensatory damages, punitive damages and attorneys' fees. The Court rejected the defense that, because the terms of the LLC's operating agreement authorized the actions taken, no breach had occurred. An act that is otherwise "legal", that is, stays within contractually stipulated parameters, might nevertheless breach one's fiduciary duty and thereby justify an equitable remedy.
If you were to walk down the street and ask the first one hundred people you met whether, when purchasing a piece of property, they would object to a clause in the purchase agreement that specified the seller was not their attorney, how many would object? Not many, since few would know that the inclusion of that stipulation is a crafty contrivance by the seller serving no purpose except to help render the buyer remediless in the event the seller acts in bad faith. Put another way, few would know that the seller was engineering the opportunity for the quasi-fraud he intended to commit.
Even in Washington, DC, where all one hundred persons queried would likely be lawyers, how many would still fall victim to the simple human desire not to live in a world in which everyone must regard everyone else as a dangerous predator? A common understanding of the meanings of words and sentences would serve as no shield against such well-informed craftiness. It is precisely "to support and protect the common law from [such] shifts and crafty contrivances against the justice of the law" that the law of equity exists and why an appeal to equity law is properly made in the present case.
The scores of documents executed in the course of accomplishing a single business transaction among those now being litigated before this court—documents overwhelmingly drafted and/or procured by Defendants—are bristling with shifts and crafty contrivances like the one noted in the previous paragraph. A single representative example will be sufficient to establish the viability of this claim under equity law:
The Tenants in Common Agreement (Exhibit A) stipulates in §2, "(c)oncurrently with the acquisition of the Property, the Tenants in Common will enter into a Property Management Agreement with the Property Manager."
The first paragraph of the Property Management Agreement designates B&B Alexandria Corporate Park Management, LLC as the Property Manager.
B&B Alexandria Corporate Park Management, LLC (not to be confused with B&B Alexandria Corporate Park, LLC) is wholly owned by BRALOVE and BROWN.
Therefore, with the execution of the Tenant in Common Agreement, Buyers (Plaintiffs) agreed to designate Sellers (Defendants) as the Property Manager. In effect, Defendants sold an interest in a commercial enterprise with themselves contractually attached in a position of extreme opportunity. As Property Manager, defendants would have ample opportunity to misappropriate funds, take kickbacks, hire relatives, contract with ghost companies, make secret arrangements with dishonest tenants, charge personal expenses to the enterprise, collude with the mortgage holder, or otherwise engage in any manner of self-enrichment at the expense of the other Tenants in Common. However, under the terms of the numerous contracts Defendants drafted and included as part of the process of buying into the commercial venture, Purchasers were cleverly left remediless.
TICS holding 80 percent could terminate Property Manager
In the Property Management Agreement (Exhibit C), we read in §1.2, "Whenever in this Agreement, the approval, consent or other action by the Tenants in Common is required or otherwise appropriate, the unanimous approval, consent or other action of the Tenants in Common shall be required, except that (i) the Tenants in Common holding in the aggregate more than eighty percent (80%) of the undivided interests in the Property shall have the right to terminate this Agreement..."
But, hiring a new Property Manager required unanimous approval
While 80 percent of the ACP ownership interest could agree to terminate the Property Management Agreement, in §2 of the Tenants in Common agreement, it is stipulated: "If the Property Management Agreement is terminated or not renewed, any new or replacement Property Management Agreement must be unanimously approved by the Tenants in Common and the Lender."
Defendants, however, were themselves individual TIC owners in the ACP partnership. Thus Defendants, by this agreement, were given absolute veto power over their own replacement.
Actual termination predicated on simultaneous replacement with new Property Manager
In §10.1 of the Property Management Agreement, we read, "If the Property Manager receives a Nonrenewal Demand, this Agreement shall terminate on its anniversary date simultaneous with the appointment by the Tenants in Common of a replacement Property Manager acceptable to the Lender." If Defendants withheld approval of a new Property Manager, the termination of the previous Property Management Agreement could not be completed to the satisfaction of the terms of the very agreement being terminated.
If there is no Property Manager, TICs risk default
Further in §10.1, "A failure to renew this Agreement without a prompt replacement of the Property Manager acceptable to the Lender in its sole discretion may be declared a default under the Loan Documents." In effect, it was impossible to remove Defendants as Property Manager in the face of Defendants' opposition regardless of the egregiousness of any illegal, fraudulent, or injurious behavior on their part. Despite undoubted right, the other Tenants in Common were contractually remediless.
TICs contractually immobilized
A Tenant in Common seeking reassurance or guidance from the lender was prohibited by the Property Management Agreement (Exhibit C) §2.2.2: "the Property Manager shall have exclusive responsibility for interfacing or communicating with the Lender and its successors and assigns".
The prohibition on communicating with the lender precluded even the option for the TIC of extricating itself from the property no matter how egregious Defendants' opportunistic self-enrichment. In §5.4 of the Tenant in Common Agreement, we read, "no Tenant in Common shall sell, transfer, convey, pledge, assign, hypothecate, or encumber (a "Transfer") its Interest (or any direct or indirect interest therein) in the Property without the prior written consent of the Lender".
In other words, if a Tenant in Common attempted to sell without the lender's permission, it violated the Tenant in Common Agreement, but if the Tenant in Common contacted the lender seeking permission to sell, it violated the Property Management Agreement. Thus, a Tenant in Common attempting to sell its interest in the property violated the terms of the agreements whether it sought written permission or didn't.
Plaintiffs, with Defendants attached at the teat, were contractually immobilized—regardless of the excesses to which Defendants' venality might carry them, regardless of the severity of the injury Plaintiffs might suffer as a result, and despite undoubted right.
Having established the fiduciary duty owed Plaintiffs by Defendants, and having established the propriety of Plaintiffs' appeal for equitable relief, we now allege the breach.
In its role as Property Manager, and "as part of the Operating Plan", Defendants were required to advise the Plaintiffs "concerning the proper insurance coverage for the Property, taking into account the insurance requirements set forth in any deed of trust or mortgage on the Property", Defendants were required to "furnish such information as the [Plaintiffs] may reasonably request to obtain insurance coverage and shall reasonably aid and cooperate with respect to such insurance and any loss thereunder." (Property Management Agreement, Exhibit C §3.1.2) However, Defendants did not advise and have not advised Plaintiffs concerning the proper insurance coverage for the property.
Further, Defendants were required to "use commercially reasonable efforts to comply with and cause the Property to be in compliance with any deed of trust, mortgage, or other Loan Documents with respect to the Property and all governmental and insurance requirements, relative to the performance of its duties hereunder." (Property Management Agreement, Exhibit C §2.4.1) and to "furnish to the [Plaintiffs], promptly after receipt, any notice of violation of any governmental or insurance requirement or order issued by any governmental entity against the Property, any notice of default from the holder of any mortgage or deed of trust encumbering the Property or any notice of termination or cancellation of any insurance policy." (Property Management Agreement, Exhibit C §2.4.2)
Under the terms of the Deed of Trust (Exhibit G), "3. Insurance (b) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Beneficiary, shall also obtain and maintain during the entire term of this Deed of Trust the following Policies: (ii) Comprehensive General Liability or Commercial General Liability insurance, including a broad form comprehensive general liability endorsement and coverage for broad form property damage, contractual damages... including all legal liability imposed upon Borrower and all court costs and attorneys' fees incurred in connection with the ownership, operation and maintenance of the Property.(iii) Rental loss and/or business interruption insurance for a period of 12 months in an amount equal to the greater of (A) estimated gross revenues from the operations of the Property over 12 months or (B) the projected operating expenses (including stabilized management fees, applicable reserve deposits, and debt service) for the maintenance and operation of the Property over 12 months." [emphasis added]
As particularly laid out in the Timeline above, a very substantial portion of ACP's revenue depended on a lease held by the Department of Homeland Security (DHS). The US budget sequestration of 2013 delayed a timely renewal of the DHS lease, resulting in a default by ACP on the mortgage. Subsequently, the holder of the mortgage foreclosed on the property and the Plaintiffs were forced into bankruptcy.
It is indisputable that the circumstances of the default were precisely those the rental loss insurance policy required in the Deed of Trust would have insured against. Furthermore, the payment of a claim against such a policy would have allowed ACP to avoid foreclosure, and the Plaintiffs to avoid the devastating financial loss and emotional agony of bankruptcy. But Plaintiffs remain ignorant as to whether Defendants ever made such a claim, or, if they did, whether the claim was paid, and, if it was, where the money went. Indeed, Plaintiffs are unsure whether there was even a policy obtained at all.
Therefore, Defendants are in breach.
Damages & Remedy
In laying out the claim for damages, we recall the shift in presumption against well-informed actors in equity law. The burden of proof, therefore, is not on Plaintiffs to demonstrate that Defendants' breach of fiduciary duty resulted in the damages enumerated below. The burden of proof is on Defendants to demonstrate that it did not.
We note "(v)iolations of fiduciary duties can lead to disgorgement of gains, the imposition of a constructive trust, or the payment of supracompensatory damages. As with the exclusion strategy in property law, a broad proxy calls for remedies with a steep drop-off."
In §8.9 of the Call Agreement (Exhibit B), we note Defendants grant themselves the right to equitable relief in the event a TIC member is in breach to the Property Manager: "Each Selling Tenant in Common acknowledges and agrees that the remedies at law of the Property Manager and the Other Tenants in Common for a breach or threatened breach of any of the provisions of this Agreement may be inadequate and, in recognition of this fact, each Selling Tenant in Common agrees that in the event of such a breach or threatened breach, in addition to any remedies at law (including, without limitation, damages), the Property Manager and Other Tenants in Common, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available." [emphasis added]
By failing to procure appropriate insurance as required by the terms of the mortgage, or, in the alternative, in the event such insurance was procured, by failing to make a claim on the policy, or, in the alternative, by making a claim without apprising the Plaintiffs, Defendants committed willful and wanton negligence in heedless and reckless disregard for the property rights of Plaintiffs. Thus did Defendants breach their fiduciary duty to Plaintiffs who now respectfully come before the court, with jurisdiction previously shown, properly demanding equitable relief.
- TIC xx (Mr & Mrs John Doe, Cleveland, Ohio)
- compensatory relief for financial losses in the amount of $_____________
- compensatory relief for emotional distress in the amount of $___________
- attorneys' fees and associated legal costs of $______________
- plus any remedy as the court may deem appropriate
- Tenant in Common Agreement
- Call Agreement
- Property Management Agreement
- The Bralove Group Legal Opinion
- Tenant in Common Co-Owner Agreement Memorandum
- Closing Certificate
- Deed of Trust
- Profiteering on price of TICS / number of TICS
- TIC 7
- Addresses of TICS