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CXA-16 Corp. v. Telefar Associates, LLC

United States District Court, E.D. Michigan, Southern Division

March 31, 2017

CXA-16 Corporation, Plaintiff,
v.
Telefar Associates LLC, et. al., Defendants.

          DAVID R. GRAND U.S. MAGISTRATE JUDGE

          ORDER GRANTING PLAINTIFF'S PARTIAL MOTION FOR SUMMARY JUDGMENT [22]

          Arthur J. Tarnow, Senior United States District Judge.

         Plaintiff filed a Motion for Partial Summary Judgment on Counts I, II and VI of the Complaint [22] on July 18, 2016.[1] Defendants Responded on August 8, 2016 [23] and Plaintiff replied on August 25, 2016 [26]. The Court held a hearing on the Motion for Summary Judgment on November 4, 2016. From the bench, the Court ruled in favor of the Plaintiff but took the motion under advisement so that the parties could attempt to reach an agreement as to the amount of damages to be awarded. The parties have been unable to reach an agreement and therefore filed supplemental briefs on the issue of damages on March 24, 2017 [30; 31]. For the reasons stated below, Plaintiff's Partial Motion for Summary Judgment is GRANTED against all Defendants and judgment is entered as described below against Defendants, jointly and severally, for $810, 006.56. It is further ordered that Plaintiffs submit detailed evidence and documentation to support their attorney fees and costs request in a Motion for Attorney Fees and Costs to the Court no later than May 1, 2017. Defendants shall then respond by no later than May 15, 2017.

         Factual Background

         Defendant, Telefar, LLC (“Telefar”), obtained a loan from Sterling Bank and Trust, FSB (“Sterling”) in March 2004. This loan was secured by real property located in Southfield, Michigan. Documents evidencing the loan and establishing the terms for its repayment were executed and delivered by Telefar and the Guarantor Defendants on March 22, 2004. The loan documents contained the following: (1) a promissory note in the principal amount of $2, 650, 000.00, dated March 22, 2014; (2) the mortgage; (3) an assignment of leases and rents; (4) an assignment of contracts; and (5) the Guaranty. The Guaranty was executed and delivered by the Guarantor Defendants, Gus E. Zervos, Peter E. Zervos and Michael E. Zervos.

         Under the Guaranty, the Guarantor Defendants agreed to be jointly and severally liable for Telefar's payment for up to 50% of the total indebtedness due under the note. [1-6 at 71]. The Guaranty contained the following provisions:

The [Guarantors], hereby jointly and severally unconditionally guaranty the full and prompt payment and collection when due, whether by acceleration of otherwise, and at all times hereafter, of: (a) The continuous top fifty percent (50%) of the total indebtedness on the Mortgage Note executed of even date herewith and incorporated herein by reference… (b) The continuous top fifty percent (50%) of the total indebtedness for all extensions or renewals of said note, and all expenses including reasonable attorney fees, incurred in the collection thereof…; and (c) The continuous top fifty percent (50%) of the total indebtedness resulting from advances made on Borrowers behalf by Lender to protect or preserve the priority and security of its first lien….
…a separate action or actions for payment, damages or performance may be brought and prosecuted against the undersigned… whether or not an action is brought against Borrower or the security for Borrower's obligations.
Lender may… without affecting, diminishing or releasing the liability of the undersigned... (f) resort to the undersigned (or any of them) for payment of any of the Liabilities, or any portion thereof, whether or not Lender shall have resorted to any property securing any of the Liabilities or any obligation here under….
Any amount received by Lender from whatever source and applied by it toward the payment of the Liabilities shall be applied in such order of application as Lender may from time to time elect.
No action of Lender permitted hereunder shall in any way impair or affect this Guaranty.
Until all of the Liabilities shall have been paid to Lender in full, the undersigned shall have no right to subrogation, and until such time the undersigned waive… any right to participate in any security now or hereafter held by Lender.

[1-6].

         Plaintiff, CXA-16 Corporation, was assigned the rights, title and interest in and to the loan and loan documents on October 16, 2014. On October 30, 2014, Plaintiff sent Defendants notice that Telefar was in default on its obligations under the loan and demanded payment within 10 days to bring the loan current. [1-14].[2]This notice also advised Defendants that LNV had accelerated the loan and, if the loan was not brought current, Plaintiff was prepared to exercise legal remedies. At this time the amount owed under the loan documents was $2, 040, 592.47 [1-2 at 26]. Telefar and Guarantor Defendants failed to pay the amount needed to bring the loan current.

         Pursuant to their rights under the loan documents, Plaintiff foreclosed the mortgage and purchased the property for a credit bid of $1, 400, 000.00 at a foreclosure sale held on October 27, 2015. [1 at ¶22]. Plaintiff applied the credit bid in partial satisfaction of the amount owed under the loan. Telefar and the Guaranty Defendants failed to pay the deficiency balance. Plaintiff then filed this suit seeking relief based on contractual claims and, in the alternative, claims based in tort.

         Analysis

         In this case, it is undisputed that, between the parties, contracts existed between them and that the loan documents set forth the terms of those contracts. There is no challenge to the existence of these documents, their execution, or the right of Plaintiff to enforce them. Further, it is undisputed that there was a breach of these contracts when Defendants failed to make payments due on the loan.

         Defendant contends that Plaintiff cannot seek the deficiency payment it alleges to be entitled to because: (1) Plaintiff is estopped from claiming a higher balance owed as of the foreclosure sale date than alleged in the complaint; (2) Plaintiff has already recovered the continuous top 50% of the loan balance as set forth in the guaranty, and thus is not entitled to seek any further recovery from the individual Defendants; (3) Plaintiff is not entitled to recover post-foreclosure expenses as part of a deficiency balance; and (4) Plaintiff is not entitled to recover attorney fees where it has not presented evidence to support such fees; (5) Plaintiff is not entitled to recover redundant “other bank expenses” not provided for by the parties' agreement.

         1. Balance Owed as of the Foreclosure Sale Date

         Plaintiff alleged a deficiency balance in the complaint as being $748, 636.00 [1 at ¶23], which was reiterated by Plaintiff's counsel in a letter sent on November 13, 2015 [31-1]. Defendant argues that Plaintiff is estopped from claiming a higher balance owed as of the foreclosure sale date, $825, 292.54, than alleged in the complaint because this was a judicial admission. There has been no precedent or rule cited to support this statement. At the hearing for the motion for summary judgment, the discrepancy was addressed and again here Plaintiff's detailed declaration has not been challenged factually and Defendant cannot point to any alleged error or present any evidence that the Court should not accept this amount. Therefore, the Court accepts Plaintiff's alleged balance as being $825, 292.54.

         2. Express Terms of the Limited Guaranty

         The Guarantor Defendants argue that the phrase “continuous top fifty percent” in the guaranty limits their liability to Plaintiff. According to this theory, if Plaintiff wanted to obtain recovery from the Guarantor Defendants under the Guaranty agreement, it should have pursued the guarantors ...


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