Minors Motion for Summary Judgment Full

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IN THE STATE COURT OF FULTON COUNTYSTATE OF GEORGIASPECIALTY FINANCE GROUP LLC,Plaintiff and Counter-Defendant,v.MINOR FAMILY HOTELS, LLC AND HALSEYMINOR,Defendants and Counter-Plaintiffs,v.HOTEL CHARLOTTESVILLE, LLC AND LEEDANIELSON,Third Party Defendants.Civil Action No. 2009EV006754F

MEMORANDUM IN SUPPORT OF DEFENDANTS’(1) MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIALSUMMARY JUDGMENT AS TO COMPLAINT AND (2) MOTION FOR PARTIALSUMMARY JUDGMENT AS TO FIRST AMENDED COUNTERCLAIM

Defendants Minor Family Hotels, LLC and Halsey Minor (collectively, “Owners”), bytheir undersigned attorneys, file this Memorandum in Support of Defendants’ Motion for (1)Summary Judgment Or, In The Alternative, Partial Summary Judgment of Count I (Suit on Note)and Count II (Suit on Guaranty) of the Complaint filed by plaintiff Specialty Finance Group(“SFG”) and (2) Partial Summary Judgment of Count II (Breach of Contract) and Count III(Breach of the Implied Covenant of Good Faith and Fair Dealing) of the First AmendedCounterclaim (“Counterclaim”) filed by Owners.

I.INTRODUCTION

As proven by numerous admissions made by plaintiff and counter-defendant SFG andcounter-defendants Hotel Charlottesville, LLC and Lee Danielson (collectively, “Developer”), this

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action arises out of an agreement between Developer and SFG to enrich themselves at the expenseof Owners by creating and presenting a construction budget that they knew to be inadequate toinduce Owners to invest $7 million and obtain a $23.6 million construction loan (“Loan”) for thedevelopment of a hotel in Charlottesville, Virginia (the “Project”). Though SFG and Developer knew that the actual construction costs for the Project would exceed $34 million, they presented asham construction budget to Owners which misrepresented that only $30 million – i.e., the $23.69million Loan, together with Owners’ contribution of approximately $6.3 million – would besufficient to construct the Project. The Loan, which SFG knew to be woefully inadequate, wasunsurprisingly declared to be “out of balance” by SFG. When Owners discovered SFG’s scheme,Developer and SFG colluded to create “Events of Defaults” under the Loan in an effort to oustOwners and capture a windfall. Even before SFG asserted these bogus defaults, Developer andSFG had prospective replacements tour Owners’ Project without Owners’ knowledge or consent.With Owners out of the picture, SFG and Developer both stood to profit handily from their scheme. Having extracted a guaranty from Owners under the pretense that its sham construction budget was sufficient to build the Project, and after Owners had already purchased the Project sitein reliance upon the Loan being funded, SFG had more than adequate collateral. SFG knew thatwhen the real construction budget came to light, Owners would be required to make up thefunding shortfall or risk losing the Project to foreclosure.

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In the first scenario, SFG would still becompensated by way of fees and interest. In the second scenario, if Owners failed to “balance theLoan” by injecting more equity in the Project, SFG would declare a default, accelerate the Loanand foreclose on the property. In that event, SFG knew it would receive a windfall in the form of Owners’ substantial equity stake in the Project. This was no-lose deal for SFG.

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SFG assumed that given Owner’s net worth, Owners would simply issue a blank check to cover any shortfall andturn a blind eye to SFG’s shenanigans. SFG was mistaken.

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On February 19, 2009, when Owners confronted SFG about its sham construction budget,SFG responded by sending Owners a letter (the “Default Letter”), claiming defaults under theLoan which had no merit. When SFG learned that Owners had filed a motion for leave of court inVirginia (where the Project is located) to add SFG as a defendant to the complaint that Ownershad filed against Developer, SFG responded by wrongfully accelerating the Loan and rushed toCourt to file this action in Georgia.The undisputed facts demonstrate that all of the defaultsalleged by SFG were fabricated and that SFG had no right to accelerate the Loan.First, SFG claimed a default based on Owners’ purported inability to complete the Project by March 7, 2009.

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The evidence shows, however, that SFG had extended, in writing, theCompletion Date to August 30, 2009. Under the terms of the Construction Contract dated March6, 2008, which SFG approved as a condition to closing the Loan on March 12, 2008, the Projectwas scheduled to be substantially completed within 15 months after the anticipated start date of April 1, 2008 (i.e. July 1, 2009). The July 1, 2009 completion date was extended to August 30,2009 in a Change Order dated April 27, 2008, which was also approved by SFG in writing. Thecontractor’s Change Order states: “The date of Substantial Completion as of the date of thisChange Order therefore is August 30, 2009.” In an E-mail dated April 28, 2008, Dilip Petigara, aSenior Vice President of SFG, demanded that, “The change order must be executed by all parties.”The Change Order was executed that day. Thus, the Completion Date was August 30, 2009, notMarch 7, 2009, as SFG claimed in the Default Letter.Second, SFG asserted a default based on a lawsuit filed by ML Private Financial LLC(“Merrill Lynch”) concerning a line of credit which Merrill Lynch extended to Halsey Minor years ago. Although Mr. Minor disclosed the Merrill Lynch line of credit to SFG at least ten

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SFG filed the complaint in this action on February 22, 2009, before the alleged March 7, 2009 completion date.