Kramer Levin Obtains Dismissal of Lender Liability Claims Concerning Loan for Alleged $550 Million Property on Dallas’s $5 Billion Mile, With Customary Provisions to Protect Lenders All Upheld

On March 4, 2022, Kramer Levin won the dismissal with prejudice of a lender liability complaint brought by plaintiffs who wanted to develop Wade Park, a 176-acre parcel on the “$5 Billion Mile” outside Dallas, Texas, that includes the Dallas Cowboys’ headquarters and training center, Toyota Stadium, and high end mixed use developments such as Frisco Station and The Gate. The decision, by the U.S. District Court for the Southern District of New York, is an important victory for lenders. It analyzed and upheld contract provisions that are customarily used to protect lenders.

In January 2017, Kramer Levin’s client Gamma Real Estate Capital made a four-month $82.75 million bridge loan to the Wade Park plaintiffs, who are affiliates of Stanley Thomas, a commercial real estate developer based in Newnan, Georgia. Plaintiffs say they wanted to complete a multibillion-dollar development at Wade Park that would include two office towers with more than 5 million square feet of office space, 1 million square feet of high-end retail space, approximately 2,400 luxury residential housing units, five hotels, and entertainment. According to the plaintiffs, the Wade Park land was “some of the most valuable commercial real estate in the United States.” They say it was worth more than $550 million and would be worth more than $2 billion when they developed it.

But the Wade Park plaintiffs did not repay the bridge loan, or another $48 million loan Gamma’s affiliate acquired in July 2018. After three extensions, the lender entered into six forbearance agreements and a deed in lieu agreement that further extended plaintiffs’ time to repay. In February 2019, when plaintiffs defaulted again, an affiliate of the lender took title to the Wade Park property.

In August 2020, the Wade Park plaintiffs filed for bankruptcy protection in the Northern District of Georgia. Plaintiffs then brought an adversary proceeding there against Gamma and its affiliates, alleging they “committed a wide variety of crimes — all with the goal and intent of defrauding Plaintiffs and taking the Wade Park property for themselves.” Employing a throw-everything-against-the-wall-in-the-hope-that-something-will-stick approach, plaintiffs asserted 17 causes of action, including claims for violations of federal and Georgia RICO statutes, conspiracy to violate those statutes, fraud, tortious interference with business relations, breach of contract, conspiracy to breach fiduciary duties, fraudulent transfer, misappropriation of trade secrets, unjust enrichment, usury, other statutory and common law claims, and a declaratory judgment that certain agreements and the deed transfers were ultra vires. Among other things, plaintiffs also alleged defendants conspired with Blake Goodman, the executive director of real estate investments for Chick-fil-A, and deputy to its chairman and CEO, Dan Cathy.

Plaintiffs moved in the U.S. District Court for the Northern District of Georgia to withdraw the reference to the bankruptcy court, defendants consented and the district court granted the motion. Defendants then moved to transfer the action to the Southern District of New York, based on the forum selection clauses in the parties’ agreements, and to dismiss. The Georgia court granted defendants’ motion to transfer.

Defendants renewed their motion to dismiss in the Southern District of New York on several grounds, including that many of the claims were barred by broad releases plaintiffs signed and that the other claims failed to state a claim. On March 4, 2022, after briefing and oral argument, Judge Lewis J. Liman of the Southern District of New York issued a 90-page decision dismissing all 17 claims with prejudice and denying leave to replead. The court found that most of plaintiffs’ claims were barred by their releases and that “even if the claims were not released, the claims would fail” for additional reasons. With respect to the RICO claims, the court found plaintiffs failed to plead a RICO enterprise, a pattern of racketeering activity or the required continuity.

The court explained that plaintiffs’ theory that Gamma schemed to take the Wade Park property was undermined by the many forbearances defendants granted to plaintiffs: “Rather than exercise their rights of control — which they could have if their objective was to obtain ownership of Wade Park — Defendants continued to grant Plaintiffs further opportunities to pay the loan and retain control of Wade Park rather than simply foreclosing on the asset at first opportunity.” The court found plaintiffs’ own allegations of fact were therefore “utterly inconsistent with their conclusory assertion that, in December 2016 when the Gamma Defendants first agreed to the bridge loan, they secretly intended Plaintiffs not to repay it and to take title to the Wade Park properties themselves.” The court also rejected plaintiffs’ claims that it was unlawful for Gamma to use “sharp language” with other potential lenders to the Wade Park plaintiffs. The court explained: “There are different ways of getting to yes. Some use kindness; others use aggressive language; and some sometimes combine the two.”

The court’s decision provides significant guidance and practice points for lenders when they enter into loan agreements or face similar claims in the future, including the following:

First, a choice of law provision can be outcome determinative. For example, the selection of New York law can, among other things, defeat allegations of usury when a loan exceeds $2.5 million.

Second, when loans are extended or modified, the broadest possible releases should be obtained, and any carve-outs should be as limited as possible. In the Wade Park case, the court found the plaintiffs’ releases in their forbearance and other agreements barred most of their claims.

Third, forum selection clauses with language that clearly provides exclusive jurisdiction in the lender’s chosen forum can be important to prevent plaintiffs from selecting a home forum they believe would be favorable to them and inconvenient to the lender for any litigation.

Fourth, when a borrower defaults and a lender takes property that is the subject of a loan, it is important, when accurate, for the borrower to acknowledge in an estoppel certificate that the borrower is receiving fair value and is not insolvent and will not be rendered insolvent by the transfer.

Fifth, lenders should not shy away from seeking dismissal at the outset of a case, based on the parties’ agreements, even when the borrower does not attach the agreements to its complaint. In the appropriate cases, there is no need to wait for expensive and time-consuming discovery before asking the court to dismiss the litigation.

The case is Wade Park Land Holdings, LLC, et al. v. Jonathan Kalikow, et al., 2022 WL 657664 (S.D.N.Y. March 4, 2022). The court's order can be found here. A New York Law Journal article about the case can be found here.