Meyer v. Bank of America, N.A.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

P. JONATHAN MEYER, et

al.,

Plaintiffs/Counter-

Defendants,

v.

:

BANK OF AMERICA, N.A.,

Case No. 2:18-cv-218

Judge Sarah D. Morrison

Defendant/Counter-

Magistrate Judge Kimberly A.

Plaintiff/Third-Party

Jolson

Plaintiff,

:

v.

STANBERY ENGLISH

VILLAGE, LP, et al.,

Third-Party

Defendants.

BENCH OPINION AND ORDER OF FINAL JUDGMENT

Plaintiffs P. Jonathan Meyer, Mark Pottschmidt, and Raymond Brunt

(“Assignors”) first brought suit for declaratory judgment in a contract dispute

against Defendant Bank of America, N.A. (the “Bank”) in state court on November

13, 2017. (Compl., ECF No. 11.) The Bank removed the action to this Court on

March 14, 2018. (Notice of Removal, ECF No. 1.) Shortly thereafter, the Bank filed

its Answer and Affirmative Defenses (Answer, ECF No. 3) and asserted

Counterclaims and a Third-Party Complaint, joining, inter alia1, Third-Party

Defendants The Shoppes at Union Hill, LLC, Stanbery Harrisburg, LP, and

Stanbery English Village, LP (together with Assignors, the “Stanbery Parties”)

(Countercl., ECF No. 4).

On December 2, 2019, this Court granted in part and denied in part each of

the parties’ cross-motions for summary judgment. (December 2 Order, ECF No. 75.)

The case proceeded to a bench trial in November 2020 on liability and damages for

all remaining claims. (See December 2 Order, 37–38.) Post-trial briefs and proposed

findings of fact and conclusions of law have been submitted by the Stanbery Parties

(ECF Nos. 126, 132, 135) and the Bank (ECF Nos. 130, 133, 134). Upon review of

such filings, and pursuant to Federal Rule of Civil Procedure 52(a), the Court now

issues the following findings of fact and conclusions of law.

I. FINDINGS OF FACT2

A. The Parties

Assignors are sophisticated, experienced commercial real estate

professionals. Mr. Meyer first began his work in the field after graduating from

college. (Tr. 35:8–12.) He worked in Continental Real Estate’s leasing and

1 The Third-Party Complaint also joined Third-Party Defendants Clean Title,

Inc. and Clean Title Agency, Inc. All claims against those parties were dismissed

before trial. (ECF No. 31.)

2 The labels and headings included in this Bench Opinion and Order of Final

Judgment are not controlling. See Cordovan Assoc., Inc. v. Dayton Rubber Co., 290

F.2d 858, 860 (6th Cir. 1961) (citing Bogardus v. Comm’r of Internal Revenue, 302

U.S. 34 (1937)). To the extent a finding of fact constitutes a conclusion of law, the

Court adopts it as such, and vice versa.

development groups, and eventually became an equity partner in the company’s

projects. (Id., 35:13–19.) Mr. Pottschmidt also worked for Continental Real Estate.

(Id., 362:25.) After ten years with Continental, Mr. Pottschmidt held the title of Vice

President of Development and had also invested in several of the company’s

projects. (Id., 363:2–7.) Mr. Brunt first met Mr. Meyer in 1995, when he was Senior

Director of Real Estate for The Gap, working with the Continental team to bring

Old Navy stores to Ohio. (Id., 448:11–25.) Mr. Meyer and Mr. Pottschmidt left

Continental in 2000 and co-founded Stanbery Development, LLC, a firm focused on

developing open-air shopping centers. (Id., 36:2–6.) That same year, Mr. Brunt left

The Gap—his employer of twenty-one years—to work with Stanbery Development

in commercial leasing. (Id., 448:6–17, 449:2–6.)

Stanbery Development has completed fourteen projects, with three more

currently in progress. (Id., 38:16; 364:14–15.) Stanbery Development develops

projects by investment with partners in special purpose entities (or SPEs). (Id.,

40:7–22.) Stanbery Development typically receives equity in the SPE and either a

development fee or a special distribution fee, intended as compensation for overhead

expenses incurred in project financing and development. (Id., 39:1–40:14.) Although

Stanbery Development receives all or some of that compensation before a project is

complete, the gain is generally not taxable until the project is sold and the SPE

disposes of its assets.3 (Id., 40:1–5.)

3 The tax treatment of the transactions described herein is not currently in

dispute, and the Court offers no finding or opinion on the propriety of the Stanbery

Parties’ determination of such tax treatment.

Between 2004 and 2007, Stanbery Development and four SPEs obtained

more than $175 million in loans from various lenders for the development of

projects titled The Shoppes at Wyomissing, The Shoppes at Hamilton, and The

Promenade at Coconut Creek. (See Exs. J-1–J-60, recitals. See also ECF No. 113, 2.)

The Bank (as successor to LaSalle Bank) was one of those lenders. (See Exs. D-1–D-

4, preamble.) Assignors personally guaranteed the loans. (See id., preamble and

recitals.)

After the 2008 economic downturn, the borrowers defaulted on the loans and

Assignors defaulted on their guaranty obligations. (See Exs. D-1–D-6, recitals.) At

the time of default, the loans’ outstanding balance totaled $155 million. (See Exs. D-

1–D-4, § 2; Exs. D-5–D-6, § 3.) Facing bankruptcy, Assignors requested that the

lenders release them from their obligations under the loans. (Exs. D-1–D-6,

recitals.) The lenders ultimately agreed in exchange for, inter alia, (i) proceeds from

the sales of the Wyomissing, Hamilton, and Coconut Creek properties and (ii) a

portion of any proceeds from the sales of four other Stanbery Development projects

in which the Bank had no existing interest. (Exs. D-1–D-6.) The latter was

accomplished by execution of sixty near-identical4 Assignments of Proceeds (the

“Assignments”). (See Exs. D-2–D-6, J-1–J-60.)

4 Each Assignor (Meyer, Pottschmidt, and Brunt) executed one Assignment

per Property (Old Bridge, Harrisburg, Union Hill, and English Village) per borrower

(Stanbery Development and the four SPEs). (See Exs., J-1–J-60.) The Assignments

are identical except with respect to the party names, description of the underlying

loan, and the Allocated Percentage. (Id.)

B. Assignments of Proceeds

The Assignments apply to the following properties (each a “Property” and,

collectively, the “Properties”):

• The Shoppes at Old Bridge ( “Old Bridge”);

• The Shoppes at Susquehanna Marketplace (“Harrisburg”);

• The Shoppes at Union Hill (“Union Hill”); and

• The Shoppes at English Village (“English Village”),

owned respectively by the following SPEs (each a “Company” and, collectively, the

“Companies”):

• Stanbery Old Bridge LLC;

• Stanbery Harrisburg, LP;

• The Shoppes at Union Hill, LLC; and

• Stanbery English Village, LP.

(Id.)

Each dated September 30, 2010, the Assignments provide in relevant part as

follows:

Assignment of Allocated Percent of Sale Proceeds

• The Assignor assigns to the Bank a certain percent (the “Allocated

Percent”) of the Sale Proceeds (defined below) resulting from any sale of

the applicable Property. (Exs. J-1–J-60, § 1(a).)

o “Sale Proceeds” means (a) the cash and non-cash proceeds received

by the Company and/or Assignor from a Sale (defined below), minus

(b) any out-of-pocket costs incurred by the “Company directly in

connection with such Sale, including (i) income or gains taxes

actually payable by the Company or Assignor as a result of any gain

recognized in connection with such Sale, without regard to losses,

deductions or credits unrelated to such Sale which might otherwise

affect the actual taxes payable,” (ii) payment of debt (including

principal, interest, and any prepayment penalties) secured by the

Property, and (iii) reasonable and customary transaction costs

associated with the Sale. (Id., § 1(a)(i).)

o “Sale” means “a sale, assignment, conveyance, transfer, merger or

other disposition of or to, or any exchange of or by the Company or

its assets or fractional interest therein with any person, in one

transaction or a series of transactions outside the ordinary course of

business, any event which results in a change of control of the

Company, or any refinancing or restructuring of all or any portion

of any debt of the Company.” (Id., § 1(a)(ii).)

Notice and Documentation Related to a Sale

• The Company and Assignor must provide the Bank at least thirty days’

“advance written notice of the occurrence of any Sale[.]” (Id., § 1(b).)

• The Company and Assignor must, at least ten days prior to any Sale, “(or

as soon thereafter as the relevant calculations are available)”, provide the

Bank “documentation setting forth, in reasonable detail” the material

facts of the Sale and the “Company’s and Assignor’s calculation of the Sale

Proceeds resulting from such Sale[.]” (Id.)

Escrow of Allocated Percent and Availability of Escrow Funds

• Within three days of the Company’s receipt of any Sale Proceeds, the

Allocated Percent must be paid into escrow. (Id., § 1(c)(ii).)

• The Escrow Funds (defined below) may be distributed only for payment of

a Tax Balance (defined below) or upon written instruction from the Bank

to the escrow agent “of either or that either (1) (a) a Qualifying Sale

[(defined below)] or (b) a final determination of the Appraisal Amount[5]

has occurred under this Assignment and each of the Other Assignments

. . . , or (2) the ninth anniversary of the date of this Assignment has

occurred[.]” (Id., § 1(d)(iii)(B).)

5 Pursuant to the Assignments, the Appraisal Amount is determined only if

the Property has not experienced a Qualifying Sale before September 30, 2018. (See

Exs. J-1–60, § 1(c)(iii).) It is undisputed that each of the Properties experienced a

Qualifying Sale before that date. It is therefore unnecessary to include a detailed

definition of the Appraisal Amount here.

o “Escrow Funds” means escrow amounts payable under each of the

sixty Assignments, plus any interest, dividends, income, capital

gains, and other amounts earned thereon. (Id., § 1(d)(ii).)

o “Tax Balance” means the excess of any “income or gains taxes

actually payable by the Company or Assignor as a result of any gain

recognized in connection with [a] Sale” over “the cash proceeds

payable to the Company or Assignor from such Sale without taking

into consideration the Sale Proceeds payable to” escrow. (Id.,

§ 1(d)(iii)(A).)

o “Qualifying Sale” means “a Sale: (i) by the partners of the Company

of all or substantially all of the partnership interests of the

Company, (ii) in which the Company is a party and in which the

partners of the Company before such Sale do not retain, directly or

indirectly, at least a majority of the beneficial interest in the voting

stock of the Company after such transaction, or (iii) by the

Company of all or substantially all of the [l]and, the

[i]mprovements, all easements, rights of way or use, privileges, or

licenses and rights to the same belonging or appertaining to the

[l]and, and all personal property located in or on the [l]and and/or

the [i]mprovements and owned by the Company.” (Id., § 1(c)(iii)(B).)

Each Assignment further provides that its terms “may not be amended or

modified except by a writing signed by each of the parties.” (Id., § 8(l).) Similarly,

“[a]ll . . . waivers required or permitted to be given under this Assignment shall be

in writing . . . .” (Id., § 8(a).) But, “[n]o waiver of any breach or default under this

Assignment shall be deemed to be a waiver of any subsequent breach or default.”

(Id., § 8(h).) The parties further:

agree to take any and all additional actions, including, without

limitation, the execution, acknowledgement and delivery of any and all

documents which [any party] may reasonably request, in order to effect

the intent and purposes of this Assignment and the transactions

contemplated hereby.

(Id., § 8(b).)

C. Sales and Qualifying Sales of the Properties

May 8, 2013: Union Hill Refinance

Union Hill was the first Property to experience a “Sale,” as defined in the

Assignments. (Tr. 52:3–4.) On March 20, 2013, the Stanbery Parties, through

Stanbery Development’s then-chief financial officer Matt McClimon, notified the

Bank’s representative, Michael Olson, via email that Union Hill would be

refinanced. (Ex. P-28, SB00002210.) On May 7, Mr. McClimon advised Mr. Olson

that the refinancing was scheduled to close the following day. (Id., SB00002208.) On

May 14, Mr. McClimon again emailed Mr. Olson, stating in part:

Attached is both the closing statement and the loan payoff statement.

. . .

Also, for simplicity I have taking [sic] these statements to create a

reconciliation as to my estimate of the amount that needs to be funded

into escrow. We still have not received the borrowers [sic] legal fees. .

but based on my discussions with [Stanbery Development counsel Gerry

Swedlow] I have an educated estimate. This should be final later this

week. . . .

(Id., SB00002207.) After some additional correspondence, Mr. Olson advised that

“[t]he escrow should be established if [the refinance] has closed. . . .” (Id.,

SB00002204.) Mr. McClimon responded:

Yes it did close on 5/8. As to setting up the escrow this has not been done

as

1) We still need final legal numbers. Gerry is working on this.

2) I need your final “sign off” on my calculations.

3) None of the “overborrowings” have been distributed to the

partners until we can get these things resolved. . and to further

protect the “spirit” of the deal.

(Id.) Mr. McClimon later sent “final” calculations to Mr. Olson. (Id., SB00002203.)

Mr. Olson noted in response that Mr. McClimon’s Allocated Percent figures differed

from his own by 0.01%. (Id., SB00002202.) Mr. McClimon sent a reconciliation “to

tie to [Mr. Olson’s] numbers.” (Id.) Mr. Olson then stated “I am ok with the

reconciliation, as revised. Please let me know the details of the escrow.” (Id.,

SB00002201.)

An escrow agreement was executed on July 15, 2013, to hold the Allocated

Percent of Sale Proceeds resulting from the May 8, 2013 refinance of Union Hill.

(Ex. P-31.) A total of $85,670 was deposited into escrow, with Mr. Meyer

contributing $30,149; Mr. Pottschmidt contributing $35,339; and Mr. Brunt

contributing $20,182. (Id.)

December 13, 2013: English Village Refinance

English Village was also refinanced in 2013. (Tr. 58:8–11.) On September 30,

2013, Mr. Meyer emailed Mr. Olson, stating:

We didn’t sell English Village, though had it on the market for a while.

We also had Harrisburg on the market, it didn’t sell either. As you know,

we did refinance Union Hill last spring. We hope to refinance English

Village in the next 90-120 days, as the CMBS loan on it comes due.

I would imagine that, by year end, you will need personal financials for

Ray, Mark and myself. Additionally, you may need our tax returns? I

haven’t filed mine yet, I assume Ray and Mark are also going to file in

October.

So, perhaps we send you our financials and returns, if required, in late

October/early November?

(Ex. P-34, SB00002116.) Mr. Olson responded that “[t]he financials in November

will be fine.” (Id., SB00002215.)

On December 13, 2013, Mr. Meyer sent the following email to the Bank’s new

representative on the Stanbery matter (Mr. Olson’s replacement), Sara Allen:

Sara

I hope you are doing well and staying warm!

Sorry for the brief delay in getting the following information to you. As

discussed, we closed on our loan to refinance The Shoppes at English

Village. In keeping with the terms of our agreement with [the Bank], we

need to set up an escrow for a portion of the over borrowings, much as

we did for the refinance on the Shoppes at Union Hill last spring.

Attached, for your review, are documents related to this loan closing and

associated calculations for the escrows for Mark Pottschmidt, Ray

Brunt, and me. After you have had the opportunity to review this

information, please let us know if you have questions related to this

matter. As soon as we come to agreement that our calculations are

correct, we can each send the funds into the escrow account. I am not

sure if we need an additional agreement and/or if we should send the

funds to the same escrow account as was established after the loan

closing last spring. Perhaps you, or our counsel, Gerry Swedlow (copied),

can advise on that matter.

As you have recently taken over our ‘account,’ I want to point out that

we were working on this refinancing last Spring. We, temporarily,

halted the refinancing during the summer, as we marketed the property

for sale. After we terminated our efforts to sell the asset, we went back

to the same lender in order to finish the refinancing that we had started.

Hence, some of the expenses came through on the closing statement,

while others were paid for services rendered during the initial push to

refinance. As Michael [Olson] may have mentioned, we are happy to

share information. So, if you need additional paperwork, information, or

just to chat, we’re happy to do so, just let us know.

Attached:

-Closing Statement

-Loan Payoff Statement

-Reconciliation schedule to calculate over borrowing and escrow

amounts.

-Refinance costs from Spring 2013

(Ex. P-36. See also Ex. D-126.) On January 16, 2014, Ms. Allen responded, stating in

part, “Yes, I approve the calculations for the escrows for Mark Pottschmidt, Ray

Brunt and yourself.” (Ex. J-63.) The escrow agreement was executed on February

21, 2014. (Ex. D-129.) Pursuant to its terms, $46,429 in Sale Proceeds resulting

from the English Village refinance were deposited into escrow, with Mr. Meyer

contributing $11,039; Mr. Pottschmidt contributing $22,693; and Mr. Brunt

contributing $12,697. (Id.)

May 15, 2015: Old Bridge Deed in Lieu of Foreclosure

Before the Assignments were executed, all parties were aware that Old

Bridge was worth less than the face value of its debt (i.e., it was “underwater”), and

so any transaction would not likely result in any Sale Proceeds and would likely

result in significant tax liability for Assignors. (See Tr. 72:22–73:8; 77:6–7; 77:23–

78:11.)

In September 2014, the Stanbery Parties became unable to service the Old

Bridge debt and were put into default. (Tr. 258:8–17. See also Meyer Dep., 64:23–

66:19, ECF No. 49.) On December 17, 2014, Mr. Swedlow explained the situation in

an email to Ms. Allen with the subject line “Stanbery Old Bridge”:

Sara: The lender for the shopping center owned by Stanbery Old Bridge,

LLC, has instituted a foreclosure action in New Jersey. A receiver has

been appointed. I do not know the timing with respect to the foreclosure

sale itself, but, I assume it would take place in 2015.

Whether or not the foreclosure will actually occur is unknown at this

time. There is always a possibility that we can work something out with

the lender, but, so far, have not been able to do so.

Please let me know if you have any questions or need additional

information. If you need a more formal notice, as otherwise required

under the Assignments of Proceeds, let me know.

This notice is being sent on behalf of the Company (Stanbery Old Bridge,

LLC) and the Assignors – Jon, Mark and Ray.

Thank you – Gerry

(Ex. D-130.) Mr. Swedlow addressed Old Bridge again in an April 28, 2015 email to

Ms. Allen:

[T]here will be a deed in lieu of foreclosure for Old Bridge. There is no

reason to continue the fight since we really have no defense. As soon as

this is accomplished – probably next week, we will get ou [sic] the

applicable numbers although, again, the tax liability determination will

take additional time.

(Ex. J-68.)

The deed in lieu of foreclosure was executed on May 15, 2015. (Ex. P-48.)

That day, Mr. Swedlow emailed Ms. Allen:

Sara: Attached please find the tax calculation in connection with the

deed in lieu transaction for Old Bridge. The “sales price” is somewhat of

a fiction since it equals the loan balance. That’s how our accountants tell

us it must be reported since the loan is exculpatory. Nevertheless, as

you can see, it produces a substantial tax – both federal and state – for

Jon, Mark and Ray.

I suggest that the tax deduction be used when we settle up in 2018,

unless, of course, the centers are all sold before then.

(Ex. D-131.) Five charts were attached to the email, showing “[e]stimates as of

12/31/14” for the tax liability resulting from the deed in lieu at the Company and

Assignor levels. (Id.) The charts were prepared by the accounting firm of Krisiewicz,

McCoy & Company, at the direction of Assignors and in accordance with their

instructions. (Id. See also Tr. 81:20–24; Ex. D-153.) Because the deed in lieu

resulted in no proceeds for the Stanbery Parties, the Company-level chart is largely

blank, save only for the “sale price” (loan balance), the total taxable gain

attributable to each Assignor based on their interest in the Old Bridge project, and

the resulting tax liability. (Ex. D-131.) According to the charts, Mr. Meyer’s tax

liability was estimated to be $2,639,838; Mr. Pottschmidt’s, $678,768; and Mr.

Brunt’s, $614,627. (Id.) No supporting documents were provided to the Bank. (Tr.

171:9–172:3.)

On June 1, 2015, Mr. Meyer sent the following email to Ms. Allen:

Sara

As a follow up to our discussion last week, let me know if this answers

your questions, as Gerry Swedlow, our counsel, and I spoke:

• Section 1a.II of the assignment of proceeds defines a sale as any

…conveyance, transfer…or other disposition. Clearly a deed in

Lieu is a ‘sale.’

• From Gerry on the ‘accounting:’ The Assignment of Proceeds

(Pledge), Section 1 (d), no payment to [the Bank] is to be made

until either all of the properties have been sold or the 8 years have

passed and then during the 9th year all of the net proceeds are

added and then the tax liability subtracted. If there is a plus, it’s

paid to [the Bank] over a period of time if the appraisal applies –

otherwise in cash if all has been sold. If taxes exceed proceeds,

nothing is payable to [the Bank] and the Escrow Agent is to

distribute back to the Assignors (Jon, Mark and Ray).

If this does not appropriately answer the questions I believe I heard,

please let me know.

(Ex. J-69, SB00002294.) The deed in lieu was recorded on June 9, 2015. (Ex. P-48.)

The Bank has since been provided with two subsequent sets of calculations

pertaining to the Old Bridge deed in lieu. The first came more than a year after the

deed was recorded, on June 15, 2016. (Ex. J-74.) According to the June 15, 2016

calculations, Mr. Meyer’s tax liability was $2,712,341 ($72,503 more than originally

estimated); Mr. Pottschmidt’s, $695,864 ($17,096 more than originally estimated);

and Mr. Brunt’s, $633,521 ($18,894 more than originally estimated). (Id.) The

second came on February 21, 2017. (Exs. J-81, P-52.) For the first time, the

calculations were marked as “Final per 12/31/15 Tax Return.” (Ex. P-52.) According

to the final calculations, Mr. Meyer’s tax liability was $2,463,914 ($175,924 less

than originally estimated); Mr. Pottschmidt’s, $610,484 ($68,284 less than

originally estimated); and Mr. Brunt’s, $542,794 ($71,833 less than originally

estimated). (Id.)

May 28, 2015: Harrisburg Sale

On April 29, 2015, the Bank was notified via email from Mr. Swedlow that

Harrisburg was in contract to sell and that the closing would occur in either May or

June. (Ex. J-68.) He further stated:

The gross purchase price is $44,000,000 . . . . I don’t know the amount of

the present mortgage balance nor do I have an estimate of sales costs.

In addition, it will take some time for Jon, Mark and Ray – each of whom

have separate accountants to compute the tax liabilities, which, as you

know, is a deduction in the computation.

(Id.) On June 10, Mr. Swedlow sent an email to Ms. Allen containing charts with

calculations pertinent to the Harrisburg sale.6 (Ex. P-50.) In the body of the email,

Mr. Swedlow explained:

6 Although Mr. Swedlow sent the email on June 10, 2015, he and the

Stanbery Parties were then unaware that Ms. Allen was on a medical leave of

absence due to an injury sustained the week prior. (See Tr. 698:12–699:20. See also

Ex. J-71.) There is no dispute that Ms. Allen received the email on October 15, 2015,

after she returned to work. (Ex. P-50.)

Sara: Although final numbers won’t be available until all expenses are

known and escrows have been determined, the attached is very close to

a “final.” As we get more accurate and up to date numbers, we will revise

the schedule and send it to you.

(Id.) The charts were stamped: “Estimates as of 05/28/2015.” (Id.) The calculation

methodology used in these charts began by subtracting the closing costs and debt

pay-off from the $44 million purchase price to determine the “Net Sales Price.”7 (Id.,

BA000012179.) Each Assignor’s Allocated Percent was applied to the Net Sales

Price to determine “Net Cash Flow Before Assignors Taxes.” (Id.) The charts then

set out each Assignor’s total estimated gain from the sale, and estimated tax

liability resulting therefrom. (Id.) The estimated tax liability was next deducted

from the Net Cash Flow Before Assignors Taxes to determine a “Net Cash Flow.”

(Id.) The Net Cash Flow for each of the Assignors was negative. (Id.)

When she received Mr. Swedlow’s email, Ms. Allen looked quickly at the

attached charts. (Tr. 816:22.) Because they were “based on estimates,” she did not

review them in detail. (Tr. 817:11–13.) No supporting documents were provided to

the Bank. (Tr. 182:14–183:8.) The Bank received updated calculations for the

Harrisburg sale on June 15, 2016 (Ex. J-74), and “final”8 calculations on February

21, 2017, and August 4, 2017 (Exs. J-81, P-52, D-143). No escrow account was

7 The capitalized terms used in these charts do not appear in the

Assignments.

8 Although the February 21, 2017 and August 4, 2017 calculations are both

marked “final,” they differ as to Mr. Meyer’s Allocated Percent. (Compare P-52,

SB00000002 and D-143, BA000012188.)

established relative to this transaction, and no escrow agreement was drafted. (Tr.

106:16–17.)

March 30, 2016: Union Hill Sale

On March 9, 2016, Mr. Meyer provided noticed to the Bank that Union Hill

was in contract to sell. (Ex. J-73.) His email to Ms. Allen stated, in part:

Please accept this as notification that our property, The Shoppes at

Union Hill, is in contract to sell. We anticipate the closing later this

month.

I have attached two documents. The first is a summary of the sale of

Union Hill, the tax impact and the pledged amount. The second

document is a summary, one for each of the guarantors, showing all

projects that have transacted, in addition to Union Hill.

As you can see, Mark Pottschmidt is the only individual who has a ‘net

positive,’ after tax calculations, for Union Hill. Viewing the summary of

the sale of the four assets, he still shows a substantially negative

number, though, overall.

Please let me know if you have any questions on this information. We

will continue to keep you informed.

(Id.) Ms. Allen responded the following day, indicating should would review the

information provided. (Id.)

Mr. Meyer’s March 9 email included still more charts (again prepared by the

Krisiewicz firm at the direction and in accordance with the instructions of

Assignors), this time with calculations pertinent to the Union Hill sale. (Ex. P-53.

See also Tr. 114:19–115:13.) As before, charts were provided at the Company- and

Assignor-level. (Id.) The charts were dated March 8, 2016, and noted that the

figures provided for closing costs and taxes were estimates. (Id.) Notably, on this

occasion, the Assignor-level charts included columns for all four Properties and a

fifth column for a “Total.” (Id.) In the Total column, the Assignor’s tax liability for

all transaction was aggregated, and then deducted from the “Total Pledge Amount”

(referred to in previous charts as Net Cash Flow Before Assignors Taxes), resulting

in a substantial negative number. (Id.)

Although the charts indicate that Union Hill sold for $63.5 million and that

closing costs were estimated to exceed $2.5 million, no supporting documents were

provided to the Bank. (Tr. 608:22–609:3.) The Bank received updated calculations

for the Union Hill sale on June 15, 2016 (Ex. J-74), and on August 4, 2017 (Ex. D-

143). No escrow account was established relative to this transaction, and no escrow

agreement was drafted. (Tr. 123:5–6.)

August 4, 2017: English Village Sale

On August 4, 2017, Mr. Meyer emailed Ms. Allen with notice to the Bank

that English Village was being sold. (Ex. D-143.) The email provides, in part:

Please accept this email as notice that we are selling English Village,

the final property involved in our settlement with [the Bank]. The

estimated numbers are summarized in the attached file. As you can see,

we don’t believe that funds will need to be added to the existing escrow.

As you know, the full accounting and tax numbers will not be completed

for some time. That said, it is clear to me that, as each of us are at a

substantially negative number overall, that tax revisions do not have a

chance to raise us into an area within which we would owe funds.

Specific to the sale of this property, while we’ve used the total sale price

to drive the numbers, there are escrows of well over $1 mm which may

end up reducing the sale proceeds. If there is a claim on these funds, the

numbers would be adjusted into more negative territory, and the tax

impact not fully be [sic] calculated until 2019.

(Id.) Attached to the email were more charts, in the same style as those sent to the

Bank in 2016, with numbers reflecting the disposition of all four Properties and a

Total column. (Id.) In those charts, the Harrisburg and Old Bridge figures are

marked as “Final.” (Id.)

Although the charts indicate that English Village sold for $57 million, and

that closing costs were estimated at $6.5 million, no supporting documents were

provided to the Bank. (Tr. 608:22–609:3.) The Bank later learned that the English

Village sale closed on August 4, 2017—the same day Mr. Meyer sent the above-

quoted email. (See Tr. 721:20–21; Ex. D-78.) The Bank also later learned that the $1

million escrows referenced in Mr. Meyer’s email were returned to Assignors. (See

Tr. 838:25–829:19.) No escrow account was established relative to this transaction,

and no escrow agreement was drafted. (Id., 386:15–16.)

D. The Parties Dispute Amounts Owed Under the Assignments

In the summer of 2016, it became clear that the parties were not in

agreement on two material issues related to performance of the Assignments. First,

the parties disagreed as to how Sale Proceeds should be calculated for a Sale that

results in the Stanbery Parties incurring tax liability. Second, the parties disagreed

as to whether all Sales should be aggregated or “cumulative”—with the practical

implication being, whether the Old Bridge Tax Balance can be used to offset any

amounts owed as a result of the subsequent Sales of Harrisburg, Union Hill, and

English Village.

The dispute was discovered when Assignors’ calculations were presented to

the Bank in charts which include a “Total” column. Charts were first provided in

such format as attachments to Mr. Meyer’s March 9, 2016 email. (See Exs. J-73, P-

53.) Ms. Allen received a follow-up email from Mr. Meyer on June 15, 2016, with the

subject line “Union Hill Sale.” (Ex. J-74.) The email reads, in part:

As a follow up to my March 9, 2016 email, note that we sold our Shoppes

at Union Hill on March 30th. My apologies for taking this long to get

you an update on the sale. Please see the attached updated calculations

on the impact of the sale and tax calculations.

(Id.) The attached charts, titled “Bank of America Updated Cash Flow Analysis”

and dated June 10, 2016, display Assignor- and Company-level calculations related

to the Union Hill transaction. (Id.) The Assignor-level charts are in the format first

used in March 2016, displaying columns for each of the four Properties, and a fifth

column titled “Total.” (Id.) Although Ms. Allen first received charts in this format

three months prior, the charts attached to the June 15 email gave her pause and

caused her to question whether they accurately reflected the Assignments’ terms.

(Tr. 711:14, 712:18–21.) Two days later, Ms. Allen engaged counsel to assist on that

question. (Tr. 694:23–24.)

On September 12, 2016, Ms. Allen sent the following email to Mr. Meyer:

Hi Jon,

Hope all is well. We had a change of outside counsel for Stanbery and I

asked her to review the documentation. You mentioned that the

settlement was cumulative across all entities but our review of the

documents does not show that. Can you show me where in the

documentation it refers to this? Also, can you send me a list of the assets

left to be refinanced/sold so I can compare them to my list. Look forward

to hearing from you.

Thanks,

Sara

(Ex. J-76.) Mr. Meyer responded quickly, indicating he would direct Mr. Swedlow to

“look at the documents and direct us on this.” (Id.)

Mr. Swedlow completed his review and sent an email to the Bank’s new

counsel, the firm of Miller Canfield, on October 24, 2016. (Ex. J-78, BA000017579.)

That email reads, in part:

I have reviewed the Assignments of Proceeds with respect to the issue

of whether or not the numbers for the four centers are to be combined or

treated separately. As you know, we believe that the results of Old

Bridge, Harrisburg, Union Hill and English Village are to be combined

for each of the four [sic] Assignors so that, for example, the interest of

Jon Meyer in the four centers ends up as one number.

(Id.) Two days later, Ms. Allen emailed Mr. Meyer:

Hi Jon,

I have a list of items that we need to verify the calculations you have

previously sent. Please send them via email when you have them

available. Let me know if you have any questions or comments.

• Property 1: Shoppes at Union Hill

o Closing Statement from 2013 refinance + 2013 tax returns

for guarantors + calculations used to determine escrow

amounts.

o Closing Statement from 2015 sale + 2015 tax returns for

guarantors (once they have been filed)

• Property 2: Harrisburg

o Closing Statement from sale + tax returns for guarantors

• Property 3: Old Bridge

o Deed-in-lieu documentation + tax returns for guarantors

• Shoppes at English Village

o Closing Statement from 2014 refinance + 2014 tax returns

for guarantors + calculations used to determine escrow

amounts.

(Id., BA000017577.) Mr. Meyer responded within five minutes: “Thanks. As

discussed, I’ll hold this list until I hear further from you.” (Id.)

The working relationship between Assignors and the Bank then collapsed. In

November 2016, Ms. Allen instructed Mr. Meyer to direct all correspondence to

Miller Canfield. (Ex. J-79.) Miller Canfield also sent a letter to Assignors, stating:

There are a number of documents that [the Bank] seeks under the terms

of the [Assignments] to support the material facts of each of the events

constituting a Sale under the [Assignments] and Assignors’ proposed

calculation of the Sale Proceeds resulting from each such Sale as set

forth in Assignors’ “Bank of America Updated Cash Flow Analysis”

dated as of June 10, 2016.

(Ex. D-90, SB00014322.) The letter requested specific documents, including those

listed in Ms. Allen’s email, plus loan payoff statements, Company tax returns, and

documents bearing on the value of English Village (which had not yet been sold).

(Id., SB00014322–23.) Through their counsel, the firm of Zeiger Tigges & Little,

Assignors responded to Miller Canfield’s letter on December 16, 2016, with closing

statements from the 2015 Harrisburg sale and the 2016 Union Hill sale. (Ex. D-92.)

Two months later, on February 21, 2017, Zeiger Tigges & Little sent roughly 250

more pages of documents (Ex. J-81) and, on October 4, 2017, another 1,500 (Ex. P-

60).

Several notable events took place while documents were being compiled for

production. First, throughout the summer of 2017, the parties attempted to

coordinate a meeting to discuss the dispute that had arisen. (See Exs. J-82, D-98.)

That meeting never took place. (See Ex. J-84.) Second, English Village was sold,

causing Mr. Meyer to send the August 4, 2017 email and calculations to Ms. Allen.

(See Ex. D-143.) And, third, Miller Canfield, on behalf of the Bank, sent a formal

Notice of Default, Request for Documents and Demand for Further Assurances (the

“August 30 Default Notice”) to Assignors on August 30, 2017. (Ex. J-83.)

The August 30 Default Notice alleged that the Stanbery Parties were in

default of the Assignments for failing to escrow the Allocated Percent of Sale

Proceeds resulting from the sales of Harrisburg and Union Hill, and for failing to

provide timely notice of those sales. (Id.) The August 30 Default Notice indicates

that the Bank was unaware that the English Village sale had closed earlier that

month, and requests pertinent substantiating documents “not less than one []

business day before closing[.]” (Id., SB00014240.)

Following further production of documents (see Ex. J-60), Miller Canfield sent

a Notice of Default and Opportunity to Cure, dated October 24, 2017 (the “October

24 Default Notice”), alleging that the Stanbery Parties were in breach of the

Assignments pertaining to English Village. (Ex. J-88.) The October 24 Default

Notice also includes the Bank’s calculation of Sale Proceeds due as a result of the

English Village sale. (Id., BA000013177.) The Bank hired the public accounting firm

Doeren Mayhew to assist in developing the calculation, based on the Assignments

and supporting documents then in their possession. (Id., BA000013175–80.) Doeren

Mayhew provided additional calculations of amounts due under the Harrisburg and

Union Hill Assignments in a letter that Miller Canfield sent on behalf of the Bank

on November 16, 2017. (Ex. D-114.)

The Bank’s calculations differ drastically from Assignors’, principally in their

treatment of tax liability resulting from a Sale. The Bank deducts taxes from the

sale price before Sale Proceeds are determined (we might think of this as “above the

line”) and, therefore, before the Allocated Percent is applied. Assignors deduct taxes

only after the Allocated Percent of Sale Proceeds has been determined (“below the

line”), effectively negating any amounts that might be payable to escrow. Further,

the Bank deducts all taxes payable by the Company, Assignors, and any other

investors in the Company. Assignors deduct only the taxes payable by the

individual Assignor. The difference is illustrated in the chart below:

Bank’s Calculations – Harrisburg Assignors’ Calculations – Harrisburg

Doeren Mayhew Krisiewicz, McCoy & Company

(Ex. D-114, BA000013155) (Ex. D-143, BA000012188–90)

Price $ 44,000,000 Price $44,000,000

Minus Minus

Out-of-Pocket Costs Out-of-Pocket Costs

Transaction Costs $ 1,107,313 Transaction Costs $ 1,107,313

Indebtedness $ 26,902,411 Indebtedness $ 26,902,411

Taxes $ 6,388,447

(Total Costs) $ 34,398,171 (Total Costs) $ 28,009,724

Equals Equals

Sale Proceeds $ 9,601,829 Sale Proceeds $ 15,990,276

Multiplied by Multiplied by

Allocated Percent Allocated Percent

Meyer (2.34%) $ 224,683 Meyer (2.34%) $ 375,771

Pottschmidt (5.16%) $ 495,454 Pottschmidt (5.16%) $ 825,098

Brunt (2.63%) $ 252,528 Brunt (2.63%) $ 420,544

Total Amount Due $ 972,665

Minus

Taxes

Meyer ($ 988,116)

Pottschmidt ($ 1,021,769)

Brunt ($ 702,271)

Equals

Amounts Due

Meyer ($ 612,345)

Pottschmidt ($ 196,671)

Brunt ($ 281,727)

Total Amount Due $ 0

E. Assignors’ Other Conduct and Activities

Assignors each testified that they took actions or made investments they

would not have, had they known that the Bank disputed their calculations.

At some point in May 2015, Mr. Meyer, Mr. Pottschmidt, and financial

partners purchased the Old Bridge note from the lender. Mr. Meyer contributed $1

million to the repurchase and, Mr. Pottschmidt, $100,000. (Tr. 78:15–79:14, 153:19–

20, 377:19.) In 2015 and 2016, Mr. Meyer also invested nearly $2 million into a

Stanbery Development project in Parsippany, New Jersey. (Id., 265:14–19.) Mr.

Pottschmidt invested $225,000 into the Parsippany project. (Id., 391:15–16.) Mr.

Pottschmidt has also invested nearly $1 million into four World of Beer franchise

locations since 2011. (Id., 363:25–364:11, 391:6.)

Mr. Brunt decided to retire in 2014. (Tr. 486:10–11.) He finished work on

pending Stanbery Development projects and fully retired in 2015, at some point

after Harrisburg sold. (Id., 486:12–15, 488:19–23.) In May 2017, Mr. Brunt

purchased an apartment in New York City for $1.3 million. (Id., 552:7–16.)

Finally, Assignors testified that they would have filed for bankruptcy

protection in 2010 rather than enter into the Assignments, had they understood

that the Bank would not accept the calculation methodology used in their charts.

(Id., 101:8, 390:24–25, 452:8–17.)

II. ORDER ON SUMMARY JUDGMENT

The parties now dispute the amounts (if any) owed under the Assignments,

and whether the Bank has retained its right to collect. Before answering those

questions, the Court finds it appropriate to review its Order on the parties’ motions

for summary judgment.

Assignors’ Complaint seeks declaratory judgment as to the following: that the

Assignors have correctly calculated the Sale Proceeds for English Village; that the

Assignors are not required to put any additional funds into escrow; and that all

amounts in escrow be returned to the Assignors. (Compl., 9, ECF No. 11.) The

Complaint also requests declaratory judgment that: the Bank has waived its right

to challenge the Assignors’ Sale Proceeds calculations as to Old Bridge, Harrisburg,

and Union Hill, either intentionally or by estoppel; that the Bank ratified the Old

Bridge, Harrisburg, and Union Hill calculations; and that laches bars the Bank

from challenging these calculations. (Id., 9–12.) The Bank responded with breach of

contract and fraudulent transfer counterclaims against the Stanbery Parties

regarding the sales of English Village, Harrisburg, and Union Hill. (Countercl., 10–

28, 32–41.)

On April 26, 2019, the Stanbery Parties and the Bank each filed Motions for

Summary Judgment. (ECF Nos. 59, 60.) On December 2, 2019, this Court ruled on

the cross-motions, granting and denying each in part. (December 2 Order.) The

December 2 Order established as a matter of law that “the Assignments are not

ambiguous.” (Id., 7.) It further established the following, pursuant to the

unambiguous terms of the Assignments:

• “[T]axes are deducted from proceeds [(not from Sale Proceeds)] on a per-

transaction basis” and before application of the Allocated Percent (Id., 9)

(emphasis added); and

• Assignors are entitled to the Escrow Funds available as of the date of the

Old Bridge sale—and only those funds—to compensate for the Tax

Balance attributable to the Old Bridge sale (Id., 23).

The Court found a genuine issue of material fact existed as to whether the

Bank had waived intentionally or by estoppel, or was barred by laches from

asserting, its right to challenge Assignors’ calculations of Sale Proceeds on Union

Hill and Harrisburg. (Id., 26–27.) Nonetheless, summary judgment was warranted

in that:

• The Bank did not ratify Assignors’ calculations of Sale Proceeds (Id., 26);

• As to Union Hill and Harrisburg, Assignors’ breaches of Assignment § 1(b)

were immaterial (Id., 30–31);

• Barring a finding of waiver or laches at trial, Assignors are obligated to

escrow the Allocated Percent of Sale Proceeds resulting from Union Hill

and Harrisburg (Id., 24);

• The Bank is not barred by waiver or laches from challenging Assignors’

calculations of Sale Proceeds resulting from English Village, and

Assignors are obligated to escrow the Allocated Percent of Sale Proceeds

resulting therefrom (Id., 32); and

• Assignors did not violate the Ohio Uniform Fraudulent Transfers Act (Id.,

36–37).

All remaining issues and claims were reserved for trial. (See id., 37–38.)

III. CONCLUSIONS OF LAW

The Court first affirms the conclusions of law set out in the December 2

Order, summarized above. Accordingly, Assignors are entitled to the Escrow Funds

available as of the date of the Old Bridge deed in lieu (which are, the monies placed

in escrow following the Union Hill and English Village refinancings). Further, the

Bank’s method of calculating amounts due under the Assignments is the correct

one. And, barring a finding that the Bank relinquished its right to enforce the

Assignments, Assignors owe the Allocated Percent of Sale Proceeds from

Harrisburg, Union Hill, and English Village to the Bank.

Assignors argue, on several theories, that the Bank has relinquished its right

to monies owed under the Assignments—specifically, that: (i) the Bank breached its

duty of good faith and fair dealing, such that Assignors are released from any

obligation under the Assignments; (ii) the Bank intentionally waived its right to

challenge Assignors’ calculations; (iii) the Bank waived by estoppel its right to

challenge Assignors’ calculations; and (iv) the Bank is barred by laches from

challenging Assignors’ calculations. Assignors’ arguments are unavailing.

A. The Bank did not breach its duty of good faith and fair dealing.

Under Ohio law9, claims for breach of the implied duty of good faith and fair

dealing are viable only if born from a breach of the underlying contract. The Ohio

Supreme Court recently offered this detailed explanation:

A cause of action for breach of contract requires the claimant to establish

the existence of a contract, the failure without legal excuse of the other

party to perform when performance is due, and damages or loss

resulting from the breach. . . .

In addition to a contract’s express terms, every contract imposes an

implied duty of good faith and fair dealing in its performance and

enforcement. See Ed Schory & Sons, Inc. v. Soc. Nat’l Bank, 75 Ohio

St.3d 433, 443, 662 N.E.2d 1074 (1996); Restatement of the Law 2d,

Contracts, Section 205 (1981); see also R.C. 1301.304. We have

recognized that “‘“[g]ood faith” is a compact reference to an implied

undertaking not to take opportunistic advantage in a way that could not

have been contemplated at the time of drafting, and which therefore was

not resolved explicitly by the parties.’” Ed Schory & Sons at 443–444,

662 N.E.2d 1074, quoting Kham & Nate’s Shoes No. 2, Inc. v. First Bank

of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990).

As a comment in the Restatement explains, “Good faith performance or

enforcement of a contract emphasizes faithfulness to an agreed common

9 Federal courts sitting in diversity apply state substantive law. Erie R. Co. v.

Tompkins, 304 U.S. 64 (1938). The forum state’s choice-of-law rules determine

which state’s substantive law will apply. Miller v. State Farm Mut. Auto. Ins. Co.,

87 F.3d 822, 824 (6th Cir. 1996). However, “‘[w]here neither party argues that the

forum state’s choice-of-law rules require the court to apply the substantive law of

another state, the court should apply the forum state’s substantive law.’” Wilkes

Assocs. v. Hollander Indus. Corp., 144 F. Supp. 2d 944, 949 n.4 (S.D. Ohio 2001)

(quoting ECHO, Inc. v. Whitson Co., Inc., 52 F.3d 702, 707 (7th Cir. 1995)). Here,

the Assignments provide that they will be governed by Ohio law (see Exs. J-1–60,

§ 8(d)), which all parties consistently rely upon in their briefing. Consequently, the

Court applies the substantive law of Ohio.

purpose and consistency with the justified expectations of the other

party.” Restatement, Section 205, Comment a. However, we have

rejected the contention that a party breaches the implied duty of good

faith and fair dealing merely by seeking to enforce the contract or by

acting as permitted by its express terms. Ed Schory & Sons at 443–444,

662 N.E.2d 1074; see also Wendy’s Int’l, Inc. v. Saverin, 337 F. App’x 471,

477 (6th Cir. 2009) (applying Ohio law); 23 Lord, Williston on Contracts,

Section 63:22 (4th Ed. 2003). Thus, there is no violation of the implied

duty unless there is a breach of a specific obligation imposed by the

contract, such as one that permits a party to exercise discretion in

performing a contractual duty or in rejecting the other party’s

performance. See Ed Schory & Sons at 443–444, 662 N.E.2d 1074; 23

Lord, Section 63:22; Restatement, Section 205, comment e.

Courts in Ohio have therefore recognized that there is no independent

cause of action for breach of the implied duty of good faith and fair

dealing apart from a breach of the underlying contract. . . .

Lucarell v. Nationwide Mut. Ins. Co., 97 N.E.3d 458, 469 (Ohio 2018) (internal

quotation corrected). The Stanbery Parties have neither alleged, argued, or proved

that the Bank breached “a specific obligation imposed by” the Assignments. On this

basis alone, their argument fails.

Nonetheless, the Stanbery Parties zealously argue that the Bank has not

operated in good faith and they are, consequently, absolved of their obligations

under the Assignments. In particular, the Stanbery Parties allege that the Bank

violated its purported duties to immediately notify the parties of its disagreement

with the calculations, and to investigate the provenance of Assignors’ mistaken

methodology.

The Bank did not violate any duty to immediately notify.

In a multi-point argument, the Stanbery Parties assert that the Bank had a

duty to notify them immediately upon receipt of any calculations made using the

erroneous methodology that the Bank would not accept such methodology. On each

point, and in view of the evidence, the Court disagrees.

The Stanbery Parties first assert that they provided “All Required Notices

and Calculations.” (ECF No. 126, 12.) As to the required notices, it has already been

decided as a matter of law that the undeniably untimely notices of sale were

breaches of the Assignments, albeit immaterial ones. (See December 2 Order, 30.)

As to the calculations, the Stanbery Parties produced several drafts of “estimated”

Sale Proceeds calculations for the four Properties, and purportedly “final”

calculations only as to three. The Stanbery Parties argue that the Assignments

required no more of them; that they were required to provide only one “relevant”

calculation and it was not necessary that the calculation be final. (See ECF No. 126,

13; Tr. 260:7–9.) This argument defies common sense—and itself raises a specter of

bad faith. Estimated calculations become irrelevant in the face of a final. What’s

more, the Stanbery Parties’ pre-litigation conduct indicates that they did not

understand the Assignments in that way. The Stanbery Parties repeatedly implied

an intent to provide updated calculations as components of the Sale Proceeds

became known (see e.g., Ex. J-68 (“As we get more accurate and up to date numbers,

we will revise the schedule and sent it to you.”)), and in fact provided no fewer than

six sets of calculations—many revising figures used in previous drafts (Exs. D-131

(May 15, 2015 calculations), P-50 (June 10, 2015 calculations), P-53 (March 9, 2016

calculations), J-74 (June 15, 2016 calculations), P-52 (February 21, 2017

calculations), D-143 (August 4, 2017 calculations)). Although some revisions moved

in favor of the Stanbery Parties, others moved in favor of the Bank.

The notion that the Stanbery Parties were not required to provide final

calculations is also not supported by the Assignments, when read as a whole. It

derives from an awkward interpretation of Section 1(b), which requires the

Stanbery Parties to provide “as soon [after a Sale] as the relevant calculations are

available” their “calculation of the Sale Proceeds resulting from such Sale.” (Exs. J-

1–60, § 1(b).) However, the parties to the Assignments also agreed “to take any and

all additional actions, including, without limitation, the . . . delivery of any and all

documents which [another party] may reasonably request, in order to effect the

intent and purposes of this Assignment and the transactions contemplated hereby.”

(Id., § 8(b).) The Bank is reasonable and fully within its rights under the

Assignments to request—and, to expect—final calculations, along with any and all

supporting documentation in their final and accurate forms. And the Stanbery

Parties are compelled to provide them.10

The Stanbery Parties next argue that their calculation methodology is

“Consistent With The Parties’ Course of Conduct.” (ECF No. 126, 13.) Much of this

argument leans on evidence of the parties’ statements and alleged intentions during

negotiation of the Assignments, principally as to how tax liability would be

accounted for in the computation of Sale Proceeds. The Court has already found the

Assignments to be unambiguous as a matter of law, and declines the Stanbery

10 This includes a final and accurate closing statement for English Village.

Parties’ apparent invitation to consider the possibility that the parties meant what

they did not say in the Assignments. (See December 2 Order (citing Savedoff v.

Access Grp., Inc., 524 F.3d 754, 763 (6th Cir. 2008)).) The Stanbery Parties also

argue that the June 1, 2015 email from Mr. Meyer to Ms. Allen put the Bank on

notice of its position and somehow established a course of conduct. In that email,

Mr. Meyer explained his belief that:

no payment to [the Bank] is to be made until either all of the properties

have been sold or the 8 years have passed and then during the 9th year

all of the net proceeds are added and then the tax liability subtracted. If

there is a plus, it’s paid to [the Bank] over a period of time if the

appraisal applies—otherwise in cash if all has been sold. If taxes exceed

proceeds, nothing is payable to [the Bank] and the Escrow Agent is to

distribute back to the Assignors (Jon, Mark and Ray).

(Ex. J-69.) Although the Stanbery Parties assert that they “could not have been

more clear[,]” that is simply not the case. For example, the above-quoted statement

(i) is silent as to when the Allocated Percent is applied, (ii) is not clear on whether

‘net proceeds minus tax liability’ applies on a per-transaction basis or cumulatively,

(iii) does not specify whether ‘net proceeds minus tax liability’ refers to the

computation of Sale Proceeds or otherwise, and (iv) is not clear on whether the Tax

Balance offset includes Escrow Funds attributable to subsequent Sales.11 In other

words, the statement is sufficiently vague that it could be read as entirely

consistent with the plain and unambiguous language of the Assignments. It

therefore gave the Bank no cause for concern.

11 All of these disputes have been decided as a matter of law, based on the

unambiguous language of the Assignments. (See December 2 Order.)

The Stanbery Parties sum up their argument on the supposed duty to

immediately notify by noting that (a) the Bank’s witnesses characterized the

Stanbery Parties’ calculations as “visibly erroneous,” (b) the Bank would have

reviewed the calculations as they came in and Ms. Allen testified that that was

indeed her practice, and (c) the Bank did not request any additional information

until the summer of 2016 despite offers by the Stanbery Parties. The argument is

not persuasive. None of the cases cited by the Stanbery Parties support the

imposition of a duty to immediately notify them of the Bank’s potential

disagreement with the Assignors’ calculation methodology. Further, nothing in the

evidence indicates that the Bank was acting in bad faith or unreasonably in raising

questions about and objecting to the Assignors’ calculations when and how it did.

(See III.B., infra.)

The Bank did not violate any duty to investigate.

In a similar vein, the Stanbery Parties argue that the Bank had a duty to

investigate once it received Assignors’ calculations. According to the Stanbery

Parties, “[a] duty to inquire or investigate arises where information has been

provided (here the calculations) that should lead the other party to investigate.”

(ECF No. 126, 28.) The Stanbery Parties provide no citation to Ohio law supporting

the imposition of such a duty. They do cite several out-of-state cases—none of which

sets out controlling law, and all of which are easily distinguished on the facts. See

Mooring Capital Fund, LLC v. Phoenix Cent., Inc., No. CIV-06-0006-HE, 2007 WL

2292462 (W.D. Okla. Aug. 7, 2007) (leaving open the possibility that Oklahoma’s

“common law duty to perform [under a contract] with care, skill, reasonable

expediency and faithfulness” could be violated by lender failing to investigate after

borrower notifies it that statement balance was incorrect); Phoenix Light SF Ltd. v.

Deutsche Bank Nat'l Tr. Co., 172 F. Supp. 3d 700 (S.D.N.Y. 2016) (applying New

York law in suit by investors against trustee for breach of fiduciary duty, breach of

contract, and negligence in which the court dismissed investors’ breach of the

implied duty of good faith and fair dealing claim as duplicative of the breach of

contract claim); Hausfeld v. Cohen Milstein Sellers & Toll, PLLC, No. 06-CV-826,

2009 WL 4798155 (E.D. Pa. Nov. 30, 2009) (applying District of Columbia law to

find violation of the duty of good faith and fair dealing when Operating Agreement

required one party to “promptly furnish” capital account balance calculations

following corporate break-up, but calculations were not provided for more than two

months despite the parties participating in a court-facilitated settlement conference

in the interim, at which the court requested the calculations and the offending party

had drafts in his possession but did not produce them); Schuetta v. Aurora Nat’l Life

Assurance Co., No. 13-CV-1007-JPS, 2013 WL 6199248 (E.D. Wisc. Nov. 27, 2013)

(applying Wisconsin law to deny motion to dismiss duty of good faith and fair

dealing claim in suit against annuity issuer by lay annuitant, whom defendant

knew to be unaware of his right to annuity benefit, for failing to correct his

expressed mistaken impression and alert him to procedural requirements to obtain

such benefit). The argument therefore fails.

B. The Bank has not lost its right to challenge Assignors’ Sale

Proceeds calculations.

Having dispatched with the idea that the Bank breached the implied duty of

good faith and fair dealing, the Court next turns to the Stanbery Parties’ argument

that the Bank relinquished its right to challenge Assignors’ Sale Proceeds

calculations. The Stanbery Parties invoke the doctrines of intentional waiver,

waiver by estoppel, and laches. Upon review of the evidence, the Court finds that

the Bank has not waived its right to challenge Assignors’ Sale Proceeds

calculations, nor is it barred by laches from doing so.

The Bank did not waive any right under the Assignments.

Ohio law on waiver of contractual provisions is well-established. The Ohio

Supreme Court explained, nearly a century ago:

A waiver is a voluntary relinquishment of a known right. It may be made

by express words or by conduct which renders impossible a performance

by the other party, or which seems to dispense with complete

performance at a time when the obligor might fully perform. Mere

silence will not amount to waiver where one is not bound to speak.

White Co. v. Canton Transp. Co., 2 N.E.2d 501, 505 (Ohio 1936) (quoting List & Son

Co. v. Chase, 88 N.E. 120, 122 (Ohio 1909)). “The essential elements of a waiver are

an existing right, benefit, or advantage; knowledge, actual or constructive, of the

existence of such right, benefit, or advantage; and an actual intention to relinquish

it or an adequate substitute for such intention.” Weaver v. Weaver, 522 N.E.2d 574,

576 (Ohio 1987) (quotation omitted). The party asserting waiver bears the burden of

proof. White Co., 2 N.E.2d at 504. Waiver must be shown by “a clear, unequivocal,

decisive act of the” waiving party. Id. at 505.

a. No intentional waiver

The Stanbery Parties first argue that the Bank’s purported silence after

receipt of Assignors’ calculations operates as an intentional waiver of its ability to

challenge the methodology used in those calculations. However, as discussed in

III.A.1., supra, the Bank had no duty to speak. The Bank’s silence cannot, therefore,

establish an intentional waiver. See White Co., 2 N.E.2d at 505. The Stanbery

Parties point to no other evidence—let alone clear and unequivocal evidence—that

the Bank had the actual intention to waive any right under the Assignments. The

Court therefore finds that the Bank did not intentionally waive any such right.

b. No waiver by estoppel

The Stanbery Parties next argue that the Bank’s same purported silence

operates as a waiver by estoppel, precluding it from challenging Assignors’

calculations. “Waiver by estoppel allows a party’s inconsistent conduct, rather than

a party’s intent, to establish a waiver of rights.” PHH Mortg. Corp. v. Ramsey, 17

N.E.3d 629, 634 (Ohio Ct. App. 2014) (internal quotations and citations omitted).

Waiver by estoppel exists when “the acts and conduct of a party are inconsistent

with an intent to claim a right, and have been such as to mislead the other party to

his prejudice and thereby estop” the waiving party from insisting upon claiming

such right. Id. (internal quotations and citations omitted). The doctrine “prevents

the would-be wronged party from first acting as if he accepts the flawed

performance long enough for the other party to rely on that and continue delivering

under the contract and then later claiming the contract was breached and damages

are owed.” Ragen v. Hancor, Inc., 920 F. Supp. 2d 810, 818 (N.D. Ohio 2013). In the

Stanbery Parties’ view, the Bank acted as if it accepted Assignors’ incorrect

calculations long enough that they (the Stanbery Parties) relied on such acceptance

and continued to perform under the Assignments, only to later face the Bank’s

Notices of Default. The Court disagrees with this characterization of events.

The Union Hill and English Village refinance transactions did not result in

tax liability for any of the Stanbery Parties. That fact is significant for two reasons:

First, the Sale Proceeds were calculable without having to wait months (or, even,

years) for tax returns to be filed. And, second, there was no disagreement as to the

method for calculating Sale Proceeds. Following these transactions, the Stanbery

Parties submitted Sale Proceeds calculations and supporting documentation to the

Bank, and both sought and received the Bank’s approval of the resulting amounts

due to escrow.

The next Sale was the Old Bridge deed in lieu. As was expected, the deed in

lieu resulted in a Tax Balance. However, the Stanbery Parties received no cash or

non-cash proceeds in exchange for Old Bridge. As a result, the charts—which would,

in subsequent Sales, display the erroneous calculation methodology—gave the Bank

no cause for concern.

Later that month, the Stanbery Parties sold Harrisburg for $44 million. This

was the first Sale for which the Stanbery Parties’ erroneous calculations mattered.

Although a chart containing estimated calculations was sent on June 10, 2015, the

Bank did not receive it until October 15, 2015, due to Ms. Allen’s medical leave.12

The chart, in this instance, does display the erroneous calculation methodology.

However, Ms. Allen testified that she did not review the charts in detail and so did

not recognize the error. Ms. Allen’s decision not to review the charts in detail was

entirely reasonable. Mr. Swedlow had told her that the calculations were based on

estimates, and would be updated in time. The Stanbery Parties provided no

supporting documents, against which Ms. Allen could cross-check any known Sale

Proceeds components (e.g., sale price, debt pay-off, closing costs, etc.). Further,

throughout the course of their discussions, the Stanbery Parties regularly

referenced a reconciliation process after all of the Properties had transacted. The

Stanbery Parties cannot now allege that Ms. Allen’s reasonable response to their

own conduct was inconsistent with the Bank’s intent to claim the benefit of its

bargain, or could in any way mislead the Stanbery Parties to their prejudice.

Union Hill was then sold for $63 million. Ms. Allen received charts related to

this transaction on March 9, 2016, with estimated Sale Proceeds calculations and

“Totals”, aggregating the erroneous calculations for Old Bridge, Harrisburg, and

Union Hill. Ms. Allen again had good reason to defer a detailed review; the sale of

Union Hill was not expected to close for several more weeks. However, within two

days of receiving updated calculations after closing, the Bank engaged counsel to

advise on the Stanbery matter. That September, the Bank asked Assignors to

identify the source of their calculation methodology and provide supporting

12 Despite the Stanbery Parties’ vocal protests, the delay owing to Ms. Allen’s

medical leave is immaterial.

documents. And that November, the Stanbery Parties were officially put on notice

that the Bank disputed their calculation methodology.

The evidence does not establish a single element of waiver by estoppel. The

Bank’s acts and conduct were not inconsistent with an intent to claim its right to

the Allocated Percent of Sale Proceeds, calculated in accordance with the

unambiguous language of the Assignments. Nor were there any acts or conduct on

the part of the Bank that would mislead Assignors as to its intent to claim that

right. It is now clear, the Stanbery Parties were sorely mistaken as to the substance

of the Assignments as written and executed. 13 And, perhaps, they made decisions

they would not have, had they properly understood what the Assignments required

of them. However, it is also clear, their mistake was in no way attributable to the

Bank’s purported acceptance of flawed performance under the Assignments. The

Bank has therefore not waived by estoppel its rights under the Assignments.

The Bank is not barred by laches from asserting its rights

under the Assignments.

Finally, the Stanbery Parties argue that the Bank is barred by laches from

asserting its rights under the Assignments. Laches is defined as

“an omission to assert a right for an unreasonable and unexplained

length of time, under circumstances prejudicial to the adverse party.”

Connin v. Bailey, 15 Ohio St.3d 34, 35, 472 N.E.2d 328 (1984) quoting

Smith v. Smith, 107 Ohio App. 440, 443, 146 N.E.2d 454 (1957), aff’d,

168 Ohio St. 447, 156 N.E.2d 113 (1959). To successfully invoke the

doctrine the party invoking it must establish by a preponderance of the

13 Although equitable remedies such as reformation or rescission may be

available in the event of unilateral mistake (see, e.g., Leach v. Leach, 80 N.E.3d

1044, 1051 (Ohio Ct. App. 2016); In re Duong, 451 B.R. 800, 806–07 (N.D. Ohio

2011)), the parties to this action have neither requested nor argued in favor of any

such relief.

evidence the following four elements: (1) unreasonable delay or lapse of

time in asserting a right; (2) absence of an excuse for the delay; (3)

knowledge, actual or constructive, of the injury or wrong; and (4)

prejudice to the other party. State ex rel. Meyers v. Columbus, 71 Ohio

St.3d 603, 605, 646 N.E.2d 173 (1995). Delay in asserting a right does

not, without more, establish laches. Rather, the person invoking the

doctrine must show that the delay caused material prejudice. Connin,

15 Ohio St.3d at 35–36, 472 N.E.2d 328; Smith, paragraph three of the

syllabus. . . .

Sims v. Anderson, 38 N.E.3d 1123, 1130 (Ohio Ct. App 2015). For the reasons

discussed above, the Bank’s delay in asserting its rights under the Assignments was

neither unreasonable nor unexcused.14 The Bank is therefore not barred by laches

from making a claim for the Allocated Percent of Sale Proceeds, calculated in

accordance with the unambiguous terms of the Assignments.

C. Calculation of Damages

The calculations performed by the Bank’s expert witness, Bruce Knapp of

Doeren Mayhew, accurately reflect the amount of damages resulting from the

Stanbery Parties’ breach of the Assignments. Despite the Stanbery Parties’

assertions to the contrary, the Court is persuaded that any gain from special

distribution fees and all tax liabilities are accurately accounted for within those

calculations.

14 The Stanbery Parties make much of draft calculations performed by Ms.

Allen and Miller Canfield, which were not produced during discovery on account of

being subject to the attorney-client privilege. The Stanbery Parties argue that the

calculations were “lost” due to the Bank’s delay in asserting its rights under the

Assignments, resulting in material prejudice. In light of the Court’s findings on the

first two elements of laches, it need not and does not address this theory of

prejudice.

IV. CONCLUSION

For the reasons set forth above, the Bank is entitled to judgment on Counts I,

II, and III of the Counterclaim and Third-Party Complaint. This Court now enters

JUDGMENT for the Bank and AWARDS it $5,919,761 in accordance with the

following:

1. Damages for breach of the Union Hill Assignments in the amount of:

a. $1,135,089 from Jonathan P. Meyer;

b. $1,330,473 from Mark Pottschmidt; and

c. $759,827 from Ray Brunt.

2. Damages for breach of the Harrisburg Assignments in the amount of:

a. $224,683 from Jonathan P. Meyer;

b. $495,454 from Mark Pottschmidt; and

c. $252,528 from Ray Brunt.

3. Damages for breach of the English Village Assignments in the amount

of:

a. $409,345 from Jonathan P. Meyer;

b. $841,528 from Mark Pottschmidt; and

c. $470,834 from Ray Brunt.

Because all four Properties have experienced a Qualifying Sale, the damages

awarded hereunder need not be deposited into escrow, but shall be paid directly to

the Bank.

As to the existing Escrow Funds, which are currently held in deposit with the

Court, such funds are ORDERED to be immediately released to Assignors. All

remaining prayers for declaratory relief in Assignors’ Complaint are DENIED.

IT IS SO ORDERED.

/s/ Sarah D. Morrison

SARAH D. MORRISON

UNITED STATES DISTRICT JUDGE