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U.S. Home Corp. v. Lennar Corp.

United States District Court, D. Maryland

October 1, 2018

U.S. HOME CORPORATION, Plaintiff/Counterdefendant
v.
SETTLERS CROSSING, L.L.C., et. al. Defendants/CounterPlaintiff and LENNAR CORPORATION, Counterdefendant and STEVEN B. SANDLER, Defendant

          REPORT AND RECOMMENDATIONS RELATED TO MOTION FOR ATTORNEY'S FEES AND COSTS BY DEFENDANT STEVEN B. SANDLER

          Gina L. Simms, United States Magistrate Judge.

         This “Report and Recommendations” addresses the petitions for attorneys' fees and costs filed by Defendant Steven B. Sandler (“Sandler”)(ECF Nos. 735, 786, 804).

         Pursuant to 28 U.S.C. § 636, and Local Rule 301.5(b), the Honorable Paula Xinis referred this matter to me to issue a report and make recommendations (ECF No. 795). The parties have submitted numerous memoranda and supporting documentation, thoroughly arguing their respective positions. (ECF Nos. 735, 786, 789, 791, 792, 804, 820, 823, 829, 839, 831, 846). I believe that the issues have been fully briefed, and do not believe that any additional hearings are necessary.[1] Local Rule 105.6. As set forth more fully below, I ultimately recommend that the Court grant the motions for attorneys' fees and award costs, however, reduce the amounts sought as set forth more fully herein.

         I. FACTUAL & PROCEDURAL BACKGROUND

         This is a case about a commercial real estate transaction that was never consummated, which led to approximately nine years of heated, protracted litigation between the parties. Detailed descriptions of the facts can be found in the comprehensive memorandum opinions issued by the Honorable Deborah K. Chasanow in 2009, 2014 and 2015 (See, e.g., ECF Nos. 41, 624707, 730, 765). This report includes a, relatively-speaking, shorter summary of facts which I believe are relevant to the issues raised in Sandler's attorney fee petition. The summary is culled from Judge Chasanow's opinions, and from my review of more than 700 docket sheet entries and many of the corresponding pleadings filed.

         In 2005, Plaintiff/Counter-defendant U.S. Home Corporation, a subsidiary of Counter-Defendant Lennar Corporation (“U.S. Home, ” “Lennar, ” or “Purchaser”), agreed to purchase from Defendant/Counter-Plaintiff Settler's Crossing, LLC (“SC”) its entire membership interest in Defendant/Counter-Plaintiff Washington Park Estates, LLC (“WPE”). WPE held title to approximately 1, 250 acres of undeveloped farmland in Prince George's County, Maryland (“Bevard Property”) that was of interest to U.S. Home for residential development. Thus, through the membership interest transaction, U.S. Home would acquire the Bevard Property, and erect single family homes upon it. (ECF No. 707).

         To effectuate the transaction, on November 15, 2005 U.S. Home entered into an agreement of purchase and sale of the WPE membership interests (“Purchase Agreement”) with S.C. and WPE (“the Sellers”). Simultaneously, U.S. Home and Defendant/Counter-Plaintiff Bevard Development Company (“BDC”) executed a “Contract for Services, ” pursuant to which BDC would perform certain development work on the Bevard Property. In total, U.S. Home agreed to pay $200 million for these contracts, and made deposits totaling $20 million. In early December 2005, Defendant Sandler, who controlled the Sellers and BDC, signed two guaranty agreements, personally promising the return of U.S. Home's deposit money should Sellers breach the contracts. (ECF No. 707).

         Between late 2005 until at least the Spring 2006, the Purchaser and Sellers cooperated with each other in their development-related efforts, with Seller granting Purchaser and its engineering or environmental consultants access to the Bevard Property to conduct investigations and analyses. (ECF No. 624). U.S. Home learned that some of the land contained heavy metals and sludge. U.S. Home also contracted someone to engage in remediation work on the property. Id.

         According to the Purchase Agreement, several conditions precedent needed to be satisfied before U.S. Home was obligated to go to settlement. By the Summer of 2006, at least one or two conditions remained unsatisfied; a closing date of March 30, 2007 was set. Id. When the residential housing market showed signs of softening in 2006, U.S. Home sought to renegotiate the Purchase Agreement. (ECF No. 707). In May 2017, U.S. Home, its parent, Lennar, and Sellers executed a Second Amendment to the Purchase Agreement and a First Amendment to the Contract for Services. The price for these contracts was about $134 million. The conditions precedent to closing were modified, one of which was that U.S. Home had to certify that it had no actual knowledge that the Sellers' initial representations and warranties (including related to the environmental condition of the property) were untrue. Id. Another condition was that U.S. Home would guarantee specific performance under the contract. Id.

         At or about the same time that U.S. Home and Sellers sought to renegotiate the Purchase Agreement, Sellers experienced financial difficulties and sought a mortgage bridge loan form Defendant/Counter-Plaintiff iStar Financial, Inc. (“iStar Financial”). On June 19, 2007, iStar Financial made a $100 million loan to Sellers, using the Bevard Property as security, with the idea that it would be repaid at the time of closing. In addition, Sellers collaterally assigned their respective rights, title, and interests under the Second Amendment to the Purchase Agreement and under Contract for Services to iStar Financial. Id. The collateral assignments included Defendant Sandler's consent as guarantor. (ECF No. 649). Settlement was to occur on December 5, 2007.

         Also on that same day, U.S. Home and Sellers executed a Third Amendment to the Purchase Agreement, which provided that if iStar had to foreclose on the property then the Purchase Agreement would be modified such that the Bevard Property would be sold instead of the WPE membership interest being sold. Id. Finally, on June 19, 2007, U.S. Home entered into a “Consent and Estoppel Agreement” with iStar Financial, acknowledging Sellers' assignment of rights to iStar Financial. By this agreement, U.S. Home also made certain representations about the Bevard property, including that “to the best of [Purchaser's] knowledge, having made due inquiry, ” U.S. Home had “no existing defenses, offsets claims or credits with respect to the performance of its obligations [under the two contracts], ” and that neither party was in “breach of any of [its] respective obligations under the [agreements].” (ECF No. 707, p. 13).

         Concomitant with the signing of the above-referenced agreements, Lennar began seeking a joint venture partner for the Bevard-related transaction to alleviate some of Lennar's financial concerns as U.S. housing market conditions continued to decline. (ECF 707). Lennar represented to at least one potential partner that it was unaware of any hazardous conditions on the Bevard Property. Id. Later, when its efforts to locate a financial partner were unsuccessful, “Lennar began to investigate strategies to delay the [December 5, 2017] settlement date, if not avoid closing altogether.” (ECF No. 707, p.16). Documents and testimony later adduced at trial showed that Lennar was analyzing the agreements and was actively “looking at ways to off-load the deal, ” including looking for an “escape clause” in the contract. (Id., at 18).

         After Sellers noted that development work had ceased on the Bevard Property, they made inquiries of Purchaser as to the status, which were ignored. Id. On November 21, 2007, Lennar notified Sellers that Sellers had failed to satisfy conditions precedent to closing; however, it did not identify those deficiencies. Thereafter, on December 5, 2007, Purchaser failed to appear for settlement.

         On December 6, 2007, the Sellers filed an action for declaratory judgement in U.S. District Court for the Eastern District of Virginia (“ED VA Action”). In that action, Sellers did not allege breach of the Purchase Agreement by U.S. Home, but, rather, sought that court's assistance in identifying U.S. Home's list of unsatisfied conditions precedent that were a barrier to the sale occurring. (ECF No. 707). Following Sellers' initiation of suit against Purchaser on December 6, 2007, U.S. Home filed a motion to transfer that case to U.S. District Court in Maryland on December 26, 2007. On January 25, 2008, U.S. District Judge Claude Hilton granted U.S. Home's request, and the Eastern District of Virginia case was transferred to U.S. District Court-Maryland and assigned to Judge Chasanow, No. DKC 08-267 (“First Maryland Action” or “FMA”) (FMA, ECF Nos. 15, 16).

         In January 2008, U.S. Home sought permission to “enter” the Bevard Property to conduct “investigations, studies and tests [that it deemed] necessary or appropriate.” (ECF No. 707). U.S. Home asserted that a provision in the Purchase Agreement gave them the right to such access. Sellers, suspicious of U.S. Home, denied access. Id.

         Between January 2008 - March 2008, Sellers continued to work to resolve questions regarding whether the conditions precedent to the sale were satisfied so that settlement could occur. (ECF No. 707). On March 12, 2008, the First Maryland Action was referred to U.S. Magistrate Judge William Connelly for discovery and scheduling (FMA ECF No. 29). In April 2008, U.S. Home filed a motion to compel inspect of the Bevard Property, and also called for settlement to occur on May 27, 2008. (ECF Nos. 649, 707).

         On May 16, 2008, U.S. Home notified Sellers that they were in default because of an alleged refusal to grant U.S. Home access to the Bevard property. Id. This default triggered contractual cure obligations for Seller and iStar Financial under their respective agreements. (ECF No. 707). Subsequently, U.S. Home notified Sellers that it was not obligated to proceed to settlement, which Sellers responded to by serving a May 30, 2008 notice of default on U.S. Home. (ECF Nos. 649, 707).

         On June 24, 2008, U.S. Magistrate Judge William Connelly held a motions hearing in the First Maryland Action, addressing issues including U.S. Home's motion to compel inspection of the Bevard Property. (FMA ECF No. 64). Thereafter, by Order dated June 27, 2008, Judge Connelly found that U.S. Home had the right to inspect the Bevard Property, and gave them a given a six-week period to accomplish this. Id. Despite Judge Connelly's June 27, 2008 Order, U.S. Home never availed itself of its right to inspect the Bevard Property (ECF No. 707). Instead, on July 3, 2008, it terminated the Purchase Agreement and Contract for Services “as it had planned to do since shortly after [Sellers denied its request for access].” (ECF No. 707, p. 26). U.S. Home demanded the refund of the $20 million deposits, which Sellers and Sander refused to honor.

         Thereafter, on July 17, 2008, U.S. Home filed a four-count Complaint against iStar Financial, Sandler and the three entities that he controlled, No. PX-08-1863 (“the Instant Case”). The complaint contained several breach of contract claims related to Sellers “refusal” to grant Lennar access to the Bevard Property. U.S. Home sought return of its $20 million deposit.

         On May 18, 2009, U.S. Home filed its First Amended Complaint which contained seven counts. Counts I, IV, V and VI related to two entities that Sandler controlled: WPE and Settler's Crossing. Counts II and III, related to Defendants BDC and Sandler, respectively. Count VII related to all Defendants. In brief, the First Amended Complaint added fraud claims based on the Sellers' alleged failure to disclose certain environmental conditions on the property (e.g., sewage sludge), as well as breach of environmental representations and warranties. The First Amended Complaint also alleged breaches of the duties to return the deposits equaling $20 million. Sandler and the entities that he controlled-- BDC, Settler's Crossing and WPE-- were identified in various counts. (ECF. No. 52). iStar Financial was also named in the First Amended Complaint.

         On June 30, 2009, iStar Financial and Sandler-controlled entities WPE, Settler's Crossing and BDE filed a joint counterclaim for declaratory relief and seeking specific performance of U.S. Home's obligations under the Purchase Agreement and Contract for Services (ECF No. 66).

         A consequence of the May 27, 2008 Bevard Property sale not occurring was that Sellers defaulted on their mortgage bridge loan with iStar Financial. Thus, on September 24, 2009, iStar Financial exercised its rights under the collateral assignments to the Purchase Agreement and Contract for Services by initiating a foreclosure action in the Circuit Court of Prince George's County. (ECF No. 649). In November 2009, the Bevard Property was sold to a limited liability company formed by iStar Financial. Id.

         On December 22, 2011, iStar Financial filed a motion for leave to separately amend its counterclaim, alleging that new facts and claims had been unearthed during discovery. (ECF Nos. 294, 447). iStar Financial's First Amended Counterclaim had a total of six claims: three of which sought injunctive relief identical to that sought by WPE, SC, and BDC in the Joint Counterclaim; and the other three raised claims against U.S. Home for fraudulent inducement, negligent misrepresentation, and fraudulent concealment related to the consent and estoppel agreement. Id. iStar Financial was the only party to the Amended Counterclaim.[2]

         II. ADDITIONAL PROCEDURAL BACKGROUND: OFTEN SIMULTANEOUS & PROTRACTED LITIGATION

         A. First Maryland Action

         On February 8, 2008, a scheduling order was entered, which set June 23, 2008 as the deadline for the close of discovery (ECF No. 41). Between February 2008 - July 2008, before the Instant Case was filed, SC, WPE, and U.S. Home vigorously litigated the First Maryland Action. For example, in May 2008, SC and WPE moved for summary judgment, asserting that all conditions precedent to the settlement had been satisfied and seeking specific performance of U.S. Home under the Purchase Agreement. (FMA ECF No. 36). Later in May 2008, U.S. Home moved to dismiss the First Maryland Action on jurisdictional grounds (FMA ECF No. 45). In addition, U.S. Home filed a motion for leave to file an amended Answer (FMA ECF. No. 51). Moreover, the parties filed various discovery-related motions cross motions for protective orders, and a motion to compel inspection of the property (FMA, ECF No. 33, 35).[3]

         On August 11, 2008, Settler's Crossing, WPE, Sandler, and iStar Financial filed a motion to consolidate the First Maryland Action with the Instant Case.

         Between mid-August 2008 - November 2008, the parties continued to vigorously litigate the First Maryland Action, while, as outlined below in Section II.B., simultaneously litigating issues in the Instant Case. In the First Maryland Action, the parties also engaged in supplemental briefing related to the dispositive motions, and filed additional discovery-related motions.

         B. The Instant Case

         After the August 2008 filing of the motion to consolidate the First Maryland Action with the Instant Case, SC, WPE, BDC, Sandler and iStar Financial, Inc. (“Defendants”) filed a motion for summary judgment in the Instant Case. (ECF No. 14). Between September 2008 - February 2009, U.S. Home (“Plaintiff”) opposed the Defendant's summary judgement motion and filed its own summary judgement motion.

         By Memorandum Opinion and Order issued on March 19, 2009, Judge Chasanow granted U.S. Home's motion to dismiss the First Maryland Action, finding that Sellers' complaint had failed to set forth a ripe case or controversy. (ECF No. 41 at 3).[4] Judge Chasanow denied as moot the motion to consolidate the First Maryland Action and the Instant Action, and denied as moot Sellers' motion for summary judgement in the First Maryland Action. (FMA, ECF Nos. 97, 98). Also in that Opinion, Judge Chasanow resolved pre-discovery cross motions for summary judgement, denying Defendants' and Plaintiff's summary judgment motions, which allowed the litigation to continue. (ECF No. 42).

         1. Long and Litigious Discovery Phase

         March 20, 2009 was a significant marker in the Instant Case: it was the day that Judge Connelly began presiding over what would become a lengthy, highly-contentious, discovery process that lasted approximately 4 years.

         During a roughly four-year period, more than 500 docket entries were generated. Motions to compel documents, motion to compel depositions, motions to quash subpoenas, motions for protective orders, motions for clarifications of orders, motions to increase the number of fact witness depositions, motions to stay the proceedings, and motions to seal were just a few of the myriad of pleadings filed. There were also two evidentiary disputes related to attorney client privilege; attorney-client privilege and work product issues later became the subject of an appeal to the Fourth Circuit. All of these pleadings were fully briefed, and in some cases these motions resulted in hearings, followed by orders issued by Judge Chasanow or Judge Connelly (some of which were appealed to Judge Chasanow).[5]

         Also during discovery in the Instant Case, Judge Connelly another order directing that U.S. Home must “commence and conclude” its inspection of the Bevard Property during June 2010 - July 2010. U.S. Home never availed itself of this second opportunity, (ECF. No. 114). Furthermore, during this protracted litigation, there were interrogatories, requests for production of documents, numerous document subpoenas (some served on third parties), depositions of more than 60 people were taken. Moreover, at one point, Judge Connelly required weekly status reports regarding discovery disputes.

         During the lives of both the First Maryland Action and the Instant Case, U.S. Home/Lennar employed seven law firms, which handled the myriad of discovery-related, and later, trial and appellate issues. In contrast, the law firms representing Defendants/Counter-Plaintiffs Sandler, the Sandler-related entities and iStar Financial remained virtually the same. What is abundantly clear is that counsel for all parties dedicated a substantial amount of time and resources to this litigation.

         2. Pre-trial Rulings

         August 2013, U.S. Home filed a motion for summary judgment as to all breach of contract and breach of guaranty claims, the fraud and negligent misrepresentation claims, and all claims for injunctive relief. (ECF No. 558). Sandler opposed the summary judgment motions, and also filed a cross-motion for summary judgment as to U.S. Homes' breach of guaranty claims lodged against him (ECF Nos. 571, 572). WPE, SC, and BDC also opposed U.S. motion, and sought partial summary judgment on U.S. Homes' fraud-related claims against them (ECF Nos., 573, 574). iStar Financial also filed a motion for partial summary judgment (breach of contract, breach of environmental representations and warranties, declaratory judgment claims), and also sought injunctive relief (ECF No. 575).

         In January 2014, Judge Chasanow issued a memorandum opinion and order on all of the post-discovery summary judgment and cross summary judgment motions that were filed (ECF Nos. 624, 625). With respect to Sandler, Judge Chasanow denied its cross motion for summary judgment, and denied U.S. Homes' summary judgment motion. Regarding WPE, SC, and BDC, Judge Chasanow entered judgment in their favor against U.S. Home as to the fraud claims advanced in U.S. Homes' First Amended Complaint. Judge Chasanow also entered judgment in favor of U.S. Homes against iStar Financial as to the fraud and negligent misrepresentation claims in iStar Financial's Amended Counterclaim, and granted iStar Financial summary judgment motion on U.S. Homes' fraud claims. (Id.).

         Following Judge Chasanow's rulings, then, two issues remained for trial, namely: (a) whether Sellers breached the environmental representations and warranties provision in the Purchase Agreement; and (b) whether Sellers breached the Purchase Agreement by denying U.S. Home's request for access to the Bevard Property. (ECF No. 707 at 32).[6] If Sellers were in breach under either of these two theories, then U.S. Home would be entitled to the return of its deposits. If Sellers were not in breach under either of these two theories, then iStar Financial could have been entitled to specific performance- sale of Property (depending on the outcome of some zoning issues). Id.

         WPE, SC, and BDC remained in the litigation in the form of the Joint Counterclaim until after the 2014 bench trial in the Instant Case, when Judge Chasanow issued her memorandum opinion containing her findings of fact and conclusions of law. (ECF Nos. 707, 708).

         3. Bench Trial and Post- Trial Litigation

         From March 31, 2014- April 15, 2014, Judge Chasanow conducted a bench trial in the Instant Case. The evidence adduced at trial included more than 100 exhibits and testimony by environmental experts called by both parties. (ECF Nos. 675-692). Regarding Sellers' environmental representations, Judge Chasanow found “highly credible” the testimony of iStar Financial's four scientific expert witnesses (ECF No. 70 at 52). Judge Chasanow also found the testimony of U.S. Home's experts non-persuasive, and in the case of one expert, she found it to be not credible. (Id. at 49). Judge Chasanow held that U.S. Home failed to demonstrate, inter alia, that the source of the hazardous materials “ was something other than what was disclosed in the environmental reports provided by seller." (Id. at 61).[7] Furthermore, Judge Chasanow held that Sellers' denial of property access to U.S. Home did not constitute a breach of the contract for a myriad of reasons. (ECF No. 707 at 65-73). For instance, Judge Chasanow found that U.S. Home acted in bad faith in its access request; it was merely a tactic to delay purchasing the property, which made Sellers' denial of that request reasonable, and Seller was had not breached its obligations under the Purchase Agreement:

The evidence demonstrated that, by at least October 1, 2007, Purchaser viewed the Bevard transaction as a financial albatross and actively sought to relieve itself of this burden. . . . When Purchaser was unable to find a joint venture partner. . .to assume its contractual obligations, it retained a ‘team of high priced lawyers and consultants' to search for an “escape clause” in the Purchase Agreement. . . . The evidence shows that the purpose of Purchaser's request for access was to delay closing while it settled on a strategy to avoid its obligations under the Bevard contracts. This conclusion is supported by the fact that Purchaser later rejected Seller's offer of compromise as to the access issue and that, after gaining a right of ...

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