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U.S. Home Corp. v. Settlers Crossing, L.L.C.

United States District Court, D. Maryland

October 16, 2018

U.S. HOME CORPORATION, Plaintiff/Counter-Defendant
v.
SETTLER'S CROSSING, LLC, et al., Defendants/Counter-Plaintiff and LENNAR CORPORATION, Counter-Defendant and STEVEN B. SANDLER, Defendant

          REPORT AND RECOMMENDATIONS RELATED TO MOTION FOR ATTORNEYS' FEES BY DEFENDANT iSTAR FINANCIAL, INC.

          Gina L. Simms United States Magistrate Judge

         This “Report and Recommendations” addresses the petitions for attorneys' fees and costs filed by Defendant/Counter-Plaintiff iStar Financial, Inc. (“iStar Financial”). (ECF Nos. 736, 787, 796).

         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] L.R. 105.6. As set forth more fully below, I ultimately recommend that the Court GRANT IN PART, DENY IN PART the motion for attorneys' fees, costs, and expenses, with the reductions 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, 624, 707, 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 2007, 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 (“Collateral Assignment”). (ECF No. 691). 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. (ECF No. 707, p. 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 judgment in U.S. District Court for the Eastern District of Virginia (“ED VA Action”). In this 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 for the District of 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 Sellers 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).

         A consequence of the May 27, 2008 Bevard Property sale not occurring was that Sellers defaulted on their mortgage bridge loan with iStar Financial.

         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). 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 Sandler refused to honor.

         By July 2008, iStar Financial had assumed the rights under the Collateral Assignment. 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.[2]

         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.

         On September 16, 2008, iStar Financial, SC, WPE, BDC, Sandler (“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 Defendants' summary judgment motion and filed its own summary judgment 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, p. 3). 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 judgment in the First Maryland Action. (FMA, ECF Nos. 97, 98). Also in that Opinion, Judge Chasanow resolved pre-discovery cross motions for summary judgment, denying Defendants' and Plaintiff's summary judgment motions, which allowed the litigation to continue. (ECF No. 42).

         On May 18, 2009, U.S. Home filed its First Amended Complaint. 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. Only Count VII related to all Defendants, including iStar Financial. In Count VII, U.S. Home sought a declaratory judgment that it was under no obligation to sell the Bevard Property based on the alleged failure of the Sellers to satisfy various conditions precedent; thus, it was entitled to the return of the $20 million deposit, as well as interest, attorney's fees, and costs. (ECF No. 52).[3]

         On June 30, 2009, iStar Financial and Sandler-controlled entities WPE, Settler's Crossing, and BDC 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).

         Thereafter, on September 24, 2009, iStar Financial exercised its rights under the Collateral Assignment by initiating a foreclosure action in the Circuit Court for 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.[4]

         II. ADDITIONAL PROCEDURAL BACKGROUND RELEVANT TO DETERMINING REASONABLENESS OF PETITION

         A. Long and Litigious Discovery Phase

         March 20, 2009, represented 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 four 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 issued another order directing that U.S. Home must “commence and conclude” its inspection of the Bevard Property between 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 life of 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 same law firm primarily represented Defendant/Counter-Plaintiff iStar Financial. A second law firm also represented iStar Financial in connection with the appeal. What is abundantly clear is that counsel for all parties dedicated a substantial amount of time and resources to this litigation.

         1. Pre-trial Rulings

         In 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). iStar Financial opposed the summary judgment motion, and also filed a cross-motion for partial summary judgment (breach of contract, breach of environmental representations and warranties, declaratory judgment claims), and also sought injunctive relief. (ECF Nos. 575, 579, 605). Sandler, WPE, SC, and BDC also opposed U.S. Home's motion, and sought partial summary judgment on U.S. Home's fraud-related claims against them. (ECF Nos. 571 - 574).

         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). Judge Chasanow entered judgment in favor of U.S. Home against iStar Financial as to the fraud and negligent misrepresentation claims in iStar Financial's Amended Counterclaim. (Id.). With respect to Sandler, Judge Chasanow denied its cross motion for summary judgment, and denied U.S. Home's 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. Home's First Amended Complaint.

         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, p.32). 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 the Property (depending on the outcome of some zoning issues). (Id.).[6]

         2. 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. 707, p. 52).[7] Judge Chasanow also found the testimony of U.S. Home's experts non-persuasive, and in the case of one expert, she found the expert to be not credible. (Id., p. 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., p. 61). 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, pp. 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 Sellers 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 access to the Property through the court, Purchaser never exercised that right. . . Purchaser was determined to ‘terminate [the] contract and get [its] deposit back via legal action.'

(ECF No. 707, pp. 71-73).

         Judge Chasanow found that iStar Financial was entitled to relief under the Purchase Agreement because of U.S. Home's default because it “[stood] in the shoes of [Sellers].” (ECF No. 707, pp. 73-74). The Second Amendment to the Purchase Agreement required specific performance in the form of proceeding to settlement with the purchase price to be paid to iStar Financial. (Id.).

         Regarding the Joint Counterclaim, Judge Chasanow dismissed it as moot, ruling that the November 2009 foreclosure sale meant that the Sellers no longer had an interest in the Bevard property. (ECF Nos. 707, p.31; 708).

         Before judgment could be entered in favor of iStar Financial on Counts I-III of its amended counterclaim, and before the amount of damages could be quantified, issues related to 2013 zoning regulations and their potential impact on the Bevard Property had to be resolved, which required additional briefing. (ECF No. 730, pp. 2-3). iStar Financial and U.S. Home submitted post-trial briefs, and following a November 2014 hearing, Judge Chasanow issued another comprehensive memorandum opinion and order. (ECF Nos. 730, 731). Ultimately, Judge Chasanow entered judgment in favor of iStar Financial and Sandler against U.S. Home on Counts I-III of its First Amended Complaint. She directed U.S. Home to proceed to settlement within 30 days. Judge Chasanow further held that iStar Financial should be awarded $114 million, plus interest, at the rate of 12% per year, calculated on a per diem basis, from May 27, 2008, until U.S. Home proceeded to Settlement. (ECF Nos. 730, p. 45; 731).

         3. ...


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