Balcor Co. v. Daejen (Massachusetts) Inc.

2 Mass. L. Rptr. 30
CourtMassachusetts Superior Court
DecidedMarch 30, 1994
DocketNo. 91-5839-E
StatusPublished

This text of 2 Mass. L. Rptr. 30 (Balcor Co. v. Daejen (Massachusetts) Inc.) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Balcor Co. v. Daejen (Massachusetts) Inc., 2 Mass. L. Rptr. 30 (Mass. Ct. App. 1994).

Opinion

Garsh, J.

This business dispute arises out of the purchase and assignment of a first mortgage from the plaintiff, The Balcor Company (“Balcor") to the third-party defendant NPH Realty Ltd. (“NPH”). The defendants-cross claimants and third-party plaintiffs Kenneth Michel and Lawrence Litwak, as trustees of the Larken Realty Trust (“Larken”), allege that defendant-cross claim defendant Daejen (Massachusetts) Inc. (“Daejen”) and NPH orchestrated the assignment of Balcor’s mortgage to NPH specifically to defeat Larken’s second mortgage. Daejen now moves for summary judgment on Counts I (chapter 93A), IV (specific performance) and V (declaratory judgment) of Larken’s cross-claims and NPH moves for summary judgment on all counts of Larken’s third-party complaint. For the reasons stated below, the motions for summary judgment are allowed.

BACKGROUND

The following facts are not in dispute. In 1984, Larken purchased an office building (the “Property”) located at 77 North Washington Street, in Boston, for approximately $3.2 million. In 1986, Larken refinanced the Property through Balcor. In connection with the refinancing, Larken executed a note and conveyed a mortgage to Balcor in the amount of $6.1 million dollars. In May 1988, Larken sold the Property to Daejen for $ 11.2 million. In this transaction, Daejen assumed Larken’s obligations on the Balcor mortgage in the same amount. Both the Balcor note and the Larken note were due and payable on August 19, 1991. Larken was aware that the Property was the sole asset of Daejen, and that Daejen was the sole obligor on the second Larken mortgage.

Unfortunately, property values in the Boston area declined dramatically. When both the Balcor and Larken notes became due, Daejen was unable to make either payment and defaulted. Consequently, on August 30, 1991, Balcor obtained a preliminary injunction allowing it to take possession of the Property as mortgagee-in-possession. In addition, Balcor scheduled a foreclosure sale for November 13, 1991. Between August and November 1991, Daejen attempted to negotiate a workout agreement with both Balcor and Larken. These attempts were not successful.

As the foreclosure date approached, Daejen continued to negotiate with Balcor. Also during this time, Daejen Holdings PLC (“Holdings”), a publicly traded [31]*31British company that was Daejen’s corporate grandparent, actively sought a friendly third-party investor who could buy Balcor’s note and receive an assignment of Balcor’s first mortgage. The first person Holdings contacted was Michael Barnett (“Barnett”) of London, England. Barnett declined to participate in any transaction regarding the Balcor mortgage because he was a principal in Holdings’ independent accounting firm and considered such a transaction to be a conflict of interest. Barnett suggested to Holdings that Isaac Babad (“Babad”), also of London, England, might be interested in purchasing the Balcor mortgage at a discount (“the Transaction”). Prior to this Transaction, Babad had purchased various properties from Holdings, and he was a personal acquaintance of Solomon Freshwater (“Freshwater”), a director of Holdings.3 Freshwater and Babad met to discuss the Property and Babad reviewed certain documents, including rent rolls and revenues therefrom. Foreclosure by Balcor was imminent. Babad requested that Holdings finance the purchase of the Balcor first mortgage. One factor that Freshwater considered in Holdings’ making such a loan was Babad’s willingness to be flexible in forbearing from immediately foreclosing on the Property. Eventually, Babad and Holdings came to a financial arrangement whereby Holdings loaned NAH Properties, Ltd. (“NAH”), a British Limited Company controlled by Babad, a total of $5.2 million to purchase Balcor’s first mortgage. As part of the agreement, Babad and his wife executed personal guarantees on the performance of this loan. Babad and his wife had substantial assets and would have been able to honor their personal guaranty in an amount reasonably anticipated to be the shortfall over the value of the Property. Holdings also obtained a lien on the Property to secure the loan.

Babad’s stated desire to purchase the Balcor mortgage was based in part on the following: a) the immediate gain of $400,000, which was the difference between the purchase price of $5.2 million and the principal due under the Balcor first mortgage of $5.6 million: and b) the Property’s positive cash flow, which would immediately become available to the purchaser of the mortgage. Even during a difficult real estate market, the Property generated positive cash income. Babad further states that all dealings between himself and his controlled companies and Holdings and-Balcor were completely at arms-length and motivated only by the prospect of profit and income.

On November 27, 1991, Holdings advanced to NAH $4.2 million of the $5.2 million loan. The remainder of the money had previously been wired to attorneys for the entity managing the Property for Daejen to be used as a deposit should a deal with Balcor be consummated. These funds were sent to Balcor. There is no evidence of any agreement with Babad before the “deposit” funds were wired.

On December 4, 1991, a company called NPH Really, Ltd. (“NPH”) was incorporated in New York. All of NPH’s stock is owned by NAH. Then, on December 10, 1991, NPH executed an “Assignment of Loan Documents” with Balcor that reflected the acquisition of Balcor’s first mortgage in exchange for $5.2 million. Consequently, on December 12, 1991, Balcor received a wire transfer of $4.72 million from NPH. Daejen advanced no funds to NAH or NPH. As a result of the purchase and assignment, NPH stepped into the position of first mortgagee, while Larken remained in second position.

On March 12, 1993, a foreclosure sale of the Properly was conducted and NPH was the high bidder for the Property with a $5.2 million bid. Larken’s interest in the Property was extinguished. Currently, NPH is the record owner of the Property. The present controversy before the court concerns the validity of the first mortgage.

DISCUSSION

Larken argues that a trial is necessary to unravel an alleged agency relationship between Holdings, NPH, and Daejen. Larken contends that Holdings and NPH “fronted” for Daejen. Alternatively, Larken argues that a trial is necessary to determine how much control Holdings exercised over Daejen and NPH in order to “pierce the corporate veil.” Larken also claims that summary judgment is inappropriate because a trial is necessary to go behind the form of Balcor’s assignment to NPH in order to determine the true intent of the parties.

Summary judgment shall be granted where there are no material facts in dispute and the moving party is entitled to judgment as a matter of law. Cassesso v. Commissioner of Correction, 390 Mass. 419, 422 (1983); Community National Bank v. Dawes, 369 Mass. 550, 553 (1976): Mass.R.Civ.P. 56(c). The moving party bears the burden of affirmatively demonstrating the absence of a triable issue, and that the moving party is entitled to judgment as a matter of law. Pederson v. Time Inc., 404 Mass. 14, 16-17 (1989). With respect to any claim on which the party moving for summary judgment does not have the burden of proof at trial, it may demonstrate the absence of a triable issue either by submitting affirmative evidence that negates an essential element of the opponent’s case or “by demonstrating that proof of that element is unlikely to be forthcoming at trial.” Flesner v. Technical Communications Corp., 410 Mass. 805, 809 (1991); accord, Kourouvacilis v.

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2 Mass. L. Rptr. 30, Counsel Stack Legal Research, https://law.counselstack.com/opinion/balcor-co-v-daejen-massachusetts-inc-masssuperct-1994.