Jackson v. Roosevelt Federal Savings & Loan Ass'n

702 F.2d 674
CourtCourt of Appeals for the Eighth Circuit
DecidedMarch 11, 1983
DocketNo. 82-1193
StatusPublished
Cited by4 cases

This text of 702 F.2d 674 (Jackson v. Roosevelt Federal Savings & Loan Ass'n) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Jackson v. Roosevelt Federal Savings & Loan Ass'n, 702 F.2d 674 (8th Cir. 1983).

Opinion

HENLEY, Senior Circuit Judge.

D. Bruce Jackson, a partner in Aries Gottlieb Allentown Joint Venture (Aries), a Pennsylvania partnership, and the five other members of the Aries partnership brought a diversity action against Roosevelt Federal Savings & Loan Association (Roosevelt Federal) alleging breach of a loan commitment agreement. Aries now appeals from the order of the district court1 granting summary judgment in favor of Roosevelt Federal. We affirm.

In early summer, 1979 the Aries partnership applied to Roosevelt Federal through a mortgage brokerage firm for a long-term loan of $1,987,500.00 to finance a shopping center development on a tract of land located in Lehigh County, Pennsylvania. Appellants sought to obtain financing for the shopping center, whose principal tenants would be Weis Markets, Inc., Friendly Ice Cream Corporation (a wholly-owned subsidiary of Hershey Foods Corporation), and White Cross Stores, Inc., through the use of I.R.C. § 103 tax-exempt industrial development bonds2 that would be issued by the Lehigh County Industrial Development Authority (LCIDA).

On June 22, 1979 Roosevelt Federal extended its offer to provide permanent tax-exempt financing.3 After-Roosevelt Federal acceded to certain modifications proposed by Aries, appellant Jackson, acting on be[676]*676half of the partnership, accepted the loan commitment offer by signing the agreement tendered in early July. A copy of the commitment agreement incorporating the modified terms was signed by Jackson on September 17, 1979. The final version was signed one month later.

Both the commitment agreement initially accepted by the Aries partnership and the final version executed by the parties incorporated by reference seven special conditions,4 only one of which is at issue in this case. That provision, known as Special Condition No. 4, required Aries to provide to Roosevelt Federal before the September 30, 1980 loan closing deadline, “[satisfactory evidence that the loan [would] be tax exempt for its life.” The dispute now before us arises from the parties’ divergent views of what constitutes “satisfactory evidence.”

In presenting its views on the question of satisfactory evidence to the district court Roosevelt Federal submitted the affidavits and depositions of a number of witnesses. Among these witnesses was Roñal R. New-banks, bond counsel for Roosevelt Federal in the Lehigh County transaction who at all pertinent times was listed in The Bond Buyers Directory of Municipal Bond Dealers of the United States “(Red Book), an annual publication that indicates, inter alia, counsel who specialize in the practice of tax-exempt municipal bond law.5 Newbanks initially set forth the criteria that must be satisfied to qualify for tax exemption under I.R.C. § 103(b)(6)(D), the applicable provision in this case. He noted that interest on the Roosevelt Federal loan would be exempt from federal income taxation only if the aggregate of the face amount of the bond ($2,550,000.00 here), any includable prior issues, see n. 2 supra, and certain capital expenditures paid or incurred by the developer and principal users (tenants) of the shopping center and any related persons within three years before and three years after the date the bond was issued did not exceed ten million dollars. Newbanks further stated that his role as bond counsel was to render an unqualified approving opinion to Roosevelt Federal concerning the tax-exempt character of the bond, and that in his experience established lenders invariably required an unqualified approving opinion of nationally recognized bond counsel, that is, one listed in the Red Book, as a condition to the extension of credit. He indicated that an unqualified opinion of nationally recognized bond counsel provides assurance of the tax-exempt status of the bond for the long-term lender and for any subsequent purchaser of the bond in the secondary market. In his deposition he noted, “Normally a[n] [initial] purchaser [that is, a long-term lender] will not buy a bond if there is a qualified opinion.... I would doubt that a sale of a bond with a qualified opinion could be made in the secondary market.”

John M. Pollaci, a Roosevelt Federal vice-president and commercial lending officer until August, 1980, corroborated Newbanks’ testimony on these points. He expressly stated that the term “satisfactory evidence” in Special Condition No. 4 of the loan commitment agreement comprehended an opinion of nationally recognized bond counsel that the interest on the bond would be tax-exempt.6 Moreover, Pollaci noted that [677]*677Roosevelt Federal had a responsibility to its clients in the secondary bond market to ensure that the bonds would remain tax-exempt.

Elaborating on his function as bond counsel,7 Newbanks then stated that he requested and reviewed documentation from the borrower and the issuing public body to satisfy himself that the bond issue was tax-exempt. He added,

Such documentation . .. must include certificates by the ‘principal users* of the facility to be financed through the tax-exempt industrial development bond and their ‘related persons,’ setting forth their prior capital expenditures within the incorporated muncipality [sic] or unincorporated area of the county in which the facility is located for the preceding three years, and a statement concerning and limiting estimated future capital expenditures within the same locale for the following three years. These certificates are necessary because the capital expenditures must be counted in determining whether the $10,000,000 ceiling has been, and to ensure that it will not be, exceeded. Without such certificates (commonly called ‘capital expenditure certificates’ or ‘project certificates’), it is impossible to render an unqualified approving opinion because bond counsel would not have sufficient information to determine whether the bonds would be tax-exempt.

Newbanks further stated, “No recognized bond lawyer (or anyone familiar with tax-exempt industrial development bond financing) could validly disagree with my statement [in a March 6, 1980 letter to John Pollaci] that capital expenditure certificates are ‘the standard requirements of a tax-exempt loan’ and represent no more than ‘the customary documentation’ in such transactions.” The testimony of M. Maynard Hol-combe, Jr., an attorney listed in the Red Book who assisted Newbanks in the Lehigh County financing, supports bond counsel’s assertions in this regard. Holcombe stated that there was nothing unusual in the types of representations required in the certificates and that in connection with tax-exempt loans of more than one million dollars, it was a “universal [practice] ... to have such certificates executed and delivered [before] ... closing.”

Appellants also presented evidence delineating their view of Special Condition No. 4 and of the requirements for exemption from federal taxation under I.R.C. § 108.

We observe that when the loan request was submitted to Roosevelt Federal appellants had, for all practical purposes, no experience in tax-exempt financing. Appellant Jackson described his only previous encounter with tax-exempt bond issues.8 He stated that in December, 1978 he and four others not associated with Aries met with Cincinnati attorney Richard D. Spoor to discuss a proposal for financing a restaurant in Dayton, Ohio through the use of a tax-exempt industrial development bond.

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702 F.2d 674, Counsel Stack Legal Research, https://law.counselstack.com/opinion/jackson-v-roosevelt-federal-savings-loan-assn-ca8-1983.