United States District Court, E.D. Missouri, Eastern Division
MEMORANDUM AND ORDER
CATHERINE D. PERRY, District Judge.
Plaintiff Affordable Communities of Missouri, L.P. sued Federal National Mortgage Association ("Fannie Mae") for breach of contract, alleging that Fannie Mae breached their loan agreement by requiring Affordable to pay a premium after Affordable sold its collateral property and paid off the loan early. Affordable believes the premium was not owed because the property was at risk of condemnation and so qualified for the loan's "condemnation award" exception to the premium.
This court previously dismissed Affordable's complaint after agreeing with Fannie Mae that a "condemnation award" did not include a conveyance in lieu of condemnation. The Court of Appeals for the Eighth Circuit reversed, holding that the term is ambiguous, and remanded to this court. Affordable Cmtys.of Mo. v. Fed. Nat'l Mort. Ass'n., 714 F.3d 1069 (8th Cir. 2013).
Affordable now seeks summary judgment, arguing, among other things, that the Court of Appeals' opinion dictates that Affordable's interpretation of the contract is correct. That is wrong: the Court of Appeals merely reversed the dismissal and held that "the agreement is ambiguous as to whether condemnation award' includes a sale in lieu of condemnation." 714 F.3d at 1076. Now, after discovery and on the summary judgment record, Fannie Mae has shown that genuine factual disputes exist about the meaning of the contract. Among other things, there is evidence that Affordable took actions inconsistent with its proffered definition of "condemnation award." Whether Affordable's sale of the property was actually made in lieu of condemnation is also a remaining factual issue. As genuine disputes of material fact remain, Affordable's motion for summary judgment will be denied.
Affordable is a Nevada limited partnership in the commercial real estate business. Barry Cohen owns 99% of Affordable in his capacity as limited partner, and he serves as president of its general partner. From 1993 to 2006, Affordable owned the Jefferson Arms Apartments, a building in downtown St. Louis, Missouri.
In August 1998, Affordable contacted Eichler, Fayne, and Associates (EFA) to refinance its existing secured debt on the Jefferson Arms. EFA originates loans secured by mortgages on multifamily properties like Jefferson Arms and operates exclusively under Fannie Mae's delegated underwriting and servicing (DUS) program. Fannie Mae uses the DUS program to purchase loans on the secondary mortgage market. Fannie Mae imposes certain requirements on loans originated through the DUS program, and originators share with Fannie Mae the associated risk of loss on any such loans.
To ensure that Fannie Mae realizes the expected interest, early payments on DUS loans are penalized. The EFA representative gave Affordable the choice between one of two prepayment penalties, each calculated to ensure that Fannie Mae would collect no less if Affordable repaid the debt early. Affordable selected the "defeasance" option, which would allow Fannie Mae to use prepayment funds to purchase securities at the prevailing rate for mortgages on multifamily apartment buildings. Fannie Mae would then substitute those assets for its lien on Jefferson Arms.
EFA agreed to lend Affordable approximately $8 million. In April 1999, they executed loan documents consisting of a "Fannie Mae Multifamily Note" and a "Fannie Mae Multifamily Security Instrument." After executing the loan, EFA sold and assigned it to Fannie Mae in the secondary mortgage market.
From 1999 through 2004, Affordable invested over $10 million in updating, maintaining, and rehabilitating the Jefferson Arms. During that time, the building received only minor code violations and passed inspections required by Fannie Mae to ensure the protection of its collateral.
In 2004, an entity primarily owned by Cohen and associated with Affordable purchased St. Louis Centre, a failed shopping center which was also in downtown St. Louis. At some point in 2004 or 2005, Cohen had conversations with Tom Reeves, an individual involved in a non-profit entity dedicated to the redevelopment of downtown St. Louis. Reeves requested that Cohen make structural changes to St. Louis Centre and implied that failure to do so would result in an attempt to have both St. Louis Centre and the Jefferson Arms condemned for code violations.
On October 18, 2005, Affordable entered into a Purchase and Sale Agreement to sell the Jefferson Arms to Pyramid Construction, Inc. Pyramid, which also contracted to buy St. Louis Centre, initially only wanted to buy the shopping center. After Cohen made that sale contingent upon Pyramid's purchase of the Jefferson Arms, Pyramid agreed to buy both properties.
The Purchase and Sale Agreement for the Jefferson Arms included a recitation stating that the Jefferson Arms was being sold under threat of condemnation. The Agreement also required Pyramid to obtain a letter from the City of St. Louis to Affordable memorializing the threat:
Buyer shall cause to be delivered to Seller a letter addressed to the Seller from the City of St. Louis, Missouri, or an agency thereof, confirming the threat of condemnation referenced in the first page of this Agreement, which letter shall be in form and substance acceptable to Seller, on or before November 7, 2005. If such letter is not delivered to Seller as aforesaid, then Seller shall have the right to terminate this Agreement by giving Buyer written notice thereof.
Cohen had requested the recitation and obligation that Pyramid obtain the letter about condemnation. He testified that he did so, in part, because he would receive favorable tax treatment and additional time to reinvest the ...