This case arises from the development and financing of the Vista Hotel near Newark International Airport. The hotel, which is operated by Hilton International under a management agreement, was constructed in the late 1980's after permanent financing had been arranged through an issue of $31,000,000 in
unrated bonds of the New Jersey Economic Development Authority ("NJEDA" or "Authority") on December 30, 1985.
At the time of the 1985 bond issue, the developer was a New Jersey general partnership named Statewide Realty Company, referred to in the Loan Agreement and other documents pertaining to the bond issue as the "Borrower" (and referred to below as "Statewide" or the "Borrower"). The general partners of the Borrower when the bonds were issued were five individuals, Jack Pomeranc, Frank Blaichman, Monroe Markovitz, Jacob Burstyn, and Jesse S. Weissberg (sometimes referred to below as the "Individual General Partners"). These individuals and Statewide are the plaintiffs.
The bonds issued by the NJEDA in connection with the December 1985 closing were immediately purchased from the underwriter by two tax-exempt mutual funds managed by the Boston-based Fidelity Management and Research Co. ("Fidelity"). The proceeds of the bond sale to Fidelity were used to fund the NJEDA's Loan to Statewide, and Fidelity continues to hold the bonds in those tax-exempt mutual funds.
The December 1985 Loan Agreement for the bond issue, which was entered into between the NJEDA and Statewide, expressly defines the "Borrower" as
"(i) Statewide . . ., a general partnership consisting of . . . [the named Individual General Partners], general partners, organized and existing under the laws of the State of New Jersey and (ii) its successors and assigns as provided in Section 7.15 hereof." (Section 1.1).
The Loan Agreement provided for a "loan in the amount of $31,000,000 made hereunder by the . . . [NJEDA], as lender, from the proceeds of the issuance of the initial Bonds to the Borrower, as debtor, to provide for part of the cost" relating to the "construction of an airport hotel [on property of Statewide] of approximately 375 rooms, together with the purchase of machinery, equipment, and furnishings to be used in connection therewith, located adjacent to Newark International Airport."
Of the numerous obligations set forth in the Loan Agreement, this decision focuses on the agreement of the "Borrower"
(i.e., Statewide, comprised of the five Individual General Partners), to pay the principal and interest on the $31,000,000 loan. Under the bond issue closing documents, the Borrower's payments are to be in an amount sufficient to pay the principal and interest on the bonds.
The Borrower was represented by various advisors who negotiated the transaction on its behalf. Before the closing, it received from advisors a revenue and expense estimate which projected a positive cash flow to the Borrower after an initial start-up period. When the hotel opened, however, whether due to a downturn in the economy or other factors, plaintiffs found the reality far less rosy than the projections.
Faced with continuing losses rather than profits from the hotel, and faced with the Borrower's liability to pay principal and interest on the $31,000,000 Loan from the NJEDA, the Individual General Partners entered into a transaction as of February 28, 1991, in which they transferred their respective general partnership interests in the Borrower to other entities pursuant to an "Assignment and Assumption Agreement."*fn1 A number of professed purposes for the transfer were set forth in the Assignment and Assumption Agreement and were testified to on behalf of Statewide at the trial, including limiting or avoiding liability of the Individual General Partners for personal injuries at the hotel or in environmental matters. As plaintiffs admitted at trial, the transfer was also designed to enable the Individual General Partners to avoid whatever personal liability they might have as Statewide's general partners for the $31,000,000 Loan under the Loan Agreement.
When Fidelity learned of the February 1991 transfer of the individual partnership interests in Statewide, it asserted that no such transfer would relieve the partners of what Fidelity contends
is their continuing personal liability, as general partners of Statewide, for repayment of the principal and interest of the $31,000,000 Loan under the Loan Agreement. Plaintiffs then agreed to postpone the effective date of the transfer to January 18, 1992.*fn2
Statewide and the persons who were its general partners as of the making of the Loan Agreement filed their complaint in this action on September 3, 1991. Named as defendants were the NJEDA, Fidelity, and United Jersey Bank ("UJB") as successor Trustee under the Trust Indenture for the bond issue. On April 20 and 21, 1992, the case proceeded to trial by the court without a jury on plaintiff's request that the court:
(a) Declare that the transfers heretofore made by the general partners of Statewide of their respective partnership interests in Statewide, and any other transfers they wish to make, be deemed permissible and ...