The opinion of the court was delivered by: Hon. Joseph H. Rodriguez
This matter is before the Court on cross-motions for summary judgment. Oral argument was heard on June 21, 2011, and the record of that proceeding is incorporated here. For the reasons expressed on the record that day, and those below, Plaintiff's motion will be denied and Defendants' motion will be granted.
On January 19, 2010, Plaintiff Grande Properties Development, LLC filed suit in the Superior Court of New Jersey, Chancery Division, Cape May County against JP Morgan Chase Commercial Mortgage Securities Trust 2008-C2, Wells Fargo & Company, and CW Capital Asset Management LLC. The case was removed to this Court on February 12, 2010.
Plaintiff is in the business of commercial real estate ownership and development, and is the developer of a 15 acre shopping center on property located on Route 9, Middle Township, Cape May County, New Jersey. The Middle Township property consists, in part, of a 161,000 square foot Wal-Mart store and approximately 25,000 square feet of continuous in-line retail stores, with adjacent parking facilities.
On January 20, 2005, Wal-Mart Real Estate Business Trust, as lessee, entered into a twenty-year Ground Lease Agreement with Plaintiff as lessor. Pursuant to that Agreement, Wal-Mart constructed a 161,000 square foot store on the Middle Township property. The Wal-Mart store on that property opened for business on June 13, 2007.
On October 25, 2007, Plaintiff entered into a loan transaction with CIBC, Inc. where Plaintiff was to borrow $14,600,000 from CIBC. The loan was evidenced by a promissory note, secured by a mortgage, and designed to pay off Plaintiff's underlying construction financing. As additional security for the loan, pursuant to section 1.28 of the mortgage, Plaintiff was obligated to deposit with CIBC a portion of the proceeds in the amount of $1,910,000, to be held in a Leasing Achievement Reserve fund (the "Holdback") to provide additional security to CIBC pending lease of the in-line stores. On April 14, 2008, Plaintiff and CIBC entered into a Modification of Mortgage.
The executed mortgage was assigned to Bank of America N.A. f/k/a LaSalle National Bank as Trustee for the Defendant JP Morgan Chase Commercial Mortgage Securities Trust 2008-C2 ("the Trust"). Defendant Wells Fargo N.A., through Wells Fargo Commercial Mortgaging Servicing division, is the Master Servicer of the loan; Defendant CW Capital Asset Management, LLC is the Special Servicer of the loan.
On August 14, 2009, Wal-Mart and Plaintiff entered into a First Amendment to Ground Lease, pursuant to which Wal-Mart leased additional retail space from Plaintiff consisting of 6,250 square feet in the in-line stores.
On the same date, Wal-Mart and Plaintiff entered into a Lease Expansion Agreement, pursuant to which Wal-Mart agreed to lease an additional 25,000 square feet of space from Plaintiff in the rear of Wal-Mart's existing store, subject to Wal-Mart's receipt of certain zoning and governmental approvals. According to the Verified Complaint, Wal-Mart entered into the Lease Amendment and Lease Expansion Agreement to expand the existing Wal-Mart store into a Wal-Mart Supercenter, consisting of an additional 35,000 square feet of retail space in the in-line stores.
On August 17, 2009, Plaintiff provided Wells Fargo with the executed Lease Amendment and Lease Expansion Agreement and requested the release of the "Calculated New Lease Disbursement." On August 19, 2009, Plaintiff completed a Wells Fargo Disbursement Request and Certification and demanded the balance of the Holdback reserve monies, $1,455,503.42. A loan servicing specialist at Wells Fargo received the disbursement request on August 20, 2009. On August 26, 2009, Plaintiff's President, Tom Juliano, sent an e-mail to Wells Fargo inquiring as to the status of the request. He was advised the next day by Heather Dennis, CMS Reserves Manager at Wells Fargo, that the Wal-Mart Lease Amendment had been sent to the Wells Fargo Lease Review department, and that because of its size, the disbursement request required "Asset Manager approval." At that time in August, the Asset Manager was on vacation for another full week, until September 3, 2009, the Thursday before Labor Day.
In the meantime, on August 31, 2009, Jessica Javier, a Loan Servicing Specialist with Wells Fargo, e-mailed Alex Leibowitz at CIBC as follows:
We received a disbursement request from the Borrower for the remaining funds in the Leasing Achievement Reserve for $1,418,817.61. We are quite confused with the conditions to release and wanted to make sure that we are in compliance with the requirements as listed in the Loan Agreement.
Per section 1.28 of the Loan Agreement, Lender shall disburse to Borrower from time to time in accordance with the following conditions:
It is quite confusing for me to identify where the expansion for Walmart falls under which category -- between New Approved Standard Lease or Standard New Lease disbursement. Per the Borrower, Walmart will expand to an additional retail space of 6,250SF. The Ground Lease for Walmart currently holds 161,180 sf. If Walmart expansion falls under New Approved Standard Lease, then the calculation will be $12.14 x 6250 SF = $75,875 x $20(annual rent per SF) = $1,517,500.00.
Please let me know if you agree with my findings. Additionally, they are requesting for funds prior to completion of the expansion space. The Loan Agreement states that if the Borrower qualifies for the Standard New Lease Disbursement, the Approved Tenant Occupancy Conditions must be met. In this case, Walmart site expansion has not been completed but they are paying full unabated rent for this space.
Your thoughts are greatly appreciated.
On September 10, 2009, the Managing Director of Real Estate Finance at CIBC sent an e-mail to Jessica Javier at Wells Fargo indicating that if CIBC were being asked for a disbursement of the Leasing Achievement Reserve, CIBC would agree to the release of the Holdback funds.
On the evening of September 14, 2009, Juliano e-mailed several people at Wells Fargo expressing outrage that Plaintiff's disbursement request had not yet been "handled." The next morning, Heather Dennis informed Juliano that the Wal-Mart Lease Amendment required consent from the Special Servicer, CW, which was pending. She continued, "we are required as Master Servicer to follow the loan documents, to deviate from the documents requires approval from the Asset Manager and in some cases the Special Servicer."
On September 16, 2009, Plaintiff drafted a letter to Susan Landry, Vice-President of Wells Fargo's Commercial Mortgage Servicing, and enclosed copies of the First Amendment to the Ground Lease Agreement and the Lease Expansion Agreement "as a courtesy."
On September 22, 2009, Juliano e-mailed Dennis to ask whether she heard anything regarding Plaintiff's request. She advised him that they were awaiting word from the Special Servicer, which was a prerequisite to presenting the request to the Wells Fargo Asset Manager for approval. She reiterated, "because we are the Master Servicer we are bound by the loan documents; the feedback from the original underwriters [CIBC] is helpful but the ultimate decision is with the Asset Manager. . . . Again, I understand your concerns and we will do everything on our part to expedite the process."
On September 25, 2009, Gregory Akins, CW Vice President, informed Felipe Sanchez, Wells Fargo Asset Administrator, that CW consented to the First Amendment to the Ground Lease between Plaintiff and Wal-mart. He added, "Please note that [CW] reserves all of its rights under the loan and pooling and servicing documents to review, approve or deny the release of funds from the Leasing Achievement Reserve." On September 30, 2009, Wells Fargo consented on behalf of CIBC to the First Amendment to the Ground Lease between Plaintiff and Wal-mart.
On October 6, 2009, Tej Barker, an analyst at CW, received the full disbursement request and supporting documents for the Leasing Achievement Reserve from Heather Dennis. In the transmittal letter, Ms. Dennis expressed the following opinion:
1) The Wal-Mart expansion appears [to] meet the criteria under 1.28(g)(2)(ii)(b) since the Wal-Mart expansion does qualify under the Calculated New Lease Disbursement per the DSCR test performed by our Portfolio Analytics Group, but not under the "New Approved Standard Lease," the last criteria is occupancy. The semantics surrounding "Approved Tenant Occupancy" is that Wal-Mart has full rights to the space under the lease, the space cannot be marketed to the outside, Wal-Mart is paying full unabated rent and prorate expenses, no outside costs are associated with tenant improvements or leasing ...