Doctors, developer defeat bank’s recovery effort

A recent verdict by a Union County jury found a group of doctors and a developer not liable for damages of nearly $3 million after a bank foreclosed on their commercial loan.

CML-NC Waxhaw, LLC had purchased the loan with an “as is” disclaimer and notice that the loan had multiple problems associated with the previous lenders, the jury concluded.

MD Group, LLC, a group of doctors and developers, agreed to borrow $5.15 million from Magnet Bank for the construction of a medical office building in Waxhaw. Four members of MD Group signed as guarantors. By January 2009, Magnet Bank had advanced $4.2 million for construction, but the project was not near completion. Later that month, Magnet Bank was closed and the Federal Deposit Insurance Corporation was appointed as receiver.

Once FDIC took over, MD Group requested advances of the promised funds to up-fit the building for its tenants. FDIC refused to advance the funds and instead encouraged MD Group to obtain alternative financing for the project.

“During the most restrictive lending period in the nation’s history, MD Group attempted to obtain financing to pay off the outstanding balance of the loan and fund improvements,” said the group’s Charlotte attorney, Jeff Long of Bray & Long. “No one was willing to loan MD Group the money Magnet Bank promised to lend per the loan agreement and the project languished, but the FDIC never served notice of default.”

Over the course of the next two years the loan was transferred to two other banks marked “as is” and “with all faults.” During that time, MD Group argued, several obligations of the lender were breached when nothing was done to satisfy the lender’s contractual obligations to fund the tenant up-fit.

In September 2010, CML-NC Waxhaw, LLC, the last bank to hold the loan, foreclosed on the property. By the time the parties tried the case, CML-NC Waxhaw estimated its damages were $3.063 million.

The jury heard two days of testimony. The transfer of the loan agreement to the CML-NC “with all faults” became a central theme to the MD Group’s defense. MD Group argued that because others had breached their commitment, MD Groups’ obligations under the loan were excused.

“The repeated failure of the lender and subsequent assignees to advance funds for completion of the project and the failure to account for an interest reserve described in the loan agreement constituted a breach of a condition precedent to MD Groups’ obligations to perform under the loan agreement,” Long said.

Judge W. David Lee presented the jury with the question of whether MD Group had breached the construction loan arrangement by non-performance. After less than three hours of deliberation, the jury returned a verdict in favor of MD Group.

CML-NC subsequently filed a motion for a new trial, but the request was denied.

VERDICT REPORT: BREACH OF CONTRACT

Type of action: Breach of contract

Name of case: Multibank 2009-1 CML-ADC Venture, LLC and CML-NC Waxhaw, LLC v MD Group, LLC, Patch, Guthmann, Collins and Martin

Court: Union County Superior Court

Case #: 10-CVS-2363

Tried before: Jury

Judge: W. David Lee

Demand: $3,062,287.13

Verdict amount: $0

Date of verdict: Feb. 14

Attorneys for plaintiff: Michael L. Shor and William M. Starr, Nelson Mullins Riley & Scarborough (Charlotte)

Attorney for defendant: Jeffrey A. Long, Bray & Long (Charlotte), and Eric A. Rogers, Shumaker, Loop & Kendrick (Charlotte)