Mar 14, 2012

$13.6 Million Judgment Upheld in Railyard Redevelopment Dispute

ATLANTA (March 14, 2012) –Smith, Gambrell & Russell attorney Colin R.P. Delaney obtained a substantial victory for Joel Ross, Eric Levine and Jerde Development Co. in a dispute involving a large, multi-use, commercial real estate development known as the Sacramento Railyards.

On February 3rd, the U.S. Court of Appeals for the Second Circuit upheld the U.S. District Court, Southern District of New York order granting plaintiffs’ motion for summary judgment. As a result, Newnan, Ga.-based real estate developer Stanley Thomas and S. Thomas Enterprises of Sacramento LLC owe Ross, Levine and Jerde Development Co. $10 million plus $3.6 million in interest.

In 2002, a partnership formed by the plaintiffs won a competitive bid held by Union Pacific railroad to redevelop the historic, but environmentally troubled, 238-acre railyard near downtown Sacramento, California. Stan Thomas joined the plaintiffs as a capital partner for the redevelopment project, and in 2004, he took complete control of the project by buying out the plaintiffs. A limited liability company (“LLC”) owned and controlled solely by Thomas took over the project. To relinquish their ownership of the project, the plaintiffs agreed to take $500,000 payable in six months and up to a further $10 million when the project reached the “entitlement” stage or generated excess cash from certain transactions.

In April 2007, the defendants obtained a $125 million loan from Inland America Realty Trust, secured by the property. Mr. Thomas, then a billionaire, also gave a personal guaranty of the Inland Loan. The plaintiffs’ right to distribution of a share of excess cash from the LLC, which Thomas also personally guaranteed, depended on whether the loan constituted financing or a refinancing of the property or the project, making it a “capital transaction” that generated excess amounts of cash.

The U.S. Court of Appeals for the Second Circuit upheld the lower court’s ruling that the loan did indeed constitute a financing or refinancing of the property or the project, exactly the type of “capital transaction” anticipated by the excess cash clause. The Court rejected the defendants’ arguments that the loan was only a financing to the extent of the then-current value of the project, or that a significant portion of the loan was really backed by Thomas’s personal guaranty, and so could not be considered a refinancing of the project.

SGR is now proceeding to collect from a surety on a $13.6 million appeal bond posted for the plaintiffs’ benefit. The bond was the culmination of extensive, multi-state collection litigation. In late 2010, in the federal court in Atlanta, SGR obtained preliminary and permanent injunctions restraining Thomas from transferring assets and charging his interests in nearly 200 LLC’s and partnerships with satisfaction of the judgment.

The restraining orders and other collection devices used by plaintiffs’ prior counsel in New York severely complicated Thomas’s bankruptcy reorganization of a $100 million shopping center in San Antonio, Tx. SGR also assisted plaintiffs’ prior counsel in successful efforts to have Thomas held in contempt of court for encumbering assets in violation of restraining notices. The federal court in New York held Thomas in contempt, imposed daily $10,000 fines, and set a deadline for Thomas’s incarceration. Thomas avoided that by arranging to post the bond after selling tracts of land in the Cayman Islands. SGR later recovered over $100,000 in attorney’s fees incurred in connection with the contempt proceedings.

Colin R.P. Delaney served as lead Litigation counsel. Other SGR team members include: Alexander S. Clay, Real Estate; Brian P. Hall, Bankruptcy; John J. Lee, David A. Mobley and John F. Weeks IV, Litigation.