Wells Fargo Bank, NA v. Cherryland Mall Ltd. Partnership
295 Mich. App. 99
Mich. Ct. App.2011Background
- CMBS loan for Cherryland Mall; SPE structure isolates asset and imposes separateness and limited recourse protections.
- Guarantor Schostak signed a guaranty; Cherryland failed to maintain SPE status, triggering recourse provisions.
- Foreclosure by advertisement occurred in 2010; Wells Fargo purchased at sheriff’s sale, leaving ~$2.1 million deficiency.
- Plaintiff filed suit for deficiency and asserted SPE violation as grounds for full recourse against Cherryland and Schostak.
- Trial court granted some motions in plaintiff’s favor and later included a $260,000 attorney-fee stipulation in the overall judgment.
- Defendants appeal on whether insolvency breached SPE requirements triggering recourse and on the attorney-fee award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insolvency breached SPE status triggering full recourse | Cherryland insolvency violated SPE covenants under ¶ 9f | Insolvency not a SPE violation and not required to maintain SPE status | Insolvency violated SPE status, triggering full recourse |
| Whether the mortgage provisions unambiguously require solvency to maintain SPE status | Language mandates SPE maintenance; extrinsic evidence supports definition | SPE status defined by narrower covenants; solvency not clearly required | Contract unambiguously requires solvency to maintain SPE status; extrinsic definitions support interpretation |
| Whether the $260,000 attorney-fee award was proper | Fee stipulation encompassed entire action | Fee stipulation intended only for specific claim | Not necessary to address on appeal as decision affirmed overall judgment |
Key Cases Cited
- New York Life Ins. Co. v. Erb, 276 Mich 610 (Mich. 1936) (mortgage deficiency action permissible after foreclosure sale)
- Senters v. Ottawa Savings Bank, FSB, 443 Mich 45 (Mich. 1993) (foreclosure deficiency actions allowed; nonrecourse default rules)
- Farm Bureau Mut. Ins. Co. v. Nikkel, 460 Mich 558 (Mich. 1999) (contract interpretation; reading terms in context)
- Klapp v United Ins. Group Agency, Inc., 468 Mich 459 (Mich. 2003) (interpretation of ambiguous contract terms; de novo review)
- Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 469 Mich 362 (Mich. 2003) (unambiguous contract terms control interpretation)