There are various aspects of this case that GPLLC believes to be highly unusual, if not unprecedented.
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FH Acted Contrary to its Own Financial Interests
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From GPLLC's perspective, the transfer of GPLLC's loan to FH's special asset group represented the ultimate indication of FH's bad faith.
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FH's avowed reason for transferring the loan to SAG was concern about GPLLC's liquidity, principally its debt service coverage ratio. On the November 14 phone call between GPLLC and FH, Schaefer explicitly identified liquidity as FH's sole concern. The irony was not lost on GPLLC; it was striking: it was GPLLC's hyper-liquidity, and not any concern about illiquidity, that worried FH.
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Early in the call with Schaefer on November 14, John asked Schaefer if he was aware that GPLLC had $3.7 million in cash and liquid securities in an account at Vanguard. This account, as an asset of GPLLC, secured GPLLC's obligations under the mortgage loan and the swap. Schaefer replied that he was unaware of this account. This of course could not be true. Kuzynowski's principal concern when she met me on July 19 at the Galleria Plaza was the recent transfer by GPLLC of approximately $2 million in cash to this Vanguard account. It was this very liquid account, coupled with GPLLC's avowed intent to make a significant pay down on the loan, that concerned FH.
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As a practical matter, any special asset group has a limited number of arrows in its quiver.
First, It can enter into a loan modification or loan restructuring that makes certain concessions to the distressed borrower designed to facilitate the borrower's ability to address the lender's principal concern, in this case GPLLC's alleged illiquidity. This could include changing the payment amount, payment dates, maturity date, or interest rate. FH never proposed or even suggested a loan restructuring.
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Second, it can propose that the borrower reduce expenses to spur greater liquidity. This is a difficult option, with uncertain results and the obvious potential to impair service and revenues..
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​Third, it can propose to the borrower that it sell non-core assets to generate an immediate infusion of liquidity. This option is generally the first option for any special asset group because of its immediate and certain effect.
It just so happened GPLLC had a non-core asset that had significant value but had been for 12 years a negative-income producing asset: the undeveloped outparcel. FH knew that this parcel had very high site development costs (FH had been apprised of this in 2019 when GPLLC entered into a ground lease with Fifth Third Bank; Fifth Third invoked the force majeure clause in June 2020 because of COVID) . The parcel's stormwater drainage had to be vaulted underground, and the parcel's proximity to Alligator Creek required a retaining wall along the parcel's northern border. This increased the costs associated with making the lot "pad ready" from approximately $150,000 to approximately $400,000.*
The proposed sale of the lot confronted FH with two options: (i) it could permit the sale and convert its collateral from a problematic parcel of dirt into $1 million in cash, or (ii) it could block the sale transaction and compel GPLLC to develop the site and incur the very high site development costs, which would exacerbate GPLLC's alleged liquidity problem.​ FH of course implicitly opted for the second alternative by blocking the sale transaction.
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This appears to be the very unusual situation where a sophisticated, large financial institution inarguably acted against its own economic/financial interests in tortiously interfering with our land sale contract. This simplifies matters enormously, avoiding the necessity of wading into the murky and ill-defined waters of "improper methods." FH's methods were of course strikingly improper, but its actions against its own interests are highly unusual in the tortious interference caselaw, and conclusive evidence of FH's nefarious motives in blocking the land sale.
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FH Acted at All Times With an Imperturbable Sense of Impunity
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At no time did FH evince any concern in the face of repeated accusations of bad faith and threats to initiate legal action. Indeed, they doubled down on their scheme in reaction to these threats.
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FH was aware their stance on the swap agreements was bad faith. The threats of legal action were credible, specifically alleging various actions taken by FH that gave rise to potential FH legal exposure, and were made by a representative of GPLLC who could credibly purport to have substantial experience in matters relating to credit agreements and rate swap transactions.
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Furthermore, these threats of legal recourse were being made by an entity who had demonstrated a willingness to litigate, and appeared to have on occasion improvidently incurred massive legal expenses in pursuit of its fixation on achieving vindication in court.
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The first seven years of GPLLC's existence were consumed by litigation and court battles. FH was aware of this. GPLLC and John spent nearly $2 million on litigation over that period, expenditures that were clearly indicated in GPLLC's and John's financial disclosure to FH. And yet, when confronted with credible threats of litigation from a small borrower with a pronounced avidity for litigation, FH never blinked, so great was its certitude that the immense wealth/power imbalance between FH and its borrower was an impenetrable shield against legal consequences.
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FH Was Utterly Undeterred by Credible Threats of Punitive Damages
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FH was repeatedly confronted by credible threats of punitive damages associated with their egregious, bad faith repudiation of the swap contracts and their tortious interference with the land sale contract. They gave no indication they were deterred in the least. Instead, they cynically exploited their wealth and power to bully a small company based in Venice, FL over a relatively complex derivative instrument, thereby also seeking to exploit a presumed knowledge and expertise disparity with its borrower.
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I have not found a case where a large financial institution exhibited such blithe disregard for the potential (and, given GPLLC's history, the seeming inevitability) of legal exposure and punitive damages. FH was absolutely insensate to legal consequences. The courts speak of flagrant and gross behavior as the basis for large punitive awards. Based upon my admittedly limited review of the caselaw, it seems apparent that large financial institutions don't really do "flagrant and gross." They're too smart, and don't put themselves in a position where they would have to resort to flagrant and gross behavior.
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Until we find a case where a large financial institution conducted itself so loutishly, so maniacally heedless of consequences, I am inclined to push the envelope on punitive damages.
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This case presents an opportunity to confront the court with a conundrum: in such a case, where the defendant has so clearly and repeatedly demonstrated that they were undeterred by credible threats of conventional punitive damages for egregious and bad faith behavior, the courts can either make an exception to their oft-stated antipathy to wealth-based damages, or in essence deem the defendant incorrigible and beyond deterrence.
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* In fact, GPLLC is currently in negotiations with a Tim Horton's donut franchisee for a ground lease of the outparcel. Preliminary indications are that the cost of making the site "pad ready" will exceed $400,000 and is likely to approach $500,000.
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