Tuesday, November 18, 2008

Trmup's Lawsuit: Developer See, Developer Do

Tom Corfman's Crain's piece today predicts:

Donald Trump’s lawsuit against the menagerie of construction lenders for his riverfront tower is likely to be followed by more pre-emptive strikes by other developers.

Amid the prolonged credit crisis, such lawsuits could become common.

We've heard all the stories, so I won't bore you with lenders turning the screws on their borrowers. (Hey, the borrowers did it to them a few years ago, let's not forget.)

There were two opinions given about the lawsuit:

“We’re in an economic crisis, yes, but does that constitute force majeure?” said real estate attorney James Fox, a partner in the Chicago office of law firm Quarles & Brady LLP. “Only crazies would do that.”

The force majeure claim is “a stretch in this case, but it gave him a toehold,” said Mr. [Marv] Romanek, managing director with Northbrook-based Romanek Properties Ltd.

I wrote about this here on the 8th. The gut reaction was similar to Mr. Fox: economic problems aren't events of force majeure. But I don't know what the language is in the loan agreement. If drafted (im)properly, you might -- just might -- have a case. Look at the clauses here, for example. Others that I have looked at are too tight to beat Trump here in my opinion.

Moreover, assuming the allegations are true, would you want to have to defend banks in this climate that "no longer have the cash to fund the completion of the project" and that apparently refused to let Trump take steps to mitigate such as lowering prices? Again, I'm no Trump apologist and I think this is a negotiation tactic. While I still think he's got an uphill (mountainous, perhaps) battle to win this one, I'm no longer 100% convinced that the theory is utterly crazy or sanctionable.

The moral of the story? This is just another example of why, as a lawyer, you have to sweat the details, including the boilerplate. My favorite example of boilerplate coming back to get a party is here. (Free sub. required.)


Lisa Michelle Galley: said...

You gotta hand it to Trump. He keeps it interesting. I agree that the lawsuit is a type of negotiating tactic. Have gone through this process myself a few times in my former lender life. Usually happens when the borrower doesn't feel the lender is paying enough attention to their requests -- or the borrower knows that their requests are "reaching", and think an orchestrated legal process is the nice window dressing for a "negotiation" of the request. Based on what I'm seeing in the market these days between lenders and borrowers in trouble -- unfortunately, this type of action is the only way to get some lenders to pick up the phone. These renegotiation requests from borrowers compete with the million other fires the lender is fighting. Also, I think that some borrowers have a hard time understanding that many lenders don't have as much room to renegotiate terms as they may believe. Lenders are getting punished in the capital markets from every angle. The syndication markets are dead and many lenders, who are participants in loans, would prefer to be repaid than to entertain special requests from borrowers regardless of the amount of extra fees and spread they could earn if they restructured the deal.