Spire developer suffers big setback in ruling
(Crain's) — A federal judge has tossed out much of the lawsuit filed against Bank of America Corp. by Spire developer Garrett Kelleher, who was seeking to avoid repaying two loans by alleging he was wrongfully overcharged interest.
The ruling, which revolves around the issue of the bank calculating interest on a 360-day year rather than 365 days, marks a significant setback for Mr. Kelleher and his Dublin, Ireland-based Shelbourne Development Group Inc., which had proposed building a twisting condominium tower that was to be the tallest building in North America on a site along the Chicago River and Lake Shore Drive.
B of A sued Shelbourne in August 2009, seeking to collect $4.9 million on two loans for some preliminary expenses related to the Spire, which never got beyond foundation work. Mr. Kelleher personally guaranteed the loans, according to the suit filed by Charlotte, N.C.-based B of A.
Shelbourne and Mr. Kelleher countersued last October, alleging the bank committed fraud and violated state law by basing its interest calculations on a 360-day year rather than 365 days, resulting in higher interest charges. The suit seeks unspecified damages and says B of A should be barred from declaring default and accelerating the loan.
Related story: Spire developer accuses B of A of overcharging interest
The lavish Spire sales office at NBC Tower closed recently, after the landlord sued to evict over unpaid rent. And while the Spire site at 400 N. Lake Shore Drive is now a circular hole in the ground, media reports say Mr. Kelleher continues to seek new financing for the project.
In an Aug. 18 ruling, U.S. District Court Judge Amy J. St. Eve dismissed the fraud claims against B of A and threw out Shelbourne's contention that the 360-day interest calculation violates state law, saying a national banking law supersedes.
She also doused the notion that B of A acted in bad faith, stating that the 360-day term — common in commercial real estate loans — was spelled out in the loan agreement.
Six days after her ruling, Judge St. Eve referred the case to a magistrate judge for a settlement conference. The first hearing before that judge is scheduled for Sept. 28.
A spokeswoman for Shelbourne didn't return an e-mail, and a spokesman for B of A declines to comment.
Shelbourne's lawyer in the matter, Glenn Udell of Chicago-based law firm Brown Udell Pomerantz & Delrahim Ltd., said he plans to ask the judge to reconsider the ruling.
If that's not successful, he expects Shelbourne to appeal. He notes that another federal judge recently sent a similar case back to state court. In that case, the judge agreed with the lawyers — including Mr. Udell — that the plaintiff wasn't alleging the bank charged more interest than allowed by state law, but rather that the bank charged more interest than was represented in the promissory note.
In the Shelbourne case, Mr. Udell also claimed a partial victory for his client because Judge St. Eve didn't strike the developer's defense that it couldn't perform on the loan due to the “unforeseeable and unprecedented economic downturn and recession.”
B of A's loan said Shelbourne was required to have a construction loan commitment by November 2008. When that deadline was missed, the bank says it was entitled to accelerate all amounts due and demand full payment.
Shelbourne countered by invoking “commercial impracticability,” arguing that B of A executives made repeated public statements that the credit crunch and collapse of the commercial real estate market were unprecedented and couldn't be predicted.
Judge St. Eve agreed, saying B of A had not shown “to a certainty” that it would prevail over Kelleher's claim that financing could not reasonably be obtained.
