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Monday, June 11, 2012

Ind. Decisions - One Indiana case today from 7th Circuit

In IP of A West 86th St v. Morgan Stanley (SD Ind., Barker), a 23-page opinion, Circuit Judge Flaum writes:

In this case, twenty limited liability companies (“the Investors”) joined together to invest in property in Indiana. Needing a loan to finance their purchase, they formed a distinct limited liability company, IP of A Fund Manager, LLC (“IPA Fund Manager”), and vested in that entity the authority to negotiate and execute a loan on their behalf with Morgan Stanley Mortgage Capital Holdings, LLC (“Morgan Stanley”). They named Edward Okun as Manager of IPA Fund Manager. Okun executed a loan, mortgage, and reserve security agreement with Morgan Stanley.

IPA Fund Manager, under the terms of its authority, was not allowed to hold an ownership interest in any of the twenty limited liability companies; it is not clear from the terms of the contract whether Okun, in his individual capacity, was precluded from an ownership interest, as well.

Morgan Stanley decided to sell the loan, ultimately agreeing to sell it to an Okun-controlled entity, IP of A 5201 Lender, LLC (“IPA Lender”). As it structured the sale, Morgan Stanley agreed to offset the purchase price of the loan by the amount of funds available in several escrow, reserve, and impound accounts (hereinafter “the escrow accounts”), in which it held a security interest and which were, under the terms of the loan with the Investors, required to reimburse the Investors for maintenance, taxes, and other property-related expenses. IPA Lender, now holding the loan, never reestablished the escrow accounts, depriving the Investors of $1,361,184.63 in which they, too, had an interest.

Having abandoned their suit against Okun-controlled IPA Lender, the Investors claim that Morgan Stanley, by allowing IPA Lender to use the escrow funds to finance its purchase of the loan, breached their loan agreement and committed conversion. The district court granted summary judgment for Morgan Stanley. We affirm the district court’s ruling.

Posted by Marcia Oddi on June 11, 2012 01:33 PM
Posted to Ind. (7th Cir.) Decisions