Case: In re: US Capital/Fashion Mall

Case no: 12-14517

Description: Unjust enrichment

Filing date: Feb. 24, 2012

Order date: Aug. 5, 2013

Judge: U.S. Bankruptcy Judge John K. Olson, Fort Lauderdale

Plaintiff attorney: Gregory Beck, Gregory R. Beck P.A., Fort Lauderdale

Defense attorneys: Ivan Reich, Michael Lessne, Shayna Freyman and Roland Schwartz, GrayRobinson, Fort Lauderdale

Judgment amount: For the defense

Details: On Aug. 7, 2009, Fashion Mall Managing Member Corp. filed a lawsuit in Broward Circuit Court, claiming damages of $3 million against US Capital/Fashion Mall LLC seeking closing costs on the purchase of the Fashion Mall in Plantation.

FMMMC managed the mall and represented the interest of Plantation Fashion Mall LLC, an entity whose sole purpose was to own the mall. US Capital was the buyer in a 2004 transaction.

The purchase price of $37 million was covered by U.S. Capital, but the buyer did not pay the $3 million fee, and its lender, Secor Financial Corp., would not allow the buyer to further encumber itself by financing the closing cost.

FMMMC entered a side deal with a US Capital principal, Lian Wang, who tendered a $3 million promissory note to be paid in monthly installments. Wang defaulted after nine payments.

FMMMC took Wang to arbitration before the China International Economic Trade Arbitration Commission in Beijing and was awarded $3 million in 2007. But FMMMC was unable to collect the award, so it sued US Capital.

The amended complaint alleged unjust enrichment, breach of contract and breach of oral contract.

US Capital faced judgments totaling $8 million, triggering its Chapter 11 bankruptcy petition last year. The FMMMC claim moved to Bankruptcy Court.

Plaintiffs case: Beck did not respond to a request for comment by deadline.

In Olson’s findings and conclusions, he noted FMMMC argued there was an oral contract with US Capital agreeing to be responsible for all principal and interest associated with the closing fee financing. US Capital disputed the existence of an oral contract.

While Olson agreed to assume there was an oral contract, he noted the parties were represented by sophisticated attorneys, adding, “This assumption pushes the boundaries of plausibility.”

US Capital tried to distance itself from the closing fee financing, but Olson said it could be argued the benefit of that financing flowed from FMMMC to US Capital.

The judge found FMMMC satisfied three crucial elements of an unjust enrichment test: FMMMC obligated itself to pay the $3 million, US Capital knew it had benefited and US Capital accepted the benefit.

Defense case: US Capital argued FMMMC could not prove a fourth element, and Olson agreed. US Capital received nothing to which it was not legally entitled.

US Capital bought the mall and met each condition of closing, so it was legally entitled to own the mall, the judge said.

FMMMC primarily expected Wang to be responsible for the closing financing and took the risk he would not pay, Olson said. It successfully obtained a judgment but was unable to collect.

“FMMMC cannot now ask this court to find that (US Capital) has become unjustly enriched when FMMMC has a clear adequate remedy at law available to it,” he said.

Outcome: “This court will not apply general principles of equity to reallocate payment risk,” Olson concluded. “This court finds that FMMMC’s unjust enrichment claim is barred.”

Comments: “If we had lost on our motion for summary judgment, I would have had to go to trial,” Reich said. “It seems like even if we went to trial on the facts, we still would have won. But this was an all-or-nothing case.”

Post-judgment: This was the final bankruptcy claim, and with its dismissal the property is unencumbered. It can be mortgaged for new financing and proceed with the reorganization plan confirmed by the court. The proposed 321 North mixed-use project for the site is a $300 million development that would included 550,580 square feet of retail space, 600,000 square feet of office space and up to 600 apartment and condominium units.