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Bastion Capital Group, Inc. v. Matthews

Court of Appeals of Iowa

April 19, 2017

BASTION CAPITAL GROUP, INC., Plaintiff-Appellee,
GARY MATTHEWS, Defendant-Appellant.

         Appeal from the Iowa District Court for Polk County, Karen A. Romano, Judge.

         The defendant in an action for breach of contract appeals from the jury's verdict, which found the defendant breached the contract and awarded damages to the plaintiff. AFFIRMED AND REMANDED.

          Joseph A. Cacciatore of Graham, Ervanian & Cacciatore, L.L.P., Des Moines, for appellant.

          David W. Nelmark of Gislason & Hunter L.L.P., Des Moines, for appellee.

          Heard by Danilson, C.J., and Potterfield and Bower, JJ.

          POTTERFIELD, Judge.

         The defendant, Gary Matthews, appeals from a jury verdict, which found he had breached the contract he entered into with the plaintiff, Bastion Capital Group, and awarded Bastion damages in the amount of $113, 540.49. The jury verdict awarded damages on three of five instances of forbearance by the lender, followed by consequential transactions to the benefit of Matthews. Matthews maintains the district court abused its discretion in admitting testimony of Matthews's net worth and evidence of the disposition of two properties that occurred after the forbearance agreement was signed. He claims the court also abused its discretion in sustaining an objection to a question directed to Matthews's foreclosure attorney about the meaning of a term used in the contract between Matthews and Bastion. Additionally, Matthews maintains the jury's verdict was illogical and inconsistent, thus warranting a new trial. In response, Bastion asks us to affirm the jury's verdict and remand for the determination and award of "reasonable" appellate attorney fees.

         I. Background Facts and Proceedings.

         Matthews is a commercial real estate developer in Peoria, Illinois. As of June 2014, he was involved with a number of commercial properties, and he was in default on some loans related to those properties. Matthews had cross-collateralized his loans, and the bank began foreclosure actions on a number of commercial properties[1] that had been designated as collateral. Additionally, Matthews had personally guaranteed a number of the loans.

         Matthews reached out to Leo Skeffington, the sole shareholder and employee of Bastion, for help.[2] Then, on June 20, 2014, Matthews entered into a written agreement with Bastion, titled "Syndicate Finance Agreement" (SFA). The agreement provided that Matthews would pay Bastion a "commitment fee" of $15, 000 when the agreement was entered into; this fee paid for ninety days of Bastion's services. Matthews would then pay $2500 for each additional month. The agreement was "to remain in effect for a term of three hundred sixty[-five] (365) days commencing" on the date it was signed. The agreement could be "terminated early by either party with a written notice no later than thirty (30) days prior to the end of the then current month, " and early termination did "not preclude [Bastion] from receiving 'Success Fees' owed during the original term" of the agreement. Additionally, a signed amendment to the contract provided:

1. Bastion . . . is to be paid a successful resolution fee approximately 1.5% upon successful agreed upon resolution between Morton Community Bank . . . and Gary Matthews regarding addendum A any and all debts Bastion . . . is restructuring with Gary Matthews, Bastion Capital will be paid a bonus fee. For example $1, 000, 000 loan is restricted to agreeable terms between all parties: $1, 000, 000 x 1.5% = $15, 000.00 bonus fee.
2. In the event that Bastion . . . is successful in refinancing existing loans with Morton Community Bank . . ., Bastion Capital will be paid a 1.5% fee. For example new loan of $1, 000, 000 x 1.5% = $15, 000 bonus fee.
A[] Bonus success fee is only paid to Bastion . . . upon all parties signing relevant closing documents signifying agreement with all terms, covenants, obligations of such contractual agreement. If relevant and/or responsible managing parties do not sign closing contractual agreement which would trigger a transaction funding there is no fee to be paid.

         Matthews also agreed to pay "[a]ny traveling expenses which [Bastion] incurs in carrying out its obligations" and "all fees, and costs, including reasonable attorneys' fees incurred as a result of any legal action Bastion was required to take "to collect the fees or expenses" outlined in the contract, including fees resulting from an appeal.

         At the time Matthews and Bastion entered into the agreement, there was already a July 3 hearing scheduled for the appointment of a receiver for the properties.

         On July 1, Bastion sent the bank a proposal from another lending institution that was considering refinancing the debt for Matthews. The next day, personnel from the bank sent Bastion an email stating the bank had received the refinance proposal and had "asked our counsel to delay the [receivership] hearing for one week so that we could continue to have negotiations with you and [Matthews] relative to a proposed solution."

         Matthews and his foreclosure attorney, Christopher Ryan, met with personnel from the bank and the bank's attorneys on July 7. Skeffington was unable to attend the meeting in person, and he joined by way of a conference call. At some point during or soon after the meeting, it became clear the bank was not interested in giving Matthews the time to pursue refinancing the loans through another lending institution. Skeffington testified the bank was looking for a "quick resolution" and did not want to wait the amount of time it would take to obtain appraisals of the properties-approximately forty-five to sixty days. According to Ryan, the two sides were not having meaningful negotiations toward a resolution until Ryan threatened that Matthew might choose to pursue bankruptcy if they were unable to reach some sort of agreement to prevent the foreclosure.

         Following the meeting, on July 7, Skeffington sent Matthews an email, stating, in part:

We have the same goal in sight as you. We want you to maintain all your equity in the properties as well as you maintaining ownership. This is what the engagement reads as well as our proposal sent last week. Please read the Global resolution which . . . states the valuation wi[ll] be at [the refinancing institution's] sole discretion. We could get to par and/or close to par. However, as always this process is a negotiation with the bank. We represent you as an investment bank, and some of those negotiations could include an internal restructuring which our engagement states.

         Following the July 7 meeting, the focus was on an attempt to reach a forbearance agreement between Matthews and the bank. On July 9, the bank's attorneys sent Ryan a first draft of a forbearance agreement. Skeffington, Ryan, and Matthews discussed various terms and Ryan continued to negotiate with the bank's attorneys for the next few weeks; a number of revised drafts were completed.

         On August 5, Matthews entered into a forbearance agreement with the bank.[3] There were five loans at issue:

         The first loan was for EM Riverside L.L.C., which housed a PetSmart and had outstanding debt of approximately $3, 487, 000. The forbearance agreement gave Matthews until December 31, 2014, to sell the property. If Matthews was able to sell the property before December 31, the bank would take what it was owed, Matthews would receive 10% of whatever was left to pay down another loan he had with the bank, and the rest would go to Matthews's investors. If Matthews was not able to find a buyer, the bank would take the property by deed in lieu of foreclosure. If it did so, the bank agreed to discharge the entire loan, thus also removing Matthews's personal guaranty. The property was ultimately sold on November 18, 2014, for $4, 658, 703.

         The next property, Riverside Retail, is a strip mall, which included a Radio Shack. It had outstanding debt of approximately $2, 150, 000. The second property was given similar terms to the first in the forbearance agreement; Matthews had until December 31, 2014, to attempt to sell the property. If he was successful, the bank would receive what it was due, and then he would receive the first 15% of what was left to pay down another loan he had with the bank. His investors would then receive the rest. Matthews was unable to sell Riverside Retail, and the bank took the property by deed in lieu of foreclosure. The entire debt on the property was discharged when the bank did so.

         The third property is EM Barclay, L.L.C., and it was also a strip mall, housing a Sherwin Williams. The property was subject to debt of $2, 615, 000. On August 5, 2014-the date the forbearance agreement was signed-Matthews executed a deed in lieu of foreclosure, returning the property to the bank. The bank released the full debt and paid $100, 000 toward other deficient loans.

         Similarly, Matthews executed a deed returning EM Drake, L.L.C. (a Qdoba) to the bank on August 5. In return, the bank discharged the entire $1, 420, 000 and put $50, 000 toward Matthews's other deficiencies.

         The fifth property at issue was listed in a chart on the front page of the forbearance agreement, but it was otherwise not dealt with in the agreement itself. The bank held the second mortgage-worth $900, 000-on the GEM Terrace. The Terrace housed Matthews's office, and another bank had the first, senior mortgage on the property for $2, 500, 000. The property was eventually sold for $3, 500, 000 and both the mortgages were then discharged.

         Matthews had not told Skeffington about the meeting with the bank to sign the forbearance agreement, and Skeffington did not attend. Skeffington learned of the meeting on August 5 and sent Matthews a text message, stating, "Was unaware of meeting this morning. Please call me afterwards. Glad we are able to get this internal restructuring done. As part of engagement we should be present at meeting for your benefit. Regardless we can talk after meeting." Matthews did not call Skeffington after the meeting.

         Two days later, Skeffington emailed Ryan and asked for a copy of the "finalized closed restructuring/forbearance agreement." Ryan did not send a copy. Later the same day, Matthews emailed Ryan asking him to "give us a call to discuss the attached [Bastion] contract."

         Also on August 7, Skeffington emailed Matthews asking him to "[p]lease call . . . to talk regarding restructuring." Matthews responded that he would call the next morning.

         The next day, Skeffington and Matthews spoke on the phone. Following the conversation, Skeffington sent Matthews an email, stating, in part:

As of today you called to inform after successful resolution that we were not due a success fee which is contradictory to fully executed engagement. We would like to understand you[r] position in detail.
Regardless if it is your intention not to pay Bastion Capital Group, Inc. a success fee based on a successful resolution with [the bank], I ask you to advise with my counsel . . . .
We strongly suggest you review the engagement with counsel and further will have no other option than to pursue our rights via the fully executed engagement.

         On August 11, Matthews sent Bastion a letter giving notice that he was cancelling their agreement effective September 11, 2014-a date still within the original ninety days covered by the commitment fee. Additionally, it stated:

Please note that of services listed in paragraph one, you were only involved with some negotiations with the Lenders. No refinancing has occurred and no buyers have been obtained by you for any properties in question. After consulting with my attorney, I've been advised that you are not owed any fees per Amendment A as no loans have been refinanced or restructured. We do not believe that being required to turn over properties, sell the remaining properties within 4 months and providing [the bank] with additional collateral is a 'successful' resolution of the . . . debt.
As you recall, you told me that you had Lenders that would take out [the bank], which again never materialized. . . . Any further contact should be done through my attorney.

         Bastion filed the present suit on November 3, claiming breach of contract.[4]Matthews filed a counterclaim asserting ...

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