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1 Timothy M. Flaherty, Esq., SBN 99666
Christian P. Foote, Esq., SBN 240919
2 CLARK HILL LLP ELECTRONICALLY
3
505 Montgomery Street, 13th Floor F I L E D
San Francisco, CA 94111 Superior Court of California,
County of San Francisco
Telephone: (415) 984-8500
4 Facsimile: (415) 984-8599 09/28/2021
Clerk of the Court
TFlaherty@clarkhill.com BY: YOLANDA TABO-RAMIREZ
5
CFoote@clarkhill.com Deputy Clerk
6
Attorneys for Defendant/Cross-Complainant
7 ALICE PHELAN SULLIVAN CORPORATION
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 CITY AND COUNTY OF SAN FRANCISCO
10
WHITE HOUSE VENTURES, LLC, a Case No. CGC-20-582659
11 California limited liability company,
DEFENDANT ALICE PHELAN SULLIVAN
12 Plaintiff, CORPORATION’S TRIAL BRIEF
13 v.
14 Date of Trial: October 5, 2021
ALICE PHELAN SULLIVAN Dept.: 505
CORPORATION, a California corporation; and Hon. Judge Harold E. Kahn
15
DOES 1-100,
16
Defendants.
17
________________________________________
18
ALICE PHELAN SULLIVAN
19 CORPORATION, a California corporation,
20 Cross-Complainant,
21 v.
22 WHITE HOUSE VENTURES, LLC, a
California limited liability company, and ROES
23 1-10,
24 Cross-Defendants.
25
26
Defendant Alice Phelan Sullivan Corporation’s Trial Brief
CLARKHILL\62578\372310\264213993.v1-9/29/21
1 TABLE OF CONTENTS
I. Introduction ......................................................................................................................... 1
2
II. STATEMENT OF FACTS .................................................................................................. 4
3
A. Background of the Alice Phelan Sullivan Corporation and the White
4 House Building, 255 Sutter Street, San Francisco. ................................................. 4
5 B. Proposed Assignment in 2017 to Interpark ............................................................. 6
6 1. WHV’s Initial Submission of Request for Consent to APS. ....................... 7
7 2. APS’s Efforts to Fill Information Gaps Regarding the Interpark
Assignee ...................................................................................................... 8
8
3. APS’s Objection to Section 8 Language and Interpark’s
9 Cancellation of the Contract with WHV. .................................................... 9
10 C. APS Audits WHV.................................................................................................. 10
11 D. Proposed Assignment in 2019 to JMA .................................................................. 11
12 1. Initial Submission to APS. ........................................................................ 11
13 2. APS Request For Information In Response to Initial Submission ............ 11
14 3. WHV Failure to Provide Requested Information and APS’s
Subsequent Denial. .................................................................................... 13
15
4. WHV’s Belated Offer to Meet Conditions and APS’ “Reset”
16 Proposal. .................................................................................................... 13
17 III. Legal Standard ................................................................................................................... 15
18 IV. WHV Cannot Establish a Breach of the Lease in Connection With the
Interpark Transaction in 2017. .......................................................................................... 16
19
A. APS Did Not Deny or Withhold Its Consent to the Interpark
20
Transaction. ........................................................................................................... 16
21
B. APS Reasonably Objected to the Section 8 language in the form of
22 Consent and Estoppel. ........................................................................................... 17
23 C. There is No Evidence of Unreasonable Conduct or Any Harm Relating
to APS’s Alleged Delay in Raising the Section 8 Issue. ....................................... 21
24
V. WHV Cannot Establish a Breach of the Lease In Connection with the JMA
25 Transaction. ....................................................................................................................... 23
26
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1 A. It Is A Condition Precedent to Lessor’s Obligation to Provide Consent
that the Lessee Provide Information Relevant to the Financial and
2 Operational Adequacy of the Proposed Assignee. ................................................ 23
3 B. At Trial, WHV Will Be Unable to Meet Its Burden of Proof Regarding
The Financial Position or Operational Ability Of The Proposed JMA.-
4 Assignee. Just as It Failed to Provide Such Information to APS in
2019. ...................................................................................................................... 24
5
C. APS’s Document and Information Requests Were Commercially
6 Reasonable. ............................................................................................................ 26
7 D. WHV’s “Starbucks” Theory Is Erroneous. ........................................................... 31
8 1. JMA’s Post-Denial Offer to Meet APS’s Conditions Was
Untimely and Insufficient; The JMA-Entity Assuming the Lease
9
with No Debt Was Fundamentally Different Proposition than
10 That Entity Assuming the Lease with $8.5 million of debt
secured by the garage lease. ...................................................................... 33
11
E. Alternatively, WHV remained in default, thereby providing grounds for
12 APS to reasonably deny consent ........................................................................... 35
13 VI. WHV’s Second Cause of Action for Breach of the Implied Covenant of Good
Faith and Fair Dealing Is Superfluous. .............................................................................. 36
14
A. Alternatively, The Second Cause of Action Fails Because WHV Has
15 No Evidence to Support It. .................................................................
16 VII. WHV’s Third Cause of Action for Intentional Interference with Contract Will
Fail Because APS’ Conduct Was Justified........................................................................ 38
17
A. In Connection with the Interference With Contract Claim, The Court
18 Must Disregard All Evidence after August 30, 2019 – the date the
WHV-JMA contract was cancelled. ...................................................................... 39
19
VIII. WHV’s Fourth Cause of Action for Intentional Interference with Prospective
20 Economic Relations Will Fail. .......................................................................................... 40
21 IX. WHV’s damages calculation is excessive and unfounded. ............................................... 41
22 A. WHV’s Expert Has Grossly Overstated WHV’s Damages. .................................. 41
23 B. WHV failed to mitigate damages. ......................................................................... 42
24 C. Concepts of Superseding/Intervening Cause Precludes Evidence of
COVID-19 Damage on WHV’s Tort Claims. COVID-19 Damages
25 Were Not Proximately Caused by APS. ................................................................ 43
26
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1 D. WHV Cannot Recover Damages Due to An Alleged Loss of Tax
Deferral From A 1031 Exchange That Was Never Commenced. ......................... 45
2
1. Awarding Lost 1031 Deferral As Damages Would Amount to A
3 Double Recovery. ...................................................................................... 47
4 X. APS Will Prevail on its Cross-Claim for Breach of Contract ........................................... 47
5 XI. CONCLUSION ................................................................................................................. 47
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1 TABLE OF AUTHORITIES
2 CASES
3 200 Eighth Ave. Rest. Corp. v. Daytona Holding Corp., 293 A.D.2d 353, 740 N.Y.S.2d
330 (2002) ..................................................................................................................................... 34
4
Aas v. Superior Ct., 24 Cal. 4th 627 (2000) .................................................................................. 46
5
Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (1994) ............................... 47
6
Bigbee v. Pacific Tel. & Tel. Co., 34 Cal.3d 49 (1983)................................................................. 50
7
Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (1990) ............................... 43
8
Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376 (1995) .................................... 46
9
Depalma v. Westland Software House, 225 Cal. App. 3d 1534 (1990) ........................................ 51
10
Erlich v. Menezes, 21 Cal. 4th 543, 981 P.2d 978 (1999) ............................................................. 47
11
Guz v. Bechtel Nat. Inc., 24 Cal.4th 317 (2000)............................................................................ 42
12
Imperial Ice Co. v. Rossier, 18 Cal. 2d 33 (1941) ......................................................................... 44
13
Jack Frost Sales, Inc. v. Harris Tr. & Sav. Bank, 104 Ill. App. 3d 933 (1982) ...................... 32, 37
14
John Hogan Enterprises, Inc. v. Kellogg, 187 Cal. App. 3d 589 (1986) ................................ 32, 37
15
Kendall v. Ernest Pestana, Inc., 40 Cal.3d 488 (1985) ................................................................. 21
16
Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003) ................................... 45, 46
17
Nielsen v. Farrington, 223 Cal. App. 3d 1582 (1990) .................................................................. 51
18
Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118 (1990) ................................. 44
19
Pankow Const. Co. v. Advance Mortg. Corp., 618 F.2d 611 (9th Cir. 1980) ............................... 44
20
PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579............................................ 45
21
Prostar Wireless Grp., LLC v. Domino's Pizza, Inc., 360 F. Supp. 3d 994 (N.D. Cal.
22 2018) .............................................................................................................................................. 46
23 Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal.4th 26 1998)............................................. 45
24 Rosen v. State Farm Gen. Ins. Co., 30 Cal.4th 1070 (2003) ......................................................... 46
25 San Jose Construction, Inc. v. S.B.C.C., Inc., 155 Cal.App.4th 1528 (2007) ............................... 46
26 State Ready Mix, Inc. v. Moffatt & Nichol (2015) 232 Cal.App.4th 1227 .................................... 47
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1 Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group (2006) 143
Cal.App.4th 1036........................................................................................................................... 47
2
Webber v. Inland Empire Invs., 74 Cal. App. 4th 884, 88 Cal.Rptr.2d 594 (1999) ...................... 44
3
OTHER AUTHORITIES
4
1 Dobbs et al., The Law of Torts (2d ed.2013) §212, p. 741 ........................................................ 50
5
6 Witkin, Summary of Cal. Law (10th ed 2005) Torts §1197, p. 574 .......................................... 49
6
CACI No 2200 ............................................................................................................................... 44
7
Miller & Starr, 12 Cal. Real Est. § 40:52 (4th ed.)........................................................................ 51
8
Restatement 2d of Torts § 766....................................................................................................... 45
9
CODES
10
Cal. Civil Code § 1995.250 ..................................................................................................... 20, 21
11
Cal. Civil Code § 1995.260 ........................................................................................................... 21
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1 Alice Phelan Sullivan Corporation (“APS”) submits the following trial brief in preparation for
2 the October 4, 2021 bench trial. APS is represented by Timothy M. Flaherty and Christian P. Foote of
3 Clark Hill LLP. APS will present testimony by Erin Doyle Ebeling, its president. In addition, APS
4 will present testimony from its real estate lease custom and practice expert, Randall Barkan, as well
5
as its economic loss/damages rebuttal expert, Jim Anderson. APS may call others in rebuttal to the
6
evidence presented by Plaintiff.
7
I. INTRODUCTION
8
This is an action for breach of contract and various torts by White House Ventures, LLC
9
(“WHV”) – wholly owned by George Karas (“Karas”) – against its landlord, APS, arising out of
10
APS’ alleged unreasonable refusal to consent to two proposed assignments of WHV’s garage
11
leasehold in 2017 and again in 2019. WHV leases and operates a parking garage and pays a
12
percentage of gross receipts in rent to APS.
13
At trial, WHV will be unable to meet its burden that APS failed the reasonable landlord
14
15 standard – an objective analysis – with respect to either transaction, and all its claims will fail. The
16 proposed 2017 assignment collapsed, not because APS refused to consent to it, but because the
17 proposed assignee, Interpark, refused to accept the Lease as written and terminated the deal with
18 WHV in April 2017. Despite agreeing in principle to all of APS’s reasonable conditions of consent,
19 Interpark cancelled the deal after APS was unwilling to agree to Interpark’s proposed lease
20 modification that it was attempting to effect through a Consent and Estoppel document. Typically,
21
consent and estoppel documents are standard forms by which a landlord consents to an assignment,
22
confirms the basic facts of the lease, and confirms there are no current defaults under the lease.
23
Interpark, however, attempted to add language to the Consent and Estoppel document (what will be
24
referred to as Section 8) to effectuate a material change to Lease terms that governed the parties’
25
26
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1 relative responsibilities for repairs and maintenance of the building. APS was unwilling to agree to
2 this alteration of the Lease, and Interpark subsequently cancelled the deal.
3 Thus, the core issue presented to the Court with respect to the 2017 transaction is as follows:
4 Was APS reasonably required to consent to an assignment in which the proposed assignee required
5
changes to the Lease? Certainly, the answer is no. The Lease expressly requires any assignee to take
6
the Lease as it is written, and Interpark was unwilling to do so. In fact, Interpark was unwilling to
7
purchase the WHV leasehold unless it was able to foist on APS all the maintenance and repair
8
responsibilities in connection with non-structural issues in the building, such as concrete floors, that
9
had always been the tenant’s obligation. Most telling of the lack of merit of this claim is that WHV
10
told Interpark the Section 8 language was inappropriate and would derail the sale and assignment of
11
the Lease. APS was under no obligation to and did not accept this condition and cannot be held liable
12
under either contract or tort for its unwillingness to do so.
13
14 Accordingly, WHV cannot establish a breach of contract, or tort, arising from APS’ objection
15 to the Section 8 language demanded by Interpark in the Consent and Estoppel document.
16 With respect to the 2019 transaction, APS denied consent because WHV refused to provide
17 APS with very basic information that is routine in the commercial real estate industry. The central
18 issue facing the Court in connection with the 2019 transaction is as follows: Was APS obligated to
19 consent to the assignment to the JMA-affiliate despite being presented with no documentation to
20
support WHV’s naked assertions about the financial and operational appropriateness of the proposed
21
assignee, the proposed assignee’s sponsor, JMA Partners, or its partners in the JV entity?
22
The answer once again is no. The Lease expressly requires the tenant to provide the landlord
23
with this information and the landlord is under no obligation to accept the tenant’s oral assurances in
24
lieu of actual documentary support. At trial, the evidence will show that at no time did WHV provide
25
any such documentary evidence to support its faith in the 2019 proposed assignee.
26
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Defendant Alice Phelan Sullivan Corporation’s Trial Brief
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1 Rather, in an effort to overcome its failures to meet the obligations of the Lease, WHV is
2 expected to put forth what we refer to as the “Starbucks theory.” It will argue the JMA-joint venture
3 was so obviously superior in financial and operational strength to George Karas’ “mom and pop”
4 operation that it was inherently unreasonable for APS to ask for financial and operational documents
5
of the sponsors and/or partners of the JMA-JV entity. Thus, WHV will liken the proposed 2019
6
assignment to a mom and pop coffee shop assigning their lease to Starbucks and assert the landlord’s
7
information and document requests of Starbucks unreasonable.
8
WHV’s “Starbucks” analogy fails on all counts. JMA Partners is not Starbucks (or any other
9
large publicly held company) in the parking garage business. It is a privately-held company that
10
styles itself as a developer of hip, marquee properties – ski resorts, cool restaurants, sports venues –
11
where the parking garage is an afterthought. Its finances and real interest in the White House garage
12
remained a mystery to APS throughout 2019. Similarly, after APS denied consent, WHV’s name-
13
14 dropping of billionaire investors purportedly involved in the deal added nothing to APS’s essential
15 body of knowledge about the assignee.1
16 Rather than Starbucks the better analogy for WHV’s proposed assignment to JMA is that of a
17 small wealth management outfit that approaches its landlord to request an assignment of its office
18
lease. The tenant does not provide financial statements or operational documents to the landlord but
19
assures the landlord that the assignee is the largest, most well-respected private wealth management
20
firm in the country, relied on by countless endowments, pension funds, and respected high-net worth
21
individuals. The tenant provides publicly available information from the assignee’s website and
22
tosses in some jeremiads and peons about this gold-standard proposed assignee. Tenant asserts that
23
24
1
25 One of those investors, David Bonderman, is the Texas investor who got kicked off the Uber board
of directors in 2017 for making an overtly sexist comment at an all-hands employee meeting at which
26 Uber’s leadership was describing its efforts to address allegations of sexism in the company.
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1 the landlord’s requests for verification from this proposed assignee – the Madoff Group – are
2 outlandish and improper.
3 We are not suggesting that JMA has any resemblance to Bernie Madoff. The point is that a
4 tenant’s representations – or the representations of the assignee itself, or the marketing materials on
5
its website, or the tenant’s subjective awe of the qualifications of its assignee – are not a proper
6
foundation on which a landlord can reasonably assess the financial and operational appropriateness of
7
a proposed assignee and do not fulfill the tenant’s obligations to landlord. Yet this is the crux of
8
WHV’s theory of liability with respect to the 2019 transaction.
9
Accordingly, WHV’s claims that APS breached the Lease in connection with either
10
transaction finds no support in the language of the Lease, the law, or the facts. APS will also prove at
11
trial that WHV’s damage calculation, which exceed the purchase price of the leasehold in either the
12
2017 or the 2019 transactions, borders on the delusional.
13
14 In addition, APS will prevail on its cross-complaint which seeks underpaid Percentage Rent
15 for the 2014, 2015, and 2016 fiscal years.
16 II. STATEMENT OF FACTS
17 A. Background of the Alice Phelan Sullivan Corporation and the White House
Building, 255 Sutter Street, San Francisco.
18
Alice Phelan Sullivan Corporation is a family-owned corporation whose shareholders are
19
comprised of descendants from two historic California families that date back to the Gold Rush days.
20
Its primary asset is the White House Building, 255 Sutter, at the corner of Sutter and Grant streets in
21
San Francisco. The White House Building had hosted an upscale department store for many years but
22
23 shut down in the mid-1960s. In 1968, APS entered into a master lease for the entire building with
24 First General Real Estate Trust, later succeeded by Murray Zarin and White House Partners. First
25 General converted a portion of the building into a parking garage. In the early 1990s, the subtenant
26
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Defendant Alice Phelan Sullivan Corporation’s Trial Brief
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1 operating the parking garage defaulted on its mortgage and George Karas purchased the garage
2 leasehold from the foreclosing bank.
3 Karas operated the garage for many years successfully, with healthy revenue growth, and had
4 managed the 2008-2009 recession well relative to other garages in downtown San Francisco. Karas
5
became well known to APS and its CEO Erin Doyle Ebeling (and before Erin, her father Peter Doyle)
6
and they had a cordial relationship for many years.
7
In 2013, upon the expiration of the Zarin master lease (and the Karas garage lease), APS
8
regained control of the building. After extensive due-diligence, APS entered into a direct Lease for
9
the garage with an LLC owned by George Karas, White House Ventures LLC.
10
The Lease was amended in 2016 to add extension options to the Lease which options were
11
fully assignable.
12
The critical portions of the Lease pertaining to the landlord’s consent to an assignment
13
include:
14
! §12.1(a): “Lessee shall not voluntarily or by operation of law assign, transfer, mortgage
15 or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee's
interest in this Lease or in the Premises without Lessor's prior written consent.”
16
! §12.1(e): “Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited
17 to compensatory damages and/or injunctive relief.”
! §12.1(f): “Lessor may reasonably withhold consent to a proposed assignment or
18 subletting if Lessee is in Default at the time consent is requested.”
19 ! §12.2(a): “Terms and Conditions Applicable to Assignment and Subletting./ Regardless
of Lessor's consent, no assignment or subletting shall: (i) be effective without the
20 express written assumption by such assignee or sublessee of the obligations of Lessee
under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary
21 liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.”
22
! §12.2(e): “Each request for consent to an assignment or subletting shall be in writing,
23 accompanied by information relevant to Lessor's determination as to the financial and
operational responsibility and appropriateness of the proposed assignee or sublessee,
24 including but not limited to the intended use and/or required modification of the Premises,
if any, together with a fee of $500 as consideration for Lessor's considering and
25 processing said request. Lessee agrees to provide Lessor with such other or additional
26
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1 information and/or documentation as may be reasonably requested. (See also Paragraph
36)”
2
! § 36: “Consents. Except as otherwise provided herein, wherever in this Lease the consent
3 of a Party is requested to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed…. The failure to specify herein any particular
4 condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of
consent of such further or other conditions as are then reasonable with reference to the
5 particular matter for which consent is being given …” [bold italics added]
6
B. Proposed Assignment in 2017 to Interpark
7
George Karas began discussions with Andy McLaughlin of Interpark Holdings LLC
8
(“Interpark”) regarding a sale of the White House Garage leasehold as early as August 2016.
9
During their diligence period, Interpark performed a building inspection in December 2016
10
that disclosed potential issues of concern with the building’s interior. A report prepared by Annie Lo
11
at Walker Restoration (the “Walker Report”) disclosed millions of dollars of potential repairs that
12
were needed at the building. Interpark believed some estimates in the Walker Report were overstated
13
and hired Desman Engineering to inspect the property as well.
14
15 After Interpark’s consultants inspected the building, Interpark negotiated with Karas for very
16 specific language in the Consent and Estoppel document that would be submitted to APS upon the
17 execution of the contract. Specifically, Interpark insisted on including language to the Consent and
18 Estoppel that would impose additional burdens on APS to pay for repairs to various aspects of the
19 building beyond the “structural components” which APS was required to maintain under Section 7.2
20 of the Lease.
21 Karas and his attorneys adamantly opposed the insertion of this language, arguing that it
22
exceeded the landlord’s requirements under the Lease. Karas wrote to Interpark on January 13, 2017:
23
Russ [Pollock, WHV’s attorney] thinks the lease language is clear with
24 respect to structural repairs being the responsibility of the Lessor.
While we understand your desire to have a clear understanding of the
25
26
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1 lease, we are also concerned about raising issues with Lessor that are
clear under the lease.2
2
Mr. Karas also wrote: “Adding the proposed new provision to the Consent and Estoppel will
3
only confuse the Lessor (for example, adding language that is not in the Lease such as “without
4
limitation”) and slow down the process of obtaining its signature to the Consent/Estoppel, while not
5
6 really doing much for lnterpark.”3
7 WHV tried to convince Interpark to amend the proposed estoppel language so that it tracked
8 the actual requirements of the Lease in connection with APS’s obligation to maintain structural
9 components. Interpark objected to Karas’ language as “circular.” Karas knew the language proposed
10
by Interpark would be rejected by APS but reluctantly agreed to Interpark’s language to preserve the
11
potential sale. The language Karas accepted in the proposed from of Consent and Estoppel was as
12
follows:
13
8. Lessor hereby acknowledges and agrees that Lessor’s obligation
14 under Section 7.2 of the Lease to maintain ‘structural components’ of
the Premises includes concrete ramps, floors, columns and beams that
15 are part of the Premises.
16
Section 7.2 of the Lease actually provides, in relevant part:
17
18 “Lessor shall maintain exterior walls, structural components,
foundations, roof, roof drainage systems, window casements, but not
19 window glass, and sidewalks adjacent to the Project.”
The Purchase and Sale Agreement (“PSA”) between WHV and Interpark was executed on
20
January 17, 2017.
21
1. WHV’s Initial Submission of Request for Consent to APS.
22
23
24
2
25 Defendant’s Trial Exh. No. 224.
3
26 Defendant’s Trial Exh. No. 225.
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1 On January 23, 2017, WHV formally submitted its request to APS for consent to WHV’s
2 proposed assignment to Interpark. This submission consisted of a one-page email from Mr. Karas to
3 Ms. Ebeling, along with two ancillary documents that contained little to none of the information
4 about the proposed assignee as required in Lease Section 12.2 (e).
5
2. APS’s Efforts to Fill Information Gaps Regarding the Interpark Assignee
6
On February 7, 2017, a conference call took place with Andy McLaughlin of Interpark
7
attended by George Karas, real estate broker Patrick Doyle, and APS Board members Brian Doyle
8
and Erin Doyle Ebeling. To evaluate the proposal APS asked for financial statements of the entity
9
that would be assuming the Lease, and as condition of consent APS sought a guaranty, and a letter of
10
credit. On February 21, 2017, Andy McLaughlin emailed Ebeling with background information
11
regarding Interpark.
12
Over the next several weeks, APS, WHV, and Interpark worked through various issues in
13
connection with APS’s review of the Interpark assignee. These issues included determining which
14
15 entity would assume the Lease; determining the financial reliability of that entity given that it would
16 be a newly formed Single Purpose Entity (“SPE”) and not Interpark Holdings LLC; which entity
17 would provide the guaranty; and the financial wherewithal of that guarantor.
18 Karas became impatient with APS. However, Interpark’s representative, Andy McLaughlin,
19 recognized the logic of APS’s requests. In response to George Karas’s concerns regarding the degree
20 of APS’s due diligence on the proposed assignee, McLaughin explained to Karas in an email dated
21
March 21, 2017: “She [Erin Doyle Ebeling] wants to know who her tenant is and if they are
22
financially secure. You have been a conventional lessee for her and the relationship between IP
23
[Interpark] and Alinda (although the strongest in the industry) is unknown to her so she's concerned. I
24
don't blame her and she's doing what I would do. … Let's give her the room she needs to get
25
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1 comfortable. We'll get there.”4 In his deposition in this action, Andrew McLaughlin testified that
2 APS’s information requests were reasonable.
3 Q: And it's true, is it not, that you were willing to share the
financial statements for InterPark Holdings, LLC, correct, with – with
4 Alice Phelan Sullivan Corporation?
5 A: That's correct.
6 Q: And was that a reasonable thing for APS to ask for, to see
InterPark's financial statements?
7
[objection]
8
A: I thought it was fair.
9
McLaughlin [Interpark] Dep. Test., at 80:11-21.
10
11 By early April 2017, the parties were on the cusp of “getting there.”
12 3. APS’s Objection to Section 8 Language and Interpark’s Cancellation of
the Contract with WHV.
13
APS had approved the assignment of the Lease to Interpark and the focus turned to other
14
aspects of the proposed transaction. It was at this point when counsel for APS, Conrad Breece,
15
pointed out to counsel for Interpark that Section 8 of the Consent and Estoppel form imposed an
16
unreasonable burden on APS and effectively changed the terms of the Lease. After being informed
17
that APS would not agree to this alteration of the Lease Section 7.2 terms, Interpark decided not to
18
proceed with the transaction with WHV.5
19
20 Documents produced in discovery show that George Karas was unhappy with Interpark’s
21 insistence on Section 8 of the Consent and Estoppel form, and blamed Interpark for the failure of the
22 deal to close. On April 11, 2017, George Karas wrote the following to Andy McLaughlin: “Russ
23 [Pollock, WHV’s attorney] spoke with Conrad [Breece, APS’s attorney] this morning where he
24
25 4
Defendant’s Trial Exh. No. 233.
5
26 Defendant’s Trial Exh. No. 239.
9
Defendant Alice Phelan Sullivan Corporation’s Trial Brief
CLARKHILL\62578\372310\264213993.v1-9/29/21
1 verified that the landlord is of course responsible for structural repairs. This would include concrete
2 work that is caused by or part of the structure. The language in Section 8 is concerning to them
3 because they may be asked for something they should not repair. This was my concern with this
4 language long ago.”
5
After Interpark’s termination of the contract, WHV objected to the return of the $500,000
6
escrow deposit money to Interpark and directed the escrow agent not to release those funds without
7
WHV’s approval. This confused Interpark, which believed it was entitled to the return of that money
8
based on a failure of a closing condition. In effect, WHV argued that Interpark caused the failure of
9
condition of APS’ signing the Consent and Estoppel due to Interpark’s insistence on adding language
10
to the Consent and Estoppel document. WHV then directed the escrow officer not to release any
11
funds to Interpark and even went so far as to threaten litigation against the escrow officer if it did so.6
12
C. APS Audits WHV
13
Section (e) of the Percentage Rent Addendum to the Lease provides APS can perform an audit
14
15 of WHV. That section states in relevant part:
16 (e) Lessor’s Audit Rights. The acceptance by Lessor of payments of
Percentage Rent shall be without prejudice to Lessor’s right to examine,
17