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West Run Student Housing Associates, LLC v. Huntington National Bank

May 15, 2012

WEST RUN STUDENT HOUSING ASSOCIATES, LLC;
CAMPUS VIEW JMU, LLC; AND MT. TABOR VILLAGE, LLC, PLAINTIFFS,
v.
HUNTINGTON NATIONAL BANK, DEFENDANT.



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Before the Court for disposition is the MOTION TO DISMISS AND MOTION TO STRIKE with brief in support, filed by Defendant Huntington National Bank (Document Nos. 11 and 12), the BRIEF IN OPPOSITION filed by Plaintiffs, West Run Student Housing Associates, LLC; Campus View JMU, LLC; and Mt. Tabor Village, LLC (Document No. 13), and the REPLY BRIEF filed by Defendant (Document No. 14). The Motion is now fully briefed and ripe for disposition.

Factual Background

As the law requires, at this stage of the proceeding all disputed facts and inferences are to be resolved in favor of Plaintiffs, the non-moving party.

The claims asserted arise from three separate commercial real estate development projects for student housing: one at West Virginia University (the "West Run project"), one at Virginia Tech University (the "Mt. Tabor project"), and one at James Mason University (the "Campus View project"). Four individuals were the sponsors of each of the student housing projects.

A. The West Run Project

In Spring of 2006, the sponsors formed West Run Student Housing Associates, LLC, ("West Run") to explore the possibility of developing a student housing project in Morgantown, WV. The project was a 994 bed facility, comprising 322 two, three, and four-bedroom apartments located in seventeen (17) three and four-story buildings, in addition to a clubhouse. West Run retained CBRE/Melody, a real estate broker, for the purpose of securing bank financing for the project. CBRE/Melody provided prospective lenders with proprietary information in conjunction with its efforts to secure bank financing. In September of 2006, West Run selected Sky Bank to provide financing for the project.

Sky Bank agreed to loan West Run $39.975 million, which financing closed on October 5, 2006. As of July 1, 2007, Huntington National Bank ("Huntington") became the successor-in-interest to Sky Bank's rights and obligations under the West Run loan transaction by virtue of its merger with Sky Bank.

Repayment of the loan was to be in two phases, the "Construction Phase," followed by the "Permanent Phase." In the Construction Phase, Sky Bank would be making advances to cover the construction costs and West Run was required only to make payments of the accrued interest on the amount borrowed. The Construction Phase was to terminate on November 30, 2009. Then, during the Permanent Phase, which started on December 1, 2009, West Run was required to make payments of both accrued interest and principal.

The West Run project was to be constructed in two primary phases. The first phase, consisting of the construction of the buildings which would house approximately half of the total number of beds, along with the clubhouse, was to be completed by summer of 2007, in time for the apartments to be rented for the 2007-2008 school year. The second phase, consisting of most of the remaining half of the beds, was to be constructed by August 2008, with the full balance of the project to be completed by October of 2008. Phase I was completed on schedule in August of 2007 and construction of Phase II was completed in August of 2008.

In the fall of 2008, as the West Run project was being completed, construction commenced on an unrelated student housing project known as Copper Beech Townhomes ("Copper Beech"), which was located "literally across the street from [the West Run project]." By the spring of 2009, a number of the Copper Beech units were completed and were on the market, officially competing with the West Run project "for the same pool of potential student tenants." According to the Complaint, it was at this time that Plaintiffs first learned that "Huntingdon had participated, to the extent of $20 million, in the financing of Copper Beech."

The West Run project's overall occupancy dropped to under 64% in the fall of 2009, which decreased West Run's available cash flow. West Run anticipated, as of the spring 2009, that it would be unable to make the principal and interest payments due to Huntington as of December 1, 2009. West Run contends that its "occupancy crisis was caused by Huntington's financing of Copper Beech, with its resulting diminishment of [West Run project's] revenues."

B. The Mt. Tabor Project

The Mt. Tabor project had many of the same individual sponsors as the West Run project. However, this project differed from the West Run project as it was smaller, consisting of only 38 units which were condominiums to be purchased rather than leased. The sponsors formed Mt. Tabor Village, LLC (the "Village") in order to facilitate the construction and management of the housing project. Huntington financed this condominium development by way of a $6 million loan which closed on December 26, 2007. The Construction Loan Agreement required that the Village have in hand twenty-nine (29) Qualified Sale Agreements for condominium units before Huntington was required to fully fund the loan. See Construction Loan Agreement, Exh. 4 at 15. In the spring of 2009, as the project was nearing completion, Huntingdon refused the last construction advance - "the one that would have allowed the project to be completed." Amended Complaint at ¶ 50.

C. The Campus View Project

Concurrently, with the Mt. Tabor project the same sponsors developed a third project, Campus View Student Condominiums ("Campus View") to be located in Harrisonburg, Virginia. The sponsors formed Campus View JMU, LLC ("JMU") to facilitate the construction and management of the housing project. Huntington agreed to extend financing for the Campus View project in the form of a $10.5 million secured revolving line of credit, which was secured by a mortgage on the property. The financing closed on February 22, 2008 and construction commenced at approximately the same time. The Construction Loan Agreement required JMU to secure a total of fifty-four (54) Qualified Sale Agreements before Huntington was required to fully fund the second phase of the Campus View project. In or around August of 2009, Huntington refused to extend further construction advances to JMU.

Procedural Background

Plaintiffs initiated this litigation on or about December 22, 2011, by the filing of a three-count Verified Complaint in the Court of Common Pleas of Allegheny County, Pennsylvania. Plaintiff West View generally alleged that Huntington breached its duty of good faith and fair dealing by its "participation in the loan to Copper Beech," which caused the failure of the West Run project. Complaint, at ¶ 93. Both Mt. Tabor Village and Campus View each alleged breach of contract on the basis that Huntington failed to honor certain construction draws under the respective construction loan agreements.

On January 20, 2012, Huntington removed the lawsuit from Allegheny County to this Court. On January 27, 2012, Huntington filed a Motion to Dismiss all claims in which it argued that West Run's claims should be dismissed for failure to state a plausible claim and that the claims of Mt. Tabor Village and Campus View should be dismissed on the basis that their own admissions established that they had not fulfilled certain unit pre-sales ...


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