Legislature passes ‘one of the more disturbing bills’ following insolvency decisions

Nearly four months ago, two decisions were issued that involved parties in a commercial mortgage-backed securities loan — a non-recourse loan — which required the defendant landowner remain a “single purpose entity.” But the defendants became insolvent and defaulted on the mortgage.

The Michigan Court of Appeals ruled in Wells Fargo Bank v. Cherryland Mall Ltd. Partnership, et al. and the U.S. District Court in 51382 Gratiot Ave. Holdings, LLC v. Chesterfield Development Co. LLC that, by becoming insolvent, the defendants lost its single-purpose entity status, causing the loans to become recourse loans and allowing the plaintiffs to sue for the deficiency.

Now, the Detroit Free Press has reported that:

Wells Fargo bank will file a court challenge to a new state law signed by Gov. Rick Snyder that overturned a $2.4 million judgment against the brother and business partner of Michigan Republican Party Chairman Bobby Schostak, the bank’s attorney said Friday.

The law Snyder signed Thursday, which says a lender can recover only the real estate offered as collateral when a certain type of commercial loan goes into default, is unusual because it is retroactive, to the benefit of Schostak’s brother.

It sailed through the Legislature with bipartisan support but left some unhappy lawmakers in its wake.

“It was one of the more disturbing bills that we’ve taken up this session,” said Rep. Tom McMillin, R-Rochester Hills, who chairs the House Oversight, Reform and Ethics Committee.

The law is intended to overturn a judgment related to an unpaid loan on a Traverse City mall that was controlled by the Livonia-based real estate firm Schostak Bros. That judgment was upheld by the Michigan Court of Appeals.

The new law also could impact at least one other case recently decided on similar grounds in federal court in Michigan, though attorneys and legal scholars say the new state law may violate the U.S. Constitution.

“We fully expect to challenge the constitutionality of this law on a number of grounds,” said Troy attorney James Allen of Miller Canfield, who represents Wells Fargo, the bank that says it is owed the money.

 Our analysis of the two cases can be found here (subscribers only).

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Deposit law challenge canned

A law requiring unique Michigan markings on returnable beverage containers does not, on its face, violate the federal Commerce Clause, according to Western District Judge Gordon Quist.

A suit filed by the American Beverage Association against several state officials claims the law unfairly limits interstate commerce.

The Michigan-specific markings enable deposit-return machines to recognize that the container was purchased in Michigan. The state argues that the law is necessary to prevent situations like this one:

All kidding aside, deposit-return fraud is no small matter, wrote Quist:

[A]lthough it has never been stated with precision how many bottles are fraudulently redeemed each year, Plaintiff does not deny that the problem exists, and Defendants have presented sufficient evidence that estimates the scope of fraud to be, conservatively, 10 million dollars per year.

Yet to be determined in the litigation: whether burden imposed on the beverage manufacturers outweighs the benefits that the state obtains from the unique-marking requirement.

The case is American Beverage Ass’n v. Synder, et al.

Dickinson Wright doubles up with chair election

Are two heads better than one? That’s what one of Michigan’s largest law firms is thinking.

On Tuesday, Dickinson Wright PLLC announced that Edward H. Pappas and James A. Samborn were elected co-chairmen of the firm, succeeding Dennis W. Acher.

Both Pappas and Samborn come to the table with a fairly recent canon of leadership — the former was the 2008-09 president of the State Bar of Michigan, while the latter capped 10 years as Dickinson Wright’s CEO.

We can’t help but notice that both of them specialize in commercial litigation and ADR –meaning that they could, if they wanted to, sue each other over office space, then hire one another as mediators.