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Settlement reached in real estate development partnership litigation

Our client was one of two partners in a major South Florida residential real estate development company who experienced great success together for 25 years. However, in the real estate recession that began in 2007, several of the partners’ developments defaulted on mortgages. In one case, the bank obtained a summary judgment of over $13 million against the two partners on their personal guarantees, without filing a foreclosure action. The bank began collection proceedings in Palm Beach County. One of the partners bought the judgment from the bank at a discount without the consent of the other partner, our client. The partner who bought the judgment then sought to enforce the entire amount of the judgment against our client.

Jim Beasley and Ray Kramer argued that a co-guarantor cannot purchase an obligation and then sue his co-guarantor for the full amount. Rather, the only potential liability of the non-purchasing co-guarantor is any deficiency between his share of the amount of the judgment and the fair market value of the underlying property. As a result, the court refused to consider the motion to enforce the judgment on a summary basis. The partner who had purchased the judgment promptly withdrew his action in Palm Beach County, asserted the same enforcement claims in Broward County, and once again attempted to have the matter heard summarily. Once again, Jim and Ray defeated this tactic. They contended that the partner who purchased the judgment had done so through an entity that was merely a straw man created solely by the partner for the purpose, and the use of a straw man entity did not allow the partner who purchased the judgment to pursue his co-guarantor for the full amount of the judgment. Extensive discovery and motion practice ensued for about 12 months. Jim and Ray also filed suit in Palm Beach County asserting our client’s claims for an accounting of the 25-year partnership and a claim for breach of fiduciary duty. Shortly before a scheduled evidentiary hearing, the matter was settled on a basis that was satisfactory to our client. In the Broward County proceedings, we were substantially assisted by our Broward County co-counsel, Jesse Diner.

These results may not be typical. Other clients may not have as beneficial a result.