### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE Ja nuary 8, 200 4 S es sio n

NASHVI LLE LODGI NG COMPANY, ET AL 

### . v. METRI C PARTNERS GROW TH SUI TE I NVESTO RS, L.P.

Ap pe a l f ro m th e Cha nc e ry

Cou rt fo r D a vid so n Co un ty No. 94-1911-II

Irvin H. Kilcre ase, Jr., Chancellor

No. M2002-02356-COA- R3-CV - F iled Jun e 30, 2004

Na sh vil le L od g ing Compa ny a nd G. P. Cr e dit Compa ny , LL C app e a l th e a c tio n o f the tr ia l c ou rt in wh ic h th e tr ia l ju dg e ha vin g pr e vio us ly g rante d A pp e lla nts ’ m oti on fo r s umm ary jud g me nt as to li ab il it y in th is b r e a c h o f c o n tr a c t a c ti o n d e c id e d a ll is s u e s a s to d a ma g e s in f a v o r o f A p p e ll e e s

. We aff irm the ac tion of the trial court.
Tenn. R. App . P . 3 Appeal as of Right; Judgme nt of th e Chancer y Court Aff irm ed and Rem anded

W I L L I AM B. C A IN , J ., delivered the opinion of the court, in which P ATR I C I A J. C O T T RE LL , and F RAN K G. C L EME NT , J R ., J J ., joined.

Har ry Buc kley Cole, Marshall T. Cook, Nashville, Tenne ssee, for the appellants, Nashville L odg ing Compa ny a ndG. P. Cr e dit

Compa ny , L

L C.

Gar ry K. Grooms, Robert C. G oodrich, J r., Nashville, Tenne ssee, for the appellee
, Metric Partners Gr ow th S uit e I nv e sto rs , L .P.

OP IN ION

I t is said that the gr eate st fear of the de veloper s of the atomic bomb in Project Manhattan District was that splitting the ur anium atom would produce an unco n t rollable c hain re action. Fortunately

for the w orld, these f

ear s wer e unfounded. Such cannot be said for this case

. The a tom was split in1981 when Samuel H. Ha rdag e met Ke nneth E. Ne l s o n. The re sulting cha in rea ction, fee ding upon its el f, expanded exponentially to include (1) Or lan do Re sid e nc e Ltd . v . Na sh v ill e Lodging C o. , No. 01A-01-9606- CH-00256, 1996 WL 724915 (Tenn.Ct.App. De c. 18, 1996) perm. app. denied ( T e n n

. 1 9 9 7 ) ; (2) Me t r ic Partners Growth Suite Inve stors, Inc. v. Nashville Lodging Co.
, 989 S.W .2d 700 (Tenn.Ct.App. 1998), reh’g de nied (Tenn.Ct.App. 1998), perm. app. de nied (Tenn. 1999); (3) Orlando Residenc e, Ltd. v. Nashville Lodging C o. , No. 01A01-9807- CH-00357A, 1999 WL 1040544 (Tenn.Ct.App. Nov. 17, 1999) ; (4) Orlando Residenc e, Ltd. v. Nashville Lodging-2-

Co.
, 104 S.W .3d 848 (Tenn.Ct.App. 2002), r eh’g . denied ( Tenn.Ct.App. 2002), perm. app. de nied (Tenn. 2003) ; (5) N

e l s o n v

. M

e t r i c R e alt

y , No. M2000-03204-COA- R3-CV, 2002 WL 31126649 (Tenn.Ct.App. Sept. 26, 2002), perm. app. de nied (Tenn. 2003); (6) Nas hv ill e Lod gin g Co . v . M

e tri c Partners Growth Suite Investors, LP and Chris K omanoski , Cir.Ct. Mi l., WI , case no. 94-CV001212 (Jan. 31, 1994) ; (7) Metric Partners Growth Suite Inve stors, LP v. Nelson , n o. 92 -8 06 5 ( Ca l. Super. Ct., San Fra ncisco fi l ed J an. 1991); (8) Metric Partners Growth Suite Inv estors, LP v. Reube n; no. 99-8214 (Cal. Super. Ct., San Franc isco filed Sept. 1998.)

I n an ef fort to avoid confusion concerning va rious separ ately

named e ntities (mostl y

limit ed pa rt ne rs hip s) the princ ipa l pl a y e rs in thi s c on tin uin g sa g a c a n b e g ro up e d in to thr e e arm e d c a mps , and, except whe re quotations from previous ca ses re quire other wise, these cam p s will be ref err ed to a s f oll ow s:

1. “Ha

rdage” - - Samuel Har dag e Ag ent, Gene ral Partne r and Primary I nvestor in Orla ndo Residence Ltd. This entityowned the N ashville property prior to construction of the Ma rriott Re sid e nc e I nn the re on a nd , in the e arl y 19 80 ' s, c on ve y e d th e Na sh vil le pr op e rt y to Na sh vil le Re sid e nc e Cor

po ratio n, a c c e pti ng a s p art of th e pu rc ha se pric e a $2 50 ,0 00 no te executed by

Nashville Residenc e Corporation. 2. “Ne lson” - - K enneth E. Nelson, a Wisconsin resident who wa s principle stockholder of Nashville Resid en ce Corpor ation; owner of Nashville L odg ing Company , a limited partne rship; principal stockholder of 2300 Elm Hill P ike, I nc.; and c ontrolling fig ure of what

ma y g e ne ra lly be c a te g orize d in thi s li tig a tio n a s th e Ne lso n e nti tie s. 3. “Metric ” - - Metric Partners G rowth Suite I nvestors, L .P. This li mited partner ship purchase d the Nashville Mar

riott Residence I nn from Nashville L odg ing Company in 1989 following a 1986 quitclaim conve y ance of the Na shville property from Nashville Residence Corporation to Nashville L odg ing Company

. Metric also owned a Reside nce Inn in Ontario, Ca li for ni a, w hi ch h ad p revi ou sl y been man aged byKen net h Ne ls on and for med th e pre di cate for litigation in C alifornia be tween N elson and Metric.

There are times in the course of the litigation betwe en all of the se parties that one or more of the Ne lso n en tit ie s is se pa rate ly re fe rr e d to a ndwh e re the na me Ha rd a g e is u se d in te rc ha ng e ably with Orlando R esi dence L imited. L ikewise Metric is sever al times ref err ed to as “ GSI .” I n the interest of c larity

and understanding , these thre e wa rring camps will be g ener ally ref err ed to as “Ha rdag e,” “ Nelson,” a nd “Metric .”

I n a nu tsh e ll, thi s a

pp e a l in vo lve s th e qu e sti on s:

1. Did the trial court err in g ranting summary judgme nt as to liabilit y

ag ainst Metric for

brea ch of a se ttlement ag ree ment rea ched in the Ca lifornia litigation?

2. Did the trial court err in r efusing to a llo w N e lso n to a me ndhis thi rdpa rt y c omp la int ?

3. Di d th e tr ia l c ou rt e rr in d ism iss ing the c la im o f N e lso n f or ind e mni fi c a tio n a s to c la ims

asserted by

Har dag e?-3-

4. Did the trial court err in limit ing proof of damag es so as to exclude Ken N elson’s cla ims for compensation?

5. Did t h e t ri al court e rr in ruling that certain attorney ’s memos wer e irre levant and inadmissible?

6. Did the trial court err r elative to the a dmissibi lityof evide nce r eg ardin g m i t igation of d a m a g e s a n d f

a i l u r e t o o b t a i n l e n d e r

c o n s e n tt o tr a n s f

e r o f p r o p e r t y?

Alas, this nutshell cannot provide a vehicle f or a definitive ruling in this complex litigation. We must, t here fore , embar k upon a journe y

throug h 25 volumes of technic al re cord c onsisting of 3261 page s t o gether

with voluminous exhibi ts, depositions, t ransc ripts of hea ring s, and miscellaneous doc uments. Fortunately , much of the history of the c ase can be g leane d from pre vious opinions of this C ourt dea ling with matter s fully ref lected in this rec ord.

Whil e the opinions of this Court in Orlando Residenc e, Ltd. v. Nashville Lodging C o. , 1999 WL 1 0 4 0544, and Orlando Residenc e, Ltd. v. Nashville Lodging C o., 104 S.W .3d 848, involve actions re lative to fraudulent convey ance s rathe r than the bre ach of a settlement a g ree ment involved in the c a se a t ba

r, the re le va nt f

a c ts r e ma in the sa me , a ndwe re a sse rt :

F or the thi rd tim e we fi nd ou rs e lve s re c iti ng the fa c ts that pr e c ipi ta te d t his controve rsy . Since the fa cts have not chang ed, we adopt the re levant p ar t s of our most rece nt opinion, Or lan do Re sid e nc e , Lt d. v

. Nas hv ill e Lod

gin g Co
., e t al

. , No. 01A01-9807-CH- 00357A, slip. op. at 1-3, 1999 WL 1040544 (Tenn. Ct. App. Nov. 17, 1999):

The see ds of the pre sent dispute we re s o wn i n 1981 when Samuel H. Har dige (sic) hire d Kenne th E. Nelson to overse e one of his businesses. Mr. Har dige (sic) f ired Mr. N elson a short time later, there by prec ipitating considera ble litigation betwee n Mr. Nelson a nd various business entities owned by Mr. Har dige (sic). W h en the litigation was e ventually

settled, Nashville Residenc e Co rp o ration (“Nas hville Residence” ), of whic h Mr. Nelson wa s the principal sto c kh o l d e r , r e c e i v e d a tr a c t o f l a n d a t 2 3 0 0 E l m H i l l P i k e in Nashville. I n return, Nashville Residence and two sure ties executed a $250,000 note to Orlando Residenc e, Ltd. (“Or lando Residence ”), a limited partner ship with Mr. Hardig e (sic) as the g ener al partner. (F ootnote om i t t ed). The rea fter N ashville L odg ing Company (“ Na sh vil le L od g ing ” ), a

Te nn e sse e -b a se d li mit e d p art ners hip w ith Nashville Residenc e as its g ener al partner, built a Marriott Hotel on t h e E l mH i l l p r o p e r t y.

Nashville Residenc e defaulted on the note to Orlando Re sid e n c e

. I n D e c e m b e r 1 9 8 6
, O r l a n d o R e s i d e n c e s u e d N a s h v i l le Residence in the United S tates Dist rict C ourt for the Middle District-4- of Te nn e sse e . Sh ortly a ft e r Or la nd o Re sid e nc e fi le d s uit , N a sh vil le R es i d en ce q u i t cl ai m ed t h e E l mHi l l p ro p er t yt o Na s h v i l l e Lod gi n g. I n 19 89
, Na sh vil le L od g ing so ld the ho te l a ndle a se d th e pr op e rt y to M e tr i c P ar t n e r s G r o w t h S u i t e In v e s t o r s , L. P

. ( “ M e tr i c P ar t n e r s ” )

. In Marc h 1990, Orlando Reside nce obta ined a judg ment in fede ral c ourt

a g a ins t N a sh vil le Re sid e nc e fo r $ 25 0, 00 0 p lus int e re st.

Armed w ith its $250,000 judgme nt, Orlando Residenc e filed

su it in the Cha nc e ry

Cou rt fo r D a vid so n Co un ty

a g a ins t N a sh vil le R esidenc e, Na shville L odg ing, Mr . Nelson, and Me tric Partner s at t ac king the convey ance of the Elm Hill property as a f raudule nt

c on ve y a nc e

. Or la nd o Re sid e nc e e ve ntu a lly su c c e e de d w ith its c la im and wa s awa

rded $501,934 in c ompensatory an d $ 8 5 0,000 in punitive da ma g e s f

ro m N a sh vil le Re sid e nc e a ndNa sh vil le Lodg ing . B oth Na sh vil le Re sid e nc e a ndNa sh vil le L od g ing app e a le d to thi s c ou rt

.
Orlando Reside nce d ec i ded to execute on its cha ncery court judgme nt while Nashville Residen ce’ s and Na shville L odg ing’ s appea l was pending . I n th e s u m m er of 1996, Orla ndo Residence moved to subject the Elm H ill prope rty to an execution sa le. Orlando Residence p u rc h ased the property for $100,000, a nd this sale was confirme d by

the trial court. Three months later, this court re verse d Or la nd o Re sid e nc e ’s jud g me nt a nd re ma nd e d the c a se fo r a ne w t ri a l. See O rlando Residence Ltd. v. Nashv i l l e L odging Co. , No. 01A01-9606-CH- 00256, 1996 WL 724915, at *4-7 (T enn. Ct. App. Dec . 18, 1996), pe rm . a

pp

. de nie d c on c ur rin g in re su lts on ly (Tenn. May 19, 1997).

Wit h the fra

udulent convey ance j udg ment now vac ated, N a s h v i l l e L o d g i n g a n d N a s h v i l l e R e s i d e n c e , n o ts u rp r i s i n g l y,
re qu e ste d th e tr ia l c ou rt

to s e t a sid e the e xec uti on sa le of the El m H ill pr op e rt y to Or la nd o Re sid e nc e

. Th e y a lso re qu e ste d th e tr ia l c ou rt to dis mis s th e c a se be c a us e Or la ndo Res ide nc e la c ke d s ta nd ing to

e nf or c e the fe de ra l c ou rt

jud g me nt. Th e tr ia l c ou rt de c lin e d to dismiss Orlando Reside nce’ s fraudulent transfe r suit or to set aside th e jud ic ia l sa le . A ft e r s e ve ra l a dd iti on a l skir mis he s, Na sh vil le Re sid e nc e a ndNa sh vil le L od g ing a g a in a pp e a le d to thi s c ou rt

.
Nashville L odg ing a lso decided to try another leg al tack a fter the trial court denied its motion to set aside the judicial sale. It filed

a new action in the Chanc ery Court for D av i d s o n Countyclaiming that O rl a nd o Re sid e nc e wa s b e ing un jus tly e nric he d a s a re su lt of its purcha se of the E lm Hill property at the judicial sale. This c ase w as assig ned to the trial c ourt wher e Orlando Residence ’s fra udulent convey ance claim was pe nding. A ccor dingly
, Na s h v ille L odg ing-5- asserted that it was entitled to r eturn of the property and to re stitut ion of all r ents and prof

its rece ived by

Orlando Reside nce a fter the

e xec u t i o n s a l e

. ( F o o t n o t e o m i t t e d )

. O r l a n d o R e s i d e n c e s w i ft ly moved to dismiss this lawsuit on res judicata gr ounds. On September 8, 19 98, th e tr ia l c ou rt

dis mis se d N a sh vil le L od g ing ’s c omp la int

. Na sh vil le L od g ing Compa ny pe rf e c te d its se c on d app e a l to thi s c ou rt

. The dispute over

the Elm Hill property

took on a new dim e ns ion prior

to the oral a

rg ume nts in b othapp e a ls. Me tr ic Partners de faulted on a

promissory

note it had sig ned as pa

rt of the 19 89 c on ve y a nc e of

the pr op e rt y

a ndpu rc ha se of

the ho te l. ( F oo tno te omi tte d)

. Th e no te wa s se c ur e d by a fi rs t mo rt g a g e on bo th the El m Hill property

and the hotel. Following the def ault, the holder of

the note notified t h e p arties that it intended to for eclose on and sell the Elm Hill property and the hotel. The forec losure sale was c onducted shortly afte r this court hea

rd ora l arg ument in t h e ap peal involving Orlando Reside nce’ s fraudulent conv ey an ce c laim. WBL I I Real Estate Limited Partnership purcha sed the Elm Hill proper ty and the hotel for $9,050,000. The trustee of the dee d of trust estimated that

app ro xima te ly

$5 00 ,0 00 in e xce ss p ro c e e ds wo uldbe dis tr ibu te d to the owner of the Elm Hill property afte r the e x isting indebtedne ss was satisfied.

The for eclosure sale e nded any possibili ty

that either O rlando Residence , Nashville L odg ing, or Nashville Residenc e could r ecove r possession of t h e E l m Hill property . Acc ording ly , following oral

arg ume nt i n it s a

pp e a l f ro m th e tria l c ou rt ’s dis mis sa l of its un jus t enric hment complaint ag ainst Orlando Residenc e, Na shville L odg ing

mov e d to dismis s it s a pp e a l f ro m th e dis mis sa l of

its un jus t

e nric hme nt c la im.

Orlando Residenc e , 104 S.W .3d at 850-52.

I t is imp orta nt t o ta

ke no tic e of

the e ff e c t on t he pr e se nt l iti g a tio n o f this Cou rt ’s a c tio n in Orlando Residenc e, Ltd. v. Nashville Lodging Co. , No. 01A01-9606- CH-00256, 1996 WL 724915 at *4-7 (T enn.Ct.App. Dec

. 18, 1996), perm. app. denied concur ring in results only

(Tenn. May 19, 1997). I n that proce eding the t rial court (Chance llor Robert Br andt) ha d g rante d partial summary judgme nt to Orlando Residenc e, Ltd. thereby determining as a ma tter of law that the Dec ember 29, 1986 convey ance from Nashville Residence to N ashville L odg ing was fraudulent. The c hance llor based his finding s on a ce rtified copy of the fe dera l court jud gm en t , t h e deposition of Kenne th E. Nelson, and the answers of Nelson to ce rtain interr og atories a nd on other doc uments. He then

su bmi tte d th e c a se to the jury fo r a de te rm inatio n o f d a ma g e s a ndpu nit ive da ma g e s. Th is c ou rt he ld that the cha ncellor e rre d in g ranting partial summ ary judgme nt as t o the fra udulent char acte r of the Dec ember

29, 1986 convey ance . This court t hen remanded the case to the trial court f or a ne w trial on all issues. As it affe cts the ca se at ba r it makes no diffe ren ce wh ether the Dec ember 29, 1986-6-

convey ance was fr audulent or n o t

. I t was the c ontinued pendenc y of the fr audulent conve y ance action and the Har dag e lis pendens on the Na s h v i l l e property based upon the alleg ed fr audulent char acte r of the convey ance that inhibited the m arke tability of the Na shville property and cr eate d the “title problems” involved in the California settlement ag ree ment. Metro wa s n o t a p arty to the bu sin e ss t

rans a c tio ns be tw e e n H ard a g e a ndNe lso n th a t le d to the lis pe nd e ns on the Na sh vil le property and could not be aff

ecte d by the lis pendens except to the extent that the lien lis pendens constituted a lien upon the Na shville property s ec u ri n g Ha rdag e for

the Nelson de bt to him. As Metro did not assume the lis pe ndens in the California settlement but rather took the Na shville land subject to the lis pendens Metr o was a strang er to the Hardag e-N elson controve rsy

. Since it was the Dec ember

29, 1986 convey ance and the lien lis p en d en s supporting the unresolved f raudule nt convey ance battle betwe en Ha rdag e and N elson that cre ated a ll of the problems i t is immaterial as far as the rights and obligations of Metro are conce rned whether the convey ance was fr audulent or not, at least as long as the fr audulent conve y ance issue rema ined unre solved.

These le g al battles in N ashville primarily involved Har dag e, Ne lson, their respe ctive entities and the Na shville Ma

rriott I nn. Metric was not involved with the Nashville Marriott I nn until 1989, when it purc hased f

rom Nashville L odg ing the Marriott I nn i n Na s h v i l l e and, at the same time, lease d from Na shville L odg ing the property on which the Ma

rriott I nn was located.

During this same time frame , Metric a nd Nels o n we re n o t strang ers to ea ch other , as they

we re inv olv e d in va

ri ou s b us ine ss a

rr a ng e me nts wi th e a c h o the r i n Ca lif ornia. I n th e la te 19 80 ' s, Metric a cquire d certain Residence I nn hotels from entities controlled by Nelson. These a cquisitions involved both the Residence I nn in Nashville and the Res i dence I nn in Ontario, California. A fter these a cquisitions, Nelson continued t o p r o v id ema n a g e ment service s from April of 1988 to F ebrua ry of 1991 in the oper ation of t he R esidenc e I nn in Ontario, California. Me tric dete rmined that Ne lson ha d b re a c he d h is m a na g e me nt a g re e me nt f or the On tari o hote l, te rm inate d the a g re e me nt with h im and filed suit ag ainst him in t he S u p er ior Court of California at San Fra ncisco in January 1991 seeking damag es and de clar atory relief . Nelson counte r- cl ai m ed for damag es, and so be g an the California litigation involved in C alifornia Superior Court case no. 92-8065.

As mid-y ear

approa ched in1993, Me tric foun d itself a party -def endant in the f

raudule nt convey ance actions asse rted in Hardage v . Nelson ( Orlando Res i d en ce Ltd. v. Nashville Lodgi ng Co. , e t al

. , 1996 WL

724915) in Nashville, althoug h it wa s confide nt of its posit ion as a “ bonafide pu rc ha se r” wi tho ut kno wl e dg e un de r i ts 1 98 9 d e e d a ndle a se of the Na sh vil le pr op e rt y

. At thi s sa me tim e it w a s se e kin g re c ov e ry fro m Ne lso n f or a lle g e d mi sma na g e me nt o f the On tari o h ote l in California. Also, at this time, Nelson’s fina ncial condition appe are d to be prec arious. Trial date was
app ro a c hin g in C a lif

ornia a ndtw o e xec uti ve of

fi c ia ls of Met ri c , Jose ph D. L on g a ndChris Ko m an o s k i
, wr o t e am em o t o t h e Inv es t m en tAd v i s o ryC o m m i t t ee o f M et ri c a d v i s i n g:

I t is be lie ve d that GSI ’s c a se is ve ry str on g a nd it w ill pr e va il i n c ou rt . A c omp le te vict o ry wo u l d entail judg ment ag ainst all of the Ne lson entities and Ken Ne lson pe rs on a lly fo r the $1 94 ,0 00 plu s a ll le g a l fe e s a nd e xpe ns e s wh ic h, a ft e r tr ial, will total approxim ately

$250,000.-7-

Ne l s o n cu rr en t l y h as $ 2

. 5 m i l l i o n i n j u d gm en t s aga i n s th i mp er s o n al l y , i n cl u d i n g a $1 .5 mil lio n ju dg me nt b y the RTC . H e ha s in dic a te d th a t he is prep ared to fi le persona l bankruptcy if we pr evail and vig orously pursue c ollection. Given what has been le arne d about Nelson during the ca se, this would seem like a logic al move for him . I f th a t oc c ur

re d, we wo uldsta ndin l ine a s a n u ns e c ur e d c re dit or a ndho pe to someday collect something on the judg ment. There is no way of dete rmining if and when we c o u ldc o ll e c t. T h e ju d g me n ts w e r e e n te r e d a g a in s t N e ls o n in D e c e mber 1991. We were just informed of t hem l ast wee k. WhyNelson did not tell us sooner is a my stery

as the mer e existenc e o f t hese judg ments would g ive GSI g reater motivation to settle. The only explanation is that Ne lson acts irrationally . Whil e we
a lw a y s k ne w that c oll e c tio n w ou ld be diff ic ult , th is i nf

orma tio n f

urthe r i nh ibi ts

c oll e c tio n p ro sp e c ts u po n o btaini ng a fa vo ra ble jud g me nt.

SETTL EMENT PROPOSAL

Various settlement proposals have b ee n d i s cu s sed over the past y ear

with the end

r e s u l tt h a tN e l s o n i s u n w i l l i n g ( a n d b y h i s a c c o u n t , u n ab l e ) t o p a y any money
c ur re ntl y in o rd e r t o s e ttl e thi s li tig a tio n. I t is be lie ve d th a t all possible structures ha ve be e n e xplor e d. Ho we ve r, the on ly a sse t w hic h N e lso n has whic h a pp e ars to have any value is his land lease on GSI ’s Nashville Residence I nn. We had explored the possibilit y

of off sets ag ainst a settl ement amount with monies paid to him under the le a se bu t N e lso n w a s n ot a ble to e xec ute su c h a pro po sa l du e to p art ne rs hip dis pu te s in tha

t e nti ty . N e lso n b e lie ve s, ho we ve r, that he c a n o btain a pp ro va l to se ll the land for $1.7 milli on and provide 100% financ ing at less than 6%, a substantial dis c ou nt f ro m th e c ur

re nt andpr oje c te d f

utu re Op tio n Pr ic e a nd it i s th is that f orms the basis of the se ttlement proposal. B elow I will outli ne the terms of the cur rent lease and the proposed chang es. The attached analy sis provides an asse ssment of the fi na nc ia l impa c t of

thi s p ro po sa l.

L e a se Te rm s Current Proposed

__________ Compa ra ble Ca sh Pa y me nts (over 5 y ear s) $119,000/yr. $100,000/yr.

De fe rr e d Re nt P a y me nts (5 y ear s) plus interest $371,890 $0

Ex tension Option Floating rate s x then cur rent Same floating rate x option price ($3.6M) less $1.7M for 5 y ear s $100,000 for f

ive (5) y ear te rm s

Ex tension Pay ment (today ’s rates) $131,000 $112,000-8-

Option Price (in 1998) $3.6 milli on $1.7 milli on

Th e g ro un d le a se op tio n p ri c e be ars no re se mbl a nc e to the la ndva lue its e lf (i n r e a lit y it is a second mortg ag e with a kicke r and w as structure d as a g round lea se solely for Nelson’s tax benefit) a nd thus the esca lating f eatur e will likely

exceed NO I

g rowth, t h e r e b y m i n i m i z i n g t h e p r o s p e c t s f o r a b u yo u t a n d r e f

i n a n c e i n 1 9 9 8

. A d d i t i o n a l l y, the lease g oes to g reat pain to spell out emphatically that Nelson has the unf

ettere d righ t t o ap p ro v e or rejec t an assig nment of the lea se, on sale or at any other time. This was due to the fact that, as st ated a bove, the de al was in pra ctical terms a second

mortg a g e rathe r than a

tr a dit ion a l g ro un d le a se . T hu s, Ne lso n w ou ld l ike ly inh ibi t

a ny sa le su bje c t to the g ro un d le a se , th e re by fo rc ing a bu y ou t.

I t is believed that under the cur rent lea se structure , it will be difficult to buy out the la nd a n d/ o r r e f

i n a n c e t h e e xi s t i n g f

i r s t m o r t g a g e d u e l ar g e l y t o t h e f a c ttha t th is property was 85% le vera g ed at the time of acquisition in 1989. I n addition, the land lease option price escalator makes a land buy out seeming ly unattainable in today ’s marke tplace. T his pr oposed transac tion substantially improves the prospec ts for the

su c c e ssf ul o utc ome of

the Na sh vil le inv e stm e nt.

LITIGATE vs. SETTL EMENT ANALY SIS

Be low is an outline of the ra ng e of likely outcomes under either scena rio (litigate or settlement):

Liti ga te

1. Suc c e ssf

ul j ud g me nt f

or app ro xima te ly

$4 50 ,0 00 whic h g e ts f

ull y collecte d. 2. Successf

ul judgment f

or appr ox i m at ely

$450,000 which g ets mired in a Nelson ba nkruptcy

and li t t l e, if any , g ets collec ted and GSI spends do lla rs in c oll e c tio n e ff

orts. 3. Successf

ul judgment f

or less than full amount with outcomes #1 or #2 ap p l y i n g. 4

. Nels o n p r e v a il s in c r o s s c o mp lain t an d G SI h a s a s u b s tan tial ( $ 7 7 5
, 0 0 0 ) l i ab i l i t y. 5. I n a ll of the abo ve , a dd iti on a l lit ig a tio n c os ts are ap pr oximate ly $40,000.

Settlement

1. Nashville prope rty perf orms exceptionally

well so that a ref

inance of the now cur

rent lea se option price would be achie vable. GSI has windfa ll of $1.9 milli o n , t h e d iffer ence betwee n the cur rent 1998 option price and the

ne g oti a te d a mou nt.-9- 2. Na sh vil le pe rf

orma nc e is l e ss tha n w hat w ou ld be ne c e ssa ry to ref inance and buy out the land in 1998 under the curr ent lease terms but the proposed structure e nables a deal to take place versus potentially losing the p r o p e r t y.

3. Nashville’s pe rformance g oes down f ro m today ’s income leve ls by 1998 and GSI

ultimately cannot refinanc e even t he first mortg ag e, let alone buy out the l and and loses the property

. This would mean the se ttlement was

u l t i m a t e l y

u n f a v o r ab l e t o G S I.

I n addition to the above analy sis, it is important to note t hat t he ex tinguishing of the

curr ent lease has many

advanta g es on its own. This lease is extremely complicated, is t ie d to th e fi rs t mo rt g a g e a ndc on ta ins pr ov isi on s w hic h a re su bs ta nti a lly ambig uous and lea ding to the spe cific pe rformance lang uag e re lative t o the Option Pr ic e bu y ou t w hich c ould b e c on str ue d a s me a nin g that N e lso n c a n f or c e GSI to pu rc ha se the la nda t a sp e c if ie d (and inf

la te d) pric e . A lth ou g h I

a m c e rt a in that th is

wa s n ot the int e nt, Ne lso n’ s tr a c k r e c or d w ou ld i nd ic a te that th is s ort of a mbi g uit y is an invitation for furthe r litigation.

CONCL USION AND RECOMM ENDATION

Due to the c omplicated n at u re of the Onta rio litigation, Ne lson’s poor financ ial condition, a n d th e d if

f ic u lt y e n v is io n e d in c o ll e c ti o n if G SI p r e v a il s , it

is b e li e v ed that a neg otiated settlement is a prude nt approa ch. B eca use we are alre ady

eng ag ed wi th N e lso n in the Na sh vil le pr op e rt y , ap pr oa c hin g a se ttl e me nt with tha t in min d is most sensible both in t er m s o f ul timate collection, as w ell as for the purpose of minimi zing further business dealing s with him. I t is believed that substantial value is being cre ate d i n Nashvil le, possibly far in excess of the scope of the c urre nt litigation, if the economy g rows even at modest rate s. Thus, it is recommended that the above described settlement proposa l is approve d and that litigation is post poned, pe nd ing the su c c e ssf

ul d oc ume ntatio n o f thi s a g re e me nt. I f d oc ume ntatio n c a nn ot, for a ny rea son, be achieved, it is recommende d that GSI continue to pursue N elson throug h litigation.

Ne lso n v . M

e tri c Re alt

y , 2002 WL

31126649, at *4-6.

Metric a cce pted the L ong -Komanoski re commendations and, on Ma rch 2 3, 1993, in open court be fore the Honora

ble Will iam Cahill, Judge of the Superior Court of the State of California,

e nte re d a se ttl e me nt a g re e me nt, a s a pa rt of wh ic h it a g re e d to pu rc ha se the la nd un de r the Na sh vil le Marriott R esidenc e I nn “as is.”

The jolt to Metric ca me two wee ks after the in-court settlement had been a g ree d to when Nashvi l l e a t t o rn eyAl an Fi s t er , re p re s en t i n g M et ri c i n t h e N as h v i l l e f ra u d u l en tco nvey ance

litigation,

a dd re sse d the fo llo wi ng c ommun ic a tio n to Ms. Joy c e S. Jabe r, Vi c e Pr e sid e nt a nd Co rporate Cou ns e l of

Me tr ic Re a lty

in M a tc o, Ca lif

ornia :-10- Dea r Joy ce:
At y our re quest and the r equest of James A. Reub en , Ihave revie wed a Memorandum prepar ed by Mr. Reuben dated Marc h 25, 1993, conce rning an outline of major poi n t s of the settlement of a
case involving Ke n Nelson, pending in the San Fr ancisc o Superior Court, before the Honora

ble Will iam J . Cahill. The core provision of thi s se ttl e me nt a

pp e ars to be a c on ve y a nc e of the fe e of the Na sh vil le Re sid e nc e I nn fr om Na sh vil le L od g ing Compa ny to M e tr ic Part ne rs

. Natura lly
, u p o n the conve y ance of the fe e, the c urre nt long- term g round lea se would be me rg ed into Metric Partners’ title.

This contemplated c onvey ance to Metric Pa r tn e r s ( here inafter

re fe rr e d to a s th e “ 19 93 Con ve y a nc e ” ) i s f ra ug ht w ith sig nif

ic a nt risk to Metric Partne rs, and I would rec ommend ag ain st this transaction. As y ou know, there is curre ntly a fr audulent convey ance action pe nd ing in the Cha nc e ry Cou rt fo r D a vi dson Cou nty , w he re in Plaintiff (here inafter

ref err ed to “Ha

rdag e”) alleg es t hat there are two fr a ud ule nt c on ve y a nc e s in th e cha in o f t itl e to the Na sh vil le Residence I nn. Specifica lly
, the first alleg ed fr audulent conve y ance is a [si c] unrecord ed q u itclaim deed dated Dec ember 22, 1986, wher eby title to the I nn was tra nsfer red f rom 300 Elm Hill Pi ke, I nc. (formerly Nashville Residenc e Corporation) to Nashville L odg ing Company , a Wisconsin L imited Partnershi p

. Both of the se entities

are Nelson-c ontrolled entities. Har dag e also a lleges that the convey ance s to Metric P ar t ners in May 1989 are fraudulent

c on ve y a nc e s.

We h a v e f

il e d a M o ti o n f o r Su mm ar y

Ju d g me n t, w h ic h w e b e lieve wi ll a bs olv e Me tr ic Part ne rs of a ny lia bil ity in the a c tio n p e nd ing in Davidson C o u nty , Tenne ssee. The essenc e of our Motion for Summary J udg ment is that the May 1989 Conve yance to M e tr ic Partners c annot as a

matter of law be deeme d “fr audulent.” H oweve r, while Metric Partners may be absolved of l iability
, the fate of the CoDef endants is unce rtain.

I t is our position that g iven the curr ent circ umstances, as long

a s w e c a n pro ve the 19 89 Con ve y a nc e wa s n ot “ fr a ud ule nt, ” we wi ll not be adver sely aff

ecte d even if the Court w ere to f ind that the 1986 Convey ance among the Nelson e ntiti es was “ fraudulent.” Our

arg ume nt i s th a t e ve n if

the 19 86 Con ve y a nc e is r e sc ind e d, the on ly imp a c t th is w o u ld h a v e u p o n M e tric Pa r tn e r s is to s u b s titute one Nelson entity

for a nother a s “L andlord.” Thus, all of our rights a nd

reme dies pursuant to the g round lease would still be in f ull f orce and eff ect, a nd we would only

be paying r ent t o a diffe rent e ntity . Even-11- if Har dag e ultimately

fore closed, we believe our lease would still be valid, and we would pay

rent to Ha

rdag e.

Ou r position is g reatly buttressed by the fac t that w e are a “bona f ide purc haser ” without knowledg e of the obligations between the Nelson a nd Har dag e entities at the time of the 1989 Convey ance

. Furthermore , our Aff

idavits clear ly

indicate that we had no suspicion of a ny fr a ud ule nt i nte nt o n th e pa rt of Ne lso n w he n w e a c qu ir e d ti tle in 1989, and that we w ere not acting in conce rt with Nelson to hinder, de la y or de fr a udhis c re dit or s.

I f the 19 93 Con ve y a nc e oc c ur s, the n w e c e rt a inl y c a nn ot r a ise the ar g ument reg arding sai d co n v ey ance that we we re a “bona f ide purcha ser” without notice of the disput es betwee n Nelson and Har dag e. Furthermor e, I am almos t certain the Plaintiff would arg ue that we we re now conspiring with Nelson i n order to delay , defr aud

an d h i n d ert h e c re d i t o rs o f M r. Ne l s o n an d h i s en t i t i es

. I f t h e J u d ge fi nd s th a t the 19 86 de e d wa s a fr a ud ule nt co nv e y a nc e , the n he c ou ld

a lso fi ndthe 19 93 Con ve y a nc e to b e “ fr a ud ulen t.” I f s o, we wo uld loo se [sic ] titl e to the premi se s. F urthe rm or e , b e c a us e ou r l e a se would have be en mer g ed int o t h e 1993 deed, we w ould lose the benef it of the long -term g round lea se.

I n s um, wi tho ut the 19 93 Con ve y a nc e , w e be lie ve a “ wo rs t

case ” sce nario would mer ely substitut e one L andlord for another

c on c e rn ing the lon g -t e rm

g ro un d lea se

. On the oth e r h a nd , th e wo rs t

c a se sc e na

ri o wi th the 19 93 Con ve y a nc e c ou ld re su lt in Metric Partners losing both the fee and the g round leas e. Fu rthermor e, I seriously doubt t h at y o u could g et title insurance to cover the 1993 Convey ance

.
Nelson , 2002 WL

31126649 at *6-7.

A g ood sy nopsis of what happened is stated i n the opi nion of t his Court in the case in which Ne lso n s ue d L on g a ndKo ma no sk i, tog e the r with othe r Me tr ic of fi c e rs , f or a lle g e dly ind uc ing Me tr ic to b re a c h th e se ttl e me nt c on tr a c t.

Th e lit ig a tio n in Ca lif

ornia a nd the lit ig a tio n in Ten ne sse e we re ru nn ing e sse nti a lly para llel courses. I t is obvious that the l eft hand of GS I in San Fra ncisco did not know what the right ha nd of GSI was doing in Nashville and vice versa . The lef t hand of GSI in California, acting in acc ordanc e with the L ong -Komanoski Memorandum of Ma rc h 2 3, 19 93 se ttl e d, in o pe n c ou rt , th e S an Fran c isc o li tig a tio n w ith Ke nn e th Nelson. On April 7
, 1 9 93, the rig ht hand of GSI in Nashville, delivere d to the left hand in California, the Fister Me morandum, po in ti n g o u t t h ed is a s tro u s conseque nces to G SI that would result in Nashville by consummation of the California settlementT hi s case i s, of co urs e, t he case at ba r. 1

In c o n sid e rin g the C a lif o rn ia se ttl e m e n t o f M a rc h 2 3 , 1 9 9 3 , o n e m u st ke e p in m ind tha t t h e left ha n d o f M e tric 2

in C a lif o rn ia w a s a c ting in c o n fo r m it y w ith the L o n g -K o m a n o sk i M e m o ra n d u m a n d w a s ign o ra n t o f t h e p ro b le m s in N ashvi l l e f aced by t he ri ght hand o f M et ri c, whi ch p rob l em s o nl y s urf aced i n C al i fo rni a t wo weeks af t er t he set t l em ent and were ref

l ect ed i n t he A p ri l 7, 19 9 3 Fis t er l et t er.

-12- a g re e me nt. Arme d wi th the F ist e r Me mor a nd um, a lbe it it too la te to u n- ri ng the be ll of the Ca lif ornia Ma rc h 23
, 19 93 se ttl e me nt, the se de fe nd a nts , a c tin g fo r G SI , c ho se the lesser of two evils and on their collective r ecommendatio n s , GSI brea ched the California settlement a g ree ment and opened t he door for a brea ch of contrac t action by Nelson. I ndeed, N elson exercised his rig ht of ac tion ag ainst GSI for brea ch of the Ca lif ornia se ttl e me nt a g re e me nt b y fi li ng a thi rdpa rt y c omp la int

a g a ins t G SI

in Orlando Residenc e, L t d

. v. 2300 Elm Hill Pike, Inc ., Nashville Lodging C o., and W illiam Rosenburg, Trus tee, Dav. Chanc ery No. 94-1911-1. On Fe bruary 9, 1996, 1 Cha nc e llo r I

rv in Kil c re a se g rante d s umm ary jud g me nt t o N e lso n o n th e thi rdpa rt y
c omp la int a nd de te rm ine d, a s a matt e r of la w, that GSI ha d b re a c he d th e Ca lif ornia settlement ag ree ment by failing to purcha se t he land. Damag e issues we re le ft to be tried in the future

.
Nelson , 2002 WL

31126649, at *12.

So here w e ar e.

The fir st issue to be addre ssed is raised by the cr oss-appe al of Metric wher ein it is a sserted that Chance llor Kilcrea se er red in g ranting , on Fe bruary 9, 1996, summary judgme nt to Nelson as to the issue of liability , there by determining that Metric had bre ache d the California set t l em ent ag ree ment as a matter of law. I t is now nece ssary to de termine exactly what the California settlement

wa s. Th is s e ttl e me nt i s r e fl e c te d b y the tr a ns c ri pt o f the pr oc e e dings be fo re Judg e Cahil l in 2 Ca lif ornia on Ma rc h 2 3, 19 93 , r e le va nt p ortio ns of wh ic h p ro vid e :

T H E C LE R K : TH I S I S METRI C VERSUS NEL SON, 928065. T H E C O U R T : CAN I HA VEAP P E AR AN C E S
, AN D I NEED EVERYONE I N THE COURTROOM, AND WE’L L GO F ROM LEFT T O RI GHT.

M R

. N E L S O N : KEN NEL SON, ONE OF THE DE F EN DA NT S.

M R

. P E R ILLA T : AL EXIS P ERI L L AT
, JR.
, CO

- CO U

N SEL FOR DE F EN DA NT S.

M S

. S C H L I C H T : J ANE SC HLI C HT
, C OU NS E L FOR DE F EN DA NT S.

M R

. R E UB E N: J AMES REUBEN O F REUB EN AND CERA, FORME TR I C P AR TNE RS GR OW TH S UITE INV E S T M E N T S
, T H E P LAINTIFF.

MR. L ONG: J OSEPH L ONG. M R

. YO DO W I T Z: J OE L YO DO W I T Z. M R

. K O M A N O W S K I: C H R IS K O M A N O W S K I.-13- THE COURT: THANK YOU. WE’ VEB EE N IN SE TT LEM EN T D I SCU SSI ON S SINC E YES TER DAY , A ND I

UN DE RST AN D F RO M CO UN SEL TH AT TH EREI S A SETTLEMENT THA T YOU H AVE AL L REACHED. MR. REU B EN : TH AT ’S CO RRE CT, YO URHO NO R. J AMES REUBEN SPEAKI NG. WE D O H AV E T HE OU TLI NEOF A SE TT LEM EN T. WE’ RE CERTAI NL Y GOI

NG TO H AVE TO PUT T OG E THER RATHER EXTENSI VE DOCUMENTAT I ON TO F I NALIZ E THE DEAL
, BU T WE ARE PR EPARED TO PUT TH E PR I NC I PAL

POI NT S OF TH AT SET TL

EM EN T O N T HEREC OR D SO TH A T E V E RY O N E H A S A RE CO RD
, I N CL U D I N G T H E CO U RT
, OF WHAT WE AGREED TO TODA Y.

THE COURT: I WANT THI S IN SUCH A FORM SO THAT TH E SE TT LEM EN T CA N B EE N F O R C E D I F Y O UC A N N O T A G R E E O N SO ME OF THE TER MS OF THE M I NUTIAE OF THE SETTLEMENT AGREEMEN T. WE WANT SOMETHI NG THA T CAN B E ENF ORCED BECAUSE THI S I SN’T WORTH THE EFF ORT OR THE COURT R EPORTER P APER I F I T I SN’T ENF ORCEABL

E. MR. REUBEN : I T’S BE E N OU R E FFO R T - - WE HAVE BEE N W OR KING TOWARD GETTING IT TO THA T POI NT, AND WE DO T H IN K W H E N W E O U T LIN E T H E P R IN C IP A L P O IN T S T H A T W E W ILL HAVE A N ENF ORCEABL E DOCUMENT O R ENFORCEAB LE AGREEMENT AMONG TH E PARTI ES THAT THENHAS TO B E REDUCED TO WR I T I NG.

THE COURT: BUT IW AN T I T UN DE R S T OO D THAT UN DE R CCP 6 64 .6 , WH EN YO U H AV E A N O RA L AG RE EM ENT B EF OR E T H E CO U RT
, I T ’ S GO I N G T O B E E N F O RC E A B LE A N D T H A T ’ S W H A T WE HA VEB Y T HETIME WE’ RE D ON E H ERE

. THA T’S WH AT TH E CO UR T WAN TS. I S THAT WHAT WE’RE GOI NG TO G ET?

MR. REU B EN : YE S, Y OU R H ON OR

. T H E W A Y IN W H IC H W E ’ R E G O IN G T O T R Y T O P R O C E E D IS TO HA V E M E R E A D I N T O T H E R E C O R D A P O I N T
, A N D T H E N I FT H E RE ARE COMMENTS FROM THE DEF ENDAN TS’ SI DE, THEY WI LL MAKE THOSE COMMENTS. I WI LL TRY TO B E AS T HO R OU GH AS ICAN ON EACH POI NT.

. . . .

T H E D E A L IS A S F O LLO W S : LA N D IN N A S H V ILLE W H IC H IS PRE SE N T L Y LE A SE D F RO M N A SH V I LLE L O D G I N G CO M PA N Y T O T HE PL AINTIFF, WI LL

BE SOLD FROM NA SHVI LLE L ODGING COMPANY TO THE P L AI NTI FF, A ND T HE L EAS E, THE EXI S TI NG L EAS E, W I LL BE SI MUL TANEOU SL Y TERMI NATED.

THE LAND WI LL

BE SOLD ON TH EF O L

L O WI NG TERMS AND CO ND I TI ON S:-14- ONE , $ 1. 7 M I LL I ON P UR CHASE PRI CE T O BE E VI DEN CE D BY A NOTE A ND DEED OF TRUST THAT W ILL BE EI THER I N A SECOND OR TH I RD POS I TI ONTO B E D ET ERM I NE D B Y T HEPAR TIES.

TWO , THE NO TE WI LL B E N ON -R ECO UR SE T O T HEB UY ER. THREE, THE INTEREST R AT E W I LL BE A N AMOUN T CAL CUL AT E D SO THAT INTEREST-ONL Y PAYMENTS WI LL EQUAL $100,000 PER YEAR. W E BE L I EVE THA T’S AB OUT 5. 8 %, BU T WE’L L DO THAT CAL CUL ATI ON.

MS. SCHL I CHT: YOUR HON OR
, S O I T ’S C LEAR, I WAS GOING TO A DDR E S S A P OINT AS I T AROSE. I T’S CL EAR THAT TH E I NTEREST PAYMENT SHALL BE MA DE IN CASH TO NEL SON L ODGING. MR. REUBEN: I

T H I N K THAT G OES WI THOUT SAYI NG. MR. L ON G: YE S. MR. REU B EN : YE S. THE COURT: “CASH” MEAN S - - MR. REUBEN : READIL Y AVAIL AB LE FUN DS. I ’M NOT SURE W HAT THE Y’RE REFERRI NG TO, MAYB E THAT WE WERE GOI NG TO OF FSET I T AGAINST SOMETHI NG, B UT THAT ’S NOT - -

THE COURT: I T I S N’ T DOLL AR BILL S OR CERTI FIED CHECKS BUT CASH PAYMENT B Y CHECK OR DRAFT.

MR. PER I LL AT: READIL Y AVAI L AB LE. M R. RE U B E N : T H E RE WILL B E N O D O WN PAYMENT. THE NOT E AND TH E DEED O F TRUST, THE NOTE SECURED BY T HE DEED OF T RUST W I LL

BE A LL DUE AN D PAYAB LE ON THE SAME DATE AS THE E X IS T IN G W R A P M O R T G A G E
, A D O C U M E N T W IT H W H IC H W E A R E A LL F AM I L I AR

. THE PURCHASE OF THEL AND I S AS I S. W E - -

M S

. S C H LIC H T : I

T ’ S A S I S, I NCL UDI NG B UT NOT L

I MI TED TO TITL E I SSU ES. MR. REUBEN: THAT’ S CORREC T, AND I ’M GO I NG TO TA L K SLI GH TL Y M OR E A B OU T T HO SE A S I GO TH RO UG H T HI S. TH E N EXT MA JOR PO I NT , WE UN DE RST AN D T HA T M R. NEL SO N O R H I S E N T I T I E S WILL CO N T I N U E T O B E O B L I G A T ED TO P E R F O R M O N A W R A P M O R T G A G E
, A N D W E E X P E C T T H A T H E W ILL CO NT I NU E T O PE RF OR M O N T HA T WRA P MO RTGA GE , WH I CH OB L I GATI ON WI LL

BE E VI DENCED B Y DO C UMENTATI ON SUFF I CI ENT TO ME TRI C, A ND WE WILL CO NT I NU E T O PA Y H I M T HEDIFF ERE NC E B E T W E E N T H E U N D E R LY IN G N O T E A N D T H E W R A P N O T E
, W H IC H IS AB OUT $4300 A MON TH, I BELI EVE. MS. S CHL I CHT: I T’S 4167. MR. REU B EN : TH AT ’S CL OSE R. T H E C O U R T : I

N C AS E THERE

I S AN AR GUMENT SOM E DAY, TH E NUMB ER I S 4167; C ORRECT?

MS. S CHL I CHT: THAT’ S CORR ECT.-15- M R

. R E U B E N : I’ LL D O T H IS F O R M Y P A R T Y

. M E T R IC AGREES THAT I T’S 4167.

. . . .
GOING SL I GHTL Y OUT OF ORDER, BECAU SE TH AT’S T HE WAY OUR NEGOTIATI ONS TOOK PLACE OUT I N THE HA L L W AY , BU T I THINK WE’LL

GET I T ALL ONTO THE RECORD AND WORK I T OUT IN OUR DOCUMENTAT I ON, THE N EXT MAJOR P OI N T
, AL L PARTI ES UNDERSTAND TH AT THERE ARE THIRD-PARTY I SSUE S OUTSI DE THE P R E S E N T C O N T R O L O F T H E P A R T IE S T O T H IS LIT IG A T IO N T H A T C O U LD CONCEI VA BL Y PRECL UDE PERFORMANCE OF THI S DEAL

OR TRA NSACTI ON , IN WH I CH CA SE WE UN DE RST AN D T HA T T HI S CO UR T WI LL RETAIN J URI SDI CTI ON TO FU RT H E R CONSI DER THE SETTLEMENT AND/OR SET FO R TRI AL ON A DA TE ACCEPTABL E TO THE COU RT. TH E COU RT: WHA T T HI S CO UR T WILL DO I FTH ERE I S A P R OB L E M WI TH SOMETHING OUT SI DE B Y A THIRD-PARTY PRO CEE DINGORSOM ETHI NG O UT SI DETH E CO NT RO L OF TH ESE P AR T I E S T HA T P R E VE NT S T HIS S E T T LE M E NT FR OM AC T UA LLY OCCURRI NG, THI S COURT W I L L HEAR ANOT HE R SETTL EMENT CONFERENCE, MAKE EVERY EF FORT TO GET THI S CAS E SETTLED, AND I F F OR SOME REASON I T ’S J US T I MPOSS I BL E TO DO SO, B UT ONL Y AS A R E S ULT OF W HA T S OM E BO DY OU T S I DE T HE C AS E HA S DO NE
, T H IS COURT, DEPARTMENT 10, WI LL RETAI N J URI SDI CTI ON OVE R I T. M R

. R E U B E N : THAT’ S WH A T T H E P A R T I E S UNDERSTAND.

T H E CO U RT : B U T IF S O M E B O D Y IN S ID E T H IS AG REE ME NT DO ES SO ME TH I NGTH AT I SN’ T A CCE PTA B LE, TH E CO UR T WI LL ENF ORCE THI S SETTL EMENT. M R. RE U B E N : I FT H E L A T T E R W E RE T O OCCUR, I ’M S UR E THA T T HEAG GR I EV ED PAR TY WI LL B E B AC K T O T HI S CO UR T REQ UE STI

NGSOM E H ELP. THE COURT: I ’LL BE H ERE.

. . . .

PER HA PS B EST, AL L

L I TI GAT I ON I N TH I S CA SE WI L L CEA SE PENDING THE COMPL ETI ON OF THE DOCUMEN TATI ON TO COMPLETE T H E S E T T LE M E N T

. T H E P A R T IE S U N D E R S T A N D T H A T D IS C O V E R Y IS CL O SE D A N D H A S B E E N CL O SE D A CT U A LL Y B Y L A W S I N CE 3 0 D A YS B E F O R E T H E T R IA L.

T H E C O U R T : TH I S CA SE I S SET TL ED , AN D TH ER E AR

E N O F U R T H E R P R O C E E D IN G S

. T H E O N LY T H IN G T H A T C A N H A P P E N IS TH AT YO U C ANCO ME B AC K T O E NF OR CE T HESET TL EM EN T ORCO ME-16-

BA CK AND EXPLAIN TO THE COURT WHY THE T HI RD PARTY HAS I NTERFERED SOMEHO W W I TH T H ECO M PL E T I ON OF

THE SETTLEMENT. TH I S CA SE, AS F ARAS T HECO UR T I S CO NC ERN ED , I S OV ER.

. . . .

T H E CO U RT : THE REA REN O H O LD H A RM L ESS, NO I NDEMNITIES. HAS ANYB ODY DI SCUS SED THAT?

M R. RE U B E N : W E HA VE N’ T DISCUSSED I T, YOUR HO NO R. TH E CO UR T: WHA T D O Y OU TH I NK TH EA N S W E R I S? M R

. R E U B E N : T H E R E W ILL P R O B A B L Y B E N O H O LD HARMLESS OR I NDEMNITIES. I WOUL D L I KE A CHANCE TO DI SCUS S I T.

MS. SCHL I CHT: I ’M NOT AWARE OF ANY, BU T I ’M NOT AWA RE O FTH E U ND ERLYINGDO CU ME NT AT I ONONTH E WRA P.

M R

. R E U B E N : W E ’ R E O K A Y W IT H T H A T

. W E W ILL RELEASE, NO HOLD HARMLESS, NO I NDEMNI TY.

M S

. S C H L IC H T : L

I KEW I S E
, W E

HA VE NO PROB L

EM WI TH THAT. THE COURT: AGREED.

MS. S CHL I CHT, YOU HA VE DI SC US S E D THI S W I TH YOU R CL I EN TS? MS. S CHL I CHT: CORREC T.

THE COURT: MR

. NE L S ON
, DO YO U UNDERSTAND THI S SETTL EMENT?

MR. NEL SON: I

BELI EVE I

DO. THE CO UR T: WEL L , D O Y OU

HA VE AN Y QU EST I ON S? NO W I S TH E TI ME TO SPEA K U P. T HEQU EST I ON S I ’M GO I NGTO ASK YOU, DO YOU UNDERSTAND I T? DI D YOU DI SCUS S I T W I T H Y OUR L AWYERS? DI D YOU D I SCUS S I T WI TH EVERYONE YOU NEED TO , AND DO Y OU FREEL Y UNDE RSTAND I T AND F REEL Y ENTER INTO THE AGREEMENT?

M R. N E L SO N : WI THOUT B EI NG E V A SIV E
, I THI NK I UN DE RST AN D IT, YE S.

THE COURT: THAT I S E VA S I VE

. INEED TO KNOW THAT YOU DO UND ERSTAND I T, AND Y OU DO A GREE TO I T. I F YO U H A V E A Q U E S T IO N
, T A LK T O Y O U R LA W Y E R S
, A N D LE T ’ S G E T IT WORKE D O U T

. I D O N ’ T WA N T T O RE A D I N T H E RE CO RD L A T E R, “ I THINK I UNDERSTAND IT.” MR. PERI LL AT: YOUR HONOR, I F I MAY, MR. NEL SON’S HESI TATI ON WAS BASED UPON HI S L ACK OFFAMIL I ARI TY WI TH S E C T IO N 1 5 4 2 A N D 6 6 4

. 6
, W H IC H I H A V E E X P LA IN E D T O H IM
, A N D H E IS NOW READY TO RESPOND.

THE COURT: HAVE YOU DI SCUS SED I T WI TH YOU R L AWYERS AND DO YOU A GREE TO THE SETTL EMENT?-17- MR. NE L SON : YE S. T H E C O U R T : DO YO U U N D E R S T A N D THE SETTLEMENT?

MR. NE L SON : YE S. T H E C O U R T : MS. S C HLI C HT
, ON BE HAL F OF E V E R Y O N E E LS E T H A T Y O U R E P R E S E N T
, H A V E Y O U D IS C U S S E D IT WI TH THEM, AND DO YOU HAVE AUTHO RI TY TO ENTER I NT O THE AGR EEM ENT ON T HEI R BE HAL F?

MS. SCH L I CH T: YE S. THE COURT: MR. REUBEN? MR. REU B EN : YE S. T HE C OU R T : H A V E YO U DISC U S S E D A LL O F T H IS WI TH YOU R CL I ENT?

MR. REU B EN : YE S, Y OU R H ON OR

.
Crucial to the determination of whether or not the trial judg e in Nashville prope rly g rante d

su mma ry jud g me nt a s to lia

bil ity a g a ins t Me tr ic is the pr ov isi on of the se ttl e me nt:

MR. REUBEN :

. . . THE PURCHASE OF THE L AND I S AS I S. W E - - M S

. S C H LIC H T : I T’S AS I S, I

NCL UDI NG B UT N O T L

I M I TED TO TITL E I SSU ES. MR. REUBEN: THAT’ S CORR ECT, . . .

As ide fr om the fa c t th a t th is l a ng ua g e is u na mbi g uo us , M e tr ic a nd all oth e r p art ie s c le arl y understood the meaning a s is evidence d by the M arc h 25, 1993 Memorandum of J ames A. Reuben to Joy c e S. Jabe r ou tli nin g the se ttl e me nt. Th is m e mor a nd um s ta te d in pa rt : “ (f ) T he pu rc ha se sh a ll be ‘a s is’ with respec t to tit le issues about which Me tric has be en made awa re.”

Since the rig ht hand of Metric, at this very t i m e, was vigorously defe nding the suit by Har dag e to set aside the alleg ed fraudulent convey ance s made by Nelson t o it in 1989, Metric cannot disclaim knowledg e of this title problem, as Metric cannot divide itself into component pa rts. What

was intended by the settlement and what was the avowe d intention of J udg e Cahill is indis putable.

THE C OURT: I

WANT THI S I N S UCH A F ORM SO THAT TH E SE T T L

E M E N T C A NB EE N F O R C E D I F Y OU CA NN OT AG REEONSOM E OF T HE TERMS OF THE MINUTIAE OF THE SETTLEMENT AGREEMEN T. WE W ANT SOMETHING THA T CAN BE ENF ORCED BECAUSE THI S I SN’T WORTH THE EFF ORT OR THE COURT REPORTER P APER I F I T I SN’T ENF ORCEABL

E. MR. REUBEN : I T’S BEE N O UR E FFO R T - - W E HAVE BEE N WORKI NG T OW AR D GETTING IT TO THA T POI NT, AND WE DO THINK WHEN WE OU TL I NE THE PRI NCI PL E POI NTS THAT WE HAVE A N ENF ORCEABL

E DOCUMENT O R ENFORCEAB LE AGREEMENT AMONG THE PARTI ES THAT THENHAS TO B E REDUCED TO WRI TI NG.H owe v er on e may c h ar ac t er i ze t h e l i t i g i ou s n at u r e of t h es e par t i es pr i or t o t h e Fi s t er me mo, a l l s ee med t o, 3

t her eaf t er , adop t a per ver s e i nt er pret at i on of t he gol den r ul e t o t he ef fect t hat one s houl d “ do un t o ot her s bef ore t hey ca n d o un to yo u .”

-18-

T H E CO U RT : BU T IWAN T I T UNDERSTOOD THAT UN DE R CCP 6 64 .6 , WH EN YOU HAV E A N O RA L AG REE ME NT B EF OR E T H E CO U RT
, I T ’ S G O I N G T O B E E N F O RC E A B LE A N D T H A T ’ S W H A T WE HA VEB Y THE TI ME WE’ RE D ON E H ERE . T HA T’ S WHA T T HECO UR T WANTS. I S THAT WHAT WE’RE GOI NG TO G ET?

MR. REUBEN: YES, YOUR HONO R..

W it h met ic ulo us c are Judg e Cahil l r e qu ir e d th e pa rt ie s to the la ws uit , n ot m e re ly the ir respe ctive attorne y s, to acknowle dg e in open c ourt that they understood the terms of the se ttlement

a ndthat th e y

a g re e d to the se ttl e me nt.

California Code of

Civil Procedur e section 664.6 provides: “I f parties to pending litigation stipulate, in a writing si g ned by the parties outside the presence of t he court or ora lly *** befor e the court, for settlement of the c ase, or part ther eof, the court, upon mot i o n , may enter judgme nt pursua n t t o the terms of the settlement.” Cal.Civ.Proc.Code § 664.6 (Supp. 2000). I n construing this section of the Code, the California Supreme Court ha s held:

Thus the s tatute requires t he “parties” to sti pulate in writing or ora lly befor e the c ourt that they have se ttled the case

. The litigants’ direc t pa rticipation tends to ensure that the se ttl e me nt i s th e re su lt of the ir ma tur e re fl e c tio n a ndde lib e rate a sse nt. Th is protec ts the parties a gai n s t h asty and improvident settlement ag ree ments by impressing upon them the seriousne ss and f i nality of the de cision to settle, and minimi zes the possibili ty of conflicting interpretations of the settlement. (See In re Ma rri ag e of A sse mi, s up ra , 7 Cal.4th at p. 905, 30 Cal.Rptr.2d 265, 872 P.2d 1190; Cityof Fre sn o v . M

aroo t, s up ra , 189 Cal.App.3d at p. 762, 234 Cal.Rptr. 353; Da tat ro nic Sy ste ms Cor

p. v . S pe ro n, In c ., su

pr a , 176 Cal.App.3d at p. 1174, 222 Ca l.R ptr . 6 58 .) I t a lso pr ote c ts p art ie s fro m im pairme nt o f the ir su bs ta nti a l r ig hts without their knowledg e and c onsent. (See Bl an ton v . W om an c are , Inc
., su

pr a , 38 Cal.3d at p. 404, 212 Cal.Rptr. 151, 696 P.2d 645.)

Le v y v . S up e rio r Co ur t , 896 P.2d 171, 175 (Cal. 1995).

Whil e it would seem that Judge Cahill had left no room for f urther ma neuver , such hopes

wer e short lived. On April 7, 1993, came the Alan Fister bom bshell, and Metric threw its eng ine into reve rse. Howeve r, t he exhaustive eff orts of Metric to convert the “as is” pr ovision of the oral 3 Ca lif ornia Se ttl e me nt Ag re e me nt int o a no n- e xiste nt a mbi g uit y we re to no a va il. I t is we ll t o n ote at this point t hat the “a s is” lang uag e pales into insig nificanc e when compar ed with the re al problem fa c ing Me tr ic a s se t f

orth i n th e F ist e r m e mo. As Mr . F ist e r s ta te d:-19- I f the 1993 Convey ance occur s, then we c erta inly cannot r aise the a

rg ument reg arding said convey ance that we we re a “bona f ide purc haser ” without notice of the disputes be tween Nelson and Har dag e. F urthermor e, I am almost certain the Plaintiff would arg ue that we wer e now c onspiring with Nelson in order to delay , defr aud and hinder the creditors of Mr. Nelson and his entities. I f t he J udg e finds that the 1986 de e d w a s a

fr a ud ule nt c on ve y a nc e , th e n h e c ou ld a lso fi ndthe 19 93 Con ve y a nc e to be “f raudule nt.” I f so, we w ould loose [s ic] ti tle to the premises. F urthermor e, beca use ou r l ea s e woul d have be en mer g ed into the 1993 dee d, we would lose the benef it of the long -term g round lea se.

I n s um, wi tho ut the 19 93 Con ve y a nc e , w e be lie ve a “ worst c a se ” sc e na

ri o would mere ly

substitut e one L andlord for another conce rning the long -term g round le a se . O n th e oth e r ha nd , th e wo rs t c a se sc e na ri o w ith the 19 93 Con ve y a nc e c ou ld

re s u lt in M e tric Pa

r tn e r s lo s in g b o th th e f

e e a n d th e g r o u n d le a s e

. F u r the rmore, I seriously doubt that y ou could g et title insurance to cover the 1993 Convey ance

.
On Fe bruary 9, 1996, Chance llor Kilcre ase entere d the Order in this case g ranting the Nelson Mo tio n f or Part ia l Su mma

ry Judg me nt a s to the iss ue of Me tr ic ’s lia bil ity fo r br e a c h of the Ca lif or nia Settlement Ag ree ment. I n this Order the Chance llor held:

The Settlement Ag ree ment obligated Metric t o p urcha se the land unde rneath the Nashville Residenc e I nn. Specifica lly , the Settlement Ag ree ment provided, “ L and in Nashville which is pre sently lease d by Nashville L odg ing Company to the plaintiff will be sold from Nashvill e L odg ing Company to the plaintiff.” The Settlement Ag ree ment further

obligated Metric to pur ch ase the Nashville land “a s is” for $1 ,7 00 ,0 00 . At time of the Se ttl e me nt Ag re e me nt the la nd wa s subj e c t to a lie n li s pe nd e ns of

Or la nd o Re sid e nc e , Ltd. re la tin g to the fr a ud ule nt c on ve y a nc e su it pending in Chancery

Court of Davidson County , Part I I I

. The Settlement Ag ree ment ob lig a te d M e tr ic to, “ dil ig e ntl y a ndin g oo d f

a ith and re sp on sib ly

a ndre a so na

bly attend to the docume nting of this settlement ag ree ment.”

Following the settlement, Metric ref used to pur chase the land as it had a g ree d to do and made no of

fe r t o p er fo rm its obli g ation to purcha se the Na shville land befor e it ref

used to perf

orm. Metric did nothing prior to Aug ust 27, 1993 to attend to the documenting of the Settlement Ag ree ment and on th at date de nied the exis tence of the settlement a g ree ment stating be fore a C alifornia court “we ar e of the opin io n th e r e is n o s e tt le me n t. ” M e tric late r ar g u e d th a t i t r e f

u s e d to p u r c h a s e the Nashville land be cause of “title pro blems” and be cause the ag ree ment was not enfor cea ble under the California statute of frauds. Both of Me tric’s a rg uments were

re je c te d b y the Ca lif ornia c ou rt

.

Ba sed upon the fore g oing and the entire r ecor d in this cause the Court finds the re is n o g e nu ineiss ue of ma te ri a l fact
, and Th ir d- Part y Pla int if fs are e nti tle d to pa rt ia l su mma

ry jud g me nt a s a

ma tte r o f l a w. Th e Co urt con clu de s th a t Me tr ic ref used to pur chase the land, failed to attend to the documenting of the settlement and-20-

faile d to re le a se Mr

. Ne lso n, a s it ha d a g re e d to do . M e tr ic ’s c on du c t a mou nte d to

a br e a c h of the Se ttl e me nt Ag re e me nt re a c he d in Ma rc h 19 93
, a nd th ir d-Party Plaintiffs a

re entitled to pa

rtial summary judgme nt. The parties shall set this case f or a hea ring on damag es and other re lief to which Third- Party Plaintiffs may

be entitled.

Whether summary

judgme nt as to liabilit y

was prope rly

g rante d to Nelson depe nds on events that

occur red in California

betwee n the settlement of Ma rch 23, 1993 a nd J une 28, 1994.

Fr om the Fister Me morandum of April 7, 1993 until June 28, 1994, Metric insisted that there

wa s s o m et h i n g am b i gu o u s a b o u t t h e “a s i s ” l an gu age o f t h e M ar ch 2 3
, 1 9 9 3 s et t l em en t

. J u d ge Cahil l, o n Jun e 28
, 19 94 , e nte re d a n o rd e r r e -s e ttl ing wh a t ha d a lr e a dy be e n s e ttl e d. Judg e Cahil l held:

The parties ag ree d that the only issue rema ining befor e the court rela tes to the Har dag e liens. The specific question prese nted to the Court was whe ther the pla intiff

a g re e d to pu rc ha se the Na sh vil le pr op e rt y su bje c t to the so -c a lle d “ Ha rd a g e lie ns ” during the or al s et t l em ent bef ore the Court on the rec ord held on Mar ch 23, 1993. After discussion with counsel and a revie w of the r ecor d befor e the c ourt, the court f in d s th a t th e o n ly

“ H ar d a g e li e n ” th a t i s o f c o n c e r n to th e p ar ti e s is a li s p e n d e ns f i l e d b y H ar d a g e a g a i n s tt h e N a s h v i l l e p r o p e r t y.

Ac c or din g to the plaint if

f, the plaint if

f d id n ot a g re e to pur c ha se the Na sh vil le property subject to the “H arda g e liens.” T h i s argume nt is based on Mr. Reube n’s statement on the re cord at the settlement that “ther e ar e third-pa rty issues outside the prese nt control of the pa rties to this li tigation that could conce i v ab l y prec lude pe rf orma nc e of

thi s d e a l or

tr a ns a c tio n.

. . ” Th e plaint if f ar g ue s tha t the “ thi rdpa

rt y issues” r ef

er red to the Harda g e litigation and that the plaintiff, ther efor e, did not intend to purcha se the Na shville property until the lis pendens w as re moved.

I n support of its arg ument, the plaintiff cites to the A pril 27, 1994 deposition of def endant Ne lson where Nelson wa s asked what his understanding was of the above quote d “third-pa

rty ” lang uag e. Ne ls o n ’ s d e p o s ition answ er, how ever , does not support the plaintiff’s a

rg ument that the lis pendens neede d to be re moved in order fo r t h e s et t l em en tt o go fo rw ar d

. R at h er , Ne l s o n ’s an s we r su gges t s t h at i f H ar d age “obtained an injunction to st o p any convey ance of the subjec t property ,” then the settlement would be pre cluded.

Th e Cou rt ’s prior

or de r that th e sett lem ent i s to be e nf or c e d u nd e r C .C. P. §6 64 .6 sta nd s. Th e Co urt find s th a t pl a int if f a g re e d to bu y

the pr op e rt y

“ a s is
, including but not limited to tit le issues,” u n l es s third party issues prec luded perf ormanc e of the deal or

transac tion. I n the context of t h i s ca se, plaintiff a g ree d to p ur c ha se the pr op e rt y un le ss an in

jun c tio n or ot her ac tio n b y a thi rdpa rt y preve nted the sale to plai n t i ff

. A lis pendens does not pre vent the tra nsaction and, the re fo re , th e Cou rt

fi nd s th a t th e plaint if

f, in s e ttl ing thi s c a se , a g re e d to pu rc ha se t h e N a s h v i l l e p r o p e r t y w i t h t h e l i s p e n d e n s f i l e d a g a i n s tt h e p r o p e r t y.-21-

The “ as is” lang uag e of the Marc h 23, 1993 Settlement A g ree ment is not ambig uous, and its meaning was quite c lear

from the time it was e ntere d.

That Metric clea

rly rec og nized that the “as is” lang uag e wa s not the rea l problem for the m is established by the l etter from J ames A. Reuben to J udg e C ahill of April 21, 1993, shortly afte r he

rec eived the F ister memo.

At the he ari ng , a nda t pa g e 11 c omm e nc ing a t line 15 of the tr a ns c ri pt, my comments on the transc ript ref lect an awa

rene ss of “.

. . third party issues outside the pres e n t c o n tr o l o f

th e p ar ti e s to th is li ti g a ti o n th a t c o u ldc o n c e iv ab ly p r e clude perf ormanc e of this dea l or transa ction, in which ca se we understand that this C ourt wi ll r e ta in j urisd ic tio n to fu rthe r co ns ide r the se ttl e me nt an d/o r se t for tr ia l on a date

acc eptable to the Court

. . .” I n the t ime that has t ranspire d since March 23, 1993, we have inve stigated the “N ashville L itigation” and determined the scope of those third pa rt y pr ob le ms.
During th e settl ement neg otiations, the local repr esenta tives of GSI who appea red at the settlement confe renc e we re a war e of pending litigation in Nashville, Tenne ssee, in w hich GSI had bee n named a s a party . I am re latively

certain that Mr. Nelson’s recitation of the facts of t he Nashville L itigation would diffe r, and by copy of thi s c or re sp on de nc e , h e is i nvit e d to re sp on d. Simp ly state d, the plaint if

f i n Nashville (“ Har dag e”) was the owner of a promissory note and subseque nt judgment

a g a ins t Mr . Ne lso n an d ce rt a in Ne lso n en tit ie s in the a mou nt of Tw o H un dr e d F if

ty Thousand Dollar s ($250,000.00) (now approximately Four Hundre d Fifty

Thousand Do lla rs ($ 45 0, 00 0. 00 )) . T he Na sh vil le Ma rr iott Re sid e nc e I nn wa s c on ve y e d to GSI by tr a ns fe r i n f

e e of the imp ro ve me nts a nda

tr a ns fe r o f the l eas e ho ld i nte re st a s to the land during the period of time that the j udg ment was pending. Harda g e has sue d in the Nashville Litigation alleg ing two prior fraudulent convey ance s an d naming GSI as a pa rty to the sec o n d convey ance . When the Nashville Litigation wa s
commence d, GSI

tender ed to their t itle insurance car rier. T he title insurance car rier

a c c e pte d th e te nd e r andre ta ine d a loc a l la w f

ir m to re pr e se nt the int e re sts of GSI in that litigation. For

y our g ener al re fer ence , I have e nclosed a copy of the c omplaint filed in the Na shville L itigations as Exhibit B.

At such time as the se ttlement neg otiations conclud ed in t he San Franc isco Sup e ri or Cou rt , th e in ho us e c ou ns e l f or GSI , Joy c e S. Jabe r, Es q. , c on ta c te d th e tit le

c omp a ny app oin te d c ou ns e l in Na sh vil le to de te rm ine wh a t app ro pria te ste ps sh ou ld be take n to imp le me nt the se ttl e me nt. At ta c he d to thi s le tte r andmark e d a s E xhibi t C is a copy

of co rr es p o n d en ce dated April 7, 1993, addresse d from Alan T . Fister, Esq. to Joy ce S. Jaber, Esq., which is pr ovided without waiver of any attorney /client privi le g e . Su bs e qu e nt to re c e ipt of that c or re sp on de nc e , M s. Jabe r andI e ng a g e d in

a series of telephone conver sations with Mr. Fister. I understand that Mr. Fister has also contac ted Mr. Ne lson’s lawy ers in the Na shville lit igation to confirm the advice provided in his April 7, 1993 letter.-22- B ri e fl y , M r. F ist e r f

la tly a dv ise s a g a inst th e tr a ns a c tio n in its pr e se nt f orm. As the situation now sta n d s , GSI is being defe nded by

its ti tle insurance car

rier wi tho ut r e se rv a tio n. I n th e e ve nt that Mr. Hard age is su c c e ssf ul i n th e Na sh vil le L itigation, the title insuranc e carrie r wil l be re sponsible to GSIto deliver title to the

rea l property

with respe ct t o the fee and lease hold interests presently held by GSI - - pr ob ably by sa tis fying Mr . Hard a g e ’s mon e y de ma nd s. I t sh ou ld b e no te d th a t in its prese nt posture, Har dag e cannot prove a claim that GSI was knowle dg eable of Mr. Ne lso n’ s p ro ble ms w ith Ha rd a g e or that G SI pa rt ic ipate d in or

a c tua lly int e nd e d to hinder, de l ay o r def

raud the cre ditors of Mr. Ne lson. The title company appointed attorney is confident that GSI

will prevail on its bona fi d e p u rchaser ( “B FP”) defe nse.

Howeve r, as Mr. Fister describes in his April 7, 1993 letter, in the event that the land tra nsaction conte mplated by the s ettlement i s completed, all of the title to the Na sh vil le Ma

rriott Re sid e nc e I nn , in c lud ing the pr e se ntl y he ld l e a se ho ld e state , w ill be he ld i n th e na me of GS I

. Mo re im port a ntl y , G SI wi ll n o lo ng e r b e able to continue to claim B FP status beca use of the obvious knowle dg e by virtue of p ar t i ci p at i o n i n t h e N as h v i l l e Lit i gat i o n

. M r. Fi s t er i s al l b u t ce rt ai n t h at t h e H ar d age will amend his complaint in the Nashville Litigation to alle ge t h i s additional transac tion a s a third fraudulent convey ance

. I n that event, if Hard age wer e
succe ssful, the serie s of conve y ance s including this last transfe r of the land, could be unwound there by

leaving GSI

with nothing in Nashville-a position worse than bef ore the se ttl e me nt o n th e On tari o li tig a tio n w a s ent eredint o. Th a t r e su lt i s e sp e c ia lly ironic in that the Nashvill e relationship had nothi ng to do with the Ontario liti g ation which wa s the subject of the settlement. I t is and has be en GSI [‘s int ent to try to find

a way to settle problems with Mr. Nelson in Ontario that led both parties to the Na sh vil le Ma

rriott Re sid e nc e I nn . O the r tha n b y virtue of the se ttl e me nt d isc us sio ns , the Nashville prope rty

would not have be come en m es hed in the San Franc isco Superior Court ac tion.

I mportantly , GSI

has also bee n advised by Mr. Fister that the title insurance

car rier w ill not i nsure the settlement transac tion, there by leaving GSI ’s entire Twelve Milli on Dollar ($12,000,000.00) investment in Na shville at risk. On the other hand, absent the transfer

of the land, e ven if the prior transfe rs wer e found to be fraudulent and we re to be resc inded by the Nashvill e courts, the onl y impact on GSI would be to substit ute Mr. Ha

rdag e for Mr. Nelson as the l and lessor, ke eping in mind that the t i t l e i n s u r a n c e c arr i e r

w o u l d r e m a i n r e s p o n s i b l e t o p r o t e c tt h e i n t e r e s t s o f G S I.

GSI c on tin ue s to de sir e to a c qu ir e the la nd a nd wo uld pr e fe r to termin a te a ll

re la tio ns hip wi th M r. Ne lso n. Ho we ve r, wi tho ut s ome a dd iti on a l pr ote c tio n, it appea rs t h at at m i nimum, GSIwould be tra ding one piece of litiga tion for another and, more signific antly , GSI could be plac ed i n a wo rse position than befor e the

se ttl e me nt becau se of the su bs ta nti a l in c re a se d risk of los s o f ano the r p ro pe rt y

in Na sh vil l e , c omp lic a te d b y the los s o f c on tin uin g tit le ins ur a nc e to d e fe ndthe int e re sts-23-

of GSI in N a sh vil le . Se ttl ing on e pie c e of lit ig a tio n o nly

to b e c ome in vo lv ed in

an o t h ert h at i s fr au gh twi t h s i gn i fi ca n tri s k i s n o tap p ea l i n g.

I am ce rt ai n t h at M r. Ne l s o n o r h i s co u n s el wi l l p o i n t t o t h e tra n s cr i p tat p age 10, line 11, wher e GSI

ag ree d that the purc hase of the land is “a s is.” I ndeed, at the time of the settlement neg otiations, GSIwas a war e of the Nashville L i t i g ation and further understood that the impediment to title resulting f rom th eN a shville L itigation would, during the pende ncy of the Na shville L itigati o n , prec lude any sale, ref inancing or other hypothecation of the property . Whil e GSI understood that ther e would be a title impediment aff ecting the owner ship of

that rea l property , GSI

did not

a nti c ipate a

situatio n w he re the Na sh vil le Ma rriot t Resi de nc e I nn c ou ld be los t, i n it s
e n t i r e t y.
The proble m had nothing to do with “third part y ” p ro b lems. Under Ca lifornia law, the vendee of an “ as is” sale cannot win in the ab s en ce o f fr aud or misre prese ntation. Not even a n adver se jury

verdic t can survive the vendor ’s motion for judg ment notwithstanding the ve rdict in the absenc e of a

finding of fr aud or misre prese ntation.

As the tr ia l c ou rt

c or re c tly state d, a ny sa le of pr op e rt y “ a s is ” is a sa le of the pr op e rt y in its “present or e x isting condition”; the use of the phra se “a s is” relieve s a seller of

re a l pr op e rt y

fr om l ia bil ity fo r de fe c ts in tha t con dit ion

. Th e on ly e xce pti on to this princ ipl e is w he n a se lle r, thr ou g h fr a ud or mis re pr e se ntatio n, int e nti on a lly c on c e a ls materia l defe cts not otherwise visible or obse rvable to the buy er. ( Lingsch v. Savage
, su pr a , 213 Cal.App.2d at pp. 740-742, 29 Cal.Rpt r. 201.) Appellants have cited no

case s, nor have we f

ound any , in which a pe rson selling rea l prop er t y “as is” w as lia ble fo r d e fe c ts i n th e qu a lit y or c on dit ion of the re a l pro pe rt y , whe re the pr op e rt y
wa s n o t n e w c o n s tru c t i o n , a n d t h e s a l e w a s m a d e i n g o o d f a i t h a n d wi tho ut s ome form of f raudule nt misreprese ntation or conc ealmen t . Her e, the jury found that responde nts had committed no fraud or misrepre sentation in the sale of the subject property ; the trial court ex pressly ag ree d with that finding, w hich was supported by substantial evidenc e in the record. Thus, in the absence of fr aud or misre prese ntation on the part of responde nts, the mere f act that the bulg e in the foundational wall was not rea dily observa

ble does not r ender the “as is” c ondition on sale meaning less or inopera ble in this case.

Shapiro v. Hu , 233 Cal.Rptr. 470, 476 (Cal.Ct.App. 1986). The rule in Tenne ssee is precisely the

same. See J

affe v. Bolton , 817 S.W .2d 19 (Tenn.Ct.App. 1991).

Th e le ft ha ndof Me tr ic in C a lif

ornia kn ew all abo ut the Ha

rd a g e lie n o n th e Na sh vil le property befor e ente ring into the March 23, 1993 settlement. The California re prese ntatives of Metric simply

did not gr asp the sig ni fi ca n ce o f the merg er of title problem resulting from the contemplated pur chase

. The right hand of Metric in Nashville, however, knew all about the problem but wa s ig n o r a n t o f th e Ca li f o r n ia s e tt le me n t u n ti l a f

te r it w a s a n a c c o mp li s h e d f a c t. As to the exis tence o f t he Ha

rdag e liens in Nashville, it is nowhere even a lleg ed by Metric that Ne lson was g uil ty of fr a uda ndmis re pr e se ntatio n o r n on dis c los ur e . Ind e e d, suchc on sid e ratio ns are ha rd lyM et ri c al so sough t, in v a in, t o ass ert be fo re Judge C ahi l l t hat t he M arch 23
, 19 9 3 Sett l em ent A greem ent 4

r equ i r ed N el son t o rem o ve t h e l i s pe n den s f i l ed by H ar dag e ag ai n s t t h e N as h v i l l e pr oper t y be for e t h e s al e cou l d be

cons ummat ed. N ot hi ng i n t he agr eement i s s us cept i bl e of s uch an i nt er pret at i on, an d Judge C ahi l l s o hel d i n h i s O r der of J u n e 28, 1994.

-24- ima g ina ble sin c e Me tr ic wa s it se lf a de fe nd a nt in the Ha

rd a g e lit ig a tio n in Na sh vil le a t th e ve ry tim e of the California

settlement.

Certain matters are indisputable as of April 21, 1993, when Mr. Reube n forwa rded his letter to Jud g e Cahil l:

1) Nelson intended to c onvey the Nashvill e property to Metric“a s is including but not limit ed to titl e issues.” 2) Me tr ic int e nd e d to take the c on ve y a nc e fr om Ne lso n “ a s is inc lud ing bu t no t lim ite d to tit le issues” in exchang e for

$1,700,000.00. 3) Metric kne w that the Ha rdag e lis pendens wa s properly filed as to the Na shville property and constituted a lien there on. 4) The left hand of

Metric in California

did not understand the leg al ef fec t of such a tr ansac tion

a s i tr e l a t e d t o m e r g e r

o f t i t l e o f t h e N a s h v i l l e p r o p e r t y. 5) The rig ht hand of Metric in Nashville knew exactly what the leg al conse quence s were of the transfe r fr om Nelson to Metric of the Nashville prope rty but was not consulted by the left ha ndof Me tr ic prior

to the Ma

rc h 2 3, 19 93 se ttl e me nt.

At thi s po in t, a s f

ar a s is re le va nt t o th e c a se , e ve rythi ng c a me to a sta nd sti ll i n b oth California a nd Nashville while Metric pursued its for lorn eff ort befor e Judge Cahill to establish that the “ a s is ” pr ov isi on of

the Ma rc h 23 , 1 99 3 s e ttl e me nt w a s so me ho w a mbi g uo us . T his e ff ort c a me to an end on June 28, 1994 when Judge C ah i l l h el d that there was no a mbiguity in the provision. Chance llor Kilcrea se was clea rly corr ect in finding that Metric breac hed the settlement contrac t by

re fu sin g to p ur c ha se the Na sh vil le pr op e rt y un de r thepr ov isi on s o f the Ma rc h 2 3, 19 93 se ttl e me nt. 4

The efforts of Metric to deny its deliberate breach of the California Settlement Ag ree ment on the b as i s o f t he mer g er of title problem ring s hollow when one c onsiders the a lleg ations of Metric’ s Complaint i n its malpra ctice action ag ainst its former attorney , J ames Reube n in California.

10. As a further dire ct and pr ox imate re s u l t of the ne g lige nce and

car elessness of

defe ndants, and e ach of them, METRI C ag ree d to purcha se re al property subject to e ncumbra nces and liens and a lis pende ns, without being a dvised of all potential conse quence s, and METRI C was damag ed by being require d to incur and pay attorney ’s fe es and costs for lega l service s rende red, for both itself and other s to whom it owed a duty of i ndemnification, in an ef fort to def end its interests, re medy the er rors c ommitt ed by defe ndants, and avoid a nd/or minimi ze the conseque nces of such er rors, a ll in an amount to be established at the time of trial a ccor ding to pr oof.-25- 11. As a further dire ct and pr ox i m at e result of the ne g lige nce and

car elessness of defe ndants, and eac h of them, METRI C ha s been s u ed i n other lit ig a tio n a nda s a

c on se qu e nc e ha s b e e n d a ma g e d in that it has be e n c omp e lle d to eng ag e the se rvice s of new and additional counsel to re prese nt its i ntere sts in a an eff ort t o re l i ev e it of further damag es incurr ed as a

result of said ne g lige nce and

car elessness by defe ndants, and may incur other expenses and losses in connec tion the re wi t h
, s a i d d a m a g e s i n a n a m o u n t w h i c h
, a l t h o u g h p r e s e n t l y u n k n o w n , i s in excess of the jurisdictional minimum of this Court, said amount to be established a t the time of trial ac cording to proof.

Metric Partners Growth Suite Inv estors, LP v. Reube n , no. 99-8214. (Compl. at p. 4).

That the mer g er of

title problem and not the “as is” lang uag e of the contra ct was the singula r element pr ompting Metric to reve rse g ear s relative to the Cal i fo rn ia settlement is best stated by Metric r epre s en t ati ve Robert A. F iddaman in his deposition as quoted in Ne lso n v . M e tri c Re alt

y , 2002 WL 31126649, at *18.

Q My question is, why didn’t Metric g o ahea d and purc hase the property under the settlement ag ree ment and then if it had some dir e conse quence s g o a ft e r tho se pe op le wh o h a d a dv ise d M e tr ic to e nte r i nto the de a l?

A That would be a

pretty stupid business decision. Q W h y? A Whywould y ou - - litigat i o n has starte d out over less than $200,000 that was g oing to be s et t l ed by , y ou know, this land purcha se dea l about which I don ’t remember the e conomics of at all. Whywould y ou put at risk a 12 milli on dollar investment in a tot ally unrela ted property to try to settle the matter a nd then try to rec oup that by suing people? That m akes no sense at all. I would never make that business de cision.

Holding Me tric liable to Nelson as a matter of law for suc h damag es as pr ox imately resulted fr om the re fu sa l of

Me tr ic to a c c e pt a

c on ve y a nc e of

the Na sh vil le pr op e rt y

“ a s is ” pres ent s a pr ob le m th a t is by no me a ns e a sy to re so lve

. Wha t da ma g e s pr oximate ly re su lte d f ro m th e Me tr ic brea ch of c ontrac t; and what dama g es proximately resulted f rom the “a

bout-fac e” a ctions of Nelson af t er Metric belatedly offe red to pe rform the contra ct following the J une 28, 1994 order of J u d ge Cahil l?

As far as this re cord shows, the status of the prope rty in Nashville rema ined unaf fec ted by

e ve nts that oc c ur

re d be tw e e n Ma

rc h 23 , 1 99 3 a ndJune 28 , 1 99 4. As ide fr om the Ha rd a g e lie n li s pendens, w hich alre ady aff ecte d the title at the time of the Marc h 23, 1993 settlement, the next action af fe ct i n g t h e t i t l e t o t h e Na s h v i l l e p ro p er t y d i d n o t o cc u r u n t i l t h e s u m m er o f 1 9 9 6 wh en Ha rd age
mov e d to su bje c t th e Na sh vil le pr op e rt y to an e xec uti on sa le a nd , the re a ft e r, pu rc ha se d th e pr op e rt y at such sale for $100,000.00. The rever sal and remand of the Hardag e fr audulent conve y ance action, up on wh ic h th e lis pe nd e ns depend ed, oc c ur re d o n D e c e mbe r 1 8, 19 96 . E arl ie r i n 1 99 6, Me tr ic defaulted on the first mortg ag e encumbe ring the Nashville property . For eclosure sale oc curr ed and WBL I I Real Est ate L imited Partnership purchase d both the Elm Hill property , which wa s the subject-26-

of the g round lea se, and the Nashville Mar ri o t t R es i d ence I nn located the reon f or a total of $9,050,000.00.

The trials and tribulations of J udg e Cahill in California stag g er the imag ination. Counsel for parties with appa

rently endless fina ncial resource s surg ed forth in elabor ate maneuverings ma rked by obstruction, evasion, equivocation and delay

. I f t he beleag uere d trial judg e thoug ht he had se ttled

a c a se on Ma

rc h 23, 19 93 a nd re se ttl e d it on June 24 , 199 4, he wo e fu lly un de re sti ma te d the te na c ity and re source fulness of pa rties intent upon acc omplishi ng assure d mutual destruction.

A hea ring befor e Judge Cahill was he ld May 24, 1995 with Kenneth Ne lson appea ring by telephone, with his attorney s, J ane Schlicht, Stephe n Chernof and Alexis J

. Perillat, J r., in attenda nce in andwi th M e tr ic re pr e se nte d b y Sc ott B ake r. Th e tr a ns c ri pt o f the he ari ng dis c los e s:

THE COURT: THE DATE YOU ALL S TOOD I N FRON T OF ME A ND ENTE RED I NTO THESETTLEMENT. I KNOW YOU HA VE COME BA CK A C OUPLE TIMES, BU T I F I WERE GOING TO APP ROVE THE SETTLEMENT, I T WOUL D GO B AC K T O T HE DATE OF THE TIME THAT THERE WAS THE AGREEMENT.

MR. B AKER: YO URHO NO R, O NEOF TH E PRO B LEM S WE HAVE, AND THE REASON WE RAI SED THI S I SSUE I S, I T’S NOT CLEAR TO US - - A N D M R. CH E RN O FWA S P O I N T I N G T O T E ST I M O N Y THAT WENT ON IN TENNE SSEE A MONTH AGO - - IT I S NOT CL EAR TO US T H A T M R

. N E LS O N IN T E N D S T O P E R F O R M T H IS S E T T LE M E N T A T A LL, GI VEN SOME OF

HI S TESTI MONY THA T HE GAV E I N TENNE SSEE, AND WE D O N ’ T B E L I E V E WE SH O U L D B E SU B JE CT
, O N E
, TO B OTH PERFORMANCE OF T HI S DE AL AND TH EN, TWO, DAMAGES WHEN I T’S NO T - - A PPA REN TL Y N OT MR. NE L SON’S I NTE NT T O G O F OR WARD WI TH THE SAL

E. T H E C O U R T : THEN Y O U H A V E A N I SS U E A BO UT WHETHER T HE R E WAS FRAUD IN THE I NDUCEMENT, A ND YOU CAN UNDO T HE WHOLE THING.

MR . BAK ER : TH AT ’S TH E - - Y O U R H O N O R
, I S U P P OSE THAT’ S TRUE, A ND WE’RE GOING TO - - AL L WE’VE DONE I S FOSTERED FURTHE R L I TI GATI ON.

THE COURT: NOT REAL L Y. Y O UH A VE A LI TTLE BIT, BU T YOU’ RE NOT GOING TO B E FI L I NG ANO THER SUI T UNL ESS IGET RUN OVER B Y A TRUCK. YOU WI LL ALL COME BACK H ERE. M R

. B A K E R : B UT T H E P R O B LE M I S
, Y O U R HO NO R, MR. NE L SON HAS AL READY FILED THOSE L AWSUI TS. HE AL READY FILED A LAWSUI T IN MI L WAUKEE. HE J UST RECENTL Y HAS THREATENED TO, IF NO T ACTUAL L Y FI LED, A THIRD -P ARTY COMPL AINT IN T E NNES SEE. WE’VE GOT F OUR OR FIVE DIFF ERENT L A WS U I T S G O I N G O N RI G H T N O W, A S F A R A S I K N O W. THE COURT: MS. SCHL I CHT, WHAT DO YO U THI NK AB OU T T HI S?-27- MR. CHERNOF: I ’M SORRY? T H E C O U R T : I S J AN ESCHL ICHT THERE OR ANYB ODY WHO CAN TAL K ON YO UR SI DE?

MS. S CHL I CHT: PARDON ME: T HE C OU R T : D I

D Y O U H E A R W H A T

M R. B A K

E R SAID? MS. SCH L I CH T: AB OU T SH OU L DN ’T TH AT B E SUB JECT TO PERFORMANCE AND DAMAGE A ND THEN NE L S ON HAS FI LED A SUI T? I HEARD THA T. T H E C O U R T : L

ET M ET R Y S OM ETHI

NG EL SE. DO YOU H A V E A N Y R E S P O N S E T O T H A T
, C O U N S E L?

MR. PER I LL AT : WEL L , NU MBER ONE , YO UR HONOR
, THE DAT E OFTHE RELEASE WAS THE DA TE THAT WE WERE I N FRON T OF YO U. THAT WAS, I BELI EVE, PUT ON TH E RECORD, AND EVERYB ODY KN EW I T. THAT W AS A P ARTI NG OF THE WAYS. ITHINK --

T H E C O U R T : YO U WO UL D A GR E E T H AT I F MR. N E L SO N D O E S N O T G O T H RO UGH W I TH T H I S S E T T LE M E N T
, T H A T WE CAN J UST UNDO IT?

MR. PERI LL AT: I F HE DO E S NO T GO THROUG H WI TH TH I S? TH E CO UR T: YE S.

M R. PE RILL A T : ITHI NK T H A T ’ S A DI FF ERENT I SSUE TH ANOT HE R L I TI GA TI ON , Y OU R H ON OR

.

THE COURT: T HA T ’S W HA T M R

. BA KER STARTED OFF SAYI NG I S THAT H E BEL I EVES MR. NEL SON I S NOT GOING TO G O THROUGH WI TH THE SETTL EMENT. MR . C HER NOF: YOU R H ONO R, THI S I S MR . C HER NOF. I N F AC T, F RA NKL Y, I F I ND I T A S TOUND I NGTH AT MR. BA KER WOUL D SUGGEST THAT MR. NEL SON DOESN’ T WANT TO GO TH RO U G H WI T H I T

. O U R T H O U G H T S A RET H A T M E T RI C D O E SN’T WANT TO GO TH ROUGH WI TH I T.

THE COURT: I DON’ T WANT T O G E T I NT O T HI S AT ALL . I WI LL J UST LET EVERYB ODY KN OW THAT IF TH E SETTLEMENT DO E S N’ T HAPPEN, AND IF TH E PROPER TY I SN’T TRANSFERRED, AND ALL THESE OTHER THINGS AREN’T DONE, I ’LL FIND OU T WHAT HAPPENED, AND WE’L L ADDRESS THAT. MR. BAKER: YOUR HON OR, I F I MAY, THI S I S FROM A TRAN S C R I P T OF P R OC E E DING S I N TENNE SSEE, C ROSS -EXAMI NATI ON O FK E N N E T H N E LS O N
, A N D T H E Q U E S T IO N W A S O N P A G E 3 O FT H IS TRANSCRI PT:

“WELL , SO THE PRI CE, I F THE CL OSI NG WERE TO HAPPEN TOMORROW” - - AND THEY’ RE TAL KING AB OUT THI S SETTL EMENT - -

“ O R N E X T W E E K
, W H E N E V E R
, I T ’ S $ 1

. 7 M I LL I O N ; I S T H A T C O R R E C T ?”

“ANSWER: I

BELI EVE” - - THI S I S NE L S ON’S ANSWER - - “I

BELI EVE TH AT METRI C’S BREACH HAS EXCUSED THE-28-

PERFORMANCE OF T HE OTHE R PARTI ES TO THE SETTL E MENT AGREEMENT.”

L ATER ON PAGE 4 - - THE COURT: WEL L , LET ME - - I GOT TO - - MR. BAKER: L E T ME J UST PUT I T ON THE RECORD, I F I MI GHT, YO UR HONOR.

THE COURT: COUNS E L
, I GOT TO MO VE THI S AL ONG A L I TTLE BIT.

ANYB ODY IN WI SCONSI N H ERE, DO YOU KNOW AB OUT THI S, AND WHAT’S THE ANSWER TO I T?

MR. CHERNOF: FRANKL Y, I CERTAI NL Y DON’ T. MS. S CHL I CHT: YOUR HON OR, THI S I S J ANE SCHL I CHT. I O B V IO U S LY W A S N O T A T T H A T T R IA L. THE COURT: MR. NEL SO N W AS T HE R E

. WHAT DO YOU HA VE TO SAY, MR. NEL SON?

MR. NEL SON: THI S I S KEN NEL SON. MY UNDERSTANDI

NG I S TH AT METRI C REF USED TO B UY TH E LAN D T HE REB Y B REA CH I NGTH E A GREE MENT , A ND , A S I UNDERSTAND IT - - Y OU KNO W, I’M NO T A L AWYER - - THAT MEA NS THAT PERFORMANCE OF THE OTH ER PARTI ES I S EXCUSED. TH E CO UR T: AR E Y OU GO I NGTO PER F OR M? MR. NE L SON : WEL L
, I F A CO UR T F I ND S TH AT TH ERE WAS NO BREACH B Y METRI C.

T H E C O U R T : THAT’ S W HAT THE W HOL E PURPOS E OF THI S HEARI NG I S. AT THE TI ME WE’RE DONE HERE, WE’RE GOING TO ENF ORCE THE SETTLEMENT. SO W HA T I HA VE SEEN SO FAR I S THAT PEOPL E ARE AR G U I

N GA B O U T T H ET E RM S, AND WE’RE AT THAT POINT, AND I ’M ENF ORCI NG THE SETTL EMENT. I DON’ T THI

NK ANY BO DY HAS B R E AC HED ANYTHI NG YET. I T WI LL B E O N CE I D O A N O RD E R, A N D I F T H E PR O PE RT Y I SN’T TRA NSF ERR ED , A ND AL L OF TH E T HI NG S TH AT AR E N EE DE D T O C L OSE I T A REN ’T AC CEP TE D, TH EN WE H AV E A DIF F ERE NT PRO B LEM

.

B U T
, M R

. N E LS O N
, A R E Y O U G O IN G T O C LO S E T H IS D E A L? MR. NE L SON : I STI CK WI TH MY PRE VI OU S AN SWER, YO URHO NO R.

T H E CO U RT : THAT DOESN’T C OU NT

. AR E YOU G O IN G T O C LO S E T H IS D E A L?

M R

. N E L S O N : I F Y OU DE T E R M I NE - - I F YOU PR O PE RL Y D E T E RM I N E T H A T M E T RI C’ S A CT I O N S H A V E N O T BE EN A BREACH, I

DON’ T SEE THAT I

HAVE A NY CHOI CE.

. . . .

T H E C O U R T : M S

. S C HLI C HT
, WHAT DO YOU HAVE TO SAY AB OUT THA T?-29- MS. SCH L I CH T: AR E Y OU AD DR ESSI NGME , Y OU R H ON OR ? TH E CO UR T: YE S. M S

. S C HLI C HT : O UR P OS I T I ON HA S B E E N T H A T T H IS S E T T LE M E N T W A S R E A C H E D IN M A R C H O F 1 9 9 3
, A N D IT W A S M E T R IC TH AT B EG AN TH I S L ON G JOUR NE Y OF NO T WAN TING TO P ERF OR M. THAT’ S W HY WE COMMENCED THE ACTI ON IN WI SCONSI N.

AND HO W W E GOT ON THI S TOPI C I S MR. BAKER SAYI NG TH AT HEI S - - HI S CLI ENT I S NO T O B L I GA TE D T O B OT H T O PE RF OR M AND TO ANSWER FOR DAMAGES.

WE DI SAGREE AS TO METRI C’S L I AB I L I TY. THE F ACT OF T H E M A T T E R IS
, IT ’ S N O W B E E N M O R E T H A N T W O Y E A R S S IN C E T H IS SETTLEMENT HAD BEE N REACHED, AND MR. NEL SON HAS I NCURRED AT T ORNEY’S F EES AND OTH ER I TEMS REL ATING TO METRI C’S REFUSAL

TO DO TH I S DEAL . WE ARGUED FOR PROBA BL Y 18 MONTHS ON THE I SSUE OF “A S I S.”

A N D I T H IN K

T H A T O U R P O S IT IO N IS T H A T M E T R IC BREACHED THE AGREEMEN T. I THINK I T’S HARD F OR ANYON E TO AR GU E T HA T M ET RI C H AS NOT BRE ACHE D T HE AG REE ME NT , B ECA USE I T SI MPL Y DI DN’T G O AHEA D WI T H T H ET RA N SA CT I O NA ND HAS SPENT ALL THI S TI ME TRYI NG TO COME UP FOR REASONS J USTI FYI NG WHY I T HAS NOT.

. . . .

T HE C OU R T : LIS T E N
, T H IS IS G E T T IN G A LIT T LE IR R IT A T IN G B E C A U S E T H IS IS C H A N G IN G T H E D E A L, A N D W E A LL AGREED TO G O T HIS WAY, AND I HAVE H AD THI S PR OB LEM THROUGHO UT THI S CAS E FO R TWO YEARS THAT I T HINK I HAVE EVERYTHI

NG W R AP P E D U P
, AN D T HE N P E OP LE DO N’ T GO ALONG WI TH WHAT WE’VE DI SCUS SED, AND TH I S W AS A PERFECT EXAMPLE OF THAT, WH I CHWA S, WE’RE GOI NG TO D EAL WI TH AL

L I SSUES NOW AND TH EN DE CI DETH EM

.

MR. PER I LL AT : EX CU SE M E, YO URHO NO R. T H E CO U RT : NOW YOU’ RE T RY I N G T O CREATE A L OO PHO LE T HA T I

DO N’ T T HINK

EX I STS.

The procee dings in California stalled, and the c enter of ac tion moved to Nashville. Armed with what he c orre ctly

believed w as a brea ch of contrac t by Metric, Ne lson appare ntly determined that he c ou ld, the re a ft e r, re so rt to any ty pe of ob str uc tio nis t ta c tic s and c on tin ue , b y su c h ta c tic s, to incre ase his da m age s

. I n deposition on Dece mber 7, 1995 in the c ase at bar, Ke nneth Nelson testified:

A T T H E P RE S ENT TI ME , S I R, THE RE ’S AT L EAS T A D RA FT OF SET TL EM EN T AG REE ME NT S TH AT HA VEB EE N N EG OT IAT ED B AC K AND F ORTH, AND T HERE ARE SOME I SSUES LEFT O UTSTANDING THA T-30-

WE’RE APP ARENTL Y G OING TO VI SI T J UDGE CAHI LL AB OUT. ASSUMI NG JUDGE CAHILL RULES ON THE I SSUES THAT REMAIN OPEN A T T H E P R E S E N T T IM E
, D O Y O U IN T E N D T O G O F O R W A R D A N D S E LL THE PROPERTY TO METRI C ON THE TERMS AS S E T FO R T H I N THE D O C U M E N T S A N D A S D E C ID E D B Y J U D G E C A H ILL? A. NO. JUDGE CAHI LL SAI D HE’S NOT GOING TO DECI DE THE I SSUE O F BREACH, AN D WI THOUT D ECI DING THE I SSUE OF B REACH, YOU CAN’ T COMPEL

SPEC I FI C PER FORMANCE. Q. SO REGARDLESS OF WHAT J UD GE CAHILL ’S POW ERS ARE, AND WHATEVE R THE Y M I GHT B E, NO MATTE R HOW HE RUL ES ON T H E S E O P E N IS S U E S
, Y O U D O N ’ T IN T E N D T O S E LL T H E P R O P E R T Y ; IS T H A T C O R R E C T ? A. THAT’ S CORR ECT. I DON’ T INTEND T O SELL I T ON THE TE RMS O FTH OSEDO CU ME NT S. Q. AND AS DECI DED B Y THE JUDGE? A. RI GHT. AS I

UNDERSTAND IT, HI S DECI SI ON WI LL - - MAY AF F ECT TH E A MO UN T O FDA MA GE S, B UT I T WILL NO T A F F ECT L I AB I L I TY.

I t is we ll t o r e me mbe r that a ll o f the se e ve nts oc c ur re d be fo re Ha

rd a g e un de rt oo k to e xec ute on his judgment in the fr aud u l en t co nvey ance action, which e x ecution occ urre d in the summer of 1996. I t was not until later in 1996 that the first mortg ag e on the pr operty was for eclose d and the pr op e rt y so ld t o WB L

I I Re a l E state L td

. P art nersh ip f or $9 ,0 50 ,0 00 .0 0. F ar f

ro m a tte mpt ing to mit ig a t e h i s d a m a g e s f

o l l o w i n g t h e M e tr i c b r e a c h o f t h e M ar c h 2 3
, 1 9 9 3 s e t t l e m e n ta g r e e me nt, Nelson emba

rked upon a

studied campa ign to incr ease his damag es. He was not content with the be ne fi t of his ba rg a in andc on se qu e nti a l dama g e s.
Despite the se eming ly

endless thicket of

paper , this ca s e i s , afte r all, a br eac h of contra ct action in which a ll parties ag ree that California substantive law g overns. California Civil C ode

se c tio n 3 30 7 ( 19 97 ) pro vi de s: “ Breac h of agree m ent to purchase r eal estat e. The de triment

cause d by the bre ach of

an ag reem en t t o p urcha se an e state in rea l property is deemed to be the excess, if any , of the a mount which would have be en d u e t o t h e s el ler unde r the c ontrac t over the value of the property to him or her, conseque ntial damag es according to proof, and inter est.” Such damag es are g ener ally determined as of the date of the br eac h of the c ontrac t. Roye r v. Carter , 233 P.2d 539, 542-43 (Cal. 1951).

The fir st issue asserted by Nelson on appe al is that “[t] he Tria l Court erre d in failing to allow

re c ov e ry of da ma g e s bas e d upo n th e va lue of the la nda s o f the date Me tr ic ’s ob str uc tio n o f the sa le of the L and ce ased.”

Nelson then asserts that Me tric, from and a fter thesettlement ag ree ment of Mar ch 23, 1993

u n t i l t h e H ar d a g e l i e n e x e c u t i o n s a l e o f J u l y 2 4
, 1 9 9 6
, o b s tru c t e d t h e s a l e o f t h e N a s h v i l l e p r o p e r t y. I f such is in fac t true, an e x ception to the California “bene fit of the bar g ain” r ule that damag es ar e determined as of the date of brea ch of contra ct allows for c alculation of suc h damag es at a later date.-31-

Under section 3307, the va lue of the pr operty to the seller is or dinarily the marke t va lue of th e p ro p er t yat the date of the bre ach. Roye r v. Carter , 2 33 P.2 d at 55 0. Th is r ule ne c e ssa

ri ly presuppose s that the vendor is fr ee to use or dispose of the property on that date. Ac cording ly , if the vendee has interfe red with the vendor’ s fre edom in this respe ct by reta ining possession or asserting

an interest in the property , the vendor may include any additional damag es cause d t h er eb yi n t he amount nece ssary

to give h i m t he bene fit of his barg ain. ( See

. Id. ; Ho ney v . H e nr y ’s Fr an c his e Leasing Corp. , 415 P.2d 833, 836 (Cal.1966)).

Un d er this s ame e x ception to the g ener al rule, it is held that a ve ndor “ma y rec over a s
c on se qu e nti a l dama g e s a ny dim inu tio n in va lue a t th e tim e of tr ia l pro vid ing it ca n est abli sh that it diligently attempted to re sell the property from the date of brea ch forwa rd and that the lis pende ns rende red the property

unmarke table.” As ka r i v. R & R Land Co. , 179 Cal.App.3d 1101, 1110 (C a l.C t.A pp . 1 98 6) ; see also Spurgeon v . Drumheller , 174 Cal.App.3d 659, 664 (Cal.Ct.App. 1985).

Th e tr ou ble wi th N e lso n’ s a rg ume nt is tha t one is hard pu t in thi s r e c or d to de te rm ine e xac tly when the obstruc tionist tactics of Metric cea sed and those of Nelson himself beg an. What is clear is that at l east as early as Decembe r 7, 1995 it was the obstruction of Nelson, and not that of Me tric, that preve nted consummation of the sa le.

Th ro ug ho ut a ll the se pr oc e e din g s th e on ly “ sa le ” e ve r a lle g e d o r m e nti on e d b y a ny bo dy is the proposed sale by Nelson t o Metric of the Nashville prope rty

in conformity

with the Marc h 23, 1993 California settlement. Indeed a ll of the discussions a bout “ interfe renc e” or

“obstruction” on the part of any

body must necessa

rily have been lim ited to this particula r sale since Ne lson made no

e ff ort to a me ndhis Th ir d Pa

rt y Complaint

in the c a se a t ba

r to all e g e int e rf

e re nc e wi th oth e r e ff

orts at s al e o f t h e p ro p er t y

u n t i l Ap ri l o f 2 0 0 2
, n ea rl y s i x y ea rs af

t ert h e e x ec u t i o n s al e u n d ert h e H ar d age lien.

Whil e re po rt e d d e c isi on s g e ne ra lly re fe r to the “ du ty ” of

a plaint if f t o mi tig a te his da ma g e s, it i s mo re a c c ur a te to s ta te the ru le in t e rm s o f c a us a tio n. Pr of e sso r C or bin sa y s:

I t is no t inf

re qu e ntl y sa id that it

is the “ du ty ” of

the inj ur e d p art y

to m iti g a te his damag es so far as that can be done by rea sonable eff ort on his part. Since ther e is n o ju dic ia l pe na lty , h ow e ve r, fo r h is f a ilu re to m ake thi s e ff

ort, i t is no t de sir able to s a y that he is u nd e r a

“ du ty .” Hi s r e c ov e ry a g a ins t the de fe nd a nt wil l be e xac tly the sa me wh e the r h e make s th e e ff ort a ndmit ig a te s h is l os s, or no t; but if he fails to

make the re a so na

ble e ff ort, w ith th e res ult th a t hi s in jury is g re a te r tha n it

wo uld oth e rw ise ha ve been
, he c a nn ot r e c ov e r j ud g me nt f or the a mou nt o f this a vo ida ble and unnec essary

incre ase. The law does not pe nalize his ina ct i o n ; it merely does

no thi ng to c omp e ns a te him fo r the los s th a t he he lpe d to c a us e by no t a vo idi ng it.

Arthur Linton Corbin, C orbin on Contracts, Vol. 11 § 1039, (interim ed. 1979). The Restate ment of Contrac ts adopts and expands on the rea soning of Professor Corbin:

d. I t is no t in fr e qu e ntl y

sa id that it

is the “ du ty ” of

the in ju re d p art y

to mitigate damag es so far as that can be done by rea sonable eff ort on his part. Since-32-

his le g a l posi tio n is in no way a ff e c te d b y his failu re to m ake thi s e ff ort, h ow e ve r, it is not desirable to say

that he is under a

“duty .” His remedy will be exactly the same, wh et h er h e makes the eff ort and a voids harm or not. B ut if he fa ils to m ake the

rea sonable e ffort with the result that his ha rm is g reater than it would otherw ise have been, he cannot g et judg ment for the amount of this avoidable and unne cessary inc re a se . T he la w d oe s n ot p e na lize his ina c tio n; i t me re ly do es no thi ng to compensate him for the ha rm that a re asonable man i n his place w ould have a voided.

Restatement of Contra cts, § 336(d) ( 1932).

I n Ca lif ornia it h a s b e e n h e ld:

Ty pically , the rule of

mitigation of damag es come s into play when the e vent producing injury

or d am age has alre ady occur red a nd it then has bec ome the obligation of the injured or damag ed party to a void c ontinuing or enhanc ed dama g es thr ou g h re a so na

ble e ff orts. F or e xamp le , a lan do wn e r sho uld a vo id the c e rt a in l os s of tree s and crops by

rea sonably

irrig ating the land while a dispute over the c ontrac t price of water is re solved. ( Henrici v . South Feather Land, Etc., Co. (1 91 8) , 1 77 Ca l. 44 2, 17 0 P. 11 35 ). An ow ne r’ s re c ov e ry fo r de privatio n of use of a da ma g e d v e hic le is lim ited to the time rea sonably require d for making the nece ssary repa irs. ( Va le nc ia v. Shell Oil Co. , 2 3 Ca l.2 d at p. 84 4, 14 7 P. 2d55 8) . O ne ha s a n o bli g a tio n to a vo id

an unwa rra nted enha nceme nt of damag es ‘throug h passive indi ffe renc e or stubborn insistence upon a conce ived l eg al right . . . ’ ( Gre e n v . S mi th , (1968) 261 Cal.App.2d 392, 398-99, 67 Cal.Rptr. 796).

Valle De O ro Bank v. G amboa , 3 2 Ca l.R ptr .2 d 3 29, 33 2 (C al. Ct. Ap p. 19 94 ). Ca lif ornia c le arl y
rec og nizes that proxi mate causation of the claimed da mag es is the controlling consideration. “The

e sse nc e of

the ru le de nying re c ov e ry fo r l os se s w hic h cou ld hav e be e n p re ve nte d b y re a so na ble

e ff orts a nde xpe nd itu re s o f p la int if f i s th a t hi s c on du c t r a the r tha n th a t of de fe nd a nts pr oximate ly

cause d such losses.” Valencia v . Shell Oil Co. , 147 P.2d 558, 561 (Cal. 1944).

Th e e le me nt of pr oximate c a us a tio n, a s it re la te s to mit ig a tio n o f d a ma g e s, app lie s in bo th tort and contra ct, and the rule is stated i n the context of employ er- employ ee r elations by the Court of Appe als of California :

The issue ha s also been di s cu s s ed in terms of a duty on the part of an employ ee to minimiz e his loss. Thus J udg e Cardozo stated:

“ ‘T he serva nt i s f

re e to a c c e pt e mpl oyme nt o r r e je c t it a c c or din g to h is

uncensor ed plea sure. What is m eant by the supposed duty

is merely this: That if he

unrea sonably

reje ct, he will not be hea rd to say that the loss of wag es fr om then on shall be dee med the jura l conseque nce of the ea rlier discharg e. He has broke n the chain of causatio n , and los s resulting to him thereaf ter is suffe red throug h his own act.’ (Mc Cle lla nd

v . Cl im ax Ho sie ry Mi lls (1930) 252 N.Y. 347, 359, 169 N.E. 605,T h e mea s u r e of da mag es a ppl i ca bl e i n t h i s c as e i s pr ov i ded by Cal i for n i a Ci v i l Code s ec t i on 3307 a n d n ot 5

b y C a lif o rn ia C ivil C o d e se c tio n 3 3 0 0 . L ike se c tio n 3 3 0 6 is a sp e c ia l statu te c o n c e rn ing b re a c h o f an a g re e m e n t t o

co nvey real pro p ert y , s o s ect i o n 33 0 7 i s a special st at ut e p rovidi ng the m easure o f d am ages f o r b reach o f an agreem ent
to b u y re a l p ro p e rty. T h e sp e c ia l sta tute p re v a ils o v e r t h e g e n e ra l c o n tra c t b re a c h sta tute . C a l.C iv.C o d e § 3 3 0 0 ; Cr ag Lum berCo. v

. Cr of

oot , 30 1 P

. 2 d 95 2
, 96 6

- 6 7 (Ca l

. C t

. A p p

. 19 5 6 ).

T he “ b enef

i t of t he b argai n” rul e i n C al i fo rni a i s res t ri ct ed a nd
, de p end i ng on cha nges i n val ue b et ween t he 6

d a te o f t h e c o n ta c t an d the d a te o f t h e b re a c h the re o f, c a n b e il lus o ry. See Spur geon , 220 Cal

. Rpt r

. 195.

-33- 609, concur

ring opinion.)” ( Pa rk e r v. T we nti e th Ce ntu ry -F

ox Fi lm Cor p. , s up ra , at p. 185, fn. 1, 89 Cal.Rptr. at p. 743, 474 P.2d at p. 695.)

Ca li fo r n ia S c h

. E

m p loy e e s A s s ’ n v

. P e r

s

. Com ’n , 106 Cal.Rptr. 283, 288 (Cal.Ct. App. 1973). Further, the r

ule of mitigation appl i es with equa l force whether damag es ar e ca lculated unde r California Civil Code section 3300 or California Civil Code s ec t i o n 3 3 0 7. Brandon & Tibbs v. Kevorkian , 277 Cal.Rptr. 40 (Cal. 1990). 5

Try ing to bring into foc us the eve r cha ng ing a ssertions of Ne lson as to a measur e of da mag es is like tracking a chameleon throug h the Shenandoah Valley in autumn.

Ap pa re ntl y c on c e ivi ng that hi s “ be ne fi t of the ba rg a in” da ma g e s wo uld be min ima l du e to the hig hly

lever ag ed fina ncial structure u n d erlying the Nashville prope rty and the inhibitions on marke tabilitycause d by

the Har dag e lis pe ndens lien, Nelson disavowed the “bene fit of the bar g ain” rule and sought specia l damag es base d on other c onsiderations. All of these specia l damag es 6

assertions a nd the furthe r asse rtion that the As k ar i e xce pti on to C a lif

ornia ’s be ne fi t of

the ba rg a in rule a pplies so as to ext end diminution in value from the time of brea ch to the time of trial a re ba sed upon assumptions of fac t that are not borne out by the re cord. F irst and fore most, it is Nelson, not Metric, that is r esponsible for the exis tence of the Har dag e lien lis pe ndens in the first place . I t was his 1986 convey ance from Na shville Residence Corpor ation t o Na shville L odg ing Company that inhibited the marketa

bilityof the Na shville property and constituted the Na shville tit le problem.

S econ dl y , he a sse rt s th at Me tr ic wa s o bli g a te d to pa y the Ha rd a g e lie n o n th e Na sh vil le property there by ex o n er at i ng Nelson. Metric has no such oblig ation as it was not a pa rty to the alleg ed fr audulent conve y ance and did not as sume, contra ctually or otherw ise, responsibility for pa y men t of th e Ha

rd a g e lie n. Th e e nti re tr a ns a c tio n w a s p ur e ly c on tr a c tua l w ith no e qu ita ble obligation to Nelson. The land, of course , was encumbe red by the Har dag e lien, and no ac tion by Metric would ha ve be en ef fe ctive to insulate the land f rom execution to satisfy

the Har dag e lien. This is clearly

in keeping with rules stated In re Estate of Vince nt , 98 S.W .3d 146 (Tenn. 2003)

. Whil e it is true, as it was in Vincent
, that as a prac tical matter Metric might be compelled to satisfy the Har dag e lien in order

to keep f rom losing its own investment, this does not mean that Metric was under a ny obligation, leg al or otherw ise, to Nelson. The la nd stands betwee n the Har dag e lien and Nelson, but it is Nelson, not Metric, who would be liable for the Har dag e judgme nt ove r and a bove the amount re alized from the sale of the prope rt y o n l i en foreclosure. Hu sse y v . R ag sd

ale , 831 S.W .2d 279 (Tenn. 1992)

.-34-

Thirdly , the As k

ar i e xce pti on to the Ca lif ornia “ be ne fi t of the ba

rg a in” ru le on ly

app lie s if Metric ha s interfe red with N elson’s ef forts to rese ll the property and Ne lson has diligently attempted to do so afte r t he date of t he breac h. The recor d clea rly shows in this case that not only did he make no diligent e ffort to resell the prope rty , from at lea st Dece mber 7, 1995 forwa rd, he did eve rything he possibly

could to frustrate the sale to Metric under the Marc h 23, 1993 Califo rn i a S ettlement Ag re e me nt, that pr op os e d s a le be ing the on ly sa le on the ho ri zon . It is a lso we ll t o n ote that th e lis pendens in the c ase at bar did not result fr om any action by Metric, but rather fr om the ac t ion of Har dag e in attempting to set aside a f raudule nt convey ance made by Nelson.

Th e c a se a t ba

r s tart e d o n Jun e 23 , 1 99 4 w he n H ard a g e fi le d th is a c tio n ag a ins t N e lso n to subject the land unde r the Na shville Marriott Residence I nn to a judi cially supervised sale i n order to satisfy the Har dag e fe dera l court judg ment ag ainst Nelson. On May 5, 1995, Nelson re sponded to the Complai nt andfi le d a Th ir d Pa

rt y Complaint

a g a ins t Me tr ic . T he ini tia l T hir d Pa rt y Complaint sought a judg ment ag ainst Metric for t h e co s t o f defending the fra udulent convey ance action then pe nding be fore Part I I I of t he C hance ry Court of Davidson Countyin case no. 92-3086- I I I

. I t fu rt h er s o u gh t j u d gm en t aga i n s t M et ri c f o r t h e c o s to f d ef

en d i n g t h e p re s en tac t i o n b y Ha rd age toge ther with indemnification f or any loss r esulting from the claims of Har dag e. These claims wer e
corr ectly dismiss ed by

the cha ncellor since Metric owe d no duty to Nelson to pay the Har dag e lien

or to i nd e mni fy

Ne lso n f or a ny los s r e su lti ng fr om the c la ims of Ha rd a g e . M e tr ic fu rthe r h a d n o d uty to defe nd a fr audulent conve y ance action re lative to the 1986 dee d, to which it was not a pa rty

.
All of the dama g es soug ht in the orig inal third party co m p l ai n t are premised upon the

err oneous assumption that Metric ha d some duty to N elson to satisfy Har dag e. When Metric ag ree d to take the pr operty

from Ne lson “as is,” it did not a ssume the Har dag e lien lis pendens, and Me tric’s

on ly du ty to e ith e r H ard a g e or

Ne lso n w a s to re fr a in f

ro m ac tin g in an y ma nn e r that w ou ld a dv e rs e ly aff ect the right of

Har dag e to subject the la nd to his li s pendens lien. This is the rule evidenc ed by In re Estate of Vince nt , 9 8 S. W.3 d 1 46 , a ndthe fa c t th a t se lf -p re se rv a tio n may

ha ve fo rc e d M e tr ic to choose be tween pay ing the Har dag e lien or losing its own investment is immaterial to any issue betwee n Metric a nd Nelson.

On J anuary 9, 1998, Nelson ame nded his Third Party Complaint t o alleg e that he w as entitled to:

5. A j udg ment ag ainst Metric for t he cost, including attorney ’s fe es, of thi s a c tio n a g a ins t Me tr ic a ndof a ny a c tio n r e la te d to the c la ims or a c tio ns of OR L ag ainst 2300 Elm Hill or NL C (including w ithout li mitation the arre st of Kenne th E. Ne lso n ( “ Ne lson”) fo r alle g e dly hin de ri ng a

se c ur e d c re dit or

a ndNe lso n’ s c la ims ag ainst Eug ene N . Bulso, Jr.) or of 2300 E l m Hi l l or NL C ag ainst Metric or any person r elated to Me tric; 6. A judg ment ag ainst Metric fo r t h e v alue of the land once owned by N LC ( t h e “ La n d ” ) w h i c h h a s b e e n l o s tt o O R L; 7. A j ud g me nt a g a ins t Me tr ic fo r the va lue of NL C’ s judg me nt i n Ca se NO. 92-1615 in the U nited States District Court for the District of Columbia;-35- 8. A jud g me nt ag a ins t Metri c fo r the c os t of Ne lso n’ s time a nde ff orts on behalf of NCL in this l itigation and othe r l i t i g ation which has r esulted fr om Me tr ic ’s br e a c h o f s e ttl e me nt a g re e me nt; 9. A judg ment ag ainst Metric for the loss of rents on the L and; 10. A judg ment ag ainst Metric for the l oss of pay ments on a note in the

o r i g i n a l p r i n c i p a l a m o u n to f $ 9
, 2 5 0
, 0 0 0

. 0 0 o n w h i c h M e tr i c i s t h e p a y o r a n d N LC is the pay ee; 11. A judg ment ag ainst Metric for such ot her consequential damag es as
ma y be pr ov e n at tria l; 12

. A j ud g me nt a g a ins t Me tr ic fo r the de c re a se in the va lue of the int e re st in N L C of

23 00 El m H ill Pik e , Inc .’ s; 13

. A j ud g me nt a g a ins t Me tr ic in t he a mou nt o f M e tr ic’s ju dg me nt i n Case No. 96- 1405-I I I

in the Chance ry

Court for Da vidson County , Tenne ssee; 14. A judgme nt a g ainst Metric for prejudg ment interest on al l l o s s es suffe red by

third-party

plaintiffs; . . . .

None of these a lleg ed dama g es we re prox imately cause d by any action of Me tric but rathe r by the ac tions of Nelson, at least from and afte r Dec ember 7, 1995, in r efusing to c onsummate the Marc h 2 3
, 1 9 9 3 Ca li f

o r n ia Se tt le me n t A g r e e me n t o r o th e r w is e ma rk e t th e p r o p e r ty

. I t maybe log ic a lly a ssu me d th a t th e mark e ta bil ity of the pr op e rt y

wa s se ve re ly

inh ibi te d b y

the Ha rd a g e lis pendens lien a nd the fra

udulent convey ance action, but Metric w as n ei t h er obligated under the settlement contra ct to discharg e the Ha rdag e lien nor to de fend the fraudulent convey ance action.

I t was on this basis that on Dece mber 10, 1998 the tria l court g rante d Metric’ s M o t i on for Partial Summary J udg ment dismiss ing Nelson’s claim for the alleg ed “loss of the land and attorney ’s fee s require d to defe nd the claim of H arda g e.” With its primar y cl ai m for da mag es, all pre mised upon the erroneous assumpti on that Metric ha d a duty to Nelson to discharg e the Ha rdag e liens and defe nd the fra

udulent convey ance actions, having been dismissed by the cha ncellor, N elson asserted, on Fe bruary

15, 1999, a claim of damag es “for loss of the bene fit of the bar g ain” in the a mount of 1. 6 mi lli on do lla

rs . T his c la im w a s ba se d on the a sse rt ion that th e va lue of the la nda s o f the tim e of the for eclosure of the Ha rdag e lis pendens lien wa s $100,000.00 or 1.6 m illion dol lars less than the fa ce va lue of the non- rec ourse note c ontemplated in the Mar ch 23, 1993 settlement.

On April 5, 2002, Ne lson aga i n m o v ed to amend his Complaint to assert that Metric ha d restric ted, interfe red w ith, impaired and impeded the ability of Ne lson to sell the land. This Moti on also soug ht to amend t he Complaint to alleg e that dama g es for the bene fit of the bar g ain should be computed not as of the date of the bre ach but, r ather , as the date of the tria l. This Motion to Amend was de nied by

the court on May

29, 2002.

At this stage the case was rea dy for appeal ex cept for t he continuing di spute as to whethe r the As k ar i exception to the benef it of the barg ain rule was applicable so as t o extend the diminution of va lue date fr om the date of the a lle g e d b re a c h to the da te of tr ia l. Wi th the con curr ence of a ll pa rt ie s, the tr ia l c ou rt

e nte re d th e fo llo wi ng Or de r o n Se pte mbe r 3 , 2 00 2:-36- Th is m a tte r c ome s b e fo re the Cou rt up on agreement of

the pa rt ie s, NASHVILLE L ODGING COMPANY (“ NL C”), GP CREDI T CO., LL C ( “GP Cre d it ” ) a n d M E T RI C P A RT N E RS G RO WT H SU I T E I N V E ST O RS
, L

. P., (“ Me tr ic ” ) a s e vid e nc e d b y the sig nat ures of the ir

re sp e c tiv e c ou ns e l be low . It is
, the re fo re , o rd e re d a nda dju dg e d a s f oll ow s: 1. Third-P artyPlaintiffs, GP Credit and NL C hereby irrevoc ably

and unconditionally

waive and relinquish any and all rema ining c laims that have not bee n
a djud ic a te d p re vio us ly

by thi s Co urt a ndthat c ou ld b e a sse rt e d at th e tr ia l of thi s
c a se , in c lud ing , b ut n ot l imi te d to , th e ir c la im f or los s o f b e nef

it o f the ba

rg a in da ma g e s me a su re d a s of the date of br e a c h of the Ag re e me nt b y Me tr ic . T hir d- Part y P l ai n t i ffs re s er v e f

o r a p p ea l al l cl ai m s p re v i o u s l y d i s m i s s ed b y

t h e C o u rt , i n cl u d i n g, but not limit ed to, claims for the loss of benefit of t he barg ain damag es mea sured a s of the date of

tr ia l. 2. I n li g ht o f the fo re g oin g wai ve r o f the on ly re ma ini ng iss ue s a t tria l in thi s matter, this Court’s order s previously enter ed in this case a

re he reby rende red f

inal in acc ordanc e with T.R.Civ.P . 54.

For rea sons alrea dy

stated, the As k

ar i e xce pti on is n ot a

pp lic able , a nd , u nd e r the Ca lif or nia benef it of the barg ain rule, diminution in value must be assessed a s o f t h e d at e of the bre ach of contra ct and not the date of trial. Nelson having waived this issue and the rec ord being devoid of any proof a s to such measure of dama g es, the action of the trial court on this iss ue will be af firmed.

The rema inder of the Nelson ca se on appe al is an anti-c limax . Much ef fort is expended by

a l l p ar t i e s r e l a t i v e t o t h e M e tr i c s tr a t e g y m e m o d a t e d S e p t e m b e r

1 8
, 1 9 9 5

. T h e tr i a l c o u r t , i n its order of May 22, 2002, held that the strate g y memo was privileg ed under the attorney work produc t rule a nd had bee n inadvertently disclosed. It further

held that the attorney ’s m emos “ar e not re levant t o a n y i s s u e t o b e tr i e d i n t h i s c a s e

. ” T h e tr i a l c o u rtw a s c o rr e c ti n i t s f i n d i n g a s t o r e l e v a n c y. Whether the Metric strateg y memo was privilege d and whether or not the privileg e had be en wa ived by Metric a re insig nificant to th e i s s u es re m aining befor e the Court. The strateg y memo was not prepa red until September 18, 1995, mor e than a y ear afte r Metric had brea ched the Marc h 23, 1993 California Settlement Ag ree ment. By the time of the pre paration of the strateg y memo, it was Nelson who h ad em b arked upon the path of obstruc tion of the settlement, not Metric. As N elson state d in his Ma y

24 , 1 99 5 te sti mon y

be fo re Judg e Cahil l:

T H E CO U RT : THAT’ S WHAT MR. B A K E R STA RTED O F F SA Y I N G I S T H A T H E B E L I E V E S M R. N E L SO N I S N O T G O I N G TO GO THROUGH WI TH THE SETTL EMENT.

. . . .

THE COURT: MR. NE L SON WAS T HE R E

. W HA T DO YOU HA VE TO SAY MR. NEL SON?

MR. NEL SON: THI S I S KEN NEL SON. MY UNDERSTANDI

NG I S TH AT METRI C REF USED TO B UY TH E LAND THE REB Y B REA CH I NGTH E A GR EE ME NT , A ND , A S I-37-

UNDERSTAND I T - - YOU KNOW, I ’M NOT A L AWYER - - T HA T M EANS THAT PERFORMANCE OF THE OTH ER PARTI ES I S EXCUSED.

Finally , Nelson ar g ues that the trial c ourt err ed in denying l ea v e t o amend the Complaint

a lle g ing int e rf

e re nc e wi th Nel so n’ s a

bil ity to s e ll the la ndin N a sh vil le a ndse e kin g to ame ndhis alleg ations of damag es. When the court denied this application for leave to amend it held:

Ba sed upon the plea dings, a rg ument of counsel, and the r ecor d in this cause, the Court finds that the motion should be denied. I n deny ing the motion, the Court has consider ed the various fa ctors re levant to Plaintiffs’ motion, as outlined by Tenn. R. Civ. P . 15.01 and ca ses dec ided under it. The Court finds that Plaintiffs’ Motion to Amend, filed seve n y ear s after the filing of the Third-Party Amended Complaint in this case and after the completion of di scovery , is untimely . The Court finds that

a llo wi ng the Pla int if

fs to am e nd the ir Complaint a t this time wo uld be pr e jud ic ia l to Me tr ic , an d co uld po te nti a lly re qu ir e a re sc he du lin g of the tr ia l of the c a se , c ur re ntl y schedule d to beg in on September 16. The Court further finds that the pr oposed amendment would be futile. The C o u rt notes that the new alleg ations are based la rg ely , if not exclusively , upon a series of memos prepa

red by Metric’ s counsel y ear s after the settlement ag ree ment

a t is su e in this c a se

. Th e Cou rt fi nd s tha t the me mos are no t r e le va nt t o th e c la ims

as cur rently pled, and would not be rele vant even if the proposed amendment wer e allowed. The Court also finds that the pre judicial eff

ect of the memos outweig hs any p r o b a t i v e v a l u e , r e n d e r i n g t h e m e m o s i n a d m i s s i b l e u n d e r T e n n

. R

. E v

. 4 0 3

. F i n a l l y, the Court finds that allowing the proposed amendment would be contra ry to previous

ru lin g s o f t

he Cou rt

. F or a ll o f the se re a so ns , th e mot ion of Th ir d- pa rt y Pla int if fs Na sh vi lle L od g ing Compa ny

a ndGP Cr e dit Co.
, LL C to a me nd the Compa ri ng is a c c or din g ly DENIED.

The trial c ourt obviously

did not abuse its disc retion in de ny ing this be lated application by Nelson to once ag ain amend his Complaint. March v . Levine , 115 S.W .2d 892 (Tenn.Ct.App. 2003).

CONCL USI ON

I t is a sse rt e d by bo th pa

rt ie s on app e a l th a t a

nu mbe r o f the Or de rs in the tr ia l c ou rt in this p r o t r a c t e d l i t i g a t i o n ar e i n c o n s i s t e n tw i t h e a c h o t h e r a n d p e rh ap s c o n tr a d i c t o r y t o e a c h o t h e r

. It would be diffic ult indeed for any trial court to handle this liti g ation without making some mistakes and fa lling into err or. The result re ache d by the trial court is corre ct, and the a lleg ed er rors a sserted by bo th p art ie s a

re ha rm le ss.

The a lpha and omeg a of a ll the problems in this ca s e wa s Nelson’s convey ance of the Na sh vil le re a l e state in 1 98 6. Me tr ic
, the re a ft e r, e nte re d int o a c on tr a c t wi th N e lso n in Ca lif or nia

a nd so on a ft e rw ard s re a lize d tha t it ha d mad e a mis take . Met ri c de lib e rate ly

br e a c he d th e Ca lif

or nia Settlement Ag ree ment and, in the norma l course of events, would thus be r equire d to suffer the

c on se qu e nc e s. Ne lso n w a s n ot c on te nt w ith the me a su re of da ma g e s a va ila

ble to r e me dy

the Me tr ic-38-

brea ch and t h er ea ft er e mbarke d upon a cour se of obstruc tion. He waive d his proper me asure of da ma g e s a ndthe n s ou g ht d a ma g e s b a se d u po n th e e rr on e ou s a ssu mpt ion that Me tr ic ow e d h im a duty to discharg e the Ha

rdag e liens. I n the cour se of his conduct he soug ht to exacerbate ra ther than mitigate his da mag es. Metric has no duty to Nelson to discharg e the Har d age l i en , and all the damag es soug ht by

Nelson ar e the pr ox imate re sult of his own conduct and not that of Me tric.

Th e jud g me nt o f the tr ial cou rt is i n a ll r e sp e c ts a ff

ir me d, a ndc os ts a

re a sse sse d a g a ins t N a s h v i l l e L o d g i n g C o m p a n y.

___________________________________ WI LL I AM B. CAIN, J UDGE