UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

GREEN ROAD INVESTMENTS #2, LLC,

et al.,

Plaintiffs,

Case No. 09-13335

v. Hon. Gerald E. Rosen

CWCAPITAL ASSET MANAGEMENT, LLC,

et al.,

Defendants.

______________________________/

OPINION AND ORDER DENYING

PLAINTIFFS’ MOTION FOR RELEASE OF FUNDS

At a session of said Court, held in

the U.S. Courthouse, Detroit, Michigan

on October 22, 2009 

PRESENT: Honorable Gerald E. Rosen

Chief Judge, United States District Court

Plaintiffs Green Road Investments #2, LLC, Greenfield Lincoln Investments #2,

LLC, and Victor Park Investments, LLC commenced this suit in state court on August 5,

2009, asserting state-law contract claims arising from certain loans made by Defendant

Greenwich Capital Financial Products, Inc. (“Greenwich”) to the Plaintiff firms in early

2007 to refinance certain commercial properties located in Ann Arbor, Livonia, and Oak

Park. Defendants removed the case to this Court on August 24, 2009, citing diversity of

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To be precise, three of the four Defendants — CWCapital Asset Management, LLC

(“CWCapital”), Wells Fargo Bank, NA (“Wells Fargo”), and Wachovia Bank, NA (“Wachovia”)

filed a notice of removal. Under a stipulated order entered on September 3, 2009 and a

subsequent order entered on September 30, 2009, the fourth Defendant, Greenwich, need not

respond to the complaint until October 23, 2009. Greenwich nonetheless has filed a brief

response to Plaintiffs’ pending motion.

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citizenship among the parties.1

Prior to removal, Plaintiffs filed an emergency motion for release of funds,

requesting that Defendants be directed to release approximately $457,000 from an escrow

account into which all rent and other monies received from tenants are being paid. In

essence, this is the relief sought in Count III (breach of covenant of good faith and fair

dealing) and Count IV (breach of contract) of Plaintiffs’ complaint. For this and other

reasons, Defendants argue that Plaintiffs’ motion should be denied.

On September 23, 2009, the Court met with counsel for the parties to address

Plaintiffs’ motion and other matters in this case. At the Court’s urging, and with the

agreement of counsel, the parties met and conferred in an effort to resolve their dispute,

but they have reported back to the Court that this effort was unsuccessful. Accordingly,

the Court now proceeds to rule on Plaintiffs’ motion. For the reasons set forth below, the

Court finds that Plaintiffs have failed to establish a basis for awarding the preliminary

relief sought in their motion.

I. FACTUAL BACKGROUND

In February of 2007, Plaintiff Green Road Investments #2, LLC (“Green Road”)

borrowed $40 million from Defendant Greenwich, with this loan secured by a mortgage

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Bank of America has not been named as a defendant, nor has the trust in which the loans

are currently being held. Instead, Plaintiffs named the original trustee, Wells Fargo, as a

defendant.

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on three commercial properties located on Green Road in Ann Arbor (the “Ann Arbor

Property”). At around the same time, Plaintiffs Greenfield Lincoln Investments #2, LLC

(“Greenfield Lincoln”) and Victor Park Investments, LLC (“Victor Park”) borrowed $28

million from Greenwich, with this loan secured by a mortgage on commercial properties

located in Livonia and Oak Park. The loan to Green Road was cross-defaulted and crosscollateralized with the loan to Greenfield Lincoln and Victor Park, meaning that a default

under one loan would be deemed a default under the other. These loans, in pertinent part,

are now held in a trust, with Bank of America currently serving as the trustee, Defendant

CWCapital acting as “special servicer” for the trustee, and Defendant Wachovia acting as

the “master servicer.”2

At the time the Green Road loan was made, the major tenants at the Ann Arbor

Property were Pfizer, the University of Michigan, Toyota, and Structural Dynamics

Research Corporation. Green Road alleges that it notified Greenwich prior to the

February 2007 closing on the Green Road loan that Pfizer planned to move all of its

operations out of Michigan, but that Greenwich nonetheless elected to proceed with the

closing. Under the terms of the loan agreement, the Ann Arbor Property tenants paid

their rent and other monies into a “lockbox” maintained at Fifth Third Bank, with Green

Road allegedly retaining control over these funds so long as it was not in default on its

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Defendant Greenwich sold its interest in the larger note to the above-cited trust, but

maintains its interest in the smaller note.

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loan obligations. The occurrence of certain events, however, triggered a “cash trap

condition,” under which the servicer of the loan, Wachovia, could take control of the

lockbox account and control the distribution of funds paid by tenants into the lockbox.

By letter dated May 25, 2007, Wachovia notified Fifth Third Bank that a “cash

trap condition” had occurred, evidently relying on the anticipated departure of Pfizer as a

basis for invoking this provision of the loan agreement. Plaintiffs question the validity of

this claim, alleging that “Greenwich and its servicer, Wachovia, were using the Cash

Trap Notice to put pressure on Green Road to modify the terms of the loan.” (Complaint

at ¶ 37.) Nonetheless, the parties negotiated and entered into a June 29, 2007 amendment

to the Green Road loan agreement (the “First Amendment”), under which Green Road

agreed to post letters of credit totaling up to $1.5 million that it could reclaim once it had

re-leased the Pfizer space. This amendment also severed the $40 million loan into two

promissory notes, in the amounts of $31,189,427 and $8,810,573, with both notes still

secured by the Ann Arbor Property.3

 Finally, the parties agreed under the First

Amendment to release the “cash trap condition.”

Upon execution of the First Amendment in June of 2007, Green Road evidently

provided $1.0 million of the $1.5 million in letters of credit referenced in this

amendment. According to the complaint, Green Road anticipated that it would be able to

re-lease the Pfizer space, and thus reclaim this initial $1.0 million letter of credit, because

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it was expected that Pfizer would be willing to agree to an early termination of its lease

and that the University of Michigan would likely lease this space. Yet, when Pfizer

declined to terminate its lease, Green Road could not satisfy the conditions for reclaiming

the $1.0 million letter of credit, and it also became obligated on December 31, 2007 to

post an additional $500,000 letter of credit. Although Green Road did not post this

additional letter of credit, it alleges that this apparently was acceptable to Defendants, as

none of them complained or issued a default notice until nearly a year later, in November

of 2008.

In December of 2008, Pfizer agreed to terminate its lease and paid Green Road a

lump sum of just over $1.4 million. Green Road placed these funds in a separate bank

account to be used to meet its obligations under the First Amendment, and it alleges that

Defendants did not object to this arrangement. Once Pfizer’s space became available,

Green Road re-let 56 percent of the former Pfizer premises to a new tenant, ForeSee

Results (“ForeSee”). According to Defendants, however, this tenant did not meet the

criteria for a “credit tenant” under the First Amendment, nor did the lender approve or

authorize the ForeSee lease as purportedly required under the First Amendment. 

Accordingly, in Defendants’ view, Green Road remained obligated to post the additional

$500,000 letter of credit that was due in December of 2007, and its failure to do so was

an “event of default” under the First Amendment. Defendants further allege that Green

Road was obligated under the First Amendment to pay over to the lender the $1.4 million

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A default notice also was sent to Greenfield Lincoln and Victor Park, citing the crossdefault provisions of the loan agreements executed by these Plaintiffs.

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termination payment it received from Pfizer.

In February of 2009, Wachovia sent a default notice to Green Road, citing its

failure to post the additional $500,000 letter of credit back in December of 2007.4

 It also

sent a notice advising Green Road that the loan would henceforth be serviced by

Defendant CWCapital. CWCapital, in turn, notified Fifth Third Bank, as custodian of the

lockbox account into which tenant payments were being made, that it was exercising its

right to control disbursements from the lockbox account, and that Green Road could no

longer access the lockbox. Green Road alleges that CWCapital “has a self-interest in

driving Green Road into default,” (Complaint at ¶ 72), so that it can exercise an option to

purchase the defaulted loan at a discounted price, and it further alleges that CWCapital

has unreasonably and improperly refused to release certain funds from the lockbox

account even though “no default actually exists.” (Id. at ¶ 75.) In particular, Green Road

cites CWCapital’s refusal to release roughly $457,000 from the lockbox account to

reimburse Green Road for amounts it has spent for tenant improvements and other

charges, and it alleges that this refusal has impaired its ability to conduct its business and

attract new tenants. In Counts III and IV of their complaint, Plaintiffs seek damages as a

result of Defendants’ refusal to release this sum from the lockbox account, and they seek

through their present motion to secure the immediate release of these funds from the

account while this litigation remains ongoing.

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Not surprisingly, Defendants dispute certain of these facts. Most notably, they

contend: (i) that because they did not approve the ForeSee lease, they are not obligated

to reimburse the $457,000 in tenant improvements and leasing commissions that Green

Road has incurred in connection with this tenancy; (ii) that Green Road was properly

declared to be in default under the First Amendment; (iii) that, in light of this default, the

lender has sole and absolute discretion over the disbursement of funds from the lockbox

account; and (iv) that even if the lender elected to exercise its discretion and disburse

funds from the lockbox account, it could not be required to make any payments to Green

Road, but instead is authorized under the underlying loan agreement and First

Amendment to pay monies directly to contractors, suppliers, and the like. More

generally, Defendants maintain that it would be unfair to release funds to Plaintiffs from

the lockbox account when, in their view, Plaintiffs presently owe them (i) the additional

$500,000 letter of credit that should have been posted back in December of 2007, and (ii)

the approximately $1.4 million Green Road received in December of 2008 upon the early

termination of Pfizer’s lease.

II. ANALYSIS

Under familiar standards, the Court must consider four factors in deciding whether

to award the preliminary relief sought by Plaintiffs: (i) whether Plaintiffs are likely to

prevail on the merits; (ii) whether Plaintiffs will suffer an irreparable injury if the

requested relief is not granted; (iii) whether the requested preliminary relief would cause

substantial harm to others; and (iv) whether the requested preliminary relief would be in

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the public interest. G & V Lounge, Inc. v. Michigan Liquor Control Comm’n, 23 F.3d

1071, 1076 (6th Cir. 1994). Notably, in their initial motion filed in state court, Plaintiffs

addressed none of these elements, nor did they otherwise identify any legal authority for

the preliminary relief they seek. Rather, they first addressed the relevant standards in a

reply brief they filed with this Court in support of their motion. As discussed below,

Plaintiffs have failed to satisfy these standards for the issuance of preliminary relief.

As to the first factor, likelihood of success on the merits, Plaintiffs do not truly

contest Defendants’ assertion that Green Road has defaulted on one or more of its

obligations under the parties’ initial loan agreement and the First Amendment. Rather,

they contend, in essence, (i) that Defendants effectively waived the requirement that

Plaintiffs post an additional $500,000 letter of credit by failing to complain about this

until nearly a year after the letter of credit was to have been posted; (ii) that, similarly,

Defendants waived any opportunity to object to the ForeSee tenancy by remaining silent

after being given notice of this tenancy; and (iii) that Green Road did not truly breach any

obligation to turn over the $1.4 million lease termination payment it received from Pfizer,

but instead has been applying a portion of this payment each month toward the monthly

rental payments it otherwise would have received from Pfizer, with Defendants’

knowledge and consent.

Similarly, while Plaintiffs seemingly acknowledge, at least for present purposes,

that Defendants have the discretionary authority to control the flow of funds from the

“lockbox” account, they nonetheless insist that Defendants must exercise this authority

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fairly and in good faith, and they cite Defendants’ purported failure to do so as a basis for

their claim in count III of the complaint that Defendants have breached an implied

covenant of good faith and fair dealing. In particular, they contend that Defendants have

“failed to articulate any good reason” for their refusal to release the $457,971 that

Plaintiffs seek in order to pay contractors and suppliers for improvements made to the

Ann Arbor Property. (Plaintiffs’ Reply Br. at 7.)

Under the present record, the Court cannot say that Plaintiffs have established a

likelihood that they will prevail on these various theories of liability. Plaintiffs do not

claim a straightforward contractual entitlement to relief, but instead advance theories of

waiver and lack of good faith in Defendants’ exercise of their contractual rights and

obligations. In support of these theories, Plaintiffs rely almost exclusively on the

arguments of counsel, and invite the Court to make preliminary findings of unfairness and

bad faith based upon a small handful of e-mail messages exchanged by the parties. Even

then, this slender record suggests only that the parties have attempted to negotiate a

resolution of their differences, and that Plaintiffs have been unwilling to accept certain

conditions that Defendants would impose upon the release of funds from the escrow

account. The Court cannot conclude from this record that Defendants’ actions and

negotiating positions are apparently unreasonable, such that Plaintiffs are likely to prevail

on their claim of a breach of an implied covenant of good faith and fair dealing.

Next, as to irreparable injury, Plaintiffs state that Defendants’ failure to release the

requested funds from the lockbox account has damaged their business relationships with

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vendors and impaired their ability to place new tenants in the Ann Arbor Property. Yet,

all of this seemingly would be remediable through monetary relief. Indeed, the proof that

Plaintiffs have an adequate remedy at law seemingly is provided through the very relief

they seek in the present motion — namely, a payment of money from the lockbox

account. Even accepting that Defendants’ withholding of these funds has harmed

Plaintiffs and placed them in a precarious financial position, they have failed to persuade

the Court that this injury is not compensable through an award of money damages.

More generally, Defendants correctly note the unusual nature of the relief sought

in Plaintiffs’ motion. Ordinarily, in a motion for preliminary injunctive relief, the moving

party seeks an order that would preserve the status quo in some respect while the

litigation is pending. Here, Plaintiffs do not seek to preserve the status quo, but instead

request essentially the very same relief they would obtain if they were to ultimately

prevail on counts III and IV of their complaint — namely, the release of roughly

$457,000 in funds which Defendants allegedly are withholding in breach of a purported

(albeit apparently only implied) contractual obligation. It is unusual, to say the least, to

seek a preliminary award of breach-of-contract damages at the outset of a case.

Plaintiffs’ only answer to this is that the relief they seek does not constitute the

entirety of the ultimate relief sought in their complaint. Rather, they explain that no

matter how the Court might rule on the present motion, there will remain issues to litigate

under the other counts of their complaint — e.g., whether they truly are in default under

the loan agreement and whether the contract between the parties should be reformed due

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to impossibility of performance or a mutual mistake. Be that as it may, it is clear that

Plaintiffs are seeking an award of preliminary relief that is materially indistinguishable

from the monetary relief they are requesting under counts III and IV of their complaint. 

Regardless of whether such an award would be permissible under the appropriate

circumstances, the Court finds such relief unwarranted in this case.

Next, as to harm to others, Defendants argue that the funds sought by Plaintiffs

will “never be seen again” if it turns out that Plaintiffs do not prevail on the relevant

counts of their complaint. In response, Plaintiffs state that they are willing to enter into a

stipulated order providing that the released funds may only be used to pay expenses for

their operation of the Ann Arbor Property. Plaintiffs also assert that others (i.e., vendors)

will be harmed if the funds are not released and the vendors are not paid, and that their

tenants also will be harmed if services to the properties are cut off for non-payment. On

balance, the Court finds that this factor tends to support the award of preliminary relief

sought by Plaintiffs.

Finally, as to the public interest, Defendants argue that no public interest is served

by awarding Plaintiffs the relief sought in their complaint before they have prevailed on

the merits of their claims. They further contend that no public interest is served by

forcing them to surrender their contractual right to control the funds in the lockbox

account in order to “bail out” a party that has failed to discharge its obligations under the

parties’ loan agreement. In response, Plaintiffs argue that the public interest “does not

favor mortgage defaults or vacant buildings,” (Plaintiffs’ Reply Br. at 9), particularly

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when these are caused by a lender that is exercising its power unreasonably. Under the

present record, the Court cannot say that this factor tips decisively one way or the other.

Consequently, having considered all four factors governing the decision whether to

award preliminary relief, the Court finds that the first two of these factors — likelihood of

success on the merits and irreparable harm — militate strongly against the award of relief

sought in Plaintiffs’ motion. While the remaining two factors are more equivocal, the

Court finds that these considerations do not outweigh or overcome Plaintiffs’ failure to

satisfy the first two elements of the standard for preliminary relief. Accordingly,

Plaintiffs’ motion must be denied.

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III. CONCLUSION

For the reasons set forth above,

NOW, THEREFORE, IT IS HEREBY ORDERED that Plaintiffs’ motion for

release of funds from escrow account (docket #12) is DENIED.

s/Gerald E. Rosen 

Chief Judge, United States District Court

Dated: October 22, 2009

I hereby certify that a copy of the foregoing document was served upon counsel of record

on October 22, 2009, by electronic and/or ordinary mail.

s/Ruth Brissaud 

Case Manager

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