Opinion ID: 2549401
Heading Depth: 1
Heading Rank: 4

Heading: Lingos Decide To Sell

Text: The Lingos eventually decided to end their business relationship with Saliba and Ksebe. In May 2003, they sought the advice of attorney Bob Thomas, who responded that the Motel property could be sold with the approval of two thirds of the members. Thomas also informed the Lingos that Article VII of the agreement provided a mechanism for members to sell their respective interests in Del Bay. The Lingos decided they could sell the property using the two thirds vote provision after obtaining Hoyt's approval. To that end, the Lingos offered to sell the Motel to JGT, [4] recognizing the benefit to JGT because the Motel produced cash and the sale would allow JGT to take advantage of a Section 1031 tax free exchange under the Internal Revenue Code. To take advantage of a tax deferral from a previously sold piece of property, JGT needed to purchase a replacement property by April 2004. The Lingos told the JGT board that they had decided to pay $6 million for the property. They provided JGT's controller with financial information so that he could prepare a valuation for the JGT board. JGT's controller prepared the business valuation for Del Bay on May 23, 2003. At no time did anyone send this information to Saliba or Ksebe. Contemporaneously, the Lingos called Hoyt and told him that they had decided to sell the Motel and that their attorney had advised them that they could sell the property with the vote of two thirds of the memberships' interests. The Lingos also told Hoyt they were working on a deal with JGT. On May 17, 2003, Hoyt received a prepared sales contract listing the Lingos and or their assignees as purchasers. On May 19, Ksebe found a sales contract for the Motel in her mailbox. After Ksebe telephoned Saliba, he discovered a copy of the same sales contract in his mailbox. Attached to the contract was a note that read, Mr. Hoyt has received a copy of the contract. Please call with questions. The contract listed the Lingos and or their assigns as purchasers, and indicated a purchase price of $6 million. The contract indicated that settlement shall be completed on or before June 30, 2003. The timing of the sale particularly disconcerted Saliba and Hoyt because they were scheduled to be out of town the week after they received the Lingos' proposal and it came near the peak earning season for the Motel. However, on May 27, Saliba and Ksebe met with Griffin to discuss their options and gave him the signed Articles of Partnership (which had been superseded by the LLC Operating Agreement) because they could not locate a copy of the Operating Agreement. [5] During the meeting, they advised Griffin that they did not want the property sold and also expressed their desire to purchase the property in the event they could not stop its sale. Accordingly, that same day, Griffin faxed a letter to Hoyt and the Lingos indicating Saliba and Ksebe's desire to purchase Hoyt's interest for $1 million and the Lingos' combined interest for $3 million. Ksebe and Saliba understood their offer to include assumption of the outstanding $625,000 mortgage on the property, although the faxed offer letter did not expressly state so. On or about the same time on May 27, the JGT board was evaluating the Business Valuation prepared by its controller while considering purchasing the property. Two days later, the Lingos telephoned Griffin to express a willingness to accept Saliba and Ksebe's offer, but added the condition that the settlement must occur by June 30 for tax reasons related to a Section 1031 exchange. However, during this call, the Lingos did not advise Griffin that the Operating Agreement had superseded the Articles of Partnership referred to in his letter, [6] that they had received the advice of counsel regarding the legal requirements to sell the property, or that JGT was considering purchasing the property. Furthermore, stating that June 30 was the operative date for a Section 1031 tax exchange was a direct misrepresentation as in fact JGT had until April 2004 to benefit from the exchange. After hearing from Griffin on May 29 about the Lingos' willingness to accept the offer, Saliba contacted Wilmington Trust and received adequate assurance of loan approval from a loan officer. Saliba then contacted Hoyt to inform him that Saliba and Ksebe would be willing to purchase Hoyt's interest in Del Bay. June 2 and 3, Saliba and Hoyt both went out of town. The Lingos contacted Griffin on June 3, asked when a contract would be ready, and again misrepresented the significance of the June 30 date. Meanwhile, Saliba and Ksebe contacted Laurence Moynihan, an appraiser, to obtain a valuation of Del Bay to assure that the price was reasonable. Saliba explained to Hoyt that he was working to arrange financing and asked Hoyt to wait until June 11 before taking any action on the Lingos' proposal. Hoyt informed the Lingos that Saliba and Ksebe's offer was superior because it included an assumption of the mortgage on the property. The Lingos then agreed to assume the mortgage. However, neither the Lingos nor Hoyt ever communicated this information to Saliba and Ksebe or their attorney, Griffin. On June 10, 2003, the Lingos convinced Hoyt to sign the contract immediately so they could present it to the JGT board. The Lingos told Hoyt that if he did not sign the contract, JGT might back off. Hoyt signed the contract and faxed it to the Lingos. Neither Hoyt nor the Lingos contacted Saliba and Ksebe at that time to give them the opportunity to match or exceed the Lingo offer. On the same day, Moynihan gave Saliba and Ksebe a fairness opinion that valued the property at approximately $5.7 million. They believed this valuation to be low, but the appraisal did not dissuade them from pursuing the purchase. The next day, Saliba tried to contact Hoyt to reconfirm his interest in purchasing Del Bay, but was unable to reach him. Saliba then contacted Del Bay's accountant to obtain valuation information. Only then did he learn that Hoyt had already signed the sales contract with the Lingos. Two days later, on June 12, the JGT board formally approved the purchase of the Beacon Motel. The Lingos assigned their rights to purchase the property to JGT. Around June 23, JGT informed Griffin that the closing date was to be June 30, 2003. Four days later, Griffin contacted JGT's attorney, Dennis Schrader, to object to the sale and renew his clients' interest in negotiating a resolution to the dispute. Griffin also requested signed copies of the real estate sales contract and the Operating Agreement. The closing occurred on June 30, 2003. Saliba and Ksebe were not at the closing and no attorney was present to represent Del Bay's interests. At the closing, Bill Lingo signed a Del Bay resolution, falsely stating that at a special June 30 meeting the members of Del Bay unanimously authorized the sale of the Beacon Motel. JGT financed the purchase of the Motel through a Wilmington Trust loan. Wilmington Trust requested an appraisal, which Hospitality Appraisals, Inc. conducted, and concluded the fair market value of the property as is was $5,060,000. This appraisal also noted that the highest and best use of the property was as a commercial development, but it did not value the property on that basis. Because JGT purchased the Beacon Motel as an exchange property, they received a $1.6 million tax refund in 2004 pursuant to Section 1031 of the Internal Revenue Code. The Lingos' share was approximately $434,000 in total.