Opinion ID: 2775945
Heading Depth: 3
Heading Rank: 3

Heading: Case-Specific Facts

Text: In June 2005, Borrower obtained an $8.7 million CMBS loan from Morgan Stanley Mortgage Capital, Inc., secured by the commercial property located at 18718 Borman Avenue in Detroit. Defendant-Appellee Joseph Schwebel, Borrower’s principal, guaranteed all obligations on the loan for which Borrower might become personally liable. Borrower used the loan to purchase the property from and lease it back to a subsidiary of the Great Atlantic & Pacific Tea Company for use as a grocery distribution center. In December 2010, the grocery chain’s subsidiary filed for bankruptcy. The bankruptcy court eventually permitted the subsidiary to terminate the lease and abandon the property. Borrower tried and failed to locate a replacement tenant or sell the property for its pre-recession value. In October 2010, Morgan Stanley’s loan servicer sent Borrower a formal notice of default, and Borrower turned the property over to a receiver. A year later, the servicer foreclosed on the property and purchased it with a $2.1 million credit bid. After the auction, either Morgan Stanley or its loan servicer took possession of approximately $1.76 million in escrow and a $500,000 letter of credit from Schwebel, both deposited as additional collateral under Borrower’s loan. But neither Morgan Stanley nor the servicer sought a deficiency judgment. In 2012, the loan servicer marketed the property on Auction.com, advertising that Borrower held the property subject to a nonrecourse loan before foreclosure. Purchaser’s principals obtained the property, then appraised at $4.6 million, and an assignment of Morgan Stanley’s rights under the loan agreement with a high bid of $756,000. Purchaser’s principals stated in their depositions that they never read the underlying loan documents before executing the sale and that they purchased the property because of the low asking price. Several months later—and two months after the Michigan Court of Appeals decided Cherryland II—Purchaser filed the instant action seeking a deficiency judgment. Purchaser took the position, as it does now, that it stands in the shoes of the lender. Pointing to the solvency No 14-1419 Borman, LLC v. 1878 Borman, LLC Page 6 covenant in Borrower’s loan documents, Purchaser argued that Borrower lost single-purposeentity status upon default and—along with Schwebel—became personally liable for a deficiency of $6 million plus interest. Each party moved for summary judgment, and the district court granted it to Borrower and Schwebel. The court found that the NMLA: (1) rendered the solvency covenant in Borrower’s CMBS loan unenforceable; (2) violated neither the Contract nor Due Process Clauses of the United States and Michigan Constitutions; and (3) comported with Michigan’s constitutional provision mandating the separation of governmental powers. Purchaser challenges each conclusion.