S&C Prevails at Trial in Real Estate Loan Dispute

January 19, 2022

Real estate investor Richard D. Cohen prevailed in a federal bench trial over his personal liability for a loan obtained by entities he controlled to buy a San Francisco residential apartment complex known as Rincon Center. On January 6, Judge Jesse Furman of the Southern District of New York entered judgment in favor of Mr. Cohen, rejecting claims he was liable for $103 million under a limited guaranty he executed.
In 2007, entities controlled by Mr. Cohen obtained a $110 million loan from Bear Stearns to buy the apartment complex. The loan was non-recourse, except for a carve-out guaranty in which certain limited “bad boy” acts would trigger Mr. Cohen's personal liability for the entire amount of the loan. After the borrower defaulted on the loan, the loan was sold in 2010 to an affiliate of Carmel Partners, a real estate investment management company, which immediately sued Mr. Cohen for repayment and also foreclosed on the property.
The plaintiff argued that Mr. Cohen was liable for $103 million under the guaranty, which prohibited “indebtedness” and “transfers” without the lender's prior written consent. The plaintiff claimed that Mr. Cohen violated this provision because certain liens had been recorded against the property.
In his 33-page ruling, Judge Furman rejected the plaintiff's interpretation, labeling aspects that would have led to full recourse liability for small or even fraudulent liens, as “absurd.” He stated that the “overwhelming weight of the evidence” supported the defendant's argument that the nonrecourse loan had limited carve outs and the parties never intended for the liens at issue to trigger Mr. Cohen's full recourse liability.
The S&C team that represented Mr. Cohen was led by Robert Sacks and Diane McGimsey and included Ryan Nielsen. The American Lawyer named Bob and Diane first runners-up for Litigator of the Week for this result.