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Wells Fargo Bank, N.A. v. Rlj Lodging Trust

United States District Court, Seventh Circuit

October 23, 2013

WELLS FARGO BANK, N.A., as Trustee for the Registered Holders of ML-CFC Commercial Mortgage Pass-Through Certificates, Series 2006-3, acting by and through its special server, TORCHLIGHT LOAN SERVICES, LLC, a Delaware limited liability company, Plaintiffs,
v.
RLJ LODGING TRUST, a Maryland real estate investment trust, Defendant.

OPINION AND ORDER

JOAN H. LEFKOW, District Judge.

Plaintiffs Wells Fargo Bank, N.A. ("Wells Fargo"), and its special servicer, Torchlight Loan Services, LLC ("Torchlight"), filed suit against RLJ Lodging Trust ("RLJ Trust" or "the Trust") for breach of a guaranty. The guaranty was executed in connection with a loan Wells Fargo's predecessor made to a third party affiliated with the Trust. Before the court is RLJ Trust's motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b (Dkt. 9). For the reasons stated below, the motion is denied.

BACKGROUND[1]

I. The Parties

A. The Plaintiffs

Plaintiff Wells Fargo is a national banking association with its main office in South Dakota. It is the trustee of a real estate mortgage investment conduit, ML-CFC Commercial Mortgage Trust 2006-3, Commercial Mortgage Pass-Through Certificates, Series 2006-3 ("the Mortgage Trust"). Plaintiff Torchlight, a nominal party, is a Delaware limited liability company that is the special servicer for the Mortgage Trust.

B. The Defendant

Defendant RLJ Trust is a Maryland real estate investment trust with its principal place of business in Bethesda, Maryland. None of its individual trustees are citizens of Illinois. The Trust does not directly own any property in Illinois, has no office, employees, or agent for service in Illinois, and holds no bank accounts in Illinois. In 2011, the Trust filed an income tax return in Illinois stating its total sales inside Illinois amounted to $29, 457, 327, but it paid no income tax in the state because it had no business income apportionable to Illinois. Four Illinois residents purchased 4.36% of the Trust's stock in its 2011 initial public offering, which represented a $19, 626, 182.10 investment. The Trust pays dividends to its Illinois shareholders.

Trust representatives have visited Illinois for various business meetings. In May 2011, RLJ Trust's President and CEO, Thomas Baltimore, its Executive Vice President and Chief Investment Officer, Ross Bierkan, and its Executive Vice President and Chief Financial Officer, Leslie Hale, visited Illinois to solicit purchasers for its initial public offering. In March 2012, Baltimore and Bierkan attended a lunch meeting in Chicago with the CEO of the largest hotel management company for the hotels that RLJ Trust's subsidiaries (discussed below) own in Illinois, White Lodging Services. Additionally, Howard Isaacson, Senior Vice President of Asset Management, visited hotel properties owned by subsidiaries of the Trust in Illinois twice in the past two years to review budgets with White Lodging Services. In March 2012, Baltimore and Bierkan met with Hyatt Hotels in Chicago regarding a potential hotel portfolio purchase, but this meeting did not result in any transaction. Bierkan also attended the 2012 Ryder Cup golf event as Hyatt's guest.[2] The Trust conducts quarterly conference calls with its investors, some of whom are Illinois residents.

The Trust has a website accessible to Illinois residents that details its "portfolio of 150 properties, comprised of 148 hotels with more than 22, 300 rooms and one planned hotel conversion, located in 22 states and the District of Columbia."[3] (Dkt. 44 Ex. C.) The website lists contact information for the properties and for some Trust personnel.

The Trust is the general partner of a limited partnership, RLJ Lodging Trust, L.P. ("RLJ L.P." or the "L.P."). The Trust owns 99.2% of the L.P. and funded the L.P. by using the net proceeds from the Trust's 2011 initial public offering. The L.P., in turn, is the sole member of various limited liability companies across the country. Each limited liability company owns one hotel. The L.P. owns 13 Illinois limited liability companies (the "Illinois LLCs"), each of which owns a hotel in Illinois. The hotels are managed by outside management companies but L.P. employees occasionally visit the LLCs' Illinois properties and have final say over the hiring of managers for the properties.

The Trust describes its relationship with the L.P. in its public securities filings. For example, in the Trust's 2012 Form 10-K, the Trust states that "[s]ubstantially all of our assets are held by, and all of our operations are conducted through, our operating partnership [RLJ L.P.]." (Dkt. 44 Ex. B at 6.) The Trust makes similar statements throughout its 10-K statement and a 2012 10-Q statement. The L.P. reports to the Trust, and the Trust's Board of Trustees is involved in property purchasing decisions.

All officers of RLJ Trust are employed by the L.P. For example, Hale is the CFO of both the Trust and the L.P. and is Executive Vice President of the Trust and Senior Vice President of the L.P. She is also a vice president of all of the individual property limited liability companies, including the Illinois LLCs. She uses just one email address, her name "at RLJLodgingTrust.com, " in all of these capacities. (Dkt. 44 Ex. E at 9. Vice President of Design and Construction for the L.P. and for the Trust and is also a vice president for all of the limited liability companies. His salary comes from RLJ L.P. but he also receives shares and dividends from the Trust based on the advice he gives to the Trust in his role as one of its trustees. Isaacson testified that he believes that RLJ L.P. employs him but he does not "really know specifically." (Dkt. 44 Ex. K at 3.

The limited liability companies, including the Illinois LLCs, have no employees and the L.P. is the sole member of each limited liability company. As far as Isaacson is aware, the individual limited liability companies have never held any meetings, nor do they compensate their officers (all also officers of the Trust and employees of the L.P.).

C. The Parties' Dispute

As the trustee of the Mortgage Trust, Wells Fargo is the successor-in-interest to the right, title, and interest in a guaranty originally executed in favor of Wachovia by the Trust's predecessors. (Wells Fargo has since succeeded to Wachovia's rights.) That guaranty was executed in connection with a $5, 661, 634 loan for a Wisconsin hotel that Wachovia made to RLJ II - C Goshen, LLC, and RLJ II - C Goshen Lessee, LLC (the "Borrowers") in 2006. On June 14, 2006, the same date on which Wachovia made the loan to the Borrowers, RLJ Lodging Fund II, L.P., and RLJ Lodging Fund II, L.P. (PF #1), L.P. (the "Original Guarantors"), executed the original guaranty in favor of Wachovia. The Original Guarantors merged into RLJ Trust in 2011, and RLJ trust thus succeeded to, and became liable for, the obligations of the Original Guarantors under the guaranty.

On March 20, 2012, having determined that certain "Events of Default" had occurred under the terms of the loan documents, Wells Fargo and Torchlight (together, "the plaintiffs" declared the entire outstanding principal balance of the loan and all accrued and unpaid interest thereon to be immediately due and payable. When the Borrowers had not repaid the loan by April 20, 2012, the plaintiffs filed a foreclosure action in the Superior Court of Elkhart County, Indiana.

In the course of the foreclosure action, the Borrowers filed an answer and affirmative defenses contesting the action. By contesting the action, the Borrowers triggered the terms of the guaranty to pay the full balance due.[4] On March 30, 2012, Wells Fargo sent a letter to the Borrowers and RLJ Trust demanding full payment. RLJ Trust did not pay the total losses, prompting the plaintiffs to file this suit on January 30, 2013. The one-count complaint alleges that RLJ ...


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