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Bletchley Hotel at O'Hare Field LLC v. River Road Hotel Partners, LLC and Fbr Capital Markets & Co.

United States District Court, N.D. Illinois, Eastern Division

August 4, 2016


          Bletchley Hotel at O'Hare Field LLC, Appellant, represented by Gus Anthony Paloian, Seyfarth Shaw LLP, James B. Sowka, Seyfarth Shaw LLP & Michael Ryan Pinkston, Seyfarth Shaw LLP.

          River Road Hotel Partners, LLC, Appellee, represented by Brian A. Audette, Perkins Coie LLP, David M. Neff, Perkins Coie LLP & Eric E. Walker, Perkins Coie LLP.

          FBR Capital Markets & Co., Appellee, represented by William John Barrett, Barack Ferrazzano Kirschbaum & Nagelberg LLP.

          Patrick S Layng, Amicus, represented by Stephen G. Wolfe, Office of the United States Trustee.


          HARRY D. LEINENWEBER, District Judge.

         Before the Court is an appeal from a judgment by the United States Bankruptcy Court for the Northern District of Illinois brought by Bletchley Hotel at O'Hare Field LLC ("Bletchley"), and the cross-appeal of FBR Capital Markets & Co. ("FBR"). FBR also moves to have Bletchley's appeal dismissed as frivolous, [ECF No. 31]. For the reasons stated herein, the decision of the Bankruptcy Court is affirmed, and FBR's Motion is denied.

         I. BACKGROUND

         This appeal stems from the bankruptcy of River Road Hotel Partners, LLC and its affiliates ("the Debtors"). The bankruptcy relates to the commercial failure of the former Intercontinental Hotel at O'Hare Airport, which opened its doors right before the start of the financial crisis in 2008. When the business went south and the Debtors began to contemplate Chapter 11 bankruptcy, they hired FBR as their financial advisor to oversee a planned restructuring. The parties signed an engagement letter in August of 2009 detailing the terms of their agreement. The Bankruptcy Court officially approved Debtors' retention of FBR in September of 2009 in a court order ("the Retention Order"). The interplay between language in the engagement letter and the Retention Order form the bulk of the basis for this appeal.

         The engagement letter set out several types of fees that Debtors would pay to FBR for its work. Central to this dispute is the "restructuring fee, " a fee contingent on an eventual restructuring. FBR performed services under the contract for 22 months and still had not closed a deal when a third-party, Amalgamated Bank, proposed its own Chapter 11 restructuring plan, pursuant to which the Debtors would lose all of their assets. The Bankruptcy Court approved Amalgamated's plan on July 7, 2011. The plan created Bletchley Hotel at O'Hare LLC ("Bletchley"), which was responsible for the payment of expenses and is the entity bringing this appeal. FBR's efforts as financial advisor thus failed; it was not the party responsible for the final, successful restructuring.

         Whether FBR is entitled to the restructuring fee turns on how the relevant documents define the fee. It was "payable concurrently with the consummation of any Restructuring." (App. Appellants' Br. Ex. 3). The engagement letter defined a "restructuring, " in relevant part, as "any restructuring, reorganization and/or recapitalization... that involves all or a significant portion of the Company's outstanding indebtedness." Id . The fee amount was to be computed as a percentage of the total indebtedness involved in the final transaction.

         At first blush, this all seems simple enough: the restructuring fee was payable upon the occurrence of any restructuring, regardless of whether it was completed by FBR. This Court previously held, however, that the Bankruptcy Court's Retention Order implementing the terms of the engagement letter created some ambiguity surrounding the fee. See, FBR Capital Markets & Co. v. Bletchley Hotel at O'Hare LLC, 2013 WL 5408848 (N.D. Ill. September 24, 2013). Specifically, the Retention Order stated that the payment of the restructuring fee would be "contingent upon the consummation of a restructuring contemplated by the engagement letter." (App. Appellants' Br. Ex. 4). Of that language, this Court previously observed: "By indicating that some restructurings would be contemplated by the Engagement Letter and others would not, the Retention Order creates an ambiguity regarding which restructurings count. Even though the Engagement Letter is broad, it does not answer that question." FBR, 2013 WL 5408848, at *3. Due to the ambiguity, the Court remanded the case back to the Bankruptcy Court for a bench trial to consider extrinsic evidence and decide which restructurings were contemplated under the agreement.

         The evidence introduced at trial proved inconclusive on this issue. The Bankruptcy Court's findings of fact adeptly explain the impasse, see, In re River Road Hotel Partners, LLC, 520 B.R. 691 (Bankr. N.D.Ill. 2014); the following is only a brief recap. FBR's witnesses testified that they understood the contract at the time of drafting in the terms most favorable to their side. For example, Brian Taylor, a director at FBR who helped draft the engagement letter, testified that he did not intend the restructuring fee's payment to be conditioned on FBR's success as opposed to some other party. He claimed that FBR never would have accepted such a deal. Steven Goldberg, another key employee of FBR, made similar statements when deposed. David Neff, counsel for the Debtors, had input into the proposed Retention Order. He made some modifications to a draft, but added no language to make payment of the restructuring fee explicitly contingent on FBR's closure of a deal. At trial, he did not offer a clear rationale for why he failed to include more specific language that would support the interpretation of the engagement letter now advanced by Bletchley. Neff merely insisted that the Retention Order should reflect that payment of the fee be contingent on a restructuring "contemplated by the engagement letter." And to reiterate, the engagement letter broadly defines a restructuring without reference to a particular party.

         The Bankruptcy Court ultimately found that the Debtors were responsible for the ambiguity and so it should be construed against Bletchley; the court thus ruled in favor of FBR and ordered Bletchley to pay the restructuring fee. This Court reviews the Bankruptcy Court's findings of fact for clear error, ...

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