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Berardi Lending, LLC v. LS Southfield, LLC

Superior Court of Massachusetts, Suffolk

August 23, 2018

BERARDI LENDING, LLC
v.
LS SOUTHFIELD, LLC et al.

          File Date: August 24, 2018

          DECISION AND ORDER REGARDING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION (DOCKET ENTRY NO. 16.0)

          Brian A. Davis, Associate Justice of the Superior Court

          Plaintiff Berardi Lending, LLC ("Plaintiff" or "Berardi") commenced this action in July 2018 seeking repayment of a $2.5 million loan that Berardi made to defendant LS Southfield, LLC ("LS Southfield") in December 2016 (the "Note"). Defendants LStar Southfield, LLC and LStar Management, LLC (collectively, the "LStar Defendants") are corporate affiliates of LS Southfield and guarantors of the LS Southfield’s obligations under the Note. Defendant Kyle V. Corkum ("Mr. Corkum") is CEO and President of the LStar Defendants. He and his wife, defendant Sherry Corkum ("Mrs. Corkum" or, collectively with the LStar Defendants and Mr. Corkum, the "Guarantors"), also are guarantors of the LS Southfield’s Note obligations. Reach and apply defendants Union Point Residential, LLC, Union Point Sports, LLC, Union Point Commercial, LLC, and Nichols Street, LLC (collectively, the "Reach and Apply Defendants") are entities in which LS Southfield and/or the Guarantors are alleged to have ownership or other financial interests.[1]

         The case currently is before the Court on Berardi’s motion for a preliminary injunction that would prohibit LS Southfield, the Guarantors, and the Reach and Apply Defendants from selling, assigning, transferring, or further encumbering any assets of LS Southfield and/or the Guarantors during the pendency of this action. After a hearing on July 26, 2018, the Court issued, with the consent of the parties, a temporary restraining order granting Berardi much of the relief it seeks pending a full hearing on its motion for a preliminary injunction. See Temporary Restraining Order, dated July 27, 2018 (Docket Entry No. 13.0). The Court conducted a further hearing on Berardi’s motion for a preliminary injunction, as well as its request for a real estate attachment, on August 16, 2018. All interested parties appeared. The Court gave LS Southfield and the Guarantors additional time after the August 16th hearing to attempt to negotiate a mutually-acceptable interim security arrangement with Plaintiff, and continued the TRO in effect during that time period. Those efforts to reach a mutually-acceptable interim arrangement (to the extent that LS Southfield and the Guarantors made any) are reported to have been unsuccessful. Accordingly, upon consideration of all of the written materials submitted by the parties, the information provided at the motion hearing, and the oral arguments of counsel, Berardi’s motion is ALLOWED to the extent, and for the reasons, memorialized below.

         Based on Plaintiff’s Verified Complaint and the affidavits and supporting materials submitted by the parties, as well as the admissions of counsel made during court hearings in this matter, the Court finds the following facts to be true for present purposes:

LS Southfield is the master developer of a real estate venture called "Union Point" that seeks to convert the old South Weymouth Naval Air Station into a mixed residential, retail, and commercial community (the "Union Point Project"). LS Southfield obtained the $2.5 million loan from Berardi and signed the associated Note in connection with its development of the Union Point Project.[2] The Note, by its original terms, was payable on December 23, 2017, and accrued interest at the rate of twelve percent (12%) per annum. LS Southfield also agreed to provide Berardi with security for repayment of its loan obligations by committing in the Note that,
[a]t such time as the United States Navy conveys additional land at the Union Point project to [LS Southfield] or any of its affiliates, [LS Southfield] or its affiliate will grant [Berardi] a first mortgage on such land, securing the obligations under this Note, in form and substance reasonably acceptable to [Berardi] ...

         Note at 2.

         LS Southfield subsequently agreed to amend and extend the due date on the Note on three separate occasions, in return for which LS Southfield agreed to give Berardi a modest equity stake in the Union Point Project. The final due date on the Note, June 8, 2018, however, eventually came and went without any payment by LS Southfield or any of the Guarantors. While LS Southfield’s counsel hesitates to describe it as such, the Court finds that LS Southfield’s failure to repay the Note by June 8, 2018, constitutes a default of LS Southfield’s obligations under the Note. The Court finds that LS Southfield also has breached the terms of the Note by failing to provide Berardi with a first mortgage position on new land conveyed to LS Southfield or any of its affiliates by the United States Navy. The undisputed evidence establishes that, instead of granting Berardi a first mortgage position on newly-acquired property as it promised to do, LS Southfield knowingly mortgaged that property to other lenders after LS Southfield executed the Note to Berardi in order to secure additional financing from those other lenders.

         Berardi came to this Court seeking preliminary injunctive relief based on its fears that the Note will not be repaid by LS Southfield or the Guarantors, and that the assets of LS Southfield and the Guarantors will be sufficiently dissipated during the course of this action so as to render the amounts due under the Note effectively uncollectable. The Court finds Berardi’s fears to be well-founded. The available evidence, which includes a December 2017 preliminary balance sheet for LS Southfield and various communications among the parties and counsel discussing the numerous practical and financial challenges facing the Union Point Project, persuades the Court that LS Southfield currently is experiencing serious financial distress. The Court also is persuaded that, although LS Southfield claims that undisclosed "[f]inancing projections for the Union Point project show that the development project will generate profits of $100, 000, 000.00 after repayment of all debt and other obligations" (see Affidavit of Steven J. Vining, dated August 14, 2018, ¶ 7), the certainty and timing of those projected profits are, at best, entirely speculative.[3]

         A party seeking a preliminary injunction "must show that (1) success is likely on the merits; (2) irreparable harm will result from denial of the injunction; and (3) the risk of irreparable harm to the moving party outweighs any similar risk of harm to the opposing party." Cote-Whitacre v. Department of Pub. Health, 446 Mass. 350, 357 (2006) (citing Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616-17 (1980)). Irreparable harm may be established by showing that a defendant "may not have assets on the day of judgment," coupled with a "strong indication that the defendant may dissipate or conceal assets." Micro Signal Research, Inc. v. Otus, 417 F.3d 28, 31 (1st Cir. 2005).

          In this case, the Court finds that Plaintiff has demonstrated a likelihood of success on the merits on its claims seeking repayment of the Note, that it faces a substantial risk of irreparable harm if the requested preliminary relief is not granted, and that the balance of possible harms weighs in its favor. LS Southfield clearly has breached its obligations under the Note, and the Guarantors clearly have not come to its aid by making good on their guarantees.[4] Plaintiff also has shown that LS Southfield, and most likely the Guarantors, "may not have assets on the day of judgment" to satisfy Plaintiff’s claims, and that there is a "strong indication" that they otherwise "may dissipate or conceal assets."[5] Micro Signal Research, Inc., 417 F.3d at 31. Lastly, the Court is persuaded that any harm LS Southfield and the Guarantors may face due to the issuance of a preliminary injunction is outweighed, as a relative matter, by the harm that Berardi will suffer if LS Southfield and the Guarantors succeed in walking away from their obligations under the Note.[6]

         Accordingly, IT IS HEREBY ORDERED THAT, absent the further prior, explicit approval of this Court:

1. Defendants LS Southfield LLC, LStar Southfield, LLC, and LStar Management, LLC are preliminarily enjoined from selling, assigning, transferring, or further encumbering any asset (including money) or other property, right, title or interest, legal or equitable, that they, either individually or collectively, may own or possess, other than in the ordinary course of their respective businesses;[7]

2. Notwithstanding the foregoing, defendant LS Southfield, LLC is preliminarily enjoined from selling, assigning, transferring, or further encumbering any property, right, title or interest, legal or equitable, that it may own or possess in LStar Southfield, LLC, LStar Management, LLC, Union Point Residential, LLC, Union Point Sports, LLC and/or Nichols Street, LLC;

3. Defendants Kyle V. Corkum and Sherry Corkum are preliminarily enjoined from selling, assigning, transferring, or further encumbering any property, right, title or interest, legal or equitable, that they, either individually or collectively, may own or possess in LS Southfield, LLC, LStar Southfield, LLC, LStar Management, LLC, Union Point Residential, LLC, Union Point Sports, LLC and/or Nichols Street, LLC;

4. Defendant LS Southfield, LLC and reach and apply defendant Union Point Sports, LLC are preliminarily enjoined from selling, assigning, transferring, or further encumbering any property, right, title or interest, legal or equitable, that defendant LStar Management, LLC has or may have in LS Southfield, LLC and/or Union Point Sports, LLC;

5. Reach and apply defendants Union Point Residential, LLC and Union Point Commercial, LLC are preliminarily enjoined from selling, assigning, transferring, or further encumbering any asset (including money) or other property, right, title or interest, legal or equitable, in which defendants LS Southfield, LLC, Kyle V. Corkum, Sherry Corkum, LStar Southfield, LLC and/or LStar Management, LLC have or may have an interest, other than in the ordinary course of their respective businesses;

6. Reach and apply defendant Nichols Street, LLC is preliminarily enjoined from selling, assigning, transferring, or further encumbering any ...


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