The U.S. Court of Appeals for the Fourth Circuit ordered Lennar to pay more than $100 million to iStar to settle a lawsuit that stretches back to 2005.
According to details published Friday by iStar, a real estate investment trust, the Court of Appeals upheld a lower court’s decision in the lawsuit that stemmed from a soured land deal from more than a decade ago.
In 2015, the U.S. District Court for the District of Maryland ruled in the matter of U.S. Home Corporation v. Settlers Crossing, L.L.C., iStar Inc. et al.
The South Florida Business Journal recapped that decision, which Lennar subsequently appealed.
Here’s the South Florida Business Journal:
A federal judge ordered Lennar Corp. to purchase land in Maryland for $114 million, plus default interest and fees, a ruling the company vowed to appeal.
The Miami-based homebuilder has been trying for years to back out of the contract it signed to purchase 1,250 acres of farmland in Prince George's County. Lennar and affiliate U.S. Home Corp. filed a lawsuit in 2008 in federal court in Maryland accusing the sellers of fraud for allegedly failing to disclosure that a portion of the site had been used to dispose of sewage sludge from 1975 to 1989.
Lennar appealed the decision, leading to the Court of Appeals decision.
But Lennar signaled earlier this week that it expected to pay out in the lawsuit.
On Monday, Lennar announced that it set aside $140 million for the lawsuit.
“Based on the Court (of Appeals) hearing, the Company's assessment of the probable outcome of the litigation has changed, and it now believes it is appropriate to record a one-time charge of $140 million for this litigation,” Lennar said in a release. “The accrual represents the high end of the range of expected liability associated with the litigation.”
In an accompanying statement, Stuart Miller, Lennar's chief executive officer, provide more detail on how the lawsuit came about and what the company planned to do about it.
Here’s Miller:
As we have disclosed for several years in our quarterly and annual SEC filings, we have been engaged in litigation since 2008 regarding whether we were required to purchase a property in Maryland. The property was put under contract in 2005 for a purchase price of $200 million. After entering into the contract, we later renegotiated the purchase price during the downturn, reducing it from $200 million to $134 million, $20 million of which had been paid and subsequently written-off, leaving a purchase price balance of $114 million. As we disclosed, in January 2015, a Federal District Court rendered a decision ordering us to purchase the property for $114 million and to pay interest at 12% per annum from May 27, 2008 ($13.7 million per year), as well as reimbursing the seller for real estate taxes and attorneys' fees. However, our disclosures also stated that the Company had appealed the decision because we believed it was contrary to applicable law and therefore, no liability had been recorded with respect to the case. Based on our assessment of the March 23, 2017 oral argument referenced above, we now believe that the Company should record an accrual for this litigation.
In its statement, Lennar said that despite accruing the $140 million the company “continues to believe that the January 2015 Federal District Court decision is contrary to applicable law, as it has stated since it first disclosed the litigation.”
The company said that the final decision from the Court of Appeals could result in an outcome lower than the company's accrual.
And according to details publicized by iStar on Friday, the Court of Appeals issued its final decision this week. Here are the final details of the court’s decision, from iStar:
The District Court determined that iStar was entitled to specific performance from Lennar in the amount of (i) the remaining $114 million purchase price due under a land sales contract, (ii) interest on unpaid amounts at a rate of 12.0% per annum from and after May 27, 2008 until paid, which totals approximately $121 million as of today, and (iii) real estate taxes and reasonable and actual attorneys' fees and costs.
A third party holds a 4.3% participation interest in all proceeds from the judgment.
