More McQuillen project cases determined by court action

By Bob Steenson, bsteenson@charlescitypress.com

Two of the dozens of legal cases involving what was then called the McQuillen Place project in downtown Charles City have been decided recently, one in state court and one in a U.S. Court of Appeals.

In both cases, the bank that provided the construction mortgage for the project, and/or officers of the bank, and/or the bank-related company that purchased the assets of the project in bankruptcy court, prevailed when the courts awarded summary judgments against the developers of the project, and/or the project architects.

In the federal case, the Eighth Circuit Court of Appeals upheld the summary judgment that had been granted April 28, ending the lawsuit filed by Cornice & Rose International LLC against First Security Bank & Trust, three bank directors and a couple of bank officers.

Cornice & Rose, a Chicago-area firm that had provided architectural services for the McQuillen Place project, had argued that the bank had injured the company by “intentional interference of a contract” between McQuillen Place Co. LLC and the architect, and through “malicious interference with business advantage” by allegedly preventing McQuillen Place from securing additional financing on the project.

It argued that three bank directors, Kurt Herbrechtsmeyer, Jon Richard “Dick” Herbrechtsmeyer and Gene Hall, along with other bank officers, had “concocted, supported and evangelized on behalf of a scheme for First Security Bank to seize control of McQuillen Place in order to, among other things, advance their own public relations agenda.”

First Security Bank & Trust held an almost $4 million construction mortgage on the project, which was used in addition to other funding to finance the project. In March 2018, after construction had stalled, the bank filed foreclosure notice on McQuillen Place Co. LLC and on the primary developer, Charles Thomson, claiming the mortgage was in default.

After McQuillen Place Inc. filed bankruptcy, Four Keys LLC, a company formed by the bank holding company that owns First Security, purchased the assets of the McQuillen Place Inc., renamed the mixed residential and commercial project The Union House, and proceeded to finish the construction.

The Cornice & Rose suit is one of many filed in federal and Iowa courts by the architect, by Thomson and by various businesses with which Thomson is affiliated, that argue the bank or its directors acted in bad faith against its mortgage customer and intentionally made decisions that resulted in the project failing.

The 8th Circuit Court of Appeals agreed with the United States magistrate judge who had issued the summary judgment against Cornice & Rose’s case, writing, “The record shows that the defendants (the bank, its directors and its officers) were acting in their financial interests when exercising their legal right to refuse to extend the loan because the proposals to finance the remaining construction were not financially beneficial to the defendants.”

Citing previous case law, it wrote, “A party does not improperly interfere with another’s contract by exercising its own legal rights in protection of its own financial interests.”

“As to the malicious interference with business advantage claim, we also conclude that the district court did not err in granting summary judgment for the defendants,” the circuit court wrote.

A summary judgment in effect ends a case before it goes to trial, because a judge decides that there are no questions of material fact for the trial to decide.

The state case decided recently includes most of the same claims made by Thomson against First Security Bank and its directors that many of the other cases contain.

On Thursday, Floyd County District Court Judge Chris Foy filed a ruling granting a motion for summary judgment that was made by First Security Bank & Trust involving Thomson and a business Thomson is involved with, Umbrella Realty, regarding a $25,600 promissory note for a mortgage to purchase a rental property at 703 N. Jackson St.

That property was pledged as part of the collateral to secure the construction mortgage for the McQuillen Place project, and Thomson has personally guaranteed the loan to Umbrella Realty, the bank said.

The bank filed foreclosure on that mortgage, saying Thomson had defaulted on that loan, and asked that the court issue a judgment against Thomson and Umbrella Realty for more than $19,000 plus interest.

In his answer to the suit, Thomson made 18 counterclaims against the bank for its alleged actions regarding financing of the McQuillen Place project, including restraint of trade, “unconscionability of transaction,” several forms of breach of duty of good faith and fair dealing, several forms of breach of contract, fraud, slander, abuse of process and others.

In his ruling Thursday, Judge Foy granted the bank’s motion for summary judgment against the counterclaims and ruled that the bank’s original suit for relief in its foreclosure on 703 N. Jackson St. was granted.

Foy wrote, “Here, Umbrella Realty and Defendant Thomson have failed to present sufficient facts to withstand summary judgment as to any of the 18 counterclaims that Umbrella Realty raised in its answer.

“The only ‘factual’ support which Umbrella Realty has offered for its counterclaims comes from the affidavit of Defendant Thomson that was filed on October 30, 2020. The matters asserted in the affidavit are more accurately characterized as statements of opinion from Defendant Thomson than as statements of fact.

“In any event, the matters asserted in the affidavit are not sufficient to generate a genuine dispute as to any of the counterclaims raised by Umbrella Realty. That is, based only on the affidavit of Defendant Thomson, no reasonable factfinder could return a verdict or decision for Umbrella Realty on any of its counterclaims,” Foy wrote.

The counterclaims asserted in the action were dismissed “with prejudice,” meaning they cannot be filed again in that court.