- Posted April 12, 2013
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Schostak wins key court ruling in Wells Fargo case
By Ed White
Associated Press
DETROIT (AP) -- A new law prevents a bank from trying to collect more than $2 million from a developer who is the brother of the chairman of the Michigan Republican Party, a state appeals court said in a decision released Wednesday.
Wells Fargo had argued that the law illegally interfered with a valid contract and was the product of political interference from the Republican-controlled Legislature. The appeals court acknowledged that David Schostak would benefit but said lawmakers seemed motivated "to avert a broader economic problem" that could also affect other developers.
"We have found no evidence that the (law) was intended solely for his benefit," the court said in a 3-0 opinion.
Schostak is the brother of Republican leader Bobby Schostak.
Schostak Bros. built the Cherryland Center, a well-known shopping mall near Traverse City. But the poor economy caused store closings, and the family-owned development company defaulted on an $8.7 million loan, prompting Wells Fargo to repossess the mall. The bank then took the unusual move of pursuing David Schostak, as the developer, for $2.1 million to cover the balance of the loan.
A Grand Traverse County judge said David Schostak was personally responsible, and the appeals court in 2011 affirmed that decision. The court said it wouldn't step in and save "litigants from their bad bargains or their failure to read and understand the terms of a contract."
But just a few months later, the Legislature, with wide bipartisan support, approved a bill that ensured developers would not bear personal liability in commercial loans under certain conditions.
The Michigan Supreme Court then told the appeals court to take another look at the case after Gov. Rick Snyder, a Republican, signed the law. That ruling came this week.
Schostak's attorney, I.W. Winsten, was pleased with the decision. He said developers with loans worth billions in Michigan could have been vulnerable to liability if the loans turned bad in a weak economy, which would be inconsistent with traditional lending practices.
"The Legislature needed to act to protect the Michigan real estate industry and the people of the state from an economic disaster. Otherwise people wouldn't invest in Michigan," Winsten said.
"If you can't pay the loan back, the lender takes the property and the borrower goes home," he said. "That's the bargain they made."
Bobby Schostak has said he didn't push for a law that helped his brother and the family business.
An appeal by Wells Fargo to the state Supreme Court is possible.
"The Constitution prohibits the retroactive cancellation of private debt," attorney James Allen said. "The Court of Appeals ignored that part of the Constitution. We do not believe the Michigan Supreme Court will agree with this decision."
Published: Fri, Apr 12, 2013
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