Legal Pointers

Mezzanine Loan Insurance Policy - What is a covered asset?

Posted by Ben Mirza | Apr 16, 2024

Mezzanine Loan Insurance Policy - What is a covered asset? here is a related court order our firm obtained. See below.


                                                                                                    Case No: CACE22-0l 1477 (22) Judge : MARINA GARCIA-WOOD

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THIS CAUSE came before the Court on Defendant, Fidelity's Motion to Dismiss Plaintiffs Amended Complaint, dated February 13, 2023. This Court, after review of the motion, Plaintiffs Response to the Motion to Dismiss dated April 19, 2013, the Amended Complaint and attachments dated January 21, 2023, having heard the arguments of counsel at the April 26, 2023, hearing, and having reviewed the applicable law and being otherwise fully advised rules as follows.


On January 21, 2023, MEP COSTA HPO, LLC (hereafter "Plaintiff ') filed the instant Amended Complaint seeking relief for Breach of Contract and seeking a Declaratory Judgment against Fidelity National Title Insurance Company. (hereafter "Defendant"). Defendant insured Plaintiff through a UCC plus insurance policy (hereafter "Policy") covering the insured security interests of Liberty Grande, LLC (hereafter "Debtor ") including Debtor 's 100% interest in Costa Hollywood Development Holdings, LLC (hereafter "CHDH"). On or about October 7, 2020, Costa Hollywood Property Owner, LLC (a wholly owned subsidiary of CHDH, hereafter referred to as "CHPO") is alleged to have transferred all its ownership interests, real and personal, including a

MEP Costa HPO, LLC v. Fidelity Insurance

piece of real property located at 777 N. Ocean Drive (hereafter "Property") to 777 N. Ocean Drive 2 LLC (hereafter "Ocean 2 LLC"). Plaintiff alleges that, because of this transfer, as well as, Defendant's failure to properly record Plaintiffs interests, a defined loss under the Policy was triggered. Subsequently, Plaintiff filed a claim under the Policy, which was denied by Defendant on October 26, 2021, thereby resulting in the filing of the instant action.

Pertinent to this proceeding is the agreement made between Plaintiff (MEP COSTA HPO, LLC) and Debtor (Liberty Grande, LLC). On March 28, 2018, Plaintiff agreed to loan Debtor
$3,000,000.00 to invest in the building of the Costa Hollywood Beach Resort, memorialized in the form of a "Mezzanine Loan Agreement" (hereafter "Mezzanine Loan") and "Promissory Note (Mezzanine)". Additionally, memorialized was a "Pledge and Security Agreement" (hereafter "Pledge Agreement") in which Debtor pledged as collateral for the Mezzanine Loan, "all Pledged Company Interests and all other ownership interests of Pledgor in CHDH", as well as, five other enumerated pledges. The Mezzanine Loan and Pledge Agreement are the primary documents under which the Policy relies to create its terms and obligations. The Policy explicitly mentions these documents and appears it may even incorporate them by reference.
The Policy itself insures the covered collateral against certain situations and defects listed forth in the Policy. Among these being lack of "perfection" of the collateral and a loss of priority in interest. The insuring clauses of the policy list two different categories of coverage inclusive of six different subsections. Schedule A -Exhibit 1 of the Policy details the collateral that is covered by the Policy. Neither party disputes that the Policy was validity executed and that coverage extends to the period in which the Property was transferred. Ultimately, the parties' dispute lies with whether Policy coverage extends to the interests of CHPO.

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For clarification and reference purposes, the Court lists the following relevant entities and their relationship to this proceeding:
I. MEP COSTA HPO, LLC- Plaintiff, Named Lender in Mezzanine Loan.
2.    Fidelity National Title Insurance Company- Defendant, Insurance Policy Provider.
3.    Liberty Grande, LLC- Debtor, Named Barrower in Mezzanine Loan.
4.    Costa Hollywood Development Holdings, LLC- Named Barrower in Mezzanine Loan,
wholly owned subsidiary of Liberty Grande, LLC.
5.    Costa Hollywood Property Owner, LLC- Wholly owned subsidiary of Costa Hollywood Development Holdings, LLC, owner of Subject Property at the time of execution of the Mezzanine Loan.
6.    Costa Hollywood Beach Resort- Prospective resort to be built on Subject Property.
7.    777 N. Ocean Drive- Subject Property and its Physical Location.
8.    777 N. Ocean Drive, LLC- Lender of $70,000,000.00 Senior Loan for development of Subject Property.
9.    777 N. Ocean Drive, LLC 2- Transferee recipient of all ownership interests in Costa Hollywood Property Owner, LLC.

Legal Standard

It is well-settled that "the function of a motion to dismiss a complaint is to raise a question of law as to the sufficiency of the facts alleged to state a cause of action." Hitt v. N. Broward Hosp. Dist., 387 So. 2d 482,483 (Fla. 4th DCA 1980). "To rule on a motion to dismiss, a court's gaze is limited to the four comers of the complaint, including the attachments incorporated in it and all well-pleaded allegations are taken as true." Swerdlin v. Fla. Mun. Ins. Tr., 162 So. 3d 96, 97 (Fla. 4th DCA 2014). "The allegations must be construed in the light most favorable to plaintiffs and the trial court must not speculate what the true facts may be or what will be proved ultimately 1n trial of the cause." Hitt, 387 So. 2d at 483. Hence, a motion to dismiss is not a substitute for a motion for summary judgment. Baycon Indus., Inc. v. Shea, 714 So. 2d 1094, 1095 (Fla. 2d DCA 1998).
Further, Florida Rules of Civil Procedure 1.110(b)(2) requires a pleader only allege "short and plain statement of the ultimate facts showing that the pleader is entitled to relief'. See Beckler

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v.    Hoffman, 550 So. 2d 68, 70 (Fla. 5th DCA 1989). Allegations can be made on three levels: (1) a description of the evidence itself, (2) a statement of ultimate facts, or (3) a conclusion of fact or law. Id. And"[a] complaint need only state facts sufficient to indicate that a cause of action exists and need not anticipate affirmative defenses." MTGLQ Inv'rs, LP v. Leones, 320 So. 3d 769, 772 (Fla. 4th DCA 2021).


Defendant presents four arguments for dismissal of the Amended Complaint for this Court's consideration. First, Defendant argues that the Policy does not insure any security interest in CHPO and Policy language is controlling. Second, Defendant states that the Policy's language is unambiguous and does not support that CHPO property was pledges as security for the Mezzanine Loan. Third, Defendant claims that Plaintiffs allegations regarding a lack of perfection are contradicted and insufficiently pled. Lastly, Defendant argues that the Amended Complaint fails to assert how a subsequent purchaser of CHPO property results in a loss in priority of interest by Plaintiff. This Court does not agree with Defendant that dismissal is proper as set forth below:

a.    CHPO under the Policy - the Mezzanine Loan Insurance Policy

Defendant's first grounds for dismissal is that any interest in CHPO or any CHPO property is not covered under the Policy. Defendant's position is that CHPO is not covered collateral, insured under the Policy, since it is not listed as collateral pursuant to Schedule A of the Policy (which defines what is collateral). Likewise, since CHPO property and interest is not covered collateral, Defendant claims that the Policy does not insure against lack of perfection or the loss of priority . Accordingly 7 as the Policy does not expressly mention CHPO7 the "unambiguous" terms of the Policy negate Plaintiffs allegations.

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This Court finds that at this juncture, based upon the four comers of the complaint and its attachments, including the Policy and the loan documents it cannot declare the Policy clear and unambiguous. In order to make a definitive declaration that the Policy is unambiguous, this Court would need to be without any doubt as to its terms and limitations. As the Court may only consider the four comers of the complaint and its attachments, such a definitive declaration would be improper.

After a review of the Policy, schedule A, paragraph 5, expressly mentions both the Pledge Agreement and the Mezzanine loan. At a minimum, questions exist as to whether the Pledge Agreements and Mezzanine loan are incorporated by reference, or should be read into the Policy to some degree. Defendants expect the Court to completely ignore this fact without providing authority for such a position. What is known to the Court is the multiple mentions of CHPO and its relation to CHDH and Debtor. Beginning with the Pledge Agreement, which explicitly mentions CHPO and declares, "CHDH is the beneficial owner of I 00% of the issued and outstanding membership interests in Costa Hollywood Property Owner, LLC.. .. [w]ho is the owner of the legally described property shown in Exhibit A." Exhibit A states that Liberty Grande, LLC is the 100% registered owner of company interests of CHDH. The LLC Company Agreement for CHPO lists CHDH as its sole member with 100% interest. Further, the Pledge Agreement, in paragraph 2(a)(i) pledges "all Pledged Company Interest and all other ownership interests of the Pledgor in CHDH" and, as stated above, CHDH has a I 00% interest in CHPO. Paragraph 2(a)(ii) again pledges " all property representing dividends or interest of any of the Pledge Company Interests." The Mezzanine Loan explicitly defines " Owner" as CHPO and Owner is mentioned repeatedly throughout the documents. The Mezzanine Loan defines "Borrower" as CHDH and Liberty Grande, LLC, as well as, its successors and assigns. The Court

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also notes that the Mezzanine Loan contains an insurance requirement provision in paragraph 5.1.1.
Similarly, to the Pledge Agreement, Schedule A-Exhibit 1 of the Policy lists as covered collateral Liberty Grande, LLC's 100% company interest in CHDH as evidenced by certificate number 1, dated March 26, 2018 (the Pledged Company Interests). March 26, 2018 is the date of the Pledge Agreement; April 24, 2018 is the date of the Policy. Moreover, Schedule A- Exhibit 1 lists paragraph (i) as " representing dividends or interest on any of the Pledged Company Interest." Ultimately, the Policy and Schedule A- Exhibit 1 continuously reference pledged company interests in an ambiguous manner that may or may not include CHPO. The court notes that just as CHPO is not expressly and undoubtedly referenced as being covered
collateral, it is likewise, not expressly mentioned as being excluded from the covered collateral.

The above-mentioned are but a few inquiries this Court came up with while analyzing the policy and loan documents. Accordingly, the Court finds that at this point and based upon that which may be considered, it cannot declare the Policy unambiguous or find that CHPO is definitively not covered collateral under the Policy.

b.    CHPO under the Mezzanine Loan and the Mezzanine Loan Insurance Policy

This argument by Defendant presents many of the same points already addressed. The crux of this, like above, stands that CHPO is not pledged collateral, except this time Defendant claims it is not collateral under the loan documents (as opposed to the Policy). Additionally, Defendant argues that regardless, CHPO's status under the loan documents is immaterial to a question of Policy coverage. The Court agrees with Defendant to the extent that the Policy is the controlling document pertinent to this case, but as stated above, issues with regard to the extent of the connection between the Policy and the loan documents exists. Therefore, even if Policy

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coverage is the primary consideration for this Court, such a determination is immaterial to this Court's ultimate decision at this phase of the proceedings. Further, for the reasons previously stated, CHPO's status as collateral under the loan documents and the Policy is ambiguous and, therefore, dismissal on this basis is improper.

c.    Perfection of Mezzanine Loan Insurance Policy

Defendant next argues that even if CHPO were covered under the Policy (a point it does not concede), Plaintiff is still unable to prove the alleged loss is covered under the Policy. Defendant contends that the Amended Complaint asserts that Plaintiffs interest was not perfected in a conclusory manner and therefore has failed to state a proper claim by which relief can be granted. This Court does not agree, based upon the four comers and the complaint, the allegations are sufficient to state a claim and elicit a response from Defendant.
Defendant goes on make three arguments in support of dismissal; the first appears to argue that given the facts and allegations, perfection is an impossibility or was the sole responsibility of Plaintiff. Defendant's second point is another variation of the mirror argument above that CHPO is not covered under the Policy, as the need for perfection could not be contemplated. The Insuring Clauses of the Policy, Category I (2) clearly states that the policy insures for when "[t]he insured security interest has not been Perfected as to all of the Collateral". After thorough review of these arguments the Court finds that the Defendant's issue when read with the above clause is either that CHPO is not collateral under the Policy (a point this Court has already addressed above) or that perfection is not covered under the Policy, a point clearly contradicted. If perfection is not covered, this clause is illusory. Issues regarding perfection and how, to what extent applicable, or if a breach occurred, are not properly decided at this juncture and more properly addressed at the

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 MEP Costa HPO, LLC v. Fidelity Insurance
CACE22-0l 1477
summary judgment phase of these proceedings. Ultimately, Plaintiff properly alleges that a lack of perfection occurred cause a breach, as to warrant a response by Defendant.
Defendant's final point, as to recording, the Court finds that even if taken as true, such a point as immaterial as, on its own, it would not warrant the dismissal of the Amended Complaint or even require amendment. For this reason, and the reasons stated prior, dismissal is not proper on these grounds.

d.    Priority of Interest

Finally, Defendant argues against Plaintiffs "alternative" argument regarding the loss of priority of interest in the collateral. Defendant claims that any that loss of priority is of no consequence because CHPO property is not covered under the Policy and therefore, would not result in a loss or damages. The Defendant's position, again, relies upon the basis that CHPO is not covered collateral under the Policy. The Court has addressed this argument above.
Lastly, Defendant argues that the Amended Complaint is skeletal, lacking details and fails to state a claim. Again, this Court does not agree. Given the four comers of the complaint and its attachments, sufficient information and allegations exist for Defendant to formulate a response to the Breach of Contract and Declaratory Judgment Counts.
Accordingly, it is hereby:

ORDERED that Defendant, Fidelity's Motion to Dismiss Plaintiffs Amended Complaint, dated February 13, 2023, is DENIED.

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Additionally, this case is not a First Party Property Loss case and should not have been transferred to Division 22, by separate order this case will be transferred back to Division 21.
DONE AND ORDERED in Broward County, Fort Lauderdale, Florida this 15th day

August, 2023.
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Cc: All parties via the Florida Courts E-Filing Portal

Copies Furnished to:
Dan T Galo, Email : [email protected]
Ben Assad Mirza, Email : [email protected] Christopher Smart, Email : [email protected] Christopher Smart, Email : [email protected] Christopher Smart, Email : [email protected]
Daniel T Galo, Email : [email protected] Sc

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