GMSR obtains $66 million reduction of judgment and reversal of alter ego determination

Corona Summit v. SPUS05 Corona Summit (2013) 2013 Cal.App. Unpub. LEXIS 4633 (California Court of Appeal, Second Appellate District, Division Four) [unpublished]. GMSR’s client, CB Richard Ellis Strategic Partners US Opportunity 5 LP (Fund V), had formed a single purpose entity (SPE) to purchase office buildings. The SPE deposited $13 million as security for its performance—its entire net worth. When the 2008 recession hit, the value of the property plummeted, and the SPE elected not to purchase. Although the purchase agreement contained a liquidated damages clause stating that retention of the $13 million security deposit was the seller’s “sole and exclusive remedy” in the event of buyer breach, the trial court held that the clause was trumped by a “specific performance” provision in a contemporaneous contract and, when the SPE failed to perform, entered a $79 million award. Adding insult to injury, the trial court also found that GMSR’s client was the SPE’s alter ego and therefore liable for the entire judgment.

GMSR persuaded the Court of Appeal that, as a matter of law, the liquidated damages clause limited the seller’s damages to the $13 million deposit, resulting in a reversal of the judgment of specific performance. This included a reduction of the $79 million damages award to $13 million, the amount for which the client conceded it would be liable if the court found a breach. The court also reversed the alter ego determination and a very substantial attorney fee award.