Beat the King

Gulf Coast office construction projects usually don't end up in protracted legal battles against the Federal Deposit Insurance Corp.
Even more infrequent: when the feds lose.
Yet Sarasota attorney Sheryl Edwards found herself on the victorious side earlier this year. These wins “are pretty rare,” Edwards says. “There weren't a lot of cases out there we could use as guidance.”

The trial Edwards won against the FDIC — pending appeal — was held in front of U.S. District Judge James Moody in federal court in Tampa. The case revolves around a common recession theme, when the FDIC, as a receiver for a shuttered bank, rejects an active loan the failed institution held.

Dozens of development projects on the Gulf Coast, and nationwide, have been ruined by that kind of loan rejection. Of course, sometimes the repudiation of a loan makes sense because the sour loan is part of what led to the bank's demise in the first place.

Edwards, though, says the FDIC takes a hard-line stance in these cases — indifferent to the specific facts of each loan and each project.

“A large part of the FDIC's litigation strategy is to make it as costly as they can to wear (the plaintiff) down,” Edwards says. “It's good to be king. The FDIC essentially took that position in this litigation.”

FDIC spokesman David Barr declined to comment on the case or Edwards' contentions.

Edwards had a distinct advantage in the case. The client, Placida Professional Center LLC, is a development entity run by her and her husband, Sarasota commercial real estate broker Michael Edwards. “It was critical that I was an experienced attorney,” says Edwards. “Had we not had that, I don't think the case would have worked out this way.”

Placida Professional Center was planned as a 17,600-square-foot office complex on Placida Road. The idea was to build an office for Sheryl Edwards' law firm and lease the remaining space. The developers paid $400,000 for the land, east of Manasota Key, according to the Charlotte County Property Appraiser's Office.

“It was a very viable project,” Edwards says. “It was an area of Charlotte County that was expanding and in a developing corridor.”

Placida took out a $3.28 million loan for the project with Bradenton-based Freedom Bank in February 2007, court records show. Construction began in July 2007, and through Oct. 15, 2008, Freedom Bank disbursed $1.6 million.

The project was about three weeks from completion on Oct. 31, 2008, says Edwards, when the Florida Office of Financial Regulation seized Freedom Bank. Within days, the FDIC, receiver for Freedom Bank, told Placida it would no longer fund the loan.

The FDIC, according to court records, told Placida the loan was “burdensome” and that repudiation would “promote the orderly administrations” of Freedom Bank's affairs.
Edwards believed that meant the government was doing anything it could to clear Freedom's books — quickly. Edwards appealed the decision, and, after a series of legal challenges, she won.

Still, the case, and the office project itself, remain in doubt while the FDIC's appeal winds through the system. That leaves Edwards, a Chicago native who has practiced real estate law in Sarasota for 17 years, unfulfilled.

“Certainly it was a moral victory,” says Edwards. “Whether it will be a financial victory is yet to be determined.”