MANHATTAN (CN) - In a "minor but intriguing issue, rarely if ever encountered in a judicial opinion," the fate of the collateral for a $20 million loan could hinge upon whether the appearance of "i" in a contract denotes the lower case letter or a numeral known as a "romanette," an appellate court ruled.
U.S. Circuit Judge Jon Newman gives a thorough background of the word "romanette" in U.S. jurisprudence, in an entertainingly pedantic footnote of the exceedingly arcane opinion.
In 1999, the term first appeared in a decision of a district court in Oklahoma, and it was mentioned twice during Supreme Court oral arguments nearly a decade later, the 37-page opinion states, with citations.
However, "none of these opinions had to distinguish between a lower case letter 'i' and a lower case version of a Roman numeral 'I,'" the opinion states.
The word "romanette" is never capitalized in those prior opinions, except in a case involving a petitioner's girlfriend named "Romanette Norwood," Newman found.
Entering into this budding history is the case of Shahab Karmely et al v. Eitan Wertheimer et al.
In 2005, Karmely, a New York City developer, became involved in a multi-billion dollar real estate portfolio with Wertheimer and Ezra Dagmi, who are close friends, partners and Israeli citizens.
"Karmely agreed to act as a developer for this venture, and instead of requiring a customary development fee, agreed to accept a percentage of the profits on each development as compensation for his services," the opinion states.
Companies created by all of the parties helped pay for the development of one of buildings by obtaining two loans: a $20 million mezzanine loan and an $85 million Anglo Irish Bank loan.
A subsection of the parties' Intercreditor Agreement stipulated that "no payment whatsoever" would be necessary for the mezzanine loan until the Anglo Irish Bank loan had been repaid "in full," according to the opinion.
By the time the mezzanine loan matured in 2009, Karmely insisted he did not yet have to pay it because Wertheimer and Dagmi sought and gained an extension on the Anglo Irish Bank loan.
W-D Group, a limited partnership owned by Wertheimer and Dagmi that furnished the mezzanine loan, nevertheless declared Karmely in default and foreclosed on his collateral.
When Karmely took the matter to court, U.S. District Judge Robert Patterson found an exception to the Intercreditor Agreement's terms in a subparagraph that he identified as "8(h)(i)."
That subparagraph contained limiting language about the "foregoing provisions" and stated that "nothing herein shall impair, as between the Mezzanine Borrower and Mezzanine Lender, the obligation of the Mezzanine Borrower, which is unconditional and absolute, to pay the Mezzanine Loan in accordance with its terms."
On Monday, the 2nd Circuit ruled that Judge Patterson had misconstrued the context of the "foregoing" and "herein" because the paragraph he called "8(h)(i)" was actually just a poorly indented "8(i)."
"The printer simply made mistakes in the indentation of the two subparagraphs placed within paragraph 8(h), which the lawyers who proof-read the documents overlooked," the three-judge panel agreed in the opinion.
The appellate court added that the paragraph had been intended to "apply only to all of the paragraphs of section 8, and not to the entirety of the document."
The panel's findings do not completely resolve the issue.
The opinion invites the district court to elicit "extrinsic evidence of intent" as to whether "i" was, in fact, a romanette.
Stephen DiPrima, an attorney representing Wertheimer and Dagmi for the firm Wachtell, Lipton, Rosen & Katz, declined to comment on the opinion, or whether he would address the issue in the future.
Karmely's lawyer David Pellegrino, from Phillips Nizer LLP, was not immediately available to respond to a request for comment.
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