B-233030, Feb 23, 1989

B-233030, Feb 23, 1989

MISCELLANEOUS TOPICS - Housing/Community - Development - Contractors Financial capacity - Financial information - Evidence sufficiency DIGEST: Attorney advises that Developer of Hannan Technology Research Center, Lansing, Michigan, does not meet evidentiary requirements for establishing Developer's equity in Project as required by Urban Development Action Grant Agreement in that opinion regarding sufficient cash or equity was submitted by Developer's counsel and not Grant Recipient's counsel and documentation submitted does not fulfill Agreement's evidentiary requirements.

To: Evaluator-in-Charge - Linda Weber Thru: Assistant General Counsel From: Attorney General Counsel - Martin E. Sloane

Subject: Whether Certificates Submitted on Behalf of the Developer of the Hannan Technology Research Center in Lansing, Michigan, Under the Urban Development Action Grant Agreement, #B-84-AA-26-0115, Meet the Evidentiary Requirements for Establishing the Developer's Equity in the Project-- B-233030:

This memorandum is in response to your request for an opinion whether certificates which purpore to certify that the Eydy Construction Company, the Developer of the Hannan Technology Research Center in Lansing, Michigan, has cash or liquid assets of not less than $2,351,165 available or irrevocable committed to it and that the cash or liquid assets are sufficient to complete the Project, 1 meet the specific evidentiary requirements of the Urban Development Action Grant Agreement.

For the reasons stated below, we conclude that the Developer has not fulfilled the UDAC Agreement's requirements to establish and verify its equity.

BACKGROUND

Pursuant to the Revised UDAC Grant Agreement, 101 #B-84-AA-26-0015, signed by the Secretary of Housing and Urban Development (HUD) on October
23, 1987, and by the City of Lansing on December 22, 1987, the Developer--
the Eydy Construction Company-- was to construct and manage two multistory
buildings in Lansing, Michigan, totalling 200,000 square feet.
The
Project is called the Hanna Technology Research Center (HTRC).
addition to constructing and managing the Project, the Eydy Company was
responsible for leasing laboratory space to small companies specializing
in high-technologs research and development.

The Revised UDAC Grant Agreement, Exhibit C, Section 1, provided that the
Developer would finance the project from the following sources:

Industrial Revenue Bonds 10,000,000

Developer Equity 2,351,165

Action Grant Loan 889,785

TOTAL $13,240,950,201

Exhibit E, Section IV of the Revised UDAC Grant Agreement requires that
"(a) Recipient's attorney or an acceptable banking institution shall
certify that cash or liquid assets of not less than $2,351,165 are
available or irrevocable committed to Developer and are sufficient to
complete the Project.
Such certification shall identify the kinds of
assets and the nature of the irrevocable commitment.
"(b) Evidence of
this commitment shall be in accordance with Sections 10.7 or 10.08 of this
Grant Agreement."
The evidentiary requirements of Sections 10.07 and
10.08 of the UDAC Grant Agreement will be discussed, infry.

On January 8, 1986, Todd D. Chamberlain, Esq., from the law firm of Bob
and Hanes, P.C., in Lansing, Michigan, as counsel to the Eydy Company for
the HTAC Project, sent a letter, which he referred to as an "opinion," to
Mr. Samuel R. Pierce, Secretary for Housing and Urban Development.
this "opinion," Mr. Chamberlain states that "Bob and Hanes, P.C. has
examined into the availability to the Developer of liquid assets necessary
for the performance of the Recipient Activities contemplated by the
Agreement.
Based upon this examination Bob and Hanes, P.C. has determined
that the Developer has on hand or immediately available for use in the
project the following liquid assets.
..." Bob and Hanes, P.C., lists five
financial institutions holding the Eydy Company's liquid assets and the
specific amounts of these "immediately available" assets.
Attached to its
"opinion" are certifications" which Bos and Hanes, P.C., states are in
compliance with Section 10.07, infry., and separate "supporting
opinions."
More specifically, the certifications and supporting opinions
contain the following information:

(A) Certification, Exhibit A - Written on Michigan National Corporation
Bank letterhead; signed by Richard D. Allen, Vice President - Commercial
Loan Department; dated January 7, 1986; addressed to Mr. John E. Bos, Bos
and Hanes, P.C.; advised that "in connection with a mortgage loan
transaction closed prior to February 28, 1985 with the Eydy Construction
Company, the Louis J. Eydy Limited Family Partnership, and the George F.
Eydy Limited Family Partnership, that these parties had immediately
available to their use $1,167.295.00 on December 31, 1985.
This money was
and remains available on a multi year basis."

Opinion of Bos and Hanes, P.C. - Dated January 8.
1986: opinion that the
document from Michigan National Bank complied with Section 10.2 of the
Grant Agreement and that after inquiry, believes that Richard D. Allen was
duly authorized to execute the certification.

(B) Certification, Exhibit B - Written on E. F. Hutton and Company, Inc.,
letterhead; signed by Rob H. Buckingham, Vice President - Branch Office
Manager; dated January 6, 1986; addressed to Mr. John E. Bos, Bos and
Hanes P.C.; advised that the "Louis J. Eydy Limited Family Partnership and
the George F. Eydy Limited Family Partnership had cash and marketable
securities in their account and immediately available for use in the
Hannan Technology and Research Center Project, in the amount of
$909,312.70 on December 31, 1985."

Opinion of Bos and Hanes, P.C. - Dated January 8, 1986: opinion that the
document from E. F. Hutton and Company, Inc., complied with Section 10.2
of the Grant Agreement and that after inquiry, believes that Rob H.
Buckingham was duly authorized to execute the certification.

(C) Certification, Exhibit C - Written on Merrill Lynce, Pierce, Fennel &
Smith, Inc., letterhead; signed by William J. Lecken, Vice President -
Resident Manager; dated January 6, 1986; addressed to Mr. John E. Bos, Bos
and Hanes, P.C.; advised that the "Louis J. Eydy Limited Family
Partnership and the George F. Eydy Limited Family Partnership, and the
Eydy Construction Company had cash and marketable securities in their
account and immediately available for use in the Hannan Technology and
Research Center Project, in the amount of $310,980.43 on January 6,
1986."

Opinion of Bos and Hanes, P.C. - Dated January 8, 1986: opinion that the
document from Merrill Lynce, Pierce, Fennel and Smith, Inc., complied with
Section 10.2 of the Grant Agreement and that after inquiry, believes that
William J. Lecken was duly authorized to execute the certification.

(D) Certification, Exhibit D - Written on Prescott, Ball Turbel, Inc.,
letterhead'; signed by william r. Kahn, Senior Vice President; dated
January 6, 1986; addressed to Mr. John E. Bos, Bos and Hanes, P.C.;
advised that the "Louis J. Eydy Limited Family Partnership and George F.
Eydy Limited Family Partnership had on deposit on the 31st day of
December, 1985 ... in the form of stocks $165,750.00.
The total value of
stocks that we hold less commission was available on the 31st day of
December, 1985 for sale."

Opinion of Bos and Hanes, P.C. - Dated January 8, 1986: opinion that the
document from Prescott, Ball & Turbel, Inc., complied with Section 10.2 of
the Grant Agreement and that after inquiry, believes that William R. Kahn
was duly authorized to execute the certification.

(E) Certification, Exhibit E - Written on First of America-Central
letterhead; signed by Victor W. Loomic, Jr., Vice President and Manager -
Commercial Loan Department; dated January 8, 1985; addressed to Mr. John
E. Bos, Bos and Hanes, P.C.; advised that the "Louis J. Eydy Limited
Family Partnership and the George F. Eydy Limited Family Partnership had
on deposit on the 8th day of January, 1986 ... the sum of $365,817.00.
the Eydy Construction Company had on deposit, on the same date, the amount
of $437,648.52.
The total deposited amount of $803,465.52 was immediately
available for use in the Hannan Research and Technology Center Project."

Opinion of Bos and Hanes, P.C. - Dated January 8, 1986: opinion that the
document of First of America-Central complied with Section 10.2 of the
Grant Agreement and that after inquiry, believes that Victor W. Loomic,
Jr., was duly authorized to execute the certification.
EVIDENTIARY
REQUIREMENTS

The UDAC Grant Agreement in Article X-- Evidentiary Materials-- requires
that particular documents be submitted in a specific form in order to
establish and verify that the Developer of the Project has sufficient
funds available to complete the Project.
the relevant provisions of
Article X provide:

"Section 10.2 Form of Documentary Evidence - General - All documentary
evidence of commitments submitted to the Secretary for approval shall be
in the form of either (i) a duplicate original, or (ii) a photographic
copy of the fully executed original, of the documents."

"Section 10.03 Opinions of Recipient's Counsel - (a) Whenever, in Exhibit
E to this Grant Agreement or otherwise, the opinion of an attorney is
required as part of any evidentiary material to be submitted to the
Secretary, the opinion shall be in writing and shall be that of counsel
for the Recipient, unless otherwise specified.

"(b) In the formulation or rendering of an opinion, Recipient's counsel
may rely upon the certification of other persons, or the written
statements or opinions of other counsel; provided, a copy of each such
certification, statement, or opinion is attached to the opinion of
Recipend's counsel.

"(c) If, in the formulation and rendering of an opinion, the Recipient's
counsel predicates the opinion upon "information and belief," then in all
such cases the opinion of Recipient's counsel shall contain, or have
attached thereto, a statement or descriptions of all of the information
upon which the belief of counsel is predicated."

"Section 10.7 Evidence of Liquid Assets - Form - Whenever a Participating
Party is required to provide evidence of liquid assets for an activity in
an amount and manner satisfactory and acceptable to a lending institution,
such evidence shall be in the form specified.

"(b) In the formulation or rendering of an opinion, Recipient's counsel
may rely upon the certification of other persons, or the written
statements or opinions of other counsel; provided, a copy of each such
certification, statement, or opinion is attached to the opinion of
Recipient's counsel.

"(c) If, in the formulation and rendering of an opinion, the Recipient's
counsel predicates the opinion upon "information and belief," then in all
such cases the opinion of Recipient's counsel shall contain, or have
attached thereto, a statement or description of all of the information
upon which the belief of counsel is predicated."

"Section 10.7 Evidence of Liquid Assets - Form - Whenever a Participating
Party is required to provide evidence of liquid assets for an activity in
an amount and manner satisfactory and acceptable to a lending institution,
such evidence shall be in the form specified at Section 10.2; shall be on
the letterhead of the lending institution; shall identify the
Participating Party; and shall state that the Participating Party has on
hand or immediately available to the Participating Party, liquid assets of
a value and in an amount satisfactory and acceptable to the lending
institution, and that the availability and use of the liquid assets for
the activity to be carried out by the Participating Party in connection
with the Project is assured to the satisfaction of the lending
institution.
The document shall be executed by an authorized officer of
the lending institution; and shall have attached an opinion of Recipient's
counsel, made in accordance with Section 10.03, that the documents comply
with Section 10.02 and that the officer of the lending institution was
authorized to execute the same."

"Section 10.08 Evidence of Finances Satisfactory to Counsel - Form - (a)
Whenever evidence is required in the form of a statement and opinion of
Recipient's counsel that a Participating Party will provide a specific
amount of finances for purposes of carrying out the commitment of that
Participating Party in connection with the Project, such evidence shall be
in the form of an opinion of Recipient's counsel made in accordance with
Section 10.03.

"(b) The opinion of Recipient's counsel shall certify that counsel has
examined into the availability to the Participating Party of liquid assets
and/or of debt financing; shall state the amount and the source of liquid
assets on hand or immediately available to the Participating Party for use
in the Project; and shall state the amount and the source of debt
financing which is available, or irrevocable committed, to the
Participating Party for use in the Project.
The evidence of these funds
shall be consistent with the provisions of Sections 10.05, 10.06 and 10.07
above to the extent possible.

"(c) The opinion of Recipient's counsel shall be that the Participating
Party has on hand, or immediately available, or irrevocable committed to
the Participating Party, for use in carrying out the commitments of the
Participating Party to the Project, liquid assets and/or debt financing in
a sum equal to the specified amount on finances required in this Grant
Agreement.
"(d) Submissions pursuant to this Section shall be subject to
HUD approval as to form and content."

"Participating Party," as defined in Article I, Section 1.03(12)--
General Definitions-- of the UDAC Grant Agreement, means

"any person, firm, corporation or entity identified as such in Exhibit A
of this Grant Agreement.
Identification as a 'Participating Party'
signifies that the Secretary, in selecting the Recipient for the award of
this grant, relied in material part upon a representation that the party
so identified will complete a specified portion of the Project or a
specific activity necessary for the completion of the Project."
Exhibit A
of the Revised UDAC Grant Agreement states in a Rider to Section 1.03 (12)
that "the term ' Participating Party' consists of the following persons,
firms, corporations and entities: 'Developer' means HTRC Joint endturn,
which is joint venture of the Louis J. Eydy and George F. Eydy Limited
Family Partnerships.
..." 301 Hence, the Developer, the Eydy Company, is
the Participating Party who has the burden to provide specific
certification of its equity investment in the HTRC Project.

"Recipient" is defined in Article I, Section 1.03(16) as "the local
governmental entity receiving grant funds pursuant to this Grant
Agreement, as more particularly identified on the cover page of this Grant
Agreement."
The cover page of this Grant Agreement identifies Lansing,
Michigan, as the Recipient of the grant.

And finally, "Secretary" is defined in Article I, Section 1.03(18) as
"the Secretary of Housing and Urban Development or any other official of
HUD to whom the Secretary has delegated authority to act with respected
matters covered by this Grant Agreement."

Therefore, based upon these facts and evidentiary requirements, the issue
is whether the certificates submitted on behalf on the Eydy Company to
establish its equity contribution in the HTRC Project meet the evidentiary
requirements set forth in the UDAC Agreement.

ANALYSIS

Exhibit E, Section IV, supra., of the Revised UDAC Grant Agreement
requires that evidence of the Developer's equity contribution be submitted
in accordance with Sections 10.07 or 10.08, supra. In this case, the
certifications and opinions were submitted under Section 10.07.
Under
this Section, an opinion of Recipient's counsel, in accordance with
Section 10.03, supra., must be included with the documentation submitted
by a lending institution for the purpose of establishing that the
Developer has liquid assets available or irrevocable committed to it and
that the cash or liquid assets are sufficient to complete the Project.

"Recipient," as defined in Article I, Section 1.03(16) of the UDAC Grant
Agreement, supra., is the local government entity receiving the grant
funds.
For the HTRC Project, Lansing, Michigan, is the "Recipient" of the
UDAC grant funds.
Hence, counsel for Lansing, Michigan, is required to
submit the opinion that the Eydy Company has sufficient cash or liquid
assets available to complete the Project.

The "opinion" which was submitted by the law firm of Bos and Hanes, P.C.,
does not qualify as an opinion from Recipient's counsel.
Bos and Hanes,
P.C., is counsel for the Eydy Company, the Developer and a Participating
Party in the Project.
Its opinion is not relevant and it does not fulfill
the evidentiary requirements necessary to certify that the Eydy Company
has sufficient funds to complete the Project, that the documents submitted
comply with Section 10.2, supra., and that the officer of the lending
institution was authorized to execute the same.
Therefore, based on the
document submitted by Bos and Hanes, P.C., compliance with Section 10.07
is not established and the amount of funds actually available to the Eydy
Company for completion of the Project was not verified.
401

In addition, various deficiencies exist in the documents prepared by the
lending institutions.
501 However, certain assumptions first must be
noted.
It is assumed that a duplicate original or a photographic copy of
a fully executed original of each certificate from the respective lending
institutions was submitted to the Secretary of HUD.
601 Also, it appears
that the letterhead of each lending institution was used for the
respective certifications; hence, it is assumed from the titles of the
individuals signing each certification that these individuals were
authorized as officers of the lending institutions to execute the same.

While all five lending institutions identify the Participating Party -
the Eydy Company, a co-partnership of the Louis J. Eydy and George F. Eydy
Limited Family Partnerships 701 --and state that the "Participating Party
has on hand or immediately available to it, liquid assets of a specific
value," none of the lending institutions state that the value of the
liquid assets is "acceptable to the lending institution," and "that the
availability and use of the liquid assets for the activity to be carried
out by the Participating Party in connection with the Project is assured
to the satisfaction of the lending institution."
801 Therefore, it is
impossible to verify that the Eydy Company has sufficient funds available
to complete the HTRC Project, as required by Section 10.07 of the UDAC
Grant Agreement.

CONCLUSION

The certificates submitted on behalf of the Eydy Company, which purpore
to certify that it has cash or liquid assets of not less than $2,351,165
available or irrevocable committed to it and that the cash or liquid
assets are sufficient to complete the HTRC Project, do not meet the
specific evidentiary requirements as outlined in the UDAC Grant
Agreement.

Specifically, the "opinion" of Bos and Hanes, P.C., does not qualify as
an opinion of Recipient's counsel because this law firm represents the
Eydy Company, which is not the Recipient of the grant funds; it is
strictly the Developer and a Participating Party in this Project.
opinion from counsel for Lansing, Michigan, the Recipient of the UDAC
grant funds, is the necessary evidentiary document.

Furthermore, the documentation submitted by the lending institutions does
not fulfill the evidentiary requirements of the UDAC Grant Agreement.
Although these institutions state the value of the assets held for the
Eydy Company, none of the institutions state that the value of these
assets is acceptable to the institution and that the availability and use
of these assets is assured to the satisfaction of the institution.

For these reasons, the Eydy Company's equity in the HTRC Project in
Lansing, Michigan, has not been established and verified.