Leasing company claims lender misled loan terms causing it to pay millions extra

Kelly Holleran Oct. 14, 2011, 3:36am


The owner of a leasing company claims a lender and financial advisor misled it into believing that a variable interest rate would lead to the same costs as a fixed rate loan. By going with the variable interest rate, the owner claims he spent millions extra that a fixed rate loan never would have cost him.

N.A.R.A.J.J.P.K., Joseph J. Koppeis and Patricia Koppeis filed a lawsuit Sept. 23 in St. Clair County Circuit Court against BMO Harris Bank and M&I Financial Advisors.

In their complaint, the Koppeises allege they sought financing from the bank to cover $25 million worth of construction costs. The Koppeises had agreed to lease an underground storage facility to the National Archives, but agreed to make extensive changes to the Valmeyer, Illinois, property for the government agency, according to the complaint.

In 2007, the Koppeises began talking with various financial institutions in an attempt to obtain a long-term, fixed rate note that would enable them to make the alterations on the property, the suit states. They say they needed to obtain a fixed-rate loan in order to be able to afford monthly payments.

However, M&I and BMO Harris Bank eventually convinced the Koppeises to take out a variable rate demand note.

"The executives from M&I and M&I Advisors' Interest Rate Risk Management Group made their recommendation and proposed to Koppeis that the fixed rate financing that the company was seeking could be provided by them, not through a commercial loan, but through a more complicated transaction that would give the company a better fixed rate," the complaint says.

The Koppeises agreed to the financing transaction, believing they would essentially be paying a fixed rate because of the complicated terms of the transaction. In essence, the company would receive a certain amount of money every year by refinancing its loan. The money it would receive should have offset the variable rate it paid on its notes, according to the complaint.

"As the M&I Executives explained, the two rates, each based upon LIBOR, would move in tandem, either up or down, but would always cancel each other out, leaving just the fixed rate leg of the Swap to be paid by the Company," the suit states. "Hence, the financing would be at a fixed rate."

Soon after the Koppeises made the financial arrangement, however, the financial market began to collapse. By 2009, the interest rate the company was being paid was significantly less than the interest rate the company was paying on its note, the complaint says.

In 2010, the Koppeises were forced to refinance their debt, but had to pay additional fees and a higher interest rate to do so. They also had to pledge additional collateral and to borrow more principal, according to the complaint. In total, the Koppeises spent more than $1 million in excess costs and interest rates, the suit states.

In their 10-count complaint, the Koppeises allege common law fraud, negligent misrepresentation, strict responsibility misrepresentation, breach of fiduciary duty, breach of contract and unjust enrichment against the defendants. They say the defendants knew the plan would rob them of significant amounts of money.

They seek compensatory damages of more than $8 million, plus punitive damages, costs and other relief the court deems just.

Russell F. Watters and Robert L. Carter of Brown and James in St. Louis and Thomas Q. Keefe Jr. of Belleville will be representing them.

St. Clair County Circuit Court case number: 11-L-535.

More News