- Posted April 12, 2013
- Tweet This | Share on Facebook
Schostak wins key court ruling in Wells Fargo case

By Ed White
Associated Press
DETROIT (AP) -- A new law prevents a bank from trying to collect more than $2 million from a developer who is the brother of the chairman of the Michigan Republican Party, a state appeals court said in a decision released Wednesday.
Wells Fargo had argued that the law illegally interfered with a valid contract and was the product of political interference from the Republican-controlled Legislature. The appeals court acknowledged that David Schostak would benefit but said lawmakers seemed motivated "to avert a broader economic problem" that could also affect other developers.
"We have found no evidence that the (law) was intended solely for his benefit," the court said in a 3-0 opinion.
Schostak is the brother of Republican leader Bobby Schostak.
Schostak Bros. built the Cherryland Center, a well-known shopping mall near Traverse City. But the poor economy caused store closings, and the family-owned development company defaulted on an $8.7 million loan, prompting Wells Fargo to repossess the mall. The bank then took the unusual move of pursuing David Schostak, as the developer, for $2.1 million to cover the balance of the loan.
A Grand Traverse County judge said David Schostak was personally responsible, and the appeals court in 2011 affirmed that decision. The court said it wouldn't step in and save "litigants from their bad bargains or their failure to read and understand the terms of a contract."
But just a few months later, the Legislature, with wide bipartisan support, approved a bill that ensured developers would not bear personal liability in commercial loans under certain conditions.
The Michigan Supreme Court then told the appeals court to take another look at the case after Gov. Rick Snyder, a Republican, signed the law. That ruling came this week.
Schostak's attorney, I.W. Winsten, was pleased with the decision. He said developers with loans worth billions in Michigan could have been vulnerable to liability if the loans turned bad in a weak economy, which would be inconsistent with traditional lending practices.
"The Legislature needed to act to protect the Michigan real estate industry and the people of the state from an economic disaster. Otherwise people wouldn't invest in Michigan," Winsten said.
"If you can't pay the loan back, the lender takes the property and the borrower goes home," he said. "That's the bargain they made."
Bobby Schostak has said he didn't push for a law that helped his brother and the family business.
An appeal by Wells Fargo to the state Supreme Court is possible.
"The Constitution prohibits the retroactive cancellation of private debt," attorney James Allen said. "The Court of Appeals ignored that part of the Constitution. We do not believe the Michigan Supreme Court will agree with this decision."
Published: Fri, Apr 12, 2013
headlines Oakland County
- Fireside chat
- Michigan Supreme Court selects new chief justice
- Nessel charges two in alleged gift card scam targeting Metro Detroit Meijer stores, thousands of altered gift cards seized
- Oakland County launches Wellness Wednesdays in Pontiac to connect residents with vital services
- Arguments in state, national GOP election inspector challenge heard by Michigan Supreme Court
headlines National
- Helping Hand: Swapna Reddy is helping asylum-seekers navigate the immigration system
- ACLU and BigLaw firm use ‘Orange is the New Black’ in hashtag effort to promote NY jail reform
- Citing ‘anti-democratic takeover’ by ‘activist’ plaintiffs, Trump seeks money bond for injunction requests
- Law prof suspended over exam question, class discussion can sue for First Amendment retaliation, 7th Circuit says
- On-campus recruiting for summer associates falls in popularity as law firms ‘jockey for positions’
- Former lawyer gets prison time after posing as BigLaw alum, former football player in quest for jobs