LSREF2 Clover Property 4 v. Festival Retail Fund 1

BACKGROUND

Facts Festival Fund is a limited partnership formed in September 2006 for the purpose of investing in retail properties. Goldman Sachs Investments Ltd. (Goldman Sachs) was the lead investor, a limited partner, and the primary funder of Festival Fund. Mark Schurgin, the president of the general partner of Festival Fund, indirectly held an ownership interest in Festival Fund, and negotiated loans on behalf of Festival Fund and its affiliates. Festival Fund’s limited partnership agreement provided that, absent approval from the lead investor and the general partner, Festival Fund would not purchase property except through a “single-purpose” company. In April 2007, Festival Fund entered into an agreement to purchase property at 357 North Beverly Drive in Beverly Hills (the property). In the purchase agreement, Festival Fund reserved the option to assign its rights and take title to the property under “a limited liability company or other single purpose entity (SPE),” if the SPE was owned and controlled by Festival Fund or an affiliate. In May 2007, Schurgin caused the SPE that would take title to the property— Festival Retail Fund 1 357 N. Beverly Drive, LP (Festival…