Lennar Corp., Miami (NYSE:LEN) on Monday morning reported that it was taking a one-time, $140 million charge against first-quarter, 2017 earnings regarding a lawsuit stretching back to 2007 after a Federal Appeals Court hearing in late March indicated it would be prudent to do so.
As a result of this accrual, Lennar’s net earnings for the first quarter of 2017, reported March 21, were reduced from $130.8 million, or $0.56 per diluted share down to $38.1 million, or $0.16 per diluted share, according to a 10-Q filed with the Securities and Exchange Commission Monday morning.
The writedown is associated with a deal among Lennar and Settler’s Crossing and iStar Financial, Inc. involving 1,250 acres of undeveloped land in Price George’s County, Maryland from Settlers Crossing, with plans to build an 1,867-home development. iStar was Settler’s lender. Price George’s County in 2013 rezoned the allowed density down to 900 homes.
Lennar attempted to back out of the deal in May, 2008 after it discovered part of the property had been used as a disposal site for sewage sludge.
U.S. District Judge Deborah Chasanow in January 2015 ruled that Lennar must purchase the site for $114 million, pay $1.56 million to cover past real estate taxes, plus pay 12 percent interest on the purchase price as of the default date in May 2008. The hearing last month lead Lennar to believe the judge was sticking to the 2015 ruling.
“The Company continues to believe that the January 2015 Federal District Court decision is contrary to applicable law, as it has stated since it first disclosed the litigation,” Lennar said in its SEC filings Monday. “The Appellate Court’s final decision is still pending and could result in an outcome lower than the company’s accrual.”
In a statement, Stuart Miller, Lennar’s Chief Executive Officer, said “As we have disclosed for several years in our quarterly and annual SEC filings, we have been engaged in litigation since 2008 regarding whether we were required to purchase a property in Maryland. The property was put under contract in 2005 for a purchase price of $200 million. After entering into the contract, we later renegotiated the purchase price during the downturn, reducing it from $200 million to $134 million, $20 million of which had been paid and subsequently written-off, leaving a purchase price balance of $114 million.”
The statement continued, “As we disclosed, in January 2015, a Federal District Court rendered a decision ordering us to purchase the property for $114 million and to pay interest at 12% per annum from May 27, 2008 ($13.7 million per year), as well as reimbursing the seller for real estate taxes and attorneys’ fees. However, our disclosures also stated that the company had appealed the decision because we believed it was contrary to applicable law and therefore, no liability had been recorded with respect to the case. Based on our assessment of the March 23, 2017 oral argument referenced above, we now believe that the company should record an accrual for this litigation.”
