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granting summary judgment against guarantor in a similar case governed by New York law where the borrower was not a party
Summary of this case from BankUnited v. Blue Wolf Invs., LLCOpinion
11 Civ. 4016 (DAB)
09-05-2012
JP MORGAN CHASE BANK, N.A., Plaintiff, v. BRADLEY REIFLER, Defendant.
ORDER
This matter is now before the Court on Plaintiff's Motion to Dismiss Counterclaims and Strike Defenses. For reasons that follow, Plaintiff's Motion is GRANTED in its entirety. I. BACKGROUND
The following facts, drawn from the admitted paragraphs of the Complaint and from the Answer and Counterclaims, are deemed true for purposes of the Motion before the Court.
Plaintiff brings this action seeking recovery from Defendant under a guarantee Defendant signed in March 2007 (the "Guarantee"). At the time he signed the Guarantee, Defendant was Chief Executive Officer of Pali Holdings, Inc. ("Pali"). Under the Guarantee, Defendant personally guaranteed payment on a $6,500,000.00 loan (the "Loan") made to Pali by Custodial Trust Company ("CTC"). (Compl. ¶¶ 6, 15 and Ex. D.)
CTC assigned the Loan to Plaintiff on August 29, 2008. (Compl. ¶ 7 and Ex. B.) CTC and Plaintiff executed a second agreement, purportedly assigning the Guarantee from CTC to Plaintiff, on May 1, 2009, and the assignment recited that it was effective as of August 29, 2008. (Compl. ¶ 16 and Ex. E.)
The Guarantee provides, in relevant part, that:
(a) [Defendant] hereby agrees that this Guarantee is a continuing guarantee and that its obligations hereunder shall be absolute and unconditional, irrespective of the value, validity or enforceability of the [Loan] and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense ofa surety or guarantor in its capacity as such. . . .(Compl. Ex. D ("Guarantee"), § 1.) II. LEGAL STANDARDS
(b) [Defendant] hereby expressly waives any requirement that [CTC] exhaust any right, power or remedy or proceed against [Pali] (including any right of set-off) under common law or any Credit Document, or against any other person or entity under any other guarantee of, or security for, [the Loan], it being agreed that this Guarantee is a guarantee of payment and not of collection. . . .
(e) This Guarantee will not be discharged except by full, final and irrevocable payment and performance to [CTC] of [the Loan] while it is effective, and this Guarantee shall continue to be effective or be reinstated (as the case may be) if at any time all or any part of any payment of [the Loan] or interest thereon or delivery or other performance by [Pali] or by [Defendant] of [the Loan] is avoided, repaid, or restored for any reason whatsoever, all as though such payment, delivery or performance had not been made.
For a complaint to survive a motion brought pursuant to Rule 12(b)(6), the plaintiff must have pleaded "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility," the Supreme Court has explained,
when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 556-57).
"[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotation marks omitted). "In keeping with these principles," the Supreme Court has stated,
a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be
supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.Iqbal, 129 S.Ct. at 1950.
In considering a Motion under Rule 12(b)(6), the Court must accept as true all factual allegations set forth in the complaint and draw all reasonable inferences in favor of the plaintiff. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n. 1 (2002); Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004). However, this principle is "inapplicable to legal conclusions," Iqbal, 129 S. Ct. at 1949, which, like the complaint's "labels and conclusions," Twombly, 550 U.S. at 555, are disregarded. Nor should a court "accept [as] true a legal conclusion couched as a factual allegation." Id. at 555.
"In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint." DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010) (citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999)).
The Rule 12(b)(6) pleading standard, "as elucidated in Twombly and Iqbal, governs the sufficiency of the pleading of affirmative defenses." EEOC v. Kelly Drye & Warren, LLP, No. 10 Civ. 655 (LTS)(MHD), 2011 WL 3163443, at *2 (S.D.N.Y. July 25, 2011). III. APPLICATION
A. Waiver of Defenses
New York law governs the construction of the Guarantee. (Compl. Ex. D. § 7.)
Under New York law, a disclaimer stating that a guarantee is absolute and unconditional forecloses guarantors from asserting any defenses or counterclaims which are within the scope of the disclaimer. Compagnie Financiere de CIC et de L'Union Europeenne v Merrill Lynch, Pierce, Fenner & Smith, Inc., 1888 F.3d 31, 36 (2d Cir. 1999) ("[U]nconditional guarantees have been held to foreclose, as a matter of law, guarantors from asserting any defenses or counterclaims."); Manufacturers Hanover Trust Company v. Yanakas, 7 F.3d 310, 316-17 (2d Cir. 1993) (collecting cases); Citibank N.A. v. Paplinger, 66 N.Y.2d 90 (1985); Sterling Nat'l Bank v. Biaggi, 849 N.Y.S.2d 521, 522 (1st Dep't 2008).
Here, the Guarantee recites that it is "a continuing guarantee" and that Defendant's obligations "shall be absolute and unconditional", irrespective of the "value, validity or enforceability" of the Loan and "irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor in its capacity as such." (Compl. Ex. D., § 1, ¶ (a).) Each and every one of the affirmative defenses and counterclaims Defendant asserts in his Answer and Counterclaim is within the scope of the Guarantee's disclaimer, and all are thus waived.
Defendant's reliance on Yanakas is misplaced. In Yanakas, the Second Circuit held that a guarantee which disclaimed all defenses based on the validity of the underlying obligations but that did not disclaim defenses based on the validity of the guarantee itself did not foreclose a guarantor from arguing that he had been fraudulently induced to sign the guarantee. Manufacturers Hanover Trust Company v. Yanakas, 7 F.3d 310, 316-17 (2d Cir. 1993). In so holding, the court carefully distinguished between cases in which a guarantor had waived his defenses based on the validity of the guarantee and underlying obligations alike from those in which a guarantor had solely waived defenses based on the validity of the underlying obligations. Id. at 316-17. The Yanakas court concluded that the disclaimer there in question was of the second type, and that the guarantor was therefore not foreclosed from pursuing a defense based on the validity of the guarantee. Id.
Here, unlike the guarantee in Yanakas but like the guarantees the Yanakas court carefully distinguished, the Guarantee contains an explicit disclaimer of all defenses based on the Guarantee itself, as well as a disclaimer of all defenses based on the validity of the Loan. Defendant is thus foreclosed from asserting defenses based on the validity of the Guarantee as well as defenses based on the validity of the Loan. Under the plain language of the Guarantee, the sole defense available to Defendant is full and irrevocable payment of the Loan.
B. Full and Irrevocable Payment
Defendant argues that Plaintiff froze assets belonging to Pali which were on deposit with Plaintiff, that the seizure of assets constituted payment of the amount due on the Loan, and that Plaintiff wrongfully released those deposits back to Pali before seeking to recover on the Guarantee. Accordingly, Defendant argues, the Guarantee was extinguished when the funds were frozen, because the underlying Loan was then paid in full.
Defendant's argument fails as a matter of law. Under the clear language of the Guarantee, Defendant "expressly waive[d] any requirement that the Beneficiary exhaust any right, power or remedy or proceed against [Pali] (including any right of set-off)". (Compl. Ex. D., § 1, ¶ (b).) Accordingly, Defendant's claim that Plaintiff should have sought to set off the amounts on deposit against the Loan is waived under the Guarantee. Similarly, Defendant agreed that the Guarantee would be reinstated against him even if it were discharged "if at any time all or any part of any payment [of the Loan] . . . is avoided, repaid or restored for any reason whatsoever, all as though such payment . . . had not been made." (Compl. Ex. D., § 1, ¶ (e).) Thus, even if the seized funds could be construed as a payment rather than as a set-off against the Loan, Plaintiff was within its rights to return those funds to Pali and reinstate Defendant's liability on the Guarantee.
C. Assignment of the Guarantee
Defendant raises three interrelated arguments that assignment of the Guarantee was ineffective, so that Plaintiff lacks standing to seek recovery under the Guarantee.
Defendant argues that the Guarantee was effectively void once the Loan was assigned from CTC to Plaintiff, since Defendant's sole obligation under the language of the Guarantee was to pay CTC if Pali failed to do so. Since the assignment of the loan relieved Pali of any obligation to pay CTC, Defendant argues, that assignment also relieved him of any obligation under the Guarantee.
Defendant next raises a related argument, contending that once CTC assigned the Loan to Plaintiff, it no longer had any right to payment under the Guarantee. Accordingly, Defendant argues, the assignment of the Guarantee which was signed in May of 2009 and denominated as effective August 29, 2008 was ineffectual.
Lastly, Defendant argues that the assignment of the Guarantee was ineffective because the Guarantee explicitly requires that "[a]ny assignment of this Guarantee without the prior written consent of [CTC] shall be null and void." (Compl. Ex. D. § 6.)
Defendant's arguments are without merit. As an initial matter, these defenses are waived under the clear language of the Guarantee, as established. However, even if they were not waived, Defendant's arguments fail as a matter of law. Both the underlying Loan and the Guarantee are assignable, and Defendant expressly guaranteed that he would pay Pali's debt to CTC's assignees. (See Loan Agreement, Compl. Ex. A, at § 9.09 (Loan Agreement "shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto."); Guarantee, Compl. Ex. D, at § 6 (Guarantee "inure[s] to the benefit of any successor or permitted assignees of [CTC].").) Similarly, the Guarantee's provision requiring CTC's written consent for any assignment to be valid cannot be read to require CTC to give itself consent, in writing, to an assignment of its own making. To the contrary, the only reasonable reading is that CTC (or its successor)'s consent was required before Defendant could assign his obligations as guarantor.
D. Defendant's Contradictory Prior Testimony
Having concluded that all of Defendant's defenses and counterclaims must be stricken and dismissed as barred by the plain language of the Guarantee, the Court need not and does not reach Parties' remaining arguments, including the question of whether the Court may take judicial notice of the prior sworn testimony in which Defendant contradicted his current legal theories and denied the facts upon which he now purports to rely. III. CONCLUSION
Defendant's Affirmative Defenses are STRICKEN and his Counterclaims are DENIED in their entirety.
Parties shall appear for an initial conference pursuant to Fed. R. Civ. P. 16 on October 4, 2012 at 11:00am. SO ORDERED. Dated: New York, New York
September 5, 2012
/s/_________
DEBORAH A. BATTS
United States District Judge