Opinion
92 Civ. 1042 (JSM)
September 28, 1992, Decided . October 7, 1992, Filed
MEMORANDUM OPINION AND ORDER
JOHN S. MARTIN, JR., District Judge
Plaintiff The Chase Manhattan Bank, N.A. ("Chase") moves pursuant to Fed. R. Civ. P. 56 for summary judgment granting relief against Defendants Antonio Reale ("Reale") and Readco, Inc. ("Readco"). Defendants oppose this motion and cross-move for summary judgment as to Claims One and Two. For the reasons contained herein, Defendants motion is denied and summary judgment is granted to the plaintiff.
FACTUAL BACKGROUND
This action arises out of Defendants' defaults under;
1. The Construction Loan -- Reale's unconditional guaranty of all of the obligations of LAN XII Limited Partnership ("LAN") with respect to a note and mortgage evidencing a construction loan provided by Chase to LAN in the original principal amount of up to $ 10 million.
2. The Completion Costs Guaranty -- Reale's unconditional guaranty of payment of certain costs incurred by [Chase] to complete certain construction contemplated by the Construction Loan.
3. The Line of Credit Note -- Reale's promissory note given in the original principal amount of $ 1.5 million evidencing sums owing under a line of credit.
4. The Reimbursement Agreement -- Reale's guaranty of a $ 3 million letter of credit issued by Chase at Reale's request for Readco's account.
A. The Construction Loan
On or about July 26, 1988, Chase and LAN entered into a Building Loan Agreement ("BLA"), pursuant to which Chase agreed to provide the Construction Loan to LAN in the original principal amount of $ 10 million. The BLA provides that the Construction Loan would be advanced to LAN from time to time for the payment of all or part of LAN's costs in connection with Lan's completion of certain construction to be performed on an office building owned by LAN located on certain real property in Connecticut. The Construction Loan was evidenced by the Construction Note, in which Lan obligated itself to pay Chase on August 1, 1990 or upon default the principal sum advanced as of that date.
To secure the payment of all sums payable under the construction Note, and the performance of all of the terms and provisions of the Construction Note and the BLA, LAN gave Chase the Construction Mortgage on the Premises in the original principal amount of $ 10 million.
Simultaneously with the execution of the Construction Note, Defendant Reale executed a Payment Guaranty, dated July 26, 1988. Under this Payment Guaranty, Reale absolutely and unconditionally guaranteed the due performance and prompt payment of all of LAN's obligations under the Construction Note and the Construction Mortgage. Reale also expressly submitted to the jurisdiction of this Court and to the sole applicability of New York law.
On August 1, 1990, LAN became obligated to pay Chase the full principal sum along with interest and late charges due thereunder. To date, LAN has failed to pay these sums.
On or about January 9, 1992, Chase gave LAN and Reale written notice of LAN's default under the Construction Note and the Construction Mortgage and demanded payment in full of the outstanding sums. On or about February 10, 1992, Chase commenced an action in Connecticut against LAN and Reale seeking a judgment of strict foreclosure of the Construction Mortgage and a deficiency judgment on the Construction Note against LAN and against Reale based solely on Reale's liability as Managing General Partner for LAN's debts. Chase also commenced the present action, seeking an immediate judgment against Reale for the full amount owing under the Construction Note as per Reale's Payment Guaranty.
As a result of Reale's default, Chase seeks the following:
The Outstanding Principal Balance
$ 9,438,145.04
Late Payment Premiums
$ 426,472.57
Interest:
$ 1,293,388.89
Total:
$ 11,158,006.50
With interest of $ 2,359.54 per day past February 10, 1992, plus such insurance premiums, taxes, advances and expenses as have been or hereafter may be so paid or incurred by Chase so as to become part of the debt due Chase, plus costs and reasonable attorneys' fees.
B. The Completion Costs Guaranty
Simultaneously with the execution of the BLA, Reale executed and delivered the Completion Costs Guaranty, dated July 26, 1988. In the Completion Costs Guaranty, Reale unconditionally guaranteed payment of an amount equal to certain costs incurred or to be incurred by Chase in connection with the lien-free completion of the Construction, in excess of the amount of the undisbursed portion of the Construction Loan as of the date of maturity thereof or upon acceleration by Chase following a default by LAN.
Chase seeks judgment in the amount of $ 1.7 million in connection with the lien-free completion of the construction.
C. Line of Credit
On or about August 20, 1987, Chase extended to Reale, and on or about September 9, 1987, Reale accepted, an unsecured line of credit pursuant to which Reale was authorized to borrow up to $ 2 million. In September 1988, Reale requested, and Chase advanced to Reale $ 2 million under the Line of Credit.
On or about August 23, 1989, Reale made a partial payment to Chase of $ .5 million with respect to the Line of Credit, leaving a principal balance of $ 1.5 million.
On or about February 6, 1990, Reale executed the Line of Credit Note wherein he promised to pay Chase on May 1, 1990 the outstanding $ 1.5 million principal balance on the Line of Credit. Reale expressly submitted to the jurisdiction of this Court and agreed to the sole applicability of New York law.
As a result of Reale's default under the Line of Credit Note, Chase seeks:
The Outstanding Principal Balance:
$ 1,500,000.00
Late Payment Premiums:
$63,622.50
Interest:
$93,375.00
Total:
$ 1,656,997.50
With interest of $ 312.50 per day past February 10, 1992, plus costs and reasonable attorneys' fees.
D. The Letter of credit
On or about July 29, 1988, Chase issued a $ 3 million Letter of Credit for the benefit of Marine Midland Bank, N.A. ("Marine Midland").
In an application for the Letter of Credit, Reale and Readco promised to immediately reimburse Chase upon demand for all payments made by Chase under the Letter of Credit together with interest from the date of such payments until the date or reimbursement.
Reale executed a Reimbursement Agreement, which incorporates the terms and provisions of the Application, and wherein he promises to pay Chase a sum equal to all amounts advanced by Chase under the Letter of Credit together with interest thereon. Reale expressly consented to the jurisdiction of this Court and to applicability of New York law. Furthermore, Reale expressly agreed that his obligations under the Reimbursement Agreement would be absolute and unconditional, and would not be limited by any claim, set-off, defense or other right they may have at any time against Chase.
The Letter of Credit required any draft drawn thereon to be presented no later than August 4, 1991. On August 5, 1991 (August 4, 1991 being a Sunday), Marine Midland presented to Chase a draft for the sum of $ 3 million that appeared on its face to comply with the terms of the Letter of Credit. Chase honored this draft.
On or about January 9, 1992, Chase gave Reale written notice that because Marine Midland had drawn the Letter of Credit, Chase was demanding full payment of the amount due under the Reimbursement Agreement.
As a result of Defendants' default under the Reimbursement Agreement and the Application, Chase seeks:
The Outstanding Principal Balance
$3,000,000.00
Late Payment Premiums:
$125,186.66
Interest:
$153,291.6
Fees:
$2,647.95
Total:
$3,263,126.27
With interest of $ 625.00 per day past February 10, 1992, plus costs and reasonable attorneys' fees.
DISCUSSION
Summary judgment is proper when there is no genuine issue of material fact and, based upon facts not in dispute, the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548 (1986). The court's role on a motion for summary judgment is not to decide disputed issues of fact but only to determine whether there is a genuine issue to be tried. Rattner v. Netburn, 930 F.2d 204, 209 (2d Cir. 1991). Moreover, the court must resolve all ambiguities and draw all factual inferences in favor of the nonmoving party. Rattner, 930 F.2d at 209 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505 (1986)). Summary judgment may be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex, 477 U.S. at 322, 106 S. Ct. at 2552.
A. The Payment Guaranty and the Completion Costs Guaranty
Defendants do not deny that Reale is in default of his obligations to Chase under the Payment Guaranty (First Claim for Relief) and the Completion Costs Guaranty (Second Claim for Relief) for all amounts owing under the Construction Loan. Rather, Defendants oppose plaintiff's motion for summary judgment and premise their own motion to dismiss on the ground that pending state-court litigation in Connecticut requires abstention. The argument is without merit.
In its Answer to the Complaint, Defendants assert twenty affirmative defenses. However, as these defenses are not raised in opposition to Plaintiff's motion, we do not consider them at this time. In any event, conclusory defenses, absent factual allegations or evidentiary support, are insufficient to defeat a motion for summary judgment. See, e.g., Citizens Fidelity Bank v. Coulston Int'l Corp., 553 N.Y.S.2d 901, 902 (3rd Dep't 1990); Brass Rail, Inc v. Lakeville, Inc., 504 N.Y.S.2d 722, 723 (2d Dep't 1986); European American Bank & Trust Co. v. Leonard Masonry, Inc., 484 N.Y.S.2d 27, 28 (2d Dep't 1985); Mayer v. McBrunigan Constr. Corp., 481 N.Y.S.2d 719, 720 (2d Dep't 1984). See also Jami Marketing Services, Inc. v. Valassis Inserts, Inc., No. 89-3848, slip op. (S.D.N.Y. 1991).
The pending litigation in Connecticut involves an action against LAN and Reale to foreclose the Construction Mortgage and obtain a deficiency judgment against LAN and Reale on the construction Note. The Connecticut deficiency claim has been brought against Reale based solely on his liability as a Managing General Partner of LAN for the debts of LAN. The action does not seek judgment against Reale on the Payment Guaranty. As such, the actions are separate and distinct and abstention is not warranted. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S. Ct. 927 (1983); Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236 (1976).
Nor is this a case where an election of remedies is required as Defendants suggest. Reale contends that Chase's suit for payment on the Payment Guaranty and Completion Costs Guaranty is precluded by its foreclosure action in Connecticut. Defendants arguments that a holder of a bond and mortgage must proceed either at law to recover on the note or at equity for foreclose on the mortgage is not without legal[*10] support. See, e.g., N.Y.R.P.A.P.L. § 1301 (McKinney 1979); United States v. Whitney, 602 F. Supp. 722, 730 (W.D.N.Y. 1985); Wyoming County Bank & Trust Co. v. Kiley, 430 N.Y.S.2d 900, 902-03 (4th Dep't 1980); Stein v. Nellen Development Corp., 473 N.Y.S.2d 331 (N.Y. Sup. Ct. 1984); Stern v. Itkin Bros., Inc., 385 N.Y.S.2d 753, 755 (N.Y. Sup. Ct. 1975). It is well settled, however, that such an election need not be made where the property at issue is located without the state. See Fielding v. Drew, 463 N.Y.S.2d 15, 16 (1st Dep't 1983); The Provident Sav. Bank & Trust Co. v. Steinmetz, 270 N.Y. 129 (1936); New York Life Ins. Co. v. Aitkin, 125 N.Y. 660 (1891); Franklin Soc. for Home Bldg. and Sav. v. Weseman, 293 N.Y.S. 909 (1st Dep't 1937); Florida Land Holding Corp v. Burke, 238 N.Y.S. 1 (1929), aff'd, 243 N.Y.S. 799 (1930). See also 2 N.Y.Jur. §§ 414, 424. As such, an election in was not required.
As Defendants' defenses are insufficient as a matter of law, and Defendants have raised no triable issue of fact, summary judgment is granted to the Plaintiff as to the first two counts.
B. The Line of Credit Note
Similarly, summary judgment is granted to the Plaintiff as to Count Three. Reale does not deny that he executed the Line of Credit Note or that the full principal amount of $ 1.5 million came due and payable on May 1, 1990. Nor does Reale raise any defenses or triable issues of fact in opposition to Plaintiff's motion for summary judgment. Accordingly, judgment is granted to the Plaintiff on this claim.
C. The Letter of Credit
The Letter of Credit Application obligated Reale and Readco to reimburse all sums paid by Chase under the Letter of Credit. In addition, in the Reimbursement Agreement executed in connection with the Letter of Credit, Reale unconditionally guaranteed repayment of the amounts advanced by Chase.
Defendants do not dispute the existence or validity of the documents establishing their liability to reimburse Chase for amounts paid thereunder, or their defaults in their obligations to reimburse Chase. [*12] Rather, they argue that Chase breached its obligation of "good faith" by declining to extend the Letter of Credit's expiration date. The argument fails as a matter of law. While in every contract there exists an implied covenant of good faith, Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir. 1980), that implied covenant stops short of requiring a party to a contract to act contrary to the contract's express written terms. Sharma v. Skaarup Ship Mgmt. Corp., 699 F. Supp. 440, 449 (S.D.N.Y. 1988). Specifically, such an implied covenant can not "extend so far as to undermine a party's 'general right to act on its own interests in a way that may incidentally lessen' the other party's anticipated fruits from the contract. M/A-Com Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990) (quoting Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., 330 N.Y.S.2d 329, 334, cert. denied, 409 U.S. 875, 93 S. Ct. 125 (1972)). Here, Plaintiff apprised Reale that it would not extend the letter of credit and was within its rights to do so. See Penthouse Int'l, Ltd. v. Dominion Fed. Sav. and Loan Ass'n, 855 F.2d 963, 975-76 (2d Cir. 1988), cert. denied, 490 U.S. 1005, 109 S. Ct. 1639 (1989). As such, Reale's bad faith defense must fail.
Based on the foregoing, Plaintiff's motion for summary judgment is granted and Defendants' cross-motion is denied.
SO ORDERED.
Dated: September 28, 1992
John S. Martin, Jr., U.S.D.J.