Opinion
No. 601980/09.
2010-07-21
COLONIAL PACIFIC LEASING CORPORATION, Plaintiff, v. Peter BROWN, Richard Raysman, Julian S. Millstein, Jeffrey B. Steiner, Barry G. Felder, Kenneth M. Block, Robert M. Unger, Henry J. Silberberg, and Jeffrey D. Neuberger, Defendants.
Jonathan B. Nelson, Esq., The Dorf Law Firm, LLP, Mamaroneck, NY, for Plaintiff. Rachel L. Hollander, Esq., Olasov & Hollander LLP, New York, NY, for Defendants.
Jonathan B. Nelson, Esq., The Dorf Law Firm, LLP, Mamaroneck, NY, for Plaintiff. Rachel L. Hollander, Esq., Olasov & Hollander LLP, New York, NY, for Defendants.
BERNARD J. FRIED, J.
Plaintiff Colonial Pacific Leasing Corporation (Colonial Pacific) moves, pursuant to CPLR 3212, for summary judgment. Defendants cross-move, pursuant to CPLR 3212, for summary judgment dismissing the complaint.
Colonial Pacific is the successor-in-interest to Citicorp Leasing, Inc. (Citi). In August of 1995, Citi and Brown Raysman & Millstein LLP (BRM) entered into a Master Lease (First Master Lease), personally guaranteed by defendants Peter Brown, Richard Raysman and Julian S. Millstein, the then partners of BRM. Subsequently, as the other defendants became partners, each one executed his own personal guarantee for the First Master Lease. Motion, Ex. B.
At various times, the First Master Lease was extended to cover subsequent schedules of equipment, including one dated October 4, 2004, referred to by the parties as the First Lease. Pursuant to the First Lease, BRM agreed to make 60 monthly payments of $5,464.76 each. According to Colonial Pacific, BRM has been in default of the payments mandated under the First Lease from November 23, 2008 to date, for a total sum due and owing, including late charges and interest through March 4, 2009, of $76,733.86. Motion, Ex. A.
On July 27, 2005, BRM entered into a Second Master Lease with Citi for the use of certain office furniture and other equipment. Motion, Ex. C. Subsequent to executing the Second Master Lease, Citi and BRM executed an equipment leasing agreement, referred to by the parties as the Second Lease. Pursuant to the Second Lease, BRM agreed to make 60 monthly payments of $7,906.14 each, commencing on February 15, 2006. Colonial Pacific alleges that BRM failed to remit the monthly payments due under the Second Lease for November, 15, 2008, and all subsequent payments, for a total due and owing on the Second Lease, including interest and late charges, of $215,048.00.
Colonial Pacific asserts that it has made a demand of BRM for payment, but that BRM has failed or refused to make such payment.
Colonial Pacific contends that defendants guaranteed the Second Master Lease as well as the First Master Lease, and, therefore, that they are liable for the monies due and owing under both the First and Second Leases. Defendants maintain that their guaranties were discharged pursuant to a Credit Agreement entered into between Citi and BRM in 2006, and that, even if their guaranties were not so discharged, they only guarantied performance under the First Master Lease, which encompasses just the First Lease.
Pursuant to the guaranties, each defendant agreed to guarantee BRM's indebtedness to Citi up to the percentage of total debt that equates to each one's partnership percentage interest in BRM.
The original guaranties executed by defendants state, in pertinent part:
“For valuable consideration, the receipt of which is acknowledged, Undersigned jointly and severally unconditionally guarantee to [Lessor] the full and prompt performance by [BRM] (herein Obligor') of all obligations which Obligor presently or hereafter may have to [Lessor] and payment when due of all sums presently or hereafter owing by Obligor to [Lessor], whether arising by lease, note or otherwise, and whether secured or unsecured. The Undersigned further agrees to indemnify [Lessor] against any losses it may sustain and expenses it may incur as a result of any wrongful act of Obligor with respect to the performance of Obligor's obligations to [Lessor].
Anything contained in the Guaranty to the contrary notwithstanding, the liability of Guarantor thereunder shall not exceed [certain specific percentages depending on the individual defendant] of the Obligations, exclusive of attorney's fees and other expenses [Lessor] incurs in enforcing its rights hereunder.”
The original guaranties were subsequently amended so as to delete all the words appearing after “whether,” substituting the following term:
“under that certain Lease Agreement dated as of August 31, 1995 between Citicorp as lessor, and Obligor as lessee, [First Master Lease] and each supplement, agreement or amendment executed pursuant thereto, constituting the lease of any of the Equipment specified therein (collectively the Lease' and the Obligations').”
Defendants assert that they did not guarantee the Second Master Lease. Cross Motion, Ex. 2.
On December 1, 2006, BRM combined with Thelen Reid & Priest, LLP (TRP) to form a 600–attorney law firm, and the combined firm eventually changed its name to Thelen LLP (Thelen). Prior to the combination, Citi was the primary lender to each firm. As part of the combination, Citi and Thelen entered into a Credit Agreement dated December 1, 2006, and a Security Agreement also dated December 1, 2006. Cross Motion, Exs. 6 & 7. According to defendants, as part of this combination and restructuring, all of defendants' guaranties under the former BRM obligations were to be terminated. Furthermore, as an alternative argument, defendants contend that, should they be found liable pursuant to their guaranties, they should only be subject to guaranties for the First Lease.
The pertinent provisions of the Credit Agreement are as follows:
“C. On the date hereof, by virtue of the combination of BRM with [TRP], the Borrower is liable for all of the obligations of BRM under the Prior Agreements [which includes all outstanding guarantees of all former equity partners of BRM].
D. The Borrower desires to pay in full and discharge all of the obligations under the Prior Agreements and have the Bank extend new credit facilities to the Borrower. The Bank has agreed to do so and said new credit facilities are set forth herein.
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SECTION 2.02. Existing Loans: There is currently outstanding to each of Borrower and BRM a line of credit and/or term loans made under the TRP Prior Agreements and the BRM Prior Agreements, respectively, the outstanding balances of which are set forth on Schedule 1 hereto [which includes the equity partners' personal guaranties]. On the Closing Date, all of such loans under the Prior Agreements, together with all accrued and unpaid interest thereon, shall be repaid by the making of a Line of Credit Advance and/or a Term Advance by the Bank to the Borrower, in such amounts for each such Advance as specified by the Borrower but which in the aggregate shall repay all such obligations in full, such that from and after the Closing Date (i) BRM shall have no further Obligations (as that term is defined in the BRM Prior Agreements) of any kind or nature under or in respect of the BRM Prior Agreements, and no Obligations under the Loan Documents.... On the Closing Date, the Borrower agrees that any further ability to borrow under either or both the Prior Agreements shall, automatically and without the necessity of any further action, be terminated and neither the Bank nor any of its affiliates shall have any commitment to lend or extend any credit thereunder.
* * *
SECTION 2.16. Use of Proceeds. The proceeds of the Line of Credit Advances and the Term Advances shall be used by the Borrower to provide working capital, fund certain capital expenditures and to repay Debt outstanding under the Prior Agreements. On the Closing Date, all Debt under the Prior Agreements shall be paid in full with the proceeds of the initial Advances, and the Prior Agreements [including any Bank commitments thereunder and any Partner guarantees in respect thereof] shall be deemed terminated with no further force or effect. The Bank will return any such guarantee to the respective guarantor upon request.
* * *
SECTION 8.11. Limitation of Liability.
(a) The Bank shall not look to the property or assets of any Partner of the Borrower, absent tortious misconduct (including fraud) of such Partner, in seeking either to enforce the Borrower's Obligations under this Agreement or any other Loan Documents or to satisfy a judgment for the Borrower's failure to perform such Obligations; and absent fraud or other tortious misconduct, none of the Partners shall be personally liable for the performance of the Borrower's obligations under this Agreement or any other Loan Documents, except to the extent resulting from such Partner's tortious misconduct (including fraud).”
In opposition to defendants' cross motion, Colonial Pacific contends that the Credit Agreement created a condition precedent, whereby defendants' personal guaranties would only terminate once the monies outstanding on the Prior Agreements were paid, which, Colonial Pacific avers, they were not. Further, Colonial Pacific points out that the rents under the First and Second Leases were continued to be paid for two years after the Credit Agreement was executed, allegedly proving that the condition precedent was not met.
In reply, defendants maintain that the language of the Credit Agreement is clear and unambiguous, and that the Agreement states that their guaranty obligations are deemed terminated and of no effect as of the Closing Date of the Credit Agreement, regardless of whether the obligations under the Prior Agreements were discharged.
“The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case [internal quotation marks and citation omitted].” Santiago v. Filstein, 35 AD3d 184, 185–186 (1st Dept 2006). The burden then shifts to the motion's opponent to “present evidentiary facts in admissible form sufficient to raise a genuine, triable issue of fact.” Mazurek v. Metropolitan Museum of Art, 27 AD3d 227, 228 (1st Dept 2006); see Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980). If there is any doubt as to the existence of a triable fact, the motion for summary judgment must be denied. See Rotuba Extruders v. Ceppos, 46 N.Y.2d 223, 231 (1978).
The primary argument presented by the parties concerns the interpretation of the Credit Agreement as it relates to the release of defendants' guaranties. Colonial Pacific insists that the discharge of the Prior Agreements is a condition precedent to the discharge of defendants' guaranties. Conversely, defendants maintain that the discharge of their guaranties was only conditioned on the closing of the Credit Agreement, not the discharge of the Prior Agreements.
Questions regarding the interpretation of the terms of a contract provision are questions of law to be decided by the court. Van Wagner Advertising Corp. v. S & M Enterprises, 67 N.Y.2d 186 (1986).
“A fundamental tenet of contract law is that agreements are construed in accordance with the intent of the parties and the best evidence of the parties' intent is what they express in their written contract. Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms, without reference to extrinsic materials outside the four corners of the document [internal quotation marks and citations omitted].”
Goldman v. White Plains Center for Nursing Care, LLC, 11 NY3d 173, 176 (2008); MHR Capital Partners LP v. Presstek, 12 NY3d 640 (2009); Vanship Holdings Limited v. Energy Infrastructure Acquisition Corp., 65 AD3d 405 (1st Dept 2009).
This is especially true “where ... the instrument was negotiated between sophisticated, counseled ... people negotiating at arm's length [internal quotation marks and citations omitted].” TAG 380, LLC v. ComMet 380, Inc., 10 NY3d 507, 513 (2008); Logiudice v. Logiudice, 67 AD3d 544 (1st Dept 2009).
“It is a recognized rule of construction that a court should not adopt an interpretation which will operate to leave a provision of a contract ... without force and effect. An interpretation that gives effect to all the terms of an agreement is preferable to one that ignores terms or accords them an unreasonable interpretation [internal quotation marks and citations omitted].”
Ruttenberg v. Davidge Data Systems Corp., 215 A.D.2d 191, 196 (1st Dept 1995).
In the Credit Agreement under scrutiny, four separate provisions concern the Prior Agreements, and must be interpreted together.
In the preamble to the Credit Agreement, part “D,” referenced above, states that one of the purposes for entering into the Credit Agreement is to discharge all of the obligations of the Prior Agreements, which includes discharging defendants' guaranties.
Section 2.02 of the Credit Agreement states that, at the Closing Date, all of the loans outstanding under the Prior Agreements shall be repaid, and that after the Closing Date, BRM shall have no further obligations with respect to those Prior Agreements. This section only refers to BRM's obligations, and does not reference any obligations of defendants.
Section 2.16 of the Credit Agreement, the major provision under discussion, states that, on the Closing Date, all debts owed under the Prior Agreements will be paid, and the Prior Agreements, which include defendants' guaranties, shall be deemed terminated.
Lastly, section 8.11 of the Credit Agreement states that Citi shall not look to defendants to enforce the Borrower's obligations under the Credit Agreement.
A condition precedent is an event that, upon the happening or non-happening of which, triggers or discharges an absolute duty to perform. In disputes involving contract interpretation of conditions precedent, the courts must look to the specific language of the contract, and any ambiguity is construed against the drafter, in this case, Colonial Pacific, as the successor-in-interest to Citi, the presumed drafter of the Credit Agreement as the lender. Matter of Saranac Central School District (Sweet Associates, Inc.), 253 A.D.2d 566 (3d Dept 1998).
There is no specific language in the Credit Agreement creating a condition precedent to the discharge of defendants' guaranties.In the preamble to the Credit Agreement, the parties specify that one of the purposes for entering into the restructuring agreement is to extinguish all of BRM's prior obligations, including defendants' guaranties, and the Credit Agreement specifically states that Citi would not look to the assets of defendants to satisfy any obligations of BRM under the Credit Agreement, such obligations including the discharge of the Prior Agreements.
In addition, section 2.16, the Credit Agreement indicates two separate events that would occur at the Closing Date: (1) all debt under the Prior Agreements would be paid; and (2) the Prior Agreements, including defendants' guaranties, would be deemed terminated. The Credit Agreement does not say that the Prior Agreements will only be deemed terminated after the debts are paid, that they will be terminated in fact because of the repayment, or that the Prior Agreements' terminations are conditioned on repayment of the debt. Moreover, this section of the Credit Agreement, entitled “Use of Proceeds,” does not even require that the funds so extended be used to discharge the Prior Agreements; such use is listed only as one of the authorized uses for the funds. If the parties intended to require a condition precedent to the termination of defendants' guaranties, such a clause could have been specifically inserted into the Credit Agreement, which was not done. See Lakeland Fire District v. East Area General Contractors, Inc., 16 AD3d 417 (2d Dept 2005)(contract in question contained specific language evincing an intent to create a condition precedent).
Thus, defendants' personal guaranties for the prior obligations of BRM were terminated on the Closing Date of the Credit Agreement, and therefore, defendants' motion for summary judgment dismissing the complaint is granted.
Based on the foregoing, it is hereby
ORDERED that Colonial Pacific Leasing Corporation's motion for summary judgment is denied; and it is further
ORDERED that defendants' cross motion for summary judgment is granted and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk upon submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.