Opinion
102155/08.
Decided April 25, 2011.
In this action for breach of a loan guaranty, defendants Yehuda Lieb Puretz and Reuben Austerlitz move, and defendant Frank Cretella cross-moves, pursuant to CPLR 3212, for an order granting summary judgment dismissing the complaint in part and declaring the extent of defendants' potential liability under the guaranty. Unlike defendants, who maintain that the contract is not ambiguous, Plaintiffs View FCF LLC and View FCO LLC cross-move for summary judgment, arguing that although the contract is ambiguous, parole evidence entitles them to summary judgment. Both motions are denied (except as to defendants' motions, to the extent they seek dismissal based on privity as to certain Plaintiffs). The clause at issue in the contract is poorly drafted and ambiguous, and, neither side has adequately explained its meaning.
1. Background
On December 28, 2006, plaintiff Fortress Credit Corp. (FCC) executed a Loan and Security Agreement (Loan Agreement) to lend $47,939,412.00 to three companies: The View at Jersey City Urban Renewal Limited Liability Company (The View); 1 Harbor Place LLC (1 Harbor) and 6 Harbor Place, LLC (6 Harbor) (collectively Borrowers). According to plaintiffs, the defendants in this action are the sole members of non party LMD 14 Limited Liability Company, which is a member of each of the Borrowers.
On that same day, FCC and the Borrowers executed a promissory note evidencing the loan. Also on that day, defendants executed a Full Recourse Guaranty (Guaranty), agreeing to "jointly and severally, absolutely, irrevocably and unconditionally" guarantee to the Lender the payment and performance of the "Guaranteed Obligations." Guaranty, § 1.1.
The Guaranteed Obligations were defined in section 1.2 as meaning that:
Guarantor shall be liable for and shall indemnify, defend and hold Lender harmless from and against, any and all Losses . . . actually incurred or suffered by Lender in connection with Borrower's failure to repay any amounts drawn upon from the Unfunded Interest Reserve, the Environmental Remediation Reserve and the Loan, provided such amounts have been applied by the Lender toward the Borrower's obligations to pay interest under the Loan.
According to the Guaranty, the Loan included an unfunded portion in the amount $5.2 million, referred to in the Guaranty as the "Unfunded Interest Reserve." It also included an unfunded portion in the amount of $2.5 million, referred to as the "Environmental Remediation Reserve". These constituted amounts which the Borrower could draw on to pay monthly interest payments during the first twelve months of the loan. Guaranty, ¶ B.
On December 28, 2006, FCC assigned all of its rights under the Loan Agreement, the Note and the Guaranty to plaintiff Drawbridge Special Opportunities Fund LP (Drawbridge) and plaintiff Fortress Credit Funding I LP (FCF I). On September 19, 2007, Drawbridge assigned all of its rights to plaintiff Fortress Credit Opportunities I LP (FCO I). On January 14, 2008, FCF I and FCO I assigned all their rights to plaintiffs View FCF LLC (View FCF) and plaintiff View FCO LLC (View FCO).
According to plaintiffs, on December 21, 2007, a letter was sent to the Borrowers, indicating that $46,499,890.84, would be due and payable on December 27, 2007, representing the outstanding principal balance of the loan, interest and an exit fee.
Plaintiffs state that on December 27, 2007, a Notice of Default was sent to each Borrower and each defendant, notifying them that a default had occurred, arising from Borrowers' failure to pay the $46,499,890.84. On January 3, 2008, the entire amount of the loan was accelerated, with $48,971,013.24 becoming immediately due and payable.
Also on that date, FCF I and FCO I notified each Borrower and each defendant of the acceleration of the Loan, and performance under the Guaranty was demanded from the defendants. Despite this, plaintiffs assert that the Borrowers failed to make payment on the Loan and defendants failed to make payment on the Guaranty.
Plaintiffs commenced this action in February of 2008 by filing a motion for summary judgment in lieu of complaint, pursuant to CPLR 3213. In a decision dated May 15, 2009, this court denied the motion on the ground that it was not clear from the face of the Guaranty whether it covers the entire amount of the loan or only a portion thereof.
2. Reargument/Renewal
As a threshold matter, plaintiffs contend that defendants are improperly seeking either reargument or renewal of this court's May 15, 2009 order, which denied plaintiffs' motion for summary judgment in lieu of complaint. Plaintiffs contend that, in light of that order, defendants are now precluded from contesting plaintiffs' assertion that the Guaranty applied to the entire amount of the loan rather than a smaller portion of the loan.
Plaintiffs' argument is unpersuasive. The May 15, 2009 order was a denial of plaintiffs' motion for summary judgment in lieu of complaint because it was not clear from the face of the Guaranty what, if any, amounts plaintiffs were entitled to recover and such a determination required more than a de minimis deviation from the Guaranty. The court specifically did not resolve the issue of whether the Guaranty applied to the entire indebtedness of the loan, noting that such issue had not been adequately briefed by the parties. As such, plaintiffs have not demonstrated that defendants are precluded from contesting the scope of the Guaranty in the context of a motion for summary judgment pursuant to CPLR 3212.
3. Privity
Defendants move to dismiss the complaint in connection with plaintiffs FCC, Drawbridge, FCF I and FCO I on the grounds that those parties have no privity of contract with the defendants under the Guaranty. Plaintiffs have not opposed this portion of the motion and cross motion.
It is undisputed that, at various times, FCC, Drawbridge, FCF I and FCO I each assigned their rights under the Loan, the Note and the Guaranty to other entities. As such, none of these parties has any remaining enforceable rights in this action. Therefore, the complaint is dismissed to the extent that it asserts claims on behalf of these parties.
4. Guaranteed Obligations
Each of the parties moves for summary judgment in connection with the Guaranty. A party moving for summary judgment is required to make a prima facie showing that it is entitled to judgment as a matter of law, by providing sufficient evidence to eliminate any material issues of fact from the case. Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 (1985); Grob v Kings Realty Assoc. , 4 AD3d 394 (2d Dept 2004). The party opposing must then demonstrate the existence of a factual issue requiring a trial of the action. Zuckerman v City of New York, 49 NY2d 557, 562 (1980).
The main issue here is the interpretation of the Guaranteed Obligations section of the Guaranty, and whether that section is ambiguous. The parties disagree as to whether the Guaranteed Obligations encompass the entire amount of the loan, or only the amounts actually used to pay interest on the loan.
Whether an ambiguity exists in a contract is a question for the court. Amusement Bus. Underwriters v American Intl. Group, 66 NY2d 878, 881 (1985). However, "[w]hile the meaning of a contract is ordinarily a question of law, when a term or clause is ambiguous and the determination of the parties' intent depends upon the credibility of extrinsic evidence . . . then the issue is one of fact.'" Sheriff Officers Assn', Inc. v County of Nassau , 69 AD3d 921 , 921 (2d Dept 2010), quoting Amusement Bus. Underwriters v American Intl. Group, 66 NY2d 878, 880 (1985). "Such questions of fact may not be resolved by the court on a motion for summary judgment.'" Id. at 922, quoting Shadlich v Rongrant Assoc. , 66 AD3d 759 , 760 (2d Dept 2009); see Majawalla v Utica First Ins. Co. , 71 AD3d 958 (2d Dept 2010); Norman Bobrow Co., Inc. v Theory, LLC , 51 AD3d 441 , 441 (1st Dept 2008).
Section 1.2 of the Guaranty states that the guarantors would indemnify the Lender for all "Losses" suffered "in connection with Borrower's failure to repay any amounts drawn upon from the Unfunded Interest Reserve, the Environmental Remediation Reserve and the Loan, provided such amounts have been applied by the Lender toward the Borrower's obligations to pay interest under the Loan." Guaranty, section 1.2, emphasis added. Losses is defined to include Indebtedness, as defined in the Loan Agreement. Id.
Plaintiffs argue that this clause provides for a guarantee of the entire amount of the loan (including amounts drawn from the Reserve Funds). Defendants assert that the scope of the Guaranty is limited to funds that were actually used to pay interest under the Loan. Specifically, defendants argue that because the Guaranty Recital B states that the Loan includes the Reserves, which borrower may draw upon during the first 12 months of the loan, this somehow supports their point. Yet their arguments are conclusory and defendants provide no citation for the one case which they maintain involved a similar situation. Defendants appear to believe that the language commencing with the word "provided" is not a condition precedent, but a reflection that the agreement was an interest guaranty related to withdrawals from the Reserves. The Carve-Out Guaranty, submitted by defendants for the first time in reply, cannot be considered. Plaintiffs, who acknowledge that the contract is ambiguous, point out the defendants' reading — that the guaranty relates only to the Reserves — renders the words "and the Loan" without meaning. Plaintiffs also point out that defendants' interpretation, which limits plaintiffs' recovery to interest payments drawn from the Reserves, conflicts with the provision requiring compensation for all Losses (which includes the Indebtedness). To the extent the one of the defendants maintain that the Debt Service Reserve Sub-Account is a portion of the loan which may be drawn upon to pay interest due on the loan, that defendant has not identified the provision in the loan allowing for such a draw.
Thus, neither side has met their burden, Section 1.2 of the Guaranty is ambiguous, and questions exist as to whether the parties intended the Guaranty to apply to the full amount of the loan or merely the portion of the loan used to pay interest. As such, parole evidence may be admitted, to determine the issue. The evidence submitted by plaintiffs, does not determine the issue, as a matter of law. Accordingly, it is
ORDERED that the motion by defendants Yehuda Lieb Puretz and Reuben Austerlitz for summary judgment is granted to the extent that the complaint is dismissed as against them with respect to the causes of action asserted by plaintiffs Fortress Credit Corp., Drawbridge Special Opportunities Fund LP, Fortress Credit Funding I LP, and Fortress Credit Opportunities I LP and the motion is otherwise denied; and it is further
ORDERED that the cross motion by defendant Frank Cretella for summary judgment is granted to the extent that the complaint is dismissed as against him with respect to the causes of action asserted by plaintiffs Fortress Credit Corp., Drawbridge Special Opportunities Fund LP, Fortress Credit Funding I LP, and Fortress Credit Opportunities I LP and the motion is otherwise denied; and it is further
ORDERED that plaintiffs' cross-motion for summary judgment is denied; and it is further
ORDERED that the parties appear for a pre-trial conference on June 16, 2011.
This Constitutes the Decision and Order of the Court.