Opinion
No. 156210/14.
12-22-2016
Rosenberg & Estis by Dani Schwartz, Esq., New York, for plaintiff. Backenroth, Frankel & Krinsky LP (Klein defendants) by Abraham Backenroth, Esq., New York, for defendant. Goldberg Weprin Finkel Goldstein LLP by Kevin J. Nash, Esq., New York, for Klein defendants.
Rosenberg & Estis by Dani Schwartz, Esq., New York, for plaintiff.
Backenroth, Frankel & Krinsky LP (Klein defendants) by Abraham Backenroth, Esq., New York, for defendant.
Goldberg Weprin Finkel Goldstein LLP by Kevin J. Nash, Esq., New York, for Klein defendants.
ROBERT R. REED, J.
In this guaranty collection action, plaintiff RCG LV Debt IV Non–Reit Assets Holdings, LLC seeks to enforce its rights under a guaranty issued by defendants Benjamin Ringel, Tibor Klein and Gershon Klein (collectively, defendants or the Guarantors), pursuant to which they personally guaranteed the payment and performance of AC I Manahawkin Mezz, LLC (the Mezzanine Borrower), an entity in which they hold indirect membership interests, under a mezzanine loan extended by plaintiff to the Mezzanine Borrower. The Mezzanine Borrower defaulted under certain of its obligations under the mezzanine loan, and plaintiff asserts that the Guarantors are jointly and severally personally liable for the payment in full of the principal balance, accrued interest, late charges and other applicable fees, penalties and charges due under the mezzanine loan.
Plaintiff now moves, pursuant to CPLR 3212, for summary judgment on its first cause of action seeking a money judgment in the amount of $5,643,361.90, and setting plaintiff's claims for attorneys' fees, costs and disbursements down for a hearing.
Defendants Tibor and Gershon Klein cross-move for summary judgment dismissing plaintiff's amended complaint, and/or staying this action pending certain allegedly related Bankruptcy cases, and/or compelling discovery.
Defendant Ringel also cross-moves for summary judgment in his favor, and staying the action pending certain allegedly related Bankruptcy cases.
For the reasons set forth below, plaintiff's motion is granted, and the cross motions are denied.
Background
The Mortgage Loan and The Mezzanine Loan
On February 3, 2011, plaintiff loaned to AC I Manahawkin, LLC (the Mortgage Borrower) the amount of $36,630,000 (the Mortgage Loan). The Mortgage Loan was evidenced by a promissory note, dated February 3, 2011, in the principal amount of $36,630,000, made by the Mortgage Borrower for the benefit of plaintiff, and is secured by a mortgage encumbering the commercial real property known as The Commons at Manahawkin Village (the Property), located in Stafford Township, New Jersey (amended complaint, ¶ 7). The Mortgage Borrower owns the Property (id., ¶ 8).
Simultaneously with the making of the Mortgage Loan, plaintiff loaned to the Mezzanine Borrower the amount of $370,000 (the Mezzanine Loan), which amount is evidenced by a promissory note made by the Mezzanine Borrower for the benefit of plaintiff (id., ¶ 9; see aff of Dean Ravosa, plaintiff's chief operating officer, exhibit B). The Mezzanine Loan is secured, through a Pledge and Security Agreement, by a first priority interest in all of the Mezzanine Borrower's ownership interest in the Mortgage Borrower (id. ). The Mezzanine Loan is governed by the Mezzanine Loan Agreement, dated February 3, 2011 (the MLA), between plaintiff and the Mezzanine Borrower (id., ¶ 10; see Ravosa aff, exhibit D). The MLA was signed by defendant Benjamin Ringel (Ringel) on behalf of the Mezzanine Borrower, as well as by all three Guarantors individually, in their capacities as guarantors (see id. ).
Pursuant to a series of agreements dated May 27, 2011, including the first amendment to the MLA (see Ravosa aff, exhibit E] ), and other loan documents (the Loan Documents), plaintiff, the Mortgage Borrower and the Mezzanine Borrower restructured the Mortgage Loan and the Mezzanine Loan in order to reallocate a portion of the principal balance of the Mortgage Loan to the Mezzanine Loan (amended complaint, ¶ 11). Plaintiff and the Mortgage Borrower agreed that the principal amount of the Mortgage Loan was decreased from $36,630,000 to $31,991,789.35, and plaintiff and the Mezzanine Borrower agreed that the principal amount of the Mezzanine Loan was increased from $370,000.00 to $4,941,009.59 (id., ¶ 12), as evidenced by an amended and restated promissory note (the Mortgage Note [Ravosa aff, exhibit A] ), and an amended and restated mezzanine promissory note (the Mezzanine Note [Ravosa aff, exhibit C] ) (id., ¶ 13). The Mortgage Note was signed by defendant Ringel on behalf of the Mortgage Borrower, and the Mezzanine Note was signed by Ringel on behalf of the Mezzanine Borrower (see id. ).
Plaintiff's collateral (the Collateral) for the repayment of the Mezzanine Loan was the pledge of the Mezzanine Borrower's membership interest in the Mortgage Borrower. The Mezzanine Borrower is the sole member of the Mortgage Borrower (Ravosa aff, ¶ 15). In other words, plaintiff's primary security for repayment of the Mezzanine Loan in the event of the Mezzanine Borrower's default thereunder was the indirect ownership of the Property through a foreclosure of the related Collateral to obtain all of the interests in the Mortgage Borrower and to own the Property (id., ¶ 16).
Pursuant to the MLA, monthly debt service payments under the Mezzanine Loan are due on the first day of each calendar month (amended complaint, ¶ 15). Pursuant to section 8.1(a)(xxx) of the MLA, a default under the Mortgage Loan is a default under the MLA (id., ¶ 16).
Pursuant to section 8.1(a)(iv) of the MLA, an "Event of Default," includes, but is not limited to, any sale, conveyance, mortgaging, granting, bargaining, encumbering, pledging, assigning, granting options with respect to, or otherwise transferring or disposing of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) of the Property or any part thereof or any legal or beneficial interest therein or the voluntary or involuntary sale, conveyance, transfer or pledge of a direct or indirect legal or beneficial interest in any direct and/or indirect ownership of the Mortgage Borrower, Mezzanine Borrower, or any direct and/or indirect owner thereof.
Furthermore, pursuant to section 8.1(a)(xxx) of the MLA, the occurrence of an event of default under the Mortgage Loan is an automatic event of default under the MLA.
Pursuant to section 8.2(d) of the MLA, following the occurrence of an event of default thereunder, plaintiff may, in its sole discretion, apply any amounts received from the Collateral towards the payment of any interest, principal, late charges and other applicable fees, penalties and charges due thereunder.
Pursuant to section 9.4(a) of the MLA, plaintiff agreed not to pursue a money judgment against the Mezzanine Borrower in the event of the occurrence of an event of default under the MLA and the Mezzanine note, subject to the exceptions set forth below. Specifically, section 9.4(a) of the MLA provides that:
"Except as otherwise provided herein, in the Pledge Agreement or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Agreement the Note or the Pledge Agreement by an action or proceeding wherein money judgment shall be sought against Borrower"
(MLA, § 9.4[a] ).
However, section 9.4(c) of the MLA provides that:
"Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in Subsection (a) above SHALL BECOME NULL AND VOID and shall be of no further force and effect and the Loan shall become fully recourse to Borrower and Guarantor jointly and severally (i) in the event of Borrower's default under Section 4.1.36 or 5.2.10 hereof, (ii) if the Property, the Collateral or any part thereof shall become an asset in a voluntary bankruptcy or insolvency proceeding ... (v) any Affiliate, officer, director, or representative which controls Borrower or Mortgage Borrower consents to or acquiesces in or joins in an application for the appointment of a custodian, receiver, trustee or examiner for Borrower, Mortgage Borrower, or any portion of the Collateral"
(id., § 9.4[c] ).
Section 5.2.10 of the MLA specifically prohibits the selling, conveying, mortgaging, granting, encumbering, pledging, bargaining, and/or assigning of any legal or beneficial interest in the Property, and any conveying, mortgaging, granting, encumbering, pledging, bargaining, and/or assigning of any interest in the Mortgage Borrower, Mezzanine Borrower, and any direct and/or indirect owners thereof.
Pursuant to section 9.6(a) of the MLA, plaintiff, as the lender under the MLA, and in order to protect its collateral, is permitted to cure the Borrower's monetary defaults under the Mortgage Loan, and any payments tendered by plaintiff to cure defaults of the Borrower under the Mortgage Loan become part of the indebtedness secured by, and due and payable under, the Mezzanine Loan Documents
The Guarantors' Obligations Under the Guaranty
The Guarantors are the guarantors of all of the Mezzanine Borrower's recourse obligations under the Mezzanine Note, the MLA, and the Mezzanine Loan Documents, pursuant to a written Mezzanine Guaranty of Recourse Obligations of Borrower, dated February 3, 2011 (the Guaranty) (amended complaint, ¶ 21; see Ravosa aff, exhibit F). The Guarantors specifically acknowledged and agreed to the amendments of the Mortgage Loan and the Mezzanine Loan (Guaranty, at 1). The Guaranty is executed by all three Guarantors (see id. ).
Under the terms of the Guaranty, the Guarantors "jointly and severally" and "absolutely and unconditionally" guaranteed to plaintiff "the prompt and unconditional payment" of "all obligations and liabilities of [Mezzanine] Borrower for which [Mezzanine] Borrower shall be personally liable pursuant to the [Mezzanine Note], the [Mezzanine] Loan Agreement, or the other Loan Documents" (id. at 1)
Pursuant to Article 1 of the Mezzanine Note, the Mezzanine Borrower is liable for:
"the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement, and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date"
(Mezzanine Note, article 1)
Section 2.21 of the MLA provides that the Mezzanine Borrower would make all payments due under the Mezzanine Note, the MLA and the other Mezzanine Loan Documents "without any setoff, defense or irrespective of, and without deduction for, counterclaims."
Further, section 9.6(a) of the MLA provides that the Mezzanine Borrower is liable for any payments tendered by plaintiff to cure defaults of the Mortgage Borrower under the Mortgage Loan, and such sums become part of the indebtedness secured by, and due and payable under, the Mezzanine Loan documents (in each instance, a "Protective Advance").
Pursuant to the Guaranty, the Guarantors are, therefore, liable for the repayment of the principal amount of the Mezzanine Loan, together with interest thereon, late fees, and any other applicable charges and penalties, as well as any Protective Advances made by plaintiff.
The Guaranty provides that it is a "continuing guaranty and that the obligations of Guarantor hereunder are and shall be absolute under any and all circumstances, without regard to the validity, regularity or enforceability of the Note, the Loan Agreement, or the other Loan Documents" (Guaranty, at 1).
The Guaranty also provides that the Guarantors are obligated to reimburse plaintiff, to the extent that such reimbursement is not made by the Mezzanine Borrower, "for all expenses (including reasonable counsel fees and disbursements) incurred by [plaintiff]" in connection with the enforcement of the Guaranty (id. at 2).
The Guaranty further provides that the obligations of the Guarantor are not affected by bankruptcy:
"Guarantor further agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected or impaired ... (e) by reason of the commencement of a case under the Bankruptcy Code or against any person obligated under the Note, the Loan Agreement or the other Loan Documents, or the death of any Guarantor ... It is further understood, that if [Mezzanine] Borrower shall have taken advantage of, or be subject to the protection of, any provision in the Bankruptcy Code, the effect of which is to prevent or delay Lender from taking any remedial action against [Mezzanine] Borrower, including the exercise of any option Lender has to declare the Debt due and payable on the happening of any default or event by which under the terms of the Note, the Loan Agreement, or the other Loan Documents, the Debt shall become due and payable, Lender may, as against Guarantor, nevertheless, declare the Debt due and payable and enforce any or all of its rights and remedies against Guarantor provided for herein"
(id. 2–3).
The Guaranty also provides that it "shall remain and continue in full force and effect as to any modification, extension or renewal of the Note, the Loan Agreement, or the other Loan Documents" (id . at 3).
Finally, the Guaranty provides that:
"upon any default of Borrower under the Note, the Loan Agreement or the other Loan Documents, Lender may, at its option, proceed directly and at once, without notice, against Guarantor to collect and recover the full amount of the liability hereunder or any portion thereof, without proceeding against Borrower or any other person, or foreclosing upon, selling, or otherwise disposing of or collecting or applying against any of the Collateral for the Loan"
(id. at 4).
The Forbearance Agreement and Reaffirmation of Guarantees
In 2012, the Mezzanine Borrower failed to make various payments due under the Mezzanine Loan. Accordingly, plaintiff noticed a UCC foreclosure sale of the membership interests in the Mezzanine Borrower (the Collateral) to take place on June 8, 2012 (amended complaint, ¶ 32). However, the parties negotiated, and on June 7, 2012, based upon a substantial payment tendered by the Mezzanine Borrower, plaintiff agreed to forbear from foreclosing on the Collateral, and entered into a Forbearance Agreement with the Mezzanine Borrower (amended complaint, ¶¶ 31, 33; see Ravosa aff, exhibit G). Pursuant to the Forbearance Agreement, the Mezzanine Borrower acknowledged and agreed that, as of June 6, 2012, the amount due and owing plaintiff under the Mezzanine Note was $5,643,361.90, in addition to certain fees, costs, expenses and costs of collection, as described in the Forbearance Agreement (id ., ¶ 35).
Section 2 of the Forbearance Agreement provides that plaintiff will forbear from enforcing its rights and remedies against the Mezzanine Borrower until the earlier of the Termination Date (i.e., September 8, 2012), or the occurrence of a Termination Event. Section 7 of the Forbearance Agreement defines a Termination Event as "[t]he failure of [Mezzanine Borrower] to promptly, punctually, or faithfully perform or comply with any other term or condition of this Agreement or of the Loan Documents as and when due."
In consideration of plaintiff forbearing from immediately enforcing its remedies under the MLA, the Mezzanine Borrower agreed to tender to plaintiff sums totaling $485,877.04 on or before June 7, 2012 (id., ¶ 38). The Forbearance Agreement also required payments of certain sums totaling $66,114.62 to plaintiff on or before September 8, 2012 (id., ¶ 39). However, the Mezzanine Borrower failed to pay those sums in full (id., ¶ 40).
In any event, the same day that the Mezzanine Borrower entered into the Forbearance Agreement, the Guarantors entered into a "Reaffirmation of Guarantees" in plaintiff's favor (id., ¶ 42; see Ravosa aff, exhibit H). The Reaffirmation of Guarantees provides that:
"Guarantor hereby reaffirms each of its respective obligations arising under the Guaranty, and covenants and agrees that its obligations thereunder are in no way impaired or diminished as a result of the execution and delivery by Borrower and Lender [i.e., plaintiff] of the Forbearance Agreement"
(Reaffirmation of Guarantees, § 2).
The Reaffirmation of Guarantees further provides that:
"Guarantor hereby consents to the agreements set forth in the Forbearance Agreement and expressly acknowledges, confirms, ratifies and reaffirms the terms, provisions, validity and binding nature, both at the time of delivery and on the date hereof, of its obligations under each guaranty and/or indemnity agreement executed by Guarantor in connection with the Loan, agrees that any reference made in such documents, the Loan Agreements, the Note or in any of the other documents evidencing, securing or guaranteeing the Loan and agrees that the obligations arising thereunder shall continue and remain in full force and effect and shall in no way be impaired or diminished as a result of the Forbearance Agreement. Guarantor further expressly acknowledges that under such guaranty and/or indemnity agreement Guarantor's consent to the Forbearance Agreement, or any future amendments, is not necessary to the continued validity of such guaranty and/or indemnity agreement, and the fact that Guarantor has consented to the Forbearance Agreement shall not modify the terms of such guaranty and/or indemnity to give Guarantor the right to approve future modifications or a waiver of any agreement or obligation subject to such guaranty and/or indemnity nor to make such approval a condition precedent to the continuing validity and enforceability of such guaranty and/or indemnity"
(id., § 2).
Each of the Guarantors executed the Reaffirmation of Guarantees, thereby guarantying the repayment of the increased Mezzanine Loan indebtedness of $5,643,361.90, in addition to certain fees, costs, expenses and costs of collection, as described in the Forbearance Agreement. To date, neither the Mezzanine Borrowers nor the Guarantors have repaid the Mezzanine Loan indebtedness (Ravosa aff, ¶ 58).
The Mezzanine Borrower Defaults Again Under the MLA
Starting in 2013, the Mezzanine Borrower repeatedly defaulted under the MLA and the Mezzanine Loan Documents, with each such default triggering personal liability of the Mezzanine Borrower under the MLA, which defaults in turn triggered the Guarantors' liability under the Guaranty.
On June 4, 2014, the Mezzanine Borrower filed a voluntary petition pursuant to Chapter 11 of the United States Bankruptcy Code with the Clerk of the United States Bankruptcy Court, Southern District of New York, White Plains Division, in a case entitled Matter of Manahawkin Mezz LLC, Case No. 14–22792 (amended complaint, ¶ 48; see Ravosa aff, exhibit K). It is undisputed that the Collateral was made an asset in the Bankruptcy Proceeding. Indeed, the schedule of assets that the Mezzanine Borrower filed in the Bankruptcy Proceeding lists the Collateral as the sole asset of the Mezzanine Borrower (see Ravosa reply aff, exhibit B).
Plaintiff alleges that, in violation of section 9.4(c) of the MLA, by virtue of filing the bankruptcy petition, the Mezzanine Borrower caused the Property and the Collateral to become assets in a voluntary bankruptcy or insolvency proceeding (id., ¶ 49). Plaintiff also alleges that, in further violation of the MLA, in connection with the bankruptcy proceeding, the Mezzanine Borrower had an Affiliate (as defined in the MLA), officer, director or representative that controls the Mezzanine Borrower consent to, acquiesce in, and/or join in an application for the appointment of a trustee for the Mezzanine Borrower (id., ¶ 50). Plaintiff asserts that, by the terms of the MLA and the Guaranty, the bankruptcy proceeding triggers full recourse liability from the Guarantor to plaintiff (id., ¶ 51).
Plaintiff further alleges that, in 2013, it learned that Ringel and Tibor, and/or entities solely controlled by them, pledged all of their membership interests in AC I INV Manahawkin LLC, the sole owner of the Mezzanine Borrower, in connection with certain loans made by non-party Acadia Realty Limited Partnership (Acadia), and certain promissory notes made by the Guarantors to Acadia (id., ¶ 45). Plaintiff alleges that such pledges expressly violated section 5.2.10 of the MLA, and that, by the terms of the MLA and the Guaranty, such pledges trigger full recourse liability from the Guarantors to plaintiff (id., ¶¶ 46–47).
Finally, plaintiff alleges that, in further violation of section 5.2.10 of the MLA, the Mezzanine Borrower's bankruptcy petition was executed by David Goldwasser, on behalf of GC Realty Advisors, LLC (GCRA), identified as the Mezzanine Borrower's "manager" (id., ¶¶ 53–54). Plaintiff asserts that the MLA bars the Mezzanine Borrower from transferring an interest in the Mezzanine Borrower without plaintiff's prior written consent (id., ¶ 54), and that the transfer of membership interests in the Mezzanine Borrower, such that GCRA is now a manager thereof, was a prohibited transfer under the Mezzanine Loan Documents (id., ¶ 55). Plaintiff alleges that such transfer triggers full recourse liability from the Guarantors to plaintiff (id., ¶ 58).
The Mezzanine Borrower's Prior Defaults under the Mortgage Loan and Plaintiff's Protective Advances
In addition to the Mezzanine Borrower's defaults under the MLA, the Mortgage Borrower also defaulted in making payments due under the Mortgage Loan (id., ¶ 59). In response to notifications from the Mortgage Lender that the Mortgage Borrower had continued to default in its obligations under the Mortgage Loan, and in order to protect the Collateral, plaintiff made a series of protective advances to the holder of Mortgage Loan, to cure the Mortgage Borrower's defaults thereunder, pursuant to section 9.6(a) of the MLA (id., ¶ 60; see id., ¶¶ 61–68).
The protective advances made by plaintiff total $1,004,321.43 (see Ravosa aff, ¶ 86). However, the Mortgage Lender released the amount of $157,252.76 to plaintiff in reimbursement of a portion of the Protective Advances that were made by plaintiff (id., ¶ 87).
Plaintiff alleges that the Mezzanine Borrower has refused to reimburse plaintiff for such advances, in the total amount of $846,795.67 (amended complaint, ¶ 69).
Plaintiff alleges that, as of December 15, 2015, the Mortgage Borrower was indebted to plaintiff in the total amount of $8,363,838 .52, representing $4,814,113.45 in unpaid principal, $282,995.46 in default prepayment fees, $1,530,802.39 in unpaid contract interest, $764,084.31 in unpaid default interest, $131,047.25 in late fees, and $846,795.67 in unpaid protective advances, together with costs, disbursements and attorneys' fees (see Ravosa aff, ¶ 88).
Plaintiff Received Partial Payment toward the Mezzanine Loan Debt from Distribution of the Mezzanine Borrower's Bankruptcy Estate Assets
Pursuant to Section 363 of the Bankruptcy Code and in the context of the Bankruptcy Proceeding, the Property was sold to a third party, and a portion of the proceeds from the sale were placed in escrow, pending a resolution of the Bankruptcy Proceeding (the Mezzanine Bankruptcy Estate) (id., ¶ 89).
By order dated December 14, 2015, the Bankruptcy Court ordered that the amount of $2,703,656.82 from the Mezzanine Bankruptcy Estate (the Distribution) be distributed to plaintiff to pay down the Mezzanine Loan Debt (see Ravosa aff, exhibit W). On December 15, 2015, plaintiff received the Distribution (id., ¶ 91).
In accordance with section 8.2(d) of the MLA, plaintiff applied the Distribution to the Mezzanine Loan Debt as follows: $846,626.67 in full satisfaction of the protected advances, $747,262.69 towards unpaid default interest, and $1,109,598.46 toward unpaid contract interest (id., ¶ 92).
Plaintiff alleges that, as of January 18, 2016, the Mortgage Borrower remains indebted to plaintiff in the amount of $5,789,754.17 (the Mezzanine Loan Debt Balance), representing $4,813,113.45 in unpaid principal, $282,995.46 in default prepayment fees, $517,070.87 in unpaid contract interest, $41,207.59 in unpaid default interest, and $135,366.81 in unpaid late fees, but not including attorneys' fees, legal costs and disbursements to which plaintiff is entitled under the loan documents, and which plaintiff will seek at the appropriate time (id., ¶ 93).
DISCUSSION
"On a motion for summary judgment to enforce a written guaranty, all that the creditor need prove is an absolute and unconditional guaranty, the underlying debt, and the guarantor's failure to perform under the guaranty" (City of New York v. Clarose Cinema Corp., 256 A.D.2d 69, 71 [1st Dept 1998] ; accord Kensington House Co. v. Oram, 293 A.D.2d 304, 305 [1st Dept 2002] ; Valencia Sportswear, Inc. v. D.S.G. Enter., Inc., 237 A.D.2d 171, 171 [1st Dept 1997] ). Thus, submission of an unconditional guaranty along with an affidavit of nonpayment is sufficient for a judgment under CPLR 3212 (European Am. Bank & Trust Co. v. Schirripa, 108 A.D.2d 684, 684 [1st Dept 1985] ).
It is well settled that a written guaranty of a borrower's payment obligations under a non-recourse loan agreement is valid and enforceable against the guarantor upon the occurrence of one or more triggering events (see G3–Purves St., LLC v. Thomson Purves, LLC, 101 AD3d 37, 41 [2d Dept 2012] ["Generally, a non-recourse loan agreement containing carve-out provisions similar to the ones contained in the subject loan agreement is valid and enforceable"]; see e.g. First Nationwide Bank v. Brookhaven Realty Assoc., 223 A.D.2d 618, 619 [2d Dept 1996] [holding that bankruptcy filing triggered full recourse under exceptions to nonrecourse agreement]; see also Greenwich Capital Fin. Prods., Inc. v. Negrin, 74 AD3d 413, 415 [1st Dept 2010] [enforcing terms of guaranty against guarantors for failing to pay real estate taxes, which triggered liability under nonrecourse loan] ).
Here, the Guaranty provides that the Guarantors are liability for "all obligations and liabilities of [Mezzanine] Borrower for which [Mezzanine] Borrower shall be personally liable pursuant to the Note, the Loan Agreement, or the Loan Documents" (Guaranty, at 1). Section 9.4(c) of the MLA provides that the "Loan shall become fully recourse to Borrower and Guarantor jointly and severally ... if the Property, the Collateral or any part thereof shall become an asset in a voluntary bankruptcy or insolvency proceeding."
As set forth in the Ravosa affidavits, it is undisputed that the Mezzanine Borrower filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York, thereby causing the Collateral to become an asset in the Bankruptcy Proceeding (the Bankruptcy Default) (see Ravosa aff, ¶¶ 64–67; see also Ravosa reply aff, ¶¶ 12–13 and Exhibit B, at 1). Indeed, the Guarantors listed the Collateral as an asset in the Bankruptcy Proceeding (see Ravosa reply aff, exhibit B, at 1). Thus, pursuant to the section 9.4(c)(ii) of the MLA, full recourse liability was triggered against the Guarantors under the MLA .
The fact that the Collateral became an asset in the Bankruptcy proceeding alone is enough to trigger full recourse liability against the Guarantors, jointly and severally, under the terms of the Guaranty. As such, it is unnecessary to address plaintiff's remaining arguments that full recourse liability against the Guarantors was also triggered because GCRA became manager of the Mezzanine Borrower without plaintiff's consent, and because Ringel's entity pledged all of its ownership interest in the Mezzanine Borrower's sole member to another entity.
It is also undisputed that the Guarantors executed the Guaranty, pursuant to which the Guarantors are absolutely and unconditionally, jointly and severally, liable for the Mezzanine Borrower's payment and performance under the Mezzanine Loan Documents. As established in the Ravosa affidavit, the Mezzanine Borrower defaulted on its obligation to repay the Mezzanine Loan, and failed to pay the sums owed to plaintiff (see Ravosa aff, ¶ 58). The Mezzanine Borrower's default under the Mezzanine Loan Documents triggered full recourse against the Guarantors pursuant to the terms of the Guaranty and, thus, plaintiff is entitled to summary judgment against the Guarantors (see Reliance Constr. Ltd. v. Kennelly, 70 AD3d 418, 419 [1st Dept 2010] ["(p)laintiff made a prima facie showing for summary judgment by proving the absolute and unconditional guaranties and the guarantors' failure to perform"]; see also Cooperatieve Centrale Reiffeisen–Boerenleenbank, B.A. v. Navarro, 25 NY3d 485, 492 [2015] ["To meet its prima facie burden on its summary judgment motion, (plaintiff) must prove the existence of the guaranty, the underlying debt and the guarantor's failure to perform under the guaranty"] [internal quotations and citations omitted] ).
Upon these defaults triggering full recourse against the Guarantors, the Guarantors failed to pay the amounts due under the Mezzanine Loan. Plaintiff has therefore proven the existence of the Guaranty, the underlying debt, and the Guarantor's failure to perform, which is all that plaintiff needs to prove to establish its entitlement to judgment as a matter of law (see Reliance Constr. Ltd., 70 AD3d at 419 ; see also Solanki v. Pandya, 269 A.D.2d 189, 189 [1st Dept 2000] ).
Once the plaintiff has met his burden, it is incumbent upon the defendants to establish, by admissible evidence, that a triable issue of fact exists with respect to a bona fide defense (SCP (Bermuda) Inc. v. Bermudatel Ltd., 224 A.D.2d 214, 216[1st Dept 1996] ; Bank Leumi Trust Co. of New York v. Rattet & Liebman, 182 A.D.2d 541, 542 [1st Dept 1992] ). However, as more specifically set out below, in response to plaintiff's prima facie showing, the Guarantors fail to raise a single cognizable defense or a material issue of fact to defeat summary judgment or absolve the Guarantors of their absolute and unconditional liability under the Guaranty. Moreover, to establish their own entitlement to summary judgment, the Guarantors would have to establish that the events that triggered full recourse liability against the Guarantors did not occur. Specifically, the Guarantors would have to prove that the Collateral was not made an asset in the Bankruptcy Proceeding. Since the Collateral was undisputably made an asset in the Bankruptcy Proceeding, the Guarantors cannot meet this impossible burden. Accordingly, the cross motions for summary judgment are denied, and plaintiff's motion for summary judgment on its first cause of action for liability on the Guaranty is granted (see Lorenz Diversified Corp. v. Falk, 44 AD3d 910, 911 [2d Dept 2007] ; Takeuchi v. Silberman, 41 AD3d 336, 336–337 [1st Dept 2007] ).
First, Ringel argues that section 9.4(c)(ii) of the MLA is ambiguous and cannot be enforced because the MLA does not define what the term "asset in a voluntary bankruptcy" means. However, Ringel's argument is contrary to the principles of contract interpretation.
"Whether a contractual term is ambiguous must be determined by looking within the four corners of the document and not to extrinsic sources" (Slattery Skanska Inc. v. American Home Assur. Co., 67 AD3d 1, 14 [1st Dept 2009] ; see also Goldman Sachs Group., Inc. v. Almah LLC, 85 AD3d 424, 427 [1st Dept 2011] [internal quotations marks and citation omitted] [" ‘The intent of the parties must be found within the four corners of the contract, giving a practical interpretation to the language employed and the parties' reasonable expectations"] ). "Ambiguity in a contract arises when the contract, read as a whole, fails to disclose its purpose and the parties' intent" (Ellington v. EMI Music, Inc., 24 NY3d 239, 244 [2014] ), or where its terms are subject to more than one reasonable interpretation (see Dean v. Tower Ins. Co. of NY, 19 NY3d 704, 708 [2012] ). Parties cannot create ambiguity from whole cloth where none exists, because "provisions in a contract are not ambiguous merely because the parties interpret them differently" (Mount Vernon Fire Ins. Co. v. Creative Hous., 88 N.Y.2d 347, 352 [1996] ).
Under these principles of contract interpretation, the term "asset in a voluntary bankruptcy" is not ambiguous merely because Ringel deems it to be so. Indeed, there is nothing ambiguous or unclear about the phrase because it literally means what it says (see Dynamics Corp. of Am. v. Marine Midland Bank–N.Y., 69 N.Y.2d 191, 195 [1987] ["The tangible and intangible property then owned by the debtor and set forth in the filed schedule [of assets] represents the estate of the debtor available for distribution"] ).
Ringel next argues that the Guarantors are not liable because plaintiff "waived" its right under the MLA to impose recourse liability on the Guarantors by plaintiff allegedly "supporting" the Bankruptcy Proceeding, the sale of the Property, and the dismissal of the Bankruptcy Proceeding after receiving the Distribution. These claims, however, completely lack merit.
A "[w]aiver is an intentional relinquishment of a known right and should not be lightly presumed" (Gilbert Frank Corp. v. Federal Ins. Co., 70 N.Y.2d 966, 968 [1988] ). A waiver cannot be found unless there is a "clear manifestation of intent ... to relinquish the protection of the contractual limitation" (id. ). Here, the Guarantors have failed to establish that plaintiff's participation in the Bankruptcy Proceeding was a clear manifestation of plaintiff's intent to waive its right to pursue recourse liability against the Guarantors pursuant to section 9.4.(c)(ii) of the MLA. To argue this position, the Guarantors would have to claim that plaintiff relinquished its ability to recoup over $5,000,000 in debt owed by the Guarantors. The Guarantors obviously cannot do so.
To the contrary, the undisputed facts demonstrate that plaintiff never waived its rights. As a threshold matter, the Guarantors are barred from claiming that plaintiff waived its right with respect to the Mezzanine Borrower's violation of section 9.4.(c)(ii) of the MLA by virtue of a final order of the Bankruptcy Court, which was entered on consent (the Bankruptcy Order [Ringel aff, exhibit L] ). The Bankruptcy Order specifically provides:
"ORDERED that nothing herein shall preclude RCG from continuing the prosecution of the Mezzanine Loan Guarantors (Benjamin Ringel, Tibor Klein and Gershon Klein) in the guaranty collection action in Supreme Court, New York County entitled RCG LV Debt IV Non–REIT Assets Holdings, LLC v. Ringel, et al., (Index No. 156210/14); and it is further
ORDERED that nothing herein constitutes or shall create a defense to such action and nothing contained herein is intended to affect the rights of third parties in connection with such action"
(id. at 2–3). Accordingly, the plain terms of the Bankruptcy Order repudiate this "waiver" defense with respect to the Bankruptcy Proceeding.
The MLA is clear that plaintiff's rights are cumulative and cannot be waived. Specifically, plaintiff's participation in the Bankruptcy Proceeding, its ultimate consent to the sale of the Property, and its agreement to the dismissal of the Bankruptcy Proceeding did not constitute a waiver of plaintiff's rights under the MLA or Guaranty, pursuant to section 8.4 of the MLA:
"The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers, and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion.... A waiver of one or more Defaults or Events of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon"
(MLA, § 8.4).
Accordingly, section 8.4 of the MLA permits plaintiff to simultaneously pursue any of its rights against the Mezzanine Borrower or Guarantors, without any waiver, including the right to receive partial payment of the Mezzanine Loan through the Bankruptcy Proceeding, while still pursuing the Guarantors for the Mezzanine Loan Debt Balance in this action. Thus, plaintiff's consent to the sale of the Property in the course of the Bankruptcy Proceeding, and its receipt of partial payment on the Mezzanine Loan, reduced the Guarantor's liability to plaintiff, but did not constitute a waiver of any the defaults that triggered full recourse against the Guarantors.
Next, all of the Guarantors argue that the Bankruptcy Default did not trigger recourse liability against the Guarantors because the Property was sold without objection from plaintiff during the Bankruptcy Proceeding. The Guarantors claim that plaintiff's lack of objection to the sale within the Bankruptcy Proceeding was a permitted transfer under the MLA. This argument completely misses the mark.
Plaintiff is entitled to impose recourse liability upon the Guarantors because the Mezzanine Borrower permitted the Collateral to become an asset in the Bankruptcy Proceeding, not because the Property was sold during the Bankruptcy Proceeding. This in and of itself triggered recourse liability against the Guarantors pursuant to section 9.4(c)(ii) of the MLA (see e.g. 172 Madison (N.Y.) LLC, 41 Misc.3d 1208[A], 2013 N.Y. Slip Op 51618[U], * 4 [Sup Ct, N.Y. County 2013] ["as a result of Borrower's voluntary bankruptcy filing ... (guarantor) is liable for the entirety of all sums due to Lender with respect to the loan"]; Bank of America, N.A. v. Lightstone Holdings, LLC, 32 Misc.3d 1244[A], 2011 N.Y. Slip Op 51702[U], * 4 [Sup Ct, N.Y. County 2011] [enforcing terms of guaranty based upon the filing of a voluntary bankruptcy proceeding] ). Thus, the fact that the Property was sold with or without plaintiff's consent during the Bankruptcy Proceeding is irrelevant.
The Guarantors also argue that recourse liability was not triggered by the Bankruptcy Proceeding because plaintiff was not "damaged" by the Bankruptcy Proceeding. This argument also misses the mark, as there is no provision in either the MLA or the Guaranty that requires plaintiff to suffer damages (beyond nonpayment of the debt owed to it) before it can pursue recourse liability against the Guarantors for violation of the MLA. Recourse liability was triggered when the Collateral became an asset in the Bankruptcy Proceeding, under the clear terms of the MLA, whether or not plaintiff suffered any damages.
The Klein defendants further argue that recourse liability has not been triggered against them for the Bankruptcy Default because Ringel filed the Bankruptcy Petition without their consent (see Klein aff, ¶¶ 25–26). However, whether or not the Klein defendants consented to the Bankruptcy Proceeding is irrelevant, since the Collateral became an asset in the Bankruptcy Proceeding, which was the recourse-triggering event prohibited by the MLA.
The Guarantors also assert that they were denied notice and the opportunity to cure the mezzanine loan defaults. However, the Guarantors expressly waived the right to receive notices for the Mezzanine Borrower's defaults of the MLA:
"Guarantor hereby waives notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of non-payment, non-performance or non-observance, or any other proof, or notice or demand, whereby to charge Guarantor therefor"
(Guaranty, at 2).
The Guarantors also allege that plaintiff has concealed from the court an intercreditor agreement between the mortgagor and plaintiff, dated February 3, 2011 (the Intercreditor Agreement [aff of Scott Krinsky, exhibit A] ), because the Intercreditor Agreement "expressly prohibits Plaintiff from pursuing its claims against the Guarantors while Rialto (the senior lender) is exercising any of its rights and remedies against Guarantors" (Klein defendants memorandum, at 24).
The court rejects this argument, as the Intercreditor Agreement has no bearing on this action, and does not prohibit plaintiff from prosecuting this case against the Guarantors. Rather, the Intercreditor Agreement merely prohibits plaintiff from enforcing a judgment already obtained against the Guarantors if the senior lender is simultaneously exercising its rights against the Guarantors. But there is no such judgment that plaintiff has already obtained.
The operative section of the Intercreditor Agreement provides:
"Mezzanine Lender hereby agrees that it shall not seek or pursue the enforcement of any judgments against Guarantors pursuant to this clause (b) if Senior Lender is simultaneously exercising any rights and remedies that it may have against such Guarantor under any guaranty or indemnity granted to Senior Lender as additional collateral to secure the obligations under the Senior Loan Documents"
(Intercreditor Agreement, § 5[b] [emphasis added] ).
Thus, contrary to defendants' arguments, the Intercreditor Agreement does not prohibit plaintiff from obtaining a judgment against the Guarantors. Rather, it only prohibits plaintiff from enforcing a previously obtained judgment against the Guarantors if the senior lender is simultaneously exercising its rights against the Guarantors.
In this action, there is no judgment against the Guarantors that plaintiff is seeking to enforce, and the senior lender has been paid in full and has no further rights to exercise against the Guarantors (see Klein defendants memorandum, at 11). Moreover, section 9(c) of the Intercreditor Agreement specifically permits plaintiff to pursue this action against the Guarantors. That section provides:
"Notwithstanding anything to the contrary contained in this Agreement (but subject to the terms and provisions of Section 5 hereof), Mezzanine Lender may take any Equity Collateral Enforcement Action or exercise any of its rights and remedies with respect to the Separate Collateral and retain any proceeds realized therefrom without the consent of Senior Lender"
(id., § 9[c] ).
Section 1 of the Intercreditor Agreement defines Equity Collateral Enforcement Action as "any action or proceeding or other exercise of Mezzanine Lender's rights and remedies commenced by Mezzanine Lender, in law or in equity, or otherwise, in order to realize upon the Equity Collateral" (id. at 3). Equity Collateral is defined as "the equity interests of Borrower pledged pursuant to the Pledge Agreement" (id. ). Finally, Separate Collateral is defined to include, inter alia, "any other collateral given as security for the Mezzanine Loan pursuant to the Mezzanine Loan Documents, in each case not directly constituting security for the Senior Loan, including guarantees in connection with the Mezzanine Loan" (id. at 8).
Therefore, pursuant to the terms of section 9(c) of the Intercreditor Agreement, plaintiff is plainly permitted to maintain this action against the Guarantors for the Mezzanine Loan Debt Balance, without the consent of the Senior Lender.
Finally, the Guarantors request that the court stay this action as an alternative to summary judgment, arguing that there is a possibility that plaintiff may recover a portion of the Mezzanine Loan Debt Balance through an allegedly related bankruptcy proceeding (see Klein defendants memorandum, at 26). However, while plaintiff is a creditor in the Toms River Bankruptcy Proceeding, the alleged related New Jersey bankruptcy, it is clear that that proceeding and the within action are not related:
the debtor, AC I Toms River LLC (AC Tom), is a separate and distinct entity from the Mezzanine Borrower;
some of the principals of AC Tom are different from the principals of the Mezzanine Borrower;
the loan made by plaintiff to AC Tom is memorialized by a separate note and governed by a separate and distinct loan agreement; and
the collateral for the AC Tom loan is the property known as Hooper Common in New Jersey, and located at 1400 Hooper Avenue, Toms River, New Jersey (the Toms River Property), which is completely different from the Property in this action
(see Ravosa reply aff, ¶¶ 55–58).
Thus, contrary to the Guarantors' argument, the Toms River Bankruptcy Proceeding is not a related case. Moreover, the remote possibility that there may be additional funds after the sale of the Toms River Property, which may eventually pass to the Guarantors, does not make the Toms River Bankruptcy Proceeding relevant here. Indeed, the Guarantors fail to explain how a surplus from the sale of the Toms River Property would benefit plaintiff.
Accordingly, there is no basis to stay this action pending the resolution of the Toms River Bankruptcy Action.
The Guarantors also argue that summary judgment cannot be awarded because the Ravosa affidavit is conclusory, and does not provide an explanation of how the Mezzanine Loan Debt was calculated. The Guarantors also contend that plaintiff is not entitled to both late fees and default interest, or any prepayment premium. Although the court disagrees, and finds that the Ravosa affidavit contains a detailed explanation of the sums due and owing plaintiff, including supporting documentation, because an issue has been raised as to the amount due, late fees, default interest and the prepayment premium, summary judgment will be granted as to liability only, and the issue of the amount actually due plaintiff is referred to a Special Referee to hear and report.
Plaintiff is also entitled to recover its costs, expenses and attorneys' fees. Where, as here, "the guarantee expressly provides that the guarantor will be liable for any expenses, including attorneys' fees, incurred in its enforcement," plaintiff is entitled to judgment for its fees and expenses (Citizens and Commercial Corp. v. Catapano, 164 A.D.2d 812, 815 [1st Dept 1990] ; accord International Bus. Mach. Corp. v. Murphy & O'Connell, 183 A.D.2d 681, 681–682 [1st Dept 1992] ; see e.g. One Ten W. Fortieth Assoc. v. Isabel Ardee, Inc., 124 AD3d 500, 500 [1st Dept 2015] ["pursuant to the express terms of the guaranty, guarantor was liable for attorney's fees in this action"]; RSB Bedford Assos., LLC v. Ricky's Williamsburg, Inc., 91 AD3d 16, 24 [1st Dept 2011] [holding that guarantor was liable for attorneys' fees and expenses incurred by reasons of breach of commercial lease pursuant to express terms of guaranty] ).
Here, the Guarantors are obligated to reimburse plaintiff "for all expenses (including reasonable counsel fees and disbursements) incurred by [plaintiff] in connection with the collection of the Guaranteed Recourse Obligations of Borrower or any portion thereof or with the enforcement of this Guaranty." Accordingly, plaintiff is entitled to a judgment for its attorneys' fees, costs and disbursements. However, because the total amount of these fees cannot yet be determined, the determination of the amount of such costs and attorneys' fees will also be referred to a Special Referee to hear and report.
The court has considered the remaining claims, and finds them to be without merit.
Accordingly, it is
ORDERED that plaintiff's motion for summary judgment on its first cause of action is granted, and the Clerk of the Court is directed to enter judgment in favor of plaintiff and against defendants as to liability only; and it is further
ORDERED that the issue of the amount of money due and owing plaintiff, including plaintiff's attorneys' fees, costs and disbursements incurred in this action, is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issues; and it is further
ORDERED that this motion is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that counsel for the party seeking the reference or, absent such party, counsel for the plaintiff shall, within 30 days from the date of this order, serve a copy of this order with notice of entry, together with a completed Information Sheet upon the Special Referee Clerk in the Motion Support office in Rm. 119 at 60 Centre Street, who is directed to place this matter on the calendar of the Special Referee's Part (part 50R) for the earliest convenient date.
Copies are available in Rm. 119 at 60 Centre Street, and on the Court's website.