Opinion
603745/2009.
Decided July 22, 2010.
MEISTER SEELIG FEIN LLP, Two Grand Central Tower, New York, NY, By: Jeffrey P. Weingart, Esq., David E. Ross, Esq., for the Plaintiffs.
DUVAL STACHENFELD LLP, New York, NY, By: Brian A. Burns, Esq., Erica L. Stevens, Esq., for Defendants Column Financial Inc. and Credit Suisse Securities (USA) LLC.
Each of these two related actions, Stellar Corte Madera, LLC v. KeyBank, N.A., et al., Index No. 603745/2009 (the "Corte Madera Action") and Stellar Larkspur Partners LLC v. KeyBank N.A., et al., Index No. 600004/2010 (the "Larkspur Action"), arises out of a loan agreement between each of the Plaintiffs, as borrower, and Defendant, Column Financial, Inc. ("Column"), as lender. Defendants, Column and Credit Suisse Securities (USA) LLC ("Credit Suisse"), move to dismiss all of the causes of action asserted against them in each of the Complaints. Since the agreements are virtually identical, the issues underlying each of the motions are common to both agreements, and the only difference between the papers submitted in connection with each of the motions is the name of the Plaintiff, the two actions are consolidated for the purposes of this Decision only, and the motions are consolidated for disposition.
Stellar Corte Madera, LLC ("Stellar Corte Madera") was formed to develop a real estate project in Corte Madera, California, and Stellar Larkspur Partners LLC ("Stellar Larkspur") was formed to renovate residential apartment buildings in Larkspur, California. Stellar Corte Madera entered into a loan agreement with Column, as lender, in May 2007. Stellar Larkspur entered into a similar agreement with Column in July 2007. Defendant Credit Suisse is an affiliate of Column; they share a corporate parent. Each of the loans was evidenced by a promissory note (the "Note") and other documents (collectively, the "Loan Documents").
Unless otherwise noted, references to the Loan Documents, the Loan Agreement, and the Note refer to those documents evidencing both the Stellar Corte Madera loan and the Stellar Larkspur loan.
In August 2007, Column sold each of the loans to Defendant KeyBank National Association ("KeyBank"). KeyBank then replaced the original Note with two separate promissory notes, one of which ("Note A") was assigned to Defendant Munchener Hypothekenbank EG ("MHB").
In March 2008, Stellar Larkspur began work on its development project, and in August 2008, Stellar Corte Madera commenced its development project. According to the Verified Complaint filed in connection with the Corte Madera Action (the "Corte Madera Complaint"), beginning in July 2009, KeyBank notified Stellar Corte Madera that its loan was "out of balance" and that a $2 million cash injection was required for KeyBank to continue funding the loan. Subsequently, KeyBank failed to approve a construction contract (the "Draeger Contract") and then failed to fund a draw request ("Draw Request No. 5). ( See Corte Madera Compl. ¶¶ 39, 41-44, 49, 58.) Stellar Corte Madera brought the Corte Madera Action in December 2009, asserting causes of action against all Defendants for breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty, and seeking a declaratory judgment, injunctive relief, and specific performance. The Corte Madera Complaint also asserts a fraudulent inducement claim against KeyBank. ( See id. ¶¶ 72-118.)
A copy of the Corte Madera Complaint is annexed to the Affirmation of Allan A. Taffet in Support of Defendants Column Financial, Inc. and Credit Suisse Securities (USA) LLC's Motion to Dismiss the Complaint (the "Corte Madera Taffet Affirm.") at Ex. A.
Also in December 2009, Stellar Larkspur commenced its action against all of the same defendants, alleging in its Verified Complaint (the "Larkspur Complaint") that KeyBank failed to continue funding the Larkspur project "in obvious retaliation for . . . the Corte Madera Action." (Larkspur Compl. ¶ 1.) The Larkspur Complaint also asserts causes of action against all defendants for breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty, and seeks injunctive relief and specific performance. ( See id. ¶¶ 57-86.)
A copy of the Larkspur Complaint is annexed to the Affirmation of Allan N. Taffet in Support of Defendants Column Financial, Inc. and Credit Suisse Securities (USA) LLC's Motion to Dismiss the Complaint (the "Larkspur Taffet Affirm.") at Ex. A.
By Order dated January 7, 2010, I denied Stellar Corte Madera's motion for a preliminary injunction, concluding that it had not demonstrated a likelihood of success on the merits. On January 21, 2010, I heard argument on Stellar Larkspur's motion for a preliminary injunction. This motion is currently being held in abeyance, however, because the Stellar entities, KeyBank and MHB agreed to attempt to resolve their dispute through mediation.
Both Column and Credit Suisse (together, the "Credit Suisse Defendants") refused to participate in the mediation. They have maintained since the inception of both actions that there is no good-faith basis for their inclusion in these lawsuits, as they were released from liability under the Loan Documents by virtue of the assignment to KeyBank. Although I authorized letter briefs on this issue, I did not reach any conclusions. Since the actions were not stayed pending the mediation, these motions by the Credit Suisse Defendants, seeking dismissal pursuant to CPLR § 321(a)(1) and (7), followed. Asserting that there is no good faith basis for their inclusion in either of these actions, the Credit Suisse Defendants also seek attorneys' fees and expenses.
The letter briefs are annexed to the Corte Madera Taffet Affirm. at Exs. G and I, and to the Larkspur Taffet Affirm. at Exs. H and J.
The Credit Suisse Defendants base these motions to dismiss, primarily, on the contention that all of the claims asserted by the Stellar entities arise out of events that occurred after the assignment/sale of the Loans and Loan Documents, and that the Loan Documents expressly provide that, upon assignment to a third party, Column would be relieved of all liability. Furthermore, Credit Suisse is not a party to the Loan Documents, and, the Credit Suisse Defendants assert, there is simply no basis for Credit Suisse's liability here.
Plaintiffs argue, primarily, that the Loan Documents do not expressly release Column and Credit Suisse from liability upon assignment or sale of the Loan and, as such, the documentary evidence fails to conclusively establish a defense as a matter of law. Alternatively, the Stellar entities argue that the Loan Documents are, at best, ambiguous, and that dismissal would thus be improper.
Interpretation of an unambiguous agreement is a matter of law for the Court. 805 Third Ave. Co. v. M.W. Realty Associates, 58 NY2d 447 (1983); see also Taussig v. Clipper Group, L.P., 13 AD3d 166, 167 (1st Dep't 2004). If the Loan documents unambiguously release Column from liability, then dismissal of this action as to Column is proper. Since the only basis alleged for Credit Suisse's liability is its dominion and control over Column ( see Corte Madera Compl. ¶ 21), Column's release would thus necessarily mean dismissal of the action as to Credit Suisse.
The first prong of Plaintiffs' argument is that the provisions contained within the Loan Documents, which deal, specifically, with the issue of release from liability, are in conflict with one another. This conflict, they argue, renders it impossible to conclude that Column was released from liability upon the transfer of the Loan.
As used herein, and for the purposes of this Decision only, the "Loan" refers to either or both of the loans to the Stellar entities.
Article 7 of the Note provides:
Subject to all applicable provisions of the Loan Agreement, upon the transfer of this Note . . . Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein . . . and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.
Corte Madera Taffet Affirm. Ex. C at 4 (emphasis added).
As previously stated, the Loan Documents are virtually identical. For the corresponding Article contained in the Larkspur Note, see Larkspur Taffet Affirm. Ex. C at 3.
Since Article 7 of the Note ("Article 7") is made "[s]ubject to all applicable provisions of the Loan Agreement," the Stellar entities contend that the Loan Agreement, itself, conflicts with Article 7 because it does not expressly provide for Column's release from liability upon transfer or sale of the Loan. According to the Stellar entities, the only provision in the Loan Agreement that speaks to this issue is Section 11.27, "Assignments and Participations." (Corte Madera Taffet Affirm. Ex. B at 96.) Section 11.27(a) provides that Lender may assign "all or a portion of its rights and obligations under this Loan Agreement, at no out of pocket cost to Borrower." Section 11.27 (b) provides:
See also Larkspur Taffet Affirm. Ex. B at 94-95.
For the purposes of this Decision only, the "Lender" refers to Column.
Lender may sell participations to one or more persons in or to all or a portion of its rights and obligations under this Loan Agreement; provided, however, that (i) Lender's obligations under this Loan Agreement shall remain unchanged, (ii) Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) Lender shall remain the holder of any Note for all purposes of this Agreement and (iv) Borrower shall continue to deal solely and directly with Lender in connection with Lender's rights and obligations under and in respect of this Loan Agreement and the other Loan Documents.
(Corte Madera Taffet Affirm. Ex. B at 96, emphasis added.)
Section 11.27(e) requires any assignment of the Loan to be recorded on a register, and § 11.27(d) provides that "[a]ny assignment or transfer by Lender of rights or obligations under this Agreement that does not comply with this Section 11.27 shall be treated for purposes of this Agreement as a sale by Lender of a participation in such rights and obligations . . ." ( Id. at 96-97.) The Stellar entities argue that the assignment to KeyBank was not recorded in compliance with § 11.27(e), and that, pursuant to § 11.27(d), the assignment may thus be treated as a participation. As set forth above, in the case of a participation, the Lender remains solely responsible for performance, i.e., there is no release of liability. Since Article 7 of the Note is made subject to the Loan Agreement, and since the Loan Agreement provides for a situation where Column may not be released from liability, the Stellar entities contend that the Loan Documents do not conclusively establish the release, and the motion to dismiss must be denied.
The Stellar entities also asserted, at oral argument, that the documentary evidence was insufficient to establish that the assignment to KeyBank was, in fact, an assignment, and not a participation. ( See Oral Arg. Tr.18-19, June 30, 2010.) However, the "Notice of Loan Sale to Borrower and Guarantors" clearly sets forth "notice of the sale and assignment of the Loan, the Loan Agreement, the Note, the Deed of Trust, the Guaranty and the other Loan Documents by the Lender to KeyBank . . ." (Corte Madera Taffet Affirm. Ex. D, emphasis added.) Given the clarity of this language, as well as the dearth of evidence, or even allegations, establishing that the transfer to KeyBank was anything other than an assignment, I find this argument unavailing.
I note, first, that there is not a single allegation contained in either of the Complaints that provides a basis for the assertion that the transfer to KeyBank was a participation and not an assignment. Moreover, and more importantly, there is no conflict between Article 7 of the Note and § 11.27. Article 7 provides that, upon the transfer of the Note, the Lender is to be released from liability. Section 11.27 provides for the assignment of all or a portion of its rights under the Loan Agreement, as well as for the possibility of the sale of a participation. Reading the provisions together, it is clear that if the Note is transferred in connection with an Assignment under § 11.27(a), the Lender is released from liability. If, instead, there is a sale of a participation, and the attendant conditions outlined in § 11.27(b) are met, then Lender retains its obligations under the Loan Agreement. These provisions of the Loan Documents are thus neither conflicting nor ambiguous.
Plaintiffs further argue that the Loan Documents are ambiguous because Article 7 of the Note gives Lender the right to deliver collateral in the event of a transfer of the Note, and then relieves and discharges Lender from "any liability and responsibility in the matter," but does not define the "matter." Stellar argues that this clause could be read to refer to "solely the transfer of the collateral in the event of a transfer of the Note, but not the transfer of Lender's liability thereunder; or . . the effects on the Lender's liability after transfer of the Note." (Corte Madera Opp. Mem. 17.) I do not see the ambiguity. Article 7 says that, "upon the transfer of this Note," Lender may deliver all collateral assigned pursuant to the Loan Documents, that the transferee then becomes vested with all the rights given to Lender, and that Lender "shall thereafter forever be relieved and discharged from any liability or responsibility in the matter." It is clear that Article 7 anticipates the transfer of the Note in connection with the assignment of rights and responsibilities under the Loan Documents. Notwithstanding Plaintiffs' arguments to the contrary, the "matter" cannot be read to refer to anything other than the relationship between Column and the Stellar entities established by the Loan Documents. The assignment of the Note and other Loan Documents to KeyBank released Column from liability arising out of that relationship. The claims against Column are therefore dismissed.
Plaintiff Stellar Corte Madera, LLC's Memorandum of Law in Opposition to Defendants Column Financial, Inc.'s and Credit Suisse Securities (USA) LLC's Motion to Dismiss. See also Plaintiff Stellar Larkspur Partners LLC's Memorandum of Law in Opposition to Defendants Column Financial, Inc.'s and Credit Suisse Securities (USA) LLC's Motion to Dismiss at 17.
Since Plaintiffs do not assert any basis for Credit Suisse's liability that is independent of that of Column, dismissal of the claims against Column necessitates dismissal of the claims against Credit Suisse as well.
I have considered Plaintiffs' request for attorneys' fees and expenses. That request is denied.
Accordingly, it is
ORDERED that the motions to dismiss of Defendants Column Financial, Inc. and Credit Suisse Securities (USA) LLC, are GRANTED; and it is further
ORDERED that the Complaint in the Corte Madera Action (Index No. 603745/2009) is dismissed in its entirety as against these two Defendants; and it is further
ORDERED that the Corte Madera Action is severed and continued against the remaining Defendants; and it is further
ORDERED that the Larkspur Action (Index No. 603745/2009) is dismissed in its entirety as against Defendants Column Financial, Inc. and Credit Suisse Securities (USA) LLC; and it is further
ORDERED that the Larkspur Action is severed and continued as against the remaining Defendants.