Guggenheim Corporate Funding, LLC v Access.1 Communications Corp.-NY

[*1] Guggenheim Corporate Funding, LLC v Access.1 Communications Corp.-NY 2009 NY Slip Op 52702(U) [26 Misc 3d 1210(A)] Decided on November 13, 2009 Supreme Court, New York County Kornreich, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 13, 2009
Supreme Court, New York County

Guggenheim Corporate Funding, LLC, Plaintiff,

against

Access.1 Communications Corp.-NY, ACCESS.1 COMMUNICATIONS CORP., ACCESS.1 COMMUNICATIONS-SHREVEPORT LLC, NBN BROADCASTING, INC., SUPERADIO LLC, ACCESS.1 TEXAS LICENSE COMPANY LLC, ACCESS.1 NEW YORK LICENSE COMPANY LLC, ACCESS.1 NEW JERSEY LICENSE COMPANY LLC, ACCESS.1 LOUISIANA HOLDING COMPANY LLC, and ACCESS.1 PENNSYLVANIA LICENSE COMPANY LLC, Defendants.



602376/08

Shirley Werner Kornreich, J.

Motion sequence numbers 002 and 003 are hereby consolidated for disposition.

This action for, inter alia, breach of contract arises out of defendants' failure to repay two term loans made by a group of lenders in March 2004. Pursuant to the various documents governing these loans, the lenders designated plaintiff Guggenheim Corporate Funding, LLC (Guggenheim) as their collateral agent. Thus, Guggenheim was granted the express authority to act on the lenders behalf and enforce their rights under the loan agreements. In motion sequence 002, Guggenheim moves for partial summary judgment under their second cause of action, seeking a declaration ordering defendants to specifically perform under section 3.8 of the Second Amended and Restated Loan and Security Agreement dated, January 3, 2007 (Loan Agreement), by consenting to the appointment of Bradley Scher, of Ocean Ridge Capital Advisors, LLC, as receiver over certain listed FCC Licenses. In motion sequence 003, Guggenheim moves to dismiss defendants' counterclaim. Defendants' oppose each motion.

I.Background

A.Guggenheim's Motion for Partial Summary Judgment

In support of its motion, Guggenheim offers the affidavit of Kevin Gunderson. Attached to Mr. Gunderson's affidavit are copies of, inter alia,: the Loan Agreement; a document entitled [*2]"Waiver and Consent" dated January 3, 2007; several letters exchanged between the parties and their attorneys; and a document entitled "Officer's Certificate - Partial Release of Collateral," dated October 14, 2008.

1.Affidavit of Kevin Gunderson

Kevin Gunderson, a Director at Guggenheim, avers the following. Defendant Access.1 Communications Corp.-NY (Access.1-NY), along with its co-defendant parent company, Access.1 Communications Corp., and subsidiary holding companies operate radio stations in Louisiana, New Jersey, New York and Texas. The programming for these stations is administered pursuant to licenses obtained from the Federal Communications Commission (FCC). These licences are held by the following defendant holding companies, (all of which are owned by Access.1-NY): Access.1 New York License Company, LLC; Access.1 New Jersey License Company, LLC; Access.1 Louisiana Holding Company, LLC; and Access.1 Texas License Company, LLC (collectively the "Holding Companies").

In March 2004, a group of lenders (Lenders) afforded Access.1-NY two separate term loans with a total original principal of $53,000,000. The loans were broken down so that Access.1-NY was provided with a Term A Loan of $35,000,000 and a Term B Loan of $20,000,000 (collectively the "Term Loans"). Pursuant to the initial loan documents, Guggenheim was designated as the collateral agent for the Lenders and had express authority to act on their behalf to enforce the terms of each loan. As security for the loans, defendants granted Guggenheim, as collateral agent, an interest in certain assets. A portion of this pledged collateral included Guggenheim's right "to receive any payment of money and any proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions or replacements of the FCC Licenses owned by the four Defendant holding companies." Affidavit of Kevin Gunderson at ¶ 9. The Term Loans also were jointly and severally guaranteed by each defendant except Access.1-NY.

The primary loan documents were first executed in March 2004. In February 2005, the parties amended certain items within the Term Loans as well as the underlying documentation. Defendants defaulted under the amendments. Following this default, the parties once again amended the Term Loans on January 3, 2007. As in the previous loan documents, Access.1-NY was listed as the "Borrower" and Guggenheim as "Collateral Agent." The January 2007 Loan Agreement specifically states that it was executed as an amendment to: the parties original Loan and Security Agreement dated March 31, 2004; the Amended and Restated Loan and Security Agreement dated February 23, 2005; and the Amendment to the February 23, 2005 amendment, dated October 11, 2005.[FN1] The Loan Agreement further provides that as of the date of execution, the Term Loan A had an aggregate principal balance of $53,769,444.42 and the Term Loan B had an outstanding balance of $42,360,968.61.

Section 2.5 of the Loan Agreement provides that Access.1-NY must repay the entire outstanding principal of the Term Loans, including interest and any other outstanding "Obligations," on the agreed to "Maturity Date" of December 31, 2007. Section 2.4 calls for Access.1-NY to pay Guggenheim, for the benefit of the Term B Lenders, an "Exit Fee"on the [*3]Term B Loan at the earlier of either its maturation or repayment. Pursuant to section 2.7, Access.1-NY is required to make compounded monthly interest payments on each Term Loan. With regard to the Term A Loan, Access.1-NY is required to make such monthly interest payments at a rate of 5% per annum plus the applicable LIBOR rate. With regard to the Term B Loan, Access.1-NY was required to pay interest at a rate of 16% per annum. In addition, if Access.1-NY were to commit an "Event of Default,"as defined in section 8.1, the applicable interest rate for each loan would increase by 2% per annum (Default Rate). "Event of Default" is defined, inter alia, to include Access.1-NY's failure "to make any payment of principal of, or interest on or any other amount owing in respect of, any Loan, or any of the other Obligations when due and payable or declared due and payable which, other than principal (which shall constitute an immediate Event of Default), shall have remained unremedied for a period of five days." Loan Agreement § 8.1.

Section 3 titled "Creation of Security Interest," provides that in order to secure "prompt [re]payment" of the Term Loans as well as Access.1-NY's other "Obligations" contained thereunder, the defendants grant Guggenheim, for benefit of the Lenders, "a continuing security interest in and to the Collateral, whether now owned or existing hereafter acquired or arising and wheresoever located." Id. at § 3.1. The Loan Agreement's definition of "Collateral" includes "all Licenses and Permits," which, in turn, "shall mean any authorizations, registrations, franchises, permits, licenses and any similar authority of the Credit Parties [FN2] and their Subsidiaries issued by or obtained from any Government Authority." Id. at § 1.

Section 3.8, titled "FCC Licenses," provides, inter alia, that: During the continuance of an Event of Default, each Credit Party shall take any action which the Collateral Agent may reasonably request in order to transfer and assign to the Collateral Agent, or to such one or more third parties as the Collateral Agent may designate, or to a combination of the foregoing, each FCC License. To enforce the provisions of this Section 3.8, the Collateral Agent, subject to receipt of any necessary FCC approval, is empowered to request the appointment of a receiver from any court of competent jurisdiction. Such receiver shall be instructed to seek from the FCC consent to an involuntary transfer of control of each such FCC License to such receiver for the purpose of seeking a bona fide purchaser to whom control will ultimately be transferred. Each Credit Party hereby agrees not to contest such an involuntary transfer of control upon the request of the receiver so appointed and, if any Credit Party shall refuse to authorize the transfer, its approval may be required by the court...Each Credit Party acknowledges that the assignment or transfer of each FCC License is integral to the Collateral Agent's and the Lender's realization of the value of the Collateral, that there is no adequate remedy at law for failure by any Credit Party to comply with the provisions of this Section 3.8 and that such failure would cause irreparable injury not adequately compensable in damages, and therefore agrees that each and every covenant contained in this Section 3.8 may be specifically enforced, and each Credit Party hereby waives and agrees not to assert any defenses against an action for specific performance of such [*4]covenants.

Access.1-NY failed to repay the outstanding principal on the December 31, 2007 maturity date. In 2008, although Access.1-NY continued to make monthly interest payments towards the Term A Loan, it made no interest payments on the Term B Loan. Moreover, Access.1-NY failed to make any interest payments at the Default Rate on either loan as required by section 2.7 or pay the required "Exit Fee" on the Term B Loan on the maturity date. The only payment made to satisfy these loans was an approximate $8.486 million payment by Access.1-NY and Access.1 New Jersey Licensing Company, LLC, arising from the sale of certain radio stations located in New Jersey. Nor has any other defendant-guarantor made any payments to satisfy the remaining obligations.

In a January 1, 2008 letter, Guggenheim's counsel notified defendants of their default. The letter referenced defendants' failure to pay outstanding principal due on the maturity date and stated that such failure "constitutes an immediate Event of Default under Section 8.1(a) of the Loan Agreement. Pursuant to Section 8.2 of the Loan Agreement, the Lenders declare all Obligations to be forthwith due and payable."

A subsequent August 6, 2008 letter from Guggenheim's counsel, stated that Access.1-NY and the "Guarantors" continued in default, not having paid the principal, the Default Interest or the fees and costs incurred by Guggenheim and the Lenders pursuant to the Loan Agreement. The letter then stated: Specifically, unless [Access.1-NY] and the Guarantors consent in writing to the appointment of Bradley Scher as the receiver of all FCC Licenses by no later than August 13, 2008 and cooperate fully in connection with such appointment, including, without limitation, in filings with the FCC and with the applicable Court, the Collateral Agent shall commence litigation seeking Mr. Scher's appointment, pursuant to Section 3.8 of the Loan agreement.

In October 2008, in conjunction with its sale of several radio stations, Arthur Benjamin, Jr. Executed an Officer's Certificate on behalf of Access.1-NY and Access.1 New Jersey License Company, LLC. The Officer's Certificate, titled "Officer's Certificate [-] Partial Release of Collateral" (Officer's Certificate) stated that the sale was "made in compliance with the terms of the [Loan Agreement]." The Officer's Certificate also stated that Access.1-NY was in default under five sections of the Loan Agreement. Included in these defaults were Access.1-NY's "failure to pay the Obligations in full on the Maturity Date, in accordance with Section 2.5 of the [Loan Agreement]...[and]...failure to pay Interest on the Term A Loans at the default rate as specified by Section 2.7(d)." Both Access.1-NY and Access.1 New Jersey agreed that the "Officer's certificate constutite[d] a Loan Document within the meaning of the [Loan Agreement]."

2.Access.1's Opposition - Affidavit of Sydney L. Small

In opposition, defendants offer the affidavit of Access.1-NY's Chairman and Chief Executive Officer Sydney L. Small along with a copy of a September 10, 2008 document entitled "Access.1 Communications Restructuring Proposal." Mr. Small admits the facts stated regarding the original loan and the 2004 and 2005 amendments and admits defendants' default on [*5]December 31, 2007. On January 1, 2008, he states, the total amount due the Lenders was $106,306,142. Mr. Small further avers that from January through September 30, 2008, Access.1 paid the Lenders $3,262,674 in interest under the Term A Loan and $187,500 in collateral agent fees. He contends that pursuant to the terms outlined in the Loan Agreement, interest due under the Term B Loan was credited to the outstanding principal.

According to Mr. Small, after December 31, 2007, Guggenheim chose not to exercise its rights under the Loan Agreement. Mr. Small claims that at the behest of Guggenheim and predicated upon the belief that Guggenheim would continue to eschew its enforcement rights, Access.1 entered into an agreement in May 2008 to sell its interests in five radio stations located in New Jersey for approximately $9.5 million (Asset Sale). Mr. Small further claims that during this time, Access.1 was working with Guggenheim to restructure the Term Loans. Mr. Small alleges that Access.1 and Guggenheim entered into a term sheet entitled "Access.1 Communications Restructuring Proposal" (September Term Sheet). The September Term Sheet, a copy of which is attached to Mr. Small's affidavit, contains ideas and strategies for reorganizing Access.1's assets and corporate structure. According to Mr. Small, the September Term Sheet provided a plan whereby, rather than conducting a "fire Sale," Access.1 would be restructured to improve its cash flow while at the same time empowering it to repay the Term Loans. With regard to the Term Loans, the September Term Sheet states: Excess cash flow and proceeds from asset sales will be used to repay the principal amount of Term A and Term B Loans up to a maximum of $95.0mm. The existing lending group will agree to extend the maturity of the Term A and Term B Loans to September 30, 2009 and will include a new financial covenant requiring Access.1 to meet certain Broadcast Cash Flow hurdles as measured at 6 months and 12 months from the execution of the Management Agreement...Excess cash flow and proceeds from asset sales will be used to repay the Term A Loan first.

The interest rate on the Term B Loan post the initial $30.0mm of asset sales will be reduced to L + 600 bps split between cash and PIK. The cash portion will be set at a level to ensure the Company remains cash flow positive. If the Company is able to pay the interest in all cash, there will be a further 100 bps reduction in interest rates. Upon payoff of the Term A Loan in full, existing Management receives a performance bonus of $0.8mm and preferred holders receive $1.2mm.Upon the payoff of the principal amount of the Term B Loan (including repayment of the principal amount of the Term A Loan in its entirety, up to $95.0mm in the aggregate), existing Management receives a performance bonus of $0.8mm and preferred holders receive $1.2mm.

According to Mr. Small, Guggenheim was adamant that each defendant, as well as Access.1-NY's common and preferred shareholders, sign off on the term sheet electronically. With regard to approval and execution, the term sheet stated: All of the existing common and preferred shareholders, Access.1 and all of its [*6]subsidiaries and the existing lending group shall consent in writing to this term sheet by no later than September 12, 2008, which consent will be subject to...(c) the execution and delivery of definitive documentation in form and substance acceptable to the parties by no later than September 26, 2008, unless such date is extended by the agreement of all the parties.

Mr. Small avers that Guggenheim received an electronic affirmation from Access.1 and the Lenders as evidence of their "consent" to authorization of the term sheet on September 15, 2008. Consequently, according to Mr. Small, in reliance on the terms outlined within the term sheet, Access.1: modified the employment contracts of its CEO and COO; announced severance packages for several employees; continued to market its assets in order to raise additional revenue to pay off the Term Loans; and incurred substantial legal fees preparing the documentation necessary to finalize the September Term Sheet. Along these lines, Mr. Small states that on September 25, 2008, counsel for Access.1 provided the Lenders' counsel all of the documentation necessary to finalize the September Term Sheet.

The Asset Sale closed on October 15, 2008. The net proceeds of the sale were paid to Guggenheim as follows: approximately $7.4 million in principal; over $30,000 in interest toward the Term A Loan; and attorneys' fees of $319,000 (in addition to the $747,000 previously paid to Guggenheim's lawyers). Mr. Small states that Access.1 did not retain any monies from the Asset Sale to fund its day-to-day operations. He finally contends that on October 17, 2008, Guggenheim informed Access.1 that it would no longer be seeking to restructure the Term Loans and would instead prefer bankruptcy or the appointment of a receiver.

3.Kevin Gunderson's Reply Affidavit

In reply, Mr. Gunderson avers to the following events surrounding the parties attempt to restructure the Term Loans. In January 2008, the parties approved a non-binding term sheet which set forth an initial outline of how to restructure Access.1's debt. In conjunction with this term sheet, Guggenheim temporarily agreed to forbear from enforcing its rights under the Loan Agreement. By March of 2008, the parties could not come to a final agreement on the terms and conditions necessary to finalize the deal and no restructuring occurred.

In the months that followed, the parties continued to negotiate in an attempt to restructure the debt surrounding the Term Loans. These negotiations proved unsuccessful. Thus, on August 14, 2008, plaintiff enforced its contractual rights under the Loan Agreement by initiating this action seeking, inter alia, the appointment of a receiver over the FCC Licenses. Following the commencement of this action, plaintiff provided defendants with an extension of time to answer in order to continue negotiations.

According to Mr. Gunderson, the commencement of this action induced defendants to proffer the September Term Sheet. He claims that the September Term Sheet was a "non-binding term sheet" intended to provide an outline for reorganizing the defendants' board as well as to retain consultants to help run the company and restructure its debt. He contends that the September Term Sheet "was specifically intended not to bind the parties. Instead, it was just a summary of some of the terms of the proposed workout." The parties still had to agree to certain "key terms" not laid out and draft and execute the documents necessary to finalize any deal by the September 26, 2008 deadline. Following diligent efforts to meet this deadline, Guggenheim [*7]agreed to extend the deadline twice (first to October 10 and then October 17, 2008) and, then, gave defendants additional time to file their answer in this action. However, the parties could not come to an agreement. Consequently, the documents necessary to effectuate the transaction were not executed by the October 17 deadline.

After passage of the October 17 deadline, the parties continued their negotiations. Mr. Gunderson avers that in December 2008, the parties approved another non-binding term sheet which proposed restructuring the debt through a pre-negotiated bankruptcy plan (December Term Sheet). He claims that Chelsey Maddox-Dorsey, Access.1-NY's COO, approved the term sheet in an email dated December 12, 2008. Copies of the email and December Term Sheet are attached to Mr. Gunderson's reply affidavit. Mr. Gunderson states that it, like the previous two term sheets, was not intended to bind any of the parties. Many issues still needed to be resolved including: formation of a bankruptcy plan; a disclosure agreement; an exit finance facility; and separation agreements for Access.1's management. Following several more months of "good faith" negotiations, Mr. Gunderson alleges that the parties could not come to an agreement on the terms, conditions, and documentation necessary to finalize the transaction.

With regard to the Asset Sale, Mr. Gunderson states that Guggenheim never promised or consented to forbear its rights under the Loan Agreement as a predicate to its final execution. He notes that plaintiff filed the instant action in August, two months before the Asset Sale closed on October 15, 2008.

B.Guggenheim's Motion to Dismiss Defendants Counterclaim

In its counterclaim, defendants seek to: enjoin Guggenheim from enforcing the default provisions contained within the Loan Agreement; enforce the terms of the September Term Sheet; obtain an order directing Guggenheim to negotiate in good faith to restructure Access.1 in conjunction with the September Term Sheet; and to obtain compensatory damages, interest and costs. Defendants allege the following in support of their counterclaim.

As early as 2007, Access.1 was unable to meet certain requirements in the Loan Agreement. As a result, from late 2007 through early 2008, Access.1 and Guggenheim discussed reorganizing the financial obligations contained within the Term Loans. Some of the options discussed included asset sales and a voluntary bankruptcy filing. Both before and after the Term Loans matured on December 31, 2007, Access.1 continued to pay interest due under the Term Loans. From January 1, 2008 through August 6, 2008, despite passage of the maturity date, the Lenders forbore from exercising any of their rights under the Loan Agreement. Then, as negotiations were ongoing, Guggenheim "abruptly" sent Access.1 the August 6 demand letter requesting that Access.1 consent to the appointment of a receiver over its FCC licences and then commenced the instant action on August 14, 2008.

Following the filing of this lawsuit, the parties resumed their dialogue and negotiated the September Term Sheet. Access.1 alleges that all of the parties signed off on the term sheet via electronic affirmation "with the final sign-off occurring on September 15, 2008." Defendants Answer and Counterclaim at ¶ 28. Mr. Small alleges that the September Term Sheet provided a plan whereby Access.1 would be restructured to improve its cash flow while at the same time empowering it to repay the Term Loans. Access.1 complied with the September Term Sheet and, on September 20, 2008, counsel for Access.1 provided the Lenders numerous documents they had prepared pursuant to the directives outlined within the September Term Sheet. On [*8]September 25, 2008, counsel for Access.1 then allegedly provided the Lenders counsel the remaining documentation necessary to finalize the September Term Sheet.

During this time, the counterclaim alleges that Guggenheim was aware of the pending Asset Sale and that "if a receiver were appointed prior to the closing of the Asset Sale, or a bankruptcy instituted by [Access.1], the closing likely would not occur and therefore Guggenheim would not receive the proceeds thereof." Id. at ¶ 35. The Asset Sale subsequently closed on October 15, 2008 for $9.345 million. As previously noted in the Small Affidavit, the net proceeds of the sale were paid to Guggenheim.

The counterclaim claims that on October 17, 2008, Guggenheim informed Access.1 that it no longer sought to restructure the Term Loans and, instead, preferred bankruptcy or the appointment of a receiver. Access.1 claims that Guggenheim "reneged on the commitments it made in the [September Term Sheet] and deliberately stalled negotiations and failed to continue to negotiate in good faith in order to avoid unsettling the Asset Sale, for which it would be the sole beneficiary, while depriving [Access.1] of any of the benefits negotiated for in the [September Term Sheet]." Id. at ¶ 39. Defendants contend that the September Term Sheet was a "binding preliminary agreement," breached by Guggenheim. In sum, defendants argue that all of its material terms and conditions were agreed to and set forth, and even though a more formal document was contemplated by the parties, the language contained within the September Term Sheet "disclosed an intention by the parities to be bound to the ultimate objective," i.e., a complete reorganization and financial restructure of Access.1. Id. at ¶ 46. In its memorandum of law on this motion, defendants argue that the September Term Sheet is a Type II, not a Type I, preliminary agreement. The defendants specifically note that "[o]n October 17, 2008, without justification or explanation, and in breach of its obligation to negotiate in good faith a final restructuring agreement, Guggenheim abandoned the negotiations and renounced the deal articulated in the [September Term Sheet]." Id. at ¶ 47. This abandonment and breach allegedly deprived Access.1 of its ability to properly restructure and remain a viable business entity.

II.Conclusions of Law

A.Guggenheim's Motion for Partial Summary Judgment

It is well established that summary judgment may be granted only when it is clear that no triable issues of fact exist. Alvarez v Prospect Hosp., 68 NY2d 320, 325 (1986). The burden is upon the moving party to make a prima facie showing of entitlement to summary judgment as a matter of law. Zuckerman v City of New York, 49 NY2d 557, 562 (1980); Friends of Animals, Inc. v Associated Fur Mfts., Inc., 46 NY2d 1065, 1067 (1979). A failure to make such a showing requires a denial of the summary judgment motion, regardless of the sufficiency of the opposing papers. Ayotte v Gervasio, 81 NY2d 1062, 1063 (1993). If a prima facie showing has been made, the burden shifts to the opposing party to produce evidentiary proof sufficient to establish the existence of a material issue of fact. Alvarez, supra, 68 NY2d at 324; Zuckerman, supra, 49 NY2d at 562. The papers submitted in support of and in opposition to a summary judgment motion are examined in a light most favorable to the party opposing the motion. Martin v Briggs, 235 AD2d 192, 196 (1st Dept 1997). Mere conclusions, unsubstantiated allegations, or expressions of hope are insufficient to defeat a summary judgement motion. Zuckerman, supra, 49 NY2d at 562. Upon the completion of the court's examination of all the documents submitted in connection with a summary judgment motion, the motion must be denied if there is [*9]any doubt as to the existence of a triable issue of fact. Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223, 231 (1978).

In the second cause of action of the complaint, Guggenheim alleges that defendants have defaulted under and breached the Loan Agreement by, inter alia, failing to pay: the principal due by the maturity date; both regular and default interest; and the Term B Exit fee. Since defendants have committed an "Event of Default," Guggenheim seeks specific performance under Section 3.8 of the Loan Agreement.

The elements of a cause of action for breach of contract are: (1) formation of a contract between plaintiff and defendant; (2) performance by plaintiff; (3) defendant's failure to perform; and (4) resulting damage. Noise in Attic Productions, Inc. v London Records, 10 AD3d 303 (1st Dept 2004).

Contracts must be interpreted based upon the parties' intentions arising from the language of the agreement itself. Lopez v Fernandito's Antique, 305 AD2d 218, 219 (1st Dept 2003). Clear and unambiguous language should be understood in its plain, ordinary, popular meaning, and where such language is employed, extrinsic evidence should not be considered to determine the parties' intentions. Id. The court must not disregard common sense to properly interpret a contract and "must enforce a contract in accordance with the true expectations of the parties in light of the circumstances existing at the time of the formation of the contract." Reiss v Financial Performance Corp., 279 AD2d 13, 19 (1st Dept 2000). Moreover, the court must avoid interpreting a contract so as to leave certain clauses meaningless. Two Guys from Harrison-N.Y. v S.F.R. Realty Assoc., 63 NY2d 396, 403 (1984); HSBC Bank USA v Nat'l Equity Corp., 279 AD2d 251, 253 (1st Dept 2001) (where two seemingly conflicting provisions reasonably can be reconciled, court is required to do so, giving both effect); Yoi-Lee Realty Corp. v 177th Street Realty Assoc., 208 AD2d 185, 190 (1st Dept 1995) ("contracts should be construed to give full force and effect to their provisions and not in a manner so as to render them meaningless."). Where the parties intent can be determined from the face of the contract, "interpretation is a matter of law and the case is ripe for summary judgment." American Express Bank Ltd. v Uniroyal, Inc., 164 AD2d 275, 277 (1st Dept 1990).

Here, plaintiff has met its burden. It has submitted signed copies of the Loan Agreement and Officer's Certificate, wherein Access.1-NY admits that it defaulted under five sections of the Loan Agreement. In addition, Section 3.8 clearly and unambigoulsy outlines certain duties of the parties in the event defendants are in default. This section permits Guggenheim to seek the appointment of a receiver who then may seek the transfer of control over certain FCC Licenses as designated in the agreement. It further states that defendants acknowledge that Guggenheim has no adequate remedy at law for their failure to comply with this section, and that Access.1-NY "hereby waives and agrees not to assert any defenses against an action for specific performance" to enforce this provision. As such, Guggenheim is entitled to specific performance of Section 3.8 of the Loan Agreement.

Defendants do not dispute that they are in default under the Loan Agreement. Rather, in opposition, they argue that the September Term Sheet was in fact a binding "Type II" preliminary agreement, which serves to preclude Guggenheim from enforcing its rights under section 3.8 of the Loan Agreement.

Ordinarily, where the parties contemplate further negotiations and the execution of a [*10]formal instrument, a preliminary agreement does not create a binding contract. Adjustrite Sys. v GAB Bus. Servs, 145 F3d 543, 548 (2d Cir 1998). New York courts, however, recognize two types of binding preliminary agreements. A "Type I" preliminary agreement which reflects a comprehensive meeting of the minds between the parties on every issue necessitating negotiation leaving only a formal writing to be completed. IDT Corp. v Tyco Group, 54 AD3d 273, 274-75 (1st Dept 2008) citing Brown v Cara, 420 F3d 148, 153 (2d Cir 2005). "Because it is complete, a Type I preliminary agreement binds both sides to their ultimate contractual objective." Id. In contrast, a "Type II" preliminary agreement is a "binding preliminary commitment." Adjustrite,145 F3d at 548. It reflects agreement on several major items while leaving other important terms for future negotiations. IDT, 54 AD3d at 275 citing Brown, 420 F3d at 153. "Type II agreements do not commit the parties to their ultimate contractual objective but rather the obligation to negotiate the open issues in good faith in an attempt to reach the...objective within the agreed framework." Id. If the parties fail to reach an agreement, after negotiating in good faith, no remaining obligations exist. Vacold LLC v Cerami, 545 F3d 114, 124 (2d Cir 2008) citing Adjustrite, 145 F3d at 548.

As recognized by Judge Leval in Teachers Insur. and Annuity Assoc. of Amer. v Tribune Co., 670 F Supp 491, 497 (SDNY 1987):

A primary concern for courts in such disputes is to avoid trapping parties in surprise contractual obligations that they never intended. Ordinarily, in contract negotiation, enforceable legal rights do not arise until either the expression of mutual consent to be bound, or some equivalent event that marks acceptance of offer. Contractual liability, unlike tort liability, arises from consent to be bound...It is fundamental to contract law that mere participation in negotiations and discussions does not create binding obligation, even if agreement is reached on all disputed terms...Nor is this principal altered by the fact that negotiating parties may have entered into letters of intent or preliminary agreements if those were made with understanding that neither side would be bound until final agreement was reached.

Accordingly, the key element in determining whether a preliminary agreement exists is intent - whether the parties intended to be bound and, if so, to what degree. Adjustrite, 145 F3d at 548. "To discern that intent a court must look to 'the words and deeds [of the parties] which constitute objective signs in a given set of circumstances.'" Id. at 549 quoting Winston v Mediafare Ent. Corp., 777 F2d 78, 80 (2d Cir 1986). Subjective evidence of intent is generally not considered. Adjustrite, 145 F3d at 549 citing Rule v Brine, Inc., 85 F3d 1002, 1010 (2d Cir 1996). Moreover, in determining whether the parties intended to be bound, the court may also consider "correspondence and [other] preliminary or partially complete writings." Vacold, 545 F3d at 127 quoting Restatement (Second) of Contracts § 27 cmt. (c); Brown Bros. Elec. Contractors, Inc. v Beam Constr. Corp., 41 NY2d 397, 399-400 (1977). "Under New York law, whether a binding agreement exists is a legal issue, not a factual one." Vacold, 545 F3d at 123 citing Shann v Dunk, 84 F3d 73, 77 (2d Cir 1996); Ronan Assocs. V Local 94-94A-94B Int'l Union of Operating Eng'rs, 24 F3f 447, 449 (2d Cir 1994).

Here, defendants allege a Type II preliminary agreement exists. The factors to consider in assessing whether a Type II preliminary agreement exists are: (1) whether the language of the agreement reveals an intent to be bound; (2) the context surrounding the negotiations; (3) the [*11]existence of open terms; (4) partial performance; and (5) the need to put the agreement in final form in accordance with the custom and practice of such transactions. Brown, 420 F3d at 157.

In analyzing the language of the agreement, the court's primary inquiry is to whether the agreement expressly provides that the parties will not be bound in the absence of a formal, executed writing. Vacold, 545 F3d at 125 citing Brown, 420 F3d at 154; Adjustrite, 145 F3d at 549. Here, such an intention was manifested by the parties. The September Term Sheet states that the parties consent to the proffered terms and conditions, was subject to "the execution and delivery of definitive documentation in form and substance acceptable to the parties by no later than September 26, 2008, unless such date is extended by the agreement of all the parties." The law is clear that a party is not contractually bound to an agreement where such agreement provides that it is not binding until the execution of a formal agreement. Williamson, Picket, Gross, Inc. v LVMH, Inc., 20 Misc 3d 1141A, 2008 NY Slip OP 51815U, *2 (Sup Ct, New York County 2008) citing Jordan Panel Sys. Corp. v Turner Constr. Corp., 45 AD3d 165, 169 (1st Dept 2007).

Terms remained open, and the agreement was not in its final form. The record demonstrates that the parties were still negotiating in September 2008 and had not formalized any definitive agreement well into December 2008. This is evidenced by the December Term Sheet and the December 12, 2008, email from Access.1-NY's COO Chelsey Maddox-Dorsey which shows Access.1-NY's ascension to these freshly negotiated terms and conditions. Indeed, "where the parties contemplate future negotiations and the execution of a formal instrument, a preliminary agreement to enter into a future agreement generally does not create a binding contract." Williamson, 20 Misc 3d at *2 citing Brown, 420 F3d at 153; Vacold, 545 F3d at 124; Adjustrite, 145 F3d at 548. Nor does defendants' conduct amount to partial performance engendered by the September Term Sheet. The sale of the New Jersey subsidiaries and the turn over of the assets was partial payment of the 2007 Term Loans, not conduct that can be viewed as performance of a new obligation.

Moreover, a review of the record provides no indicia that Guggenheim acted in bad faith. Defendants defaulted under the Loan Agreement on December 31, 2007. From that point on, Guggenheim negotiated with Access.1 for approximately one year in an attempt to help reorganize and restructure the company without exercising its contractually agreed to right to immediately call the Term Loans. All of these negotiations occurred despite Guggenheim's default rights under section 3.8 of the Loan Agreement. Guggenheim decided to finally pursue its default rights as outlined in section 3.8 of the Loan Agreement, only after lengthy negotiations. Guggenheim cannot be said to be acting in bad faith simply by seeking to gain the "fruits of" the bargain defendants agreed to in 2007. Defendants received the benefit of the bargain under the Loan Agreement by, in essence, getting one more year to restructure and try to make enough of a profit in order to repay the Term Loans. In lieu of gaining this benefit, defendants cannot now try to escape the reciprocal contractual rights and obligations they negotiated and agreed to in 2007.

B.Guggenheim's Motion to Dismiss

In light of the above determination, the counterclaim asserted against Guggenheim is hereby dismissed. Accordingly, it is

ORDERED that plaintiff's motion for partial summary judgment (motion sequence 002) [*12]as to its second cause of action is granted and the defendants are hereby ordered to specifically perform under section 3.8 of the Loan Agreement by consenting to the appointment of Bradley Scher, of Ocean Ridge Capital Advisors, LLC, as receiver over the FCC Licenses as designated in the Loan Agreement; and it is further

ORDERED that the remainder of the action is severed and shall continue; and it is further

ORDERED that plaintiff's motion to dismiss defendants' counterclaim (motion sequence 003) is granted and defendants' counterclaim is hereby dismissed.

ENTER

DATE: November 13, 2009___________________________________

New York, NYJ.S.C. Footnotes

Footnote 1:The Loan Agreement states that as part of the October 11, 2005 amendment, the Lenders made available to Access.1-NY additional Term B loans with an aggregate principal of $5,000,000.

Footnote 2: In the Loan Agreement Access.1-NY and each guarantor individually are listed as a "Credit Party." They are defined collectively as the "Credit Parties."