Kaplan v U.S. Coal Corp.
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Kaplan v U.S. Coal Corp. 2012 NY Slip Op 30166(U) January 23, 2012 Supreme Court, New York County Docket Number: 112252/10 Judge: Debra A. James Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK C O U N N PRESENT: PART 59 PEBRAA. JAMES I Justlce Index No.: Plaintiff, -v- 112252/10 Motion Date: LAWRENCE KAPLAN, 10/18/11 Motion Seq. No.: U.S. COAL CORPORATION, 01 Motion Cal. No.: Defendant I The following papers, numbered 1 to 9 were read on this motion for summary judgment In lieu of complaint. PAPERS: Notice of MotiodOrder to Show Cause -Affidavits "Exhibits Answering Affidavits - Exhibits Replying Affidavits - Exhibits Cross -MotIon : Uy BI RFD 5, 6 r* Yes No JAN 25 2012 Upon the foregoing papers, NEW YORK Motion sequence numbers 001 a n d & m n a E & t e d for disposition. In motion sequence number 001, plaintiff moves, pursuant to CPLR 3213, for summary judgment in lieu of complaint. Defendant cross-moves, pursuant to CPLR 3211 (a) (1) and ( 7 ) , to dismiss the complaint. In motion sequence number 002, East Coast Miner LLC ( E a s t Coast) moves, pursuant to CPLR 1013, to: (1) be allowed to intervene in the primary action; (2) be added as a p a r t y Check One: Check If appropriate: FINAL DISPOSITION DO NOT POST NON-FINAL DISPOSITION 0 REFERENCE 0 SETTLElSUBMlT ORDERIJUDG. [* 2] defendant; ( 3 ) have the caption amended by adding East Coast as a party defendant; ( 4 ) allow East Coast to submit opposition papers to .plaintiff's motion; (5) deny plaintiff's motion; and (6) dismiss the complaint. On or about April 15, 2008, plaintiff, defendant, and nonparties Camofi Master LDC (Camofi),Camhzn Master LDC (Camhzn),Futurtec L.P. (Futurtec) and Michael Miller (Miller) entered into an agreement, entitled "Rights Agreement," whereby, pursuant to a "Securities Purchase Agreement" (SPA), defendant, as the parent company f o r a group of borrowers, issued to plaintiff, Camofi, Camhzn, Futurtec and Miller (collectively, investors) certain promissory notes (Notes) in the aggregate principal amount of $ 5 million. Pursuant to the S P A , the Notes were secured by certain assets of defendant and the borrowers, subject to a Security Agreement. Under the terms of the SPA, the investors received an aggregate of 500,000 shares of defendant's common stock at $.001 par as additional consideration for their purchase of the Notes, with certain put rights attached to such shares. The time f o r electing the put option, pursuant to section 1 of the Rights Agreement, was to be triggered if defendant failed to consummate one of the following: (1) an underwritten public offering of its common stock; or (2) a reverse merger. -2- If the put right was [* 3] triggered, under section 2 of the Rights Agreement, each investor could exercise the p u t f o r a purchase price of $5.40 per share, with certain adjustments not here relevant. Section 5 of the Rights Agreement states: Securitv Interest. The obligation of [defendant] to make payment of the Purchase Price pursuant to Section 2 hereof shall be secured by a security interest in certain assets of [defendant] and t h e Borrowers pursuant t o the Security Agreement; pwvided, however, such security interest shall not become fully granted, attached or effective and Investors shall take no action to perfect or enforce such security interest unless and until all the obligations of [defendant] and the Borrowers to the Credit Agreement Lenders under the Credit Agreement (as such terms are defined in the Notes) and all other Loan Documents (as such term i s defined in. the aforementioned Credit Agreement) have been paid in full. (emphasis in original) Plaintiff alleges that, pursuant to the Rights Agreement, defendant failed to consummate the conditions enunciated therein SO as to trigger his right to exercise the put option. By lett.er dated April 2,. 2010, plaintiff notified defendant of his intention to exercise his put option right, Plaintiff held 25,000 put shares, and seeks $135,000.00 for their redemption, which defendant has allegedly failed to pay. Plaintiff has provided a second letter, dated May 18, 2010, in which he reiterates his intention to exercise the put option. Plaintiff contends that this a c t i o n is one for the payment of money only based on the aforementioned Rights Agreement. In opposition to plaintiff's motion, and in support of its cross-motion, defendant states that, pursuant to the SPA, -3- [* 4] plaintiff appointed and authorized Camofi to act as h i 3 agent to acquire, among other things, a security interest on plaintiff's behalf in certain assets of defendant's and defendant's subsidiaries. Camofi entered into the Security Agreement on plaintiff's behalf on April 15, 2 0 0 8 . On the same date that the Security Agreement was executed, defendant and the borrowers entered i n t o two inter-creditor and subordination agreements, one relating to the borrowers' stock held by defendant, and the other relating to-assetsof the borrowers. These agreements were subsequently amended t h e following y e a r . Camofi, on plaintiff's behalf, signed these agreements, pursuant to which plaintiff was deemed a "Junior Creditor." According to these agreements, senior creditors are to be paid before junior creditors are paid, and until the senior creditors are paid no junior creditor, without the prior written -4- [* 5] approximately 57% per annum. In opposition to defendant's cross motion and in r e p l y to defendant's opposition, plaintiff avers that the provisions of General Obligations Law (GOL) 5 5 - 5 0 1 ( 6 ) (b) expressly bars against junior creditors seeking remedies only applies to remedies against the borrowers, not defendant. In reply to plaintiff's opposition to its cross motion, defendant states that GOL 5 5-501 ( 6 ) (b) is inapplicable because plaintiff's loan was only $250,000.00,and plaintiff is attempting to aggregate the total amount of the loans made to junior creditor may not seek any remedy, and those provisions are in question, which states: "Rernedv" shall mean, with respect to a Default, the acceleration of any Junior Creditor Debt, or the exercise of any remedies in respect of such Default (including, without limitation, the right to sue t h e Borrowers), to exercise any right of set off, and to file or participate in any bankruptcy proceeding against the Borrowers, and explicitly including the imposition of default interest rate). -5- [* 6] In motion sequence number 002, East Coast states that it is a junior creditor along with plaintiff, pursuant to the subordination agreement noted above, and seeks to intervene based on the assertion that the subordination agreement prohibits plaintiff's action without the written consent of the senior creditors, which plaintiff does not have. East Coast maintains that, if plaintiff were to be granted the relief he seeks, such relief would have t h e effect of breaching the agreement and adversely effect East Coast's security interest. East Coast states that defendant is not a party to the subordination agreement and, therefore, does not have standing to defend East Coast's interests in the main action. Otherwise, East Coast basically agrees with defendant's position with respect to the main action, as presented above. In opposition to East Coast's motion, plaintiff asserts that the Rights Agreement contains a merger clause that bars extrinsic evidence and is the o n l y agreement that forms the basis of plaintiff's motion. The clause in question states: Entire Aqreement. This Agreement (including Annexes I and 11) constitutes the entire agreement among the parties with respect to the subject matter hereof and supercedes a11 other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof. -6- [* 7] The court notes that the subordination agreement that forms the basis of the opposition was amended subsequent to the execution of the Rights Agreement. The court shall deny Plaintiff s motion. CPLR 3213, states, in pertinent part that \\[w]hen action is based upon an an instrument for the payment of money only or upon any judgment, the plaintiff m a y serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. Where the instrument requires something in addition to defendant s explicit promise to pay a sum of money, CPLR 3213 is unavailable. Put another way, a document comes within CPLR 3213 if a prima facie case would be made o u t by the instrument and a failure to make payments called for by its terms. The instrument does not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the instrument. yeissman v S i n o m Deli, Inc., 88 NY2d 437, 444 (1996) (internal citations omitted); Bloom v Luqli, 81 AD3d 579 (2d Dept 2011); Metal Management, Inc. v Esmark Incorporated, 49 AD3d 333 (lar Dept 2008). In the case at bar, the Rights Agreement that forms the basis of plaintiff s motion specifies, as noted above, that defendant s obligation to pay for t h e put rights is subject to the security agreements and certain triggering events. Therefore, in order to determine whether defendant is obligated to pay plaintiff, the court must look at extrinsic evidence and -7- [* 8] the ancillary agreements to determine whether their conditions have been met so as to trigger defendant s payment obligations. While CPLR 3213 could apply to an action on a promissory note where subordination agreements merely order the priority of plaintiff[ sl rights as against other creditors and have no bearing on plaintiff s rights against defendant (Linskv v A i a& Electric Mocor C o r n . , 2 2 5 AD2d 1055, 1 0 5 6 [ 4 t h Dept 1 9 9 6 1 ) here, I the subordination agreements, by the terms of the Rights Agreement, create a condition precedent to defendant s obligations and and thus, plaintiff[ sl prima facie case consisted of more than proof of the note and a failure to make the payments called for by its terms. Hence, plaintiff has failed to establish that the Rights Agreement is an instrument for t h e payment of money only entitling him to the accelerated provisions of CPLR 3213. In denying plaintiff s motion, t h e court deems the moving and answering papers a8 the complaint and answer respectively and shall consider defendant s motion to dismiss this action. CPLR 3213; Lipsky v Ajax Electric Motor C o r p . , 225 AD2d at 1056, ~upra. In doing so, the court shall grant defendant s cross motion to dismiss the complaint. Defendant moves pursuant t o CPLR 3211 (a) (1) & ( 7 ) on the grounds of a defense founded upon documentary evidence and that the complaint fails to state a cause of action. -a- [* 9] As stated above, the documentary evidence provided with these motions contain a condition precedent that must occur before plaintiff can maintain this action. That is, under the inter-creditor and subordination agreements plaintiff as a junior creditor must at a minimum plead that "that t h e Senior Creditor Debt has been paid in full in cash." Plaintiff does not dispute that this condition has not been satisfied and as a consequence, defendant's cross-motion must granted and the action dismissed. In reaching this conclusion, the court need not address defendant's u s u r y arguments. Because of the dismissal of the action on defendant's motion, East Coast's motion shall be denied as moot. Based on the foregoing, it is 'hereby ORDERED that plaintiff's motion for summary judgment in lieu of complaint (motion sequence number 001) is DENIED: and it is further ORDERED that defendant's cross-motion to dismiss the action is GRANTED and the action is DISMISSED with costs and disbursements to defendant as taxed by the Clerk of the Court upon submission of an appropriate bill of costs: and it is further -9- [* 10] ORDERED t h a t East Coast Miner LLC's motion (motion sequence number 0 0 2 ) is D E N I E D AS MOOT. This is the d e c i s i o n and order of t h e c o u r t . Dated: ENTER : January 2 3 , 2012 DEBRA A. JAMES d.Q.b. N W YORK COUNTY CLERK'S OFFICE -10-
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