Greenwich Capital Fin. Prods., Inc. v NegrinAnnotate this Case
Decided on September 1, 2009
Supreme Court, New York County
Greenwich Capital Financial Products, Inc., Plaintiff,
Metin Negrin, Defendant.
Kaye Scholer, LLP
425 Park Avenue
New York, New York 10022
Michael A. Lynn, Esq.
Efrem Schwalb, Esq.
Deutsch Metz & Deutsch
18 East 41st Street
New York, New York 10017
Jeremy E. Deutsch, Esq.
Bernard J. Fried, J.
In this action, plaintiff Greenwich Capital Financial Products, Inc. seeks recovery against defendant Metin Negrin, pursuant to two separate guaranties (the Guaranties) that were executed by defendant in favor of plaintiff. The Guaranties were the Guaranty of Recourse Obligations (the Recourse Guaranty) and the Special Payment Guaranty, both dated as of October 26, 2005. The Guaranties were signed and delivered along with the loan agreement, dated on the same day, by and between plaintiff and Lexin Celebration III LLC (the Borrower), pursuant to which plaintiff made a loan to the Borrower in an aggregate principal amount not exceeding $72 million (the Loan Agreement).
Plaintiff moves for summary judgment against defendant, based on its interpretation of the
terms of the Guaranties and the Loan Agreement. In response, defendant cross-moves for
summary judgment in his favor, and seeks dismissal of the instant action. For the reasons stated,
plaintiff's motion for summary judgment is denied, and defendant's cross motion for summary
judgment is granted.
On or about October 26, 2005, plaintiff made a loan to the Borrower pursuant to the Loan Agreement, a copy of which is attached as "Exhibit A" to the Joint Stipulation of Facts (the Joint Stipulation),[FN1] to finance the Borrower's condominium conversion plan as to certain real estate property located in Florida (the Property). The loan is non-recourse to the Borrower (with specified exceptions or carve-outs, as discussed below), and is secured by a mortgage on the [*2]Property. It is undisputed that defendant has an interest in, and control over, the Borrower through certain intermediate corporate entities.
Under section 5.2 of the Loan Agreement, the Borrower was obligated to pay, among other things, real estate taxes on the Property. Pursuant to section 3.3 of the Loan Agreement, the Borrower made a payment of real estates taxes, on October 26, 2005, into the Tax and Insurance Subaccount (the Subaccount), and made another payment of real estate taxes, on November 1, 2006, into the Subaccount. These payment obligations, and the fact that the Borrower had fulfilled these obligations, are not in dispute. It is also undisputed that plaintiff, from November 2, 2006 to November 1, 2007, did not ask the Borrower to supplement the Subaccount. Joint Stipulation, ¶ 9. However, it is disputed as to whether the Borrower was obligated, pursuant to section 3.3 of the Loan Agreement, to make an additional payment of real estate taxes that were due on March 31, 2008 (as more fully discussed below). Joint Stipulation, ¶ 8.
Under the Loan Agreement, the loan was scheduled to mature on November 1, 2007 (the Stated Maturity Date). Pursuant to section 2.8 of the Loan Agreement, the term of the loan could be extended, at the Borrower's option, beyond the Stated Maturity Date until November 1, 2008 (the Extended Maturity Date), if the Borrower met specified conditions. The Stated Maturity Date was not extended; in fact, the loan was in default. On November 2, 2007, plaintiff notified the Borrower that an event of default had occurred under the Loan Agreement, and demanded that the Borrower immediately pay the entire debt. Joint Stipulation,¶ 23. The Borrower has not made payment of the entire debt. Id., ¶ 24.
After the Stated Maturity Date, plaintiff notified the Borrower and the defendant, on January 14, 2008, that real estate taxes for the Property payable on March 31, 2008 (estimated to be approximately $1.2 million) would have to be contributed to the Subaccount on or before February 1, 2008. Joint Stipulation,¶¶ 25-26. No contributions were made. Id., ¶ 27. On March 31, 2008, plaintiff paid the real estate taxes (approximately $1.2 million) to the taxing authorities. Id., ¶ 33. On April 22, 2008, plaintiff informed defendant that the Borrower had not paid such real estate taxes and demanded that defendant, as guarantor under the Guaranties, repay plaintiff an amount equal to that paid by it to the taxing authorities. Id., ¶ 34. When defendant did not make such payment, plaintiff commenced the instant action. Both plaintiff and defendant seek summary judgment, pursuant to CPLR 3212.
In stating the standards for granting or denying a summary judgment motion pursuant to CPLR 3212, the Court of Appeals noted in Alvarez v Prospect Hospital (68 NY2d 320, 324 ): [*3]
As we have stated frequently, the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such ... showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary support in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action [internal citations omitted].
Adhering to the Court of Appeals' guidance, lower courts carefully scrutinize motions for summary judgment, as well as the facts and circumstances of each case, to determine whether relief should be granted or denied. Giandana v Providence Rest Nursing Home, 32 AD3d 126, 148 (1st Dept 2006)(because summary judgment "deprives the litigant of his day in court, it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues")(citations omitted), revd on other grounds 8 NY3d 859 (2007); Martin v Briggs, 235 AD2d 192, 196 (1st Dept 1997)(in considering a summary judgment motion, "evidence should be analyzed in the light most favorable to the party opposing the motion")(citations omitted). However, general allegations of a conclusory nature unsupported by competent evidence are insufficient to defeat a summary judgment motion. Alvarez, 68 NY2d at 324-325.
As noted above, although the Loan Agreement is non-recourse to the Borrower, it contains specified exceptions or carve-outs that make the Borrower liable for the repayment of the debt. Under section 10.1 of the Loan Agreement (captioned Exculpation), the Borrower is liable to plaintiff under two scenarios. More specifically, under section 10.1 (a) - (f), the Borrower is liable to plaintiff for its loss, if such loss is caused by certain enumerated acts that are collectively defined as the "Borrower's Recourse Liabilities," which include, among others, the failure to pay real estate taxes. Moreover, under section 10.1 (i) - (iii), the Borrower is liable for the repayment of the entire debt caused by certain enumerated trigger events that are collectively defined as the "Springing Recourse Events," which include, among others, the filing for bankruptcy relief.
Pursuant to the Recourse Guaranty and the Special Payment Guaranty, copies of which are attached respectively as Exhibits D and F to the Joint Stipulation, defendant is obligated to pay plaintiff the "Guaranteed Obligations," if and when the same shall become due and payable. Under the Recourse Guaranty, the term "Guaranteed Obligations" means "(i) from [and] after the date of the accrual of any of Borrower's Recourse Liabilities and (ii) from [*4]and after the date any Springing Recourse Event occurs,[FN2] payment of all the Debt as and when the same is due in accordance with the Loan Documents (and whether accrued prior to, on or after such date." On the other hand, under the Special Payment Guaranty, "Guaranteed Obligations" means "the due and punctual payment in full (and not merely the [sic] collectively) of all amounts required to be paid by Borrower after the date hereof pursuant to Sections 2.6.4, 3.3 and 3.4 of the Loan Agreement."
Plaintiff seeks to require defendant, as guarantor, to pay the real estate taxes that were payable on March 31, 2008. Plaintiff alleges that, based on a provision in section 3.3 of the Loan Agreement, the Borrower was obligated to pay real estate taxes for the calendar year 2007 that were due on March 31, 2008. This provision states, in part, that "[i]f Lender determines in its reasonable judgment that the funds in the [Subaccount] will be insufficient to pay ... the Taxes ... next coming due, Lender may require a monthly contribution to be made by Borrower to the [Subaccount,] such that funds on deposit in the [Subaccount] will be sufficient to pay ... such Taxes at least 30 days prior to their respective due dates." In effect, plaintiff alleges that such provision requires the Borrower to contribute real estate funds to the Subaccount even after the Stated Maturity Date. Defendant counters that the Borrower's obligation to make tax contributions expired by its terms on November 1, 2007, when the loan matured on that day. Therefore, the parties' dispute centers upon an interpretation of the terms of the Loan Agreement, as to the pivotal issue of whether the Borrower was contractually required to pay such taxes after the Stated Maturity Date. If the answer is in the negative, then defendant, as guarantor, should not be required to pay such taxes under the Guaranties (as one of the "Guaranteed Obligations") if the Borrower, as principal obligor, had no such obligation under the Loan Agreement. Sweeters v Hodges, 256 AD2d 185 (1st Dept 1998) (guarantor is liable to creditor only for the amount of principal obligor's default).
Plaintiff argues that the terms of the Loan Agreement and the Guaranties are clear and unambiguous, and summary judgment in its favor is warranted. "Whether or not a writing is ambiguous is a question of law to be resolved by the courts." W.W.W. Associates, Inc. v Giancontieri, 77 NY2d 157, 162 (1990); 1414 APF, LLC v Deer Stags, Inc., 39 AD3d 329, 331 (1st Dept 2007) (same). A contract is unambiguous if "on its face [it] is reasonably susceptible of only one meaning." Greenfield v Philles Records, 98 NY2d 562, 570 (2002). On the other hand, "[a] contract is ambiguous if the [*5]provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." New York City Off-Track Betting Corp. v Safe Factory Outlet, Inc., 28 AD3d 175, 177 (1st Dept 2006)(internal quotation marks and citations omitted).
The Loan Agreement provision relied on by plaintiff, for the proposition that the Borrower was required to contribute tax funds to the Subaccount even after the Stated Maturity Date, is far from unambiguous. Indeed, section 3.3 of the Loan Agreement is unambiguous as to the Borrower's obligation to pay taxes only with respect to three occasions: (1) on October 26, 2005, the date of the Loan Agreement and the Guaranties; (2) on November 1, 2006, the date when the Borrower was required to fund the Subaccount in an amount determined by plaintiff as necessary to pay the taxes that would be payable until the Stated Maturity Date of November 1, 2007; and (3) on the Stated Maturity Date, if the Borrower had elected to extend the term of the loan until the Extended Maturity Date of November 1, 2008. As noted, the Stated Maturity Date was not extended, and the Borrower was in default under the Loan Agreement on or before such date. Joint Stipulation, ¶ 12. Thus, plaintiff's reliance on the subject provision is misplaced, because it is not absolutely clear as to the Borrower's tax funding obligation (if any) after the Stated Maturity Date, when such date was never extended. Indeed, this provision should not be read in isolation.
"The existence of ambiguity is determined by examining the entire contract and consider[ing] the relation of the parties and the circumstances under which it was executed, with the wording to be considered in light of the obligation as a whole and the intention of the parties as manifested thereby." Riverside South Planning Corp. v CRP/Extell Riverside, L.P., 60 AD3d 61, 66-67 (1st Dept 2008)(internal quotation marks and citations omitted). Also, it is well-settled that the fundamental rule for contract interpretation is that a contract is to be construed in accord with the parties' intent. Slatt v Slatt, 64 NY2d 966 (1985). Thus, the subject provision relied on by plaintiff must be read and construed in conjunction with other relevant provisions of the Loan Agreement to ascertain the intent of the parties.
Section 2.8 is helpful in such regard, as it sets forth the various conditions that the Borrower was required to fulfill before it could seek an extension of the Stated Maturity Date. In particular, section 2.8 (h) provides, in relevant part, that "Borrower pays to Lender on the ... Stated Maturity Date, for transfer into the [Subaccount], the amount necessary such that the funds on deposit in the Subaccount (after giving effect to the payment required under this clause (h)) will be sufficient to cover all payments of Taxes ... required to be made by Borrower ... for the remainder of the Loan Term [i.e., through the Extended Maturity [*6]Date]." This clause, when read in conjunction with the tax funding provisions under section 3.3, evinces the parties' intent to establish a mechanism to escrow real estate taxes necessary to meet the tax payment obligations in the event the Stated Maturity Date was extended. Since the Stated Maturity Date was not extended, the tax funding condition under section 2.8 (h) would be superfluous or meaningless (i.e., requiring the Borrower to fund on the Stated Maturity Date), if the Borrower could be required after the Stated Maturity Date, to fund taxes that were due after the Stated Maturity Date (i.e., taxes that were payable on March 31, 2008). Therefore, I conclude that the intent of the parties, as manifested by the above provisions of the Loan Agreement, is that the Borrower's obligation to escrow taxes would cease and terminate on the Stated Maturity Date, unless such date was extended in accordance with section 2.8.
Moreover, it is undisputed that, from November 2, 2006 to November 1, 2007, plaintiff did not ask the Borrower to escrow taxes for the Subaccount, and that plaintiff did not notify the Borrower and the defendant, until January 14, 2008, that the funds for real estate taxes payable on March 31, 2008 would have to be contributed to the Subaccount. Joint Stipulation, ¶ 9. Plaintiff's notice was untimely, as it was given after the Stated Maturity Date.[FN3] Thus, contrary to plaintiff's assertion that defendant, as guarantor, is obligated to repay plaintiff the taxes it paid to the tax authorities, defendant is not obligated to do so because the Borrower has no obligation to do so under the Loan Agreement. Sweeters, 256 AD2d at 185 ("because the principal obligor herein is not in default ... no amount is now due under the guarantee upon which plaintiff premises his right to recover [against the guarantor]").
Accordingly, I conclude that defendant is entitled to summary judgment on his cross motion seeking dismissal of this action. See New York Off-Track Betting Corp., 28 AD3d at 177-178 ("mere assertion by a party that contract language means something other than what is clear when read in conjunction with the whole contract is not enough to create an ambiguity sufficient to raise a triable issue of fact")(citation omitted).
Notwithstanding the foregoing, plaintiff also argues that, pursuant to the "survival" clause under section 10.4 of the Loan Agreement, the Borrower was obligated to escrow real estate taxes until the entire debt is repaid in full. Such clause states, in [*7]relevant part, that "[t]his Agreement and all covenants [and] agreements ... made herein ... shall survive the making by Lender of the Loan ... and shall continue in full force and effect so long as the Debt is unpaid." The argument is unconvincing, because it is well-established that a general provision (such as a survival clause) cannot override specific provisions (such as sections 3.3 and 2.8 (h) that specifically deal with tax escrows) of a contract. Brady v Williams Capital Group, L.P., __ AD3d __, 878 NYS2d 693, 704 (1st Dept 2009)("[u]nder well-settled principles of contract interpretation, [e]ven if there is an inconsistency between a specific provision and a general provision of a contract ... the specific provision controls")(internal quotation marks and citations omitted); DeWitt v DeWitt, 62 AD3d 744, 745 (2d Dept 2009)("[w]here there is an inconsistency between a specific provision and a general provision of a contract, the specific provision controls") (quotation marks and citations omitted). Further, plaintiff is a sophisticated financial institution, and it was assisted by counsel in the negotiation of the Loan Agreement and the Guaranties. Had it intended that the Borrower would remain liable to pay taxes after the Stated Maturity Date, even if such date was not extended, it could have negotiated for such a provision in the loan documents. Indeed, if the contractual interpretation urged by plaintiff were to prevail, both the Borrower and the defendant could be liable for the payment of taxes, potentially in perpetuity, so long as the debt is outstanding and even if the loan is in default. Such an alleged liability is significant and onerous, and can be hardly said to be within the contemplation or intent of the Borrower and the defendant when they signed the documents, particularly in light of the fact that the loan is non-recourse.
The parties also raise an issue as to whether defendant is liable under the Recourse Guaranty which, as noted above, defines "Guaranteed Obligations" as those that arise from the accrual of Borrower's Recourse Liabilities and Springing Recourse Events. Defendant takes the position that there is no obligation, arguing that liability only arises when a Borrower's Recourse Liability and a Springing Recourse Event both exist, but the latter has not occurred nor has plaintiff alleged otherwise.[FN4] Plaintiff takes a contrary position, as it construes the two categories of trigger events as mutually independent (i.e., guarantor liability arises when either event exists). This issue is moot, because I have determined that the Borrower is not obligated to pay taxes after the Stated Maturity Date, and consequently defendant is also not [*8]obligated on the Guaranties, as such obligation is not within the meaning of "Guaranteed Obligations" under the Guaranties.
Accordingly, it is hereby
ORDERED that the plaintiff's motion for summary judgment is denied; and it is further
ORDERED that the defendant's cross motion for summary judgment is granted in favor of defendant, and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk of the Court is hereby directed to enter judgment accordingly.
Footnote 1:The Joint Stipulation was submitted by the parties pursuant to the instructions of the Hon. Herman Cahn, (Ret.), to whom the action was previously assigned.
Footnote 2:Plaintiff does not allege that a Springing Recourse Event has occurred.
Footnote 3:It is unnecessary to resolve the hypothetical issue as to whether the Borrower could be obligated to pay taxes after the Stated Maturity Date if plaintiff had notified the Borrower of same before such date. Such issue is not before me, and the facts are otherwise.
Footnote 4:Defendant argues that the obligation under the Recourse Obligation Guaranty has not arisen, and the obligation under the Special Payment Guaranty has expired by its terms.