Putnam County Sav. Bank v Aditya

[*1] Putnam County Sav. Bank v Aditya 2010 NY Slip Op 51264(U) [28 Misc 3d 1211(A)] Decided on July 1, 2010 Supreme Court, Putnam County Ecker, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 1, 2010
Supreme Court, Putnam County

Putnam County Savings Bank, Plaintiff,

against

Kamal K. Aditya, ROBERT J. HENTSCHEL, RAJIB K. ADITYA, RICHARD YANDOLI, and JUDITH MARIE McCRORY YANDOLI, Defendants. KAMAL K. ADITYA, RAJIB K. ADITYA, and ADITYA FAMILY DYNASTY TRUST OF 2002, Third-Party Plaintiffs, DEAN MARINO, THOMAS L. MASTRO, PHILLIP BRAAM, III, CONTEMPORARY ENVIRONMENTAL MANAGEMENT, INC., TRI STATE BUSINESS PARTNERS, LLC., LERD ASSOCIATES, LLC., JMTRH, LLC., SMH DONUTS, HYDE PARK, LLC., and BEDFORD PROFESSIONAL ASSOCIATES, LLC., Third-Party Defendants.



2323/09



COZEN O"CONNOR

45 Broadway, 16th Floor

New York, New York 10006

Attn: Melissa Brill, Esq.

DANIELS & PORCO

102 Gleneida Avenue

Carmel, New York 10512 Attn: Robert C. Lusardi, Esq.

Attorneys for Putnam County Savings Bank

BARTON BARTON & PLOTKIN

Attorneys for Aditya Family Dynasty Trust of 2002

420 Lexington Avenue

New York, New York 10170

Attn: Maurice N. Ross, Esq.

FOX ROTHSCHILD, LLP.

Attorneys for Kamal K. Aditya and Rajib K. Aditya

100 Park Avenue, 15th Floor

New York, New York 10017

Attn: John A. Wait, Esq.

PERRY DEAN FREEDMAN,ESQ.

Attorney for Robert J. Hentschel,

Contemporary Environmental Management, Inc., and

Bedford Professional Associates, LLC.

Ten Bank Street, Suite 650

White Plains, New York 10606

HARVEY J. CAVAYERO & ASSOCIATES

Attorneys for Richard Yandoli and Judith Marie McCrory Yandoli

57 Old Country Road, Suite L

Westbury, New York 11590

Attn: Harvey J. Cavayero, Esq.

THOMAS MASTRO

Third-Party Defendant, pro se

208 Harris Road, AA3

Bedford Hills, New York 10507

Lawrence H. Ecker, J.

Upon consideration of all of the foregoing,[FN1] and for the following reasons, the motion for summary judgment is granted.

This is one of three separate actions in which plaintiff, Putnam County Savings Bank [*2](hereinafter "PCSB"), seeks to enforce guaranties given by each of the defendants to secure loans from PCSB for the construction and operation of three restaurants. In answer to the complaint in each of the actions the Adityas pled defenses and interposed counterclaims and third-party claims alleging, among other things, that the guaranties were unenforceable against them due to PCSB's breach of contract, PCSB's breach of fiduciary duty to the Adityas, and because the guaranties had been obtained through fraud. PCSB now moves for summary judgment, dismissing the Adityas's defenses, counterclaims, and third-party claims.

Factual Background

In 2005 defendant, Robert J. Hentschel (hereinafter "Hentschel"), invited the Adityas to be partners with Hentschel in a venture which Hentschel hoped would eventually entail the development and operation of twenty-four (24) Houlihan's Restaurant, Inc. franchises throughout the Northeast and Southeast United States. (See Affidavit Of Defendant/Third-Party Plaintiffs [sic] Rajib K. Aditya In Opposition To Putnam's Motion For Summary Judgment dated May 10, 2010 [hereinafter "RKA Aff"], at 5). To that point Hentschel and/or various entities which he controlled had obtained rights to develop and operate at least ten (10) such franchises in Connecticut, Rhode Island, and New York, and the Adityas agreed to be partners and investors in the venture, to cooperate in obtaining financing and, if necessary, to act as guarantors. (See id. at 5-6).

Corporations were formed to operate each of the first three franchises, all of which were to be located in Connecticut: 40 Glastonbury Restaurant, LLC. (hereinafter "40 Glastonbury"), HS Eagle Road, LLC. (hereinafter "HS Eagle"), and 33 Broad Street Restaurant Group, LLC. (hereinafter "33 Broad"). (See id. at 6). In 2006 construction began on two of the restaurants. (See id. at 8). The Adityas agreed to begin funding those projects while financing was being sought, based upon Hentschel's assertion that they would be repaid out of the proceeds of bank loans they hoped to secure. (See id.) The first franchise, operated by 40 Glastonbury, opened in April 2007. (See id. at 9).

"[O]n or about May 21, 2007," a business loan broker introduced the Adityas and Hentschel to PCSB executives, one of whom was James A. Martin. (Id.) Martin is the Executive Vice President and Chief Lending Officer of PCSB. (See Affidavit Of James A. Martin dated March 16, 2010 [hereinafter "Martin Aff"], at 1). At that meeting Hentschel and the Adityas presented their plan and explained "that they needed bank financing for at least the construction and initial operation phase for [the first three] restaurants, and eventually, for the entire Houlihan's restaurant venture of up to 24 restaurants." (RKA Aff at 10). They also explained "that the Glastonbury restaurant was already open for business, and that the construction loan' we were seeking for that restaurant would be used in substantial part to repay loans made by or on behalf of the [Aditays] which had allowed the Glastonbury restaurant to be constructed and to open before bank financing was in place." (Id.)

The Adityas allege that:

After numerous meetings and discussions, [PCSB] and Martin agreed to provide bank financing for the first phase of the Houlihan's restaurant venture. In particular, [PCSB] and Martin made a firm commitment to provide financing to 40 Glastonbury, HS Eagle and 33 Broad, and to [*3]thereafter consider providing financing for additional Houlihan's restaurants. When Martin made this commitment, he was fully aware, and he agreed on behalf of [PCSB], that a substantial portion of the financing provided by [PCSB] would be used [to] repay advances that had been made by or on behalf of the [Adityas] to the [three corporations].

(Id. at 10-11).

The Adityas allege further that:

[PCSB] and . . . Martin agreed and understood that [PCSB] would be providing funding necessary and sufficient to allow the first phase of the Houlihan's venture to successfully launch and, in particular, that [PCSB] would provide sufficient financing not merely for construction, but to allow the three Connecticut restaurants to operate for a sufficient period of time to develop a stable and profitable customer base.

(Id. at 11).

On May 29, 2007, PCSB made a loan to HS Eagle (see copies of loan documents annexed to Martin Aff as Exhibit P), which was secured by a guaranty executed by Hentschel and Rajib K. Aditya (individually hereinafter "R. Aditya") (see copy of Guaranty Of Payment annexed to the Martin Aff as Exhibit Q).

On June 21, 2007, PCSB made a loan to 40 Glastonbury (see copies of loan documents annexed to the Martin Aff as Exhibit A), which was secured by a guaranty executed by Hentschel, R. Aditya, Kamal K. Aditya (individually hereinafter "K. Aditya"), and Richard Yandoli (hereinafter "R. Yandoli") (see copy of Guaranty Of Payment annexed to the Martin Aff as Exhibit B).

On June 21, 2007, PCSB also made two loans to HS Eagle (see copies of loan documents annexed to the Martin Aff as Exhibits H, I, K, L and N), which were each secured by six individual guaranties from Judith Marie McCrory Yandoli (hereinafter "J. Yandoli"), R. Yandoli, Hentschel, R. Aditya, K. Aditya, and the Aditya Family Dynasty Trust of 2002 (individually hereinafter the "Trust") (see copies of Guaranties Of Payment annexed to the Martin Aff as Exhibits J and O).

On November 1, 2007, PCSB made a loan to 33 Broad (see copies of loan documents annexed to the Martin Aff as Exhibits D and E), which was secured by four individual guaranties from Hentschel, R. Aditya, K. Aditya, and the Trust (see copies of Guaranties Of Payment annexed to the Martin Aff as Exhibit F).

The guaranties given by the Trust were executed by R. Aditya, who served as trustee. (See RKA Aff at 26). By its terms the agreement pursuant to which the Trust was created is governed by the law of the State of New Jersey; however, "[t]he Trustee may elect that the law of another jurisdiction (other than New Jersey) shall govern the trust to the extent necessary or appropriate under the circumstances."(See Irrevocable Trust Agreement, a copy of which is annexed to the RKA Aff as Exhibit 14, at Article XXI). All of the guaranties contain language agreeing that any questions concerning or relating to the document shall be governed by and determined in accordance with the laws of the State of New York.

With the exception of the guaranty given on the 40 Glastonbury loan, all of the guaranties [*4]contain the following clause:

This Guaranty may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any failure to act on the part of [PCSB] or Borrower, but only by agreement in writing signed by the party against whom enforcement of any modification, amendment, extension, change, discharge or termination is sought.

The guaranty given on the 40 Glastonbury loan contains no such language.

The Adityas allege that they gave their guaranties in reliance upon the agreements of PCSB and Martin that a portion of the loan proceeds would be used to repay pre-loan advances made by the Adityas (hereinafter the "Reimbursement Agreement"), and that PCSB would provide additional financing to allow the three Connecticut restaurants to operate for a sufficient period of time to develop a stable and profitable customer base (hereinafter the "Additional Financing Agreement"). (See RKA Aff at 11-12). None of the loan documents or the guaranties contain any such language, or incorporate, refer to, or mention any oral agreements.[FN2]

PCSB alleges that Martin met with the Adityas and "helped to negotiate the terms of the loans between PCSB" and the three corporations (Martin Aff at 3), and that "[t]hroughout all negotiations and loan closings, the [Adityas] were represented by their attorney, Douglas Ehrenworth of the firm Spector & Ehrenworth" (id. at 10). Martin alleges that there was no oral Reimbursement Agreement — "[i]n fact, not one word of such an agreement was ever uttered in any dealings I had with the Adityas" (id. at 11) — and no oral Additional Financing Agreement — "[a]t no time was there ever such an agreement made between PCSB and any of the restaurant companies or the [Adityas]" (id. at 12).

In July 2007, 40 Glastonbury issued two checks, totaling $400,000.00, to the Trust. (See RKA Aff at 12). The Adityas allege that "Hentschel told [R. Aditya] that this was the first installment' of repayments" for the Adityas's pre-loan advances (id.), but no other installments were made and "none of the monies advanced by [K. Aditya] or [R. Aditya] out of their personal funds was ever repaid" (id. at 13). The Adityas allege that "between February 2006 and April 2007, [they] caused loans of over $3.2 million to be made to" the three corporations (id. at 9), that "between May 2007 and November 2007, [they] provided more than an additional $950,000.00 in loans to" the three corporations, and that the two checks from 40 Glastonbury constituted the only reimbursement they received from the more than $4,000,000.00 in PCSB loan proceeds (id. at 14).

When the first restaurants failed to become profitable, the Adityas asked PCSB to provide more financing in support of their efforts to "salvage" the three corporations. (See id. at 22-23). On August 28, 2008, and March 20, 2009, PCSB issued two lines of credit, totaling $1,200,000.00, to Aditya Springfield Realty, LLC. The lines of credit were secured by mortgages executed by K. Aditya in his capacity as "Manager" of Aditya Family Holdings, LLC., the "sole Member of Aditya Springfield Realty, LLC." (See copies of Line Of Credit Mortgage Notes annexed to the [*5]RKA Aff as Exhibit 13). A total of $1,200,000.00 was withdrawn on the lines of credit and "contributed" to the Adityas's efforts "to salvage the Houlihan's project." (RKA Aff at 24). The Adityas allege that PCSB issued the lines of credit because it was committed to do so under the oral Additional Financing Agreement. (See id. at 23).

All of the loans have been in default since April 1, 2009. (See copies of notice of default letters annexed to Martin Aff as Exhibits C [40 Glastonbury loan], G [33 Broad loan], and M and R [HS Eagle loans]). PCSB alleges that as of March 1, 2010, the total amount due and owing on all of the loans involved in the three actions, including interest, escrow advances and late charges, was $6,496,843.40. (See Martin Aff at 9-10). In the instant action (Index No. 2323/09), PCSB seeks judgment on the 40 Glastonbury loan and guaranty.[FN3]

Discussion

All of the guaranties at issue herein are by their terms unconditional and enforceable regardless of the validity or enforceability of the underlying loans and, with the exception of the guaranty executed to secure the 40 Glastonbury loan, all have clauses disclaiming oral modifications or amendments. Nevertheless, where a guarantor claims that he was fraudulently induced to give the guaranty in reliance upon an oral agreement, he is not precluded by the parol evidence rule from proving the fraud unless the terms of the oral agreement upon which he allegedly relied were specifically disclaimed in the written instrument. See Danann Realty Corp. v Harris, 5 NY2d 317, 320 (1959); Citibank, N.A. v Plapinger, 66 NY2d 90, 94-95 (1985) (explaining and refining the rule announced in Danann). The Adityas argue that the guaranties do not contain language sufficiently specific under the Danann/Plapinger standard to disclaim the Reimbursement and/or Additional Financing Agreements. However, assuming this to be the case, PCSB's motion for summary judgment dismissing the Adityas's defenses, counterclaims, and third-party claims is granted because the Adityas have failed to submit evidence sufficient to raise a triable issue of fact that there were such agreements.

On a summary judgment motion the movant must submit evidentiary proof in admissible form which establishes that he is entitled to judgment as a matter of law, and to defeat the motion the opponent must produce evidentiary proof in admissible form "sufficient to require a trial of material questions of fact on which he rests his claim or must demonstrate acceptable excuse for his failure to meet the requirement of tender in admissible form." Zuckerman v City of New York,49 NY2d 557, 562 (1980). The loan documents, notice of default letters, and guaranties constitute evidentiary proof in admissible form sufficient to establish that PCSB is entitled to judgment as a matter of law. See North Fork Bank v ABC Merchant Services, Inc., 49 AD3d 701 (2nd Dep't 2008). Thus, to defeat the motion, it was incumbent upon the Adityas "to assemble, lay bare and reveal [their] proofs in order to show that [their] defenses are real and capable of being established at trial, . . . it is insufficient to merely set forth averments of factual or legal conclusions [internal citation omitted]." Machinery Funding Corp. v Stan Loman Enterprises, Inc., 91 AD2d 528 (1st Dep't 1982); see also Tabor v Logan, 114 AD2d 894, 895 (2nd Dep't [*6]1985). The Adityas have failed to tender such proofs.

The RKA Aff is the sole evidentiary proof in admissible form which the Adityas have proffered in opposition to PCSB's motion. The Adityas argue that language in the Commitment Letter on the 40 Glastonbury loan and the $400,000.00 payment from 40 Glastonbury to the Trust constitute additional evidentiary proof of the Reimbursement Agreement. However, the cited language in the Commitment Letter acknowledged PCSB's understanding that part of the loan proceeds would be used to reimburse all "principals," not just the Adityas; and, in fact, the principals listed in the Commitment Letter include Hentschel, R. Aditya, K. Aditya, R. Yandoli, and J. Yandoli, but not the Trust. Further, the Commitment Letter acknowledged that the principals were to be reimbursed only for "70% of the cost of the furniture, fixtures, equipment, and leasehold improvements," and then only "[s]ubject to a detailed listing of the $665,875.00 in furniture, fixtures and equipment." Such restrictive language was not indicative of an agreement that any portion of the loan proceeds would be used to reimburse anyone for any percentage of pre-loan advances, and the Commitment Letter contained no other language acknowledging or allowing that the Adityas specifically would be reimbursed for pre-loan advances. Also, the only indication that the $400,000.00 payment was other than that to which the Adityas may have been entitled as principals pursuant to the Commitment Letter, is the self-serving allegation of R. Aditya that Hentschel told him that the payment was an installment against the Adityas's pre-loan advances. Whether such testimony would be admissible to show that Hentschel had agreed that the Adityas would be reimbursed for pre-loan advances out of the loan proceeds, it is in no way admissible to show that PCSB had made such a commitment or that the $400,000.00 payment constituted partial performance of that commitment.

Nor would the fact that PCSB issued lines of credit to Aditya Springfield Realty, LLC., constitute evidentiary proof of the Additional Financing Agreement. By its purported terms, the Additional Financing Agreement committed PCSB to provide financing to the three corporations, not to other entities which had no direct involvement in the Houlihan's venture. Apparently, Aditya Springfield Realty, LLC., was controlled by the Adityas. But assuming that the Adityas "contributed" funds drawn on those lines of credit to the venture, there is nothing in the mortgage notes indicating either that the lines were issued for such purpose or because PCSB was obligated to do so due to the Additional Financing Agreement. Thus, neither the Commitment Letter, the $400,000.00 payment to the Adityas, nor the lines of credit constitute additional evidentiary proof of a material fact in admissible form.

The RKA Aff is not sufficient to defeat PCSB's motion for summary judgment. While the single affidavit of a party with knowledge of the events at issue may be sufficient — that is, a single affidavit is not deficient, per se — the affiant must make specific assertions of the material facts on which his claim is based. See North Fork Bank v ABC Merchant Services, Inc., supra; Bank of Smithtown v Beckhans, 90 AD2d 508 (2nd Dep't 1982) (holding that respondent's allegation "that he executed [a continuing] guarantee only because the bank told him that the guarantee was for the original loan only'" was insufficient to defeat summary judgment motion). The RKA Aff contains allegations that R. Aditya, K. Aditya and Hentschel first met Martin in May 2005 and that "[a]fter numerous meetings and discussions" (RKA Aff at 10), Martin made oral representations committing PCSB to certain courses of action upon which the Adityas relied. However, the RKA Aff contains no allegations concerning the dates, times or locations of, or [*7]who was present at, those "numerous meetings" — which presumably took place during the two years between May 2005 and May 2007, when the first of the loans was closed — or the substance of what was said by whom during those numerous "discussions." Indeed, although the Adityas do not dispute PCSB's allegation that "[t]hroughout all negotiations and loan closings" (Martin Aff at 10), the Adityas were represented by a specific attorney from a specific firm — a firm which does not represent them in the instant actions — the Adityas failed to tender an affirmation from that attorney or to provide a reasonable excuse for such failure. The absence of such necessary evidentiary details renders the RKA Aff insufficient. See, e.g., Fink, Weinberger, Fredman, Berman & Lowell, P.C. v Petrides, 80 AD2d 781 (1st Dep't 1981) (holding that defendant's affidavit was insufficient to defeat summary judgment where, "[f]or example, he failed to relate when and to whom the alleged telephone calls were made or to specify the substance of the alleged conversations") appeal dismissed 53 NY2d 1028 (1981); Apache-Beals Corp. v International Adjusters, Ltd., 59 AD2d 1032, 1033 (4th Dep't 1977) (holding that opposing affidavits of attorney and board chairman of defendant's predecessor corporation were insufficient where they "[did] not set forth such necessary evidentiary details as when, where or by whom the alleged oral agreement was made or the substance of the conversations")affd 46 NY2d 888 (1979).

The RKA Aff is also deficient because it fails to adequately explain why, despite their alleged reliance on the Reimbursement Agreement: the Adityas continued to advance the three corporations large amounts of money for six months — from May 2007 to November 2007 — after that agreement had been breached, why they did not protest that continuing breach for almost two years — from May 2007 and April 2009 — before the loans went into default, and why they did not take any legal action in response to that breach for another six months, and then only defensively when PCSB commenced the instant actions. See Ward v Hanley, 130 AD2d 742, 743 (2nd Dep't 1987); Great Neck Car Care Center, Inc. v Artpat Auto Repair Corp., 107 AD2d 658, 659 (2nd Dep't 1985) appeal dismissed 65 NY2d 897 (1985). Therefore, the RKA Aff alone is not sufficient to raise a triable issue of fact that such oral representations were actually made and to show that the Adityas are capable of establishing at trial the defense of fraud.

The Adityas's claims sounding in breach of contract, breach of fiduciary duty, equitable estoppel, and unclean hands are dismissed. The Adityas's submissions being insufficient to raise a triable issue of fact as to the existence of the alleged oral Reimbursement and Additional Financing Agreements, they have failed to tender evidentiary proof in admissible form to show that they are capable of establishing these claims at trial. If PCSB did not agree that loan proceeds would be used for reimbursement of pre-loan advances and/or that it would continue to provide financing to the three corporations until the restaurants became profitable, then its failure to do so did not constitute an actionable breach. Cf. Braten v Bankers Trust Co., 60 NY2d 155 (1983). Nor have the Adityas tendered any evidentiary proof of any conduct or representations by or on behalf of PCSB beyond the alleged agreements, pursuant to which it could have undertaken a fiduciary duty to the Adityas (see Rakylar v Washington Mutual Bank, 51 AD3d 995, 996 ( 2nd Dep't 2008) (holding that the contractual relationship "between a borrower and a bank . . . does not give rise to a duty which could furnish a basis for tort liability"), or on account of which it should be estopped from seeking payment on the guaranties (see National Westminster Bank, U.S.A. v Barrier Technology Corp., 131 AD2d 552 ( 2nd Dep't 1987) (holding that "allegation that the [*8]plaintiff should be estopped from seeking repayment because it refused to advance further funds, thereby damaging the defendants' business, did not constitute a defense and was insufficient to defeat the [summary judgment] motion"). Therefore, the counterclaims and third-party claims for breach of contract and breach of fiduciary duty, and the defenses of breach of fiduciary duty, equitable estoppel and unclean hands are dismissed.

Finally, the defense based upon the Adityas's contention that the guaranties given by the Trust should be governed by New Jersey law is dismissed. By their terms the guaranties are governed by New York law; which law, pursuant to the terms of the Irrevocable Trust Agreement, R. Aditya as trustee elected when he executed the guaranties on the Trust's behalf.

Accordingly, for the foregoing reasons, the motion of plaintiff, Putnam County Savings Bank, for summary judgment under Index No. 2323/09 is granted; the first, second, third and fourth defenses, the first, second, third, and fourth counterclaims, and the second, third and fourth third-party claims against PCSB, alleged in the Amended Verified Answer of defendants and third-party plaintiffs, Kamal K. Aditya, Rajib K. Aditya and Aditya Family Dynasty Trust of 2002, are hereby dismissed.

The foregoing constitutes the decision and order of the Court.

Dated: Carmel, New York

July 1, 2010E N T E R:

HON. LAWRENCE H. ECKER

Justice of the Supreme Court Footnotes

Footnote 1:By letter to the Court from their attorney dated June 15, 2010, the Adityas sought to respond to statements made in the Reply Affirmation of PCSB's attorney. By letter from PCSB's attorney dated June 16, 2010, PCSB objected to the Adityas's attorney's letter as an improper sur-reply. In its determination of a motion, this Court considers neither unaffirmed correspondence nor any papers submitted without leave in purported sur-reply. Therefore, the June 15, 2010, letter was not considered.

Footnote 2:In a letter from Martin to R. Aditya dated June 14, 2007, PCSB stated that the purpose of the 40 Glastonbury loan was "[t]o reimburse the principals 70% of the cost of the furniture, fixtures, equipment, and leasehold improvements on the Houlihan's restaurant located at 40 Glastonbury Boulevard, Glastonbury, CT." The letter also stated that, among other things, the loan was "[s]ubject to a detailed listing of the $665,875.00 in furniture, fixtures and equipment." (A copy of the letter [hereinafter, the "Commitment Letter"] is annexed to the RKA Aff as Exhibit 10).

Footnote 3:In separate actions, PCSB seeks judgment on the 33 Broad loan and guaranties (Index No. 2324/09), and on the HS Eagle loans and guaranties (Index No. 2325/09). The Court notes that none of the parties have as yet moved for consolidation.