Valley Natl. Bank v Gurba

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Valley Natl. Bank v Gurba 2012 NY Slip Op 32128(U) August 7, 2012 Supreme Court, New York County Docket Number: 102457/10 Judge: Marcy S. Friedman 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. NNED ON 811312012 [* 1] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY -vMOTION SEO. The following papers, numbered 1 to .. sn Notice of Motion/ Order to Show Cause 0 , , were read on this motion tolfor - Affldavlts - Exhibits OOLf NO. $hm')I1aJ Answering Affidavlts - Exhibits *,. v z 3 Replying Affidavits U Cross-Motion: 0 Yes P o FILED AUG 13 2012 Y NEW YORK 3 Dated: Check one: FINAL DISPOSITION Check if appropriate: &ON-FINAL 0 DO NOT POST 1 DISPOSITION u REFERENCE [* 2] SUPREME COUK'I' OF THE STATE OF NEW YORK COUN'I'Y OF NEW YORK - PART 57 PRESEN'T': Hon. Marcy S. Friedman, JSC VALLEY NATIONAL RANK, as successor to THE PARK AVENUE BANK, Plaintzff; Index No.: 102457/10 - against - DECISION/ORDER STEPFJEN L. GURBA and E V E L W R. GURBA, and BULOVA TECHNOLOGIES GROUP, INC., Defendant CY). FILED X AUG 1 3 2012 This is an action to recover on a loan of $1.5 million made by Park Avenue BEL~NBW YORK COUNTY CLERKS OFFICE defendants Stephen Gurba and Evelyn Gurba. Defendant Bulova Technologies Group, Inc. (Bulovn), by its CEO Stephen Gurba, gave Park Avenue Bank a security interest in various Bulova assets in connection with the loan. Park Avenue Bank's successor, Valley National Bank (Valley National), moves to amend the caption and for summary judgment as to liability. As a threshold matter, defendants acknowledge that Valley National acquired the assets of Park Avenue Bank, including the subject loan, pursuant to a Purchase and Assumption Agreement betwecii Valley National Bank and the Federal Deposit Insurance Corporation as receiver ofthe hiled Park Avenue Bank. (Transcript of Feb. 9, 2012 Oral Argument of Motion at 3 .) Section 3.1 of this Agreement supports defendants' acknowledgment o r Valley National's acquisition of the loan. The branch of Valley National's motion for substitution as plaintiff, although misdenoininakd a motion to amend the caption, will therefore be granted. 1 [* 3] As to the nierits, Valley National makes a prima facie showing, based on the aftidavit of Voula Petridis, a Vicc President, that the Gurba defendants defaulted under the promissory note, executed on June 1 1,2009, by failing to make the monthly payment due on October 1, 2009, and that Park Avenue Bank subscquently accelerated thc principal due under the note. Defciidants assert numerous defenses which the court finds to be without merit. First, the court rejects defendants apparent contention that Park Avenue Bank improperly rejected a payment by Bulova of arrears due under the note, based on its allegedly improper objections to a resolution (Ex. K to Opp.j of Bulova s Board of Directors authorizing Bulova to make the payment. Defendants have failed to meet their burden on this defense, as they have alleged in wholly conclusory fashion that the resolution was adequate and have not addressed any of its asserted deficiencies including, for example, failure to apportion the payment between the subject loan and a different loan (the USSEC loan) to Bulova or a related entity. To the extent that defendants claim that Park Avenue Bank unreasonably demanded that the resolution include a waiver of any liability of the Bank to Bulova and related entities (S. Gurba Dep. at 72 [Ex. B to Opp.] j, they cite no authority that the Bank was legally barred, after the default on the loan had occurred, from negotiating the terms of reinstatement, Defendants further contend that the loan was modified, as they received only approxiniatcly $800,000 rather than $1.5 million, because Park Avenue Rank demanded that they apply the procccds of the loan to various items, including an overdraft of Bulova at thc Bank. (S. Gurba I k p . at 50.) Plaintiff argues that the loan was not modified, that the entire $1.5 million was advanced to defendants at thc closing, and that Mr. Gurba signed a disbursement direction (Ex. D to Opp.), providing for application of the proceeds 2 IO clcf cnclants othcr debts to Park [* 4] Avenue Bank. (& P. s Reply Aff., 7 41 .) Mr. Gurba gave testimony that on the day ofthe closing, Park Avenue Bank s Matt Salmon made note that basically the difference between a million and a half dollars and 806,000 needed to go to -towards clearing up overdrafts of Bulova at the bank as well as fees, as well as payments to our payroll service, who was also a client of Park Avenue Bank. (S. Gurba Dep. at 50.) Mr. Gurba did not assert that the obligations to which the loan proceeds were applied were not due, or that the Gurbas did not receive any personal bcneiit from this application of the proceeds. Nor do defendants point to any provision in any of the loan documents that the $1.5 million loan was made for other purposes than those to which the procecds were applied. On the contrary, Park Avenue Bank s Loan Presentation, dated June 8,2009 (Ex. F to Opp.), which was approved by its Chief Lending Officer and Executive Vice President, Edward Beyer, and its CEO and President, Charles Antonucci, states in the section entitled Purpose : TObe used for working capital needs of a business investment (Bulova Technologies Combat Systems). It also expressly contemplates, however, that the proceeds will be used to pay negative balances of a Bulova entity. The section entitled Account Maintenance thus states: BTG [Bulova Technologies Group] has opened four DDAs with negative balances of $1.1MM, already guarantied [sic] by Mr. Gurba. It is noted that $900M will be transferred into the account as a partial clean up until additional receivable from the US Government is expcctsd to be deposited in the corning weeks. Moreover, the promissory note expressly provides that [nlo modification, release, or waiver o r this Note shall be deemed to be made by the Bank unless in writing signed by the Bank. , , , (Promissory Note, 7 3 1.) Defendants have not produced any evidence of a written modification. The court accordingly holds that defendants lail to raise a triable issue of fact as to whether the loan was modifled. 3 [* 5] Defendants further claim that they were fraudulently induced to personally enter into the loan by the misreprcscntation of Park Avenue Bank that the loan would be a temporary bridge until the Bank could extend a $6.5 million line of credit to Bulova. They also claim that Park Avenuc Hank could not have extended a line of credit in this amount bccause as of June 10, 2009. the day before the loan closed, federal regulators had reduced its credit authority. In order to prevail on a claim of fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justihble reliance of the other party on the misrcpresentatioii or material omission, and injury. (Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 [1996]; Perrolti v Becker. Glvnn, Melamed & :Mufily, 82 AD3d 495,498 [ l Dept 201 11.) Mr. Gurba testified that Charles Antonucci committed to a 9 million dollar line of credit for Bulova (subsequently reduced to $6.5 million dollars), subject to the Bank s need[] to finalize due diligence. (S. Gurba Dep. at 33; Ds. Memo, ofLaw in Opp. at 5.) There is also evidence that the Bank knew, prior to thc closing of thc loan, that federal regulators had reduced its credit authority, and that a line of credit could not be extended in anywhere near the amount sought by defendants. (SeePark Avenue Bank emails, dated June 10, 09 [confirming that credit authority on unsecured line of credit had been reduced to $500,000] [Ex E. to Opp.]; Petridjs Dep. at 91-92 [confirming reduction in niid-June to $1 millioii dollars of credit authority on secured line of credit] .) Further, the record includes evidence that supports defendants claim that the parties intended that the personal loan to thc Gurbas would be rcplaced with a line of credit to Bulova. Thc Purpose section of Park Avenue Bank s June 8, 2009 Loan Presentation states, as 4 [* 6] discussed above, that the loan will be used for working capital of a Bulova entity. It then continues: It is noted that this facility will be replaced with a line of credit to the investment company secured by real property and all assets of the company upon completion of due diligence , Dekndant Stephen Gurba did not dispute that the extension of the line of credit was conditioned on completion of due diligencc. f Ie also acknowlcdged that it was taking quite a bit of time to get [the loan] done with due diligence and things that had to be done, and they [Park Avenue Bank] were allowing us , , , to write checks, and they were covering the checks. (S. Gurba Dep. at 22.) He testified that Park Avenue Bank s CEO, Charlie Antonucci, and Matt Salmon, a senior loan officer, came to us and said, look, it s taking longer to get this due diligence complete, because we took some T A W funds, and we have the Feds studying our books, and wc can t release this 9 million dollar loan to Bulova yet, but we have to clean up the overdrafts in the account, and so you guys take the loans personally, because we can do that. (Td. at 3 1,) Mr. Gurba further claimed that Antonucci and Salmon represented: We can give you guys personal loans o f a million and a halfdollars, and then we ll take those loans out when we finalize the 9 nillion dollar loan. (d 3 1-32.) at Defendants present persuasive evidence that Park Avenue Hank misrepresented its ability and intent to extend the requested line of credit to a Bulova entity. However, as a sophisticated busincss person, Mr. Gurba cannot establish that he reasonably relied, in cntering into the personal loan, on an agreement to extend a line of credit that was coiiditioned on further due diligence and that was to be made by a Bank that he was aware was under investigation by federal regulators. (& generally Coutts Rank (Switzerland) Ltd. v Anatian, 261 AD2d 307 5 11 [* 7] Dept 19991; Glenfed Fin. Corp., Commercial Fin. Division v Aeronautics & Astronautics Servs., Inc 18 1 AD2d 575 [ l Dept 19921, -3 dismissed $0 NY2d 893; Perrotti, 82 AD3d at 498 [noting plaintiffs status as sophisticated investor, in assessing reasonableness of his reliance on defendants representations] .) In view of this holding, the court does not reach the issues of whether defendants fraudulent inducement claim is barred by the doctrine articulated in D Oench, Duhme & Co. v Fcdcral Dcp. Ins. Corp. (3 15 US 447 [ 19421) and whether defendants claim falls within an exception to the doctrine. The court notes parenthetically that the memoranda of law on this motion inadequately address the complex and extensive body of law which exists on the continuing viability of the D Oench doctrine and on whether, and under what circumstances, it applies to banks that acquire the assets of a failed bank from the FDIC. fii 1 The D Oench decision held that a secret agreement that a note to a bank will not enforced may not be asserted as a defense to an action by the FDIC to enforce the note, where the FDIC acquires the assets of the bank. (3 15 US at 460-46 1 .) The doctrine was developed to facilitate a federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures or to which it makes loans. (See id. at 457.) The D Oench doctrine was codified in 12 USC 9 1823(e), as amended by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which provides, in pertinent part: I ) N o agreement which tends to diminish or defeat the interest of the Corporation [the FDIC] in any asset acquired by it under this section . . . , either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement meets the writing requirements set forth in the statute. In vicw of tlic Supreme Court s subsequent decision in O welvenv & Mvers v Federal Dep. 111s. Corn. (5 12 US 79 [ 1994]), a sharp split has developed among the Circuits as to whether the D Oench doctrine is preempted by FIRKEA. (Compare a Murphy v Federal Den. Ins. Corn,, 208 F3d 959, 967dispissed sub nom. 969 [ 1 1 Cir 20001, ccrt granted sub nom. Murphv v Beck 530 US 1306, Murphy v Beck, 53 1 LJS 1 107 [2001 ] [finding no preemption, the court reasoning that in O Melveny, the FDIC had requested thnt the Court create a new federal common law rule, but that in enacting FIRREA, Congress intended not to displace the D Oench doctrine but rather to continue the 40 year co-existence of the statute and the doctrine] with DiVall Insured Income Fund Ltd. Par-tnqrship v Boatmen s First Natl. Bank of Kansas City, 69 F3d 1398, 1402 [SthCir 19961 [finding preemption, the court reasoning, based on O Melvenv, that FIRREA established a comprehensive regulatory framework that courts may iiot supplement with a federal coimimoii law rule, and that state law applies to matters left unaddressed by the statute].) A substantial body of authority also exists as to whether, and in what circumstances, banks that acquire the assets of a failed bank from the FDIC are entitled to invoke the Jl Oench doctrine or to rely 6 [* 8] The court Iias considered defendants remaining defenses as to liability and finds them to be without merit. Defendants also argue that Park Avenue Bank and later Valley National failed to mitigate their damages in that they did nothing to sell the 4 million shares of stock that were pledged as collateral lor the Gurbas loan. Defendants argue that a holder of collateral is obligated to dispose of it in a commercially reasonable manner. (Ds. Memo. of Law in Opp. at 20.)Plaintiff argues that the Gurba s Pledge Agreement, section 9, permits but does not require the Bank to dispose of the collateral. It further argues that UCC $$ 9-610 (a) and (b) permit the secured party, after default, to dispose of the collateral and require the disposition to be commercially reasonable, but do not specify the time within which the secured party must dispose of thc collateral. (P. s Reply, 17 17-2 1.) The court does not reach this issue on this inadequately briefed motion. Nor need the court do so, as plaintiff seeks summary judgment only as to liability, and the mitigation claim affects not the Gurba defendants liability but only the amount of damages plaintiff may collect. (Bank of China v Chan, 937 F2d 780, 787 [2d Cir 19911 [applying New York law].) The mitigation issue may therefore be addressed at the damages trial. It is accordingly hereby ORDERED that plaintiffs motion is granted to the following extent: (1 j Valley National Bank is substituted as plaintiff in place and stead of the Park Avenuc Bank, and the caption shall be amended accordingly. Plaintiff shall serve a copy of this order, with notice of entry, on the Clerk of the Court and the Clerk of the Trial Support Office (Room on various procedural provisions of FIRREA. (See e.g. Aurora Loan Scrvs. LLC v Sadek, 809 F Supp 2d 235,242 [SD N Y 201 11; Caires v JP Morgan Chase Bank, 745 F Supp 2d 40 [D Conn 20lOJ.) The parties memoranda do not discuss the courts reasoning in these cases and many others. 7 [* 9] 158), who are directed to amend their records to reflect the change in the caption herein; and (2) Plaintiff Vallcy National Bank is awarded partial summary judgment as to liability against defendants Stcphen Gurba and Evelyn Gurba; and an assessment of damages is directed. A copy of this order with notice of entry shall be served by movant upon the Clerk of the Trial Support Offke who is directed, upon the filing of a note of issue and a statement of readiness and the payment of proper fees, if any, to place this action on the appropriate trial calendar for the aforesaid assessment. This constitutes the decision and order of the court. FILED Dated: New York, New York August 7, 2012 FFICE 8

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