Opinion
603817/08.
Decided May 10, 2010.
In this action, plaintiff alleges a breach of the implied covenant of good faith and fair dealing in "Count I" of the Verified Complaint, and seeks injunctive relief in "Count II" of the Verified Complaint, which relief was previously denied by the court.
Plaintiff alleges that after engaging in substantial negotiations to modify and extend terms of the loan, the loan was not modified because Defendant/third party plaintiff demanded "outrageous fees and interest rates not contemplated in the loan documents" which violated the covenant of good faith and fair dealing.
In "Count II" plaintiff also claims a breach of fiduciary duty because one of plaintiff's directors was also affiliated with defendant, who therefore owed plaintiff a "fiduciary duty to protect Plaintiff's assets" but no-one discusses this allegation.
In this motion, defendant/third-party plaintiff HRC Fund II Pooling Domestic LLC (HRC) moves, pursuant to CPLR 3212, for summary judgment against plaintiff Tamach Airport Manager, LLC (Tamach Manager) on HRC's first counterclaim, and against all third-party defendants on the cause of action in the third-party complaint, on the ground that there is no defense to the counterclaim or third-party complaint. Plaintiff and third-party defendants cross-move to dismiss the counterclaim and third-party complaint.
FACTS
HRC seeks summary judgment for amounts due under a promissory note executed by Tamach Manager in favor of HRC, as raised in the counterclaim in the main action. HRC further seeks summary judgment against third-party defendants (Guarantors) for amounts due and owing in connection with the guaranty executed by Guarantors to guaranty the promissory note.
The second counterclaim alleges that Tamach Manager has continued to receive the profits and income generated by the collateral property, in violation of their agreement. None of the parties addresses that issue.
This counterclaim and third-party action were brought to enforce certain amounts allegedly due and owing under a Mezzanine Note dated January 17, 2006, and the associated Mezzanine Loan Agreement (Loan Agreement) executed by Tamach Manager, and the guaranty associated with that loan. Neither the loan, in the principal amount of $6 million, nor the interest and fees, have been paid. The loan was a non-recourse loan; however, under specified conditions, HRC could obtain full recourse from Tamach Manager and the Guarantors. Loan Agreement, § 8.18.1. The Loan Agreement provides that the non-recourse aspect of the agreement shall become null and void if, inter alia:
(d) Mezzanine Borrower or any Affiliate contests or in any material way interferes with, directly or indirectly (collectively, a " Contest"), any foreclosure action, Uniform Commercial Code sale and/or deed in lieu of foreclosure transaction commenced by Mezzanine Lender or with any other enforcement of Mezzanine Lender's rights, powers or remedies under any of the Mezzanine Loan Documents or under any document evidencing, securing or otherwise relating to any of the Collateral (whether by making any motion, bringing any counterclaim, claiming any defense, seeking any injunction or other restraint, commencing any action, seeking to consolidate any such foreclosure or other enforcement with any other action, or otherwise). . . .
Id., § 8.18.3.
After Tamach Manager defaulted on the loan, HRC decided to foreclose on the collateral property, and scheduled a sale of that property for December 30, 2008 (December 30th Sale). On December 24, 2008, Tamach Manager commenced this action contesting the validity of the foreclosure sale and moved by order to show cause for injunctive relief, preventing HRC from disposing of the collateral through a public sale. A temporary restraining order was granted. HRC responded to the order to show cause and Tamach Manager's request for a preliminary injunction by notifying Tamach Manager that it did not intend to proceed with the December 30th Sale, and included a plan regarding how it intended to conduct the future foreclosure sale, which it hoped to conduct on February 27, 2009, if it were permitted to move forward by January 29, 2009. Tamach Manager and the Guarantors do not dispute this assertion on this motion. This court denied preliminary injunctive relief by decision and order dated February 26, 2009, saying that there was little likelihood of success on the merits, and that plaintiff had failed to demonstrate irreparable injury. Tamach Manager filed its complaint on February 26, 2009, seeking to enjoin HRC permanently from selling the collateral at public auction. Complaint, Ex. A to Edwards Supplemental Affirmation.
After this court issued its February 26, 2009 decision and order, Tamach Manager filed an action in Florida, seeking the same injunctive relief that was denied in New York. They were unsuccessful, and the collateral was eventually auctioned on April 17, 2009. HRC was the only bidder, and took control of the property.
HRC contends that Tamach Manager was in default of the loan, and it, together with the Guarantors, commenced an action to prevent HRC from foreclosing on the collateral. In accordance with the Loan Agreement, that action nullified the non-recourse nature of the loan, and now they are responsible for the full amount.
Plaintiff and third-party defendants contend that the counterclaim and third-party complaint should be dismissed because HRC voluntarily withdrew its intention to conduct the December 30th Sale, so it cannot be said that the action interfered with that sale. They maintain that HRC's motion should be denied not only for that reason, but because HRC failed to include a copy of the complaint in its moving papers.
DISCUSSION
Failure to Attach Copy of the Complaint
Tamach Manager and the Guarantors contend that HRC's motion must be denied because HRC failed to include a copy of the complaint with its moving papers. HRC argues that a copy of the complaint was unnecessary because it is moving on the counterclaim and third-party complaint. Nonetheless, it included a copy of the complaint in its reply papers.
While pleadings are required to be attached to the moving papers on a motion for summary judgment (CPLR 3212 [b]), where the failure to do so is corrected, the court is permitted to review the merits of the motion. Dale v Gentry , 66 AD3d 1469 (4th Dept 2009). Here, not only has HRC rectified that omission, but the motion was not based upon the complaint. HRC did include copies of the counterclaim and third-party complaint, which are the relevant pleadings on this motion. See Greene v Wood , 6 AD3d 976 (3d Dept 2004) (failure to include copy of pleading may be overlooked if record is "sufficiently complete"); Bacon v Arden, 244 AD2d 940, 941 (4th Dept 1997). Further, as Supreme Court New York County now scans documents online, on a court website referred to as SCROLL, documents are accessible to the parties and the court. Therefore, the court will consider the merits of the motion and cross motion.
Summary Judgment
HRC has produced evidence that the Note was in default, that it sought to auction the collateral, and that Tamach Manager commenced legal action to prevent the sale. Accordingly, HRC has made a prima facie showing of entitlement to summary judgment on its counterclaim and third-party action.
Tamach Manager and the Guarantors argue that HRC is seeking relief based on facts not pled in its counterclaim or third-party complaint, that issues of fact exist as to the commercial reasonableness of the December 30th Sale, that the motion is premature because discovery has not taken place, and that HRC failed to satisfy the standard for summary judgment.
Tamach Manager and the Guarantors contend that HRC should not be permitted to rely on the Florida litigation in order to obtain summary judgment in this action. They argue that facts relating to the Florida litigation are not pled in the counterclaim. They maintain that, since the December 30th Sale was not commercially reasonable, Tamach Manager was entitled to oppose the sale. Tamach Manager and the Guarantors assert that discovery is required to ascertain the facts regarding the commercial reasonableness of the noticed December 30th Sale. They also maintain that discovery is needed in order to reveal the facts and circumstances surrounding HRC's alleged failure to negotiate an extension of the Mezzanine Loan in good faith, in light of the economic downturn.
With respect to the allegations regarding the Florida action, even if this court were not to consider the Florida action, it is clear that Tamach Manager not only commenced this action, but proceeded with it even after the December 30th Sale was cancelled. Thus, it is not only the Florida action which constitutes interference with HRC's enforcement rights under the Loan Agreement. By continuing to seek an injunction of any sale of the collateral after the December 30th sale was cancelled, Tamach Manager acted in a manner falling within section 8.18.3 [d] of the Loan Agreement, thereby voiding the non-recourse nature of the loan. There are no allegations, much less evidence, that the subsequently proposed sale, which was ultimately held on April 17, 2009, was in any way improper, or commercially unreasonable. Thus, the court need not determine whether Section 8.18.3(d) does not apply where the enforcement action was not commercially reasonable, because the December 30th sale was cancelled, and Plaintiff nevertheless continued its efforts to prevent, the sale which ultimately took place April 17, 2009. Accordingly, Tamach Manager and the Guarantors have failed to sustain their burden to raise a factual issue requiring trial with respect to whether their actions resulted in triggering the recourse provision in the Loan Agreement.
Tamach Manager and the Guarantors allege that HRC did not negotiate in good faith for an extension of the loan. However, HRC states that it does not seek summary judgment on the cause of action for breach of good faith and fair dealing, which relates to amounts past due (Supplemental Affirm of Edwards ¶ 8). Summary judgment is granted, as described below.
Cross-Motion
Cross-movants maintain that it cannot be determined from the face of the counterclaim what the basis for the counterclaim is, since the December 30th Sale was cancelled.
As stated above, even though the December 30th Sale was cancelled, in the counterclaim/third-party complaint HRC alleges that it set forth a detailed plan regarding how it intended to conduct the foreclosure sale. Tamach Manager responded on January 27, 2009 by seeking indefinite injunctive relief from any sale of the collateral. Thus, Tamach Manager was involved in an effort to prevent a foreclosure sale, thereby falling within the provisions of section 8.18.3 (d) of the Loan Agreement.
Therefore, the counterclaim contains a basis for holding the non-recourse provision of the Loan Agreement to be null and void. Thus, there is no basis to dismiss the counterclaim for failure to state a cause of action.
Although HRC has met its burden to establish that breach of the note and guaranty, and third-party defendants have failed to raise a triable issue of fact, the record contains an insufficient basis to determine the amounts due pursuant to the Loan Agreement. Therefore this matter will be referred to a referee for a hearing on this issue.
Plaintiff's claim for breach of the covenant of good faith and fair dealing shall continue.
CONCLUSION
Accordingly, it is hereby
ORDERED that defendant/third-party plaintiff HRC Fund II Pooling Domestic LLC's motion for summary judgment is granted, and plaintiff Tamach Airport Manager, LLC, and third-party defendants Tamach Real Estate Management, Inc., Carlos Gonzalez, and Manuel Marin are found liable to HRC Fund II Pooling Domestic LLC on the counterclaim and third-party complaint; and it is further
ORDERED that the issue of the amount due under the promissory note, loan agreement and the guaranty is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that this motion is held in abeyance pending decision on a motion to confirm and/or reject the report of the Special Referee.
This Constitutes the Decision and Order of the Court.