Arbor Realty Sr., Inc. v. Keener
988 F. Supp. 2d 254
E.D.N.Y2013Background
- Arbor made $4,150,000 in mezzanine/subordinate loans (2007–2008) to WL Investments I & II; Keener was the borrowers’ principal and executed guaranties and a Letter Agreement obligating him to make personal payments totaling $440,000 in installments.
- Keener failed to make required payments; Arbor accepted a $24,000 Demand Note for an initial missed installment and alleged additional delinquencies (including unpaid interest-reserve replenishments), totaling at least $560,678.82.
- WL I & II and Arbor entered a Settlement Agreement (Oct. 2012): Keener and WL I & II unconditionally released Arbor; Arbor agreed to release Keener only upon receipt of specified payments (a condition precedent). The separate action by WL I & II was dismissed under the settlement.
- Keener failed to pay under the Settlement Agreement. Arbor later amended its complaint to add breach-of-settlement and related claims; Keener counterclaimed seeking rescission of the Letter Agreement (fraud, lack of consideration, mistake) and sought a declaratory judgment regarding the Settlement Agreement.
- Arbor moved to dismiss Keener’s counterclaims under Fed. R. Civ. P. 9(b) and 12(b)(6) on the ground the claims are barred by Keener’s release of Arbor in the Settlement Agreement. The Court granted the motion and dismissed the counterclaims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Keener’s counterclaims are barred by the mutual releases in the Settlement Agreement | Arbor: Keener unconditionally released Arbor; that release bars counterclaims attacking the Letter Agreement | Keener: Settlement is breached and/or void for lack of consideration; Arbor elected remedies inconsistently and thus cannot enforce the release | Held: Keener’s release of Arbor is an independent, valid obligation that bars his counterclaims against Arbor |
| Whether Arbor’s release of Keener was effective despite nonpayment | Arbor: Arbor’s release of Keener was conditioned on Keener’s payment; Arbor never released Keener because condition precedent was unmet | Keener: Once Arbor terminated the settlement or sought other remedies, Keener was no longer bound by his release | Held: Arbor’s release of Keener was conditional; because Keener didn’t pay, Arbor did not release Keener; Arbor’s election to terminate did not invalidate Keener’s unconditional release of Arbor |
| Whether Keener’s release of Arbor is void for lack of consideration or other defects | Arbor: Release is valid; New York law validates releases even without substantial consideration | Keener: Release invalid for lack of consideration or induced by fraud/mistake | Held: Release is valid; New York law permits written releases without consideration and Keener alleged no plausible fraud/duress/mistake sufficient to void it |
| Whether Keener adequately raised election-of-remedies defense | Arbor: Election-of-remedies is an affirmative defense not properly pled | Keener: Pleaded an affirmative defense that put Arbor on notice; argues Arbor’s inconsistent conduct invoked doctrine | Held: Keener sufficiently raised the defense in his amended answer, but the doctrine does not bar Arbor’s claims under the settlement’s text and conditions |
Key Cases Cited
- MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, 842 F. Supp. 2d 682 (S.D.N.Y. 2012) (election of remedies is an affirmative defense under New York law)
- Lumber Mut. Cas. Ins. Co. of N.Y. v. Friedman, 176 Misc. 703 (N.Y. Sup. Ct.) (one may not both affirm and disaffirm a contract)
- Morse/Diesel, Inc. v. Fidelity & Deposit Co. of Md., 768 F. Supp. 115 (S.D.N.Y. 1991) (rescission and damages for same fraud are inconsistent remedies)
- 331 East 11th St. LLC v. 331 East Corp., 293 A.D.2d 361 (1st Dep’t 2002) (election-of-remedies requires reliance-based advantage or detriment)
- Prudential Oil Corp. v. Phillips Petroleum Co., 418 F. Supp. 254 (S.D.N.Y. 1976) (election-of-remedies framework explained)
- Preferred Mortg. Brokers, Inc. v. Byfield, 282 A.D.2d 589 (2d Dep’t 2001) (contract language creating a condition precedent is enforceable)
- Global Minerals & Metals Corp. v. Holme, 35 A.D.3d 93 (1st Dep’t 2006) (releases may be set aside for fraud, mistake, duress, or fraudulent inducement)