CP III Rincon Towers, Inc. v. Richard D. Cohen
666 F. App'x 46
2d Cir.2016Background
- In 2007 Cohen (through three single-purpose LLCs) obtained a $110M loan to buy/develop a San Francisco property; Cohen signed a "springing" guaranty that made him personally liable only if certain triggers occurred (loss recourse vs full recourse/bad‑boy guaranty).
- The Loan Agreement and Guaranty incorporate defined terms: "Transfer," "Lien," and "Indebtedness," and require Lender’s prior written consent for many Transfers and certain Indebtedness.
- During renovation, several mechanic’s and other liens and an arbitration judgment lien (collectively, the Disputed Liens) were recorded against the Property.
- CP III acquired the loan and foreclosed after maturity and sued Cohen, arguing the Disputed Liens triggered Cohen’s full‑recourse guaranty under (a) the Guaranty’s Transfer Clause, (b) the voluntary Lien clause, and (c) the Indebtedness clause.
- The district court granted summary judgment for Cohen, relying on perceived contractual ambiguity and extrinsic negotiation history; the Second Circuit vacated and remanded, finding genuine ambiguity and unresolved factual issues about how the clauses interact (and about special‑purpose entity covenant interactions).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do the Disputed Liens trigger the Guaranty Transfer Clause (making guaranty full recourse)? | Disputed Liens are encumbrances/Transfers as defined; Borrower lacked written consent, so Transfer Clause triggers full recourse. | Transfer Clause read broadly would render the adjacent voluntary Lien clause superfluous; parties did not intend mechanic’s/other liens to trigger full recourse. | Ambiguity exists because a broad reading would nullify the voluntary Lien clause; remanded for factual development — not resolvable on summary judgment. |
| Do voluntary Liens trigger full recourse independently of the Transfer Clause? | N/A (plaintiff treats voluntary Liens as one pathway to full recourse). | Cohen contends voluntary Lien clause should be read narrowly and not cover the Disputed Liens. | Interaction between voluntary Lien and Transfer clauses ambiguous; cannot be resolved on summary judgment. |
| Do the Disputed Liens trigger the Indebtedness Clause (full recourse) because consent was required? | Special Purpose Entity (SPE) covenants effectively made some liens/obligations breaches requiring lender consent; hence Indebtedness clause may be triggered. | District court: the Loan Agreement did not require prior written consent for these particular liabilities, so Indebtedness clause not triggered. | District court failed to account for interaction with SPE covenant; unresolved factual/legal questions require remand. |
| Was district court’s use of negotiation history (removal of a Mechanic’s Lien Clause) sufficient to resolve ambiguity at summary judgment? | CP III argued negotiation history did not conclusively show parties’ intent because alternative draft provisions (SPE clause) covered similar risks. | Cohen relied on drafting history to argue parties did not intend liens to trigger full recourse. | Negotiation history was not one‑sided or dispositive; extrinsic evidence did not eliminate reasonable interpretations—summary judgment improper. |
Key Cases Cited
- Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243 (2d Cir. 2002) (summary judgment and contract interpretation standards).
- Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091 (2d Cir. 1993) (ambiguity and contract interpretation under New York law).
- Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153 (2d Cir. 2000) (when extrinsic evidence can resolve contract ambiguity at summary judgment).
- RJE Corp. v. Northville Indus. Corp., 329 F.3d 310 (2d Cir. 2003) (consideration of superfluity when construing contract clauses).
- Law Debenture Trust Co. v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010) (respecting parties’ chosen definitions in contracts).
- Golden Gate Yacht Club v. Société Nautique de Genève, 12 N.Y.3d 248 (N.Y. 2009) (avoiding contract constructions that render provisions meaningless).