U.S. Bank National Ass'n Ex Rel. J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11 v. Perlmutter (In Re South Side House, LLC)
470 B.R. 659
| Bankr. E.D.N.Y. | 2012Background
- Debtor South Side House, LLC, filed a Chapter 11 in this court; Plaintiff U.S. Bank National Association holds a $29 million mortgage loan and seeks to enforce an Indemnity Agreement from Defendants Perlmutter and Stark.
- The Indemnity Agreement accompanies the Note and Mortgage; NY law governs the Loan Documents.
- Defendants argue the Indemnity Agreement is not a guaranty and that exculpation provisions and other loan terms bar liability; Plaintiff argues the indemnity is an absolute guaranty of payment.
- Foreclosure proceedings against the Debtor were accelerated after default in 2008, but were automatically stayed when the Debtor filed for bankruptcy in 2009.
- District Court granted leave to file a separate guaranty action against the Defendants; the action was referred to this Court for proposed findings of fact and conclusions of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Indemnity Agreement an absolute, unconditional guaranty? | Indemnity Agreement § 2 labels a Guaranty and makes the Defendants' obligations absolute. | Agreement is an indemnity, not a guaranty, and includes defenses via exculpation and potential intent disputes. | Yes; the court finds an absolute, unconditional guaranty. |
| Are damages including default interest payable under the guaranty? | Damages include principal, interest, default interest, fees, and post-petition amounts as defined by the Loan Documents. | Default interest should be limited and damages should be determined after bankruptcy proceedings. | Damages, including default interest, are recoverable under the guaranty. |
| Does bankruptcy/non-debtor status affect the guaranty's enforceability? | Non-debtor guaranty liability is independent of the Debtor’s bankruptcy and unaffected by discharge or stay. | Bankruptcy or automatic stay could limit or modify obligations. | Guaranty remains enforceable against non-debtors despite bankruptcy. |
| Does RPAPL § 1301(3) bar this action against the guarantors? | District Court granted leave to file, so RPAPL § 1301(3) does not bar the action. | Special circumstances must be shown; otherwise barred. | Not barred; RPAPL § 1301(3) does not preclude the action. |
| Should the action be stayed pending the bankruptcy proceedings? | Proceeding against guarantors is appropriate and stay would prejudice creditor. | Stays may be warranted to protect reorganization. | No stay is warranted; no grounds shown for staying this adversary. |
Key Cases Cited
- Gen. Phoenix Corp. v. Cabot, 300 N.Y.2d 87 (N.Y. Ct. App. 1949) (interpretation of guaranties and contract terms)
- Kensington House Co. v. Oram, 293 A.D.2d 304 (N.Y. App. Div. 1st Dep't 2002) (absolute guaranties must be strictly construed to their terms)
- First Nationwide Bank v. Brookhaven Realty Assocs., 223 A.D.2d 618 (N.Y. App. Div. 2d Dep't 1996) (special circumstances and RPAPL 1301(3) considerations)
- Signature Realty, Inc. v. Tallman, 2 N.Y.3d 810 (N.Y. Ct. App. 2004) (contract interpretation: enforce terms as written; avoid rewriting)