CUSTOMERS BANK v. HARVEST COMMUNITY BANK

Filing 26

OPINION. Signed by Chief Judge Jerome B. Simandle on 8/20/2014. (dmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

CUSTOMERS BANK,

HONORABLE JEROME B. SIMANDLE
Plaintiff,
Civil Action
No. 12-cv-5878 (JBS/KMW)

v.
HARVEST COMMUNITY BANK,

OPINION
Defendant.

APPEARANCES:
Scott Jonathan Good, Esq.
Bergmann & Good, LLC
76 East Euclid Ave., Suite 101
Haddonfield, NJ 08033
Attorney for Plaintiff
Benjamin David Morgan, Esq.
Archer & Greiner PC
One Centennial Square
Haddonfield, NJ 08033
Attorney for Defendant

SIMANDLE, Chief Judge:
I.

INTRODUCTION
Plaintiff, Customers Bank (“Customers”), filed this action

alleging breach of contract by Defendant, Harvest Community Bank
(“Harvest”). In 2007, Harvest executed a Loan with Snug Harbor,
LLC (“Snug”). Berkshire Bank (“Berkshire”) then bought a
“participation share” in the Snug Loan pursuant to a
Participation Agreement (“Agreement”) with Harvest. Customers

subsequently purchased Berkshire and Berkshire’s rights to the
Snug Loan. Customers alleges Harvest has failed to manage the
Snug Loan in a prudent manner as required by the Participation
Agreement causing excess loss to Customers on the nonperforming
or underperforming Snug Loan.
Customers filed a motion for summary judgment and Harvest
filed a cross-motion for summary judgment. [Docket Items 16 &
19.] The Court heard oral argument on August 6, 2014. The Court
will deny Harvest’s motion. The Court will partially grant
Customers’ motion, holding that Harvest owes Customers an
unspecified amount of unpaid principal and that Harvest did not
perform certain enumerated obligations under the Agreement. The
Court will deny Customers’ motion for damages because Customers
has not shown, as a matter of law, that it is entitled to
damages from Harvest’s breaches.
II.
A.

BACKGROUND
Facts
1. Harvest’s Loan to Snug
On November 16, 2007, Harvest executed a promissory note

with Snug in which Harvest agreed to loan Snug $1,895,000.00.
(Pl. Ex. B to Napierkowski Aff., Promissory Note (“First Note”)
at 1, Nov. 16, 2007.) The First Note stipulates that Snug will
pay Harvest both principal and interest every month. (Id. at 1.)
It also stipulates that there will be a five percent late charge
2

for any payment not received within 15 days of its due date.
(Id. at 2.)
The First Note specifies that, in the event of default, a
default rate of interest begins to accrue adding 2.5 percent to
the rate of interest that was otherwise payable. (Id. at 4.) The
First Note defines a default event as “default in the payment of
any amount due . . . and the continuance of such default for . .
. 30 days”; “levy of any writ, warrant, attachment, execution or
similar process against any property of [Snug]”; or “any
federal, state or local tax lien to any property of [Snug].”
(Id. at 3.)
The First Note provides that “[Harvest] shall have the
right, at all times, to enforce the provisions of this Note and
the other Loan Documents in strict accordance with their terms.”
(Id. at 4.) Failure to enforce does not waive this enforcement
right: “The failure or delay of [Harvest] . . . to enforce its
rights under such provisions . . . shall not be construed as
having created a custom in any way or manner contrary to the
specific provisions of this Note . . . or as having in any way
or manner modified or waived the same.” (Id.)
Harvest and Snug also executed a mortgage agreement. The
mortgage agreement stipulates that Snug will be in default if,
without Harvest’s written consent, it incurs “any debt, judgment
or other obligation . . . upon all or any part of the Mortgaged
3

Property . . .” (Pl. Ex. B to Napierkowsi Aff., Mortgage at 7,
Nov. 16, 2007.) The mortgage also mandates that the “mortgager
shall pay when due and payable and before interest or penalties
are due thereon, all taxes, assessments, water and sewer rents
and all other charges . . . .” (Id. at 4.)1
2. Participation Agreement Between Harvest and
Customers
On December 17, 2007, Harvest sold a 41.4 percent
participation interest in Snug’s loan to Berkshire Bank. (Pl.
Ex. A to Napierkowski Aff., Participation Agreement at 1, Dec.
17, 2007.) Berkshire’s “participation share” was worth
$785,188.00. (Id.)
The Agreement stipulates that Berkshire’s participation is
on a “last in, first out” basis, meaning that the “entire
principal balance of [Berkshire]’s share shall be repaid before
any principal reduction to [Harvest]’s portion.” (Id. at 1-2.)
The agreement further stipulates that the “respective interest
of [Harvest] and [Berkshire] shall. . . be equal in lien and
neither party shall have priority over the other.” (Id. at 2.)
According to the Agreement, “[e]xcept as set forth in the
next sentence, [Harvest] shall have the sole and exclusive right
to service, administer and monitor the loan, including without
limitation, the right to exercise all rights, privileges and
1

The First Note and the mortgage agreement, collectively, are
the “Loan Documents.”
4

options under the Loan Documents, including the waiver of nonperformance by [Snug] . . . other than a waiver of any term or
condition which materially and adversely affects [Berkshire].”
(Id.) The “next sentence” states that “[Harvest] covenants and
agrees that except upon prior written consent of [Berkshire],
which consent shall not unreasonably be withheld, [Harvest]
shall not (a) make any advances to [Snug]; (b) amend the Loan
Documents or extend, modify or terminate the Loan; . . . (d)
waive non-performance by [Snug] . . . of any term or condition
which materially and adversely affects [Berkshire]; (e) enforce
or refrain from enforcing its rights or remedies under the Loan
Documents; . . . (h) consent to any reduction in the interest
rate or in any fees payable to [Berkshire] on its participation
share;. . . or (j) extend any date for or waive any failure to
make payment.” (Id. at 2-3.)
In addition, the Agreement states that “[Harvest] shall
exercise the same care in accordance with its usual practices in
administering, servicing and monitoring the Loan as it exercises
with respect to similar transactions . . . .” (Id. at 4.) This
“usual practices” clause is key to understanding Harvest’s
obligations and duties to Customers Bank.
Harvest and Berkshire agreed that “[Harvest] will
immediately notify [Berkshire] when it receives notice or has
knowledge of any default or any material event of default under
5

the Loan Documents.” (Id. at 3-4.) The Loan also stipulates that
“[Harvest] will furnish [Berkshire] with copies of all financial
statements and field examination reports of [Snug] and such
financial statements and reports as [Berkshire] may reasonably
request.” (Id. at 3.)
Harvest and Berkshire agreed that “[Harvest] makes no
representations or warranty and assumes no responsibility with
respect to the financial condition of [Snug]. . . [Harvest]
assumes no responsibility or liability with respect to the
collectibility of the Loan or the performance by [Snug] of any
obligation under the Loan Documents.” (Id.) The Agreement
further specifies that “the participation herein described is a
full-risk participation and [Berkshire] shall look only to
payments received and collected by [Harvest] from [Snug] . . .
for repayment of the Participation Share.” (Id. at 4.)
Finally, the Agreement “shall be governed by the laws of
the State of New Jersey, shall not be modified, cancelled or
terminated except by an instrument in writing signed by the
parties hereto, and shall inure to the benefit of and binding
upon the parties hereto and their respective successors and
assigns.” (Id. at 5.)
In 2011 Customers Bank purchased Berkshire’s assets,
including its interest, as outlined in the Participation

6

Agreement, in Harvest’s Loan to Snug. (Statement of Undisputed
Material Facts (“SMF”) [Docket Item 16] ¶ 4.)
3. Snug’s Delinquent Performance Under the Loan
Snug Harbor was habitually late in making its payments,
including multiple occasions when it was more than 30 days late
and some occasions when it was more than 60 days late. [Docket
Item 16-6 at 6-12]; (Pl. Ex. C to Garubo Cert., Matthews Dep.
70:12-20, Sept. 11, 2013).
As of September of 2013, Snug had not made a principal
payment since September of 2012. [Docket Item 16-6 at 6.] Since
that date, Harvest applied all payments only to the interest
portion of the Loan and nothing toward the principal. [Id.]
Linda Matthews, Harvest’s Chief Loan Officer, explained that
Harvest applied Snug’s payments to interest first because Snug
was late in its payments. (Matthews Dep. 27:18-28: 8.)
In addition, as of February of 2011, Snug owed $212,538.42
in income taxes to the State of New Jersey. [Docket Item 16-8 at
4.] Customers conducted a tax search of the property on March 7,
2014. (White Aff. ¶ 6, Mar. 12, 2014.) The search indicated that
Snug owes $25,140.26 in real estate taxes for 2013 and
$14,219.57 for 2014. (Pl. Ex. A. to White Aff., Mar. 7, 2014.)
Customers also produced a judgment search showing numerous
judgments entered against Snug. (Pl. Ex. F to Napierkowski Aff.,
Oct. 2, 2012.) Harvest did not report these judgments to
7

Customers, (SMF ¶ 23), although the record is unclear as to
whether Harvest knew of them.
The State of New Jersey placed a levy on Snug’s bank
account. (Matthews Dep. 78:13-19.) Matthews stated that the
State eventually removed the hold and Harvest never turned over
any of Snug’s funds. (Id. 78:16-21; 78:25-79:5.)
In addition, a $57,834.43 construction lien was placed on
the property on August 26, 2010. (Matthews Dep. 86:21-87:2);
[Docket Item 16-9 at 18]. When asked if that lien was ever
“removed or satisfied,” Mathews stated “I do not recall.” (Id.
at 87:24-8:1.)
4. Harvest’s Administration of the Loan
Harvest loaned Snug an additional $575,000, which Snug used
to pay a portion of its outstanding income taxes. (Ex. L to
Napierkowski Aff., October 6, 2011; Matthews Dep. 64:23-65:12.)
When asked if Harvest notified Customers of this second loan,
Matthews stated “not that I know of.” (Matthews Dep. 101:13-16.)
When asked if Harvest informed Customers that Snug had tax
delinquencies in excess of $200,000, Matthews again responded
“to my knowledge, no.” (Id. 108:9-16.)
In terms of late fees, Matthews stated that Harvest billed
late fees to Snug but late charges “still need to be paid.” (Id.
72:5-13.) When asked to clarify how many late charges were
unpaid, Matthews did not know. (Id. 72:5-15.)
8

Matthews also stated she was not aware that there were tax
liens and delinquent real estate taxes on the property. (Id.
90:17-20.) She further stated that “Harvest policy is that taxes
are to be paid annually,” and that Harvest typically has “not
required receipts.” (Id. 92:16-19.) She specified: “We have a
number of customers who pay their taxes at the end of the year.
They do not pay them quarterly.” (Id. 92:21-24.)
According to Matthews, Harvest gave Snug a three-month
payment waiver for Harvest’s portion of the Loan because of
Hurricane Sandy. (Id. 35:11-36:8.) Matthews further explained
that Snug still owed all outstanding interest and principal, but
that the due date was changed to reflect a three-month waiver.
(Id. 36:2-8.) When asked if Harvest ever asked Customers for
consent to waive a portion of the payment, Matthews responded,
“no, because we were waiving our portion, not theirs.” (Id.
35:23-36:1.) When asked if Harvest extended the Loan or if there
was ever a written modification of the Loan, Matthews responded,
“no.” (Id. 36:9-15.) Thus, under this “waiver,” Harvest extended
the due date of the Loan for three months without notice to
Customers as required by the Participation Agreement.
Matthews acknowledged that Harvest never charged Snug the
default rate of interest. (Id. 73:3-6.) She explained that
Harvest had never, to her knowledge, charged any customer the
default rate of interest. (Id. 73:7-15.)
9

When asked if Harvest had ever sent a written notice of
default to Snug, Matthews responded “no, not that I know of.”
(Id. 80:12-14.) When asked if Harvest had ever taken any steps
to accelerate the balance owed under the Loan, Matthews
responded, “not that I know of.” (Id. 80: 15-17.)
Since the Participation Agreement requires Harvest to
“exercise the same care in accordance with its usual practices .
. . as it exercises with respect to similar transactions” with
its own customers, there was discovery as to what Harvest’s
usual practices are when it administers its own loan portfolio.
When asked if Harvest had a policy regarding how long it waits
to receive principal reduction payments before calling a loan
into default, Matthews stated “as long as we are receiving a
payment of some sort, we won’t call it in default.” (Id. 55:16.) Matthews further specified, “if we can work with a customer
and continue to receive something monthly, then we will work
with them until their default is cured.” (Id. 55:19-22.) She
explained that Harvest makes “every attempt to work things out”
and that “we think it’s in our best interest to work with our
customers.” (Id. 58:22-25.)
Dennis Engle, President of Harvest, also emphasized this
policy: “We’re a community bank and we work with our customers.
. . . As long as that customer cooperates with us, we will work

10

with that customer and try to find out ways to work things out.”
(Def. Ex. B, Engle Dep. 33:18-23, Sept. 13, 2013.)
When asked if Harvest’s “actions in their servicing,
monitoring, or administering” the Loan “differed in any way from
any other loan that Harvest has done,” she responded “No, it
hasn’t.” (Matthews Dep. 194:9-15.) Further, when asked if
Harvest had done “anything with the loan that would be
considered unreasonable,” she responded “no.” (Id. 194:16-19.)
When asked “if [Harvest] had informed Customers of . . . any
changes or modifications or alterations [Harvest] w[as] going to
do with the loan . . ., do you think they would have any
reasonable basis for objecting to those actions,” Matthews
responded “[n]o.” (Id. 194:25-195:5.)
When asked whether Berkshire “provide[d] [Harvest] with any
complaints or voice[d] any kind of concerns about what Harvest
was doing in terms of the Snug Harbor loan,” Matthews said,
“[n]ot at all.” (Id. 194:20-24.) Richard Napierkowski,
Customers’ Senior Vice President, testified that, in his review
of Snug’s file, he did not see anything indicating that
Berkshire had any problems with the Snug Loan. (Def. Ex. C,
Napierkowski Dep. 21:16-22.)
5. Customers’ Attempts to Obtain Updates from Harvest
On July 25, 2012, a representative of Customers emailed
Harvest requesting an update on Snug’s payments for June 16 and
11

July 16. [Docket Item 16-11 at 2.] Customers sent a second email
the same day requesting Snug’s financial information. [Id.]
Customers emailed Harvest on July 31, 2012 stating that
Customers “will no longer tolerate [Snug’s] ongoing deficiency”
and asking Harvest to “initiate immediate corrective action.”
[Id. at 3.] Customers warned that, if Harvest did not take
immediate action, Customers would “take the lead and move
accordingly.” [Id.] Customers emailed Harvest on August 7, 2012
about Snug’s financial status and requested a remediation plan.
[Id. at 4.] Finally, on August 20, 2012, Customers demanded
Harvest provide within three days, inter alia, a “[c]opy of
default letter issued to Snug Harbor by Harvest” and a “[c]opy
of resolution plan provided by Borrower to Harvest outlining the
immediate/long term resolution of the payment default . . . .”
[Docket Item 16-12 at 2.]2
6. Customers’ Damages
a. Principal Payments Owed to Customers
At oral argument, Harvest acknowledged that it owed
Customers unpaid principal and consented to partial summary
judgment recognizing that obligation. The parties agreed to
determine, between themselves, the precise amount of unpaid

2

These emails appear to be part of an email chain between
Customers and Harvest. Neither Customers nor Harvest provided
Harvest’s responses, if any, to these emails.
12

principal owed.3 The Court will therefore enter partial summary
judgment for Customers, holding that Harvest owes Customers an
unspecified amount of unpaid principal. The parties shall
promptly determine the specific amount and submit a form of
judgment or a stipulation that Harvest has satisfied the amount
due.
This Opinion will not address the unpaid principal issue
further.
b. General Damages
Customers claims that Harvest owes the outstanding balance
of Customers’ participation share, which is $733,919.07.
Napierkowski, Customers’ Senior Vice President, explained that
number is “the outstanding balance of our share of the loan that
we had requested that they buy it back.” (Napierkowski Dep.
68:23-25.) When asked whether Harvest has an obligation to buy
back or repay Customers’ share, Napierkowski stated, “Harvest
has no obligation.” (Id. 69:1-10.) When asked whether it was
“possible that Harvest could have done everything that Customers
wanted and Customers wouldn’t have gotten back its full
position,” Napierkowski said “[t]hat’s a possibility.” (Id.
76:16-19.)

3

Both counsel indicated their belief that this obligation was
$78,026.00 less any amounts paid down since the time that sum
was figured. Their clients are reviewing the account to
determine the exact current sum.
13

Napierkowski testified that Customers’ “balance may be
impaired. We don’t know . . . .” (Id. 70:5-6.) When asked “is it
just as possible that your balance isn’t impaired,” Napierkowski
responded “[s]ure.” (Id. 70:7-9.) He acknowledged that he had no
facts or documents to show that the collateral has devalued such
that Customers cannot receive full compensation for its share.
(Id. 73:12-16.) He also acknowledged that Customers has not had
to pay penalties, fines, or other costs resulting from Snug’s
failure to make payments. (Id. 73:17-21.)
B. Plaintiff’s Complaint
Customers filed this action against Harvest for breach of
contract. Customers claims that as a result of the breach, it
suffered damages of $733,919.074 in principal plus $13,144.48 in
interest through September 5, 2012, which represents the unpaid
balance on Customers’ participation share. (Compl. at 7 [Docket
Item 1].)
The Court has diversity jurisdiction pursuant to 28 U.S.C.
§ 1332.
C. Parties’ Arguments
1. Customers’ Motion for Summary Judgment
Customers filed a motion for summary judgment [Docket Item
16] arguing that Harvest breached the Agreement because Harvest
failed to provide documents and information to Customers about
4

According to Customers, as of October 16, 2013, the outstanding
principal balance was $725,469.44.
14

Snug’s various events of default, including judgments, liens,
and levies against Snug. In addition, Customers asserts that
Harvest breached because it did not obtain Customers’ consent
before making advances to Snug, amending the Loan Documents,
refraining from enforcing remedies, and waiving Snug’s nonperformance. Finally, Customers claims that Harvest failed to
comport with industry standards for managing the Snug Loan.5
2. Harvest’s Opposition and Cross-Motion
Harvest filed a combined opposition and cross-motion for
summary judgment [Docket Item 20], arguing that there was no
breach because the Agreement states that Harvest has the “sole
and exclusive right to service, administer, and monitor the
Loan.” (Def. Cross-Mot. at 3.) Harvest also emphasizes the
clause stating that Harvest “shall exercise the same care in
accordance with its usual practices in administering, servicing
and monitoring the Loan as it exercises with respect to similar
transactions . . . .”

(Id.) Harvest argues that choosing to

5

At oral argument, Customers introduced new arguments, claiming
that Harvest violated federal regulations and Generally Accepted
Accounting Principles (“GAAP”). Customers did not identify the
specific regulations and GAAP principles that Harvest allegedly
violated, and it did not give Defendant any notice of these new
arguments. The Court will not address them. A “newly minted
argument raised for the first time during oral argument” is
“problematic.” Millipore Corp. v. W.L. Gore & Associates, Inc.,
Civ. 11-1453 (ES), 2011 WL 5513193, at *9 (D.N.J. Nov. 9, 2011).
“[A]rguments raised for the first time at oral argument will be
disregarded.” Id.
15

accommodate Snug, instead of calling the Loan, is consistent
with how it administers and services its other loans.
While Harvest concedes that the Agreement “does state
written consent by [Customers] is required for certain actions
to be taken,” Harvest notes that consent “shall not be
unreasonably withheld.” (Id. at 4.) Harvest argues that
Customers’ “written consent is merely a formality,” unless
Harvest’s actions are unreasonable, and none of them were
unreasonable. (Id.)
Furthermore, Harvest argues that Customers is not entitled
to damages because Harvest never guaranteed the Loan or Snug’s
ability to perform and because the Agreement states that
Customers cannot look to Harvest for any monies that have not
been collected from Snug.
III.

STANDARD OF REVIEW
Summary judgment is appropriate when the materials of

record “show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c). A dispute is “genuine” if
“the evidence is such that a reasonable jury could return a
verdict for the non-moving party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). All inferences should be drawn
in favor of the non-moving party. Id. at 255.

16

“The standard by which the court decides a summary judgment
motion does not change when the parties file cross-motions.”
United States v. Kramer, 644 F.Supp.2d 479, 488 (D.N.J. 2008).
“When ruling on cross-motions for summary judgment, the court
must consider the motions independently and view the evidence on
each motion in the light most favorable to the party opposing
the motion.” Id. (citation omitted).
IV.

DISCUSSION

A. Choice of Law
1. New Jersey Law Applies
The Agreement specifies that it “shall be governed by the
laws of the State of New Jersey . . . .” (Agreement at 5.) In
applying New Jersey law, the Court will “principally rely[] on
opinions of the Supreme Court of New Jersey by which we are
bound with respect to questions of New Jersey law.” Elliott &
Frantz, Inc. v. Ingersoll-Rand Co., 457 F.3d 312, 318-319 (3d
Cir. 2006) (citation omitted). “When the state’s highest court
has not addressed the issue, the federal court must predict its
holding.” Borman v. Raymark Industries, Inc., 960 F.2d 327, 331
(3d Cir. 1992). In that situation, decisions from the New Jersey
Superior Court Appellate Division are persuasive: “Where an
intermediate appellate state court rests its considered judgment
upon the rule of law which it announces, that is a datum for
ascertaining state law which is not to be disregarded by a
17

federal court unless it is convinced by other persuasive data
that the highest court of the state would decide otherwise.”
Budget Rent-A-Car Sys., Inc. v. Chappell, 407 F.3d 166, 174 (3d
Cir. 2005) (quotation omitted).
2. Federal Contract Law Does Not Apply
In their briefs, both Customers and Harvest cite Pittsburgh
National Bank v. Abdnor, 898 F.2d 334 (3d Cir. 1990), which is
inapplicable. Abdnor was a breach of contract case involving the
Small Business Administration (“SBA”) and, in that case, the
dispositive issue was “a question of federal law.” Id. at 338.
Federal contract law governed in Abdnor because the SBA, a
federal government agency, was a party to the contract at issue.
See U.S. v. Kimbell Foods, 440 U.S. 715, 726 (U.S. 1979)
(“federal law governs questions involving the rights of the
United States arising under nationwide federal programs”). In
the present case, by contrast, no federal agency is a party and
the Agreement specifies that New Jersey law governs.
B. New Jersey Breach of Contract Law
Under New Jersey Law, to establish a breach of contract
claim, “a plaintiff has the burden to show that the parties
entered into a valid contract, that the defendant failed to
perform his obligations under the contract and that the
plaintiff sustained damages as a result.” Murphy v. Implicito,
392 N.J. Super. 245, 265 (N.J. Super. Ct. App. Div. 2007); see
18

also Sheet Metal Workers Int'l Ass'n Local Union No. 27, AFL-CIO
v. E.P. Donnelly, Inc., 737 F.3d 879, 900 (3d Cir. 2013) (“To
prevail on a breach of contract claim under New Jersey law, a
plaintiff must establish three elements: (1) the existence of a
valid contract between the parties; (2) failure of the defendant
to perform its obligations under the contract; and (3) a causal
relationship between the breach and the plaintiff’s alleged
damages.”).
Neither party disputes the validity of the Agreement.
Therefore, the primary issues are whether Harvest failed to
perform its obligations and whether Customers sustained damages
as a result.
C. Whether Harvest Performed Its Obligations
1. Failure to Obtain Consent and Notify of Defaults
Customers argues that Harvest breached the Agreement by not
obtaining Customers’ consent before taking certain actions in
regards to the Loan, by not informing Customers when Harvest
became aware of various default events, and by not supplying
Customers with information and documentation required under the
Agreement. Customers points to the clause of the Agreement
stating: Harvest “agrees that except upon prior written consent
of [Customers],” Harvest “shall not” make any advances to Snug,
amend the Loan Documents, or waive non-performance by Snug.
(Agreement at 2-3.) Further, Customers also points to the clause
19

stating that “[Harvest] will immediately notify [Customers] when
it receives notice or has knowledge of any default.” (Agreement
at 3-4.)
In response, Harvest emphasizes that it has the “sole and
exclusive right to service, administer, and monitor the Loan,”
and that Harvest “shall exercise the same care in accordance
with its usual practices in administering, servicing and
monitoring the Loan as it exercises with respect to similar
transactions . . . .”

(Agreement at 2, 4.) Harvest argues that

it has not breached the Agreement because the Agreement gives
Harvest exclusive discretion to manage the Loan and because it
has administered and monitored the Loan in the same manner as
other loans.
Harvest acknowledges that the Agreement requires Customers’
consent before Harvest takes certain actions and concedes that
it did not obtain such consent. But Harvest notes that
Customers’ consent “shall not be unreasonably withheld.”
(Agreement at 3.) Harvest interprets this clause to mean that,
barring an unreasonable action, Customers’ written consent is
merely a formality that can be presumed. Harvest points again to
the clause stating that Harvest “shall exercise the same care in
accordance with its usual practices . . .” as the governing
standard for determining “reasonableness.” (Agreement at 4.)
Because Harvest perceived itself as managing the Snug Loan in
20

the same fashion as it manages other loans, it did not perceive
that any of its actions were unreasonable.
At oral argument, Customers argued that the reasonableness
of its decision to grant or withhold consent is based on
Customers’ perspective of reasonableness, not Harvest’s
perspective.
There are three key provisions that the Court must construe
in determining whether Harvest performed its obligations. The
Court must read these provisions together because the Court must
construe the Agreement in its entirety. “[A] writing is
interpreted as a whole and all writings forming part of the same
transaction are interpreted together.” Nester v. O'Donnell, 301
N.J. Super. 198, 210 (App. Div. 1997) (quoting Barco Urban
Renewal Corp. v. Housing Auth. of Atlantic City, 674 F.2d 1001,
1009 (3d Cir. 1982)).
The first key provision states:
Except as set forth in the next sentence, [Harvest]
shall have the sole and exclusive right to service,
administer and monitor the Loan, including without
limitation,
the
right
to
exercise
all
rights,
privileges and options under the Loan Documents,
including the waiver of non-performance by [Snug] . .
. other than a waiver of any term of condition which
materially and adversely affects [Customers].
(Agreement at 2 ¶ 4.) The next sentence states:
Notwithstanding the
agrees that except
[Customers], which
withheld, [Harvest]

foregoing; [Harvest] covenants and
upon the prior written consent of
consent shall not be unreasonably
shall not (a) make any advances to
21

[Snug]; (b) amend the Loan Documents or extend, modify
or terminate the Loan; (c) release substitute or
exchange any of the Collateral Security; (d) waive
non-performance by Borrower or any guarantor of the
Loan of any term or condition which materially and
adversely affects the Participant; (e) enforce or
refrain from enforcing its rights or remedies under
the Loan Documents; (f) compromise claims by or
against [Snug] . . . with respect to any collateral
security; (g) consent to any increase in the maximum
amount of the Loan; (h) consent to any reduction in
the Interest rate or in any fees payable to
[Customers] on its participation share; (i) make any
intentional over-advances; or (j) extend any date for
or waive any failure to make payment.
(Agreement at 2-3 ¶ 4.) The third key provision mandates that
“Harvest shall exercise the same care in accordance with its
usual practices in administering, servicing and monitoring the
Loan as it exercises with respect to similar transactions
involving no participation.” (Agreement at 4 ¶ 8.)
There is a superficial tension between the general “usual
practices” clause and the provisions enumerating specific
matters of loan administration that obligated Harvest to give
notice to Customers and to obtain its consent in ¶ 4(a)-(j),
supra. “Whatever inconsistency exists between these . . .
provisions is easily resolved by a well-settled rule of contract
interpretation: where there is an inconsistency between a
general provision and a more specific provision, the more
specific provision will qualify and control the more general
clause.” Standard Fire Ins. Co. v. Cesario, Civ. 11-7012, 2012
WL 4194506, at *2 (D.N.J. Sept. 18, 2012); see also Bauman v.
22

Royal Indem. Co., 36 N.J. 12, 22 (1961) (“In the interpretation
of a contractual instrument, the specific is customarily
permitted to control the general and this ordinarily serves as a
sensible aid in carrying out its intendment”); Homesite Ins. Co.
v. Hindman, 413 N.J. Super. 41, 48 (App. Div. 2010) (citing
“well-recognized rule of construction that when two provisions
dealing with the same subject matter are present, the more
specific provision controls over the more general”).
In this case, there is a general provision requiring
Harvest to act in accordance with its usual practices and there
is a general provision giving Harvest the exclusive right to
manage the Loan. But that exclusivity provision is subject to
the specific provision that enumerates circumstances in which
Harvest must obtain Customers’ consent. The exclusivity
provision specifically states “[e]xcept as set forth in the next
sentence” and the next sentence begins with “[n]otwithstanding
the foregoing.” The next sentence then lists ten circumstances
in which Harvest must obtain Customers’ consent. Both the
language of the Participation Agreement and the general rule of
contract interpretation show that the exclusivity provision is
subject to the next sentence about obtaining Customers’ consent.
Harvest was therefore required to obtain Customers’ consent in
those ten circumstances.
It is undisputed that Harvest did not obtain Customers’
23

consent at any point during its management of the Loan. It is
also undisputed that Harvest loaned Snug an additional
$575,000.00, did not impose the default rate of interest or
otherwise penalize Snug despite Snug’s numerous defaults, and
issued a three-month payment waiver that extended the Loan, all
without notice and consent. The Participation Agreement requires
Harvest to obtain Customer’s consent to, inter alia, “extend any
date for or waive any failure to make payment,” “make any
advances to [Snug],” and “enforce or refrain from enforcing its
rights or remedies under the Loan Documents.” The Court
therefore holds, as a matter of law, that Harvest did not obtain
Customers’ consent in violation of the Agreement’s requirements
in these specific and material ways.
Harvest argues that its failure to obtain consent is
immaterial because such consent cannot be unreasonably withheld
and none of its actions were unreasonable according to its
customary practices. This argument lacks merit. First, the
general provision about Harvest’s customary practices is subject
to the specific provision, which requires Customers’ consent in
specific situations. Second, it is implausible that the
reasonableness of giving consent would be determined from
Harvest’s perspective. If Harvest’s perspective were the only
relevant perspective, then there would be no requirement to seek
Customers’ consent at all. And finally, even if Harvest’s
24

failures to seek consent were immaterial, New Jersey courts have
held that “even if the breach was not material, that only bears
upon the quantum of damages, as even a nonmaterial breach of a
contract may be compensable.” Murphy v. Implicito, 392 N.J.
Super. 245, 265 (App. Div. 2007).
In addition, it is undisputed that Harvest did not notify
Customers of many of Snug’s default events, such as overdue
taxes or liens on the property. The Participation Agreement
specifically required Harvest to do so and, therefore, Harvest
breached. Harvest cannot cite to the provision requiring it to
manage the Loan in accordance with its customary practices
because there is no evidence in the record that its customary
practices involve situations in which there is a participation
agreement with a third-party; in other words, in its own loan
portfolio, Harvest would have no “usual practice” of giving
notice to itself or obtaining consent from itself.
The Court will therefore partially grant Customers’ summary
judgment motion on the grounds that Harvest did not perform its
obligations under the Agreement, particularly the obligations to
notify Customers of Snug’s defaults and to obtain Customers’
consent before granting a waiver, issuing Snug another loan, and
refraining from imposing the default rate of interest. As
discussed further infra, the Court cannot grant complete summary
judgment to Customers because Customers has not established the
25

damages, if any, to which it is entitled.
2. Industry Standards
Plaintiff argues that Harvest breached the Agreement
because it did not perform according to industry standards. This
argument lacks merit.
In its briefing, Customers cited Abdnor to emphasize “the
importance of the requirement that the bank service the loan in
a commercially prudent manner.” Abdnor, 898 F.2d at 338
(citations omitted). Abdnor is inapposite. The contract between
the Abdnor parties specifically held that the bank “shall follow
accepted standards of loan servicing employed by prudent lenders
generally . . .” and federal regulations involving the SBA,
which was a party to the contract, required lenders to “service
the loan in a prudent manner.” Id. at 336.
In this case, Customers has not identified any provision of
the Agreement that requires Harvest to perform according to
industry standards. The provision setting forth a standard for
Harvest is the provision requiring Harvest to manage the Snug
Loan in the same fashion as it manages its other loans, other
than its more specific duties in the enumerated exceptions of
Agreement ¶ 4(a)-(j), supra.
Furthermore, even if a provision requiring performance
according to industry standards existed, Customers did not
present any evidence of industry standards, such as expert
26

testimony or common guidelines. Therefore, Customers has not
adduced evidence such that the Court could conclude, as a matter
of law, that Harvest’s actions were imprudent or outside
industry standards.
Customers is not entitled to summary judgment based on its
argument that Harvest did not follow industry standards.
D. Damages
1. Customers’ Motion
Customers has not shown that there is no factual dispute
that it suffered damages resulting from Harvest’s failure to
perform its obligations.
Although Customers argues that it can accelerate the Loan
and retrieve its share, the Agreement does not state that
Customers can do so. The Court “may not make a better contract
for either party, or supply terms that have not been agreed
upon.” Bar on the Pier, Inc. v. Bassinder, 358 N.J. Super. 473,
480 (App. Div. 2003). Customers has not pointed to any clauses
in the Agreement stating that it has the right to accelerate the
Loan or demand its participation share back from Harvest. The
Court cannot write such terms into the Agreement. When asked
whether Harvest has an obligation to buy back or repay
Customers’ share, Customers’ Senior Vice President acknowledged
that “Harvest has no obligation.” (Napierkowski Dep. 69:1-10.) A
reasonable factfinder could therefore conclude that the damages
27

Customers claims, i.e., its lost participation share, are not
the result of Harvest’s purported failure to perform its
obligations.
Furthermore, the Agreement stipulates that Customers’
participation is a “full-risk participation” and that Customers
will receive only “payments received and collected by [Harvest]
from [Snug] . . . for repayment of the Participation Share.”
(Agreement at 4.) A reasonable factfinder could find that this
“full-risk” clause precludes Customers from obtaining damages,
particularly the return its participation share, from Harvest.
Finally, the Court must deny Customers’ motion because
Customers identifies certain breaches without showing how its
losses were a reasonably certain consequence of those particular
breaches. In establishing damages for a breach of contract,
Plaintiff must “prove, by a preponderance of the evidence, that
the losses it sought to recover were a reasonably certain
consequence of the breach.” Totaro, Duffy, Cannova and Co.,
L.L.C. v. Lane, Middleton & Co., L.L.C., 191 N.J. 1, 15 (2007)
(quotations omitted). Customers identifies myriad breaches, such
as Harvest’s failure to respond to emails or Harvest’s failure
to inform Customers of Snug’s default events. But Customers has
not shown that these breaches caused its damages. In fact, when
asked whether it was “possible that Harvest could have done
everything that Customers wanted and Customers wouldn’t have
28

gotten back its full position,” Customers’ Senior Vice President
acknowledged “[t]hat’s a possibility.” (Id. 76:16-19.)
Essentially, Customers has not shown that it would have received
its payments if Harvest had managed the Loan differently or that
its losses were a reasonably certain consequence of Harvest’s
failure to perform its obligations.
At this procedural posture, Customers has not established
the damages element of its breach of contract claim. A
reasonable factfinder could conclude that: the Agreement does
not entitle Customers to accelerate the Loan and retrieve its
participation share; the Agreement mandates that Customers’
participation is full-risk, thus precluding Customers from
obtaining damages from Harvest due to Snug’s failure to make
payments; and Customers has not shown that its losses were a
reasonably certain consequence of Harvest’s breaches. The Court
will therefore deny Customers’ motion for summary judgment on
damages.6
2. Harvest’s Motion
Harvest argues that it should prevail because the Agreement
mandates that Customers’ participation is full-risk and that
Customers is not entitled to monies that Harvest has not

6

Customers also seeks attorney’s fees, but it acknowledges that
the Agreement does not contain an attorney’s fees provision.
Furthermore, Customers has not cited any legal basis for an
attorney’s fees award.
29

received from Snug. Harvest’s motion must be denied because, as
explained supra, Harvest did not obtain Customers’ consent
before taking certain actions. A reasonable factfinder could
find that Customers would have reasonably withheld its consent,
thus forcing Harvest to call the Loan, and, if Harvest had
called the Loan, Customers could have recovered its
participation share or some portion of it. Furthermore,
Customers argues that, because Harvest failed to call the Loan,
Customers has been forced to carry a defaulted loan on its
books, which has also caused damages. Harvest has not adduced
evidence such that the Court could conclude, as a matter of law,
that Harvest’s breaches did not damage Customers. Harvest’s
motion will be denied.
V.

CONCLUSION
The Court will deny Harvest’s motion for summary judgment.

The Court will partially grant Customers’ motion for summary
judgment, holding that Harvest owes Customers an unspecified
amount of unpaid principal and that Harvest did not perform its
obligations under the Agreement. The Court will deny Customers’
motion for damages because Customers has not shown, as a matter
of law, that it is entitled to damages from Harvest’s breaches.
An accompanying Order will be entered.
August 20, 2014
Date

s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
30