BANK LEUMI USA v. KLOSS et al

Filing 79

OPINION. Signed by Judge Evelyn Padin on 1/13/2023. (lag, )

Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BANK LEUMI USA,
Plaintiff,
Civil Action No. 17-7729 (EP) (AME)
v.
OPINION
EDWARD J. KLOSS and KLOSS COMPANY,
LLC (d/b/a CRIB & TEEN CITY),
Defendants.

PADIN, District Judge.
This action stems from non1

The Bank claims that its

losses on that loan presently stand at $8,512,713.22. D.E. 64 ¶ 75. It is now attempting to recover
$2.65 million of those losses from Defendants Edward J. Kloss and his company, Kloss Company
LLC d/b/a Crib & Teen City (herein
Currently pending before the Court is

motion for partial summary judgment,

brought pursuant to Federal Rule of Civil Procedure 56. D.E.s 62-68. The Bank requests that the
Court find, as a matter of law: (1) that Kloss owes it $675,000 based on his alleged breach of a
March 11, 2009 Subordination Agreement which the Bank required Kloss to sign as a condition
of it agreeing to loan an initial $15 million to Munire; and (2) that Kloss and Crib & Teen City
owe the Bank an additional $2 million

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i.e., the entire sum which the Bank agreed to lend to

Valley National Bank is the successor-by-merger of Bank Leumi USA, and is the entity now
pursuing this lawsuit.

Munire on November 12, 2013, after Munire had already spent nearly all of the $15 million which
the Bank originally loaned to it
November 15, 2013 execution of a document titled Ratification and Reaffirmation of
Subordination Agreement. Defendants oppose the

motion. See D.E.s 70-72. The Court

has considered the motion without oral argument. See Fed. R. Civ. P. 78(b); L.Civ.R. 78.1(b). For
the following reasons,
I.

motion for partial summary judgment is DENIED.

BACKGROUND
A. Factual Background
In early-2011, Munire approached the Bank seeking a $15 million revolving loan. D.E. 64

¶ 1. During the underwriting process for approving for the loan, Munire disclosed that it owed
Kloss $1.5 million. Id. ¶ 5. Kloss, at that time, was the proprietor of Crib & Teen City, a chain of
Id. ¶ 6. Crib & Teen City sold, among its products, Munire-produced
furniture. See id. ¶ 16.
The Bank advised Munire that as a condition to approving the $15 million loan, Munire
and Kloss would be required to execute a Subordination Agreement by which Munire and Kloss
would acknowledge that Munire owed Kloss $1.5 million, and Kloss would agree to subordinate
that indebtedness to the debt Munire owed to the Bank. Id. ¶ 8.
The Subordination Agreement was executed by all parties on March 9, 2011. D.E. 65-4.
It lists Kloss
as all of

Id.
i.e.,

Id.
,

See id. ¶ 1.

Section 1 of the Subordination Agreement states:
All claims and demands, and all interest heretofore or hereafter
accrued thereon, which [Kloss] now has or may hereafter have or
acquire against [Munire] . . . shall not be paid, and no payment on
account thereof, nor any security interest therein, shall be created,
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received, accepted or retained . . . unless and until [Munire] has paid
and satisfied in full all of its obligations to the Bank . . . .
Id.
In Section 2, Kloss and Munire affirmatively represent that
$1,500,000.00 plus interest (at an annual rate of 10%) and no more

Id. ¶ 2.

Section 3 sets forth the consequences for a breach of the Subordination Agreement:

n

the event of a breach by either [Munire] or [Kloss] in the performance of any of the terms of this
agreement, or if any representation or warranty of [Munire] or [Kloss] hereunder shall prove to be
materially false, all of the Liabilities[, i.e.

obligations to the Bank, ] shall, without

notice or demand, become immediately due and payable. Id. ¶ 3.

of any kind, including reasonable counsel fees, which the Bank may incur in enforcing any of its
rights hereunder, or defending or prosecuting any action related to transactions with the
Id. ¶ 6.
In the months after the parties executed the Subordination Agreement, Kloss continued to
collect monthly interest payments on his $1.5 million loan. D.E. 64 ¶ 15. But these interest
payments were not made in cash. Instead, Munire credited

, Crib & Teen City,

for money that Crib & Teen City owed to Munire for its purchases Munire-manufactured furniture
which Crib & Teen City thereafter sold to retail customers. Id. ¶ 16. Between March 2011 and
October 2013, Kloss received $400,000 in this form of credit-as-interest payments on his $1.5
million loan to Munire. Id. ¶ 29.
By November 2013, Munire had almost fully expended its available $15 million in Bankissued credit and its balance stood at $14,940,000. Id. ¶ 30. Munire, at that time, requested that
the Bank loan it an additional $2 million. Id.
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November 12, 2013. See id. ¶ 32 On or about November 12, 2013, the Bank and Munire entered
into an [amended credit agreement] which increased the revolving line of credit available to
Munire from $15 million to $17 million. . On November 13, 2013, with its credit line increased
by $2 million to $17 million, Munire drew down $1.5 million. Id. ¶ 55. Munire drew down the
remaining $500,000 two days later, on November 15, 2013. Id. ¶ 56.
On November 15, 2013, Kloss executed a Bank-issued
Agreement

D.E. 65-15;

accord D.E. 64 ¶ 47. Under the Reaffirmation Agreement, Kloss agreed that the terms of the
Subordination Agreement would remain in full force and effect. D.E. 65-15. Kloss further

by Munire to Kloss was] $1,500,000. Id.; accord D.E. 64 ¶ 49. The Bank avers without pointing
to specific support in the record

that its approval of the supplemental $2 million loan to Munire

was conditioned upon Kloss representing to the Bank that he had complied with the Subordination
Agreement and reaffirming his commitment to continue so doing. D.E. 64 ¶ 33.
Between November 2013 and August 2014, Kloss collected a total of $275,000 in interest
payments

again in the form of credits on the money Crib & Teen Furniture owed to Munire for

its purchases of Munire-manufactured furniture

an to Munire. Id. ¶

61. From the time that Kloss executed the Subordination Agreement in March 2011 through and
including August 2014, Kloss collected a total of $675,000 in credit-as-interest payments on his
$1.5 million loan to Munire. Id. ¶ 62.
The Bank declared Munire in default on its $17 million loan in September 2014, and on
September 18, 2014, the Bank commenced an action against Munire in the United States District
Court for the District of New Jersey. Id. ¶ 67. Munire filed for bankruptcy on the following day,

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September 19, 2014

. Id. ¶ 68. On November 3, 2014, Kloss

and Crib & Teen City each filed a proof of claim in the Munire Bankruptcy Action. Id. ¶ 70.
Kloss, in his proof of claim rider, noted that Munire owed him at least $1.5 million, and that interest

the amounts due by Crib & Teen City for merchandise

Id. ¶ 71.

B. Procedural History
On June 30, 2022, the Bank filed its motion for partial summary judgment. D.E.s 62-66.
It seeks summary judgment on its breach of contract claim against Kloss (Count I of its complaint)
and on its fraudulent inducement claim against Kloss and Crib & Teen City (Count IV of its
complaint). Defendants Kloss and Crib & Teen City filed opposition on August 25, 2022. D.E.s
70-72. The Bank submitted its reply on September 28, 2022. D.E.s 73-75.
II.

LEGAL STANDARD

t affect the outcome of the suit

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Disputes over irrelevant or unnecessary facts will not preclude granting a motion for summary
judgment. Id.
credibility determinations or engage in any weighing of the evidence; instead, the nonmoving

Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at
255)). In other words, a

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Anderson, 477 U.S. at 249.
A party moving for summary judgment has the initial burden of showing the basis for its
motion and must demonstrate that there is an absence of a genuine issue of material fact. Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). After the moving party adequately supports its motion,

or by the depositions, answers to interrogatories, and admissions on file, designate specific facts
showing that there is a genuine issue for t

Id. at 324 (internal quotation marks omitted). To

withstand a properly supported motion for summary judgment, the nonmoving party must identify
specific facts and affirmative evidence that contradict the moving party. Anderson, 477 U.S. at
250.

Messa v. Omaha Prop. & Cas. Ins. Co., 122 F. Supp. 2d

523, 528 (D.N.J. 2000) (quoting Anderson, 477 U.S. at 249-50)).
Ultim
Celotex
Corp.
however, summary judgment is not appropriate. See Anderson, 477 U.S. at 250-51.
III.

ANALYSIS
A.
To establish a breach of contract claim, a claimant must show (1)

Murphy v. Implicito, 392 N.J. Super.
245, 920 A.2d 678, 689 (App. Div. 2007).

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minds, there was an offer and acceptance, there was consideration, and there was certainty in the
See Allen-White v. Bloomingdale s, Inc., 225 F. Supp. 3d 254, 258
(D.N.J. 2016).
See Knight v. New Eng. Mut. Life Ins. Co., 220 N.J.
Super. 560 (App. Div. 1987).

, 794 A.2d 141, 152 (N.J. 2002). If the language
of the contract is clear, the Court must enforce it as written. CSFB 2001-CP-4 Princeton Park
Corp. Ctr., LLC v. SB Rental I, LLC, 980 A.2d 1, 4 (N.J. Super. Ct. App. Div. 2009). The Court

clearly written in the contract. E. Brunswick Sewerage Auth. v. E. Mill Assocs., Inc., 838 A.2d
494, 497 (N.J. Super. Ct. App. Div. 2004).
If a contract is capable of being interpreted in more than one way, then it is ambiguous.

contract and determine if there is any indication that the terms of the contract are susceptible to
INDECS Corp. v. Claim DOC, LLC, No. 16-4421, 2020 WL 5868796, at *9
(D.N.J. Oct. 2, 2020). Whether a contract is ambiguous is a legal question for the Court. Id. To
make a finding of ambiguity, the Court may consider the contract language, the meanings
suggested by counsel, and any extrinsic evidence offered in support of each interpretation. Id.

Great Atl. & Pac. Tea Co. v. Checchio, 762
A.2d 1057, 1061 (N.J. Super. Ct. App. Div. 2000).

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Here, the Bank correctly notes that under a reading of the plain language of the
Subordination Agreement, Kloss agreed to forego collecting (and Munire agreed not to pay) any
interest or principal on the $1.5 million Kloss loaned to Munire until Munire fully repaid the Bank
on the $15 million it loaned to Munire. Indeed, Section 1 of the Subordination Agreement states:
All claims and demands, and all interest heretofore or hereafter
accrued thereon, which [Kloss] now has or may hereafter have or
acquire against [Munire] . . . shall not be paid, and no payment on
account thereof, nor any security interest therein, shall be created,
received, accepted or retained . . . unless and until [Munire] has paid
and satisfied in full all of its obligations to the Bank . . . .
D.E. 65-4 ¶ 1.
There is also no dispute that in the 32Subordination Agreement, his company, Crib & Teen City, accepted $675,000 worth of credits for
amounts it otherwise would have paid to Munire for furniture purchases, and that those credits
represented interest payments on the $1.5 million loan Munire owed to Kloss. Indeed, Kloss
affirmatively declared the same in his November 3, 2014 proof of claim in the Munire Bankruptcy
Action.

es the clear terms of Section 1 of Subordination

Agreement. The question then becomes what the appropriate remedy is in light of this breach.
The Bank avers that it is entitled to recoup $675,000 from Kloss. It argues that but for
of these credit-as-interest payments
$675,000 less. D.E. 63 at 10. This does not mean, however, that the Bank, as a matter of law, is
now entitled to recoup this sum from Kloss. That is because the plain language in Section 3 of the
Subordination Agreement limits
finding. That provision reads

n the event of a breach by either [Munire] or [Kloss] in the

performance of any of the terms of this agreement . . . all of the Liabilities[, i.e., all of
obligations to the Bank, ] shall, without notice or demand, become immediately due and payable.
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D.E. 65-4 ¶ 3. The plain language of this provision, in other words, appears to state that
sole remedy

is to require Munire,

and that entity only, to immediately repay any sums its owed on the $15 million Bank loan.

In

New Jersey, parties to a contract may agree to limit their liability as long as the limitation does not
,
245 F. App x 161, 167 (3d Cir. 2007); accord CDK Glob., LLC v. Tulley Auto. Grp., Inc., 489 F.
Supp. 3d 282, 314 (D.N.J. 2020) (

damages would be limited pursuant to the limitation

of liability clause found in the

because both parties were sophisticated

business entities and were in a position to fully understand all the provisions within
there is nothing in the plain language of Section 3
Agreement

Moreover,

or anywhere else in the Subordination

that unequivocally suggests that Kloss himself would be liable to the Bank for any
the Subordination Agreement. The Court will

not write better terms for the Bank than the ones included in the Subordination Agreement. See
Lucier v. Williams, 366 N.J. Super. 485, 491, 841 A.2d 907, 911 (App. Div. 2004)

We begin our

analysis of the enforceability of the limitation of liability clause with the fundamental proposition
that contracts will be enforced as written. Ordinarily, courts will not rewrite contracts to favor a
party, for the purpose of giving that party a better bargain.
t

For this reason,
and a resulting declaration

that Kloss is liable to the Bank for $675,000 is denied.
B.

Fraudulent Inducement Claim is Denied

To establish a claim for fraudulent inducement, a claimant must establish the following:
(1) a material representation of a presently existing or past fact; (2) made with knowledge of its
falsity; and (3) with the intention that the other party rely thereon; (4) resulting in reliance by that

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party; (5) to his detriment.

RNC Sys., Inc. v. Mod. Tech. Grp., Inc., 861 F. Supp. 2d 436, 451

(D.N.J. 2012)

November 15,

2013 execution of the Reaffirmation Agreement to extend an additional $2 million in credit to
Munire, which Munire subsequently defaulted on. D.E. 63 at 14. The Bank avers that but for

Id. It further claims that Kloss, in executing the document, falsely represented that he was not
receiving interest payments from Munire on his $1.5 million dollar loan, and that this

Id. The Bank accordingly requests that the Court find, as a matter of law, that it is now entitled to
recover the entirety of this $2 million sum from Kloss and his company, Crib & Teen City, under
the theory of fraudulent inducement. The Court will not do so.
The Bank ignores that it undisputedly agreed to loan Munire an additional $2 million on
November 12, 2013, which is three days before Kloss executed the Reaffirmation Agreement. See
On or about November 12, 2013, the Bank and Munire entered into an [amended
credit agreement] which increased the revolving line of credit available to Munire from $15 million
to $17 million. ; id. ¶ 47 (Bank acknowledging that Kloss executed Reaffirmation Agreement
-15 (copy of Reaffirmation Agreement dated
November 15, 2013). The record further shows that Munire withdrew $1.5 million of that sum
two days before Kloss executed the Reaffirmation Agreement. Thus, the Court cannot find that
the Bank even required that Kloss execute the Reaffirmation Agreement as a precondition of the
$2 million loan

same induced

the Bank
IV of its complaint

and a resulting declaration that Kloss and Crib & Teen City are liable to the

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Bank for $2 million

is accordingly denied. See Inventory Recovery Corp. v. Gabriel, No. 2:11-

CV-01604 (WJM), 2016 WL 1365995, at *4 (D.N.J. Apr. 6, 2016) (denying summary judgment
the extent to which Plaintiff relied on
Defendants misrepresentations is disputed
C. The B
fees is also denied. Section 6 of the Subordination

any kind, including reasonable counsel fees, which the Bank may incur in enforcing any of its
rights hereunder, or defending or prosecuting any action related to transactions with the
-4 ¶ 6.

if the Court grants summary judgment in favor

of the Bank on either of its claims for breach of contract or fraud, it must also award the Bank its
[under Section 6 of the Subordination Agreement]
at 18 (emphasis added).

, it is

not entitled, at this juncture, to recoup expenses or attorneys fees under the Subordination
Agreement.
IV.

CONCLUSION
For the foregoing reasons, the Bank

motion for partial summary judgment, D.E. 62, is

denied. An appropriate Order accompanies this Opinion.

Dated: January 13, 2023
Evelyn Padin, U.S.D.J.

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