TRANSAMERICA LIFE INSURANCE COMPANY v. DAIBES GAS HOLDINGS ATLANTA, L.L.C. et al
Filing
79
OPINION. Signed by Judge Stanley R. Chesler on 4/20/21. (jc, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
:
TRANSAMERICA LIFE INSURANCE
:
COMPANY,
:
:
Plaintiff, :
:
v.
:
:
DAIBES GAS HOLDINGS ATLANTA,
:
L.L.C. et al.,
:
:
Defendants. :
Civil Action No. 18-10869 (SRC)
OPINION
CHESLER, District Judge
This matters comes before the Court on two motions for summary judgment: 1) the
motion by Plaintiff Transamerica Life Insurance Company (“TLI”); and 2) the motion by
Defendants/Counterclaim Plaintiffs Fred A. Daibes (“Daibes”), Daibes Gas Holdings Atlanta,
L.L.C. (“DGHA”), Reb Oil of Alabama, LLC (“Reb Oil”), 1096-1100 River Road Associates,
L.L.C. (“RRA”), Lyndhurst Residential Communities, LLC (“LRC”) and Portside Gorge
Associates, L.L.C. (“PGA”) (collectively, “Defendants”). For the reasons that follow,
Plaintiff’s motion will be granted, and Defendants’ motion will be denied.
The parties do not dispute the following facts. TLI is an insurance company and Daibes
is a real estate developer. This action concerns five loans (collectively, the “Loans”) that TLI
made to various Defendants for real estate development and investment between 2004 and 2008.
As summarized by Defendants:
Five loans (“the Loans”) are at issue in this lawsuit, each evidenced by a secured
promissory note: the note executed by PGA in December 2004 for $52 million
(“the First St. Moritz Note”); the note executed by DGHA in December 2007 for
$17.5 million (“the DGHA Note”); the note executed by Reb Oil in December
1
2007 for $13.5 million (“the Reb Oil Note”); the note executed by RRA in
November 2011 for $69.6 million (“the Alexander Note”); and the note executed
by PGA in June 2014 for $3.5 million (“the Third St. Moritz Note”) (collectively,
“the Notes”).
(Defs.’ MSJ Br. at 3.) The First and Third St. Moritz Notes, collectively, are referred to as the
“Remaining St. Moritz Notes.” The loans to DGHA and Reb Oil are referred to as the “Gas
Station Loans.” Daibes executed a personal guarantee as a condition of each loan (the
“Guarantees.”) Between 2012 and 2014, the parties amended and modified the loan
agreements; notably, the Loans became subject to cross-default provisions.
On April 26, 2018, Plaintiff sent Defendants the Partial Waiver Letter. (Voss. Cert. Ex.
23.) In this letter, Plaintiff partially waived its rights under certain of the provisions at issue in
this case: 1) the Alexander Note prepayment premium provision was partially waived, with the
effect of making the Alexander Note prepayment premium provision functionally identical to
those provisions in the DGHA and Reb Oil Notes; and 2) the default interest provisions of the
DGHA and Reb Oil Notes were partially waived, with the effect that the default interest rate was
set at 10% over the contract rate in those Notes. There is no dispute over the effect of the Partial
Waiver Letter on these provisions. (Pl.’s 56.1 Stmt ⁋⁋ 104-106, 117; Defs.’ Resp. 56.1 Stmt ⁋⁋
104-106, 117.) For convenience, in this Opinion, this Court will refer to the provisions “in the
Notes,” but this shall be understood to mean: the provisions in the Notes, as modified by the
Partial Waiver Letter.
On June 15, 2018, Plaintiff declared the Gas Station Loans in default and accelerated the
entire indebtedness; Plaintiff filed the Complaint initiating the present action shortly after. On
November 8, 2018, Plaintiff did the same with the remaining loans, and filed an Amended
Complaint later that month. On February 1, 2019, Plaintiff filed an action in the Chancery
Division of the Superior Court of New Jersey to foreclose on the only remaining collateral for
2
the Loans, the Alexander Apartments. On February 12, 2020, the Superior Court filed the
“Foreclosure Decision,” accompanied by the “Foreclosure Order,” in which it granted Plaintiff’s
motion for partial summary judgment, denied Defendants’ motion for summary judgment, and
struck Defendants’ answer; the court ordered that Plaintiff had the right to foreclose on the
mortgages at issue and referred the case to the Superior Court’s Office of Foreclosure for
handling as an uncontested foreclosure.
The Amended Complaint asserts eight claims. Four of the claims are for breach of
contract with regard to one or more loans: First Count (against DGHA for breach of the DGHA
Mortgage and DGHA Note); Third Count (against Reb Oil for breach of the Reb Oil Mortgage
and Reb Oil Note); Fifth Count (against RRA for breach of the Alexander Note); and Seventh
Count (against RRA for breach of the First St. Moritz Note and the Third St. Moritz Note).
Four of the claims are against Daibes for breach of contract with regard to the Guarantees:
Second Count (the DGHA Guarantee); Fourth Count (the Reb Oil Guarantee); Sixth Count (the
Alexander Guarantee); and Eighth Count (the St. Moritz Guarantee). Defendants have filed four
Counterclaims which seek declaratory judgments that the prepayment premium provisions and
the default interest provisions in all of the Notes are unreasonable and unenforceable.
Plaintiffs move for partial summary judgment as to three matters: 1) Defendants are
liable for breach of contract; 2) Plaintiffs are entitled to contract damages pursuant to the terms
of the contracts; and 3) as to the Counterclaims, judgment should be entered in favor of
Plaintiffs. Defendants move for summary judgment on their Counterclaims, and on two issues
pertaining to Plaintiff’s damages claims: 1) recovery of certain property tax advances is timebarred; and 2) attorneys’ fees are limited by a New Jersey Court Rule. Defendants’ brief in
opposition to Plaintiff’s motion incorporates by reference the arguments in Defendants’ briefs in
3
support of their motion for summary judgment.
I. Plaintiff’s motion for summary judgment: liability
Plaintiff first argues that collateral estoppel, based on the Foreclosure Decision, bars
Defendants from contesting liability for breach of contract, as to the First, Third, Fifth, and
Seventh Counts. The parties do not dispute that the Third Circuit has summarized the basic
principles for the application of collateral estoppel under New Jersey law as follows:
In New Jersey, when a judgment of a court of competent jurisdiction determines a
question in issue, the judgment estops the parties and privies from relitigating the
same issue in a subsequent proceeding. Such a determination is conclusive on
either the same or a different claim.
New Jersey courts apply a five-pronged test to determine whether collateral
estoppel should bar relitigation of an issue: (1) the issue must be identical; (2) the
issue must have actually been litigated in a prior proceeding; (3) the prior court
must have issued a final judgment on the merits; (4) the determination of the issue
must have been essential to the prior judgment; and (5) the party against whom
collateral estoppel is asserted must have been a party or in privity with a party to
the earlier proceeding.
Del. River Port Auth. v. FOP, Penn-Jersey Lodge 30, 290 F.3d 567, 573 (3d Cir. 2002) (citations
omitted).
Plaintiffs argue that, here, the requirements for the application of collateral estoppel are
met. Plaintiffs contend that, when the Superior Court granted Plaintiffs’ motion for summary
judgment in the Foreclosure Action, “the Chancery Division held that the Loan Documents were
valid and enforceable, Defendants had defaulted, and Plaintiff had the right to foreclose, struck
Defendants’ answer and affirmative defenses, and referred the matter to the Office of
Foreclosure as uncontested.” (Pls.’ Br. 9-10.) This is an accurate summary of the conclusions
stated in the Foreclosure Decision. (Hartmann Cert. Ex. 32; Reich Dec. Ex. O.) Plaintiffs then
argue:
In short, the issues in both cases (validity of the contracts, consideration,
4
Defendants’ defaults, Defendants’ defenses, and Plaintiff’s right to enforce the
documents) are identical; were litigated and decided by the Chancery Division;
the determination was essential to the prior judgment; and the parties were the
same. This ruling unequivocally satisfies the elements of collateral estoppel.
(Pls.’ Br. 10.) As a result, Plaintiffs argue that Defendants should be estopped from relitigating
the elements of breach of contract, “including Defendants’ defenses to validity and breach of the
Notes and Modifications.” (Id. at 11.)
Although Defendants oppose Plaintiffs’ position on collateral estoppel, Defendants’
opposition brief does not dispute the third, fourth and fifth elements of the Delaware River fivepronged test. As to the first and second elements, Defendants make three arguments: 1) the
instant case was filed first, relative to the Foreclosure Action, and does not qualify as a later
case; 2) certain issues in the present case were not litigated in the prior action, so the issues are
not identical and actually litigated in the prior action; and 3) fairness demands that Defendants
have the opportunity to litigate liability in this Court.
A. Is this a later case?
Defendants first argue that, because this case was filed first, relative to the Foreclosure
Action, it does not qualify as a later case. This is meritless: the Delaware River standard says
nothing about which case was filed first. See Old Colony Tr. Co. v. Commissioner, 279 U.S.
716, 728 (1929) (“Whichever judgment is first in time is necessarily final to the extent to which
it becomes a judgment.”) As to the sequence of the cases, the standard bars relitigation when
the identical issue was litigated in a prior proceeding, and the prior court issued a judgment on
the merits in what is now a prior proceeding. There is no sequence problem.
B. Were the identical issues actually litigated?
As to the first and second elements, Defendants argue that certain issues in the present
action were not identical as well as actually litigated in the Foreclosure Action: 1) there was no
5
litigation of any of the Guarantee agreements, which is undisputed;1 and 2) an affirmative
defense to liability was not litigated: “that Plaintiff created the situation which doomed the
Alexander and St. Moritz Loans to failure because the cash flow from The Alexander was
obviously insufficient to service the Gas Station Loans as well” (hereinafter, the “Proposed
Affirmative Defense.”) (Defs.’ Opp. Br. 9.)
This Court take judicial notice, pursuant to Federal Rule of Evidence 201(b)(2), of the
filings in the Superior Court foreclosure case, which are publicly available on the official website
of the New Jersey Courts. Transamerica Life Insurance Co. et al. v 1096-1100 River Road
Assoc., LLC et al., No. F-002369-19 (N.J. Super Ct., Chanc. Div.) On August 14, 2019,
Defendants filed their Contesting Answer to the Second Amended Complaint, stating 21
affirmative defenses, summarized here: 1) failure to state a claim; 2) statute of limitations; 3)
unreasonable under the law; 4) illegal and unconscionable penalty; 5) failure to satisfy conditions
precedent to repayment; 6) Plaintiffs failed to substantially perform; 7) Plaintiffs failed to
mitigate damages; 8) Plaintiffs have no damages; 9) barred “by the doctrines of estoppel, waiver,
ratification, laches, unclean hands, unjust enrichment, accord and satisfaction, recoupment,
acquiescence, and/or illegality;” 10) Plaintiff’s alleged damages are subject to setoff; 11) lack of
subject matter jurisdiction; 12) entire controversy doctrine; 13) doctrine of res judicata; 14)
doctrine of collateral estoppel; 15) failure to join a necessary party; 16) Defendants did not
breach any duty; 17) no default occurred under the mortgages and notes; 18) Plaintiffs have no
right to foreclose; 19) lack of consideration; 20) statute of frauds; and 21) reserve the right to
amend and add defenses.
1
Plaintiffs do not assert collateral estoppel with regard to any of the claims for breach of the
Guarantees.
6
The Foreclosure Decision shows that, when the Superior Court decided both Plaintiff’s
and Defendants’ motions for summary judgment, the Court considered the defenses raised by
Defendants and stated: “This Court rejects Defendants’ arguments.” (Hartmann Cert. Ex. 32 at
16.) In the Foreclosure Order, the Superior Court ordered that “Defendants’ Answer and all
affirmative defenses asserted therein, as to the SAC, is hereby stricken.” (Hartmann Cert. Ex.
33 at ⁋ 5.)
The Superior Court granted Plaintiff’s motion for summary judgment “as to liability on
all counts of the second amended foreclosure complaint.” (Id. at 2.) The Court ordered that
Plaintiff had the right to foreclose on the Senior Mortgage and the Junior Mortgage. (Id. at ⁋⁋ 2,
3.) The Court summarized the relevant law as follows:
Under New Jersey law, the only material issues to be established in a foreclosure
proceeding are that (i) the mortgage and loan documents are valid; (ii) the
mortgage is in default; and (iii) as a result of the default there is a contractual right
to foreclose.
(Hartmann Cert. Ex. 32 at 11.) The Court also summarized Defendants’ principal argument
against foreclosure, that Plaintiff had not demonstrated a right to foreclose on the mortgages.
(Id. at 10.) The Court explained that Defendants’ position, in brief, was that the various loan
modifications did not operate to “amend the obligations secured by the mortgages to include the
[DGHA] Loan and the Reb Oil Loan.” (Id.) “Defendants dispute that the Senior Mortgage and
the Junior Mortgage are in default because, according to Defendants, the alleged defaulted
obligations are not secured by the Senior Mortgage or the Junior Mortgage.” (Id. at 12.)
Defendants thus challenged the legal effect of the modifications which added the cross-default
provisions and Plaintiff’s right to cross-default the Alexander and Remaining St. Moritz Loans.
The Superior Court decided, in short, that the various loan modifications and the crossdefault provisions were valid and enforceable, and that the defaults on the DGHA and Reb Oil
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loans entitled Plaintiff to foreclose on the Junior and Senior Mortgages. As already stated, the
Superior Court granted Plaintiff’s motion for summary judgment “as to liability on all counts of
the second amended foreclosure complaint.” (Id. at 2.) The first two counts in the state court
second amended foreclosure complaint are of particular relevance here. In the First Count,
Plaintiff alleged that Defendants had defaulted under the DGHA and Reb Oil Notes, and that, by
operation of cross-collateralization provisions in the subsequent modifications, and their refusal
to remit the indebtedness due, Defendants had defaulted under the Alexander Note, and Plaintiff
had the right to foreclose. (Sup. Ct. Sec. Am. Compl. ⁋⁋ 114-118.) In the Second Count,
Plaintiff alleged that Defendants had defaulted under the Remaining St. Moritz Notes by
operation of the modifications and their refusal to remit the indebtedness due, and Plaintiff had
the right to foreclose. (Sup. Ct. Sec. Am. Compl. ⁋⁋ 129-130.) These are the issues that were
actually litigated in the Superior Court, and as to which the Superior Court issued a final
judgment on the merits.
As already stated, in the present case, Defendants did not contest Plaintiffs’ assertion that
the third, fourth, and fifth prongs of the Delaware River collateral estoppel have been met. As
to the third prong, this Court finds that the prior court issued a judgment on the merits that is
sufficiently firm to be considered final for the purpose of collateral estoppel. Hills Dev. Co. v.
Bernards, 103 N.J. 1, 59 (1986) (“the doctrine of collateral estoppel applies whenever an action
is ‘sufficiently firm to be accorded conclusive effect’” (quoting Restatement (Second) of
Judgments, § 13 at 132)); Reid v. N.J. Mfrs. Ins. Co., 2020 N.J. Super. Unpub. LEXIS 411, at
*10 (N.J. Super. Ct. App. Div. Feb. 27, 2020) (“‘final judgment’ includes any prior adjudication
of an issue in another action that is determined to be sufficiently firm to be accorded conclusive
effect.”)
8
As to the fourth prong, in the Foreclosure Decision, the Superior Court of New Jersey
explained that, under New Jersey law, the material issues in a foreclosure action are: the validity
of the mortgage and loan documents, the mortgage is in default, and, as a result of the default,
there is a right to foreclose. (Foreclosure Decision at 11). The court struck Defendants’
Answer as non-contesting, as well as all affirmative defenses in the Answer. (Hartmann Cert.
Ex. 33 at ⁋ 5.) Under the applicable state law,2 “the essential elements of a cause of action for a
breach of contract [are]: a valid contract, defective performance by the defendant, and resulting
damages.” Coyle v. Englander’s, 199 N.J. Super. 212, 223 (N.J. Super. Ct. App. Div. 1985).
The determination that Defendants had defaulted on valid mortgages and loans, resulting in a
right to foreclose, rested on essential determinations that the mortgages and loans were valid
contracts, and that Defendants’ performance, having defaulted, was defective.
As to the fifth element, the parties to the present and prior cases are the same.
This Court concludes that Plaintiff has demonstrated that, under Third Circuit law, the
requirements for the application of collateral estoppel have been met, as to the issues actually
litigated before the Superior Court. Defendants argue, however, that, in the present action, they
assert an affirmative defense that was not actually litigated before the Superior Court, the
Proposed Affirmative Defense.
Defendants state that the Proposed Affirmative Defense was disclosed in this case in
Defendants’ Supplemental Answers to Plaintiffs’ First Set of Interrogatories, which states:
“Finally, Defendants assert that a default under each of the DGHA and Reb Oil loans was the
purpose — and an invalid one — of Plaintiffs’ actions, since it was inevitable, given that the
2
The Reb Oil Note is governed by Alabama law and the DGHA Note is governed by Georgia
law. Plaintiffs contend that, as to the elements of breach of contract, the laws of New Jersey,
Alabama, and Georgia do not materially differ. Defendants have not disputed this.
9
cash flows from the Alexander were insufficient to service those loans, which Plaintiffs well
knew.” (Reich Dec. Ex. 2 at 6.) The opposition brief further claims that, in the subsection of
the brief that follows, the Proposed Affirmative Defense is “discussed at length.” (Defs.’ Opp.
Br. 9.)
The subsection which follows asserts that the Alexander and St. Moritz loans were fully
performing when TLI “elected” to put them into default, and that there was “no good reason” to
do so, though Plaintiffs acknowledge that they were “technically defaulting” under the crossdefault provisions in certain modification agreements. (Defs.’ Opp. Br. 10.) At the outset,
then, the Court makes two observations: 1) the Proposed Affirmative Defense does not apply to
the breach of contract claims in the First and Third Count, which relate to the Gas Station Loans;
and 2) as to the Fifth and Seventh Counts, Defendants concede that the Alexander and St. Moritz
loans were legally in default pursuant to the terms of certain valid agreements.
Defendants present the following summary of their case in support of the Proposed
Affirmative Defense:
Through its series of missteps with the Gas Station Loans – allowing collateral to
be (improperly) held in its own corporate stock, diverting some of that collateral
to service another loan, rejecting substitute collateral, and inadequately
underwriting the CCCD Agreement – Plaintiff did precisely what the foregoing
case law prohibits: it took advantage of a technical default under the Alexander
and St. Moritz Loans to accelerate $83 million in principal outstanding. Those
Loans were fully-performing and the collateral underlying them was unimpaired.
Because the default “is a technical one which does not put [Plaintiff] at risk” and
acceleration of the amounts due thereunder “would be unjust in light of the harm
that would accrue to” Defendants, that accelerated indebtedness under the
Alexander and St. Moritz Loans should not be used as a basis to award damages
to Plaintiff. Prime Motor Inns, 131 B.R. at 236.
(Defs.’ Opp. Br. 15.) Even before this Court considers whether the Proposed Affirmative
Defense was actually litigated before the Superior Court, there are a few significant problems
with it.
10
The first problem is one of understanding exactly how the Proposed Affirmative Defense
works as an affirmative defense to liability for breach of contract under New Jersey law, which
governs the Alexander and St. Moritz Notes. It is clear that Defendants contend that Plaintiffs’
acceleration of the amounts due on the Alexander and Remaining St. Moritz Notes, based on a
technical default, under circumstances which Plaintiffs had a role in creating, should be found to
be “unjust.” In their final sentence, Plaintiffs appear to contend that this Court, having found
that the acceleration was unjust, should bar the award of damages flowing from the loan amounts
unjustly accelerated; Defendants then cite Prime Motor Inns.
The case of Prime Motor Inns, heard in a federal Bankruptcy Court in Florida, does not
support Defendants’ position; to the contrary, it highlights the problems with the Proposed
Affirmative Defense. In Prime, the Bankruptcy Court had before it an application for a
temporary restraining order: the borrower plaintiff sought an injunction temporarily excusing it
from compliance with a provision in the loan agreement with the lender defendant, because
compliance had been delayed by the bankruptcy of the borrower’s accountant, and also enjoining
the lender from declaring default based on the non-compliance and accelerating the amount due.
In re Prime Motor Inns, 131 B.R. 233, 235 (Bankr. S.D. Fla. 1991). The Prime court granted the
application, explaining that it was exercising the equitable powers authorized by the Bankruptcy
Code:
Other courts of equity recognize that, under certain circumstances, an acceleration
of a debt is a harsh remedy and exercise their equitable powers to prevent
inequitable results.
...
In this case, equity precludes Defendant from accelerating the loan. The breach
which gave rise to Defendants' right to accelerate did not impair Defendants'
security or ability to recover on the loan.
Id. at 236.
11
Prime is entirely different from the case presently before this Court. First, this Court is
not presently considering a borrower’s application for equitable relief, to bar acceleration of a
loan, but a lender’s motion for summary judgment of liability for breach of contract following
default and a state court judgment of foreclosure. The acceleration of the loans took place years
ago. The present matter is an action at law for money damages pursuant to a contract.
Defendants’ Counterclaims seek declaratory judgments challenging the reasonableness of
provisions related to the calculation of the money damages – not equitable relief. This Court
does not see how Prime has any relevance to an action at law for contract damages after a
judgment of foreclosure.
Second, Prime was decided under federal Bankruptcy law. Defendants allege improper
acceleration of the Alexander and Remaining St. Moritz Notes. There is no dispute that the
Alexander Note and St. Moritz Notes are governed by New Jersey law. Federal bankruptcy law
has no relevance to the instant case.
This leads to the next problem: Defendants do not provide support for the proposition that
the Proposed Affirmative Defense has a basis in New Jersey law. In not one of the cases cited
by Defendants did a court hold that, under New Jersey law, “improper” acceleration of a loan is a
defense against liability for breach of contract. The case of Windsor Shirt Co. v. N.J. Nat’l
Bank, 793 F. Supp. 589, 604 (E.D. Pa. 1992), does not provide the support that Defendants
claim. That court did not have before it a question of whether to impose a contractual penalty
based on a technical default.3 While Brown v. Avemco Inv. Corp., 603 F.2d 1367, 1379 (9th
Defendants have also overlooked the context in which the Windsor court stated that a court
could not decide, purely as a matter of law, whether a default was technical. At issue was a
question of whether the defendant bank had misrepresented its policy about technical defaults,
and the only case cited in support applied the Missouri U.C.C.
3
12
Cir. 1979), does deal with the issue of accelerating of a note based on a technical default, that
case was decided under the Texas U.C.C. See also Neuro-Rehab Assocs., Inc. v. AMRESCO
Com. Fin., L.L.C., 2006 WL 1704258, at *4 (D. Mass. June 19, 2006) (applying Idaho law).
The only case cited by Defendants, in support of the Proposed Affirmative Defense, in
which a court considered New Jersey law in a dispute between a lender and a borrower is Nat’l
Westminster Bank NJ v. Lomker, 277 N.J. Super. 491, 493 (N.J. Super. Ct. App. Div. 1994), but
Westminster has nothing to do with acceleration of a loan amount. Instead, Westminster stands
for the uncontroversial proposition that a court must not grant a motion for summary judgment
on defendant’s affirmative defenses if the non-movant offers evidence that raises a material
factual dispute. Id. at 496. The relevant substantive law was New Jersey’s implied covenant of
good faith and fair dealing, and Defendants here have not pled any counterclaim for breach of
the implied covenant.4 Id. Defendants have shown no basis for the Proposed Affirmative
Defense in New Jersey law.
In reply, Plaintiffs struggle a bit to figure out exactly what affirmative defense
Defendants have raised – understandably, since Defendants have avoided using any labels in
discussing it, nor cited any cases which clearly recognize a defense resembling the Proposed
Affirmative Defense under New Jersey law. Plaintiffs conjecture that “Defendants appear to
assert a combination of economic duress and unclean hands.” (Pls.’ Reply 4.)
As to economic duress, under New Jersey law, a mortgage may be declared void if it was
given under economic duress. Cont’l Bank of Pa. v. Barclay Riding Acad., 93 N.J. 153, 175
In any case, under New Jersey law, the duty of fair dealing “may not be invoked by a
commercial debtor to preclude a creditor from exercising its bargained-for rights under a loan
agreement.” Glenfed Fin. Corp., Commercial Fin. Div. v. Penick Corp., 276 N.J. Super. 163,
175 (N.J. Super. Ct. App. Div. 1994).
4
13
(1983). Defendants have not, however, sought to void any of the agreements at issue, nor have
they made any reference to the affirmative defense of economic duress.
The equitable defense of unclean hands has a much better fit with Defendants’ arguments
about the Proposed Affirmative Defense in their opposition brief, which follow the theme that
Plaintiff bears some responsibility for the default of the Alexander and Remaining St. Moritz
Notes, and that the acceleration of the amounts due was improper. Defendants’ final statement
of the Proposed Affirmative Defense has a very strong equitable flavor: “Because the default is a
technical one which does not put [Plaintiff] at risk and acceleration of the amounts due
thereunder would be unjust in light of the harm that would accrue to Defendants, that accelerated
indebtedness under the Alexander and St. Moritz Loans should not be used as a basis to award
damages to Plaintiff. (Defs.’ Opp. Br. 15.) Defendants’ argument here does appear to be that
the acceleration was unjust, and that the Court should remedy that injustice by declining to award
damages based on the accelerated loans. The citation to Prime, a case in which that court
expressly exercised its equitable powers, supports the idea that the Proposed Affirmative
Defense is equitable in nature.
As Plaintiffs argue in the reply brief, the problem for Defendants is that New Jersey law
does not allow equitable defenses to defeat a claim at law for purely monetary damages. Tarasi
v. Pittsburgh Nat'l Bank, 555 F.2d 1152, 1156 n.9 (3d Cir. 1977) (“Since the plaintiffs in this
appeal only seek damages, the ‘unclean hands’ doctrine is not relevant”); McAdam v. Dean
Witter Reynolds, Inc., 896 F.2d 750, 756 n.10 (3d Cir. 1990) (“Since McAdam in this appeal
only seeks damages, the unclean hands doctrine is not applicable.”) This is consistent with the
traditional principles of the law/equity distinction which are fundamental to New Jersey law,
summed up in the familiar legal maxim: “Here, as in all cases, equity follows the law.” Berg v.
14
Christie, 225 N.J. 245, 280 (2016). “[E]quity will generally conform to established rules and
precedents, and will not change or unsettle rights that are created and defined by existing legal
principles.” W. Pleasant-CPGT, Inc. v. U.S. Home Corp., 243 N.J. 92, 108 (2020).
When, as here, a party pursues a claim at law for money damages under New Jersey law,
equity will not change the rights created by the law. Defendants have cited no authority for the
proposition that New Jersey law would recognize the Proposed Affirmative Defense as a valid
affirmative defense to liability for breach of contract. Because there is no legal basis to consider
the Proposed Affirmative Defense a valid affirmative defense, its assertion can neither raise a
material factual dispute nor defeat Plaintiffs’ motion for summary judgment of liability for
breach of contract.
Moreover, the Proposed Affirmative Defense, as explained by Defendants in their
opposition, appears to be merely a variation on the themes of the ninth affirmative defense
presented to the Superior Court in Defendants’ Contesting Answer to the Second Amended
Complaint, which asserted that Plaintiff’s claims are barred “by the doctrines of estoppel, waiver,
ratification, laches, unclean hands, unjust enrichment, accord and satisfaction, recoupment,
acquiescence, and/or illegality.” This list of equitable defenses has a very broad sweep, and the
Proposed Affirmative Defense easily comes within its scope. This Court finds that the Proposed
Affirmative Defense is a variant of the unclean hands defense which was actually litigated before
the Superior Court, and the Superior Court issued a judgment in which it struck all of
Defendants’ affirmative defenses.
Defendants have no viable basis for contending that the
Proposed Affirmative Defense was not actually litigated in the prior action, which resulted in a
judgment against them. Furthermore, even if there were some basis to contend that the
Proposed Affirmative Defense was not actually litigated, as an equitable defense asserted against
15
a claim for money damages, it is barred by New Jersey law.
C. Is the application of collateral estoppel unfair?
Third, Defendants argue that this Court should decline to apply collateral estoppel
because, under the circumstances of this case, it is unfair to do so. The New Jersey Supreme
Court has stated that, as an equitable doctrine, collateral estoppel will not be applied when it is
unfair to do so. Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006). In brief, Plaintiff
argues that it is unfair to apply the doctrine here because: 1) the record is fuller now than when
the Foreclosure Action was decided; 2) the Foreclosure Action was decided on an incomplete
record; 3) Plaintiffs gave no advance notice to Defendants that it would argue collateral estoppel;
and 4) Plaintiffs are attempting to bar Defendants “from finishing what Plaintiff itself started.”
(Defs.’ Opp. Br. 8.) This Court finds none of these arguments to be persuasive. They are all
rather abstract and vague,5 with no specifics about, for example, what essential piece of evidence
was missing from the record before the state court in the Foreclosure Action.
Defendants finish their unfairness argument with a quote from the New Jersey Supreme
Court that might have served as a starting point for a public policy argument: “collateral estoppel
is not mandated by constitution or statute and is a doctrine designed to accomplish various goals,
a rule not to be applied if there are sufficient countervailing interests.” Hills Dev. Co. v.
5
Plaintiff, in reply, cites Gannon v. Am. Home Prods., Inc., 211 N.J. 454, 480 (2012). As
Plaintiff acknowledges, Gannon must be considered cautiously, as in that case, the New Jersey
Supreme Court applied collateral estoppel under federal law, not New Jersey law. Thus, while
that case is not controlling authority on an issue of collateral estoppel under New Jersey law, the
Court commented on the similarities between the two, most notably the principle that a court
may decline to afford preclusive effect to collateral estoppel when it is inequitable to do so. Id.
at 476. The Court counseled that courts must be careful in applying the equitable considerations
contained in the Restatement (Second) of Judgments to a case: “They must not regard those
considerations to be a license to substitute generalized concerns about the imposition of
collateral estoppel when the clearly established elements have been met.” Id. at 480.
16
Bernards, 103 N.J. 1, 59 (1986) (citation omitted). Defendants have pointed to no
countervailing interests, nor have they considered the various goals that the New Jersey Supreme
Court has emphasized in the case law. As the Court explained in a more recent case:
Fundamental to the application of estoppel is an assessment of considerations
such as finality and repose; prevention of needless litigation; avoidance of
duplication; reduction of unnecessary burdens of time and expenses; elimination
of conflicts, confusion and uncertainty; and basic fairness. Indeed, such broader
notions about fairness and finality echo in the variety of considerations that equity
applies in estoppel-like circumstances.
Winters v. N. Hudson Reg'l Fire & Rescue, 212 N.J. 67, 85 (2012) (citations omitted).
Defendants’ arguments do not persuade this Court that any of these considerations weigh in
favor of declining to give preclusive effect to the Foreclosure Decision. To the contrary, it is in
the interests of finality, prevention of needless litigation, avoidance of duplication, and reduction
of unnecessary burdens of time and expenses, to give preclusive effect to the Foreclosure
Decision.
Defendants also argue: “Plaintiff’s abrupt departure from the parties’ well-established
course of dealing at least raises a triable issue as to the legitimacy of the Alexander and St.
Moritz defaults.” (Defs.’ Opp. Br. at 18.) The Court need not consider the factual allegations
and evidence supporting this because Defendants offer no legal basis whatever for this argument.
Defendants rely on two cases which do not help them at all. The cited aspect of Premier Health
Ctr., P.C. v. UnitedHealth Grp., 2012 WL 1135608, at *10 (D.N.J. Apr. 4, 2012), deals with the
question of whether a course of conduct effected a waiver of an anti-assignment clause. As
already discussed, the cited part of Windsor Shirt, 793 F. Supp. at 604, deals with a claim of
misrepresentation, not an affirmative defense to a breach of conduct claim. The Court finds no
legal foundation for this argument.
The Court concludes that Plaintiff has demonstrated that the requirements for the
17
application of collateral estoppel have been met. In the prior action, the Superior Court
determined, and issued a judgment, that Defendants were liable for breach of the DGHA, Reb
Oil, Alexander, and Remaining St. Moritz loan agreements. This Court finds that, as to the
claims for breach of contract in the First, Third, Fifth, and Seventh Counts, the issues of liability
are identical to the issues that were actually litigated in the prior proceeding. Plaintiffs have
demonstrated that the requirements for collateral estoppel under New Jersey law have been met,
and Defendants are barred from contesting liability for breach of contract as to the First, Third,
Fifth, and Seventh Counts.
The Foreclosure Decision did not involve any of the Guarantees, and so collateral
estoppel has no application to the breach of contract claims in Counts Two, Four, Six, and Eight.
Plaintiffs contend, however, that the same previously litigated facts establish the elements of
breach of contract as to these claims, and Defendants do not dispute that, as to the Guarantees,
the elements of liability for breach of contract have been met, except as to the St. Moritz
Guarantee (the Eight Count).
Defendants contend that the St. Moritz Guarantee is no longer in effect, having been
released by operation of the provisions of a 2006 First Modification of Guarantee that set forth
six conditions which, when satisfied, effected a release of that Guarantee. Defendants assert
that all six conditions were met by 2009, effecting release. As Plaintiffs argue in reply,
Defendants have offered no evidence to support the contention that these six conditions were
satisfied by 2009. In paragraph 129 of their L. Civ. R. 56.1 Statement of Material Facts,
Plaintiffs assert that the modified St. Moritz Guarantee remains in full force and effect.
Defendants’ responsive Statement of Material Facts disputes the factual assertion and refers to
the relevant Guarantee documents in the record, but does not cite any evidence as to the
18
satisfaction of the six conditions. Federal Rule of Civil Procedure 56(c)(1) requires that a “party
asserting that a fact cannot be or is genuinely disputed must support the assertion” by either
citing evidence of record or showing that the adverse party has no evidence in support. Plaintiff
has the Guarantees themselves, but Defendants have cited no evidence in support of their claim
that the conditions for the release of the St. Moritz Guarantee were met. Because Defendants
have failed to substantiate their factual assertion, pursuant to Rule 56(e)(2), the Court considers
paragraph 129 of Plaintiffs’ Statement of Material Facts to be undisputed for the purpose of this
motion.
As to the claims for breach of the Guarantee agreements, Counts Two, Four, Six, and
Eight, this Court finds that Plaintiffs, who bear the burden of proof at trial of breach of contract,
have offered evidence that the Guarantees are valid contracts, and there is no dispute that Daibes
has not paid the amounts demanded under the Guarantees by Plaintiff, which constitutes
defective performance. Defendants have failed to defeat Plaintiffs’ motion for summary
judgment as to liability for breach of contract on the claims for breach of the Guarantees.
Plaintiffs moved for summary judgment of liability for breach of contract on all claims in
the Amended Complaint. Plaintiffs have demonstrated that no material facts are in dispute and
that they are entitled to judgment as a matter of law. Plaintiffs’ motion for summary judgment
of liability for breach of contract on all claims in the Amended Complaint will be granted.
II. Plaintiff’s motion for summary judgment: damages
Plaintiff moves for summary judgment as to all damages to which it is entitled under the
terms of the loans. Plaintiff states that that the damages it seeks “include damages for unpaid
loan principal, prepayment premiums, late fees, note-rate interest, default-rate interest, and
advances and carveouts, and default interest thereon.” (Pl.’s MSJ Br. at 15-16.) Plaintiff
19
specifically excludes attorney’s fees from this motion. Plaintiff’s statement of the amounts of
damages it seeks, taken from Voss Cert. Ex. 38, is attached to this Opinion as Appendix I.
This Court has found in favor of Plaintiff as to liability on its claims for breach of
contract. Moving parties with the burden of proof at trial bear the initial summary judgment
“burden of supporting their motions ‘with credible evidence . . . that would entitle [them] to a
directed verdict if not controverted at trial.’” In re Bressman, 327 F.3d 229, 237 (3d Cir. 2003)
(quoting Celotex, 477 U.S. at 331.) The contested damages in this case are set by two liquidated
damages provisions in each relevant Note, as modified by the Partial Waiver Letter. These
provisions state formulas which are used to calculate the damages amounts. As evidence that
Exhibit 38 contains a correct statement of the damages amounts owed to Plaintiff under the terms
of the Notes, Plaintiff offers the certification of Gregory Voss, Senior Director of Special
Servicing for AEGON USA Realty Advisors, LLC, the authorized agent of Plaintiff. Voss
certified that Exhibit 38 contains a complete accounting of Defendants’ indebtedness to Plaintiff
under the Loans, as of November 30, 2020. (Voss Cert. ⁋⁋ 123, 124.) Plaintiff meets its initial
summary judgment burden by citing this evidence that it has calculated the damages amounts
due under the Loans in accordance with the provisions in the contracts. The summary judgment
burden then shifts to Defendants.
As both an affirmative defense to the breach of contract claims, and as their
Counterclaims, Defendants contend that the liquidated damages provisions at issue are
unenforceable as unreasonable under the law of the state specified in each Note’s governing law
provision. As already stated, Defendants’ brief in opposition to Plaintiff’s motion for summary
judgment incorporates by reference the contents of its brief in support of Defendants’ motion for
summary judgment, which contains a fuller statement of Defendants’ arguments. In that brief,
20
Defendants make this general statement about their case:
The question whether the prepayment premium and default interest provisions in
the Notes are reasonable, and thus enforceable, is one that is appropriate for
summary judgment. Specifically, the record here amply demonstrates that the
monetary amounts these provisions give rise to bear no resemblance to the actual
damages Plaintiff has sustained and are simply not reasonable when evaluated, as
they must be, in light of the totality of the circumstances.
(Defs.’ MSJ Br. at 9-10) (citation omitted). This is Defendants’ unenforceability case in a
nutshell. The following discussion will demonstrate that Defendants fail to defeat Plaintiff’s
motion for summary judgment on damages principally because their case is insufficient, as a
matter of law, under the applicable state requirements for demonstrating the unenforceability of a
liquidated damages provision. More specifically, Defendants fail to establish their chief
argument’s foundation: their argument about actual damages requires evidence which could
establish Plaintiff’s actual damages. Defendants offer no such evidence, offering, instead, at
best, problematic evidence of estimates of what the actual damages could be.
A. Enforceability of the prepayment premium provisions
Except for the Third St. Moritz Note, each of the loan notes contains a prepayment
premium provision.6 The parties do not dispute that “the amount of the prepayment premium
due under each of the Notes is calculated based on a yield maintenance formula by which the
present value of future payments due on the loan, using a discount rate that is a function of U.S.
Treasuries having the same average life of the note, exceeds the prepaid amount.” (Pl.’s Resp.
56.1 Stmt. (Defs.’ MSJ) ⁋ 14.) The discount rate is the yield for U.S. Treasury bonds having a
duration based on the average remaining life of the loan through maturity, except for the First St.
Moritz Note, which adds 25 basis points to the relevant Treasury rate. Other than this increase
The Third St. Moritz Note states: “This Note may be prepaid, in whole or in part, without
premium or penalty.” (Reich Dec. Ex. L § 7.)
6
21
to the discount rate, the prepayment premium provision in the First St. Moritz note uses the same
calculation method that is stated in the DGHA and Reb Oil Notes.
1. The DGHA Note, under Georgia law
There is no dispute that the DGHA Note is governed by Georgia law. Plaintiff contends
that the prepayment premium provision is valid and enforceable under Georgia law Plaintiff
states that some Georgia courts have found prepayment premium provisions enforceable because
they did not violate Georgia’s usury statute, O.C.G.A. § 7–4–18, while others “have upheld
prepayment provisions where the borrower failed to establish the provision was unconscionable.”
(Pl.’s MSJ Br. 23.) Plaintiff states, in summary: “under either standard, the prepayment
provision in the DGHA Note is enforceable.” (Id.)
Defendants begin the subsection in opposition with this statement:
Though one would not know it from reading Plaintiff’s Motion, the pertinent law
in Georgia and Alabama, which govern the DGHA Note and the Reb Oil Note,
respectively, is very much in accord with New Jersey.
(Defs.’ Opp. to Pl.’s MSJ Br. 23.) Defendants follow this with a discussion of Georgia (and
Alabama) law that relies on entirely different legal principles than those cited by Plaintiff. The
parties thus disagree about the relevant Georgia and Alabama law. The Court provides the
following analysis to serve as a framework for the analysis of the legal issues.
Plaintiff moved for summary judgment as to: 1) an award of damages for breach of
contract, pursuant to the prepayment premium provision of the DGHA note; and 2) Defendants’
Counterclaim for declaratory judgment that the prepayment premium provision is unreasonable
and therefore unenforceable. Plaintiff contends that the provision is enforceable as neither
usurious nor unconscionable under Georgia law. Defendants, in opposition, do not challenge
the award of prepayment premium damages on grounds of either usury or being unconscionable.
22
Instead, Defendants assert, as an affirmative defense, that the prepayment premium provision is
unenforceable because it is unreasonable. Plaintiff did not address this affirmative defense in its
moving brief, nor was it required to do so, but now Defendants have asserted it.
In reply, Plaintiff argues, as to Georgia and Alabama: “it is undisputed that neither state
applies the law of liquidated damages to prepayment premiums.” (Pl.’s MSJ Reply Br. 9.)
This ignores that Defendants expressly disagreed on this point. Moreover, in its moving brief,
Plaintiff never expressly asserted that Georgia did not apply the law of liquidated damages to
prepayment premiums, and it appears only as a possible implication when the brief is re-read
with the benefit of hindsight and the reply brief. It is unmistakable that Defendants’ opposition
brief argued the contrary point, that Georgia would apply the law of liquidated damages to
prepayment premiums. The Court finds that, at best, the briefs demonstrate only that neither
party found a Georgia case which applied the law of liquidated damages to prepayment
premiums. Plaintiff has provided no support for the proposition that Georgia courts
affirmatively would not apply the law of liquidated damages to prepayment premiums, despite
there being clear case law that allows courts to find a liquidated damages provision
unenforceable if it operates as a penalty. Plaintiff does not persuade this Court that it has
correctly applied Georgia law to the facts of this case.
Defendants contend that Georgia law is fairly similar to New Jersey law in regard to the
test for enforceability of a liquidated damages provision. Defendants cite MMA Capital, which
makes clear that, on questions of whether a liquidated damages provision is enforceable or an
unenforceable penalty, Georgia applies the familiar reasonableness principles stated in the
Restatement (Second) of Contracts § 356. MMA Capital Corp. v. ALR Oglethorpe, LLC, 336
Ga. App. 360, 363 (2016). In MMA Capital, the Court of Appeals of Georgia cited a Georgia
23
Supreme Court case, Aflac, Inc. v. Williams, 264 Ga. 351, 354 (1994), which states the basic
principles. In Aflac, the Georgia Supreme Court first cited the relevant Georgia statute: “If the
parties agree in their contract what the damages for a breach shall be, they are said to be
liquidated and, unless the agreement violates some principle of law, the parties are bound
thereby.” O.C.G.A. § 13-6-7. Next, the Court formulated the enforceability standard as
follows:
In deciding whether a contract provision is enforceable as liquidated damages,
three factors must exist. The injury must be difficult to estimate accurately, the
parties must intend to provide damages instead of a penalty, and the sum must be
a reasonable estimate of the probable loss. “A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as a penalty.”
Restatement (Second) of Contracts, § 356 (1).
264 Ga. at 354. Defendants also cite Gwinnett Clinic, Ltd. v. Boaten, 340 Ga. App. 598, 599
(2017), which applies the same standard stated in MMA Capital and Aflac.
Although this Court agrees with Defendants that the relevant Georgia law is similar to
New Jersey law, there are important differences, which are most apparent in reading Caincare,
Inc. v. Ellison, 272 Ga. App. 190, 192 (2005). First, the inquiry under Georgia law focuses on
the circumstances at the time of contracting only, not at the time of breach:7
The third prong of the test inquires whether the liquidated damage amount is a
reasonable pre-estimate of the probable loss. The following review of a sample
of cases reveals that the touchstone question is whether the parties employed a
reasonable method under the circumstances to arrive at a sum that reasonably
approximates the probable loss of the defaulting party.
7
Defendants assert that the third prong inquiry under Georgia law evaluates the reasonableness
of the estimate by looking at actual damages, which is incorrect. It is contradicted by Caincare,
and the Georgia case cited by Defendants in support of this assertion does not support their
position: in the third prong analysis in Allied Informatics v. Yeruva, 251 Ga. App. 404, 406
(2001) (italics added), the Court looked only at “actual damages that could be incurred from a
breach,” which refers to the pre-estimate of the loss, and not the actual damages/actual loss.
The decision states, and repeats, that the question before the Court is whether “the stipulated sum
is a reasonable pre-estimate of the probable loss.” Id. at 405.
24
Id. at 192-93 (citation omitted). The Caincare Court concluded that neither party had presented
evidence to “prove the parties took any steps to estimate the loss prior to the contract being
signed,” which supported the determination that the provision at issue was an unenforceable
penalty. Id. at 195.
Second, although Georgia law does not presume reasonableness as does New Jersey law,
O.C.G.A. § 13-6-7 states that a litigated damages provision in a contract binds the parties unless
contrary to law. In addition, “the party who defaults on the contract has the burden of proving
the liquidated damages clause is an unenforceable penalty.” Caincare, 272 Ga. App. at 192.
The big difference lies in the treatment of close cases. On this subject, the Court of Appeals of
Georgia quoted the Georgia Supreme Court: “In cases of doubt, the courts favor the construction
which holds the stipulated sum to be a penalty, and limits the recovery to the amount of
damage[s] actually shown, rather than a liquidation of the damages.” Id. at 195 (quoting
Fortune Bridge Co. v. Dep’t of Transp., 242 Ga. 531, 532 (1978)).
To the extent that Defendants imply that Plaintiff bears some burden of proof that the
provision is not a penalty, they are incorrect. After describing the Aflac three-pronged standard,
Defendants assert: “Unless all three criteria are met, such a clause is deemed a penalty.” (Defs.’
Opp. to Pl.’s MSJ at 23). That is correct, but it does not relieve the defaulting party from the
burden of proving that, because the provision does not meet the standard for enforceability, it is
an unenforceable penalty.
This Court has determined the principles of Georgia law to apply to a dispute over
whether a liquidated damages contract provision is unenforceable as unreasonable. In the
instant case, such a dispute arises both from Defendants’ affirmative defense to the breach of
contract claim, as to the prepayment premium provision, as well as Defendants’ Counterclaim
25
with regard to that same provision.
Next, the Court applies the correct Georgia law to Plaintiff’s motion for summary
judgment. Plaintiff bears the burden of proof on its breach of contract claim and, as already
discussed, it has met its initial summary judgment burden as to contract damages based on the
prepayment premium provision. Defendants bear the burden of proof on their affirmative
defense and Counterclaim that the provision is unenforceable, and so, as to the affirmative
defense and Counterclaim, Plaintiff is a moving party without the burden of proof. “[W]ith
respect to an issue on which the nonmoving party bears the burden of proof . . . the burden on the
moving party may be discharged by ‘showing’ – that is, pointing out to the district court – that
there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986).
Plaintiff has met that initial burden as well. The summary
judgment burden then shifts to Defendants.
Defendants bear the burden of proof as to their affirmative defense and on their
Counterclaim. If the nonmoving party has failed “to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party will bear the
burden of proof at trial, . . . there can be ‘no genuine issue of material fact,’ since a complete
failure of proof concerning an essential element of the nonmoving party’s case necessarily
renders all other facts immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 n.5 (3d Cir.
1992) (quoting Celotex, 477 U.S. at 322-23); Holloway v. AG United States, 948 F.3d 164, 168
n.1 (3d Cir. 2020). Thus, to defeat Plaintiff’s motion for summary judgment, Defendants must
offer evidence sufficient to allow a jury to find in their favor at trial.
As to Defendants’ actual argument that the prepayment premium provision in the DGHA
note is unenforceable under Georgia law, it is presented in a single paragraph, here quoted in its
26
entirety:
Put simply, the prepayment premiums in the DGHA and Reb Oil Notes, which
together account for $5.1 million – 22% of their combined principal balance – are
not enforceable, as a matter of law, for the same reasons outlined above vis-à-vis
the Alexander and St. Moritz Notes (see supra at 21-22). These sums far surpass
the actual damages that the record reveals Plaintiff has incurred as a result of
prepayment and thus do not satisfy the third prong of the stipulated damages test.
As a result, none of the prepayment premiums should be enforced and Plaintiff’s
motion for summary judgment should be denied.
(Defs.’ Opp. to Pl.’s MSJ at 25). As to the first sentence, this Court declines Defendants’
request to find the arguments it made about the Alexander and St. Moritz Notes, governed by
New Jersey law, and convert them into arguments about the DGHA Note, governed by Georgia
law. New Jersey law and Georgia law are not the same; the Notes are not the same; there is no
dispute that gas stations are different from apartment buildings. Defendants must construct and
present their arguments accordingly; this Court will not do it for them. As to the second
sentence, as already discussed, this Court rejects Defendants’ contention that the third prong of
the Aflac standard involves comparison to actual damages.8 “The third prong of the test inquires
whether the liquidated damage amount is a reasonable pre-estimate of the probable loss.”
Caincare, 272 Ga. App. at 192 (italics added). Moreover, in MMA Capital, Defendants’
principal Georgia case, the Court of Appeals of Georgia specifically barred this argument: “The
breaching party cannot complain that the actual damages are less than those specified as
liquidated damages.”
MMA Capital, 336 Ga. App. At 366 (quoting Se. Land Fund, Inc. v.
Real Estate World, Inc., 237 Ga. 227, 230 (1976). Defendants have offered no basis for this
Court to find that the liquidated damage amount is not a reasonable pre-estimate of the probable
Defendants’ brief in opposition incorrectly contends that Alabama law and Georgia law assign
the same role to actual damages in the reasonableness analysis. In support, however,
Defendants cite only cases decided under Alabama law and do not cite any Georgia cases that
support their position.
8
27
loss.
Defendants bear the burden of proof of unenforceability under Georgia law and have
failed to offer any basis for this Court to find that the prepayment premium provision of the
DGHA Note is an unenforceable penalty under Georgia law. As to Defendants’ affirmative
defense of unenforceability, and Counterclaim for a declaration of unenforceability, Defendants
have failed to meet their burden to defeat Plaintiffs’ motion for summary judgment of damages
pursuant to the prepayment premium provision of the DGHA Note.
2. The Reb Oil Note, under Alabama law
This Court’s analysis of Plaintiff’s motion for summary judgment as to the prepayment
premium provision of the Reb Oil Note, governed by Alabama law, proceeds similarly, and will
be explained more briefly. Again, Plaintiff describes Alabama law without reference to the
relevant law of enforceability of liquidated damages provisions. As already stated, Plaintiff’s
reply brief makes this groundless assertion: “it is undisputed that neither state applies the law of
liquidated damages to prepayment premiums.” (Pl.’s MSJ Reply Br. 9.) Defendants, in
opposition, briefly state the applicable Alabama law regarding liquidated damages as
unenforceable penalties, relying principally on Autauga Quality Cotton Ass’n v. Crosby, 893
F.3d 1276, 1280 (11th Cir. 2018), which offers a good summary of the applicable law:
The general common-law rules regarding liquidated damages are well-settled.
Under Alabama law, bona fide liquidated-damages provisions—which prescribe
“a sum to be paid in lieu of performance”—are enforceable, but “penalty”
clauses—which impose “a security for the performance of the agreement or ... a
punishment for default”—are void. Camelot Music, Inc. v. Marx Realty & Imp.
Co., 514 So. 2d 987, 990 (Ala. 1987). The trick, of course, is distinguishing
between the two. Helpfully, Alabama courts have identified three essential
markers of a valid liquidated-damages provision: “First, the injury caused by the
breach must be difficult or impossible to accurately estimate; second, the parties
must intend to provide for damages rather than for a penalty; and, third, the sum
stipulated must be a reasonable pre-breach [estimate] of the probable loss.” Id.
If any one of these three criteria isn’t satisfied, “the clause must fail as a penalty.”
28
Milton Constr. Co. v. State Highway Dep't, 568 So. 2d 784, 790 (Ala. 1990).
Thus, there are similarities to the relevant law of Georgia, but there is one important difference
relevant to Defendants’ arguments here: in Alabama, the third prong of the standard is applied
differently. Defendants aptly cite another Eleventh Circuit case which describes the key
difference in Alabama law and exemplifies its application:
In this case, the damages clauses in paragraphs 2(c) and 6 clearly fail the third
criterion--that the sum stipulated be a reasonable pre-breach estimate of the
probable loss. This third criterion “is applied after the fact and measures whether
the sum stipulated … bears a rational relation to the injury incurred.” Milton
Construction, 568 So. 2d at 791. The Listing Agreement provides for a full
commission plus costs and expenses if AG breaches the Listing Agreement.
Without doubt, allowing Southpace to recover a commission plus costs and
expenses for AG’s breach would overcompensate Southpace for the injury it
suffered. In fact, Southpace could recover more upon AG’s breach, without
having located a ready and willing buyer, than if Southpace had actually sold the
property for the listing price of $ 1.6 million. This results in “disproportionate,
unreasonable compensation.” See Milton Construction, 568 So. 2d at 791.
Thus, we conclude that the sum stipulated is an unreasonable pre-breach estimate
of the probable loss. Having determined that at least one of the three criteria is
not met, we hold that the district court did not err in ruling that paragraphs 2(c)
and 6 of the Listing Agreement are void as penalty clauses.
Southpace Props., Inc. v. Acquisition Grp., 5 F.3d 500, 505-06 (11th Cir. 1993). This is
important in considering Defendants’ single sentence applying the standard, which is: “These
sums far surpass the actual damages that the record reveals Plaintiff has incurred as a result of
prepayment and thus do not satisfy the third prong of the stipulated damages test.” (Defs.’ Opp.
to Pl.’s MSJ at 25).
As Southpace demonstrates, in analyzing the third prong, Alabama courts compare actual
damages with the liquidated damages amount. The Southpace Court made this comparison and
concluded that the provision had resulted in compensation that was disproportionate and
unreasonable. The big differences between the Eleventh Circuit’s analysis and Defendants’
single sentence are that the Eleventh Circuit supported the conclusion with a reasoned analysis
29
and explanation, and the evidence of record established the amount of actual damages. This
included arriving at the determination that the operation of the liquidated damages provision in
question provided greater compensation for breach than for performance, which the Court
concluded was disproportionate and unreasonable. See also Autauga, 893 F.3d at 1282 (11th
Cir. 2018) (concluding, based on an analysis of the facts, that “[t]he liquidated-damages figure
vastly exceeds anything that Autauga could even possibly have lost as a result of the Crosbys’
alleged breach.) All Defendants have done here is claimed that the liquidated damages are
much greater than the actual damages, without any explanation.9 Defendants have offered no
analysis of the relevant evidence, and no reasoning, but merely a conclusory assertion that,
because the liquidated damages far exceed the actual damages, the third prong of the test is not
met.
Furthermore, as will be established in the discussion of Defendants’ case under New
Jersey law, Defendants have no admissible evidence of the actual lost yield damages. This
Court holds, as a matter of law, that Defendants have no case that the relevant provisions fail to
meet the requirements of the third prong under Alabama law. Defendants have failed to offer
evidence that the third prong of the reasonableness analysis has not been satisfied.
“Determining whether a liquidated damages provision is valid is a question of law to be
determined by the trial court based on the facts of each case.” Camelot Music, Inc. v. Marx
Realty & Improv. Co., 514 So. 2d 987, 990 (Ala. 1987). Defendants do not contend that they
can make a case under the first or second prong but, even if this Court looks to Defendants’
arguments under New Jersey law, Defendants have made no arguments about parallel issues.
“[I]t is not the function of this Court to do a party’s legal research or to make and address legal
arguments for a party based on undelineated general propositions not supported by sufficient
authority or argument.” Butler v. Town of Argo, 871 So. 2d 1, 20 (Ala. 2003).
9
30
This Court concludes as a matter of law that Defendants have failed to make any showing that
the premium prepayment provision of the Reb Oil Note is an invalid penalty. Their affirmative
defense and Counterclaim of unenforceability suffer from a complete failure of proof. As to the
premium prepayment provision of the Reb Oil Note, Defendants have failed to defeat Plaintiff’s
motion for summary judgment.
3. The Alexander Note and the First St. Moritz Note, under New Jersey law
The Alexander Note and the St. Moritz Notes are governed by New Jersey law; the Third
St. Moritz Note does not have a prepayment premium provision. The parties are mostly in
agreement about the applicable New Jersey law, relying on the principles set forth by the New
Jersey Supreme Court in Wasserman's v. Twp. of Middletown, 137 N.J. 238, 257 (1994), and in
MetLife Capital Fin. Corp. v. Wash. Ave. Assocs. L.P., 159 N.J. 484, 501 (1999). The New
Jersey Supreme Court has established the following fundamental principles. “[L]iquidated
damages provisions in a commercial contract between sophisticated parties are presumptively
reasonable and the party challenging the clause bears the burden of proving its
unreasonableness.” MetLife, 159 N.J. at 496. “New Jersey courts have viewed enforceability
of stipulated damages clauses as depending on whether the set amount is a reasonable forecast of
just compensation for the harm that is caused by the breach and whether that harm is incapable
or very difficult of accurate estimate.” Wasserman’s, 137 N.J. at 250. “[T]he overall single
test of validity is whether the stipulated damage clause is reasonable under the totality of the
circumstances.” MetLife, 159 N.J. at 495.
Treating reasonableness as the touchstone, we [have] noted that the difficulty in
assessing damages, intention of the parties, the actual damages sustained, and the
bargaining power of the parties all affect the validity of a stipulated damages
clause. We did not, however, consider any of those factors dispositive.
Id. (citation omitted). “[T]he reasonableness test is applied either at the time the contract is
31
made or when it is breached.” Id. at 502. “The decision whether a stipulated damages clause is
enforceable is a question of law for the court”. Wasserman’s, 137 N.J. at 257.
While the actual damages sustained is one possible consideration among several in the
“totality of the circumstances test,” it can strongly influence a decision:
Actual damages, moreover, reflect on the reasonableness of the parties’ prediction
of damages. If the damages provided for in the contract are grossly
disproportionate to the actual harm sustained, the courts usually conclude that the
parties’ original expectations were unreasonable.
Id. at 251. This opens the door to the possibility that a party could use evidence of actual
damage sustained to show that a liquidated damages amount is disproportionate and, therefore,
the provision is unreasonable both at the time of breach and also at the time of contracting.
As Plaintiff argues in opposition to Defendants’ motion for summary judgment,
Defendants cannot prevail on their arguments of unreasonableness under New Jersey law
because they did not even assert that the prepayment premium provisions were unreasonable
from the perspective of the time the contract was made. In their reply brief, Defendants attempt
to remedy the omission, arguing for the first time that the provisions in the Alexander Note and
First St. Moritz Note were unreasonable at origination. As to the Alexander Note, Defendants
argue that Plaintiff’s partial waiver of the prepayment premium provision in 2018 is evidence
that the provision as originally drafted was unreasonable. As to the First St. Moritz Note,
Defendants contend that the fact that the provision uses a discount rate that is 25 basis points
higher than that used in the other notes shows that Plaintiff knew that the First St. Moritz Note
provision was unreasonable at origination.10 This Court need not explain why it finds these
10
And yet, as Plaintiff points out, in loan modification agreements in 2014, Defendants agreed,
without objection, to the payment of a prepayment premium in the amount of $2.5 million,
calculated using the formula in the First St. Moritz Note.
32
arguments unpersuasive, because they are procedurally improper, as arguments raised for the
first time in a reply brief. As a matter of procedure, this Court will not accept arguments offered
for the first time in a reply brief, as they were not properly asserted in the opening brief and the
opposing party has not had the opportunity to respond to them. Anspach v. City of Philadelphia,
503 F.3d 256, 258 n.1 (3d Cir. 2007) (“failure to raise an argument in one’s opening brief waives
it.”) Nor did Defendants argue that the provisions were unreasonable at origination in their brief
in opposition to Plaintiff’s motion for summary judgment.
Defendants argue that the prepayment premium provisions in the Alexander and First St.
Moritz Note are unenforceable as unreasonable on three grounds: 1) the amount charged is
markedly higher than other prepayment premium amounts Plaintiff received between 2005 and
2019; 2) the calculation uses a discount rate based on U.S. Treasury notes, but in actual fact,
Plaintiff rarely invests in U.S. Treasury notes; and 3) Defendants question Plaintiff’s
characterization of the contracts as “freely negotiated” and contend that “Plaintiff led Mr. Daibes
to believe that no prepayment premiums would ever be charged.” (Defs.’ Opp. Br. at 22.)
Plaintiff contends that the Court should consider these arguments only under New
Jersey’s liquidated damages/unenforceable penalty analysis. This Court agrees. To the extent
that Defendants appeal to the Court to invoke its powers of equity, New Jersey law places this
constraint: “the settled precedent is that in the absence of fraud, accident, or mistake, a court of
equity cannot change or abrogate the terms of a contract.” Dunkin' Donuts of Am., Inc. v.
Middletown Donut Corp., 100 N.J. 166, 183 (1985).
Defendants’ first argument entails a grab-bag of assertions which attempt, generally, to
show that the dollar amounts of the prepayment premiums at issue here are larger than various
things allegedly drawn from the history of prepayment premiums charged by Plaintiff on other
33
loans over the past 15 years: for example, the prepayment premium on the Alexander Note is 19
times the average prepayment premium Plaintiff received in a 15-year period. The Court has no
basis to consider these relevant or meaningful.11 First, these statistics do not adjust for the size
of the loan balance that was prepaid. Furthermore, statistics which compare the total premium
amounts charged, shed no light on the true focus of the parties’ dispute over the lost yield
calculation in this case, which is the discount rate used to calculate the premiums. Defendants
say nothing about what discount rates were written into the prepayment premium provisions in
the comparison group of loan contracts. Nor does this argument have relevance to any of the
considerations that the New Jersey Supreme Court has identified as important in the
reasonableness analysis.12
Crucially, this historical argument lacks a foundation in evidence: as Plaintiff argues in
11
As Plaintiff argued in the brief in opposition to Defendants’ motion for summary judgment:
Comparing the absolute dollar amounts of the premiums calculated under the
Notes to those from other loans made by Plaintiff at other times to other
borrowers does not account for individualized variables affecting the calculation
under the formula, specifically: the prepaid principal amount, remaining time to
maturity, and change in the interest rates since origination.
(Pl.’s Opp. Br. to Defs.’ MSJ at 10.)
12
Defendants’ opposition brief does not attempt to connect this argument to anything in New
Jersey law, but cites Defendants’ brief in support of its motion for summary judgment. In that
brief, Defendants cite MetLife in support of this argument. On the cited page of MetLife,
however, the Court pointed to three factors which supported the determination that a default
interest rate was reasonable. 159 N.J. at 502. One factor was that the rate “falls well within the
range demonstrated to be customary,” which refers to this preceding statement: “MetLife
presented evidence that industry custom provides for default rates of fifteen percent to eighteen
percent.” Id. at 501, 502. Defendants’ comparative assertions in the instant case are totally
different, apples to oranges: rather than compare the discount rate used to calculate the
prepayment premium to customary discount rates used similarly in the industry, which would be
similar to what was done in MetLife, Defendants here compare the prepayment premium
amounts at issue to premium amounts on a subset of Plaintiff’s prior loans, which is very
different than the approach that was approved in MetLife.
34
the brief in opposition to Defendants’ motion for summary judgment, these arguments rely on
factual assertions not made in any L. Civ. R. 56.1 Statement. The paragraph making this
argument in Defendants’ opposition brief cites to no evidence of record, but only to Defendants’
moving brief in support of its motion for summary judgment. The cited pages in that moving
brief cite exhibits FF, GG, and HH in support of the statistical assertions. These exhibits
contain only many pages of spreadsheets containing raw data about different loans. In short,
Defendants have offered no evidentiary support for these assertions of statistical facts, as
required by Rule 56(c)(1). The statistical assertions are unsupported.
In addition, Plaintiff responds that Defendants’ comparison of the prepayment premiums
at issue to premiums charged to other customers over a 15-year period suffers from a major flaw:
it does not take into account the fact that interest rates on Treasury bonds have dropped
significantly over this period. This Court takes judicial notice of the chart of the long-term
history of an index of 10-year Treasury bond interest rates, published by the Federal Reserve
Bank of St. Louis.13 This chart confirms what Plaintiff contends: while the drop has not been a
straight line down, the general Treasury bond interest rate trend over the past 15 years has been
down, and, roughly speaking, there has been a big drop between 2005 and 2020. As Plaintiff
contends, given the role of Treasury bond rates in the prepayment premium formula, lower
interest rates mean higher prepayment premiums. Defendants’ argument based on history fails
to take this into account.
As their second point, Defendants argue that, at the time of prepayment, the actual lost
yield damages can be calculated, using as the discount rate the lender’s current rate of return on
“10-Year Treasury Constant Maturity Rate,” Federal Reserve Bank of St. Louis,
https://fred.stlouisfed.org/series/DGS10 (last visited April 3, 2021).
13
35
its investments on that date, which may be ascertained. (See Defs.’ MSJ Br. at 19-20.) This
argument challenges the discount rate used to calculate the prepayment premium and argues that,
because the discount rate is lower than the yield Defendants predict Plaintiff would earn from
reinvesting the prepayment premium, the provision greatly overcompensates the lender.
This argument is problematic from the start because it is only beneficial to assert it at a
moment in time when, as now, Treasury bond interest rates are so low, and have dropped well
below the reported rate of return on Plaintiff’s investment portfolio in 2018. The fundamental
observation – the relationship of those two rates at the time of prepayment – may be strongly
supported by the evidence, but Defendants do not persuade this Court that this is a measure of
Plaintiff’s actual lost yield damages.
Defendants’ argument rests on the fallacious predicate that actual lost yield damages can
be fixed at the time of prepayment even when the future composition of the reinvestment
portfolio until the maturity date of the loan is unknown, and when Plaintiff has historically
preferred investments with varying degrees of investment risk. This is a fallacy: Defendants do
not and cannot know now what Plaintiff’s investment portfolio will be or what it will earn in the
future. Only if Plaintiff invests in something with a guaranteed rate of return – which
Defendants agree has been a little-favored investment for Plaintiff –, and which can be liquidated
at the maturity date of the loan, can one accurately predict future return on investment at the time
of prepayment. Commercial real estate loans – as this case itself demonstrates – do not appear
to offer a guaranteed rate of return to the lender. Defendants do not acknowledge the realities of
risk and uncertainty that their theory eliminates. Defendants claim to have ascertained the
actual damages from lost yield, when in fact they have offered only an optimistic estimate of a
predictable future, based on the implausible assumption that what happened to Plaintiff in 2018
36
will happen reliably, year after year, until time reaches the maturity date of the loans. This
Court rejects Defendants’ contention that this analysis is evidence of the actual damages from
lost yield, evidence which demonstrates that the prepayment premium provisions
overcompensate Plaintiff. Defendants do not offer more than an estimate, based on
unreasonable assumptions, of what the actual lost yield damages will be.
Nor would the evidence of Plaintiff’s general investment rate of return from any past
period be admissible for the purpose of establishing Plaintiff’s actual lost yield damages. Past
investment performance does not predict future investment performance. Even if it were
considered to be weakly probative, the evidence would be inadmissible under Federal Rule of
Evidence 403, as its probative value is substantially outweighed by a danger of confusing the
issues.
Defendants argue that the prepayment premium calculation uses a discount rate based on
U.S. Treasury notes, and that it is somehow problematic that, in actual fact, Plaintiff rarely
invests in U.S. Treasury notes. It may be true that Plaintiff rarely invests in Treasury bonds, but
Plaintiff does not persuade that one has anything to do with the other.14 Plaintiff’s preferred
investments in recent years have no relevance to Defendants’ theory that prepayment premium
amounts are disproportionate to actual damages. Nor have Defendants even attempted to
demonstrate that the use of the Treasury rate as the discount rate in the prepayment premium
provisions results in an unreasonable estimate of the actual damages, either from the perspective
of the time of contracting, or the time of prepayment. There is no basis to find this evidence of
Plaintiff’s past investment strategies to be relevant.
14
If anything, this fact supports the proposition that Plaintiff tends to invest in assets with
greater risk, which makes their future performance more difficult to predict.
37
Defendants offer the testimony of Frank Coe, a former employee of Plaintiff, and the
expert report of Gregory McManus to support their contention that actual lost yield damages may
be calculated on the prepayment date based on Plaintiff’s current rate of return on its
investments. Generally, the cited paragraphs in the McManus Report support Defendants’
position. (Reich Dec. Ex. PP ⁋⁋ 43, 44.) Nonetheless, the McManus Report merely offers a
more detailed version of the unacceptably flawed argument just described: the McManus Report
offers a model for estimating future lost yield damages based on what happened in 2018. It is
very unlikely to be admitted at trial as it would mislead and confuse the jury on the matter of
actual lost yield damages. No expert will be allowed to tell a jury that he or she has ascertained
events that are years in the future; such testimony will not pass muster under Daubert, which
assigns to this Court “the task of ensuring that an expert’s testimony both rests on a reliable
foundation and is relevant to the task at hand.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S.
579, 597 (1993).
Defendants also cite deposition testimony by Frank Coe in support of the proposition that
the yield-maintenance formula “can result in a sum that is greater than required to compensate
for the yield that is foregone.” (Defs.’ MSJ Br. at 16; italics added.) Defendants do not claim
that Coe’s testimony supports the proposition that the prepayment premium formula does
necessarily overcompensate, merely that it can. This does not support Defendants’ claim to
have ascertained the actual lost yield damages at the time of prepayment, and to have determined
that the prepayment premium provisions overcompensate Plaintiff. In fact, Coe’s testimony is
contrary to Defendants’ argument:
Q: [W]ould it have been more appropriate to use Aegon’s reinvestment rate as the
discount rate, as opposed to a Treasury rate?
A. And my answer is also that’s just as ambiguous, you know, because we don't
know at all what that is in the future.
38
Q. Well, you don't know what the reinvestment rate is in the future when you
enter into the prepayment of the loan document that contains the prepayment
premium, but you certainly do know at the time that the prepayment premium
would be applied. Correct?
A. Yes.
(Reich Dec. Ex. B 98:1-18.) Coe clearly points out the flaw in Defendants’ position: using the
reinvestment rate as the discount rate is “ambiguous . . . because we don’t know at all what is in
the future.” All that Coe agreed to is that, at the time of prepayment, one can know the lender’s
current rate of return on its investments.
Defendants’ third argument questions Plaintiff’s characterization of the contracts as
“freely negotiated” and asserts that Plaintiff led Mr. Daibes to believe that no prepayment
premium would ever be charged. Defendants cite no law in support in the brief in opposition to
Plaintiff’s motion for summary judgment. This Court cannot discern the connection between
these points and New Jersey’s law of unreasonableness of liquidated damages provisions.
Moreover, there is no dispute that Daibes is an experienced real estate developer, represented in
all of these transactions by counsel, and his counsel furnished opinion letters at the closing of
each Loan, stating that each loan document was valid and enforceable. (See Defs.’ Resp. 56.1
Stmt. ⁋⁋ 8, 41, 42.)
In support of their affirmative defense and Counterclaim, Defendants have offered three
arguments that the prepayment premium provisions in the Alexander and St. Moritz Notes are
unenforceable as unreasonable. This Court has considered these arguments and finds them
insufficient to demonstrate unreasonableness under New Jersey law. First, Defendants failed to
even argue, prior to their reply brief, that the provisions were unreasonable when viewed from
the perspective of the time of origination; this alone precludes finding the provisions
unreasonable. Second, as to the arguments that address the analysis from the perspective of the
39
time of breach, Defendants raise no points supported by evidence that are relevant to the
unreasonableness inquiry applied by New Jersey courts to challenges to liquidated damages
provisions. Defendants’ claim to have ascertained actual damages at the time of prepayment
rests on passing off an estimate of future damages, based on unreasonable assumptions, not on a
true determination of lost yield, which, unless Plaintiff invests in something with a guaranteed
rate of return, like Treasury notes, will unfold unpredictably in the future. Defendants have
failed to demonstrate that they have any support for their affirmative defense and Counterclaim
under New Jersey law. As to the prepayment premium provisions in the Alexander Note and
Remaining St. Moritz Notes, Defendants have failed to defeat Plaintiff’s motion for summary
judgment.
B. Enforceability of the default interest rate provisions
Each of the loan notes contains a default interest provision. The parties agree to this
statement: “Each of the Loans at issue contains a default interest provision requiring the
borrower-Defendant to pay an interest rate above the contract rate on the outstanding principal
following a default.” (Pl.’s 56.1 Stmt. ⁋ 115; Defs.’ Resp. 56.1 Stmt. ⁋ 115.) This increase in
the interest rate after default will be called “the Default Interest Increment.” The parties agree
that, for the Remaining St. Moritz Notes, the Default Interest Increment is 5%, and that, for the
DGHA Note and Reb Oil Note, because of the Partial Waiver Letter, the effective Default
Interest Increment is 10%. The parties do not agree about the Default Interest Increment for the
Alexander Note: Plaintiff states that it is 5%, and Defendants agree only that the rate of interest
after default is 11.16%.15
A table of information in the brief in support of Defendants’ motion for summary judgment
states that the Alexander Note’s Default Interest Increment is 5%. (Defs.’ MSJ Br. at 7.)
15
40
As to the applicable law of the different states, Plaintiff differentiates the state laws,
essentially repeating the arguments, discussed above, in regard to the prepayment premium
provisions. Defendants contend that, as to the default interest provisions, there is no need to
differentiate the laws of New Jersey, Georgia, and Alabama. As will be explained below, this
Court need not resolve the parties’ dispute over the applicable state law.
In considering Plaintiff’s motion for summary judgment as to default interest rate
damages, the Court applies the same procedural framework that it used in regard to the
prepayment premium damages. Plaintiff has moved for summary judgment as to: 1) an award
of damages for breach of contract, pursuant to the default interest provisions of the Notes; and 2)
Defendants’ Counterclaim for declaratory judgment that the default interest provisions are
unreasonable and therefore unenforceable. This Court has found in favor of Plaintiff as to
liability on its claims for breach of contract, and Plaintiff has offered evidence that the default
interest damages it seeks are calculated according to formulas stated in provisions of the
contracts which have already been found to be valid and breached. As before, the summary
judgment burden now shifts to Defendants.
Defendants premise their case in opposition on the undisputed proposition that default
interest compensates the lender for losses incurred in the event of a default. (Pl.’s 56.1 Stmt. ⁋
121; Defs.’ Resp. 56.1 Stmt. ⁋ 121.) Defendants make three arguments in opposition. First,
Defendants contend that the total default interest sought by Plaintiff is “grossly disproportionate”
to the actual damages sustained. (Defs.’ Opp. Br. at 27.) Second, other considerations weigh
against a finding of reasonableness. Third, Defendants distinguish a few of Plaintiff’s cases.
As to the argument that the total default interest sought by Plaintiff is “grossly
disproportionate” to the actual damages sustained, Defendants predicate it on a foundation
41
formed by two insufficient points: 1) putative admissions by Plaintiff that appear to narrow the
scope of the damages that the default interest provision is intended to forecast and compensate;
and 2) the opinion of their expert McManus.
As to the first point, this part of the foundation is constructed from mischaracterizations.
In the opposition brief, Defendants point first to two pages of Plaintiff’s opening brief, pages 26
and 27, which, in short, do not say what Defendants say they say. Defendants also refer to their
brief in support of their motion for summary judgment, pages 20 through 24, which makes an
assertion about Plaintiff’s expert and then distorts it. Defendants first assert: “Those losses,
according to Plaintiff’s expert, include direct labor costs, deferred maintenance costs, and sale
discount costs.” (Defs.’ MSJ Br. at 20.) This is a correct description of what the expert wrote
in his report. Defendants also acknowledge that Plaintiff’s expert referred to opportunity costs
from increased capital requirements. Defendants proceed to argue, however, that Plaintiff’s
expert limited the costs of default to only these four categories, which is incorrect. In fact, the
cited report, the Expert Report of Timothy J. Riddiough, Ph.D., dated June 30, 2020, shows that
Defendants have picked out only a few of the costs which the expert identified as typical
expenses arising from a loan default which default interest is intended to compensate. (Reich
Dec. Ex. DD ⁋⁋ 120-134.) Defendants omitted, for example, these substantial cost areas
identified by Riddiough: implied losses, capital charges, and increased cost of capital due to
credit downgrade of the loan. (Id. at ⁋⁋ 126-130.) The Riddiough Report does not support
Defendants’ narrow view of the scope of the damages that default interest is intended to
compensate, and it does not support Defendants’ statements about the Report.
Defendants have shown no support for their constricted theories of the damages the
42
default interest provisions were intended to compensate for.16 Defendants’ first argument has
no merit.17
As to the second point, regarding their expert McManus, Defendants’ opposition brief,
citing their brief in support of their motion for summary judgment, states: “Defendants’ expert
concluded that these two categories of default costs total $3.3 million per year, or approximately
$7 million to date.” (Defs.’ Opp. Br. at 27.) Defendants thus imply that they have evidence of
Plaintiff’s actual damages related to this provision. Defendants’ moving brief, however, does
not support this, as it offers “Mr. McManus’s calculation of what a reasonable amount of default
interest would be, based on his extensive real-world experience in the commercial real estate
workout and servicing space.” (Defs.’ MSJ Br. at 23; italics added.)
Defendants attempt to conjure a battle of the experts, Riddiough vs McManus. The
bottom line is that neither expert even claims to know what actual damages Plaintiff has
sustained as a result of the defaults. The experts provide commentary, speculation, debate, and
opinion about what the actual damages due to the defaults might or ought to be, but they shed no
light on what they actually are. Neither expert offers an opinion setting the amounts of the
damages Plaintiff actually has suffered due to the defaults. The expert reports both focus much
more on the issue of whether the various provisions constitute reasonable estimates, from an
Moreover, the briefs do not even agree on which costs are at issue: on page 27, Defendants’
opposition brief states that Plaintiff’s costs are “servicing and processing the defaulted loan” and
an “increase in capital costs,” while, on page 20 of Defendants’ brief in support of their motion
for summary judgment, Plaintiff’s costs are “direct labor costs, deferred maintenance costs, and
sale discount costs.”
17
Furthermore, as was demonstrated in the analysis of the prepayment premium provisions, it is
only under Alabama law that a finding of a disproportionate relationship of liquidated damages
to actual damages is by itself sufficient to change the outcome of the reasonableness analysis in
this case. This Court finds, as a matter of law, that Defendants have no evidence of the actual
default interest damages for the Reb Oil Note.
16
43
economic point of view, of the probable damages.18 The figure of $7 million is an estimate by
McManus of what Plaintiff’s damages should be, based on a narrow definition of the scope of
the damages that default interest is intended to compensate. To the very limited extent that
either expert opinion of what the damages should be is relevant to the establishment of Plaintiff’s
actual damages, the evidence would be inadmissible under Federal Rule of Evidence 403, as its
probative value is substantially outweighed by a danger of confusing the issues and misleading
the jury into thinking that the expert knows the true amount of Plaintiff’s actual damages.
With these two points, Defendants again attempt to pursue their strategy of challenging
the liquidated damages provisions as resulting in fees that are disproportionate to Plaintiff’s
actual damages. Defendants’ arguments, however, serve as a smokescreen to obscure the fact
that Defendants have offered no admissible evidence of Plaintiff’s actual damages in any of the
cost areas they identified. Defendants have provided no evidentiary foundation for their
argument that the fees are disproportionate to the actual damages.
Defendants next argue that the following considerations weigh against a determination of
reasonableness: 1) the Alexander and St. Moritz loans were fully performing when Plaintiff
elected to put them into default; 2) “default interest rates attached to double-digit-million loan
amounts like those here should be scrutinized more closely, regardless of whether the rate itself
is legally permissible” (Defs.’ MSJ Br. at 25); and 3) Plaintiff is believed to have negotiated
default interest rate provisions only sometimes. Defendants offer no law from any state that
shows that these considerations should be weighed in the reasonableness inquiry, nor illuminates
18
Although New Jersey law requires an inquiry into the question of whether the liquidated
damages provision “is a reasonable forecast of just compensation for the harm that is caused by
the breach,” Defendants do not address that issue in making their unenforceability case.
Wasserman’s, 137 N.J. at 250.
44
how these considerations should be weighed in the inquiry, but one footnote cites two cases. In
that footnote, Defendants assert that case law supports “the proposition that the reasonableness of
a default interest rate is properly evaluated not in isolation but by reference to the loan balance,
too.” (Defs.’ MSJ Br. at 26 n.14.) The two New Jersey cases Defendants cite in the footnote
do not state that proposition.
Moreover, as already stated in regard to the prepayment premium provisions, to the
extent that Defendants make these points to appeal to the Court to invoke its powers of equity,
New Jersey law places this constraint: “the settled precedent is that in the absence of fraud,
accident, or mistake, a court of equity cannot change or abrogate the terms of a contract.”
Dunkin’ Donuts, 100 N.J. at 183.
Defendants’ third argument merely purports to challenge the applicability of a few of
Plaintiff’s cases, arguing that they are not dispositive. Defendants here, however, have
overlooked the most relevant and significant New Jersey case that Plaintiff relied on, MetLife.
In MetLife, the New Jersey Supreme Court discussed at length an issue of the reasonableness of
a default interest provision:
[T]he three percent increase in this case is a reasonable estimate of the potential
costs of administering a defaulted loan, and the potential difference between the
contract interest rate and the rate that MetLife might pay to secure a commercial
loan replacing the lost funds. Default charges are commonly accepted as means
for lenders to offset a portion of the damages occasioned by delinquent loans. As
with the costs of late payments, the actual losses resulting from a commercial loan
default are difficult to ascertain. The lender cannot predict the nature or duration
of a possible default given many possible causes of borrower delinquencies. Nor
is it possible when the loan is made to know what market conditions might be ten
or fifteen years hence and, thus, what might be recovered from a sale of the
collateral. For example, a lender cannot know what its own borrowing costs will
be if the borrower defaults in paying a loan in the future, nor accurately predict
what economic return it will lose when the borrower fails to repay the loan on
time or how much in costs it will incur if the property is foreclosed or the
borrower files for bankruptcy. Additional sums required in the context of
collection activity, such as travel costs, expert fees and the costs of its loan
45
officers' involvement in collection activities are difficult to prove with respect to
any specific loan at its outset.
...
Late charges and default interest provisions constitute a practical solution to the
problem of pricing loans according to anticipated rather than actual performance
and the difficulty in allocating and determining the costs and damages of late
payments and default. The alternatives are economically inefficient or judicially
impracticable.
...
MetLife suggests that in view of today’s fiercely competitive marketplace and
because the liquidated damages analysis is complicated and ambiguous, we
should supplant the traditional liquidated damages analysis in the commercial
loan context by modern contract analysis. That late charge and default interest
provisions are more properly characterized as variable-pricing provisions, a term
of borrowing money, rather than as liquidated damages. Courts also have
recognized that default interest and late charge provisions are part of the pricing
of commercial loans, and legitimately reflect the parties’ agreement as to the
increased risk of nonpayment that the lender bears upon the occurrence of a
default.
Because default and late charges are not liquidated damages at all in the
traditional sense, but are simply part of the pricing of commercial loans between
sophisticated parties, MetLife asserts that in the absence of unconscionability or
illegality, those charges should be enforced. We agree in today’s competitive
market that ordinarily such charges are part of the cost of doing business. We,
however, prefer to incorporate that factor into the “reasonableness” test.
159 N.J. at 501-502, 504-505 (citations omitted). This discussion places particular emphasis on
assessing reasonableness of default interest provisions from the perspective of the time of
contracting. Defendants’ failure to address this prong of the analysis in arguing for the
unreasonableness of the default interest provisions under New Jersey law is particularly
problematic. The New Jersey Supreme Court also reflected on default interest provisions as a
“practical solution” to two problems, one of which is the difficulty in determining the costs of
default. Id. at 504. This may help explain why Defendants failed to present evidence of the
actual costs due to default: they are difficult to determine. Defendants have failed to present any
evidence that the default interest amounts Plaintiff seeks are disproportionate to actual damages,
and have failed to overcome the presumption in New Jersey law that a liquidated damages
46
provision in a commercial contract is reasonable.
As to the default interest provision in the DGHA Note, the application of Georgia law
produces the same result. As already established, Georgia law bars Defendants from asserting
actual damages to demonstrate unreasonableness. Defendants have made no attempt to
demonstrate that the default interest amount is an unreasonable pre-estimate of the probable loss,
as required by Georgia law. Further, under Georgia law, “the party who defaults on the contract
has the burden of proving the liquidated damages clause is an unenforceable penalty.”
Caincare, 272 Ga. App. at 192. Defendants have neither met that burden nor presented any
admissible evidence of actual damages to raise a question of material fact.
As to the default interest provision in the Reb Oil Note, the application of Alabama law
produces the same result, for a different reason. The record before this Court contains no basis
for the Court to conclude that any of the three characteristics that distinguish a liquidated
damages provision from an unenforceable penalty requires the determination that the provision is
a penalty. No questions as to material facts preclude this Court from finding, as a matter of law,
that the default interest provision in the Reb Oil Note is enforceable.
C. Property tax advances
Although Defendants’ brief in opposition to Plaintiff’s motion for summary judgment
does not address the dispute over one category of damages, property tax advances, Defendants’
opposition brief incorporates by reference the arguments in its briefs in support of Defendants’
motion for summary judgment, in which they dispute this issue.
Defendants contend that Plaintiff seeks to recover property taxes it paid, prior to 2012,
on the properties that secure the DGHA and Reb Oil Notes, in addition to default interest on
these payments. Defendants argue that Plaintiff first sought to collect these amounts when it
47
filed this lawsuit in 2018, and that any claim for these damages has lapsed under the applicable
6-year statute of limitations. In opposition, Plaintiff argues that all of the relevant Notes and
Modifications at issue in this case contain a provision which states that the borrower “waives any
statute of limitation.” (See, e.g., DGHA Note § 15(b), Voss Cert. Ex. 9; Pl.’s Supp. 56.1 Stmt.
in opp. to Defs.’ MSJ ⁋ 38.) Plaintiff’s reply brief fails to dispute Defendants’ contractual
waiver argument, and this Court construes Defendants’ non-response to be a concession that
Plaintiff is correct: Defendants contractually waived the right to assert the defense of the statute
of limitations. As to the property tax advances, Defendants have failed to defeat Plaintiff’s
motion for summary judgment.
In conclusion, Defendants have not met the requirements under Third Circuit law for
defeating Plaintiff’s motion for summary judgment as to damages. Defendants have not made
the showing necessary, under Third Circuit law, to defeat Plaintiff’s motion for summary
judgment. As explained in the discussion above, Defendants have not provided sufficient
admissible evidence to allow a jury to find in their favor at trial on either their affirmative
defense or their Counterclaims. Defendants have failed to defeat Plaintiff’s motion for
summary judgment as to damages.
In the oft-cited case about the law of summary judgment, the Supreme Court held: “a
complete failure of proof concerning an essential element of the nonmoving party’s case
necessarily renders all other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). As regards Plaintiff’s motion for summary judgment awarding damages, this Court
finds a complete failure of proof as to Defendants’ case in support of their affirmative defense
and Counterclaims. Indeed, here the evidence is truly “so one-sided that one party must prevail
as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
48
In support of their affirmative defense and Counterclaims, Defendants relied principally
on the argument that the amounts produced by the prepaid premium and default interest
provisions were disproportionate to the actual damages Plaintiff sustained. Yet Defendants
offered no admissible evidence of Plaintiff’s actual damages to support that position. Instead, as
evidence, Defendants have offered very little more than the report of their expert, McManus.
As discussed above, McManus offers his expert opinion about estimates he has made of what
Plaintiff’s damages could be, might be, or should be. This leaves Defendants comparing the
estimates of damages in the original contracts with an expert’s estimates of damages after
breach; Defendants have neither acknowledged that this is what their case amounts to nor shown
a reason to believe such an approach has validity under any applicable state law.
Moreover, in each of the three states of concern, the relevant law of liquidated damages
carefully distinguishes between estimates of actual damages and the actual damages themselves.
A key question in the reasonableness inquiry in all three states is whether the provision in the
contract is a reasonable estimate of the probable loss. Defendants have cited no case that asks
whether the provision in the contract is a reasonable estimate of a later estimate of the probable
loss, nor that gives an estimate made after breach a part to play in the inquiry.
Plaintiffs moved for summary judgment as to all claims in the Amended Complaint, as
well as to Defendants’ four Counterclaims, which seek declaratory judgments that the
prepayment premium provisions and the default interest provisions are unenforceable as
unreasonable. Defendants failed to meet their burden to defeat the motion. Plaintiff has shown
that there is no genuine dispute as to any material fact, and that it is entitled to judgment as a
matter of law. Plaintiff’s motion for summary judgment is granted in its entirety, and Judgment
will be entered in Plaintiff’s favor on Counts One through Four of the Amended Complaint and
49
Defendants’ four Counterclaims.
Plaintiff offered evidence that Voss Certification Exhibit 38 contains a statement of the
amounts of Defendants’ indebtedness under the Loans, in accordance with the provisions of the
Notes, as of November 30, 2020, as well as a statement of the amounts that Daibes owes under
the Guarantees, as of the same date. The calculations from this exhibit have been attached to
this Opinion as Appendix I.
In opposition to Plaintiff’s motion for summary judgment as to
damages, Defendants asserted various affirmative defenses and Counterclaims, but did not
otherwise challenge the accounting in Exhibit 38, nor offer any evidence that the accounting in
Exhibit 38 is incorrect. Plaintiff is awarded damages, in the amounts asserted by Plaintiff, and
reflected in Appendix I to this Opinion, against Defendants for breach of the Notes, and against
Daibes for breach of the Guarantees. Judgment will be entered against the specific Defendant or
Defendants appropriate to each Count in the Amended Complaint as detailed in Appendix I.
Appendix I states the damages in nine intermediate sums, all calculated to include pre-judgment
interest through November 30, 2020. For each intermediate sum, Appendix I states a per diem
interest amount; these per diem interest amounts total $62,691.93, the daily interest amount for
each day subsequent to November 30, 2020 until the entry of Final Judgment. Plaintiff is
entitled to further per diem interest on said amounts until the entry of Final Judgment in the per
diem interest amounts set forth in Appendix I for each Loan.
The grant of Plaintiff’s motion for summary judgment moots nearly all of Defendants’
motion for summary judgment, which seeks summary judgment on Defendants’ Counterclaims,
as well as on the property tax advances and attorneys’ fees. As to Defendants’ motion for
summary judgment on the Counterclaims, the Court has just granted Plaintiff’s motion for
summary judgment on the Counterclaims, and so Defendants’ motion for summary judgment on
50
the Counterclaims is denied as moot. Defendants also seek summary judgment as to the
property tax advances and attorneys’ fees. The Court’s grant of Plaintiff’s motion for summary
judgment as to damages, which included the property tax advances, moots this aspect of
Defendants’ motion for summary judgment.
Plaintiff’s motion for summary judgment specifically excluded the issue of attorneys’
fees. The grant of Plaintiff’s motion for summary judgment thus did not moot Defendants’
motion for summary judgment limiting the award of attorneys’ fees. Plaintiffs move for a
judgment that any award of attorneys’ fees is capped pursuant to New Jersey Rule of Court 4:429(a)(4). In opposition, Plaintiff argues that, since no application for attorneys’ fees has been
made, Defendants’ motion to limit the award is premature. This Court agrees. The Supreme
Court has explained the ripeness doctrine as follows: “its basic rationale is to prevent the courts,
through avoidance of premature adjudication, from entangling themselves in abstract
disagreements.” Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967). If this Court adjudicated
Defendants’ motion for judgment limiting attorneys’ fees in the absence of any application, it
would indeed entangle itself in an abstract disagreement. Plaintiff’s motion for summary
judgment, seeking a cap on attorneys’ fees, is denied as unripe. As to all other aspects of
Plaintiff’s motion for summary judgment, it is denied as moot.
s/ Stanley R. Chesler
Stanley R. Chesler, U.S.D.J
Dated: April 20, 2021
51
APPENDIX I
(From Voss Cert. Ex. 38)
SCHEDULE OF AMOUNTS OWED UNDER THE NOTES AND GUARANTEES*
Count I - Against DGHA, RRA and LRC on DGHA Note
Principal Balance
$13,045,628.23
Contract-Rate Interest (February 1, 2018
through November 30, 2020 (1,034 days) @
6.74% per annum or $2,442.43 per diem)
2,525,472.62
Default-Rate Interest (June 16, 2018
through November 30, 2020 (899 days) @
10.0% per annum or $3,623.79 per diem)
3,257,787.21
Sundry Advances for Property Taxes paid in
December 2011 and January 2012
Sundry Advance for Environmental and
Engineering Report in 2015 Related to
Proposed Cresskill Plaza Substitution of
Collateral
Default Interest on Sundry Advances (June
16, 2018 through November 30, 2020 (899
days) @ 16.74% per annum or $206.11 per
diem)
Prepayment Premium Amount
Late Fees
Credit for 5/3/18 Partial Payment
438,253.42
5,000.00
185,292.89
2,810,968.29
37,379.23
(73,272.95)
Credit for April 2019 – November 2020
Cash Collateral Sweeps*
(1,947,261.34)
Total (as of November 30, 2020, plus
interest of $6,272.33 per diem)
$20,285,247.60
Count III - Against Reb Oil on Reb Oil Note
Principal Balance
Contract-Rate Interest (February 1, 2018
through November 30, 2020 (1,034 days) @
$10,100,820.78
1,996,012.92
6.88% per annum or $1,930.38 per diem)
Default-Rate Interest (June 16, 2018
through November 30, 2020 (899 days) @
10.0% per annum, or $2,805.78 per diem)
2,522,396.22
Sundry Advances for Property Taxes
281,827.57
Default Interest on Sundry Advances June
16, 2018 through November 30, 2020 (899
days) @ 16.88% per annum or $132.15 per
diem)
118,802.85
Prepayment Premium Amount
Late Fees
Credit for 5/3/18 Partial Payment
2,259,779.40
25,923.80
(57,911.37)
Credit for April 2019 – November 2020
Cash Collateral Sweeps*
(1,507,148.61)
Total (as of November 30, 2020, plus
interest of $4,868.31 per diem)
$15,740,503.56
Count V - Against RRA on Alexander Note
Principal Balance
$55,139,216.10
Contract-Rate Interest (October 1, 2018
through November 30, 2020 (792 days) @
6.16% per annum or $9,434.93 per diem)
7,472,464.56
Default-Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
5.0% per annum or $7,658.22 per diem)
5,766,639.66
Sundry Advances for Property Taxes
Default Interest on Sundry Advances
(January 28, 2019 through November 30,
2020 (673 days) @ 11.16% per annum or
$43.02 per diem)
Prepayment Premium Amount
138,770.67
28,952.46
11,416,002.24
Credit for 11/10/18 Partial Payment
(574,525.00)
Credit for April 2019 – November 2020
Cash Collateral Sweeps*
(8,227,574.94)
Total (as of November 30, 2020, plus
interest of $17,136.17 per diem)
$71,159,945.75
Count VII - Against RRA and PGA on Remaining St. Moritz Notes
First St. Moritz Note
Principal Balance
$24,301,474.68
Contract-Rate Interest (October 1, 2018
through November 30, 2020 (792 days) @
6.24% per annum or $4,212.26 per diem)
3,336,109.92
Default-Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
5.0% per annum or $3,375.20 per diem)
2,541,525.60
Prepayment Premium Amount
3,964,890.13
Credit for 11/10/18 Partial Payment
(250,976.19)
Credit for April 2019 – November 2020
Cash Collateral Sweeps*
(3,626,972.14)
Total (as of November 30, 2020, plus
interest of $7,587.46 per diem)
$30,266,052.00
Third St. Moritz Note
Principal Balance
$3,500,000.00
Contract-Rate Interest (October 1, 2018
through November 30, 2020 (792 days) @
4.5% per annum or $437.50 per diem)
346,500.00
Default-Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
5.0% per annum or $486.11 per diem)
366,040.83
Credit for 11/10/18 Partial Payment
(13,125.00)
Credit for June 2019 – November 2020
Cash Collateral Sweeps*
(522,435.97)
Total (as of November 30, 2020, plus
interest of $923.61 per diem)
$3,676,979.86
Count II – Against Fred Daibes on DGHA Loan Payment and Carveout Guarantees
Guaranteed Obligation
$4,375,000.00
Contract Rate Interest (June 6, 2018 through
June 30, 2020 (899 days) @ 6.74% per
annum or $819.10 per diem)
736,370.90
Default Rate Interest (June 16, 2018 through
November 30, 2020 (899 days) @ 10.00%
per annum or $1,215.27 per diem)
1,092,527.73
Carveout Obligation for Property Taxes paid
in December 2011 and January 2012
438,253.42
Default Rate Interest on Carveout
Obligation (June 16, 2018 through June 30,
2020 (899 days) @ 16.74% per annum, or
$203.79 per diem)
183,207.21
Total (as of November 30, 2020, plus
interest of $2,238.16 per diem)
$6,825,359.26
Count IV – Against Fred Daibes on Reb Oil Loan Payment and Carveout Guarantees
Guaranteed Obligation
$3,375,000.00
Contract Rate Interest (June 16, 2018
through November 30, 2020 (899 days) @
6.88% per annum or $645.00 per diem)
579,855.00
Default Rate Interest (June 16, 2018
through November 30, 2020 (899 days) @
10.00% per annum, or $937.50 per diem)
842,812.50
Carveout Obligation for Property Taxes
281,827.57
Default Rate Interest on Carveout
Obligation (June 16, 2018 through
November 30, 2020 (899 days) @ 16.88%
118,802.85
per annum, or $132.15 per diem)
Total (as of November 30, 2020, plus
interest of $1,714.65 per diem)
$5,198,297.92
Count VI –Against Fred Daibes on Alexander Loan Payment and Carveout Guarantees
Guaranteed Obligation
$55,000,000.00
Contract Rate Interest (November 9, 2019
through November 30, 2020 (753 days) @
6.16% per annum or $9,411.11 per diem)
7,086,565.83
Default Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
10.00% per annum, or $7,688.89 per diem)
5,789,734.17
Carveout Obligation for Property Taxes
Paid in 2019
Default Rate Interest on Carveout
Obligation (January 28, 2019 through
November 30, 2020 (673 days) @ 11.16%
per annum or $43.02 per diem)
Total (as of November 30, 2020, plus
interest of $17,143.02 per diem)
138,770.67
28,952.46
$68,044,023.13
Count VIII – Against Fred Daibes on Remaining St. Moritz Loans Payment Guarantee
Guaranteed Obligation
$15,400,000.00
Contract Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
5.00% per annum or $2,138.89 per diem)
1,610,584.17
Default Rate Interest (November 9, 2018
through November 30, 2020 (753 days) @
6.24% per annum, or $2,669.33 per diem)
2,010,005.49
Total (as of November 30, 2020, plus
interest of $4,808.22 per diem)
$19,020,589.66
* The net amount of the Cash Collateral Sweep Payments of $15,831,393 (consisting of the
cash sweeps of $17,663,000 minus the property tax true-up and escrow payments totaling
$1,831,607) received April 2019-November 2020, which is shown as a credit above, was
allocated to the loans pro rata based on the outstanding principal balances as follows:
Atlanta/DGHA Loan – 12.30%; Reb Oil Loan – 9.52%; Alexander Loan – 51.97%; First St.
Moritz Loan – 22.91%; and Third St. Moritz Loan – 3.30%.
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