United Central Bank v. Team Gowanus, LLC et al

Filing 80

ORDER denying 77 Motion for Reconsideration. Ordered by Judge Edward R. Korman on 2/27/2013. (Sobelman, Robert)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED CENTRAL BANK, successor by :
acquisition to Mutual Bank,
:
:
Plaintiff,
:
:
- against :
:
TEAM GOWANUS, LLC, SQUARE ONE :
HOLDING CORP., PETER MOORE, PETER :
KOVACS, JOHN SUTTER, BEN HANSEN :
ARCHITECT
LLC,
ENVIRONMENTAL :
CONTROL BOARD OF THE CITY OF NEW :
YORK, “JOHN DOE” #1-10, “MARY DOE” #1- :
10, and “JANE DOE” #1-10,
:
:
Defendants.
:
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NOT FOR PUBLICATION

MEMORANDUM & ORDER

No. 10 CV 3850 (ERK) (VVP)

KORMAN, J.:
Plaintiff United Central Bank (“UCB”) filed this diversity action for foreclosure pursuant
to New York Real Property Actions and Proceedings Law § 1301 et seq. against defendants
Team Gowanus, LLC, Peter Moore, Peter Kovacs, John Sutter (collectively, the “Team Gowanus
Defendants”), Square One Holding Corp., and several named and fictitious holders of judgments,
liens or other interests in the mortgaged property.

In a Memorandum & Order filed on

November 14, 2012 (the “M&O”), I granted summary judgment for UCB’s pursuant to Fed. R.
Civ. P. 56 and dismissed the defendants’ counterclaims pursuant to Fed. R. Civ. P. 12(b)(6).
United Cent. Bank v. Team Gowanus, LLC, No. 10-CV-3850 (ERK)(VVP), 2012 WL 5507307
(E.D.N.Y. Nov. 14, 2012). Defendants move for reconsideration pursuant to Fed R. Civ. P. 59
and Local Civil Rule 6.3.

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FACTUAL BACKGROUND
I assume familiarity with the detailed discussion of the factual background in the M&O.
See United Cent. Bank, 2012 WL 5507307, at *1-*7.
DISCUSSION
“‘It is well-settled that Rule 59 is not a vehicle for relitigating old issues, presenting the
case under new theories, securing a rehearing on the merits, or otherwise taking a ‘second bite at
the apple.’” Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012)
(quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998)). “Rather, ‘the standard
for granting [a Rule 59 motion for reconsideration] is strict, and reconsideration will generally be
denied unless the moving party can point to controlling decisions or data that the court
overlooked.’” Id. (quoting Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995)). In
their motion, the Team Gowanus Defendants set forth four arguments, which I address in turn.
None of their arguments “point to controlling decisions or data that the court overlooked.”
I.

Agreements Between Mutual Bank/UCB and the Team Gowanus Defendants
The threshold issue in this action was whether UCB is bound to the proposed amendment

to the Mutual Bank Note and Mortgage and/or an oral agreement requiring it to restructure its
loan to Team Gowanus. In the M&O, I held that UCB is not bound to the proposed amendment
or to an oral agreement requiring it to restructure the loan. United Cent. Bank, 2012 WL
5507307, at *10-*14.
A.

Mutual Bank-Team Gowanus: Purported Issue of Fact Regarding Parties’ Intentions
The Team Gowanus Defendants argue that there is an issue of fact as to whether the

parties intended that the proposed amendment to the Mutual Bank-Team Gowanus Loan
Documents be binding only if executed. Gowanus Defs. Rec. Mem. at 2-4, ECF No. 77-18.

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Specifically, they point to emails between Mutual Bank and Team Gowanus during the
negotiation of the draft amendment and highlight the absence of an execution-requirement
provision in the draft amendment itself.
Although the M&O addressed the parties’ communications in this regard, the M&O’s
conclusion that the unsigned draft amendment was not binding primarily rested on the finding
that “the Mutual Bank Note, Mortgage and Commercial Loan Agreement all include terms
requiring any amendment to be in writing and signed by the parties.” United Cent. Bank, 2012
WL 5507307, at *11. The three clauses discussed in the M&O make it clear that the parties
objectively intended for any amendment to be signed by the party charged by the terms thereof –
here, Mutual Bank/UCB. Even if the parties’ communications created some doubt regarding the
parties’ intentions to be bound without execution, the express prohibitions on such an unwritten
agreement in the Mutual Bank Note, Mortgage and Commercial Loan Agreement – the
documents to which the amendment would have applied – are dispositive on this issue.
In support of their argument, the Team Gowanus Defendants rely upon Matter of
Municipal Consultants & Publishers, Inc. v. Town of Ramapo, 47 N.Y.2d 144 (1979). As
discussed in the M&O, in Municipal Consultants & Publishers, Inc., the New York Court of
Appeals held:
Where all the substantial terms of a contract have been agreed on, and there is
nothing left for future settlement, the fact, alone, that it was the understanding that
the contract should be formally drawn up and put in writing, did not leave the
transaction incomplete and without binding force, in the absence of a positive
agreement that it should not be binding until so reduced to writing and formally
executed.
Id. at 149 (citing cases) (emphasis added).

Here, the parties have at least three positive

agreements not to be bound until an amendment is “signed.” See United Cent. Bank, 2012 WL
5507307, at *11-*12.
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B.

UCB-Team Gowanus: Purported Misapplication of AIH Acquisition Corp.
The Team Gowanus Defendants argue that there was a binding agreement between Team

Gowanus and UCB to restructure the loan because “the revised written agreement between UCB
and Team Gowanus . . . contained no provision stating that it would not be binding unless
executed by all parties.” Gowanus Defs. Rec. Mem. at 6. Specifically, the Team Gowanus
Defendants contend that the M&O misapplied AIH Acquisition Corp. LLC v. Alaska Industrial
Hardware, Inc., 306 F. Supp. 2d 455 (S.D.N.Y. 2004), vacated and remanded on other grounds,
105 F. App’x 301 (2d Cir. 2004) (summary order).
As discussed in the M&O, AIH Acquisition Corp. involved a defendant who negotiated
and agreed to a contract pursuant to a binding commitment letter that had been signed between
the parties, but then refused to sign the contract and offered no explanation or rationale for his
behavior. 306 F. Supp. 2d at 455-58; see also United Cent. Bank, 2012 WL 5507307, at *12. In
short, the court held that the defendant was bound under the doctrine of promissory estoppel
because of the plaintiff’s “many, many thousands of dollars of expense . . . for due diligence and
financing and lawyers’ time spent in reasonable reliance, which would otherwise be lost to one
man’s caprice, and [the defendant’s] lawyers saying more than once that it was not a question of
if, but when” the defendant would sign the contract. AIH Acquisition Corp., 306 F. Supp. 2d at
459. The Team Gowanus Defendants argue that the case is not distinguishable from the present
case because the same “bad faith” is present in this action. This argument is not accurate. The
record shows that UCB put an enormous amount of time, effort and expense into negotiating a
restructuring of the UCB-Team Gowanus loan. The eventual failure of the negotiations due to an
incompatibility of the proposed restructuring with UCB’s internal loan guidelines does not form
a basis for a finding of bad faith.

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C.

Purported Oral Agreement: Alleged Partial Performance by Team Gowanus
The Team Gowanus Defendants argue that Team Gowanus’s actions to subdivide the

property at issue constituted partial performance of the agreement, rendering the agreement to
restructure binding. Gowanus Defs. Rec. Mem. at 4-5. In the M&O, I held that the subdivision
of the property “was not at odds with the terms of the original loan documents such that the
action would constitute an amendment thereto,” United Cent. Bank, 2012 WL 5507307, at *14,
and is more accurately “‘explainable as preliminary steps which contemplate the formulation, in
the future, of an agreement,’” id. (quoting Gracie Square Realty Corp. v. Choice Realty Corp.,
305 N.Y. 271, 282 (1953)).
First, the Team Gowanus Defendants argue that there is “no more incompatible action to
the Mortgage than a change in the description of the Land.”

Gowanus Defs. Rec. Mem. at 5.

For this proposition, they cite no authority. In addition, the Team Gowanus Defendants do not
allege that the subdivision of the land has been detrimental to their interests. Moreover, the
subdivision did not increase Mutual Bank’s interest in the property nor did it decrease Team
Gowanus’s control or ownership.
Second, the Team Gowanus Defendants argue that the subdivision of the property was
the consideration required for their half of a purported agreement with Mutual Bank to
restructure the loan. This assertion is simply contrary to the evidence provided by the parties.
Specifically, the agreement to subdivide the property into seven separate lots is contained within
the Term Sheet, which was, by its explicit terms, non-binding.
In support of their argument on this point, the Team Gowanus Defendants rely upon Rose
v. Spa Realty Associates, 42 N.Y.2d 338 (1977). As the discussed in the M&O, the Rose Court
held that a party to a contract may be equitably estopped from relying upon a clause prohibiting

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oral modifications when “a party to a written agreement has induced another’s significant and
substantial reliance on an oral modification,” but not where the conduct relied upon is
“compatible with the agreement as written.” Id at 344. (citations omitted); see also United Cent.
Bank, 2012 WL 5507307, at *13-*14.

The only arguable incompatibility between the

subdivision of the property and the Mortgage is in the technical description of the land. After the
subdivision, the technical description in the original Mortgage was inaccurate because it
described only one plot where there were now seven different plots, albeit containing the exact
same geographic area. This is merely a technical discrepancy without meaning because it did not
affect the parties’ interests and is not a basis upon which an oral modification may be found.
II.

Mr. Sutter’s Guaranty to Mutual Bank/UCB
The Team Gowanus Defendants argue that the M&O erred in concluding that § 1823(e)

applies to the agreements to reduce Mr. Sutter’s guaranty because they “did not diminish the
asset.” Gowanus Defs. Rec. Mem. at 8. In the M&O, I held that both alleged agreements are
unenforceable because they did not meet the requirements of 12 U.S.C. § 1823(e). United Cent.
Bank, 2012 WL 5507307, at *14-*19.
In their memorandum of law, the Team Gowanus Defendants have imprecisely applied
the language of the statute. Specifically, they discuss whether the alleged agreements did or did
not “diminish the asset.” Nevertheless, the statute applies to agreements “which tend[] to
diminish or defeat the interest of the [FDIC/successor bank] in any asset acquired by it . . . as
receiver of any insured depository institution.” This is an important distinction. Even if the
Team Gowanus Defendants are correct that the asset as a whole became more valuable as a result
of the agreements to reduce Mr. Sutter’s guaranty, it does not necessarily follow that UCB’s
interest in that asset was enhanced. As discussed in the M&O, the agreement diminished UCB’s

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interest in the asset because the reduction made it more difficult for UCB to recover on its loan to
Team Gowanus in the case that the value of the property dropped and Team Gowanus failed to
pay what it owed – precisely what has occurred in this case.
In support of their argument, the Team Gowanus Defendants rely upon Duraflex Sales &
Service Corp. v. W.H.E. Mechanical Contractors, 110 F.3d 927 (2d Cir. 1997). In that case, the
Second Circuit observed that the appeal “potentially raise[d]” the “difficult” question of whether
certain subordination agreements tended to prejudice a regulator’s interests under § 1823(e). Id.
at 933.

The issue was addressed only in dicta and was not resolved.

See id. at 934

(“[R]egardless of . . . whether the subordination agreements tend to diminish the relevant asset,
we can affirm on the basis of the issues presented under Connecticut common law.”). Here, as in
Duraflex, § 1823(e) applies to agreements “which tend[] to diminish or defeat the interest of the
[FDIC/successor bank] in any asset acquired by it . . . as receiver of any insured depository
institution.” Thus, whether the overall value of the asset increased or decreased is not dispositive
because UCB’s interest in the asset was diminished by the reductions in Mr. Sutter’s guaranty,
and the Team Gowanus Defendants do not argue otherwise.

CONCLUSION
The motion for reconsideration is denied.

SO ORDERED.
Brooklyn, New York
February 27, 2012

Edward R. Korman
Edward R. Korman
Senior United States District Judge

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