George Town Associates S.A. v. Abakan, Inc. et al

Filing 94

OPINION AND ORDER re: 53 CROSS MOTION to Add Party(ies) John Xinos filed by Mesocoat, Inc., Abakan, Inc., 31 MOTION for Summary Judgment and in Support of Motion to Dismiss Counterclaim filed by George Town Associates S.A. The plaintiffs June 18 motions for summary judgment and to dismiss the defendants counterclaim are granted. The defendants July 17 motion to add Xinos as a party is denied. (Signed by Judge Denise L. Cote on 08/18/2015) (as)(Silver, Anne)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
GEORGE TOWN ASSOCIATES S.A.,
:
:
Plaintiff,
:
:
-v:
:
ABAKAN, INC. and MESOCOAT, INC.,
:
:
Defendants.
:
:
-------------------------------------- X

15cv3435 (DLC)
OPINION
AND ORDER

APPEARANCES:
For Plaintiff:
Douglas Gross
Goetz Fitzpatrick LLP
One Penn Plaza, Suite 3100
New York, NY 10119
For Defendant:
Steven E. Rosenfeld
767 Third Avenue, 30th Floor
New York, NY 10017
DENISE COTE, District Judge:
This action arises out of a secured promissory note issued
by defendant Abakan, Inc. (“Abakan”) and backed by a guaranty of
performance and payment from co-defendant MesoCoat, Inc.
(“MesoCoat”) to plaintiff George Town Associates S.A. (“George
Town”).

The plaintiff brings this motion for summary judgment

and also moves to dismiss the defendants’ counterclaim for
breach of the implied covenant of good faith and fair dealing.
The defendants cross-move to add John Xinos (“Xinos”) as a party

to this action. 1

For the following reasons, the plaintiff’s

motions for summary judgment and to dismiss the counterclaim are
granted.

The defendants’ motion to add Xinos as a party is

denied.
BACKGROUND
This litigation arises out of the secured promissory note
issued by Abakan to George Town.

The facts underlying the

issuance of the secured note, and Abakan’s subsequent
nonpayment, are undisputed.
I. The Issuance of the Secured Promissory Note
Four documents, all dated April 28, 2014, govern the
transaction at issue in this litigation.
secured promissory note (“Secured Note”).

The first is the
Abakan issued the

Secured Note to George Town in the principal amount of
$1,341,963.34.

A Securities Exchange Agreement (“SEA”) governed

the issuance of the Secured Note.

The Secured Note was backed

by a Subsidiary Guaranty executed by MesoCoat (“Guaranty”) and
secured by a perfected security interest on MesoCoat’s assets
and property pursuant to an Amended and Restated Security
Agreement (“Security Agreement”).
in turn.

These documents are described

All four documents contain a choice-of-law and choice-

of-forum provision that selects New York law as the governing
Xinos is also referred to in the parties’ submissions as John
Xynos.
1

2

law and New York’s state or federal courts as the appropriate
forum.
a. The Secured Note
Abakan issued the Secured Note in exchange for
$1,341,963.34.
April 27, 2015.

The maturity date under the Secured Note is
Article III of the Secured Note defines fifteen

events as “events of default,” and outlines the obligations of
Abakan following an event of default.
at issue in this litigation.

Two events of default are

The first, described in § 3.1 of

the Secured Note, states that an event of default occurs when
Abakan fails to pay the principal when due, either at maturity
or upon acceleration, and does not cure such nonpayment within
two days of receiving written notice of the nonpayment
(“Nonpayment Notice”).

The second, contained in § 3.9, defines

an event of default as occurring when Abakan fails to comply
with the reporting requirements of the Securities Exchange Act
of 1934 and fails to cure such nonreporting within five days of
receiving written notice from George Town (“Nonreporting
Notice”). 2

2 The Secured Note uses, without defining, the terms “Exchange
Act” and “Securities Act.” These terms are defined in the SEA
which the parties reference in the Secured Note. The SEA
defines the term “Exchange Act” as referring to the Securities
Exchange Act of 1934, 15 U.S.C. § 78a, and the term “Securities
Act” as referring to the Securities Act of 1933, 15 U.S.C. §
77a.
3

Article III of the Secured Note describes the effect of an
event of default on Abakan’s obligations.

Article III provides

that, following an event of default, the Secured Note becomes
immediately due and payable upon delivery of written notice to
Abakan by George Town (“Default Notice”).

The Secured Note

defines the amount Abakan must pay upon delivery of the Default
Notice to include, inter alia, the sum of the outstanding
principal of the Secured Note plus interest, and other fees owed
to George Town (“Default Amount”).
The Secured Note also describes the mechanics for giving
notice under the Secured Note.

Section 4.2 states that “[a]ll

notices . . . required or permitted hereunder shall be in
writing and . . . shall be . . . transmitted by hand delivery
[or any other method described in § 4.2].”

The notice is deemed

effective “upon hand delivery.”
The Secured Note also references the SEA and Security
Agreement.

Section 4.8 states that “[b]y it’s acceptance of

this Note, each party agrees to be bound by the applicable terms
of the [SEA].”

Section 4.9 provides for the same with respect

to the Security Agreement.
b. The SEA
The SEA begins by explaining the factual background that
led to the issuance of the Secured Note.

The SEA explains that,

as of April 28, 2014, MesoCoat had five outstanding loans from
4

Kyrtos Limited (“Kyrtos”) in an aggregate amount of $1,309,000
(“Existing Notes”).

The Existing Notes were assigned to George

Town, which exchanged the Existing Notes for the Secured Note
and Guaranty.

In the SEA, Abakan and MesoCoat represented and

warranted, inter alia, that they had the authority to enter into
the transaction and that the governing documents were executed
by authorized representatives from Abakan and MesoCoat.
c. The Guaranty
The Guaranty was made by MesoCoat to George Town as a
“condition to the transactions contemplated by the [SEA].”

The

Guaranty provides that “[MesoCoat] hereby unconditionally
guarantees to [George Town] the prompt payment . . . and
performance of any and all indebtedness . . . of [Abakan] under
the [Secured Note] . . . and to pay all fees . . . provided for
in [the Guaranty].”
d. The Security Agreement
The Security Agreement was executed by representatives from
George Town and the defendants.

The Security Agreement serves

to grant George Town a security interest in MesoCoat’s assets.
The Security Agreement provides that “[a]s an inducement for
[George Town] to extend the loan as evidenced by the [Secured
Note] and to secure a complete and timely payment . . .
[MesoCoat] hereby unconditionally and irrevocably pledges,
grants, and hypothecates to [George Town] a continuing perfected
5

security interest in and to . . . the Collateral.”

The

“Collateral” is defined to include all of MesoCoat’s assets and
property minus listed exceptions.
The Security Agreement defines an “event of default” to
include, inter alia, Abakan’s failure to repay the full
outstanding principal balance of the Secured Note when due and
MesoCoat’s breach of the Guaranty.

Upon the occurrence of any

event of default, George Town “shall have the right to exercise
all of the remedies conferred [under the Security Agreement] and
under the [Secured Note] . . . .”

Section 7 of the Security

Agreement grants George Town a number of rights and powers upon
default, including, inter alia, the right to take possession of
the Collateral, receive dividends and interest on the
Collateral, dispose of the Collateral, and operate the business
of MesoCoat.
II. Abakan’s Failure to file a Timely Quarterly Report or Repay
the Secured Note
Two events of default occurred in 2015.

Abakan failed to

file a timely Quarterly Report with the SEC and failed to repay
George Town.
Abakan was required to file a Quarterly Report (“Form 10Q”) with the SEC by April 14, 2015 for the period ending
February 28, 2015.

After filing a different form on April 14,

Abakan had five calendar days to file a Form 10-Q.
6

Abakan did

not file a Form 10-Q within the five allotted days.

On April

22, George Town hand-delivered a letter notifying Abakan that it
had failed to file a timely Form 10-Q in violation of the
Secured Note. 3

The letter states that it “serves as

[Nonreporting Notice]” and that within five business days of
this notification, George Town will have the right to declare an
event of default and accelerate the Secured Note.

On April 30,

George Town hand-delivered a letter to Abakan stating that “the
letter serves as Default Notice under Article III of [the
Secured] Note . . . [and George Town] hereby declare[s] an Event
of Default, accelerate[s] the [Secured] Note, and demand[s]
default interest until fully paid . . . .”

Abakan filed a Form

10-Q with the SEC on May 4, 2015.
The maturity date of the Secured Note was April 27, 2015.
On April 28, George Town hand-delivered a letter to Abakan
stating that Abakan had failed to pay the principal amount of
the Note on its maturity date.

The letter states that it

“serves as [Nonpayment Notice]” and that within two business
days of the notice, George Town will have the right to declare

With respect to this letter, and all subsequent letters sent by
George Town to Abakan purporting to provide notice, Abakan
disputes whether the letters provided adequate notice because
the letters did not contain a telephone number, fax number, or
email address for George Town although they do contain George
Town’s street address. Abakan does not, however, dispute that
it received the letters.
3

7

an event of default.

In response, Abakan sent a letter dated

April 28 to George Town asking for George Town’s contact
information.
George Town hand-delivered a letter on May 1 to Abakan
stating that Abakan had failed to pay the principal amount of
the Secured Note.

The letter further states that it “serves as

Default Notice [and George Town] hereby declare[s] an Event of
Default, accelerate[s] the [Secured] Note, and demand[s] default
interest until fully paid . . . .”

George Town filed this

lawsuit on May 4.
III. Abakan’s Counterclaim and the Sonoro Litigation
In its answer, Abakan brings a counterclaim against George
Town for breach of the implied covenant of good faith and fair
dealing.

The factual basis for this allegation is drawn from

the counterclaim.
Xinos is an investor in Abakan and controls George Town.
Xinos also controls Sonoro Invest S.A. (“Sonoro”), which loaned
Abakan $1.7 million in 2013.
On October 1, 2014, Sonoro filed a lawsuit in the Southern
District of Florida against Abakan for breach of the promissory
note issued by Abakan to Sonoro.

As part of the Sonoro

litigation, Abakan agreed to the entry of a preliminary
injunction that precluded Abakan from acquiring new debt without
Sonoro’s consent.

On April 23, 2015, Sonoro filed an emergency
8

motion for contempt to block Abakan from refinancing the George
Town Secured Note, which was due on April 27.

On April 30,

Sonoro consented to the refinancing of the Secured Note if
additional conditions were met.

On May 19, Sonoro and Abakan

stipulated to the dismissal of the case.
IV. Litigation Before This Court
George Town commenced this action against the defendants on
May 4, 2015.

The plaintiff brings six claims.

The first two

seek recovery on the Secured Note based on the defaults that
occurred when Abakan failed to file a timely Form 10-Q or repay
George Town.
the Guaranty.

A third claim seeks to recover from MesoCoat on
The plaintiff also requests a determination that

it is entitled to exercise its remedies under § 7 of the
Security Agreement, which would allow George Town to take
possession of MesoCoat’s assets.

The plaintiff also sought

injunctive relief and the appointment of a receiver.
On May 6, this Court issued a Temporary Restraining Order
restraining the defendants from, inter alia, paying or declaring
any dividend or distribution, repurchasing or otherwise
acquiring any of the defendants’ shares, incurring any
indebtedness, or selling, leasing or otherwise disposing of any
significant portion of assets “outside of its ordinary business
without George Town’s consent . . . .”

On May 22, the May 6

temporary restraining order was converted on consent into a
9

preliminary injunction.
on May 27.

The defendants answered the complaint

In its answer to George Town’s complaint, Abakan

brings nine affirmative defenses, three of which are of
particular relevance to the instant motion.

Abakan asserts that

George Town’s claims are barred (1) because George Town
“prevented Defendants’ performance and repayment of the
promissory note;” (2) by George Town’s “breach of the implied
covenant of good faith and fair dealing;” and (3) by “the
doctrine of unclean hands.”

The answer provides no additional

factual allegations for these defenses.

The defendants also

filed a counterclaim for breach of the implied covenant of good
faith and fair dealing based on George Town’s withholding in the
Sonoro litigation of consent to the refinancing of the Secured
Note.
As part of the defendants’ opposition to George Town’s
motion for summary judgment, the defendants submitted a
declaration from Robert Miller (“Miller”), the president of
Abakan.

Miller states, inter alia, that discovery would show

that George Town and Sonoro are related entities “who have acted
in concert to contrive this alleged default, through their
control person Xinos.”

Miller further states that “in order to

cause a delay and manufacture a default of the [Secured Note],
so that [George Town] could obtain MesoCoat’s valuable assets
. . . through foreclosure, [George Town], through Xinos, caused
10

Sonoro to file an emergency motion for contempt seeking to block
the . . . refinancing [of the Secured Note].”

Miller identifies

twenty-eight categories of evidence that would prove that George
Town, Sonoro, and Xinos are “related entities and colluded to
cause the alleged default here in a nefarious scheme to take
over [d]efendants’ businesses.”

The evidence sought includes,

inter alia, communications and correspondence between George
Town, Sonoro, and Xinos.
On June 18, the plaintiff moved for summary judgment and to
dismiss the defendants’ counterclaim.

On July 17, the

defendants moved to add Xinos as a party.

The plaintiff’s

motion for summary judgment and to dismiss the counterclaim were
fully submitted on July 24.
On July 27, Abakan entered into a transaction with its
subsidiary, Powdermet Inc., wherein it acquired its own shares,
shares of MesoCoat, cash, and equipment in exchange for a 20.5%
ownership stake in Powdermet.

On July 28, the plaintiff filed a

motion for contempt and the appointment of a receiver on the
ground that the July 27 Powdermet transaction was in violation
of the May 22 preliminary injunction.
that motion on August 14, 2015.

A hearing was held on

Raymond Tellini, a member of

Abakan’s Board of Directors, and Stephen Goss, who serves both
as Abakan’s Chief Operating Officer and MesoCoat’s Chief
Executive Officer, testified at the hearing.
11

At the August 14

hearing, it was determined that George Town was entitled to the
appointment of a receiver under § 7 of the Security Agreement.
It was further determined that the defendants should be held in
contempt for violating the preliminary injunction.

Robert

Seiden was appointed as a receiver for MesoCoat.
DISCUSSION
I. Plaintiff’s Motion for Summary Judgment
Summary judgment may not be granted unless all of the
submissions taken together “show[] that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Fed. R. Civ. P. 56(a).

The

moving party bears the burden of demonstrating the absence of a
material factual question, and in making this determination, the
court must view all facts in the light most favorable to the
non-moving party.
Cir. 2008).

Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d

Because injunctive relief has already been granted,

and a receiver appointed, this Opinion only considers the
plaintiff’s motion for summary judgment of its claims seeking
recovery under the Secured Note and Guaranty, and seeking a
determination that it is entitled to exercise the remedies
described in § 7 of the Security Agreement.
a. The Secured Note
A promissory note is “a written engagement by one person to
pay absolutely and unconditionally to another person therein
12

named, or to the bearer, a certain sum of money at a specified
time or on demand.”

Carnwright v. Gray, 127 N.Y. 92, 99 (1891).

A promissory note is “self-standing,” that is, it “establishes
the plaintiff’s right to payment.”

Lyons v. Cates Consulting

Analysts, Inc., 450 N.Y.S.2d 19, 20 (1st Dep’t 1982), aff’d, 64
N.Y.2d 1025 (1985).

“To establish a prima facie entitlement to

judgment as a matter of law in an action to recover on a
promissory note, a plaintiff must show the existence of a
promissory note, executed by the defendant, containing an
unequivocal and unconditional obligation to repay, and the
failure by the defendant to pay in accordance with the note’s
terms.”

Ocean View Realty Co. v. Ziss, 935 N.Y.S.2d 75, 76 (2d

Dep’t 2011) (citation omitted); see also Novick v. AXA Network,
LLC, No. 07cv7767 (AKH), 2009 WL 2753201, at *1 (S.D.N.Y. Aug.
27, 2009) (“Under New York law, which governs actions on the
note . . ., the holder of a promissory note is entitled to
judgment as a matter of law upon making a showing of execution
and default, unless the obligor demonstrates the existence of a
triable issue of fact.”), aff’d Novick v. AXA Network, LLC, 642
F.3d 304 (2d Cir. 2011).
The plaintiff has, through undisputed evidence, met its
burden to show that it is entitled to summary judgment with
respect to its claims seeking recovery under the Secured Note.
The Secured Note is a promissory note as defined under New York
13

law, the Secured Note was validly executed, and Abakan defaulted
under the Secured Note.

Abakan did not file a timely Form 10-Q

and did not pay the principal due on the Secured Note upon
maturity.

The nonpayment and nonreporting are, provided George

Town gives adequate notice, events of default that entitle
George Town to declare a default and accelerate the loan.

The

plaintiff properly provided Nonreporting Notice and Nonrepayment
Notice, on April 22 and April 28, respectively.

Abakan did not

cure either the nonreporting or the nonpayment in the time
period prescribed by the Secured Note.

George Town then

properly served Default Notices on Abakan on April 30 and May 1.
George Town was subsequently entitled under the terms of the
Secured Note to declare an event of default and accelerate the
loan.

Abakan has not paid the Default Amount owed to George

Town under the terms of the Secured Note.

The plaintiff has

thus carried its burden to prove that it is entitled to recovery
under the Secured Note.
The defendants argue that the Nonreporting, Nonpayment, and
Default Notices were inadequate because they did not include a
telephone number, fax number, or email address for George Town.
This argument fails.

Section 4.2 of the Secured Note does not

require the inclusion of such information in order for notice to
be effective.

Section 4.2 requires only that notice be in

writing and delivered in a manner specified in the Secured Note.
14

Hand-delivery, the method by which George Town sent its notices,
is a method of delivery listed in the Secured Note.

Section 4.2

further specifies that notice is deemed effective upon hand
delivery.

There is no dispute that George Town sent the notices

by hand-delivery, and the defendants received these notices.
George Town’s notices satisfy the requirements set out in the
Secured Note.
i. Rule 56(d)
The defendants have failed to present any evidence in
opposition to the plaintiff’s motion for summary judgment.

The

defendants primarily argue pursuant to Rule 56(d), Fed. R. Civ.
P., that summary judgment is inappropriate prior to discovery.
Pursuant to Rule 56(d), where a party opposing summary
judgment “shows by affidavit or declaration that, for specified
reasons, it cannot present facts essential to justify its
opposition, the court may: (1) defer considering the motion or
deny it; [or] (2) allow time to . . . take discovery.”

That

declaration must detail, among other things, “what facts are
sought” and “how these facts are reasonably expected to create a
genuine issue of material fact.”

Miller v. Wolpoff & Abramson,

LLP, 321 F.3d 292, 303 (2d Cir. 2003) (citation omitted).
The defendants have failed to satisfy this burden under
Rule 56(d).

The facts that the defendants seek to prove through

15

discovery do not raise a genuine issue of material fact
preventing summary judgment.
All of the evidence the defendants identify as necessary to
their defense is related to the purported connection between
George Town, Sonoro, and Xinos.

They assert that George Town

colluded with Sonoro and Xinos to cause Abakan’s default by
preventing Abakan from refinancing the debt owed to George Town.
The defendants argue that, if these facts were proven, it would
establish three of the affirmative defenses pleaded in its
answer: that George Town prevented defendants’ performance and
repayment of the promissory note, breached the implied covenant
of good faith and fair dealing, and had unclean hands.

Given

that the defendants do not dispute that the debts owed to both
George Town and Sonoro are legitimate, it is difficult to
discern how Sonoro’s actions in the Southern District of Florida
to enforce Abakan’s obligations to Sonoro present any defense to
Abakan’s default here.

Even if Sonoro’s actions may be

attributed to George Town, George Town’s refusal to consent to
the refinancing of the Secured Note does not present a defense
to Abakan’s failure to pay the Secured Note or to MesoCoat’s
failure to guarantee such payment and performance.

And, the

defendants have not cited a single case that suggests that a
creditor on a promissory note is required to consent to
refinancing.
16

Moreover, none of the defendants’ allegations excuse
Abakan’s failure to timely file a Form 10-Q. 4

Accordingly, the

defendants have failed to show that discovery could reasonably
be expected to yield evidence that would raise a genuine issue
of material fact. 5

The defendants’ request to deny or defer the

summary judgment motion pursuant to Rule 56(d) is denied.
b. The Guaranty
Under New York law, a guaranty is “the promise to answer
for the payment of some debt or the performance of some
obligation, on default of such payment or performance, by a
third person who is liable in the first instance.”

Terwilliger

v. Terwilliger, 206 F.3d 240, 246 (2d Cir. 2000) (citation
omitted).

Guaranty agreements are to be construed under

ordinary principles of contract construction.

Compagnie

Financiere de CIC et de L’Union Europeenne v. Merrill Lynch,
Pierce, Fenner & Smith Inc., 188 F.3d 31, 34 (2d Cir. 1999).

If

In its opposition brief, the defendants claim that the delayed
filing of the Form 10-Q was also caused by Sonoro but provide no
evidence. Defendants have not explained why this is so since
such evidence would be within the defendants’ control.
Accordingly, Abakan’s contention that George Town caused the
late filing is not considered further.
4

Abakan argues, in a footnote, that the late filing of the Form
10-Q is not “material.” This argument is contradicted by the
terms of the Secured Note, which states that an event of default
occurs whenever Abakan fails to comply with the reporting
requirements of the Securities Act of 1934 and cure such
nonreporting within five days of receiving Nonreporting Notice.
5

17

the intent of the parties is clear from the four corners of a
guaranty, its interpretation is a matter of law that the court
may determine by summary judgment.

American Home Assur. Co. v.

Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 316 (2d Cir.
2006).

“Where . . . a creditor seeks summary judgment upon a

written guaranty, the creditor need prove no more than an
absolute and unconditional guaranty, the underlying debt, and
the guarantor’s failure to perform under the guarantee.”
Kensington House Co. v. Oram, 739 N.Y.S.2d 572 (1st Dep’t 2002);
see also City of New York v. Clarose Cinema Corp., 681 N.Y.S.2d
251, 253 (1st Dep’t 1998).
The plaintiff has met its burden of showing that it is
entitled to recover under the Guaranty.

It is undisputed that

the Guaranty was a “promise to answer for the payment of some
debt or the performance of some obligation, on default of such
payment or performance, by a third person who is liable in the
first instance.”
omitted).

Terwilliger, 206 F.3d at 246 (citation

The Guaranty provides an explicit and unambiguous

promise of performance and payment: “[MesoCoat] hereby
unconditionally guarantees to [George Town] the prompt payment
. . . and performance of any and all indebtedness . . . of
[Abakan] under the [Secured Note] . . . and to pay all fees
. . . provided for in [the Guaranty].”

The existence of the

underlying debt -- the principal balance of the Secured Note -18

and MesoCoat’s failure to perform under the Guaranty are
similarly undisputed.
Defendants present no evidence in opposition to the
plaintiff’s claim for recovery under the Guaranty.

Accordingly,

summary judgment is granted in George Town’s favor on George
Town’s action to recover under the Guaranty.
c. The Security Agreement
The plaintiff also seeks summary judgment on its claim
seeking a declaration that, under the terms of the Security
Agreement, the plaintiff is entitled to exercise the rights
described in § 7 of the Security Agreement.

“A contract is

unambiguous when the contractual language has a definite and
precise meaning about which there is no reasonable basis for a
difference of opinion.”

Keiler v. Harlequin Enterprises Ltd.,

751 F.3d 64, 69 (2d Cir. 2014).

Where the language of the

contract and the inferences to be drawn from it are unambiguous
a district court may construe a contract as a matter of law and
grant summary judgment accordingly.

American Home Assur., 446

F.3d at 316.
The Security Agreement unambiguously provides that Abakan’s
failure to pay the principal due on the Note and MesoCoat’s
breach of the Guaranty are events of default.

The Security

Agreement further provides that, upon the occurrence of any
event of default, George Town “shall have the right to exercise
19

all of the remedies conferred [under the Security Agreement] and
under the [Secured Note] . . . .”

These rights include, inter

alia, the right to take possession of the Collateral, receive
dividends and interest on the Collateral, foreclose on the
collateral, and operate the business of MesoCoat.

The terms of

the Security Agreement are unambiguous and uncontested.

The

Security Agreement may therefore be interpreted as a matter of
law.
The plaintiff has shown that it is entitled to exercise the
remedies described in § 7 of the Security Agreement.

George

Town has established that the Security Agreement was validly
made and its terms are unambiguous.

George Town has also proven

that two events of default occurred: first, Abakan failed to pay
the principal due on the Secured Note upon maturity and second,
MesoCoat failed to ensure Abakan’s performance and payment.
Section 7 of the Security Agreement states that, upon the
occurrence of any event of default, George Town is entitled to
exercise the remedies described in § 7 of the Security
Agreement.
The defendants have presented no evidence in opposition to
the plaintiff’s motion with respect to the Security Agreement.
Summary judgment is therefore granted to the plaintiff.

20

II. Plaintiff’s Motion to Dismiss the Counterclaim
When deciding a motion to dismiss under Rule 12(b)(6), Fed.
R. Civ. P., a court must “accept all allegations in the
complaint as true and draw all inferences in the non-moving
party’s favor.”

LaFaro v. New York Cardiothoracic Group, PLLC,

570 F.3d 471, 475 (2d Cir. 2009).

To survive a motion to

dismiss, “a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible
on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(citation omitted).

A complaint must do more than offer “naked

assertions devoid of further factual enhancement.”
(citation omitted).

Id.

A court is “not bound to accept as true a

legal conclusion couched as a factual allegation.”

Id.

“[T]here exists under New York law an implied covenant of
good faith and fair dealing, pursuant to which neither party to
a contract shall do anything which has the effect of destroying
or injuring the right of the other party to receive the fruits
of the contract.”
136 (2d Cir. 1990).

M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134,
The implied covenant “is in aid and

furtherance of other terms of the agreement of the parties.”
Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 304 (1983).
The implied covenant, however, “can only impose an obligation
consistent with other mutually agreed upon terms in the
contract.

It does not add to the contract a substantive
21

provision not included by the parties.”

Broder v. Cablevision

Sys. Corp., 418 F.3d 187, 198–99 (2d Cir. 2005) (citation
omitted).

Nor may “[a] claim for breach of the implied covenant

of good faith and fair dealing . . . substitute for an
unsustainable breach of contract claim.”

Skillgames, LLC v.

Brody, 767 N.Y.S.2d 418, 423 (1st Dep’t 2003).
“The implied covenant does not undermine a party’s general
right to act on its own interests in a way that may incidentally
lessen the other party’s expected benefit.

The covenant will be

breached only in a narrow range of cases.”

Sec. Plans, Inc. v.

CUNA Mut. Ins. Soc., 769 F.3d 807, 817 (2d Cir. 2014) (citation
omitted); see also M/A-COM, 904 F.2d at 136-37 (holding that a
party to a contract did not violate the implied covenant of good
faith and fair dealing when it advanced its legitimate business
interests in an unrelated transaction in such a way as to
destroy the other party’s expected benefit).

The narrow

circumstances in which the implied covenant will be breached
include situations where “an implied promise was so interwoven
in the whole writing of a contract as to be necessary for
effectuation of the purposes of the contract” or “a party’s acts
subsequent to performance on the contract so directly destroy
the value of the contract for another party that the acts may be
presumed to be contrary to the intention of the parties.”
COM, 904 F.2d at 136 (citation omitted).
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M/A-

The main allegation in the defendants’ counterclaim is that
George Town, acting through Sonoro, refused to consent to the
refinancing (unless Abakan met several conditions) of the
Secured Note thereby causing the default.

Accepting the

defendants’ allegations as true, the defendants have failed to
plead facts that would establish a claim for breach of the
implied covenant.

The defendants have failed to plausibly

allege either that George Town was obliged to consent, without
conditions, to Abakan’s proposed refinancing or that George Town
was the cause of the defendants’ default.
The terms and structure of the promissory note weigh
heavily against finding an obligation to consent to refinancing.
George Town assumed essentially no obligations to Abakan in the
Secured Note, let alone an obligation not to pursue the
enforcement of a separate debt or to consent to refinancing.
The implied covenant of good faith and fair dealing cannot be
used to bootstrap an obligation into a contract that was not
contemplated by the parties and is not in furtherance of the
obligations explicitly assumed by the parties.

Moreover, it is

black-letter law that an implied covenant cannot be used to
prevent a party to a contract acting in its own interests or
from taking an action in a separate transaction that serves its
legitimate interests even if that action deprives the other

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party to the contract of the benefit of its bargain.

See M/A-

COM, 904 F.2d at 136-37.
Furthermore, Abakan was not deprived of the benefit of its
bargain.

Abakan received exactly what it bargained for: a loan

of $1,341,963.34 for a term of one year.

The defendants cannot

plausibly allege that the plaintiff’s conduct has destroyed the
value of the contract when they have received every benefit
contemplated by the contract.
The defendants have also failed to plausibly allege that
the plaintiff was the cause of Abakan’s default.

The premise of

the defendants’ claim is that the plaintiff maliciously
prevented Abakan from performing on the Secured Note.

The

actual cause of Abakan’s nonperformance, however, was Abakan’s
inability to pay the Secured Note.

The fact that the plaintiff

could have made repayment easier, and chose not to, does not
affect this conclusion.

Because the counterclaim is subject to

dismissal for failure to state a claim upon which relief can be
granted, this Opinion does not consider plaintiff’s additional
arguments in support of dismissal.
III. The Defendants’ Motion to Add Xinos as a Party
As this Opinion concludes that the plaintiff is entitled to
summary judgment and to dismissal of the defendants’
counterclaim, it need not reach the question of whether Xinos

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should be added to this action as a party.

The defendants’

motion to add Xinos as a party is denied.
CONCLUSION
The plaintiff’s June 18 motions for summary judgment and to
dismiss the defendants’ counterclaim are granted.

The

defendants’ July 17 motion to add Xinos as a party is denied.
Dated:

New York, New York
August 18, 2015
____________________________
DENISE COTE
United States District Judge

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