LVP Associates L.L.C. et al v. Bank of China, New York Branch
OPINION & ORDER: re: 12 MOTION for Summary Judgment - Plaintiffs' Notice of Motion for Summary Judgment, or in the Alternative, for Expedited Resolution of This Action, filed by 349 Associates L.L.C., LVP Associates L.L.C. , 19 CROSS MOTION for Summary Judgment, filed by Bank of China, New York Branch. For the reasons set forth in this Opinion, the Court grants plaintiffs' motion to the extent that it declares that plaintiffs are permitted "t o repay in full their respective loans and have all repayment proceeds be applied strictly to their respective loans and no other loans," and otherwise denies that motion. In addition, the Court grants the Bank's cross-motion for summary judgment in its favor to the extent that it denies plaintiffs' request for a declaration that plaintiffs are entitled to "a release of any security interest held by the Bank on their commercial buildings upon repayment in full of their respective loans," and otherwise denies that cross-motion, and as further set forth in this order. (Signed by Judge Sidney H. Stein on 11/16/2017) (ap) Modified on 11/16/2017 (ap).
SOUTHERN DISTRICT OF NEW YORK
LVP ASSOCIATES L.L.C. and 349
i l ELECIRONICALLY F1LBD ·
UNITED STATES DISTRICT COURT
) DATE f-a=-E~D~:--+--+--· ..
OPINION & ORDER
-againstBANK OF CHINA, NEW YORK BRANCH,
SIDNEY H. STEIN, U.S. District Judge.
This contract dispute concerns three loans issued by defendant Bank of China, New York
Branch to three New Jersey limited liability companies controlled by the same real estate
investor. The loans are secured by mortgages on three commercial buildings in New Jersey.
Two of the limited liability companies - LVP Associates LLC and 349 Associates LLC - now
wish to repay their loans in order to sell the encumbered properties. However, the Bank
refuses to allow them to do so, or to release its security interests in the underlying properties,
until the separate loan to the third company (non-party 769 Associates LLC) is also repaid.
LVP Associates and 349 Associates have now brought this action seeking a declaration
that 1) the loan agreements permit them "to repay in full their respective loans and have all
repayment proceeds be applied strictly to their respective loans and no other loans," and 2)
they are entitled to "a release of any security interest held by the Bank on their commercial
buildings upon repayment in full of their respective loans." (Compl. at 12.)
Plaintiffs have now moved for summary judgment granting those declarations and the
Bank has cross-moved for summary judgment dismissing the complaint. For the reasons that
follow, the Court grants plaintiffs' motion in part and defendant's cross-motion in part and
otherwise denies those motions.
A. The Original Agreements
349 Associates LLC, LVP Associates LLC, and 769 Associates LLC are New Jersey limited
liability companies managed and controlled by real estate investor Paul V. Profeta. (Profeta
Deel., Doc. 15 <_II<_[ 1-2; Profeta Aff., Doc. 32.) On May 22, 2007, each of the three companies
entered into a separate written agreement with defendant Bank of China to obtain loans ranging in amount from $7.35 million to $14.35 million - in order to refinance three
commercial buildings in Essex County, New Jersey. (Profeta Deel. <_!I<_!I 3-4.) At the same time,
each company executed a promissory note and mortgage agreement granting the Bank a
security interest in the property for which the loaned money was to be used. The LVP
building is located in Maplewood, the 349 building in Livingston, and the 769 building in
West Orange, New Jersey. (See Original Mortgages, Doc. 16-7; 16-8; 16-9.)
The parties' present dispute turns on a small number of provisions scattered throughout
these contracts. 1 As relevant here, the original mortgage provided the following "express
condition" on the grant of the Bank's security interest in the underlying property, in a passage
later identified as Section 2(b ):
[I]f Mortgagor shall well and truly pay to Mortgagee [Bank of China] the Debt
at the time and in the manner provided in the Loan Documents and shall well
and truly abide by and comply with each and every covenant and condition set forth
in the Loan Documents in a timely manner, these presents and the estate hereby
granted shall cease, terminate and be void ....
(Original Mortgage, Doc. 16-7 at 5 (emphasis added).)
In the original loan agreement, Section 2.3.1, entitled "Repayment," provided in relevant
Except during the continuance of an Event of Default, all proceeds of any
repayment, including permitted prepayments, of the Loan shall be applied by
Lender as follows in the following order of priority: First, accrued and unpaid
interest at the Interest Rate; Second, to Principal; and Third, any other
amounts then due and owing under the Loan Documents. . . . During the
continuance of an Event of Default, all proceeds of repayment ... shall, unless
otherwise provided in the Loan Documents, be applied in such order and in
such manner as Lender shall elect in Lender's discretion.
(Original Loan, Doc. 16-1 at 6-7 (emphases added) .) In each agreement, the defined term
"Loan Documents" referred to the specific loan agreement, mortgage, and promissory note associated
with that particular loan . (Id. at 3; Original Mortgage at 2.)
Section 8.1 of each loan agreement enumerated twenty-one circumstances that constituted
events of default with respect to the loan. (Original Loan at 33-35.) Various consequences
and remedies for default- including the ability of the Bank to accelerate the debt by declaring
it immediately due and payable - were specified in a series of provisions including loan
agreement Section 8.2 and Mortgage Paragraph 10. (Id. at 35-37; Original Mortgage at 8-11.)
In addition, loan agreement Section 5.16 provided for defendant to receive reimbursement
for "reasonable out-of-pocket costs and expenses" incurred in connection with the loans,
including costs of litigation. (Original Loan at 23-24.)
The contracts are attached as Exhibits 1-15 to the Dahan Declaration. (Doc. 16.) Because the three LLCs'
respective agreements are identical in all material respects, citations in this Opinion are to the LVP version
of each document unless it is helpful or necessary to refer to each separately.
B. The 2010 Amendments
Three years later, in 2010, the parties agreed to amend both the loan agreements and the
mortgages as part of the settlement of a totally separate dispute. Among other changes,
Section 2(a) of the amendment to the mortgage provides for the cross-collateralization of the
three loans. (Mortgage Amendment, Doc. 16-13 at 2-3.) Thus, each loan became secured by
mortgages on the three properties underlying all three of the loans instead of the single
property specified in each original mortgage.
The amendment to the loan agreement created new defined terms (viz., "Related Loan
Documents," "Related Loan Parties," and "Related Property Loans") to refer in each
agreement to the loans entered into by Profeta's other two companies. (Loan Amendment,
Doc. 16-10at1-2.) Those terms appear in a number of amended loan agreement provisions
including Section 5.15.3, a new subsection governing transfers of the underlying properties
to third parties who will not assume the borrower's obligations pursuant to the loan
documents. In relevant part, Section 5.15.3(a) provides that the original borrower must pay
the Bank 115% of the outstanding principal as consideration for such a transfer, and that that
amount shall be allocated in the following order of priority:
First, to the payment of the outstanding Principal of the Loan; Second, to the
payment of any outstanding costs and expenses (including Late Payment
charges and reasonable attorney's fees and expenses), then due to the Lender
under the Loan Documents; Third, to the payment of accrued and unpaid
interest; Fourth, the balance, if any, shall be applied to the reduction of the
outstanding principal balance of either or both of the Related Property Loans.
(Id. at 5 (emphasis added).) The parties also added a cross-default provision, Section 8.l(k),
whereby a default on any one loan constituted a default on the other two Related Property
Loans as well. (Id. at 8.)
The parties did not at that time amend the key passages of loan agreement Section 2.3.1
and mortgage Section 2(b) that are quoted and emphasized above and are relevant to the
parties' dispute, except that they added the word "sole" before "discretion" in the final
sentence of Section 2.3.1. They also amended other, non-material portions of those sections.
(See id. at 4; Mortgage Amendment at 3.)
C. The Present Dispute
In April 2017 - seven years after the amendments limned above - LVP Associates and 349
Associates informed the Bank that they desired to repay the LVP and 349 loans in full and
obtain the release of the Bank's security interests in the two underlying properties in order
for plaintiffs to sell the properties to third party buyers. (Pls.' Reply 56.1 Statement, Doc. 26
<:![ 15.) However, the parties' discussions on this topic soon hit a series of roadblocks. As
relevant here, the Bank asserts that at least one event of default had occurred on the loan to
non-party 769 Associates LLC - and hence, by virtue of the loan agreement's cross-default
provision, Section 8.l(k), on plaintiffs' loans as well. (Id. <:![ 21.) Plaintiffs dispute that any
event of default has occurred, but all parties regard this factual disagreement as immaterial
to the legal questions of contract interpretation currently before the Court. (See Def.'s Mem.,
Doc. 21 at 2; Pls.' Reply Mem., Doc. 24 at 3 n.3.)
The Bank takes the position that the relevant contracts entitle it to receive repayment in
full of all three loans before it is obligated to release its security interest in any of the
properties. (Pls.' Reply 56.1 Statement 1(1[ 22-24.) Plaintiffs disagree: they believe that the
contracts give them the right to repay the LVP and 349 loans, and receive the release of the
Bank's security interest in the LVP and 349 buildings, wi.t hout repaying the 769 loan at this
time. (Id. 1(1[ 25-27; Pls.' Mem., Doc. 13at1.) Because the Bank has stated it intends to apply
any repayment proceeds toward the 769 loan balance (as it believes it has the right to do),
LVP Associates and 349 Associates have refrained from repaying the LVP and 349 loans.
(Pls.' Reply 56.1Statement1(1[ 23, 50; Profeta Deel. 1(1[ 14-20.)
In order to break the impasse, LVP Associates and 349 Associates filed this action in July
of this year seeking a declaratory judgment endorsing their interpretation of the parties'
contracts to allow the repayment of only their respective loans and, upon that repayment, the
release of defendant's security interests in plaintiffs' properties. 2 (Compl. at 12.)
As noted above, the parties have now cross-moved for summary judgment in their favor. 3
A. Legal Standard
Summary judgment is appropriate "if the movant shows 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). "An issue of fact is genuine and material if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party." Cross Commerce Media, Inc. v. Collective,
Inc., 841 F.3d 155, 162 (2d Cir. 2016). "The same standard applies where the parties file crossmotions for summary judgment. Each party's motion is examined independently, with the
Court drawing all reasonable inferences against the party whose motion is under
consideration." Specialty Nat. Ins. Co. v. English Bros. Funeral Home, 606 F. Supp. 2d 466, 470
(S.D.N.Y. 2009) (citations omitted).
Although summary judgment is generally appropriate only after adequate time for
discovery, Hellstrom v. U.S. Dep't of Veterans Affairs, 201 F.3d 94, 97 (2d Cir. 2000), such a
motion may be granted prior to discovery "[i]f there are 'no relevant disputed issues of fact."'
Liberty Mut. Ins. Co. v. N . Picco & Sons Contracting Co., No. 05 CIV. 217 (SCR), 2008 WL 190310,
2 The Bank
answered the complaint and asserted a counterclaim to recover its out-of-pocket costs, including
reasonable attorneys' fees, incurred in connection with the present dispute pursuant to loan agreement
Section 5.16. (Answer, Doc. 10 at 6-7.)
Prior to this suit being filed, all three Profeta loans matured on July 1, 2017. None has been repaid. (Pls.'
Reply 56.1 Statement 'lI 50.)
at *4 (S.D.N.Y. Jan. 16, 2008) (quoting S. & S. Realty Corp. v. Kleer-Vu Indus., Inc., 575 F.2d 1040,
1044 (2d Cir. 1978)).
The parties agree that New York law governs the contracts at issue. Under New York
law, "if a contract is unambiguous on its face, its proper construction is a question of law"
that may be resolved on summary judgment, Gaia House Mezz LLC v. State St. Bank & Tr. Co.,
720 F.3d 84, 89 (2d Cir. 2013) (internal quotation omitted), but "contract claims are generally
not subject to summary judgment if the resolution of a dispute turns on the meaning of an
ambiguous term or phrase," Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 567 (2d Cir.
2011); see also Karas v. Katten Muchin Zavis Rosenman, No. 04 CIV. 9570 (SHS), 2006 WL 20507,
at *8 (S.D.N.Y. Jan. 3, 2006), aff'd sub nom. Karas v. Katten Muchin Rosenman LLP, No. 07-1545CV, 2009 WL 38898 (2d Cir. Jan. 8, 2009) (summary order).
"Whether or not a writing is ambiguous is a question of law to be resolved by the courts."
W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). Contract provisions are
unambiguous if they "have a definite and precise meaning ... concerning which there is no
reasonable basis for a difference of opinion." Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 355
On the other hand, "ambiguity exists where the terms of the contract' could suggest more
than one meaning when viewed objectively by a reasonably intelligent person who has
examined the context of the entire integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in the particular trade or
business.'" Law Debenture Tr. Co. of New York v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir.
2010) (quoting Int'l Multifoods Corp. v. Commercial Union Ins . Co., 309 F.3d 76, 83 (2d Cir. 2002)).
However, "[t]he court should not find the language ambiguous on the basis of the
interpretation urged by one party, where that interpretation would 'strain the contract
language beyond its reasonable and ordinary meaning."' Metro. Life Ins. Co. v. RJR Nabisco,
Inc., 906 F.2d 884, 889 (2d Cir. 1990) (second alteration in original) (quoting Bethlehem Steel Co.
v . Turner Constr. Co., 2 N.Y.2d 456, 459 (1957)). 4
Here, plaintiffs and defendant both submit that the case is susceptible to summary
judgment prior to discovery because the contracts evince unambiguous meaning. The parties
simply dispute what that ineluctable meaning is.
A footnote in plaintiffs' reply memorandum suggests that any ambiguity should be construed against the
Bank because the Bank drafted the agreements at issue here. (Pls.' Reply Mem. at 6 n.6.) But loan
agreement Section 9.16 expressly provides that "the Loan Documents shall not be subject to the principle
of construing their meaning against the party that drafted them." (Original Loan at 43.) Regardless,
because the parties' other arguments suffice to resolve the case, the Court's ruling does not rely on this
B. Loan Agreement Section 2.3.1 Entitles Plaintiffs to Repay Each Loan
The Bank contends that the loan agreement entitles it to take money delivered by LVP
Associates and 349 Associates for the purpose of repaying their own loans and apply those
funds instead to any outstanding balance on the 769 loan. (Def.' s Mem. at 10-13.) The textual
hook on which the Bank rests this argument is the last sentence of Section 2.3.1. As set forth
above, that provision, as amended, specifies that absent any event of default, repayment
proceeds shall be applied first to accrued interest, second to principal, and third to any other
amounts due on each loan; but if an event of default has occurred, repayment proceeds "shall,
unless otherwise provided in the Loan Documents, be applied in such order and in such
manner as [Bank of China] shall elect in [its] sole discretion." (Loan Amendment at 4.)
The literal breadth of this phrase, read in isolation, might encompass defendant's
endeavor to apply proceeds of repayment on one loan to the balance of another. But the New
York Court of Appeals has cautioned that written contracts "should be read as a whole to
ensure that undue emphasis is not placed upon particular words and phrases." Bailey v. Fish
& Neave, 8 N.Y.3d 523, 528 (2007). In context, several factors strongly favor plaintiffs'
alternative interpretation: during a default, Section 2.3.1 empowers the Bank to change the
order in which it applies repayment proceeds to the various debts outstanding on a particular
loan, but not to use those funds to repay a different loan balance (or for any other purpose).
First, although the Bank correctly characterizes the "sole discretion" phrase in Section
2.3.1 as "deliberately broad," (Def.' s Mem. at 10), any reasonable reading of the clause must
include some implied limitation on the Bank's range of options. Otherwise, as plaintiffs
observe, there is no reason to stop at inter-loan allocation; if no limitation on the Bank's
discretion were to be implied, then the Bank could arguably apply the loan proceeds to the
Bank's own expenses or even "vacations for executives." (Pis.' Reply Mem. at 5.)
What limiting principle exists in the provision's language itself? Section 2.3.l's text
suggests that the Bank's discretion does not extend beyond the limits of any single loan. That
section refers throughout to contractually defined terms - e.g., "the Loan Documents," "the
Loan," "the Principal" - that are expressly limited to the specific loan covered by each
agreement. The" sole discretion" clause is specified as an alternative to the" order of priority"
(indisputably referring only to debts under one particular loan) that operates when there is
no event of default. And the express condition attached to the final clause itself - "unless
otherwise provided in the Loan Documents" - again refers only to the specific agreements
governing the loan at issue. (Loan Amendment at 4 (emphasis added)). The contractual
language of each loan agreement's Section 2.3.1 contains no reference - indeed not even a
hint of a reference - to any other loan.
Examining the provision in the broader context of the parties' contractual relationship
reinforces this conclusion. As explained above, the relevant language of Section 2.3.1 has not
changed since the time of the original 2007 agreements, except for the addition of the word
"sole." (See Original Loan at 7.) Until the 2010 amendment adding cross-collateralization,
however, each loan agreement lacked any reference whatsoever to the other two Profeta
loans. It is difficult to believe that the word "discretion" constituted a sub silentio reference
to separate transactions never directly named in the document.
It also strains credulity to read the 2010 amendment as implicitly expanding the scope of
the Bank's discretion under Section 2.3.1, the repayment provision, to extend to other loans.
Elsewhere in the loan agreement, the parties specifically added references to "Related Loan
Documents," "Related Loan Parties," and "Related Property Loans" when they meant to refer
to loans beyond the one at issue in each contract. In particular, Section 5.15.3(a) clearly
specifies one circumstance in which defendant may apply payments on one loan toward the
balance of another: "Fourth, the balance, if any, shall be applied to the outstanding principal
balance of either or both of the Related Property Loans." (Loan Amendment at 5.) But the
parties conspicuously failed to add comparable language to the relevant text of Section 2.3.1,
even though they made other amendments to this provision. (Id. at 4.) Under New York law,
"courts may not by construction add or excise terms, nor distort the meaning of those used
and thereby make a new contract for the parties under the guise of interpreting the writing."
Law Debenture Tr. Co. of New York v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir. 2010)
(internal quotation omitted).
The Bank offers two structural inferences to prop up its contrary interpretation of the
amended loan agreement, but neither stands up under analysis. The Bank urges first that
plaintiffs' reading of Section 2.3.1 would impermissibly "effectively delete the crosscollateralization from the Profeta Loan Agreements and the Profeta Mortgages." (Def.' s
Mem. at 11.) Here, defendant conflates the right to foreclose on a related loan's underlying
property with the ability to take payments toward one loan and apply them to another. There
is no reason a contract could not grant a lender one right but not the other, and no need exists
to twist this provision's language to give effect to the cross-collateralization amendment.
Next, the Bank gamely suggests that Section 5.15.3 indirectly supports its own position
rather than plaintiffs'. That section, entitled "Transfers of Property; Condominium
Conversion," in relevant part, allows the borrowing company to sell the property if it pays
115% of any outstanding principal on the loan. Defendant argues that plaintiffs' narrow
reading of Section 2.3.1 must be rejected because it would counterintuitively afford the Bank
fewer rights when a borrower defaults: "in the event LVP, 349 and/or 769 wanted to sell one
of their properties, they could simply default and then immediately pay off their loans [i.e.,
pursuant to Section 2.3.1] without having to pay the 115% of principal it would otherwise be
obligated to pay under Section 5.15.3 if no Event of Default was continuing." (Id. at 12-13.)
This herring is bright red. The source of plaintiffs' apparent ability to escape the 115%
consideration requirement is not the "sole discretion" clause but the separate provision
allowing voluntary prepayment, Section 2.3.3. (See Loan Amendment at 5.) Whether or not
plaintiffs' prepayment rights allow them to effectively circumvent the restrictions on
property transfers in certain circumstances has nothing to do with Section 2.3.1' s operation
during an event of default.
In sum, defendant seeks to evade the most natural reading of the loan agreement in order
to more fully effectuate what it regards as the purpose of certain contract provisions. But in
New York, "when parties set down their agreement in a clear, complete document, their
writing should as a rule be enforced according to its terms. Evidence outside the four comers
of the document as to what was really intended but unstated or misstated is generally
inadmissible to add to or vary the writing." W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d
157, 162 (1990). If there were any doubt as to the application of this principle here, the courts
have confirmed that the rule that a contract is enforced according to its terms applies "with
even greater force in commercial contracts negotiated at arm's length by sophisticated,
counseled businesspeople," Ashwood Capital, Inc. v. OTG Mgmt., Inc., 99 A.D.3d 1, 7 (1st Dep't
2012), and that the need for disciplined textual interpretation is "all the more compelling in
the context of real property transactions, where commercial certainty is a paramount
concern," W.W.W. Assocs., 77 N.Y.2d at 162. The Bank's attempt to stretch the language of
Section 2.3.1 to meet its own ends is roundly rejected by this Court. Plaintiffs are entitled to
summary judgment in their favor as to the question of independent loan repayment. 5
Mortgage Section 2(b) Does Not Entitle Plaintiffs to a Release from Their
Mortgages if They Are in Default.
Plaintiffs also urge that the mortgage entitles them to the release of the Bank's security
interest in the particular property associated with each loan upon the full repayment of that
particular loan. (Pls.' Mem. at 2.) The Bank insists instead that the persistence of one or more
events of default allows it to withhold the release of its security interests in all three
properties. (Def.'s Mem. at 13-15.) Because the loans have now reached maturity, defendant
asserts that each will remain in default until all three are repaid, pursuant to the cross-default
provision in loan agreement Section 8.l(k), as amended. By this interpretation, the Bank may
effectively bar LVP Associates and 349 Associates from recovering the security interests in
their properties until the 769 loan is also paid in full.
In pertinent part, Section 2(a) of each mortgage grants defendant an interest in a
particular piece of property and the building located thereupon, as identified in an attached
schedule. (Mortgage Amendments, Doc. 16-13 at 3; 16-14 at 3; 16-15 at 3.) In language
The Bank contends in passing that plaintiffs cannot receive the declaratory relief they seek unless they
make a showing that they were "ready, willing, and able" to repay the loan to LVP Associates and the loan
to 349 Associates. It is not enough, the Bank contends, for plaintiffs to simply state they seek to repay those
loans. That argument is misdirected here. New York law requires such a showing only for plaintiffs
seeking specific performance or damages for breach of contract. See Ferchaw v . Troxel, 112 A.D.3d 1310,
1312 (4th Dep't 2013) ("[D]efendant's contention lacks merit. Although a plaintiff seeking specific
performance or monetary damages for nonperformance of a contract must demonstrate that he or she was
ready, willing and able to perform on the contract, plaintiffs in this case have not requested specific
performance or monetary damages; instead, their complaint seeks declaratory relief ...." (citations
materially unaffected by the 2010 amendment, Section 2(b) provides that the Bank's interest
in the property "shall cease, terminate and be void" if the borrower satisfies two obligations:
first, to pay the amounts owed under the particular loan agreement, and second, to "well and
truly abide by and comply with each and every covenant and condition" in the loan's
governing documents "in a timely manner." (Original Mortgage at 5; Mortgage Amendment
Defendant builds its argument on the latter condition, reasoning that borrowers' defaults
constitute failures to abide by and comply with the covenants and conditions of each loan,
which preclude the return of the Bank's security interest even if a given loan has been repaid
in full (the first condition for release). (Def.'s Mem. at 14.)
Neither "covenant" nor "condition" is a defined term in these contracts. But their plain
meaning is broad. See, e.g., Black's Law Dictionary 355-56 (10th ed. 2014) ("[C]ondition....
2. A stipulation or prerequisite in a contract, will, or other instrument, constituting the
essence of the instrument. .. . 3. Loosely, a term, provision, or clause in a contract."); id. at 443
("[C]ovenant. .. . 1. A formal agreement or promise, usu. in a contract or deed, to do or not
do a particular act; a compact or stipulation.").6 Further, the loan agreement enumerates
dozens of "Covenants" binding the loan recipients. (Original Loan at 15-27.) One of these
provisions, Section 5.3.4, provides in sweeping terms that "Borrower shall observe and
perform each and every term to be observed or performed by it pursuant to the terms of any
agreement or instrument affecting or pertaining to the Property, including the Loan
Documents." (Id. at 16.)
In this context, it is eminently reasonable to interpret the "covenant and condition" clause
of mortgage Section 2(b ), as the Bank does, to cover at least those serious derelictions
specifically designated as defaults. Indeed, at least three kinds of events of default are
specifically defined - in loan agreement Sections 8.l(i), 8.1(1), and 8.l(n) - to occur upon the
violation of certain covenants and conditions in the loan agreement. (Id. at 34-35; Loan
Amendment at 8.) These cross-references suggest that Section 8.l's list of defaults comprises,
if anything, a subset of the universe of noncompliance with covenants and conditions
proscribed by mortgage Section 2(b ).
Here, it is plaintiffs who fatally fail to supply a limiting principle for their position.
Plaintiffs deny that the "mere existence" of a default counts as a violation of covenants and
conditions, suggesting that simply "by paying the amounts due and owing under their
respective Loans .. . Plaintiffs would have truly and timely abided by and complied with all
of the covenants and conditions set forth in their respective Loan Documents." (Pls.' Reply
Mem. at 8.) But under this reading, the separate "covenants and conditions" clause "would,
When terms are not defined, "it is common practice for the courts of [New York] State to refer to the
dictionary to determine the plain and ordinary meaning of words to a contract." 10 Ellicott Square Court
Corp. v . Mountain Valley Indem . Co., 634 F.3d 112, 120 (2d Cir. 2011) (quoting Mazzola v . Cty. of Suffolk, 143
A.D.2d 734, 735 (2d Dep' t 1988)).
therefore, be rendered surplusage - a construction that cannot be countenanced under our
principles of contract interpretation." Matter of Viking Pump, Inc., 27 N.Y.3d 244, 261 (2016).
If the parties meant to trigger the release of the Bank's security interest immediately upon
simply repaying the loan, they could have so provided; as it is, the mortgage as executed
imposes an additional hurdle of compliance with the covenants and conditions. See Galli v.
Metz, 973 F.2d 145, 149 (2d Cir. 1992) ("[A]n interpretation of a contract that has 'the effect of
rendering at least one clause superfluous or meaningless ... is not preferred and will be
avoided if possible."' (omission in original) (quoting Garza v. Marine Transp. Lines, Inc., 861
F.2d 23, 27 (2d Cir. 1988)).
Plaintiffs suggest that mortgage Section 2(b )' s "covenant and condition" clause should
not be read to cover defaults, notwithstanding its most natural meaning, because loan
agreement Section 8.2 separately provides the Bank several other remedies in an event of
default. In effect, plaintiffs ask the Court to infer an implied caveat to mortgage Section 2(b ):
in order to receive the release of the Bank's security interests upon repayment, the borrowers
must "abide by and comply with each and every covenant and condition set forth in the Loan
Documents, unless an exclusive remedy for their violation is already provided elsewhere." Whatever
its merits in the abstract, this argument fails at its premise: nothing in Section 8.2 indicates
that its list of remedies is exhaustive. Indeed, countless other provisions of the loan
documents specify additional consequences and remedies for events of default. As discussed
above, for instance, Section 2.3.1 allows the Bank to alter the order of priority in which it
applies loan repayments; the loan agreement and mortgage are replete with other examples.7
The fact that defaults have other consequences under the loan documents cannot justify an
inference reading them out of mortgage Section 2(b ).
Nor do plaintiffs offer any satisfactory reason to treat a cross-default differently from any
other contractually defined event of default for this purpose. While it is true that the 2010
amendment to mortgage Section 2(b) did not incorporate any express reference to the Related
Property Loans, the direct effect of amended loan agreement Section 8.l(k) is to make a
default on one of the three loans trigger defaults on its two counterparts as well. (Loan
Amendment at 8.) A cross-default is a bona fide default, and hence a violation of a covenant
or condition, on each set of Loan Documents.
By the plain meaning of the loan documents, the Bank is correct that the continuance of
an event of default - including a cross-default - would preclude LVP Associates and 349
Associates from receiving the return of their security interests upon repayment of their
respective loans. As a factual matter, the parties vigorously contest whether or not there exist
events of default on the three Profeta loans. (See, e.g., Pls.' R_ply 56.1 Statement
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