XXIII Capital Limited v. Decade, S.A.C., LLC et al
Filing
292
MEMORANDUM OPINION AND ORDER re: 246 MOTION for Summary Judgment Notice of Motion for Partial Summary Judgment filed by XXIII Capital Limited. For the reasons described above, XXIII is entitled to judgment against each of Mr . Aden and Mr. James in the amount of $25,813,306.85. According to the terms of the Loan Agreement, Mr. Aden and Mr. James are jointly and severally liable for the judgment in that amount. The Clerk of Court is directed to enter judgment accordingly and to terminate the motion pending at Dkt. No. 246. (Signed by Judge Gregory H. Woods on 9/13/2018) (mro) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------- X
:
XXIII CAPITAL LIMITED,
:
:
Plaintiffs, :
:
-against:
:
DECADE, S.A.C., LLC, DECADE, S.A.C.
:
CONTRACTS, LLC, DECADE, S.A.C. I, LLC, :
DECADE, S.A.C. II, LLC, DECADE, S.A.C. III, :
LLC, GOODWIN ASSOCIATES
:
MANAGEMENT ENTERPRISES, INC.,
:
GOODWIN SPORTS MANAGEMENT, INC., :
DECADE, S.A.C. EXECUTIVES, LLC,
:
GOTHAN S&E HOLDINGS, LLC,
:
CHRISTOPHER ADEN, DORSEY JAMES,
:
AARON GOODWIN, and ERIC GOODWIN, :
:
Defendants. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 09/13/18
1:17-cv-6910-GHW
MEMORANDUM OPINION
AND ORDER
GREGORY H. WOODS, District Judge:
I.
INTRODUCTION
2016 was a big year for Christopher Aden and Dorsey James. In February 2016 both men
were managers of Decade, S.A.C., LLC, which, together with a number of affiliated entities, was
about to enter into a multi-million dollar transaction to buy a sports management business with a
roster of NBA stars as clients. The Court assumes that at the time that Mr. Aden and Mr. James
personally guaranteed the acquisition debt incurred to purchase the business, they had every
expectation that the transaction would go well for them and their companies. It did not. Decade
S.A.C., LLC and its sister companies have failed to pay their debt when due; a number of the
companies are already bankrupt. Now Mr. Aden and Mr. James confront their lender’s claims under
their personal guarantee of the loans. Because their guarantees were absolute and unconditional,
they are liable for their companies’ borrowings, and their lender’s request for entry of summary
judgment is GRANTED.
II.
BACKGROUND
From late 2015 through early 2016, Decade, S.A.C., LLC worked to finance the acquisition
of a number of sports agencies. Declaration of Jason Traub, Dkt. No. 248 (“Traub Decl.”) ¶ 7;
Declaration of Christopher Aden, Dkt. No. 284 (“Aden Decl.”) ¶¶ 2, 4. Mr. Aden and Mr. James
were the managers of the company and of a number of its subsidiaries. Traub Decl. Ex. A (the
“Loan Agreement”), at 73.
In order to finance those acquisitions, Plaintiff XXIII Capital Limited (“XXIII”) entered
into a Loan, Guaranty and Security Agreement, dated as of February 22, 2016, with Decade, S.A.C.,
LLC, Decade, S.A.C. Contracts, LLC, Decade, S.A.C. I, LLC, Decade, S.A.C. II, LLC, Decade,
S.A.C. III, LLC, Goodwin Associates Management Enterprises, Inc., and Goodwin Sports
Management Inc. (collectively “Borrowers”) as borrowers, and Decade, S.A.C. Executives, LLC
(“Decade Executives”), Gotham S&E Holdings, LLC (“Gotham;” together with Decade Executives,
the “Corporate Guarantors”) and Messrs. Aden and James (collectively, the “Personal Guarantors,
and together with the Corporate Guarantors, the “Guarantors”) as guarantors. Loan Agreement at
1.
The Loan Agreement established a payment schedule for the principal amounts due with
respect to the loans. Loan Agreement § 2.2. In addition, the Loan Agreement required the payment
of a specified prepayment fee due at the time of any prepayment of the loans. Id. § 2.2(c). Under
the terms of the Loan Agreement, interest accrued on advances at a rate of LIBOR plus 12.5%. Id.
§ 2.4(a). However, pursuant to the terms of the Loan Agreement, that rate increased by five percent
“if any principal of or interest on any Loan . . . hereunder is not paid when due, whether at stated
maturity, upon acceleration or otherwise . . . .” Id. § 2.4(e).
2
As is customary in such agreements, the Loan Agreement contains a number of affirmative
and negative covenants, as well as a series of events of default. Among the events of default under
the Loan Agreement is the failure by any “Loan Party” to make payment of principal when due or
payment of interest or other amounts within three business days following the date on which it was
due. Loan Agreement § 10.1(a). Upon the occurrence of that, or any other event of default, XXIII
as lender, has the authority to “accelerate” the obligations under the Loan Agreement—in other
words, to require the immediate payment of all of the obligations under the Loan Agreement. Id. §
10.8(a).
The Loan Agreement obligates the Borrowers and Corporate Guarantors to pay all of the
reasonable out of pocket fees and expenses of XXIII in connection with its administration of the
Loan Agreement. Loan Agreement § 13.3. That obligation expressly captures fees and expenses
incurred in connection with collection efforts, or the protection of the lender’s rights under the
Loan Agreement, through litigation or otherwise. Id.
Pursuant to the terms of the Loan Agreement, each of the Borrowers is jointly liable for the
full amount of all obligations under the Loan Agreement. Id. §§ 2.13, 13.16. In addition, all
obligations of the Borrowers under the Loan Agreement are guaranteed by the Guarantors,
including the so-called “Personal Guarantors,” Messrs. Aden and James. Id. §§ 2.13, 14.1
The terms of the guarantee agreed to by Messrs. Aden and James are spelled out clearly in
Section 14 of the Loan Agreement. The scope of the obligations guaranteed is broad. The
guarantee encompasses all “Obligations” as defined in the Loan Agreement. Loan Agreement §
14.1. The guaranteed “Obligations” include “all Loans and other Indebtedness, advances, debts,
liabilities, obligations, covenants and duties owing by the Loan Parties and the Personal Guarantors
to Lender . . . that arises under any Loan Document . . . .” Loan Agreement at 15.
3
Several provisions of the Loan Agreement related to their guarantee are worthy of particular
note here. The guarantee is stated to be “absolute and unconditional” and encompasses all of the
obligations under the Loan Agreement. Section 14.1 of the Loan Agreement states:
Each Guarantor hereby agrees that it is jointly and severally liable for, and absolutely
and unconditionally guarantees to the Lender, the prompt payment when due,
whether at state maturity, upon acceleration or otherwise, and at all times thereafter,
of the Obligations and all reasonable costs and expenses including, without
limitation, all court costs and reasonable attorneys’ fees (including allocated costs of
in-house counsel) and expenses paid or incurred by Lender in endeavoring to collect
all or any part of the Obligations from, or in prosecuting any action against, any
Borrower, any Guarantor or any other guarantor of all or any part of the Obligations
(such costs and expenses, together with the Secured Obligations, collectively the
“Guaranteed Obligations”). Each Guarantor further agrees that the Guaranteed
Obligations may be extended or renewed in whole or in part without notice to or
further assent from it, and that it remains bound upon its guarantee notwithstanding
any such extension or renewal.
Loan Agreement § 14.1.
Moreover, the Loan Agreement contains extensive provisions emphasizing the absolute and
unconditional nature of the guarantee, and waiving any defense associated with performance of the
guarantee. For example Section 14.3 of the Loan Agreement reads:
(a)
Except as otherwise provided for herein, the obligations of each Guarantor
hereunder are unconditional and absolute and not subject to any reduction,
limitation, impairment or termination for any reason (other than the indefeasible
payment in full in cash of the Guaranteed Obligations), including: (i) any claim of
waiver, release, extension, renewal, settlement, surrender, alteration, or compromise
of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any
change in the corporate existence, structure or ownership of any Borrower or any
other Obligated Party liable for any of the Guaranteed Obligations; (iii) any
insolvency, bankruptcy, reorganization or other similar proceeding affecting any
Obligated Party, or their assets or any resulting release or discharge of any obligation
of any Obligated Party; or (iv) the existence of any claim, setoff or other rights which
any Guarantor may have at any time against any Obligated Party, Lender or any
other Person, whether in connection herewith or in any unrelated transactions.
(b)
The obligations of each Guarantor hereunder are not subject to any defense
or setoff, counterclaim, recoupment, or termination whatsoever by reason of the
invalidity, illegality, or unenforceability of any of the Guaranteed Obligations or
otherwise, or any provision of applicable law or regulation purporting to prohibit
payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.
4
(c)
Further, the obligations of any Guarantor hereunder are not discharged or
impaired or otherwise affected by: (i) the failure of Lender to assert any claim or
demand or to enforce any remedy with respect to all or any part of the Guaranteed
Obligations; (ii) any waiver or modification of or supplement to any provision of any
agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or
invalidity of any indirect or direct security for the obligations of any Borrower for all
or any part of the Guaranteed Obligations or any obligations of any other Obligated
Party liable for any of the Guaranteed Obligations; (iv) any action or failure to act by
Lender with respect to any collateral securing any part of the Guaranteed
Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment
or performance of any of the Guaranteed Obligations or any other circumstance, act,
omission or delay that might in any manner or to any extent vary the risk of such
Guarantor or that would otherwise operate as a discharge of any Guarantor as a
matter of law or equity (other than the indefeasible payment in full in cash of the
Guaranteed Obligations).
Loan Agreement § 14.3.
And Section 14.4 of the Loan Agreement contains an express waiver of additional defenses,
including the following:
To the fullest extent permitted by applicable law, each Guarantor hereby waives any
defense based on or arising out of any defense of any Borrower or any Guarantor or
the unenforceability of all or any part of the Guaranteed Obligations from any cause,
or the cessation from any cause of the liability of any Borrower or any Guarantor,
other than the indefeasible payment in full in cash of the Guaranteed Obligations.
Id. § 14.4.
Messrs. James and Aden were represented by counsel in connection with the Loan
Agreement and related transactions. Aden Decl. ¶ 14. Both Mr. James and Mr. Aden signed the
Loan Agreement not only in their capacity as managers of the various corporate borrowers and
guarantors but also in their individual capacity under a separate heading that listed them as “Personal
Guarantors” of the loans. Loan Agreement at 73-74. As guarantors, Mr. Aden and Mr. James each
expressly acknowledged his liability under the guarantee, and assumed “all responsibility for being
and keeping itself informed of each Borrower’s financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations.” Id. § 14.7; see
also id. § 14.1.
5
The Loan Agreement is governed by New York law. Id. § 13.7. The agreement contains a
comprehensive integration clause, which states, among other things that “[a]ny letter of interest,
commitment letter, fee letter or confidentiality agreement, if any, between any Loan Party and
Lender or any of their respective Affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this Agreement.” Id. § 13.1.
Between February 23, 2016 and August 2016, XXIII advanced a total of $15,446,033.20 to
the Borrowers or to others on their behalf. XXIII’s Reply 56.1 Statement of Undisputed Facts, Dkt.
No. 288 (“Reply 56.1 Statement), ¶ 22.1 On December 7, 2016, XXIII sent Decade a default notice
to inform it of the occurrence of a number of events of default under the Loan Agreement. Reply
56.1 Statement ¶ 47. The Borrowers later failed to pay the interest payment due on March 15, 2017.
Id. ¶ 43. As a result of the undisputed payment default and the other defaults asserted by XXIII, on
March 17, 2017, XXIII accelerated the indebtedness owed under the Loan Agreement. Id. ¶ 48. No
further payments have been made in respect of the obligations owing under the Loan Agreement.
Id. ¶ 49. As a result, as of June 29, 2018, $25,813,306.85 was due and owing under the Loan
Agreement, consisting of $16,000,000 in principal amount, $581,706 in accrued interest as of March
21, 2017; $3,821,921.80 in default interest calculated from March 21, 2017 through June 29, 2018; a
$4,000,000 pre-payment fee due pursuant to Section 2.2(c) of the Loan Agreement, plus fees and
costs incurred by the lender in connection with its enforcement efforts in the amount of
$1,409,679.05. Id. ¶ 50.2
1
The Court cites to the Reply 56.1 statement of facts, but only does so to the extent that the fact is uncontroverted.
The citation to the reply statement incorporates Messrs. Aden and James’ response.
2
Messrs. Aden and James deny XXIII’s statement regarding the amount outstanding with the following comment:
“Aden and James must complete further research to determine and confirm the appropriate LIBOR Rates and at this
time cannot make a determination as to the accuracy and/or appropriateness of the Fees and Costs stated by XXIII.”
Reply 56.1 Statement ¶ 50. However, as XXIII points out, this response does not raise a genuine issue of material fact
with respect to the statement. First, the statement takes no issue with any component of the amount owing other than
the interest rate and legal fees. Second, with respect to the interest rate utilized, Messrs. Aden and James present no
evidence that the information is incorrect; rather they ask for more time to determine what the LIBOR rate was during
the relevant periods. This does not raise a material issue of fact. Nor does their denial raise an issue of fact with respect
6
Mr. Aden and Mr. James point to a series of events involving an insurance policy as a
justification for their request that the Court either deny or to delay entry of judgment against them
here. Their argument fails for a number of reasons, but the Court lays out the basic facts related to
that insurance contract as set forth by Mr. Aden.
During the early period of negotiations in connection with the Loan Agreement, Mr. Traub,
a representative of XXIII, “raised the issue of obtaining insurance coverage on the players’
management and marketing contracts . . . which would become Decade’s principal assets when the
deal closed.” Aden Decl. ¶ 7. The requirement that the borrower obtain such insurance was a
significant deal point for the lender: “On November 24, 2015, Traub emailed Aden to say that he
wasn’t sure negotiations could move forward until the issue of such insurance was resolved.” Id.
Mr. Traub followed up with Mr. Aden about the status of his efforts to obtain the insurance. Id. ¶ 8.
Mr. Aden and Mr. James received a quote for such a policy five days later, on November 30, 2015.
Id. ¶ 9. Mr. Aden asserts in his declaration that “[o]n January 13, 2016, myself [sic] and James
received a third Letter of Intent modified from the previous Letter of Intent to include the insurance
policy requirement as demand as an essential prerequisite for the deal to close.” Id. ¶ 12. However,
the term sheet to which Mr. Aden refers in support of his assertion does not require insurance as a
precondition to the closing. Instead, insurance is listed as one of the “Conditions Subsequent.”
Aden Decl. Ex. G at 5 (“Conditions [S]ubsequent . . . . 2. All requisite insurances . . . to be
maintained and provided on a quarterly basis or as requested by the Lender.”).
On January 29, 2016, counsel for Messrs. James and Aden sent Mr. Aden an email
summarizing a conversation that he had with counsel for XXIII. Aden Decl. ¶ 14. He wrote that
to the billed fees and costs, which have been supported by invoices submitted by Plaintiff’s counsel. See, e.g., Passo v. U.S.
Postal Service, 631 F. Supp. 1017, 1022 (S.D.N.Y. 1986) (“[T]he mere possibility that a factual dispute may exist,” without
affirmative support, does not demonstrate a genuine issue of material fact and is insufficient to defeat summary
judgment. (emphasis in original) (citation omitted)). Messrs. Aden and James cannot defer liability on the basis of such
factually unsupported conclusory denials.
7
counsel for XXIII “says that it’s his understanding that XXIII will obtain ‘special insurance’ and that
Decade will obtain D&O, corporate liability and general insurance. Regarding the insurance Decade
obtains, XXIII needs to be named as additional insured.” Aden Decl. Ex. I. Messrs. Aden and
James agreed with XXIII that $325,000 would be deducted at the closing for the financing. Aden
Decl. ¶ 16.
As described above, the financing transaction closed in late February, when the parties
entered into the Loan Agreement. Id. ¶ 17. Mr. Aden correctly notes that the Loan Agreement
contains specific provisions related to obtaining insurance. In his declaration, Mr. Aden points to
Section 6.4 of the Loan Agreement, which includes the following requirement: “In addition, each
Loan Party shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and
reputable insurance companies, insurance covering against risks associated with income
concentration, death, disability, disgrace, lockouts and strikes in connection with Obligors under the
Covered Agreements.” Loan Agreement § 6.4(a). The “Covered Agreements” to be insured
included management agreements entered into with the acquired sports agencies’ clients. While Mr.
Aden correctly asserts in his declaration that “[a]s a requirement for consummating the overall
transaction, specific sports related insurance was to be procured,” Mr. Aden’s use of the passive
voice should not obscure the fact that the Loan Agreement’s covenant requires that the Loan
Parties—the Borrowers and Corporate Guarantors—obtain that insurance, not XXIII. Aden Decl.
¶ 27.
Moreover, Section 6.4 of the Loan Agreement contains a separate provision related to the
insurance policies that is not mentioned in Mr. Aden’s declaration: Section 6.4(c) requires the
delivery of proof of insurance within 2 business days after the closing date for the loan. Loan
Agreement § 6.4(c). Delivery of proof of insurance is not included as an express condition
precedent to the initial advances under the Loan Agreement. See Loan Agreement § 3.1.
8
In March 2016, following the closing under the Loan Agreement, Mr. Aden requested
information regarding the status of the insurance policy from XXIII’s counsel. Aden Decl. ¶ 28. In
his email, Mr. Aden wrote “Per the close XXIII was to provide an all blanket insurance policy for
anything outside of the players [sic] contracts and it was costed in the use of proceeds at $325K. . . .
The policy that XXIII Capital was to provide provided additional coverage around the athlete fees
and I believe it should have been placed prior to or at the close. Just trying to sync up the open
items as I don’t have a copy of the insurance binder for our records.” Aden Decl. Ex. T.
In March 2016, Mr. Aden requested that his counsel confirm the existence of the insurance
policy. Aden Decl. ¶ 29. Counsel for XXIII informed Mr. Aden’s counsel that the policy had been
obtained but that XXIII would not share it with the borrower. Aden Decl. Ex. U. Poignantly, Mr.
Aden does not assert that the policy does not exist—only that he has not seen it. Mr. Aden’s
declaration asserts that the fact $325,000 was deducted from the loan closing proceeds, which in his
view “would signify that there is an insurance policy and coverage for the benefit of Decade, Aden
and James.” Aden Decl. ¶ 30. While the Court appreciates Mr. Aden’s suggestion that the evidence
supports an inference that an insurance policy was acquired, Mr. Aden does not point to the
evidence beyond his subjective belief that supports an inference that such an insurance policy would
benefit him or Mr. James personally. The requirement under Section 6.4 required that the Loan
Parties—the Borrowers and Corporate Guarantors—obtain the insurance policy, not the individual
Personal Guarantors. Nor has Mr. Aden identified what insurable interest he and Mr. James
personally held in the Covered Contracts that could be insured.
Mr. Aden asserts categorically that “I can unequivocally state that Dorsey and me [sic] only
provided our personal guarantee in return for the specific sports insurance policy that the Decade
companies would have.” Aden Decl. ¶ 39. However, Mr. Aden points to no provision of the Loan
Agreement that suggests that his, or Mr. James’ guarantee was contingent on that requirement, and
9
none exists. Instead, they entered into an agreement in which they guaranteed their companies’
obligations “absolutely and unconditionally.”
III.
PROCEDURAL HISTORY
XXIII filed this case on September 12, 2017. Dkt. No. 1. XXIII brought claims for breach
of contract, seeking repayment of the defaulted loan obligations by the Borrowers and the
Guarantors. Id. Messrs. James and Aden were sued in their individual capacity for the asserted
breach of the guarantee which is the basis for this motion. Id. In addition, XXIII brought a number
of additional common law claims against the Borrowers and Guarantors—including Messrs. Aden
and James—including claims for recovery of chattel/replevin and fraud in the inducement. Id.
XXIII also sued Eric and Aaron Goodwin, whose sports agencies were to be acquired using
financing under the Loan Agreement. Id.
On February 28, 2018, counsel for the Borrowers and the Guarantors—including Messrs.
Aden and James, moved to withdraw as counsel. Dkt. No. 161. Counsel asserted that the
Borrowers and Guarantors had failed to comply with the terms of their retainer, and that they had
communicated to their counsel that they were unable to satisfy their obligations under the retainer
agreement. Id. The Court granted the request to withdraw on March 8, 2018, and stayed the case
through April 9, 2018 to permit them to retain new counsel. Dkt. No. 169. At the request of Mr.
Aden, who represented that Decade had “identified its counsel and is in final conflicts checks,” the
Court extended the stay for an additional 15 days—to April 24, 2018. Dkt. No. 176. No counsel
entered an appearance, however. As a result, on April 25, 2018, the Court lifted the stay, declared
the corporate Borrowers and Guarantors to be in default, and put in place a process to permit
Messrs. Aden and James to litigate the claims against them pro se. Dkt. No. 178.
On July 6, 2018, XXIII moved by order to show cause for entry of a default judgment
against the corporate Borrowers and Guarantors. Dkt. No. 250. And on the same date, XXIII filed
10
this motion for summary judgment against Messrs. Aden and James. Dkt. No. 246. Unsurprisingly,
on July 18, 2018, the Court was notified that two of the corporate defendants had filed for
bankruptcy under chapter 7. Dkt. No. 262. Messrs. Aden and James moved the Court to stay this
action as to them as a result of the bankruptcy of those two entities, but the Court denied that
motion by order dated August 2, 2018. Dkt. No. 281. Messrs. Aden and James filed their
opposition to this motion for summary judgment on August 20, 2018. Dkt. No. 285. Plaintiff’s
reply was filed on August 28, 2018. Dkt. No. 287.
IV.
DISCUSSSION
A. Legal Standard
The plaintiff in this case is entitled to summary judgment on a claim if it can show that
“there is no genuine dispute as to any material fact and that [defendant is] entitled to judgment as a
matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Fed. R. Civ. P. 56(c)). A
dispute is genuine if “the evidence is such that a reasonable jury could return a verdict for the
nonmoving party,” while a fact is material if it “might affect the outcome of the suit under
governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
To defeat a motion for summary judgment, the defendant “must come forward with
‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed. R. Civ. P. 56(e)). “[M]ere speculation or
conjecture as to the true nature of the facts” will not suffice. Hicks v. Baines, 593 F.3d 159, 166 (2d
Cir. 2010) (citations and internal quotations omitted). Nor will wholly implausible alleged facts or
bald assertions that are unsupported by evidence. See Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir.
1991); Argus Inc. v. Eastman Kodak Co., 801 F.2d 38, 45 (2d Cir. 1986) (citing Matsushita, 475 U.S. at
585-86). The issue of fact must be genuine—plaintiff “must do more than simply show that there is
some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586.
11
In determining whether there exists a genuine dispute as to a material fact, the Court is
“required to resolve all ambiguities and draw all permissible factual inferences in favor of the party
against whom summary judgment is sought.” Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012)
(citing Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir. 2003)). The Court’s job is not to “weigh the
evidence or resolve issues of fact.” Lucente v. Int’l Bus. Machines Corp., 310 F.3d 243, 254 (2d Cir.
2002). Rather, the Court must decide whether a rational juror could find in favor of the non-moving
party. Id.
Because they are proceeding pro se, the Court must liberally construe Messrs. Aden and
James’ submissions and interpret them “to raise the strongest arguments that they suggest.” Triestman
v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir. 2006) (quoting Pabon v. Wright, 459 F.3d 241, 248
(2d Cir. 2006)); see also Erickson v. Pardus, 551 U.S. 89, 94 (2007) (“A document filed pro se is ‘to be
liberally construed’ . . . .” (citation omitted)); Nielsen v. Rabin, 746 F.3d 58, 63 (2d Cir. 2014)
(“Where . . . the complaint was filed pro se, it must be construed liberally to raise the strongest
arguments it suggests.” (quoting Walker v. Schult, 717 F.3d 119, 124 (2d Cir. 2013))). “It is well
established that a court is ordinarily obligated to afford a special solicitude to pro se litigants,” Tracy v.
Freshwater, 623 F.3d 90, 101 (2d Cir.2010), “particularly where motions for summary judgment are
concerned,” Jackson v. Fed. Express, 766 F.3d 189, 195 (2d Cir.2014); accord Harris v. Miller, 818 F.3d
49, 57 (2d Cir. 2016). However, “the liberal treatment afforded to pro se litigants does not exempt a
pro se party from compliance with relevant rules of procedural and substantive law.” Bell v. Jendell,
980 F. Supp. 2d 555, 559 (S.D.N.Y. 2013) (internal quotation marks and citation omitted).
B. Applicable Law
The Loan Agreement is governed by New York law. Under New York law, the
“fundamental, neutral precept of contract interpretation is that agreements are construed in accord
with the parties’ intent.” Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002). “The best
12
evidence of what parties to a written agreement intend is what they say in their writing.” Id. at 569.
(internal quotation marks omitted). “Thus, a written agreement that is complete, clear and
unambiguous on its face must be [interpreted] according to the plain meaning of its terms.” Id.; see
South Rd. Assocs., LLC v. IBM, 4 N.Y.3d 272, 277 (2005) (“In cases of contract interpretation, it is
well settled that when parties set down their agreement in a clear, complete document, their writing
should . . . be enforced according to its terms.” (internal quotation marks omitted)).
“In a dispute over the meaning of a contract, the threshold question is whether the contract
is ambiguous.” Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011) (citing
Krumme v. West Point Stevens, Inc., 238 F.3d 133, 138 (2d Cir. 2000)). The question of “[w]hether 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) (citation omitted). “It is well settled that a contract is
unambiguous if the language it uses has a definite and precise meaning, as to which there is no
reasonable basis for a difference of opinion. Conversely, . . . the language of a contract is ambiguous
if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person
who has examined the context of the entire integrated agreement.” Lockheed Martin Corp., 639 F.3d
at 69 (citations omitted).
“‘Ambiguity is determined by looking within the four corners of the document, not to
outside sources.’” JA Apparel Corp. v. Abboud, 568 F.3d 390, 396 (2d Cir. 2009) (quoting Kass v. Kass,
91 N.Y.2d 554, 566 (1998)). “It is well settled that extrinsic and parol evidence is not admissible to
create an ambiguity in a written agreement which is complete and clear and unambiguous upon its
face.’” W.W.W. Assoc., 77 N.Y.2d at 163 (quoting Intercontinental Planning v Daystrom, Inc., 24 N.Y.2d
372, 379 (1969)). “An analysis that begins with consideration of extrinsic evidence of what the
parties meant, instead of looking first to what they said and reaching extrinsic evidence only when
required to do so because of some identified ambiguity, unnecessarily denigrates the contract and
13
unsettles the law.” Id. at 163. “[B]efore looking to evidence of what was in the parties’ minds, a
court must give due weight to what was in their contract.” Id. at 162.
“Parol evidence—evidence outside the four corners of the document—is admissible only if a
court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter
or add a provision to a written agreement.” Schron v. Troutman Sanders LLP, 20 N.Y.3d 430, 436
(2013). “Furthermore, where a contract contains a merger clause, a court is obliged ‘to require full
application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary
or contradict the terms of the writing.’” Id. (quoting Matter of Primex Int’l Corp. v. Wal-Mart Stores, 89
N.Y.2d 594, 599 (1997)).
It is a clearly established principle that “[a]bsolute and unconditional guaranties . . . [can]
preclude guarantors from asserting a broad range of defenses under New York law.” Compagnie
Financiere de CIC et de L’Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 188 F.3d 31, 35
(2d Cir. 1999); see also First N.Y. Bank for Bus. v. DeMarco, 130 B.R. 650, 654 (S.D.N.Y. 1991)
(“Absolute and unconditional guaranties . . . are consistently upheld by New York courts. Indeed,
unconditional guaranties have been held to foreclose, as a matter of law, guarantors from asserting
any defenses or counterclaims.”) (citations omitted) (quoted in Merrill Lynch, 188 F.3d at 36).
C. The Guarantee is Absolute and Unconditional
Messrs. Aden and James are clearly liable under their guarantee for payment of all
outstanding obligations under the Loan Agreement. Messrs. Aden and James entered into an
absolute and unconditional guarantee of the obligations under the Loan Agreement. The language
of the guarantee could hardly be more clear. As described above, the Guarantors “absolutely and
unconditionally” guaranteed the obligations. Loan Agreement § 14.1. Moreover, the Loan
Agreement states that the guarantee is “not subject to any reduction, limitation, impairment or
termination for any reason . . . .” Id. § 14.3. In addition to that clear, broad statement, the Loan
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Agreement contains the extensive express waivers of defenses quoted above. Id. Significantly, as
noted below, those express provisions specifically address substantially all of the arguments
presented by Messrs. Aden and James in their opposition to this motion.
Messrs. Aden and James express the view that their inability to review the insurance policy
obtained by XXIII vitiates their obligation to comply with their guarantee obligations. Their
concerns lack merit. The Court highlights that, as noted above, Messrs. Aden and James do not
argue that the insurance policy was not obtained—rather, that they have not had the opportunity to
review it. Defendants’ Memorandum of Law, Dkt. No. 285 (the “Opposition”), at 15. Messrs.
Aden and James’ submissions suggest that they believe that the failure of XXIII to provide a copy of
the insurance contract resulted in a modification of the Loan Agreement. There is no basis for such
an argument for several reasons.
First and foremost, the guarantee is absolute and unconditional. It expressly states that “the
obligations of any Guarantor hereunder are not discharged or impaired or otherwise affected by . . .
any waiver or modification of or supplement to any provision of any agreement relating to the
Guaranteed Obligations.” Loan Agreement § 14.3(c). Therefore, even if there had been a
modification to the Guaranteed Obligations, it would not affect the guarantee. Moreover, there is
no basis in the record that supports Messrs. Aden and James’ subjective belief that a failure by
XXIII to provide a copy of the insurance policy is a modification of the Loan Agreement. As noted
above, the obligation to obtain insurance was imposed on the Loan Parties—of which Messrs. Aden
and James were the managers—not XXIII. The fully-integrated Loan Agreement creates no
obligation on the part of XXIII to obtain or to provide Messrs. Aden and James a copy of the
insurance contract. Apart from Mr. Aden and Mr. James’ conclusory statements, there is no basis
for the Court to conclude that XXIII’s asserted failure to provide the contract constituted a
modification of the Loan Agreement.
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Second, in their absolute and unconditional guarantee, Messrs. Aden and James have
expressly waived their right to argue that a failure by XXIII to comply with an obligation in
connection with the Loan Agreement vitiates their obligation to comply with their obligations under
the guarantee. The Loan Agreement states that their guarantee is absolute and unconditional despite
“the existence of any claim, setoff or other rights which any Guarantor may have at any time against
any Obligated Party, Lender or any other Person, whether in connection herewith or in any
unrelated transactions.” Loan Agreement § 14.3(a). To the extent that Messrs. Aden and James
argue that XXIII has an obligation to provide them with a copy of the insurance contract, and that
its failure to do so vitiates their guarantee, their argument must fail in the face of the clear language
to the contrary in the guarantee agreement.
Third, Messrs. Aden and James cannot avoid liability on the basis that they expected that
XXIII would obtain this insurance and that they relied on its commitment to do so to their
detriment. This is true for many reasons. At the outset, in the Loan Agreement, the Guarantors
expressly agree that their obligations “are not subject to any defense or setoff, counterclaim,
recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of
any of the Guaranteed Obligations or otherwise . . . .” Loan Agreement § 14.3(b). The language of
the guarantee provisions of the Loan Agreement effectively precludes a defense that attacks the
enforceability of the guaranteed obligations.
The Court need not look to extrinsic evidence of communications regarding the
expectations of Messrs. Aden and James to determine what, if any, conditions were imposed on
their guarantee. The Loan Agreement is fully integrated and contains a merger clause. The contract
itself is clear, and it does not make their obligations contingent on the procurement of insurance by
XXIII. Instead, their guarantee is absolute and unconditional. Moreover, the Loan Agreement
places the obligation to obtain insurance on the Loan Parties, not XXIII. The Loan Agreement
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specifically provides that the procurement of insurance is a condition subsequent to the closing of the
Loans, undermining the logic of an argument that the absolute and unconditional guarantee was
contingent upon the procurement of such insurance—their guarantee came first, and no express
condition limited the guarantee. Presented with the clear language of the Loan Agreement, the
Court need not consider extrinsic evidence of the parties’ expectations, as Messrs. Aden and James
suggest. There is no better evidence of the parties’ intentions than the unambiguous words of their
contract.
The ongoing bankruptcy proceedings involving two of the corporate Decade entities does
not justify delaying the entry of judgment in favor of XXIII. Messrs. Aden and James argue that
summary judgment should be denied to permit the bankruptcy court to make some unspecified
determination regarding the bankrupt entities. Opposition at 15. However, in their absolute and
unconditional guarantee, the guarantors have expressly waived any such defense. See Loan
Agreement § 14.3(a) (“Except as otherwise provided for herein, the obligations of each Guarantor
hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment
or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed
Obligations), including . . . any insolvency, bankruptcy, reorganization or other similar proceeding
affecting any Obligated Party, or their assets or any resulting release or discharge of any obligation of
any Obligated Party . . . .”). The Court has already ruled that the automatic stay applicable to those
two entities does not extend to the claims against Messrs. Aden and James. Dkt. No. 281. Given
the clear language of the Loan Agreement, there is no basis for the Court to defer entry of summary
judgment in order to await a determination by the bankruptcy court.
There is no need to defer summary judgment to permit further discovery with respect to the
issues raised in this motion. Messrs. Aden and James argue that the motion is premature, because
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they wish to conduct additional discovery. They cannot invoke Federal Rule of Civil Procedure
56(d) to delay entry of judgment against them here.
A party resisting summary judgment on the ground that it needs additional discovery in
order to defeat the motion must submit an affidavit pursuant to Federal Rule of Civil Procedure
56(d) (formerly Rule 56(f)), showing: “(1) what facts are sought and how they are to be obtained, (2)
how those facts are reasonably expected to create a genuine issue of material fact, (3) what effort
affiant has made to obtain them, and (4) why the affiant was unsuccessful in those efforts.” Meloff v.
N.Y. Life Ins. Co., 51 F.3d 372, 375 (2d Cir. 1995) (quoting Hudson River Sloop Clearwater, Inc. v. Dep’t of
Navy, 891 F.2d 414, 422 (2d Cir. 1989)). “[T]he failure to file an affidavit under Rule 56(f) is itself
sufficient grounds to reject a claim that the opportunity for discovery was inadequate.” Paddington
Partners v. Bouchard, 34 F.3d 1132, 1137 (2d Cir. 1994). “A reference to Rule 56(f) and to the need
for additional discovery in a memorandum of law in opposition to a motion for summary judgment
is not an adequate substitute for a Rule 56(f) affidavit . . . .” Id.
Messrs. Aden and James cannot avoid summary judgment on the basis of Rule 56(d). They
did not present the affidavit required under the rule; this alone is a sufficient basis for the Court to
deny the application. Moreover, the rationale suggested by Messrs. Aden and James for further
discovery is not compelling. They assert that they wish to conduct discovery regarding the content
of the insurance policy obtained by XXIII because they believe that it should be for their benefit.
Opposition at 15. But, as described above, the content of the policy is irrelevant to the question
presented here—whether they are liable under the terms of their absolute and unconditional
guarantee. Messrs. Aden and James have not presented an affidavit to explain what facts are sought
and how they are to be obtained, or how those facts are reasonably expected to create a genuine
issue of material fact with respect to the issue raised by this motion. In the absence of a coherent
answer to those questions, their suggestion that further discovery is needed before they are required
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to pay under their absolute and unconditional guarantee is redolent of a cynical effort to buy time.
The Court does not believe that delay in the execution of judgment is warranted under Rule 56(d).
D. Messrs. Aden and James Are Liable Under their Guarantee
The terms of the Loan Agreement are clear and unambiguous. Messrs. Aden and James
each signed the Loan Agreement in his individual capacity as “Personal Guarantors.” Their
guarantee encompasses all “Obligations” owing under the Loan Agreement. Loan Agreement §
14.1. The guaranteed “Obligations” include the principal amount of the loans, accumulated
interest—including default interest, prepayment fees, and reasonable fees and expenses incurred by
XXIII in connection with its administration and enforcement of the Loan Agreement.
XXIII accelerated the loans following a payment default. The Borrowers have not satisfied
their obligations to repay amounts owing under the Loan Agreement. As a result, as of June 29,
2018, $25,813,306.85 was due and owing under the Loan Agreement, consisting of $16,000,000 in
principal amount, $581,706 in accrued interest as of March 21, 2017; $3,821,921.80 in default
interest calculated from March 21, 2017 through June 29, 2018; a $4,000,000 pre-payment fee due
pursuant to Section 2.2(c) of the Loan Agreement, plus fees and costs incurred by the lender in
connection with its enforcement efforts in the amount of $1,409,679.05. These amounts are
included within the scope of the guarantee provided by Messrs. Aden and James. They have not
satisfied that obligation. XXIII is, therefore entitled to the entry of judgment against Messrs. Aden
and James in that amount.
V.
CONCLUSION
For the reasons described above, XXIII is entitled to judgment against each of Mr. Aden
and Mr. James in the amount of $25,813,306.85. According to the terms of the Loan Agreement,
Mr. Aden and Mr. James are jointly and severally liable for the judgment in that amount. The Clerk
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of Court is directed to enter judgment accordingly and to terminate the motion pending at Dkt. No.
246.
SO ORDERED.
Dated: September 13, 2018
New York, New York
_____________________________________
GREGORY H. WOODS
United States District Judge
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