BOWLER, United States Magistrate Judge.
Pending before this court are the following dispositive motions: (1) a motion to dismiss (Docket Entry # 55) filed by defendant Anglo Irish Bank Corporation,
The present real estate dispute arises out of amendments, advances and changes made to various loan documents on the part of Anglo, a first or senior mortgagee, and/or Realty, a borrower and mortgagor of property located in Revere, Massachusetts. Noonan holds a second mortgage and note on the property. Among Noonan's primary complaints are Realty's failure to pay the amount due on the second mortgage and the second promissory note on the September 12, 2007 maturity date; Anglo's $1,000,000 increase to the principal of the first mortgage and the first promissory note in August 2006; Anglo's amendments to the terms of the first mortgage and the first promissory note without Noonan's consent at various times; and the issuance of property purchase and note purchase options to Coastal and Sarkis in 2008 in contravention of Noonan's option to purchase loan documents. Noonan maintains there were a number of events of default which entitled him to bring this suit and purchase the loan documents. Absent a continuing event of default under the first mortgage, Noonan also asserts his entitlement to payment in full at maturity on September 12, 2007. To date, Noonan has not received any payments.
The verified complaint sets out the following counts: (1) declaratory relief against all defendants (Count I); (2) breach of contract against Realty for failure to pay the principal, interest and associated charges on the maturity date of the second mortgage or thereafter (Count II); (3) breach of contract, in particular, covenants in paragraphs 16 and 17 of the second mortgage, against Realty (Count III); (4) breach of contract, in particular, an intercreditor agreement, against Anglo (Count IV); (5) breach of the implied covenant of good faith and fair dealing in the second mortgage and the intercreditor agreement against Realty and Anglo (Count V); (6) appointment of a receiver and an order to marshal and preserve the assets of Realty, Wonderland Parking and Greyhound Park in order to pay Noonan (Count VI); (7) reach and apply against Wonderland Parking and Greyhound Park
After the December 2008 filing of the verified complaint, certain events transpired that led to the exercise and transfer of the property purchase and loan purchase options in February 2010. These subsequent events are the subject of the second summary judgment motion.
The only asset of Realty, a wholly owned subsidiary of Westwood, consists of approximately 34 acres of property in Revere ("the property"). Greyhound Park leases a portion of the property to operate a greyhound dog racing track.
In the middle of 2005, the Wonderland defendants sought financing to pay off existing mortgage loans and obtain funding for approximately two years of working capital. An internal Anglo document as well as an April 2005 appraisal commissioned by Dalton, President and Chief Executive Officer of Westwood, reflects the property's value in the range of $14,400,000 to $17,300,000 as of March 29, 2005. A July 2005 credit committee application to Anglo from Realty denotes the purpose as refinancing existing debt and funding "operating shortfalls pending the sale of the property."
The summary characterizes the commuter parking lot as the "biggest revenue driver." (Docket Entry # 25, Ex. 2). From 2005 to November 2009 when Massachusetts abolished greyhound dog racing, the greyhound dog racing track suffered yearly operating losses. In contrast, the commuter parking lot averaged annual revenues of approximately $550,000 during the past several years.
As a result of Realty's efforts, on September 12, 2005, Realty granted a first mortgage on the property to Anglo and its successors and assigns ("the first mortgage") to secure payment of an $8,820,000 loan evidenced by a promissory note ("the first loan" or "the first promissory note") between Realty, the borrower or mortgagor, and Anglo, the lender or mortgagee. Under an Advance/Holdback Letter ("the holdback agreement") dated September 12, 2005, with Realty, Anglo agreed to disburse an initial advance of $7,350,000 and, subject to Anglo's discretion and various terms, the remaining sum of $1,470,000 one year later. Sarkis executed a guaranty to Anglo individually guaranteeing Realty's prompt payment of the $8,820,000 loan ("the guaranty"). Under the guaranty, Sarkis agreed inter alia to pay the costs and expenses of Realty, including interest payments, taxes and insurance, in the event Realty did not make the payments. (Docket Entry # 25, Ex. 9, ¶ 1(b)).
Realty granted a Second Mortgage and Security and Fixture Financing Statement ("the second mortgage") on the property to Noonan. The second mortgage secured payment of a $3,929,000 loan evidenced by a second mortgage note ("the second loan" or the "second promissory note") between Realty, again as borrower or mortgagor, and Noonan, the payee or mortgagee. Realty executed the first mortgage and the first promissory note (collectively "the senior loan documents") and the second mortgage and the second promissory note (collectively "the subordinate loan documents") on the same day, September 12, 2005. Sarkis, a previous client with a preexisting relationship with Anglo, likewise executed the guaranty on September 12, 2005. Also on September 12, 2005, Anglo, as senior lender, Noonan, as subordinate lender, and Realty, as borrower, entered into an Intercreditor and Subordination Agreement ("the ICA") subordinating Noonan's right of payment under the subordinate loan documents to Anglo's right of payment under the senior loan documents.
The terms of the first and second mortgages and concomitant promissory notes together with the terms of the ICA provide the basis to examine the disputed transactions and amendments to the loan documents. Turning first to the ICA, which is the only document executed by
(Docket Entry # 25, Ex. 10, ¶ D). After these factual statements, the ICA sets out the representations and the agreements between the parties in 20 numbered paragraphs all prefaced by the language, "[T]he parties hereto represent, warrant and agree as follows." (Docket Entry # 25, Ex. 10).
Under the ICA, Noonan agreed to subordinate the second mortgage, the second promissory note and other documents evidencing the $3,929,000 loan
Paragraph five of the ICA barred Noonan from amending the terms of the second mortgage and the second note without obtaining Anglo's consent. It also prevented Noonan from transferring or assigning part of the second mortgage or the second promissory note without Anglo's consent.
Paragraph three of the ICA prevented or postponed Noonan from receiving payments under the second loan until payment in full of the "Senior Indebtedness." The paragraph further provided that if there was no "Event of Default" under any senior loan document, Noonan could receive "regularly scheduled payments" but not prepayments.
(Docket Entry # 25, Ex. 10, ¶ 3).
As indicated by the last clause of paragraph three, the ICA defines "Event of Default" in reference to the senior loan documents.
In seeking summary judgment, Noonan relies on a number of the designated events of default in the first mortgage that always required notice. These include: (1) the nonpayment of principal or interest "when it shall become due and payable" and such nonpayment shall have continued for more than ten (10) days after notice" from Anglo to Realty (Docket Entry # 25, Ex. 6, ¶ 8.1);
Section 8.4, the first of the seven provisions, is a catch all provision defining an event of default under the first mortgage as "any `Event of Default'" under the first promissory note "which would entitle Mortgagee [Anglo] to exercise any of its remedies under any of the Security Instruments or any of the Other Documents." (Docket Entry # 25, Ex. 6, ¶ 8.4). Section 8.6 prescribes "[t]he cancellation, lapse or termination of any insurance coverage required to be maintained by [Realty]."
Section 8.10 defines an event of default under the first mortgage as encompassing any event of default under the second mortgage or the second promissory note. The relevant language of the section states that an event of default under the first mortgage includes "[t]he occurrence of any `event of default' under any document, agreement or instrument . . . (b) evidencing any obligation or other indebtedness secured in whole or in part by any and all of the property covered by any of the Security Instruments." (Docket Entry # 25, Ex. 6, ¶¶ 1 & 8.10). Because the property secured payment of the second loan evidenced by the second mortgage and the second promissory note, the foregoing language encompasses an event of default under the second mortgage and the second promissory note.
Section 21 of the second mortgage alphabetically lists seven events each constituting an "Event of Default" under the second mortgage.
Returning to the provisions of the ICA, paragraph 13 also uses the term "Event of
(Docket Entry # 25, Ex. 10, ¶ 13). Paragraph 13 did not contain a requirement for Anglo or Realty to notify Noonan of the existence of an event of default.
Paragraph 11, however, allowed Noonan to obtain the necessary information. Paragraph 11, which appears two paragraphs above paragraph 13, reads as follows:
(Docket Entry # 25, Ex. 10, ¶ 11). Paragraph nine, which directs Anglo to give Noonan any notice of default it gave or received, states that:
(Docket Entry # 25, Ex. 10, ¶ 9).
Paragraph two of the ICA, as previously noted, contains a standstill provision. Under this provision, Noonan "agree[d] not to contest, or to bring or join in any action or proceeding for the purpose of contesting, the validity, perfection or priority of, or seeking to avoid, any rights of Senior Lender in or with respect to the Senior Loan Documents or the Property." (Docket Entry # 25, Ex. 10, ¶ 2).
Paragraph six of the ICA prevented Noonan from collecting or enforcing the second mortgage and the second promissory note without Anglo's prior written consent absent satisfaction of the senior indebtedness.
(Docket Entry # 25, Ex. 10, ¶ 6). In the event of such an action or proceeding, section 6(c) dictated the appointment of a receiver "by the court" to collect any "rents, issues and profits of the property." (Docket Entry # 25, Ex. 10, ¶ 6(c)). The ICA additionally provided for specific performance or injunctive relief if no adequate remedy at law existed for a breach of the agreement. (Docket Entry # 25, Ex. 10, ¶ 19).
Three final provisions of the ICA give Anglo additional protection. Section 6(b) barred Noonan from instituting an enforcement action or a foreclosure proceeding that would terminate third party leases. Section 15 provided that any act or failure to act on the part of Realty or any non-compliance on the part of Realty with any agreement shall not prejudice Anglo. It provides in pertinent part that:
(Docket Entry # 25, Ex. 10, ¶ 15).
Section 20 dictated that the provisions of the ICA would prevail over the provisions of the "Subordinate Mortgage Loan Documents," a term that included the second mortgage and the second promissory note. Section 20 states that, "In the event of any conflict between the provisions of this Agreement and the provisions of the Subordinate Mortgage or the Subordinate Mortgage Loan Documents the provisions of this Agreement shall prevail." (Docket Entry # 25, Ex. 10, ¶ 20). The ICA did not contain an integration clause.
Turning to the other documents executed on September 12, 2005, the first mortgage gave Anglo the ability to extend the time and the terms of payment of the "Obligations." "Obligations" is a defined term in the first mortgage which means:
(Docket Entry # 25, Ex. 6, ¶ 3).
In addition to allowing Anglo to extend the time of payment, section 9.3 gave Anglo the ability to waive or modify these obligations.
(Docket Entry # 25, Ex. 6, ¶ 9.3). Section 9.3 thus gave Anglo the ability to waive or modify the obligations, a term that includes not only the terms of payment but also performance of "every covenant, condition or obligation" in the promissory note and the first mortgage. (Docket Entry # 25, Ex. 6, ¶¶ 3 & 9.3(b)).
The first mortgage defined "the Note" as "[t]he [first] Promissory Note of Mortgagor of even date herewith in the principal amount of EIGHT MILLION EIGHT HUNDRED TWENTY THOUSAND DOLLARS (U.S. $8,820,000) payable to the order of the Mortgagor and any and all extensions, renewals and modifications thereof and substitutions therefor, whether of the same amount or otherwise." (Docket Entry # 25, Ex. 6, ¶ 1). It also required Realty to maintain a maximum loan to value ratio of no more than 60% at all times. (Docket Entry # 25, Ex. 6, ¶ 5.12.7). As also stated in the first mortgage, Anglo and Realty did not intend the first mortgage or the first promissory note to create any third party beneficiary rights in Noonan.
The terms of the first promissory note set September 12, 2007, as the maturity date for the "entire Principal Sum," a term defined in the first paragraph as the sum of $8,820,000. (Docket Entry # 25, Ex. 5). The terms of the second promissory note between Realty and Noonan set the same maturity date.
With respect to the terms of the second promissory note, it contained a "Capital
(Docket Entry # 25, Ex. 7). The self executing covenant did not require Noonan to provide notice or a written demand upon Realty.
Turning to the terms of the second mortgage, it included a provision prohibiting Realty from amending, modifying or extending any prior or senior mortgage without Noonan's prior consent.
The second mortgage also prohibited Realty from allowing an encumbrance to attach to the property. (Docket Entry # 25, Ex. 8, ¶ 16(a)). If such an encumbrance attached, section 16(a) required Realty to discharge it within 30 days of the attachment. The second mortgage also made the entire debt due and payable on demand in the event any portion of a legal or beneficial interest "becomes vested in" anyone other than Realty. (Docket Entry # 25, Ex. 8, ¶ 15).
Finally, the second mortgage required Realty to promptly notify Noonan of the existence of any existing or future security interest known by Realty. Under this section, Realty agreed "to notify the Mortgagee promptly of the existence of and the exact details of any other security interest in the Premises, now existing or hereafter arising . . . ." (Docket Entry # 25, Ex. 8, ¶ 13).
In July 2006, one year after the first credit committee application to Anglo, Realty submitted another application for additional funding in the amount of $1,000,000. As reflected in a memorandum attached to the application, the original "$8.2 million is fully drawn." (Docket Entry # 25, Ex. 17). At the time, Realty was negotiating with eight candidates as potential partners to develop the property and repay Anglo. Anglo's credit committee described the loan as funding "operating shortfalls pending the sale of the property." (Docket Entry # 25, Ex. 17).
On August 2, 2006, Anglo and Realty executed a Note Modification Agreement and Amendment of Loan Documents. The amendment amended the first promissory note and increased the principal amount by the additional $1,000,000.
In an agreement also dated August 2, 2006, Realty and Anglo agreed to amend the definition of "Note" in the first mortgage to increase the $8,820,000 principal amount to $9,820,000. Captioned as Amendment of Security Instruments ("amendment of security instruments"),
Anglo and Realty did not procure Noonan's written consent for the amendment prior to executing the aforementioned documents. Noonan attests that he did not consent to the 2006 amendment. He likewise avers that "none of the defendants" informed him of the amendment before its execution or "promptly thereafter." (Docket Entry # 25, Ex. B). Indeed in a July 2006 email, Anglo's outside counsel posited it may be necessary "to get a further subordination or consent from the second mortgagee to assure the priority of the additional advances under the first mortgage loan" but "[p]erhaps we can handle this simply by having the title company insure the priority of the additional advances."
Realty used the loan to pay real estate taxes in excess of $400,000, interest payments to Anglo and operating shortfalls. Notwithstanding the nonpayment of taxes and interest payments, Anglo did not notice or declare a default.
In February 2007, Jonathan L. Bashien, as assignee of Nixon Peabody, LLP, filed the complaint in Massachusetts Superior Court that initiated the Bashien case against various entities including Westwood, Realty and Wonderland Parking.
On June 29, 2007, the Office of the Treasurer of the City of Revere ("Treasurer's Office") issued notices of taking to Realty for 2007 taxes not paid on the property within the statutory 14 day period after demand. The notices lead to the Treasurer's Office issuing instruments of taking on the property on August 6, 2007. See Mass. Gen. L. ch. 60, ¶¶ 43, 53 & 54; (Docket Entry # 25, Ex. 31); (Docket Entry ## 27, 32 & 38, ¶¶ 48); (Docket Entry # 25, Ex. 38, "the land . . . was taken on 8/6/07 for non-payment of taxes"). The city recorded the tax takings on September 19 and October 1, 2007. Dalton attests that these tax takings did not have an adverse effect on Realty's ability to perform under the first mortgage.
McCardle attests that in August 2007 Anglo and Realty "reached an agreement in principle to . . . extend the loan to August 2008 and to increase the principal amount of the loan to $12,000,000." (Docket Entry # 33, ¶ 7). McCardle also points to an April 2008 email to Dalton explaining a $27,500 fee as "due for the extension from last year." (Docket Entry # 33, Ex. 2). Notably in light of the requirements of section 11.1, the parties did not enter into a written agreement until August 2008.
Anglo did not declare a default or send Realty a notice of default on the September 12, 2007 maturity date. Anglo did not receive payment of the principal on the September 12, 2007 maturity date.
The second promissory note dictates the application of an increased rate of 15% interest on the amounts due after maturity. A 12% rate is applied prior to maturity. The relevant provision for the 12% rate states that it accrues until the maturity date. Realty promised to pay Noonan the $3,929,000 principal:
(Docket Entry # 25, Ex. 7). Elsewhere in a separate paragraph, the second promissory note unequivocally reads that, "The Borrower agrees that . . . all amounts due under this Note after maturity, and any amounts due hereunder if an Event of Default shall occur hereunder, shall bear interest at a rate of fifteen percent (15%)." (Docket Entry # 25, Ex. 7).
In the fall of 2007, Realty and Anglo discussed and/or planned to procure the $12,000,000 increase to the principal while Sarkis and Dalton attempted to obtain Noonan's consent to the increase. Indeed, an August 29, 2007 email from Anglo's attorney indicated the need for Noonan "to consent and subordinate" the second mortgage to the increase. (Docket Entry # 25, Ex. 32A). McCardle attests that Anglo sought Noonan's consent because the title insurance company refused to insure the priority of the increase absent Noonan's consent. (Docket Entry # 33, ¶ 7). Noonan advised McCardle that he was hopeful they "might work something out" although they did not reach any agreement at that time. (Docket Entry # 52, ¶ 7). Anglo and/or Realty prepared an amended and restated ICA with the $12,000,000 figure for Noonan's signature. As of the end of 2007, however, Anglo and Realty were still waiting to find out if Noonan would consent to the increase.
Meanwhile, in October 2007, an independent auditor of the 2006 consolidated balance sheets of Greyhound Park and its wholly owned subsidiary, Realty, expressed "substantial doubt regarding the Company's ability to continue as a going concern." (Docket Entry # 25, Ex. 34). An independent auditor of the 2007 consolidated balance sheets of Greyhound Park and Realty similarly notes that:
(Docket Entry # 25, Ex. 68).
In the spring and summer of 2008, Realty was negotiating various transactions, including a payoff of the first loan, with a number of entities. In April 2008, McCardle urged Sarkis and Dalton to pay the approximate $333,000 in interest arrears. In May 2008, one of Realty's creditors issued a notice of default under a power purchase agreement it had with Realty due to Realty's outstanding arrears of $78,251.96. Having made two payments in May, Realty owed outstanding interest of $131,234.18 as of June 2, 2008. As of August 5, 2008, Realty owed Anglo $375,385.63 in overdue interest under the first promissory note. (Docket Entry # 25, Ex. 41 & 44; Docket Entry # 37, Ex. G).
On August 12, 2008, Westwood (including its wholly owned subsidiaries Realty, Greyhound Park and Wonderland Parking) and Coastal entered into an option agreement issuing to Coastal an option to purchase the property until December 1, 2009 ("the property option agreement").
The property option agreement provides for Coastal to deposit $900,000 into an escrow account pending receipt inter alia of satisfactory evidence that Westwood obtained an extension of the first loan to December 1, 2009, which gave Coastal "a right (but not the obligation)" to purchase the first mortgage loan in the event Anglo desired to sell it. (Docket Entry # 25, Ex. 46, ¶ 3(A)). Of the $900,000 escrow fund, Coastal agreed to release $350,000 to Westwood upon receipt of the extension and proof of Sarkis' net worth; to release $400,000 upon receipt of evidence of a payment plan with the city of Revere for outstanding taxes; and to release $150,000 upon execution of the agreement.
The agreement gave Coastal the option to purchase the property and/or a gaming license for a fee of $25,000,000 as well as certain annual and initial fees dependent upon enabling gaming legislation. The agreement also dictated fees payable by Coastal to Westwood as opposed to Realty. The agreement further sets out a "triggering
As also set out in the agreement, Westwood agreed to credit certain payments towards the $25,000,000 purchase price in the event Coastal exercised the option or upon automatic triggering of the option. Thus, the payments reduced the eventual purchase price while providing needed capital for outstanding taxes and working capital.
On August 13, 2008, Coastal assigned the agreement to SSR Acquisitions LLC ("SSRA"), an entity the parties also refer to as Suffolk Downs. (Docket Entry # 27, ¶ 64; Docket Entry # 32, ¶ 64; Docket Entry # 38, ¶ 64). For a fee, the property option agreement allows SSRA to extend the option by up to three additional 12 month time periods. (Docket Entry # 25, Ex. 46, ¶ 5(C)). Dalton explains that Westwood reached the agreement with SSRA instead of competing against "Suffolk Downs' owners" for an expected limited number of expanded gaming licenses.
On August 14, 2008, Anglo and Realty entered into a document dated August 31, 2007, amending the maturity date of the first loan to August 31, 2008 ("the August 2008 amendment").
On August 20, 2008, Noonan requested information concerning the outstanding loan balance.
In September 2008, Noonan wrote a series of three letters to Anglo, Sarkis and/or Realty objecting to the August 2006 amendment increasing the senior loan to $9,920,000 without his consent as well as the August 2008 amendment executed without his consent. In the September 5 and 16, 2008 letters to Sarkis and Realty, Noonan identified the $1,000,000 increase as a capital event under the second promissory note as well as a default. He also pointed to the failure to pay the second promissory note in full on the September 12, 2007 maturity date as a default. (Docket Entry # 25, Ex. 49, 51 & 52).
In the September 2, 2008 letter Noonan also advised Anglo of his right to purchase the senior loan documents and requested a complete copy of the documents as well as an estoppel certificate pursuant to section
In a September 3, 2008 reply letter to the foregoing request for an estoppel certificate and Noonan's assertion in the same letter of "an ongoing Event of Default with respect to the [first] Promissory Note issued to Anglo," McCardle pointed out that:
(Docket Entry # 25, Ex. 50). The reply letter included the current outstanding balance of the senior loan ($10,303,720.71) and advised Noonan that the bank would consider any proposal to purchase the senior loan documents he submitted. It also asked Noonan to include a time frame for a purchase in any such proposal. In the reply letter, McCardle also confirmed various defaults with the following statement, "Regarding ongoing defaults with respect to the Senior Loan, we can confirm the following: (a) The Senior Loan matured on August 31, 2008; (b) interest is past due on the Senior Loan; and (c) real estate taxes are past due." (Docket Entry # 25, Ex. 50).
The record does not contain an express proposal from Noonan with a requested purchase price and a time frame. Viewing the record in favor of Noonan for purposes of the Wonderland defendants' summary judgment motion, McCardle flatly informed Noonan on September 10, 2008, that Anglo would not sell him the first loan. (Docket Entry # 25, Ex. B, ¶ 21; Docket Entry # 52, ¶ 15).
Noonan continued to object to the ongoing reduction in the value of his loan resulting from the increase in principal to the first promissory note.
On October 28, 2008, Anglo and Realty extended the maturity date in the first promissory note to December 31, 2009, and increased the interest rate by one percent in a document captioned Second Note Modification Agreement and Amendment of Loan Documents ("October 2008 note amendment"). Under the agreement, Realty covenanted that neither it nor Sarkis had made any concessions for Noonan's benefit under the ICA without obtaining a release from Noonan of any and all claims against Anglo.
On the same day, Anglo and Realty amended the first mortgage in a document entitled Second Amendment of Security Instruments ("October 2008 mortgage
(Docket Entry # 25, Ex. 65, ¶ 11).
Also on October 28, 2008, Anglo and Sarkis entered into a Second Amendment and Ratification of Guaranty and Environmental Indemnity Agreement ("Sarkis loan purchase option") that gave Sarkis the option to purchase the senior loan documents.
(Docket Entry # 25, Ex. 62, ¶¶ 1 & 4).
Again on the same date, Anglo and SSRA executed a Loan Purchase Option Agreement ("the SSRA loan purchase option"), acknowledged by Realty and Sarkis, that gave SSRA the option to purchase the senior loan documents
The applicable language in the SSRA loan purchase option appears as follows in section 1.1:
(Docket Entry # 25, Ex. 63, ¶ 1.1). Under the agreement, Anglo represented that it "is: (a) the holder of the Note, free and clear of any and all liens and encumbrances except for (i) the rights of Noonan under the Intercreditor Agreement. . . ."
In short, Anglo gave both Sarkis and SSRA the option to purchase the senior loan documents prior to the occurrence of an event of default.
In yet another agreement on the same day, Westwood, Realty, SSRA, Sarkis and Coastal amended the property option agreement by releasing funds to the city of
Noonan attests that he did not consent to the foregoing amendments and option agreements including those that gave Sarkis and SSRA the foregoing options to purchase the senior loan documents. An October 1, 2008 email by an Anglo attorney recognizes the bank's potential liability in the following manner:
(Docket Entry ## 27, 32 & 38, ¶¶ 81; Docket Entry # 25, Ex. 55). Realty has not made any prepayments to Noonan for a capital event under the second promissory note.
By letter dated April 8, 2009, Noonan's attorney formally declared a default in a letter to Realty. The letter identifies the prior notices of default in the aforementioned September 5 and 16, 2008 letters and a September 12, 2007 email to Dalton.
Noonan seeks summary judgment on Count I (declaratory relief), Count IV (breach of the ICA against Anglo),
All of the parties organize their arguments based upon the key events, to wit, the August 2006 increase in principal and amendments, the August 2008 transfer of the property option agreement to Coastal, Noonan's September 2008 attempt to exercise his option to purchase the senior loan documents and the October 2008 amendments and the loan purchase options to Sarkis and SSRA. Adhering in part to this framework while also discussing the counts at issue, this court turns to a construction of the loan documents in the context of the August 2006 amendments.
Noonan submits that the $1,000,000 addition to the $8,820,000 principal does not take priority over the second loan. He seeks summary judgment under Count X for equitable subordination.
In arguing the priority of the $1,000,000 loan, Anglo relies on the language of section 2(b) of the ICA allowing "any and all amendments" and "any and all advances heretofore made or hereafter to be made," section 20 of the ICA allowing the ICA to trump conflicting provisions in the subordinate loan documents
The ICA dictates the application of Massachusetts law.
Ordinary rules of contract interpretation also apply to subordination agreements.
If unambiguous, the terms of a subordination agreement preclude parol evidence that undermines express terms. See Banknorth, N.A. v. LBM Financial, LLC, 2003 WL 22285428, *3 (Mass.Super. Aug. 29, 2003) (parol evidence rule forecloses reliance on "contents of any preliminary discussions" to undermine "express terms of the Subordination Agreement"). Determining the existence of an ambiguity involves "examin[ing] the language of the contract by itself, independent of extrinsic evidence concerning the drafting history or the intention of the parties." Bank v. Thermo Elemental Inc., 451 Mass. 638, 888 N.E.2d 897, 907 (2008). An ambiguity may exist on the face of the contract "or as applied to the subject matter." General Convention of New Jerusalem in the U.S. of America, Inc. v. MacKenzie, 449 Mass. 832, 874 N.E.2d 1084, 1087 (2007); see also Boston Edison Co. v. Federal Energy Regulatory Commission, 856 F.2d 361, 365 (1st Cir.1988) ("only when the written agreement, as applied to the subject matter, is in some material respect uncertain or equivocal in meaning that all the circumstances of the parties leading to its execution may be shown for the purpose of elucidating, but not of contradicting or changing its terms"). "Contract language is ambiguous `where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken.'" Bank v. Thermo Elemental Inc., 888 N.E.2d at 907; President and Fellows of Harvard College v. PECO Energy Co., 57 Mass.App.Ct. 888, 787 N.E.2d 595, 601 (2003) (same).
Examining the words in the context of the entire writing is a search for the "manifested meaning, not a privately held belief or intent of one party" left uncommunicated "to other parties to the bargain."
Additional recognized rules of contract construction also include the principle that "a contract is to be construed to give a reasonable effect to each of its provisions if possible." State Line Snacks Corp. v. Town of Wilbraham, 28 Mass.App.Ct. 717, 555 N.E.2d 892, 894 (1990) (emphasis added); see Strand v. Herrick & Smith, 396 Mass. 783, 489 N.E.2d 179, 182 (1986) (letter "construed to give reasonable effect to each of its terms, so as not to render any provision superfluous"); S.D. Shaw & Sons, Inc. v. Joseph Rugo, Inc., 343 Mass. 635, 180 N.E.2d 446, 449 (1962) ("`interpretation which gives a reasonable meaning to all of the provisions of a contract is to be preferred to one which leaves a part useless or inexplicable'"). Furthermore, words in "`a contract must be considered in the context of the entire contract rather than in isolation.'" Matthews v. Planning Board of Brewster, 72 Mass.App.Ct. 456, 892 N.E.2d 797, 803, review denied, 452 Mass. 1109, 897 N.E.2d 592 (2008).
In addition, where general and more broadly inclusive language in a contract is inconsistent with more specific language, the latter ordinarily prevails. Lembo v. Waters, 1 Mass.App.Ct. 227, 294 N.E.2d 566, 569 (1973) ("`[i]f the apparent inconsistency is between a clause that is general and broadly inclusive in character and one that is more limited and specific in its coverage, the latter should generally be held to operate as a modification and pro tanto nullification of the former'"); see generally McDowell v. von Thaden, 2006 WL 2808092, *1 (Mass.App.Div. Sept. 26, 2006) ("[s]pecific and exact contractual terms are accorded greater weight than general language"); accord Restatement (Second) Contracts § 203(c) ("specific terms and exact terms are given greater weight than general language"). Where two clauses cannot be reconciled and "`a repugnancy is found,'" however, the clause that effectuates the general purpose of the agreement "is entitled to greater consideration than the other which tends to defeat a full performance, and repugnant words may be rejected in favor of a construction which makes effectual the evident purpose of the entire instrument." Rosen v. A-H, Inc., 456 N.E.2d at 480 (quoting Morrill & Whiton Construction Co. v. Boston, 186 Mass. 217, 71 N.E. 550 (1904)).
Interpreting the loan agreements also entails considering the parties' subsequent conduct. Indeed, there is oftentimes "no surer way to find out what the parties meant, than to see what they have done."
Finally, under Massachusetts law, "when several writings evidence a single contract or comprise constituent parts of a single transaction, they will be read together." Federal Deposit Insurance Corporation v. Singh, 977 F.2d 18, 21 (1st Cir.1992) (construing together a guaranty and a promissory note executed on same day); see, e.g., Chase Commercial Corporation v. Owen, 32 Mass.App.Ct. 248, 588 N.E.2d 705, 707 (1992) (construing as part of single transaction a guaranty and two loan and security agreements executed simultaneously and referencing the other agreements notwithstanding the defendants' argument that they did not sign all three agreements). Put another way, "Interlocking documents that are part of a single transaction and are interrelated in purpose, must be read together to effectuate the intention of the parties." Matthews v. Planning Board of Brewster, 892 N.E.2d at 803 (internal quotation marks and brackets omitted). Executed on the same day, the ICA, the holdback agreement, the first and second mortgages and the first and second promissory notes involve the same subject matter and include cross referencing provisions. See Gilmore v. Century Bank & Trust Co., 20 Mass.App.Ct. 49, 477 N.E.2d 1069, 1073 (1985) (factors to consider include "simultaneity of execution, identity of subject matter and parties, cross-referencing and interdependency of provisions"). Adhering to Singh and Chase, which involve loan agreements, the ICA, the holdback agreement, the first and second mortgages and the first and second promissory notes are "read together to effectuate the intention of the parties." Chase Commercial Corporation v. Owen, 588 N.E.2d at 707.
With these principles in mind, this court turns to the August 2006 amendments increasing the $8,820,000 principal to $9,820,000. Section two of the ICA constitutes the specific provision in the loan documents signed by all relevant parties that applies to advances, amendments and modifications to the senior loan documents. See generally Rush v. Norfolk Electric Co., Inc., 70 Mass.App.Ct. 373, 874 N.E.2d 447, 453 (2007).
Under section 2(a), Noonan first agreed to "subordinate" payment of "[a]ll amounts due" under the "Subordinate Loan Documents" to "[a]ll amounts due" under the "Senior Loan Documents." Under section 2(b), Noonan additionally agreed in mandatory terms to subordinate the liens and security interests created by "the Subordinate Loan Documents," a term that includes the second mortgage and the second promissory note, to the liens and security interests created by the "Senior Loan Documents" and "to any and all amendments, modifications, extensions, replacements" of the "Senior Loan Documents" and "to any and all advances heretofore made or hereafter to be made under the Senior Loan Documents pursuant to the terms thereof."
The ordinary and usual meaning of "subordinate" in section two gives Anglo's liens
The subordination of the liens created by the "Subordinate Loan Documents" to the liens created by the "Senior Loan Documents" extends to any and all amendments as well as to "any and all advances heretofore made or hereafter to be made under the Senior Loan Documents pursuant to the terms thereof." (Docket Entry # 25, Ex. 10, ¶ 2(b)). Turning to the latter, use of the words "advances . . . hereafter to be made" in the final clause undeniably connotes "any and all" advances to be made in the future. (Docket Entry # 25, Ex. 10, ¶ 2(b)) (emphasis added). Examining the textual surrounding of section 2(b) clarifies the meaning of such advances and the reach of the language relative to the increase in principal. See generally Starr v. Fordham, 420 Mass. 178, 648 N.E.2d 1261, 1269 (1995) ("`scope of a party's obligations cannot "be delineated by isolating words and interpreting them as though they stood alone"'").
First, the ICA refers to advances heretofore made and hereafter to be made. Similarly, the holdback agreement depicts an initial advance of $7,350,000 and a later advance of $1,470,000 occurring 12 months after the September 12, 2005 date.
Second, both the ICA, the holdback agreement and the promissory note uniformly depict the first loan as $8,820,000. The first prefatory paragraph of the ICA defines the "Senior Loan" as the sum of $8,820,000. It reads that, "Senior Lender has agreed to make a first mortgage loan to [Realty] in the principal sum of $8,820,000 (the `Senior Loan'), which Senior Loan is evidenced by that certain Promissory Note dated September 12, 2005 (the `Senior Note')." (Docket Entry # 25, Ex. 10).
Likewise, the holdback agreement makes no reference to advances in excess of the $8,820,000 total. In fact, it defines the loan in terms of the $8,820,000 amount by stating in the first paragraph:
(Docket Entry # 25, Ex. 11).
The first promissory note also defines the amount of the first loan as $8,820,000 rather than an amount in excess of that figure or that figure plus funds used to construct a building. See, e.g., Bennett v. Worcester County National Bank, 350 Mass. 64, 213 N.E.2d 254, 255-256 (1966) (rejecting argument limiting mortgage to principal amount given "obvious purpose" of a clause authorizing bank to charge money to complete a building). The first paragraph simply states that Realty agrees to pay Anglo "the principal sum of EIGHT MILLION EIGHT HUNDRED TWENTY THOUSAND DOLLARS (U.S. $8,820,000) (the `Principal Sum'), with interest. . . ." (Docket Entry # 25, Ex. 5). Immediately left and under the document's title, "PROMISSORY NOTE," again appears the unadorned figure of $8,820,000.
The first mortgage, another of the ICA's referenced "Senior Loan Documents" in section 2(b), however, defines the note as $8,820,000 "and any and all extensions, renewals and modifications thereof and substitutions thereof, whether of the same amount or otherwise." (Docket Entry # 25, Ex. 6, p. W02990) (emphasis added). Construing the principal sum as limited to the $8,820,000 does not render "the same amount or otherwise" language superfluous. See generally Strand v. Herrick & Smith, 489 N.E.2d at 182; S.D. Shaw & Sons, Inc. v. Joseph Rugo, Inc., 180 N.E.2d at 449. The language could refer to an amount lower than the principal sum in the event Anglo did not advance the entire amount by virtue of a default on the part of Realty or other circumstances. The holdback agreement expressly contemplates this scenario. (Docket Entry # 25, Ex. 11, ¶ 3). In any event, the "same amount or otherwise" language does not override the foregoing repeated and consistent definitions of the loan as the sum of $8,820,000 in the promissory note, the holdback agreement and the ICA.
The 60% loan to value ratio of the first mortgage provides additional evidence of Anglo and Realty's intent to enter into a loan limited to the principal sum of $8,820,000. The ratio corresponds exactly to 60% of the lowest end ($14,700,000) of an appraised range of the property as of September 12, 2005. (Docket Entry # 33, ¶ 5). Finally, the guaranty, also encompassed within the ICA's definition of the "Senior Loan Documents," refers to the $8,820,000 principal amount of the first promissory note.
Thus, the parties used the terms "any and all advances heretofore and hereafter to be made under the Senior Loan Documents pursuant to the terms thereof" to mean the $8,820,000 principal sum. The $8,820,000 principal sum included the "heretofore" advance of $7,350,000 and the "hereafter to be made" advance of $1,470,000 12 months later.
The plain meaning of the word "advance" conforms to this intended interpretation. In its usual and ordinary sense at the time the parties entered into the ICA, the word "advance" simply meant, "The money or goods furnished." Black's Law Dictionary (8th ed.2004); see generally Shane v. Winter Hill Federal Savings & Loan Association, 492 N.E.2d at 95 & n. 6 (using Black's Law Dictionary (5th ed.1979) to define the usual and ordinary meaning of "advance" and "future advance").
Contrary to Anglo's argument, a construction of the ICA that limits the referenced advances to the repeatedly defined sum of $8,820,000 does not render the language "any and all amendments" (Docket Entry # 25, Ex. 10, ¶ 2(b)) superfluous. See generally Strand v. Herrick & Smith, 489 N.E.2d at 182. Such language could encompass amendments for subjects such as interest rates, insurance or matters other than advances. Given the breadth of the amendments language to which this court now turns, it could also encompass an advance in excess of the $8,820,000 principal.
The amendments language in section 2(b) subordinates the liens and security interests created by the subordinate loan documents "to the liens and security interests created by the Senior Loan Documents and to any and all amendments, modifications, extensions, replacements or renewals of the Senior Loan Documents." (Docket Entry #25, Ex. 10, ¶ 2(b)). As mentioned, the ordinary and usual meaning of "subordinate" in section 2(b) gives Anglo's liens and security interests and amendments thereto priority over Noonan's liens and security interests. See Grise v. White, 247 N.E.2d at 389-390. Section 2(b) thus makes the liens and security interests created by the second mortgage and the second promissory note subordinate to the liens and security interests created by the senior loan documents and "any and all amendments" and modifications of these documents.
Under Massachusetts law, it is well settled that in choosing between two conflicting or inconsistent clauses, the more limited and specific clause prevails over the more encompassing and general clause such that the latter operates as a modification of the former. See Lembo v. Waters, 294 N.E.2d at 569 (inconsistency "`between a clause that is general and broadly inclusive in character and one that is more limited and specific in its coverage'" generally "`operate[s] as a modification and pro tanto nullification of the former'"); accord Astra USA, Inc. v. Bildman, 455 Mass. 116, 914 N.E.2d 36, 55 (2009) (noting "cardinal principle of contract interpretation under which a more specific contract provision controls a more general provision on the same issue") (citing Lembo v. Waters, 294 N.E.2d at 569), cert. denied, ___ U.S. ___, 130 S.Ct. 3276, ___ L.Ed.2d ___ (2010); In re 604 Columbus Ave. Realty Trust, 968 F.2d 1332, 1357-1358 (1st Cir.1992) (quoting Lembo in parenthetical); see, e.g., Rush v. Norfolk Electric Co., Inc., 874 N.E.2d at 453 (acknowledging "`conflicting clauses' rule" in Lembo and applying the more specific indemnification clause as "`more limited and specific in its coverage'" and therefore superceding the general indemnification clause "to the extent that the clauses were inconsistent"); see generally Restatement (Second) Contracts § 203(c) ("specific terms and exact terms are given greater weight than general language"); McDowell v. von Thaden, 2006 WL 2808092, *1
Here, the more specific advances clause addresses the limited subject of an advance in the future. The language does not allow an advance above and beyond the advance hereafter to be made in 12 months under the holdback agreement. The broad sweep of the more general amendments clause, however, encompasses any type of amendment including one that allows a future advance as well as one that changes inter alia the maturity date, the tax payments or the requirement to procure insurance. Viewed in the context of the August 2006 amendments increasing the principal with the additional advance, the two clauses conflict. Reasoning that the bargaining parties more than likely considered the advances clause to govern the specific subject of advances rather than the more general amendments clause, the latter prevails and operates as a modification of the amendments clause. See Restatement (Second) Contracts § 203 cmt. e (parties' attention and understanding "likely to be in better focus when language is specific or exact, and in case of conflict the specific or exact terms is more likely to express the meaning of the parties with respect to the situation than the general language"); see also Lembo v. Waters, 294 N.E.2d at 569 (inconsistency between broadly inclusive and more limited clause "`operate[s] as a modification and pro tanto nullification of the former'").
Indeed, Realty and Anglo knew exactly how to avoid this rule of contract construction because they did so in paragraph 11.8 of the first mortgage. That paragraph reads:
(Docket Entry # 25, Ex. 6, ¶ 6) (emphasis added). The absence of similar language in paragraph 2(b) of the ICA is telling.
The foregoing principle also elucidates why the parties did not need to include additional language in the amendments clause to exclude advances increasing the principal. The presence of the advances clause, which was absent in the language of the subordination agreement construed by the First Circuit in In re Olympic Mills Corporation, 333 B.R. 540, 555 (1st Cir. 2005),
Massachusetts law also requires dragnet clauses for future advances to employ explicit language when used against an intervening lender. See NAB Asset Venture III, L.P. v. Brockton Credit Union, 62 Mass.App.Ct. 181,
In addition, section 9.3 of the first mortgage, although relied upon by Anglo, does not use the word amendments or expressly permit an increase in the amount of payments. The language allows Anglo to make agreements, "without notice or consent" with respect to Realty, the contracting party, that extend the time or alter the terms for payment. The exact language refers to agreements to extend the time or alter "the terms of payment," not the amount of payment, "of the Obligations." The language also allows an agreement "modifying or waiving any of the Obligations or subordinating, modifying or otherwise dealing with the lien or liens securing payment of the Obligations." (Docket Entry # 25, Ex. 6, ¶ 9.3) (emphasis added).
The ICA also reveals that Anglo and Realty knew how to use the term "amendments" and they used that term together with the term "modifications" thereby favoring a construction of section 2(b) that modifications differ from amendments. See S.D. Shaw & Sons, Inc. v. Joseph Rugo, Inc., 180 N.E.2d at 449 (preferring "`interpretation which gives a reasonable meaning to all of the provisions of a contract'" rather than "`one which leaves a part useless or inexplicable'"). Section 2(b) also shows that Anglo and Realty,
Finally, this construction of section 2(b) still remains consistent with the overall purpose of the ICA which was to benefit Anglo. Thus, the ICA expressly recognized that Anglo was "unwilling to make the Senior Loan" to Realty "unless" Noonan subordinated the subordinate loan documents to the senior loan documents. (Docket Entry # 25, Ex. 10, ¶¶ D & E). Making the senior loan, defined in the ICA as the principal sum of $8,820,000, subordinate to the $3,929,000 loan effectuates the purpose of a subordination agreement. It gives priority to the senior loan over the junior loan. See generally Rosen v. A-H, Inc., 456 N.E.2d at 480 (construing subordination clause and rejecting repugnant words "in favor of a construction which makes effectual the evident purpose of the entire instrument").
It is true, as previously noted, that subordination agreements "afford the debt or security interest" given "priority practical benefits . . . far beyond a mere undertaking of the subordinator to step aside and not compete for a limited fund until the new priority claim has been satisfied."
Language in the second mortgage simply provides additional evidence of the parties' intent to subordinate the first loan to the second loan. Therein, Noonan "acknowledge[d] and agree[d]" that his rights under the second mortgage were "subject to" Anglo's rights under the first mortgage. (Docket Entry # 25, Ex. 8, p. A1003643). This language, like the similar language in a second mortgage construed by the Sunset Hollow, 359 B.R. at 376 ("`which mortgage is subject to a senior mortgage to the Lender'"), naturally suggests an intent to give the first mortgage priority over the second mortgage.
In sum, under the language of the ICA, Noonan agreed to subordinate the right of payment of the amounts due under the subordinate loan documents to the right of payment of the amounts due under the senior loan documents. (Docket Entry # 25, Ex. 10, ¶ 2(a)). Under section 2(b) in conjunction with the other loan documents, however, he did not agree to subordinate his loan to future advances in excess of the principal. Neither the ICA nor the first mortgage and first promissory note explicitly allow the future advance of $1,000,000 in the form of an amendment to the senior loan documents.
Realty used the advance to pay overdue taxes, accrued interest to Anglo, operating shortfalls
Before turning to the specific counts addressed in Noonan's motion, it is important to recognize that in most contexts other than an increase in the principal via a future advance the ICA did not require Noonan's consent for amendments, modifications or extensions of the maturity dates for the senior loan documents.
Third, the "Senior Loan Documents" is, as previously mentioned, a defined term in the ICA (Docket Entry # 25, Ex. 10, ¶ B) that does not include the second mortgage with the consent provision. The overall scheme of the ICA in the context of the other loan documents distinguishes and subordinates the "Subordinate Loan Documents" to "the Senior Loan Documents." (Docket Entry # 25, Ex. 10, ¶ D). Importing the consent provision from the subordinate loan documents (Docket Entry # 25, Ex. 8, ¶ 17) to modify the amendments and advances language is contrary to the parties' intent to distinguish the two groups of documents and then subordinate the liens created by the subordinate loan documents to the liens created by the senior loan documents.
Fourth, the consent provision in section 17 of the second mortgage conflicts with the ICA which is devoid of a provision requiring Noonan's consent for an amendment. Indeed, section two states that the "Subordinate Lender [Noonan] hereby agrees" to the subordination set forth therein. Section 20 of the ICA, to which both Realty and Noonan agreed, states that, "In the event of any conflict between the provisions of" the second mortgage and the ICA, the provisions of the ICA "shall prevail." (Docket Entry #25, Ex. 10, ¶ 20).
Fifth, requiring Noonan's consent is directly contrary to the terms of the first mortgage. Section 11.6 of the first mortgage disclaimed any intent to create rights in any third party who has a contractual relationship with Realty, i.e., Noonan. (Docket Entry # 25, Ex. 6, ¶ 11.6). Section 9.3 of the first mortgage allows Anglo to "make any agreement . . . altering the terms of payment of the Obligations" or "subordinating, modifying or otherwise dealing with the lien or liens securing payment of the Obligations" irrespective of notice or consent. (Docket Entry # 25, Ex. 6, ¶ 9.3).
Although the ICA did not import a consent requirement into its provisions, it did allow Noonan a significant right. Triggered by a condition precedent of "the occurrence of an Event of Default under the Senior Loan Documents," section 13 of the ICA gave Noonan "the right, but not the obligation, to purchase the Senior Loan Documents for a purchase price" determined by Anglo. (Docket Entry # 25, Ex. 10, ¶ 13). As previously noted, it is a genuine issue of material fact as to whether Noonan exercised that right in September 2008. His ability to exercise the right turns upon the occurrence of an event of default at or prior to that time.
Having exhaustively described the events of default at issue as well as a number of material facts relative thereto, this court confines its extended discussion to the more promising event of default vis-à-vis Noonan. This event of default is prescribed in section 8.12(a) of the first mortgage, to wit, "[t]he insolvency or inability of [Realty] . . . to pay . . . its debts as they mature."
Turning briefly to the less promising events of default which do not constitute events of default as a matter of law for purposes of Noonan's summary judgment, they include the "[n]onpayment of any installment of principal and/or interest" under the first promissory note or the "[n]onpayment of any other sum" under the first mortgage or the first promissory note. (Docket Entry # 25, Ex. 6, ¶¶ 8.1 & 8.2). Each such nonpayment required that it continue "for more than ten (10) days after notice thereof from" Anglo to Realty. (Docket Entry #25, Ex. 6, ¶¶ 8.1 & 8.2). Noonan fails to establish that notice was made in conformity with section 11.1 regarding any such nonpayment as a matter of law. Any argument that the nonpayment of principal falls under the more general "event of default" language which does not contain a notice provision (Docket Entry # 25, Ex. 6, ¶ 8.4) is unavailing. The more specific "event of default" language in section 8.1 which, inconsistent with section 8.4, contains a notice provision controls. See Lembo v. Waters, 294 N.E.2d at 569.
The summary judgment record also fails to establish as a matter of law the lapse of insurance within the meaning of section 8.6.
Given the nonpayment of the first loan as of September 12, 2007, Realty's "failure to pay" (Docket Entry # 25, Ex. 8, ¶ 21(a)) or Realty's nonpayment of accrued interest
Any violation of the loan to value ratio did not ripen into an event of default. Section 8.16 of the first mortgage requires that a breach of the loan to value ratio continue for more than 30 days after notice from Anglo. Anglo has yet to issue such a notice.
Noonan also argues that the August 2008 property option agreement was an encumbrance. Section 16 does not, however, expressly constitute an event of default. The remedy therein is for Realty to discharge the encumbrance within 30 days of the attachment of the encumbrance to the property. (Docket Entry #25, Ex. 8, ¶ 16(a)). Section 21 of the second mortgage lists the events of default and section 16 is not on the list. Section 21(g) prescribes the "failure to observe or perform any covenant, agreement, condition, term or provision of [the second] Mortgage." (Docket Entry # 25, Ex. 8, ¶ 21(g)). Even if Realty's failure to observe section 16 by allowing an encumbrance falls within the reach of this language, the failure must continue for ten days after written notice. By the time Noonan gave written notice of the encumbrance as a default (Docket Entry # 77), his attempt and/or exercise in September 2008 of his right to purchase the senior loan documents had already taken place. Thus, the August 2008 property option agreement was not an "occurrence of default" under section 13 of the ICA at the time Noonan exercised his right to purchase.
The August 12, 2008 property option agreement was also not a representation or warranty within the meaning of section 21(c). It was therefore not an event of default under this subsection.
Section 13 of the second mortgage requires Realty to "promptly" notify Noonan of "any security interest" in the property "now existing or hereafter arising" as well as "proceedings or actions . . . affecting" the property. (Docket Entry # 25, Ex. 8, ¶ 13). Noonan learned of the August 2006 amendments no later than September 8, 2006. Noonan learned about the property
Addressing the more viable event of default, section eight of the first mortgage at the outset states that, "The occurrence of any one or more of the following events shall constitute an Event of Default." (Docket Entry # 25, Ex. 6, ¶ 8). One such event is Realty's "insolvency" or its inability to pay "its debts as they mature." (Docket Entry # 25, Ex. 6, ¶ 8.12(a)). The ordinary and plain meaning of insolvent is "having liabilities that exceed the value of assets; having stopped paying debts in the ordinary course of business or being unable to pay them as they become due." Black's Law Dictionary (8th ed.2004). At the time Noonan attempted to exercise his right to purchase the senior loan documents in September 2008, the first mortgage did not include a notice or grace period in section 8.12(a) for this event of default.
As evidenced in the summary judgment record, Realty's financial condition was tenuous having been unable to make the payments of either the first or the second loan at maturity and keep current with tax payments to the city of Revere. The Bashien case, the immediate use of the $100,000 future advance to pay back taxes in excess of $400,000, the overdue interest payments due Anglo, the notices and instruments of taking issued by the city of Revere in 2007, doubts expressed by an independent auditor relative to the consolidated balance sheets of Greyhound Park and Realty as well as a notice of default in May 2008 issued by one of Realty's creditors all combine to establish that Realty was insolvent and/or unable to pay its debts as they matured at and around the time Noonan attempted to exercise his right to purchase. Given the record before this court, Realty was insolvent as well as unable to pay its debts as they matured under section 8.12(a) of the first mortgage.
The occurrence of Realty's insolvency and inability to pay its debts as they matured thus triggered Noonan's right to purchase the senior loan documents under
The Wonderland defendants and Anglo seek to avoid or postpone this suit on the basis of the standstill language in the ICA. Under the ICA, Noonan agreed not to take any action contesting the priority or the validity of "any rights" of Anglo "in and with respect to the Senior Loan Documents or the Property." (Docket Entry # 25, Ex. 10, ¶ 2). The ICA includes additional provisions, previously quoted, barring Noonan from receiving payment or asserting obligations under the subordinate loan documents or commencing an enforcement action unless and until the "Senior Indebtedness" has been paid in full or "satisfied in full." (Docket Entry # 25, Ex. 10, ¶¶ 3, 6 & 10). It is undisputed that the senior indebtedness has not been paid in full. Noonan's present action also contests Anglo's rights with respect to the senior loan documents.
It is well settled that, "`A material breach of contract by one party excuses the other party from performance as matter of law.'"
This case is no exception. Section 13 of the ICA mandates that Noonan "shall have the right" to purchase the senior loan documents upon the occurrence of
Alternatively and as discussed infra, whether Anglo violated the covenant of good faith and fair dealing implied in section 13 of the ICA also presents a genuine issue of material fact. The materiality of this breach of the ICA likewise presents a genuine issue of material fact which, if established, may excuse Noonan's performance and adherence to the standstill provisions.
Turning to the above counts implicated in Noonan's motion, Count X seeks to impose liability on the Wonderland defendants and Anglo under the theory of equitable subordination. Noonan seeks summary judgment on the count and the Wonderland defendants cross move for summary judgment on the count. To support summary judgment on this count, Noonan cites to the decision by the Massachusetts Supreme Judicial Court ("SJC") in Shane. (Docket Entry #26, ¶ II(A)). Noonan submits that the subsequent August 2006 amendments increasing the principal were prejudicial and that "`a senior mortgagee may not prejudice the rights or impair the security of a junior mortgagee.'" (Docket Entry # 26, ¶ II(A)) (quoting Shane, 492 N.E.2d at 95).
At the outset, it is important to recognize that Noonan, Anglo and Realty all agreed to the terms of the ICA. Those terms, however, did not extend or encompass an amendment in the form of a future advance increasing the principal sum by $1,000,000. Thus, the parties did not intend or agree to bind themselves to a future advance increasing the principal sum. Consequently, section 2(b) did not provide Noonan with notice of an amendment to increase the principal with a future advance.
The SJC in Shane considered whether an agreement increasing the interest rate in a first mortgage may bind a second
The rule is subject to a caveat. The Shane court did not subordinate the interest rate charges that complied with the terms of the first mortgage. Id. at 96 (second mortgagee has "no ground to contest an additional charge in compliance with the terms of this clause in the first mortgage"). Instead, the court only subordinated the charge that "exceeds the additional charge contemplated by the first mortgage." Id. at 97. As to the latter, the court reasoned that the second mortgagee "took its lien without notice of . . . a prospective increase in the interest rate of the first mortgage." Id. at 96; accord Bennett v. Worcester County National Bank, 213 N.E.2d at 255-256 (rejecting second mortgagee's priority claim to amount above principal sum because "language of the mortgage makes clear" that mortgage secured repayment not only of $155,000 note but also completion of building).
In the case at bar, the ICA did not expressly or impliedly allow subsequent amendments which increase the principal sum of $8,820,000 with a future advance. As previously explained, although the ICA gave priority to the right of payment and the liens created by the senior loan documents, it did not give priority to a future advance in excess of the principal sum of $8,820,000. Section 9.3 of the first mortgage likewise did not permit a modification for a future advance because it lacks the necessary explicit language.
Shane teaches that equitable subordination applies and that consent is required if the increase in the principal resulted in prejudice and exceeded that disclosed and agreed to in the ICA and the senior and subordinate loan documents.
To support summary judgment on Count X, Noonan also relies on NAB Asset Venture III, L.P. v. Brockton Credit Union, 62 Mass.App.Ct. 181, 815 N.E.2d 606 (2004). NAB involved a "dragnet clause" in a mortgage that secured "all other direct and contingent liabilities of the Mortgagor. . . . hereof due or to become due." Id. at 607 n. 2. As concluded by the court in NAB, "[I]f lenders intend to retain priority under a dragnet clause for future advances as against intervening lienors, the language effecting that intent should be explicit." Id. at 609.
Adhering to the parties' assumption that section 2(b) is a dragnet clause,
Here, the parties did not intend to subordinate a future advance increasing the $8,820,000 principal. The language in section 2(b) of the ICA as well as section 9.3 of the first mortgage is not explicit and it otherwise does not allow a future advance. Indeed, section 2(b) and the related senior loan documents evidence an intent to disallow an advance above the repeatedly stated principal sum of $8,820,000 and above the advances heretofore made (the $7,350,000) and hereafter to be made (the $1,470,000).
The existence of the genuine issues of material fact regarding Noonan's ability to avoid the standstill provisions, however, as previously discussed, precludes summary judgment on Count X in Noonan's favor vis-à-vis the August 2006 amendments increasing the principal to $9,820,000. Conversely, viewing the record in Noonan's favor, Realty is not entitled to summary judgment on Count X vis-à-vis the August 2006 amendments increasing the principal to $9,820,000.
As to the breach of contract claim in Count IV against Anglo,
Noonan also seeks summary judgment on the declaratory judgment count. In light of the aforementioned genuine issues of material fact, Noonan is not entitled to summary judgment on Count I for the declarations he seeks in paragraphs 100, 102 to 105, 107, 109 and 110 inasmuch as he fails to establish as a matter of law a material breach of the ICA sufficient to excuse his performance and adherence to the standstill provisions.
As a final matter relative to the August 2006 amendments, Noonan and Realty cross move for summary judgment on Count XII.
Viewing the record in Noonan's favor for purposes of resolving the Wonderland defendants' summary judgment motion, a reasonable finder of fact could easily conclude that the $1,000,000 increase in the principal of the first promissory note impaired Noonan's security. Conversely and viewing the record in favor of the Wonderland defendants, the impairment remains a genuine issue of material fact given the factual dispute regarding the value of the property. See Shane v. Winter Hill Federal Savings & Loan Association, 492 N.E.2d at 96 n. 1 (it was "mere speculation" that agreement increasing interest rate on first mortgage and note impaired second mortgagee's "security, without some indication that the property's value has remained constant or has been reduced"). Summary judgment in favor of either Noonan or Realty is therefore denied as to Count XII.
As previously noted, the Wonderland defendants, Sarkis and Dalton challenge the count as not setting out a valid cause of action in Massachusetts. While the count survives the arguments lodged against it, it may behoove Noonan to reexamine the claim in the context of this court's decision on Count X and the nature of the cause of action that the count alleges.
Anglo moves to dismiss the entirety of the complaint. (Docket Entry # 55). When considering a motion to dismiss pursuant to Rule 12(b)(6), a "court must `take all factual allegations as true and draw all reasonable inferences in favor of the plaintiff.'" Pettengill v. Curtis, 584 F.Supp.2d 348, 362 (D.Mass.2008) (quoting Rodriguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 96 (1st Cir.2007)); see Alternative Energy, Inc. v. St. Paul Fire & Marine Insurance Co., 267 F.3d 30, 33 (1st Cir.2001). To survive a Rule 12(b)(6) motion to dismiss, the complaint must include factual allegations that when taken as true demonstrate a plausible claim for relief even if
Applying this standard, this court limits the record to the complaint, the documents attached to it and, given the absence of an authenticity challenge, those "`integral to or explicitly relied upon in the complaint.'"
With few exceptions as to certain paragraphs in the complaint, Anglo's arguments do not entitle it to dismissal.
As previously explained, section 2(b) of the ICA and section 9.3 of the first mortgage do not encompass or authorize the amendments. Section 2(b) did not allow or authorize an increase in the $8,820,000 principal with a future advance in the amount of $1,000,000. Section 15 of the ICA does not alter this conclusion.
Anglo additionally seeks to dismiss any allegation under Count IV that it breached the ICA by failing to provide Noonan with a notice of default consisting of an August 5, 2008 letter from Anglo to Sarkis. The letter (Docket Entry # 1, Ex. 10), which is attached to the complaint and thus part of the Rule 12(b)(6) record, is simply an invoice from McCardle to Sarkis requesting payment of outstanding interest and fees. It is not a notice of default given or received by Anglo within the meaning of section nine of the ICA.
That said, Anglo's reliance on McCardle's affidavit to establish that Anglo never declared or sent a default is improper.
Anglo next requests a ruling that it did not breach the ICA by increasing the loan to value ratio in the October 2008 mortgage amendment. (Docket Entry ## 18 & 56). Under section 2(b) of the ICA, Noonan agreed to any and all amendments and modifications of the senior loan documents. To state the obvious, the advances clause did not operate as "a modification and pro tanto nullification," Lembo v. Waters, 294 N.E.2d at 569, of the amendments clause relative to the loan to value covenant in the first mortgage because the advances clause did not, as applied to the loan to value amendment, cover the same issue. See Astra USA, Inc. v. Bildman, 914 N.E.2d at 55 (noting that "more specific contract provision controls a more general provision on the same issue"). For previously stated reasons, Noonan's consent was not required and section 9.3 of the first mortgage gave Anglo the ability to modify the covenant by changing the
Anglo also maintains that its failure to declare an event of default is a precondition to Noonan's right to purchase under section 13 of the ICA. The language of section 13, however, provides that it is "the occurrence of and Event of Default" that triggers the right to purchase. Accordingly, the argument does not require dismissal of the breach of ICA count.
Anglo next argues that the ICA prohibits this lawsuit because of the standstill provisions in the agreement. (Docket Entry #56, ¶ B); (Docket Entry # 25, Ex. 10, ¶ 2 & 6). The events of default alleged in the complaint, including the insolvency or inability of Realty to pay its debts, as well as the reliance on section 13 of the ICA and Noonan's attempt to exercise his right to purchase the senior loan documents, provide the foundation for a material breach. Additional facts in the complaint, taken as true, also make plausible the existence of a material breach. (Docket Entry # 1, ¶¶ 35(e), 47 & 71-73). Accordingly, the argument does not entitle Anglo to dismissal on a Rule 12(b)(6) motion.
That said, this court recognizes the purpose of subordination agreements and that the prioritized debt receives practical benefits beyond the mere undertaking to stand aside and not compete for a limited fund. See Grise v. White, 247 N.E.2d at 389; Rosen v. A-H, Inc., 456 N.E.2d at 479. Construing the ICA in conformity with these principles, there remain a number of plausible material breaches under the facts of the complaint. Anglo's reliance on an unpublished decision to support dismissal is misplaced given the different facts of the case and the court's affirmation of a ruling on a summary judgment motion as opposed to a motion to dismiss. Finally, section 19 of the ICA does not, as argued by Anglo (Docket Entry # 56, p. 9), mandate dismissal of this action.
As a final matter, in the reply memorandum Anglo raises the new argument that its tangential connection with the property option agreement prevents any recovery against Anglo arising out of that agreement. Based on this new argument, Anglo moves to dismiss "all claims against Anglo. . . to the extent based upon the Option Agreement." (Docket Entry # 58, ¶ B). Contrary to Anglo's limited view of the allegations in the complaint, the complaint alleges that Anglo breached the implied covenant of good faith and fair dealing in the ICA by inter alia participating and assenting to the property option agreement. (Docket Entry # 1, ¶ 132) (Anglo "cooperated and wilfully participated in, and assented to, the Option Agreement thereby knowingly committing numerous breaches of the . . . Intercreditor Agreement").
Noonan also moves for summary judgment on the implied covenant of good faith and fair dealing claim in Count V. The Wonderland defendants cross move for summary judgment on the count.
Count V alleges that Realty and Anglo violated the covenant because of their repeated attempts to dilute Noonan's rights under the ICA, the second mortgage and the second promissory note. The complaint alleges or reasonably infers inter alia that section 13 of the ICA gave Noonan the right to purchase the senior loan documents upon the occurrence of an event of default and that Anglo avoided Noonan's right to make such a purchase in September 2008. The complaint also alleges inter alia that the SSRA loan purchase option giving SSRA a right of first refusal to purchase the senior loan documents directly violated Noonan's right to purchase in the event of an ongoing event of default. (Docket Entry # 1, ¶¶ 47, 71-73, 85, 129 & 132-133). To support summary
Massachusetts law implies a covenant of good faith and fair dealing into every contract including the ICA. See FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d 93, 100 (1st Cir.2009). The covenant requires that the parties not "`do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Nile v. Nile, 432 Mass. 390, 734 N.E.2d 1153, 1160 (2000); see Uno Restaurants v. Boston Kenmore Realty, 441 Mass. 376, 805 N.E.2d 957, 964 (2004) (covenant "preserved so long as neither party injures the rights of another to reap the benefits prescribed by the terms of the contract"). "`The scope of the covenant is only as broad as the contract that governs the particular relationship.'" FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d at 100; Chokel v. Genzyme Corporation, 449 Mass. 272, 867 N.E.2d 325, 329 (2007). Hence, the covenant does not supply terms to the ICA "`that the parties were free to negotiate, but did not, nor does it "create rights and duties not otherwise provided" for in the contract.'" FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d at 100; Chokel v. Genzyme Corporation, 867 N.E.2d at 329 (same).
"The duty of good faith and fair dealing concerns the manner of performance" of the contract, Uno Restaurants v. Boston Kenmore Realty, 805 N.E.2d at 964, as opposed to the negotiation of its terms. Thus, when performing the obligations of the contract, the parties must "`remain faithful to the intended and agreed expectations' of the contract." Chokel v. Genzyme Corporation, 867 N.E.2d at 329.
There is, however, no requirement that the plaintiff show bad faith on the part of the breaching party. See Nile v. Nile, 734 N.E.2d at 1160 ("[t]here is no requirement that bad faith be shown"). Rather, "A plaintiff must show a lack of good faith," Uno Restaurants v. Boston Kenmore Realty, 805 N.E.2d at 964 n. 5, which may be inferred by the evidence. See Nile v. Nile, 734 N.E.2d at 1160 ("showing of a lack of good faith is required in these circumstances, but it may be inferred by evidence"). Anglo and Realty must therefore be honest in their dealings with Noonan and "not purposefully injure" Noonan's "right to obtain the benefit" of section 13 of the ICA. See Shawmut Bank, N.A. v. Wayman, 34 Mass.App.Ct. 20, 606 N.E.2d 925, 926 (1993) ("duty of good faith would require that the bank be honest in its dealings . . . and that it not purposefully injure her right to obtain the benefits of her contract"); accord FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d at 100 (quoting Shawmut, 606 N.E.2d at 926). A breach of the covenant takes place "when one party violates the reasonable expectations of the other." Chokel v. Genzyme Corporation, 867 N.E.2d at 329.
In the case at bar, Noonan had a reasonable expectation that he had a right to purchase the senior loan documents upon the occurrence of an event of default as stated in section 13 of the ICA. At the time the parties entered into the ICA, certain events of default in the senior loan documents did not require notice. During the performance of the ICA, Noonan attempted to exercise his right to purchase in September 2008. Viewing the record in Noonan's favor for purposes of resolving the Wonderland defendants' summary judgment motion, Anglo rejected and denied Noonan that right in late September
Additional facts and circumstances in the record, such as those set forth in footnotes 63 and 66, suggest a lack of good faith on the part of Realty and Anglo as well as purposeful conduct to injure Noonan's right to exercise his right to purchase the senior loan documents. In essence, a reasonable finder of fact could find that Anglo and Realty changed the section 13 provision that Noonan agreed to in the ICA by changing the definition of an event of default and entering into loan purchase options that, even with the acknowledgments of Noonan's right, did not contain language sufficient to preserve the agreed and reasonable expectations of that right.
Viewing the record in favor of the applicable non-moving party, neither Realty nor Noonan is entitled to summary judgment on Count V.
Greyhound Park, Sarkis and Dalton move to dismiss the breach of fiduciary duty claim Noonan brings against them in Count XI. They argue that Delaware law applies to the claim and that such law bars a direct breach of fiduciary duty claim against a director as well as a corporation even when the corporation is insolvent or within a zone of insolvency. (Docket Entry # 63). In particular, they submit that: (1) Delaware law applies to the breach of fiduciary duty claim; (2) assuming that Greyhound Park is either insolvent or operating within the zone of insolvency, Delaware law does not allow a creditor of a corporation to bring a direct claim against the corporation or its officers and directors; and (3) the complaint fails to adequately allege facts that Realty is insolvent or within the zone of insolvency. (Docket Entry ## 64 & 66).
Noonan responds that Sarkis and Dalton are siphoning funds belonging to Realty to other entities that they control such as Westwood. For example, Sarkis and Dalton used an asset belonging to Realty, i.e., the property, and sold an option to purchase the property to Coastal with the proceeds going to Westwood as opposed to Realty. According to Noonan, Delaware law gives him a derivative claim against Greyhound Park, Sarkis and Dalton and that any absence of a "`direct' claim against them is nothing but a procedural quibble." (Docket Entry # 68). Unfortunately for Noonan, it is not a procedural quibble and Count XI is subject to dismissal.
The previously stated standard of review applicable to Anglo's motion to dismiss applies to Greyhound Park, Sarkis and Dalton's motion to dismiss. Their citation and reliance, although limited (Docket Entry # 64, n. 2 & 5), upon Dalton's affidavit (Docket Entry # 18) is inapt. As previously stated, Rule 12(b)(6) confines the record to the factual allegations in the complaint and the attached documents except for certain limited exceptions. Facts are construed in Noonan's favor.
Without going into detail because the complaint sets out the factual allegations
The September 12, 2007 maturity date passed without a payment and as of September 12, 2008, Realty owed Noonan $5,957,967 with interest accruing at a rate of 15%. With the additional $1,000,000 advance and the $8,820,000 original loan, Realty owed the bank with interest in excess of $9,820,000. In the fall of 2008, Realty also owed $800,000 in back taxes to the city of Revere. In August 2008, the property appraised at an approximate value of $15,000,000. For purposes of resolving the motion to dismiss, this court assumes that Realty owed debt in excess of its assets even accounting for revenue generated by leases.
The August 2008 property purchase option required Coastal to deposit funds into escrow. Upon satisfactory evidence of certain requirements, Coastal agreed to release funds to Westwood as opposed to Realty. Dalton, as President and Chief Executive Officer, executed the agreement on behalf of Westwood. He also executed the agreement on behalf of Realty as President and Chief Executive Officer of that entity. Sarkis executed a related term sheet.
Sarkis and Dalton control an integrated operation consisting of Realty, Greyhound Park and Wonderland Parking. Dalton is "the sole officer and a director of Greyhound Park." (Docket Entry # 1, ¶ 168). "Sarkis is a director of Greyhound Park." (Docket Entry # 1, ¶ 168). Greyhound Park is the Manager of Realty and controls that entity.
Under Count XI, Noonan attempts to assert liability for breach of a fiduciary duty against Greyhound Park arising out of its management and control of Realty. Realty is the corporation that Noonan submits is insolvent or operating in the zone of insolvency. Count XI also seeks to impose liability for breach of fiduciary duty against Dalton as an officer and director of Greyhound Park and Sarkis as a director of Greyhound Park. As explained below, because there is no direct (as opposed to derivative) claim for breach of fiduciary duty against Realty, even assuming its insolvency or its operation within the zone of insolvency, there is no direct claim against Realty's corporate manager and its officer and directors.
Turning to what law applies, Noonan fails to address the choice of law issue explicitly raised by Greyhound Park, Dalton and Sarkis in part III(B) of the supporting memorandum to the motion to dismiss.
In accord with other jurisdictions, Delaware law establishes that directors such as Dalton and Sarkis "`owe fiduciary duties of care and loyalty to the corporation and its shareholders.'" Schoon v. Smith, 953 A.2d 196, 206 (Del.2008). Shareholders can maintain a derivative claim against the corporation and its directors and a direct claim only by "demonstrat[ing] that they suffered the alleged harm and that they would receive the benefit of any recovery." In re Transkaryotic Therapies, Inc., 954 A.2d 346, 371 n. 112 (Del.Ch.2008). To state the obvious, Noonan is not a shareholder. He is a creditor of Realty. As noted by the Delaware Supreme Court, whereas "shareholders rely on directors acting as fiduciaries to protect their interests, creditors are afforded protection through contractual agreements, fraud and fraudulent conveyance law, implied covenants of good faith and fair dealing, bankruptcy law, general commercial law and other sources of creditor rights." North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 930 A.2d 92, 99 (Del.2007).
The Gheewalla decision decisively and unambiguously sets out the relevant rules.
Count XI pleads a direct breach of fiduciary duty claim against Greyhound Park, Dalton and Sarkis. Delaware law emphatically rejects such a claim. As the distinctions drawn by the Gheewalla court also evidence, the difference between direct and derivative claims is not a procedural quibble. Although Noonan may file a motion for leave to file an amended complaint to bring a derivative breach of fiduciary duty claim under Delaware law against the foregoing parties, the present direct claim is subject to dismissal.
Greyhound Park, Dalton and Sarkis additionally move for a separate and final
Ordinarily, issuance of separate final judgments "should not be indulged as a matter of routine or as a magnanimous accommodation to lawyers or litigants." Spiegel v. Trustees of Tufts College, 843 F.2d 38, 42 (1st Cir.1988); see Willhauck v. Halpin, 953 F.2d 689, 701 (1st Cir.1991) (Rule 54(b) creates "an exception to the longstanding prudential policy against piecemeal appeals"). Instead, separate final judgments under the rule "must be reserved for the unusual case in which the costs and risks of multiplying the number of proceedings and of overcrowding the appellate docket are outbalanced by pressing needs of the litigants for an early and separate judgment as to some claims or parties." Spiegel v. Trustees of Tufts College, 843 F.2d at 42.
The present circumstances are neither unusual nor pressing. In addition, Greyhound Park is named in a reach and apply count and the declaratory relief in Count I is sought against "defendants." Accordingly, a separate final judgment is not advisable.
On May 3, 2010, Noonan filed the second summary judgment motion. (Docket Entry # 96). Noonan objects to the evisceration of his rights under the subordinate loan documents and the ICA in connection with transactions that took place in February 2010. The Wonderland defendants, Anglo, intervenor CBW Lending, LLC ("CBW Lending") and SSR oppose the motion. (Docket Entry ## 112, 115 & 121).
On November 24, 2009, SSRA exercised its right to extend the property option agreement, due to expire on December 1, 2009, for another year. (Docket Entry # 25, Ex. 46, ¶ 5(C); Docket Entry # 85, Ex. B). Pursuant to the terms of the property option agreement, SSRA agreed to pay Westwood the $1,800,000 option fee in monthly installments of $300,000 during the first six months of the one year term.
By letter dated February 1, 2010, Anglo extended the existing maturity date of the first promissory note to March 15, 2010. On February 12, 2010, CBW Lending was formed as a Delaware limited liability company. A few days later, CBW Lending registered to do business in Massachusetts. The request for a certificate to do business in Massachusetts identifies Coastal Belmont LLC ("Coastal Belmont") as a Delaware company and as the Manager of CBW Lending. Coastal, in turn, is Coastal Belmont's Manager. Coastal, CBW Lending and Coastal Belmont all share the same New York City address for their principal office.
On February 15, 2010, Anglo executed a series of documents that transferred and assigned the senior loan documents and the assignment of leases and rents to
The February 2010 assignment thus transferred and sold the senior loan documents and the assignment of leases and rents to CBW Lending. As set out in the February 2010 assignment, both Anglo and CBW Lending acknowledged and agreed that the first promissory note, the first mortgage and the assignment of leases and rents were "subject to the terms of" the ICA. (Docket Entry # 91, Ex. A(22)).
By letter dated February 15, 2010, Anglo notified Noonan of the extension of the maturity date of the first promissory note to March 15, 2010. By letter dated February 16, 2010, Anglo transmitted documents relative to CFJS' exercise of the Sarkis loan purchase option. CFJS initially notified Anglo in a February 11, 2010 letter of CFJS' exercise, as assignee, of the Sarkis loan purchase option. In a letter dated February 24, 2010, CFJS notified Anglo of CFJS' withdrawal of the election.
On March 1, 2010, Noonan's counsel wrote to Anglo requesting documents in accordance with section 11 of the ICA. By letter dated March 2, 2010, Anglo informed Noonan that, "Following the withdrawal of [CFJS' notice to exercise the option], effective as of February 15, 2010, Anglo sold the Loan and assigned the Loan Documents, including the Mortgage and the Intercreditor and Subordination Agreement, to CBW Lending, LLC." (Docket Entry # 91, Ex. A(33)).
Noonan moves for summary judgment on counts I, II, III, IV, V and X. He attacks the February 2010 transactions and submits that, together with the August 2006 amendments and the October 2008 amendments and options, "defendants"
The Wonderland defendants, Anglo, CBW Lending and SSR raise a number of
Noonan submits that seeking leave to amend is not required because he relies on the same claims asserted in the complaint now rendered more egregious by the February 2010 transactions. He also points out, correctly, that he is not raising the theories based on the February 2010 transactions in defense to a motion for summary judgment but, rather, in support of summary judgment.
The First Circuit recognizes that, "[W]hen a plaintiff raises a claim for the first time in response to a summary judgment motion, it is possible to treat the claim as a motion to amend the complaint under Rule 15(a) of the Federal Rules of Civil Procedure." Kunelius v. Town of Stow, 588 F.3d 1, 19 (1st Cir.2009) (dicta). The present circumstances do not involve a plaintiff raising a new claim in an attempt to forestall summary judgment. They involve a summary judgment motion filed by a plaintiff raising factual allegations based on recent agreements and transactions that took place after the December 2008 filing of the complaint. Even under a broad reading of the complaint, it does not encompass these post complaint transactions. See, e.g., Diomed, Inc. v. Vascular Solutions, Inc., 417 F.Supp.2d 137, 141 (D.Mass.2006) (agreement "mentioned nowhere in the complaint" and "raised for the first time in Diomed's opposition to defendants' summary judgment motion" was not within "a broad reading of the complaint").
Rule 15(d), Fed.R.Civ.P. ("Rule 15(d)"), as opposed to Rule 15(a), sets out the requirements for supplementing a complaint to set "out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented." Fed.R.Civ.P. 15(d). In pertinent part, Rule 15(d) provides that, "On motion and reasonable notice, the court may, on just terms, permit a party to serve a supplemental pleading setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented." Fed.R.Civ.P. 15(d). Although unlike Rule 15(a), Rule 15(d) does not instruct a court to "freely give leave" to amend, Rule 15(a)(2), Fed.R.Civ.P., the "practice is to liberally allow supplemental pleadings." The Hertz Corp. v. Enterprise Rent-A-Car Co., 557 F.Supp.2d 185, 192 (D.Mass.2008); see Mueller Co. v. U.S. Pipe & Foundry Co., 351 F.Supp.2d 1, 2 (D.N.H.2005) (courts "generally assess motions to supplement pleadings under the same standard applicable to motions to amend").
In lieu of seeking leave to supplement the complaint with a motion for leave and attaching a proposed supplemental complaint with the new factual allegations based on the February 2010 transactions, Noonan contends that leave is not required in a reply memorandum to opposition memoranda to Noonan's summary judgment motion. Assuming this court has the discretion to allow supplementation without requiring a motion to amend, the present circumstances do not warrant exercising that discretionary authority. A proposed supplemental complaint will assist this court in determining the parties to each count in the event Noonan wishes to add CBW Lending as a defendant to any count. It will also assist this court and provide fair notice to defendants of the parameters of each count and which agreements are at issue with respect to the multiple breach of contract counts in the complaint. In the event Noonan seeks additional declaratory relief, such as a declaration that the February 15, 2010 transfers
If necessary, this court will expedite the time to respond to a motion for leave to supplement and conduct a hearing on the motion in an expedited fashion. Noonan is not foreclosed from raising any of the substantive arguments in the second summary judgment motion in a future and timely dispositive motion.
For the above reasons, the motion to dismiss Count XI (Docket Entry # 63) is
The motion to dismiss filed by Anglo (Docket Entry # 55) is
The parties shall appear for a status conference on August 2, 2010, at 2:30 p.m. to discuss inter alia the pending preliminary injunction motion in light of this opinion and the discovery schedule.
(Docket Entry # 25, Ex. 10).
(Docket Entry # 25, Ex. 10).
(Docket Entry # 25, Ex. 10, ¶ 5).
Anglo did not send Realty a notice "in writing" of nonperformance or nonobservance of any of the above covenants that complies with the notice requirements of section 11.1 of the first mortgage.
(Docket Entry # 25, Ex. 7, ¶ 4) (emphasis added). The paragraph does not refer to a "warranty" or a "representation." It uses the mandatory language of "shall" and "obligated" and encompasses future events with the words "at any time." The second promissory note does not define "obligated" but the term "obligation" ordinarily means a legal duty. See Black's Law Dictionary (8th ed.2004) (defining "obligation" as "[a] legal or moral duty to do or not do something"); see generally McDonnell Douglas Corp. v. U.S., 37 Fed.Cl. 295, 301 (Fed.Cl.1997) ("obligation" defined in Black's Law Dictionary (6th ed.1991) as meaning "`[t]o bind oneself by an obligation or promise . . . to execute a written promise or covenant'"). The second mortgage does not define the terms covenant, term or provision although such language is broad enough to include a legal duty to perform.
This opinion does not foreclose Noonan's ability to address the property option agreement as an event of default under section 21(e) of the second mortgage and section 8.10 of the first mortgage.
(Docket Entry # 25, Ex. 8, p. A1003638). Realty did not pay Noonan the principal and interest on the September 12, 2007 maturity date. As previously noted, however, section three of the ICA postponed payment until payment in full of the senior indebtedness. Conversely, the section allowed Noonan to receive "regularly scheduled payments," but not prepayments, absent an event of default under the senior loan documents.
In February 2008, the city of Revere commenced a foreclosure action against Realty. By the fall of 2008, Realty was approximately $800,000 behind in the payment of its real estate taxes. (Docket Entry # 27, 32 & 38, ¶¶ 47 & 149). The summary judgment record presents a genuine issue of material fact regarding whether the foregoing events had "a material adverse impact on the ability of [Realty]" to perform its obligations. See fn. 46. Accordingly and given the lack of briefing on the issue, this court declines to make a ruling that the tax lien constituted an "attachment" within the meaning of section 8.12(d).
(Docket entry # 25, Ex. 6, ¶ 11.6).
In a related vein, in the second mortgage Realty "covenant[ed] and agree[d]" to pay all taxes ten days before due. (Docket Entry # 25, Ex. 8, p. A1003643 & ¶ 2). Section 21(g) identifies as an event of default under the second mortgage a failure to observe or perform "any covenant [or] agreement" in the second mortgage for a ten day period "after written notice thereof given by the Mortgagee [Noonan] to the Mortgagor [Realty]." (Docket Entry # 25, Ex. 8, ¶ 21(g)). Noonan issued a written notice to Realty regarding the nonpayment as a default on April 8, 2009. (Docket Entry # 25, Ex. 77). Under the present summary judgment record, therefore, the nonpayment of real estate taxes did not ripen into an event of default under section 21(g) of the second mortgage until April 2009. By that time, Noonan's exercise or attempt to exercise his right to purchase the senior loan documents had already taken place. Also by that time, Anglo and Realty had amended the first mortgage to include a notice provision for a default under section 8.10 of the first mortgage.
Taxes not paid when due under section 5.4.1 of the first mortgage may also give rise to genuine issues of material fact that Realty breached this obligation. It is undisputed, however, that Anglo did not issue a notice of the nonperformance of the covenant to Realty which section 8.3 requires. See fn. 17.
(Docket Entry # 25, Ex. 68, p. A1010722). Dalton attests that the accrual of 15% interest on Realty's financial books was not intended as "an acknowledgment of any default." (Docket Entry # 37, ¶ 7). McCardle avers that, "Anglo did not attempt to analyze Realty's solvency in 2007." (Docket Entry # 33, ¶ 11).
(Docket Entry # 25, Ex. 64, ¶ 4.2).
Section three goes on to state that, "so long as no Event of Default under any Senior Loan Document has occurred and is continuing, Subordinate Lender shall be permitted to receive regularly scheduled payments (but not prepayments) as provided in the Subordinate Loan Documents." (Docket Entry # 25, Ex. 10, ¶ 3). The existence of "no Event of Default" was therefore a condition precedent to Noonan receiving a regularly scheduled payment. The presence of a material issue of fact vis-à-vis the existence of an event of default, as discussed infra, precludes the need to determine if payment at maturity was a "regularly scheduled payment." Noonan is only entitled to receive "regularly scheduled payments" as "long as no Event of Default under any Senior Loan Document has occurred and is continuing." (Docket Entry # 25, Ex. 10, ¶ 3). Noonan is therefore not entitled to a declaration under paragraph 101 in Count I on summary judgment. Construing the record in Noonan's favor, the Wonderland defendants are not entitled to a dismissal of this paragraph given the material issue of fact relative to the existence of an event of default.
(Docket Entry # 1). A declaration of the $1,000,000 future advance as a capital event does not, however, entitle Noonan to immediately receive the capital event prepayment.
