Access Point Fin. v. Katofsky
| Decision Date | 07 February 2023 |
| Docket Number | Civil Action 1:21-CV-3176-TWT |
| Parties | ACCESS POINT FINANCIAL, LLC, Plaintiff, v. JEFF KATOFSKY, individually, et al., Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
This is a breach of contract action. It is before the Court on the Plaintiff's Motion for Summary Judgment [Doc. 43] and the Plaintiff's Motion to Substitute [Doc. 49]. For the reasons set forth below, the Plaintiff's Motion for Summary Judgment [Doc. 43] is GRANTED, and the Plaintiff's Motion to Substitute [Doc. 49] is GRANTED.
This case arises from various loans made by the Plaintiff Access Point Financial, LLC (“APF”) to entities associated with the Defendants and subsequent defaults on those loans. (Pl.'s Statement of Undisputed Material Facts ¶¶ 1-3, 28). In May 2018, the Defendant Jeff Katofsky, along with a business partner, formed Hip Hip, Huron!, LLC (“HHH”) to own and operate the historic Hotel Harrington in Port Huron, Michigan. (Defs.' Statement of Additional Undisputed Material Facts ¶ 1). Later that year, the Plaintiff entered into a loan agreement with HHH under which the Plaintiff agreed to lend HHH $6,200,000 (the “HHH Loan”) to finance a construction project for the Hotel Harrington. (Pl.'s Statement of Undisputed Material Facts ¶ 1).[2]HHH executed a promissory note (the “HHH Note”) that it delivered to the Plaintiff in connection with the HHH Loan. (Id. ¶ 2). The Defendants unconditionally guaranteed the HHH Note pursuant to a guaranty agreement dated November 9, 2018 (the “HHH Guaranty Agreement”).[3] (Id. ¶ 3).
The Defendants claim that in late 2019 and early 2020, the Defendant Jeff Katofsky negotiated a modification of the HHH Loan with the Plaintiff that was never reduced to a writing. (Id. ¶ 19). The exact terms of the alleged loan modification are uncertain. (Id. ¶ 20; Defs.' Resp. to Pl.'s Statement of Undisputed Material Facts ¶ 20). The Defendants also claim they forewent refinancing opportunities in reliance on the alleged loan modifications that the Plaintiff and the Defendant Katofsky reached. (Defs.' Countercls. ¶ 12). The Plaintiff alleges that HHH defaulted on the HHH Note when it failed to make the payment due on March 2, 2020. (Pl.'s Statement of Undisputed Material Facts ¶ 28).
On February 1, 2021, the Plaintiff, the Defendants, and HHH entered into a Discounted Payoff Agreement regarding the HHH Loan. (Id. ¶ 42). The Plaintiff contends that the HHH Discounted Payoff Agreement mistakenly identifies its affiliate company, HDDA, LLC (“HDDA”), as the lender on the HHH Note. (Id. ¶ 43). Under the HHH Discounted Payoff Agreement, HHH and the Defendants “acknowledge[d] and agree[d] that the indebtedness evidenced by the [HHH] Loan Documents for such Borrower's Loan is due and owing to Lender . . . and further acknowledge[d] and agree[d] that each of the Loan Documents, is valid and binding and fully enforceable according to its terms.” (Id. ¶ 46 (alterations in original)). HHH paid $50,000 in earnest money under the HHH Discounted Payoff Agreement, but the Plaintiff contends that HHH and the Defendants defaulted on their obligations under the HHH Discounted Payoff Agreement by failing to make the payoff amounts provided in the agreement. (Id. ¶¶ 49-50).
On July 27, 2021, the Plaintiff provided a notice of default under the HHH Loan to HHH and the Defendants. (Id. ¶ 61). Nine days later, the Plaintiff filed the present action seeking damages from the Defendants for breach of the HHH Guaranty Agreement. (Id. ¶ 63). Then, on August 25, 2021, the Plaintiff and the Defendants executed a Pre-Negotiation Agreement in which the parties agreed that the HHH Loan was in full effect. (Id. ¶ 66). On November 30, 2021, the Defendants answered and pleaded five counterclaims against the Plaintiff. Finally, on December 30, 2021, the Plaintiff assigned its interest in the HHH Loan to HDDA. (Id. ¶ 67). The Plaintiff now moves for summary judgment as to its claim for breach of the HHH Guaranty Agreement and as to the Defendants' five counterclaims.
Summary judgment is appropriate only when the pleadings, depositions, and affidavits submitted by the parties show that no genuine issue of material fact exists, and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a), (c). The court should view the evidence and draw any inferences in the light most favorable to the nonmovant. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970). The party seeking summary judgment must first identify grounds that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The burden then shifts to the nonmovant, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
The Plaintiff moves for summary judgment as to its claim for breach of the HHH Guaranty Agreement and as to the Defendants' five counterclaims. (Br. in Supp. of Pl.'s Mot. for Summ. J., at 1). The Plaintiff also moves to substitute HDDA as the Plaintiff in the present action. (Br. in Supp. of Pl.'s Mot. to Subs., at 1). The Defendants oppose both of the Plaintiff's motions, arguing that summary judgment and substitution are inappropriate for various reasons. (Defs.' Resp. Br. in Opp'n to Pl.'s Mot. for Summ. J., at 1; Defs.' Resp. Br. in Opp'n to Pl.'s Mot. to Subs., at 1-2). The Court first considers the Plaintiff's Motion to Substitute and then turns to the merits of the Plaintiff's Motion for Summary Judgment.
The Plaintiff moves to substitute HDDA as the Plaintiff in the present case because it assigned its interest in the HHH Loan to HDDA as of December 30, 2021. (Br. in Supp. of Pl.'s Mot. to Subs., at 1-2 (citing Doc. 49-1)). The Defendants respond with multiple reasons for why the Plaintiff's Motion to Substitute should be denied. (Defs.' Resp. Br. in Opp'n to Pl.'s Mot. to Subs., at 8-16). Primarily, the Defendants argue that substitution is improper because the Plaintiff assigned its interest in the HHH Note to HDDA before it filed the present action. (Id. at 8). In support of this proposition, the Defendants rely on the draft and final versions of the HHH Discounted Payoff Agreement that named HDDA as the lender on the HHH Loan. (Id. at 8-9; see also Katofsky Decl. ¶¶ 40-46, Exs. 5-11). The Defendants also contend that HDDA accepted a $50,000 payment from the Defendants in consideration of the HHH Discounted Payoff Agreement. (Defs.' Resp. Br. in Opp'n to Pl.'s Mot. to Subs., at 9). They argue that such an acceptance demonstrates that the Plaintiff's documents assigning the HHH Note to HDDA in December 2021 are either a sham or a redundant assignment. (Id.).
In reply, the Plaintiff takes issue with the Defendants' “speculative” theories and argues that the HHH Discounted Payoff Agreement mistakenly identified HDDA as the lender. (Reply Br. in Supp. of Pl.'s Mot. to Subs., at 3; see also Reply Br. in Supp. of Pl.'s Mot. for Summ. J., at 6-7 (citing 100 Lakeside Trail Tr. v. Bank of Am., N.A., 342 Ga.App. 762, 766 (2017))). In support of its mistake theory, the Plaintiff references a March 2021 email that its counsel sent to the Defendants notifying them of the mistake and requesting that they authorize a corrected version that identified the Plaintiff as the lender, instead of HDDA. (Id. at 4 (citing Doc. 44-17, at 2)). The Defendants later responded to that email objecting to the Plaintiff's substitution request. (Doc. 51-4, at 2). Finally, the Plaintiff argues that even if substitution under Rule 25(c) did not apply, the Court could still join HDDA as the real party in interest under Rule 17(a)(3). (Id. at 4 n.5).
Under Federal Rule of Civil Procedure 25(c), “[i]f an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted in the action or joined with the original party.” Fed.R.Civ.P. 25(c). “The decision whether to allow substitution is discretionary.” Nat'l Indep. Theatre Exhibitors, Inc. v. Buena Vista Distrib. Co., 748 F.2d 602, 610 (11th Cir. 1984). “Rule 25(c) applies only to transfers of interest occurring during the pendency of litigation and not to those occurring before the litigation begins.” Andrews v. Lakeshore Rehab. Hosp., 140 F.3d 1405, 1407 (11th Cir. 1998). Finally, under Federal Rule 17(a)(3), a “court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action.” Fed.R.Civ.P. 17(a)(3); see also Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997) ().
As a preliminary matter, the Court finds nothing in the record suggesting that the documents assigning the HHH Note to HDDA are a sham or that the Plaintiff misrepresented to the Defendants that HDDA was the assignee of the HHH Note in negotiating the Discounted Payoff Agreement, as the Defendants contend. (Defs.' Resp. Br. in Opp'n to Pl.'s Mot. to Subs., at 9 n.2). Indeed, the language in the initial email exchange between the Plaintiff's counsel and the Defendants indicated that the Plaintiff might assign its interest in the HHH Note to HDDA. (Doc. 52-1, at 201 ...
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