Bank of Am., N.A. v. New England Quality Serv., Inc.
| Decision Date | 04 January 2017 |
| Docket Number | Case No. 5:16-cv-83 |
| Court | U.S. District Court — District of Vermont |
| Parties | BANK OF AMERICA, N.A., Plaintiff, v. NEW ENGLAND QUALITY SERVICE, INC., EARTH WASTE & METAL, INC., EWM REAL ESTATE, INC., EWM, INC., EWS OF NY, INC., AMERICAN WASTE & METAL OF TN, INC., AMERICAN WASTE & METAL, LLC, WYRE WHEEL REAL ESTATE, INC., AMERICAN WASTE & METAL COMPANY OF NEW YORK, LLC, CASE STREET HOLDINGS, LLC, AMERICAN IRON & METAL OF TN, INC., and KEVIN C. ELNICKI, Defendants. |
(Doc. 7)
Plaintiff Bank of America, N.A. ("BOA" or "the Bank") sues the above-captioned corporate defendants and Defendant Kevin C. Elnicki—the owner, member, officer, or principal of the corporate defendants—seeking to enforce BOA's rights in connection with certain commercial loans, credit agreements, and security agreements between the parties. (See Doc. 1.) Defendants filed a four-count Counterclaim,1 asserting that BOA breached the loan agreement, breached its duty of good faith and fair dealing, intentionally interfered with contractual relations, and is liable for punitive damages. (See Doc. 6.) BOA moved to dismiss the Counterclaim (Doc. 7), and Defendants moved to amend their Counterclaim (Doc. 45). At aSeptember 27, 2016 motion hearing, the court granted Defendants' motion to amend their Counterclaim, and decided to consider the merits of BOA's Motion to Dismiss the Counterclaim (Doc. 7) in light of Defendants' Amended Counterclaim (Doc. 48). BOA also seeks to strike Defendants' demand for a jury trial. (Doc. 7 at 17.)
Background
The factual allegations in the Amended Counterclaim include the following.2 The court begins by briefly summarizing the credit facilities that BOA extended to Defendants between 2012 and 2015. The court then discusses Defendants' allegations of a course of dealing between the parties and a planned "tripartite debt consolidation program." Finally, the court recites the events giving rise to each party's claim that the other party defaulted or breached. Additional facts are set forth as necessary in the analysis below.
It is unnecessary here to recite all of the details of each of the agreements between BOA and Defendants. The court starts with summaries of the loans to NEQS in 2012 and 2013 and the loans to Earth Waste in 2014 and 2015. The court then briefly highlights some of the key provisions of those loans.
The parties began a lending relationship on or about August 15, 2012, when Defendant New England Quality Service, Inc. ("NEQS") and BOA entered into an agreement (the "2012 Loan Agreement") in which BOA agreed to lend to NEQS: two separate $500,000 lines of credit (LOCs), and one $3,600,000 variable-rate term loan. (See Doc. 48 ¶ 5; see also Doc. 1 ¶ 52; Doc. 1-13 (copy of the 2012 Loan Agreement).) On or about April 16, 2013, BOA and NEQSexecuted Amendment No. 1 to the 2012 Loan Agreement, which included the addition of a $650,000 LOC as a fourth credit "facility." (See Doc. 48 ¶ 27; Doc. 1-18 (copy of Amendment No. 1).) On or about November 15, 2013, BOA and NEQS executed another loan agreement (the "2013 Loan Agreement") in which BOA agreed to extend to NEQS another $500,000 LOC. (See Doc. 1 ¶ 76; Doc. 1-24 (copy of 2013 Loan Agreement).)3
On or about October 28, 2014, and in furtherance of a 2013 decision to acquire a new metals shredder, Earth Waste & Metal, Inc. ("Earth Waste") and BOA entered into a lending agreement (the "4.5MM Loan Agreement" or "shredder loan agreement"), under which BOA agreed to make available to Earth Waste a non-revolving convertible line of credit in the amount of $4,582,272. (See Doc. 48 ¶¶ 13-15; see also Doc. 1 ¶ 18; Doc. 1-1 (copy of the 4.5MM Loan Agreement).) The shredder loan agreement included a number of covenants, one of which was an obligation for Earth Waste to provide BOA with "financial information and statements" at regular intervals and "such additional information as requested by the Bank from time to time." (Doc. 1-1 at 7.) In particular, Earth Waste was required to supply BOA with its annual financial statements, reviewed by a certified public accountant, within 120 days of Earth Waste's fiscal year end. (Id.)4 Another covenant required Earth Waste "to maintain on a consolidated basis aBasic Fixed Charge Coverage Ratio" of at least 1.15 to 1.0 through December 30, 2015. (See Doc. 48 ¶ 34; see also Doc. 1-1 at 8-9.)5
The shredder loan agreement defined default to include failure to comply with any covenant or obligation contained within the agreement. (See Doc. 1-1 at 12.) The agreement further defined default to include the circumstance where "any default occurs under any other agreement the Borrower (or any Obligor) has with the Bank or any affiliate of the Bank." (Id.)6 Upon an event of default, BOA's remedies included the right to "stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately." (Id. at 11.)
Drawing on the line of credit extended under the shredder loan, Earth Waste borrowed more than $1 million from BOA, and entered into contractual obligations with third party to purchase a metals shredder. (Doc. 48 ¶ 35.) On or about February 4, 2015, BOA extended an additional $500,000 LOC to Earth Waste. (See Doc. 1-7.) On or about February 13, 2015, BOA extended a $2,540,000 term loan to Earth Waste. (See Doc. 1-11.)7
Under the 2012 Loan Agreement, absent a renewal, the "expiration date" for the first LOC was August 15, 2013, at which time the agreement called for NEQS to "repay in full any principal, interest or other charges outstanding." (Doc. 1-13 at 2.) The "expiration date" for the second LOC was also August 15, 2013, at which time the agreement called for NEQS to repay the principal amount outstanding monthly "in equal installments beginning on October 1, 2013 . . . and ending on September 1, 2018." (Id. at 3.) The 2012 Loan Agreement also called for NEQS to pay interest on the $3.6 million term loan in monthly installments, and to repay the principal of the loan in monthly installments between August 2012 and August 2019. (See id. at 5, 23.) The additional $650,000 LOC added by Amendment No. 1 was available until January 31, 2014, at which time the agreement called for NEQS to "repay in full any principal, interest or other charges outstanding." (Doc. 1-18 at 1.) The "expiration date" for the 2013 Loan Agreement was November 15, 2014, at which time the agreement called for NEQS to repay the amount outstanding "in equal combined installments of principal and interest" monthly until November 15, 2019. (Doc. 1-24 at 1.)
The shredder loan required Earth Waste to repay the principal in monthly installments from December 1, 2015 through November 3, 2025. (Doc. 1-1 at 2; 18-20.) The repayment terms of the February 4, 2015 LOC set June 30, 2015 as the "expiration date," and required Earth Waste to repay all principal, interest, and charges by that date. (Doc. 1-7 at 2.) The repayment terms of the February 13, 2015 term loan called for the principal to be repaid in installments from May 1, 2015 until October 1, 2021. (Doc. 1-11 at 2, 18-19.) All of the relevant agreements state that failure to make a payment when due is an event of default. (See Doc. 1-1 at 12; Doc. 1-7 at 11; Doc. 1-11 at 12; Doc. 1-13 at 16; Doc. 1-24 at 13.)
According to Defendants, beginning in mid-2013, BOA and Defendants began working together on a "loan consolidation program." (Doc. 48 ¶¶ 8, 11.) As Defendants describe it, at some point in 2015, the parties had identified a "final lending design" consisting of the following three components:
(Id. ¶¶ 12, 20.)8 Defendants describe this alleged plan as the "tripartite debt consolidation program." (Id. ¶ 21.) Defendants assert that the parties intended for all three components of the plan to be accomplished "in sync" during 2015. (Id. ¶¶ 16-17.)
Defendants allege that BOA line lender Scott Card referred to BOA as NEQS's "partner" in the planned loan-consolidation program. (Id. ¶ 11.) Mr. Card was "not concerned" about payment of the existing LOCs prior to final debt refinancing and consolidation. (Id. ¶ 24.) In fact, according to Defendants, at no time from 2012 to August 2015 did BOA invoke the pay-on-maturity provision of any of the several LOCs. (Id. ¶¶ 7, 9.) Instead, BOA "rolled over the LOCs post-maturity when needed, pending pay-off from the anticipated refinancing" component of the three-part loan-consolidation program. (Id. ¶¶ 10, 25-33.)
After a "Letter Extension," (see Doc. 1-8), August 24, 2015 was the new maturity date for Earth Waste's $500,000 LOC. After a series of amendments (see Docs. 1-19, 1-20, 1-21, 1-22, 1-23), August 24, 2015 also became the new maturity date for NEQS's $650,000 LOC. As to both of those LOCs, the August 24, 2015 maturity date was reached without payment in full. (Doc. 24 ¶¶ 102, 105.) BOA did not notify Defendants on August 24, or earlier, that it expected payment in full on that date. (Doc. 48 ¶ 45.) According to Defendants, they had "no idea that, contrary to years of prior dealings, on August 24, 2015 BOA wanted full payment of any LOC." (Id. ¶ 42; see also id. ¶ 44.)
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