Bank of Am., N.A. v. Friedman Furs & Fashion, LLC

• Court: New York Supreme Court
• Writing for the Court: DAVID SCHMIDT
• Citation: Bank of Am., N.A. v. Friedman Furs & Fashion, LLC, 2012 NY Slip Op 52306, 38 Misc.3d 1201, 966 N.Y.S.2d 344 (N.Y. Sup. Ct. 2012)
• Decision Date: 18 December 2012
• Docket Number: No. 17329/10.,17329/10.
• Parties: BANK OF AMERICA, N.A., Plaintiffs, v. FRIEDMAN FURS & FASHION, LLC, Defendants.

38 Misc.3d 1201

966 N.Y.S.2d 344

2012 N.Y. Slip Op. 52306

BANK OF AMERICA, N.A., Plaintiffs,

v.FRIEDMAN FURS & FASHION, LLC, Defendants.

No. 17329/10.

Supreme Court, Kings County, New York.

Dec. 18, 2012.

Buchanan Ingersoll & Rooney, PC, Buffalo, for Plaintiff.

Schlanger & Schlanger, LLP, White Plains, for Defendant.

DAVID SCHMIDT, J.

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                ¦The following papers numbered 1 to 13 read on this motion:  ¦Papers Numbered  ¦
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                ¦Notice of Motion/Order to Show Cause/Petition/Cross Motion  ¦1–3            ¦
                ¦and Affidavits (Affirmations) Annexed                       ¦                 ¦
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                ¦Opposing Affidavits (Affirmations)                          ¦4–10           ¦
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                ¦Reply Affidavits (Affirmations)                             ¦                 ¦
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                ¦Other Papers Rule 19–A Statements of Material Facts       ¦11, 12           ¦
                +------------------------------------------------------------+-----------------¦
                ¦Proposed Order and Judgment                                 ¦13               ¦
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Upon the foregoing papers, plaintiff Bank of America, N.A. (the Bank), moves for an order: (1) pursuant to CPLR 3212, granting it summary judgment against defendants Friedman Furs & Fashion, LLC (Friedman Furs), Morris Friedman, Miriam Friedman and The Fur & Leather Outlet, Inc. (the Fur Outlet), on all causes of action, and the entry of a judgment in the amount of $482,436.77 against Friedman Furs, the Fur Outlet and Mr. Friedman, and $537,256.91 against Mrs. Friedman, plus reasonable attorneys' fees, costs and per diem interest until the date of the judgments; (2) striking defendants' affirmative defenses; and (3) dismissing defendants' counterclaims.

Facts and Procedural Background

The Bank commenced this action on July 14, 2010 seeking to recover money allegedly due under a line of credit and a credit card agreement, plus attorneys' fees and costs.

Defendants and the Bank began their business relationship in 2005. On June 28, 2006, Friedman Furs and the Fur Outlet (hereinafter collectively referred to as the Friedman Furs Defendants) executed the subject note and agreement in favor of the Bank in the principal amount of $1,000,000 (the Line Note or the Line of Credit). Mr. and Mrs. Friedman executed continuing and unconditional guaranties of these debts. As further security for the amounts due, the Friedman Furs Defendants executed a security agreement granting the Bank a lien on certain of their assets. The Line of Credit was subject to renewal on an annual basis. The Bank also issued a credit card line to VIP Fashion of NY, which was guaranteed by Mrs. Friedman (the VIP Loan).

The 2008–2009 extension of the Line Note was set to expire, by its terms, on June 15, 2009. By letter dated June 12, 2009, it was extended to August 18, 2009. Ultimately, the Bank's underwriters did not approve its renewal, citing to the deterioration of revenues, global cash flow and the businesses' risk rating. The Friedman Furs Defendants defaulted in making the payment of the full amount due and owing on the Line Note following the maturity date. Similarly, Mrs. Friedman defaulted in making the payment due for the VIP debt.

Defendants served an answer dated August 13, 2010 and an amended answer dated September 24, 2010. In the amended answer, defendants interpose the affirmative defenses of estoppel, unclean hands and unconscionability of the loan agreements. Defendants also interpose three counterclaims. In the first, they allege breach of contract in that the Bank failed to give them reasonable prior notice of its decision not to allow them to draw down the funds on the Line of Credit before its termination date, failed to convert the loan to a demand loan and failed to give them any reason for these actions. In the second, defendants allege that they relied upon a negligent misrepresentation made by Carmen Gomez, a Senior Vice President at the Bank and the relations manager responsible for the Line of Credit, that there would be no problem having the 2008–2009 Line of Credit renewed for an additional year. In the third, defendants allege that the Bank should be estopped from cutting off defendants' Line of Credit without notice and from refusing to renew it.

The Bank served an answer to defendants' counterclaims in which it denied the essential elements of each and interposed three affirmative defenses: that the defendants' counterclaims are precluded by documentary evidence, i.e., the loan documents; defendants' alleged reliance is unreasonable; and defendants' counterclaims fail to state a cause of action.

The Bank's Contentions

In reliance upon an affidavit from Ms. Gomez, the Bank asserts that the Friedman Furs Defendants' Line of Credit was not cut off two months prior to the termination date, as contended by defendants. She states that she knows this because, as defendants' relationship manager, she would have been advised of any termination and she was not. Ms. Gomez goes on to point out that the Friedman Furs Defendants received a written notice extending the Line of Credit at or after the alleged denial of access. She further avers that Mr. Friedman never mentioned to her that he had requested an advance of funds that had been denied prior to the cancellation of the Line of Credit. Ms. Gomez also contends that she did not induce Mr. Friedman to believe that the Line of Credit would be renewed for another year, particularly in view of the fact that underwriting, and not the relationship manager, was responsible for approving renewals. Moreover, Ms. Gomez alleges that she was in constant contact with Mr. Friedman regarding the obstacles for renewal of the loan, including the Friedman Furs Defendants' poor business performance, an unauthorized distribution to its principals' pension, the deteriorating financial position of the business and the fact that they were seeking a new lender before the approval process was complete.

As of the date of the motion, in reliance upon the affidavit from Ms. Gomez and a computer print out titled “A F S Loan History Report” (the Print Out), the Bank alleges that $482,426.77 is due on the Friedman Furs Defendants' Line of Credit, consisting of $444,811.86 in principal, $37,624.91 in interest and per diem interest in the a mount of $49.43. It further avers that $54,820.14 is due on the VIP debt, consisting of $45,338.91 in principal, $9,481.23 in interest and per diem interest in the amount of $12.11. Plaintiff accordingly seeks the entry of money judgments in these amounts against defendants. In further support of its demand for relief, the Bank contends that in response to its notice to admit, defendants admitted the validity of the loan documents, the amounts due thereunder and their default. Plaintiff also seeks to recover $27,620 in attorneys' fees and $1,561.32 in costs pursuant to the terms of the Line Note.

Finally, the Bank also seeks an order dismissing defendants' counterclaims.

Defendants' Contentions

In opposition to the motion, defendants first assert, in reliance upon an affidavit from Mr. Friedman, that they are united in interest. They then allege that the Bank blocked the Line of Credit in May 2009, while $550,000 of the funds were available, without any notice and in violation of the terms of the Line Note (the Cut Off). Mr. Friedman goes on to explain the nature of his business: he purchased skins from suppliers; the skins were shipped directly to the manufacturing facility overseas to be sewn into finished garments; the garments were sent to him in New York and sent to his customers for the fall/winter selling season; and after the garments were sold, he got paid. That this was the practice in the business is reflected in the requirement in the Line Note that the Friedman Furs Defendants pay down the Line of Credit to $0 for a thirty day period during each year. Mr. Friedman accordingly contends that because of the Cut Off, he was unable to continue his business, i.e., his suppliers would not ship and release skins and finished garments to him without getting paid and he would not get paid by his wholesale customers in time to pay his suppliers because he was denied access to the funds that should have been available under the Line of Credit. Thus, since he knew that he could not pay his suppliers, he did not solicit any business, which resulted in his orders declining. These allegations are substantiated by affidavits from two of his suppliers and two of his customers.

Mr. Friedman also alleges that when he telephoned the Bank in May 2009, he was told that there was a “hold” on the Line of Credit, that he could not access any funds and that he should contact his loan officer. When he spoke with Ms. Gomez, she told him that the account was being reviewed for its annual renewal and that he could not get any money during the review process. Mr. Friedman attaches a copy of his telephone activity to support his allegation that these telephone calls were made on May 19, 2009. Mr. Friedman also contends that his continued communications with Ms. Gomez throughout the summer of 2009, as is evidenced by emails, copies of which are annexed to his papers, and his procurement of accounts receivable insurance, evidence defendants' efforts to convince the Bank to extend the Line of Credit through the end of the year. In this regard, the affidavit of Mr. Mordechai Ehrenreich, defendants' accountant, further supports Mr. Friedman's claim that the Bank told him in May that he could not access the Line of Credit, since Mr....