Cam Trust v. Revere High Yield Fund, LP

• Decision Date: 07 November 2018
• Docket Number: DOCKET NO. A-1250-17T3
• Parties: CAM TRUST, a New Jersey Trust, Plaintiff- Respondent, v. REVERE HIGH YIELD FUND, LP, a Delaware Limited Partnership, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

CAM TRUST, a New Jersey Trust, Plaintiff- Respondent, v. REVERE HIGH YIELD FUND, LP,

a Delaware Limited Partnership, Defendant-Appellant.

DOCKET NO. A-1250-17T3

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

Argued October 29, 2018

November 7, 2018

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Before Judges Haas and Sumners.

On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2558-16.

Malcolm S. Gould argued the cause for appellant (Silverang Donohoe Rosenzweig & Haltzman, LLC, attorneys; Malcolm S. Gould, on the brief).

Shawn D. Edwards argued the cause for respondent (Maselli Warren, PC, attorneys; Shawn D. Edwards, of counsel and on the brief).

PER CURIAM

Defendant Revere High Yield Fund, LP appeals from the Law Division's September 29, 2017 orders granting plaintiff CAM Trust's motion for summary judgment, denying defendant's cross-motion for summary judgment, and ordering defendant to pay plaintiff $102,920.26 it collected in violation of a modification of a commercial loan negotiated by the parties. We affirm.

The material facts of this case are fully detailed in Judge Mark A. Troncone's comprehensive written decision. Therefore, we recite only the most salient facts from that decision and, like Judge Troncone, view them in the light most favorable to defendant, the non-moving party. Polzo v. Cnty. of Essex, 209 N.J. 51, 56 n.1 (2012) (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995)).

On December 4, 2014, plaintiff executed and delivered a Term Note and Term Loan and Security Agreement (the Term Loan or loan) to defendant to evidence a loan in the principal amount of $3.5 million. The Term Loan provided for monthly payments of interest only, with a maturity date of March 30, 2016. Interest was set at 12% per year. To secure the loan, plaintiff executed and delivered mortgages on four properties, including one property in Lambertville and another in Barnegat. The Term Loan further provided that plaintiff could extend the maturity date to June 30, 2016 if it met the conditions set forth in the loan documents.

With particular relevance to the issues involved in the present appeal, Section 8.01(a) of the Term Loan provided that if plaintiff failed to make a monthly payment within five days of its due date, this would constitute a default of its obligations. In the event of a default, Sections 1.01 and 2.08 of the Term Loan permitted defendant to charge "default interest" on the principal balance at the "default rate" of 24% per year. In addition, Section 10.09 stated in pertinent part that

[n]o modification, amendment or waiver of any provision of [the Term Loan] shall in any event be effective unless the same shall be in writing and signed by [defendant] and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

Plaintiff did not make timely interest payments on the Term Loan in January, February, and March 2016. On January 19, 2016, plaintiff agreed to sell the Lambertville property. In that same month, it also received a commitment to refinance a portion of the Term Loan. Plaintiff then advised defendant that it intended to use the funds from these transactions to pay off the entire balance of the loan. On February 29, 2016, defendant gave plaintiff a written payoff statement. This statement calculated interest at the 12% non- default interest rate, and did not charge plaintiff for any default interest at the 24% default rate.

On March 10, 2016, plaintiff completed the refinance and paid $2.1 million to defendant. Defendant accepted the payment and discharged the mortgage it had been holding on the Barnegat property. However, defendant did not apply the $2.1 million in accordance with the terms of its February 29 payoff statement. Instead, defendant recalculated past due interest to include default interest at the 24% rate and applied $70,000 of the payment to default interest that allegedly accrued in January and February instead of applying it to the Term Loan balance. Plaintiff protested defendant's imposition of the default interest.

On April 6, 2016, the parties' representatives, including defendant's vice president, Michael Giannone, and plaintiff's trustee, Louis Mercatanti, participated in a telephone conference call to resolve the dispute. On that date, Giannone sent the following email to Mercatanti and Kenneth Zeng, another of plaintiff's representatives:

Gentlemen,

Per our discussion, [defendant] is willing to put off the accrued default interest owed until the loan is repaid in full. You will continue to pay us monthly interest payments on the loan balance assumed no accrued interest was applied at the time of the loan pay down. If the loan at any time is in default again between now and the maturity date of June 30, 2016, you will be responsible for the accrued default interest. If you pay [defendant] off with no further default [defendant] will agree to waive such accrued default interest at such time.

Thank you

Mike Giannone

Vice President

Revere Capital

Three minutes later, Mercatanti responded by email, and stated:

Thanks Mike, look forward to getting this loan repaid asap.

Lou

Later that afternoon, Giannone sent Mercatanti and Zeng a second email confirming the terms of the resolution. In pertinent part, this email stated:

Per our discussion, due to lack of payment, starting January 1, 2016, your loan in the amount of [$3.5 million] was placed in default. According to the loan docs, the default interest rate is set at 24%, resulting in $140,000 in accrued default interest between January 2016 and the time a principal pay down on March 10, 2016, at which time [defendant] applied the principal pay down to $70,000 of accrued interest and $7000 in late fees before being applied to the principal balance, resulting in a loan balance of [$1,477 million] on 3/10/16.

[Defendant] has agreed to delay the $70,000 accrued default interest payment until the loan maturity date of June 30, 2016. If at any time the loan, during the forbearance period, goes into default as a result of either non-payment, maturity, or any other covenants described in the loan documents, [defendant] will require that the $70,000 be paid in full in addition to accrued interest on the $70,000 at 12%. If the loan is repaid between now and the June 30th maturity date with no default in any way, [defendant] is willing to forgive that $70,000 default interest payment.

After the parties' exchange of emails, plaintiff paid interest on the Term Loan at the non-default rate on the principal balance. It did not default on the loan in any way.

Although neither of his April 6, 2016 emails say this, Giannone later claimed in a certification that he "never intended [his April 6 email] to be [a] final and binding modification of the Term Loan." Instead, he asserted that he intended that the "proposed terms" set forth in the emails "could form the basis of a formal written forbearance agreement that could later be drawn up, reviewed by counsel and - if acceptable - signed by the parties." He explained that "[t]his is how this type of commercial transaction is handled in . . . the ordinary course[.]" However, Giannone never expressed this "intent" to either Mercatanti or Zeng. Although the parties later exchanged drafts of a more formal forbearance agreement, they never agreed upon the language. And, in any event, plaintiff complied with the terms set forth in Giannone's April 6 emails.

In order to close out the loan, plaintiff proceeded with the sale of the Lambertville property. In response to a request by plaintiff, defendant sent it a payoff statement on May 19, 2016. Contrary to the representations set forth in Giannone's April 6 emails, the statement included $109,377.33 for default interest, and credited $70,000 from plaintiff's prior $2.1 million payment toward the principal balance against the default interest. Defendant now claimed that plaintiff owed $1,599,308, rather than $1,489,387.74,¹ on the principal balance.

Plaintiff objected to paying that amount, but defendant refused to discharge the Lambertville mortgage in order to enable plaintiff to sell the property. On May 25, 2016, the Chancery Division denied plaintiff's motion for a declaration that it did not owe the default interest, without prejudice to its right to seek to recover any default interest paid to defendant at the closing. Plaintiff then sold the Lambertville property and paid defendant the payoff balance, including the disputed default interest.

As a result of this payment, plaintiff alleged that defendant received $102,920.26 more than it should have received after the parties' April 6 agreement. It filed a one-count complaint against defendant, and asserted that defendant breached the parties' agreement that all default interest would be waived if plaintiff committed no further defaults and paid the principal balance by June 30, 2016. Following discovery, both parties filed motions for summary judgment.

On September 29, 2017, Judge Troncone granted plaintiff's motion, and denied defendant's cross-motion. In his thorough written decision, the judge explained that he found

no genuine disputes as to the material facts in this case. Plaintiff missed three loan payments, the parties exchanged emails indicating the default interest would not accrue if the new conditions set forth were met, [p]laintiff upheld its end of the agreement by paying off the loan, [d]efendant breached the terms of the email communication by requiring default interest, and [p]laintiff incurred monetary losses as a result. The [c]ourt finds the April 6, 2016 emails constitute a writing in light of the modern trend of New Jersey [c]ourts to recognize[]

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