HSBC Bank USA v. The Nat'l Equity Corp.

• Decision Date: 04 January 2001
• Docket Number: N-2329NA
• Citation: 719 N.Y.S.2d 20,279 A.D.2d 251
• Parties: (A.D.1 Dept. 2001) HSBC Bank USA, Plaintiff-Appellant, v. The National Equity Corp., Defendant-Respondent. 2329 : FIRST JUDICIAL DEPARTMENT
• Court: New York Supreme Court — Appellate Division

Page 20

719 N.Y.S.2d 20 (A.D.1 Dept. 2001)

HSBC Bank USA, Plaintiff-Appellant, v. The National Equity Corp., Defendant-Respondent.

2329N-2329NA

SUPREME COURT OF THE STATE OF NEW YORK APPELLATE DIVISION: FIRST JUDICIAL DEPARTMENT

JANUARY 4, 2001

David J. McNamara, for Plaintiff-Appellant.

Helen Davis Chaitman, for Defendant-Respondent.

Sullivan, P.J., Rosenberger, Tom, Andrias and Wallach, JJ.

Orders, Supreme Court, New York County (Barry Cozier, J.), entered June 29, 2000, which, respectively, insofar as appealed from, denied without prejudice HSBC Bank USA's (HSBC) motion for an order of seizure of certain collateral pursuant to CPLR article 71, and granted defendant National Equity Corp.'s cross-motion to stay this action pending resolution of an arbitration proceeding between the same parties concerning the claim for the underlying debt and to compel HSBC to submit the claims asserted in this action to arbitration in that proceeding, unanimously reversed, on the law, without costs, the motion for an order of seizure granted, the cross-motion denied and the matter remanded to Supreme Court for further proceedings, including settlement of an order of seizure.

HSBC's predecessor-in-interest (Republic National Bank of New York now merged with HSBC), acting as agent for a syndicate of lenders, entered into a revolving credit agreement with defendant National Equity Corp. (NEC) for a principal sum of $20 million, extended on a revolving basis, which NEC would then reloan to its own customers. This debt was secured pursuant to a Continuing General Security Agreement, a Collateral Assignment of Notes, and a Collateral Assignment of Security. The collateral was defined to include all promissory notes, security agreements, and guarantees evidencing and securing NEC's own loans to its own customers. NEC was thereby obligated to deliver all such collateral to HSBC prior to, as well as subsequent to, an Event of Default under the Revolving Credit Agreement. The Revolving Credit Agreement was subsequently amended to provide for, inter alia, a release of claims against HSBC.

By letter dated May 1, 2000, HSBC notified NEC that an Event of Default had occurred. HSBC then demanded full and immediate payment of all outstanding indebtedness, including $16 million in principal still outstanding under the Revolving Credit Agreement. By demand dated June 7, 2000, HSBC commenced an arbitration proceeding against NEC and others seeking to recover NEC's indebtedness under ¶8.6 of the Revolving Credit Agreement. Paragraph 8.6[a] provides, in pertinent part, that the lender may elect, at any time prior to the commencement of a judicial proceeding, to submit any disputes under the agreement or related disputes to arbitration, but by so electing the lender is not thereby required to submit all disputes between the parties to arbitration. More specifically, ¶8.6[b] states that "[n]o provision of, or exercise of rights under, subsection 8.6[a] shall limit the right of any party.. to request and obtain from a court having jurisdiction before, during or after the pendency of any arbitration, provisional or ancillary remedies and relief including but not limited to injunctive or mandatory relief or the appointment of a receiver. The institution and maintenance of an action or judicial proceeding... shall not constitute a waiver of the right... to submit the dispute to arbitration if (the party] would otherwise have such right."

On June 8, 2000, HSBC commenced this article 71 action against NEC for recovery of the collateral. The complaint alleged that the action had been commenced solely to obtain the order of seizure and provisional relief specified in the complaint, and that the underlying dispute regarding the debt itself would be resolved in the arbitration proceeding. The complaint, alleging HSBC's right to possession of the collateral under the various agreements noted above, requested judgment awarding HSBC possession of the collateral, and directing all NEC personnel to deliver collateral in their possession and to allow HSBC to enter NEC's offices for the purpose of securing and removing the collateral and reviewing NEC's books and records to this end, pursuant to HSBC's rights under the Security Agreement. Supreme Court signed an order to show cause directing NEC to show why an order...