Judge Development Corp. v. Bank of New York

• Decision Date: 09 February 1993
• Docket Number: No. 2:92-CV-243.,2:92-CV-243.
• Parties: JUDGE DEVELOPMENT CORP., Plaintiff, v. The BANK OF NEW YORK, Defendant.
• Court: U.S. District Court — District of Vermont

814 F. Supp. 384

JUDGE DEVELOPMENT CORP., Plaintiff, v. The BANK OF NEW YORK, Defendant.

No. 2:92-CV-243.

United States District Court, D. Vermont.

February 9, 1993.

Christopher D. Roy, Downs Rachlin & Martin, P.C., Burlington, VT, for plaintiff.

Richard A. Lang, Jr., Wilson, Powell, Lang & Faris, Burlington, VT, for defendant.

OPINION AND ORDER

PARKER, Chief Judge.

Judge Development Corp. ("JDC") filed a three count complaint seeking injunctive relief and damages against Bank of New York ("Bank"). JDC's claim arose from the Bank's refusal to discharge a mortgage it held on property owned by JDC. In Count I of the complaint, JDC seeks a permanent injunction to compel the Bank to release the mortgage. In Counts II and III it alleges that the Bank's action in refusing to release the mortgage constitutes a bad faith breach of contract and a violation of 27 V.S.A. § 464 and accordingly seeks to recover damages.

In a previous Findings of Fact and Opinion, this Court granted a request by JDC for a mandatory preliminary injunction requiring the bank to release the mortgage in question upon payment of $200,000, the amount secured by the mortgage. (Judge Development Corp. v. Bank of New York, Civ. No. 92-243 (D.Vt. August 27, 1992) (Papers 18, 19).

JDC now moves for partial summary judgment on Counts I and III of its complaint. The Bank opposes the motion on several grounds claiming that: (1) there are outstanding issues of material fact to be resolved; (2) further discovery is necessary and will establish that JDC is in violation of a variety of covenants secured by the mortgage, rendering payment of the underlying debt insufficient to discharge the mortgage.; and (3) plaintiff has not met its burden in equity. The Bank also seeks to revisit an earlier interpretation of the mortgage rendered by this Court in its Findings of Fact and Opinion. (Judge Development Corp. v. Bank of New York, Civ. No. 92-243 (D.Vt. August 27, 1992) (Papers 18, 19). Finally, as to Count III, the Bank claims that material issues of fact remain. The Bank claims 27 V.S.A. § 464 was not violated because there was an honest dispute concerning the propriety of a discharge of the mortgage between the parties.

I. Background

a. The 100 Dorset Mortgage

The background of this dispute is set out in this Court's earlier Findings of Fact and Opinion (Paper 18) and familiarity with them is assumed. A brief recitation of the relevant facts will serve for the purposes of this opinion.

In 1989 a predecessor to JDC obtained a $3.8 million loan from a predecessor of the Bank in the form of a $3.2 million Term Promissory Note (the "Term Note") and a $600,000 Line of Credit Promissory Note (the "Credit Line"). The Term Note and the Credit Line were secured by a first mortgage on JDC's property at Tafts Corners Shopping Center in Williston, Vt ("Tafts Corners") and a second mortgage on the property owned by JDC at 100 Dorset St.

On December 12, 1990 the loan documents were amended to reflect a restructuring of the 1989 loan. Vermont National Bank ("VNB") provided JDC with financing sufficient to retire the first and second mortgages on 100 Dorset then held by the Bank. From the proceeds of the VNB loan, JDC paid back $400,000 of the principal under the Credit Line and in turn the Bank marked that note "Paid in Full" and released the 1989 second mortgage on 100 Dorset. Under the terms of the restructuring the principal under the Term Note was increased to $3.4 million, an increase of $200,000 which accounted for the balance remaining of the principal under the Credit Line. The VNB loan was now secured by a first mortgage on the 100 Dorset property and a new second mortgage was executed between JDC and the Bank.

In the early part of 1992 JDC obtained a commitment from VNB for a loan of $2,952,000, conditioned on JDC obtaining a release of the 1990 second mortgage on 100 Dorset held by the Bank. In July of 1992 JDC offered to pay the Bank $200,000 in return for a discharge of the second mortgage, using a portion of the VNB loan to do so. The Bank refused, arguing that the second mortgage provided security for the entire Term Note ($3.4 million) and would not be released until the entire debt was repaid. In the alternative, the Bank argued that the "Prepayment" provision of the Term Note¹ provided that the second mortgage was intended to secure the "last" $200,000 of the Term Note.

JDC filed a claim for injunctive relief and damages and then filed a motion for a preliminary injunction. JDC claimed that if it did not receive a discharge of the second mortgage before August 31, 1992 VNB would not close the loan and it would be irreparably harmed.

b. Preliminary Injunction

In order to address JDC's motion for a preliminary injunction, an evidentiary hearing was held on August 25. Based upon the evidence presented and interpretation of the various loan documents the Court issued its Findings of Fact and Opinion, (Paper 18), and a later Order, (Paper 19), granting JDC's motion for a preliminary injunction.

This Court specifically found "that the prepayment language of the Term Note can not be construed to cause the 100 Dorset Mortgage to collateralize the "last" $200,000. There is only one maturity under the loan at present, although the clause was initially written when there were two loans with two maturities." (Paper 18, p. 5).

As to the Bank's claim that the second mortgage on the Dorset St. property secured the entire $3.4 million dollar debt, this Court held that the 1990 second mortgage was only intended to secure $200,000. In support of its finding, the Court cited the following: (1) language from the First Amendment to Loan Agreement², issued at the time of the 1990 loan restructuring; (2) JDC's unanimous consent to the 100 Dorset Mortgage as "securing ... the principal amount of $200.000 ...,"³; (3) the amount of insurance required on the 100 Dorset property compared to the Tafts Corners property⁴; and (4) language from the 100 Dorset Mortgage itself.⁵ The Court rejected the Bank's contention that the "Other Indebtedness" clause of the 100 Dorset Mortgage⁶ served to cross-collateralize the remaining $3.2 million of the Term Note in addition to the $200,000 it expressly secured and held that in order to give effect to all the terms of the mortgage, it must be interpreted as applying only to any indebtedness which might exist between JDC and the Bank independent of the balance of the principal under the Term Note.

The 100 Dorset Mortgage provides that:

Upon payment of all sums secured by this Mortgage, this Mortgage shall become null and void and LENDER shall discharge this Mortgage without charge to BORROWER. BORROWER shall pay all costs of recordation of said mortgage Discharge, if any.

In light of this language and the Court's finding that the 100 Dorset Mortgage was intended to secure only $200,000, the Court held that JDC was entitled to a preliminary injunction requiring the Bank to discharge and release the second mortgage upon payment of $200,000.⁷

JDC has now moved for summary judgment, requesting that the Court issue a permanent injunction requiring the Bank to release the 100 Dorset Mortgage and determine the question of liability under 27 V.S.A. § 464 against the Bank.

II. Standard for Summary Judgment

Summary judgment may be granted the moving party only when it is shown that there is "no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). There is no genuine issue of material fact where a rational trier, viewing the evidence in the light most favorable to the nonmoving party, could not find in favor of that party. Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir.1991) (citations omitted). In ruling on a motion for summary judgment, a court must resolve all ambiguities and inferences from the underlying facts in favor of the non-moving party. Levin v. Analysis & Technology, Inc., 960 F.2d 314 (2d Cir.1992).

III. Discharge of The 100 Dorset Mortgage

The Bank asserts that there are a variety of issues and facts which make a permanent injunction discharging the 100 Dorset Mortgage inappropriate at this time.

a. Interpretation of the 100 Dorset Mortgage

The Bank continues to assert that the 100 Dorset Mortgage secured the entire $3.4 million loan it made to JDC despite the specific $200,000 limitation set out in the Mortgage itself. In addition to its previous arguments asserted in opposition to the preliminary injunction based on the "interlocking nature of the documents," the Bank claims that the intent of the parties was for the 100 Dorset Mortgage to secure the entire $3.4 million debt and that extrinsic evidence clearly establishes that intent.

In a reversal of its earlier position, the Bank claims that extrinsic evidence is necessary to properly interpret the 1990 second mortgage.⁸ The Bank claims that extrinsic evidence, in the form of discussions and oral agreements between the parties, will establish that the intent of the parties was for the 100 Dorset Mortgage to secure the entire $3.4 million of the Term Note.

Extrinsic evidence may be used to aid in the construction of a written instrument only if ambiguity is first found. Isbrandtsen v. North Branch Corp., 150 Vt. 575, 577, 556 A.2d 81 (1988). A term in a contract is ambiguous only to the extent that reasonable people could differ as to its interpretation. Trustees of Net Realty Holding Trust v. AVCO Financial Services of Barre, Inc., 144 Vt. 243, 248, 476 A.2d 530 (1984).

In Isbrandtsen the Vermont Supreme Court stated:

We believe it appropriate, when inquiring into the existence of ambiguity, for a court to consider the circumstances surrounding the making of the agreement. Ambiguity will be found where a writing in and of itself supports a different interpretation from that which appears when it is read in light of the surrounding circumstances, and both interpretations

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