Orchard Hotel, LLC v. Zhavian
| Decision Date | 31 January 2012 |
| Docket Number | No. 15013/11.,15013/11. |
| Citation | 950 N.Y.S.2d 492 |
| Parties | ORCHARD HOTEL, LLC, Plaintiff, v. Ben ZHAVIAN, Defendant. |
| Court | New York Supreme Court |
ORCHARD HOTEL, LLC, Plaintiff,
v.
Ben ZHAVIAN, Defendant.
No. 15013/11.
Supreme Court, Kings County, New York.
Jan. 31, 2012.
Y. David Scharf, Morrison Cohen, LLP, New York, for Plaintiff.
William Wallace, Favata & Wallace, LLP, Garden City, for Defendant.
CAROLYN E. DEMAREST, J.
The following papers numbered 1 to 10 read herein:
Papers Numbered
Notice of Motion/Order to Show Cause/
Petition/Cross Motion and
Affidavits (Affirmations) Annexed 1–2
Opposing Affidavits (Affirmations) 3–4
Reply Affidavits (Affirmations) 5
Affidavit (Affirmation)
Other Papers Memoranda of Law 6–10
In this action to recover upon two guarantees executed by defendant Ben Zhavian (defendant), plaintiff Orchard Hotel, LLC (plaintiff) moves for an order: (1) pursuant to CPLR 3213, granting it summary judgment in lieu of complaint in the amount of $15,155,735.47, plus prejudgment interest, and (2) directing that an inquest be held to determine the amount of costs and expenses (including court costs and reasonable attorneys' fees) to be awarded to it.
On or about November 8, 2007, Brooklyn Federal Savings Bank (BFSB) provided a $5.5 million loan (the Project Loan) to D.A.B. Group LLC (DAB), as the Borrower, to finance its construction and development of a 92–room hotel at 139–141 Orchard Street in Manhattan (the property). In consideration of the Project Loan, DAB, as the maker, executed a Consolidated Secured Promissory Note in the amount of $5.5 million (the Project Loan Note) in favor of BFSB, as the holder. As security for the Project Loan Note, DAB executed a Mortgage Consolidation, Extension, Modification and Security Agreement dated as of November 8, 2007 (the Project Loan Mortgage), which granted BFSB a first priority mortgage lien against the property. As further consideration for the Project Loan to DAB, defendant (who, according to the Certificate of Borrower dated as of November 8, 2007, owned a 99% interest in DAB and was DAB's operating manager), as the Guarantor, executed a guarantee on November 2, 2007 in favor of BFSB (the Project Loan Guarantee).
The Project Loan NotePursuant to section 1 of the Project Loan Note, such Note had an initial maturity date of June 1, 2008, and, as set forth in section 13, it had an optional extension term to December 1, 2008. During the term of the Project Loan, DAB was required to pay interest only, with the outstanding principal due, in full, on the maturity date. Section 3.1 of the Project Loan Note, entitled “Events of Default,” provided that “[t]he failure to make any payment as and when required under this Note (after a ten day grace period, except that there shall be no grace period for the payment due on the Maturity Date) ... shall constitute an Event of Default' under this Note.”
Section 3.4 (a) of the Project Loan Note further provided for the imposition of a Late Charge as follows:
“If any payment is not paid within ten (10) days of the date on which it is due, Maker shall pay to Holder upon demand an amount equal to the lesser of five percent (5%) of such unpaid payment or the maximum amount permitted by applicable law in order to defray a portion of the expenses incurred by Holder in handling and processing such delinquent payment and to compensate Holder for the loss of the use of such delinquent payment, and such amount shall be deemed to be secured by the Mortgage.”
Section 3.4 (b) of the Project Loan Note set forth that “[f]rom and after the occurrence of an Event of Default, regardless of whether or not there has been a notice of default issued by Holder, interest shall accrue on the outstanding Principal Sum at a rate equal to twenty-four percent (24%) per annum (the Default Rate'). Under section 3.3 of the Project Loan Note, DAB also agreed to pay all costs and expenses, including reasonable attorneys' fees, incurred by the holder in collecting under the Project Loan Note or in protecting, or realizing on, the loan collateral.
Section 3.2 of the Project Loan Note, entitled “Remedies,” provided, in pertinent part, that:
“Upon the occurrence of an Event of Default: (a) interest shall accrue hereunder at the Default Rate ... (b) Holder may, at its option, declare and demand this Note and sums due under the Mortgage and Loan Documents immediately due and payable and (c) Holder may pursue all rights and remedies available hereunder or under the Mortgage or any of the Loan Documents. Holder's rights, remedies and powers, as provided in this Note, the Mortgage and the Loan Documents are cumulative and concurrent, and may be pursued singly, successively or together against Maker, the Property ... or any guarantor of the indebtedness evidenced hereby or any other collateral security given at any to secure the payment hereof, all at the sole discretion of Holder ...”
Section 8.8 of the Project Loan Note stated:
“Maker acknowledges that this Note and Maker's obligations hereunder are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of Maker hereunder of the obligations of any person or party relating to this Note or the obligations of Maker hereunder. This Note sets forth the entire agreement and understanding of Holder and Maker, and Maker absolutely, unconditionally and irrevocably waives any and all right to assert any defense, setoff, counterclaim or cross claim of any nature whatsoever with respect hereto or the obligations of Maker hereunder of the obligations of any other person or a party relating hereto in any action or proceeding brought by Holder to collect the outstanding balance of the Principal Sum, accrued and unpaid interest, late charges, and other amounts owing, or any portion thereof or to enforce, foreclose and realize upon the liens created by the Mortgage and any other security document.”
Section 9 of the Project Loan Note gave BFSB the right to sell, transfer, assign and convey its interest in the Project Loan Note, the Project Loan Mortgage, the Loan Documents, and the Project Loan Guarantee given in connection with the loan obligations.
The Project Loan MortgageSection 24 (a) of the Project Loan Mortgage provided that upon the occurrence of any Event of Default, the mortgagee could take certain listed actions, “each of which may be pursued concurrently or otherwise, at such time and in such order as Mortgagee may determine, in its sole discretion.” These actions included the remedy, listed in subdivision (vi), to “recover judgment on the Note either before, during or after any proceedings for the enforcement of this Mortgage.”
The Project Loan GuaranteeSection 1 of the Project Loan Guarantee provided:
“The Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Lender ... (a) the full and punctual payment and performance when due of the indebtedness evidenced by the Note, as the same shall become due and payable under the Note, and any and all sums of money, which, at any time, may become due and payable under the provisions of the Note, the Mortgage or the Agreements, and (b) the due and prompt performance of all of Borrower's obligations under the Loan Documents, whether at maturity or earlier by reason of acceleration or otherwise and whether denominated as damages, principal, interest, fees or otherwise, together with all pre- and post-maturity interest thereon ...”
Section 1 of the Project Loan Guarantee further provided that defendant “agree [d] to pay any and all costs and expenses (including, without limitation, all reasonable fees and disbursements of counsel) incurred by Lender in connection with the enforcement of this Guarantee.”
Pursuant to section 3(b) of the Project Loan Guarantee, defendant specifically agreed that:
“Lender shall not be bound or obliged to exhaust recourse against the Borrower or any other Obligor or any security, guarantee, indemnity, Mortgage or collateral it may hold or to take any other action (other than to make demand pursuant to this Guarantee) before being entitled to payment from the Guarantor hereunder.”
Section 6 of the Project Loan Guarantee explicitly stated that “the Guarantor shall make payment of the Guaranteed Obligations and other amounts payable by the Guarantor hereunder forthwith after demand therefor is made by Lender to the Guarantor in writing.” Section 15 of the Project Loan Guarantee provided that defendant irrevocably submitted to the jurisdiction of any court in Kings County for any action arising out of it or the Project Loan Note, the Project Loan Mortgage or any other document delivered in connection ... therewith ...”
Section 16 of the Project Loan Guarantee stated:
“Guarantor hereby agrees and acknowledges that this Guarantee is an instrument for the payment of money, and hereby consents that Lender, at its sole option, in the event of a default by Guarantor in the payment of any of the moneys due hereunder, shall have the right to bring a motion and/or action under New York CPLR Section 3213.”
The Loan Modification AgreementOn August 21, 2008, DAB, defendant, and BFSB executed a Loan Modification Agreement, which, among other changes, extended the maturity date of the Project Loan Note to September 1, 2009, with three optional six-month extension terms, the last of which terminated on March 1, 2011. Section 4 of the Loan Modification Agreement provided that the definition of Maturity Date contained in the Project Loan Note and the Project Loan Mortgage were rendered null and void, and that paragraph 12 of the Project Loan Note (which had provided for the original extension option) was rendered null and void and replaced as modified. Section 8 of the Loan Modification Agreement, entitled “Representations and Warranties,” provided that DAB represented and warranted to BFSB that...
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