Purchase Partners, LLC v. Carver Fed. Sav. Bank

• Decision Date: 13 December 2012
• Docket Number: No. 09 Civ. 9687(JMF).,09 Civ. 9687(JMF).
• Citation: 914 F.Supp.2d 480
• Parties: PURCHASE PARTNERS, LLC, Plaintiff, v. CARVER FEDERAL SAVINGS BANK, Defendant, and Mariner's Bank and Paul Schmidt, Sr., Third Party Defendants.
• Court: U.S. District Court — Southern District of New York

914 F.Supp.2d 480

PURCHASE PARTNERS, LLC, Plaintiff,

v.CARVER FEDERAL SAVINGS BANK, Defendant,andMariner's Bank and Paul Schmidt, Sr., Third Party Defendants.

No. 09 Civ. 9687(JMF).

United States District Court,

S.D. New York.

Dec. 13, 2012.

Andrew Jan Pincus, Seidman & Pincus, LLC, Hasbrouck Heights, NJ, for Plaintiff.

Antonia M. Donohue, Stanley Albert Camhi, Christopher Edward Vatter, Jaspan Schlesinger LLP, Garden City, NY, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, District Judge.

The present case involves a dispute between two banks over losses arising from a mortgage loan to a borrower who subsequently defaulted. In March 2007, Defendant Carver Federal Savings Bank (“Carver,” the “Lender,” or the “Defendant”)—a New York Bank—made a loan totaling $6,080,000 to Shaker Gardens, Inc. (“Shaker” or the “Borrower”), a New York corporation wholly owned by Yehuda Nelkenbaum, to finance the purchase of real property in Monticello, New York, containing approximately 170 residential apartments. The same day, Carver and Third–Party Defendant Mariner's Bank (“Mariner's Bank,” the “Participant,” or “Third–Party Defendant”)—a New Jersey State chartered commercial bank—entered into a Participation Agreement (the “Participation Agreement” or the “Agreement”), pursuant to which Mariner's Bank paid $3,040,000 to Carver in exchange for a fifty percent interest in the loan. The parties dispute whether Shaker made any payments on the loan. There is no dispute, however, that Shaker defaulted on the loan in or before June 2008. In December 2010, Carver foreclosed on the property securing the loan.

On November 20, 2009, Mariner's Bank brought this action against Carver. In its Complaint, Mariner's Bank alleges (1) various breaches of the Participation Agreement; (2) breach of the covenant of good faith and fair dealing; (3) gross negligence; and (4) fraud. It seeks money damages, specific performance, and attorneys' fees. Just over one month after the filing of the Complaint, Mariner's Bank entered into an agreement to transfer its right, title, and interest in and to its claims in this case to Purchase Partners, LLC (“Purchase Partners” or “Plaintiff”), a New Jersey limited liability company; in the wake of that transfer, the Honorable Richard J. Holwell (to whom the case was previously assigned) issued an order substituting Purchase Partners as Plaintiff and re-designating Mariner's Bank as Third–Party Defendant. (Docket No. 45). Meanwhile, Carver filed its Answer on January 6, 2010, asserting counterclaims against Mariner's Bank, Purchase Partners, and Paul Schmidt, Sr. (an individual member of Purchase Partners). At bottom, Carver alleges that Mariner's Bank breached the Participation Agreement by failing to reimburse Carver for advances Carver made on behalf of Shaker (Counterclaim 1) and by transferring its interest in the loan to Purchase Partners (Counterclaim 2). Carver seeks declaratory (Counterclaims 3, 6, 8) and injunctive (Counterclaims 4, 7) relief, monetary damages (Counterclaims 1, 2), and an award of attorneys' fees (Counterclaims 5, 9).

Now pending before the Court are the parties' cross-motions for summary judgment. (Docket Nos. 63, 84). In addition, on September 7, 2012, following oral argument on the motions, Purchase Partners filed a motion for leave to amend the Complaint (superseding an earlier motion for leave to file an amended complaint) seeking to add claims for negligent misrepresentation and gross negligent representation and to revise its pleadings with respect to the contract and fraud claims in light of discovery. (Docket No. 127). For the reasons discussed below, the parties' respective motions for summary judgment are GRANTED in part and DENIED in part. Purchase Partners's motion for leave to amend the Complaint is also GRANTED in part and DENIED in part. The net result of these rulings is that all of Purchase Partners's claims, except for its breach of contract claim and its claim for attorneys' fees, are dismissed. All claims against Schmidt are also dismissed. As for the counterclaims, Carver is granted summary judgment as to liability on its counterclaim regarding transfer of Mariner's Bank's interest in the Participation Agreement to Purchase Partners, but damages are to be determined at trial; the Court dismisses the counterclaims seeking declarative and injunctive relief in connection with the transfer. The rest of Carver's counterclaims survive. Finally, as discussed in more detail below, Purchase Partners may amend its Complaint to flesh out its breach of contract claim, but its motion for leave to file an amended complaint's otherwise denied.

BACKGROUND

A. The Loan and the Participation Agreement

As noted, this case involves a $6,080,000 loan from Carver to Shaker to finance the purchase of real property in Monticello, New York, containing approximately 170 residential apartments. (Def.'s Resp. to Pl.'s 56.1 Statement (“Def.'s 56.1 Resp.”) Nos. 2–3 (Docket No. 90)). Given the size of the loan, Carver approached other banks, including Mariner's Bank, to contribute to the loan pursuant to a participation agreement. ( Id. No. 4). On March 1, 2007, the date the loan closed, Carver and Mariner's Bank entered into the Participation Agreement for that purpose. ( Id. No. 5; Answer Ex. A (“Agreement”) (Docket No. 4)). Pursuant to the Agreement, Mariner's Bank paid $3,040,000 to Carver and obtained a fifty percent interest in the loan. (Def.'s 56.1 Resp. No. 5). Carver was responsible for servicing the loan (Agreement § 3.1), although the Participation Agreement gave it the option of delegating that task to a third party at its discretion and without providing notice to Mariner's Bank ( Id. §§ 7.12, 7.15), which it eventually did. ( See Def.'s 56.1 Resp. Nos. 13–14).

The loan was evidenced by a promissory note (the “Note”) and secured by a mortgage agreement (the “Mortgage”). (Def.'s 56.1 Resp. No. 6). The Mortgage granted Carver a lien against the property and a collateral assignment of rent, giving Carver the right to collect and apply the rent generated by the property. ( Id.). Shaker's repayment obligation under the Note was personally guaranteed by Nelkenbaum ( id.), who was no stranger to Carver. In 2006, Carver had made three other loans, totaling approximately $2.5 million, to entities owned or controlled by Nelkenbaum. ( See id. No. 2)

In conjunction with the loan, Shaker also entered into an Escrow and Security Agreement with Carver that required Shaker to establish an escrow account to ensure that certain repairs were made to the property. (Pl.'s Am. Resp. to Def.'s Rule 56.1 Statement (“Pl.'s 56.1 Resp.”) Nos. 5–8 (Docket No. 101)). If Shaker made the repairs, the money was to be returned to it. ( Id.). In the event of a default, Carver, at its sole discretion, could apply the escrow funds to the payment or to a reduction in whole or in part of the loan. ( Id. No. 9).

B. Carver's Advances and Shaker's Default on the Loan

Shaker issued its first payment under the Note on April 1, 2007, but Carver never received the money because Shaker stopped payment on the check. (Pincus Aff. Ex. 20 (Docket No. Ill); Tr. of Aug. 28, 2012 Oral Arg. (“Transcript”) 43:24–25). The second check, issued on May 1, 2007, was returned due to insufficient funds. (Pincus Aff. Ex. 22). Purchase Partners maintains that there is no record at all of the third payment that should have been made on June 1, 2007. (Pl.'s 56.1 Statement No. 12 (Docket No. 81)).

For reasons that are not altogether clear, however, Carver did not immediately realize that Shaker had failed to make at least two of these payments in a timely fashion. ( See id.; Transcript 43:24–25 (explaining that there is “[n]o doubt” about the fact that Carver “overlooked” the first two payments)). Additionally, Mariner's Bank did not immediately know about the missed payments because it still received its share of the money from Carver. ( See Pl.'s 56.1 Resp. No. 83). According to Purchase Partners, that is because Carver made the loan payments on Shaker's behalf using money from the repair escrow—ultimately transferring the money to its loan servicer, Dovenmuehle Mortgage, Inc. (“DMI”), in Illinois. It alleges that DMI then applied the payments to the loan and re-delivered the funds back to Carver and that Carver, in turn, distributed fifty percent of the money to Mariner's Bank on account of its participation interest. (Pl.'s Mem. Law 8–9 (Docket No. 82)).

Although Carver disputes some details of Purchase Partners's explanation, ( see Def.'s 56.1 Response No. 12),¹ it nonetheless maintains that it was authorized to make payments on behalf of Shaker pursuant to Section 3.8(a) of the Participation Agreement, which provides that Carver may make any “advance[s] which [are] reasonably incurred in order to protect the rights of the Holders, including, without limitation, all expenses reasonably incurred by the Lender to enforce the Loan Documents.” (Agreement § 3.8(a)). Over the course of the loan, Carver made advances on behalf of Shaker both to cover Shaker's missed payments and to cover taxes, insurance, legal fees, and repairs to the property. (Def.'s Mem. Law 3 & n. 2 (Docket No. 70)). The precise total of these advances is somewhat disputed: Carver maintains that it advanced $1,789,832.47, while Mariner's Bank and Purchase Partners claim they are only aware of advances totaling $798,076.68. (Pl.'s 56.1 Resp. No. 23). In any event, rather than apply these sums to the principal of Shaker's underlying obligation, Carver treated the advances as a “negative escrow,” which is a receivable due and owing by the borrower secured by the real property. ( Id. No. 24).

Shaker officially defaulted on the loan in early to mid–2008—roughly a year after the initial payments were returned. (Transcript 45:4–12). The parties dispute to what extent Shaker made payments in the intervening months. Purchase Partners alleges that there is evidence...