Saltini v. N. Sea Dev. LLC

• Decision Date: 09 September 2019
• Docket Number: 604265-18
• Citation: 64 Misc.3d 1239 (A),118 N.Y.S.3d 372 (Table)
• Parties: Peter SALTINI, Plaintiff, v. NORTH SEA DEVELOPMENT LLC, Richard J. Gherardi, Glenn Callahan, Richard F. Gherardi, Coast Development Group, LLC, Sand Dollar Development Corp, Sand Dollar Capital Group LLC, Coast Development, Corp., D & R Family Realty Group LLC, Wave Crest Development and Holding Corp., Acres Capital, LLC, Reliance Standard Life Insurance Co., Defendants.
• Court: New York Supreme Court

64 Misc.3d 1239 (A)

118 N.Y.S.3d 372 (Table)

Peter SALTINI, Plaintiff,

v.NORTH SEA DEVELOPMENT LLC, Richard J. Gherardi, Glenn Callahan, Richard F. Gherardi, Coast Development Group, LLC, Sand Dollar Development Corp, Sand Dollar Capital Group LLC, Coast Development, Corp., D & R Family Realty Group LLC, Wave Crest Development and Holding Corp., Acres Capital, LLC, Reliance Standard Life Insurance Co., Defendants.

604265-18

Supreme Court, Suffolk County, New York.

Decided September 9, 2019

JEFFREY B. HULSE, ESQ., Attorney for Plaintiff, 295 North Country Road, Sound Beach, New York 11789

ROSENBERG & STEINMETZ PC, Attorneys for Defendants Acres Capital LLC and Reliance Standard Life Insurance Co., 181 S. Franklin Avenue, Suite 604, Valley Stream, New York 11581

Elizabeth H. Emerson, J.

Upon the following papers read on this motion to dismiss ; Notice of Motion and supporting papers 21-35 ; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 38-47 ; Replying Affidavits and supporting papers 49 ; it is,

ORDERED that this motion by the defendants Acres Capital, LLC, and Reliance Standard Life Insurance Co. for an order dismissing the complaint insofar as it is asserted against them is granted.

The plaintiff was the owner of three parcels of real property in Southampton, New York ("Lot 1," "Lot 2," & "Lot 3"). In 2015, he and the defendant Coast Development Group LLC ("Coast") formed the defendant North Sea Development LLC ("North Sea") to construct high-end homes on the three parcels. North Sea is owned 51% by Coast and 49% by the plaintiff. The members of Coast are the individual defendants, Richard J. Gherardi, Richard F. Gherardi, and Glenn Callahan, each of whom has a one-third membership interest in Coast. In order to obtain financing for the project, the plaintiff conveyed title to the parcels to three separate LLCs (one for each parcel) in which North Sea had a 100% membership interest (the Property LLCs). The Property LLCs then obtained financing from the defendants Acres Capital, LLC, and Reliance Standard Life Insurance Co. (collectively "the Lender"). On or about February 5, 2016, the Property LLCs borrowed a total of $11,580,000 from the Lender (the "Senior Loan"): $4,212,439 as an acquisition loan, $5,048,300 as a building loan, and $2,319,261 as a project loan. Each of the three loans was evidenced by a promissory note and secured by a mortgage on the three parcels, among other things.

Also on or about February 5, 2016, the plaintiff sold the three parcels to North Sea for $8,090,000. At the closing, the plaintiff was paid $3,829,806, and North Sea executed a promissory note in his favor for the balance, $4,260,194 (the "Mezzanine Note" or "Mezzanine Loan"). The Mezzanine Loan was secured by a pledge agreement executed by Coast granting the plaintiff a security interest in Coast's membership interest in North Sea. The Mezzanine Note contained two repayment options: (1) at such time and in such amount as provided in paragraph 28(F) of North Sea's operating agreement,¹ or (2) $784,634 at the closing of the sale of Lot 1, $1,105,860 at the closing of Lot 2, and the balance (unpaid principal and interest) on the sale of Lot 3 or November 1, 2019, whichever is sooner.

The relationship between the Lender and the plaintiff (the "Mezzanine Lender") is governed by an Intercreditor Agreement dated February 5, 2016. The Intercreditor Agreement provides, in pertinent part, as follows:

"Mezzanine Lender hereby subordinates and makes junior the Mezzanine Loan, the Mezzanine Loan Documents and the liens and security interests created thereby, and all rights, remedies, terms and covenants contained therein to (i) the Senior Loan (including, without limitation, any future advances by the Senior Lender pursuant to the Senior Loan Documents or otherwise taken to protect the Premises or the Senior Lender's lien thereon or rights thereto), (ii) the liens and security interests created by the Senior Loan Documents and (iii) all of the terms, covenants, conditions, rights and remedies contained in the Senior Loan Documents, and no amendments or modifications to the Senior Loan Documents or waivers of any provisions thereof shall affect the subordination thereof[.]

* * *

"Every document and instrument included within the Mezzanine Loan Documents shall be subject and subordinate to each and every document and instrument included within the Senior Loan Documents and all extensions, modifications, consolidations, supplements, amendments, replacements and restatements of and/or to the Senior Loan Documents (including, without limitation, increasing or decreasing the stated principal amount of the Senior Note, increasing or decreasing the interest payable under the Senior Note or altering any other payment terms under the Senior Note).

* * *

"[A]ll of Mezzanine Lender's rights to payment of the Mezzanine Loan and the obligations evidenced by the Mezzanine Loan Documents are hereby subordinated to all of Senior Lender's right to payment by Borrower of the Senior Loan² and the obligations secured by the Senior Loan Documents, and Mezzanine Lender shall not accept or receive payments (including, without limitation, whether in cash or other property and whether received directly, indirectly or by set-off, counterclaim or otherwise) from Borrower and/or from the Premises prior to the date that all obligations of Borrower to Senior Lender under the Senior Loan Documents are paid.

* * *

"[P]rovided that no Event of Default shall then exist under the Senior Loan Documents:

* * *

" "[I]n the event that Mezzanine Lender has elected ‘Option 2’ pursuant to Section 28(F) of the Mezzanine Borrower Operating Agreement,³ Mezzanine Lender may accept the following amounts upon a bona fide sale on arms' length terms of Lot 1 and/or Lot 2, provided that the Senior Lender has received the Release Amount (as defined in the Senior Loan Agreement) ... with respect to the release of Lot 1 or Lot 2, as applicable:

"(A) a payment of $784,634 from Mezzanine Borrower upon the sale of Lot 1

"(B) a payment of $1,105,860 from Mezzanine Borrower upon the sale of Lot 2[.]⁴

The maturity date of the Senior Loan was August 5, 2017. In September 2017, the Property LLCs were in default, and the parties to the Senior Loan executed the first modification, which gave the Property LLCs up to three extensions of the maturity date for a period of three months each, provided that they met certain conditions. The first modification also increased the release amounts for Lots 1 and 2 from $4,303,500 to $6,000,000, respectively. The Property LLCs received two extensions, but they were unable to meet the conditions for the third extension. The Senior Loan matured on February 5, 2018, and the parties agreed to a second modification, which extended the maturity date to June 5, 2018. A third modification extended the maturity date to August 23, 2019, and increased the principal amount of the loan from $11,850,000 to $13,385,000. The third modification also reduced the release amounts to $5,000,000 each for Lots 1 and 2. The homes on Lots 1 and 2 are now almost compete, and they are currently being marketed for sale at listing prices of $6,495,000 and $6,995,000, respectively.

The plaintiff commenced this action on March 5, 2018. The plaintiff alleges that Coast and the individual defendants, Richard J. Gherardi, Richard F. Gherardi, and Glenn Callahan (collectively "the Coast defendants") assumed full and complete control over all aspects of the project and made substantial errors in the design and construction of the homes, which caused extensive and unnecessary delays. The plaintiff also alleges that the Coast defendants misused and converted funds that were to be used for construction of the homes. The plaintiff alleges that, as a result, the homes will be sold at prices well below those anticipated for the project and that North Sea will be unable to pay him the amounts due under the Mezzanine Loan. The plaintiff further alleges that the Lender, i.e., the defendants Acres Capital, LLC ("Acres"), and Reliance Standard Life Insurance Co. ("Reliance"), aided and abetted the Coast defendants. The complaint contains ten causes of action, only three of which are asserted against Acres and Reliance: the third cause of action for the appointment of a receiver, the ninth cause of action for breach of fiduciary duty,...