Stichting Juridisch Eigendom De Veste Beleggingsfondsen v. Capstone Credit, LLC
| Decision Date | 30 December 2022 |
| Docket Number | 21 Civ. 2102 (LGS) |
| Parties | STICHTING JURIDISCH EIGENDOM DE VESTE BELEGGINGSFONDSEN, Plaintiff, v. CAPSTONE CREDIT, LLC, ET AL., Defendants. CAPSTONE CREDIT, LLC, ET AL., Counterclaim-Plaintiffs, v. STICHTING JURIDISCH EIGENDOM DE VESTE BELEGGINGSFONDSEN, ET AL., Counterclaim-Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Stichting Juridisch Eigendom De Veste Beleggingsfondsen (“Stichting”) brings this action for breach of contract and foreclosure against Defendants Capstone Credit LLC (“CC”) and Capstone Capital Group, LLC (“CCG”) and for fraudulent misrepresentation against their Managing Member, Joseph F. Ingrassia. Defendants bring counterclaims for breach of the implied covenant of good faith and fair dealing and tortious interference against Stichting, and fraudulent misrepresentation against Stichting, Stichting's asset manager, De Veste B.V. (“De Veste”), and De Veste CEO Jack van Oosterbosch (collectively, the “Counterclaim Defendants”). Stichting moves for summary judgment on Counts 1 and 3 of the Complaint, for breach of contract and foreclosure against CC and CCG. The Counterclaim Defendants move to dismiss the counterclaims. For the reasons below, Stichting's motion for partial summary judgment, and the Counterclaim Defendants' motion to dismiss the counterclaims, are granted.
The following facts are drawn from the parties' Rule 56.1 statements and other submissions on these motions. The facts are undisputed or based on evidence in the record drawing all reasonable inferences in favor of the non-moving party. See N.Y. State Teamsters Conf. Pension & Ret. Fund v C & S Wholesale Grocers, Inc., 24 F.4th 163, 170 (2d Cir. 2022).
CC and CCG are Delaware companies that offer factoring and purchase order financing for companies. Capstone Cayman Current Liquidity Fund (“CCCLF” and, collectively with CC and CCG, “Capstone”) is a Cayman Islands limited partnership formed primarily to make senior subordinated loans to CC and CCG. Joseph Ingrassia is the managing member of CC and CCG.
Stichting is a foundation duly organized under the laws of the Netherlands. Stichting is the legal owner of the assets of a pooled investment vehicle managed by De Veste. Jack van Oosterbosch is and has been at all relevant times the CEO of De Veste and manager of its funds.
On or about November 1, 2009, De Veste invested as a limited partner in CCCLF. Since initiating the relationship in 2009, van Oosterbosch has been the main point of contact between De Veste on the one hand, and CC, CCG and Ingrassia on the other. De Veste initially managed funds only for professional investors but later also came to manage funds for retail investors.
In the mid-2010s, the Netherlands Authority for the Financial Markets (“AFM”), a regulator analogous to the U.S. SEC, told De Veste that it could not manage funds for retail and professional investors in the same vehicle. Van Oosterbosch sought Capstone's help in restructuring the investment, and Capstone agreed. To preserve its investment in Capstone, De Veste split in two. The professional funds came to be owned and managed by new entities, while the retail fund continued to be owned by Stichting and managed by De Veste. In place of the prior partnership interest in CCCLF, Stichting extended lines of credit directly to CC and CCG. CC and CCG each issued a Line of Credit Note (the “Notes”) to Stichting, each entered into a Loan and Security Agreement (“LSA”) with Stichting, and Stichting entered an Intercreditor Agreement (“ICA”) with the general partner of CCCLF, all dated September 25, 2017. Ingrassia signed these documents on behalf of Capstone. Representatives of Stichting's then-director signed on behalf of Stichting. Although De Veste was not a party, van Ooosterbosch signed on behalf of De Veste as “read and agreed to.”
The Notes, LSAs and ICA are the only signed documents between Stichting and Capstone. The documents contain provisions requiring any amendment or modification to be in a writing signed by Stichting. Each Note provides for up to $45,000,000 in principal, 12.5% interest, default interest 2% higher than the rate charged and maturity on September 30, 2022. Each Note also gives Stichting the “right to Call a pre-payment of this Note without penalty or premium with interest to the date of prepayment” up to “a maximum of ten percent (10%) of the unpaid principal balance.” Under the Notes, failure to pay any amount due timely constitutes an Event of Default. “To secure the payment and performance in full of the Obligations” including under the Notes, each LSA granted Stichting “a first priority continuing general lien and security interest in all of the now owned and hereafter acquired Collateral, and all proceeds and product thereof,” including “all Collateral which is presently in existence or hereafter acquired and which is owned by Borrower or in which Borrower has any interest, whether held by Borrower or by others for Borrower's account, and wherever located.” Collateral includes “[a]ll Borrower's present and future Accounts, Chattel Paper, Goods, Inventory, Equipment, Instruments, Investment Property, Documents, and General Intangibles.” Stichting's liens are “subject to the” ICA, which makes Stichting's and CCLF's liens “of equal priority.”
This restructuring allowed De Veste and Stichting to maintain the substance of their prior investment in Capstone. The restructuring was not motivated by CC or CCG's need for a loan, but by De Veste and Stichting's desire to stay invested in Capstone while avoiding further regulatory inquiries. The restructuring did not substantially change the parties' ongoing interactions. For example, before and after the restructuring, De Veste often submitted “redemption” requests far in advance of any payment date and then cancelled them. Capstone continued to treat Stichting and De Veste as they had before as partners, and vice versa, including through investor updates, weekly calls and reports, access to a data room, and frequent correspondence about Capstone's business and financial position.
In early 2020, Ingrassia and van Oosterbosch discussed the devastating effect that the pandemic had on Capstone. Ingrassia told van Oosterbosch that Capstone would be unable to honor “redemption” requests until conditions improved. In March 2020 and again in April, Stichting demanded pre-payment of 10% of the outstanding principal on each Note: $1,300,000 in March and $1,400,000 in April. CC and CCG did not make the payments. In June 2020, Stichting sent default notices and accelerated payment of the full principal on each Note. CC and CCG also did not timely make the interest payments due in August and September 2020. After Stichting declared CC and CCG to be in default, the parties continued business as usual. The parties also continued discussing ways to resolve the issue of the unpaid “redemptions,” such as refinancing.
In November 2020, van Oosterbosch, on behalf of De Veste, sent a “final notice” to Capstone stating the amounts purportedly owed and demanding that Capstone take several actions to avoid litigation. De Veste demanded (1) a payment of at least $4,000,000, (2) a schedule on which Capstone would repay both loans in full, with interest, within six months, and (3) a valuation of Capstone's portfolio conducted by an independent auditor. Capstone complied with the valuation demand.
On December 3, 2020, Ingrassia and van Oosterbosch discussed amending the Notes such that Capstone would pay interest through October 1, 2020, and payments would be applied to principal thereafter until paid in full. On December 7, 2020 Ingrassia told van Oosterbosch that Capstone's counsel would document the modification. On January 13, 2021, in response to pressure from AFM, van Oosterbosch wrote to Ingrassia to inquire about any other defaults that Capstone was facing and requesting a “side letter” in favor of De Veste. In response, Ingrassia told van Oosterbosch that they could not enter a side letter “because the Note and Security Agreement that we signed to assist you when you were facing regulatory issues in The Netherlands was specifically limited by the Intercreditor Agreement with the Cayman Fund.” Ingrassia told van Oosterbosch that, when Capstone was prepared to make the August and September interest payments, it would present a modification agreement that would memorialize their verbal agreement. Throughout the negotiations, van Oosterbosch represented that, when Capstone made the August and September 2020 interest payments, De Veste and Stichting would execute loan modification documents. At all times, Capstone believed van Oosterbosch, as the point of contact for De Veste, had authority to negotiate a modification of the loan.
On February 9, 2021, counsel for Stichting sent a “Notice of Continued Default” that “reiterate[d] Stichting's demand for payment in full of all indebtedness under the LSAs within two weeks.” On February 16, 2021, Capstone's counsel responded by advising Stichting's counsel of the parties' payment plan and modification. On February 26, 2021, Capstone wired $1,000,000 to Stichting for August and September 2020 interest. Capstone's CFO sent a statement erroneously stating that interest was paid for September and October 2020. On February 28, 2021, Ingrassia sent van Oosterbosch the loan modification documents and another statement reflecting erroneously labeled interest payments. The updated statement also included updated principal amounts after applying the excess over the interest from the...
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