Stonehill Institutional Partners, L.P. v. Frac Diamond Aggregates LLC
| Decision Date | 10 November 2014 |
| Docket Number | Index No. 654300/2013 |
| Citation | 2014 NY Slip Op 32977 (U) |
| Court | New York Supreme Court |
| Parties | STONEHILL INSTITUTIONAL PARTNERS, L.P. and ELLE INVESTMENTS, LLC, Plaintiffs, v. FRAC DIAMOND AGGREGATES LLC, RYAN L. HESS, ALLIANCE CONSTRUCTION GROUP LLC, E-COSYSTEMS, LLC, H&H AGGREGATES, LLC, H&H TRUCKING L.L.C., PROTEMP, LLC, SUN COAST CONTRACTING SERVICES, LLC, TEAM PRO-TREE, LLC, and TITAN RENTALS, LLC, Defendants. |
DECISION AND ORDER
Stonehill Institutional Partners, L.P. and Elle Investments, LLC (collectively, Plaintiffs) have brought an enforcement action to obtain an order of reference, to confirm sale, and to determine the amount of a deficiency judgment against defendants Frac Diamond Aggregates LLC, Ryan L. Hess (Mr. Hess), Alliance Construction Group LLC, E-cosystems, LLC, H&H Aggregates, LLC, H&H Trucking L.L.C., Protemp, LLC, Sun Coast Contracting Services, LLC, Team Pro-Tree, LLC, and Titan Rentals, LLC (collectively, Defendants). Defendants have moved to dismiss this motion on three grounds. First, they claim that one of the Defendants, Alliance Construction Group LLC (ACG) is in bankruptcy proceedings in Mississippi, is subject to bankruptcy's automatic stay, and is an indispensible party to this litigation (CPLR 3211 (a) (10)). Second, they claim that the Plaintiffs fail to state ripe claims (CPLR 3211 (a) (7)). Third, they claim, with respect to Mr. Hess, individually, that, Plaintiffsfiled an action against him through their administrative agent, Spectrum Origination LLC (Spectrum), and that action (Enforcement Action) involved identical claims and equivalent parties (CPLR 3211 (a) (4)). Alternatively, Defendants ask the court to stay this action pursuant to CPLR 2201 pending the litigation of identical issues in Mississippi Bankruptcy Court or construe the automatic stay (11 USC § 362) to apply here because any determination is likely to affect ACG.
Frac Diamond Aggregates (FDA) and ACG borrowed $30,800,000 from Defendant's or their predecessors pursuant to a Credit Agreement dated as of May 18, 2012 (the Credit Agreement). FDA granted a security interest in the form of a Deed of Trust on a mine located in Hancock County, Mississippi (the Mine). ACG granted a security interest in its leasehold interest for its drying facility located in Pearl County, Mississippi, together with certain equipment and personal property (Drying Facility Assets). The other Defendants (the Guarantor Defendants) guaranteed the obligations of FDA and ACG.
By letter dated May 13, 2013, Spectrum, the Plaintiffs' Administrative Agent, notified the borrowers that their failure to pay interest on May 10, 2013, or within the applicable grace period, constituted an event of default under the Credit Agreement (the Event of Default). By letter dated July 16, 2013, Spectrum again advised borrowers of one or more Events of Default. By letter dated July 30, 2013, Spectrum yet again notified borrowers of the continuing Events of Default, that Spectrum elected to accelerate the maturity date of the loan, and demanded immediate repayment of all principal and interest. Notwithstanding this notice and demand, the borrowers failed to repay any principal or interest. By letters dated July 30, 2013, Spectrum demanded that the Guarantor Defendants repay the principal and interest due on the loan.
At a non-judicial foreclosure held on October 1, 2013 in Hancock County, Mississippi, the Mine was sold at auction. Spectrum, on behalf of the Plaintiffs, submitted a $4,000,000 credit bid, and acquired the Mine through Mine Assets Holding, LLC. Although Spectrum sought to foreclose on the Drying Facility Assets, on October 3, 2013 creditors of ACG filed an involuntary bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code, thereby staying the foreclosure.
Prior to the Mine foreclosure, but after default, Spectrum commenced the Enforcement Action against Mr. Hess, pursuant to CPLR 3212, seeking amounts due under his guaranty. Spectrum foreclosed on the Mine during the pendency of the Enforcement Action and Mr. Hess asserted that the public auction sale price did not reflect the fair market value of the Mine. This court rejected Mr. Hess's arguments and granted Spectrum's motion for summary judgment in lieu of complaint (the April 18 Decision and Order), crediting $4,000,000 to Mr. Hess's account. A judgment, taking into account the credit and interest due, in favor of Spectrum for $34,107,375.78 was entered on the May 27, 2014.
Plaintiffs are entitled to an order of reference to confirm the sale of the Mine and to determine the amount of the deficiency judgment. Defendants' motion to dismiss or for a stay is denied.
Plaintiffs have complied, in filing this motion, with the requirements of New York Real Property Actions and Proceedings Law (RPAPL) 1371. Section 1371 requires that a motion for leave to enter a deficiency judgment and for an order confirming the sale be entered within 90 days of the sale of a mortgaged property, or the proceeds of sale will be deemed full repayment of the underlying loan. RPAPL § 1371(3).
Defendants are incorrect in asserting that ACG is a necessary and dispensable party, and that its inability to participate in these proceedings warrants dismissal under CPLR 3211 (a) (10). The law is clear that a borrower is not a required party to a lawsuit between lender and guarantor. Cong. Factors Corp. v. Meinhard Commercial Corp., 129 Misc. 2d 726, 728 (Sup. Ct., N.Y. County 1985). It would be contrary to the very purpose of a guarantee if the lenders did not have the ability to seek collection from the guarantors, separate and apart from their ability to bring a claim against the borrowers.
Plaintiffs' claims are not premature, and Defendants' motion to dismiss under CPLR 3211 (a) (7) also fails. RPAPL § 1371 explicitly requires that this motion be brought within the ninety-day window subsequent to foreclosure. Plaintiffs have done so.
Defendants' argument that this action is duplicative of the Enforcement Action reveals a misunderstanding of the claims at issue in each of these actions. The Enforcement Action was brought to enforce the obligations of the guaranty against Mr. Hess. The instant action is brought under RPAPL § 1371, which provides for a motion to confirm a sale and for a deficiency judgment.
The case Defendants rely on in support of their argument that the instant action is duplicative of the Enforcement Action actually supports the Plaintiffs' position. See Harry M. Stevens, Inc. v Medina, 63 AD2d 925 (1st Dept 1978). In Harry M. Stevens, the court held that actions are only duplicative where they involve "the same parties and issues in which plaintiff will have a resolution of the question which he presents here." 63 AD2d at 925 (emphasis added). The question this court was asked to answer in the Enforcement Action(Is Mr. Hess liable to Spectrum under the guaranty?) is not the same question it is asked to answer in the instant action (What is the appropriate deficiency amount?).
Under the doctrine of collateral estoppel, this court's ruling with respect to the amount of the judgment has a preclusive effect with respect to Defendants' ability to relitigate that determination. The doctrine of collateral estoppel applies where the parties to the current action were in privity with respect to the decision in a prior action, where that decision was based on the...
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