US v. Lowy, CV-86-0287.

• Decision Date: 19 January 1989
• Docket Number: No. CV-86-0287.,CV-86-0287.
• Citation: 703 F. Supp. 1040
• Parties: UNITED STATES of America, Plaintiff, v. David LOWY, Roslyn Lowy, Nassau Suffolk Lumber & Supply Co., City of New York Parking Violations Bureau, John Doe # 1 Through John Doe # 2, such names being fictitious and unknown to plaintiff, the persons or parties intended being tenants, occupants, persons, corporation, or other legal entities, if any, having or claiming an interest in or lien upon premises described in complaint, Defendants.
• Court: U.S. District Court — Eastern District of New York

703 F. Supp. 1040

UNITED STATES of America, Plaintiff, v. David LOWY, Roslyn Lowy, Nassau Suffolk Lumber & Supply Co., City of New York Parking Violations Bureau, John Doe # 1 Through John Doe # 2, such names being fictitious and unknown to plaintiff, the persons or parties intended being tenants, occupants, persons, corporation, or other legal entities, if any, having or claiming an interest in or lien upon premises described in complaint, Defendants.

No. CV-86-0287.

United States District Court, E.D. New York.

January 19, 1989.

Thomas A. McFarland, Asst. U.S. Atty., Brooklyn, N.Y., for plaintiff.

Marvin Neiman, New York City (Ephrem Wertenteil, on brief), for defendants.

GLASSER, District Judge:

The Government moves for summary judgment in this action to collect on two Small Business Administration "SBA" guaranties and to foreclose on a mortgage. Defendants oppose the motion and also cross-move for summary judgment. For reasons stated below, the Government's motion is granted and defendants' motion is denied.

FACTS

On or about July 24, 1975, Adria Industries Corportion ("Adria"), through its president, defendant David Lowy, executed and delivered to the SBA a Note ("the 1975 Note") obligating it to pay $100,000 plus interest pursuant to a schedule set forth in the Note. As collateral for the 1975 Note, defendants David and Roslyn Lowy executed a Guaranty ("the 1975 Guaranty) and a mortgage on a residence located at 112-21 69th Road, Forest Hills, New York 11375. By executing the Guaranty, defendants agreed that

in case Adria shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms of the 1975 Note, defendants, immediately upon the written demand of the SBA, will pay to the SBA the amount due and unpaid by Adria as aforesaid, in like manner as if such amount constituted the direct and primary obligation of the defendants. The SBA shall not be required, prior to any such demand on, or payment by, the defendants, to make any demand upon or pursue or exhaust any of its rights with respect to any part of the collateral.

In addition, the 1975 Guaranty contains language whereby defendants "waive any notice of the incurring by Adria at any time of any of the Liabilities, and waive any and all presentment, demand, protest or notice of dishonor, nonpayment, or other default with respect to any of the Liabilities." Also, the 1975 Guaranty states that the defendants grant to the SBA "full power, in its uncontrolled discretion and without notice to defendants ... to deal in any manner with the Liabilities and the collateral." The Note then presents a nonexhaustive list of the SBA's powers to deal with the liabilities and collateral, including:

(d) To consent to the ... release of all or any part of the collateral, whether or not the collateral, if any, received by the SBA upon any such ... release shall be of the same or of a different character or value than the collateral surrendered by the SBA;

(e) In the event of nonpayment when due, whether by acceleration or otherwise, of any of the Liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as the SBA may elect, at any public or private sale or sales ... without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the defendants hereby waiving any such demand, advertisement and notice to the extent permitted by law) ... or to forbear from realizing thereon, all as the SBA in its uncontrolled discretion may deem proper ... such powers to be exercised only to the extent permitted by law.

Following this, the Note states that the "obligations of the defendants shall not be released, discharged or in any way affected ... by reason of any action the SBA may take or omit to take under the foregoing powers."

On or about June 29, 1976, Adria, again acting through its president, Mr. Lowy, executed and delivered to Citibank, N.A. a Note "the 1976 Note" obligating Adria to pay the sum of $270,000 plus interest by making payments pursuant to a schedule set forth in the 1976 Note. As collateral security for the 1976 Note, defendants executed a Guaranty of payment of that Note ("the 1976 Guaranty"). The 1976 Guaranty contained language identical to that quoted above.

Adria defalted in repaying both notes, and, on or about March 17, 1980, was placed in Chapter 7 Bankruptcy by order of the United States Bankruptcy Court for the Eastern District of New York. Subsequent to Adria's default on the 1976 Note, Citibank assigned that Note to the SBA.

In letters dated March 18, 1980 and February 1, 1983, the SBA demanded that defendants honor their guaranties by immediately paying the entire unpaid balance of the principal sums due under the 1976 and 1975 Notes, respectively. Defendants refused to do so.

The Government now seeks summary judgment in this action brought on the 1975 and 1976 Guaranties and to foreclose the mortgage securing the 1975 loan. Defendants cross-move for summary judgment. The court finds that there is no genuine issue as to any material fact and that the Government is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). Therefore the court grants the Government's motion and denies defendants' motion.

DISCUSSION

I. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Defendants interpose several objections to the Government's motion for summary judgment. Each of these objections is meritless.

A. Statute of Limitations

Defendants claim that genuine issues of fact exist as to whether or not this action is time-barred.

Both sides agree that, to the extent this is an action for money based on the Guaranties,¹ the six-year statute of limitations set forth in 28 U.S.C. § 2415(a) applies.² The Government argues, correctly, that its demand letters triggered the running of the statute, and that the action therefore is timely. United States v. Alessi, 599 F.2d 513, 515 & n. 4 (2d Cir.1979) (per curiam) (under § 2415(a), cause of action accrues when Government gives mortgagor notice of election to accelerate debt). Defendants speculate, however, that the Government may have sent earlier demand letters than the ones in evidence, so that the action may have been filed after the six-year limitations period had run. Defendants claim that they are entitled to discovery on this issue.

The court is puzzled by defendants' asserted need for discovery of documents which, if they existed, would be in defendants' possession. Defendants have offered no earlier demand letters or any credible reasons for believing that such letters exist, and therefore the court finds that there is no genuine issue as to the existence of such letters.

Defendants argue, alternatively, that the action may be time-barred because the Government may have waited an "unreasonable" period of time after Adria's defaults to demand repayment from the defendants. Therefore, they argue that they are entitled to discovery as to when Adria first defaulted in its payments.

Defendants cite only one case for the proposition that demand must be made within a "reasonable" time, and that case, Nyhus v. Travel Management Corp., 466 F.2d 440-54 (D.C.Cir.1972), had nothing to do with the relevant statute of limitations, 28 U.S.C. § 2415(a). Given the utter lack of legal authority for doing so, this court refuses to import a "reasonable" time requirement into § 2415(a).

B. Defendants' Defenses Under N.Y.U. C.C. Law § 9-504(3) (McKinney 1964 & Supp.1988)

1. SBA's Failure to Dispose of Collateral in "Commercially Reasonable" Manner

Defendants claim that the Government violated its duty under § 9-504(3) of the U.C.C.³ to dispose of collateral—i.e., Adria's assets, including its machinery and inventory—in a "commercially reasonable" manner.⁴ Specifically, defendants claim (a) that the prices obtained for Adria's machinery and equipment ($310,113.60) and inventory ($241,460.45) in the Chapter 7 liquidation auction were far below the value which the company would have fetched if sold as a going concern (allegedly "well in excess of $3 million") or even piecemeal (allegedly "well in excess of $1.5 million") (Lowy Aff. ¶¶ 18-20); and

(b) that the SBA unreasonably "stipulated away" its right to the proceeds from Adria's inventory in an agreement which settled an adversary proceeding brought by Adria's bankruptcy trustee. (Lowy Aff. ¶¶ 28-31).

The court finds that defendants waived their rights under U.C.C. § 9-504(3) by agreeing to the unconditional waivers contained in the Guaranties, which are quoted at the outset of this opinion. See United States v. McAllister, 661 F.Supp. 1175, 1177 (E.D.N.Y.1987) (identical language in SBA guaranty operated to waive defense of commercial unreasonableness under New York version of U.C.C. § 9-504(3)).⁵

2. SBA's Failure to Notify Defendants of Sale

Defendants claim that, under U.C.C. § 9-504(3),⁶ the SBA should have notified them of the liquidation sale of Adria's assets. The court finds that the 1975 and 1976 Guarantees each contain a specific waiver of notice: "The Undersigned hereby grants to Lender full power, in its uncontrolled discretion and without notice to the defendants ... to deal in any manner with ... the collateral." Elsewhere, the Guaranties state that notice is waived "to the extent permitted by law."⁷ Defendants offer no authority for ignoring these express waivers of notice, and the court concludes that the waivers should be given effect. See United States v. McAllister, 661 F.Supp. at 1177-78 (identical language in SBA guaranty operated to waive defense of lack of notice of sale of collateral under New York version of U.C.C. § 9-504(3)); Tilden Financial Corp. v. Neuberg, 140 A.D.2d 690, 528 N.Y.S.2d 1006 (2d Dep't 1988) (assuming arguendo that equipment lease secured by personal guarantee was a security...