Best Petroleum, Inc. and Alex Latsinik, pursuant to
Fed.R.Civ.P. 55(b)(2). Best Petroleum and Latsinik have not
responded to the motion. Tyrnauer opposes the motion and
cross-moves for an order denying or staying First Fidelity's
motion for summary judgment pending completion of discovery in
the action, pursuant to Fed.R.Civ.P. 56(f).
First Fidelity's motion is granted. Tyrnauer's cross-motion
On November 4, 1988 First Fidelity made a loan of $950,000 to
Hudson Petroleum, Inc. in order for that company to purchase a
fuel oil storage facility in Columbia County, New York.
Tyrnauer and Latsinik were each 50% shareholders and officers
of Hudson. In addition, Tyrnauer and Latsinik were each 50%
shareholders of Best Petroleum, which had been formed for the
purpose of being the lessee and operator of the facility.
Hudson gave First Fidelity a promissory note, calling for
monthly payments of $3,958.34, plus interest, to be made from
January 1, 1989 until November 1, 1989, when the unpaid balance
was to be paid in full. First Fidelity requested and received
unconditional written personal guarantees of the note from
Tyrnauer, Latsinik and Best Petroleum. Additional security was
obtained in the form of a $161,500 certificate of deposit.
Tyrnauer supplied the funds for this. Finally, First Fidelity
took a first mortgage on the fuel storage facility.
Tyrnauer contends that his guarantee was improperly demanded
by First Fidelity and is invalid. Relying on the Equal Credit
Opportunity Act, 15 U.S.C. § 1691, Tyrnauer contends that First
Fidelity could not lawfully require his guarantee unless Hudson
lacked creditworthiness. First Fidelity contends that the
statute is not applicable and that in any event Hudson had
sufficiently serious credit problems to justify the request for
guarantors under the statutory standard. The following facts
bear on this issue.
First Fidelity conducted a credit investigation prior to
granting the loan to Hudson. Before the oil storage facility
was purchased by Hudson, it was owned and operated by Ajax
Hudson Terminal, Inc., an entity affiliated with Latsinik. It
had an operating loss of $176,000 for 1987 and continued to
show an operating loss in 1988. The facility's balance sheet
reflected poor liquidity and high leverage. Moreover, Hudson,
the new owner, and Best Petroleum, the company which was to
operate the facility, were both recently formed closely held
corporations which possessed no credit history or financial
track record at the time of the loan. An officer of First
Fidelity states in an affidavit submitted on the present motion
that the history of the storage facility and the risks inherent
in the fuel oil industry made it prudent for the bank to
require the guarantees of Best Petroleum, Latsinik and Tyrnauer
before it would grant the loan to Hudson.
In connection with the loan application, Tyrnauer and
Latsinik were at all times represented by a New Jersey law
firm, which reviewed the guarantees and other loan documents
and issued an opinion letter, dated November 4, 1988, in which
it stated that the guarantees were valid and enforceable legal
Commencing on or about May 1, 1989 Hudson defaulted on its
obligations under the note. First Fidelity accelerated the
principal unpaid balance of $934,166.64.
On October 26, 1989 the instant action was commenced to
recover on the guarantees. All three defendants were duly
Best Petroleum and Latsinik have not answered, moved or
otherwise responded. According to the docket sheet, defaults
were entered against Best and Latsinik on February 26, 1990.
Tyrnauer filed his answer on December 27, 1989. He admits
that he signed a guarantee of the Hudson note.
On January 25, 1990, three months after commencing the
federal action, First Fidelity filed a Notice of Pendency in
New York State Supreme Court, Columbia County, with respect to
the mortgaged property.
In connection with this notice, First Fidelity filed a
foreclosure action against Hudson, Best Petroleum and other
One of the requests for relief in the state court action was
that a receiver be appointed for the fuel facility. The
immediate purpose of this was to permit an environmental audit
of the facility. As it turned out, First Fidelity was able to
perform the environmental audit without the intervention of the
court, which was completed in November 1990. The New York
action was discontinued on December 7, 1990.
It is clear beyond any dispute that First Fidelity is
entitled to a default judgment against Best Petroleum and
Latsinik. Only the motion for summary judgment against Tyrnauer
The record establishes conclusively that Tyrnauer guaranteed
the note of Hudson, that Hudson has defaulted on the note, and
that the entire unpaid balance on the note, less the amount of
the certificate of deposit, is now due. Tyrnauer offers only
two defenses which need to be dealt with.
As noted earlier, Tyrnauer contends that First Fidelity had
no right to require his guarantee unless Hudson lacked
creditworthiness and further contends that there is no showing
of such a problem with respect to Hudson. In this regard
Tyrnauer relies upon the Equal Credit Opportunity Act ("ECOA"),
15 U.S.C. § 1691, and Federal Reserve Board Regulation B
promulgated thereunder, 12 CFR § 202. Tyrnauer specifically
refers to the following portion of Regulation B, which provides
that, with exceptions not relevant here,
. . a creditor shall not require the signature
of an applicant's spouse or other person, other
than a joint applicant, on any credit instrument
if the applicant qualifies under the creditor's
standards of creditworthiness for the amount and
terms of the credit requested.
12 CFR § 202.7(d)(1).
The quoted language from Regulation B appears to support
Tyrnauer's argument. However, when this language is read in the
context of the statute and the regulation as a whole, it
becomes clear that Tyrnauer's position has no merit. Both the
statute and Regulation B deal solely with racial and other
specified forms of discrimination. The ECOA commences by
defining the "scope of prohibition" and the "activities
constituting discrimination" as follows:
It shall be unlawful for any creditor to
discriminate against any applicant, with respect
to any aspect of a credit transaction —
(1) on the basis of race, color, religion,
national origin, sex or marital status, or age
(provided the applicant has the capacity to
(2) because all or part of the applicant's
income derives from any public assistance program;
(3) because the applicant has in good faith
exercised any right under this chapter.
15 U.S.C. § 1691(a). The introduction to Regulation B is to the