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FIRST FIDELITY BANK v. BEST PETROLEUM

February 20, 1991

FIRST FIDELITY BANK, N.A., NEW JERSEY, PLAINTIFF,
v.
BEST PETROLEUM, INC., ALEX LATSINIK AND JUDA TYRNAUER, DEFENDANTS.



The opinion of the court was delivered by: Griesa, District Judge.

OPINION

First Fidelity's motion is granted. Tyrnauer's cross-motion is denied.

FACTS

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 obligations.

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 served.

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 ...


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