United States District Court, Southern District of New York
June 24, 1991
WOODWARD & DICKERSON, A DIVISION OF CONAGRA, INC., A DELAWARE CORPORATION, PLAINTIFF,
GERHARD KAHN, REGINA KAHN, KAHN LUMBER AND MILL WORK CO., POLARIS PROPERTIES AND GNK ENTERPRISES, DEFENDANTS.
The opinion of the court was delivered by: Leisure, District Judge.
OPINION AND ORDER
This is an action to recover under a guaranty executed by
defendants in favor of plaintiffs and others. The principal
obligor on the underlying loan having defaulted on its
obligation, plaintiff now moves the Court for summary judgment
compelling the performance of the guarantor's obligations under
The principal facts in this matter are not disputed. This
action arises out of events surrounding a project to construct a
gypsum wallboard plant in Port Newark, New Jersey. The owner and
operator of the plant was to be Atlantic Gypsum Company ("AGC"),
a corporation of which defendant Gerhard Kahn ("Kahn") was the
promoter and principal shareholder. Kahn is also the primary
owner of defendants Kahn Lumber and Mill Work, Inc., Polaris
Properties and GNK Enterprises, and is the husband of defendant
A consortium of banks provided the main financing for the
project, and plaintiff Woodward & Dickerson ("Woodward"),*fn1
along with two other entities,*fn2 provided additional financing
pursuant to subordinated loan agreements. By a loan agreement
executed on or about December 30, 1986 (the "Loan Agreement"),
Woodward agreed to loan AGC up to $650,000 to refinance
construction costs and to finance capitalized interest costs. On
or about December 31, 1986, AGC executed a subordinated
promissory note in favor of Woodward. As security for payment of
the Loan Agreement and promissory note, defendants executed a
subordinated guaranty agreement (the "Guaranty") in favor of
Woodward and the other entities providing subordinated loans.
Under paragraph 3(c) of the Loan Agreement, Woodward was
required to, and did, furnish a letter of credit in the aggregate
amount of $650,000 for the benefit of parties providing interim
financing to AGC. On September 2, 1988, $588,673.70 was drawn
down against the letter of credit by United Jersey Bank, AGC's
Paragraph 4 of the Loan Agreement specified the timing and
amount of interest
payments to be made by AGC, commencing on December 20, 1988.
Other than a partial interest payment of $9,072.62 on or about
June 29, 1989, AGC has made no payments of either principal or
On January 2, 1990, AGC's bank financers filed a petition in
the United States Bankruptcy Court in Newark, New Jersey, which
sought to place AGC in involuntary bankruptcy under Chapter 7 of
the Bankruptcy Code. On March 6, 1990, Judge Tuohey of the
Bankruptcy Court entered an order for relief against AGC under
Notwithstanding AGC's default under the Loan Agreement and
promissory note, defendants have refused payment under the
Guaranty. Plaintiff commenced this action to compel performance
of defendants' obligations under the Guaranty, and now move this
Court for summary judgment, and for the costs of bringing this
I. Standard for Summary Judgment
Federal Rule of Civil Procedure 56(c) provides that summary
judgment "shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law." "Summary judgment is
appropriate if, `after drawing all reasonable inferences in favor
of the party against whom summary judgment is sought, no
reasonable trier of fact could find in favor of the non-moving
party.'" United States v. All Right, Title & Interest in Real
Property, etc., 901 F.2d 288, 290 (2d Cir. 1990) (quoting
Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d
Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d
380 (1988)). Summary judgment may be granted "against a party who
fails to make a showing sufficient to establish the existence of
an element essential to that party's case." Celotex Corp. v.
Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
The substantive law governing the case*fn3 will identify the
facts that are material, and "[o]nly disputes over facts that
might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment. . . . While the
materiality determination rests on the substantive law, it is the
substantive law's identification of which facts are crucial and
which facts are irrelevant that governs." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d
202 (1986). "[T]he judge's function is not himself to weigh the
evidence and determine the truth of the matter but to determine
whether there does indeed exist a genuine issue for trial." Id.
at 249, 106 S.Ct. at 2511; see also R.C. Bigelow, Inc. v.
Unilever N.V., 867 F.2d 102, 107 (2d Cir.), cert. denied, ___
U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking
summary judgment "always bears the initial responsibility of
informing the district court of the basis for its motion" and
identifying which materials it believes "demonstrate the absence
of a genuine issue of material fact." Celotex, supra, 477 U.S.
at 323, 106 S.Ct. at 2553; see also Trebor Sportswear Co. v.
Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989). "[T]he
burden on the moving party may be discharged by `showing' — that
is, pointing out to the district court — that there is an absence
of evidence to support the nonmoving party's case." Celotex,
supra, 477 U.S. at 325, 106 S.Ct. at 2554.
Once a motion for summary judgment is properly made, the burden
then shifts to the nonmoving party, which "`must set forth facts
showing that there is a genuine issue for trial.'" Anderson,
U.S. at 250, 106 S.Ct. at 2511 (quoting Fed.R.Civ.P. 56(e)).
"Conclusory allegations will not suffice to create a genuine
issue. There must be more than a `scintilla of evidence,' and
more than `some metaphysical doubt as to the material facts.'"
Delaware & H. Ry. v. Consolidated Rail Co., 902 F.2d 174, 178
(2d Cir. 1990) (quoting Anderson, supra, 477 U.S. at 252, 106
S.Ct. at 2512, and Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538
II. Defendants' Liability Under Guaranty
Under section 2 of the Guaranty:
Each of the Guarantors, as direct obligors and not
merely as sureties, hereby unconditionally,
irrevocably, jointly and severally guarantees the due
and punctual payment by AGC of all principal,
premium, if any, interest, fees and expenses and all
other amounts payable or to become payable to the
Subordinated Lenders by AGC under the Subordinated
Loan Agreements when and as the same shall become due
and payable (whether by acceleration or otherwise) in
accordance with the terms thereof. . . .
The Guarantors understand, agree and confirm that
any Subordinated Lender may enforce this Agreement
against the Guarantors without proceeding against AGC
for payment. . . . This Agreement shall at all times
constitute a guaranty of payment and not merely of
collection, as provided herein, of [AGC's
Guaranty § 2.
Section 3 of the Guaranty, entitled "Guaranty Absolute,"
The obligations of each of the Guarantors under
this Agreement . . . shall be absolute, irrevocable
and unconditional, irrespective of, and shall not be
altered or affected by, the validity, regularity or
enforceability of any provision of any Subordinated
Loan Agreement, any compromise, alteration,
amendment, modification, extension, renewal, release
or other change of, or any waiver, consent or other
action in respect of, any of the terms, covenants or
conditions of any Subordinated Loan Agreement, the
recovery of any judgment against any person or any
action to enforce the same, any failure to delay in
the enforcement of the obligations of AGC under any
subordinated Loan Agreement or any other
circumstances which might otherwise constitute a
legal or equitable defense or discharge of a
guarantor or surety, or which might otherwise limit
recourse against the Guarantors by any Subordinated
Lender. Each of the Guarantors hereby expressly and
irrevocably waives all defenses, set-offs,
counterclaims, recoupments, terminations or
impairments whether arising hereunder or otherwise.
. . . To the fullest extent permitted by law, the
Guarantors waive any legal or equitable defenses to
the enforceability of their obligations hereunder,
and the Guarantors agree that their obligations shall
be absolute and unconditional and shall not be
affected or discharged by any circumstance, act or
event except payment in full. . . .
Id. § 3.
Thus, the terms of the Guaranty could hardly be more explicit
in rendering absolute defendants' obligations to plaintiff,
regardless of any claims AGC might possess against Woodward.
Notwithstanding the explicit waivers contained in the Guaranty,
defendants' answer to the complaint filed in this action asserts
a number of so-called "affirmative defenses, recoupment, set-off
and counterclaim," which clearly consist of claims properly
belonging to AGC.*fn4 Of these claims, defendants in their
response to plaintiff's motion rely on a single dispute that
allegedly precludes the entry of summary judgment against them.
Defendants assert that a claim against Woodward arising from an
ore supply contract between AGC and Woodward affects their
obligations under the Guaranty. That dispute is the subject of a
separate action filed by plaintiff against AGC in this
Court,*fn5 which was placed on the Court's suspense calendar
subsequent to AGC's bankruptcy.
Defendants' argument is unavailing for a number of reasons,
first among them the explicit provisions of the Guaranty cited
above. Second, under New York law, a guarantor sued alone by a
creditor cannot assert, as a defense or counterclaim, an
independent cause of action belonging to his principal. See,
e.g., Walcutt v. Clevite Corp., 13 N.Y.2d 48, 241 N.Y.S.2d 834,
191 N.E.2d 894 (1963); New Jersey Bank v. Varano, 120 A.D.2d 505,
502 N.Y.S.2d 35 (1986).
Third, the Guaranty is not conditioned upon, or in any way
linked to, the ore supply contract to which defendants refer.
Defendants' obligations under the Guaranty are triggered solely
by plaintiff's advancement of funds under the Loan Agreement and
letter of credit. Defendants do not present any contested issues
of fact concerning any event connected with any party's execution
of, or performance or nonperformance under, the pertinent
Fourth, as plaintiff points out, even if a claim arising under
the ore supply contract could excuse defendants' performance
under the Guaranty, defendants clearly had knowledge of the
issues surrounding the ore supply contract prior to the date of
the drawdown of funds by United Jersey Bank pursuant to the Loan
Agreement and letter of credit. Defendants' failure to repudiate
their Guaranty before the funds were loaned acts as a waiver of
this claim. See Bank Leumi Trust Co. v. D'Evori Int'l, Inc.,
163 A.D.2d 26, 558 N.Y.S.2d 909, 914 (1st Dep't 1990).
There being no dispute as to the material facts in this matter,
defendants' liability is clearly established as a matter of law.
Accordingly, plaintiff's motion for summary judgment is granted.
Plaintiffs also move this Court for an award of the costs
incurred in bringing this action to compel performance under the
Guaranty. The Guaranty provides:
The Guarantors hereby agree to indemnify and hold
harmless the Subordinated Lenders from and against
any loss, liability or expense (including the fees
and disbursements of counsel for the Subordinated
Lenders) which may be incurred by reason of any
failure of either of the Guarantors to fulfill their
obligations under this Section 2 upon demand by the
Subordinated Lenders, as the case may be, including
(a) costs and expenses of enforcement of any
obligation of the Guarantors to make any such
payment hereunder and any other obligation,
covenant or agreement of the Guarantors hereunder;
(b) other costs and expenses incurred by any
Subordinated Lender as a result of any such
Guaranty § 2.
Having found defendants' arguments to be without merit, the
Court finds that plaintiff is entitled under the language of the
Guaranty to recover the costs of bringing this action to enforce
its rights under that Guaranty. Accordingly, plaintiff's motion
for summary judgment and for costs is granted in its entirety.
Plaintiff's motion for summary judgment and for costs is
granted in its entirety. This matter is referred to a United
States Magistrate Judge for an inquest on the amount of damages
and costs to be awarded.