The opinion of the court was delivered by: MICHAEL B. MUKASEY
MICHAEL B. MUKASEY, U.S.D.J.
Plaintiff, US West Financial Services, Inc., moves for summary judgment on a guaranty executed by defendants Stanley S. Tollman and Monty D. Hundley (the "Guaranty"), and to dismiss defendants' counterclaims and affirmative defenses. For the reasons set forth below, plaintiff's motion is granted.
Under Fed. R. Civ. P. 56(c), summary judgment is appropriate if the evidence demonstrates 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." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed. R. Civ. P. 1). In determining whether there is a genuine issue of material fact, a court must resolve all ambiguities, and draw all reasonable inferences, against the moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962) (per curiam) (cited in Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987)). Therefore, for current purposes, I must assume that the facts set forth in defendants' submissions are true.
Defendants are principals of Tollman-Hundley Hotels, an organization that owns, operates and franchises hotels in the United States and abroad. Tollman-Hundley and US West, a Colorado corporation, have a longstanding business relationship and, over the last 5 years, have "negotiated, documented and implemented many loan transactions." (Tollman Aff. P3)
In 1985, defendants organized a limited partnership, Days One, Ltd., for the purpose of acquiring six Days Inn hotels in California and a Days Lodge in Florida. Interests in the Days One limited partnership were syndicated to approximately 70 individual investors who paid for their interests with a combination of cash and notes. The general partners were defendant Hundley and a Florida corporation, Days 666 Corp., whose principals were Harvey Martin and Martin Rosen, partners in the accounting firm of Martin Rosen & Co. (Tollman Aff. P4)
In early 1986, US West's predecessor made three separate loans to Tollman-Hundley entities, secured by Tollman-Hundley's right, title and interest in the Days One individual investor notes. The Loan Agreements established a payment schedule structured to allow Tollman-Hundley to use the individual investors' payments to amortize the US West loans. Each year, the individual investors would remit payment by May 1 and Tollman-Hundley would use the funds to cover its obligations to US West on June 1. At the time of the events giving rise to this litigation, there were two payments remaining on Tollman-Hundley's US West loans, those due June 1, 1989 and June 1, 1990. (Tollman Aff. P6)
In early 1989, Tollman-Hundley and Security Pacific National Bank were negotiating a major refinancing of the Tollman-Hundley hotel properties. As collateral for a proposed $ 129 million bond issue, Security Pacific required that Tollman-Hundley pledge its premium properties including some of those held by Days One. In order to pledge the Days One properties, Tollman-Hundley had to buy the ownership interests of the individual investors and pay off the US West loans which, at the time, had an approximate balance of $ 7.9 million. (Tollman Aff. P8) As a result, Tollman-Hundley turned to US West to discuss a new loan, the proceeds of which would be used to purchase the individual investors' partnership interests and to pay off the existing indebtedness. Eventually, defendants and US West reached a preliminary agreement whereby the existing loans would be restructured and US West would provide Tollman-Hundley with over $ 15 million in additional financing secured by Tollman-Hundley's interest in a Days Inn located on West 57th Street in Manhattan. (Tollman Aff. P10)
Although Tollman-Hundley was encouraged by the progress of the US West negotiations, it needed a firm commitment in order to proceed with the Security Pacific refinancing. In or about March 1989, defendants and Sanford Freedman, Tollman-Hundley's Executive Vice-President and Counsel, met with James W. Connor, a senior officer of US West, to discuss the proposed transaction. According to defendants, at the meeting they informed Connor that Tollman-Hundley was prepared to instruct the individual investors not to make their May 1 payments because of the forthcoming repurchase of the notes. In response, Connor unequivocally agreed to lend Tollman-Hundley over $ 15 million secured by Tollman-Hundley's subleasehold interest in the 57th Street property. (Tollman Aff. P11) There was also agreement on how the proceeds would be allocated: $ 7.9 million for the Days One buy-out; $ 3.5 million for renovation of the 57th Street property; and the remainder for general Tollman-Hundley purposes. According to defendant Tollman, Connor stated that closing would occur by June 30, 1989, and that the existing loans would be treated as follows: the June 1, 1989 payment would be deferred and the June 1, 1990 payment would be accelerated to whatever date the additional funds became available. Tollman asserts that he again told Connor that in reliance on US West's commitment, Tollman-Hundley would tell the individual investors to defer their May 1, 1989 payments. (Tollman Aff. P12)
According to Tollman, he then instructed Harvey Martin of Martin Rosen & Co., to advise the individual investors that Tollman-Hundley was negotiating an extension of the May 1 payment in connection with a purchase of the individual partnership interests. In a letter dated April 7, 1989, Martin informed the individual investors:
Your Fourth Installment Investor Note is due May 1, 1989. The general partners, Tollman Hundley Hotels, are negotiating an extension of that payment to enable them time to effectuate the purchase from us of our limited partnership interests. They expect to receive that extension soon.
[Martin Rosen & Co.] will notify you of the results of all future negotiations. You will hear from us well before the May 1 due date.
(Pltf. Exh. 111) A June 13, 1989 letter from defendant Hundley to the investors, stated only that an "extension" of their payments had been arranged. (Pltf. Exh. 113) In his deposition, Martin testified:
There was no doubt in my mind that the investors should not make the payment because it was imminent that Tollman-Hundley was going to make that payment.
I was positive they were going to get the extension, get the money financed and do the deal.
(Martin Dep. pp. 21-22) However, Martin further testified that prior to August 31, 1989, the date of the restructuring, he never told the investors that they were relieved of their obligation to make the 1989 payment; nor did he instruct anyone else to do so. (Martin Dep. pp. 31-32, 95) In any event, all investors save one did not make their May 1 payments, and that investor's check was returned. (Tollman Aff. P14)
According to defendants, once the May 1 payment date passed, US West suddenly imposed new conditions on the 57th Street loan and the restructuring. Defendants were told for the first time that US West headquarters would not approve use of the loan proceeds to buy the individual investors' interests. The US West representatives, therefore, asked Tollman-Hundley to send them a letter falsely stating that the two transactions -- the buy-out and the 57th Street financing -- were distinct, and that the funds for the buy-out would come from sources other than US West. Tollman-Hundley then would be free to use the proceeds as it wished, including to finance the buy-out. In addition to a restructuring fee and a letter of credit, US West also required for the first time that Tollman and Hundley personally guarantee the remaining payments on the existing US West loans. According to defendants, US West threatened that if Tollman-Hundley refused to comply with these demands, not only would the promised additional financing be withheld, thereby preventing purchase of the partnership interests and undoing the Security Pacific transaction, but also the individual investors would be sued for default on the May 1 payments. (Zuckerman Aff. PP3, 4; Tollman Aff. P15)
As the June 1, 1989 payment date approached, it became evident that without the funds from the individual investors, Tollman-Hundley would be unable to make the June 1 payment on the existing US West loans. As a result, US West again threatened to sue the individual investors, which defendants concede it had a right to do pursuant to the Loan Agreements. However, Tollman contends that such a suit would have caused the investors to sue Tollman-Hundley for breach of fiduciary duty and misrepresentation, triggering default provisions in other Tollman-Hundley notes and placing the entire organization in jeopardy. Tollman and Hundley, therefore, acceded to US West's demands and allowed US West to dictate the terms of the restructuring and the 57th Street loan agreement. Defendants allege that US West coerced them into signing documents which suggest that they executed the Guaranty as consideration for US West's agreement to postpone the June 1, 1989 payment and accelerate the June 1, 1990 payment on the existing loans, but do not mention that defendants agreed to this arrangement only because US West promised to provide additional financing secured by the 57th Street subleasehold interest. Defendants maintain that only because of plaintiff's unfair coercion was the 57th Street financing presented in the correspondence as a separate transaction still under negotiation.
The relevant documents consist of the following:
(1) Guaranty dated August 31, 1989, which states that defendants as guarantors, "in order to induce US West . . . to amend [the existing Loan Agreements] . . . hereby jointly and severally, absolutely, unconditionally and irrevocably guarantee to [US West] the due and punctual payment, performance and discharge . . . of all debts, obligations and liabilities of [Tollman-Hundley and Days One, Ltd.] to or held by [US West] under the Loan Agreements . . ." (Compl. Exh. A)
(2) Letter from Sanford Freedman to Michael Bullen of US West dated May 15, 1989, requesting an extension of the due date of the 1989 note payments from June 1 to August 31, 1989, and the right to prepay the 1990 principal amount plus interest on August 31, 1989. In exchange, Tollman-Hundley offered to post a letter of credit in the amount of the 1989 payment as security, pay a restructuring fee, and cause defendants to execute a personal guaranty. The letter states: "We anticipate that the purchase of the limited partnership interests will take place by August 31, 1989. The funds for the purchase will be obtained from our second CMO Bond Issue, in the amount of $ 129,000,000, which is being handled by Security Pacific National Bank." (Pltf. Exh. TH34)
(3) Letter from Karen Vais of US West to Sanford Freedman dated June 6, 1989, accepting Tollman-Hundley's proposal as set forth in Freedman's May 15 letter. The Vais letter states that Tollman-Hundley "will provide [US West] with copies of the correspondence sent to investors notifying them of the partnership's plans and their continued obligation under their promissory notes should the projected bond offering with Security Pacific not close." (Bullen Decl. Exh. 4)
(4) Letter Agreement dated August 9, 1989, which states: "We [Tollman-Hundley] . . . agree that you [US West] will have no obligation whatsoever to us with respect to the proposed financing [the 57th Street loan] until a formal commitment letter is executed and delivered to us by you in accordance with the terms and conditions thereof. We understand that (a) you have no obligation to approve the proposed financing . . . (b) you may decide not to proceed with the proposed financing for any reason or for no reason, and (c) you will have no obligation or liability whatsoever to us for any costs, expenses, obligations or liabilities incurred by us in connection with the proposed financing." (Bullen Decl. Exh. 17)
(5) Letter from Howard Zuckerman of Tollman-Hundley to Michael Bullen of US West dated August 31, 1989, stating that "the financing of Days Inn at 57th Street in Manhattan will be completed by one of three institutions [not including US West] within the next 45 days." (Bullen Decl. Exh. 18)
(7) An Opinion Letter from Sanford Freedman to US West dated August 31, 1989, stating that defendants were competent at the time they signed the Guaranty and Loan Agreement, and that each document is a "legal, ...