were originally selected by Century. (PX-43, at N11185-86; PX-44, at N12519; PX-48, at N13178; PX-49; PX-54).
71. Century negotiated with NatWest the sharing of proceeds from the asset sales contemplated in the June 1992 refinancing. (PX-40, at 30; PX-41, at 92). These assets were all subject to liens by NatWest. (PX-1, at 24 & Ex. J). Jerry Dillon received 50% of the proceeds of the asset sales contemplated by the June 1992 refinancing. (PX-29, at N1701; PX-41, at 75).
72. Century, and not NatWest, sought purchasers for the assets sales and negotiated the terms of their sale. (PX-43; PX-48; PX-49; PX-54).
73. Century paid a bankruptcy attorney a retainer of two hundred thousand dollars, and refused to seek the return to Century's account of the unspent portion thereof. (PX-40, at 57-58; PX-50, at N13139). This occurred during a period of time when Century was in monetary default on its Loan by NatWest.
74. NatWest suggested that Century review the contribution of a dozen relatives of Jerry Dillon on Century's payroll. Century did so, and some of them were severed, including two relatives of Mr. Dillon who were being paid to guard an unopened facility. (PX-42, at 81).
75. NatWest suggested that Century maintain a lockbox account with NatWest. Century refused, for doing so would have resulted in undue involvement by the bank in the company's operations. (PX-42, at 91-92; PX-24).
76. Century rejected suggestions by NatWest that Century consider providing services to adults as well as children. (PX-42, at 73-76).
77. Century did not accept suggestions by NatWest that Century consider increasing outpatient services. (PX-40, at 19).
78. There is no reliable evidence that NatWest told Century not to make payroll. (PX-39, at 27).
79. NatWest did not threaten to take any action if Century paid payroll but did not pay interest or principal on the Note. (PX-39, at 27).
80. Century wrote to NatWest informing NatWest that Century had insufficient funds to make both payroll and debt service payments, and that Century had determined to make payroll instead of servicing the debt. (PX-55).
81. NatWest did not take over the operations of Century.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332 in that the matter in controversy exceeds the sum of $ 50,000 and is between citizens of different states. Venue is proper in this Court pursuant to 28 U.S.C. § 1-391(a).
2. Pursuant to the terms of the Loan Agreement, this action is governed by the law of the State of New York.
3. Century has breached the terms of the Note and Loan Agreement, and the Guarantors have breached the terms of their Guarantees.
4. Defendants are jointly and severally liable to NatWest in the amount of $ 29,885,054.40, including interest through May 8, 1995. In addition, Defendants are jointly and severally liable to pay NatWest interest in the amount set forth in the loan agreement and the Interest Rate Protection Agreement from May 9, 1995 until the date of payment.
5. Defendants are jointly and severally liable to pay to NatWest the amount of $ 118,243.09 which constitutes reasonable attorney's fees and costs incurred by plaintiff to March 31, 1995. In addition, Defendants are jointly and severally liable to pay to Plaintiff attorney's fees and costs incurred in the trial of this action.
6. Only in "rare instances" will a lender be found to have improperly dominated a debtor's business. In re Teltronics Services, Inc., 29 Bankr. 139 (Bankr. E.D.N.Y. 1983).
7. Lenders are afforded substantial leeway in dealing with a debtor in default, and suggestions by a lender which are unpalatable to a borrower, regarding methods to increase revenues and decrease expenses, even when accompanied by an implicit threat that, unless such suggestions were taken, the lender would pursue its remedies under the loan agreement, do not suffice to state a cause of action for liability. In re W.T. Grant Co., 699 F.2d 599, 609-10 (2d Cir.), cert. denied, 464 U.S. 822, 104 S. Ct. 87, 78 L. Ed. 2d 96 (1983); Ford v. C.E. Wilson & Co., 129 F.2d 614 (2d Cir. 1942).
8. In order to find liability against a lender under a theory of a dominated and controlled instrumentality, the debtor must show actual, participatory, pervasive control of the debtor. In re Krivo Industrial Supply Co. v. National Distillers and Chemical Corp., 483 F.2d 1098 (5th Cir. 1973).
9. It does not constitute an actionable claim for lender liability to repeatedly give restructuring suggestions to the debtor coupled with a threat of foreclosure if the suggestions were not followed. In the Matter of Teltronics Services, Inc., supra.
10. Suggestions by a major lender for a defaulted debtor to obtain new management, even when coupled by a threat of the exercise of its legal rights if the debtor does not comply, are both commonplace and completely proper. See In re Prima Co., 98 F.2d 952 (7th Cir. 1938); cert. denied, 305 U.S. 658, 59 S. Ct. 357, 83 L. Ed. 426 (1939); In re Badger Freightways, Inc., 106 Bankr. 971 (Bankr. N.D. Ill. 1989); Ford v. C.F. Wilson & Co., Inc., 129 F.2d 614 (2d Cir. 1942); Chicago Mill & Lumber Co. v. Boatmen's Bank, 234 F. 41 (8th Cir. 1916); In re Teltronics Services, Inc., supra.
11. Direct, participatory control, on a day to day basis, required for a finding of liability against a lender, is not shown by mere suggestions by a lender to a borrower as to methods to improve the borrower's business, even if accompanied by a threat of foreclosure. In re Teltronics Services, Inc., supra.
12. A creditor will be held to a fiduciary standard "only where his ability to command the debtor's obedience to his policy directives is so overwhelming that there has been, to some extent, a merger of identity." In re Teltronics Services, Inc., supra.
13. The choice of either filing bankruptcy or acceding to a lender's demands in order to avoid foreclosure does not without more constitute domination or control by the lender. In re Prima Co., 98 F.2d 952 (7th Cir. 1938); cert. denied, 305 U.S. 658, 59 S. Ct. 357, 83 L. Ed. 426 (1939).
14. In order to repudiate an agreement that is claimed to have been entered into under duress, a debtor must show that a lender threatened to take action that was beyond the lender's legal rights. It does not constitute duress for a lender to threaten to exercise its rights. Teachers Insurance and Annuity Association of America v. Wometco, Inc., 833 F. Supp. 344 (S.D.N.Y. 1993).
15. If a party wishes to disaffirm a contract on the ground of duress, it must act promptly after entering into the contract, and not wait for a prolonged period after it has accepted substantial benefits under the contract. Id.
16. Applying these principles, at no time did NatWest dominate Century's business or render Century a mere instrumentality or alter ego of NatWest, and thus did not dominate its business. Any constraint on Century's business decisions was the inevitable result of its inability to repay $ 30 million in secured debt. See In the Matter of Clark Pipe Supply, 893 F.2d 693, 699-700 (5th Cir. 1990).
17. Century was under no legally cognizable duress to either enter into a management agreement with Columbia or to enter into the 1992 Restructuring Agreement with NatWest. The only compulsion present was the possibility that NatWest might pursue its legal remedies. This, NatWest was entitled to do. "There is generally no objection to a creditor's using his bargaining position ... to improve the status of his existing claims." In re W.T. Grant Co., 699 F.2d 599, 610 (2d Cir.), cert. denied, 464 U.S. 822, 104 S. Ct. 87, 78 L. Ed. 2d 96 (1983).
18. In any event, Century's failure to file bankruptcy, or at least commence an action to challenge or repudiate the earlier matters and ultimately the 1992 Restructuring Agreement, more than two years ago, until after it was sued by NatWest, waives any claim of Century to assert duress now. Teachers Insurance and Annuity Association of America v. Wometco, Inc., 833 F. Supp. 344 (S.D.N.Y. 1993).
19. Defendants' counterclaim is dismissed.
Dated: May 9, 1995
New York, New York
Senior United States District Judge
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