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JOHN STREET LEASEHOLD v. CAPITAL MANAGEMENT RESOURCES

March 29, 2001

JOHN STREET LEASEHOLD, LLC, PLAINTIFF,
v.
CAPITAL MANAGEMENT RESOURCES, L.P., ET AL., DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, U.S. District Judge.

        OPINION AND ORDER

This action arises out of a syndicated loan in the amount of $20,300,000.00 (the "Loan") secured by a mortgage on a property known as 127 John Street in New York City (the "Mortgage"). The plaintiff, John Street Leasehold, LLC ("John Street"), alleges that the Federal Deposit Insurance Corporation, as receiver for the lead lender American Savings Bank ("FDIC/R"), together with the FDIC in its corporate capacity ("FDIC/C"), and employees and agents of the FDIC tortiously acted in bad faith and deprived the plaintiff of its rights by improperly accelerating the foreclosure of the Mortgage.

This is the second action in this Court in which the plaintiff has sought damages arising out of the allegedly wrongful foreclosure of its interest in 127 John Street. In the first action, the plaintiff alleged that the FDIC/R and the FDIC/C orally agreed to waive a provision in the Mortgage Extension, Consolidation and Modification Agreement (the "Mortgage Agreement") that permitted the participating institutions to require the prepayment of the outstanding balance of the Mortgage at any time after December 20, 1992 with 180 days' written notice (the "Call Provision"), that they then breached that oral agreement, and foreclosed on the Mortgage. This Court granted summary judgment dismissing all of the plaintiff's claims. John Street Leasehold. LLC v. Federal Deposit Ins. Corp., No. 95 Civ. 10174, 1996 WL 737196 (S.D.N Y Dec. 24, 1996); John Street Leasehold. LLC v. Federal Deposit Ins. Corp., No. 95 Civ. 10174, 1998 WL 411328 (S.D.N.Y. July 22, 1998). The Court of Appeals affirmed the judgment of dismissal. John Street Leasehold, LLC v. Federal Deposit Ins. Corp., 196 F.3d 379 (2d Cir. 1999) (per curiam)

I.

A.

1.

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "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 a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are factual issues to be tried." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986).

On a motion for summary judgment, once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the nonmoving party must come forward with specific facts to show there is a factual question that must be resolved at trial. See Fed. R. Civ. P. 56(e). The non-moving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998) (collecting cases); Wyler v. United States, 725 F.2d 156, 160 (2d Cir. 1983).

2.

With respect to the motions to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), because all of the parties have submitted extensive evidentiary materials, the defendants have moved for summary judgment, and the plaintiff has been afforded the opportunity to submit any evidence in response to the motions for summary judgment, the motions to dismiss will also be treated as motions for summary judgment. See Elgendy v. City of New York, No. 99 Civ. 5196, 2000 WL 1119080, at *1 (S.D.N.Y. Aug. 7, 2000). On a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1), the court may consider matters outside the pleadings, such as affidavits, documents, and testimony. See. e.g., Antares Aircraft v. Fed. Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991); Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986). Thus, the standard used to evaluate a Rule 12(b)(1) claim is similar to that for summary judgment under Fed. R. Civ. P. 56. See Kamen, 791 F.2d at 1011. The plaintiff has the ultimate burden of proving the Court's jurisdiction by a preponderance of the evidence. See Malik v. Meissner, 82 F.3d 560, 562 (2d Cir. 1996); Beacon Enterprises. Inc. v. Menzies, 715 F.2d 757, 762 (2d Cir. 1983); see also Kehr Packages. Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991) (when subject matter jurisdiction is challenged under Rule 12, plaintiff must bear burden of persuasion); Martin v. Reno, No. 96 Civ. 7646, 1999 WL 527932 (S.D.N.Y. July 22, 1999).

B.

1.

The defendants have filed statements of undisputed facts as required by Local Civil Rule 56.1(a) and the plaintiff has not filed a counter-statement of material facts as to which it is contended there is a genuine issue to be tried as required by Local Civil Rule 56.1(b). The plaintiff's failure to respond to the defendants' 56.1 statements constitutes an admission of the facts contained in those statements. See Local Civil Rule 56.1(c); Gubitosi v. Kapica, 154 F.3d 30, 31 n.1 (2d Cir. 1998); United States v. All Right, Title and Interest in Real Property and Appurtenances, 77 F.3d 648, 657-58 (2d Cir. 1996); see also Cooper v. Gottlieb, No. 95 Civ. 10543, 2000 WL 1277593, at *4 (S.D.N Y Sept. 8, 2000). All parties have submitted affidavits with voluminous exhibits and that evidence further supports the statements of material facts that have not been disputed.

There is no genuine dispute as to the following facts. In December 1972, the United Mutual Savings Bank ("UMSB"), the predecessor in interest of American Savings Bank ("ASB"), extended the Loan to the plaintiff's predecessor, Rednow Realty Corp. ("Rednow"). (Non-FDIC Defendants' Local Rule 56.1 Statement of Material Undisputed Facts ("Non-FDIC 56.1 Stmt.") ¶ 10.)*fn1 Pursuant to the Mortgage between Rednow and UMSB, the Loan was secured by, among other things, the Plaintiff's leasehold interest in 127 John Street, New York, New York.*fn2 (Non-FDIC 56.1 Stmt. ¶ 11.)

Nineteen other financial institutions (the "Participants") acquired participation interests in the Loan. (Non-FDIC 56.1 Stmt. ¶ 76.) The rights of the Participants were detailed in a participation agreement dated October 15, 1970 (the "Participation Agreement"). The Participation Agreement provided that the Participants holding an aggregate of more than 50% of the face amount of the outstanding participation interests could direct the lead bank to take action or refrain from taking action with respect to enforcing the Mortgage. (Non-FDIC 56.1 Stmt. ¶ 79.)

The Mortgage required monthly payments of basic interest on the first day of each month and an additional interest payment on April 15 each year. (Non-FDIC 56.1 Stmt. ¶¶ 14-15.) The Mortgage contained the Call Provision described above (Non-FDIC 56.1 Stmt. ¶ 19), and another clause that specified that only written modifications to the Mortgage would be valid. (Non-FDIC 56.1 Stmt. ¶ 21.)

On June 12, 1992, the Superintendent of Banks for the State of New York declared that ASB was an unsafe institution. (Non-FDIC 56.1 Stmt. ¶ 22.) ASB was closed and the FDIC was appointed to serve as receiver for the assets and interests of ASB and its subsidiary, Riverhead Savings Bank ("RSB"). (Non-FDIC 56.1 ¶ 23.) Pursuant to an asset liquidation agreement dated as of May 14, 1993 (the "RALA Agreement"), FDIC/R retained Aldrich, Eastman & Waltch, L.P. ("AEW") to liquidate, collect, and manage the assets of ASB and RSB, including the plaintiff's Loan. (Non-FDIC 56.1 Stmt. ¶ 25.) Frank Campagna ("Campagna") was the FDIC employee assigned as oversight manager with respect to the RALA Agreement. (Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 by the FDIC Defendants ("FDIC 56.1 Stmt.") ¶ 2.) Michael Anderson ("Anderson") was the FDIC employee assigned as the day to day portfolio manager of the ASB and RSB assets. (FDIC 56.1 Stmt. ¶ 3.)

On or about June 1, 1993, FDIC/R executed a power of attorney appointing the defendants J. Grant Monahon ("Monahon"), Richard W. Lewis ("Lewis"), John L. Sullivan ("Sullivan"), and Kevin McCall ("McCall") as attorneys-in-fact to act on behalf of the FDIC with respect to the maintenance and liquidation of the assets of ASB and RSB, which included the Loan and Mortgage. (Non-FDIC 56.1 Stmt. ¶ 29.) Defendant Capital Management Resources, L.P. ("CMR"), an affiliate of AEW, provided asset management services in connection with AEW's performance of its obligations under the RALA Agreement with the consent of the FDIC. (Non-FDIC 56.1 Stmt. ¶¶ 33-34.) The plaintiff has sued AEW under its current name — Old Compton L.P.

Beginning in mid-1992, the plaintiff asked ASB and then the FDIC to waive the Call Provision of the Mortgage. (Non-FDIC 56.1 Stmt. ¶ 50.) In January and February 1993, the plaintiff withheld Mortgage payments to get the attention of the FDIC so that it would negotiate a waiver of the Call Provision. (Non-FDIC 56.1 Stmt. ¶ 51.) The FDIC and the Plaintiff never signed any agreement to waive the Call Provision. (Non-FDIC 56.1 Stmt. ¶ 53.) The plaintiff failed to make a payment of additional interest on April 15, 1993, which it never cured. (Non-FDIC 56.1 Stmt. ¶¶ 55-56.) The plaintiff also failed to make basic interest payments on July 1, 1993, August 1, 1993, September 1, 1993, October 1, 1993, and November 1, 1993. (Non-FDIC 56.1 Stmt. ¶ 60.)

By letter dated July 20, 1993, an asset manager at CMR notified the plaintiff of its failure to make the April 15, 1993 additional interest payment. (Non-FDIC 56.1 Stmt. ¶ 69.) On August 4, 1993, representatives of CMR met with representatives of the plaintiff and advised the plaintiff that it was required to bring the Loan current. (Non-FDIC 56.1 Stmt. ¶ 70.) By letter dated August 13, 1993, defendant Lewis informed the plaintiff that the Loan was in default and demanded that John Street bring the Loan current. (Non-FDIC 56.1 Stmt. ¶ 73.)

By letter dated August 13, 1993 to the Participants, CMR informed the Participants that it would pursue the mortgagee's rights and remedies if John Street's default was not cured. (Non-FDIC 56.1 Stmt. ¶ 80.) On September 22, 1993, the Participants discussed the possibility of commencing a foreclosure action against John Street. (Non-FDIC 56.1 Stmt. ¶ 81.) Only a small minority of the Participants holding less than 50% of the outstanding participation interests opposed commencing a foreclosure action. (Non-FDIC 56.1 Stmt. ¶ 87.) By letter dated September 14, 1993, the FDIC/R declared John Street's Loan to be in default. (Non-FDIC 56.1 Stmt. ¶ 74.)

On September 27, 1993, representatives of AEW and CMR submitted a "Request to Pursue Foreclosure Rights" (the "Case") to the FDIC/R that recommended initiating a foreclosure action against the plaintiff. (Non-FDIC 56.1 Stmt. ¶ 90.) Defendants Campagna and Anderson were the voting members of the RALA credit review committee (the "Committee") that considered the Case on behalf of FDIC/R. (Non-FDIC 56.1 Stmt. ¶ 91.) The Committee approved the Case on October 7, 1993 on behalf of FDIC/R and authorized AEW and CMR to commence a foreclosure action. (Non-FDIC 56.1 Stmt. ¶¶ 98-99.)

On November 12, 1993, FDIC/R commenced an action to foreclose the Mortgage in the Supreme Court of the State of New York, New York County. (Non-FDIC 56.1 Stmt. ¶ 103.) On December 9, 1993, John Street voluntarily filed a petition for relief under Chapter 11 of the Bankruptcy Code. (Non-FDIC 56.1 Stmt. ¶ 106.)

From December 1993 to February 1994, the plaintiff complained to the FDIC about the conduct of the Non-FDIC Defendants and-the FDIC with respect to the Mortgage. (FDIC 56.1 Stmt. ¶ 7.) By letter dated December 15, 1993, the FDIC/R informed the plaintiff that CMR was responsible for working with the plaintiff on any issues relating to the Loan. (Non-.FDIC 56.1 Stmt. ¶ 35.) The FDIC also referred the plaintiff to Campagna who was described as the "RALA Ombudsman." (FDIC 56.1 Stmt. ¶ 8.) In his role as RALA Ombudsman, Campagna had two conversations with Melvin Kaufman ("Kaufman"), a representative of the plaintiff, and sent Kaufman a letter in which Campagna explained: ". . . we had made no specific deal regarding a resolution of your situation other than the concept that [CMR] would keep me apprised of events as warranted." (FDIC 56.1 Stmt. ¶ 9; Declaration of Wendy H. Schwartz dated Sept. 15, 2000 at Ex. B.)

2.

In 1995, the plaintiff filed a state court action against the FDIC for breach of contract, fraud, negligent misrepresentation, and breach of an implied covenant of good faith and fair dealing with respect to the Mortgage and Participation Agreement. The FDIC removed that action to this Court. John Street Leasehold LLC v. Federal Deposit Ins. Corp., 95 Civ. 10174 (S.D.N.Y.) ("John Street I").

Those claims focused on the breach of an alleged oral agreement between the plaintiff and the FDIC to waive the Call Provision of the Mortgage. The facts developed in that lawsuit included the following. In May 1992. John Street asked ASB to waive the call provision. After ASB failed and the FDIC was appointed as its receiver, the FDIC informed John Street by letter dated September 22, 1992 that the Participants would consider waiving the Call Provision for five years in exchange for, among other things, John Street's commitment to remove asbestos from the building located at 127 John Street and to pay for all costs arising from leasing additional space in the building. Over the next few months, John Street and the FDIC were unable to reach an agreement regarding the terms of any waiver of the Call Provision. John Street Leasehold, LLC, 1996 WL 737196, at * 2. John Street then withheld interest payments required by the Mortgage and the EDIC instituted a foreclosure proceeding. John Street Leasehold, LLC, 1996 WL 737196, at *3,

The FDIC moved for summary judgment dismissing all claims. On December 24, 1996, this Court granted the FDIC's motion for summary judgment dismissing John Street's fraud and negligent misrepresentation claims because John Street could not have reasonably relied on any oral representations by the FDIC about the Mortgage because the Mortgage specified that it could only be modified in writing. Id. at *7-8. This Court also granted the FDIC's motion to dismiss John Street's breach of the implied covenant of good faith and fair dealing claim with respect to the Mortgage because the FDIC was not obligated under the Mortgage to waive the Call Provision. Id. at *8-9. The Court also granted the FDIC's motion to dismiss the breach of the implied covenant of good faith and fair dealing claim with respect to the Participation Agreement because the plaintiff was not a third party beneficiary of the Participation Agreement and the FDIC did not breach the Participation Agreement. Id. at *9-10. However, the Court denied the motion for summary judgment dismissing the breach of contract claim based on the alleged oral agreement because issues of fact existed as to whether the oral agreement existed, whether it was a waiver of the Call Provision or a modification, and whether John Street's asbestos abatement expenditures constituted partial performance or established equitable estoppel. Id. at *3.7, 11.

On July 22, 1998, the Court granted the FDIC's renewed motion for summary judgment and dismissed John Street's breach of contract claim for three independent reasons. First, the alleged oral agreement to waive the Call Provision was too vague to be enforceable. John Street Leasehold, LLC, 1998 WL 411328, at *3-6. Second, the oral agreement was barred by the Statute of Frauds. Id. at *6-9. Third, the plaintiff breached a material term of the alleged oral agreement by failing to remain current on the Loan, specifically by failing to make a payment of additional interest on April 15, 1993. Id. at *10. The Court of Appeals for the Second ...


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