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IN RE BENNETT FUNDING GROUP

April 28, 2003

IN RE: THE BENNETT FUNDING GROUP, INC., DEBTOR. RICHARD C. BREEDEN, TRUSTEE OF THE BENNETT FUNDING GROUP, INC., ET AL, PLAINTIFF,
v.
ERIE ISLANDS RESORT & MARINA, AN OHIO PARTNERSHIP; ERIE ISLANDS RESORT & MARINA, INC.; JOHN GRONVALL; AND BEVERLY GRONVALL, DEFENDANTS.



The opinion of the court was delivered by: David N. Hurd, United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Defendants Erie Islands Resorts & Marina, Erie Islands Resort & Marina, Inc., John Gronvall, and Beverly Gronvall (collectively "defendants") filed objections pursuant to Bankruptcy Code 9033 to the Bankruptcy Court's (Stephen D. Gerling, Chief U.S. Bankruptcy Judge) January 2, 2003 Memorandum-Decision and Recommendation that defendants' motion for summary judgment seeking dismissal of the underlying Complaint on the ground that it is barred by the statute of limitations be denied. The plaintiff responded to those objections.

II. FACTS

The facts of this matter are set forth in the Bankruptcy Court's decision, familiarity with which is assumed. See In re The Bennett Funding Group, Inc., 40 Bankr. Ct. Dec. 215, 2003 WL 174328 (Bankr.N.D.N.Y. Jan 28, 2003). The few facts pertinent hereto are as follows.

In September 1988, Resort Funding, Inc. ("RFI") agreed to extend Erie Islands Resort & Marina ("Erie") a line of credit. In October 1990, RFI and Erie entered into an amended agreement replacing the previously granted line of credit with a new line of credit. On or about December 20, 1991, RFI, Erie, and a third company entered into an agreement consolidating certain debts into a Consolidation Note (the "Consolidation Agreement"). (Def.'s Stmnt. of Mat. Facts at ¶ 1.) The Consolidation Agreement included a payment and amortization schedule setting forth Erie's payment obligations under the note. (Id. at ¶ 2.) The Consolidation Agreement also contained an acceleration clause providing that:

Should a Primary Event of Default occur and be continuing (as set forth in the Loan & Security Agreement dated September 30, 1998) or should an Event of Default occur (as set forth in the Master Lease Agreement dated September 8, 1989 or the Lease Agreements dated originally May 4, 1990) then the Lender, by notice to Borrow, may declare all payments due hereunder to be due and payable and same shall thereupon immediately become due and payable.
(Knab Aff., Ex. D.)*fn1

The defendants failed to make the March 20, 1996 monthly installment payment. (Def.'s Stmnt. of Mat. Facts at ¶ 5.) On April 12, 1996, defendants were provided with written notice of default based on their failure to make the March 1996 payment. (Id. at ¶¶ 4, 5.) The demand also invoked the Consolidation Agreement's acceleration clause.

The instant action was commenced on April 11, 2002 in Bankruptcy Court seeking to recover the payments due under the Consolidation Agreement. This was more than six (6) years after the monthly default, but less than six (6) years after the acceleration demand.

III. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, a district court applies de novo review to conclusions of law. In re Manville Forest Products Corp., 209 F.3d 125, 128 (2d Cir. 2000); In re Petition of Bd. of Directors of Hopewell Intern. Insurance Ltd., 275 B.R. 699, 703 (Bankr.S.D.N.Y. 2002); F.R.Bankr.P. 8013.*fn2

IV. DISCUSSION

The sole issue presented pertains to the accrual of a cause of action for breach of an installment contract where the lender has exercised its right under an optional acceleration clause.*fn3 Defendants contend that pursuant to New York Civil Practice Law and Rules ("CPLR") § 206 and a statement in 18 S. Williston, Contracts § 2027 (3d ed. 1978),*fn4 the statute of limitations runs from the date of the default upon which the election to accelerate is based (that is, the date when the first installment payment was missed, i.e. March 20, 1996); not from the date of the election to invoke the acceleration clause, i.e. April 12, 1996. Plaintiff counters that this matter is governed by CPLR ยง 213, and under the ...


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