The opinion of the court was delivered by: WILLIAM PAULEY, District Judge
Citicorp Leasing, Inc. ("Citicorp") brings this diversity
action to collect the unpaid balance on loans made to defendant
United American Funding, Inc. ("UAF"). Defendants John J. Prehn
and Peter J. Wachtell personally guaranteed those loans.
Presently before this Court is Citicorp's motion for summary
judgment on its claims against Prehn and Wachtell (collectively,
"Defendants") and on Defendants' counterclaims. In the
alternative, Citicorp moves to strike Defendants' jury demand as
contractually waived. For the reasons set forth below, Citicorp's
motion for summary judgment is granted as to Defendants'
liability and its motion to strike the jury demand is granted
with respect to the determination of damages.
UAF was a Nevada corporation in the business of leasing and
financing the sale of automobiles.*fn1 (Plaintiff's
Statement Pursuant to Local Rule 56.1 ("Pl. 56.1 Stmt.") ¶ 1;
Defendants' Statement Pursuant to Local Rule 56.1 ("Defs. 56.1
Stmt.") ¶ 1.) In May 1998, UAF entered into two Loan and Security
Agreements (the "Loan Agreements") with European American Bank ("EAB") to finance the purchase of motor vehicles
that it would finance or lease to its customers. (Complaint
("Compl.") Exs. A, B; Pl. 56.1 Stmt. ¶¶ 13, 14; Defs. 56.1 Stmt.
¶¶ 13, 14.) The loans were secured by the motor vehicles and the
finance and lease agreements, as well as UAF's inventory,
property and fixtures. (Compl. Exs. A, B.) In July 2001, EAB
merged with Citibank, N.A. ("Citibank"), which assigned the Loan
Agreements to Citicorp, a Citibank subsidiary. (Pl. 56.1 Stmt. ¶¶
11, 12; Defs. 56.1 Stmt. ¶¶ 11, 12.)
Defendants, who were officers and shareholders of UAF,
personally guaranteed both loans through identical documents
dated May 18, 1998 (the "Guarantees"). (Compl. Ex. C; Pl. 56.1
Stmt. ¶¶ 17, 18; Defs. 56.1 Stmt. ¶¶ 17, 18.) At the time the
Loan Agreements and Guarantees were executed, each defendant
owned 30% of UAF but was not involved in its daily operations.
(Pl. 56.1 Stmt. ¶¶ 5, 6, 8; Defs. 56.1 Stmt. ¶¶ 5, 6, 8.) Rather,
UAF's president, Armando Tully ("Tully"), managed the
business.*fn2 (Pl. 56.1 Stmt. ¶ 3; Defs. 56.1 Stmt. ¶ 3.)
The Guarantees fix Defendants' obligations with respect to the
EAB-UAF loans "unconditionally, absolutely and irrevocably . . .
irrespective of (a) the genuineness, validity or enforceability
of . . . [the Loan Agreements], or (b) the existence, validity or
value of any security for any of the Liabilities." (Compl. Ex.
C.) Further, the Guarantees provide that Defendants' liability is
unaffected by any subsequent modification to the Loan Agreements
or EAB's actions or inaction with respect to UAF and the other
Guarantor consents that from time to time, without
notice to or further consent from Guarantor and
without releasing or affecting its liability
hereunder, . . . any security may be exchanged,
released, enforced, sold, leased or otherwise dealt
with, the provisions of any documents may be
cancelled, compromised, modified or waived, any other
guarantor may be released, and any indulgence may be
granted Debtor, as EAB may in its discretion
determine. (Compl. Ex. C.) Additionally, Defendants "waive[d]
and consent[ed] to the non-perfection, lapse or
disposition of or other dealing with any security
interests or liens at any time granted to EAB as
security for any of the Liabilities." (Compl. Ex. C.)
The Guarantees permit Citicorp to "enforce the
Liabilities without resorting first to any other
right, remedy or security." (Compl. Ex. C.) Finally,
Defendants waived their "right to interpose any
counterclaim or consolidate any other action with an
action on" the Guarantees as well as their right to a
jury trial. (Compl. Ex. C.) Both the Loan Agreements
and the Guarantees are governed by New York law.
(Compl. Exs. A-C.)
All parties agree that Tully caused UAF to be delinquent on its
loan obligations. (Pl. 56.1 Stmt. ¶ 21; Defs. 56.1 Stmt. ¶ 21.)
Specifically, as early as 2000, Tully permitted UAF to sell
vehicles "out of trust" by accepting automobile lease payments
that it failed to remit to Citicorp. (Deposition of John Prehn,
dated July 26, 2004 at 30-32, 203-09; Affidavit of Arthur
Loewenthal, dated Sept. 27, 2004 ("Loewenthal Aff.") ¶¶ 4-5.) EAB
wrote to Tully twice in April 2000 regarding these breaches and
copied Defendants on the correspondence. (Pl. 56.1 Stmt. ¶ 22;
Defs. 56.1 Stmt. ¶ 22; Affidavit of Francis McCaughey, dated
Sept. 27, 2004 ("McCaughey Aff.") Ex. H.)
Meanwhile, Tully incorporated a new automobile leasing company
named Armar Corporation ("Armar"). (Affidavit of Armando Tully,
Jr., dated Nov. 9, 2004 ("Tully Aff.") ¶ 17.) Armar also obtained
financing from Citicorp. (Tully Aff. ¶ 18.) Defendants were not
involved in Armar's corporate management, did not guarantee
Citicorp's loans and had no knowledge of Armar's transactions.
(Tully Aff. ¶¶ 17, 18.) In September 2001, Citicorp issued a note
to Armar (the "September 2001 Note") for approximately $298,000.
(McCaughey Aff. Ex. L.) A Citicorp official attests that the
September 2001 Note consolidated the outstanding balances on
certain UAF and Armar accounts. (Loewenthal Aff. ¶ 18; Reply
Affidavit of Arthur Loewenthal, dated Nov. 23, 2004 ("Loewenthal
Reply Aff.") ¶ 3; McCaughey Aff. ¶ 13.) Moreover, Citicorp officials attest that, notwithstanding the
fact that the September 2001 Note was in Armar's name, Citicorp
did not use UAF's cash flow payments to satisfy Armar's
indebtedness and "applied [them] solely and exclusively to the
UAF obligation."*fn3 (Loewenthal Reply Aff. ¶ 4; see
McCaughey Aff. ¶ 14.) Citicorp's internal memoranda corroborate
Citicorp's contention that the two accounts were managed in
tandem but the respective balances and payments kept separate.
(Loewenthal Aff. Exs. A, K.) Nonetheless, Tully asserts that
"Citicorp used the UAF cash flow for other purposes." (Tully Aff.
Due to Tully's ongoing failure to fulfill both UAF's and
Armar's loan obligations, in mid-2001 Citicorp requested that
Tully mortgage his home in Reno, Nevada. (McCaughey Aff. ¶¶ 11-12
& Ex. J: Deed of Trust; Tully Aff. ¶ 20.) Because the home was
valued at $900,000 and Tully had already mortgaged it for
$500,000, Citicorp's second mortgage totaled approximately
$400,000. (Tully Aff. ¶ 20.) In 2002, the first mortgagor
foreclosed, but Citicorp did not receive notice of the
foreclosure sale and could not protect its collateral.
(Loewenthal Reply Aff. ¶ 6; Tully Aff. ¶ 20.) Accordingly, the
first mortgagor purchased the home for the amount of its
outstanding indebtedness far less than the home's value. (Tully
Aff. ¶ 20.)
On September 26, 2002, Citicorp again wrote to Tully concerning
UAF's continued failure to remit lease payments to Citicorp and
copied Defendants. (Affidavit of Joseph Field, dated Sept. 30,
2004 ("Field Aff.") Ex. H;.) The letter warned: "[N]o further
defaults will be tolerated." (Field Aff. Ex. H.)
Nonetheless, UAF's delinquency persisted, and on December 16,
2002 Citicorp foreclosed on UAF's automobile lease portfolio.
(Field Aff. Ex. I: Letter from Susan G. Rosenthal, Esq. to Prehn
and Wachtell, dated Jan. 16, 2003.) At the time Citicorp declared
a default, UAF owed $1,270,358 under the Loan Agreements. (Field
Aff. Ex. I.) By letter dated January 16, 2003, Citicorp's counsel wrote directly to Defendants
to provide notice of UAF's default and alert them to their
potential exposure for any unpaid balance. (Field Aff. Ex. I.) On
July 25, 2003, after placing notices in automotive periodicals
and directly advising interested parties, including Defendants,
Citicorp conducted a foreclosure sale on the lease portfolio at
its offices. (Loewenthal Aff. ¶¶ 10-12; Loewenthal Reply Aff. ¶¶
8-9 & Ex. D.) Citicorp was the only participant in the
foreclosure sale and purchased the UAF portfolio for $474,524.
(Loewenthal Aff. ¶ 12; Loewenthal Reply Aff. ¶ 9.) Citicorp
claims that Defendants are liable for the $614,711 unpaid loan
balance that UAF has yet to satisfy through cash payments or
collateral. (Loewenthal Aff. ¶ 20.) Defendants refuse to pay this
In March 2003, Citicorp commenced this action claiming breach
of guaranty by Defendants. Defendants counterclaim for a
declaratory judgment that Citicorp materially modified one of the
Loan Agreements, thereby terminating the Guarantees. Defendants
also counterclaim for fraud, estoppel, breach of fiduciary duty,
breach of contract and breach of an implied covenant of good
faith and fair dealing.*fn4 Defendants demand a jury trial.
Citicorp now moves for summary judgment on its claims and on
Defendants' counterclaims or, in the alternative, to strike
Defendants' jury demand.
I. Summary Judgment Standard
Summary judgment is warranted "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show 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 Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). The burden of demonstrating the absence of any genuine
dispute as to a material fact rests with the moving party.
Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Grady
v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d Cir. 1997). In
determining whether there is a genuine ...