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HSH Nordbank AG New York Branch v. Swerdlow

March 24, 2010

HSH NORDBANK AG NEW YORK BRANCH, AS ADMINISTRATIVE AGENT FOR ITSELF AND CERTAIN LENDERS, PLAINTIFF,
v.
MICHAEL SWERDLOW, BRIAN STREET, AND JAMES COHEN, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

Plaintiff HSH Nordbank AG New York Branch ("HSH") has brought this action to enforce the obligations of defendants Brian Street ("Street"), James Cohen ("Cohen"), and Michael Swerdlow ("Swerdlow") (collectively, the "defendants") under a Payment Guaranty and a Principal Guaranty (the "Guaranties") executed in connection with a $192 million loan. On November 23, 2009, summary judgment was granted to HSH as to the defendants' liability under both Guaranties. HSH Nordbank Ag New York Branch v. Swerdlow, No. 08 Civ. 6131 (DLC), --F.Supp.2d --, 2009 WL 4042838 (S.D.N.Y. Nov. 23, 2009) (the "November 23 Opinion").*fn1 HSH was directed to submit an affidavit setting forth the amounts owed by defendants under the Guaranties, as well as attorneys' fees, costs, and interest. Defendants were permitted to file an opposition along with appropriate evidentiary support. For the following reasons, HSH shall be awarded the damages, attorneys' fees, costs, and interest that it seeks.

BACKGROUND

The relevant factual background is provided in the November 23 Opinion. In December 2005, HSH and other lenders (the "Bank Group") extended a $192 million loan (the "Loan") to Holly Hill I Associates, Ltd. (the "Borrower"), a real-estate investment entity that was then controlled by the defendants, pursuant to a Loan Agreement. The Loan was used to fund a condominium development in Florida (the "Development Project"). Under the Loan Agreement, interest payments on the outstanding principal balance on the Loan are due on a monthly basis. Unpaid interest accrues at the applicable interest rate or, upon the occurrence of an Event of Default, at the "Default Rate."*fn2 If the Loan is accelerated, the Loan Agreement provides that interest shall continue to accrue at the Default Rate.

Contemporaneous with the Loan Agreement, the defendants executed a Payment Guaranty. Pursuant to § 1 of the Payment Guaranty, the defendants "unconditionally, jointly and severally" guaranteed, inter alia, "full payment when due of all Operating Expenses"*fn3 and "full payment when due of all interest on the Loan." In July 2006, the defendants executed the Principal Guaranty. Pursuant to § 1 of the Principal Guaranty, the defendants "jointly and severally, irrevocably and unconditionally" guaranteed the payment when due of the outstanding principal on the Loan up to $40 million. Both Guaranties also obligate the defendants to pay "any and all expenses (including reasonable counsel fees and expenses) incurred by Administrative Agent [HSH] in enforcing any rights under [the Guaranties]."

After the occurrence of several Events of Default, HSH accelerated the Loan on April 3, 2008. At the time of acceleration, the outstanding principal balance on the Loan was $132,340,527.56. HSH notified the defendants by letter dated April 4, 2008, that the Borrower had defaulted and that the Loan had been accelerated. HSH demanded that the defendants make immediate payment of all accrued interest and $40 million of the outstanding principal balance on the Loan pursuant to the Guaranties. Defendants did not respond. By letter dated May 16, 2008, HSH notified the defendants that they were in breach of their obligations under the Guaranties. To date, the defendants have made no payments under the Guaranties.

On July 3, 2008, HSH filed this action to enforce the Guaranties. The matter was initially assigned to the Honorable Gerard E. Lynch. The defendants filed their answers on August 29, raising a number of affirmative defenses, even though the Guaranties provided that such defenses were waived. See HSH Nordbank, 2009 WL 4042838, at *7. In October 2008, the defendants served broad document demands that sought production of all material concerning the Loan and the Guaranties dating back to January 2005 --- nearly a year before the Loan was even issued. Although HSH initially complied with the defendants' document demands, in November 2008, HSH amended its initial response and objected to the production of any material that pre-dated January 1, 2007. Defendants refused to impose such a time limit on HSH's document production obligations and insisted that HSH produce all documents concerning the negotiation of the Guaranties and all communications with Cerberus Capital Management ("Cerberus") dating back to 2005.

In January 2009, a discovery dispute arose between the parties regarding HSH's obligation to produce documents on behalf of non-party lenders in the Bank Group. On February 2, the defendants moved for an order compelling HSH to produce documents on behalf of all members of the Bank Group. HSH suggested that the non-party lenders' obligations be limited to relevant documents created between the time that HSH requested their consent to fund the Loan beyond the Funding Deadline, and the date the Supplemental Intercreditor Agreement ("SICA") with Cerberus was signed. The defendants objected to this proposed limitation, and the defendants' motion was granted on February 19. Even after HSH was ordered to produce documents on behalf of the non-party lenders, HSH urged the defendants to narrow the time frame of their document requests. Defendants refused. HSH's counsel thereafter collected and reviewed more than one million pages of documents from the Bank Group in March and April 2009, of which 100,000 pages were produced. This effort was in addition to counsel's earlier collection and review of one million pages of documents from HSH.*fn4

The defendants noticed depositions or subpoenaed approximately two dozen witnesses. HSH requested that the defendants pare down their list of potential deponents. In the end, the defendants deposed eighteen witnesses, including more than a dozen non-party witnesses. HSH deposed five witnesses. In late June 2009, defendants Street and Cohen, with the consent of Swerdlow, sought an adjournment of the schedule and an extension of the page limits for the briefing on the motion for summary judgment. Defendants requested a one-week extension in part to "allow more time to review and cull the substantial universe of evidence." Defendants also requested to file two forty-page memoranda (one on behalf of Street and Cohen, and another on behalf of Swerdlow) "in recognition of the breadth of the relevant evidence and the complexity of the issues presented." Defendants noted in their application that "several hundred thousand pages of documents have been exchanged and more than twenty depositions have been taken (involving a few hundred exhibits)" and that "the various defenses alleged in the Answer are firmly supported by a wealth of documentary evidence and testimony." HSH consented to the defendants' request, which was granted on June 25.

HSH moved for summary judgment on July 21, 2009, and the motion became fully submitted on August 21. On October 1, the action was reassigned to this Court. The November 23 Opinion granted summary judgment to HSH with respect to the defendants' liability under both Guaranties. The defendants were held liable for $40 million pursuant to the Principal Guaranty. HSH was ordered to submit an affidavit and supporting evidence of the amounts owed by defendants under the Payment Guaranty, as well as attorneys' fees, expenses, and interest.

On December 4, HSH submitted the affidavit of Michael Carter, a Senior Vice President at HSH (the "Carter Affidavit"). The Carter Affidavit states that through November 30, 2009, $21,623,492.06 in unpaid accrued interest on the outstanding principal balance on the Loan is due and owing. In addition, HSH made five protective advances totaling $928,770.86 to cover necessary operating expenses of the Development Project, for which HSH contends the defendants are liable under the Payment Guaranty. HSH notified the defendants by letter each time such a protective advance was made. The Carter Affidavit indicates that as of November 30, 2009, $142,556.77 in unpaid interest is due and owing on the protective advances.

HSH contends that the defendants are liable for prejudgment interest on the $40 million owed under the Principal Guaranty starting from April 5, 2008 --- the day after HSH demanded payment under the Guaranties and the earliest possible date that HSH's cause of action for breach of the Principal Guaranty could have been ascertained. Applying the 9% per annum interest rate proscribed by New York law, see N.Y. C.P.L.R. § 5004, the Carter Affidavit calculates that through December 4, 2009, the defendants are liable for $6,006,573.09 in prejudgment interest on the $40 million owed under the Principal Guaranty. Prejudgment interest continues to accrue at a rate of $9,863.01 per day from December 5, 2009, through entry of judgment.*fn5

HSH contends that the defendants are also liable for prejudgment interest on the amounts owed under the Payment Guaranty. Applying the 9% per annum interest rate proscribed by New York law, the Carter Affidavit calculates that through December 4, 2009, the defendants are liable for $1,929,242.43 in prejudgment interest on the $21,623,492.06 in unpaid accrued interest on the outstanding principal balance on the Loan, and for $132,523.80 in prejudgment interest on the $928,770.86 in protective advances owed under the Payment Guaranty. Prejudgment interest continues to accrue at a rate of $5,339.22 per day with respect to the unpaid interest on the outstanding principal balance, and at a rate of $229.01 per day with respect to the protective advances from December 5, 2009, through entry of judgment.

Finally, HSH seeks attorneys' fees and expenses incurred in enforcing the Guaranties. The Carter Affidavit states that through November 30, 2009, HSH incurred a total of $3,131,707.73 in attorneys' fees and litigation expenses. Invoices submitted with the Carter Affidavit indicate that through November 2009, fees from HSH's counsel, Sonnenschein Nath & Rosenthal LLP ("Sonnenschein"), totaled $2,655,190.87, and through October 2009, fees from HSH's local counsel in Florida totaled $20,657.96.*fn6 HSH also submitted invoices that indicate that it incurred $455,857.90 in litigation-related expenses, comprised of $45,874.50 for court reporting and deposition transcript services; $408,071.34 for services relating to electronic data storage and ...


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